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Air Canada Can't Get A Line Of Credit  
User currently offlineYyz717 From Canada, joined Sep 2001, 16245 posts, RR: 56
Posted (9 years 7 months 2 weeks 6 days 8 hours ago) and read 5129 times:

The following article is interesting. It highlights AC's inability to secure a line of credit.

http://www.theglobeandmail.com/servlet/story/RTGAM.20041209.wdomi1209/BNStory/Business/

The article points out the unanimous opinion of bankers that AC profit potential is very dim. The article also points out that AC's unit costs remain 20-25% higher than Westjet, which further suggests the current slimmer AC cost base is still too high (of course we all knew that already).

While the creditors had no choice but to negotiate with AC as per the bankruptcy court to convert AC debt/liabilities into ownership for post CCAA, clearly AC will have alot of difficulty raising further equity or credit lines from new sources.

There is a unanimous lack of confidence in syndicated banks worldwide in AC as a going concern. Hence, while AC has about $2B in cash, if/when this dwindles down, AC will once again face CCAA and possible liquidation.

Clearly, AC employees will need their wages reduced a further 20-25%. Even this may not save AC if it cannot generate profits and positive cash flow. Just one or the other is insufficient.




Panam, TWA, Ansett, Eastern.......AC next? Might be good for Canada.
44 replies: All unread, showing first 25:
 
User currently offlineAC7E7 From Canada, joined Oct 2004, 644 posts, RR: 22
Reply 1, posted (9 years 7 months 2 weeks 6 days 8 hours ago) and read 5090 times:

Clearly, AC employees will need their wages reduced a further 20-25%. Even this may not save AC if it cannot generate profits and positive cash flow. Just one or the other is insufficient.

Though I agree with you that AC's costs are still much too high, wage reductions of a further 20-25% may not be neccessary, as cost reductions can be achieved by other means, not to mention the employees would outright refuse another rollback.

AC will never lower their costs to that of Westjet's. They are a full-service carrier servicing some of the most expensive airports in the world, including YYZ. As AC's main hub, higher airport landing fees will affect AC more than WS. The new regional jets on order may reduce the number of flights into YYZ in the next few years.

Let's see how they do in their first year after exiting CCAA.



Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.
User currently offlineYyz717 From Canada, joined Sep 2001, 16245 posts, RR: 56
Reply 2, posted (9 years 7 months 2 weeks 6 days 8 hours ago) and read 5084 times:

wage reductions of a further 20-25% may not be neccessary, as cost reductions can be achieved by other means, not to mention the employees would outright refuse another rollback.

Labour is the biggest component of AC's costs. Cost reductions cannot be achieved without further substantial wage reductions.

AC will never lower their costs to that of Westjet's. They are a full-service carrier servicing some of the most expensive airports in the world, including YYZ.

The line between full service carriers and LCC's is blurring. What matters is profit. The new owners of AC will only care about profit.

Let's see how they do in their first year after exiting CCAA.

Ya. I agree. Although, like the bankers, I am skeptical.  Smile








Panam, TWA, Ansett, Eastern.......AC next? Might be good for Canada.
User currently offlineAC7E7 From Canada, joined Oct 2004, 644 posts, RR: 22
Reply 3, posted (9 years 7 months 2 weeks 6 days 8 hours ago) and read 5068 times:

Labour is the biggest component of AC's costs. Cost reductions cannot be achieved without further substantial wage reductions.

I agree 100%, however squeezing wages will not be possible.

The line between full service carriers and LCC's is blurring. What matters is profit.

True the lines are blurring however AC's main hub is YYZ while Westjet doesn't fly nearly as much nor pays nearly the amount of fees AC does.

The new owners of AC will only care about profit

Again, I agree 100%, and finally AC has a BoD that will hold the executives accountable. This was always a problem at the airline. The 10% (later 15%) ownership limit imposed by the government did not encourage any serious investors who would have like to take control of the airline, however Ceberus' 9.2% stake is very influential, so hopefully things will improve.



Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.
User currently offlineYyz717 From Canada, joined Sep 2001, 16245 posts, RR: 56
Reply 4, posted (9 years 7 months 2 weeks 6 days 8 hours ago) and read 5054 times:

I agree 100%, however squeezing wages will not be possible.

It's unavoidable. Labour will HAVE to be a big part of the further cost cutting which is coming.

finally AC has a BoD that will hold the executives accountable.

Accountability means sustainable profits. No excuses.





Panam, TWA, Ansett, Eastern.......AC next? Might be good for Canada.
User currently offlineAC7E7 From Canada, joined Oct 2004, 644 posts, RR: 22
Reply 5, posted (9 years 7 months 2 weeks 6 days 7 hours ago) and read 5045 times:

Accountability means sustainable profits. No excuses.

I agree. Let's see what happens in 2005.

It's unavoidable. Labour will HAVE to be a big part of the further cost cutting which is coming.

Again, I agree, even Milton would agree with you, however militant unions will not.



Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.
User currently offlineAirbusCanada From Canada, joined Nov 2004, 324 posts, RR: 0
Reply 6, posted (9 years 7 months 2 weeks 6 days 6 hours ago) and read 4998 times:

AC maintains Business and first class services most of its flights and serves meals.
AC also has Maple leaf lounges in airports around the globe, not to mention the Aeroplan program.

So comparing AC's cost structure with WJ is like comparing apples and oranges.

Maybe AC Jazz and west Jet would be a bit more practical.

The bottom line is, AC cost stricture will be always higher than WJ, but it will be offset by higher revenue earned by high yield.


User currently offlineCaptainGomes From Canada, joined Feb 2001, 6413 posts, RR: 56
Reply 7, posted (9 years 7 months 2 weeks 5 days 23 hours ago) and read 4888 times:

AirbusCanada is correct. Air Canada will always have higher costs than Westjet. It is like comparing a BMW to a Ford. The BMW may cost more to produce, but it is also made from more expensive components, and will command a significant price premium for their product.

While it may be argued that traveling has become a commodity business, that may be true to an extent. Eventhough Air Canada price matches against Westjet and Jetsgo quite often, they still sell a large number of seats at much higher prices, including J Class seats. This is supposed to more than offset the greater cost structure, and I'm sure if it is managed properly, it can be achieved.

Also, until Westjet enters into agreements with long-haul airlines and allows its "guests" to travel abroad from its Canadian hubs on a seamless travel itinerary, it will not be able to take away those passengers away from Air Canada.

Finally, Air Canada has far more senior staff, which is just a natural progression in any business. Westjet is a younger company, and of course its staff will be much more junior, and hence make less money. If you compare their respective pay scales, quite often there are not many differences from one to the other. The only way to avoid this is to fire people from the top and hire more junior employees, which is obviously a ridiculous measure.



"it's kind of like an Airbus, it's an engineering marvel, but there's no sense of passion" -- J. Clarkson re: Coxster
User currently offlineSlawko From Canada, joined May 1999, 3799 posts, RR: 9
Reply 8, posted (9 years 7 months 2 weeks 5 days 23 hours ago) and read 4882 times:

If they can't get further wage concessions they will just have to cut the workforce...I think the company is still heavy on management, and the entire workforce needs to be restructured to fall further in line with reality.

They do still have the option of splitting off some of the more viable components like ACTS, Jazz, and the ground handling component. This would reduce their labour force, and bring in some revenue at the same time...

I agree with the above though, lets see how the next year goes for them before calling for another round of CCAA....



"Clive Beddoe says he favours competition, but his actions do not support that idea." Robert Milton - CEO Air Canada
User currently offlineLnglive1011yyz From Canada, joined Oct 2003, 1608 posts, RR: 15
Reply 9, posted (9 years 7 months 2 weeks 5 days 23 hours ago) and read 4853 times:

Does this really surprise anyone?

