Looks like Air Canada might be heading for some real trouble. Its primary "rescuer", a Chinese billionaire, has decided to pull out of his investment. Evidently, lack of "significant" union concessions, troubling pension issues and escalating fuel prices contributed to the decision. Other potential investors are being sought but it will likely cost Air Canada a lot more this time around given its current problems. Note that the CEO Milton and another executive were expecting a huge (something like $21 million) payout that might be in jeopardy now... Meanwhile the Canadian LCCs (Westjet, Jetsgo and others) are growing like crazy... Read article below:
Li walks from plan to rescue Air Canada
By JOHN PARTRIDGE,PAUL WALDIE, ANDREW WILLIS,SIMON TUCK
From Saturday's Globe and Mail
POSTED AT 12:28 AM EST Saturday, Apr. 3, 2004
Air Canada's long, troubled rescue began unravelling Friday as Hong Kong businessman Victor Li signalled that he is walking away from his planned $650-million investment because of the insolvent airline's uncertain financial prospects and a confrontation with labour unions.
As Canada's biggest airline began looking for another investor, both it and its unions reassured travellers that operations would not be affected and they would not be left stranded.
Observers, however, warned that liquidation of the airline is a possibility after Friday's developments.
As the restructuring deal came undone — a year and a day after Air Canada was granted court protection from its creditors — the betting on the sidelines was that any new investor would demand a far steeper price than Mr. Li, and any new deal could cost chief executive officer Robert Milton and chief restructuring officer Calin Rovinescu their jobs, as well as the contentious $21-million in bonuses each was in line to receive.
But there was also widespread speculation among Air Canada's unions and elsewhere that Mr. Li's Trinity Time Investments Ltd. may just be posturing and threatening to walk away simply in an effort to pressure the unions into making more concessions.
Trinity said it would not seek to extend its agreement with Air Canada beyond its April 30 expiry date and Air Canada was no longer obliged to deal with it exclusively.
"We are, of course, disappointed in this outcome," Trinity director and adviser Harold (Sonny) Gordon said in a statement released late Friday.
Labour cost and productivity savings promised by the unions are not being fully achieved, Mr. Gordon said, while the airline's financial outlook is not as good as expected because of record-high fuel costs and more competition.
The unions made concessions valued at about $850-million a year in restructuring negotiations last year, making up the bulk of $1.1-billion in annual cost savings Air Canada pledged to achieve.
As well, citing the unions' refusal to agree to changes Trinity wanted to make in the Air Canada pension plan, Mr. Gordon added: "We have concluded from this that without a change in the manner in which Air Canada's employees are organized and their interests [are] represented, Air Canada will not likely achieve a sufficient fresh start to prosper and grow in the competitive environment which it faces."
Mr. Gordon appeared to keep the door open a crack, saying Trinity has not ruled out "a continued participation if circumstances change sufficiently."
The announcement came as Air Canada disclosed that it had an operating loss of $684-million last year, and a final loss, including reorganization and restructuring charges, of more than $1.86-billion.
However, the company insisted it is business as usual, saying it has $900-million in cash on hand and nearly $500-million in additional credit available. "I want to reassure our customers and employees that it's business as usual at Air Canada as it has been throughout our restructuring," Mr. Milton said.
Air Canada said that as a result of Trinity's announcement, it is "free to pursue alternative equity financing arrangements and is doing so."
April 30 is also the expiry date for a pact under which GE Capital Aviation Services agreed to lend Air Canada $1.8-billion. A spokesman for the U.S. firm said that, although this deadline remains, its deal is "absolutely not" tied to Trinity's. "Our priority remains the successful emergence of Air Canada from this bankruptcy process and we're going to continue to support management's efforts," he said.
Federal Transport Minister Tony Valeri gave no hint that Ottawa is prepared to bail out Air Canada if another rescuer cannot be found.
"Today's developments underscore the need for the unions, the company and the investors to re-examine their positions and redouble their efforts," he said. "They all have a vested interest in seeing Air Canada succeed. We continue to have confidence that Air Canada will be able to serve Canadians now and find a long-term private-sector solution."
Meanwhile, some labour officials and industry observers speculated that Mr. Li may be threatening to walk as a bargaining tactic to get Air Canada's unions to agree to changes he is demanding be made to the company's pension plan but which they have refused to discuss.
