Air Canada stock soars 24% as short-sellers scramble to buy up shares DAVID PADDON Canadian Press Tuesday, April 08, 2003 TORONTO - Air Canada shares soared 24 per cent higher Tuesday in the heaviest one-day trading of its stock since the heavily-indebted airline sought bankruptcy protection last week. Air Canada shares (TSX:AC) gained 26 cents to close at $1.34 on the Toronto Stock Exchange, with more than 20 million shares traded - the heaviest volume since April 2, the day after the Montreal-based company entered court-ordered protection from creditors. The increase was all the more remarkable given that shares of major U.S. and Canadian airlines, including the parent of American Airlines and Calgary-based WestJet, took a dive Tuesday. One Bay Street watcher said the sudden runup in Air Canada's share price was triggered when several brokerages called in Air Canada shares they had loaned out to "short sellers." Short selling is a technique used by traders who believe a stock's price is going down. A short-seller borrows shares from a broker and sells them, intending to repurchase them at a lower price and return them to the broker after taking a profit. But short-selling of Air Canada's shares has been so heavy that some banks and brokerages didn't have enough actual shares to cover all the loans they'd made, said Brian Acker, chief investment officer at Acker Finley Inc. "The brokerage firms are trying to get their books all square," Acker said. The stock price soared as more and more short-sellers and some brokerages had to buy Air Canada shares on the stock market to meet their commitments, he said. "It's a classic short squeeze," Acker said. There were several news reports Tuesday that could be seen as good news for Air Canada, including one that suggested CIBC - one of Canada's biggest banks - may sweeten its Aerogold credit card contract with the airline. The news was not enough to warrant Tuesday's share price increase, Acker said, adding that the stock will probably become worthless in the restructuring process. Air Canada, which has lost more than $1.7 billion since its last profitable year in 1999, owes more than $12.9 billion in long-term debt and leases - far more than the total value of all its shares. In court-supervised restructurings, creditors often end up owning most or all of the company's shares, leaving current shareholders with little or nothing. There was also a report that Zip Air, the airline's Calgary-based no-frills subsidiary, had received approval from Canadian authorities to fly to the United States. Service could begin by the summer, if U.S. authorities also give approval. But Acker said that improved business for Air Canada wouldn't account for the higher stock price since any improved revenues Air Canada would get would likely go to secured bondholders first. "The common shareholders are so far down (on the list of creditors) that it's mathematically, I think, impossible for them to get any money," Acker said. But Richard Croft, president of R.N. Croft Financial Group, said he didn't think short-selling could account for all of the trading in Air Canada's stock because its price has been too low to make the short-selling risk worthwhile. The only way short-selling would make sense, he said, would be if Air Canada ceased to operate and its stock price went to zero. But Croft, who said he doesn't invest in airlines, doesn't think that's likely. Instead, reports have suggested the war in Iraq, which in recent weeks has added to the airline industry's woes, is winding down, he said. "I think (Air Canada) is going to come out of this a better company," Croft added. *************************************************** The owner of Roger's Trinbago Site/TnTisland.com Roj (Roger James) escape email mailto:ejames@xxxxxxxxx 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.carstt.com TnT Webdirectory: http://search.co.tt *********************************************************