Air Canada shares jump after pension extension

Wed Mar 13, 2013 10:20am EDT
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TORONTO, March 13 (Reuters) - Air Canada shares rose as much as 7.4 percent on Wednesday after it won a seven-year extension a day earlier for the cap on special payments to erase its sizeable pension fund deficit.

The more heavily traded class B shares rose as much as C$2.76, before paring gains to trade at C$2.68, up 4.3 percent.

CIBC raised its target price for the stock to C$4.00, from C$3.00, rating it a sector outperformer.

Canada's largest airline, which won the extension over the objection 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 higher than what it had originally requested and comes with a number of conditions.

"Had Air Canada not received pension funding relief we believe its cash contributions post 2013 would have become unaffordable for the airline," said Cameron Doerksen, an analyst with National Bank Financial.

"In this context we view the pension relief as positive although some sort of relief was expected by the market." (Reporting by Solarina Ho; Editing by Nick Zieminski)