"That doesn't say they pulled out, that just says they are not going to extend," said Gary Fane, national director for the transportation industry of the Canadian Auto Workers union. "It sounds like if all the unions got on their knees and said, 'Please let me give you more concessions,' then they may not leave.
"I'm not suggesting it's not serious," he said. "I'm suggesting that it doesn't surprise me. The end of the world is not coming yet."
The CAW represents about 7,500 of Air Canada's approximately 30,000 employees.
Douglas Reid, strategy professor at Queen's University in Kingston, Ont., agreed Trinity's statement leaves plenty of room for a deal with Air Canada. "I don't interpret this as a walkaway story."
Mr. Milton did not rule out a deal with Mr. Li's firm, saying in an e-mail to Air Canada employees that he "will be seeking a meeting with all our union leaders to determine if the willingness exists among our unions to try to convince Trinity to pursue their investment."
However, other sources said Mr. Li, the eldest son of Hong Kong billionaire Li Ka-shing, is going and will not be back.
"This is not posturing — it's real," said one person familiar with Trinity's thinking.
One investment banker who has worked with Air Canada for a number of years concurred. "Trinity can't really back down," he said. "You can't say we want X, Y and Z by April 30 or we walk, then let April 30 come and go and not walk. We're into the endgame."
A source close to Air Canada said it would take a "miracle" to get a deal with Trinity at this point.
The source added that Mr. Li felt personally insulted by remarks made by some labour leaders. He cited a March 5 meeting at which a union official told a Trinity negotiator: "You tell your Hong Kong billionaire to take his money back on the boat to China."
The source added: "That's just not the type of thing you say to a Chinese businessperson."
Among the potential substitutes for Trinity that Air Canada will likely approach are New York investment bank Cerberus Capital Management LP, which lost out to Mr. Li's company Trinity last year in the bidding to become the airline's major shareholder, and Texas Pacific Group (TPG) of Fort Worth, Tex. TPG made a joint proposal with Toronto-based Onex Corp. that did not make the short list.
Neither Cerberus nor TPG would comment on Friday.
One industry analyst said it's too late.
"The company is toast. It's finished," said Jacques Kavafian, an airline specialist at Octagon Capital, adding there's likely no other investor in the offing given the porous state of the airline's books...
...One union leader dismissed Trinity's statement, saying it was another round of brinkmanship.
"This is not going to prompt us to get on our knees and beg and give more money back," said Gary Fane, director of transportation for the Canadian Auto Workers, which represents ticket agents and call-centre employees...
Li walks from plan to rescue Air Canada
By JOHN PARTRIDGE,PAUL WALDIE, ANDREW WILLIS,SIMON TUCK
From Saturday's Globe and Mail
POSTED AT 12:28 AM EST Saturday, Apr. 3, 2004
Air Canada's long, troubled rescue began unravelling Friday as Hong Kong businessman Victor Li signalled that he is walking away from his planned $650-million investment because of the insolvent airline's uncertain financial prospects and a confrontation with labour unions.
As Canada's biggest airline began looking for another investor, both it and its unions reassured travellers that operations would not be affected and they would not be left stranded.
Observers, however, warned that liquidation of the airline is a possibility after Friday's developments.
As the restructuring deal came undone — a year and a day after Air Canada was granted court protection from its creditors — the betting on the sidelines was that any new investor would demand a far steeper price than Mr. Li, and any new deal could cost chief executive officer Robert Milton and chief restructuring officer Calin Rovinescu their jobs, as well as the contentious $21-million in bonuses each was in line to receive.
But there was also widespread speculation among Air Canada's unions and elsewhere that Mr. Li's Trinity Time Investments Ltd. may just be posturing and threatening to walk away simply in an effort to pressure the unions into making more concessions.
Trinity said it would not seek to extend its agreement with Air Canada beyond its April 30 expiry date and Air Canada was no longer obliged to deal with it exclusively.
"We are, of course, disappointed in this outcome," Trinity director and adviser Harold (Sonny) Gordon said in a statement released late Friday.
Labour cost and productivity savings promised by the unions are not being fully achieved, Mr. Gordon said, while the airline's financial outlook is not as good as expected because of record-high fuel costs and more competition.
The unions made concessions valued at about $850-million a year in restructuring negotiations last year, making up the bulk of $1.1-billion in annual cost savings Air Canada pledged to achieve.
