Should Air Canada be allowed to fail?
Join Date: Jun 2007
Location: Asia
Posts: 144
Likes: 0
Received 0 Likes
on
0 Posts
Short answer with some caveats: yes. My opinion is AC must be able to stand on its own 2 feet, but also have some protections from its govt- within reason.
AC management are guilty of gutting the airline and transferring assets to the shareholder. So if it was ever to fail, they are to blame.
However, I also don't believe the ME carriers should be allowed unfettered "free trade" acces into every market as the forces that constitute a "balanced sheet" and profit are vastly different.
To each his own jingled. Personally, I would rather have a legacy in a western democracy with taxes than a highly paid skill in a sheikdom. I believe the overall quality of life is better.
The argument is old and easy. You or I can say anything on this forum, but the reality is AC and all the rest (LH, BA, etc) will alway exist in one way or another, and EK, EY, QR will always be regulated into those markets. Period.
AC management are guilty of gutting the airline and transferring assets to the shareholder. So if it was ever to fail, they are to blame.
However, I also don't believe the ME carriers should be allowed unfettered "free trade" acces into every market as the forces that constitute a "balanced sheet" and profit are vastly different.
To each his own jingled. Personally, I would rather have a legacy in a western democracy with taxes than a highly paid skill in a sheikdom. I believe the overall quality of life is better.
The argument is old and easy. You or I can say anything on this forum, but the reality is AC and all the rest (LH, BA, etc) will alway exist in one way or another, and EK, EY, QR will always be regulated into those markets. Period.
Join Date: Aug 2006
Location: Timbukthree
Posts: 13
Likes: 0
Received 0 Likes
on
0 Posts
Should YOU be allowed to fail? Consider for a moment how unemployment insurance works. How personal bankruptcy protection works. How worker's compensation helps those in need. Is the corporate good, good for you as well?
Last edited by evansb; 14th Aug 2013 at 16:37.
Join Date: May 2005
Location: Canada
Posts: 40
Likes: 0
Received 0 Likes
on
0 Posts
If AC was treated as a regular business, then, yes, it shoud be allowed to fail. But it's not a regular business. Successive federal governments continue to treat AC as if it were still a Crown corporation.
And then there's ACPPA. It should be scrapped. This would have two effects:
- an immediate reduction in costs;
- it could be a target of a foreign takeover (AC is already about 20% foreign owned)
Why would costs be reduced ? One example, there is a requirement that at least one FA be bilingual, no matter where the flight originates/terminates. If the 'designated' FA calls in sick, the flight has to be held until another one is found. As a business proposition this is retarded and drives costs up.
Costs have been driven down recently due to the new (imposed) labour agreements. Work rules have been changed significantly to permit more realistic use of labour. There's still a way to go in terms of internal costs -- at least one layer of management needs to be eliminated. Greg Saretsky, CEO of Westjet, has stated that WS's unit cost advantage over AC has largely evaporated.
Heavy mx has been moved off-shore, for example the 777 fleet C&D checks are done by HAECO in HKG. Mx is also done in Honduras and Israel. The only mx done at AC now is line mx, usually overnight stuff. The mx base at YWG, for example, is largely shuttered.
The pension issue has been clarified to some degree, reducing year over year cash flow requirements. And there will be a gradual move away from DB pensions to DC, which will ultimately yield large savings.
Moving to a more fuel efficient fleet is also helping. More 77W's are coming, and the 788's will finally show up starting 2Q 2014, permitting transfer of the 763's to the new Rouge brand. Whether or not Rouge will succeed remains to be seen, but it is (I believe) on a separate AOC than AC, so is not tied to AC's costs.
In the OP's post, he stated that AC was cash-strapped. Not true, AC reports indicate cash and equivalents on hand at around $2.3B. As well, they just raised about $800M to be put towards new narrow-body a/c. The decision on this will be announced by year's end.
AC is far from being out of the woods, but it's long term prospects are much, much better than they were even two years ago, let along seven or eight.
And then there's ACPPA. It should be scrapped. This would have two effects:
- an immediate reduction in costs;
- it could be a target of a foreign takeover (AC is already about 20% foreign owned)
Why would costs be reduced ? One example, there is a requirement that at least one FA be bilingual, no matter where the flight originates/terminates. If the 'designated' FA calls in sick, the flight has to be held until another one is found. As a business proposition this is retarded and drives costs up.
