CALGARY, Alberta (Reuters) - Air Canada shares sank 22 percent on Tuesday as analysts speculated that the resignation of its CEO, and the naming of a replacement known for his restructuring expertise, may signal the airline’s second filing for creditor protection in six years.
Montie Brewer, who has led the airline through the industry downturn and has had to scramble to raise cash while competing with rival WestJet Airlines Ltd, will be replaced as chief executive on Wednesday by Calin Rovinescu, a key figure in Air Canada’s last corporate revamp under bankruptcy protection.
Air Canada’s class B shares fell 26 Canadian cents to 89 Canadian cents on the Toronto Stock Exchange, representing a drop of more than 90 percent in the past year. Its class A shares fell 24 Canadian cents to 84 Canadian cents.
Rovinescu is a lawyer who was Air Canada’s vice-president of corporate development and strategy from 2000 to 2004, a period that included the airline’s last restructuring and emergence from creditor protection. He subsequently co-founded Genuity Capital Markets, a Canadian investment bank.
“While the challenges in front of us are large, we will continue to build upon the successes of the airline to date and deliver a quality product for our customers, employees and shareholders,” Rovinescu said in a statement.
There were more changes in the executive suite on Tuesday, as Chief Operating Officer Bill Bredt announced he too is stepping down, to be replaced by Duncan Dee.
Air Canada shares have tumbled as the industry downturn that first took hold in the United States spilled into Canada.
The airline has cut capacity by 7 percent, which meant 2,000 layoffs, and has been feverishly working to raise capital to shore up its balance sheet.
It also faces a pension deficit and brisk competition on fares and routes from Calgary-based WestJet.
Analyst Jacques Kavafian said Rovinescu’s appointment signals another restructuring because of his legal experience and his unpopularity with the carrier’s unions.
“In fact, we believe that his resignation from Air Canada in 2004 was a condition for union acceptance of wage concessions,” Kavafian said in a note. “Bringing him on just as new labor agreements are to be negotiated does not square with the unions’ historical sentiments.”
Kavafian also took note that Rovinescu will take up his post six years to the day after Air Canada last filed for creditor protection.
Airline spokeswoman Angela Mah declined to comment on what might be in the cards for Air Canada, beyond what was in the statement issued late on Monday.
It made no mention of plans to seek creditor protection.
“Suddenly and dramatically, bringing in someone like Mr. Rovinescu ... speaks to the extreme turmoil currently taking place at Air Canada,” Ben Cherniavsky, an analyst at Raymond James, wrote in a research note.
Cherniavsky has pegged the chances of Air Canada’s survival at “50/50, at best.”
Transport Minister John Baird said he is concerned with the mounting financial problems at the flagship carrier.
“So it has my active attention,” Baird told reporters in Ottawa. “I met with one of the unions this morning. I was in touch with management last evening, and we’ll be watching the issue very closely.”
The Canadian Auto Workers union, which represents more than 5,000 Air Canada employees, called Rovinescu’s re-entry into the airline “disturbing.”
The union said it feared its members would be threatened with cuts to pension benefits under another restructuring effort. It had opposed parent company ACE Aviation Holdings Inc’s sale in recent years of Air Canada’s affiliates, such as its frequent flier program and regional feeder carrier.
Additional reporting by Scott Haggett and Randall Palmer; editing by Rob Wilson