CCAA: Sixty days and counting

[dagger]

From my past experiences with monitoring CCAA's, the operative rule in law is that protection will continue so long as there is reason to believe that restructuring will occur. That means negotiations with all the parties will only go on so long. Initial protection is usually 60 days, and judges will routinuely extend that in 60day increments so long as there is reasonable grounds to prolong the protection.

But if Air Canada has to report back that despite all of its efforts that it can't get the creditor piece or the labor piece in place, that in effect one of the key parties refuses to "play ball", then the judge will simply lift protection and turn the issue over to the bankruptcy trustee to begin the auction. At that point, AC is just about toast. Management and the board will resign if they haven't already to that point. It will be too late for any second thoughts, or gallows reprieves.

At that point, the only question is whether new airlines or expanding airlines will even hire an Air Canada employee, given that they will not want to import any laggards or union sympathizers.

So don't think this is going to last six months. It might very well last six, but it could also be over a lot quicker.

[dragon]

Dagger,

In 10 words or less if able, do I have this correct?

Are the major players, [Milton, Bauer, Sachs, Ritchie, Fane etc] still charged with breaking the deadlock – only now with a renewed [hopefully] urgency? Are there any other factors that will come into play? Does the ACPPA fit into the equation in any shape or form and do the creditors have any input.

Also, is there any possibility that RM may be asked to step down, or may step down [after he fires Rovinescu] himself? There just seems to be too much conflict, too much controversy surrounding Mr. Milton and it has been like that since he accepted the top job.

For the record, I am very dissapointed with the effort of managment and unions alike. This was not necessary.

dragon

[Guest Marion Vanderlubbe]

Question: you say initial protection is usually 60 days. Pricewaterhouse Coopers says : the Court will issue an Order giving the company 30 days of protection (often referred to as the "Stay") from its creditors to allow for the preparation of the Plan of Arrangement. Why the difference? I don't have access to the details, has Air Canada been granted a stay for 60 days?

[Guest ex-SkyGeek]

"At that point, AC is just about toast. Management and the board will resign if they haven't already to that point. It will be too late for any second thoughts, or gallows reprieves."

Except, Dagger, that the government made pretty clear that it wouldn't let Air Canada fail. Air Canada to this point has not accepted any form of help, but, if liquidation was imminent, do you not think the government's offer would still stand?

Jason

[dagger]

The government (Collenette) has promised nothing. It has made a number of promises that could be construed as standing by AC, only to double back on those the next day. Frankly, the government has been less than helpful to all parties.

Before anyone resigns or is removed at AC, I would hope that the Libs put Collenette out of his misery.

[B75/76]

"...I would hope that the Libs put Collenette out of his misery."

I would say put him out of the 'industry's' misery.

This is par for the course from Collenette; say just enough to appear prepared to do something but never do anything.

[dagger]

AC has its restructuring plan, which is based on the Milton vision conveyed to the world over the past couple of months. i.e. break up the company into self-sustaining divisions under a holding company, mark expenses to market rates (including labor), go low-cost and take on the discounters domestically, etc etc

At the start of this process, AC will try to assemble all aspects of its plan. It will try to get the unions to make the necessary concessions, the creditors to make the necessary concessions.

The creditors have to approve the plan, so you have to secure their support for the plan. The unions are not secured creditors, so they don't have a vote.

They might like parts of the plan, but demand changes in others. They might try to oust the management and/or the board. Or they might say that the projections of the plan aren't ambitious enough to respond to the discounters like WJ. At some point, whoever represents the company - be it this management or another management - may be forced back to the table with labor for deeper concessions.

Whether the debtholders and other creditors convert debt to equity or take new debt that reduces either principal, interest or both, they want assurances that the new Air Canada will be profitable enough to honor this new debt or make their new shares worthwhile.

Ultimately, the creditors, or one group of creditors, can scuttle any reorganization if they don't like how they are being treated. Everybody at this point expects to take a haircut, but it's a question of whether the "Other Guy" is bearing a fair part of the load.

The absolute key to restructuring is that the viability of the ensuing entity - call it New Air Canada - has to be assured. That's why labor has to participate in concessions along with lessors and other creditors because labor cost is 30 percent of all AC expenses.

[dagger]

You are right. My bad. The initial stay is often for 30 days but the first renewal is automatic and almost always for 60 days.

[dagger]

I agree wholeheartedly. The industry has been making a solid case for tax relief for over a year now. The Liberals just "study" and "study" what is obvious- they are gouging airlines and travellers. Remember how the aviation fuel tax was brought in as a deficit fighting measure? Okay, we have slayed the deficit, so why is the aviation fuel tax still in effect?

[Guest ex-SkyGeek]

Same reason we still have G.S.T.

[Guest ex-SkyGeek]

There was a time when I defended the man (Collenette) because he was being mocked for changing his mind over a statement he had made in 1999. "Circumstances have change, he can't be held to what he said two years ago when things were different", I said.

That was prior to C3's demise. Well, since then I too have witnessed the wishy-washy, and sometimes outright lying, nature of the man. I wouldn't be sorry to see him replaced.

What I do believe I recall him saying yesterday to a bunch of reporters was that "we have said we would not let Air Canada fail" ... "they have decided to go about this on their own" (or something of that nature for the latter part). So, gullible as I may be, I am still under the impression that he has no intentions of letting Air Canada die while he is minister.

Jason

[dragon]

Thank you for the clarity dagger. I too am hoping for a collective solution.

cheers