Air Canada stands ready to bail out UA?

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WingNaPrayer

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[DIV class=storyheadline][STRONG][FONT size=3]Focus on Costs As Air Canada Aims to Weather Slump[/FONT][/STRONG][/DIV][BR]
[DIV class=timedate][/DIV]MONTREAL (Reuters) - [FONT face=arial size=-1]Air Canada is focusing on cost-cutting as it aims to weather the uncertain outlook for the travel market, its chief executive said on Thursday. [/FONT][BR][BR]We are absolutely operating as a company on the basis that the only place to go is to get your costs down and hope for the best on revenues, Air Canada's president and chief executive, Robert Milton,told a transportation conference in Florida. [BR][BR]Air Canada, Canada's dominant carrier and world No. 12, bucked the money-losing trend at major U.S. airlines with a C$125 million ($80 million) third-quarter profit, but analysts expect it to lose roughly C$130 million for the full year. [BR][BR]Air Canada is the seventh-largest airline in North America and like the other big carriers its profit margins have been squeezed since early last year by the decline in business travel. Passenger traffic in certain transborder and short-haul markets also eroded after the Sept. 11, 2001, attacks by hijacked airliners against the United States. [BR][BR]The Montreal-based carrier has about C$12 billion of debt and aircraft lease obligations, C$426 million of which comes due within the next 12 months. [BR][BR]But during Milton's presentation to analysts, which was webcast, he noted that Air Canada has C$700 million of cash, C$200 million of committed financing and C$2.5 billion of unencumbered assets. [BR][BR]That means Air Canada had room to maneuver and good prospects, he said. [BR][BR]MULTIBRAND STRATEGY [BR][BR]He also touted the airline's strategy of flying under five brand names: the main Air Canada domestic and international operation, its Tango low-fare operations, Zip no-frills carrier, regional airline group Jazz and sports team charter service Jetz. [BR][BR]The Tango low fare leisure travel brand is modeled after profitable no-frills carriers such as Southwest Airlines Inc. and JetBlue, Milton said. [BR][BR]Passengers can book Tango flights on the Internet for domestic and transborder routes to the United States. But costs are kept under control because there are no interconnections between Tango and Air Canada's mainline fleet and only 14 managers operate the brand. [BR][BR]Ticket bookings procedures are geared to reducing the volatility in Tango's revenue stream. [BR][BR]You book, you pay. You don't show up, we keep the money. What a concept, Milton said. [BR][BR]Everything is extra. All you buy is a seat. You want water, you pay for it. You want a seat assignment, you pay for it, Milton added. [BR][BR]Zip, the stand-alone no-frills carrier launched this year by Air Canada and headed by Steve Smith, former president of profitable low-fare rival WestJet Airlines Ltd., does interconnect and codeshare with the parent carrier. But costs at Zip are kept under control by labor contracts that favor productivity, Milton said. [BR][BR]Air Canada has been slashing costs through layoffs this year. In August, the carrier said it would eliminate 1,300 jobs or 3 percent of its workforce. Jazz is planning to cut 391 jobs or 9 percent of its staff, on top of the 131 layoffs made earlier this year. [BR][BR]SUPPORT FOR UNITED AIRLINES [BR][BR]Milton reiterated Air Canada's hope to help money-losing United Airlines and its parent UAL Corp., which said on Thursday it was in talks with lenders on up to $2 billion of loans to maintain operations if it files for bankruptcy. [BR][BR]We would like to help United any way we can, Milton said, but declined to offer specifics. [BR][BR]United and Air Canada are allied through the Star Alliance, the world's biggest commercial aviation grouping. [BR][BR]In 1999, UAL provided about C$238 million of funding to Air Canada to help the airline fend off a hostile takeover attempt that was led by Toronto conglomerate Onex Corp. and Canadian Airlines, and [STRONG]backed financially by American Airlines parent AMR. Corp[/STRONG]. . [BR][BR]A Quebec court blocked the takeover attempt, Canadian Airlines subsequently collapsed and was taken over by Air Canada. [/FONT]
 
