Air Canada : AC : ACA :

No hurry to 'refleet: Air Canada
Bombardier CSeries in airline's sights, but so are rival offerings

Air Canada will decide within 12 months whether to "refleet" its narrow-body planes -replace its current fleet of smaller, single-aisle aircraft with upgraded models by Airbus SA and Boeing Co. or with Bombardier Inc.'s next plane, the all-new CSeries.
Calin Rovinescu, president of the Montreal-based airline, said after a luncheon speech yesterday that he is in no rush to replace the current fleet of Airbus 319s, 320s and 321s, which are "still good."
"And we have not yet heard from Boeing and Airbus as to what their new products are going to be."
Their hands forced by Bombardier's CSeries, which is supposed to achieve a 20-percent better fuel burn than comparable aircraft and an overall 15-per-cent cut in total fleet operating costs, Airbus and Boeing have been debating for about two years on how to counter the threat to their smaller aircraft, which make up a large segment of the airliner market.
Airbus is set to announce its decision on whether to re-engine -place a more fuel-efficient engine on -its A320s, while Boeing is backing away from that option for its B737 and is leaning toward an all-new plane that would not enter service for at least a decade, and perhaps 15 years.
As a result, airlines around the world sorely in need of fuel-cost relief have been sitting on the sidelines, waiting for Boeing and Airbus's decisions.
"Until we see all the new products, we might not make a decision," Rovinescu said. "We can still get more utilization out of our existing narrow-body fleet."
The 12-month delay doesn't mean Air Canada will order a large batch of planes to replace its 120-130 Airbus fleet by next September -or even decide which plane will replace them. After the year to determine whether the A320s need to be replaced, a decision on which plane to buy could take another four years, Rovinescu said.
"If one had the benefits of unlimited capital, one would buy the newest aircraft as soon as they would come out," Rovinescu said in reference to the CSeries, which is due out in 2013.
"But it's possible that you buy something and then regret that you bought it."
"Bombardier has a very good product and we've looked at the CSeries and our folks are continuing to study it."
To replace its 767s, Air Canada has ordered 37 787s, whose deliveries are due to begin in 2013, and Rovinescu suggested -but did not say -that the carrier would wait to see how the first batch performs before deciding on a new narrow-body replacement plane. Boeing also touts its 787 as offering far lower operating costs than today's planes.
"To buy 100 planes is immense," Rovinescu said. "(What if) we're not satisfied with the additional benefits of the 787? (It's also) a game-changer, it will change all sorts of things, it will save airlines a lot of money ..."
Rovinescu repeated his broadsides against Emirates Airlines, which he accuses of using open-skies policies to gain an unfair advantage in Canada.
"It's a state-owned enterprise with very low labour costs coming into this market. Well, if you give me the same rules, I might be able to compete."
Emirates flies to Toronto and is seeking to expand its routes to Vancouver and Calgary.
Rovinescu also reiterated his fierce opposition to paying Ottawa for airport rent.
They add $1 billion to the airline's annual operating costs compared with a U.S. carrier, he said.
"It's unacceptable. Airports have been privatized, they were all sold. And yet (Ottawa) continues to receive funding. I understand very well why - they go into the consolidated revenue fund -they're part of (the finance minister's) budget. But it hurts our growth in an importantway."

AIR CANADA REPORTS 2010 THIRD QUARTER RESULTS; Operating Income improved $259 million or 381 per cent from previous year's quarter

