More on AC (Fewer than 6??)

[Guest lancaster]

Well Dagger....I hate to tell you I told you so.....but if you read a post of mine from a few weeks back........I told you interst was going to be very limited and minimal. (I would not gloat, however, based on your critisizm of my bringing to light AC's woes in recent postings which apparantly touched a nerve based on your response to a recent post of mine, I thought that I would further provide proof that....I think I know what I'm talking about.

http://www.theglobeandmail.com/servlet/story/RTGAM.20030926.waircan0926/BNStory/Front/

[dagger]

Gloat? You don't have any reason to gloat. One of the world's richest men is bidding. A smart, savvy investor who believes that the industry has hit bottom and is about to head up.

What you fail to mention (conveniently, because it totally destroys your argument) is that the qualifying bids are richer than expected by a mere $250 million.

The number of actual bidders is impressive. In US airline restructurings, there have been only two or three bidders. These are very complex deals. Some of the creditors were unwilling to sign the confidentiality agreements so as not to lose their ability to deal in AC bonds in the future. They may have liked to bid, but couldn't meet the terms. This is different from lacking the interest in bidding.

By any measure, this process is proceeding very well. Air Canada has the solid backing of General Electric, one of the world's richest companies. It will have $1 billion in new equity, $600 million in new debt, the ability to sell a half interest in Aeroplan which will attract more $$$ than the Onex deal because AC's future won't be in doubt. AC will have a new business plan, with a rebalancing of flying - as was foreseen back in April, and shows no particular knowledge or insight from yourself.

AC has new leases, new labor agreements, new ground arrangements, a new, much more competitive pricing structure, a much more automated booking and processing system (less labor and fee-intensive). A great deal has been done in a short time, more remains to be done, but every indication is that this process is moving inexorably towards a positive conclusion for AC and its people.

[Guest lancaster]

As I stated prior. Renegotiated leases for sort terms. Other that lease AC will not be happy to see AC with long term renegotiations as it will put pressure on the leasing companies to renegotiate for all others as well. Somewhere leasing companies do not want to go. Therfore, AC renegotiated leases are of very short term. Hence, lack of investor interest. You really do fail to see the danger in continued increasing of accumulated debt to equity ratios that AC currently is dealing with, along with the continued diminishing ability of AC's, in the current and future markets to increase yields. Jetsgo, Canjet, Westjet are all impacting their ability for increased yields domestically, and as far as the international scene is concerned, stability their is years away. That alone, coupled with AC cost structure, which will be in the vicinity of 15-17cents spells continued trouble for the airline. Like it or not, AC is still, once again, not in a very favorable position.

[dagger]

The usual blah blah blah from you. Do you think if a guy like Mr. Li puts his personal fortune behind AC that AC won't get good lease terms? Air Canada will have to address the domestic marketplace creatively, possibly by not being all things to all people. And it may well be more international, which is all for the good because that is part of the picture with loads of potential growth - there are many routes unserved which could be profitable with a good cost structure. Personally, I think having a majority owner like Mr. Li would be awesome for AC in Asia. The Chinese market is the single biggest growth market - for volume and yield in the world. And I expect China to send a lot of people to NA as subsidized tourists to quell demands that it float the yuan. Air Canada already has as much access to the Chinese market as most US carriers and I can readily see Guanzhou flights, a second daily Shanghai flight, etc. Having Mr. Li as major shareholder wouldn't hurt either selling tickets in Asia or getting more rights out of Asia. These are golden routes - China alone will generate the kind of profits that Japan used to generate for Canadian Pacific.

So I don't see the gloom and doom you do. Will AC have to adjust domestically? Sure, and everyone has acknowledged this for a year or more now. Will AC's costs match Westjet or Canjet or Jetsgo? No. (For that matter, will their overall system yields, stage-length adjusted, match Air Canada's? No.) I fully expect AC to survive and prosper. It will probably have some significant differences - I expect AC will hive off half interests in Aeroplan, ACTS and Jazz to entrepreneurs who will help these entities generate significantly better results through better management, targeted investment, etc. That's good for Air Canada because aside from Aeroplan, these businesses don't make money for it now. Aeroplan under a more dynamic partnership could also make as much money for AC as a half interest as it makes under AC management.

