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AC’s stock soars after positive financial signs

April 27, 2012, Montreal - Air Canada's shares took off in early Friday trading after the carrier issued earnings guidance for the coming quarter that exceeded analyst forecasts.


April 27, 2012
By The Canadian Press

The stock surged more than 14 per cent, gaining 12 cents at 95 cents in heavy morning trading on the Toronto Stock Exchange. Almost a million shares changed hands in the first hour, compared with 667,000 on an average day.

Air Canada said after markets closed Thursday that it expects first-quarter adjusted earnings will range between $170 million and $180 million, well above analyst forecasts that have averaged about $125 million.

The Montreal-based carrier reports its results May 4.

The country's largest carrier also said the results will include $120 million in charges related to the shutdown of insolvent aircraft repair and overhaul provider Aveos Fleet Performance Inc.

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The former Air Canada maintenance division filed for creditor protection last month and laid off more than 2,600 employees across the country when it ceased operations. It is in the process of being liquidated over the next couple of months.

Air Canada's preliminary estimates indicate it will book a $65-million, non-cash loss on investments resulting from Aveos' 2010 restructuring.

It also anticipates a $55-million loss from discontinued operations related to labour commitments made under a January 2011 Canada Industrial Relations Board ruling that recognized separate bargaining units for Aveos and Air Canada unionized employees.

Cameron Doerksen of National Bank Financial said he believes the strong earnings guidance is likely the result of lower maintenance expense and better unit revenue.

"The preliminary expectations for the first quarter are clearly positive for Air Canada, but we await full details on the financials before adjusting our estimates and valuation,'' he wrote in a research note.

The closure of Aveos in mid-March likely prompted Air Canada to delay some scheduled maintenance. He said unit revenues should exceed his estimate for 3.1 per cent growth.

Air Canada said it has found alternative heavy maintenance suppliers in the short-term and is beginning a tendering process for longer-term contracts.

Doerksen said the closure of Aveos will allow the airline to reduce maintenance expenses over the long-term.