Even after the federal government rushed to Air Canada’s aid with a back-to-work bill, passengers still faced flight cancellations as ground-crew employees staged wildcat strikes last week. That was five days after so many pilots called in sick that the airline had to trim its schedule. The disruptions showed how the struggle over new union contracts is out of hand. Standard & Poor’s Ratings Service said in a statement following the pre-weekend walkout that Air Canada’s debt ratings may be cut and raised the prospect that the labor disputes might erode bookings in the busy summer travel season. “The long-term viability of the company is in question,” said George Smith, a director of employee relations at the airline from 1982 to 1992 who now teaches labour relations at Queen’s University in Kingston, Ontario. “You’re getting to a tipping point where people will be so uncertain about what they can expect that they may seek alternative means of travel.”
Air Canada’s Class B shares fell 17% in 2012 through March 23, to 82 Canadian cents, trailing the S&P Toronto Stock Exchange Index’s 4.3% gain. At about C$230 million ($230 million), the airline’s market value was less than one-seventh that of discount carrier WestJet Airlines Ltd. (WJA) -- and less than the C$298 million list price of one of its 777-300s.
The carrier’s 9.25% notes due August 2015 were unchanged at 98 cents on the dollar on March 23. The yield was 9.96%.
S&P analysts have put the airline on CreditWatch with negative implications. Air Canada’s current S&P rating is B-, six grades below investment level. This is in part due to the collapse of AVEOS and the question of if Air Canada will be affected by severance payments.
Air Canada update: how can an airline be worth less than one of its aircraft?
