Topic Author
Posts: 1496
Joined: Tue Jul 06, 1999 10:52 am

Canadian Files For Creditor Protection

Sat Mar 25, 2000 7:58 am

Apparently today some creditors of Canadian Airlines forced CP to file for creditor protection by demanding $186 million in payments.

Read the press releases at:
Posts: 196
Joined: Sun Jun 05, 2011 12:06 am

RE: Canadian Files For Creditor Protection

Sat Mar 25, 2000 11:22 am

Ac183, I had to chuckle when I saw your post. This time you beat me by a short time frame publicizing this info.

The public assurances of management are as reported and have been substansiated by internal update to all employees. Although I, as many others, can live with the assurance that this is a normal progressive step it is still disconcerting to have the tag "bancruptcy protection" attached to the operation of your employer. As 80% of the existing creditors of Cdn. have entered into agreements with them and are protected with this filing as secured creditors you can't help but think about the other guys still bucking it or left out in the cold. What is their stategy? What do they hope to obtain?

You seem very knowledgable of the industry in Canada (as well as elsewhere). Can you shed some opinionated light on what the motive of the "I'm not playing hardball" faction in the 20% category could be? Filing for CCAA protection was predicted/threatened months ago. Forearmed with this knowledge, what incentive would there be for investors or creditors to hold out and participate in this form of crap shoot or is everyone playing a version of "chicken"?
Topic Author
Posts: 1496
Joined: Tue Jul 06, 1999 10:52 am

RE: Canadian Files For Creditor Protection

Sun Mar 26, 2000 6:55 am

Hi Flygirl, I too have to grin seeing your posting, for once I was a short bit ahead of the other industry watchers.

On the topic of CP under creditor protection, I would think it would be a bit disturbing for CP employees, but at least there's commitments of job security the way this works out.

Anyways, to go into a little discussion on these creditors. I guess this is better described as speculative than opinionated, but here goes:

First of all, I think it should be noted that these creditors are partly secured, but not completely. Also, just my impression, but I think the 3 creditors are basically bankers or bond holders, not aviation companies. I think the relevance of this is that the "future considerations" aren't worth anything to them, as they're not ILFC or GECAS so they don't really care about future financing deals in airlines. They are just bondholders and they want their money. To be honest, however, I personally don't have much sympathy for them. They bought high-risk bonds and got high interest from them, but that's because of the risk that this would happen.

So basically what happened? I could be wrong, but I think it's a matter of playing chicken. I think these bond holders figured Brotto wouldn't invoke CCAA, and hoped to get their money. They maybe figured they could grab the cash and Brotto quietly wouldn't call them on it, he'd just let those few creditors demand payment and wouldn't risk any fallout coming due to CCAA filings. I wonder, though, how they figured on getting $186 million out of CP, when the company has less than $100 million in working capital right now? Maybe they just wanted the collateral to liquidate? It is possible they figured they could make more by grabbing collateral than by accepting any reasonable payment. Or maybe the figured they could get it out of AC coffers? Whatever it was, Brotto and Carty obviously didn't hesitate to pull out CCAA. In fact, when you think about the fact that CCAA was filed only a very very short time after the creditors filed to take their collateral, then I think it's obvious CP was very prepared with paperwork and legal proceedings were ready to go.

Anyways, the National Post today reported that these creditors held as collateral "six spare engines, trucks, baggage and cargo handling equipment, de-icing trucks, power carts, forklifts, trailers for baggage and pallets, delivery vehicles, jet fuel and catering supplies. The notes are also secured by operational centres in Vancouver and Calgary, and by three aircraft hangars in Toronto. The group is a substantial unsecured creditor of Canadian Regional." This almost makes me laugh a bit, when you think about each item they obviously aren't thinking about who they can sell it to. Just because they claim a book value of more than they are owed, I can't see them getting their money out of this stuff better than just accepting their 92% in cash. I'll just touch on each item mentioned.

The spare engines are not the CFM56's as I believe CFM holds them as collateral. The idea that they are DC-10 spares would be somewhat humourous, don't you think? More likely, though, they are either 737 or 747/767 spares. As far as JT8D engines go, a lot of the 737 fleet will be replaced fairly soon, I think, and for other aircraft the JT8D engines are quite commonly availiable. I can't see the JT8D's as being much of a threat if they take them.

