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Air Canada planes sit on the tarmac at Pearson International Airport in Toronto, June 17, 2008.


Moody's Investors Service has reduced its credit rating for Air Canada , citing concerns about the carrier's planned spending on new aircraft and pension funding.

In 2014, the country's largest airline will start taking delivery of seven of its order for 37 Boeing 787 Dreamliners. The preliminary schedule calls for the remaining aircraft to arrive from 2015 to 2019.

Air Canada's pension payments are forecast to soar in 2014 because a cap on contributions previously negotiated with unions will lapse at the end of 2013.

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"Moody's Investors Service lowered Air Canada's corporate family rating and probability of default ratings to Caa1 from B3," the credit rating agency said.

Darren Kirk, a Moody's vice-president, said he expects the carrier's adjusted leverage through 2012 will be higher than previously expected. "We are concerned with the company's ability to absorb higher capital expenditures for new planes and additional funding requirements for its sizeable pension shortfalls beginning in 2014," he said in a statement.

Air Canada is also facing pressure from escalating fuel bills, fierce competition, tepid economic conditions and labour uncertainty, Moody's said in its release.

Despite the challenges, "the ratings outlook is stable and reflects our expectation that Air Canada's key credit metrics will deteriorate modestly through the next 12 to 18 months," the agency added.

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