KKR/Sageview wanting out of ACTS

[Guest]

There is a rumour circulating that has KKR/Sageview wanting out of ACTS/AVEOS and asking ACE to re-aquire it. Does anyone have any word or knowledge of this.

[dagger]

There is a rumour circulating that has KKR/Sageview wanting out of ACTS/AVEOS and asking ACE to re-aquire it. Does anyone have any word or knowledge of this.

I'm sure every hedge fund and leveraged buyout artist wants to turn back the clock, but I don't see how they can con ACE to buy back AVEOS. Frankly, it's adios... a better question is whether AC would take it on for $1, stripped of any new debt. Somehow I doubt it. There's good real estate value in those assets, but why would AC want the headache of managing a different business. When AVEOS was AC maintenance, it sucked a lot of senior management mindspace to keep the sucker from losing more money than it did.

I would suggest that any rumor hatched when the dollar was at par is no longer valid. With the C$ worth 82 cents, any US dollar or euro denominated contracts should be making money.

[deicer]

History repeats itself.

I posted in the past that BA had gone through this exercise, and at the time I said that AC was doing it only to line pockets with fees and bonuses.

Looks like AC, like BA, will go 'back to the future'.

Iceman

[Lazionic]

Rumour here in toronto is that they have already missed a payment.

[conehead]

When AVEOS was AC maintenance, it sucked a lot of senior management mindspace to keep the sucker from losing more money than it did.

See, there's the problem... there wasn't much mind-space being sucked. There is money to be made in the MRO business. Other companies do it. I believe AMR does all their work in-house, and makes money doing work for other airlines as well. ACTS could have been a truly world-class operation, if the right people had been in charge...

[Guest]

I'm sure every hedge fund and leveraged buyout artist wants to turn back the clock, but I don't see how they can con ACE to buy back AVEOS. Frankly, it's adios... a better question is whether AC would take it on for $1, stripped of any new debt. Somehow I doubt it. There's good real estate value in those assets, but why would AC want the headache of managing a different business. When AVEOS was AC maintenance, it sucked a lot of senior management mindspace to keep the sucker from losing more money than it did.

I would suggest that any rumor hatched when the dollar was at par is no longer valid. With the C$ worth 82 cents, any US dollar or euro denominated contracts should be making money.

The reason I ask is, there was to be a meeting 3 weeks ago with the lawyers from AVEOS/KKR,AC and the IAM to finalize the split with the employees, AC to AVEOS, lay off, bumping rights etc, the AVEOS/KKR lawyers were a no show. Several days later the KKR lefal team issued a notice to the other 2 groups that there would be no more meeting until further notice. KKR was re-evaluating its investments.

This is of course when the rumour mill began.

[dagger]

See, there's the problem... there wasn't much mind-space being sucked. There is money to be made in the MRO business. Other companies do it. I believe AMR does all their work in-house, and makes money doing work for other airlines as well. ACTS could have been a truly world-class operation, if the right people had been in charge...

You know, all kinds of people have been in charge of ACTS, with no great improvement. They have been local, US imports, non-aviation business types. You cannot compare two businesses like AMR and AC and reach the conclusion that because AA (supposedly) makes money on its MRO business that ACTS should make money. AA has larger economies of scale, and it doesn't have government mandates to keep three bases going when most likely ACTS could make do nicely with one.

[Guest rozar s'macco]

The economy of scale argument is overstated. ACTS is big enough to take advantage, and I believe there is a point in size where further scaling up realizes no more (meaningful) savings.

I completely agree with deicer as to the cycle of business trends. This decade it was monetization and spin offs. The one before the present, and the one after again it will be conglomerating operations, "inhousing" so to speak. Each team must leave their stamp...

[Guest rozar s'macco]

Point on exchange rates: companies who are exposed to currency losses hedge currency exposure, no? Although I did note quite clearly on the way up AC reported several consecutive quarters of currency gains. Seems crazy to leave one's profit completely exposed to the forex market.

[dagger]

The economy of scale argument is overstated. ACTS is big enough to take advantage, and I believe there is a point in size where further scaling up realizes no more (meaningful) savings.

I completely agree with deicer as to the cycle of business trends. This decade it was monetization and spin offs. The one before the present, and the one after again it will be conglomerating operations, "inhousing" so to speak. Each team must leave their stamp...

I don't buy that with respect to ACTS.

If companies are going to bring maintenance back in-house where is the third party work? And if airlines are scrapping all those MD-80s and older 737s, there's a lot less work to be done, period.

[Guest rozar s'macco]

If you stop looking at it as a standalone business, but merely as a department in a larger company, the need for third party work vanishes. You have to scale up to handle the extra work anyway, right? Once the entity is completely spun off, presumably Air Canada will become just another customer and as such, subject to waiting on line with the others.