Have you ever tried to get credit after declaring bankrupcy? It's next to near impossible. (and no, I haven't HAHA, just i have family members in the banking industry).

YES, I do realize we're talking apples and oranges here between a large business and personal finance, however, from the banks perspective, not much has changed YET at AC. They need to see some consistent profits before they'll even entertain the idea.

Good move by the banks.

1011yyz.



Pack your bags, we're going on a sympathy trip!
User currently offlineSebring From Canada, joined Jul 2004, 1663 posts, RR: 14
Reply 10, posted (9 years 7 months 2 weeks 5 days 22 hours ago) and read 4805 times:

All this post proves is that any ignoramous can post any ignorant thought on a bulletin board and dress it up as fact. Air Canada's labor costs are above Westjet's but so are Air Canada yields - dramatically so. It's there in black and white and I have pointed this to certain Air Canada "haters" who steadfastly choose to ignore this in order to prattle on about domestic costs. Moreover, Air Canada costs are now significantly below most of its international competitors' costs and international makes up two-thirds of AC's flying. Again, that's a fact that certain "haters" refuse to acknowledge. Thirdly, all the AC labor agreements confer deferred benefits - B scales, outsourcing flexibility, special low scales for the new regional jets, etc. The net outcome of this is that as AC turns over its work force, either through attrition or by buying out employees as it is doing now (1,500 more people have accepted packages), the replacement labor - if those people are even replaced - will be B scale labor. And if AC expands, which it is, all additional labor will be B-scale or special scale labor. The more AC expands, the more cheaper labor it will bring into the carrier.

That the banks won't give AC a line of credit yet is tied to the fact that AC's assets are pledged to the relatively small GECAS line, and as AC either pays down that line or finds alternative financing, its assets will become available to pledge for credit. It's not an insignificant issue, but it far from foreshadows a catastrophe. Interesting too that US investor interest in AC is particularly high and that AC stock hit $33 this week, a $13 premium over the $20 issue price.



User currently offlineAC7E7 From Canada, joined Oct 2004, 644 posts, RR: 22
Reply 11, posted (9 years 7 months 2 weeks 5 days 22 hours ago) and read 4761 times:

We will only be able to compare the two airlines completely once Westjet starts flying international. You guys are correct.

With AC avoiding YYZ in the future thanks to more direct flying between cities when the new RJs come in, plus more focus on international routes, AC's yields will only get better.

The banks probably want to see how the airline is going to do over the next six months, the traditionally low season for airlines. If the airline posts a profit, or much lower losses year over year, the banks will give them a line of credit.



Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.
User currently offlineEuroLeb From Canada, joined Apr 2004, 145 posts, RR: 0
Reply 12, posted (9 years 7 months 2 weeks 5 days 22 hours ago) and read 4745 times:

...and what's the big deal here? It's nothing new as far as I'm concerned. Creditors are usually very cautious, especially when considering large sums of money to an emerging banckrupt airline. Nevetheless, I have no doubt that Air Canada will become profitable as it's emerging as a much leaner air carrier than the one we've known. A successful Air Canada would benefit tavellers both domestically and internationally. Without Air Canada, we would have only low cost carriers in Canada with limited service and much higher air fares than we see today. I'm not sure, though, if I'd still call WestJet a low cost carrier as its fares are equal if not higher (in some cases) than those of a full-service airline like Air Canada. Remember guys, competition is what drives prices down and pushes service standards up!.





Calgary is my home...
User currently offlineNwacrew From United States of America, joined Apr 2003, 311 posts, RR: 0
Reply 13, posted (9 years 7 months 2 weeks 5 days 21 hours ago) and read 4710 times:

At 5 p.m. on Friday I flew from Toronto to San Francisco aboard Air Canada flight 755.

The A-320 was staffed with four flight attendants (we staff our's with three at Northwest).

A hot meal was served in Economy (we serve a sandwich in back on our comparable-length Detroit-San Francisco flight).

Video programs were offered as well (Northwest discontinued videos within North America because of the expense of maintaining the onboard systems).

