Chief executive Robert Milton believes Air Canada can emerge from court-supervised reorganisation by the end of March - 12 months after beginning the process - even though much still remains to be done.

Milton's target had been the end of 2003, but that slipped as a bidding war between two investment firms pre-empted almost everything else.

After the bids and counter bids, Air Canada again picked Trinity Time Investments, a company controlled by billionaire Victor Li, over New York hedge fund Cerberus Capital Management. Trinity has agreed to inject C$650 million ($505 million) for a 31% stake. But a group of unsecured creditors is dissatisfied with this choice and may propose a plan of their own that would favour Cerberus. It remains uncertain which would win support from a majority of creditors.

The dissident creditors argue that Cerebus would have improved creditor recovery by 15%, and that Air Canada rejected its bid on unfounded grounds. One of them is that Cerberus, which is US-owned, would face problems with Canada's foreign ownership cap.

The list of other issues left to resolve before Air Canada emerges from supervision looks much as it did in November, but the airline is turning its attention to them now despite its dispute with dissident creditors. High on this list is court approval for the airline's C$1.9 billion financing package with GE Capital and affiliates. GE's loan would require Air Canada to maintain a minimum cash balance of C$750 million.

Of this package, C$750 million is earmarked for exit financing, while the remaining C$1.2 billion is to fund the airline's long-awaited late-2003 order for 90 regional jets. Milton has stressed that Air Canada needs these aircraft to shift its strategy to providing services with greater frequency and on thinner routes. Air Canada split its order evenly between Bombardier and Embraer, with options from each for another 45 jets.

An approved procedure for resolving creditor claims also remains an issue. Finally, the airline, unions and government still must agree on a plan to fund an estimated C$1.5 billion pension shortfall. Union leaders say a settlement is within reach, but Air Canada complains that the government pension supervisor is still making "impractical" demands.


Source: Airline Business