AC Q4 $727M loss

[swervin]

http://www.newswire.ca/en/releases/arch ... c8312.html

[Troubleshot]

By The Canadian Press

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MONTREAL - Air Canada (TSX:AC.B) said Friday volatility in both fuel prices and foreign exchange rates drove 2008 financial results into the red for both the fourth-quarter and full year.


The Montreal-based airline reported a fourth-quarter loss of $727 million or $7.27 per share, reversing year-earlier profits of $35 million or 35 cents per share.


The results included a foreign exchange loss of $527 million caused by relative weakness in the Canadian dollar, as well as a $177 million spike in fuel prices compared to year-earlier costs.


The company reported an operating loss of $146 million for the quarter ended Dec. 31, 2008, reversing gains of $72 million during the corresponding quarter of 2007.


Soaring fuel prices took a toll on Air Canada's full-year financial results as well, prompting the company to report a loss of $1.03 billion or $10.25 per share, reversing year-earlier profits of $429 million or $4.27 per share.


The airline said the 34 per cent surge in fuel costs added about $900 million in additional expenses for the year.


The company booked an operating loss of $39 million, down from operating income of $433 million recorded the year before.


"2008 was a year marked by unprecedented volatility in fuel prices, significant fluctuations in foreign exchange and a worsening global economy," Air Canada chief executive Montie Brewer said in a statement.


"Our fourth quarter and full year results reflect these challenges. However, we have a well-established track record of adapting to challenges."


Brewer said Air Canada would look to cut $120 million worth of costs in 2009 primarily through fuel efficiency improvements and a supplier concession program


http://ca.news.yahoo.com/s/capress/0902 ... air_canada


HOLY FAAACK!

[Harpoon]

No wonder AC begged for money all fall. The sale of the 777 and then re-leased, the aeroplan deal, a revoling credit deal with CIBC... the writing is on the wall I think. Hopefully with the fuel prices back in the reality range things will come around. Next hurdle, the labour issues.

Good luck...

[chatman]

More layoffs to come....Massive labour disputes, economy, disgruntled staff, Miltons bonus and so on ..I think they might just have to reopen that CCCA file.

[twinpratts]

For the sake of all my buddies over there (and I don't mean Uncle Milty), I hope they will still be a round for a ling while...

[Squid]

the globe and mail take.

http://business.theglobeandmail.com/ser ... iness/home

Ice is building on the wings and not shedding. Nice pension deficite too. So one has to ask the supporters suggesting that it is fear mongering -I guess the company isn't lying. We are sinking.

[aroundthewing]

Jacques Kavafian seems to think the summer of 09' is the end date. Will it be that long? Something's gonna' give soon!!
He sure exudes confidence.

http://watch.bnn.ca/#clip139740

[jjj]

Why isn't uncle Bobby fired?

[sportingrifle]

First of all, let's not forget that Jaques and Research Capital have been raking in big $$$'s pumping and selling WestJet stock for about 3 years now. That said, there is a lot of truth in his opinion. The environment at AC is a lot like it was in 2002. New paint on the airplanes, new uniforms, lots of trivial distractions as we burn the furniture to keep warm.

I think his summer '09 is a little pessimistic. We have about a years cash and credit and Q2 and Q3 will probably be profitable. Also, there is no way the Federal Government will let us sink before/during the 2010 Winter Olympics. My prediction is it all unravels about a year from now- most probably with another dance with the CCAA dragons, perhaps complete liquidation. (May depend on which Federal Party is in power.) I hope I',m wrong but pretty sure I'm right. (Was sadly right the last two times. Made 37K short selling AC stock in 2001.)

Time to get the logbook current just in case. Younger guys, pay off the credit cards and lines of credit. Older guys, get your head around a 65K/year pension. Unless of course you are an exec or in senior management.

[prop2jet]

Lots can happen in 6 months or a year. The feds have increased the foreign ownership content in the current budget before parliament and it would not surprise me the least to hear that a foreign buyer may be knocking on the door. Wait and see.

[Four1oh]

First of all, let's not forget that Jaques and Research Capital have been raking in big $$$'s pumping and selling WestJet stock for about 3 years now.

I've been reading their stuff for years, and I'm sorry if 'telling it like it is' is considered pumping the stock. They've also said less than flattering things about WJ as well, so I don't know where you get this from.

[2R]

Lots can happen in 6 months or a year. The feds have increased the foreign ownership content in the current budget before parliament and it would not surprise me the least to hear that a foreign buyer may be knocking on the door. Wait and see.

Good to see someone is paying attention

One of those foreign buyers has list of all the pilots and may make an offer that will surprise everybody .Managemenet buyouts were all the rage at one time. But a Senoir Pilot buyout may just get the capital markets excited.Those rules were also changed to allow this .I thought the senoir pilots would have bought the airline they helped build.That way they could run it as owners just like West-Jet.

