Shares hit a five-year high as Blackstone and three pension giants buy in
A stake sale in Air Canada's Aeroplan loyalty program has unlocked a valuation the market had not priced in, sending the stock to a five-year high and drawing a wave of favourable analyst commentary.
The country's largest carrier will sell a quarter of the program to a group led by Blackstone and three Canadian pension managers for $2.5bn.
The deal implies a $10bn value for a business Air Canada bought back in 2019 for less than $500m, The Canadian Press reported.
Shares jumped 12 percent to close at $30.61 on the Toronto Stock Exchange on Wednesday, their strongest level since early 2020
Bloomberg had reported Monday that Blackstone was nearing a roughly $2bn stake, prompting Bank of Nova Scotia analyst Konark Gupta to upgrade the stock to sector outperform.
That number, Gupta wrote, implied a "significantly higher value" for the loyalty business than the market had assigned.
Air Canada retains the right to repurchase the minority stake in five to eight years, with buyers guaranteed a 6.5 percent rate of return.
TD Cowen analyst Tom Fitzgerald called that return "very attractive" for the airline.
"The announced transaction is very positive versus the scenarios we contemplated," Fitzgerald said in a note to investors, reported by The Canadian Press.
RBC Capital Markets analyst James McGarragle had earlier modelled a worst-case 49 percent sale implying a $4bn valuation for the business, according to Bloomberg, well below the figure the final deal delivered.
Alongside private equity firm Blackstone, the Caisse de dépôt et placement du Québec, the Public Sector Pension Investment Board, and the British Columbia Investment Management Corp are all taking part.
The sale is set to close Monday.
Air Canada plans to repay $1.7bn in bonds and buy back up to $800m in shares in September using the proceeds.
Outgoing chief executive Michael Rousseau said the deal would strengthen the balance sheet and support a push toward an investment grade credit rating, Reuters reported.
Fitch Ratings revised its outlook on the carrier to positive from stable on Tuesday, citing the Aeroplan transaction, and affirmed its BB issuer default rating.
Air Canada posted a net loss of $178m for the quarter ended June 30, reversing a $186m profit a year earlier, The Canadian Press reported, though adjusted diluted earnings of 40 cents per share beat the 13 cents analysts had expected, according to LSEG Data & Analytics.
Revenue rose 11 percent to $6.27bn.
The company reinstated full-year 2026 adjusted EBITDA guidance it had suspended on April 30, but cut the range to $2.9bn to $3.2bn from an earlier $3.35bn to $3.75bn, below the $3.23bn analysts had projected, per Reuters.
Free cash flow could fall by as much as half, to between $200m and $500m.
Chief financial officer John Di Bert attributed much of the pressure to fuel, telling analysts the US-Israel conflict with Iran had delivered a "$500m to $600m" headwind that was "to some degree non-recoverable."
Rousseau steps down at the end of the month after five and a half years, with Anko van der Werff, currently head of Scandinavian Airlines, set to succeed him, The Canadian Press reported.
ATB Financial analyst Chris Murray flagged the roughly five-month gap before van der Werff's arrival as an "unusual situation."
