Aug 3, 2018
Executives
Karen Keyes - Head, Investor Relations Jeremy Rabe - Chief Executive Officer Mark Crafton - Chief Financial Officer Steve Leonard - Vice President and Chief Accounting Officer
Analysts
Kenric Tyghe - Raymond James Adam Shine - National Bank Financial Martin Landry - GMP Securities Drew McReynolds - RBC Robert Hedlund - River Birch Capital
Operator
Good morning. My name is Dan and I will be your conference operator today.
At this time, I would like to welcome everyone to the Aimia Inc. Second Quarter Results Conference Call.
All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session.
[Operator Instructions] Thank you. I would now like to turn the conference over to Karen Keyes, Head of Investor Relations.
Karen Keyes
Thank you very much, Dan. Good morning to all of you attending on the phone and the webcast this morning.
With me on the call today are Jeremy Rabe, who is appointed our Chief Executive Officer on May 8 and is with us for the first time today, as well as Mark Crafton, our Chief Financial Officer, and Steve Leonard, Vice President and Chief Accounting Officer. Before we get underway, I would like to remind everyone to review our forward-looking statements and the cautions and risk factors pertaining to the statements.
For those of you following along with us on the webcast, you should see these on the screen in front of you now. For those of you accessing the presentation which can be downloaded on the website, these can be found on Slide 2 of the highlights presentation.
I would also like to point out the presentation refers to a number of non-GAAP metrics to help you better understand the results of the business. The definitions of these metrics and reconciliation to their most comparable GAAP metrics can be found on Pages 3 and 4.
We have also included a full income statement on Page 5 and reconciliation of our return on invested capital metrics on Slide 6. Finally, our presentation today will focus on consolidated results with variances excluding the businesses disposed of as set out on Slide 7.
So moving to the agenda now, Jeremy will take you through some strategic highlights before handing over to Mark for the key operational and financial highlights for the quarter. We will aim to wrap up remarks in around 30 minutes to leave plenty of time for your questions today.
And with that, I will hand over to Jeremy.
Jeremy Rabe
Thanks, Karen. Good morning, everyone.
As Karen said, as I am joining today for the first time, I want to share my insights into the opportunity the company finds itself in and I will in a few minutes address the unsolicited proposal from the current partner consortium. First off, I am excited to bring my loyalty experience to the table adding to the bench strength of the people and assets we have in the business already to move our path forward.
Along with the people that operated, partner relationships, long-term contracts, the strong brand and technology are key determinants of the success of any coalition program. Looking at Aimia from the outside, it was clear that many of the elements of a successful coalition program were in place.
What excited me about joining Aimia was the opportunity to refine, rebuild and refresh. Having spent time with the people inside the business as well as investors and partners over my first 90 days, I concluded a few things about our priorities.
First, we need to clarify the strategy we are adopting program for Aeroplan and how that strategy dictates our key strategic and commercial partnerships. Second, drive ongoing business simplification and accelerate cost savings.
On these two items in particular, there is an opportunity to go faster and we have already made good progress. We launched communication to members in late July, reframing our commitment and simplifying it within three pillars: flexibility, value and enhanced user experience.
And you will see this morning’s agreement with quarter, which is an important step in our diversification in growth of our preferred partners and there are more in the queue. Investors have also been clear about balance sheet flexibility in a period of transition and the need to be focused on the returns, Aimia is capable of generating from its considerable assets.
Over the past week, the Board has asked me to make decisions about how to best maximize the value of Aeroplan and PLM, gave us an opportunity to determine, whether it’s sale of our assets would be the best route to crystallize and maximize value for all of our stakeholders. Before I comment on that, let me give you some context into what I know about loyalty programs.
I know firsthand about successful loyalty programs. Having led Club Premier, Mexico’s leading coalition loyalty program for 6 years and having consulted and invested in the space since then.
And what I know from my many years in this space is that firstly consumers, especially Canadians love loyalty programs. Secondly, banks need to continue to differentiate and loyalty programs are one way to do that.
Thirdly, travel rewards programs run by airlines are increasingly moving to dynamic pricing for reward seats, which makes it harder for a member to understand the values we are getting. And fourthly, a program that gets the right balance between the interest of its members, banks and airline partners and manages its redemption obligations well can generate significant returns.
That is very much the case at Club Premier. And you will have seen Aeromexico last week cite double-digit annualized returns for Aimia over the periods since the initial investment was made in 2010.
