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Air Canada Wants to Buy Back Aeroplan, for Cents on the Dollar

July 25, 2018
4 min read
Air Canada Wants to Buy Back Aeroplan, for Cents on the Dollar
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In a surprising announcement Wednesday morning, Air Canada and three financial institutions — TD, CIBC and Visa Canada — have announced a joint offer to buy the Aeroplan loyalty program from its current parent company Aimia for C$250 million (US$191 million) in cash.

If the offer is accepted by Aimia management, this will reunite the Aeroplan loyalty program with the airline that spun it off 16 years ago in 2002. Aimia has until August 2 to decide whether or not to accept the offer of C$1.64 (US$1.25) per share for the Aeroplan assets.

In the announcement, Air Canada says that this C$1.64 offer implies a C$3.64 per share valuation for Aimia — around a 50% premium to the trading price for the company's shares. However, the C$250 million (US$191 million) offer for Aeroplan is a fraction of its C$2 billion (US $1.5 billion) valuation when Air Canada sold off the loyalty program in an IPO.

This unification move could be see as an act of pure financial genius by Air Canada. Air Canada announced in May 2017 that it was ending its partnership with Aeroplan and would launch a new in-house loyalty program in 2020. It's possible that it was considering scooping up the devalued program after this announcement.

If this was the plan, it worked. Aimia's shares — which were at C$8.84 before the announcement — plummeted 83% in the month following. Now, Air Canada is swooping in a year later with an offer to buy Aeroplan back from the struggling loyalty company at a "premium" that values the company at 59% less than its value immediately before the breakup announcement.

Wednesday morning, I spoke with a senior Air Canada representative, who denied that this was Air Canada's plan, referencing good-faith negotiations between Air Canada and Aimia to continue the partnership. Air Canada's stance is that these negotiations broke down in 2017 due to the short-term focus of a major Aimia shareholder. Air Canada points to how Aimia hasn't added any new partners and has lost major partners such as American Express Membership Rewards since the split was announced in May 2017.

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Whatever the reason behind this offer is, it looks like the plan might work. As Air Canada was sure to highlight in its press release about the offer, Aimia has continued to struggle over the last few years, churning through CEOs and seeing its net loss balloon from C$65 million (US$50 million) in 2016 to C$271 million (US$207 million) in 2017. Its shareholders would likely be thrilled to get the cash offer at an almost 50% premium to the stock's recent trading price.

What does this mean for Aeroplan members?

The announcement is short on details, but Air Canada doesn't seem to be backing down from its plans to launch a new loyalty program in 2020. And there would be some sort of "transition" from Aeroplan miles to the new program's miles:

If completed, the Proposed Transaction would result in a positive outcome for Aimia shareholders and Aeroplan members, allowing for a smooth transition of Aeroplan members' points to Air Canada's new loyalty program launching in 2020, safeguarding their points and providing convenience and value for millions of Canadians.

In my discussion this morning with the representative, Air Canada confirmed that the points will transfer from Aeroplan to Air Canada's new program at a 1:1 rate. However, Air Canada is unable to say at this time whether the new program's redemption rates would be kept the same as Aeroplan's current rates. Mirroring statements we heard in Aeroplan's recent announcement about its plan for 2020 and beyond, Air Canada assured me that its new program would provide more even more value to customers.

Air Canada also pointed out that having the mileage program in-house would allow for more seamless integration into its loyalty program with new offers. One specific improvement that the representative mentioned: mileage upgrades for elites.

While these type of integrations might be better for Aeroplan members than Aimia's plan for the future of Aeroplan, our recommendation remains the same: Use your Aeroplan miles now. The program currently offers solid value — especially in premium cabins — and that's the only known that we have at this time.

Featured image by Air Canada's new livery, frequently seen on their Instagram account. (Image: Air Canada).