ACE announces planned investment in merged US Airways

Rebel · Post by **Rebel** » Thu May 19, 2005 3:23 pm

ACE Aviation announces planned investment in merged US Airways-America West carrier

- USD$75 million (CAD$95) investment for up to approximately 7% ownership
stake
- Significant new maintenance activity at Air Canada Technical Services
resulting in estimated incremental revenue of CAD$1.5 billion over five
years
- Airport and network synergies
- Annual estimated cash contribution of an estimated CAD$65 million on
ACTS and airport synergies.

MONTREAL, May 19 /CNW Telbec/ - ACE Aviation Holdings today announced its
intention to invest USD$75 million (approximately CAD$95) in the merged US
Airways-America West carrier. Its investment will be made at the time of US
Airways' exit from bankruptcy and in connection with a broad set of commercial
and other arrangements between ACE and the newly-merged entity. ACE's
investment will represent approximately 7% of equity, depending on the total
amount of new equity capital raised by the merged entity. The newly-merged
entity will be a well capitalized commercial partner with approximately
$1.5 billion in forecast total liquidity, a competitive low cost structure and
a route network that is highly complementary to Air Canada.
As a condition of its equity investment, ACE has obtained commitments
which will result in five-year commercial agreements with the newly-merged
entity regarding maintenance services, ground handling, regional jet flying,
network, training, and other areas of cooperation. It is expected that ACTS
and airport ground handling/facilities synergies will result in an estimated
annual cash contributions of CAD $65 million.
ACE, through Air Canada Technical Services (ACTS), is entitled to provide
all available outsourced maintenance, repair and overhaul services for the
merged entity with a combined fleet of 361 aircraft consisting of the Boeing
737, 757 and 767 and the Airbus A319, A320, A321 and A330 for which ACTS has
significant existing expertise. This agreement will provide ACTS with a large
volume of attractive new MRO work covering component and airframe maintenance.
The new work will result in estimated additional revenues of CAD$1.5 billion
for ACTS over the five-year term of the agreement. ACTS has the ability to
undertake this work with a minimal capital investment of approximately
$20 million utilizing capacity currently available at existing ACTS
facilities. The agreement also includes the possibility of extending the work
to cover engine maintenance and supply chain management.
"Our participation in the consolidation of the US airline industry
through the merged US Airways - America West carrier is an exciting
opportunity for ACE," said Robert Milton, Chairman, President and CEO of ACE
Aviation Holdings Inc. "Doug Parker is one of the most capable airline leaders
in the industry today and we look forward to working closely with Doug and his
team to build an even stronger future for the new US Airways.
"Our investment in US Airways reflects not only our confidence in the
viability of the merged carrier going forward but also represents a milestone
in the implementation of ACE's business strategy to grow our business units
into stand alone profitable companies," said Mr. Milton.
ACTS, a limited partnership of ACE, is a full-service MRO organization
that provides airframe, engine and component maintenance and various ancillary
services to a wide range of more than 100 global customers, including Air
Canada, Air Canada Jazz, JetBlue, United Airlines, ABX, Mexicana, Snecma
Services, Chromalloy, Lufthansa Technik, International Lease Finance
Corporation (ILFC) and Canada's Department of National Defence. Montreal-based
ACTS operates maintenance centers across Canada with a combined workforce of
3,600 employees and has major bases in Montreal, Toronto, Winnipeg, Calgary
and Vancouver. The maintenance work for this agreement will be undertaken at
ACTS facilities in Montreal, Winnipeg, Calgary and Vancouver creating an
estimated 700 new jobs to be filled principally through employee recalls.
It is estimated that this agreement will propel ACTS to a position as one
of the top three aircraft MRO providers worldwide in terms of sales. As a
result, it is anticipated that by 2006, ACTS revenues will exceed $1 billion
per annum with less than half being earned from Air Canada. This investment is
consistent with ACE's strategic plan to grow its business units with an
emphasis on third-party revenues.
"We look forward to the important synergy relationships that will benefit
both the merged entity and Air Canada as a result of the ACE investment," said
Doug Parker, America West Holdings Corporation Chairman, President and CEO.
"ACTS is a world class MRO business, and we are pleased that they will be
providing us a competitive service offering in this regard. Additionally, we
are very excited about the potential traffic benefits pursuant from our
enhanced network strength, and in the synergies that should accrue from ground
handling and other initiatives."
Air Canada and the newly-merged entity will also implement a broad and
cooperative strategy regarding airport facilities and ground handling which
will provide mutual cost benefits and synergies and, more specifically,
provide Air Canada with improved access to selected gates and facilities at a
number of U.S. airports including New York's LaGuardia Airport, Boston's Logan
Airport and Phoenix International Airport among others. ACE's regional air
carrier, Jazz, will also potentially realize increased opportunities to
partner with the newly-merged entity on transborder flying.
The agreements will provide both Air Canada and the merged carrier with
significant network and operational benefits, including enhanced network
strength and revenue opportunities in key transborder markets in the
Southwestern U.S., Hawaii, Mexico and Florida. In particular, the new entity
will provide Air Canada with enhanced access to key north-south markets where
it does not currently have a significant presence most notably along the North
American West Coast from Calgary, Edmonton and Vancouver to the U.S. Southwest
and Mexico via the America West hubs at Phoenix and Las Vegas in addition to
those markets on the U.S. East Coast served through the U.S. Airways hubs at
Philadelphia and Charlotte. Furthermore, neither U.S. Airways nor America West
currently operates Trans-Pacific flights while U.S. Airways operates a limited
Trans-Atlantic offering. It is anticipated that Air Canada's Toronto and
Vancouver hubs will benefit from increased traffic from the combined U.S
Airways-America West networks. These network benefits complement the existing
Air Canada relationship with United Airlines which provide Air Canada with a
strong east-west presence through their hubs at Chicago O'Hare and Denver.
"It's a win-win all around as the merged airline and Air Canada will
create value for each other through maintenance contracts, airport handling
agreements and the eventual expansion of the Star Alliance agreement, which
will include codesharing between the two carriers," said Mr. Milton. "The
addition of America West to our current network relationship with USAirways
will strengthen Air Canada's position as a highly connected global network and
provide the newly-merged carrier with enhanced access to Canada and Air
Canada's international network via the Toronto and Vancouver hubs. It will
also provide an important benefit to the Star Alliance by significantly
increasing its network penetration in the Western United States.

