Air Canada Falls as Strike Vote Looms After Loss: Montreal Mover
February 10, 2012, 8:58 AM ESTBy Frederic Tomesco
Feb. 9 (Bloomberg) -- Air Canada posted its biggest drop in more than two years in Toronto trading after fuel and maintenance costs spurred a quarterly loss wider than analysts’ estimate and its pilots union sought a strike vote.
The loss in the three months through December was 64 Canadian cents a share, excluding foreign exchange gains, as fuel and aircraft maintenance expenses surged. That compared with the average 48-cent estimate in a Bloomberg survey.
While Air Canada said today it was prepared to continue talks under a government-appointed mediator’s oversight past a Feb. 14 deadline, the pilots union has asked members for a strike mandate. Pilots are resisting the possible creation of a low-cost unit to return to profit after the Montreal-based airline completed a cost-cutting plan last year.
Proposed contract changes would “would ship much of our flying outside Air Canada, possibly offshore,” Air Canada Pilots Association Chairman Gary Tarves told members in a letter yesterday. The airline “threatens our entire careers.”
Air Canada fell 12 percent to C$1.16 at the close in Toronto, the worst slide since October 2009.
The threat of a walkout added to the strain on the carrier after nine losses in the past 12 quarters. Tarves said any decision on whether to have pilots walk off the job would come later and “would depend on the corporation’s actions Feb. 14 and beyond.”
Canada’s Labor Ministry said the airline and the pilots union indicated earlier this week that there would be no work stoppage or effect on air transportation soon.
‘Working Together’
“The parties committed to working together to reach a deal,” a spokeswoman, Ashley Kelahear, said in an e-mailed statement. “The strike vote is part of the process.”
Air Canada’s pilot union is asking members whether they are prepared to authorize “anything up to and including a strike,” a spokesman, Paul Howard, said in a telephone interview. They will have five days to respond.
The airline will have the right to lock out pilots as of Feb. 14, “and for us to be on an equal footing, we have to have this vote” by that date, Howard said. A strike or a lockout wouldn’t necessarily trigger a total shutdown of the airline by either party, he said.
Air Canada joined North American peers grappling with higher fuel expenses last quarter. Those costs rose 26 percent to C$808 million ($810.1 million), while aircraft maintenance jumped 29 percent to C$212 million, the airline said.
787 Savings
Savings in both areas should arrive with the 2014 addition of Boeing Co.’s composite-plastic 787 to the Air Canada fleet, according to the airline.
Limiting costs and enhancing revenue “remain important priorities going forward,” Chief Executive Officer Calin Rovinescu said in a statement.
Air Canada expects jet fuel to average 87 cents a liter this year, compared with 85.2 cents in 2011 and 66.4 cents in 2010. Fuel is the company’s biggest expense, accounting for about 29 percent of operating costs in the fourth quarter.
Aircraft maintenance costs will probably increase by 10 percent to 14 percent this year, the company said.
Including a foreign-exchange gain of C$114 million, Air Canada’s net loss was C$60 million, or 22 cents a share, compared with net income of C$89 million, or 27 cents, a year earlier, the airline said in a statement. Revenue rose 3.2 percent to C$2.7 billion.
Low-Cost Unit
Air Canada completed a three-year initiative in 2011 that lowered annual expenses and increased revenue by about C$530 million. The carrier reiterated today that it’s considering whether to start a low-cost airline to boost sales further.
“We view participation in the low-cost segment of the leisure market as important for the corporation, and we are evaluating various models that would allow us to participate,” Rovinescu said in the statement. The prospect of a low-cost unit “is proving contentions with some of our labor groups,” he said later, on a conference call with analysts.
Fourth-quarter system capacity increased 2.5 percent from the same quarter a year earlier, Air Canada said. The company plans conservative seating-capacity growth of 1.5 percent or less this year, which will help maintain pricing power.
Long-term debt fell to C$3.91 billion as of Dec. 31 from C$4.03 billion a year earlier, the airline said today. Pension liabilities soared 67 percent to about C$5.56 billion from a year earlier as interest rates declined.
“Our objective is to continue to deleverage the balance sheet over the next couple of years,” Chief Financial Officer Michael Rousseau said on the call. “Free cash flow will go to reduce debt.”
As of Dec. 31, cash, cash equivalents and short-term investments amounted to C$2.1 billion, down from C$2.19 billion a year earlier. At 18 percent of 2011 operating revenue, the assets exceed Air Canada’s minimum target liquidity level of 15 percent of revenue in a 12-month period.
--Editors: James Langford, John Lear
To contact the reporter for this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net.
To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net
