May 25, 2009 / 11:36 AM / 9 years ago

Air Canada wins relief on credit card terms

VANCOUVER, British Columbia (Reuters) - Air Canada has won some breathing room from one of its key credit card processors, the cash-strapped airline said on Monday.

Shares of Canada’s largest airline bounced higher after it said it had reached an agreement with one of the companies that processes customers’ credit card transactions, allowing Air Canada to reduce the level of cash it needs to have on hand to satisfy the card firm.

The agreement reduces the level of unrestricted cash that Air Canada is required to hold to C$800 million ($648 million) from as much as C$1.3 billion before.

“It is good news for Air Canada. But there are a lot of other issues that the company has to deal with,” said Research Capital analyst Jacques Kavafian.

“It gives them more breathing room before they violate the covenant. Having more cash is always good,” Kavafian said.

Air Canada’s class A shares climbed as high as C$1.38 on the Toronto Stock Exchange after the news, a gain of 13 percent. By early afternoon they were off their highs at C$1.26, up 4 Canadian cents or 3 percent.

The airline’s stock has plunged in the past 18 months from above C$17 on a raft of concerns including stiff competition and how it will fund an almost C$3 billion pension shortfall. Some analysts fear the airline is headed for bankruptcy protection again.

Air Canada Chief Executive Calin Rovinescu said in Monday’s statement that the airline is in talks with several potential lenders about additional financing.

He said the lenders are likely to require labor stability “as a condition” before they will advance any money.

Air Canada is headed into a period of intense negotiations this summer with unionized employees, with four contracts expiring by July.

Talks between the airline and the Canadian Auto Workers, which represents 4,500 sales and service agents, kicked off last week.

Air Canada had warned earlier this month that unless it was able to revise the terms of its credit card arrangement, its cash could be substantially reduced over the next year.

The deal depends on a formal agreement being reached by June 15.

($1=$1.12 Canadian)

Reporting by Nicole Mordant and Scott Anderson; editing by Rob Wilson

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