ACE is the parent holding company of Air Canada and ACE's other
subsidiaries. Air Canada is Canada's largest domestic and international full-
service airline and the largest provider of scheduled passenger services in
the domestic market, the transborder market and each of the Canada-Europe,
Canada-Pacific, Canada-Caribbean/Central America and Canada-South America
markets. Air Canada is a founding member of the Star Alliance network, the
world's largest airline alliance group.
In addition, the Corporation owns Jazz Air LP, Aeroplan LP and
Destina.ca , which is an on-line travel site. The Corporation also provides
Technical Services through ACTS LP, Cargo Services through AC Cargo LP and Air
Canada, Groundhandling Services through ACGHS LP and Air Canada and tour
operator services and leisure vacation packages through Touram LP.

Rubberbiscuit · Post by **Rubberbiscuit** » Fri May 20, 2005 6:45 am

You would think AC had learned their lesson when it comes to investing in sinking ships. I realize that US Airways has teamed up with America West, but US Airways has more or less been operating in bankruptsy for a couple of years now.

Rebel · Post by **Rebel** » Fri May 20, 2005 7:33 am

Actually AC made a fortune through their investment in CA. If I remember correctly AC transformed an initial investment of 80M(?) into 300M.

This time the investment is slightly different as AC hopes to secure maintenance contracts worth 1.5B and enlarge their WG hanger by 80,000 square feet as a result of their investment.

They are also hoping to funnel the merged company’s International traffic through both YYZ and YVR.

Hope their right..

Jaques Strappe · Post by **Jaques Strappe** » Fri May 20, 2005 7:51 am

Yup.......Air Canada did very well when they invested in a sinking Continental Airlines.

This is not Air Canada's investment, it is ACE's. The potential return in maintenance contracts is great. I am happy to see the diversification and realization that there is more to an airline than moving passengers for 99 dollars.

I hope it works out and I have a feeling, it will.

double-j · Post by **double-j** » Fri May 20, 2005 8:41 am

To me, with their potential lucrative maint. contracts from US Air/ America West, this seems like a strong buisness move.

cheers,

jj

Hun IN the SUN · Post by **Hun IN the SUN** » Fri May 20, 2005 9:04 am

Since when did america west and us airways merge

where have i been??

Typhoon pilot · Post by **Typhoon pilot** » Fri May 20, 2005 9:34 am

Just in the past few days

Trickkles · Post by **Trickkles** » Fri May 20, 2005 3:20 pm

I was thinking of the jobs this creates in CANADA.

Rebel · Post by **Rebel** » Sat May 21, 2005 5:51 am

What an excellent point, it’s going to generate all sorts of beneficial side effects from tax dollars to Government to providing the latest technical expertise training to those that haven’t already experienced it.

Rebel · Post by **Rebel** » Mon May 30, 2005 12:16 pm

New York Times

The proposed merger between US Airways and America West Airlines has attracted another private equity investor, the Wellington Management Co., which has agreed to put $150 million into the deal.

That brings the total capital raised by the two airlines to $500 million, including investments by two hedge funds, as well as Air Canada and Air Wisconsin.

The investment by Wellington Management was disclosed late
Friday in an amended filing with federal court in Alexandria, Va. US Airways has been operating under court protection since September, its second bankruptcy filing in the last two years.

The two airlines announced their proposed merger on May 19. The transaction, if completed, would create the nation's fifth-largest airline, which would carry the US Airways name.

Wellington Management, based in Boston, dwarfs the two other private investors in the US Airways-America West deal. Wellington, founded in 1928, manages a portfolio of just under $500 billion, primarily for mutual funds and other institutional holders.

Wellington has long been a key investor in the airline business. It is the largest institutional investor in both Northwest Airlines, with a 10.1 percent stake, and Continental Airlines, in which it holds 13.8 percent. It is the second-biggest investor in the AMR Corp., the parent of American Airlines, in which it holds 8.33 percent.

The proposed merger also has attracted a $100 million stake from PAR Investment Partners, another Boston-based fund, which has assets of about $1 billion, and a $50 million investment by Peninsula Investment Partners, a fund based in Charlottesville, Va. It has assets of about $900 million.

Edward L. Shapiro, who runs PAR, is a former executive with Wellington Management.

A spokesman for US Airways, Christopher Chiames, said Sunday night that Wellington's investment was ''another momentum-building accomplishment as we work to quickly secure the necessary regulatory approvals and give airline passengers better choices and options later this year.''

Officials at US Airways and America West said they had hoped to attract more investors in the deal before the venture, valued by the two airlines at $1.5 billion, was complete.

It still requires the approval of the Air Transportation Stabilization Board and several federal agencies.