Air Canada to sell Jazz airline, seek labour concessions as losses pile up Canadian Press Thursday, February 06, 2003 MONTREAL (CP) - With losses continuing to pile up, Air Canada said Thursday it plans to sell its Jazz regional airline, restructure other divisions and seek $650 million in labour contract concessions - a move that could cut thousands of jobs. The news came as Canada's dominant airline announced a fourth-quarter loss of $364 million, compared with a loss of $277 million in the same period a year earlier. Air Canada stock (TSX:AC) fell more than 12 per cent, to $3.06, in early trading following the announcement. WestJet Airlines, the only other publicly traded scheduled air carrier, gained 39 cents to $14.44 on the Toronto Stock Exchange. Although Air Canada had been profitable in the 2002 second and third quarters, spanning the busy and lucrative summer season, the final three months of the year were brutal for the airline industry. In addition to higher world fuel prices, Air Canada faced intense price competition in eastern Canada from newcomers Jetsgo and CanJet and continued to be challenged by WestJet, which has been expanding nationally from its base in western Canada. All the airlines, particularly those like WestJet and Jazz that have many short-haul routes, have said their passenger traffic has been hurt by the $12 per one-way ticket fee imposed since April to pay for heightened security at airports and airlines. For the year ended Dec. 31, 2002, the company (TSX:AC) lost $428 million or $3.56 a share, compared with a loss of $1.3 billion or $10.95 a share, with an income tax provision of $330 million, in 2001. Air Canada hasn't made an annual profit in three years and is saddled with debts totalling more than $12 billion, including long-term leases for many of its planes and related equipment. "In a year of ongoing crisis for the airline industry, Air Canada recorded 2002 results that continued to surpass all North American international carriers with an over $500-million improvement in our operating results and an $887-million improvement in net results for the year," chief executive Robert Milton said in a release. "While this represents encouraging progress under increasingly challenging circumstances, these results clearly demonstrate that the existing full-service network airline model is not sustainable without continued fundamental change." With revenues under pressure, the airline has been forced to cut costs and sell assets to deal with its crushing debt. A few weeks ago, it sold 35 per cent of its Aeroplan frequent-flyer unit to the Onex Corp. conglomerate for $245 million. On Thursday, Air Canada said Jazz may also be sold. The regional carrier based in Halifax has 4,000 employees and formerly operated as Air Ontario, AirBC and other regional brands. The airline was scheduled to meet with leaders of its major unions Thursday morning. To attract new investment, Air Canada said it will also: - Sell up to 49 per cent of its Air Canada Technical Services division as well as a significant stake in its ground handling services unit, a stand-alone subsidiary with 8,500 workers to be created from the airline's current airport operations. - Convert Air Canada Cargo to a stand-alone subsidiary, although it doesn't intend to sell the cargo unit at this time. The unit has 1,700 employees across Canada. In aiming to cut labour costs by $650 million, Air Canada could jettison thousands of jobs from its 35,000-member workforce, perhaps as many as 10,000. Such a move would match similar labour cuts at other North American airlines, which have been battered by the drop in air travel after the terrorist attacks on Sept. 11, 2001. Since then, Canada 3000 has gone out of business and major U.S. airlines - such as United and US Airways - have sought bankruptcy protection and chopped tens of thousands of jobs to reduce costs. The growth in no-frills competition has also had a major effect on the North American industry. Calgary-based rival WestJet Airlines has operating costs that are about half that of heavily unionized Air Canada. An attempt to exact sweeping concessions from unions representing employees at Zip Air, a wholly owned Air Canada subsidiary, fell short of the airline's initial goals of creating more flexible work rules to compete with WestJet's. "While we can be proud of what we have achieved, we still have far to go," said Milton. "The fourth quarter, always challenging due to seasonally weaker demand, confirmed that revenue trends and market dynamics have changed irreversibly. The new year is off to a rough start with the overhanging threat of war and escalating fuel prices. "In Canada, we're continuing to see growth in competitive capacity from low cost carriers in a flat market," Milton said. "There is still no sign of recovery in the regional market, with Air Canada Jazz recording a clearly unsustainable operating loss of almost $90 million in the past year due to a decline in demand on short-haul routes, rising costs and the crippling effect of surcharges and fees on fares." Adding to Jazz's problems, a computer virus infection at an operations centre in Halifax temporarily threatened to shut down the regional airline network Wednesday, affecting about 200 flights. *************************************************** 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: http://www.caribscape.com/tamnakthai/ TnT Webdirectory: http://search.co.tt *********************************************************