MONTREAL, May 13 /CNW Telbec/ - Air Canada released today its financial
results for the year and quarter ended December 31, 2002, incorporating a
$400 million tax valuation allowance. On February 6, 2003, Air Canada released
its preliminary unaudited year 2002 and fourth quarter financial results. For
the year and quarter ended December 31, 2002, Air Canada reported an operating
loss of $218 million and $288 million respectively and a loss before foreign
exchange on long-term monetary items and income taxes of $384 million and
$359 million respectively. These figures remain unchanged in this final
At that time, the Corporation also advised that it was completing a
review of the carrying value of its future income tax asset and that the
review may require an income tax valuation allowance to reduce the value of
the Mainline carrier`s future income tax asset up to its full carrying value
of $400 million. As a result of recent developments, Air Canada will record
the full $400 million income tax valuation allowance.
The Corporation therefore reported a net loss of $828 million or $6.89
per share for 2002, compared to a net loss of $1,315 million or $10.95 per
share in 2001. For the fourth quarter of 2002, the net loss amounted to
$764 million or $6.35 per share.
Subsequent to the Corporation reporting its preliminary unaudited results
on February 6, 2003, Air Canada obtained an order on April 1, 2003, from the
Ontario Superior Court of Justice providing creditor protection under the
Companies` Creditors Arrangement Act (CCAA). Air Canada also made a concurrent
petition under Section 304 of the U.S. Bankruptcy Code. Refer to Notes 1 and
14 to the Consolidated Financial Statements.
The Corporation, on an exceptional basis, has elected to release
preliminary unaudited consolidated operating results for the first quarter
2003 and for April 2003. The objective of this early release of preliminary
unaudited results is to ensure that Air Canada stakeholders have its financial
results on as current a basis as possible while Air Canada is developing its
The preliminary unaudited operating loss for the first quarter of 2003
was $354 million representing a deterioration of $194 million from the
operating loss of $160 million reported for the same quarter in 2002. The
average operating loss for the first quarter amounted to just under $4 million
per day. Air Canada will be reporting its final first quarter operating and
net loss later in May. The build up to the Iraq war, the first stage of the
SARS crisis, a soft economy, continued growth in competitive capacity in a
flat market in Canada and increased lower cost regional carrier competition on
the transborder market all contributed to further weaken an already fragile
The downturn intensified in April primarily as a result of the
devastating impact of the rapid acceleration of the SARS outbreak in Toronto,
estimated to have negatively impacted revenues by more than $125 million for
the month. The preliminary unaudited operating loss for the month is expected
to be $152 million or $123 million worse than the corresponding period last
year. The airline`s current inability to offset revenue loss with
corresponding cost reductions resulted in an operating loss of just over
$5 million per day.
The effect of SARS following the war in Iraq continues to have a
significant effect not only on Asian routes but on the airline`s entire
network and, in particular, its main hub in Toronto. With the exception of
certain Asian carriers, it is believed that Air Canada has been more
negatively impacted by SARS than any other airline given that Toronto was the
only city outside Asia designated as a SARS affected area. Traffic on Asian
routes is down approximately 60 per cent and Toronto emplanements are down by
more than 25 per cent. The drop in traffic to and from Toronto can be
a) corporate policies directing business travellers to avoid Toronto;
b) a general avoidance of Toronto as a connecting point due to concerns about SARS; and, c) travellers originating in Toronto being directed to postpone or cancel their travel.
Air Canada has not experienced a discernable traffic recovery despite the
World Health Organization`s decision to lift its travel advisory for Toronto.
Loss of convention and leisure traffic is ongoing and recovery is not expected
in the near term. On a network-wide basis, forward bookings for May, June and
July are down 20 to 25 per cent year over year.
Immediate, aggressive action is required to reduce operating costs until
traffic levels stabilize and, as a result, Air Canada is implementing the
- Overall capacity is being reduced by 17 per cent year over year for
June, July and, on a preliminary basis, August. Asian and
transborder routes are primarily affected with a 60 per cent and
25 per cent capacity reduction respectively.
- Service will be temporarily suspended until Labour Day between the
following cities: Toronto-Kansas City, Toronto-New Orleans and
- Service will be suspended until the summer schedule of 2004 on the following routes: Calgary-Chicago; Montreal-Atlanta; Montreal-San
Francisco; Toronto-San Diego; Toronto-Tokyo/ Narita; Vancouver- Washington/Dulles and Vancouver-Nagoya.
- Service to Dayton and Grand Rapids will be suspended indefinitely.
- As a result of the reduction in flying, approximately 40 aircraft
will be grounded. The fleet reductions include wide-body and narrow-
body aircraft at the Mainline carrier and some turbo-prop aircraft
at Air Canada Jazz.
“SARS will clearly have a sustained impact in every affected area of the
world and has already had a ruinous effect on our summer 2003,” said Robert
Milton, President and Chief Executive Officer. “I do not expect international
travel demand to Canada to recover in the near term. The terrible revenue
environment we are now facing with SARS immediately after the war with Iraq
necessitates drastic action to survive what is expected to be one of our
weakest second and third quarters in history. This further underscores the
urgency with which we must approach our restructuring under the CCAA process.
However, the steps announced today will not be sufficient to stem the losses
and immediate cost reduction is required in all areas,” concluded Mr. Milton.