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Discovery Air is set to receive a $34-million loan from the territorial government under the GNWT's Opportunities Fund. - photo courtesy of Discovery Air

SOMBA K'E/YELLOWKNIFE - Discovery Air has penned a deal with the territorial government to borrow $34 million dollars, aimed to help the company and its Northern subsidiaries stay in the air.

Discovery owns Great Slave Helicopters, Air Tindi and Discovery Mining Services and employs about 275 Northern workers.

The deal, announced Monday, will work as a loan and is expected to help Discovery recover from what it recently called "the rapid deterioration in general business conditions" - otherwise known as the economic slowdown. The majority of the cash will be used to refinance $33-million of debt, which was acquired in 2007 when the company entered into a loan agreement for a portion of the $35 million-plus purchasing price of Quebec-based military training company Top Aces.

In it's most recent quarterly statement, for the period ending Oct. 31, 2008, Discovery widely acknowledged if the loan - which comes to term Feb. 1, 2009 - was not refinanced or extended the company would be in serious trouble: "The Corporation recognizes ... the Corporation could be placed in a situation by its lenders where it is not able to operate."

The same financial statement puts Discovery's overall long-term debt at $145 million -- $40 million of which is set to come due within one year. In the nine months ending Oct. 31, the company has brought in $132 million in revenue - but only $8.8 million in net earnings.

"We've been in the market for several months looking around to various sources in the south and some of the more typical lenders from Toronto," said David Jennings, chief executive officer and interim president of the company.

Jennings said he found out about a funding program in the North called the Northwest Territories Opportunities Fund through a consultant.

"Our company believes very strongly in the Northern economy," said Jennings, adding long-term growth for the company hinges on it having a big presence in the North.

"This was a deal that appealed to us for that reason -- so we could keep the strong presence in the North and keep the Northern companies stronger," said Jennings.

The multi-million loan, which has a 48-month term and bears a 10 per cent yearly interest, comes with several strings attached.

One is to move it's nine-person London, Ont. corporate headquarters to Yellowknife, and another is to run its Great Slave Helicopter flying school in the North.

Both conditions will benefit Yellowknife as the company works to build growth in the North, said Jennings.

"It's more pilot jobs, it's more mechanic jobs, it's more administrative jobs -- in Yellowknife and throughout the North," he said.

Discovery cut six Yellowknife positions late last November partly in response to a decline in business from the slowing mining exploration scene. Jennings said it was too early to tell if the cash injection from the territorial government would mean putting people back in those jobs, but did say it should mean no further lay-offs.

"We don't expect any further layoffs, and depending on how this funding had gone it could have been a possibility. I'm not saying it would have been a possibility, but it could have," he said.

This is the first time the territory has actively invested money from the Opportunities Fund, said Bob McLeod, minister of Industry, Tourism and Investment (ITI).

"We've been investing the money (in the fund) passively. We've been investing and getting interest in it," said McLeod.

"With the turndown in the economy and the unprecedented circumstances we were looking to use that money more actively," he added.

The fund itself - which currently sits at $130 million but can fluctuate according to investment and payback schemes -- is funded through the federal Immigrant Investor Program.

That program collects money - $400,000 to be exact - from immigrant investors seeking to enter Canada. The collected funds are then redistributed to participating provinces and territories who can invest the money into as they see fit into their own economy.

At the end of five years, the territory or province must repay the cash to the federal government, which returns the $400,000 to the investor(s) with no interest added.

Given all this, McLeod said the loan won't affect the GNWT's bottom line because it's not part of the budget.

He said other companies are welcome to put forward a proposal as Discovery Air did if they can agree to the terms of the loan.

"If they're prepared to pay the rates of interest, we'd look at other proposals," he said.

Discovery Air's stock (DA.A) closed at 24 cents on Friday and 37 cents Monday on the Toronto Stock Exchange, after the announcement.