Air Canada confronts hard choices as it books losing year in 2002 ALLAN SWIFT Canadian Press Sunday, January 26, 2003 MONTREAL (CP) - Air Canada is facing some difficult choices as it tallies its 2002 results. The country's dominant carrier has already said it will be posting another annual loss when it reports on the fourth quarter early in February, and analysts believe it will have to take more steps to stop the bleeding. Air Canada has already cut staff - including 300 announced this month - and taken other cost-cutting measures. But four factors in recent months have changed the outlook and may require more drastic steps: - The economy has not recovered as expected; - Competition has grown within Canada; - U.S. airlines are taking drastic steps to become more competitive; - The threat of war in Iraq has grown. The airline denounces as "irresponsible" reports that it has called in union leaders to discuss massive cuts to its workforce, which now stands at 38,000. An analyst agreed that there probably won't be major job cuts because most workers are protected under collective agreements. But he said Air Canada has to do something. "The question is can they shrink, really, because that's the only way they can maintain profitability. And the answer is they can't shrink unless they negotiate with their unions on reducing the headcount," said the analyst, who asked not to be identified. He said Air Canada continues to lose market share within Canada, despite the success of the Tango discount brand created just over a year ago. The transborder market, dominated by Air Canada, is also under threat because suffering U.S. airlines are becoming more competitive by renegotiating their labour contracts and cutting jobs, he added. "At the same time, we're facing an economy in 2003 that's looking more and more like 2002 - very slow growth and no top line (revenue growth) helping them. "All that, combined with a situation where they have tight liquidity, makes it problematic for them unless they do some drastic changes." Analyst Kenton Freitag of Standard & Poor's noted another challenge: fuel costs have climbed during December and January. "There's a number of factors that could point to a more negative outlook for any airline," said Freitag. Standard & Poor's has Air Canada on a negative outlook, poised to drop its rating if there is military action against Iraq or if the airline's cash reserves drop below the $900 million it says the airline had in December. Analysts surveyed by First Call/Thomson Financial estimate Air Canada's fourth-quarter loss will be $75.6 million, or 54 cents per share, and its full-year loss will be $183.4 million, $1.31 a share. However, Freitag said it's not unusual for an airline to run a poor fourth quarter: "It's a seasonal business, and they tail off in the first and fourth quarters." Last week, American Airlines parent AMR Corp. reported a fourth-quarter loss of $529 million US, and a staggering full-year loss of $3.5 billion US, described as the biggest in aviation history. Other airlines reporting substantial fourth-quarter losses were Northwest Airlines, Delta and Continental. Air Canada chief executive Robert Milton says he would like to sell some assets to raise cash. Candidates could include the travel loyalty program Aeroplan, the aircraft maintenance business Air Canada Technical Services, or the regional airline Jazz, but obviously the market for aviation-related businesses is not good. *************************************************** The owner of Roger's Trinbago Site/TnTisland.com Roj (Roger James) escape email mailto:ejames@escape.ca Trinbago site: www.tntisland.com Carib Brass Ctn site www.tntisland.com/caribbeanbrassconnection/ Steel Expressions www.mts.net/~ejames/se/ Site of the Week: www.pichemas.com TnT Webdirectory: http://search.co.tt *********************************************************