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Air Canada falls as the bailout sees the government take equity

(Bloomberg) – Air Canada shares fell after the company signed a loan and equity deal with the federal government valued at nearly $ 5.9 billion ($ 4.7 billion). For the first time since the 1980s, the state was again a shareholder in the country’s largest airline. Air Canada fell by 2.6% to CAD 26.29 from 12:39 p.m. in Toronto. It previously fell more than 6.6% as the market picked up news that Prime Minister Justin Trudeau’s government is buying $ 500 million worth of shares at a discount. The government will also receive warrants under a funding agreement that Air Canada calls into question for five new credit facilities, according to a company statement. The dilution for shareholders “was greater than expected,” said Kevin Chiang, an analyst at Canadian Imperial Bank of Commerce, said in a note. If all warrants were exercised, the government would own 9.7%, Chiang said. In return, Air Canada agreed to limit share buybacks and dividends, keep employment at April 1, and close a deal to purchase 33 Airbus SE A220s manufactured at a Quebec factory. Executives cannot earn more than C $ 1 million. And the airline will resume service on routes exposed to remote locations such as Gander, Newfoundland and Yellowknife in the far north of the country. The long-awaited announcement will ease tensions between industry and the Trudeau government, which has banned most foreign travelers from entering the country since last March and recently tightened the rules. Air Canada has repeatedly complained that its home country is the only member of the Group of Seven without a relief plan specifically for the aviation sector – even though the company has used federal wage subsidies that are available to all industries affected by the pandemic: “We wanted good deal, not just any deal. And getting a good deal can sometimes take time, ”Treasury Secretary Chrystia Freeland said at a press conference Monday evening. Air Canada also committed to repay customers who had not booked flights they had booked due to Covid-19. One of the credit facilities, a line of $ 1.4 billion, is earmarked to fund refunds. “Fixed guarantees” “At first glance, the Canadian government’s aid package for Air Canada looks a bit onerous,” Citigroup analysts said in a note. “On the one hand, the aid certainly helps to create a more stable financial situation for the airline. On the other hand, some of the requirements seem difficult. “While the equity component is” somewhat surprising, “the package is” the money that is needed, “said Robert Kokonis, managing director of Toronto-based aviation consultancy AirTrav Inc.” It’s going to be getting a lot of help for the transportation companies. We have been through a lot. We have been on standby while airlines in countries around the world have received one or more aid packages, “said Kokonis. According to Freeland, talks are currently underway with other airlines, including WestJet Airlines Ltd., which is operated by Toronto-based investment firm Onex Corp. to be controlled. Tour operator Transat AT Inc. is also in need of money and has said it speaks to the government after a deal to be taken over by Air Canada fell apart. “Wherever and whenever the federal government provides public assistance, the supported company must provide solid guarantees. Like Air Canada, the public interest is respected, workers protected and the interests of travelers defended,” Freeland said. As of March 18, government funding for the aviation industry worldwide – including loans and stakes for cash – has exceeded $ 183 billion, according to Ishka Ltd., an aviation finance and investment consultancy. Prior to Monday’s agreement, Canada’s most visible lifeline to the industry was a total of $ 375 million in emergency loans to Sunwing Airlines Inc. and Sunwing Vacations Inc., a small vacation company. Air Canada said it would only use the new credit facilities “as needed”. The package includes $ 2.48 billion in unsecured loans. “This program provides additional liquidity when needed to rebuild our business for the benefit of all parties and, through its recovery and long-term, make a significant contribution to the Canadian economy.” Michael Rousseau, chief executive officer, said in a statement: (Updates share second paragraph and comments from Citigroup analysts) For more articles like this, visit bloomberg.com. Sign up now to stay up to date with the most trusted business news source. © 2021 Bloomberg LP