Last year at this time, Air Canada boasted a $125-million profit and chief executive Robert Milton bragged the company was miles ahead of its international rivals in reacting to the airline industry downturn.
Last night, Canada's dominant airline racked up another loss in its latest quarter. It blamed a dropoff in travel after the outbreak of severe acute respiratory syndrome.
The airline, which has been flying under bankruptcy protection for close to eight months, published financial results late yesterday showing it lost $263 million, or $2.18 a share, for the three-month period ending Sept. 30. Revenue dropped to $2.23 billion from $2.75 billion.
Milton said he was "satisfied" with the results. Analysts said they were not surprised by the numbers.
"This is the best time for Air Canada to announce bad news," said Joseph D'Cruz, an airline specialist at the University of Toronto. "It'll give them a much cleaner income statement as they come out of restructuring and they'll look good."
Results from operations were positive, with a $17-million profit. But the airline recorded restructuring charges totalling $273 million, which wiped away earnings. The charges relate to claims resulting from repudiated contracts with suppliers and jet leases, among other things.
Air Canada said it paid all its suppliers and creditors during the quarter except for certain aircraft lessors and unsecured debt holders.
"Given the rapid and precipitous fall off in revenues due to SARS, I am pleased with the speed with which we were able to eliminate costs," Milton said. "Almost two-thirds of our revenue shortfall was due to a dramatic dropoff in international revenues."
To put the SARS effect in perspective, the airline estimated it lost $125 million in April alone as a result of the disease outbreak. Competition from rivals like WestJet Airlines, Jetsgo and CanJet also hurt profits.
The next step in Air Canada's restructuring is for an Ontario Superior Court judge to decide which of two companies should be the airline's new equity investor.
Air Canada picked Trinity Time Investments, controlled by Hong-Kong businessperson Victor Li. But surprise revised offers by the other candidate, New York-based vulture fund Cerberus Capital, appear sweeter than the Li proposal. Some creditors are pushing the airline to reconsider its position.
In an affidavit filed in court yesterday, Air Canada said its board saw Li as a "strategic long-term investor" that would bring stability to the airline. It characterized Cerberus as an investment fund "with an uncertain investment time horizon."
This article doesn't make my question in the previous post any clearer:
"This is the best time for Air Canada to announce bad news...It'll give them a much cleaner income statement as they come out of restructuring and they'll look good."
They'll look better now than they would have 3 weeks ago?
On another note, interesting that operations were actually profitable...