Air Canada has been just a thin reed away from insolvency for months, with mounting losses, falling traffic and the circling of the predatory wolves waiting for the nation's largest carrier to go back to bankruptcy court. It reports its first-quarter results on Friday, and they are expected to be bloody. So why is Air Canada stock up by a full one-third on the Toronto Exchange?
It has to do with Brussels, where European Community and Canadian officials just signed an open skies pact that allows freedom of movement and, more importantly, freedom of investment. Any European carrier can buy up to 49 percent of any Canadian carrier under the deal, and eventually own airlines in Canada.
This leads the markets to believe that a rescue is on the way. A half-stake in deficit-devastated Air Canada would not be a major cash outlay, especially for a carrier like Lufthansa, the natural candidate to be a white knight. Luftie is partnered with AC in the Star Alliance, and Star would like to keep Canada to itself. (The nation's number two, Westjet, is not a member of the alliances.) Jacques Kavafian, the noted analyst at Research Capital Corp., is sceptical, saying that big carriers like Lufthansa want to conserve their cash right now. But remember, Lufthansa already has a web of investments in carriers throughout Europe. And, as importantly, if it moves, no one else would have Air Canada.
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