Air Canada Loss of 132 million in the years strongest Q

[pilotbzh]

No I'll head to Cuba instead, long leave the Che..

[Embraer190]

Remember a guy named R. Milton?

*Ears burn* - I thought we're supposed to refer to him as "He who must not be named"

Someone should teach that capitalist pig a lesson

[Brick Head]

Our sun destinations are exceeding my expectations and I was a little pessimistic about how well they were going to perform given the increase in scheduled destinations to the Carribean and growth of Westjet Vacations.

CanadaEH,

I was thinking further out.

AC had added capacity as well. The sun destinations, are throwing deals at Canadian tour companies this year as the US consumer has gone flat. Old Fella should do very well this winter. The airlines should do well this winter as well as most of the discounting is on the hotel/car rental end.

If however, economists are correct about a 5-6 quarter recession ( I see Greenspan just jumped into the fray) next winter won't be nearly as pleasant. Parking excess winter capacity to sun destinations will be much more difficult, leaving airlines to make very difficult decisions.

On the flip side. Canada seems to be defying the slow down so far on the job front. Never know, here in Canukistan we might get a skip rather than get submerged. If our consumer demand stays relatively healthy we might benefit from the tourism drought in sun destinations even next year.

Here's hoping.

Hmmm. Just thought about my "here's hoping" comment. Always need to remember that our gain is always someone else pain. Probably a little insensitive. How many Mexican families will have trouble putting food on the table this winter because tourism has fallen through the floor?

[twinpratts]

Sucks about the cuts... in all seriousness.

[Brick Head]

Yup,

This is just shooting from the hip. Nothing factual to base this on. With the immanent EU open skies and foreign ownership changes coming. This plays well into a foreign owner for AC.

My gut tells me LH. Their first purchase in North America. Been hearing rumors for a while.

Just guessing though.

[pilotbzh]

I don't mind the gernans, they look after employees, can only be an improvement from current gangster running the show....

[c170b53]

Er....No just ask the boys at MTU.....

[tonysoprano]

LH would be a welcome change over the clowns we have now. Any company that can make $1bil profit every year must be doing something right. somehow I think AC will have to wait a while if it ever even happens. with our luck it'll be Gerry Schwarts taking over.

[rudder]

If anybody wanted AC it would have been bought by now. Nobody is interested in acquiring AC's current balance sheet. If LH acquired a stake in AC growth would not be the order of the day. Now the analyst community is raising liquidity concerns, just like in 2002. Key culprit? The pensions. And for AC to secure credit they are now paying extortive interest rates (LIBOR plus 5%). Good luck trying to sell new debt or further dilute your capital structure with a stock issuance into a financial market that is paralyzed. And how do you sell/leaseback aircraft into a market where the manufacturers are starting to see deliveries stack up at the factory?

The plan that brought AC out of CCAA was a 'blue skies forever' plan. The skies are not so blue anymore and potential investors are noticing. Tomorrow's ACE call should be interesting.

[CanadaEH]

Correct me if I'm wrong but doesn't LH have a stake in jetBlue?

[tonysoprano]

they do.

[Embraer190]

Does anyone else get the feeling that there could be a pilot strike during negotiations next year?

[rightseatwonder]

AHHH... ZEE Germans are coming!

Maybe there's something to the fact that WestJet runs with Lufthansa LIDO charts now instead of "good 'ol American Jepps! They're coming after us all! Stick together boys and girls!
lol

[whiteguy]

Does anyone else get the feeling that there could be a pilot strike during negotiations next year?

Or Ramp/MTC, Gate agents, Flight Attendants....etc

[KAFUFO]

Hate to say it boys but WJ is sitting with 8+ planes arriving just waitting for you to strike and with every U.S. carrier parking A/C how hard do you think it would be for them to come up with a few short term leases????

your kinda stuck between a rock and a WJ. Don't get me wrong I want you to get the money that you deserve but I wouldn't be supprised to find out that the pay cut was comming ball park 15-25% and they will settle on 5%

in a strike senario WJ picks up the 50% people buy into their frequent flyer program and domesticaly your fubar. you may get 5% now but at what cost.

I'd be moving my pension elsewere

[Johnny767]

Spoken like a true "fellow aviator!"

[rudder]

The cash burn rate of even a brief shutdown, or perhaps even the 'bookaway effect' of the publicity of a potential disruption in service, would be a straight ticket to CCAA for AC.

Having said that, good luck to WJ replacing 1.2 Billion monthly ASM's in domestic capacity overnight. Ain't gonna happen.

[c170b53]

Feel the Love

[ivanhoe]

This does not look good.

AC has hedged a significant portion of their fuel going forward at very high prices just as the bottom has fallen out of the price of oil. WestJet has too , although at lower prices and smaller quantities. This business is hard enough without having to pay more than the going rate for your go juice...

