Air Canada Loss of 132 million in the years strongest Q

[Squid]

Air Canada has posted a net loss of $132 million in the third quarter as the airline's fuel bill soared 49 per cent.

Fuel expense increased to $1.1 billion during the quarter, up by $348 million from the summer quarter of 2007.

The net loss of $132 million included losses of $93 million on financial instruments, mainly fuel hedge contracts, and $87 million in losses on foreign currency items.

The loss, worth $1.32 per share, compared with net income of $273 million in the third quarter of 2007.

Excluding one-time items, Air Canada said the net loss was 45 cents per share, as it reported operating income of $112 million, down from $351 million in the year-ago quarter.

"Against a backdrop of unprecedented fuel costs, Air Canada is one of the few North American carriers to report a third-quarter operating profit," stated CEO Montie Brewer.

While the airline produced strong unit revenue growth and yields, it was "unable to fully offset record high fuel prices that represented an additional cost burden of $348 million," Brewer added.

"We continue to aggressively cut costs ... and expect to achieve the previously announced improvement target of $100 million by year-end."

[Four1oh]

never mind, I reread it.

[Embraer190]

It's all politics for the upcoming negotiations in 2009.

[daveg]

[prop2jet]

The results in themselves are real. How the Company choses to spin it to the labour groups is where it becomes in part political. It is interesting that part of the losses are attributed to the cost of the fuel hedge (either not enough earlier, too much later) and currency fluctuations.

Management will no doubt come forward justifying why the grunts should accept their meagre offerings or give backs. The collective response should be clear. The Exectuve collectively pocketed millions... time for them to start giving back!!!

[Brick Head]

well,

All things considered not bad.

When fuel cost increases at the pace and magnitude we saw. Advanced ticket sales were not covering the actual cost of the product by the time it was supplied. Ask Zoom.

eking out an operating profit. Not bad considering.

The net loss.

I suspect AC hedged some of their fuel above 120/barrel.

I also suspect the sudden drop in the Canadian dollar and strength of the greenback caught them off guard. I still don't understand it with the back drop of what is going on, except from maybe an emotional or speculative stand point.

Anyway,

Hopefully we won't see that happen again. By that I mean the pace at which oil increased.

Going to be an interesting winter globally.

Traditionally Q3 helped build up liquidity for the fall and winter. Not this year and at the same time as we enter a global slow down. At the same time as credit is tight.

You had better be in a good enough position to survive without needing a capital infusion.

[CanadaEH]

Liquidity Concerns Resurface At Air Canada As Econ Slows

TORONTO -(Dow Jones)- Concerns about Air Canada's (AC.B.T) liquidity have resurfaced as cash holdings at the country's flagship airline have fallen to just above the level it says it needs to conduct business.

Meanwhile, the Montreal-based airline is heading into a seasonally slow period where it typically burns cash, a situation likely to be exacerbated as the global economy moves into what appears to be a deep recession. And it faces a number of near-term liabilities, including shoring up its pension funding, debt payments, and leases on a couple of new planes.

More worrisome, analysts said, is that the airline could find it difficult and expensive to raise extra cash given the tight financing environment, the dim outlook for the aerospace industry, and Air Canada's own credit ratings. Airline executives said Friday they were looking at alternative methods to bolster the company's coffers.

Air Canada said Friday its cash and cash equivalents at the end of October stood at C$1.025 billion, down from C$1.1 billion at the end of September, and C$1.4 billion at the end of June.

The airline has said it prefers to maintain a minimum of C$1 billion in its coffers.

"Our current level of cash provides adequate safety margins," Chief Financial Officer Mike Rousseau said on a third quarter conference call. However, he noted, "we'd like to get some financing to ensure those safety margins exist."

The margin is thin enough that BMO Capital Markets analyst downgraded the company "in light of the rapid deterioration in the bottom line and balance sheet, which increases the risk of a liquidity crisis."

In Toronto, Air Canada's shares are down 57 Canadian cents or 11% to C$4.83. The airline reported a third-quarter net loss of C$132 million compared to earnings of C$273 million a year earlier.

