Air Canada

Air Canada, the country's biggest airline, could be forced to file for bankruptcy protection if it does not secure additional financing and succeed in renegotiating covenants in credit card agreements, UBS analyst Fadi Chamoun said.

"Notwithstanding lower fuel costs, we believe that cash from operations will be insufficient to meet rising pension funding obligations and over CAD$1 billion (USD$800 million) of debt repayment over the next two years," Chamoun said in a note dated February 13.

Covenants in credit card agreements could tighten further in the second quarter and result in the airline being required to maintain higher cash deposits, said Chamoun, who cut his target price for its shares to CAD$1 from CAD$1.50.

"In the absence of additional financing (sale of assets) and renegotiation of covenants in credit card agreements, Air Canada could be forced to file for bankruptcy in our opinion," he wrote.

Air Canada spokeswoman Angela Mah declined to comment on the UBS report.

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Korean Air Q4 Loss Wider Than Forecast

Korean Air Lines reported a worse-than-expected quarterly loss on the weak won but expected it would swing to an annual operating profit in 2009.

Korean Air, the world's largest air cargo carrier, is also set to suffer from declining exports from South Korea, Asia's fourth-largest economy.

Analysts are worried about falling cargo shipments as Korean Air is highly exposed to South Korean sales of tech products such as semiconductors, mobile phones and flat screens to developed markets.

Airlines worldwide face declining demand for passengers and cargo as the global recession deepens. Last week, Japan's All Nippon Airways said it would fall into the red in the current business year for the first time in six years.

Korean Air said it aimed to post a KRW600 billion won operating profit in 2009, compared with a KRW99.3 billion operating loss in 2008, by focusing on overseas travel demand.

Price competitiveness from the weak won and a marketing drive are helping the airline attract more transit passengers, while US visa waiver programme for South Koreans is expected to support demand for outbound flights.

Korean Air posted a KRW659.5 billion (USD$474.4 million) net loss in the October-December quarter. The result compares with net losses of KRW35.3 billion a year earlier and KRW684.1 billion in the third quarter.

Heavy currency conversion losses from the won's weakness, which fell 26 percent against the dollar last year, hit the company's bottom line.

The soft local currency also resulted in higher costs for imported fuel and plane leasing, Korean Air said.

Fourth-quarter sales were KRW2.71 trillion, higher than the KRW2.3 trillion a year earlier.

Shares in Korean Air ended up 0.15 percent, lagging the wider market's 1.42 percent gain. The stock had fallen 1.8 percent after the results.

Korean Air said it would invest KRW870 billion this year to introduce new aircraft and to build a cargo terminal in China.

Separately it said it ordered two additional A380 superjumbo jets from European aircraft maker Airbus, bringing its total A380 order to ten.

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First China-Built Airbus Due In July

China's Sichuan Airlines will become the world's first carrier to receive an Airbus built outside Europe when it takes delivery in July of an A320 assembled in China, an Airbus staff memo said.

Details of the historic delivery, almost four decades after the plane maker was born as a four-nation European consortium, were disclosed to employees in the internal note this week.

It comes as Airbus prepares to sign separate deals with China over investment in its next model, the A350, which will include new carbon materials and will be assembled in France.

Airbus began assembling some of its A320 model of jets in Tianjin near Beijing in September from fuselage parts shipped from Europe.

According to the memo, the Tianjin factory is now full, with four airframes assembled and a fifth in position.

Airbus and rival Boeing have been turning to Asian markets, led by China, for growth as demand weakens at home.

However, China too is now succumbing to the global economic crisis. In December, Beijing encouraged airlines to cancel or postpone 2009 deliveries due to falling air traffic.

Tianjin A320s are assembled from fuselage parts shipped from factories in France, Germany, Spain and Britain. Airbus aims to reach local Chinese output of four A320s a month by end-2011.

Under pressure over jobs, Airbus says Tianjin will serve the Chinese market and that most construction will remain in Europe.

It says the move will lock in a good slice of the 3,000 new planes Airbus predicts China will need over the next 20 years.

But it faces criticism from European unions who say the move adds to outsourcing fears amid the recession and could result in the loss of European technology to a potential jet maker rival.

