Kip Powick Posted May 18, 2005 Share Posted May 18, 2005 ACE Aviation Holdings Inc. is poised to play its Air Canada Aeroplan card as early as this week by converting the popular rewards program into an income trust and selling a minority stake in an initial public offering. According to people familiar with the plan, ACE's board of directors is reviewing the final terms of an IPO that will see a syndicate of investment dealers led by RBC Securities sell a minority stake of less than 20 per cent of Aeroplan for target proceeds of more than $300-million. The terms give Aeroplan, Canada's leading consumer reward program, an indicated value of at least $1.5-billion. Air Canada spokeswoman Laura Cooke said yesterday that, while ACE intends to sell off a stake in Aeroplan, she couldn't provide any details on timing and structure. The planned spinoff will end months of jostling by Bay Street firms to snare a piece of an IPO that is expected to be one of the largest of the year. ACE has been weighing financing proposals from a variety of North American investment advisers and funds, including a plan that called for a U.S. equity issue, but RBC's income trust concept prevailed because Canada's hot trust market offered the most lucrative pricing. Selling a stake in Aeroplan is part of a broader strategy by ACE chief executive officer Robert Milton to transform the holding company into an aviation conglomerate with stakes in a number of publicly traded units. The Aeroplan IPO would be the first spinoff, but ACE is also seeking to jettison its aircraft maintenance division and regional Jazz airline. Proceeds from the planned offering would give ACE increased financial muscle to acquire and build a bigger market presence in North America at a time when the airline industry is struggling with brutal fare wars and costly fuel bills. Some Bay Street players were surprised to learn through media reports this week that ACE is in confidential talks to invest at least $125-million in a planned merger between US Airways Group Inc.'s US Airways and America West Airlines Inc. Observers said ACE's senior managers will have their hands full dividing their time between marketing the Aeroplan IPO to investors and negotiating the possible investment in the new airline. By buying equity in the US Airways-America West combination, ACE is seeking to expand its presence in a number of select U.S. markets. With an equity stake in US Airways-America West, ACE could potentially expand its regional and mainline passenger traffic in the U.S. It could also win lucrative outsourcing contracts to service the new airline's planes and administer its consumer rewards program. US Airways Group, based in Arlington, Va., is the seventh-largest carrier in the United States, as measured by passenger traffic. America West Airlines, based in Tempe, Ariz., ranks eighth. Aeroplan boasts six million members and has been diversifying its rewards program to include partnerships with retailers such as Future Shop Ltd., Imperial Oil Ltd.'s Esso gasoline chain and Bell Canada's phone services. In the first three months of this year, Aeroplan posted a $21-million operating profit on revenue of $172-million. Since Air Canada pulled itself out of bankruptcy protection last September, it has emerged as one of North America's healthiest airlines. Legacy carriers, such as US Airways and Chicago-based United Airlines Inc., both partners with Air Canada in the Star Alliance of carriers, are under bankruptcy protection in the United States. Most other carriers have lost money since the terrorist attacks of 2001. Since ACE emerged from bankruptcy protection last September, its class B stock has soared from $20 a share to yesterday's close of $34 on the Toronto Stock Exchange. Aeroplan's allure ACE Aviation Holdings Inc., Air Canada's parent, plans to sell one-fifty of Aeroplan, converting the frequent-flier subsidiary into an income trust. It is also considering spinning off its maintenance division, Air Canada Technical Services, and Jazz regional airline. Number of Aeroplan business partners: >100 Current total value of ACE: $3.4 billion Value of Aeroplan portion to be sold: $300 million Potential value of Aeroplan trust: $1.5 billion Potion of Aeroplan bookings done on-line: 40% Estimated value of unredeemed miles at end of 2004: $1.6 billion Aeroplan redemptions' portion of total Air Canada traffic: 10% Number of members: 6 million (5.2 million in Canada, 800,000 abroad) Link to comment Share on other sites More sharing options...
LongTimer V Posted May 18, 2005 Share Posted May 18, 2005 So let me get this right.ACE is dumping aeroplan,something that makes money and investing it in USAir And while we are at it lets get rid of maintenance another losing venture ,and invest in USAir/America West.Yup.sounds sane to me. Same ol same ol Link to comment Share on other sites More sharing options...
Cargo Agent Posted May 18, 2005 Share Posted May 18, 2005 So let me get this right.ACE is dumping aeroplan,something that makes money and investing it in USAir And while we are at it lets get rid of maintenance another losing venture ,and invest in USAir/America West.Yup.sounds sane to me. Same ol same ol No you didn't get it right, ACE might be selling 20% of Aeroplan for $150 millions. It does not say anywhere that they are selling 100%. According to people familiar with the plan, ACE's board of directors is reviewing the final terms of an IPO that will see a syndicate of investment dealers led by RBC Securities sell a minority stake of less than 20 per cent of Aeroplan for target proceeds of more than $300-million. Link to comment Share on other sites More sharing options...
