Air Canada priced what may be the first Canadian dollar-denominated enhanced equipment trust certificate (EETC) transaction in February, simultaneously opening a new financing option for Canadian carriers while de-risking its balance sheet.

The private C$302 million ($233 million) 2018-1 EETC was split between a C$238 million A tranche with an interest rate of 3.67% and a C$63.7 million B tranche with a rate of 4.19% priced on 26 February. Morgan Stanley was lead and TD Bank a bookrunner.

The deal is one of only a few foreign currency EETCs and may be the first Canadian dollar transaction, a fact that is at least true for the public deals, multiple investment bank sources confirm.

Proceeds will fund the delivery of five aircraft – four Boeing 737 Max 8s and one Boeing 787-9 – due in April and May.

"We're very pleased with the take-up of deal," says Pierre Houle, managing director and treasurer of Air Canada, in an interview with FlightGlobal.

The transaction was oversubscribed by both Canadian and US investors, he says. While he declines to provide further specifics on the transaction, he says the notes were priced over a Canadian benchmark with maturities comparable to the airline's $719 million 2017-1 EETC that was priced in December.

In the 2017-1 transaction, the $172 million A notes mature in 12 years and the $145 million B notes in eight years.

Air Canada has sought to do a Canadian dollar EETC for several years, including having discussions with investment bankers, says Houle. Work on this inaugural transaction began in earnest in mid-2017.

"It's great," says one investment banker active in the EETC market on the Canadian dollar structure. "These are the times when you should innovate."


The 2018-1 transaction is another step in Air Canada's long-standing effort to reduce risk. Aspects of the multi-year programme include debt reduction, meeting pension obligations and diversifying its network.

Leverage at the Montreal-based carrier has improved over the past five years, with the ratio of net debt to trailing 12-month revenues decreasing a percentage point to 2.1x during 2017, financial filings show. This came even as long-term debt and finance leases increased 58% to C$5.45 billion in December from C$3.45 billion at the end of 2012.

Currency is a big risk for Air Canada. The majority of its revenues are in Canadian dollars but many expenses, including aircraft and fuel, are in US dollars. Last year, it had roughly $3.6 billion in US dollar operating revenues compared to $5.4 billion in operating expenses in the currency, an annual financial filing shows.

The 2018-1 EETC reduces the airline's US dollar obligations, shifting the currency risk to the lenders from Air Canada, says Houle.

"The structure plays into our desire to reduce our risk profile on the currency side," he says.


Air Canada has a robust aircraft delivery stream in the next few years. It expects four used Airbus A330-300s, 34 737 Max 8s, seven 787-9s and one CS300 through 2019 for a total capital commitment of C$3.17 billion, its latest fleet plan shows.

The airline will "certainly" look at the Canadian-dollar EETC market again to meet some of these commitments, says Houle. However, he adds that the majority will likely continue to come from the US dollar market, which remains significantly larger and deeper.

"I would expect a mix of US dollar and Canadian dollar [EETCs], and other structures that we have looked in the past," says Houle.

For 2018, Air Canada has Canadian dollar and US dollar EETC financing in place for 13 of its 16 737-8 deliveries and its five 787-9s. It plans to pay cash for the remaining three 737s, says Houle.

Air Canada is not the only carrier interested in the Canadian dollar EETC market. WestJet director of treasury Heather Wilson, speaking at an industry conference in San Diego on 5 March, said the structure is an option as the airline looks to diversify its funding sources over the next few years.

The Calgary-based carrier plans to pay cash for its seven 737 Max 8 deliveries this year but she suggests that it is considering financing some of the 787s that it begins taking in 2019.

"The 787s aren't cheap," jokes Wilson.

Air Canada 2018-1 EETC

Source: Cirium Dashboard