[palebird]

Pllllease give us a break or was that supposed to be a joke???? pilots buying out AC and running it like a real airline!!!!! beeen there seen that hey pilots should do what they know best...fly airplanes...when it comes to the intricacies of managing such a complex thing as an international airline well me thinks that the pilots may be a little out of their league, leave your ego at the door, show me your MBA and ten to twenty years senior management experience and away we go (no managing a two man cockpit and an autopilot does not count) la de da

[2R]

Seems like an MBA is not worthy of the paper that most of them are written on.Might as well be printed on soft paper and come on a roll at least you could put the paper to good use after a good crap.
It was the MBA crowd that caused the Wall Street Crashes .So please save your condescending rants about running a business without a piece of paper for those who can actually make money.
Perhaps they should hire a drop-out like Bill Gates who made his business without the benefits of having an education that would pass muster at one of the overcrowded HR departments.

[Old fella]

Seems like an MBA is not worthy of the paper that most of them are written on.Might as well be printed on soft paper and come on a roll at least you could put the paper to good use after a good crap.
It was the MBA crowd that caused the Wall Street Crashes .So please save your condescending rants about running a business without a piece of paper for those who can actually make money.
Perhaps they should hire a drop-out like Bill Gates who made his business without the benefits of having an education that would pass muster at one of the overcrowded HR departments.

Don't forget the MBA male dress: - same haircuts(with gel), always a suite, grinning with a fistful of teeth, same color golf shirts and cream color shorts. Conversation centers around golf/money/money/golf/birdies/eagles/bogies............

[2R]

Those MBA grads are like those suckas who paid for the brooklyn bridge and think that they actually bought the bridge .I paid fifty thousand dollars for a nice piece of paper to hang in my office so show me some repect

It could be worse, they could have wasted their youth and money at Westpoint and now be wondering why a long bearded cave dweller has eluded them and killed so many of their brothers in arms

[WS739]

First of all, let's not forget that Jaques and Research Capital have been raking in big $$$'s pumping and selling WestJet stock for about 3 years now.

Ummmm Nope, Sorry Highly Untrue and quite Illegal, if you knew what you were talking about you would also know both of them have written bad articles about Westjet, while writting good articles on Jazz and AC.

I think managment change is needed now!

[sportingrifle]

410 and ws739 et all....

I was not implying that Jaques and Research Capital were taking bribes or anything else illegal, merely that they make their money (in part) by convincing people to buy stock. Every time somebody does, they get a commision, even if their clients lose money.

Most of these analysts are snake oil salesman. A really good one would have connected a few of the world economic dots about a year ago and got their clients out of anything to do with airplanes. Any simpleton can react to a year end report, the trick is to see the risks or opportunities coming. Remember that only last week, Research Capital called AC a "Buy." Couldn't they guess that $130/barrel hedged fuel, the US economy in freefall, China and India in a recession, BC forresty firms falling like dominos, and to boot that Ontario and Quebec factories shuttering might be hurting Air Canada? Any simpleton can react to a year end report, the ones worth their salary see it coming.

Examples...In 2000, AC was $12 and JK called it a strong buy with a target of $20. It went to $8 and I made $37K shorting the stock. His clients lost $4/share but he made money being wrong. When AC was in CCAA, JK predicted that the doors would close within a month and that it would produce tremendous opportunities for WJ shareholders. The big opportunity was to buy the AC IPO for about $18 and sell it 8 months later for $28. His clients missed the opportunity for a 235% annual rate of return but he still made money. When i get a moment I'm going to dig up his research reports on AC since 1999 and pretend to invest $100 in AC and then calculate what I would have now. My bet is not much. Then I'll do the same with WJ. My bet is a little more but nothing spectacular - no airline ever is over the long run.

In summary, this wasn't a case of insinuating illegal behavior or Teal Team bashing. Just pointing out how analysts in general and JK in particular seem to have no ability to make accurate airline predictions about AC.

Cheers sportingrifle

[Brick Head]

Just to help those who don't quite understand the financial s. Although they are bad they are being portrayed far worse in the media.

The reporting of foreign exchange gains/loss is a recent GAAP measure. It is not cash. The measure is supposed to create transparency however everything has a side effect. In this case skewing results into apparent big losses and gains based on rapid currency changes rather than actual performance. IOW if the US buck were to plummet next quarter, (the way they are printing money sooner or later) AC could post a massive foreign exchange gain even as market and performance conditions deteriorate. Since this gain wouldn't be cash it might look good, but it would not help AC in the slightest. Why? because cash is our problem.

Showing good will under the GAAP measures also produces wild paper fluctuations if a companies market CAP increases or decreases rapidly.

So subtract the foreign exchange loss from the 1B. That leaves a loss of 500million to examine.

