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Air Canada delivery of Boeing 787s delayed

Nov. 7, 2011, Montreal - Air Canada dropped to a third-quarter net loss of $124 million as the airline grappled with the high price of fuel during the busy summer quarter and the impact of foreign exchange fluctuations.


November 7, 2011
By The Canadian Press

The results beat expectations even though Air Canada had a net loss of 45 cents per share in the period, before adjustments, compared to a profit of $317 million or $1.10 per share a year earlier.

Excluding foreign exchange losses, its adjusted profit was $270 million, or 55 cents per share, seven cents above analyst expectations on average, according to a poll by Thomson Reuters. The results were down from $306 million, or 70 cents per share in the
same quarter a year ago.

Air Canada also announced Friday that the delivery of the first Boeing 787 Dreamliners — a major part of the company's plans to renew its fleet with more fuel-efficient, long-range planes  — is being delayed again and won't start until 2014.

Delivery of the seven of the long-range composite planes has been pushed back from the fourth quarter of 2013 to the first half of the following year, it said.

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The airline is negotiating with Boeing about the delivery schedule for the remaining 30 airplanes.

Air Canada said quarterly operating profit fell nearly 12 per cent as the airline's expenses increased nine per cent to $252 million, driven by a 47 per cent increase in basic fuel prices. The stronger Canadian dollar helped lessen the impact of some expenses in foreign currencies.

Operating revenue was $3.24 billion, up from $3.03 billion, coming in above average analyst expectations.

"We experienced a strong revenue performance in the quarter, however the revenue growth did not keep pace with the operating costs given the higher price of fuel,'' CEO Calin Rovinescu said during a conference call.

Air Canada has permanently removed $530 million of costs from its system and remains committed to proceeding with some form of low-cost carrier to achieve long-term profitability.

"Pension reform and low cost carrier participation are emotional and contentious issues that are causing labour turbulence at other legacy carriers grappling with the same issues,'' Rovinescu said.

"So while the upcoming rounds of labour negotiations are expected to be challenging, we remain cautiously optimistic that negotiated settlements are achievable with the outstanding groups.''

The airline won't say how much revenues it lost due to labour disruptions, but chief financial officer said the impact was not "material.''

Cameron Doerksen of National Bank Financial said the results were better than expected on larger cost reductions.

"However, the company still faces several headwinds, notably still unresolved labour issues and higher fuel costs,'' he wrote in a report.

Air Canada has faced a series of problems from Boeings delayed deliveries of Dreamliners. The first Boeing 787  was shipped to All Nippon Airlines late last month, but Boeing has cut its early delivery schedule.

The planes are part of Air Canada's expansion plans to reach markets that are unprofitable with its current fleet.

The Montreal-based carrier said it expects to limit its capacity growth next year to no more than 1.5 per cent amid an expected slow economic recovery.

However, the availability of various plane sizes will allow it to quickly adjust capacity if the economy dips further than forecast, Rovinescu said.

"We've been increasing revenues through various initiatives, including fares and surcharges and we're monitoring changes in passenger demand given the uncertain global economic environment,'' he said.

"Should circumstances change, we'll consider appropriate capacity adjustments (but) at this time…passenger demand has however remained stable.''

The carrier's shares took a beating in the quarter, falling 36 per cent despite posting a 3.8 per cent traffic growth as it grappled with labour negotiations and a string of negative economic headlines.

Air Canada is awaiting an arbitration ruling to establish a new collective agreement with flight attendants.

It reached agreement with customer service agents following a three-day strike in June and recently abandoned a judicial review of an arbitrator's pension ruling that will set up a hybrid pension model for new hires.

The national carrier angered pilots by seeking Ottawa's help to appoint conciliators to help negotiate a collective agreement.

The International Air Transport Association upgraded industry profit forecasts in September to US$6.9 billion from US$4 billion, but it expects profits in 2012 will fall to US$4.9 billion on margins of 0.8 per cent.

Premium traffic, on which Air Canada depends, saw an uptick in the third quarter, with cabin revenues up 7.2 per cent to $38 million, on traffic growth of 5.8 per cent. Sales of higher-priced tickets have slowed in recent quarter because of slowing economies
and declining business confidence.

Air Canada also recently announced the creation of more than 150 jobs as it expands its Montreal call centre.

The airline is Canada's largest domestic and international full-service airline providing scheduled and charter air transportation for passengers and cargo to more than 175
destinations on five continents.

It is the world's 15th largest commercial airline, providing service to more than 32 million passengers a year.


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