The government of Canada on Monday agreed to a bailout package for Air Canada (TSX: AC), the nation’s largest airline, that includes a combination of low-interest loans and equity. The move comes one year after the U.S. came to the aid of domestic airlines facing a catastrophic loss of business because of the coronavirus pandemic and months of pleading from industry and labor for help to preserve the aviation sector.
The government will take a CA$500 million ($386.2 million) stake in Air Canada through a stock purchase and make a revolving line of credit available, Air Canada announced. The arrangement will allow Air Canada to access up to CA$5.9 billion in liquidity. Deputy Prime Minister Chrystia Freeland and Minister of Transport Omar Alghabra announced that there would be no additional layoffs permitted as part of the deal.
“Air Canada entered the pandemic more than a year ago with one of the global airline industry’s strongest balance sheets relative to its size. We have since raised an additional $6.8 billion in liquidity from our own resources to sustain us through the pandemic, as air traffic ground to a virtual halt in Canada and internationally,” CEO Michael Rousseau said in a statement.
The new loan facility “provides a significant layer of insurance for Air Canada, it enables us to better resolve customer refunds of non-refundable tickets, maintain our workforce and re-enter regional markets. Most importantly, this program provides additional liquidity, if required, to rebuild our business to the benefit of all stakeholders and to remain a significant contributor to the Canadian economy through its recovery and for the long term,” he explained.
Air Canada lost CA$2 billion last year, with an operating loss of CA$3.8 billion.
Canada is struggling with a third wave of COVID infections involving new strains and could soon surpass the U.S. daily infection rate. This month, the U.S. Centers for Disease Control and Prevention recommended that Americans avoid travel to Canada.
In January, Air Canada and other airlines further reduced passenger operations and furloughed workers when the federal and provincial governments implemented restrictive quarantine measures.
The government’s $1.5 billion revolving credit facility is secured by Air Canada’s loyalty program. Another $2.5 billion line of credit is unsecured.
As part of the financial package, Air Canada issued 14.5 million warrants, exercisable for the purchase of an equal number of Air Canada shares.
As a condition of the aid, Air Canada has agreed to refund customers who had flights canceled last year because of the COVID outbreak. It also will resume service to nearly all regional communities where service was suspended because of COVID, including through interline agreements with third-party carriers. It is also restricted from issuing dividends, buying back shares and raising senior executive compensation. And it will follow through on its commitment to purchase 33 Airbus A220 aircraft manufactured in Quebec and complete its existing order of 40 Boeing 737 MAX aircraft.
Pilots and other labor groups had loudly complained that the Canadian government was ignoring the aviation sector when other countries were propping up carriers during the worst financial crisis in aviation history.
Despite restrictions on air travel, Air Canada has been very busy operating passenger aircraft as auxiliary freighters.