Air Canada's $210M loss blamed on fuel costs, contract disputes

Air Canada reported a first-quarter loss of $210 million Friday, far higher than the $19 million shortfall it ran up in the same period last year.

The air carrier was buffeted by higher fuel costs andcontract disputes. It also took a $55-million hit from the bankruptcy of Aveos, the company that formerly overhauled its planes.

The loss amounted to 76 cents per share while the adjusted net loss was 64 cents per share.

Still, by both measures, it did better than consensus estimates compiled by Thomson Reuters. Analysts had expected, on the whole, a net loss of 77 cents per share and adjusted loss of 78 cents per share.

Air Canada's shares closed upfour cents to 96 cents.

Despite its problems, cash reserves at Canada's largest airline were $135 million higher than a year earlierrising to $2.25 billion.

That's important, given the warning by rating agency Standard & Poor's in March that it mightcut Air Canada's credit rating, if cash on hand falls to $1.5 billion.

S&P said it was watching the effects on the airline carrier's cash flow from work disruptions and severance costs related to the Aveos liquidation.

Another agency, Moody's, cut the airline's credit rating last month to Caa1, down from B3, on worries that it could default on its debt obligations.

It cited concerns about the need to pay for new Boeing 787 aircraft in 2014 and the need to address a current pension solvency deficit, which Moody's estimated to be in excess of $4 billion.

The Montreal-based firm said bookings have started to recover after several job actions by unhappy workers prompted flight cancellations that had a "damaging rippling effect" on consumer confidence.

"Our brand is strong and resilient but we cannot take it for granted or our customers for granted, nor will we," CEO Calin Rovinescu said.

"Following this turbulent period we are focusing on achieving a climate of labour stability in restoring the confidence of our customers."

Rovinescu said the airline expected labour issues to remain a major focus, but said media reports about the contractdisputes were "disproportionate to the actual disruption" to its operations.

During a conference call with analysts, Rovinescu was occasionally testy after he was challenged about continued losses and frosty relations with employees.

He said many employees were turned off by the job actions of unhappy workers, which prompted flight cancellations that had a "damaging rippling effect" on consumer confidence.

To those employees who have lost total faith in management, he said "they ought to work in a co-operative where they get to decide."

Rovinescu believes an end is in sight to labour conflicts that have harmed efforts to improve its corporate culture.

Air Canada will soon begin 10 days of scheduled negotiations with its pilots and machinists. If deals can't be reached, arbitrators will impose contracts within 90 days.

Disputes affected bookings

The airline is also launching requests for proposals to find cheaper heavy maintenance operators to replace the work done by Aveos before it closed and obtained creditor protection.

Rovinescu said Air Canada did as much as it possibly could to help its former aircraft overhaul subsidiary, which employed more than 2,600 workers.

"Our long-term contractual arrangements with Aveos should have allowed them to be profitable," he said, noting the airline wrote off $120 million in payments and commitments to Aveos in the quarter.

Cameron Doerksen of National Bank Financial said he remains "cautious" about the airline's prospects.

"Although final resolution of the remaining two labour contracts is in sight, the outcome and the impact on Air Canada's future costs and strategic plans remains uncertain," he wrote in a report.

The carrier conceded that bookings for its passenger and Air Canada Vacations business took a hit in the quarter.

"We did see an immediate impact on our bookings following the job actions...(but) we've seen an improvement in that trend in the last couple of weeks," added chief financial officer Michael Rousseau.