Air Canada shares sink after government aid takes discounted equity stake


By Allison Lampert and Ankit Ajmera

April 13 (Reuters) - Air Canada AC.TO shares sank as much as 6.7% on Tuesday after the carrier nabbed a long-delayed federal aid package that provides access to liquidity but gives the government a discounted stake in the airline.

Several analysts cut their price targets for Air Canada after the deal that was revealed on Monday, which gives the Canadian government a roughly 6% stake in the carrier at a discount of 14%.

"We believe that Air Canada's access to this capital will prove to be insurance as opposed to necessary liquidity required to finance operations or capital expenditures in 2021 and beyond," TD Securities analyst Tim James wrote in a note.

James cut the target price on Air Canada to C$29 from C$31, while reaffirming a "hold" rating.

The deal provides access to up to C$5.9 billion ($4.7 billion) in a loan program that should help the airline ride out the financial impact of the COVID-19 pandemic.

Shares in Air Canada, the country's largest carrier, were down 4% at C$25.93, after rising more than 4% at the open.

As part of the deal, the carrier also agreed to refund customers who purchased a non-refundable ticket for travel on or after Feb. 1, 2020 but did not fly.

"Our target price declines due to the negative impact of greater short-term cash-burn and the impact of the dilution from the share and warrant issue on the price to equity component of our target," James added.

The Canadian government on Monday agreed to buy C$500 million worth of shares in the airline at C$23.1793 each.

The agreement - the largest individual coronavirus-related loan that Ottawa has arranged with a company - was announced after the airline industry criticized Prime Minister Justin Trudeau's Liberal government for dawdling.

Another analyst at Scotiabank also lowered the price target on Air Canada to C$29 from C$31, citing equity dilution.

"We believe some investors could be negatively surprised by equity dilution and a repayable loan for refunds," Scotiabank Konark Gupta wrote in a note, while reiterating a "sector perform" rating on the stock.

($1 = 1.2589 Canadian dollars)

(Reporting by Ankit Ajmera in Bengaluru, Editing by Sherry Jacob-Phillips and Bernadette Baum)


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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