Air Canada got its first thumbs-up from Moody’s

[a330pilotcanada]

Good Morning All:

This is copied from the Subscribers Only Report on Business from the Globe and Mail.

How has Air Canada got its first thumbs-up from Moody’s?

Subscribers Only The Globe and Mail
Published Wednesday, Apr. 10 2013, 5:00 AM EDT
Last updated Wednesday, Apr. 10 2013, 7:45 AM EDT





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It’s not every day that financial analysts have positive things to say about Air Canada, so Moody’s Investors Service’s decision to upgrade its outlook on the airline to “positive” from “stable” left us wondering: when exactly was the last time the debt rating agency was so rosy about the company’s prospects?
Never, as it turns out – the positive outlook for Air Canada is a first since Moody’s first rated Air Canada’s debt 18 years ago. In fact, after years of wrenching restructuring, labour challenges, financial pressure and other turmoil, the country’s flag carrier faces the clearest skies it has seen since the turn of the millennium – relatively speaking, that is. The risks ahead remain daunting.
But let’s start with the reasons for optimism; there are several. First, the airline recently reached an agreement with the federal government to greatly reduce cash payments to cover its huge pension solvency deficit. That should limit the airline’s pension payments to $200-million a year through 2021, according to PI Financial analyst Chris Murray. Ottawa has also helped with union agreements that will keep the labour peace until 2016 while allowing the airline to run lower-cost routes and cut some pension benefits.
Air Canada also deserves credit for fixing its own house. The company has done a solid job of keeping its planes full and revenues per seat flown high. Its operating earnings are ahead of expectations. “It’s certainly a good news story,” said Moody’s vice-president Darren Kirk in an interview. “We’re signalling the credit risk is improving.”
Ah yes, about that credit risk. It’s still considerable. Air Canada’s credit rating is Caa1 – the agency’s fourth lowest rating, although the positive outlook means it could be upgraded by late 2014. Its ratio of debt to operating earnings is an extremely high eight times. Meanwhile, Air Canada and its peers are expanding – Canadian airline capacity next year is expected to be 10 per cent higher than in 2012, and much of that will be added on routes to be served by Air Canada’s new Rouge intercontinental leisure banner. Free cash flow is expected to be negative this year , and the company will use up 40 per cent of its $2-billion in cash this year repaying debt, servicing its pension and buying new Boeing 777s.
Of course, that’s saying nothing of other potential shocks – say, a sharp increase in the price of fuel, international health scares, terrorist attacks or a drop in economic activity. Cross your fingers, but these remain ever-present external threats. Nobody ever said investing in airlines was for the faint of heart (or, for that matter, those who like to get rich). But at least Air Canada can say for the first time in years that those parts of its business that it can get under control are under control.

[Yobbo]

Meanwhile Air Canada warns of bigger loss.

Air Canada warns of bigger loss than analyst forecasts in preliminary quarterly report ahead of debt talks | Transportation | News | Financial Post

[clunckdriver]

Yobbo, quarterly results in the airline world dont mean squat, its the long tearm trend which are the real indication of the health of an airline, also as an ex owner I can assure you that one can change the figures and make things look just what you want them to be, i.e, in my outfit{now sold} changing the depreciation rate on the fleet just one quarter of a percent could show a totally new set of end year/quarterly figures, its called "acounting",not understood by most who fly aircraft.{or most investors for that matter!}

[a330pilotcanada]

Good Morning Yobbo:

Thank you for your comments and I am glad to see Clunkdriver gave you his perspective on business. As Clunkdriver was a small business owner he would be most aware of the late Margaret Thatcher's axiom "a shopkeeper makes sure that pennies going in are greater then pennies going out".

That being said Air Canada contributes over 14 Billion into the Canadian economy and employees close to 30,000 Canadians (a very rough rule of thumb one job supports 3 people to nine people depending on either service industry to heavy industry).

One of the many handicaps Air Canada faces is from the Air Canada Participation Act when Air Canada was privatized well over 25 years ago by the former Prime Minister Brian Mulroney (sorry Virginia Air Canada is not a "ward" of the Government or on the tax payers dime!).
Air Canada has to be head quartered in Montreal (sadly the center of the universe Toronto is the business hub of Canada). Air Canada has to maintain 4 maintenance bases in Canada, one each in Montreal, Toronto, Winnipeg, and Vancouver could you imagine what Bob Crandall the former CEO of American would have said to that one!!!! Being a bilingual company from manuals (duplication) services etc

Taxes now here is a favourite of everyone. Last year I was told Air Canada spent slightly north of 4 Billion dollars in fuel so let's say 1/2 was purchased in Canada which has a 13% tax on fuel that is not paid south of the border. Can you imagine the joy of having 260 million come back to your bottom line that does not go "down the toilet" for taxes! I could go on about fees taxes that are charged to all airlines in Canada but I won't.

In closing people say why not let other airlines come in for competion I say yes so they can also enjoy all the costs (that is why American low cost companies are south of the border not north because of the additional costs in Canada)

[Yobbo]

Pennies in pennies out

Air Canada CEO earned more than $9.5-million in 2012 | C-Suite | Executive | Financial Post

[clunckdriver]

When I read of the greed of the likes of Mr Rovinescu I am reminded of the root causes of the French Revolution, one can only wonder how long before those who have had their jobs destroyed by such "management" methods and greed do in fact take to the streets.When one compares the likes of Gordon McGreggor and Claude Taylor one can be forgiven for wishing a return to some form of regulation and ethics in the industry, thank God Im retired from this mess.

[J.O.]

The Occupy movement was supposed to be just that, but they were too emotional and disorganized to have any effect. That, plus the rich pushing their friends in government (and law enforcement) to intervene, and it died a fairly quick death.

[er340790]

Let me explain this in very simple terms.

Joe Bloggs has income this year of $100k.

Next year he expects his income to be zero or negative.

He also has $800k on his credit card.


Would YOU lend him money??????????????

[clunckdriver]

er 340790, you may understand WTF you are talking about, but nobody in this pilot crew room has a clue what you are trying to say {four different companies by the way}.

[a330pilotcanada]

Thanks Clunkdriver for asking him that as he seems a tad obtuse in his logic

[Yobbo]

er340790, a little bit to much Yorkshire Bitter? How about you try again in the other official language...it may make more sense.