Rockie wrote:SilentMajority wrote:Quote of the week..."Labor's worst enemy is an unprofitable employer."
Let's review some history.
Our current CEO was the architect of the plan that withdrew Aeroplan, Jazz and maintenance services from Air Canada and sold them off for 4 billion dollars I believe, not one cent of which actually went to Air Canada. "Unlocking the hidden value" was the catch phrase, but they left off the part that said the proceeds wouldn't be returned to the company that created it.
That left only the employees, aircraft, and the passengers that bought seats in them, plus the rapidly accumulating debt since 3/4 of all the value was already removed. Both the debt and the employees are considered a liability on the Air Canada balance sheet leaving the aircraft and the passengers as the only remaining assets. The only reason the aircraft and passengers weren't taken as well was because of a little thing called our scope clause.
The company now wants to completely eliminate our scope clause removing any contractual rights the "AIR CANADA" pilots have to flying Air Canada aircraft and passengers.
What do you think our current CEO would do if we let that happen?
If we're going to review history, let's not rewrite what actually happened.
Windowseat wrote:
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 wrote:
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 wrote:
"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.
