It’s Happening: Air Canada Will Acquire Aeroplan

A few weeks ago we learned that Air Canada made an offer to acquire Aeroplan, which is their spun off loyalty program. For over a decade Aeroplan has been the frequent flyer program of Air Canada, though in 2020 their contract ends. The termination of the contract has led to a lot of uncertainty for the future of Aeroplan.

At the beginning of the month it was revealed that talks had broken off between the two companies. Initially Air Canada and their financial partners had offered $250 million cash, plus about $2 billion in Aeroplan points liability.

Aimia (the parent company of Aeroplan) allegedly wanted $450 million, though Air Canada was only willing to raise their bid to $325 million.

Well, it seems that Air Canada really wanted Aeroplan, because the companies have reached an agreement in principle.

Air Canada will acquire Aeroplan for $450 million

It has been announced today that Air Canada and their financial partners have reached an agreement in principle to acquire Aeroplan for $450 million plus the roughly $1.9 billion mileage liability.

Air Canada must have really wanted Aeroplan, because they came up to the full asking price. This transaction is still subject to the conclusion of definitive transaction documents, Aimia shareholder approval, and some other conditions.

Here’s what Air Canada’s CEO, Calin Rovinescu, had to say about the deal:

“We are pleased to see that an agreement in principle has been reached as Aeroplan members can continue to earn and redeem with confidence. This transaction, if completed, should produce the best outcome for all stakeholders, including Aeroplan Members, as it would allow for a smooth transition to Air Canada’s new loyalty program launching in 2020, safeguarding their miles and providing convenience and value for millions of Canadians.”

What does this mean for Air Canada flyers & Aeroplan members?

I’ve explained in the past what Air Canada buying Aeroplan would mean for consumers. Whether this is good or bad news depends on what you think Aeroplan’s independent future would have looked like:

  • If you think Aeroplan could have succeeded independently and offered a compelling program, having a competitor for Air Canada would have absolutely been a good thing
  • If you think Aeroplan couldn’t have succeeded independently and offered a compelling program, having Air Canada acquire them would probably be the best, since your miles would be worth more

Personally I’ve been skeptical about what Aeroplan’s independent future would look like, since it’s tough for a loyalty program without an airline to deliver much value. Sure, they could have added some partnerships (as they’ve been trying to do all along), but chances are that there wouldn’t have been any outsized values with those redemptions.

So personally I’ve been skeptical of Aeroplan’s independent future, and therefore I view this as a net positive, since it means members’ miles are safe. At the same time, Canada already doesn’t have many competitive loyalty programs, and now Air Canada will have even more of a monopoly in the travel space.

Bottom line

Color me surprised by the way this deal is going down. Perhaps what’s most surprising to me about all of this is that Air Canada is paying full price for the Aeroplan acquisition. My gosh, Aimia played their hand very well.

But I do view all of this as a net positive, since it means there’s less uncertainty for members, and those with Aeroplan miles will continue to be able to redeem on Star Alliance airlines.

What do you make of the news of Air Canada acquiring Aeroplan?

Comments

  1. To form an opinion at this early stage would be silly. What most OMAAT readers are concerned with is the numbers and the process of earning, redeeming, usually, for most of us, for Premium cabin travel.

    Will availability get worse/better?
    Will the chart get worse/better?
    Will earning opportunities get worse/better?

    Aeroplan, independently, would have functioned as a competitor to Air Miles, not as a serious program of interest to Premium cabin travellers. Air Canada, if they didn’t acquire Aeropolan, would have “rolled their own” and that’s what we would have been interested in. The name would have been different.

  2. Very happy to hear this. Two things have been limiting my travel on Air Canada, uncertainty of the mileage program and lack of competitive pricing on business class transcons (YVR-YUL, YVR-YYZ and YVR-EWR). I can eliminate one of those concerns, the printing however is still non-competitive.

  3. Is it too speculative to say we shouldn’t expect a devaluation while a merger is going on?

    Aeroplan redemption rates look comparatively cheap (at least for Europe, Northern South America, Africa) compared to Krisflyer, United, et al after devaluations of those plans in recent years.

