Air Canada Jumps Most Since July 2009 on Profit Optimism

Air Canada Jumps Most in 21 Months on Profit
An Air Canada plane sits on the tarmac before takeoff at Toronto Pearson International Airport. Photographer: Brent Lewin/Bloomberg

Air Canada, the country’s largest carrier, jumped the most in more than two years after posting a preliminary first-quarter profit that exceeded estimates from three analysts.

The company’s Class B shares soared 16 percent to 96 Canadian cents by the close of trading in Toronto, their biggest one-day gain since July 2009. More than 3.2 million shares traded, double the daily average of the past six months.

Air Canada, while saying first-quarter results will include charges tied to the restructuring of its former maintenance unit now called Aveos Fleet Performance Inc., reported earnings and cash generation that were stronger than expected, said Chris Murray, an analyst at PI Financial Corp.

“Charges remain in line with our estimates,” Murray said. “We expect that a large portion of heavy maintenance expenses originally expected in the first quarter may have been deferred to future periods given the situation with Aveos.”

Murray has a buy rating on Air Canada, whose parent ACE Aviation Holdings Inc. sold control of the technical-services unit that became Aveos to private-equity investors in 2007.

Earnings before interest, tax, depreciation, amortization and rent, a closely watched measure of profitability, probably were C$170 million ($173 million) to C$180 million, Montreal-based Air Canada said yesterday in a statement. That compares with C$207 million a year earlier.

‘Clearly Positive’

Ben Cherniavsky, an analyst at Raymond James Ltd. in Vancouver, was expecting profit of C$166 million, according to a note to clients today. PI Financial’s Murray had projected C$101 million, while National Bank Financial’s Cameron Doerksen estimated C$34 million, they said in separate notes.

“The preliminary expectations for the first quarter are clearly positive,” said Doerksen, who has a sector perform rating on the stock. Air Canada reported net losses in seven of the previous nine quarters through the end of 2011.

Aveos was the carrier’s lone provider of airframe maintenance. It put about 2,600 employees out of work when it shut plants and filed for insolvency protection on March 19. Air Canada later said it may be required to pay severance to as many as 1,500 unionized workers at Montreal-based Aveos.

Cash and short-term investments totaled C$2.25 billion on March 31, Air Canada said in the statement. That’s C$135 million more than a year earlier.

First-quarter figures are preliminary, haven’t been reviewed by Air Canada’s auditors and are subject to change, the company said. Air Canada plans to release quarterly results May 4.

Supplier Network

The company has sent several aircraft to both Canadian and international maintenance providers since Aveos closed. The carrier is working with about 40 Canadian suppliers, in addition to foreign companies, for engines and aircraft components maintenance.

Air Canada earlier this month asked Air France-KLM Group to perform maintenance work on the landing gear of one of its Airbus SAS A330 jets, Brigitte Barrand, a spokeswoman for the Paris-based company, said today in an e-mail. Air France-KLM has been doing engine repair work for Air Canada for several years, and would be ready to take on more maintenance contracts, she said.

Air Canada also said it’s looking for new suppliers to perform “longer-term” maintenance previously done by Aveos. Preference will be given to companies that have or will establish some portion of their operations in Montreal; Vancouver; Toronto; and Winnipeg, Manitoba, the company said.

The closing of Aveos “will allow Air Canada to reduce its aircraft maintenance expenses over the long-term,” National Bank Financial’s Doerksen said.

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