New Targets include:

• EBITDAR margin of 15 to 18 percent
• ROIC of 13 to 16 percent
• Leverage ratio of 2.2 by 2018

On track to exceed 2013 Investor Day Targets

MONTRÉAL, June 2, 2015 /CNW Telbec/ - As part of a comprehensive strategic plan update to the investment community, Air Canada will establish three new financial targets at its 2015 Investor Day to be held today in Toronto from 09:00 to 12:00 EST.

Building on the success of its business plan, from 2015 until 2018, Air Canada is targeting an annual EBITDAR⁽¹⁾ margin (earnings before interest, taxes, depreciation, amortization and impairment, and aircraft rent, as a percentage of operating revenue) of 15 to 18 percent and a year-over-year return on invested capital (ROIC) ⁽¹⁾ of 13 to 16 percent during that period and, by 2018, a leverage ratio⁽¹⁾ of 2.2 (measured by adjusted net debt over normalized EBITDAR).

"We have continued to make significant progress in the execution of our business plan since we first provided the investment community with our financial targets in June 2013," said Calin Rovinescu, President and Chief Executive Officer of Air Canada. The implementation of our fleet initiatives, capital programs, liquidity targets and debt levels remain on target and we're delivering on a permanently lower cost structure while profitably growing our business, especially our international routes.

"With our growth, we have successfully expanded margins, increased adjusted net income and improved our return on invested capital, thereby creating substantial value for shareholders. We've strengthened our balance sheet, reduced the cost of debt and most significantly achieved all of our objectives in restructuring our pension plans. Now that our pension plans are healthy and in a surplus position, by opting out of the special Air Canada 2014 pension regulations, we expect to free up approximately $1.1 billion in previously allocated deficit funding contributions over the next six years which may now be redeployed to further improve our competitive position and create incremental value.

"In 2013, we set out to achieve some very specific targets relating to our costs per available seat mile (CASM) and ROIC, amongst others. Building on our successful execution against these targets, we are raising the bar with more ambitious objectives and are confident that our new financial targets will be attained.  We will continue our singular focus on the four priorities that have brought us this far - namely, reducing costs and enhancing revenues, profitably growing by leveraging our international network and partnerships, engaging our customers and culture change. Our new targets are significantly higher than those we set out in 2013 and reflect our confidence that we are pursuing the right strategic plan to deliver sustained profitability and value for our shareholders over the long term and that we are executing on it successfully," said Mr. Rovinescu.

At its June 2013 Investor Day, Air Canada had projected that a number of key initiatives, including the roll-out of Air Canada rouge® and the introduction of the new Boeing 787 Dreamliners, taken together, would drive an estimated 15 percent reduction in CASM by 2018 when compared to 2012. Since its June 2013 Investor Day, the airline added and announced a number of new cost reduction initiatives, including:

• the reconfiguration of Boeing 777 aircraft;
• the replacement of 20 Embraer 190 aircraft with five larger Airbus narrow-body and five Boeing 767 aircraft;
• an amended and extended capacity purchase agreement with Jazz;
• the introduction of an additional two high-density Boeing 777 aircraft; and
• the selection of Boeing 737 MAX aircraft to replace the Airbus narrow-body aircraft in its fleet.

Air Canada is on track to exceed the 2013 Investor Day Targets and, taking the added initiatives into account, now estimates that it should realize CASM savings (excluding the impact of foreign exchange and fuel prices) of 21 percent by the end of 2018 when compared to 2012.

In addition, at the end of the first quarter of 2015, unrestricted liquidity was at $3.123 billion (compared to a minimum target of $1.7 billion), ROIC was at 15.2 percent (compared to a target of 10-13 percent) and the airline's leverage ratio, as measured by adjusted net debt over normalized EBITDAR, was at 2.6 (compared to a target ceiling of 3.5).

The outlook provided in this news release constitutes forward-looking statements within the meaning of applicable securities laws, are based on a number of assumptions and are subject to a number of risks and uncertainties. Please see section below entitled "Caution Regarding Forward-Looking Information".

Attendance at Air Canada's 2015 Investor Day is by invitation only.  A live, listen-only audio webcast of the event along with accompanying presentation slides will be available through a link on Air Canada's website at www.aircanada.com (Investors section).

