Air Canada refunds (finally) coming with government bail-out

After more than a year of waiting, tens of thousands of Air Canada customers are poised to finally receive COVID-related refunds. The carrier agreed to convert outstanding credits to proper refunds as part of a C$5.8 billion financial aid package funded by the Canadian government. A similar bailout package was proposed six months ago, also with the requirement that passengers receive refunds, but was not finalized.

A dedicated C$1.4 billion tranche of funds within the package is dedicated to customer refunds. The carrier also agreed to not claw back travel agency commissions on the refunded fares.

The additional liquidity program we are announcing today achieves several aligned objectives as it provides a significant layer of insurance for Air Canada, it enables us to better resolve customer refunds of non-refundable tickets, maintain our workforce and re-enter regional markets.

– Michael Rousseau, President and Chief Executive Officer of Air Canada

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Michael Rousseau, President and Chief Executive Officer of Air Canada, notes that the company previously secured C$6.8 billion of liquidity on the open market. That was enough to stay afloat in a contracted stated. The new funding via Canada’s Large Employer Emergency Financing Facility (LEEFF) program “provides additional liquidity, if required, to rebuild our business to the benefit of all stakeholders and to remain a significant contributor to the Canadian economy through its recovery and for the long term.”

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The carrier must resume service to “nearly all regional communities where service was suspended because of COVID-19’s impact on travel” as part of the deal. Employment must be maintained at or above the level from 1 April 2021, and the carrier faces limits on other spending, including share buy-backs or increased executive compensation.

These terms parallel those that US carriers agreed to when taking government funds under the CARES Act. Air Canada faces one other requirement, however.

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Under the terms of the deal it is required to complete its acquisition of 33 A220s, all built at the Mirabel, Quebec facility. Air Canada also agreed to complete its existing firm order of 40 Boeing 737 Max aircraft, subject to the terms and conditions of the applicable purchase agreements.

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The funds are to be disbursed via six different tranches. Air Canada will receive $500 million from the sale of shares to the government at C$27.1793/share, roughly the price on the open market for the past couple weeks.

Four separate loans are also in play. The C$1.4 billion for customer refunds is a 7-year deal priced at 1.211% annual interest.

Separately, the government will offer C$1.5 billion in the form of a secured revolving credit facility at a 1.5% premium to the Canadian Dollar Offered Rate (CDOR), secured by the Aeroplan loyalty program and related intellectual property assets.

The remaining $2.475 billion comes in the form of three unsecured non-revolving credit facilities of $825 million each:

• a five-year tranche at a 1.75% premium to CDOR per annum;
• a six-year tranche at 6.5% per annum (increasing to 7.5% after 5 years);
• a seven-year tranche at 8.5% per annum (increasing to 9.5% after 5 years).