TORONTO (Reuters) - Air Canada ACa.TO ACb.TO shares rose as much as 7.4 percent on Wednesday after it won a seven-year extension for the cap on special payments to erase its sizeable pension fund deficit.
Canada's largest airline, which won the extension on Tuesday over the objections of its smaller rivals, will have to pay a total of C$1.4 billion over seven years, or an average of C$200 million a year, with a minimum of C$150 million a year.
The payments are above those Air Canada originally requested and they come with a number of conditions.
A source familiar with the negotiations between Air Canada and the government said he did not expect management to have any concerns with the pension proposal, with the unions already lined up to support it.
Retired employees of the airline were also supporting the government's decision, said Bruce Aubin, who heads the pension committee for Air Canada's retirees.
Air Canada's more heavily traded class B shares rose as high as C$2.76, before paring gains to trade at C$2.64, up 2.7 percent, around midday.
Analysts welcomed the announcement. CIBC raised its target price for the stock to C$4.00 from C$3.00 and National Bank Financial's Cameron Doerksen said the news was positive.
"Had Air Canada not received pension funding relief we believe its cash contributions post 2013 would have become unaffordable for the airline," Doerksen said. "In this context we view the pension relief as positive although some sort of relief was expected by the market."
WestJet Airlines Ltd (WJA.TO), Canada's No. 2 carrier, said it was disappointed with the decision.
"We trust this marks the end of special treatment for Air Canada as such treatment at the expense of other industry players has become too common," said WestJet's chief executive, Gregg Saretsky, in a statement.
Reporting by Solarina Ho; Additional reporting by Louise Egan; Editing by Nick Zieminski and Phil Berlowitz