Air Canada getting billions in COVID aid deal
Air Canada committed to maintaining its nearly 15,000 employees, adhering to collective bargaining agreements and protecting workers’ pensions. Last year, the company cut more than 20,000 jobs — half of its workforce.
Air Canada will receive a multibillion-dollar relief package from the federal government and, in exchange, the airline will restore domestic routes and refund customers whose flights were cancelled because of the COVID-19 pandemic.
Months after beleaguered airlines launched negotiations over a bailout, Air Canada and the federal government announced on Monday evening that the country’s largest airline will have access to up to $5.9 billion in low-interest loans and equity financing.
Under the terms of the deal, the government will buy $500 million worth of shares in the airline at a 15 per cent discount to their recent trading price through the Canada Enterprise Emergency Funding Corporation (CEEFC). It amounts to a roughly six per cent stake.
The airline will be required to repay $4 billion in loans from the Large Employer Emergency Financing Facility (LEEFF) program.
“This agreement sets a standard for how such interventions should be designed with the interests of Canadians and workers coming first,” Finance Minister Chrystia Freeland said during a press conference. “This is a good deal.”
The country’s airline sector has been treading water since last March. Canada’s two largest airlines, Air Canada and Westjet, have laid off thousands of staff and cancelled several flight routes. Porter, Sunwing and Air Transat laid off most employees and suspended service.
Air Canada and rival Westjet had pleaded for help for months as demand plummeted. Ottawa resisted, demanding the airlines restore some of the regional routes they had cut and promise to refund passengers who could not take flights they had booked.
Under terms of the deal, Air
Canada can borrow $1.5 billion in the form of a secured revolving credit facility at a 1.5 per cent premium to the Canadian Dollar Offered Rate and a further $2.475 billion in the form of three unsecured non-revolving credit facilities of $825 million each.
Michael Rousseau, the airline’s president and chief executive officer, said the liquidity “provides a significant layer of insurance for Air Canada.”
The package includes a number of conditions that were points of contention in negotiating the loan.
Air Canada must refund people who had their flights cancelled last year because of the COVID-19 pandemic. The government is providing $1.4 billion in a repayable loan to help the airlines pay for the refunds.
The airline committed to restoring flights on almost all suspended regional routes.
It agreed to cap executive compensation at $1 million and forego all share buybacks and the payment of dividends to shareholders.
Air Canada also said it would proceed with planned purchases of 33 Airbus SE 220 airliners and 40 Boeing Co 737 MAX airliners.
Air Canada committed to maintaining its nearly 15,000 employees, adhering to collective bargaining agreements and protecting workers’ pensions. Last year, the company cut more than 20,000 jobs — half of its workforce.
Unifor national president Jerry Dias said that government and airline struck a strong deal that that protects customers, jobs and regional routes.
“It’s a win-win situation all the way around,” Dias said in a phone interview on Monday evening. “It checks a lot of the boxes, and the taxpayers aren’t on the books because it’s all loans.”
Freeland said that the government is currently negotiating relief packages for other airlines.
“We’re having good discussions with Westjet,” she said. “The basic general requirements of the Government of Canada will be the same — the importance of refunds, of the restoration of regional routes, of maintaining employment, and of restrictions on executive compensation. But the precise shape of the agreement will depend on the needs of each airline.”
The deal makes Canada one of the last Group of Seven countries to reach a deal to help its airline industry during the pandemic, and Air Canada is the only airline to receive financial support to date.
The U.S. provided more than US$50 billion in grants, loans and other programs to its airlines and France offered US$12 billion solely to Air France-klm.
“We wanted a good deal, not just any deal, and sometimes getting a good deal can take a little time,” Freeland said.
In an emailed statement, Westjet said it would provide updates on its discussions with the federal government “at the appropriate time.”