As well, citing the unions' refusal to agree to changes Trinity wanted to make in the Air Canada pension plan, Mr. Gordon added: "We have concluded from this that without a change in the manner in which Air Canada's employees are organized and their interests [are] represented, Air Canada will not likely achieve a sufficient fresh start to prosper and grow in the competitive environment which it faces."
Mr. Gordon appeared to keep the door open a crack, saying Trinity has not ruled out "a continued participation if circumstances change sufficiently."
The announcement came as Air Canada disclosed that it had an operating loss of $684-million last year, and a final loss, including reorganization and restructuring charges, of more than $1.86-billion.
However, the company insisted it is business as usual, saying it has $900-million in cash on hand and nearly $500-million in additional credit available. "I want to reassure our customers and employees that it's business as usual at Air Canada as it has been throughout our restructuring," Mr. Milton said.
Air Canada said that as a result of Trinity's announcement, it is "free to pursue alternative equity financing arrangements and is doing so."
April 30 is also the expiry date for a pact under which GE Capital Aviation Services agreed to lend Air Canada $1.8-billion. A spokesman for the U.S. firm said that, although this deadline remains, its deal is "absolutely not" tied to Trinity's. "Our priority remains the successful emergence of Air Canada from this bankruptcy process and we're going to continue to support management's efforts," he said.
Federal Transport Minister Tony Valeri gave no hint that Ottawa is prepared to bail out Air Canada if another rescuer cannot be found.
"Today's developments underscore the need for the unions, the company and the investors to re-examine their positions and redouble their efforts," he said. "They all have a vested interest in seeing Air Canada succeed. We continue to have confidence that Air Canada will be able to serve Canadians now and find a long-term private-sector solution."
Meanwhile, some labour officials and industry observers speculated that Mr. Li may be threatening to walk as a bargaining tactic to get Air Canada's unions to agree to changes he is demanding be made to the company's pension plan but which they have refused to discuss.
"That doesn't say they pulled out, that just says they are not going to extend," said Gary Fane, national director for the transportation industry of the Canadian Auto Workers union. "It sounds like if all the unions got on their knees and said, 'Please let me give you more concessions,' then they may not leave.
"I'm not suggesting it's not serious," he said. "I'm suggesting that it doesn't surprise me. The end of the world is not coming yet."
The CAW represents about 7,500 of Air Canada's approximately 30,000 employees.
Douglas Reid, strategy professor at Queen's University in Kingston, Ont., agreed Trinity's statement leaves plenty of room for a deal with Air Canada. "I don't interpret this as a walkaway story."
Mr. Milton did not rule out a deal with Mr. Li's firm, saying in an e-mail to Air Canada employees that he "will be seeking a meeting with all our union leaders to determine if the willingness exists among our unions to try to convince Trinity to pursue their investment."
However, other sources said Mr. Li, the eldest son of Hong Kong billionaire Li Ka-shing, is going and will not be back.
"This is not posturing — it's real," said one person familiar with Trinity's thinking.
One investment banker who has worked with Air Canada for a number of years concurred. "Trinity can't really back down," he said. "You can't say we want X, Y and Z by April 30 or we walk, then let April 30 come and go and not walk. We're into the endgame."
A source close to Air Canada said it would take a "miracle" to get a deal with Trinity at this point.
The source added that Mr. Li felt personally insulted by remarks made by some labour leaders. He cited a March 5 meeting at which a union official told a Trinity negotiator: "You tell your Hong Kong billionaire to take his money back on the boat to China."
The source added: "That's just not the type of thing you say to a Chinese businessperson."
Among the potential substitutes for Trinity that Air Canada will likely approach are New York investment bank Cerberus Capital Management LP, which lost out to Mr. Li's company Trinity last year in the bidding to become the airline's major shareholder, and Texas Pacific Group (TPG) of Fort Worth, Tex. TPG made a joint proposal with Toronto-based Onex Corp. that did not make the short list.
Neither Cerberus nor TPG would comment on Friday.
One industry analyst said it's too late.
"The company is toast. It's finished," said Jacques Kavafian, an airline specialist at Octagon Capital, adding there's likely no other investor in the offing given the porous state of the airline's books...
...One union leader dismissed Trinity's statement, saying it was another round of brinkmanship.
"This is not going to prompt us to get on our knees and beg and give more money back," said Gary Fane, director of transportation for the Canadian Auto Workers, which represents ticket agents and call-centre employees...
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