Costs have been driven down recently due to the new (imposed) labour agreements. Work rules have been changed significantly to permit more realistic use of labour. There's still a way to go in terms of internal costs -- at least one layer of management needs to be eliminated. Greg Saretsky, CEO of Westjet, has stated that WS's unit cost advantage over AC has largely evaporated.
Heavy mx has been moved off-shore, for example the 777 fleet C&D checks are done by HAECO in HKG. Mx is also done in Honduras and Israel. The only mx done at AC now is line mx, usually overnight stuff. The mx base at YWG, for example, is largely shuttered.
The pension issue has been clarified to some degree, reducing year over year cash flow requirements. And there will be a gradual move away from DB pensions to DC, which will ultimately yield large savings.
Moving to a more fuel efficient fleet is also helping. More 77W's are coming, and the 788's will finally show up starting 2Q 2014, permitting transfer of the 763's to the new Rouge brand. Whether or not Rouge will succeed remains to be seen, but it is (I believe) on a separate AOC than AC, so is not tied to AC's costs.
In the OP's post, he stated that AC was cash-strapped. Not true, AC reports indicate cash and equivalents on hand at around $2.3B. As well, they just raised about $800M to be put towards new narrow-body a/c. The decision on this will be announced by year's end.
AC is far from being out of the woods, but it's long term prospects are much, much better than they were even two years ago, let along seven or eight.
For the nay sayers copied from the Globe and Mail Report on Business
Air Canada stock rides upward draft this summer
BRENDA BOUW
The Globe and Mail
Published Tuesday, Sep. 10 2013, 7:20 PM EDT
Last updated Tuesday, Sep. 10 2013, 7:28 PM EDT
Air Canada has emerged as one of the country’s top performing stocks, rising by more than 50 per cent in the past five weeks, as investors bet on the airline’s expansion plans and ability to reduce costs.
The stock climbed 5.5 per cent on Tuesday and is up 12 per cent since the company announced last Thursday plans to refinance its long-term debt at a lower cost because of an improved financial position and reported a record August load factor. The boost in traffic comes as the airline unveils its new low-cost carrier, called Rouge, and expands to include new routes and additional capacity on existing ones.
Air Canada benefits from its leadership position as the only Canadian airline covering Europe, Latin America and key Asian destinations in addition to North America. This gives the airline exposure to many lucrative business travel markets, said Cormark Securities analyst David Newman.
Building on that advantage, the airline is expected to save millions in interest costs from its plan to refinance $1.1-billion in debt, and secure further savings through other cost-cutting measures, Mr. Newman said.
Some of those measures include using new aircraft with more seats to lower costs per passenger. The airline also said aircraft rent expenses fell in the second quarter, and it plans to transfer some of its less-fuel-efficient Boeing 767s to its Rouge division.
“Airline fundamentals remain solid, and Air Canada is on a flight path to a 15-per-cent unit cost reduction from fleet renewal, much lower supplier and other costs,” Mr. Newman said in an e-mail on Tuesday. “The fleet renewal and other revenue initiatives could transform the airline into more of an international carrier, with extended reach.”
Air Canada said on Sept. 5 that it plans to refinance about $1.1-billion of its outstanding senior notes to stretch the maturity of its long-term debt and lower costs of financing. On the same day it announced its August load factor – a key industry measure – increased to 89.5 per cent, a record for the month and up 1.6 percentage points from a year earlier. The results include Rouge, which began operations July 1, as well as its regional airlines.
Rival WestJet Airlines Ltd. reported an August load factor of 87.9 per cent, down a percentage point from the year before. While both stocks have risen so far this year, Air Canada has far outpaced WestJet. That said, Air Canada has been on a much more volatile path over the past few years.
JC Clark Ltd. chief executive and portfolio manager Colin Stewart, who owns some shares, cites Air Canada’s cheaper valuation relative to some other major global airlines. While his fund doesn’t intend to hold the stock long-term, “We still think it has some upside.”
Air Canada shares were trading around $20 in 2007, before plunging to below $1 during the 2009 global financial crisis. The stock has been bouncing between $1 and $3 over the past couple of years, before taking off in early August. On Aug. 7, it jumped 25 per cent in one day after announcing surprisingly strong earnings, which led a number of analysts to raise their price targets.
Since then, Air Canada’s shares have been among the top 3 per cent in terms of performance on the TSX, according to Bloomberg data. Air Canada shares are also expected to be reintroduced to the S&P/TSX composite index later this month, after being removed in December, 2011. The index is reshuffled quarterly, based on such measures as liquidity and market capitalization. A return to the TSX main index would increase demand from index-led funds.
