Blackstone Inc. and a group of Canadian pension funds are buying a 25% stake in Air Canada’s Aeroplan loyalty program for C$2.5 billion ($1.8 billion).
Other investors in the group include three large Canadian asset managers — the Caisse de Depot et Placement du Quebec, PSP Investments and British Columbia Investment Management Corp., the airline announced Tuesday.
The announcement confirmed an earlier Bloomberg News report. The deal puts a value of C$10 billion on the Aeroplan business, about C$2.4 billion more than Air Canada’s stock market capitalization.
Shares of Air Canada rose about 6% on Tuesday to their highest level since 2021 after the initial Bloomberg story was published.
Analysts were impressed by the deal terms. Air Canada made “few, if any, major concessions” to the investor group, Stifel analyst Daryl Young said in a note to clients. Air Canada will retain control of Aeroplan and will have the right to repurchase the 25% stake between the fifth and eighth anniversaries of the deal’s closing. For Blackstone and the pensions, the upside is capped at an internal rate of return of 6.5%.
“We anticipate some investor pushback on whether this truly provides a C$10 billion equity valuation mark given it looks more like a hybrid debt instrument, but regardless it appears to be a pretty eloquent structure at first blush,” Young wrote.
Much of Aeroplan’s value is in its relationships with credit card issuers such as American Express Co., Toronto-Dominion Bank and Canadian Imperial Bank of Commerce, which pay the company for loyalty points that they then offer to card customers, who exchange them for plane tickets or other perks. Aeroplan has more than 10 million members worldwide who can redeem points on Air Canada or through its partner network of airlines and its hotel and car rental affiliates.
“The implied valuation in this transaction is well ahead of our expectations,” National Bank of Canada analyst Cameron Doerksen wrote.
The airline said it will use the money to meet an upcoming $1.2 billion bond maturity, as well as for stock buybacks.
Also on Tuesday, Air Canada released a dimmer outlook for full-year earnings due to surging jet fuel prices. It’s now forecasting adjusted Ebitda of C$2.9 billion to C$3.2 billion this year. Earlier in the year, it projected a range of C$3.35 billion to C$3.75 billion, but it suspended that guidance in April after the outbreak of war in the Middle East.
The airline’s definition of adjusted Ebitda is earnings before interest, tax, depreciation, amortization and impairment.
(Adds additional context and analyst comment, starting in the fifth paragraph.)