Ground equiptment would be interesting to see them try to liquidate. It would reduce the value very much to have to go to the expense of exporting or even just moving the stuff within Canada, and domestically although a few other contractors might be interested, the only operator with significant need for the stuff would be AC. And even if AC did buy some of it back, they would probably pay low prices and wouldn't even buy all of it because they already have a good portion of what they will need for AC/CP operations. The creditors could end up being stuck with ground equipment without a buyer, which should scare them a little, I think.

Jet fuel, well, let's see. They can't touch it for under CCAA for a while now, and I'll bet CP's fuel will mostly be burned up in the next few weeks with any reserves being hedged through AC channels, just to foil these guys.

Now as far as real estate. The YYZ hangars are due to be torn down to make way for the new terminal (makes me kind of laugh at the prospect...). The YYC hangars aren't really critical to operations, but would be quite saleable. They are from the PWA days and really are set up to handle all the operations of a smaller airline, so maybe just building new regional or line hangars at YYC would suit AC/CP better than keeping the existing building anyways. YYC hangars would, I think, generate some interest from WestJet and Spar, however. The YVR base is pretty big and probably couldn't just be let go like the others. But it worse came to worse, they could consolidate into AC's buildings at YVR and lease out some other space elsewhere as well. And in the end, AC might be able to buy the YVR base back for less money the creditors would like, because who else would want such a big facility at YVR?

Also, any shares of Canadian Regional (I think that was collateral, too) would only be worthwhile if they could find a buyer. Basically all this collateral they claim is wonderful, but they could really be risking being saddled with a bunch of stuff while AC/CP simply replace it with other resources at their disposal.

Well, there's some collected thoughts on these creditors actions. Anything to add, Flygirl (or anyone else for that matter)?

One more thing. You're based out of YYZ, right? Just curious if you could comment on how many of the CP aircraft are now painted in Proud Wings or the transitional colours. For the last few weeks here in Winnipeg I would say less than 1/4 of the CP aircraft I've seen have been in old paint, but that's just randomly when I happen to be in the right place and am looking to the sky and see that, and have been surprised at how fast they've been painting. But maybe that's just random selections being unrepresentative, so I was wondering if you could comment on them? Also, are the transitional aircraft being fitted with different interiors? Thanks.
Posts: 196
Joined: Sun Jun 05, 2011 12:06 am

What Little I Know

Sun Mar 26, 2000 11:59 am

I really appreciate you sharing your perspective and I can follow the logic of your thoughts. You painted a scenario of the little man (read smaller creditor) who thinks collectively with the other holdouts that they are wielding a big stick but crippling target is in sight. 80% of the debt is now secured by prior agreement which covers most of the fleet as well. If spare engines, ground transport vehicles and a few redundant buildings are what the unsecured guys are holding out for, then the hanger doors are still open and we are ready for pushback!

The other aspect to be considered regarding the YYZ hanger of CDN is that GTAA has agreed to relocate that hanger at their cost to accomodate the proposed airport expansion. Not a wing of the new terminal as you suggested but due to the secondary NS runaway whose proposed length and flight path would include the space occupied presently by this building. The hanger is in the way. I'm not sure how that tidbit fits into this situation.

Your direct question?...Yes I am based out of Toronto. The formula given to us (employees) a month ago was that 5 aircraft would be painted per week in the tansitional colours. I think they are living up to that as the same ratio you observed in YWG is evident in YYZ. I'll see if I can find out the accurate number for you. The Proud Wings tails will not be touched until a full merger of the two airlines becomes a reality. There are only 6 (I believe) of those in the fleet.

Regarding the interiors, no change has been considered or executed there. My opinion (not substantiated fact) is that this will not be addressed until a full merger takes place. The ascetics of the exterior image reaches everyone in sight; in the terminal, driving past, plane spotting or for advertising purposes. Maximum public exposure justifies the paint job in management's eyes. The unchanged interiors are only revealed to those that have actually bought a ticket on a flight operated by CDN metal.

As far as job security goes due to the CCAA filing, thanks for the concern, most of us are not sweating it. We were warned by the powers to be that it was coming as a natural progression and practical step in the restructuring process. The thrilling point is that so many major creditors jumped on board before it was filed. AC is still emphasizing that our jobs are protected in Canadian aviation and by them. I have faith, trust and hope that this promise will be honoured.

I just want to fly!

Yours till all aircraft are grounded....


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