AC Value soars to 2.2B

[Kip Powick]

BRENT JANG

Globe and Mail Update

The order book for new Air Canada shares has been oversubscribed as an international road show to promote the initial public offering wraps up this week, placing the airline's total value at almost $2.2-billion.

The underwriters led by RBC Dominion Securities Inc. expect to price Air Canada stock at the upper end of a range between $19 and $22 a share, said industry sources familiar with the situation.

“The order book is building nicely,” said a fund manager who attended a recent Air Canada presentation at the King Edward Hotel in Toronto. Other stops on the tour have included Montreal, Vancouver, New York, Chicago and an overseas stop in London.

Last year's IPO for loyalty program Aeroplan Income Fund attracted huge demand from retail investors, but institutional buyers are expected to dominate the Air Canada offering.

“Subsequent to the offering, 100 million shares will be outstanding,” said a marketing document handed out to budding investors.

There will be an “overallotment option to purchase an additional 15 per cent of the [secondary] offering” from Air Canada's parent, Montreal-based ACE Aviation Holdings Inc., which is the selling shareholder of the secondary issue.

Air Canada shares are to be priced on Thursday, sources said. And there will be two tranches of stock offerings totalling “approximately $400-million, consisting of $200-million to be sold from treasury and $200-million to be sold by the selling shareholder,” the document said.

That means that the IPO would be valued at $200-million. The secondary offering could be worth up to $230-million, assuming the over-allotment option is exercised, resulting in $430-million in projected stock sales, or 19.5 per cent of the total targeted market capitalization of $2.2-billion.

Air Canada president Montie Brewer led the Toronto presentation, with help from chief commercial officer Sean Menke and chief financial officer Joshua Koshy.

About 40 institutional investors and investment bankers received model Air Canada airplanes as souvenirs after listening for an hour to the airline's top executives. “They are generating a surprising amount of interest on the institutional side,” the fund manager said in an interview.

Citigroup Global Markets Canada Inc. and TD Securities Inc. are helping RBC manage the sale, with assists from BMO Nesbitt Burns Inc., CIBC World Markets Inc. and five other investment dealers.

Air Canada spokesman Peter Fitzpatrick declined to comment.

The road show received an unexpected boost last week after it was disclosed that Calgary billionaire Murray Edwards had become a major investor in WestJet Airlines Ltd.

Some analysts see Mr. Edwards' WestJet investment as a vote of confidence in Canada's airline industry in general.

Industry insiders said many institutional investors are impressed with Montreal-based Air Canada's growth prospects, including plans to boost seat capacity to China next year and the delivery of new Boeing aircraft.

Shares in the country's largest airline are slated to start trading on a “when-issued” basis on the Toronto Stock Exchange as early as Friday, nearly 26 months after the carrier emerged from bankruptcy protection. If all goes smoothly, the closing date of the offerings could be late next week, with Air Canada's official return to the Toronto Stock Exchange expected soon after closing.

The share sales will be conducted through a “public offering in Canada by way of a long-form prospectus and on a private placement basis in the U.S. and elsewhere,” the marketing document said.

ACE has posted a $457-million profit in the first nine months of this year, despite stubbornly high oil prices.

Benchmark oil prices in the third quarter averaged $70.58 (U.S.) a barrel, up 12 per cent from $63.17 in the same period last year. However, oil prices have softened since peaking at $78.40 only four months ago.

ACE has hedged some of its fuel contracts, but still stands to benefit next year if spot energy markets continue to sag.

A 262-page preliminary prospectus shows that ACE chairman Robert Milton will also be chairman of Air Canada's 11-member board of directors. Other Air Canada directors will include former Quebec premier Pierre Marc Johnson and Arthur Porter, CEO of the McGill University Health Centre in Montreal.

Analysts say Air Canada and Calgary-based WestJet are both positioned to thrive after Halifax-based CanJet Airlines halted its scheduled service in September to focus on charters.