The big question is , is how will this economic holocaust affect loads in the future. Both AC and WestJet have managed to keep loads at very respectable levels but AC still seems unable to make a profit. If your load factor is 80%+ in a comfortable duopoly (stable and rational pricing) and you can't make money , you have a big problem. Things could get very ugly very quickly if those load figures drop off. The standard response will be to drop prices to stimulate demand (both carriers). Even if this works , which is questionable in this economic environment , yields suffer. You are caught in a coffin corner...

I am amazed that all the airline stocks are getting killed today as oil trades at $55. The market is telling us that it expects the drop in oil prices to be more than offset by poor travel demand. Westjet claims that forward bookings are normal. AC claims slight softness. The mild 2001 recession saw WestJet's loads hold up. It was claimed that normal AC customers "downgraded" to WJ. With the oil price collapse I think WestJets business is particularily at risk because of it's exposure to all of the oil field workers. A lot of things are different now so we shall see if the same thing happens this time.

There has been a lot of talk about the upcoming negotiations. The unions will push like crazy even if the industry is in meltdown because that is "what they do". Even if various unions walk , they will be legislated back to work after a few weeks and an arbitrator will be appointed by the goverment. A 2% increase will be granted and everyone saves face. There will be a lot of noise and gnashing of teeth for an end result of essentially zero.

Let's face it...AC is not going away. Worst case is another CCAA filing. AC tells the shareholders sorry for your luck...you get zero. Then they tell their creditors...too bad , you get 10 cents on the dollar. Oh , and bye the way employee's...you are going to work harder for less money. We have all seen this movie before. The good news is that there probably won't be mass layoffs and life will go on.

[Brick Head]

Gentlemen ......Ladies,

The company that owns AC. That would be ACE, has 824 million sitting in the bank from the sale of ACTS and Jazz. This is the company that just loves to disperse cash and equity directly back too the shareholder. All of a sudden last spring they stopped? Why?

I would suggest they didn't disperse the money because they realized AC would likely not sell with fuel prices heading they way they were. It appears ACE has now decided to hunker down, possibly?/likely? buy back the outstanding AC shares and fold itself back into AC. Wait for better times then re try the sale.

Don't get too excited. Think minimalistic. ACE views that money as theirs. Just because it was made from the sale of former AC assets means nothing to them. All that will matter to them is protecting the integrity of their remaining asset, AC, in order to sell it out the far side of the slow down.

IOW

Inject as little as possible cash.
Figure out how they are going to deal with all the unions next year. Were planning on being long gone.
Get pension relief from the gov't. Hold cash back until that happens.

[rudder]

Get pension relief from the gov't. Hold cash back until that happens.

When AC was bankrupt in 2003/2004, tailored pension relief was provided to AC courtesy of OSFI. Now it is a broader cross-section of companies that are looking at the equivalent of a brick wall in terms of anticipated past-service pension contributions commencing in the second half of 2009.

If either OSFI, the Federal Finance Minister, or both decide to act it is likely that they will act together and that will be a global prescription for Federally regulated DB plans. It may not be the best solution, or any solution at all, for a company that has already been granted some relief.

My bet is still on a change to a 10 year funding timeline for all DB plans in deficit on January 01, 2009.

[Squid]

2.50 ??? that's ugly.




Detailed Quote - AIR CANADA CLASS 'B' - http://www.aircanada.com
Sym-X Bid - Ask Last Chg % Vol $Vol #Trade Open-Hi-Lo Year Hi-Lo Last Trade News Delay
AC.B - T 2.0 2.48 · 2.50 0.1 2.50 -0.47 -15.8 384.4 1,048 892 3.00 3.00 2.40 15.04 2.40 16:15:01 07:59 15 min RT 1.5¢


T

[WJ700]

"The company that owns AC. That would be ACE, has 824 million sitting in the bank from the sale of ACTS and Jazz. This is the company that just loves to disperse cash and equity directly back too the shareholder. All of a sudden last spring they stopped? Why?"

It's not easy being green... and trying to ask an honest question about AC, but...

If ACE has $824 million in the bank as a shell company... can they not backstop or finance AC the airline to put shareholders concerns to rest over this recent liquidity concern?

[Flightlevels]

Here's some of your answer 700....



Air Canada's wings clipped by cash crisis
Email story
Print
Choose text size
Report typo or correction
License this article



Nov 13, 2008 04:30 AM
Be the first to comment on this article...
CHRIS SORENSEN
BUSINESS REPORTER
Following a brief run of profitability, Air Canada appears to be back to its usual business of lurching from one crisis to the next.

As jet fuel prices recede after hitting stratospheric levels earlier this year, the country's largest airline is now grappling with the prospect of declining demand for air travel and a looming cash crunch that's being exacerbated by the meltdown in the global financial sector.