AC had to pay 300 million CASH in Q4 for fuel hedging. This bugger is the culprit that is depleting AC's cash reserves. Yet is not receiving that much publicity. What are we up to now? I don't remember the number for Q3. Safe to say AC is approaching 1/2 Billion loss on fuel hedging to this point and there is still more to come. All losses straight from cash.

Subtract fuel hedging from the 500million and you end with a 200million loss. This makes seance based on the reported operating loss for the year of 39 million. Why? Believe it or not, Operating profits/loss do not include interest payments on loans.

So a $200 million loss for 08 is ruffly accurate. Not good. But not 1billion. Considering the massive losses AC took in Q3 for selling advanced seats for less than they could be operated at. (fuel escalated so fast there was no way to predict operating expenses at the time of operating.) Maybe the results are right in line with what we would expect.

So am I saying everything is rosy? Nope. Cash is a major hurdle for AC. We have none. We are riding just above min required under covenants with banks and credit card companies. You don't have to look far to see what happened to Frontier. they fell below certain benchmarks set out by Credit card companies and the credit company started withholding cash. They had no choice but to file chapter 11.

So if it is our cash position that is the major hurdle short term? What threats does it have?

1.) 860 million in pension funding for 2009 due the massive 3.2billion deficit. Even if all gov't relief is approved it is still 650ish.

2.) Our fuel is still 35% hedged. More fuel hedging losses will be put on the books.

I would like to mention here that in Monties latest letter to employees he is basically blaming the pensions for the cash crunch. He doesn't mention the massive fuel hedging losses.

So what is going to happen? A crisis is going to happen. If the unions don't talk pension reform we'll be in CCAA. With that said we may end up there anyway and the unions may feel they will be better off giving once in CCAA rather than twice. Once before and then another during. Yeah that is a trick companies will do. They know they are going into CCAA so they try to whack the employees twice. Please help us out. We think we can make it if you help. Milton tried this in 2003. Found out later CCAA hadbeen in the planning since fall 2002. So the trust issue may very well play a vital role in this.

1.) DIP financing is doubtful due to the credit crisis. If you are going to do it? Do it early, with as much cash as possible.

2.) AC can extricate themselves from the expensive contracts they have been saddled with by ACE.

I can't help but think these two issues will play a significant role in any decisions AC makes.

By the way. Even if there is a buyer out there. No one will be stupid enough to let a good crisis go to waste. This will be played for all it is worth whether CCAA happens or does not.

Hold on tight.

[sportingrifle]

Brickhead....

First rate job at explaining the reality and the probable future. Especially the "Give twice" plan. You understand more about the situation than about 80% of the employees, 90% of management, and 98% of the analysts! Well done.

BTW, I know that we are fuel hedged in the 32-35 percent range for 2009. Does anyone know how much fuel WJ hedged for '09?

Cheers Sportingrifle.

[bmc]

Shrinking market, declining yields, high costs. Raising capital by selling airplanes and not from flying passengers. Global recession.

What is there of interest to foreign buyers?

[Brick Head]

Shrinking market, declining yields, high costs. Raising capital by selling airplanes and not from flying passengers. Global recession.

What is there of interest to foreign buyers?

Cheap to buy is the interest. After the operation has another hair cut.

Many have speculated LH. LH, the only airline to beat estimates, still massively profitable, has repeatedly stated it plans on using the global recession to pick up assets that will position it well out the back side of the recession.

A potential buyer may also be reason for a CCAA filing. I mean would you not want it without all the expensive contracts saddled on it by ACE? Moreover would you want it before or after the pension issue was dealt with? You stick your nose in too early and the noose on the unions might slacken. You wouldn't want that.

All speculation.

[Airband]

BTW, I know that we are fuel hedged in the 32-35 percent range for 2009. Does anyone know how much fuel WJ hedged for '09?

30% for '09
14% for '10

[Flightlevels]

WJ is unhedged

[Airband]

WJ is unhedged

I see. Are you suggesting they lied in their Q4/08 financial report released earlier this week when they stated:

"During the year ended December 31, 2008, we began a more extensive fuel hedging program under a revised policy as approved by our Board of Directors. Our current objective is to hedge a portion of our anticipated jet fuel purchases in order to provide management with reasonable foresight and predictability into operations and future cash flows."

" As at December 31, 2008, for the 24 month period that we are hedged, the closing forward curve for crude oil ranged from approximately US $45 to US $67 and the average forward foreign exchange rate used in determining the fair value was 1.2136 US dollars to Canadian dollars."

" As at December 31, 2008, we had a mixture of fixed swap agreements and costless collar structures in Canadian-dollar WTI crude oil derivative contracts to hedge approximately 30 per cent of our anticipated jet fuel requirements for 2009 and approximately 14 per cent of our anticipated jet fuel requirements for 2010."