Airbus has suspended plans to lift total A320-family output to 40 planes a month from 36 due to the global economic crisis.

For now its Chinese production plans remain intact. So if the overall output freeze lingers, assembly of up to 4 planes a month could be transferred to China from Europe. However, with the industry in turmoil due to a drop in air travel, Airbus has said it cannot make firm predictions even for 2009.

Most analysts expect production to be hit everywhere as the recession bites before rebounding on signs of recovery.

Sichuan Airlines, a mid-sized carrier partly owned by China Southern Airlines, operates more than 130 routes, almost entirely within China, with a fleet of 40 jets.

Details of the first Airbus to be made in China emerged as EADS invited China to produce high-tech materials for its next generation of Airbus, the future mid-sized lightweight A350.

A deal to build a plant in Harbin was due to be signed on a visit to Spain by Chinese Premier Wen Jiabao on Friday.

Another deal is expected as he visits Britain on Monday, when Xi'an Aircraft International will sign a parts manufacturing agreement with Airbus, a person familiar with the transaction said.

Spain has a 5 percent stake in EADS, which is controlled by French and German interests with two factories also in Britain.

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Air Canada

Air Canada is Canada’s largest full-service airline and the largest provider of scheduled passenger services in the Canadian market, the Canada-U.S. transborder market and in the international market to and from Canada. Together with its regional affiliate Jazz, Air Canada serves over 29 million customers annually and provides direct passenger service to over 174 destinations on five continents. Air Canada is a founding member of Star Alliance™, providing the world's most comprehensive air transportation network.

Air Canada has an extensive global network, with hubs in four major Canadian cities (Toronto, Montreal, Vancouver and Calgary), providing scheduled passenger jet service directly to 67 Canadian cities, 53 destinations in the United States and 56 cities in Europe, the Middle East, Asia, Australia, the Caribbean, Mexico and South America. Air Canada and its regional affiliate Jazz operate 1,354 scheduled flights each day on average. Through its strategic and commercial arrangements with Star Alliance™ , Air Canada offers service to over 855 destinations in 155 countries and provides top tier frequent flyer benefits.

Air Canada was ranked ‘Best Airline in North America’ in the world’s largest survey of air travelers conducted by the independent UK-based research firm Skytrax between August 2006 and June 2007. Air Transport World magazine awarded Air Canada the prestigious Airline Industry Achievement Award in 2007 for Market Leadership. Air Canada was voted ‘Best Airline in North America’ and ‘Best Airline in Canada’ by readers of the U.S. magazine, Global Traveler, and was voted ‘Best Business Class to Canada’ by readers of the U.S magazine, Business Traveler. EnRoute magazine received the award for Best Travel Magazine at the 2007 North American Travel Journalists’ Association Awards.

Air Canada's predecessor, Trans-Canada Air Lines (TCA) inaugurated its first flight on September 1, 1937. By 1964, TCA had grown to become Canada's national airline; it changed its name to Air Canada. The airline became fully privatized in 1989. In 2000, Air Canada acquired Canadian Airlines International. Today, as it celebrates its 70th anniversary, Air Canada is the 14th largest commercial airline in the world, with approximately 23,000 full-time equivalent employees. Air Canada shares are traded on the Toronto Stock Exchange (TSX) under the symbol “AC-B.TO”.

In 2007, Air Canada added 11 new non-stop international routes, including the launch of Vancouver-Sydney on December 14th using one of Air Canada’s eight brand-new Boeing 777 aircraft.

Facts & Figures

• Number of aircraft: 335
• Aircraft types: B777-300, B777-200, B767-200, Boeing 767-300, A340-300, A330-300, A321-200, A320-200, A319-100, Embraer 190 and Embraer 175
• Hubs: Toronto, Montreal, Vancouver and Calgary
• Number of employees: 27,619
• Passengers per year: Over 29,000,000
• Sales revenue: US$ 7.394 billion (as of 2006)
• Frequent flyer programme: Aeroplan
• Number of destinations: about 174
• Network strengths: Canada, U.S. and the Caribbean
• Date of entry: May 1997

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