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Wed, May 27, 2009

Air Canada: Its All About Cash

Every Penny Counts...

Air Canada, which sits on the brink of a possible second bankruptcy in six years, has received some good news. The Toronto Star reports Canada's largest airline has reached a preliminary agreement with a credit-card processor that will reduce the amount of cash Air Canada is required to keep on hand.


 
When airlines suddenly go under, and can't deliver the flights for which credit card companies have already paid, consumers can demand refunds, and the card companies eat the bill. For protection, credit card companies insist that airlines have at least a minimum amount of cash on hand, or face having payments for tickets withheld by the card companies until the flights are provided. The impact on an airline's cash-flow is a big deal.

Air Canada's deal reportedly lowers the cash requirement from 900 million to 800 million dollars, but the airline isn't out of the woods yet. Air Canada reports current cash reserves of just a billion dollars, and has 1.25 billion in debts and pension fund contributions coming due this year.

FMI: www.aircanada.ca

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