Milton puts Air Canada in the shop window

As one of the shrewest airline bosses around, it comes as no surprise to see ACE Aviation Holdings chairman Robert Milton taking advantage of merger and consolidation mania across the border by talking up the prospects of a sale of ACE’s greatest asset – Air Canada.

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Globe and Mail reporter Brett Jang was spot on describing Robert’s words to a conference call as “putting a for sale sign on Air Canada“.

“In my view, as I watch the U.S. airlines scurrying around to merge, anybody that actually ties up with Air Canada gets a unique piece of geography relative to the way the US guys would split it up,” Milton said, according to the Globe report.
Now in Milton’s grand scheme of things in creating the ACE structure to hold and then sell off the bits that made up the Air Canada group – Jazz the regional carrier, Aeroplan the loyalty programme, Air Canada Technical Services the overhaul arm – flogging off the airline was always part of the plan.

Milton said that several investors have been sniffing around Air Canada in recent times. ACE has a 75% stake in Air Canada.

It is no secret that Milton wants to do himself out of a job in the not too distant future by dissolving ACE as it sells off its assets.

He explained the strategy to us in detail in a cover interview in Airline Business in 2006.

Whether that sell off will see Air Canada find a US airline partner is a good question (and foreigners can only hold 25% of the voting stock of the airline at present anyhow).

But Milton is encouraging his US cousins to take a look: “I think it would make a lot of sense for a US airline to look to Air Canada.”

If it does work out this way, let’s hope the experience is better than the most recent attempt at cross-border linkage.

The last US carrier to get involved north of the border was American Airlines, which had a 25% for a while and was interested in more but foiled by the ownership restriction among other things.

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2 Responses to Milton puts Air Canada in the shop window

  1. Peter 12 February, 2008 at 9:08 pm #

    To be honest, I have always believe that the whole idea of breaking up an airline into bit and pieces and selling them off (ie: in Air Canada case), will actually devaluate the company and put more uncertainty into the company. To be honest, in this case, Air Canada can not function without it’s maintanence, nor it’s frequent flying program, so calling this added value to the shareholders by selling off bit and pieces, is simply a myth. It is just a way for ACE to get the maximum amount of cash for it’s asset, while at the same time weakening Air Canada future prospect as an airline (because when you think about it, Air Canada will now have no control of it’s maintanence and it’s frequent flyer program). The only gainer is Mr. Milton and those who own stock in ACE. After ACE sells off Air Canada, the new Air Canada management will have to struggle to negotiate terms with it’s maintance and frequent flyer company (which is now run by an external seperate company). This will not work in Air Canada favor, because Air Canada need to ensure those maintance and frequent flyer company does not go bankrupt yet at the same time, Air Canada need to somehow squeeze more cost cutting from those same companies. This will be quite a hard job. I think eventually Air Canada will have no choice but to either repurchase all the bit and pieces that was sold off by Mr. Milton, or just cut their contract with those companies and rebuild those division that was sold off. If it is the first case, where Air Canada will repurcase it’s old division, it will weaken Air Canada cash position. It if it the second case, it will now put the spun off company to go into bankruptcy (due to the lost of Air Canada contact) and a lot of people will be out of job. Either way, it is not good for Air Canada and everyone that is involve with Air Canada. The only real gainer is Mr. Milton and ACE shareholders, but by that time, they will have already cash out long ago and ACE will no longer exist. This might look very grim, but I think this is exactly what will happen within the next 10 years after Air Canada is sold off and ACE is closed down by its shareholders and take all the cash that was made by the sell off.

  2. Mark Pilling 13 February, 2008 at 10:01 am #

    Peter you raise some fundamental concerns and ones that other airlines are wrestling with as they ponder similar moves.

    I am not sure of the terms ACE/Air Canada has negotiated with its maintenance arm ACTS or Aeroplan but rest assured they will have had these concerns too.

    When I interviewed Air France-KLM boss Jean-Cyril Spinetta for the January issue I asked him whether he was looking at such a move. He replied that they didn’t need to because they didn’t need the money, and he said you might get a one-time gain but that you still of course have to pay for these services.

    http://www.flightglobal.com/articles/2007/12/17/220282/jean-cyril-spinetta-uniting-force.html

    However, I suspect others will make such moves, but perhaps not wholesale like ACE/Air Canada.

    Thanks for the note.

    Mark Pilling
    Editor
    Airline Business

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