Air Canada’s Financing Deal Now Worth Over $1 Billion

Over the past week, Air Canada has been working to raise funds to finance its operations and stay afloat during these challenging times. Recently, the airline increased the size of its financing deal up to C$1.4 billion – or US$1.02 billion.

Air Canada
Air Canada is resuming a limited schedule to the United States as of this week. Photo: Air Canada

Air Canada issued the following statement as part of a recent press release:

“The Company will use the net proceeds from the Offerings to supplement the Company’s working capital and other general corporate purposes. The net proceeds from the Offerings will serve to increase Air Canada’s cash position, thereby allowing for additional flexibility both from an operational standpoint and in the implementation of its planned mitigation and recovery measures in response to the COVID-19 pandemic.”

Where is this money coming from?

In short, the money is coming from anyone willing and eligible to invest in the airline, essentially issuing debt and/or a stake in the company.

To secure additional funds, Air Canada is issuing 30.8 million shares at C$16.25 (US$11.80) to raise C$500.5 million (US$363 million). On top of this, the airline is issuing senior convertible notes to raise US$650 million. These notes will mature on July 1st, 2025, with an annual interest rate of 4%. They can also be converted into Air Canada shares at a price equivalent to US$15.35 per share.

CTV News reports that the carrier has lost more than C$1 billion (US$700 million) in the last quarter. With the downturn in air travel and passenger demand, the airline has had to ground the majority of its fleet. At the same time, the airline has had to deal with fixed costs such as aircraft leases, insurance, maintenance, and more.

Air Canada
Air Canada was also hit in 2019 by the 737 MAX crisis. While its new jets sit parked in the desert, the airline must still ensure proper maintenance while paying for parking facilities. Photo: Getty Images

20,000 jobs to be cut

The news of financing comes just two weeks after a company memo revealed that the airline has plans to cut roughly 20,000 jobs from its workforce. With a total employee count surpassing 38,000, this represents over half of the airline.

B787-8 Tail, Air Canada
Air Canada may continue with its plan to cut 20,000 jobs from its workforce in the next week. Photo: Air Canada

Initially, many were hoping that a workforce-reduction of this magnitude could be avoided with support from the Canadian government. However, despite nearly two full weeks passing, there has not been any news on the matter. Canadian Prime Minister, Justin Trudeau, remained vague on the topic when first asked about the news:

“I think we all know that this pandemic has hit extremely hard on travel industries and on the airlines particularly…That’s why we’re going to keep working with airlines, including Air Canada, to see how we can help even more than we have with the wage subsidy.” -Justin Trudeau, Prime Minister of Canada

Conclusion

With a three-year-recovery process anticipated for the airline, Air Canada is trying to secure its financial position as it goes through what CEO Calin Rovinescu calls “the darkest period ever in commercial aviation.”

Hopefully, the airline can secure the financing that it needs to sustain itself over the next few months. Ultimately, the goal is to avoid the same fate as Avianca and LATAM, airlines that have both filed for Chapter 11 Bankruptcy protection in the United States.

If you could invest in Air Canada and buy up shares, would you do it? Let us know in the comments.

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