The airline's situation is certainly not as grave as in the spring of 2003, when it was forced into bankruptcy as traffic plunged on the combined impact of the lingering effects of the Sept. 11, 2001 tragedy, as well as the Iraq war and the SARS outbreak, a highly contagious virus that led to the deaths of numerous Canadians.

At that time, Air Canada's cash balance dwindled to about C$500 million, while its debt load stood at C$12 billion.

Following its restructuring, the airline's long-term debt has fallen to about C$4 billion, and it is a smaller, more cost-efficient and nimbler entity.

Still, analysts noted that it faces a number of demands for cash in the next few quarters, and said there could be concerns about its liquidity going forward.

"Air Canada is going into a period, the first and second quarters, where it historically loses money," said Cameron Doerksen, analyst at Versant Partners. "If credit markets dont improve, (liquidity) could be an issue."

BMO's Proulx noted Air Canada faces C$754 million in long-term debt and capital lease payments in the next five quarters. As well, the airline will probably have to shore up its pension deficit, which stood at C$900 million at the end of 2007. Given the weak performance of equity markets this year, Proulx said the deficit is likely to be up significantly.

Rousseau said Air Canada could raise cash through sale-and-leaseback arrangements on some of the 69 aircraft it owns, or monetizing its foreign-exchange hedges.

It has already raised C$144 million this year from the sale and lease-back of five Boeing 777 aircraft. As well, on Oct. 28 the company arranged C$92 million in financing with a term ending Dec. 15, 2009 at a rate of LIBOR plus 5.98%, equivalent to 9.10%.

It also forged a deal with Aveos, the former Air Canada Technical Services maintenance company, under which the airline agreed to temporarily extend payments terms while letters of credit related to Pensions and Benefits were cancelled. That brought in C$18 million in cash.

Neither Proulx nor Doersken own Air Canada shares nor do their firms have an investment-banking relationship with the company.

Company Web Site: http://www.aircanada.com

[Flightlevels]

from another forum; AC has about 4 weeks of operating cash in the bank with the 1.1 Billion.

WJ has abot 15 weeks in the bank with it's 850 million.

[Brick Head]

Ah,

My two favorite vultures.

Yes it is an issue. The spike in fuel was a one time issue. By that I mean the pace of increases out pacing the ability of companies to price appropriately.

That happening at time when traditionally airlines fatten up for the winter has left most companies in need of equity for the winter. This happening at a time when credit is becoming more difficult to attain. This situation is the most acute in the states. The US airlines have been working on their equity position since spring. US airways, the exception, has been unable to secure hardly anything though. Won't be good if any are forced into Chapter 11. Very few companies will survive because there is just no interim or exit financing available.

Here in Canada however things are not as dire. Yes equity is a concern. But our banking system, being one of the most stable in the world, has not prompted Canadian companies to stock pile money as they have south of the boarder, Britain and Germany. Although credit options are certainly limited when looking only within our boarder they are still there.

Verison is paying almost 20% for some of their financing. Ouch.

I'm really more interested with you guys. Can WJ keep adding capacity as the market cools. I know traditionally this is true. Low cost expand faster during times of contraction filling in holes left behind. Seeking opportunities. I have a few reasons to believe this will be much more difficult this time around.

Looking forward to your numbers on Monday.

Speaking of Monday. Flight levels how do you know how much cash WJ had on hand at the end of October?

[CanadaEH]

I have a few reasons to believe this will be much more difficult this time around.

What reason? I'm curious to hear what you have to say. I believe this winter may be challenging, but not nearly as challenging as some are predicting. We've got some 30%+ capacity heading to sunny destinations this winter schedule and from what I can see they're performing well (I know, load factor isn't an indicator of profitability but at least its something to go by..). And given the fact oil has dropped to what I think is a sustainable level we're in better shape than with it at $130+bbl.

[Flightlevels]

give it a break brickhead. Just because I comment on something outside WJ concerns you? bark up another tree.

well our average analyst estimate is 35 cents...so we'll just have to see what the numbers are Monday.

[It's about time]

I'll try not to post with my rose coloured glasses on BUT if we don't have access to capital markets than the whole leagcy airline industry in North America is doomed.