Still, that’s not enough to convince all investors. Some have raised concerns over rising fuel prices and currency fluctuations.
“I have a bias against industries that are so highly cyclical, capital intensive and highly unionized … There are a lot of things that can impact airline stocks. They tend to be economically sensitive from so many viewpoints,” said Michael Sprung, president of Sprung Investment Management, who likens the investment to junior mining stocks.
“If you hit it at the right time of the cycle and are very astute I guess some people can be successful at trading these things. But as more of a value investor, I try to stick with things that I can analyze a little more thoroughly.”
Air Canada stock rides upward draft this summer
BRENDA BOUW
The Globe and Mail
Published Tuesday, Sep. 10 2013, 7:20 PM EDT
Last updated Tuesday, Sep. 10 2013, 7:28 PM EDT
Air Canada has emerged as one of the country’s top performing stocks, rising by more than 50 per cent in the past five weeks, as investors bet on the airline’s expansion plans and ability to reduce costs.
The stock climbed 5.5 per cent on Tuesday and is up 12 per cent since the company announced last Thursday plans to refinance its long-term debt at a lower cost because of an improved financial position and reported a record August load factor. The boost in traffic comes as the airline unveils its new low-cost carrier, called Rouge, and expands to include new routes and additional capacity on existing ones.
Air Canada benefits from its leadership position as the only Canadian airline covering Europe, Latin America and key Asian destinations in addition to North America. This gives the airline exposure to many lucrative business travel markets, said Cormark Securities analyst David Newman.
Building on that advantage, the airline is expected to save millions in interest costs from its plan to refinance $1.1-billion in debt, and secure further savings through other cost-cutting measures, Mr. Newman said.
Some of those measures include using new aircraft with more seats to lower costs per passenger. The airline also said aircraft rent expenses fell in the second quarter, and it plans to transfer some of its less-fuel-efficient Boeing 767s to its Rouge division.
“Airline fundamentals remain solid, and Air Canada is on a flight path to a 15-per-cent unit cost reduction from fleet renewal, much lower supplier and other costs,” Mr. Newman said in an e-mail on Tuesday. “The fleet renewal and other revenue initiatives could transform the airline into more of an international carrier, with extended reach.”
Air Canada said on Sept. 5 that it plans to refinance about $1.1-billion of its outstanding senior notes to stretch the maturity of its long-term debt and lower costs of financing. On the same day it announced its August load factor – a key industry measure – increased to 89.5 per cent, a record for the month and up 1.6 percentage points from a year earlier. The results include Rouge, which began operations July 1, as well as its regional airlines.
Rival WestJet Airlines Ltd. reported an August load factor of 87.9 per cent, down a percentage point from the year before. While both stocks have risen so far this year, Air Canada has far outpaced WestJet. That said, Air Canada has been on a much more volatile path over the past few years.
JC Clark Ltd. chief executive and portfolio manager Colin Stewart, who owns some shares, cites Air Canada’s cheaper valuation relative to some other major global airlines. While his fund doesn’t intend to hold the stock long-term, “We still think it has some upside.”
Air Canada shares were trading around $20 in 2007, before plunging to below $1 during the 2009 global financial crisis. The stock has been bouncing between $1 and $3 over the past couple of years, before taking off in early August. On Aug. 7, it jumped 25 per cent in one day after announcing surprisingly strong earnings, which led a number of analysts to raise their price targets.
Since then, Air Canada’s shares have been among the top 3 per cent in terms of performance on the TSX, according to Bloomberg data. Air Canada shares are also expected to be reintroduced to the S&P/TSX composite index later this month, after being removed in December, 2011. The index is reshuffled quarterly, based on such measures as liquidity and market capitalization. A return to the TSX main index would increase demand from index-led funds.
Still, that’s not enough to convince all investors. Some have raised concerns over rising fuel prices and currency fluctuations.
“I have a bias against industries that are so highly cyclical, capital intensive and highly unionized … There are a lot of things that can impact airline stocks. They tend to be economically sensitive from so many viewpoints,” said Michael Sprung, president of Sprung Investment Management, who likens the investment to junior mining stocks.
“If you hit it at the right time of the cycle and are very astute I guess some people can be successful at trading these things. But as more of a value investor, I try to stick with things that I can analyze a little more thoroughly.”
