A group of lenders is taking majority control of a company that repairs planes for Air Canada, converting debt into equity in a deal that casts aside two U.S.-based private equity firms.
Aveos Fleet Performance Inc., formerly named Air Canada Technical Services, had been facing a cash crunch. The Montreal-based company owed at least $715-million to a consortium of lenders last year, including Lehman Brothers Inc. and Woodbridge Investments Inc., according to an audit of Aveos conducted by KPMG.
Aveos said Wednesday that its debt will be chopped to $75-million from $800-million as part of the recapitalization plan with 11 lenders. Certain lenders will provide $75-million in working capital in the arrangement set to close by the end of the first quarter, when Air Canada will acquire a minority interest in Aveos.
"We have recapitalized the company without having to go through bankruptcy protection," Aveos chief executive officer Chahram Bolouri said in an interview. "We've positioned Aveos to be in good shape."
ACE Aviation Holdings Inc. , which owns 27 per cent of Air Canada, had a 28.4-per-cent interest in Aveos, having unloaded a 70-per-cent stake in the repair firm for $723-million at the height of the leveraged buyout boom in 2007.
ACE previously wrote off its investment, as did two buyout specialists - New York-based Kohlberg Kravis Roberts & Co. and Sageview Capital LLC of Greenwich, Conn., founded by two former KKR partners.
Their investment crumbled during the credit crisis, recession and downturn in the market for aircraft repairs, maintenance and overhaul.
Union leaders have warned of layoffs at Aveos because of the industry slowdown, but Mr. Bolouri said the prospects are looking bright because of the debt reduction and new working capital. "This lays a solid foundation for long-term growth," he said.