Aimia remains open to negotiating fair deal with Air Canada, says CEO

Aimia Inc. says it remains open to negotiating a fair deal for the purchase of its Aeroplan loyalty program by Air Canada and its partners despite striking a deal with Toronto-based Porter Airlines and holding discussions with the Oneworld airline alliance.

"We never stop negotiating. Should the consortium want to engage with us in a constructive dialogue, we would be happy to entertain that," Aimia CEO Jeremy Rabe said Friday during a conference call.

"At the same time, we feel very confident about our future plans. So either or, we're happy to go down either path."

Rabe insisted that Aimia didn't reject the Air Canada group's offer, but said it was very conditional and didn't fairly value the business.

The consortium which includes Toronto-Dominion Bank, Canadian Imperial Bank of Commerce and Visa Canada initially offered $250 million cash and the absorption of $2 billion of mileage liability, but subsequently raised the offer to $325 million, still short of the $450 million Aimia believes would be a fair price.

"We have a number of shareholders that are frankly pretty upset that we offered a number that low," Rabe said.

'Scratching our heads'

One of those shareholders Cetus Capital said it is frustrated by the consortium's lower offer.

"We're scratching our heads as to why the offer is so low in light of the significant and substantial strategic and financial benefits to Air Canada and the consortium partners," Bart Stout said during the call, outlining a series of strategic benefits to the airline and its credit card partners.

They include the significant cash Aeroplan generates for Air Canada, the valuation discount relative to other airlines that would decrease by having its own in-house loyalty program and a lower risk for the credit card partners who may not be chosen as a partner for Air Canada in a stand-alone plan.

"We continue to believe that Air Canada is acting very penny-wise pound-foolish as it relates to their tactics here. They should be more than willing, more than excited to acquire Aeroplan. Frankly, we believe the value that they should be acquiring Aeroplan for should be significantly more than $450 million."

Rabe said Stout was "spot on" with his assessment.

"We felt like $450 million was a very, very reasonable number. And if there was a real willingness to engage from the consortium, that would have been accepted and then it just kind of leaves you wondering if there was really a real willingness or not."

Search for new partners

The future of Aeroplan, which has more than five million members, has been in doubt since Air Canada announced in May 2017 that it planned to launch its own loyalty rewards plan in 2020.

Aimia and Air Canada issued statements Thursday evening signalling that talks had broken down just hours before a midnight deadline for the offer to expire.

Aimia announced Thursday it is in partnership talks with the Oneworld airline alliance, a major competitor to the Star alliance, of which Air Canada is a member. On Friday, it said it will partner with Toronto-based Porter Airlines. Those partnerships would give Aeroplan members new options when the loyalty program's current deal with Air Canada expires in 2020.

Air Canada said Thursday evening that its proposal delivered a sizeable premium for Aimia shareholders and was the only opportunity for all Aeroplan Miles to transfer into Air Canada's new loyalty program it is developing.

There remains a reasonable likelihood that Aimia will reach an agreement with Air Canada given the high uncertainty in transitioning Aeroplan through 2020, said Drew McReynolds of RBC Capital Market.

"We also believe the difference in the perceived value of Aeroplan among the parties [$125 million]is not overly material to the consortium yet meaningful to the value of Aimia," he wrote in a report.

Under a new deal announced Friday, Toronto-based Porter would become a preferred Canadian airline for the Aeroplan loyalty points program as of July 2020, when the current arrangement with Air Canada ends.

The privately owned airline, which has its main hub at the Billy Bishop airport on one of the islands near Toronto's downtown, currently serves Toronto, Ottawa, Montreal and other Canadian cities from St. John's, N.L., to Thunder Bay, Ont., as well as U.S. destinations including the New York City area, Chicago, Boston and Washington, D.C.

"This is a unique opportunity for Porter to join a well-established travel loyalty program and, in the future, reach its vast member base to aggressively promote our airline," said Michael Deluce, Porter's chief commercial officer.

Under terms of the deal, Porter's existing VIPorter loyalty points will be converted into Aeroplan miles.

Porter's fleet of aircraft is only a fraction the size of Air Canada's, but Aimia has also been in discussions with the Oneworld airline alliance, whose members include British Airways, American Airlines and Cathay Pacific.

Shortly before announcing the Porter agreement, Aimia reported that spending on Aeroplan credit cards remained strong in the second quarter and the company is "making solid progress" on streamlining its business.

The Montreal-based company also announced that its continuing operations had a net profit of $11.1 million or four cents per share in the second quarter, with revenue up 3.9 per cent to $375.4 million.

That contrasted with a year-earlier net loss of $25.1 million or 22 cents per share from continuing operations, or 18 cents per share if discontinued operations were included, with $361.3 million in the second quarter of 2017.