Air Canada emerged from creditor protection last week, stock already flying south

Since we were just talking about airlines, bankruptcy, and investment, here's an article about Air Canada by Jeff Sanford in Canadian Business Magazine.

After its flight into bankruptcy in 2004, Air Canada (TSX: AC.A) rolled out of the hangar in mid-November to relaunch on the TSX. But Day 1 of the IPO wasn't exactly buoyant. In the first two hours of trading, the stock plunged about 6%, ending the day just above $19.

If you go to tsx.com and look at AC.A's performance since their IPO last week, you will see a slow, stately, almost graceful loss of value. Not a crash, per se, more like steadily losing altitude.

Of course, when you reach 0 feet, you either land, or you crash.

What's ridiculous is that Air Canada executives are trumpeting EBITDAR as a metric of how great they're doing, which is their pre-net income that excluding taxes, depreciation and the rent on its airplanes.

So should executives get a cookie for pre-net earnings, before they've paid all the bills? Not everyone thinks that this is such a great idea:

Mark Rosen, a forensic accountant with Rosen & Associates Ltd., was highly critical of Air Canada's decision to frontline EBITDAR. "You can't just ignore all of the cash expenses below the EBITDAR line. It's unfortunate EBITDAR carries such prominence in the prospectus," he says.

Any institutional investor who bought into Air Canada last Friday has either completely forgotten the lessons of history when it comes to airline finance, or they are looking for a quick and easy loss just in time for the end of the 2006 tax year.

Don't be too surprised to see people buying Air Canada short, which is probably the only sensible thing to do.*


*The content contained in this blog represents the opinions of Mr. Distad. This commentary may contain forward looking statements. This commentary in no way constitutes a solicitation of business or investment advice. If you're looking for stock picks from me, look somewhere else. Really, what were you thinking? This blog is intended solely for the entertainment of the reader, and the author.

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