We have one of the better business models in NA with a fuel efficient, aggressive costing structure (fares). If you were looking at a cash infusion with any airline why not AC? Would you rather lend it to UA or other?

Or you let the whole industry go down the tubes and allow capital to dwindle.....someone will enivitably bail the strong ones out. Will it happen this time around....AGAIN.

I really don't know, just wondering

[Brick Head]

I have a few reasons to believe this will be much more difficult this time around.

What reason? I'm curious to hear what you have to say. I believe this winter may be challenging, but not nearly as challenging as some are predicting.

CanadaEH,

First off WJ is no doubt in an enviable position. As usual.

My reasons have to do with personal discretionary spending and recession. The last recession we had in the early 90's was mild. My expectations? We are on the tip of a 1982 type recession. Unless you are in your late forties or older you have never experienced it

As an example.

late 90's tech wreck.

Hard on legacy carriers as corporate spending was pinched. Hurt J class sales and benefited low cost market share. Personal discretionary spending remained strong. Unemployment low.

911.

Hammered international carriers. Gov't lowered interest rates. Economy recovered nicely on the back of consumer spending as personal discretionary spending remained strong. Unemployment low.

Sars,

Really just pounded international airlines flying in and out YYZ and Asia. Put one of the final nails in the coffin for AC. Personal discretionary spending remained strong. Unemployment low. As a result AC emerged from CCAA pretty much the same size capacity wise.

Recession

If personal discretionary spending gets pinched it becomes much more difficult to encourage people to fly. It doesn't matter what you charge for the seat. They don't fly because they have no money. No money for the car or hotel at the other end. The first thing to go will be leisure type flying. People are forced to prioritize their spending.

In an environment where personal discretionary is cut to the bone it becomes imperative to switch from a, if we build it they will come strategy, to a strategy of matching capacity to demand as aggressively and closely as possible.

Since I believe we are heading for a recession (It appears we differ on this opinion by your comments) I believe we are going to see for the first time in nearly two decades personal discretionary spending hit. Hit very hard in the US. Hit less sever here.

So I am interested in WJ since they do not, as of yet, seem to be responding to this when most other airlines world wide are. Including companies such as Southwest.

My curiosity is how well WJ is managing capacity with demand given the current conditions. So yes in this case changes in load factor may be telling. Q3 will be a little early. I will be more curious for Q4 and Q1 09.

Again, my opinion is not a slight against WJ. Quite the contrary. WJ is likely, IMO, not responding yet simply because they are in the healthy enviable position to wait and see. If everyone around them over reacts they can capitalize big. If the consumer does get hit hard they can retrench. AC, and most North American Airlines, don't have the health to take the chance.

[Brick Head]

Don't want to freak anyone out. The announced further reductions are on top of those announced this summer. It is an extra 1% in Q4 and 2% Q1 09.

Air Canada warns of capacity cuts as forecast weakens

8% Down In Q4; Financial crisis tops fuel costs as greatest concern

Scott Deveau, Financial Post Published: Saturday, November 08, 2008
Air Canada warned yesterday of deeper-than-expected capacity cuts this winter as the economic downturn replaced high fuel prices as its most pressing concern.

The country's largest carrier, a unit of Ace Aviation Holdings Inc., will reduce capacity by up to 8% in the fourth quarter and by as much as 9% in the first quarter of next year as the economic uncertainty continues to drag down demand, management said.

The airline said in June that record high fuel prices would force it to scale back capacity by 7% in both quarters, leading to 2,000 employee cuts beginning this month and carrying through the winter months.

Although fuel prices have subsided, Montie Brewer, Air Canada chief executive, said yesterday the carrier's "tight capacity strategy" remained valid given the impact the global financial crisis and weakening customer confidence would have on demand.

Air Canada parked its final gas-guzzling 767-200s last weekend, has cut its unprofitable routes and is shopping seven of its planes around for sub-lease to accommodate these capacity cuts. It is also flying smaller planes on several of its routes in order to keep its prices high and ensure seats are filled.

