April 26, 2012 / 10:19 PM / 5 years ago

UPDATE 2-Air Canada to book charge tied to Aveos closure

By Euan Rocha

TORONTO, April 26 (Reuters) - Canada’s largest airline Air Canada warned on Thursday that its first-quarter results would be hurt by a C$120 million charge related to the creditor protection filing of its former maintenance unit Aveos.

The airline, struggling for months amid wildcat strikes and a series of feuds with its unions, said it expects to report quarterly earnings before interest, taxes, depreciation, amortization and aircraft rent of between C$170 million and C$180 million.

Montreal-based Air Canada also said as of March 31 its cash and short-term investments were C$2.25 billion, up roughly C$135 million from a year earlier. The company is scheduled to release its full first-quarter results on May 4.

The airline said following the Aveos shutdown it has found alternate maintenance providers to undertake work, on an interim basis, that was originally scheduled to be performed by Aveos.

The company said it is also working on finalizing permanent arrangements with respect to longer term maintenance work that was previously performed by Aveos.

Aveos Fleet Performance Inc, once the airline’s maintenance division, has halted operations and laid off all of its roughly 2,600 workers, most of whom were employed at maintenance centers in Montreal, Winnipeg and Vancouver.

For the long haul, Air Canada said it will obtain proposals from maintenance suppliers with preference given to those that have, or will establish some portion of their operations in Montreal, Winnipeg, Vancouver and Toronto.

Canadian law requires Air Canada to maintain operations and aircraft-overhaul centers in Montreal as well as in Winnipeg, Manitoba, and Mississauga, Ontario. The requirement to maintain these centers were written into law ahead of the privatization in 1988 of what had been a state-owned company.

Earlier this month, the government of the province of Quebec filed a motion in the Quebec Superior Court requesting a ruling that Air Canada was not compliant with the law as a result of the Aveos closure.

Air Canada said it continues to maintain that it is in full compliance with the letter and spirit of the law, despite the closure of Aveos. The airline said it will vigorously defend its position.

Shares of the company, which have fallen roughly 65 percent over the last 12 months, closed at 83 Canadian cents on Thursday on the Toronto Stock Exchange.

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