July 2, 2008 / 12:17 PM / 9 years ago

Past woes prepare Air Canada for fuel crisis: ACE

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<p>ACE Aviation Holdings Inc's president, chairman and chief executive Robert Milton speaks at a special meeting of shareholders in Montreal, October 5, 2006.Shaun Best</p>

MONTREAL (Reuters) - Air Canada is in a better position to survive the fuel crisis than many rivals because it emerged from the aftermath of the Sept 11 attacks and the SARS scare a stronger carrier, Robert Milton, the chief executive of its parent company, said on Monday.

However, the industry-wide struggle with oil above $140 a barrel has muddied a decision by parent ACE Aviation Holdings Inc, which has a 75 percent interest in Canada's biggest airline, on what its next move with Air Canada should be, Milton said.

"Clearly the market conditions make things more difficult, but overall our focus remains doing right by our shareholders, and that principally at this stage is having the right outcome as it relates to Air Canada," Milton told reporters after the ACE annual meeting.

ACE has been studying whether to buy back the shares in Air Canada it does not own, or float its own shares in a secondary offering. A decision has been delayed as the global airline industry has sputtered.

Canada's airlines have not suffered to the extent of their U.S. counterparts, many of which have filed for bankruptcy protection, entered into merger talks and slashed capacity to deal with soaring fuel costs and a drop in travel demand.

But they are not completely immune. Two weeks ago, Air Canada said it will cut 2,000 jobs and reduce its capacity by 7 percent as runaway fuel prices sap the profitability of many routes, especially those to U.S. destinations.

Air Canada now spends an average C$230 ($225) per passenger on fuel for a round trip, up 57 percent from 2007.

Since emerging from bankruptcy protection itself in 2004, Air Canada has updated its fleet to add more fuel-saving jets, such as Embraer 190s and Boeing 777s.

"What could be better if you're looking at a high fuel cost, increasing passenger ticket price environment, which will logically lead to decreased demand, than to have the most efficient, comfortable aircraft in the 100-seat category, which is the Embraer 190?" Milton said.

He said Air Canada is benefiting from its hardship in the aftermath of September 11, 2001, which prompted a major slump in North American air travel, and fears over the SARS (severe acute respiratory syndrome) contagion in 2003, which reduced travel to its huge Toronto hub to a trickle.

"Air Canada was the only airline on the planet that both had its airspace shut down after 9/11 and had SARS at home. This one is a truly global issue," he said. "I think you're going to see a lot of airlines disappear. I think that good strong, well-managed airlines like Air Canada will actually come out of this even better off."

With the aim of winding itself down, ACE, a holding company, had planned to part with its remaining assets, including its stake in Air Canada, by around last March. But that prospect has been complicated by Air Canada's weak share price and high fuel costs.

Air Canada shares tumbled 43 Canadian cents, or 5 percent, to C$7.75 on the Toronto Stock Exchange on Monday. That is down 43 percent from a year ago.

ACE A-series shares were off 26 Canadian cents at C$16.04 on Monday.

The holding firm has already parted with its stakes in Groupe Aeroplan, Air Canada's frequent flier program, and Jazz Air, its regional feeder service.

Early this year Milton excited investors by saying he had fielded calls from private equity firms interested in launching a buyout of Air Canada or linking it up with a U.S. carrier.

But in May he said high fuel prices have now made an imminent sale unlikely.

"We're optimistic that we can do the right thing and benefit the shareholders," he said on Monday.

($1=$1.02 Canadian)

Writing by Jeffrey Jones; Editing by Peter Galloway

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