Richard Milton Leaving

[Spock]

Milton to reap windfall with dissolution of ACE
BRENT JANG, From Saturday's Globe and Mail




Robert Milton's pay package totalled nearly $43-million last year, and he stands to reap a further $10-million when ACE Aviation Holdings Inc. winds down by this fall.

The ACE chairman and chief executive officer had compensation in 2007 that included $26.5-million in “incentive awards” for “certain value-enhancing transactions” – guiding the distribution of units in Aeroplan Income Fund and Jazz Air Income Fund to ACE shareholders, according to ACE's management proxy circular issued Friday.

ACE began as a $2-billion venture, but ACE and its publicly traded spinoffs are now valued at $6.3-billion on the Toronto Stock Exchange: ACE ($1.2-billion), Air Canada ($875-million), customer loyalty program Aeroplan ($3.4-billion) and regional carrier Jazz ($872-million).

ACE, the parent of Air Canada, sold its final stakes in Aeroplan and Jazz last week.

Mr. Milton's remuneration last year also included a $1.2-million salary, $3.9-million bonus and $11.2-million in stock option gains. He has posted $23.1-million in option gains since ACE was created in October, 2004, after Air Canada exited bankruptcy protection.

Industry analysts have praised him for creating more than $4-billion in stock market value, while union leaders criticized corporate restructuring.

The Boston-born Mr. Milton will be receiving two new payments totalling $10-million by this fall, related to “terminating the status of ACE as a stand-alone company,” said the circular, which revealed that ACE plans to shrink its board of directors.

ACE formerly had 11 directors, but there will be nine board nominees at its annual and special meeting June 30 in Montreal. ACE is asking shareholders to back a special resolution giving it the flexibility to have as few as five directors.

The moves are the latest sign that ACE will be vanishing as a holding company. “Management and the board of directors will explore all options for our remaining 75-per-cent interest in Air Canada,” Mr. Milton said in a letter to shareholders co-written with Michael Green, an ACE director who is managing director at New York-based Cerberus Capital Management LP.

Meanwhile, Royal Bank of Canada disclosed Friday that it now holds 834,703 ACE class B shares, representing 5.27 per cent of outstanding B stock for Canadians.

The bank's stake works out to just 1 per cent of ACE stock fully diluted, compared with Franklin Templeton Investments Corp.'s 9 per cent.

Royal Bank's investment banking arm, RBC Dominion Securities Inc., is the underwriter of ACE's current $500-million buyback of its own shares. Royal Bank revealed its ACE stake because its interest rose above 5 per cent of ACE class B stock. The bank said its recent ACE share purchases are part of its “normal hedging activity resulting from ordinary course business.”

Do you think he's trying to get out before oil prices effect the rest of his options or is this just the completion of the original plan?


Spock


Live long and prosper

[Rebel]

[quote="Spock
Do you think he's trying to get out before oil prices effect the rest of his options or is this just the completion of the original plan?


Spock


Live long and prosper[/quote]

I don’t know but I think remuneration of that size is sickening. The whole financial old boys club is sick. I have no respect for any of them.

Guess what the best part is? He will pay little or no Canadian tax since he is a legal UK resident. That’s why he moved there.

[Traf]

Was AC restructured to move into the future or was it done so Milton could take a pile of cash and say "later bitches"?

[tonysoprano]

Traf.
I believe he was trying to accomplish both. However many also believe that AC did not have to go to CCAA. It has survived many a recession without CCAA in its long history. That being said, post CCAA AC is leaner and meaner but the high oil prices may put a damper on all that. I believe the plan was to make money for the vultures, icluding Milton and make AC a good buy for anyone interested. The post CCAA AC netted some big bucks for the Milton and company but the high oil prices have left AC holding the bag. So he will say goodby and good luck and we'll just find a way the way we have for decades. Jean Chretien, where are you now?

[Jaques Strappe]

Anyone who doesn't think that ACE was setup as Miltons' personal syphon is on crack. That includes the government who will appear to be shocked when Air Canada goes bankrupt again and it will, it has no equity. Milton and his buddies took it all while everyone sat back and watched.

