Air Canada’s holding company, ACE Aviation Holdings, is in empire-building mood, selling stakes in assets such as its Aeroplan frequent flyer programme to fuel growth in other areas
Aeroplan, Air Canada’s frequent flyer programme, is the first with plans to spin off some 18% for about C$288 million ($230 million). ACE converted Aeroplan into an income trust so it can offer trust units to investors. Last year, Aeroplan earned almost C$700 million, mainly through the 80 credit card issuers and large retailers who award points for purchases. Its estimated value has soared to over C$1.5 billion.
Converting Aeroplan into a separate unit has given it a more entrepreneurial outlook and it “intends to explore opportunities to acquire, convert and manage loyalty programmes and marketing incentives of other third parties globally”. Under ACE chairman Robert Milton’s guidance and with its own borrowing arrangements, Aeroplan could make its own acquisitions.
In another expansion move, ACE has committed $75 million in new capital to the US Airways-America West merger. In exchange, it gains a 7% stake and network benefits from feed at US hubs. Its biggest coup may be a five-year maintenance deal with the merged airline that is worth almost as much each year as the total equity pledged. Air Canada Technical Services will handle this work on top of a five-year maintenance contract it signed in March for work on the Boeing 757s and 767s of Delta.
As its outsourcing increases, the technical services unit expects to earn over C$1 billion next year, with less than half that coming from Air Canada, making it the third biggest maintenance services organisation in the world, says Milton. “It will be an eminently IPOable co-operative when we get to that stage,” he said.
Air Canada Jazz president Joseph Randell says a partial or even complete spin-off of the regional unit was possible and could fund aircraft purchases. But, he says, any decision would be driven by “many factors such as market conditions, and the ACE board obviously would make decisions” on whether or when to do so.
Selling minority stakes in a number of assets and using the proceeds for more acquisitions appears to be part of ACE’s strategy to become a major player. Milton says its model of building substantial businesses in these fields is similar to that of Lufthansa and Singapore Airlines, with the main difference being that Air Canada “will push further, faster on the monetarisation of these units”.
DAVID KNIBB SEATTLE
Source: Airline Business