  4. It was all a scam right from the start. AC wanted to drive down the share price of Aimia so they announced their own program that never even existed. That said, I’m glad this is happening because now I don’t have to earn and burn ’em anymore (my Aeroplan miles that is).

  5. The big upside I see here is that the deal increases the likelihood of continuing to be able use Membership Rewards points for Air Canada and their Star Alliance partners. If Air Canada had rolled their own new program, it’s anybody’s guess if they would have worked out a deal with Amex to become a transfer partner; and independent Aeroplan, if they had even remained a transfer option, would have become a lot less useful.

    Hopefully Air Canada will retain some of Aeroplan’s current advantageous redemptions, but I’m not as optimistic about that.

  6. I guess AC decided that reinventing the wheel and building their own program from scratch would have cost more or been too big of a headache. Plus all of their angry customers when their Aeroplan miles were rendered much less useful

  7. This screams of devaluation as others have noted. Its only a matter of time before that happens. Earn and burn

  8. Aeroplan really had no future on its own in the Canadian loyalty market context that has Air Miles dominating the field even without an airline ownership link. AE has been a flop as a retail loyalty program having lost its grocery and gas partners, the key retail partners, and would also be competing with an expanding Optimum program operated by the largest grocery/pharmacy group in the country. That AE is of any interest to your readers is because of the Amex conversion for STAR awards. The AC purchase should satisfy that concern of continuity. We Canadians can already redeem Air Miles miles for PD flights as well as WestJet, AC, DL and AA (plus others) so the “enhancements” AE was negotiating were already available and meant little. With few retail partners and no AC earning link there would be no reason for FFers to keep earning AE miles, further gutting the standalone loyalty members of its prime members.

    I suspect AC knew it would have to pay just short of a half-billion $s for AE but you always start off with a low ball offer to test the waters and find out what the real price would be. AIMIA’s Board know there’s little future in a stand alone AE (as does AC) but also realized the PR value of a smooth transition. Both sides have been doing opinion surveys over the past weeks to determine member acceptance of their respective stand alone programs and realize compromise was the better course. The $ offsets the lost share value to shareholder and will ultimately be redistributed as the company redefines itself (managing the remaining loyalty’s programs outside Canada) or sells off remaining assets and winds itself down.

  9. Hey Lucky,

    not to be nitpicky: There seems to be some numbers mixed up in your report due to the two currencies (press release was in Canada)

    CAD450 million (~$345 million)
    CAD1.9 billion ($~1.4 billion) of Aeroplan Miles liability.

    That $345 million price is still a large increase compared to the previous offer of $250 million (but not as big as $ 450 million)

    cheers

  10. @Phillip – Lucky isn’t mixed up. He’s quoting Canadian prices for the deal (same as the announcement) – all of those figures ($450M, $325M, and $250M) are in CAD.

  11. As others mention, the extra $100M can easily be done via devaluing the miles so that the $1.9B liability ends up being much less. I’m guessing things will stay the same for a short period but not too far in the future there will be a decent sized devaluation.

  12. It would be nice if someone explained how aimia figured AE was worth $450 million and how much of devaluation would be enough to make up for the $100 million overpay.

  13. Top bonus did pretty well without air Berlin for a while. So Aeroplan could have a future without air Canada

  14. Not surprsing. Wonder how far AC got in trying to start there own in-house loyalty program. From an operational perspective this seems a lot easier than standing up their own program given the headcount, tech infrastructure, and systems integration it would require. Getting all of this done by 2020 would not be easy. All the new Aeroplan program announcements now seem like negotiation signaling on Aimia part.

  15. Forgot to mention all the historical customer data that Aimia has. Not sure on terms of who would own that data post split, but there’s a good chance Aimia might given the increasing buyout terms. If AC were to lose a lot of that after a split, that would give even more leverage to Aimia

  16. Wow. I want Aimia to negotiate my next car purchase. That’s a HUGE price gap they got Air Canada to come up to.

    Dealer: “Sir, the best we can do is $55k”
    Aimia: “No I want $35k”
    Dealer: “Sir, we’ve the run the numbers and can do $35k”

  17. As mentioned in Mittleman Brothers’ letter to AIMIA’s board (which I found to be a great read), in a negative working capital business (such as a loyalty program) it is misleading to include the unearned revenue/points liability in the calculation of enterprise value. The deal is getting done at $450 million which is a great deal for AC (particularly from the perspective of EV/EBITDA).

