Air Canada cashes in

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Air Canada’s holding company, ACE, remains bullish about selling stakes in its various divisions despite red flags from several institutional investors.

In February ACE grossed C$235 million ($206 million) by selling 19.1% of its regional airline Jazz as an income trust. The offering was four times oversubscribed by enthusiastic retail investors attracted by forecasts of an 8.75% yield.

This is the second successful offering by ACE, which raised C$288 million last June by selling a 14.4% stake in Aeroplan, Air Canada’s loyalty programme. Jazz would have been sold sooner, but it was delayed last September when the Canadian government considered but then rejected a change in income trust tax rules.

Next up is likely to be Air Canada Technical Services (ACTS), the airline’s maintenance arm. ACE chairman Robert Milton estimates a minority stake in it will be offered before the year’s end. ACE has already started in that direction by hiring former Nortel Networks executive Chahram Bolouri as chairman and chief executive of ACTS. His brief is to boost the unit’s third-party work and prepare it for a public listing.

Another candidate mentioned for a partial spin-off is the travel unit Air Canada Vacations where an interim chief executive has recently been appointed.

These offerings may face more questions after concerns raised by some investors over the Jazz sale. Unlike Aeroplan, which has many customers, some investors worry that Jazz relies too much on the mainline carrier. For that reason they claim Jazz is no more reliable an investment than Air Canada itself. One broker commented: “The airline industry has never really made a profit.”

Clive Beddoe, chief executive of rival WestJet, questions the wisdom of creating standalone units. “I see this as just a cash grab trying to liquidate assets.” ■

DAVID KNIBB / SEATTLE