While Air Canada still has just more than $1.1 billion in cash on hand, the minimum executives say is needed to keep the airline operating comfortably, some analysts predict that could dwindle to as little as $750 million by year's end after the airline pays debt and lease obligations, as well as money owing on fuel hedging contracts that are "out-of-the-money" because of the recent slide in oil prices.

Tim James, an analyst at TD Newcrest, said in a note the expected end-of-year cash position is "a level we consider to be too low for an airline of Air Canada's size and given the current uncertain environment."

As for next year, analysts predict free cash flows could be drained by $400 million to $512 million because of the impact of capital expenditures, higher pension payments and a weaker business outlook. As well, the airline is estimated to be on the hook for $400 million in debt repayments over the next five quarters.

Investors aren't optimistic as the airline heads into a seasonally weak period. Shares of Air Canada have lost more than half their value in the past week, closing down 47 cents at $2.50 yesterday on the Toronto Stock Exchange, after the airline posted a $132 million third-quarter loss and parent ACE Aviation Holdings Inc. ruled out buying back the 25 per cent stake in Air Canada that it doesn't already own.

Another wild card is the contract negotiations scheduled with the airline's unions in 2009, which are expected to be rocky. Air Canada said earlier this year it was laying off up to 2,000 employees and cutting back flying to cope with soaring fuel bills. "The labour situation in mid-2009 could be the tipping point, in our view, subject to new sources of cash," said David Newman, an analyst at National Bank Financial, in a recent report.

Privately, other analysts are comparing Air Canada's current situation to its pre-bankruptcy days five years ago, noting that most future cash flows are likely to go to debt holders and pensioners. The major difference this time around is that Air Canada's costs are significantly lower and its long-term debt is about $4 billion, compared with about $12 billion in 2003.

Under normal circumstances, Air Canada could be expected to simply borrow money to get through a few challenging quarters. But these aren't normal times. The financial crisis centred in the U.S. and Europe has made it difficult – if not impossible – for companies to access financing at acceptable rates.

Indeed, Air Canada has apparently given up on trying to tap a $400 million credit facility as executives explore other ways to maintain a sufficient cash position. "We'd like to do some financing to ensure those safety margins continue to exist," chief financial officer Michael Rousseau said during a conference call with analysts last week.

Air Canada has already struck a deal to raise money from its former maintenance arm and is talking about selling and leasing back up to nine Boeing 777 aircraft and 60 Embraer regional jets, which "might normally be expected" to fetch about $800 million, according to company filings.

Another possible source of liquidity comes from parent ACE Aviation, which has nearly $825 million in cash on hand.

ACE executives have been dithering for more than a year over a proposed wind-up of the holding company. The original plan was to sell the firm's 75 per cent stake in Air Canada, but the weak markets and Air Canada's depressed share price have sidelined the strategy.

Hence, investors had been hoping ACE would instead buy the outstanding Air Canada shares, amalgamating the two companies, but ACE's chief financial officer Brian Dunne said this week the firm is leaning toward a more complicated share swap.

Comments on this story are moderated
|
Login to Comment
Commenting Guidelines



MORE IN THE NEWS
Ontario economy on brink Canadian Pacific throttling back spending Developed world in recession Stock markets lose morning optimism Canada's trade surplus with U.S. shrinks U.S. jobless claims jump to 7-year high Loblaw profit and sales up Wal-Mart trims profit outlook Oil falls below $56 on grim outlook Siemens posts loss but offers robust outlook
RECENT SPECIAL SECTIONSDesi Life Nov.-Dec.U.S. ElectionVital Signs 2008Guide to Colleges & UniversitiesHDTVInsuranceMore Specials

MOST POPULAR ON THESTAR.COM
Most ReadMost Emailed
Credit card costs soar for hard-hit consumers
Horoscopes for Thursday, November 13
Burke should be next Leafs' GM
Developed world in recession
Bitter Blake questions his future with Leafs
SPECIAL
Special section: Investing
People are forming clubs and pooling their financial knowledge with the hope of getting a bigger bounce for their bucks.

Santa Claus Fund
Gifts from Santa Fund for two sons allowed deserted mother to get on with her life.

Kenzie's Top 10 sports cars
Jim Kenzie picks the 10 cars that best reflect the pure joy of driving. They may not be what you think.
More Specials

[flapless]

....... I wouldn't be surprised to find out that the pay cut was comming ball park 15-25% and they will settle on 5%

If, and that's a big "if", the company came into negots with a 15-25% pay cut proposal. I would need very little time to vote "yes" to strike. Regardless of the companies financial situation. If we settled on a 5% pay cut. I'm fairly certain that would be the end of my days at AC.

Flapless