MONTREAL, Nov. 4 /CNW Telbec/ - Air Canada today reported operating income of $327 million in the third quarter of 2010 compared to operating income of $68 million in the third quarter of 2009, an improvement of $259 million or 381 per cent. Earnings before interest, taxes, depreciation, amortization and aircraft rent (EBITDAR) of $581 million increased $261 million or 82 per cent from the third quarter of 2009.
"I am pleased to report very strong results for the third quarter," said Calin Rovinescu, President and Chief Executive Officer. "This progress is evidence that our revenue generation initiatives are working, and the cost transformation of Air Canada is on track. Moreover, we ended the quarter with a strong liquidity position of approximately $2.2 billion, exceeding previously stated target levels."
Passenger revenues increased $322 million or 13 per cent from the third quarter of 2009 due to a 9.7 per cent growth in traffic and a 3.2 per cent improvement in yield. The capacity growth of 8.2 per cent in the third quarter of 2010 is consistent with one of Air Canada's key priorities of growing its international network and leveraging its Toronto and other Canadian hubs as global transfer points for travelers en route to domestic, U.S. transborder and international destinations. The capacity growth in the quarter was accomplished entirely through increased aircraft utilization.
Premium cabin revenue growth of $107 million, or almost 26 per cent in the third quarter of 2010, was driven by a 14 per cent increase in traffic and a 10 per cent improvement in yield compared to the previous year's quarter.
"Premium cabin revenues in the quarter accounted for almost one third of the total increase in system passenger revenues, underscoring Air Canada's strong position to capitalize on a rebound in business travel as the economy strengthens," continued Mr. Rovinescu. "Our investment in the product and our employees' commitment to deliver a superior service are paying off - 71 per cent of Canadian business travellers surveyed by Ipsos Reid in their 2010 Canadian Business Travel Study named Air Canada as their preferred airline, the third consecutive year of improvement in Air Canada's ratings. This, together with being selected as 2010's 'Best Airline in North America' in the Skytrax survey of 17 million passengers, helped us to achieve these strong quarterly results. I thank our employees whose hard work is paying off as we continue to meet the corporation's objectives and deliver award winning products and service that we can all be proud of.
"New international routes performed well, as we pursued new market opportunities in the quarter by deploying our existing fleet more efficiently and leveraging our Canadian hubs and strategic alliance partnerships to further strengthen our global network," concluded Mr. Rovinescu.
Passenger revenue per available seat mile ("RASM") increased 4.7 per cent from the third quarter of 2009 on yield growth of 3.2 per cent and a passenger load factor improvement of 1.2 percentage points. A stronger Canadian dollar in the third quarter of 2010 versus the third quarter of 2009 accounted for a decrease of $98 million to third quarter 2010 foreign currency passenger revenues, on a system-wide basis, and reduced the RASM improvement by 3.8 percentage points. Excluding the foreign exchange impact, RASM would have increased 8.5 per cent year-over-year.
Operating expenses increased $97 million or 4 per cent from the third quarter of 2009, mainly due to the capacity growth of 8.2 per cent, higher base fuel prices, as well as increases in pension and commission expenses. Partially offsetting these increases was the impact of a stronger Canadian dollar on foreign currencies compared to the third quarter of 2009, which reduced operating expenses by approximately $70 million from the same period in 2009, as well as a reduction in aircraft maintenance expense year-over-year. Cost Transformation Program ("CTP") initiatives also reduced various operating expense categories, including wages and salaries, capacity purchase fees paid to Jazz, food, beverage and supplies, airport user fees, information technology, terminal handling and "other" operating expenses.
Unit cost, as measured by operating expense per available seat mile ("CASM"), decreased 4.1 per cent compared to the third quarter of 2009. Excluding fuel expense, CASM decreased 5.3 per cent year-over-year. The favourable impact of a stronger Canadian dollar on foreign currency denominated operating expenses (mainly U.S. dollars), the capacity growth, which results in the airline's fixed costs being allocated over a greater number of ASMs, the impact of CTP initiatives, as well as increases in aircraft utilization and average stage length from the third quarter of 2009 were all contributing factors to the CASM decrease year-over-year.
Air Canada reported net income of $261 million in the third quarter of 2010 which included foreign exchange gains of $90 million. This compared to net income of $277 million in the third quarter of 2009 which included gains on foreign exchange of $295 million.
Air Canada reported earnings per diluted share of $0.91 in the third quarter of 2010 on an unadjusted basis. The airline reported earnings per diluted share, on an adjusted basis, of $0.64 in the third quarter of 2010 compared to a loss per diluted share, on an adjusted basis, of $0.19 in the third quarter of 2009. Earnings per diluted share for the third quarter of 2010 are adjusted to remove Air Canada's gains on foreign exchange of $90 million and a gain on assets of $2 million. The loss per diluted share for the third quarter of 2009 is adjusted to remove Air Canada's gains on foreign exchange of $295 million and a gain on assets of $1 million.
At September 30, 2010, Air Canada's cash, cash equivalents and short-term investments amounted to $2.173 billion and represented almost 21 per cent of 12-month trailing operating revenues. At October 31, 2010, Air Canada's cash, cash equivalents and short-term investments amounted to approximately $2.3 billion.

