Air Canada asks Ottawa for C$200 million loan

Tue Jun 16, 2009 12:13pm EDT
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By Louise Egan and Nicole Mordant

OTTAWA (Reuters) - Cash-strapped Air Canada has approached the government for a loan, Finance Minister Jim Flaherty said on Tuesday as the airline works against the clock to stave off possible bankruptcy.

Flaherty said Canada's biggest airline was in discussions with Export Development Canada for a commercial loan. A source close to the talks said the carrier was asking the federal financing agency for about C$200 million ($177 million), a third of the C$600 million the carrier says it needs in the short term.

"Air Canada has had some discussions with Export Development Canada about possibly borrowing on commercial terms, but those are discussions that are ongoing," Flaherty told reporters.

His comments come hours after Air Canada announced it had reached tentative agreements with the rest of its unionized workforce on a temporary freeze on funding a deep pension shortfall.

An agreement with the unions on pensions and securing financing are crucial to keeping the debt-laden airline, which has been buffeted by a global slowdown in air travel and stiff competition at home, from filing for bankruptcy for the second time in six years.

Shares in Air Canada surged as much as 20 percent on the Toronto Stock Exchange on Tuesday morning. The class A shares hit C$1.77, a gain of 32 Canadian cents, while its B shares reached C$1.78, an increase of 29 Canadian cents.

The source said any loans to Air Canada would come from the EDC's Canada Account, which is for transactions that are outside the EDC's responsibility but deemed to be in the national interest.

The loan would be negotiated on a commercial basis and would not be considered by the government as a bailout. The EDC would administer the loan but the federal government would take on the risk.   Continued...

<p>An Air Canada aircraft lands at the Calgary International Airport in Calgary, Alberta, June 17, 2008. REUTERS/Todd Korol</p>