[Guest bigbirg]

Does the 457 million profit include AC pension obligations and the pilots Top Hat

pension?

Thanks

[handyman]

The prediction!

The stock will do the standard dance with this kind of IPO. A sudden increase to about $26-28 then a fairly slow retreat down to $10-12. In time, with continued profit, the stock will then recover after 8-12 months.

If you can be one of the first to buy...sell within a couple of days, otherwise wait a month or two before you buy IMO.

[CanadaEH]

In time, with continued profit, the stock will then recover after 8-12 months.

It'll be a great investment, especially going into 2009.

[handyman]

It'll be a great investment, especially going into 2009.

3 years is certainly longer than 8-12 months on my calendar.

You are probably correct however and I wouldn't want to hold the stock with the labour unrest 2009 will bring but that doesn't mean there isn't money to be made prior to that.

[Dropzone]

I just love all the IPO hype (read krap). It wasn't so long ago the company claimed (at the pilots' wage arbitration) they were only one breath away from bankruptcy again if the pilots got more than previous arbitrators' awards. So which is it ??

[dagger]

I just love all the IPO hype (read krap). It wasn't so long ago the company claimed (at the pilots' wage arbitration) they were only one breath away from bankruptcy again if the pilots got more than previous arbitrators' awards. So which is it ??

That's not what they claimed, now was it?

Nor if you look at ACE's results are they tremendous. They are good, and since AC is about to grow a lot in the next three years - think 25 more EMB-190s and 19 777s - there is room for a lot of growth, but that doesn't mean the profits are guaranteed. However, some investors do buy on potential.

[Dropzone]

That's not what they claimed, now was it?

Actually I have been told by people who were directly involved that the bankruptcy argument came up SEVERAL times in front of the arbitrator.......and apparently he agreed with the company......

[dagger]

Actually I have been told by people who were directly involved that the bankruptcy argument came up SEVERAL times in front of the arbitrator.......and apparently he agreed with the company......

Read the report. Read ACPA's demands, imagine the me-toos that would follow, and yes, one could draw up such a scenario, but that's not what the company suggestts is imminent. It does say it has to be able to finance new aircraft and attract more capital, or it is positionning itself for such a future risk. Big difference between what you claim.

[Guest prob30]

Notwithstanding the actual merits of ACPA's demands, why is it that ACPA negotiations are always hindered by the prospect of me-too's? The contract should be negotiated purely with reference to the employee group in question. Not on the childish notion that, "well if I give that to you, then everybody will want one?" In my opinion of course.

[Dropzone]

Big difference between what you claim.

Well for sure there is a dearth of truth from somewhere....but that again explains why I will NEVER trust a SINGLE word the company sends my way.... as you know I have said many times over the years that there is a SEVERE lack of trust in management....and frankly (and sadly) Milton will never be able to change that. If he wants to cash in his PLATINUM parachute....before 2009 (the labour turmoil year) would probably be good advice.

[dagger]

Notwithstanding the actual merits of ACPA's demands, why is it that ACPA negotiations are always hindered by the prospect of me-too's? The contract should be negotiated purely with reference to the employee group in question. Not on the childish notion that, "well if I give that to you, then everybody will want one?" In my opinion of course.

Childish maybe, but you go tell CUPE, the CAW and the IAMAW that. They don't believe it is childish for one minute. If the concept of me-too didn't apply, the IAMAW also would have to negotiate different percentage increases for the machinists than for the ramp. They choose to practice me-too internally because they don't want to deal with the division it would cause - which is one reason the machinists have tried to form their own union.

And arbitrators and mediators do pay attention to the principle of me-too, partly because you will never get the same mediator for all groups, so you can never make group-specific arguments. The mediator for CUPE negotiations wouldn't much care if you tried to say the pilots had merited different consideration.

[dagger]

Well for sure there is a dearth of truth from somewhere....but that again explains why I will NEVER trust a SINGLE word the company sends my way.... as you know I have said many times over the years that there is a SEVERE lack of trust in management....and frankly (and sadly) Milton will never be able to change that. If he wants to cash in his PLATINUM parachute....before 2009 (the labour turmoil year) would probably be good advice.

