July 20, 2010 / 11:54 AM / 7 years ago

UPDATE 2-Air Canada reveals stronger-than-expected results

* Plans to raise $900 million to repay debt

* Second-quarter results officially out Aug 5

* Shares surge as much as 17 pct

(Recasts with analyst comment, stock move, adds stock offering; in U.S. currency unless noted)

By Nicole Mordant

VANCOUVER, British Columbia , July 20 (Reuters) - Air Canada ACa.TOACb.TO on Tuesday posted stronger-than-expected quarterly earnings and raised its full-year forecasts, sending shares of the country’s largest airline surging.

Air Canada’s stock rose as much as 17 percent as investors welcomed fresh signs of a resurgence in air travel demand and rising fares for a carrier that was on the verge of bankruptcy a year ago.

The company, which announced the preliminary second-quarter results two weeks before schedule, also said it plans to raise $900 million in notes to repay debt.

“The best is yet to come for them this year because Q3 is the big travel quarter for airlines,” said Canaccord-Genuity analyst David Tyerman.

“So if they did this in Q2, then absent a fuel price spike, this is boding pretty well for Air Canada’s turnaround continuing on perhaps an accelerating pace.”

The company unveiled the preliminary results before the Aug. 5 release date to enable it to discuss its performance as its meets with prospective investors about the note offering, a source close to the company said.

The company would not comment on the timing of Tuesday’s release.

Air Canada will use the money from the offer of senior secured notes, with a due date of 2015, to repay a credit facility it entered into in July 2009.

RESULTS BETTER THAN EXPECTED

Air Canada estimated that revenue per available seat mile (RASM), a key industry measure, rose by about 6.6 percent in the second quarter compared with a year ago, well ahead of the 4.9 percent Tyerman said he was expecting.

The carrier expects its second-quarter EBITDAR, a commonly used industry term for operating results before depreciation, amortization and aircraft rent, to come in between C$320 million ($305 million) and C$340 million. That’s well ahead of C$135 million a year ago.

The results led Versant Partners analyst Cameron Doerksen to raise his one-year target on Air Canada’s stock to C$4.50 from C$4.

By late Tuesday morning, Air Canada’s B stock was at C$2.17, up 26 Canadian cents or 13.6 percent.

The results also showed Air Canada is keeping a lid on costs. The airline expects its second-quarter operating expense per available seat mile (CASM), used to measure unit cost, to have fallen by about 4.2 percent, excluding fuel costs.

That is ahead of its own forecast of a decline of between 1.5 percent and 2.5 percent.

For the full year, Air Canada now expects CASM, excluding fuel, to fall between 3.5 percent and 4.5 percent, compared with a 2 to 4 percent drop it previously forecast.

Second-quarter system capacity, as measured in available seat miles, is expected to be 5.3 percent higher than the same period a year earlier, the airline said.

For the full year, Air Canada now expects its system capacity to go up by 6 percent to 7.5 percent. It had earlier forecast an increase of 4 percent to 6 percent.

($1 = $1.05 Canadian)

Additional reporting by Bhaswati Mukhopadhyay in Bangalore

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