Key Takeaways
- A consortium led by Blackstone and La Caisse is acquiring 25% of Air Canada’s Aeroplan loyalty program for approximately US$2 billion.
- The transaction assigns Aeroplan a total valuation of C$10 billion (US$7.2 billion), surpassing market expectations.
- Air Canada intends to deploy the funds toward retiring a billion-dollar bond obligation and reducing overall debt levels.
- Shares of Air Canada climbed roughly 6% to C$27.27, marking the highest point since July 2021.
- The carrier also exceeded Q2 earnings projections, delivering adjusted EPS of C$0.40 against forecasts of C$0.15.
Shares of Air Canada finished Tuesday’s trading session up 5.9% at C$27.27, reaching their strongest level in more than five years, following the airline’s announcement of a strategic partnership that will see it divest a 25% interest in its Aeroplan loyalty program for close to US$2 billion.
The purchasing group includes Blackstone alongside Quebec’s La Caisse pension fund. Additional participants in the consortium are PSP Investment and the British Columbia Investment Management Corporation.
The deal establishes Aeroplan’s total worth at C$10 billion, equivalent to approximately US$7.2 billion. This figure surprised Wall Street observers. Konark Gupta, an analyst at Bank of Nova Scotia, described it as representing a “significantly higher value” than market participants had anticipated, prompting him to elevate his rating on the stock to sector outperform.
With Air Canada’s current market capitalization hovering around $7.6 billion, the Aeroplan valuation represents a substantial portion relative to the airline’s overall enterprise value.
John Di Bert, Air Canada’s CFO, characterized the transaction as one that “strengthens Air Canada’s financial position by unlocking value from Aeroplan while retaining full operational control.” He emphasized that the deal advances the carrier’s objective of achieving an investment-grade credit rating.
Focus on Deleveraging the Balance Sheet
Currently, all three major credit rating agenciesāMoody’s, S&P Global, and Fitchāclassify Air Canada’s debt as below investment grade. The company reports C$12.79 billion in long-term debt and lease obligations on its balance sheet.
Funds generated from the Aeroplan transaction will be allocated toward satisfying an approaching billion-dollar bond redemption, with remaining capital directed toward additional debt retirement.
Aeroplan boasts more than 10 million active participants, representing approximately one-quarter of Canada’s total population. Participants accumulate points via Air Canada flights and partner credit card programs, then exchange them for travel rewards or merchandise. The program received recognition as the Americas’ top loyalty travel program at this year’s Freddie Awards.
Air Canada previously divested Aeroplan as an independent public entity during a bankruptcy reorganization. The airline reacquired the program in 2019 for C$497 million in cash, along with roughly C$2 billion in obligations associated with outstanding point balances.
Second Quarter Results Exceed Projections
The airline simultaneously released its second-quarter financial performance on Tuesday. Adjusted earnings reached C$0.40 per share, significantly outpacing the C$0.15 consensus estimate compiled by FactSet.
James McGarragle, an analyst with RBC Capital Markets, observed that even in a scenario where Air Canada ultimately divests up to 49% of Aeroplan, the program would still command a valuation near US$4 billion.
Blackstone managing director Mark Rutledge praised Aeroplan as “an industry-leading loyalty platform” and expressed that his firm is “a long-term believer in Canada as a compelling place to invest.”
Scotia’s Gupta acknowledged that volatility in fuel pricing presents a near-term headwind, but suggested the Aeroplan transaction should supersede that concern in investors’ minds.
Air Canada shares concluded Tuesday’s session at C$27.27.
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