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Air Canada raises $1.6B to offset losses as coronavirus lockdown slashes sales

People around the world have been pushing major airlines to give them refunds for their flights that were cancelled because of the coronavirus pandemic, but many are instead giving out travel vouchers and travel miles. Jasmine Pazzano explains why airlines aren't paying up.

Air Canada has raised $1.59 billion from share and debt offerings intended to offset some of the carrier’s losses from the coronavirus pandemic.

The company said Tuesday it sold 35.4 million voting shares at $16.25 apiece for gross proceeds of $575.6 million.

READ MORE: Air Canada gives customers more options for cancelled flights amid coronavirus pandemic

It also issued $1.02 billion in convertible senior unsecured notes due in 2025, well above its initial plan for about $540 million.

The financing proceeds help to bolster Air Canada’s liquidity after confinement measures and border shutdowns “destroyed demand and depleted cash,” chief financial officer Michael Rousseau said in a release.

Despite more than $1 billion in losses in the first quarter, a positive reaction from the public markets amounted to “a strong endorsement” of the airline’s strength, he said.

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Coronavirus outbreak: Garneau says airlines facing ‘very tough times’ as customers hope for refunds
Coronavirus outbreak: Garneau says airlines facing ‘very tough times’ as customers hope for refunds

The underwriters exercised their over-allotment option to buy 15 per cent of the shares on offer, and initial buyers of the convertible notes exercised their option to purchase an additional 15 per cent, Air Canada said.

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The company is burning through about $20 million per day — $620 million per month — in the second quarter, said National Bank analyst Cameron Doerksen, as the bulk of the fleet remains grounded while fixed costs such as plane leases persist.

READ MORE: Air Canada service to resume at London’s airport in June with 2 Toronto-bound flights daily

“We believe demand for air travel and associated bookings (i.e., cash in the door) will progressively improve in Q3 and into Q4 and we forecast the cash low point at $5.4 billion in Q1/21, so we are very comfortable that Air Canada has sufficient liquidity to manage through the crisis,” Doerksen said.

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Liquidity now amounts to roughly $9.7 billion, giving the company “significantly more staying power under a more bearish COVID-19 scenario,” said analyst Walter Spracklin of RBC Dominion Securities.

Spracklin said he does not expect a return to break-even cash flow until 2022.

Air Canada to lay off at least half its workforce
Air Canada to lay off at least half its workforce