Major Assumptions

Assumptions were made by Air Canada in preparing and making forward-looking statements. As part of its assumptions, during the 2015 to 2018 period, Air Canada assumes annual Canadian GDP growth of 2.0 to 2.4 percent, annual Canadian Consumer Price Index (CPI) growth of 2.1 percent, and an average annual wage rate increase of 2.0 percent. Air Canada also assumes that the Canadian dollar will trade, on average, at C$1.22 to C$1.23 per U.S. dollar and that the price of jet fuel will average 70 cents to 81.5 cents, as set out in the table below for each year during the 2015 to 2018 period.

The following table summarizes major annual assumptions:

⁽¹⁾  Non-GAAP Measures

Below is a description of certain non-GAAP measures used by Air Canada to provide additional information on its financial and operating performance.  Such measures are not recognized measures for financial statement presentation under Canadian GAAP and do not have standardized meanings and may not be comparable to similar measures presented by other public companies.  Refer to Air Canada's Management Discussion and Analysis reports for the relevant periods for reconciliation of non-GAAP financial measures.

• Adjusted net income (loss) and adjusted net income (loss) per diluted share are used by Air Canada to assess its performance without the effects of foreign exchange, net financing expense on employee benefits, mark-to-market adjustments on fuel and other derivatives and unusual items.
• EBITDAR is commonly used in the airline industry and is used by Air Canada to assess earnings before interest, taxes, depreciation, amortization, impairment and aircraft rent as these costs can vary significantly among airlines due to differences in the way airlines finance their aircraft and other assets.
• Adjusted net debt is a key component of the capital managed by Air Canada and provides a measure of the airline's net indebtedness. Adjusted net debt is calculated as the sum of total long-term debt and finance lease obligations and capitalized operating leases less cash and cash equivalents and short-term investments.
• Adjusted net debt to trailing 12-month normalized EBITDAR leverage ratio is commonly used in the airline industry and is used by Air Canada to measure financial leverage and is calculated by dividing adjusted net debt by trailing 12-month normalized EBITDAR.
• Return on invested capital (ROIC) is used by Air Canada to assess the efficiency with which it allocates its capital to generate returns. Return is based on Adjusted net income (loss) (as referred to in the above paragraph), excluding interest expense and implicit interest on operating leases. Invested capital includes average year-over-year total assets, net of average year-over-year non-interest-bearing operating liabilities, and the value of capitalized operating leases (calculated by multiplying annualized aircraft rent by 7).

CAUTION REGARDING FORWARD-LOOKING INFORMATION 

This news release includes forward-looking statements within the meaning of applicable securities laws. Forward-looking statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable.  These statements may involve, but are not limited to, comments relating to preliminary results, guidance, strategies, expectations, planned operations or future actions.  Forward-looking statements are identified by the use of terms and phrases such as "preliminary", "anticipate", "believe", "could", "estimate", "expect", "intend", "may", "plan", "predict", "project", "will", "would", and similar terms and phrases, including references to assumptions.

Pension funding obligations under normal funding rules are generally dependent on a number of factors, including the assumptions used in the most recently filed actuarial valuation reports for current service (including the applicable discount rate used or assumed in the actuarial valuation), the plan demographics at the valuation date, the existing plan provisions, existing pension legislation and changes in economic conditions (mainly the return on fund assets and changes in interest rates). Actual contributions that are determined on the basis of future valuation reports filed annually may vary significantly from projections. In addition to changes in plan demographics and experience, actuarial assumptions and methods may be changed from one valuation to the next, including due to changes in plan experience, financial markets, economic conditions, future expectations, changes in legislation, regulatory requirements and other factors.

Forward-looking statements, by their nature, are based on assumptions, including those described herein and are subject to important risks and uncertainties.  Forward-looking statements cannot be relied upon due to, amongst other things, changing external events and general uncertainties of the business.  Actual results may differ materially from results indicated in forward-looking statements due to a number of factors, including without limitation, industry, market, credit and economic conditions, the ability to reduce operating costs and secure financing, energy prices, currency exchange and interest rates, competition, employee and labour relations, pension issues, war, terrorist acts, epidemic diseases, environmental factors (including weather systems and other natural phenomena and factors arising from man-made sources), insurance issues and costs, changes in demand due to the seasonal nature of the business, supply issues, changes in laws, regulatory developments or proceedings, pending and future litigation and actions by third parties as well as the factors identified throughout this news release and those identified in section 18 "Risk Factors" of Air Canada's 2014 MD&A dated February 11, 2015.  The forward-looking statements contained in this news release represent Air Canada's expectations as of the date of this news release (or as of the date they are otherwise stated to be made), and are subject to change after such date.  However, Air Canada disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required under applicable securities regulations.

SOURCE Air Canada