[aroundthewing]

when Air Canada goes bankrupt again and it will

No worries....Westjet will buy or merge with Air Canada under the direction of the Canadian Gov't., just as what was done in the past!! LOL!!

[tonysoprano]

when Air Canada goes bankrupt again and it will

No worries....Westjet will buy or merge with Air Canada under the direction of the Canadian Gov't., just as what was done in the past!! LOL!!

As long as I don't have to buy a headset or say any crummy jokes in my 767, let's do it.

[Biff]

As long as I don't have to buy a headset or say any crummy jokes in my 767, let's do it.

You guys get your headsets supplied to you? How often can you get a new one? Or did I just read it wrong?

[Martin Tamme]

As long as I don't have to buy a headset or say any crummy jokes in my 767, let's do it.

You guys get your headsets supplied to you? How often can you get a new one? Or did I just read it wrong?

I get a new one with every flight.

[tonysoprano]

me too!

[backon3]

His name is actually Robert Milton, unless you're saying he's a dick. In that case I couldn't agree more.

[Dockjock]

Headsets are in the aircraft. Sennheiser noise cancelling in the EMJ, not sure the model though.

If I make $43 mil this year I will buy everyone a new one...only 5.5 months and $42,978,000.00 to go! (wish me luck)

[square]

Does this mean the ties between Jazz and AC have been severed? What changes with the 'dissolution of ACE'?

[Legacy]

Of course he's leaving. Sell off the company, make himself look good (but the people that don't have the blindfold over their eyes know better), and leave ONLY because he knows the aviation is coming up to a downfall and he doesnt want to look bad when we are having problems. Kinda cowardly if you ask me. If he is THAT good he would stick through thick and thin. Anyone (well I mean a LOT of people) could have done what he has done. It is like saying Ralph Klein did aweome. Well heck yeah. If the oil industry is giving you billions of dollars a year it isn't too hard to look good. It is when you are faced with the challenges and the decisions you make is what will define you. Milton has not done this. OK go ahead and slag me but I am right.

[Jaques Strappe]

Does this mean the ties between Jazz and AC have been severed? What changes with the 'dissolution of ACE'?

The two companies have technically been severed. The best way to describe the situation is this:

You get blind sided on the highway one day by a big blue truck that has lost control. As a result of that trauma, you end up in a coma with your so called trusted friend having power of attorney over your affairs. You slowly recover only to find that your friend has sold off all your possessions and run off to another country with all the proceeds, leaving you destitute.

What happens now? Hope like hell you don't catch a cold.

Seriously though, the dissolution of ACE is simply nothing more than folding up the money tent and going home. Nothing left to sell. The proceeds from Jazz, Aeroplan, ACTS and ACGHS etc, should have gone to Air Canada, the company who owned them in the first place but Milton took all that away from Air Canada as described in the metaphor above.

I have lost all respect for today's business leaders. Unlike the previous generation, they build or create nothing in favor of getting away with as much as they can while avoiding jail time. Some are better than others. Milton has destroyed what has taken over 70 years to build.

Jazz will be left to fend for itself as a separate entity and over time, I think you will see less and less in common with Air Canada. My prediction is that as soon as the CPA can be re-negotiated, you will see United Express and the likes of many other U.S based regionals doing most of the Transborder Regional work. Why? because they pay their pilots peanuts and are cheaper.

[square]

Hm. Pretty Grim. Thanks.

Oh and, shit, who woulda thought Aeroplan was worth like 4 times more than Air Canada? Holy.

[rudder]

Seriously though, the dissolution of ACE is simply nothing more than folding up the money tent and going home. Nothing left to sell. The proceeds from Jazz, Aeroplan, ACTS and ACGHS etc, should have gone to Air Canada, the company who owned them in the first place but Milton took all that away from Air Canada as described in the metaphor above.

AC was bankrupt. The 'proceeds' went to the parties that gave up the most (creditors took a 90% haircut) and the parties that took the greatest risk by investing in the restructured enterprise (GECAS/Cerberus). These parties collectively are 'ACE'.

It doesn't have to do with right or wrong, it's just business. This is why you do not take a CCAA filing lightly because it costs you control of your company. WJ/SW/AA all survived post 9/11 without a filing.

