UPDATE 3-Air Canada sees wider operating loss, shares plunge

Mon Apr 22, 2013 2:01pm EDT
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* Releases preliminary results ahead of schedule
    * To take an impairment charge of C$24 mln on Airbus planes
    * Cancellations, weather issues take C$10 mln bite in
    * Shares down nearly 13 percent on TSX

 (Adds analysts' comments, background, updates share price)
    By Susan Taylor
    TORONTO, April 22 (Reuters) - Air Canada said on
Monday it expects a wider operating loss in the first quarter,
after weather-related flight cancellations, operational
challenges and a sizeable impairment charge. Shares fell
    Analysts said the preliminary results, which Canada's
largest airline said it announced early so it could share the
data with potential lenders, were weaker than they had expected
and may suggest slowing revenue and earnings growth.
    The Montreal-based airline's more heavily traded class B
shares were down 12.7 percent at C$2.62 on the Toronto Stock
Exchange, a modest recovery from an earlier fall of 18 percent.
    Before the results, Air Canada stock was up some 250 percent
in a year, making it vulnerable to bad news, RBC Capital Markets
analyst Walter Spracklin said in a note which cut his stock
price target to C$3 from C$4.
    "This morning's unexpected profit warning is an example of
this risk, with the lower-than-expected RASM (revenue per
available seat mile) and yields certainly a cause for concern,"
Spracklin said.
    Last week, he downgraded the stock to "sector perform" due
to its lofty share price.
    The airline, which is scheduled to report its results May 3,
estimated first-quarter RASM growth at 1.1 percent. Spracklin
said that lags his estimate of a 2.7 percent rise and suggests
negative yield, versus his forecast of a 2 percent yield gain.
    Air Canada, whose main domestic rival is WestJet Airlines
Ltd, expects a first-quarter operating loss of C$106
million ($103 million), deeper than a year-ago loss of C$91
million. The net loss is seen at C$260 million, versus a net
loss of C$274 million in the same period last year.

    Closely-watched EBITDAR, or earnings before interest, taxes,
depreciation, amortization and impairment, and aircraft rent,
missed expectations, said TD Securities analyst Tim James.
    The airline's estimate of C$145 million in first-quarter
EBITDAR is down from C$174 million a year earlier, while lagging
TD's expectation of C$193 million and the consensus view of
about C$173 million, James wrote in a note.
    "The shortfall relative to our expectations was mainly due
to lower passenger yield and revenue growth, partially offset by
lower operating costs," he wrote.
    Adjusted costs per available seat mile, excluding fuel, were
up an estimated 1.4 percent, below management's previous
forecast of a 3-4 percent increase. The improvement was largely
due to C$15 million in favorable accrual adjustments and the
timing of maintenance, the airline said.
    Air Canada said it now sees full-year adjusted costs per
available seat mile falling 0.5-1.5 percent, a bigger drop than
its previous view of costs that would be flat to down 1 percent.
    The results included several one-time charges, which muddied
the overall picture.
    The airline said it took a C$10 million hit due to severe
weather conditions during the quarter, and unfavorable
currency-related moves and a higher proportion of leisure
passengers over business passengers also hurt results.
    The preliminary results also include a C$24 million
impairment charge on Airbus A340-300 widebody planes, which the
airline subleased in 2007-2008.    
    The carrier, which estimates its debt at C$3.9 billion as of
March 31, has said it was considering options to refinance its
debt and pay for five new Boeing 777-300ER aircraft scheduled
for delivery over the next two years.
    An Air Canada spokesman could not say if the debt financing
was aimed at existing debt, new debt, or a combination.
    The airline has C$760 million in principal and interest
obligations due this year, and aircraft lease payments and
capital expenditure-related costs bring total 2013 obligations
to C$1.69 billion. 
    For 2014, the airline has C$1.68 billion in total
obligations, rising to C$2.40 billion in 2015 and roughly C$5.86
billion in 2016 and the years beyond.
    ($1 = 1.026 Canadian dollars)   

 (Reporting by Susan Taylor and Euan Rocha in Toronto and
Krithika Krishnamurthy in Bangalore; editing by Janet Guttsman,
Matthew Lewis and Sofina Mirza-Reid)