"What we've learned during these slowdowns is that you need to manage your capacity well, because it's hard to generate additional revenue by encouraging customers to spend money they don't have," Mr. Brewer said.

Management noted demand has been soft on its U. K. and U. S. transborder routes, and that domestic traffic dropped as well, driven by the economic slump in the East.

In addition, price increases on its lucrative business-class seats were not as readily absorbed as those on its economy seats, according to Mike Rousseau, Air Canada chief financial officer. "Softness in corporate travel was especially evident in September, which is understandable given the turmoil in the financial market," he said.

Overall, the airline said it expects capacity this year to decrease between 1% and 1.5% compared to 2007, down from its previous range of up or down by 1%.

The news comes as the carrier reported a net loss yesterday of $132-million, or $1.32 a share, in the third quarter, compared to a $273-million profit during the quarter last year. While revenue rose 4.1%, a 49% increase in fuel prices and unfavourable currency exchange dragged down its earnings.

In addition, the airline was forced to write down $93-million from its fuel hedges after the price of fuel declined during the quarter and reduced their value.

Cameron Doerksen, Versant Partners analyst, noted that with some tough times ahead and only about $1-billion in free cash -- representing less than 10% of its trailing 12-month revenue -- the company's liquidity "is a growing concern."

"With low levels of profitability, a worsening economic slowdown, increased liquidity concerns, and looming potential labour issues, we do not see any compelling fundamental reason to be buying the stock," he said.

[CanadaEH]

Again, my opinion is not a slight against WJ. Quite the contrary. WJ is likely, IMO, not responding yet simply because they are in the healthy enviable position to wait and see. If everyone around them over reacts they can capitalize big. If the consumer does get hit hard they can retrench. AC, and most North American Airlines, don't have the health to take the chance.

Your comments are fair and one that a lot of people share.

Westjet has already said that people are flying less and/or watching where they spend their money. You'll see Oct numbers take a dip, IMO. However, given the seasonal shift in capacity from domestic to sun destinations, Oct will not be indicative of what's to come this winter. 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. In addition to the growth of our Carribean market, we still charter a large portion of our flights on behalf of Transat which is guaranteed revenue. And on scheduled routes to the Carribean, Transat does bulk purchase seats on our aircraft which, again, certainly helps our bottom line.

What made me pessimistic about the Carribean market this year is the growth of Sunwing. They've grown 50% YOY and, from what I'm hearing, Transat is doing everything possible to protect its market share. We'll have to see what that means for Transat and Westjet (two publicly traded companies) and I don't know how that's going to affect Westjet this early into the season.

Standing by for Q3 results.

[tonysoprano]

..on that topic:

Westjet Will Feel Pinch As Tourists Stay Home To Nurse Wounded Loonie
Jonathan Ratner, Financial Post
Published: Wednesday, October 29, 2008

The slowing economy and a Canadian dollar below US80¢ makes travel to sunny destinations this winter a much less attractive prospect. Compared with this time last year when the loonie was close to par or better versus the greenback, it effectively costs 30% more to travel to the United States, plane tickets aside.

Despite an unsurprisingly optimistic outlook from the travel industry, very weak consumer confidence clearly means some people will choose to stay home -- and this is clearly weighing on shares of the country's largest airlines.

While lower fuel prices are a big help, Versant Partners analyst Cameron Doerksen does not think they will be able to offset weaker revenues.

He downgraded WestJet Airlines Ltd. (WJA/TSX) from "buy" to "hold" and cut his price target from $14.50 to $11.50. This represents upside of roughly 12%. However, if the stock continues to decline, say to $9 per share, the analyst said it would present an attractive long-term buying opportunity.

The analyst said WestJet's additional capacity of roughly 30% to sunny spots such as Mexico marks a major contrast with the U. S. market where virtually every carrier is cutting.

This will apply to AC as well. In don't think Q3 is the bad one. Q4 will be more interesting. Q3 actually showed an operating profit. That will be more difficult to achieve in Q4.

[Old fella]

"The slowing economy and a Canadian dollar below US80¢ makes travel to sunny destinations this winter a much less attractive prospect.......... "


Nope, don't agree. We book after Christmas because we (right or wrong) feel/think there will be better deals. So all of the doom and gloom you chaps are spewing - well keep it up because that will re-enforce our beliefs there will be good deals to be had down south 2009 and I am of the opinion that will happen.

