DAVID PADDON
CANADIAN PRESS
The plan by ACE Aviation Holdings Inc. to return up to $300 million to its shareholders is surprising in terms of timing, but the parent of Air Canada, Jazz and Aeroplan can easily afford to do so, analysts said yesterday.
Steve Garmaise, an analyst at Genuity Capital Markets, noted that it was only in April that the Montreal-based company issued shares and debt to fund its business operations.
"Generally, you don't turn around six months after you've raised money and say that you're looking to give some of it back," Garmaise said.
But much has improved for the airline operator over the past while, chiefly the success of the spinoff of its Aeroplan loyalty program into an income trust, paving the way for ACE Aviation to proceed with plans for more spinoffs, he said.
ACE Aviation had announced plans to convert its Jazz regional airline subsidiary into an income trust, but put the spinoff plan on hold last week due to current uncertainty over Ottawa's policy on trusts.
Assuming the Jazz and other anticipated spinoffs go ahead as expected, ACE Aviation will have more than enough cash to buy new planes and eliminate a pension deficit over 10 years as negotiated in bankruptcy court, he said.
The one real concern, Garmaise said, will be that the contemplated plan to repay shareholders will make talks with unions more difficult when the wage provisions of current labour contracts come up for negotiation in 2006.
"Clearly, this is something that could make that discussion more difficult," Garmaise said. "On the other hand, they have put through their first-ever profit-sharing formula with the unions."
Cameron Doerksen, an analyst at Versant Partners Inc. in Montreal, agreed that ACE Aviation has plenty of cash for its needs, especially if the Jazz and technical services spinoffs go ahead.
Demand for air travel has improved since Air Canada emerged from creditor protection at the end of September 2004, he noted.
"So they have that going in their favour. Offsetting that, I suppose, is the price of oil, which has really gone in the wrong direction," Doerksen said.
He wouldn't speculate on the likelihood that ACE Aviation will ultimately decide to distribute the $300 million to its shareholders, as outlined in a regulatory filing ahead of the company's first post-restructuring annual meeting Nov. 10. The proposal, which is being structured as a reduction of ACE Aviation's stated capital, will require approval by two-thirds of the shareholders' votes cast at the meeting.
"Although the reduction of capital would permit the payment of distributions in cash or in securities of a publicly traded entity, determining to proceed with any such action would involve a careful review of ACE Aviation's financial position and liquidity requirements and a number of other considerations," the Sept. 30 regulatory filing says.
The resolution gives ACE Aviation's directors authority to determine the exact amount of the capital reductions and distributions, if any, but limits the total to $300 million. ACE Aviation shares slipped 61 cents to close at $34.90 on the Toronto Stock Exchange.
ACE Aviation Holdings Inc. to return $300M to shareholders
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Re: ACE Aviation Holdings Inc. to return $300M to sharehold
Sorry for the quote a la Blastor.Assuming the Jazz and other anticipated spinoffs go ahead as expected, ACE Aviation will have more than enough cash to buy new planes and eliminate a pension deficit over 10 years as negotiated in bankruptcy court, he said.
