February 27, 2009 / 4:13 PM / in 9 years

UPDATE 3-Charge drags Groupe Aeroplan to C$1.1 bln net loss

* Q4 loss C$5.39 a share vs EPS 26 Canadian cents * Writes down goodwill on books by C$1.2 billion * Shares down 4 percent at C$8.65 (Adds CEO comments, updates stock quote)

CALGARY, Alberta, Feb 27 (Reuters) - Groupe Aeroplan Inc AER.TO, which operates Air Canada’s ACa.TO frequent flier program, reported a C$1.1 billion ($866 million) quarterly loss on Friday after it wrote down the value of goodwill on its books due to the global economic meltdown.

Groupe Aeroplan said it was forced to take a C$1.2 billion noncash asset impairment charge, mostly related to goodwill associated with its spinoff from the airline’s parent company, ACE Aviation Holdings Inc ACEa.TO.

That overshadowed a big jump in operating income and revenue at the company, which also runs the Nectar loyalty program in Britain and has majority interest in the operator of Air Miles in the Middle East.

In the fourth quarter, the company lost C$1.07 billion, or C$5.39 a share, compared with a year-earlier profit of C$52 million, or 26 Canadian cents a share.

It blamed the charge on increased discount rates used in determining fair values and a decline in expected future cash flows due to weakness in capital markets and the economy.

Excluding the charge, the loyalty program operator earned C$87 million, or 44 Canadian cents a share. It has been expected to earn 25 Canadian cents a share, according to a Reuters Estimates average of analysts’ forecasts.

Revenue, including gross billings on the sale of Aeroplan miles, was C$430 million, up 95 percent from C$222 million in the fourth quarter of 2007.

Groupe Aeroplan shares were down 36 Canadian cents, or 4 percent, at C$8.65 on the Toronto Stock Exchange. They have fallen more than 55 percent in the past year.

Chief Executive Rupert Duchesne said the stock has been pressured by concern about Air Canada’s weak cash position and uncertainty about Aeroplan’s unique business structure during the recession.

In the fourth quarter, Aeroplan agreed to speed up payment to Air Canada for reward tickets, allowing the airline to raise C$70 million to bolster its liquidity.

Canada’s biggest airline has raised more than C$650 million in the past few months as it shores up its finances amid the downturn in travel demand.

“In the face in industry challenges over the next year that are beyond their control, the airline’s management team is strategically cutting capacity, proactively managing their cost base and using Aeroplan as a key lever for customer retention and incentives,” Duchesne told analysts.

“As a result, Aeroplan member bookings on Air Canada for the next six months remain very strong.”

He said he was confident the company’s business model would help it weather the downturn, but said the economic conditions made it difficult to predict future business performance.

Aeroplan ended the year with cash and short-term investments of C$665 million.

$1=$1.27 Canadian Reporting by Jeffrey Jones; editing by Rob Wilson

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