Air Canada lance une filiale à bas prix

Air Canada veut lancer une filiale à rabais pour concurrencer des rivaux comme Transat AT et Sunwing. Elle offrirait des vols vers l’Europe, le Mexique ou les Caraïbes. Aucune date de lancement n’a été précisée.
Air Canada affectera quatre de ses Boeing 767 et six de ses Airbus A319 à cette filiale, indique un document, joint à l'entente de principe récemment conclue avec les pilotes du transporteur, obtenu par le quotidien torontois Globe and Mail. La flotte pourrait éventuellement passer à 50 appareils.
Le transporteur n’a pas voulu confirmer la nouvelle à Argent.
L’entreprise voudrait lancer une nouvelle bannière afin d’être en mesure d’augmenter la densité de passagers sur ses vols sans ternir son image de marque.
« Air Canada est présentement reconnu comme étant un transporteur spacieux. La compagnie ne veut pas changer cette image. Elle lance donc une nouvelle bannière sous laquelle elle pourra offrir des services moins luxueux, mais plus abordables », explique Moscou Côté, directeur général de Voyages Constellation.
La qualité du service, toutefois, ne souffrirait pas. « Air Canada n’a pas tellement de marge de manœuvre de ce côté. Leurs repas sont déjà d’une qualité moindre que chez les concurrents. Ils peuvent difficilement offrir moins », blague Moscou Côté.
« Présentement, chez Westjet et Canjet par exemple, on offre des repas chauds gratuitement. Chez Air Canada, on doit payer pour avoir un repas froid », poursuit-il.

Air Canada Prepares For FA Strike

Air Canada is preparing for its second labor action of the year after the company’s flight attendants issued a strike warning for Sept. 21.

The strike, which was authorized last week after the majority of the airline’s 6,800 attendants rejected the latest contract proposal, will severely disrupt operations, with Air Canada relying on code-shares partners to maintain what it calls a “partial service.”

However, as the strike nears, Canada’s Labor Minister Lisa Raitt has opened talks with the flight attendants’ union, the Canadian Union of Public Employees (CUPE), and the airline, with the warning that the government’s economic recovery plan could be adversely affected by the strike.

“That is why I continue to encourage both parties either to reach a deal or to agree to submit to a binding process to settle their collective agreement and avoid a work stoppage. Any work stoppage would negatively impact Canada’s economy and threaten our fragile economic recovery,” says Raitt in a statement.

“I remind the parties that the best solution in any dispute is one that the parties reach themselves. I urge the parties to reach a negotiated agreement as soon as possible,” she adds.

Similar warnings were issued in June when Raitt’s ministry threatened to intervene in a strike by 3,800 Air Canada customer service staff, which is represented by the Canadian Auto Workers union.

That strike ended with both sides agreeing to send the contentious issue of ending defined benefit contribution pensions for new employees to an arbitration panel; coincidentally on the same day CUPE issued its strike notice, the panel issued a ruling retaining such pensions for new hires, albeit with a defined contribution component.

“Despite unprecedented government interference in our collective bargaining, the union was able to build a clear case for the need to continue the [defined benefit] pension plan, for all members, regardless of their age or start date,” says CAW President Ken Lewenza.

Air Canada is also attempting to reform pensions for its other labor groups but it is unclear how the panels’ decision in the CAW case will affect the ongoing negotiations between management and the flight attendants. Both sides, however, say they hope to reach an agreement before the strike deadline.