Club Premier’s success has been based on an engaged member base of 5.7 million members, which has continued to grow and is up 12% over last year. Gross billings grew 20% on the back of long-term contracts with Santander and Amex and a contract with Aeromexico, which runs through 2030.
It also exists in a market that has seen support of credit card trends in a growing population. We had an opportunity to underscore the value of that asset last week and we rejected $180 million offer for our 49% stake in the business.
We rejected it on the strength of future business prospects and we intend to use our Board’s deeds to continue to drive growth there. The conversations with the consortium around the Aeroplan offer were more complex.
You will have seen our update last night where the discussions had gotten to. To be clear, we did not reject the partners’ offer.
We remain committed to negotiating in good phase and outcome that protects the inherent program value and eliminates the implied uncertainty for our members and stakeholders in the partners’ proposal. But to offer a very conditional $250 million for a business with the assets we had did not fairly value the business and was not in the best interest of our stakeholders.
So, let me come back to the unique purchasing strategy and member offering we have to setout for Aeroplan. We are designing Aeroplan to be the best travel loyalty program in Canada.
Our Aeroplan strategy is underpinned by a belief that positive member redemption experiences drive future accumulation behavior. Our ability to drive that accumulation, while managing gross margin and operating costs, will ensure an acceptable return to investors.
A superior air rewards proposition is at the heart of what members want and will continue to be core to Aeroplan. Our commitment to members stems from three pillars that matter to them, increased flexibility, great value and improved member experience.
There rewards will continue to be a core differentiator for us and our goal is to make those rewards even more flexible. We are strengthening our air offering by giving members the ability to choose NEC on any airline, anywhere at any time.
Today, our program is limited to booking with one airline in its alliance partners and we know that our members want the flexibility to fly with any airline. We are going to make that a reality.
On the back of last week’s proposal, we have had even more interest than we already had. You are seeing that we are already in discussions with players like Oneworld and Porter, which we have announced as a preferred – our first preferred Canadian airline from 2020.
The Porter partnership will offer substantial availability on many of the routes like Ottawa, New York, Chicago and Boston, Montréal roost our members fly on the Eastern corridor. Members will also be able to access attractive current and revenue ticket booked through flyporter.com or aeroplan.com.
It appeals to both business and leisure travelers like convenience, downtown airport with expanded lounge access for everyone. We have talked about a unique points transfer program with Kaligo.
Aeroplan members will be able to convert their miles into close to 20 airline frequent flyer programs from around the world, covering all major alliances. So if they belong to other frequent flyer programs, they can combine the miles they have earned through Aeroplan and add them to reach their travel goals faster, then they will be able to select any seat class on a number of global airlines.
Since we have introduced more flexible market fares in 2013, take-up of market fare rewards has grown 9x faster than fixed, up almost 35%, representing an increasingly large percentage of total rewards issued. In that time, fixed price rewards have grown only 4%, despite high single-digit capacity increases at our Canada over that time as they have added claims in new routes.
Our research shows that only 7% of our redeemers are flying for business. Most are going on holiday for visiting family and friends.
In addition to being highly price-sensitive, these leisure travelers focus on schedule rather than the perks of a frequent flyer program. And in that context, 72% of our members see the ability to redeem on any airline as a major improvement to the Aeroplan program.
The key to understanding how to provide flexibility is the data, which tells us where our members fly today. So what do we know?
The top 120 routes account for 80% of rewards. For many members, that flexibility will be the ability to fly to Calgary and Vancouver at the time of their choosing, New York, Florida or California at different times of the year or to London or Paris once every few years in the summer.
More flexible access to sun destinations will also add value. Our investors want to know how we will guarantee a solid redemption offering to members at the right margin.
With our unique assets, we can buy airline seats in ways that other loyalty programs can’t or won’t and increase our ability to provide a high perceived value per mile at a manageable unit cost. Six differentiators make us a unique purchaser.
Scale focused on the leisure travel space, our significant data and analytics, our longstanding investment in technology, personalized marketing, a well-recognized brand and a proprietary distribution channel for airlines. So, let me turn now to that to how that translates to our approach to purchasing seats and how that might influence unit cost and value for members come July 2020.
Our data gives us certainty around a few things. Survey data suggests that less than half of Aeroplan redemption demand would be recovered by any particular airline and that if they did not have access to the redemptions around one quarter of members wouldn’t fly at all.
Aeroplan members have long booking windows and that facilitates wholesale and other purchasing arrangements. On international redemptions, more than half are booked more than 100 days out.
On domestic and trans-border, up to two-thirds is booked 50 days out. This concentration predictability means that there are opportunities for block purchasing from our members’ favorite airlines on routes with competitive pricing.
We could also make use of charters on certain routes and we will de-risk sun destinations for airlines in the winter. Driving benefit for airlines means meaningful discounts of between 5% and 40% should be achievable, unlocking differentiation for Aeroplan that others won’t match.
Our choice on what mechanism to use will be determined according to route. As you can see in these examples, at certain times of the year, the route could likely sustain a charter, while at other times of the year, we might be better served by block purchasing, which can be released if not used by on-demand market purchases.
Program scale and rich member data on travel patterns will enable Aeroplan to optimize inventory for better leisure-oriented itineraries. And all of this will be combined with a transformed member experience that will make it easier for members to book, while also incentivizing cash travel bookings with us by offering Aeroplan miles.
We will also introduce more competitive capacity, more price competitive capacity for members looking to redeem for non-flight rewards, such as hotels. And in 2019, our new platform will give members a seamless way to mix and match cash and miles bookings for all of their travel, including flights effectively enabling our members to earn or redeem miles for every part of their travel journey.
Our plan is aligned with what members want and we will be competitive in a marketplace where banks will struggle to match our purchasing data, where we can continue to add value to our core banking partners and with simplified grid, with starting at levels unchanged from today will differentiate against airline programs. We are not starting from a blank slate.
We have considerable assets, strong bench strength and my first few months in the company leave me enthusiastic that we can execute on the longer term strategy in place. And the business continued to perform to deliver broadly to our expectations through Q2, which I will now ask Mark to take you through.
Mark Crafton
Thanks Jeremy. We had a solid second quarter generating positive free cash flow of $20 million, improved contribution from the Aeroplan program and lower OpEx globally were the key drivers of adjusted EBITDA margin expansion in the quarter which we saw adjusted EBITDA margin in the Coalitions business were up to 17.6%, up 160 basis points and a consolidated margin of 15.3%, up 180 basis points, if you exclude the $10 million of severance expense which fell in the quarter.
In Coalitions, total gross billings were $326 million and some of the drivers were the same as last quarter. In financial costs, our next conversion campaigns were strong for the third quarter in a row.
However, that was offset by a lower issuance with TD and CIBC as we continued to cycle the card acquisition campaign in the spring of 2017 and see the impact of lower card acquisitions since then which in turn drove the decline in gross billings in financial cards. At Air Canada new differentiated fare classes with lower mileage accumulation upon the dampening effect we talked about last quarter, but both are being offset by bouncing and capacity increases.
In non-air travel and retail billings were down against last year when we had a very strong hotel conversion campaign with Marriott. So turning now Slide 33 for a more detailed look at the drivers in the financial cards portfolio, the overall number of financial cards in circulation is down due to slowing in card acquisition post the May 2017 announcement.
However, when we look at financial card trends and the behaviors of cardholders we are encouraged by two things. First, since this time last year we have seen card holders remain loyal to the card.
Attrition in the financial cards portfolio has remained at preannouncement levels. Secondly, card quality remained strong.
Aeroplan co-branded card spend continues to be well above the average Canadian credit card spend. Spend has continued to increase against the 2013 base and in the quarter we saw solid growth.
Turning now to Slide 32, profitability in the Coalitions business continues to be a positive. Severance was $5 million higher than in the same period last year, but excluding that adjusted EBITDA was up from $54 million to $57 million and adjusted EBITDA margin was 330 basis points above last year as we continued to reduce costs and so our people costs as well as advertising and marketing spend decreased.
Unit costs were also down in the quarter to $0.01. On the trailing 12 months basis redemptions are now up 8%, but we started to cycle the post announcement period from May which should mean this should be the peak.
Our forecast is the more moderate growth in redemptions in the remainder of the year. A key factor in the second quarter and one of the variables affecting redemption volumes at the moment is the growth in capacity being made available to it by Air Canada with allocations at times higher than the contractual 8% requirement.
Increased capacity on desirable roots to Air Canada flights as well as most airlines capacity on European routes drove increased redemption in the quarter. While redemptions are being elevated in recent quarters, it is interesting to note that members are continuing to reengage post redemption at similar rate to prior years.
The medium miles balance and the member miles distribution have also not changed materially when compared to the period before the May 2017 Air Canada announcement. So turning now to the ILS business on Slide 35, where we continued to transition clients on to more platform-based solutions.
Platform-based and recurring revenues now account for around 34% of the total. These transitions along with the client exited ISS last year our new pricing terms in the transition year of the contract with HSBC in the Middle East main gross billings were down 15% in Q2.
We remain focused on reducing operating costs in this business to better align the cost base for the changing shape of the business which drove underlying operating costs down 10% in the quarter and $8 million impairment charges taken in the quarter to better reflect the scale we expect this business to be able to achieve. Our focus on removing cost is well illustrated on the next job, with overall operating expenses, excluding severance and share-based compensation, down around 16% in the quarter and down 14% year-to-date.
Much of this has come from lower headcount as well as lower IT consulting and marketing costs. Including business disposals, headcount is down 28% to around 1,600 and we are in the process of further consolidating our real estate.
As Jeremy highlighted earlier, looking at priorities, the cost reduction remains a strategic priority. We continue to target the $70 million we identified in 2016, but have also initiated a new exercise to look at further cost reductions across technology and procurement.
So, turning now to cash on Slide 37, lower gross billings and higher redemptions were the main drivers of lower cash flow in the quarter. While the main variance compared to last year was the unfavorable $17 million movement in working capital.
PLM distributions were stable at $4 million. As you will recall, we pay interest in our bonds in May and November.
Q2 net cash interest paid was $6 million, reflecting lower levels of debt and charges associated with last year’s bond redemption. CapEx was down more than 30% to $7 million as we reduced spending in ISS.
We expect total CapEx to come down further in 2018. Turning now to Slide 38, where balance sheet flexibility continues to be a priority.
We ended the quarter with over $0.5 billion of cash and investments giving us plenty of optionality around our 2019 maturity. A further debt reduction of $10 million is expected in August on the back of Q2 free cash flow generation, which will reduce the drawn amount on our credit facility to around $80 million, including $9 million letters of credit.
Lastly turning to Slide 39 on full year guidance, we are maintaining our 2018 guidance as member behavior is being within our range of expected outcomes and we continue to make progress against our cost initiatives. We have reduced our cash tax assumption for the year reflecting expected utilization of tax credits, but this is no impact to guidance as we have provided our free cash expectations on a pre-tax basis.
And with that, I will hand back to Jeremy to wrap up.
Jeremy Rabe
Thanks Mark. So let me conclude with a few key points.
We have set out a very clear and compelling strategy for Aeroplan. We are moving very fast, making a lot of progress against our plan.
We are really focused on making strategic decisions that drive value for our stakeholders and we are very optimistic about the future we believe our members and partners like quarter sharing our enthusiasm. And with that, let me turn it over to the operator for questions.
Operator
[Operator Instructions] Thank you. Your first question comes from the line of Kenric Tyghe with Raymond James.
Please go ahead.
Kenric Tyghe
Thank you and good morning. I’d like to just kickoff on the discussion around the heightened level of interest in the Aimia assets of the various bids this week have generated, could you perhaps speak to the Porter announcement this morning and perhaps more specifically, the Porter announcement in the context of the Oneworld discussions that were also mentioned earlier in the week.
I would just like to understand that dynamic and how Porter perhaps impacted those discussions if at all?
Jeremy Rabe
Sure. Thanks, Kenric.
Yes, we have been in talks with Porter for sometime now, I think the announcement last week certainly kind of accelerated the speed of those discussions and kind of things to a crystallized fashion more quickly. In parallel, we were in chats with Oneworld and those were separate chats that the two are not linked.
Of course, they are linked in the sense that we are looking to establish preferred partnership relationships, but one was not contingent on the other, I guess is the way to put it. Oneworld is a tremendous opportunity for us.
There is 7 airlines that fly into Canada, 8 gateways, 1,000 destinations. It’s really a significant player.
When you look at the number of passengers that fly on Oneworld members, member airlines, two are from Canada it’s around 4 million people per year, it’s about 1 and 10 in the whole travel market. So, it’s really a tremendous opportunity for us.
We are excited by these conversations we are having with Porter, with Oneworld and more to come.
Kenric Tyghe
Great. Thank you.
And then if I could just switch to some of the announcements overnight as well, Jeremy, it sounds as if the initial 250 was a soft 250 given the reference to all the restrictions etcetera in it, but perhaps that the updated offer of 325 was a cleaner offer. Could you sort of to the extent you can speak to the updated offer and all the thinking around that $450 million number as referenced in your press release last night?
Jeremy Rabe
Sure. That’s correct, Kenric.
The 250 initial number was highly conditional and say there is less condition around the 325, but it’s still far below what we think the fair value of Aeroplan is. We went through a variety of valuation techniques, used a variety of valuation techniques to try to understand what should the business be worth using comps, DCS, all that kind of stuff, looking at our business plan, there is just no way that you can get to a number like 325 whether it’s conditional or not.
We think that 450 was a very fair offer. We have a number of shareholders that are frankly pretty upset that we offered a number that low, but after going through a very thorough analysis with financial advisors in conjunction with our Board of Directors in the special committee, we think that, that was a very reasonable number perhaps too reasonable, but what we wanted to show by issuing the press release last night that we were engaged in a very constructive – trying to be constructive in this process.
And so we think that, that’s the right value for the business given what we know about the business today and of course that may change as our business plan continues to unfold.
Kenric Tyghe
Great. Thank you.
Could I sneak one quick one in?
Jeremy Rabe
Yes.
Kenric Tyghe
Just on the – you referenced how 72% of customers focus on schedule and see any airline is a major improvement. I think we will know that for most of the any airlines, any airlines partners, that’s a little bit of a game of optics given how the redemptions actually end up skewing.
So with that as context for the question, would I be correct in saying that the market price for an available seat on Air Canada is the market price and that any of the any seat, any airline programs will be paying a price in a very narrow range. I am just trying to ascertain or handicap here when all said and done that, that is the case and that the economics would hold or are equivalent across all of any seat, any airline programs for purchase of Air Canada seat inventory.
Jeremy Rabe
Yes. I mean, I think when – when there is no kind of special purchasing arrangement and then everybody is kind of on equal footing right in terms of buying market better rewards, where that obviously gives a tremendous amount of flexibility to members and any one airline is always going to represent the minority of all the options available for different itineraries.
So that is highly valued I think you have seen that also even within our Air Canada redemptions how market fare rewards have grown so much over time that, that flexibility is really important. We think that our differentiation will come and this is really going to be the world has never seen a loyalty program like the one that we are going to be launching, which is the ability to have this flexibility to redeem on any airline, anytime, anywhere, any seat and in addition have great value on preferred airlines like Porter and hopefully the discussions that we are having with Oneworld is very optimistic, that would be an additional 13 airlines.
Like other airlines that we will be announcing soon and that plus our ability to engage in these unique types of capacity purchasing agreements through block purchasing, bulk purchasing and charter flying, that will give us the ability to offer just tremendous value that you typically don’t get in a program that offers the flexibility that we will have, so it’s really the perfect trifecta of flexibility, value and all packaged in a beautiful member experience.
Operator
Your next question comes from the line of Adam Shine with National Bank Financial. Please go ahead.
Adam Shine
Thanks a lot. Jeremy, I guess going back to the consortium offer and maybe starting with your 450 context, I understand some of the sort of DCF analysis I imagine you would have done discounting some degree of uncertainty and execution risk, but as you said maybe it is too reasonable, when I think of three sort of values, one the inherent value right now was in the construct of status quo and arguably maybe less redemption within Air Canada TD, CIBC world.
Number two, a deeper post-June 2020 sort of valuation which speaks to I think almost a 450 value that I can get to pretty acute redemption type of environment with reduced accumulation and then arguably your value that I would have thought would have been perhaps assigned something a little bit higher than 450, so maybe any further insight to the 450 would indeed be helpful. And as a follow-up in regards to conditions I don’t know if you can share anything further, but where do we go in terms of conditions beyond just Air Canada citing the need to secure the credit card partnerships with the TD and CIBC?
Thanks.
Jeremy Rabe
Sure. Thanks.
So on the 450, I mean I think reasonable people can disagree, right. As you know there are good ways to do valuation techniques, but there is always some subjectivity to that and of course how you weigh execution risk versus potential upside is a subject of exercise.
So we did go through a very thorough analysis. I feel very comfortable we were advised by very competent financial advisors and we felt after a determination with the Board that that was a fair number.
And again we wanted to make that public to show that we were engaging in good faith in these discussions, our partners and our relationship with our partners are very important to us. And so I think that was the intent.
And on the conditions I would just say that in addition to offers being contingent on the banks achieving agreement with Air Canada on a future co-branded credit card deal there were also some deducts or financial conditions within those offers that make – there is a substantial difference between the initial headline offer and what the net cash impact would have been for our business.
Adam Shine
I appreciate that. And maybe one last follow-up, just in regards to PLM, obviously a very quick rejection of truly lowball offer arguably below book value, is there a ballpark number you could throw out in the context of how you perceived value currently at PLM?