I can write the imaginary press release now if you'd like:

Air Canada Technical Services (Aveo) was bought today by Air Canada in what is said to be a quality and service improving move. "By bringing an MRO organization in house, we are better able to control the product quality, as well as better control access to engineering resources." said Catbert Adams, CEO. Aveo was the former maintenance arm of Air Canada, but was sold off during the liquidation of the temporary holding company ACE Aviation Holdings that was created by Robert Milton during Air Canada's high profile bankruptcy in 2003. Large chunks of the company were sold, netting investors over $2 billion in proceeds during the move, but left Air Canada with little control over entities it formerly owned- Jazz Air, Aveo, and Aeroplan. "It was viewed as a necessary move at the time, but by losing control over such a vital department as heavy maintenance, we lost control over a core aspect of our airline", said Adams. "By bringing Aveo back in house, we can shed money and time consuming third-party work and allow the department to focus on the quality of maintenance of the Air Canada fleet, which is obviously key." Blah blah blah.

[dagger]

If you stop looking at it as a standalone business, but merely as a department in a larger company, the need for third party work vanishes.  You have to scale up to handle the extra work anyway, right?  Once the entity is completely spun off, presumably Air Canada will become just another customer and as such, subject to waiting on line with the others. 

I can write the imaginary press release now if you'd like:

Air Canada Technical Services (Aveo) was bought today by Air Canada in what is said to be a quality and service improving move.  "By bringing an MRO organization in house, we are better able to control the product quality, as well as better control access to engineering resources." said Catbert Adams, CEO.  Aveo was the former maintenance arm of Air Canada, but was sold off during the liquidation of the temporary holding company ACE Aviation Holdings that was created by Robert Milton during Air Canada's high profile bankruptcy in 2003.  Large chunks of the company were sold, netting investors over $2 billion in proceeds during the move, but left Air Canada with little control over entities it formerly owned- Jazz Air, Aveo, and Aeroplan.  "It was viewed as a necessary move at the time, but by losing control over such a vital department as heavy maintenance, we lost control over a core aspect of our airline", said Adams.  "By bringing Aveo back in house, we can shed money and time consuming third-party work and allow the department to focus on the quality of maintenance of the Air Canada fleet, which is obviously key."  Blah blah blah.

Air Canada does not need three maintenance bases. It has never needed three maintenance bases. But it was always looking for third party work to justify having to maintain three maintenance bases. I've talked to AC executives - above ACTS rank - who have talked about the huge cost of keeping up the technology at three bases, and the implication of bumping if you downsize a base. I don't expect ACTS to come back to AC unless it's for free and with help from either ACE or from a government eager to save the jobs.

Moreover, even if KKR/Sageview defaults, there still is a 7% partner in Aeroman's former parent, and I don't see why AC would wish to fork out any cash whatsoever.

Here's the bottom line: At a time when there is great uncertainty about the economy and when AC would like to hoard its own cash to have a sufficient cushion, there is no reason whatsoever to spend a dime taking back Aveos. If I were AC, I'd only do it if a government (Manitoba?) agreed to do a very advantageous sale/leaseback on one of the bases to finance the operation and add to AC's liquidity.

Come to think of it, if I were Brewer I'd probably tell the feds I'd take it back if the government allows AC to close the Winnipeg base.

[deicer]

Air Canada does not need three maintenance bases. It has never needed three maintenance bases. But it was always looking for third party work to justify having to maintain three maintenance bases.

This just proves that the operation was never properly managed. If it was critical, then they should have just gone to the government and said, 'this is the way it is' and consolidated into one base.

I repeat myself, this whole excercise was about lining pockets, not running an airline.

Iceman

[dagger]

This just proves that the operation was never properly managed. If it was critical, then they should have just gone to the government and said, 'this is the way it is' and consolidated into one base.

I repeat myself, this whole excercise was about lining pockets, not running an airline.

Iceman

Oh sure, just go to the government and say, we have to shut down two of the three bases.

Don't be naive. AC didn't even try this during CCAA. It's just one bridge too far for government. You might get there after multiple crises, but it's not something to trifle with.

And you contradict yourself. If it was chronically unprofitable - under any ownership - why would KKR have bought it?

The answer is that AC, with its bureaucracy, its focus on flying planes rather than expanding an MRO business and the large amount of capital that would require, wasn't going to make ACTS into anything viable.

But it could never spend money on Aeroman and not suffer image wise. That had to be done by new owners, in this case ACE as a prelude to selling the entire operation.

But ACTS had no intrinsic value to Air Canada, which is why it ain't coming back to AC unless there is some kind of plan to either

1) compensate Air Canada - ACE cash or federal political favors

2) spin ACTS off again as soon as the market recovers - it would be worth doing that just for the real estate value

[deicer]

History repeats itself.

AC got rid of the DC8 freighters not because the operation was losing money, but because it wasn't making enough profit.

Same with MTC. The third party work was subsidising the AC work, it was just poorly managed.

AC lost ground handling contracts with BA, LH, and AF not because they weren't making money, but because the contracts realised that they were paying too much to subsidise AC work.

To quote an AC manager who told me.....

"Air Canada doesn't deserve the employees it has".

This outfit has been mismanaged for the longest time, and it too has been a victim of the latest economic crisis due to management.

Just think of what shape the company would be in if it had retained that 2 BILLION Special Payout.

[dagger]

History repeats itself.

AC got rid of the DC8 freighters not because the operation was losing money, but because it wasn't making enough profit.

