bcnfish

Agreed. That's why I asked 3 different agents.

Still by no means an official answer but if all 3 agents have been told the same thing (that the temporary removal turned permanent) it's coming from somewhere and might potentially be correct.

canadiancow

It's coming from some gossipy front-line employee.

VP of loyalty and the notice on Aeroplan.com say it's coming back. Call center agents say it's not.

There's basically an entire thread on this: I work at the airport/for the airline. You're wrong.

Adam Smith

Oh, I agree completely. BOG is mostly backpackers and Colombian VFRs, but the front is often packed with people in oil or mining. CUN has a few conferences. People occasionally do corporate retreats to PHX. And so on. So there's definitely some business traffic to some of these places. Although I suspect business traffic to HUX and a couple other places might be zero or darned close to it

If three alarm clocks are all flashing 12:00, does that make them more likely to be correct?

Adam Smith

@skybluesea , since this question isn't about AC's share price but about COVID-19's impact on its finances, I'm replying in this thread.

In short, I wouldn't be worried about your credits. You should either get to fly them or, worst case scenario, get reimbursed by your credit card. But most likely you'll get to use them to fly.

Detailed answers to your questions follow.

Or do I become an AC creditor in bankruptcy?

First of all, you're already a creditor to AC. You've paid money to AC for a service and not yet received said service, so you're owed either the service or your money back.

So How much of these future flight credits are embedded in current AC financials?

Your purchased tickets and credits show up as liabilities on AC's balance sheet in "Advance ticket sales", which were $2.94B at December 31.

AC also categorizes a portion of the ticket price as a purchase of Aeroplan miles. In 2019, $201MM out of $17.2B of ticket sales, or about 1.1%.

So let's say the total outstanding obligation for tickets already sold was $2.97B (2.94 × 1.011 to account for the portion that's buried in Aeroplan deferred revenue). That number will include both credits such as yours as well as people with tickets that are still valid.

Usually in March, the number would be higher than in December, but with the current mess, forward bookings are way down. What it is now, hard to say. $1.5B? $2B? Maybe as low as $1B? Really hard to say.

Either way, it's a small component of AC's total liabilities at December 31, which were $23.4B.

For those with a crystal ball in the airline finance world, your views please?

Before discussing the details of insolvency, I will just reiterate that I see it as unlikely that AC becomes insolvent. Liquidity is still good, there are lots of unpledged assets, etc, and I also think it's likely the government would step in with some kind of assistance before insolvency.

But, if worst came to worst, broadly, there are two ways an insolvency could play out.

1. Liquidation: this is where the company has essentially run out of money and is no longer a viable business. The company ia shut down and assets are sold off to the highest bidder.
2. Restructuring: the company negotiates with creditors to reduce debts and restructure other contracts.

Option 2 is generally preferred by creditors and customers alike.

If AC goes with option 1, which is highly unlikely, you should be entitled to a refund through your credit card. The credit card companies would then litigate with AC to recover whatever they could. I've had trouble digging up the old Jetsgo documents to see exactly how it was resolved, but Moneris, which clears the credit card payments, was by far the largest creditor there.

I suspect that customers got their money back and that Moneris and the card issuers ate the difference between whatever they recovered and what they had to refund to customers, but I don't know for sure. With more digging, I might figure it out, but it's highly unlikely that AC will go this route. That requires a business to be a total train wreck, essentially, and AC was actually quite profitable before this externality whacked them.

If AC did become insolvent, if would be far more likely to continue operating and attempt a restructuring rather than a liquidation. This is what AC did in 2003, and what all the US majors (other than WN, which has never been insolvent) went through in the last 10-15 years. In Canada, this would be done under the Companies Creditors Arrangement Act, or "CCAA". The equivalent in the US is Chapter 11.

During CCAA, a business essentially continues to operate as normal. From a customer perspective, that means that existing bookings are honoured. Although, as I've explained above, customers with outstanding tickets are creditors, it generally doesn't make sense to try to haircut them.

For example, if someone is owed $200MM on a bond, it's easy to cut what's owed to them by reducing the amount owed, lengthening the maturity, lowering the interest rate, etc. But how do you give a haircut to someone who has a YYC-YYZ ticket? Do you drop them off in YQT? It's really not practical.