The cabin crew even had English and French language newspapers to distribute to passengers (something I don't believe Northwest has ever offered on our transborder flights).

As a customer I appreciated the onboard service and amenities offered by Air Canada, but in light of their dire financial situation, I wonder how much longer those inflight standards can (or should be) maintained...


User currently offlineYyz717 From Canada, joined Sep 2001, 16245 posts, RR: 56
Reply 14, posted (9 years 7 months 2 weeks 5 days 19 hours ago) and read 4616 times:

AirbusCanada is correct. Air Canada will always have higher costs than Westjet. It is like comparing a BMW to a Ford.

This is an extreme exaggeration. The overwhelming majoroty of AC passengers and ASM are in economy, offering the same class of service as WJ. AC and WJ are completely comparable from an operating cost standpoint.

Finally, Air Canada has far more senior staff, which is just a natural progression in any business.

So? A well run company with appropriate compensation scales will max out employees at the top range after a few years. There is no reason why 20year employees should make more than 2year employees.

The only way to avoid this is to fire people from the top and hire more junior employees, which is obviously a ridiculous measure.

Ridiculous? This happens all the time Nuno. Im many industries, senior staff are often packaged out to make way for cheaper staff. It's very common.

All this post proves is that any ignoramous can post any ignorant thought on a bulletin board and dress it up as fact.

All your response shows is that any ignoramous can continue to make apologies for a failed airline. Stick to the facts in the article buddy.  Insane

Air Canada costs are now significantly below most of its international competitors' costs and international makes up two-thirds of AC's flying.

Actually most of AC's network is domestic/transborder where LCC"s are a growing competitive force. Which means futrther wage cuts are required.

That the banks won't give AC a line of credit yet is tied to the fact that AC's assets are pledged to the relatively small GECAS line

READ THE ARTICLE! The lack of a line of credit is because of the UNAMIMOUS OPINION THAT AC WILL NOT MAKE A PROFIT. You're completely incorrect.

As a customer I appreciated the onboard service and amenities offered by Air Canada, but in light of their dire financial situation, I wonder how much longer those inflight standards can (or should be) maintained...

Excellent point nwacrew. Clearly, AC can cut costs a lot further.













Panam, TWA, Ansett, Eastern.......AC next? Might be good for Canada.
User currently offlineCaptainGomes From Canada, joined Feb 2001, 6413 posts, RR: 56
Reply 15, posted (9 years 7 months 2 weeks 5 days 18 hours ago) and read 4566 times:

Excellent point nwacrew. Clearly, AC can cut costs a lot further.


So they can cut the extra frills (which cost a minimal amount), cut business class, lounges, etc, and then they could finally be compared to Westjet!

Ridiculous? This happens all the time Nuno. Im many industries, senior staff are often packaged out to make way for cheaper staff. It's very common.


No, older employees are not fired, they are given packages, as is being done at AC, but only a small percentage of these people take them. This still leaves the airline with a much larger proportion of higher paid senior staff compared to the much younger Westjet. Oh, and I've never seen pay scales that max out in two years.  Smile



"it's kind of like an Airbus, it's an engineering marvel, but there's no sense of passion" -- J. Clarkson re: Coxster
User currently offlineAC7E7 From Canada, joined Oct 2004, 644 posts, RR: 22
Reply 16, posted (9 years 7 months 2 weeks 5 days 18 hours ago) and read 4561 times:

As a customer I appreciated the onboard service and amenities offered by Air Canada, but in light of their dire financial situation, I wonder how much longer those inflight standards can (or should be) maintained...

Why not? Westjet is installing LiveTV in their planes, AC must provide IFE to compete with Westjet. They should expand buy on board meals on all North American flights.



Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.
User currently offlineLymanm From Canada, joined Jan 2001, 1138 posts, RR: 1
Reply 17, posted (9 years 7 months 2 weeks 5 days 18 hours ago) and read 4542 times:

With regards to service:

I don't think the race to the bottom as seen by US carriers is the answer.



buhh bye
User currently offlineYyz717 From Canada, joined Sep 2001, 16245 posts, RR: 56
Reply 18, posted (9 years 7 months 2 weeks 5 days 18 hours ago) and read 4517 times:

Oh, and I've never seen pay scales that max out in two years.

Then I guess you dont have much experience in the non-union private sector.

So they can cut the extra frills (which cost a minimal amount), cut business class, lounges, etc, and then they could finally be compared to Westjet!

No, they can already be compared to WJ. This is just about being more efficient as a so-called full service carrier. When NW can fly the 320 (which has more seats than the AC 320) with 3 FA's vs AC's 4 FA's, it's a prime example of just how overstaffed AC is.

No, older employees are not fired, they are given packages, as is being done at AC, but only a small percentage of these people take them.

I said packaged out, not fired. And you can force them to take them.

Westjet. They should expand buy on board meals on all North American flights.

I agree. Then their service produect will be superior to AC's.








Panam, TWA, Ansett, Eastern.......AC next? Might be good for Canada.
User currently offlineCPDC10-30 From United Kingdom, joined Feb 2000, 4780 posts, RR: 24
Reply 19, posted (9 years 7 months 2 weeks 5 days 18 hours ago) and read 4504 times:

The A-320 was staffed with four flight attendants (we staff our's with three at Northwest).

This isn't because AC is providing extra staff to serve customers better, just a legal requirement in Canada (1:40 ratio).


User currently offlineWhiteguy From Canada, joined Nov 2003, 774 posts, RR: 0
Reply 20, posted (9 years 7 months 2 weeks 5 days 18 hours ago) and read 4490 times:
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If NW was based in Canada they would have to staff at least 4 FAs on their aircraft. If there are only 3 FAs on an AC A320 then the passenger load is restricted to 120 pax. Its a prime example of a Transport Canada rule not AC being over staffed!

User currently offlineBA97 From Canada, joined Apr 2004, 377 posts, RR: 0
Reply 21, posted (9 years 7 months 2 weeks 5 days 18 hours ago) and read 4480 times:

Great arm chair quarterbacking all. The future of AC is a crystal ball everyone is looking into. Who knows what their market will be like 12 months from now, world air travel or other influences from fuel costs to competition.

Banks offer money if a) they will get their money and acceptable interest back. - i.e. secure investment; b) the expectation of failure is there and they are first in line to get the prime pickings which can rolled for an acceptable profit.

The first thing AC has to do is get customers. No customers-no income-no company. Once the seats are being filled, then someone has to decide what to do with the money. The amount of money depends on the costs or discounts to fill the seats. If cost is greater than number of seats filled- game over. I am glad they are getting people in the seats (I have a love/hate relationship with them, my J class long haul posterior is planted elsewhere until they improve items-NA flights, they get my $ and butt). Step one seems to be going ok-people in the seats. Let us see how they navigate through the complexities of the other steps.

Strap yourselves in on this ride and keep your hands inside this vehicle at all times.



there is economy class, business class, first class...then Concorde..pure class
User currently offlineYyz717 From Canada, joined Sep 2001, 16245 posts, RR: 56
Reply 22, posted (9 years 7 months 2 weeks 5 days 18 hours ago) and read 4477 times:

The why isnt AC lobbying Transport Canada to relax the rules?

Instead of visiting the Transport Minister in Ottawa to discuss this issue, Milton is flying around Canada with Celine Dion on PR photo opptys. Where are the mgmt priorities?








Panam, TWA, Ansett, Eastern.......AC next? Might be good for Canada.
User currently offlineCaptainGomes From Canada, joined Feb 2001, 6413 posts, RR: 56
Reply 23, posted (9 years 7 months 2 weeks 5 days 17 hours ago) and read 4458 times:

Actually the airlines are lobbying for TC to change the rules. In the US and Europe (not sure about elsewhere), the rule is 1 f/a per 50 seats, whether they are occupied or not. In Canada it is 1 f/a per 40 passengers, plus a couple of other requirements. There are pros and cons to both rules in reality. On a light load, AC can get away with staffing the A320 with 2 f/as, such as 80 passengers or less, whereas Northwest can't do that since they still need the 3 f/as as per the 1:50 seat rule.


