May 7, 2009 / 5:24 PM / 9 years ago

Air Canada shares jump again on "open skies" hopes

OTTAWA, May 7 (Reuters) - Air Canada ACa.TO shares jumped 27 percent on Thursday, building on a 31 percent gain in the previous session, with analysts speculating that an “open skies” pact and short covering is lifting the stock.

Shares of Air Canada, which reports first-quarter results on Friday and introduces recently appointed CEO Calin Rovinescu at its annual meeting, shot up 37 Canadian cents to C$1.73 on the Toronto Stock Exchange on Thursday. Shares gained 32 Canadian cents on Wednesday.

The battered security, which has lost about 78 percent of their value in the last 12 months, was worth as little as 75 Canadian cents on April 1.

The market is eagerly awaiting details of how Air Canada will deal with its C$3 billion-plus pension deficit, large debt repayments and renegotiation of several union contracts.

There is speculation that its weak financial position could again force the company to file for bankruptcy protection, repeating a corporate overhaul in 2003.

“I think the Canada-Europe open skies agreement that was signed yesterday, in which Canada proposes to raise the foreign ownership limits to 49 percent from 25 percent ... is raising speculation that some airlines may invest in Air Canada,” said Research Capital Jacques Kavafian in an interview.

An open skies pact signed on Wednesday, which will allow airlines from Canada and the European Union to fly freely between airports, eases restrictions on control and ownership of airlines. Canada said in February that it wants to raise foreign ownership limits to 49 percent from 25 percent.

Kavafian said the pact combined with short trading are likely behind the stock moves.

“It’s probably been one of the most heavily shorted stocks,” said another analyst, who asked not to be named.

Short selling is essentially a bet that a stock will drop in value. To make a profit, traders must cover their shorts by purchasing the security below the original sale price.

When there is speculation or indications that a stock will rise in value, traders typically cover their shorts. ($1=$1.17 Canadian) (Reporting by Susan Taylor; Editing by Frank McGurty)

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