It would, in theory, be possible to haircut the value of unused credits, e.g. to say that your $12K worth of credits are now only worth $7K. But the problem is that those credits will be relatively small compared to regular advance ticket sales, so it will be complex and expensive to administer. Anyone holding those credits will then also become a creditor affected by the restructuring, entitled to vote on the plan, and needing to be organized, which costs time and money.

It's also not uncommon, in a large insolvency, to set a certain threshold below which small creditors won't be impacted - if there are billions of dollars of obligations, it's simply not worth the time to fight about $500 here and $200 there and so on. Most of the credits are going to be in that magnitude.

The biggest fish to fry will be the roughly $9B of long-term debt and leases. A lot of those will be secured against aircraft, so they may be difficult to modify, but they're the biggest item. There's a $4B liability for future Aeroplan redemptions, which can potentially be written down by devaluing Aeroplan points, I would think. There's $2.9B of pension liability. Similar size to the advance ticket sales, but much easier to do something on - you only have to negotiate with a handful of unions rather than deal with a retail class.

The bottom line is I think it's highly unlikely that credits for future travel get impacted in an insolvency, which is in and of itself pretty unlikely. So I wouldn't worry too much, if I were you.

eigenvector

Thanks for all the analysis, Adam. And I agree - as someone sitting on around $5k in credits from various airlines at this point, I'm not too worried. There are however people that are facing a cash crunch of their own due to COVID-19 and could really benefit from retrieving $300 or $500 or whatever back from AC for a flight that will no longer be operated. They will be the ones who pay the price for this.

InTheAirGuy

Um, but they do work at the airport.

I get so confused on Flyertalk.

Adam Smith

Note that my analysis is for AC only. It's probably also applicable to WS and the US3, and I doubt that governments will let IAG, LH Group, AF/KLM go under, but I don't know about some of the smaller airlines from lesser countries. Maybe TAROM is a goner and their government can't afford to bail them out, or Czech. Maybe TG is dodgy because they've been in trouble for a while. I'm certainly hoping that AZ cancels a flight I have booked with them for later this month, because that thing is such a basket case for years that I worry it could go in to liquidation and I'd have to fight Amex to try to get money back.

I don't disagree that it sucks for people who need the cash. Forget about $300 or $500, there are probably families out there that are out of pocket thousands for their spring break trips with ACV that are now cancelled. My analysis was only about whether people should be worried about travel credits with AC though, as opposed to the rightness or wrongness of it

It really shouldn't be confusing

Rundosrun

#BREAKING - Big layoffs at Air Canada. 3,600 employees at Air Canada mainline, and all 1,549 employees at Air Canada Rouge will be temporarily laid off.

Rundosrun

#BREAKING - Big layoffs at Air Canada. 3,600 employees at Air Canada mainline, and all 1,549 employees at Air Canada Rouge will be temporarily laid off.

24left

Now on CBC's website




https://www.cbc.ca/news/canada/briti...down-1.5504051

mileageking

With more than 5100 FA layoffs at AC, when government eventually bails out airlines, there should be stipulations in agreement to ensure sufficient funds also flow directly to AC employees.

YEG USER

Why? If the employees get laid off temporarily, I’d rather the money go directly to the employees via EI. We already have a social safety net for loss of employment, I say let’s use that.

Any bailout money should be used to keep the company solvent - that doesn’t necessarily mean keeping/paying for employees that are non-essential.

I’m all for attaching certain strings though, such as no bonus payments to executives, etc. IMHO taxpayer bail out money shouldn’t be spent for executives to enrich themselves - if they want to do that the executives should arrange for financing from non-taxpayer / government sources that might allow them to collect such bonuses.

mileageking

My point is that portion of government subsidies to airlines should go towards keeping pilots, FAs, airport agents at work when it's time to stimulate and accelerate airline industry back to normal and keeping planes off the ground. Direct funds to minimize employee layoffs (who know for how long this can be). It shouldn't go to enrich shareholders or pad profits or executive bonuses during these tough times.

Fiordland

CBC is reporting that this set of layoffs are from flight attendants. That means there will likely be more large announcements such as this one for the other bargaining groups.

Sad but needed.

Plumber

I am so sad to see this, though I completely understand why it is necessary. I hope all these people can get funding from EI and/or other programs in the coming weeks and months.

Unfortunately this is the tip of the iceberg in terms of the job losses that are coming in our country.