Air Canada Says U.S. Sales, Hedging May Reduce Currency Effect

Air Canada is counting on sales (AC/A) in the U.S., additional cost cuts and a hedging program to help make up for a drop in the value of the nation’s currency, Chief Executive Officer Calin Rovinescu said.

Canada’s dollar has lost 9.8 percent of its value against its U.S. counterpart in the past year. For carriers such as Air Canada and smaller rival WestJet Airlines Ltd. (WJA), the decline is especially important because fuel -- their biggest single expense -- is denominated in U.S. dollars, as are new aircraft.

“As part of our annual budgeting process, we forecasted some weakness in the Canadian dollar, though not to its current level,” Rovinescu said today in a speech in Toronto. “As a result, we got a head start looking at ways to mitigate the exposure such as additional cost reductions or revenue enhancement initiatives.”

Air Canada (AC/B), the nation’s largest airline, is working to trim costs by about 15 percent in the medium term with the help of higher-density aircraft, new maintenance agreements and the start last year of its Rouge leisure unit. Sales in the U.S., which exceed $1 billion annually, will also help to offset the drop in the currency, the CEO said.

The airline, based in Montreal, plans to release fourth-quarter results Feb. 12. Rovinescu said last month he would discuss currency effects on his next quarterly conference call.

Air Canada had more than C$3.3 billion ($2.98 billion) of U.S. dollar-denominated debt as of Sept. 30, according to a Nov. 8 filing.

Every 1-cent drop in the value of the Canadian dollar cut annual operating income by C$33 million, Air Canada said in its 2012 annual report.

Buying aircraft and all of its fuel in U.S. dollars means Air Canada has a “massive exposure” to that currency, Rovinescu told reporters in Montreal after a speech Jan. 27.

The airline awarded Boeing Co. (BA) an order for narrow-body jets valued at $6.5 billion in December.

To contact the reporters on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net; {Frederic Tomesco} in Montreal at tomesco@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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