And you trust every single word you get from ACPA? That's like believing every word you read in Pravda back in Soviet times.

[Guest prob30]

In your reality then, does not the logical conclusion follow that there should only be one union for all employees? Therefore one contract? Hey how about we complete the socialist trifecta and just say everyone gets the same pay, no matter what their job.

If the pilots don't merit different consideration on the way up (ie. now), why is it that they merited it on the way down...when the pain was being distributed around?

[dagger]

In your reality then, does not the logical conclusion follow that there should only be one union for all employees? Therefore one contract? Hey how about we complete the socialist trifecta and just say everyone gets the same pay, no matter what their job.

If the pilots don't merit different consideration on the way up (ie. now), why is it that they merited it on the way down...when the pain was being distributed around?

Maybe because of all the ways you had added revenue beyond the basic scales. You extended the scales much more than any other union group, added premiums, differentials, soft time, etc. And maybe you didn't want to lose your top hat pension or didn't want to fly for Saudia or Nigerian Airways.

As for what I want in my reality, one union or 12, I don't care.

[Dropzone]

And you trust every single word you get from ACPA?

Actually I don't....

[Specs]

If the pilots don't merit different consideration on the way up (ie. now), why is it that they merited it on the way down...when the pain was being distributed around?

"....Pilot's don't merit different consideration on the way up ...."

Ah but they did. Every single year I've been there.

"...why is it that they merited it (different consideration) on the way down..."

During CCAA, each union was targeted for equal amounts on a per capita basis and give or take a few mill here or there, they pretty much met the targets. How that washed out in the end may have differed between unions, eg - layoffs, 2 tier scales, conditions, hrs of work, pay cuts, etc - but the per capita dollar cut was the same and the unions MECs would be screaming bloody blue murder (with the proof) if they weren't.

[ninoc]

everyone gave up more than they could stand. ACPA acts like they're the only ones who feel the pain. At Jazz there are still flight attendants on lay-off in Vancouver and almost all the groups took rollbacks, cuts to wages and pensions and the B scale for new hires. I think we are all sick of hearing the whining from ACPA

[handyman]

everyone gave up more than they could stand. ACPA acts like they're the only ones who feel the pain. At Jazz there are still flight attendants on lay-off in Vancouver and almost all the groups took rollbacks, cuts to wages and pensions and the B scale for new hires. I think we are all sick of hearing the whining from ACPA

That might be so and I agree lay-off’s are hard for everyone alike but what you invest into a career should and usually does determine your rewards.

I saw an ad today for Jazz flight-attendants. No experience required other than bi-lingual. I can see many 19-20 year olds applying, conduct the training and be on-line in a matter of months. They work for 8-10 years and through no fault of their own they get a lay-off notice. Difficult financially but really what have they lost...little other than time.

Take a pilot, he begs, borrows or steals to get the money to pay for flight training to get a PPL just to qualify for an Aviation College. A few years later and in debt he lands a job which pays less than minimum wage if he was paid an hourly wage. He is flying aircraft poorly maintained in a harsh northerly climate living on Kraft dinner. He does this for several years to build single turbine or multi-piston time so he can achieve his first goal of flying a turbine twin, maybe a BE1900 for a third tier.

He is now the newbie in the right seat of a BE1900 or similar. 4 years after his first flight if he is lucky to have this job and living below the poverty line but he is happy and grateful for landing a job which will take him to the next level. AC and WJ is so far away at this point he can only dream about flying those large aircraft as he taxi's by them on the ramp.

It can take over 10 years of living like I described prior to an opportunity to be hired by AC or WJ. The alternative is the Military which may force you to fly helicopters as over 60% of the cockpits are rotary wing. Training/commitment will take you to the 10 year point so either way you slice it you have 10 years invested just to be a newbie at AC or WJ. It would not surprise me if stats showed it to be closer to 15 years.

