Aveos shutdown hits Air Canada earnings

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Air Canada recorded a Canadian dollar (C$) $55 million ($55 million) loss in net income for the 2012 year directly related to the Aveos Fleet Performance shutdown in March, the carrier discloses in a management analysis released in conjunction with its earnings on 7 February.

In addition to that loss, the Canadian flag carrier realised a C$65 million write-off on its investment in Aveos' parent company during the first quarter of 2012.

The Aveos closure also negatively impacted Air Canada's passenger revenues by leading to capacity reductions. This event plus the financial impact of labour actions, including Air Canada's pilots calling in sick and ground handlers striking, impacted passenger revenues by C$100 million in 2012.

Air Canada also saw an C$18 million reduction in property rental revenues and incurred about C$5.3 million in expenses for engine and roteable rentals after the closure.

Despite the losses tied to Aveos' maintenance shutdown last year, the move to new maintenance providers may well trim some costs for the carrier.

Air Canada's maintenance spend for the year declined 1% to C$672 million, down from C$681 million in 2011. In 2012 it also saw a C$32 million adjustment in its favour after revising cost estimates from new maintenance partnerships forged during the year. The previous year, Air Canada had seen a C$20 million unfavourable adjustment in this area.

"The new maintenance agreements, negotiated at market terms and rates, have resulted in meaningful unit cost savings and better aircraft turnaround times," said the analysis.

Setting cost-competitive rates for airframe and engine maintenance with new partners in 2012 offset several maintenance rate increases for Air Canada's Boeing 777 aircraft, says the carrier. These increases stemmed from Air Canada having to replace a leased engine that was "beyond economical repair", an increase in engine maintenance overhauls and unfavourable currency impacts.

Aveos' airframe maintenance business was split up between six different companies for C$10.8 million in June. One of those companies is Illinois-based maintenance, repair and overhaul company AAR, which signed a letter of intent with Air Canada to maintain its Airbus narrowbody fleet through 2017 in October. Air Canada also has a maintenance agreement with another buyer, Premier Aviation, to maintain Embraer 175 and 190 aircraft that will be operated under a flying agreement with Sky Regional.