June 23, 2007

Sageview, KKR Buy 70% Stake in ACE Maintenance Unit

(Update3 from Bloomberg) - Kohlberg Kravis Roberts & Co. and Sageview Capital LLC agreed to buy a 70 percent stake in ACE Aviation Holdings Inc.'s aircraft maintenance unit, as the owner of Canada's biggest airline pares assets.

The purchase by the New York-based buyout funds puts an enterprise value of C$975 million ($910 million) for Air Canada Technical Services, ACE spokeswoman Ann-Marie Gagne said today in an interview. Montreal-based ACE, the holding company for Air Canada, will retain a 30 percent stake.

ACE Chief Executive Officer Robert Milton is selling ACE's holdings in its aviation units and loyalty-rewards program Aeroplan LP, and has said he will eliminate ACE if it benefits shareholders. The carrier may use proceeds from the sale to pay a special dividend, said Jacques Kavafian, an analyst at Research Capital Corp.

``ACE got the price that was in line with expectations,'' said Kavafian in Toronto. ``You will probably see ACE make a cash distribution or special dividend to shareholders. That's been the game plan.''

The Air Canada Technical Services unit, which also services planes for JetBlue Airways Corp. and US Airways Group Inc., accounted for 8 percent of ACE's C$10.6 billion revenue in 2006.

KKR made the investment through KKR Private Equity Investors LP. Sageview is a buyout firm founded by former KKR partners Edward Gilhuly and Scott Stuart. The price for the 70 percent stake wasn't disclosed.

Job Cuts

The sale is not likely to affect the maintenance unit's employment of 3,200 people in Canada and 1,100 in El Salvador, Gagne said. In El Salvador, Air Canada Technical Service in February bought 80 percent of Grupo Taca Holdings Ltd.'s maintenance unit, Aeromantenimiento SA.

Air Canada Technical Services on June 18 cut nearly 670 jobs in Richmond, British Columbia, after Delta Air Lines Inc. withdrew from a heavy-maintenance contract for Boeing 767s.

``The high value of the Canadian dollar makes ACTS somewhat unattractive, so they are expanding in other locations,'' said Kavafian, who has a ``buy'' rating on ACE.

Grupo Taca has a right to buy up to 5 percent of Air Canada Technical Services or receive $51 million in cash, ACE said.

JPMorgan Chase & Co. advised ACE on the sale, while Lehman Brothers worked with the buyers.

Shares of ACE rose 30 cents to C$26.77 in trading on the Toronto Stock Exchange. The stock has increased 21 percent this year.

By Hugo Miller and David Mildenberg
To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net
Source: Bloomberg.com

No comments: