Quick Pitch: Air Canada (AC:TO)

Tender Offer (Odd-Lot): C$170+ upside (at C$27.29/share)

This setup is only actionable for accounts not subject to Canadian withholding tax.

Air Canada is buying back ~9% of its outstanding shares in a price range of C$29-C$33/share. Odd-lot holders (99 shares or fewer) will be accepted on a priority basis. AC currently trades below the low end of the range, leaving C$170-C$560 of potential upside per odd-lot account, which works out to a 6.3%-21% total return. The offer expires on September 24. Paid-up capital is C$10.6/share.

Management is not participating in the tender, though it owns only a minimal amount of stock. No shareholder on the register holds 10% or more.

The conditions are standard and include major indices not dropping more than 10% from August 17, as well as no “significant change” in AC’s share price since that date. The indices trade in line with Aug 17 levels right now. Overall, such tenders are very rarely cancelled due to market swings.

This is AC’s second substantial issuer bid ever. The first came last year (covered on SSI here) for 8% of shares at C$18.50-C$21.00/share. It was oversubscribed and cleared at C$18.80/share.

With this tender priced 50% above last year’s, it seems likely that the offer will heavily oversubscribed and will clear at the bottom of the range. So I mostly see this trade as a low-risk 6.3% return in a month, with optionality for more if the tender happens to clear above C$29.

That optionality is not completely negligible. Despite the price run this year (+42% YTD), AC remains the cheapest North American airline, valued at ~4x forward EBITDA against 5.3x+ for US peers.

Meanwhile, management just cannot stop pulling the trigger on buybacks, signaling that it still sees the shares as attractive even at this level. The initial goal in the recent years was to bring the diluted share count back to pre-COVID levels, targeting below 300m shares outstanding in 2028. That target has already been beaten, and the diluted count should fall from 284m to ~260m once this tender closes.

AC repurchased 10% of outstanding shares under the 2024-2025 NCIB program, on top of the 8% SIB in 2025. Last November, it launched a new NCIB and has already retired nearly 6% of shares since then.

The biggest recent positive is that AC has finally received an official valuation mark for its Aeroplan loyalty business. Aeroplan generates 15% of AC’s EBITDA, but it is a trophy, high-multiple business. The mark was announced alongside the Q2 results and the SIB intentions on August 11, when the company disclosed a large equity investment in Aeroplan from Blackstone and La Caisse. The two PE firms will inject C$2.5bn for a 25% stake in the loyalty program. That values Aeroplan at C$10bn, or 21x TTM EBITDA, which is a fairly high multiple even for such businesses. At that valuation, AC’s remaining 75% stake is worth roughly as much as the whole company’s current market cap. Stripping the stake out of AC’s EV leaves the airline operations at ~2x 2026E adj. EBITDA.

The stock went from C$26 to C$31.5/share on the news, though it is hard to separate how much of the reaction came from the Aeroplan investment, the SIB intention or the Q2 results.

On the operational front, the fuel cost spike and other recent headwinds have proven manageable, and visibility into future earnings has returned. In April, AC withdrew its initial 2026E EBITDA guidance of C$3.35-C$3.75bn because of the spike. With the latest Q2 results released last month, it reinstated guidance at a lower C$2.9-C$3.2bn (flat YoY). Fuel costs rose 50% YoY in the quarter. Management notes, however, that flying demand has been strong and that it has offset part of the cost increase through higher airfares, up 12% YoY in Q2. It expects fuel prices to stay elevated through the rest of the year, but guides to recovering 60% of the higher fuel costs in Q3 and 100% in Q4 through further airfare increases.

The transborder travel decline, driven by the deteriorating Canada-US relationship, has also stabilised this year. Transborder revenues (20% of the total) fell sharply in 2025 but have turned flat/slightly positive in H1 2026, though that performance is also partly supported by higher airfares.

Long-term profitability and growth targets remain unchanged. Management guides adj. EBITDA of C$5.1bn in 2028. At those earnings, AC trades at ~2.5x EBITDA.