[Jaques Strappe]

Rudder

That is not entirely true. ACE is not made up of creditors who took the biggest haircut. Many many individuals, leasing companies, suppliers, employees, money funds, etc took huge haircuts when Air Canada filed for CCAA and are not the major shareholders of ACE. Ceberus lost nothing as they had nothing to do with Air Canada and did not enter the scene until well after CCAA.

I don't understand your statement.........

the proceeds from Air Canada's assets went to those parties who gave up the most

along with your implication that those parties are Ceberus and GECAS. What exactly did they lose as a result of CCAA?

[Rebel]

It doesn't have to do with right or wrong, it's just business. This is why you do not take a CCAA filing lightly because it costs you control of your company. WJ/SW/AA all survived post 9/11 without a filing.

Ahh exactly what are you saying are you not aware other then WJ, that both SW and AA among the rest of the industry are not exactly having a good year?

[windowseat]

Rudder

That is not entirely true. ACE is not made up of creditors who took the biggest haircut. Many many individuals, leasing companies, suppliers, employees, money funds, etc took huge haircuts when Air Canada filed for CCAA and are not the major shareholders of ACE. Ceberus lost nothing as they had nothing to do with Air Canada and did not enter the scene until well after CCAA.

I don't understand your statement.........

the proceeds from Air Canada's assets went to those parties who gave up the most

along with your implication that those parties are Ceberus and GECAS. What exactly did they lose as a result of CCAA?

Air Canada’s restructuring after it entered into CCAA was a very complex process (and not well understood by most employees or the unions) which required the simultaneous agreement of numerous parties. In addition to the complex corporate reorganization and debt compromises, the closing also included a new equity infusion totaling $1.1 billion as well as significant new credit being extended.

It was the largest write-down of creditor claims ($8.3 billion) in Canadian corporate history. These creditors included shareholders, lenders, leasing companies, etc. This $8.3 billion was converted into equity (ACE shares) at about 10 cents on the dollar. Included in these creditors claims were the unions, including ACPA. ACPA's claim against the company was about $300 million, or 3.6 percent of the $8.3 billion, for the concessions it gave on behalf of the pilots. During the restructuring ACPA received approximately 1.5 million shares of ACE, which they sold shortly after ACE exited CCAA for about $24.00. Hence they missed out on the subsequent return of capital totaling $2 billion.

The largest creditor was GECC who owned 106 aircraft and was the largest lessor. In return for shares in the new ACE, GECC agreed to the restructuring of leases on these 106 aircraft, provide exit capital and provide $1 billion in additional financing for new aircraft (Embraer).

ACE shares were given to the creditors in order to get the majority of them to sign on to the plan of arrangement. Without this, the creditors were free to take their assets, including airplanes, engines, and other assets, and leave Air Canada in a not so desirable situation

Cerberus was part of and, in fact, a very important player in the CCAA process. They, along with GECC and DB provided the $1.1 billion in new equity financing required to get ACE going. Their risk is that they were investing in a bankrupt enterprise with an airline company that even after exiting CCAA, had a cost structure 33 percent higher than its main competitor, WJA.

(Victor Lee was Air Canada’s favoured investor but he walked when the unions would not compromise on pension issues and there was a 300 million shortfall on the $1.1 billion in labour savings. After Lee walked, Cerberus, the only other investor willing to invest in the restructured airline provided the needed capital.)

For this new equity infusion, these three investors received shares in the new ACE and, along with the ACE shares the creditor’s received, became the new owners.

Just prior to exiting CCAA, an independent third party placed valuations on Jazz, Aeroplan and ACTS. The total was about $2.2 billion, and Air Canada received preferred shares for this amount, which they have since cashed in – that’s how Air Canada raised its initial liquidity and also made down payments for new aircraft. In effect, Air Canada sold Jazz, Aeroplan and ACTS to ACE, the new owners.