"it's kind of like an Airbus, it's an engineering marvel, but there's no sense of passion" -- J. Clarkson re: Coxster
User currently offlineWhiteguy From Canada, joined Nov 2003, 774 posts, RR: 0
Reply 24, posted (9 years 7 months 2 weeks 5 days 17 hours ago) and read 4443 times:
Support Airliners.net - become a First Class Member!

Actually there are minimum numbers of FAs reqiured on certain aircraft. For example on the A320 the min is 3 FAs. I don't know if those are ACs numbers or Transport or the manufacturers.

25 AC7E7 : The why isnt AC lobbying Transport Canada to relax the rules? Instead of visiting the Transport Minister in Ottawa to discuss this issue, Milton is fl
26 Accargo : Good to see that the resident anti-AC expert didn't know about the Transport Canada requirement that mandates 1 FA for every 40pax. Lends more credenc
27 AC7E7 : A truer picture of AC's long term prospects will be apparent by the end of 2005/ beginning of 2006. Exactly. We should wait until fiscal 2005 is over
28 Post contains images Yyz717 : Good to see that the resident anti-AC expert didn't know about the Transport Canada requirement that mandates 1 FA for every 40pax. Lends more credenc
29 AC7E7 : Refuse to acknowledge the bankruptcy? What does that mean? I believe ALL AC employees have acknowleged the last 18 months. As I mentioned before, thei
30 Yyz717 : You tend to complain about AC, but you never come up with solutions. We know what AC needs fixing, but how would you go about doing this? 1. Package o
31 Yyz717 : I might add, instead of Milton working on the above 17 points (and many others), he is spending his time flitting around Canada with Celine Dion and w
32 Post contains images AC7E7 : There is the list I've been waiting for! Thank you 1. Package out all unionized staff with over 10 years experience. ---- Militant unions could drag t
33 FLYACYYZ : The minimum number of flight attendants on AC (and other CDN carriers) is determined by a combination of the number of bodies required for door arming
34 Yyz717 : If NW is staffing the A320 with 3 flight attendants, they are the exception to the rule, and can do so by providing a bare bones level of in-flight se
35 AC7E7 : Sure..go ahead and put 3 F/A's on on AC A320 with 20J/120Y customers, and put valued customer YYZ717 in row 28 having to wait 3 hours for the completi
36 CDNpax : Yyz717, You have some strange and misguided ideas about running an airline. The minimum flight attendant rule is intended as a safety measure to prote
37 Yyz717 : You have some strange and misguided ideas about running an airline. The minimum flight attendant rule is intended as a safety measure to protect us, t
38 RT514 : CDNpax: Furthermore, do you have any concept of the cost of packaging out your most experienced employees or attracting top quality employees when the
39 AC7E7 : Anecdotal. So what? Anyway, this is no indication that AC made money. Maybe not, since we don't have the numbers, but it is showing how AC is utilizin
40 Post contains images JeffLAS : Just wait! AC will eventually take that "huge dump" that everyone is talking about! Why you ask? Because Canada has the stupidest taxation system on
41 Post contains images FLYYUL : Thanks for that insightful piece JeffLas
42 PlaneSmart : Most airlines can get a line of credit to purchase or lease new or used aircraft. Like you & I, the lower our credit rating, the higher the interest r
43 FLYYUL : You guys have to give it a rest.. Every day, your arguing about Air Canada, the pro's and con's have been stated over 1000 times in the last 3 years.
44 Post contains images FLYYUL : For a person claiming to be 36 to 45, your intelligence hasnt caught up to your age. If you have something valuable or smart to say, add it. Your tota
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