My point here is ACPA has a right to feel they lost more than others. They as individuals invested more yet are expected to lose at the same rate as others. The only other group of individuals who are similarly invested are those smelly, grimy grease monkeys that leave grease all over the keyboard letters.

I feel in time people like yourself and others like Dagger will realise that Pilots and those Engineers that keep the machines running are the backbone of the operation and without those two groups working well under reasonable conditions...nothing else matters.

[dagger]

That might be so and I agree lay-off’s are hard for everyone alike but what you invest into a career should and usually does determine your rewards.

I saw an ad today for Jazz flight-attendants.  No experience required other than bi-lingual.  I can see many 19-20 year olds applying, conduct the training and be on-line in a matter of months.  They work for 8-10 years and through no fault of their own they get a lay-off notice.  Difficult financially but really what have they lost...little other than time.

Take a pilot, he begs, borrows or steals to get the money to pay for flight training to get a PPL just to qualify for an Aviation College.  A few years later and in debt he lands a job which pays less than minimum wage if he was paid an hourly wage.  He is flying aircraft poorly maintained in a harsh northerly climate living on Kraft dinner.  He does this for several years to build single turbine or multi-piston time so he can achieve his first goal of flying a turbine twin, maybe a BE1900 for a third tier.

He is now the newbie in the right seat of a BE1900 or similar.  4 years after his first flight if he is lucky to have this job and living below the poverty line but he is happy and grateful for landing a job which will take him to the next level.  AC and WJ is so far away at this point he can only dream about flying those large aircraft as he taxi's by them on the ramp.

It can take over 10 years of living like I described prior to an opportunity to be hired by AC or WJ.  The alternative is the Military which may force you to fly helicopters as over 60% of the cockpits are rotary wing.  Training/commitment will take you to the 10 year point so either way you slice it you have 10 years invested just to be a newbie at AC or WJ.  It would not surprise me if stats showed it to be closer to 15 years.

My point here is ACPA has a right to feel they lost more than others.  They as individuals invested more yet are expected to lose at the same rate as others.  The only other group of individuals who are similarly invested are those smelly, grimy grease monkeys that leave grease all over the keyboard letters.

I feel in time people like yourself and others like Dagger will realise that Pilots and those Engineers that keep the machines running are the backbone of the operation and without those two groups working well under reasonable conditions...nothing else matters.

Oh boo hoo.

First of all, bilingualism is a skills too few pilots possess. But I digress. Not everyone who has last a job in AC because of restructuring was a junior. Layoffs at location have bumped out people with a much larger investment of time, and frankly, for a person with a BA who reaches age 40 and loses his/her job, what are her chances of getting something as good? You can go fly for Emirates, but they won't get an FA job at Emirates or BA, or a passenger agent job. How many ex-AC people does WS hire, partly because they don't want people schooled in the AC union school of entitlement.

Secondly, their pay will never, ever reach the levels that yours do with or without the rollback, and with none of the glamor of piloting an aircraft or pride of profession you have.

As for begging, borrowing or stealing to get into the profession, tough. It's a choice. Some people work summers and save up their funds to meet their career goals. Some people take out student loans they will need 20 years to pay off to become an engineer and with rare exception, never make the kind of money you will as your career progresses.

My point here is ACPA has a right to feel they lost more than others.

And my point is that your wages reached OVERMARKET levels and were unsustainable in light of the changes in the competitive landscape.

Your pay reached the levels it did because certain US legacy carriers got massive settlements, and because you used your monopoly position to help make AC the generally unprofitable carrier it was in the 1990s. There is great love for Hollis Harris in some quarters, but tell me, how much profit did AC make with him as president, or better yet, how much profit did the unions leave on the table.

The unions can certainly share the blame for why AC had too large a cost structure to cope with the rise of non-union carriers. When it came to avoiding CCAA, the unions did as little as possible.

