Air Canada Insolvent; Aeroplan Should Survive

Air Canada Insolvent; Aeroplan Should Survive

Air Canada, the country’s flagship carrier and the world’s 11th largest airline, filed for bankruptcy protection on April 1.

The airline filed for protection under Canada’s Companies’ Creditors Arrangement Act — the Canadian equivalent of a U.S. Chapter 11 filing.

Citing heavy debt and a decrease in air travel, the airline has until May 1 to restructure nearly US$8.8 billion in debt.

In a conference call to analysts, Chief Executive Robert Milton said, “The business model is broken and it must be fixed without burning any more furniture.”

The airline hopes to cut labor costs and reduce its fleet in the near future.

Shortly after news of the filing was released, Air Canada took out full-page ads in Canada’s national newspapers assuring customers, “We are not going out of business.” The carrier said it will continue to operate as it restructures.

Aeroplan members have little to worry about, as the loyalty program remains one of the strongest portions of the company. If the Montreal-based carrier follows the lead of United and US Airways — North American carriers who likewise have sought bankruptcy protection — Aeroplan members should see little or no impact on award levels or redemption ability.

In related news, the bankruptcy filing has, at least temporarily, stalled the $245 million purchase of 35 percent of Aeroplan by Onex Corp. The two companies have, however, signed a letter of intent giving Onex the exclusive right to negotiate a new deal.

“Onex and Air Canada remain committed to completing the proposed Aeroplan transaction and intend to work expeditiously to finalize an agreement,” the companies said in a statement to CBC Online.

Some industry analysts have speculated that the cash-strapped airline might try to keep all of its lucrative loyalty program, and scrap any future dealings with Onex. Others have suggested that the infusion of cash from the sale might be too good an opportunity to pass up.

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