Air Canada has won court approval for its latest rescue plan, while reporting what chief executive officer Robert Milton called the “most encouraging results” since the start of its restructuring 13 months ago — a first-quarter operating loss of $145-million before restructuring charges, a $209-million improvement from a year ago.
Mr. Justice James Farley approved an $850-million equity rights issue to the insolvent airline's creditors to be back-stopped by Germany's giant Deutsche Bank AG.
“The arrangement will continue to give much-needed stability and confidence with respect to Air Canada continuing to serve the public ... [and] emerging as a viable competitive entity from the CCAA process,” Judge Farley said in his ruling, with a reference to the Companies' Creditors Arrangement Act.
Winning court approval of the Deutsche Bank deal by May 7 was a key condition set by Air Canada's largest financier, GE Capital Aviation Services, for proceeding with its agreement to lend the airline a total of about $1.8-billion once it emerges from CCAA protection, now set for Sept. 30.
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However, GE has also stipulated that agreements must be reached by May 15 on demands by Deutsche Bank that Air Canada's unions accede to another $200-million in cuts to labour costs — and meet several other conditions. Judge Farley urged all the parties to resolve these matters.
Acknowledging objections to some of Deutsche Bank's demands raised by union lawyers during a court hearing Tuesday, he said: “I appreciate that certain quarters wish the conditions were not there. However, this is not the case of choosing between a loaf of bread and half a loaf of bread; the choice here is between bread and no bread.”
Judge Farley, who indicated last month that he will be away for part of May, also said in his ruling that Mr. Justice Warren Winkler will be in charge of the Air Canada restructuring proceedings from May 7 to May 20. Judge Winkler won kudos last year for helping Air Canada and its unions reach new labour agreements. Air Canada met again with its unions Wednesday for more detailed discussions on the $200-million in additional cost savings being sought, and, in his ruling, Judge Farley called the meetings “very positive.”
The ruling and the meetings came as the Montreal-based airline cited a 12-per-cent drop in operating expenses for much of the improvement in its results for the three months ended March 31.
Despite high fuel prices, unit costs fell 15 per cent for mainline operations and 20 per cent for regional airline unit, Air Canada Jazz.
The company's $145-million operating loss before reorganization and restructuring charges compared with $354-million in red ink in last year's first quarter.
Including those charges, the final loss for the period was $304-million or $2.53 a share, up from $270-million or $2.25.
Operating revenue for the quarter fell to $2.12-billion, the company said, down by $90-million from a year earlier. Passenger revenue growth in the Pacific, Latin American and “traditional” leisure destinations partly offset a decrease in North America, it said.
Air Canada also said revenue passenger miles rose 5 per cent to 9.6 billion during the first quarter, while available seat miles rose 4 per cent to 13 billion.
Mr. Milton called the first-quarter performance “the most encouraging results since the start of our restructuring.” He added that for the first time since the company was privatized in 1989 it achieved “positive cash flows from operations in the first quarter, historically the industry's weakest.”
Mr. Milton also acknowledged there has been “significant progress” on the costs front but, with an apparent reference to the $200-million in additional savings Deutsche Bank has demanded, he added that “we must reduce costs further to ensure our successful restructuring.”
The company reiterated Wednesday that it expects its shareholders “will receive only nominal, if any, consideration for their shares” when it emerges from bankruptcy protection.