Canadian low-cost carrier WestJet, meanwhile, says it will add an unspecified amount of new flights during a strike. “Flight schedules are being prepared initially from Sept. 21 to Sept. 25, and will be updated as required,” says Executive VP, Operations Cam Kenyon. “In addition, September is a shoulder season in the travel industry when typically there are fewer people flying. In fact, based on current flight loads, there are more than 20,000 empty seats available every day on WestJet aircraft right now. If their plans are impacted by potential strike action, travelers will have choices.”

Air Canada is preparing for its second labor action of the year after the company’s flight attendants issued a strike warning for Sept. 21.

The strike, which was authorized last week after the majority of the airline’s 6,800 attendants rejected the latest contract proposal, will severely disrupt operations, with Air Canada relying on code-shares partners to maintain what it calls a “partial service.”

However, as the strike nears, Canada’s Labor Minister Lisa Raitt has opened talks with the flight attendants’ union, the Canadian Union of Public Employees (CUPE), and the airline, with the warning that the government’s economic recovery plan could be adversely affected by the strike.

“That is why I continue to encourage both parties either to reach a deal or to agree to submit to a binding process to settle their collective agreement and avoid a work stoppage. Any work stoppage would negatively impact Canada’s economy and threaten our fragile economic recovery,” says Raitt in a statement.

“I remind the parties that the best solution in any dispute is one that the parties reach themselves. I urge the parties to reach a negotiated agreement as soon as possible,” she adds.

Similar warnings were issued in June when Raitt’s ministry threatened to intervene in a strike by 3,800 Air Canada customer service staff, which is represented by the Canadian Auto Workers union.

That strike ended with both sides agreeing to send the contentious issue of ending defined benefit contribution pensions for new employees to an arbitration panel; coincidentally on the same day CUPE issued its strike notice, the panel issued a ruling retaining such pensions for new hires, albeit with a defined contribution component.

“Despite unprecedented government interference in our collective bargaining, the union was able to build a clear case for the need to continue the [defined benefit] pension plan, for all members, regardless of their age or start date,” says CAW President Ken Lewenza.

Air Canada is also attempting to reform pensions for its other labor groups but it is unclear how the panels’ decision in the CAW case will affect the ongoing negotiations between management and the flight attendants. Both sides, however, say they hope to reach an agreement before the strike deadline.

Canadian low-cost carrier WestJet, meanwhile, says it will add an unspecified amount of new flights during a strike. “Flight schedules are being prepared initially from Sept. 21 to Sept. 25, and will be updated as required,” says Executive VP, Operations Cam Kenyon. “In addition, September is a shoulder season in the travel industry when typically there are fewer people flying. In fact, based on current flight loads, there are more than 20,000 empty seats available every day on WestJet aircraft right now. If their plans are impacted by potential strike action, travelers will have choices.”

Air Canada Approaches AMR Levels on Labor Unrest: Canada Credit

Relative yields on Air Canada bonds are approaching levels of AMR Corp. as the bankruptcy of the parent of American Airlines spurs concern the nation's largest carrier may seek protection from creditors again.

The spread, or additional yield investors demand above government benchmarks to own Air Canada's five-year bond, surged 200 basis points, or 2 percentage points, to 1,200 basis points on Nov. 30, from a week earlier, Bank of America Merrill Lynch data shows. Spreads on AMR bonds climbed to 1,472 basis points from 1,411 basis points during the same period.

The Montreal-based carrier, which emerged from bankruptcy proceedings in 2004, is trying to avoid that fate a second time as it battles labor unrest, a sluggish global economy and higher jet fuel prices. AMR Corp. sought protection from creditors on Nov. 29 after failing to secure cost-cutting labor agreements. Chief Executive Officer Tom Horton said the Fort Worth, Texas- based carrier's fleet and network will experience "shrinkage" as it reorganizes.

"It's investors saying 'if AMR has filed, who else is going to file and how's that going to impact its competitors?'" said Jatinder Mall, an analyst with Standard & Poor's in Toronto, who rates Air Canada's debt six levels below investment grade at B- with a stable outlook.