[BLOCKQUOTE][FONT size=5]And I have Some ocean front property[BR]To sell you off the coast of Colorado.[BR][/FONT][FONT size=6]Any bites!!!!!![/FONT][BR]----------------[BR]On 11/16/2002 4:36:25 PM WingNaPrayer wrote: [BR][BR]----------------[/BLOCKQUOTE][BR][BR][FONT size=6][/FONT]
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The STAR alliance should be concerned for UAL's health. Though I doubt Air Canada could contribute more then a token sum toward any bailout. The two really deep pockets in the Star alliance are Singapore and Lufthansa. If these two anchors of the star alliance in Europe and Asia don't, why should any of the junior parnters like SAS, Austrian or Air Canada help UA. Singapore should think of helping UA especially in the pacific instead of trying to build or buy an airline in Australia to build it feed for the kanagaroo route.
 
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Let's see. Air Canada being in bed with the Royal Bank of Canada wouldn't be of any major importance then.
 
LH and AC will go to great lengths to announce their support, but there are a few lines even they can't cross when it comes to financial support for UAL. Nobody was there offering financial support for Ansett even though each of the Star Alliance partners made similar statements of support...

To the extent that Star Alliance partners pony up some cash, their board of directors and/or shareholders are going to expect something more than a token ownership stake, since foreign ownership is limited by US law. Ask SAS how they feel about their investment in Continental having evaporated...

Sure, AC and LH can pressure lenders (like Royal Bank of Canada and KfW) to offer financing, but in the end, even those institutions have a fiduciary obligation to not make bad investments...
 
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On 11/17/2002 4:31:17 PM eolesen wrote:

LH and AC will go to great lengths to announce their support, but there are a few lines even they can't cross when it comes to financial support for UAL. Nobody was there offering financial support for Ansett even though each of the Star Alliance partners made similar statements of support...
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You can't compare Ansett to UAL.
The Australian market is not as important as the USA market.
UAL is more important to Star Alliance than Ansett


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To the extent that Star Alliance partners pony up some cash, their board of directors and/or shareholders are going to expect something more than a token ownership stake, since foreign ownership is limited by US law. Ask SAS how they feel about their investment in Continental having evaporated...
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What did the board of directors of UA and LH 'expect' from their bailout of AC a few years back?
Again, UA is more important that AC.

IMHO, the well being of UAL should be one of the main concerns of the Star Alliance carriers.
 
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On 11/17/2002 7:06:23 PM FrugalFlyer wrote:

The Australian market is not as important as the USA market.

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Perhaps. Star thought they could make due with the other partners who served SYD/MEL/CNS/PER, but now ANZ is also all but falling into Qantas's arms. If Star ends up losing both AN and AZ, Star will have pretty much ceded the South Pacific to oneworld.

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IMHO, the well being of UAL should be one of the main concerns of the Star Alliance carriers.

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Playing devil's advocate, having a stable US partner should be their main concern, and not so much who that carrier is.

With Air Canada, there was no other national carrier to try and sub into Star. Same with Ansett. But there are several other US carriers who either alone or in tandem can fit into the Star network.

UAL needs Star, but I'm not convinced that Star absolutely needs UAL.
 
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On 11/18/2002 1:44:16 PM eolesen wrote:


Playing devil's advocate, having a stable US partner should be their main concern, and not so much who that carrier is.

With Air Canada, there was no other national carrier to try and sub into Star. Same with Ansett. But there are several other US carriers who either alone or in tandem can fit into the Star network.

UAL needs Star, but I'm not convinced that Star absolutely needs UAL.
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OK, I'll try to twist this thread from UA to AA: you said that all Star needs is a USA-based carrier. Now, supposse that UAL goes bankrupt (ch. 7) would AA be the USA based carrier to replace UA? Would AA abandon 1world and join *? Would * be a more beneficial alliance to AA than 1 world?

I know the possibility of UAL liquidating is small, but just supposse....
 
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