Air Canada has announced that due to its improved liquidity position and ongoing recovery from the pandemic and resulting travel restrictions, it is withdrawing from further Government of Canada financial support.
The support package, announced in April 2021, gave the carrier access to interest-bearing loans of $5.375 billion through several separate credit facilities. To date, Air Canada has only accessed the facility for the purpose of refunding customers’ non-refundable tickets, while all other remaining facilities totalling $3.975 billion have not been used.
“Air Canada’s recovery from Covid-19 continues. We are recalling employees, adding new routes and frequencies to our network, restoring services and, last quarter, we completed a $7.1 billion financing. Today, in another convincing sign of our progress, we are announcing our withdrawal from the major funding provisions of our support agreement with the Government of Canada for the $3.975 billion in facilities that were never accessed and remain unused,” said Michael Rousseau, Air Canada’s president and CEO.
“We deeply appreciate the Government of Canada’s support as this helped maintain a level playing field at a time when governments around the world, recognising the importance of air travel to their economies, were also assisting their national carriers in the face of the unprecedented downturn caused by Covid-19,” he added.
“In addition to helping preserve thousands of jobs and travel choice for Canadians, the assistance offered to Air Canada importantly served as an extra level of insurance that enabled us to raise additional liquidity on our own to manage the pandemic and give us sufficient resources to effectively compete in the post-pandemic marketplace.”
In Q3 2021, Air Canada completed a series of financing transactions that generated gross proceeds of around $7.1 billion. These financing transactions provided substantial liquidity to Air Canada and extended debt maturities out until near the end of the decade. With the release of its third quarter results on 2nd November, 2021, Air Canada reported that as of 30th September, 2021, its unrestricted liquidity was approximately $14.4 billion, consisting of roughly $9.5 billion in cash and cash equivalents, short-term and long-term investments, and about $4.9 billion in available undrawn credit facilities, including the $3.975 billion in unused government facilities being cancelled.
The support package
Air Canada’s support agreement with the government, under the Large Employer Emergency Financing Facility, provided access to up to $5.375 billion in interest bearing loans and $500 million in equity for a total of $5.875 billion in liquidity. It consisted of several elements, including:
• A $1.5 billion secured revolving facility and three separate $825 million unsecured revolving credit facilities. None of the $3.975 billion available under these facilities was ever drawn and, under the terms of its agreement with the government, Air Canada was entitled to terminate them at any time without penalty – and it has now done so.
• A $1.4 billion unsecured facility solely dedicated to refunding customers’ non-refundable tickets. Approximately 58% of eligible customers requested refunds, including those not covered by the government facility, with the balance voluntarily retaining future flight credits with the carrier. To date, Air Canada has accessed about $1.2 billion of the facility, with the money going directly to customers. The money used for refunding the non-refundable tickets will be repaid as per the terms of the agreement, with interest paid quarterly by Air Canada.
• The government purchased $500 million worth of Air Canada common shares at $23.18 per share, representing about 6% of the current public float, which it continues to hold.
• Air Canada also issued to the government about 14.6 million 10-year warrants for the purchase of an equal number of Air Canada shares, at a price of approximately $27.27 per share. With the termination of the operating credit facilities, half of these warrants, which have not yet vested with the government, have been cancelled immediately. Subject to TSX approval, Air Canada intends to call the balance of the vested warrants for cancellation as per their terms at fair market value.
