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Air Canada files for bankruptcy protection

Posted: Wednesday, April 02, 2003

TORONTO (AP) -- Air Canada has become the latest major airline to file for bankruptcy protection as it seeks concessions from unions and government assistance amid the long worldwide slump for air travel.

Air Canada is the country's largest airline and the only scheduled Canadian carrier with an extensive route network to the United States and other foreign destinations. It employs more than 30,000 people.

Shares in Air Canada sank to a 52-week low on Monday, and trading was halted Tuesday on the Toronto Stock Exchange pending the bankruptcy announcement.

The move means Air Canada will continue flying during a reorganization period, but shows its difficulty coping with the industry downturn after the Sept. 11, 2001, terrorist attacks now exacerbated by the war in Iraq and mystery illness spreading from Asia.

''Air Canada's customers around the world can continue booking with confidence that their travel plans will not be disrupted,'' chief executive Robert Milton said. He said similar filings last year by US Airways and United Airlines demonstrated that service would not suffer during the reorganization.

Air Canada ended 2002 with a loss of 428 million Canadian dollars ($295 million), bringing the total to more than 1.7 billion Canadian dollars ($1.1 billion) since its last profitable year in 1999.

The company also has 12.9 billion Canadian dollars ($8.8 billion) in long-term debt and leases, which would likely be renegotiated under a court-monitored financial restructuring.

There had been speculation that a court filing for protection from creditors would enable Air Canada to get government help, most likely in loan guarantees.

Transport Minister David Collenette said Monday the government was considering ways to assist, but ruled out a cash bailout.

In its court filing in Toronto, Air Canada said it secured up to C$1.05 billion ($724 million) in financing from GE Capital to keep the airline operating while it restructures.

Air Canada's court filing also said it was in talks with a potential partner for an equity investment, and had reached a deal with federal financial regulators on dealing with underfunding of more than C$1 billion ($690 million) in the employee pension plan.

The airline has been hurt by the global slump in air travel after the Sept. 11 attacks, as well as reduced traffic amid the current war in Iraq and the outbreak in Toronto of severe acute respiratory syndrome from Asia.

Air Canada said Monday it will reduce its flights between Hong Kong and Canada to nine per week, down from 14 per week now, because of the spreading illness known as SARS. Smaller reductions also will be made in flights to Beijing and Shanghai, said Air Canada spokeswoman Laura Cooke.

Also Monday, two of Air Canada's biggest unions accepted major layoffs as part of restructuring the airline said it needs to survive.

The Canadian Auto Workers and the union representing machinists and baggage handlers said they will lose more than 2,300 jobs as their share of 3,600 job cuts announced March 20.

The autoworkers union, which represents ticket agents and other workers, said it will lift a no-layoff clause for 1,060 employees and has agreed to defer a 2.5 percent salary increase that was supposed to come into effect Tuesday. The union are expected to save Air Canada up to 40 million Canadian dollars ($27.5 million) a year.

Buzz Hargrove, president of the autoworkers union, said it recognizes a crisis exists and that everyone -- including the government -- must help keep the airline flying.

''It is not a permanent fix,'' Hargrove said after meeting with Collenette. ''It is an interim measure that will allow reductions in the work force to take place immediately. We see absolutely no alternative.''



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