Air Canada, CIBC, TD and Visa offer to buy Aeroplan

Air Canada is teaming up with three financial services giants to try to buy its former loyalty program, Aeroplan, from its current owner.

Air Canada, Toronto-Dominion Bank, CIBC and Visa made the announcement Wednesday they want to buy Aeroplan from Aimia, in exchange for taking over the liability of $2 billion worth of outstanding Aeroplan points, plus $250 million in cash.

The airline announced last year it would soon be ending its 30-year partnership with Aeroplan, a development that sent the parent company's stock price tumbling and scrambling for new partners.

Air Canada started Aeroplan as its loyalty program in 1984. It was sold off in an initial public offering in 2005, when Aimia was formed.

Aimia has since diversified into other loyalty programs, but its core holding is still Aeroplan.

Aimia is valued at roughly $472 million on the Toronto Stock Exchange (based on where the shares were trading before Wednesday's announcement) — about a third of what the company was worth last summer when Air Canada announced it was leaving.

The airline's decision last year to part ways with Aeroplan sent the loyalty program's shares into a tailspin that they have yet to recover from.

"Air Canada wanted a certain level of mobility in their reward program," said Gilles LeVasseur, a professor of business and the law at the University of Ottawa.

"The airline was concerned about Aeroplan's cash flow at the time, as well as their inability to work with other credit card providers "so they ditched it so they could get more flexibility."

Keen interest

Swooping in now at a depressed stock price could prove to be a steal in the long run, LeVasseur says.  When TD Bank bought credit card firm MBNA in 2011, it paid almost $10 billion, just for access to the company's lucrative customer base.

Credit card companies have a keen interest in Aeroplan, he said, because it is the premier loyalty program in the country, and the tough times it has been experiencing has made it harder for them to entice and keep card users by offering them points for signing up.

"The credit card companies are very nervous right now," he says. "There comes a time where you ask yourself what happens if the program fails," LeVasseur said.

The airline recently announced plans to start its own loyalty program from scratch, and the offer Wednesday seems to be part of that larger plan, as if the offer is accepted the new owners would convert all five million Aeroplan members and points to the new Air Canada program. 

"We heard from many customers who were excited about our plans, and would prefer to transfer their Aeroplan Miles to the new Air Canada loyalty program," Air Canada's chief operating officer Benjamin Smith said in an email to customers shortly after the deal was announced.

"This is what this proposed deal allows us to do — if successful, all Aeroplan Miles would transfer into the new Air Canada loyalty program in 2020."

One branding expert says if it happens, the deal will be great news for points collectors. "The Aeroplan value proposition had been less and less relevant over time," says Rob Daniel, the executive vice-president of Bond Brand Loyalty, in an interview. "People are seeking reassurance that there's going to be utility and value for the points they've accumulated."

While it was once a crown jewel, Daniel said Aeroplan came in 57th place on a list of 59 loyalty programs that his firm ranked. A takeover offer from a company like Air Canada, partnering with banks, should make consumers feel more confident in the future and help fix that. "This creates stability and continuity where none existed before," he said.

"From a consumer perspective I'm hoping this deal goes through."

Investors in both companies were thinking the same thing on Wednesday.

Aimia's shares closed up 35 per cent to $3.39 per share on the TSX on Wednesday, after having been even higher earlier in the day. Air Canada shareholders seemed to like the deal, too, as the airline's stock closed up almost two per cent at $22.40

Both TD and CIBC offer Visa credit cards that allow users to accrue Aeroplan points, so the financial partners in the deal also have a vested interest in Aeroplan's future. In September, Air Canada announced it was seeking a credit card partner for that unnamed loyalty program.

Offer expires Aug. 2

Acknowledging the offer later on Wednesday, Aimia admitted that the offer didn't exactly come out of nowhere. The bid "follows prior private engagement and discussions between Aimia," and the other companies, Aimia said.

Aimia may have had a hunch the offer was coming, but the clock is nonetheless still ticking on saying yes or no. Air Canada and its financial partners say their offer requires an answer by Aug. 2. Aimia is scheduled to reveal its latest quarterly results the next day.

LeVasseur says he expects Aimia to take a close look at the deal and try to finagle more cash out of the offer before ultimately accepting.

"TD, CIBC and Visa, these guys can write the cheque," he said.

Aeroplan can use those funds to invest in other parts of its business, but ultimately LeVasseur thinks it's unlikely they'll find something that can make up for the 80 per cent of their revenues that currently come from Aeroplan.

Last weekend, Aeroplan unveiled its own vision for its future, built around offering its own charter flights and functioning much like a travel agency.

"If Aeroplan is no longer the program, the company will not have a substantial market value," he said. "You can go in smaller places but it will never be the same."