This was the cost of bankruptcy. Air Canada sold those assets in order to reduce its debt and leasing obligations, and to exit CCAA with new equity to sustain operations and begin to renew its fleet. Contrary to what many people believe, and the Unions say, since exiting CCAA, Air Canada has not paid any dividends to ACE or to Air Canada shareholders. All of Air Canada's profits have been reinvested into Air Canada, largely to fund its fleet renewal and pension liability. In fact, the new Air Canada shareholders have lost 60 percent of their investment. Let's not forget that without the creditors agreeing to keep their assets at Air Canada, and new investors willing to invest their capital, Air Canada wouldn't exist today in its current form, or with pensions intact.

One last point, ACGHS wasn't sold to ACE. It remains a fully owned subsidiary of Air Canada.

[Jaques Strappe]

Windowseat

That was a very informative post. Thanks for correcting me. However, it is my understanding that Ceberus did not enter the scene until after CCAA had already been entered, and provided the needed funding to exit CCAA. So really, they did not take a haircut. In fact, they received 2 billion in a payback a few short years later.

[windowseat]

Windowseat

That was a very informative post. Thanks for correcting me. However, it is my understanding that Ceberus did not enter the scene until after CCAA had already been entered, and provided the needed funding to exit CCAA. So really, they did not take a haircut. In fact, they received 2 billion in a payback a few short years later.

"Jaques"

You are correct in stating that Cerberus did not take a 'haircut.' That was never implied in my response. However, you are incorrect in stating, Cerberus received $2 billion in a payback.

There were two primary goals to the restructuring of Air Canada during CCAA. These were to maximize value for creditors who lost $8.3 billion; and to attract new investors to exit CCAA. Both steps were necessary, and the first step needed to be substantively completed before the second step began. Hence, Cerberus entered later in the CCAA process. Restructuring debt, leasing and other creditor obligations only served to reduce liabilities to a suitable level ($12.3 billion to $4.3 billion).

Remember, Air Canada filed for bankruptcy protection when it was unable to make a $165 million pension payment requested by OSFI. At the time, Air Canada was losing $5 million a day before it entered into CCAA, and had little cash on hand. Bankruptcy was inevitable; it was only a matter of time.

It is important to understand that Air Canada’s restructuring would not have been completed without new equity to enable the new enterprise to operate on a sustainable basis (i.e. sufficient liquidity) and to acquire new aircraft. In fact, the raising of $1.1 billion in new equity capital, a substantial amount of capital by any measure, was one of the largest passenger air carrier equity raises in history.

Cerberus is a hedge fund that typically invests in distressed companies (like Air Canada during CCAA), companies that institutional and most other investors won’t go near. Like it or not, Cerberus was the only investor willing to invest in ACE after Victor Lee walked, but at a substantially lower level of investment (DB made up the difference). Cerberus was only one of the three investors that provided capital while the company was in CCAA. An IPO offering also took place in 2005, after ACE exited CCAA, which provided ACE with an additional $800,000,000 in capital.

The $2 billion reduction in capital that was returned to ALL ACE shareholders (not just Cerberus) should be seen in the context of the following ACE capital fundraising: The $1.1 billion raised in Sept 2004; the public offering of $800,000,000 completed in April 2005; and a $152 million gain on the sale of US airways. No money left ACE in the payout. ACE shareholders were given shares in Jazz and Aeroplan, which they (not Air Canada) now owned. This was ACE’s way of unlocking value in the enterprise, and compensating the original creditors for agreeing to sign onto the plan of arrangement, and new investors for investing their capital in a high risk venture, as agreed to during CCAA.

[Rebel]

windowseat

Thank you for your excellent insight on Air Canada’s CCAA. Are you employed in the industry or the financial community? What are your thoughts on the price of crude?

[windowseat]

windowseat

Thank you for your excellent insight on Air Canada’s CCAA. Are you employed in the industry or the financial community? What are your thoughts on the price of crude?

Rebel

Corporate pilot. Tried to get on with big red, but got pfo'd. Completing MBA part-time, just finished finance course involving this subject. Wrong guy to ask on fuel. Not an expert there

[Rebel]

[
Rebel

Corporate pilot. Tried to get on with big red, but got pfo'd. Completing MBA part-time, just finished finance course involving this subject. Wrong guy to ask on fuel. Not an expert there

The AC pilot selection process is not exactly perfect as some excellent candidates fall thru the cracks. When conditions return to normal (?) in our industry you should reapply.