I also don't look at costs as a static issue like you do. I look at the downstream implications of major restructuring and project out 3-5 years. For example, as AC transitions to an Internet based product - going from three percent online booking to 30-40 percent online booking - and Aeroplan redemptions - several things happen.

1. Yield management is automated by the implementation of a discount-like capacity management with fixed price allocations. You can then get rid of a lot of accounting staff, route controllers, yield managers, forecasters, etc.

2. Call centres shrink. If you are talking about a smaller Air Canada, you will never see another CAW agent hired, certainly not for a decade. The number will continue to attrit downward. Conversely if AC grows, especially internationally, the numbers remain static but the productivity of current staff grows.

AC's new collective agreement provides for a lot of low-cost growth, more use of part timers, more productivity of current employees, etc. Therefore in any kind of economic recovery that promotes long-distance travel - the kind least susceptible to the new communications technologies like video-conferencing - AC has the ability to generate disproportionately large unit cost savings. Will AC match Westjet's costs in that scenario? Of course not, but the cost comparison is Westjet's BIG DECEPTION because Air Canada doesn't have to match costs, it just has to close the gap somewhat. Air Canada doesn't have to make the same margins as Westjet - though it would be nice, I'm sure. If Westjet made 15 percent and Air Canada made 10 per cent, both would be profitable. Pure cost comparisons are meaningless. The issue is in the margins AC decides to achieve, the spread of revenues over costs. Indeed, if the international passenger decided to pay big bucks for champagne and worldwide satellite internet and TV - to cite just examples - then would could justify higher costs to capture higher revenues. If ACTS got 20 percent margins because it was the best damn maintenance shop on the planet, it could justify higher costs. Most people will pay a bit more for an established brand with state of the art technology and a great track record, so AC doesn't necessarily have to underbid Mitch's Body and Chop Shop for major overhaul contracts.

So you go ahead and wear your little goblin's costume. It's almost October and maybe if you walk the streets of Calgary in it someone will give you some candy.

What Air Canada gets on lease terms once it is re-capitalized is

[dagger]

The usual blah blah blah from you. Do you think if a guy like Mr. Li puts his personal fortune behind AC that AC won't get good lease terms? Air Canada will have to address the domestic marketplace creatively, possibly by not being all things to all people. And it may well be more international, which is all for the good because that is part of the picture with loads of potential growth - there are many routes unserved which could be profitable with a good cost structure. Personally, I think having a majority owner like Mr. Li would be awesome for AC in Asia. The Chinese market is the single biggest growth market - for volume and yield in the world. And I expect China to send a lot of people to NA as subsidized tourists to quell demands that it float the yuan. Air Canada already has as much access to the Chinese market as most US carriers and I can readily see Guanzhou flights, a second daily Shanghai flight, etc. Having Mr. Li as major shareholder wouldn't hurt either selling tickets in Asia or getting more rights out of Asia. These are golden routes - China alone will generate the kind of profits that Japan used to generate for Canadian Pacific.

So I don't see the gloom and doom you do. Will AC have to adjust domestically? Sure, and everyone has acknowledged this for a year or more now. Will AC's costs match Westjet or Canjet or Jetsgo? No. (For that matter, will their overall system yields, stage-length adjusted, match Air Canada's? No.) I fully expect AC to survive and prosper. It will probably have some significant differences - I expect AC will hive off half interests in Aeroplan, ACTS and Jazz to entrepreneurs who will help these entities generate significantly better results through better management, targeted investment, etc. That's good for Air Canada because aside from Aeroplan, these businesses don't make money for it now. Aeroplan under a more dynamic partnership could also make as much money for AC as a half interest as it makes under AC management.

I also don't look at costs as a static issue like you do. I look at the downstream implications of major restructuring and project out 3-5 years. For example, as AC transitions to an Internet based product - going from three percent online booking to 30-40 percent online booking - and Aeroplan redemptions - several things happen.