By the way look at all of your US peers, where is their pay today? And more importantly, WHERE IS THEIR PENSION TODAY?

You were so determined in the 1990s through the 2000 negotiations to compare yourself to the US legacy pilot deals. I have challenged you many times to take their situation now, but of course, you are so busy being hard done by because you accepted HALF the concessions they had to swallow.

The fact is, CCAA and Chapter 11 were corrections for companies that could not afford to keep paying the rates of pay and benefits they were paying, when competitors had lower costs. It wasn't because shareholders were making a killing. I can't remember a US legacy carrier paying a dividend in the 1990s.

The think the ACPA acalytes here refuse to acknowledge is that one cannot force people to pay more to travel than they are ready to pay. If your company can only make money charging $1200 when your competition is charging $900 and competition is perceived to be safe, there is no mathematical workaround, no voodoo, no Ouija board, no alchemy that will save your job for long. Everybody took a haircut in 2003.

Aircraft lessors gave up as much on their depreciating asset as AC employees gave up in pay. All rent agreements were renegotiated, all supplier agreements were renegotiated. Employees gave to save their jobs. Creditors not only took a scalping on their arrears, but also on their future margins.

By the way, you managed to insult a lot of employees with your insular comments.

You insulted the people in SOC, the meteorologists, the guys doing weight and balance, the people who run the accounting department without whom AC is not a business, the IT people who keep the (largely outdated) computer systems running, without which everything grinds to a halt. You insulted Cargo Agent, who makes sure there is good paying freight in the belly. Everyone plays a role in keeping AC airborne. A lot of people make up in hustle or in savoir faire what they lack in a pilot's licence.

Airlines exist to make money, without which they are nothing. It needs certain employees to actually operate and maintain the planes, but that's only a fleet. A fleet isn't an airline. An airline is more than just flights. And it is not just a vehicle for giving you a good standard of living. It is a business, it requires capital, and teamwork, and some brilliant strategy at different levels. It has no long-term survival prospects if you think otherwise.

The laws of the marketplace are immutable.

[dozerboy]

Engineers...taking 20 years to pay back loans? Horsesh*t and you know it! Every engineer that I know whether in the chemical or oil business makes considerably more than a pilot and most do right out of internship...so don't try to make it sound like you know everything! Pathetic.

[moeman]

How do Pilots, FA's and AME's feel their salaries and benefits compare to what others in their fields are making these days? I know we all make a lot less in take home pay than we did pre-CCAA, but can we honestly say that our wages and benefits are substandard when compared to what our peers make today?

Personally I feel that we make what the market dictates that we make in today's reality, and in some ways we are actually way above the curve like having a Defined Benefit pensions. But for us to bring our salaries back to where they were pre-CCAA, we're going to have to get our unions to fight for more productivity to counter the added costs associated with higher wages. We can't just expect the company to happily absorb the added costs just because it might be making money these days. It has a right to make a profit and within reason that profit will come off of our backs. That's what workers are there for, right? So if we can find ways to make our work rules more productive and force the company to schedule us a lot better (instead of the constant waiting around for hours between flights that FA's and Pilots do), I think we could make a case for higher wages.

I don't know how receptive the unions are to that sort of thing though, as higher productivity generally means less employees and we all know how unions feel about losing members . Unions are, after all, big businesses themselves, for the most part. But if we want to make higher wages we are going to have to change the way we do things and I think our unions are going to have to be a lot more creative in their efforts than simply walking up to the table and demanding everything back that they gave up in CCAA. Might mean less of us to do the same amount of work, but if it's done in a more productive and cost-effective manner we all win and the unions can be damned if they don't like it.

[handyman]

First of all, bilingualism is a skills

Yes it is a skill which is not exclusive to the aviation industry. It's a life skill...nothing more nothing less!

Layoffs at location have bumped out people with a much larger investment of time, and frankly, for a person with a BA who reaches age 40 and loses his/her job, what are her chances of getting something as good?