Jeremy Rabe
I mean that’s a good question. Again in that case, I think there is also some good public metrics and some good comps in terms of what other private sales have happened in the space over the past few years.
I have been involved in a number of those. I can tell you that my kind of starting place for these types of business is around 10x EBITDA.
But when you look at Club Premier and all of the tailwinds in that business, you got to believe that that’s the business that’s poised for tremendous growth going forward, has great bank partners the airline is very strong. The management of the airline is tremendous.
I have a great relationship with Andrés and Ricardo who have just done a tremendous job over the past years in establishing Aeromexico into the airline that it is really the leader in Mexico. So, I would be hesitant to kind of give out an exact number, but I think that’s probably the ballpark that you should be thinking of.
Adam Shine
You went far enough, I appreciate it. Thank you.
Operator
Your next question comes from the line of Martin Landry with GMP Securities. Please go ahead.
Martin Landry
Hi, good morning. I am wondering if your offer of $450 million what kind of sales, what kind of income tax would that trigger if you can share that with us?
Mark Crafton
Hi Martin, I think it would be dependent upon the ultimate structure of the deal which was one of the things that was needed to be work through, I said that would really be driven by that.
Martin Landry
Can you give us just a ballpark range for us to work with?
Mark Crafton
So I mean it would depend upon the structure of how any transaction was consummated, but that’s as far as that can go. What I would say is we would be very cognizant of the net proceeds that we would come out of a deal with, so when we are looking at a price that we will be happy with we would be considering the fact that the tax implications of that.
Martin Landry
Okay. And just to be clear is that offer still on the table or now that you have secured Porter you have stopped negotiations with the consortium?
Mark Crafton
Yes. We never stopped negotiating.
So, should the consortium want to engage with us in a constructive dialogue we would be happy to entertain that. At the same time and we feel very confident about our future plans and either/or we are happy to go down either path.
Martin Landry
Okay, thank you.
Operator
[Operator Instructions] Your next question comes from the line of [indiscernible] Capital. Please go ahead.
Unidentified Analyst
Can you hear me?
Karen Keyes
Yes. We can hear you now?
Unidentified Analyst
Perfect. Considering as one of the shareholders that is upset and frustrated with such a low offer price, we are scratching our heads as to why the offer is so low in light of the significant and substantial strategic and financial benefits at Air Canada and the consortium partners, I would like to point out a few reasons as to why it’s so strategically important to Air Canada first, Aeroplan generates significant cash, that said Air Canada is virtually getting Aeroplan for free.
Second, the incremental billings that Air Canada otherwise would not have access to is where several billion dollars. Third, Air Canada would see a significant increase in its valuation multiple which is currently depressed relative to comps which we believe is due to Air Canada not having a sizable in-house loyalty program, the valuation cost Air Canada from acquiring Aeroplan would result in hundreds of millions of dollars if not billions of dollars of incremental value crystallized virtually overnight, if the consortium thanks would reach tremendous value for being included in a – as a credit card partner and is at risk of not being chosen as a partner to Air Canada if Air Canada chooses to develop its own standalone plan.
Six, we believe the acquisition dramatically reduces execution risk and ramp up costs Air Canada is starting and have loyalty program, for those reasons and a whole lot more we are just – we are scratching our heads as to the offer price, we understand the valuation metrics and framework you may have utilized and your advisors may have utilized, but in light of the strategic and financial benefits to Air Canada we are struggling to understand that disconnect?
Jeremy Rabe
Those are great points, it’s hard to argue with any of that. I think you are spot on and in all of those points.
Of course we discussed those at the Board and we took that into account. At the end of the day we can obviously go into all the details of our financial announcements and anything like that.
But clearly everything that you mentioned is spot on. So I can’t really add too much other than to say that I kind of agree with you.
And at the end of the day we did have a Board discussion we tell like 450 again was a very reasonable number. And if there was a real willingness to engage from the consortium that that would have been accepted and then just kind of wondering if there was really a real one into that, but.
Unidentified Analyst
Got it. Okay, thanks.
We continue to believe that Air Canada is acting very penniless pound foolish as it relates to their tactics here, they should be more than willing, more than excited to acquire Aeroplan, frankly we believe the value of that they should be acquiring Aeroplan for it should be significantly more than $450 million?
Operator
And your next question comes from the line of Drew McReynolds with RBC. Please go ahead.