Same with MTC.  The third party work was subsidising the AC work, it was just poorly managed.

AC lost ground handling contracts with BA, LH, and AF not because they weren't making money, but because the contracts realised that they were paying too much to subsidise AC work.

To quote an AC manager who told me.....

"Air Canada doesn't deserve the employees it has".

This outfit has been mismanaged for the longest time, and it too has been a victim of the latest economic crisis due to management.

Just think of what shape the company would be in if it had retained that 2 BILLION Special Payout.

You know for a fact that AC was making money with the DC-8, going against KFC's smaller and then cheaper 727-200 network?

I've never heard that one before.

You are truly the king of urban legends.

Third party was subsidizing AC work?

What planet are/were you on?

Did the Northwest DC-9 contract make money? Or the Delta 767-200 contract make money?

Oh wow, so BA, LH and AF all didn't keep contracts they were too profitable for AC? Or maybe there were other bidders who weren't hiring $60,000 IAM baggage handlers to spend half their shifts at Tim Horton's!

If ACE had floated the parts, you'd still have ACTS losing money, Aeroplan would have a paper value of $900 million - but only if you sold it - and Jazz would be flying around all of that high-cost 50-seat crap.

The marketplace never valued AC properly as a conglomerate, and that would be no different today.

All those assets did squat for AC in 2003.

Meanwhile, nothing has stopped AC from doing one of the most ambitious re-fleeting exercises in the world.

You know it too, but you want to spout your IAM nonsense.

[deicer]

Has nothing to do with IAM nonsense.

AC lost ground handling contracts because the other airlines were paying for 2 crews to handle their flights and AC would give them 1 crew and a pair of floaters, using the other manpower elsewhere.

Even when they went to other providers, they came back to AC because the ten dollar wonders still weren't good for the bottom line.

As for the freighters, can you prove otherwise? I think this link kind of proves you wrong

http://books.google.ca/books?id=UiqbULKfCp...result#PPT41,M1

I know you like to go on the anti union rants. I have never been a staunch unionist, but you fail to acknowledge that.

Modern history proves you right in that there is lots of money to be made with 'your' way of doing business over what I feel should be done.

Modern history is also proving that 'your' way of doing business isn't , sustainable, or ethical.

Will the governments of South Asia or East Asia put up with the kind of nonsense you espouse?

And what is going to happen when all that cheap labour wants a bigger slice of the pie?

[dagger]

Has nothing to do with IAM nonsense.

AC lost ground handling contracts because the other airlines were paying for 2 crews to handle their flights and AC would give them 1 crew and a pair of floaters, using the other manpower elsewhere.

Even when they went to other providers, they came back to AC because the ten dollar wonders still weren't good for the bottom line.

As for the freighters, can you prove otherwise? I think this link kind of proves you wrong

http://books.google.ca/books?id=UiqbULKfCp...result#PPT41,M1

I know you like to go on the anti union rants. I have never been a staunch unionist, but you fail to acknowledge that.

Modern history proves you right in that there is lots of money to be made with 'your' way of doing business over what I feel should be done.

Modern history is also proving that 'your' way of doing business isn't , sustainable, or ethical.

Will the governments of South Asia or East Asia put up with the kind of nonsense you espouse?

And what is going to happen when all that cheap labour wants a bigger slice of the pie?

All he talks about are savings, not profits. Don't confuse the two.

[Fido]

Oh sure, just go to the government and say, we have to shut down two of the three bases.

That didn't even work with shutting down Halifax and Winnipeg FA bases and they were not guaranteed in law.

[deicer]

All he talks about are savings, not profits. Don't confuse the two.

 

Weren't they making money with KFC at the time? Only proves that there was profit to be made in house.

Fido...

Two different matters in my opinion. Closing a base to consolidate still keeps the work in house. Yes it inconveniences those who live in those bases, but they still have a job if they chose to relocate.

The difference would be if the flight attendant function was sold off and relocated to Nicaragua where foreign flight attendants would be based.

Iceman

[dagger]

Weren't they making money with KFC at the time? Only proves that there was profit to be made in house.

Fido...

Two different matters in my opinion. Closing a base to consolidate still keeps the work in house. Yes it inconveniences those who live in those bases, but they still have a job if they chose to relocate.

The difference would be if the flight attendant function was sold off and relocated to Nicaragua where foreign flight attendants would be based.

Iceman

Weren't they making money with KFC? I can't say so. AC stayed in a lot of businesses longer than it should. It had a stake in a courier company for many years, but it was as a strategic investment for a long time even when it was losing money.

As for the bases, the bases are identified "BY LAW", as Fido notes. This isn't a case where you can conform with the law by shifting the people around. The odds are miniscule that any federal government would change the law just because AC says it is losing money. Maybe if it was the only way to keep the entire operation going, but that would require another huge crisis of SARS proportions. Now if KKR throws in the towel and no one wants ACTS, whole or in part, perhaps ACE or AC could strike a deal with the feds to keep some of the operation going. But I'm willing to bet that at the end of the day, ACTS will remain separate and will keep pursuing third party work.

[deicer]

Only time will tell. Let's keep the dialoge open to continue as the story unfolds.

Iceman