Air Canada wants to pay down debt first

MONTREAL — Air Canada (TSX:AC.A) has nearly $1 billion worth of debt coming due over the next two years and dealing with that will be a higher priority than adding planes to its current fleet, the airline’s chief financial officer told an investor conference Thursday.

MONTREAL — Air Canada (TSX:AC.A) has nearly $1 billion worth of debt coming due over the next two years and dealing with that will be a higher priority than adding planes to its current fleet, the airline’s chief financial officer told an investor conference Thursday.

“We’d like to deleverage our balance sheet and the most inexpensive way of doing that is producing free cash flow to pay down debt,” Michael Rousseau told the CIBC Eastern Institutional Investor Conference.

“We have almost a billion dollars of debt coming due in the next two years and certainly we would like to pay some, if not all, of that back.”

Air Canada has been able to grow its revenue this year over 2009 levels by redeploying its existing fleet more effectively. It would have to add planes to achieve further growth next year but doesn’t plan to do so, Rousseau said.

“We’re being very, very disciplined about adding capacity. We have route rights to virtually everywhere in the world, so we fly where we want to. But we need to make money.”

“Our commercial and finance groups look very, very closely at the competitive environment and, if there is an opportunity for us, we’ll look at it.

“Right now, we don’t see those opportunities and, as such, there are no plans to bring new planes in next year.”

The company expects capital spending for this year and 2011 to be just $150 million annually, not counting maintenance expenses that will be recorded under new international financial accounting rules, he said.

Rousseau said Air Canada’s capital needs will start to grow in 2012 in anticipation of planned deliveries of 37 Boeing 787s, also call Dreamliners. Air Canada is scheduled to take delivery of its first 787 in the second half of 2013.

“The airline has financing commitments already in place of $3.1 billion, covering 31 of the 37 expected deliveries,” Rousseau said.

The airline can do that through a combination of improved operating results, lower debt level “and sometime in the future, if our stock price performs the way we think it should, obviously that door’s always open for equity.”

WestJet president and CEO Gregg Saretsky said his Calgary-based airline is in negotiations with other North American airlines to join its list of code-share partners.

“At this point, we’re not disclosing who all we’re speaking to and who we’re close with, other than to say we will have one or more U.S. partners to announce shortly,” he said.

In May, WestJet (TSX:WJA) and Dallas-based Southwest Airlines called off an agreement to sell seats on one-another’s planes. Southwest had said it couldn’t accept changes it said WestJet had demanded to a code-share deal reached in 2008.

WestJet has already signed a agreement with Delta Air Lines, with an option to acquire slots at LaGuardia Airport in New York, but an alliance has not been reached.

Also at the conference, Transat A.T. chief executive Jean-Marc Eustache repeated his message that Transat won’t cut its capacity again this year.

“We have to have a good winter like we used to have, not to have a loss,” he said.

The Quebec-based tour operated (TSX:TRZ.B) watched last year as rivals pounced on Transat’s decision to cut its capacity amid falling prices.

“Last year, because we decided to cut the capacity by 10 per cent for the first quarter and everybody added capacity and we had to put aircraft on the ground, and the end of the day we made, really, a mess with the season,” he said.

Eustache said his company, along with Sunwing Airlines and WestJet (TSX:WJA), will be the main players in the vacations market. He said he believes Air Canada will put more focus on business travellers with the improving economy.

Transat has said it will sell three types of package vacations: value, competitive best brands and luxury locations rated five stars or higher and also will offer more flight-only plans.