Only two years ago, Air Canada’s pension plan was a millstone that threatened to send it into bankruptcy court for the second time in a decade. But today it has become so healthy that the airline may opt out of an agreement with Ottawa that forbids investor payouts. - Kristine Owram Air Canada may opt out of government lifeline as pension surplus grows Republish Reprint Kristine Owram | November 6, 2014 4:39 PM ET Only two years ago, Air Canada’s pension plan was a millstone that threatened to send it into bankruptcy court for the second time in a decade. But today it has become so healthy that the airline may opt out of an agreement with Ottawa that forbids investor payouts. Air Canada reported a small pension surplus at the beginning of 2014, a dramatic turnaround from the $3.7-billion deficit a year earlier. And that surplus has continued to grow throughout the year despite lower interest rates, said chief financial officer Michael Rousseau. “We’re pleased to report that our surplus has actually increased since the start of the year,” Mr. Rousseau said on a conference call Thursday following the release of the company’s third-quarter results. “Returns have been very solid despite the reduction in interest rates.” In early 2013, when Air Canada’s pension was deep in the red, the airline signed an agreement with the federal government that gave it more time to cover the shortfall. In exchange, executive compensation was frozen at the rate of inflation and dividends and share buybacks were prohibited. Mr. Rousseau said the airline will decide early next year whether it will opt out of that agreement now that its pension plan is back in the black, potentially opening the door for new treats for shareholders. Air Canada’s shares jumped 5.39% to $9.38 Thursday after it reported record results that beat analysts’ expectations thanks in large part to strong performance from its discount carrier, Rouge. “Rouge has been more successful than we expected and we’ve been very pleased with the rollout,” CEO Calin Rovinescu said, adding that more routes will be announced in the coming months. Despite the strong third-quarter results, Air Canada cautioned that cost per available seat mile, or CASM — a measure of the airline’s operating cost per seat per mile flown — will fall only 2.5%-to-3.5% this year, less than previously forecast. And the airline expects to add as much as 10% to its system capacity in 2015 as it continues to expand Rouge and introduce new Boeing 787 Dreamliners to its international fleet. “The strong Q3 will certainly be well received, however the Q4 CASM guidance and 2015 capacity plans will get some attention,” RBC analyst Walter Spracklin said in a note to clients. However, Mr. Spracklin pointed to Air Canada’s October load factor, which measures how full its planes are, as a positive sign. Last month’s load factor was 82.1%, an improvement from a year ago despite a 10% increase in capacity. “The October numbers look very strong and this will temper the possible negative reaction to the 2015 capacity guidance as the demand environment clearly remains robust,” he said. Air Canada’s adjusted net income came in at $457-million or $1.55 per share, a record for any quarter in the airline’s 77-year history. That beat the estimate of $1.45 and was a 25% improvement from a year ago. Operating margin improved by 1.8 points to 13.8% as operating revenue grew and costs fell. The airline has been cutting costs through the acquisition of new, denser airplanes, with more seats and less legroom, plus the rollout of the budget-conscious Rouge. Air Canada also announced Thursday that it will acquire two more high-density Boeing 777 aircraft, bringing its total 777 fleet to 25. It will also replace eight of its Embraer 190 aircraft with three Airbus A320s. business.financialpost/2014/11/06/air-canada-may-opt-out-of-government-lifeline-as-pension-surplus-grows/
Posted on: Sat, 08 Nov 2014 20:38:06 +0000