AC posts 132Million net Loss

[Kip Powick]

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."

[Spinnaker]

"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."

Same question every quarter.... is it a profit or a loss? The article says one thing but the CEO says another.

[CANCELIFR]

Operating income of 112 million.

[Guest rattler]

You can review the numbers at: http://www.newswire.ca/en/releases/archive...8/07/c6043.html

Air Canada reports third quarter results

    <<

    THIRD QUARTER OVERVIEW

    - Operating income of $112 million compared to operating income of

      $351 million in the third quarter of 2007.

    - Fuel expense increased 49 per cent to $1.1 billion, up $348 million

      from the third quarter of 2007.

    - Passenger revenue increased 4 per cent to $2.8 billion from the third

      quarter of 2007, due to yield growth.

    - Excluding fuel expense, unit cost increased 4.3 per cent from the third

      quarter of 2007.

    - Net loss of $132 million compared to net income of $273 million in the

      third quarter of 2007.

    - EBITDAR of $355 million, a decrease of $206 million from the same

      quarter in 2007.

    - Cash, cash equivalents and short-term investments of $1.1 billion at

      September 30, 2008.

[CanadaEH]

"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."

Same question every quarter.... is it a profit or a loss? The article says one thing but the CEO says another. blink.gif blink.gif

No kidding. A net loss is the final result, no?

[Rookie]

Can someone please remind me what Operating Income is?

[CANCELIFR]

I do find that unit cost (excluding fuel) increased over 4%. Does this seem unusually high?

[dagger]

Can someone please remind me what Operating Income is?

The excess of revenues over operating expenses. Everything usually but interest on cash reserves and interest on debt.

[dagger]

I do find that unit cost (excluding fuel) increased over 4%. Does this seem unusually high?

A tad high - it includes costs associated with fleet refurbishment, but that's not the whole amount.

[dagger]

"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."

Same question every quarter.... is it a profit or a loss? The article says one thing but the CEO says another. blink.gif blink.gif

No kidding. A net loss is the final result, no?

A net loss is a net loss, but stripping out non-cash items - i.e. things like mark to market accounting of hedges that could be reversed before they come due, the airline would have had a $48 million net profit.

My concerns for AC are related to liquidity. The airline has about $1.2 billion as of today, and about $1.2 billion in assets it could sell or pledge as collateral but this is not a normal financing market. Next year, it has debt repayment and pension obligations of roughly $700 million. Now, it should generate some cash along the way, probably $300-400 million, but one would expect it to do a sale leaseback or two to keep cash on hand in a range of $1.5 billion, except that in this financial market, hardly anyone is doing credit transactions even when you put up new aircraft as collateral. It has largely put down the cash to back up any under water fuel hedges, and could sell some of its dollar hedges which are way in the money.

There is absolutely no sign that the airline wants out of the two 777 deliveries for 2009. Montie was quite emphatic on that score.

[Thebean]

Can someone please remind me what Operating Income is?

Operating income is revenue minus operating expenses.

Operating expenses do not include the interest associated with financing owned aircraft, which IMO, is very much an expense of operating a business.

Most airlines calculate their breakeven load factor inclusive of their interest expense component, correctly recognizing that if you don't pay your interest to the bank on the financing of the aircraft, the bank won't let you keep your aircraft. No aircraft = no flying.

Operating income does not include one time items such as hedging gains and losses, changes in valuations of foreign currencies on hand or one time sale of assets.

It would be akin to running a household with expenses exceeding income, but managing to stay above water because Granny passed on and you inherited $25,000 to put in the kitty. It's one time and won't happen again.

The bottom line is operating income illustrates the viability of the core business. No airline can continue indefinitely if it is unable to produce an operating income.

A very, very strong case can be made that no airline can continue indefinitely if its operating income minus its interest expense is in negative territory.

[CanadaEH]

No spin in this article:

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