November 21, 2021 By Christopher Reynolds, The Canadian Press
MONTREAL — Air Canada is withdrawing from further federal relief after borrowing more than $1 billion to pay back customers whose flights were cancelled during the COVID-19 pandemic, the company said Friday.
Though Ottawa retains an equity stake in the airline, Air Canada’s exit from the multibillion-dollar rescue deal marks “another convincing sign of our progress” and liquidity, CEO Michael Rousseau said in a release.
“Air Canada’s recovery from COVID-19 continues. We are recalling employees, adding new routes and frequencies to our network, and restoring services,” said Rousseau, noting Air Canada secured $7.1 billion in financing last quarter.
The airline reached a $5.9-billion deal with Ottawa in April for an aid package that made loans available to the carrier, but also required pledges to cap executive compensation at $1 million and restore service to regional airports.
The Montreal-based company said it borrowed about $1.2 billion out of the $1.4 billion available — at a 1.2 per cent annual interest rate — under the government credit facility dedicated to passenger reimbursement, “with the money going directly to customers.” Other loans available under the agreement were not used.
About 58 per cent of eligible customers requested refunds, including some who were not covered by the federal loan. The rest opted for flight credits, Air Canada said.
The money used for refunding the tickets will be repaid under terms of the agreement, it added.
“They want to be independent and free,” said Jacques Roy, a professor of transport management at HEC Montreal business school.
“They probably feel that the demand is coming back, that an increasing number of passengers want to travel, they have the numbers, they have the reservations.”
The relief package also saw the federal government buy $500 million worth of Air Canada shares for a six per cent stake in Canada’s biggest airline that Ottawa continues to hold.
Travel restrictions introduced at the beginning of the pandemic were catastrophic for the airline sector which has started to see better financial results over the summer despite ongoing losses.
Travel company Transat AT Inc. also reached a deal with Ottawa in April to borrow up to $700 million, nearly half of which would go toward refunding customers.
By the end of August, Transat had received claims for about 80 per cent of the $504 million in travel vouchers it had issued, and processed 90 per cent of that portion, the airline said in an email. That means roughly $400 million has been refunded to customers.
In contrast, WestJet Airlines Ltd. began offering refunds to would-be travellers as early as June 2020, choosing not to enter into an agreement with the federal government.
Air Canada’s passenger numbers fell 73 per cent in 2020 following several years of record growth. It cut staff by about 22,000 in the first of the year pandemic before recalling some 10,000 in the first nine months of 2021 — more than half of those in its latest quarter as more flights resumed.
The airline posted a staggering $4.65-billion loss in 2020, a result that capped off what the carrier’s then-CEO called the bleakest year in aviation history.
It has lost another $3.11 billion so far this year, though net cash flow of $153 million in the third quarter marked the first time Air Canada enjoyed positive cash flow since the onset of the pandemic.
On top of the bailout, Air Canada collected $969 million as of Sept. 30 from the Canada Emergency Wage Subsidy, which wound down last month.
Under the terms of the agreement, Ottawa could also buy nearly 15 million shares at roughly $27 per share over 10 years, if the carrier chose to trigger that option.
Now half of those warrants, which have not yet vested, have been cancelled and Air Canada plans to call the vested warrants for cancellation at fair market value, the company said.
Air Canada, whose stock plunged from record highs that breached $52 in January 2020 to lows below $13 two months later, saw its share price hovering under $24 on Friday — still two-thirds higher than five years earlier.