Drew McReynolds
Thanks very much. Good morning and I hopped on a little late here, maybe Jeremy just big picture from EMEA’s perspective, has there been any discussion at the Board level and I know this is speculative at this point, but should the Aeroplan transaction occur, what would the ultimate kind of endpoint here is for Aimia, is it kind of a windup ultimately, has there been any discussion there as to kind of what the outcomes would be.
And then second just on PLM, thanks for your perspective on the offer that was received and declined, can you comment there on any potential tax implications ultimately and then I understand you are contractually committed through 2030 I believe just on the current agreement if ultimately something can’t be determined here in terms of a transaction I guess asking kind of are you pleased with your contractual rights in that relationship that ultimately you can seek the value that you think it’s worth?
Jeremy Rabe
On the first one, I mean I think our – we did have some discussion around what would Aimia potentially look like and what will the strategy be, should we have consumed or consummated the transaction on Aeroplan and I think there is a number of options that would have been available to us. You mentioned one, when you kind of look across our assets and what the balance sheet would look like there would be a great deal of flexibility with how to deploy those assets going forward.
When you kind of look across the Aimia senior level management there is a good deal of bench strength around how to deploy capital successfully in this space and so I think that would be something that we would develop in a more fulsome manner should there be a transaction. But I think there is a lot of alternatives that would be available for us and we would go into more detail analysis at an appropriate time.
Your second question was around tax implications on PLM and the markets you want hit that and I will take the last one.
Mark Crafton
Yes. So I mean it’s very similar to when we talked about this before the tax implications of any sort of transaction will always be in the devil of the detail around how any transaction may take place.
Clearly, we will be very focused where we did any transaction to make sure that the net proceeds that we would receive from any transaction would be as high as possible.
Jeremy Rabe
And then your last question was just around the contract with Aeromexico and yes, I mean I think we are comfortable with the contract and but it’s really – I mean that’s clearly part of it. But I think more important is we really have the obligation to add value to the companies where we are invested.
And so a bit of my background recently coming from private equity world is you are not just an owner getting a check, but we are also trying to very actively see how we can support and grow the value of our assets. And so I think that plus making sure that there is a very constructive well-aligned relationships with our partners, there is that’s going to be our focus rather than just trying to enforce contracts.
Drew McReynolds
Thank you.
Operator
Your next question comes from the line of [indiscernible] with Scotiabank. Please go ahead.
Unidentified Analyst
Yes, good morning. Thank you for taking my question.
I was wondering if you can comment a little bit on whether as you work with Oneworld here potentially has there been any thought given to how much capacity that alliance could deploy in Canada?
Jeremy Rabe
Yes. So as I mentioned there are seven airlines that fly into Canada today across Oneworld.
Obviously, the extent to which those airlines would increase capacity to Canada based on an Aeroplan relationship is that’s probably a question more well-suited for those airlines to answer. But certainly I think it would give Oneworld a tremendous marketing platform in the country and the amount of capacity which kind of we have modeled that we would – that we would purchase from Oneworld would be very significant.
And so that would certainly help support load factor deals etcetera for those carriers should they decide to increase capacity to the region.
Unidentified Analyst
Would you have any requirement for a minimum because capacity obviously changes over time right?
Jeremy Rabe
Yes. I mean and within the alliances there is a fair amount of kind of guidelines and regulations around how capacity is done.
And so I would probably I wouldn’t want to get into exactly how those guidelines work, but that’s something that we are going to be working through I think in more detail over the coming months.
Unidentified Analyst
Thank you very much.
Operator
Your next question comes from the line of Robert Hedlund with River Birch Capital. Please go ahead.
Robert Hedlund
Hi. Thanks.
You guys are obviously working really hard to develop an attractive program here for your members assuming that you proceed on a standalone basis what I am wondering is obviously Aeroplan historically was started as the Air Canada loyalty program and there if your talks break down they are going to launch with a new card partner and their new loyalty program and I think they have obviously hinted that they will be some attractive signing bonuses and like and perks like free bags and boarding and so forth which your members have historically been accustomed to, how are you thinking about of the 5 million members that you have, what percent are you anticipating losing to that launch I know it’s obviously its speculative but presumably you are not assuming none. And then how many can you lose and then from a continuing billings point of view, are you able support the $2 billion in the existing liabilities that you have to currently accrued miles?
Jeremy Rabe
Yes. So I think the way to think about it we kind of divided the world into two buckets, right.
So there is altitude members and non-altitude members. So when you look at altitude members, actually the majority of those members do not have a co-branded credit card with Aeroplan today.
