A two-year delay in getting delivery of fuel-efficient Boeing 787 Dreamliners will crimp Air Canada's international expansion plans.
The Montreal-based airline will seek compensation from Boeing Co. for the disruption to flight scheduling, Air Canada chief executive officer Montie Brewer said yesterday. He made the announcement after the carrier disclosed that, amid surging oil prices, it lost $288-million in the first quarter, including a $125-million provision related to allegations of cargo price-fixing by an array of global airlines.
Air Canada has firm orders for 37 Dreamliners and options to buy another 23 of the planes. It had banked on delivery of the 787s to begin in early 2010, but the postponement until January, 2012, means the airline will have to scale back its global growth strategy.
"We're counting on these aircraft to help us, especially in an environment where you've got higher fuel prices," Mr. Brewer said during a conference call.
To help cut costs as oil prices hit record highs, the airline is suspending service this fall to Rome and Osaka, Japan, allowing it to retire four older Boeing 767-200s, which use more fuel than new jets.
But Air Canada, which had expected to receive a total of 14 Dreamliners in 2010 and 2011, will be forced to keep many of its other Boeing 767s and Airbus models in its wide-body fleet until the 787s arrive.
Boeing touts the 787 Dreamliner as a state-of-the-art plane that uses lighter composite materials, while offering roomier seats and aisles wider than older long-range models.
It's unclear whether Air Canada seek cash compensation or price breaks on future plane orders from Chicago-based Boeing. Boeing said last month that its vaunted 787 project will be 15 months behind the original schedule for first delivery, including the latest six-month delay. The gradual ramp-up to full production could place many orders at least 20 months behind the original target, upsetting airlines that want to showcase the plane on international routes.
"We don't comment on compensation conversations with customers," said Boeing spokesman Marc Birtel, who emphasized that there haven't been any new delays.
Mr. Brewer disclosed the 787 woes as Air Canada revealed plans for the $125-million provision related to the airline's loss estimate for an anticipated settlement over cargo price-fixing investigations by authorities in Europe, the United States and Canada.
Air Canada chief financial officer Michael Rousseau said the cargo provision is based on the "current status" of investigations, but he declined to elaborate because the probes into price fixing on freight services are continuing.
The European Commission and other authorities, including Canada's Competition Bureau, have been assessing alleged anti-competitive cargo-pricing activities, notably fuel surcharges levied by global carriers and freight companies.
The Boeing 787 delay, cargo provision and $89-million in first-quarter foreign currency losses disappointed analysts, but they were impressed by the airline's latest operating results, helped by using new fuel-efficient Boeing 777s.
Versant Partners Inc. analyst Cameron Doerksen said he doesn't envisage a cash crunch at Air Canada, noting that its $1.4-billion cash balance should be enough to withstand climbing fuel prices and other negative events.
National Bank Financial Inc. analyst David Newman has been warning about excess seat capacity in Canada, so he welcomed Air Canada's plans to reduce its total capacity growth this year to between 1 per cent and 2.5 per cent, compared with the target of between 2.5 per cent and 4 per cent previously.
With stubbornly high fuel prices eroding the aviation industry's finances, analysts say tighter capacity will clear the way for both Air Canada and Calgary-based WestJet Airlines Ltd. to raise ticket prices this summer to levels higher than anticipated.
For instance, on the Calgary-Toronto route, consumers booking this week for travel in July face a one-way charge as low as $254, up from seat sales ranging from $179 to $229 a year earlier.
While some analysts have warned that there will be consumer resistance to higher airfares, Mr. Brewer said yesterday that Air Canada is enjoying strong advance bookings so far.
AIR CANADA (AC.B)
Close: $8.09, up 5¢
Air Canada
| Q1 | 2008 | 2007 |
| Loss | -$288-million | -$34-million |
| EPS | -$2.88 | -34¢ |
| Revenue | $2.73-billion | $2.54-billion |
Source: Company reports
© The Globe and Mail