    Having said that, the $1.9 billion liability is an estimate based on the future redemption cost to Aeroplan and with Air Canada as the owner, that accounting can certainly change – perhaps the best way to “value” the deal is on a pro-forma basis for the reduction in liability under AC’s control as opposed taking an arithmetic sum of $450million + the total liability?

  18. As a Canadian that flies AC regularly through credit card points I’m relieved generally. But I’m concerned AC will devalue the points which then leaves only air miles as the major points competitor. WestJet and porter have small points program but both airlines have very limited routes, especially outside of Canada. AC will have more power now. Having said that retaining star alliance access is a bug win for our Aeroplan Miles.

  19. AC offer equates to around $6.50 per share price, which more than the current $3-$4 range from last year or so.

    … before AC announcing the flushing of AE, the share price was hovering around $9… nice way to beat up the price before buying?

  20. Just another reminder that it is not Air Canada that is buying Aeroplan from Aimia.

    It is a consortium that is buying Aeroplan from Aimia. The consortium includes Air Canada, CIBC, TD Canada Trust, and VISA.

  21. As a stockholder of both aimia and air Canada, I’m stoked at this news.

    I just have to use up my aeroplan miles before they’re devalued to hell. Hopefully the aquisition doesn’t happen until 2020

  22. Before shareholders vote on accepting this purchase offer, I hope the subject of devaluation is discussed. Deal should be rejected if devaluation policy is not drawn out. Some kind of anti-tampering mechanism post-sale needs to be set.

  23. I agree with Dan C. The Mittleman letter is a great read. For the original lowball offer he wrote that it was “misleading, coercive, and blatantly inadequate” as well as “clearly beyond the bounds of any conceivable range of reasonableness.” Mittleman (a majority shareholder of Aimia) spoke of how disingenuous it was of the AC+ consortium putting value to the unspent miles (which as many in this thread note will most likely be immediately devalued the day the ink dries on the contract) and added that he estimated the loyalty program’s value (to the consortium) at up to $10 billion. A few hundred million? That’s a Porsche for the price of a rusted out Datsun.

  24. Ben – Something to consider is Air Canada would have had to build and integrate a ton of systems just to get its loyalty program started. Including hiring and running servicing and operations. It’s probably a lot cheaper in the long run to buy than to build.

  25. I believe there is one unique part of Aeroplan and I hope they keep it: it’s the only Star Alliance FF program where miles earned by kids under 18 don’t expire for non-activity until they turn 18. That’s a big thing for me as our kids fly rarely so don’t have frequent activity, but would earn enough for a free flight over 5 years for example.

    Am I right or some other *A program has similar rules for children?

  26. I see this is a very bad thing for Aeroplan members, Aeroplan has a lot of scam charges already so competition would definitely help. Now I see moving forward Aeroplan will have more scam charges , more restrictions for redemption and they will devalue the miles to unload their 1.9 billion liability.

  27. Right, of course after author provided elementary & inadequate analysis on this a few weeks ago, he finally understands (indirectly based on what his patron Air Canada is saying) the difficulty/cost of replicating a loyalty program and the attendant, difficult-to-change human habits/goodwill built up over decades.

    Frankly, the only reason Air Canada stole this so cheap was the initial coercive tactics and the failures of Aeroplan’s prior management team (selling Nectar for a negative price), which Aimia’s market price down to basement levels (regardless of true value, there’s a limit to how high a premium over current market trading prices a target can negotiate).

    Alas, we all can learn something.

  28. Looking for feedback from the group: I am MSP based Delta Platinum (SkyMiles), but was just booked to fly to Brasilia via Air Canada (prem econ) for a speaking engagement. I estimate I’ll get about 22k miles RT. I mostly fly domestic and have been nearly exclusive to Delta for the last decade, so no longer have an active Star Alliance account. Do I join Aeroplan, or open a United account?

  29. @LivinginMSP: being that everybody is expecting a huge devaluation of the Aeroplan under AC control (to lower the inherited liabilities) and overall murkiness on what exactly will AC do with AE (maybe just transfer points into their own?), I would advise United miles. Or maybe Avianca?

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