Shares Down

Air Canada's widely traded Class B stock has tumbled 69 percent this year. The shares were unchanged at C$1.07 in Toronto yesterday, down from C$21 when Air Canada began trading again in November 2006.

The price of the carrier's 9.25 percent bonds due in August 2015 fell to low as almost 93 cents on the dollar on Nov. 29, matching a record low reached in October, according to Bank of America Merrill Lynch index data. The 3.2 percent decline in price last month was the third biggest in the 26-Canadian high- yield index and greater than the 2.1 percent drop in the Bank of America Merrill Lynch High Yield Airline Index.

Elsewhere in credit markets, the province of Manitoba doubled the amount outstanding of its 2.05 percent, five-year bond to C$600 million ($592 million). The securities were priced to yield 54 basis points above comparable benchmark government debt.

Quebec issued C$500 million of 3.25 percent bonds maturing in 2022 at 109 basis points over benchmarks, doubling the amount outstanding to C$1 billion.

Corporate Yields

The extra yield investors demand to own the debt of Canadian investment-grade corporations rather than the federal government narrowed to 182 basis points yesterday, or 1.82 percentage points, from 184 on Nov. 30, according to a Bank of America Merrill Lynch index. The so-called spread ended last week at 181 basis points. Yields fell to 3.51 percent, from 3.54 percent on Nov. 30.

Canadian corporate bonds have gained 6.6 percent since the start of the year, compared with a return of 8.3 percent for Canadian government bonds, according to Bank of America Merrill Lynch data.

Canadian employment unexpectedly fell in November led by cuts in service industries, marking the first back-to-back declines since the 2009 recession. The number of jobs fell by a net 18,600 last month, following October's 54,000 drop that was the largest since February 2009, Statistics Canada said today in Ottawa.

Yields on 10-year Government of Canada bonds rose four basis points to 2.18 percent. The difference between yields on 10-year Canadian government bonds and U.S. Treasuries of the same maturity narrowed 2 basis points to 6 basis points.

In the provincial bond market, relative yields narrowed to 71 basis points yesterday, from 73 on Nov. 30. Yields fell to 2.6 percent from 2.62 percent. The securities have climbed 9.1 percent this year.

Labor Event

Air Canada averted a fleet-wide strike in October after the federal government forbade its 3,800 flight attendants from walking off the job. Those employees last month had to accept a deal in a binding arbitration process they'd earlier rejected.

The nation's flagship carrier and its 3,000 pilots are in negotiations with a government-appointed mediator that could result in strike action in early 2012 if no deal is reached.

Air Canada reported a loss of C$124 million, or 45 cents a share, in the third quarter.

"It's the labor issues plus their pension hole that contributes to some of the additional spread in the Air Canada bonds," said Geof Marshall, vice president of portfolio management at CI Investments in Toronto, who oversees about C$4.5 billion in high-yield assets and holds Air Canada debt. "It makes you a little bit worried, but then again, this is a tough business."

Probable Outcome

Altman's Z-Score, which claims to predict the probability of a company filing for bankruptcy, suggests the odds are high for Air Canada. Scores above 3.0 indicate business failure is unlikely and scores below 1.8 indicate an increased risk of bankruptcy, according to the system developed by Edward Altman, a professor of finance at New York University. Air Canada's score is 0.96.

Air Canada spokesman Peter Fitzpatrick declined comment on the bonds.

Air Canada isn't alone in seeing investors demand higher yield after the AMR bankruptcy filing. The spreads on debt of United Continental Holdings Inc. widened to 757 basis points from 714 basis points a week earlier, the Bank of America Merrill Lynch data shows. United Airlines parent UAL Corp., a predecessor to United Continental, emerged from bankruptcy protection in 2006 after more than three years, and the carrier later merged with Continental Airlines.

Competitive Landscape

The spread on Delta Air Lines Inc., which sought creditor protection in 2005 before buying once insolvent Northwest Airlines in 2008, also widened to 791 basis points from 750, the index data show.

