Ottawa Takes Equity Stake In Air Canada

Ottawa has bailed out Air Canada (TSX:AC)

The federal government has announced a long-awaited aid deal that includes $4 billion in repayable loans and an equity stake in Canada’s flagship carrier.

Under the agreement, Canada’s largest airline will be able to tap as much as $5.88 billion in liquidity via the "Large Employer Emergency Financing Facility" (LEEFF).

According to a news release, the arrangement with Ottawa includes the issuance of $500 million in Air Canada shares priced at $23.18 apiece, as well as warrants for 14.6 million shares priced at $27.27 each over a 10-year period.

If all warrants are exercised, the federal government would be left with 14.1% of Air Canada’s Class B shares, according to the Canada Enterprise Emergency Funding Corporation, which administers the LEEFF program.

The package also includes a $1.5-billion secured revolving credit facility, $2.48 billion in three unsecured non-revolving credit facilities, and as much as $1.4 billion in an unsecured credit facility tranche specifically earmarked for supporting passenger refunds.

Air Canada said it has agreed to offer refunds to customers who purchased non-refundable fares and who have not been able to travel since February 2020. The airline said in its news release that it has also agreed to restrictions on some spending, dividends, share buybacks, and executive compensation.

In a separate news release, the federal government said negotiations are continuing for potential aid agreements with other Canadian airlines.

Air Canada shares closed at $27.00 on the Toronto Stock Exchange on Monday (April 12).