Air Canada Gets Liquidity Boost, Still Faces Cash Pressures

Jan. 7.09 | About: Air Canada, (ACDVF)

A series of small financings in the past month have given Air Canada (AIDIF.PK) access to roughly C$500-million. As a result, the company ended 2008 with around C$900-million in cash on hand, according to UBS.

Analyst Fadi Chamoun thinks the liquidity boost will be adequate to weather the economic downturn in the near term but said shareholders shouldn’t be very optimistic.

He said in a research note:

Air Canada’s higher cost structure compared to its competitors, and significant debt burden (which we estimate around C$8.2-billion in 2009 before pension) likely leaves little value for equity holders particularly in light of currently depressed profitability and high uncertainty with respect to demand trends.

The airline’s current pension deficit of C$1.2-billion could rise to C$3.0-billion next year, which would create futher liquidity pressures beginning in the second half of 2009, the analyst added.

UBS rates Air Canada at “neutral” with a C$1.50 price target, which represents downside of roughly 20%.