Royal Banks Buys Ace Aviation Shares

The Royal Bank of Canada (RY) appears to be betting big on the near-term wind up of ACE Aviation Holdings Inc. (ACEBF.PK), the parent company of Air Canada (AIDIF.PK).

The bank acquired 50,000 Class B voting shares in the holding company Thursday, valued at C$1.09-million based on the closing price of C$21.80 a share yesterday on the Toronto Stock Exchange. RBC now holds 834,702 shares in ACE, or 5.27% of outstanding class B shares.

ACE, which was formed in 2004 as Air Canada emerged from bankruptcy protection, plans to completely unwind itself within the next three to six months, management says, after unloading its remaining stake in its frequent flyer program, Aeroplan, and its regional carrier, Jazz, last month.

ACE currently holds a 23% interest in its maintenance unit, ACTS, and a 75% ownership interest in Air Canada.

That majority stake in the airline is the major hold up in its unwinding, with high fuel prices and a weak economic outlook scaring off investors in Air Canada. ACE has said all options are on the table for Air Canada, but after a more than 27% tumble in its share price since the start of the year, management said a sale at the current share price is unlikely in the near term.

On Thursday, Air Canada closed Thursday at C$9 a share on the Toronto Stock Exchange, down from its C$21 initial public offering in November 2006.

RBC said the acquisition was part of its ongoing hedging activity “and not with the purpose or effect of influencing or changing control of ACE,” the bank said in a statement.