Seeker Posted May 18, 2005 Share Posted May 18, 2005 So let me get this right.ACE is dumping aeroplan,something that makes money and investing it in USAir And while we are at it lets get rid of maintenance another losing venture ,and invest in USAir/America West.Yup.sounds sane to me. Same ol same ol I think the plan is to sell 20% of Aeroplan - not to get rid of it. Same plan for ACTS. The benefit, as I see it, is that ACE gets a big pile of cash now in exchange for sharing the profit later. Link to comment Share on other sites More sharing options...
LongTimer V Posted May 18, 2005 Share Posted May 18, 2005 all i was getting at is that when you sell a portion of anything you are giving up that portion of profits forever. Link to comment Share on other sites More sharing options...
Seeker Posted May 18, 2005 Share Posted May 18, 2005 all i was getting at is that when you sell a portion of anything you are giving up that portion of profits forever. Yes, but I think you are missing out on something important. Let's say that ACE sells 20% of Aeroplan for 300 million. The new investor now has a vested interest in maximizing the profit that Aeroplan will generate and will buy the miles to use as promotions, direct business toward Aeroplan etc, etc. It wouldn't surprise me at all to see the value of Aeroplan increase by more than 20% after this. In which case the 300 million would be free money. Link to comment Share on other sites More sharing options...
LongTimer V Posted May 18, 2005 Share Posted May 18, 2005 so Seeker,,your saying that ACE investing in USAir/America West is a good idea? I don't think it is,if thats where the proceeds of the 20% sale go.,who knows. Link to comment Share on other sites More sharing options...
Seeker Posted May 18, 2005 Share Posted May 18, 2005 so Seeker,,your saying that ACE investing in USAir/America West is a good idea? I don't think it is,if thats where the proceeds of the 20% sale go.,who knows. It could be a very good investment if it's tied to a maintenance contract and if it raises ACTS's profile in the industry. Link to comment Share on other sites More sharing options...
AME Posted May 19, 2005 Share Posted May 19, 2005 This is a couple of days old but it indicates that the benefits might be a lot more than just a couple of maintenance contracts US Airways Closes In on Merger Deal Talks With America West Are Ongoing to Secure Funding By Keith L. Alexander Washington Post Staff Writer Monday, May 16, 2005; Page A02 US Airways Group Inc. and America West Holdings Corp. could announce a merger agreement as early as this week, sources familiar with the deal said yesterday. The airlines were in talks with Air Canada about investing in the deal. Air Canada, which is strong internationally, would be expected to handle the international flights, while the US Airways and America West would handle the domestic flights. http://www.washingtonpost.com/wp-dyn/conte...5051501151.html Link to comment Share on other sites More sharing options...
J.O. Posted May 19, 2005 Share Posted May 19, 2005 How many American travellers are going to like claiming their bags and clearing Canada customs every time they connect through a Canadian gateway? Unless AC can get 5th freedom rights to fly internationally from the US, I don't think the idea will fly (pun intended). Link to comment Share on other sites More sharing options...
Cargo Agent Posted May 19, 2005 Share Posted May 19, 2005 How many American travellers are going to like claiming their bags and clearing Canada customs every time they connect through a Canadian gateway? Unless AC can get 5th freedom rights to fly internationally from the US, I don't think the idea will fly (pun intended). I'm not 100% sure but I believe that the new T1 in YYZ will have "in bond" holding areas for connecting pax. Link to comment Share on other sites More sharing options...
Guest rattler Posted May 19, 2005 Share Posted May 19, 2005 Passengers from the US have been connecting through YVR for years. No reason why it could not be done in YYZ. Latest news on the deal US Air-America West close to merger - WSJ Thu May 19, 2005 7:33 AM ET NEW YORK (Reuters) - US Airways Group Inc. and America West Holdings Corp. are finalizing a merger that could be announced as early as Thursday, the Wall Street Journal reported. Merger talks had intensified after the securing of a crucial $250 million loan from aircraft maker Airbus and as the airlines neared equity and financing agreements with other players, the Journal said, citing people familiar with the matter. The board of US Airways met on Wednesday and America West's board was scheduled to meet on Thursday, with the airlines preparing to announce late Thursday a deal that would create the sixth largest U.S. airline, in terms of traffic, and ultimately bring US Airways out of bankruptcy-court protection, it said. The two airlines were expected to raise about $500 million in new equity from Air Canada, regional carrier Air Wisconsin Airlines, two hedge funds and a rights offering, the newspaper reported sources as saying. That was in addition to the $250 million loan from Airbus. Other fund raising, including potential sales and lease back of planes, was expected to raise up to $1 billion in new capital. The airlines were also discussing restructuring $1 billion in loans guaranteed by the federal Air Transportation Stabilization Board that was set up after the Sept. 11 attacks took a huge toll on airlines. Agreement details still needed to be hammered out with General Electric Co., the largest creditor of both airlines, and with ACE Aviation Holdings Inc., parent of Air Canada, the Journal said. Even if a deal is completed, industry observers warn the new carrier would face opposition from labor unions, tough industry conditions and competition from budget carriers. © Reuters 2005. All Rights Reserved. Link to comment Share on other sites More sharing options...
wizard Posted May 19, 2005 Share Posted May 19, 2005 http://www.newswire.ca/en/releases/archive...5/19/c1613.html Link to comment Share on other sites More sharing options...
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