Air Canada chief executive officer Calin Rovinescu brought home $52.7-million by exercising stock options over the past week, a pay package that largely stems from a rapid rise in the airline’s share price.
The two batches of stock options Mr. Rovinescu cashed in were issued in 2013 when Air Canada’s shares were trading in the low single digits. The stock took off soon after, and from mid-2013 to July 30, when the stock hit a record high of $46.69 on the back of strong second-quarter earnings, Air Canada’s share price jumped 1,837 per cent.
Two days after the earnings release, Mr. Rovinescu exercised 1.27 million stock options that were due to expire in the first half of 2020. The shares he purchased were sold over the following week, leaving him with a profit worth $52.7-million.
Mr. Rovinescu was paid $10.5-million last year in cash and equity compensation for his work as CEO, and has a pension plan that will pay him more than $750,000 a year when he retires.
Air Canada’s stock has been particularly strong in 2019, gaining 67 per cent since the start of the year. The airline has started to transform itself in recent years by securing a new labour agreement that gives it more flexibility to restructure its operations, slashing costs and upgrading its fleet of airplanes, among other things.
Lately analysts have been impressed by the speed with which Air Canada has reduced expenses. At the end of the second quarter, the airline reported it had already achieved its target of $250-million in cost savings by year-end.
Air Canada also has some future profit drivers on the horizon, including lower fuel costs and the recent repurchase of the Aeroplan loyalty program. (The airline previously owned the program but spun it out in 2005 at a $2-billion valuation; last year Air Canada bought it back for $516-million, and three months later Toronto-Dominion Bank agreed to pay the airline $1-billion to be its lead financial partner.)
“The growth of Air Canada’s loyalty program earnings is a key value creation driver as it is not only a tailwind for earnings, but it is a more stable earnings stream," CIBC World Markets analyst Kevin Chiang wrote in a research note to clients last week.
Air Canada is also currently trying to buy Air Transat. If successful, the deal will complement the airline’s core business by offering services for price-sensitive vacation travellers.
The progress to date has resulted in debt-rating upgrades. Most recently, Standard & Poor’s upgraded the airline’s debt to double-B-plus from double-B in March, leaving Air Canada only one notch away from investment grade. S&P credited the airline’s cost-transformation program, lower fuel prices and falling capital expenditures now that its large spending program to renew its narrow body fleet is almost complete.
Recently, there were fears that the global grounding of the Boeing Max fleet would hurt Air Canada’s earnings, but the airline reported encouraging results last week, which helped send its shares to their record high. Mr. Rovinescu exercised his options soon after.
“Given their near-term expiry, Mr. Rovinescu’s age, and his tenure, he decided to do this now for portfolio diversification, estate planning and to fund his charitable foundation," Air Canada spokesperson Peter Fitzpatrick wrote in an e-mail.
"Even with this sale, Mr. Rovinescu retains a very large equity interest in Air Canada. The shares sold in this transaction represent less than one-third of his total holdings,” he added.
Mr. Rovinescu, 63, still holds 1.6 million options and they have an average exercise price of $13.52. The CEO also owns a combination of 626,721 shares, deferred share units and restricted share units, according to the company’s filings.
Before the recent exercise of stock options, Mr. Rovinescu last sold stock in August, 2017, when he cashed in another set of options. The sale earned him $31-million.
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