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As reported by Reuters, the leading Canadian airline may be required to maintain higher cash deposits in the second quarter of 2009 because covenants in credit card agreements could be tightened by lending institutions, said Chamoun. "Notwithstanding lower fuel costs, we believe that cash from operations will be insufficient to meet rising pension funding obligations and over C$1 billion ($800 million) of debt repayment over the next two years," said Chamoun in a note dated Feb. 13.
The analyst downgraded Air Canada shares to "sell" from "neutral" and cut his target price to C$1 from C$1.50. "In the absence of additional financing (sale of assets) and renegotiation of covenants in credit card agreements, Air Canada could be forced to file for bankruptcy in our opinion," he wrote. Air Canada only emerged from bankruptcy protection in 2004 when ACE Aviation Holdings Inc. of Toronto was formed as a holding company for the airline and its affiliates. ACE is 9.2% owned by buyout shop Cerberus Capital Management LP. Chief executive Montie Brewer said Friday -- as the airline revealed a worse-than-expected fourth-quarter loss of C$727 million -- that the airline would seek to reduce costs by another C$100 million and shave capacity by a further 3.5%. Air Canada last year slashed 2,000 jobs and capacity by 7%. The latest news is in stark contrast to September reports that the airline could be taken private. (Pipeline subscribers see story.) - Peter Moreira See story about UBS analyst report from Reuters CategoriesPrivate capital video
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Air Canada could be forced to file for bankruptcy protection unless it comes up with new additional financing and renegotiates covenants in credit card agreements, UBS analyst Fadi Chamoun said.
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