So that indicates that even among kind of the most frequent Air Canada passengers there has been and there is today willingness to split point accumulation between the credit card and their flying experience. And so we think that we can compete among those members.
And in addition when you look at the non-altitude members there that’s really a credit card base, it’s not so much a flyer base. So there is some accumulation with Air Canada, but it’s very small, frequent spenders are 80% of our gross billings.
And so the impact of not having accumulation with Air Canada is very – it’s minimal. And in that sense, so what are those credit card holders interested in, they want to earn points that can be redeemed in a flexible way with good value and across a great member experience.
And we are going to be highly competitive on those three dimensions. And with regards to the mileage liability I feel very confident that as the business continues to attract members to generate gross billings we are going to be very comfortable with we are continuing to pay for redemptions and manage that perfectly well.
So we are very comfortable in that sense.
Robert Hedlund
Is that just I was kind of wondering what are you sort of budgeting for in terms of potential customer migration, your answer would suggest on some level none. We are going to have a great offering etcetera, but it’s hard – I mean, given their market share in terms of flight segments in the Canadian market, are you really not anticipating any customer migration to Air Canada’s offerings?
Jeremy Rabe
No, I don’t think we are that naïve, I am very optimistic, but not that naïve. So I think we have done a variety of scenarios and we think that the business model is very robust and will deliver great returns under a whole variety of different scenarios I will put it that way.
We obviously have kind of our base case in everything like that, but even if that doesn’t play out that the business model will work well.
Operator
And your next question comes from the line Kenric Tyghe with Raymond James. Please go ahead.
Kenric Tyghe
Thank you. Good morning.
Just want to quickly circle back on the bed revisions, do the revised beds include the assumption of all assets and liabilities or could you just clarify what assets and liabilities would be included or could potentially be included in these revised beds?
Jeremy Rabe
Yes. I mean, hi, Kenric, I mean that was the intention would be that it was the Aeroplan business that they were looking to acquire.
As we said, there was still some devil in the detail to work through or not, but you should – we are assuming the conversations we are assuming and you should assume that, that is in effect the asset operation entity that they were looking to acquire.
Kenric Tyghe
Great. Thank you.
Operator
And your next question comes from the line of Adam Shine with National Bank Financial. Please go ahead.
Adam Shine
Thanks. I guess I am tag-teaming with Kenric.
Just as a follow-up Jeremy to your early response to me, just with respect to deducts you were talking about in regards to financial conditions, a little new ones from I guess the answer that Mark just gave. Is there any further elaboration you can provide as to what deductions, because if indeed assets and liabilities were moving over you would have had from your perspective and Aimia perspective, some working capital adjustments to shift over, presumably some pension related liability would have shifted over to Aeroplan as well?
So, I am curious what these deducts could have been and you did acknowledge that it ultimately made the net cash offer lower?
Jeremy Rabe
Yes. I mean, Adam, I won’t go into this at a laundry list of deductions that were within the initial amount, but the sorts of things that you are talking about with the items that were coming up in conversation.
Clearly, some of those things – some of those deduction type items that you normally come across can turn into a cash requirement in the short-term and some of them never do. So, it was – I won’t get into the details but you are thinking about – you are thinking about the right things.
Just a clarification there I will making the offer that they made, it was based, it was on a cash trajectory basis, the cash that we hold within that program was ongoing across as part of that.
Adam Shine
By that, you mean sort of the redemption reserve in particular or anything else?
Jeremy Rabe
It will be tax free, debt free, intercompany free, all are back in service.
Adam Shine
Okay, I will leave it at that. Thanks.
Operator
And I have no further questions in the telephone queue at this time. I would now like to turn the call back over to Jeremy for closing remarks.
Jeremy Rabe
Thanks everyone. I appreciate your time and joining us today.
Let me just conclude with a few key points reiterating. I think we have set out a very clear compelling strategy for Aeroplan going forward.
We have made tremendous progress in executing on that plan and articulating it in a very short period of time. And frankly, we are just getting started and the speed is picking up.
So, we are really excited and stay tuned for more information on that front. We think that with regards to our businesses we are going to make very sound decisions around the value of those businesses in making sure that those decisions are going to drive value for our shareholders and other stakeholders.
And again, we are just very optimistic about the future. We believe that members and partners like Porter share our enthusiasm and we look forward to more updates coming soon.
Operator
Thank you to everyone for attending today. This will conclude today’s call and you may now disconnect.