* Needs to reduce debt, improve debt-to-capital ratio
* Plans to expand international network
* No new planes in near term to boost capacity
OTTAWA, Sept 23 (Reuters) - With nearly C$1 billion ($971 million) in debt coming due over the next two years, Air Canada ACa.TO ACb.TO plans to push further into high-margin international markets to drive growth, the country's biggest airline said on Thursday.
The carrier, which narrowly avoided having to file for bankruptcy protection last year under the strain of a hefty debtload and a bruising sector downturn, will also keep a lid on airplane purchases in the near term.
Canada's airline industry is recovering slowly in 2010 from last year's plunge in demand as cost-conscious travelers are making it hard for carriers to raise prices and fully recuperate, according to a recent report from the Conference Board of Canada.
"We'd like to de-leverage our balance sheet and ... the most inexpensive way of doing that is producing free cash flow to pay down debt," Air Canada Chief Financial Officer Michael Rousseau said via a webcast from the CIBC Institutional Investor conference in Montreal.
"We have almost C$1 billion of debt coming due the next two years. Certainly we would like to pay some, if not all, of that back."
Air Canada, which had more than C$2 billion in cash at the close of the second quarter, raised close to C$1.1 billion in a private offering in August and used C$729 million of that to repay debt, he said.
"As to a proper capital structure, I agree we are heavily debt de-leveraged right now: roughly 95 percent to 5 percent equity," he said.
"Over time, we need to have a better balance, and again I think a combination of improving our operating results, producing free cash flow, de-leveraging the balance sheet and, some time in the future, if our stock performs the way we think it should, then obviously that door is always open for equity."
Air Canada's more heavily traded class B shares have gained more than 50 percent in the past year, and were around C$2.82 on the Toronto Stock Exchange on Thursday afternoon. But they have lost about 30 percent of their value over the past two years.
"One of our key priorities for 2010 and 2011 is to expand our international operations ... most of the capacity increases reflected international markets," Rousseau said.
"Our domestic capacity is projected to increase by only up to 1 percent for the full year 2010, when compared to 2009."
Air Canada announced a bigger than expected profit and raised its full-year forecasts in July, two weeks ahead of schedule, sending its shares higher. Growth reflects better aircraft utilization, Rousseau said.
On the heels of a high-traffic summer travel season, the airline said it would need to add planes if it wanted to boost capacity next summer, but does not plan to do so.
"We're being very very disciplined about adding capacity ... we have route rights to virtually everywhere in the world, so we can fly where we want to, but we need to make money," Rousseau said.
"Our commercial and finance groups look very, very closely at the routes, the competitive environment, and if there is an opportunity for us, we'll look at it. Right now, we don't see those opportunities and ... there are no plans to bring new planes in next year."
The carrier has also forecast capital expenditure of less than C$150 million for both 2010 and 2011, an amount it says does not include maintenance.
In 2012, spending will increase in advance of the delivery of 37 Boeing 787s, starting in the second half of 2013. The company has secured financing commitments of C$3.1 billion, which cover the cost of 31 of the 37 planes, Rousseau said.
Under an ambitious cost-cutting program, Air Canada says it targets annual savings of C$300 million by the end of 2010 and C$530 million annually by the end of 2011.
$1=$1.03 Canadian Reporting by Susan Taylor; editing by Rob Wilson