1. Yield management is automated by the implementation of a discount-like capacity management with fixed price allocations. You can then get rid of a lot of accounting staff, route controllers, yield managers, forecasters, etc.

2. Call centres shrink. If you are talking about a smaller Air Canada, you will never see another CAW agent hired, certainly not for a decade. The number will continue to attrit downward. Conversely if AC grows, especially internationally, the numbers remain static but the productivity of current staff grows.

AC's new collective agreement provides for a lot of low-cost growth, more use of part timers, more productivity of current employees, etc. Therefore in any kind of economic recovery that promotes long-distance travel - the kind least susceptible to the new communications technologies like video-conferencing - AC has the ability to generate disproportionately large unit cost savings. Will AC match Westjet's costs in that scenario? Of course not, but the cost comparison is Westjet's BIG DECEPTION because Air Canada doesn't have to match costs, it just has to close the gap somewhat. Air Canada doesn't have to make the same margins as Westjet - though it would be nice, I'm sure. If Westjet made 15 percent and Air Canada made 10 per cent, both would be profitable. Pure cost comparisons are meaningless. The issue is in the margins AC decides to achieve, the spread of revenues over costs. Indeed, if the international passenger decided to pay big bucks for champagne and worldwide satellite internet and TV - to cite just examples - then would could justify higher costs to capture higher revenues. If ACTS got 20 percent margins because it was the best damn maintenance shop on the planet, it could justify higher costs. Most people will pay a bit more for an established brand with state of the art technology and a great track record, so AC doesn't necessarily have to underbid Mitch's Body and Chop Shop for major overhaul contracts.

So you go ahead and wear your little goblin's costume. It's almost October and maybe if you walk the streets of Calgary in it someone will give you some candy.

[dagger]

Hong Kong Cheung Kong: No Listed Unit Involved In Air Canada Bid

Dow Jones  

 

HONG KONG -(Dow Jones)- Cheung Kong (Holdings) Ltd. (H.CKH) said Saturday that the group's public companies wouldn't be involved in Deputy Chairman Victor Li's bid to invest about C$700 million in Air Canada (ACNAQ), a move which could land him up to a 35% stake in Canada's biggest carrier.

Li, elder son of Hong Kong billionaire Li Ka Shing, confirmed he was one of the two finalist bidders to provide funding to assist Air Canada in emerging from bankruptcy protection.

That would be the first major investment in the aviation sector made by the Li family. Cheung Kong and its ports-to-telecom conglomerate combine to own a 16.51% stake in China Southern Airlines Co. (ZNH).

In a statement, Li, a Canadian citizen, said the investment will be made by a company incorporated in Canada and controlled by himself. Part of the investment may be made with the Li Ka Shing Overseas Foundation, a charitable organization, but none of the listed firms under the Cheung Kong's global empire.

"With Air Canada being at this stage of the business cycle, Mr Li's preference is to fund the investment from his personal financial resources," the spokeswoman said.

[Guest just my opinion]

"So you go ahead and wear your little goblin's costume. It's almost October and maybe if you walk the streets of Calgary in it someone will give you some candy."

[Guest just my opinion]

"So you go ahead and wear your little goblin's costume. It's almost October and maybe if you walk the streets of Calgary in it someone will give you some candy."

It's not unusual for poster's to get a wee bit personal and take shots at each other,but I must admit,if you're going to do that,then be original and with luck,the rest of us get a good chuckle!

Dagger,on a somewhat different note, I do enjoy reading your posts,as they are very informative and add perspective.

[Guest Max Continuous]

I take it then that Mr. Li's bid is predicated on required changes to the foreign ownership laws ... meaning it has to pass by George Kastanza's desk in YOW?

