Air Canada executives are having a difficult time persuading investors the country's largest airline has a bright future ahead.
The carrier reported a record third-quarter operating profit, up 51 per cent to $351 million. Still, the shares fell 12 per cent to close at $14.53, down $1.97, on the Toronto Stock Exchange, albeit amid a broader market rout and mounting concerns about the impact of soaring fuel prices on the entire industry.
Also contributing to the stock's slide, analysts said, was an indication that parent ACE Aviation Holdings Inc. won't buy back Air Canada shares as the parent winds itself up over the next six months.
"I think we've established a pattern of distributing and selling into the market, and we're happy with what we've seen so far," Robert Milton, ACE's chief executive, told analysts during a conference call. "So, from the standpoint of preference, we'd like to keep going."
In recent months, ACE has sold most of its interest in the Aeroplan loyalty program and regional carrier Jazz, becoming a minority investor in both companies. ACE has also divested 77 per cent of its interest in ACTS, Air Canada's former maintenance arm, through a sale to private investors. But Air Canada has been a tougher sell.
Milton, who is stepping down from the boards of Air Canada, Aeroplan and Jazz, has long expressed frustration with the airline's valuation by investors. The problem first emerged after Aeroplan and Jazz were spun off as income trusts in 2005, raising millions. At the time, analysts calculated that the country's largest airline was effectively being given a valuation of zero in ACE's overall share price.
ACE responded by selling a minority stake in Air Canada through an initial public offering last year. The shares have yet to trade above their issue price of $21.
Jacques Kavafian, an analyst at Research Capital, said investors probably hoped ACE would buy back shares instead of selling or distributing them into an unenthusiastic market.
Milton, on the other hand, appears to be betting on the airline's ability to string together a few more strong quarterly performances.
"We'd like to see the market start to recognize that the airline is functioning as (chief executive officer Montie Brewer) has advertised."
Air Canada took an important step in that direction yesterday by posting third-quarter earnings of $273 million, or $2.73 a share, compared with a mere $44 million, or 50 cents, in the third quarter of 2006. The results, however, aren't directly comparable because of ACE's decision to "deconsolidate" regional carrier Jazz.
ACE, meanwhile, reported third-quarter profit of $224 million, or $1.84, compared with $103 million, or 95 cents. |
