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Packing 'em in ; Air Canada Squeezing in More Seats to Pull Out of Tailspin

Editor's Note: Editor's Note: The following article is re-printed from Canadian Press, November 6, 2001

TORONTO (CP) - Although Air Canada continues to call for more aid from Ottawa to offset fallout from the Sept. 11 terrorist attacks, chief executive Robert Milton says the Montreal-based airline has the "wherewithal to work our way through this."

In addition to about $1 billion in cash and $4 billion in unencumbered assets that could be used as collateral for loans or leases, Air Canada is taking steps to make its operations more cost-efficient - such as fitting more economy-class seating on its planes.

"As we previously announced in August, we are undergoing a fairly dramatic aircraft reconfiguration program," Milton and other senior executives told analysts recently after Air Canada (TSE: AC) released a preliminary financial report for the third quarter.

The airline said it lost at least $160 million - before tax - in the third quarter, although that figure is expected to rise after Air Canada evaluates the effects of asset writedowns on intangible assets, such as future income taxes and goodwill. Milton said his recovery strategy includes squeezing 1,200 more seats - the equivalent of 12 Boeing 737 jets - into its fleet.

"We're also reducing the size of the business- class cabins because we recognize that the business demand isn't there," he said. Air Canada's new Tango service, which began flying recently, goes even further and eliminates the business class completely

The airline was preparing to make many such changes long before the Sept. 11 suicide hijackings in the United States forced the closure of North American air space for several days.

Since August, Air Canada has:

  • announced 9,000 job cuts from its workforce of about 42,000;

  • cut capacity on Canada-U.S. routes;

  • announced plans to retire older aircraft;

  • and increased the amount of maintenance it does on contract for other airlines

But Air Canada, like the entire aviation industry, remains plagued by the public's increased fear of flying since the terrorist attacks. Milton said traffic began to return on some of the airline's routes in October, but that varies wildly from week to week.

Martin Taller, president of Ports of Call travel agency in Ottawa, says government-issued warnings about more potential terrorist attacks tends to scare travelers and their families. "You can't help but feel it in the pit of your stomach," Taller said. In this environment, it wouldn't be surprising if people don't flock to Air Canada's new Tango economy service, even though he agrees travelers are looking for ways to cut costs. "We haven't seen a rush of customers demanding Tango aircraft," Taller said.

"It's partly because there's some advertising that has to be done. It's a very difficult time to add new product into the mix. The customers are still trying to figure Tango out."

Milton emphasized that Air Canada's finances are in better shape than those of most major U.S.-based airlines. And he said the decision by U.S. airlines, particularly United, to reduce capacity on some of their routes has allowed Air Canada to increase its impact in certain markets.

Milton also insisted that the federal government should help the Canadian aviation industry to the same proportion as the U.S. government has helped its industry with $15 billion US in loans and loan guarantees. While not specifying a figure, he suggested the Canadian equivalent to that would be about one-tenth, or $2.4 billion Cdn for all the domestic airlines.

So far, Air Canada has received $71 million in cash as the first installment of an estimated $105 million the airline expects from Ottawa as its share of $160 million in industrywide compensation for the airport closures.

But even without government help and with more than $10 billion owed in debt or leases, Milton said he thinks Air Canada has enough cash and other resources to keep flying. "We think our liquidity situation is respectable. We're confident going forward."

On the Toronto stock market Friday, Air Canada shares closed at $2.89, up two cents. Their 52-week high is $17.50, their low $1.64.

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