[Guest lancaster]

What is very interesting is "he is going it alone". From personal funding. That in itself says something about the lack of interest in other "risk partners". Are we looking at another, only larger HMY? You fail to accept the fact Dagger, that there is a substantial, and I mean SUBSTANTIAL, lack of heavyweights with serious interests. 4 out of 6 tire kickers, and of the 2 that are of any quality, not much else. Lets just see who has read the situation correctly. Come to think of it, you never have put your money where your mouth is. All you ever do is regurgitate already published #s. Why don't you commit to something instead of acting like a liberal politician with no spine?

[Guest WA777]

You say "there is a substantial lack of heavyweights"....You have absolutely NO way of knowing that...Did you ever consider the fact that terms put forward by other, even more substantial players might not be acceptable...???

[Guest George]

Time for your doggy treat.

[dagger]

Hey WA777, he's in quicksand up to his neck on this one. Why would one of the world's richest men bother with partners, especially since Daddy and his usual partners are not Canadian citizens? Sometimes rich men don't want or have to have partners.

This could also be a very embarassing moment for David Collenette (as if he needs another). What's the difference between a foreign investor living in Timbuktu and a naturalized Canadian citizen living in Hong Kong. Collenette has put such a premium on Canadian citizenship that a Li acquisition would make a mockery of this minister. Why not throw open ownership to foreigners? I'm all for the latter. I'd like to see the look on Collenette's face when Deloitte and Touche comes back with a report that a Hong Kong resident - albeit a Canadian citizen - has legally bought control of Air Canada. And when Daddy croaks, Mr Li will presumably inherit his 16% share in China Southern, forming a very nice little Asian transpacific access in the North America-Asia market. Very shrewd, actually.

[jump seat]

lancaster when I read your posts I know the central theme

Air Canada = Bad / Evil / morons

West Jet = Utopia

Nothing like a broken record.

[Guest WA777]

Interesting....I'm actually waiting for the moment when AC announces it is buying 100 Brazilian built planes rather than Bombardier's, because the Canadian government gave them no choice...Colenette will be squirming no doubt as he dumps on AC's decision even though he and his Liberal government hacks have already made it for them....What goofs!!

[Guest neo]

We heard never. Sort term or othersize. That other lease AC will be only TOO happy to see renegotiated leases from the renegotiating lease companies to all others. Go there they will, want it or not.

[dozerboy]

"Go there they will, want it or not"

Master Yoda...Is that you?

[Guest Airmail]

The same way Collenette looked constipated when it was announced that Milton managed to raise the DIP financing from GE...only hopefully by the time AC buys the Embraer 170 or A318, he will no longer be Minister of Transport!

[Guest Airmail]

Dagger:

Why is it that you even bother to respond to this obviously uninformed individual?

It's nice to be in a position to dismiss investors like Victor Li (whose family owns a firm which manages over US$60 billion in assets) and Cerberus Capital (which manages some $10 billion in assets). Heck, I suppose the same individual could dismiss the Ontario Teacher's Pension Plan since they only manage US$50 billion in assets. So one family manages over US$60 billion (with a in assets and the pension manager for every teacher in Ontario manages US$50 billion in assets, I guess one is a more serious investor than the other.

[Guest ABC]

My money's on Mr. Li. Not for your reasone, though, dagger.

I just figured that even if Mr. Li p!ssed away $700 million ++ on investing in AC he'd recover the loss on fuel sales.

Husky produces fuel. AC consumes a LOT of it.

Makes perfect sense to me.

Now, Ceberus. What's that all about? How could they meet the requirements of the ACPPA?

[Croc Dundee]

From what I know, and that isn't too much, in the aeronautical industry, Governments can only financially back exports and not domestic deals, that's why Embraer has an edge over Bombardier within Canada. Maybe Dagger can add some clarity to this issue?

[Guest WA777]

Somehow I don't think Bombardier has an edge over Embraer in Brazil?

[Guest WA777]

Somehow I just can't believe that Bombardier has an edge over Embraer in Brazil....!

[Mitch Cronin]

Hang on Dagger... I'm still working for AC (as far as I know), so Ye Olde Body and Chop Shoppe won't be bidding against 'em any time soon (I hope!)...

Geez man, yer makin' me worried here. :S