Air Canada shares drop amid bankruptcy fears

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CTV.ca News Staff

Air Canada shares fell more than 21 per cent on Tuesday amid fears that the company is set to file for bankruptcy protection.


Air Canada B stock dropped 25 cents to 90 cents in late afternoon trading, a decline of 21.7 per cent in trading of more than 550,000 shares.


Speculation about the airline's future began swirling late Monday, when the company announced that Montie Brewer would resign as president and chief executive officer and named Calin Rovinescu as his replacement.


On Tuesday, the airline made another key appointment with Duncan Dee in as the new chief operating officer. Dee will be replacing the retiring Bill Bredt, effective Friday.


Rovinescu is a former Air Canada executive who oversaw the company's restructuring in 2003-04 after it filed for bankruptcy. Dee also was with Air Canada at that time, and resigned from the company last April.


The return of Rovinescu, who is also co-founder and senior principal of investment bank Genuity Capital Markets, along with Dee, may signal another restructuring at the cash-strapped company as it tries to avoid bankruptcy.


Air Canada has about $660 million in debt payments to make and a pension shortfall that tripled in size to $3.2 billion last year.


The company also reported a net loss of $1.03 billion, or $10.25 per diluted share, for 2008, compared with a profit of $429 million, or $4.27 per diluted share, in 2007.


"Many of the circumstances that they are facing now are similar to 2003: pressure from WestJet, uncertain economic times, increasing debt," said industry analyst Ian Lee, director of the MBA program at Carleton University's Sprott School of Business. "But there's one key difference between 2003 and now and I think that's the overarching issue, and that's this horrible recession and the credit crisis."


Cargo traffic was down by 20 per cent in 2008, while in North America, passenger revenue dropped by seven per cent, Lee told CTV Newsnet on Tuesday.


Tough competition, a decline in business and a prolonged recession all mean Air Canada may have to restructure its business plan to survive, including turning more focus to the Canadian market, Lee said.


"Air Canada is trying to compete globally against very large players like Lufthansa, United Airlines and British Airways," Lee said. "And what is yet to be determined is if they can afford to be a global competitor or whether they are going to have to retrench to the Canadian market."


The company has indicated its intention to reduce capacity by another 2.5 to 3.5 per cent in 2009, in addition to the nine to 10.5 per cent reduction during the winter season.


It also wants to cut $100 million in costs.


Bankruptcy protection would allow the company to shed some debt and emerge a viable company, rather than shut down and throw thousands of Canadians out of work, Lee said.


With files from The Canadian Press

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