Air Canada's debt is a good bet when you consider the carrier's dominant position in the less competitive Canadian airline industry and the quality of the assets that back the securities, said CI Investments' Marshall.

Its first-lien Air Canada bonds are secured against lucrative landing slots in London, New York and Tokyo, which give it a loan-to-value ratio in the low 40 percent range versus a ratio of about 70 percent for AMR's 10.5 percent bonds, he said. The lower the ratio, the lower the risk, which makes the Air Canada bonds a better value, he said.

"Air Canada bonds are cheap," Marshall said.

Air Canada (AC), in the midst of navigating challenging labor negotiations, reported a disappointing C$249 million ($250.2 million) 2011 net loss, widened from a C$24 million net deficit in 2010.

President and CEO Calin Rovinescu conceded to analysts and reporters that the carrier's current financial situation is untenable, necessitating change. "We are into a transformation," he said.

"For us to be successful long-term, we have to transform."

He said the company is aggressively tackling controllable costs, exploring revenue enhancement initiatives, maintaining strong liquidity (about C$2.1 billion at year end 2011) and will continue to manage capacity "conservatively," with full-year system ASMs expected rise no more than 1.5% year-over-year in 2012.

But the labor situation, including the Air Canada Pilots Assn. calling for a strike vote this week and AC narrowly avoiding a flight attendants' work action last year ([Vous devez être inscrit et connecté pour voir ce lien]), continues to be "very challenging," Rovinescu said.

The carrier is attempting to collectively bargain new labor deals with nearly all of its work groups.

Rovinescu said he is "optimistic" AC can solve its labor problems through "negotiations" and avoid service disruptions. He noted that "pension reform" remains the "main challenge" in talks with unions.

AC's plan to establish a subsidiary low-cost carrier ([Vous devez être inscrit et connecté pour voir ce lien]) is also "proving contentious" in labor negotiations, he allowed, but added that AC believes the segment is important and "we are considering various options" to engage in low-cost operations.

Rovinescu took note of rival WestJet's announcement Wednesday that it will launch a regional turboprop airline next year ([Vous devez être inscrit et connecté pour voir ce lien]).

"There's no question this WestJet announcement is something we find of interest," he said. "They are a strong competitor … and we expect them to compete in the regional market."

But he emphasized that AC's focus will be more on growing its international network than buttressing domestic services.

"We are mindful of the fact that we have a mature market in Canada," Rovinescu said. "There's no question there is pressure on domestic yields."

AC's 2011 revenue increased by 7.6% to C$11.61 billion while expenses heightened 8.3% to C$11.43 billion, including a 27.5% jump in aircraft fuel costs to C$3.38 billion. Operating income was C$179 million, down 35.6% year-over-year.

Air Canada (AC) executive VP and CFO Michael Rousseau told investors Wednesday the Montreal-based airline will launch a subsidiary low-cost carrier (LCC) next year with a branding announcement to come “within a couple of weeks.”

Speaking to a CIBC World Markets conference in Montreal, available via webcast, Rousseau said the labor peace achieved by AC earlier this year with the help of government intervention (ATW Daily News, Aug. 8) enables it to launch an LCC that eventually will have a fleet of 50 aircraft.

“We’re working a lot on developing a low-cost carrier,” he said. “We are currently developing those plans.”

He said the LCC within “several years” will operate 20 Boeing 767s and 30 Airbus A319s, including 20 A319s sourced from AC’s current mainline fleet.

The LCC will be focused on transatlantic, US leisure and Caribbean routes.

“There are markets we do not currently fly transatlantic that … we believe we can be very successful at [using reconfigured 767s],” he said, explaining that the LCC’s 767s will have 20% more seats than AC’s 767s.

Higher capacity aircraft are “where about half the cost difference comes between low-cost carriers and mainline carriers,” he said.

While the LCC (ATW Daily News, April 14, 2011) will operate new transatlantic routes for AC, some of its current US and Caribbean routes “will flip to the LCC,” Rousseau said.

Further details on the LCC will be revealed shortly, he added, but noted it has been decided “the model will be 100%-owned, separate leadership.”