If time is your only investment then you can head to Fort McMurray like all the other labourer's. The west is full of jobs for labourer's making wages similar to what a FA makes or more.

Secondly, their pay will never, ever reach the levels that yours do with or without the rollback, and with none of the glamor of piloting an aircraft or pride of profession you have.

Why should it? Does a Nurse make as much as a Doctor? A Para-legal as a Lawyer? Education and experience in a field which requires both of those is where the money is and always will be. You can have a PHD and drive a cab but your still a taxi-driver!

And my point is that your wages reached OVERMARKET levels and were unsustainable in light of the changes in the competitive landscape.

There were airlines which that statement held true but not in Canada! Sure the golden Delta payscale was unachievable as was the salaries paid by CX in the late 80's where some with overtime were earning upwards of 1million CDN per year! No, the peanuts AC pays never has come close to "OVERMARKET" levels.

you used your monopoly position to help make AC the generally unprofitable carrier it was in the 1990s.

Salaries didn't kill the industry...poor management did! Too slow to adapt to changing markets. You think you need a multi-million dollar CEO to run AC? It vertually runs itself so any idiot could manage it unfortunately you elect to pay him too much for it!

I grow tired countering your fluff...in a few years when planes are parked you will learn how critical pilots are to make money in this industry!

[Guest rattler]

Why should it?  Does a Nurse make as much as a Doctor?  There were airlines which that statement held true but not in Canada!  Sure the golden Delta payscale was unachievable as was the salaries paid by CX in the late 80's where some with overtime were earning upwards of 1million CDN per year!  No, the peanuts AC pays never has come close to "OVERMARKET" levels.

Salaries didn't kill the industry...poor management did! Too slow to adapt to changing markets

I grow tired countering your fluff...in a few years when planes are parked you will learn how critical pilots are to make money in this industry!

Do Doctors really net as much as senior AC pilots? Just consider what they have invested in their education in terms of time and money, and then factor in the hours worked on a monthly / weekly basis. Re overmarket, I think what we are seeing today is exactly that. Bad management or just your customers wanting the cheapest deal possible (sort of like Airline Employee Discounts).

Re seeing the aircraft parked. Just hope if that does happen that the Government of the day does not just throw open Canadian Skies for whoever wants to fly them.

[Specs]

Engineers...taking 20 years to pay back loans? Horsesh*t and you know it!

In defence of Engineers-

He's not far off. Most of the guys I went to school with and a good number of the folks I work with were in that boat. Personally, mine weren't paid off until I was past my mid 30's.

As for the rest of your statement.

Every engineer that I know whether in the chemical or oil business makes considerably more than a pilot and most do right out of internship...

I know the engineering numbers in this business for the past 5 years pretty accurately and even with the worst of the pilot poverty stories you're wrong. When we (pilots and engineers) actually compare paychqs, you're absolutely wrong.

The reality is that it can take 18 months to 2 yrs to get a barely qualified structures or avionics engineer with 3 yrs experience willing to work at AC scale. Then they leave at the first outside offer for 5 grand more. We do get a few right after graduation from university but they leave just as quick. These are folks that had to qualify for admission and then studied aerospace engineering for 4-6 yrs (starving and sacrificing away from home on borrowed money I might add). When they finally get one of the few aerospace jobs in their field in this country it doesn't take them too long to start thinking that they need to find a new career path.

I don't object to crew salaries at all but I do object to extravagant pilot poverty stories blown out of proportion with unrealistic "hard done by" comparissons to others in the industry, foolish and blatantly delusional rationalizations to justify and explain them, and the "I deserve more because I sacrificed more than anybody else attitude". The ridiculousness of such statements is readily apparent to any rational observer.

"But I run the airline" Well that argument works great for a while if its a Cessna sightseeing outfit and you can borrow an E6B. If it's a CRJ or bigger outfit though, good luck to you. You could be chuck yeager but you aint goin anywhere beyond a single joyride without those engineering plebes that some of you continuously keep reminding us deserve less of a raise than you.