The federal government has struck a deal with Air Canada after months of negotiations.
The financial aid package provides the airline up to $5.9 billion, which includes $4 billion in repayable loans and $1.4 billion loan with an annual interest rate of 1.5% and 1.2% respectively. The loan in particular will be utilized to directly support customer refunds and non-refundable tickets.
This deal is mutually beneficial as the government will take a $500 million stake in Air Canada at $23.2 per share, which is a 14% discount from the most recent closing price. The government will also hold warrants for 14.6 million shares.
In light of this deal, Air Canada will start the process of refunds for passengers who bought non-refundable tickets but could not travel due to COVID-19 starting April 13th.
Regional routes were suspended due to COVID but now they will resume.
The government has also limited senior executive compensation, restricted dividends, and share buybacks. The total compensation will be capped at $1 million each for as long as Air Canada is utilizing government funds.
“Taxpayers aren’t footing the bill. This is a loan facility, and the Government of Canada fully expects it to be paid back,” Finance Minister Chrystia Freeland said at a news conference Monday evening.
“This program provides additional liquidity, if required, to rebuild our business to the benefit of all stakeholders and to remain a significant contributor to the Canadian economy through its recovery and for the long term,” Air Canada’s chief executive Michael Rousseau said in a statement released Monday.
Passenger levels are down 90% due to COVID-19 pandemic, which has devastated the airline industry. The government and the airline industry need to work together in order to bounce back.