Air Canada taps HK's Li for equity
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Air Canada slipped into bankruptcy protection in April.
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MONTREAL, Canada (Reuters) -- Air Canada has turned to a group led by Hong Kong-based businessman Victor T.K. Li for C$650 million ($485 million) of new equity the insolvent airline will use to fund its emergence from bankruptcy protection.
Air Canada, the dominant carrier in Canada and world No. 11, said late Saturday that it had chosen Li, the elder son of Hong Kong tycoon Li Ka-Shing, for the equity infusion over New York-based Cerberus Capital Management.
Air Canada has been under bankruptcy protection since April 1, as it seeks to restructure some C$13 billion of debt and obligations. Under the agreement with Li, made through Trinity Time Investments, a company he controls, Li will hold 31 percent of the equity in a restructured version of the airline.
Creditors with total claims of C$8 billion to C$10 billion would end up with about 56 percent of the equity in the restructured Montreal-based airline.
Existing shareholders will receive a nominal 0.01 percent stake, Air Canada said, an indication their common shares in the airline are in practical terms worthless.
Air Canada shares closed at C$1.08, down 6 Canadian cents, or 5.3 percent, on the Toronto Stock Exchange Friday.
The stock's 52-week high was C$6.29, but the shares plunged when Air Canada said it was insolvent and wilted further on warnings from the airline that they would be worthless after its restructuring.
The airline said the amount invested by Li, who is a Canadian citizen, would be part of C$1.1 billion of new equity that would include a C$450 million rights offering underwritten by Deutsche Bank.
Li is the deputy chairman of Cheung Kong (Holdings) Ltd. Li and his family have controlling interests in Cheung Kong and other widely held companies such as Hutchison Whampoa Ltd., Hongkong Electric Holdings Ltd. and Calgary-based Husky Energy Inc.
"We have full confidence in the company's senior management team, and will continue to work with them over the coming months to complete the steps which will reshape Air Canada into a leading competitor in the air transportation sector globally," Frank Sixt, a representative for Li, said in a statement.
To keep senior management on board, Trinity will provide Robert Milton, Air Canada's president and chief executive, and Calin Rovinescu, the airline's restructuring chief, with 1 percent each of new equity in the restructured airline from its own holdings, vesting in stages over four years.
Pension plan
Air Canada slipped into bankruptcy protection in April, buffeted by the long downturn in air travel and burdened by too much debt taken on three years earlier when it took over insolvent rival Canadian Airlines.
Under its restructuring, Air Canada has already garnered C$1.1 billion of concessions from its unions, put in place a plan to cut 10,000 jobs from its work force of 40,000, and cut back its fleet and flight schedule.
Saturday's agreement, which must close by April 30, 2004, is subject to a number of conditions, including resolving the funding of Air Canada's C$1.5 billion pension deficit, obtaining regulatory approvals and reaching an agreement to finance the acquisition of new 70- to 100-seat aircraft, Air Canada said.
The Canadian Auto Workers union, which represents thousands of ticket agents and call-center employees at Air Canada, said the pension plan deficit issue remains a hurdle to any agreement on new equity partners for the carrier.
"We have to finish the deal on the pension plan," Gary Fane, head of the transport sector division at the big union, told Reuters.
The union wants Air Canada to pay down the pension plan deficit faster over the 10-year period than the airline agreed to with Canadian regulators. Union leaders are to meet mid-week to discuss strategy on the pension talks.
Copyright 2003
Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
