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TEXT-S&P puts Air Canada on watch negative on operations disruptions
March 23, 2012 / 8:45 PM / 5 years ago

TEXT-S&P puts Air Canada on watch negative on operations disruptions

March 23 - Overview	
     -- We are placing all our ratings on Montreal-based Air Canada on 	
CreditWatch with negative implications, including our 'B-' long-term corporate 	
credit rating on the company. 	
     -- We base the CreditWatch placement on our concern that ongoing 	
disruptions to Air Canada's operations, caused by labor disputes and the 	
uncertain financial impact relating to a certain number of separation packages 	
that it might be required to provide to Aveos employees, could we believe lead 	
to deterioration in the company's liquidity in the short term. 	
     -- We expect to resolve this CreditWatch in the next three months. We 	
would likely lower the ratings if these events and a decline in summer 	
bookings lead to deterioration in the company's overall liquidity position to 	
about C$1.5 billion.	
Rating Action	
On March 23, 2012, Standard & Poor's Ratings Services placed all its ratings 	
on Montreal-based Air Canada on CreditWatch with negative implications,	
including its 'B-' long-term corporate credit rating on the company. 	
	
Rationale	
While we continue to view liquidity at Air Canada as adequate per our 	
criteria, we base the CreditWatch placement on our concern that ongoing 	
disruptions to its operations, caused by labor disputes and the uncertain 	
financial impact relating to separation packages that it might be required to 	
provide to Aveos employees, could we believe lead to deterioration in the 	
company's liquidity in the short term. 	
	
Collective agreements representing the majority of Air Canada's unionized 	
workforce expired in 2011. While the company has made progress with some of 	
the unions, it continues to negotiate with two major ones representing pilots, 	
mechanics, and baggage handlers. We expect the recent disruption in operations 	
will likely affect the company's financial performance in the first half of 	
2012. 	
	
We are uncertain of the financial impact that the recent Companies' Creditors 	
Arrangement Act (CCAA) filing by major maintenance, repair, and overhaul (MRO) 	
provider Aveos will have on Air Canada's liquidity in the short term. As per 	
Air Canada's fourth-quarter report, the company might be required to provide 	
up to a maximum of 1,500 separation packages to Aveos employees (who are 	
represented by the International Association of Machinists and Aerospace 	
Workers), with each package including a maximum of 52 weeks' pay. We 	
understand that these payments could be over the course of a year. However, we 	
currently expect the impact on operations as a result of Aveos' CCAA filing to 	
be minor and that it might lead to lower MRO costs in the long run.	
	
CreditWatch	
We expect to resolve this CreditWatch in the next three months. We would 	
likely lower the ratings if these events and a decline in busy summer bookings 	
lead to a drag on the company's cash position and deterioration in its overall 	
liquidity position to about C$1.5 billion. 	
	
Related Criteria And Research	
     -- Methodology and Assumptions: Liquidity Descriptors For Global 	
Corporate Issuers, Sept. 28, 2011	
     -- Criteria For Rating The Airline Industry, Oct. 22, 2010 	
     -- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, 	
May 27, 2009	
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008	
	
Ratings List	
Air Canada	
Ratings Placed On CreditWatch Negative/Recovery Ratings Unchanged	
                                To               From	
Corporate credit rating         B-/Watch Neg/--   B-/Stable/--	
First-lien senior secured debt  B+/Watch Neg      B+	
 Recovery rating                1                 1	
Second-lien senior secured debt B-/Watch Neg      B-	
Recovery rating                 4                 4	
	
	
Complete ratings information is available to subscribers of RatingsDirect on 	
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 	
by this rating action can be found on Standard & Poor's public Web site at 	
www.standardandpoors.com. Use the Ratings search box located in the left 	
column.

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