President Robert Milton gained respect by giving away his own stock to avoid the appearance of any conflict, but that has not made anything easier in Air Canada's stormy restructuring.
The court approved $700 million debtor-in-possession financing by GE Capital Canada and gave the airline until the end of July to present a restructuring plan - but everything else has been one brushfire after another.
Air Canada brought some of this on itself by initially convincing the court to sign a broad order before anyone had a chance to comment. That order purports to change Canadian law in several ways, notably by allowing the airline to ignore labour contracts.
When unions finally received a hearing on this, the judge suspended those parts of his order, enjoined previously announced layoffs, and ordered the airline and unions into mediation over Air Canada's proposed pay cuts and layoffs.
But the courtroom agenda remains crowded with an array of other issues, ranging from pension liability and executive retention bonuses to a lucrative credit card deal linked to frequent flyer points. The World Health Organisation travel advisory on Toronto, Air Canada's main hub, made matters even worse.
To give stakeholders current data when reviewing its plans, Air Canada has released preliminary year-end results showing a C$828 million ($580 million) net loss compared to C$1.3 billion a year earlier. There has been worse news in the first quarter - losing C$354 million, compared to C$160 million a year before. That equals a daily cash burn rate of almost C$4 million.
Looking ahead, Milton's vision for Air Canada is consistent with earlier announcements. In line with an early draft of the restructuring plan, he foresees a smaller airline with smaller aircraft, simplified fares, more focus on profitable routes, and lower costs. Because Air Canada would become so much like Tango, its largest discount unit, Tango is likely to disappear.
Milton hopes to cut C$770 million from a C$3 billion annual labour bill, plus C$1.6 billion from aircraft leasing, debt servicing and other costs. With projected annual earnings of $10 billion, analysts figure this would leave Air Canada with a 20% profit margin. So these targets may give the airline some cushion in the tough talks it faces.
DAVID KNIBB SEATTLE
Source: Airline Business
