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Air Canada CEO Calin RovinescuPaul Chiasson

Air Canada shares soared Thursday a day after the cash-strapped airline announced it has lined up more than $1-billion in financing.

Shares rose more than 20 per cent, gaining 33 cents, at $1.95 in midday trading on the Toronto Stock Exchange.

The Montreal-based airline said the $1.02-billion in financing it obtained from several sources gives it "breathing room" as it works toward sustainable profitability. The funding follows Ottawa's approval of a 21-month pension moratorium on past-service contributions and contract renewals for unionized employees.

Analysts said the funding alleviates concerns that the troubled carrier will have to file for bankruptcy protection for at least 24 months.

Ultimately, however, it will have "to demonstrate its ability to generate earnings and cash flow from operations on a sustainable basis," said Chris Murray of CIBC World Markets.

Despite the immediate share surge, Mr. Murray warned that the underlying business fundamentals remain difficult.

Air Canada's second quarter results are expected to be very weak.

David Newman of National Bank Financial lowered its estimates for operating earnings to $117-million from $179-million because of deteriorating market conditions during the quarter, despite a 52 per cent decrease in fuel prices from last year.

Similar pressures will hamper the airline industry through 2009 until the economy recovers and beyond, given the typical lag in demand, he wrote in a report.

"While Air Canada is no longer expected to pursue (creditor protection) over the short-term, unless costs are significantly reduced, it will be difficult to compete against WestJet , which enjoys an approximately 30 per cent cost advantage."

Air Canada is targeting $250-million in cost savings over the next 18 months.

"We believe much more is required, which will require fundamental restructuring of the airline," Mr. Newman said.

Among the lenders participating in Air Canada's financing are GE Canada Finance, Export Development Canada, Aeroplan Canada Inc. , and Air Canada parent ACE Aviation Holdings .

ACE Aviation had hoped to wind up its operations earlier this year but has decided to delay such a move.

"Given ACE's participation in Air Canada's credit facility, it is unlikely that ACE will pursue a liquidation in the near term," ACE said in statement Wednesday.

As part of the deal, Air Canada will issue to the lenders warrants for the purchase of Air Canada's class A variable voting shares or class B voting shares representing five per cent of the total issued and outstanding shares.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:00pm EDT.

SymbolName% changeLast
AC-T
Air Canada
-0.15%19.61
CM-N
Canadian Imperial Bank of Commerce
+1.3%50.72
CM-T
Canadian Imperial Bank of Commerce
+1.13%68.67

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