Your airplanes (AC,WJ, CJ, Sunwing,Air T. et al) will be full, no doubt about it(whether you make any money, I can’t answer – but I certainly hope you do and I certainly don’t mind making a contribution to your profit margin).
Bottom line we are going. What else do old useless tools like us have to look forward to besides lying in the sunshine, drinking rum and lookin at the half naked sweet young things or sweet old things(perish the thought).

[tonysoprano]

I don't think the guy is referring to ticket prices. They will probably be the best deals in ages this year, agreed. I think he is refferring more to the falling dollar and it's lack of spending power once you're there as well as a weak economy where you will have to justify any vacation in instead of food on the table, unless you're an old fart retired on a good pension. Having said that, like always, it's a wait and see thing. Not what analysts say.

[jjj]

edit

[jjj]

It's all politics for the upcoming negotiations in 2009.

Embraer 190,

Are you suggesting that AC management has falsified it's Q3 numbers for the purpose of leverage against the pilots during the 2009 contract talks?

[teacher]

I wouldn't say it's all politics but some. I would hazard a pretty good guess that things aren't great, but they're not as bad as management is making it seem. Just watch how things will "turn around" after contracts are renegotiated. My guess is that within 6 months to a year after contracts are signed the company will become profitable again both due to economic up turns and to a lesser part, creative accounting. I just hope that by than, a far sighted pilot group will look to the future rather than current economic times when deciding on a contract.

[Embraer190]

It's all politics for the upcoming negotiations in 2009.

Embraer 190,

Are you suggesting that AC management has falsified it's Q3 numbers for the purpose of leverage against the pilots during the 2009 contract talks?

Yes and No.
It's the word "falsified" in your statement that is making me uneasy. Do I believe Air Canada falsified their Q3 numbers for the purpose of leverage during negotiations? Absolutely not. Do I believe that Air Canada management is doing some "creative accounting" to skew the results to seem less than appealing? I wouldn't be surprised.

I wouldn't say it's all politics but some. I would hazard a pretty good guess that things aren't great, but they're not as bad as management is making it seem. Just watch how things will "turn around" after contracts are renegotiated. My guess is that within 6 months to a year after contracts are signed the company will become profitable again both due to economic up turns and to a lesser part, creative accounting. I just hope that by than, a far sighted pilot group will look to the future rather than current economic times when deciding on a contract.

Very well said Teacher.

[tonysoprano]

All you have to do is analize Montie's latest blog. On the one hand he praises us for the operating profit and on time performance and high load factors but in the end "global economic uncertainty will require us to find more ways to be more cost effective". That's just another way of saying "don't expect us to give you much in '09". Many of us at AC have seen more "economic uncertainties" in this industry than Montie can ever invent. It's a scare tactict we won't fall for. I'm not expecting any contract gains next year. But at the time I'll be damned if I give another dime. Anything worse than what we have now would require a new business model. We would have to lose the legacy model and become a one equipment, point to point, domestic low cost carrier (cringe) and that would leave the country with no essential airline service. The big boys in Ottawa will NOT accept that. Rest at ease boys and girls. Never mind Montie. Remember a guy named R. Milton? He's still around and calling the shots with the help of the vultures. Creative accounting? Oh yeah. The story and the tacticts are getting old.

[pilotbzh]

"creative accounting" is easy, delay incomes for a few month up to 2 years is legal as mutch as declaring spending that did not occure yet but is paid for already or not.... any company will make the books for fit shot term planning (perfeclly legal), over 4-5 years is a better pic of what is going on.... but nobody has a cristall ball to see the reality, where is my gvt to regulate those gangster when we need them.....

and screw Harper with his gangster friends, I want a gvt that looks after me, a liberal-socialiste party is needed in north america...

[rigpiggy]

Well considering that the election went to the conservatives, maybe you should go back to Brittany if that is what you want, Oh wait Sarkozy's changing France to be more dare I say it progressive.