Air Canada strikes deal with credit card processors
By Ross Marowits
May 25, 2009, Montreal - Air Canada says it is making progress in shoring up its efforts to avoid having to seek court protection from creditors.
By Ross Marowits
May 25, 2009, Montreal – Air Canada says it is making progress in shoring up its efforts to avoid having to seek court protection from creditors, a key piece of that coming in an agreement with one of its major credit card processors to preserve liquidity.
The deal will drop the level of unrestricted cash the airline is expected to have on hand by $100 million to $800 million.
“The agreement negotiated by Air Canada and one of its principal credit card processors is an important step in providing financial stability for our company during this challenging period,” stated president and CEO Calin Rovinescu.
Achieving a deal with the credit card processor was one of several efforts upon which the airline has been focused to help it preserve liquidity.
Chief among them is obtaining a funding moratorium on pension payments. The airline is seeking a 21-month moratorium on $650 million of pension payments required to address its $2.9-billion underfunded pension.
Air Canada has been looking to cut at least $250 million in costs and raise more cash but its CEO has said he doesn’t foresee the need for massive layoffs or a bankruptcy protection filing to help it survive.
“We are in discussions with sever
al potential lenders regarding additional financing, which will likely require labour stability as a condition to any advance,” Rovinescu said.
Under the memorandum of understanding, the airline will provide the credit card processor with security to be accumulated over time.
Should the airline’s unrestricted cash exceed $1.2 billion to two consecutive months, the cash requirement will increase to $1.1 billion. That’s less than the $1.3 billion it was required to hold under the previous agreement.
The processor will then return all security to the airline if the required level of unrestricted cash is increased to $1.1 billion.
Air Canada had a cash balance of more than $1 billion at the end of March, when it lost $400 million in the first quarter after its operations were hurt by the slumping economy.
On the Toronto Stock Exchange, Air Canada’s shares gained four cents, or 3.15 per cent, at $1.31 in early afternoon trading.
THE CANADIAN PRESS