BRENT JANG

Globe and Mail Update

March 31, 2009 at 3:11 PM EDT

Air Canada has made another key appointment that it hopes will help it stave off filing for bankruptcy protection as new president and chief executive officer Calin Rovinescu prepares to streamline the company.

The appointment of Duncan Dee as chief operating officer is seen as a move to keep the cash-strapped carrier operating and avoid bankruptcy court as it seeks to cut costs and keep creditors at bay.

Mr. Dee, an Air Canada executive who resigned from the airline last November, will be named COO effective Friday, replacing the retiring Bill Bredt, a source familiar with the Montreal-based carrier said Tuesday.

The return of Mr. Dee reunites him with Mr. Rovinescu. The two men, who helped restructure Air Canada in 2003-04, are friends of Robert Milton, chairman of Air Canada’s parent, ACE Aviation Holdings Inc.

Industry analysts are speculating anew about Air Canada potentially filing for bankruptcy protection, after the airline appointed Mr. Rovinescu as president and CEO, effective Wednesday – a surprising change at the top as the carrier struggles to survive the recession.

Resigning is Montie Brewer, an American who joined the airline in 2002 and became president and CEO in 2004. Air Canada is facing a cash crunch, and some industry analysts are speculating that it could be forced to file for bankruptcy protection for the second time in six years.

Mounting debts, a growing pension deficit, weakening travel demand, expiring labour contracts and stiff competition from WestJet Airlines Ltd. are among the challenges awaiting Mr. Rovinescu, a Canadian lawyer who helped restructure the carrier in 2003-04. Calgary-based WestJet, which is launching an aggressive seat sale Tuesday, has been taking domestic market share from Air Canada.

“While the challenges in front of us are large, we will continue to build upon the successes of the airline to date and deliver a quality product for our customers, employees and shareholders,” Mr. Rovinescu said in a statement.

Research Capital Corp. analyst Jacques Kavafian said Mr. Rovinescu’s cost-cutting expertise will be all too familiar to Air Canada’s unionized employees. “Calin is a restructuring expert. He will be able to lead Air Canada, and his appointment could be a signal of a possible bankruptcy protection filing,” Mr. Kavafian said, noting that the airline’s stock price has plunged.

McGill University business professor Karl Moore said Air Canada will be examining its options, including filing for court protection from creditors. He said WestJet will be seeking to boost its revenue as Air Canada is “distracted” by changes to be implement by the new CEO.

Mr. Moore said Mr. Brewer is an airline industry veteran who knows the operating side of Air Canada well, but the company needs the restructuring skills of Mr. Rovinescu to find ways to keep creditors at bay.

Raymond James Ltd. analyst Ben Cherniavsky added that the decision by the board of directors to install a new CEO underscores the “extreme turmoil” occurring at Air Canada. He said these are tough times for the airline, noting that Mr. Rovinescu is not a traditional airline executive, but someone who has gained expertise from advising the carrier in warding off a hostile takeover bid from Onex Corp. in 1999, and then helping cut costs during the 2003-04 restructuring.

Mr. Cherniavsky said he believes Air Canada’s chances of avoiding a bankruptcy protection filing appears to be 50/50 at best.

Other analysts say the airline may be able to restructure without being forced to take a trip through bankruptcy court again. BMO Nesbitt Burns Inc. Claude Proulx said he believes “the company still has significant cash and has recently concluded a financing with GE Commercial Aviation Services, an unlikely event if Air Canada was on the verge of filing.”

Even if Air Canada were to seek creditor protection, it is widely expected that it would continue to fly passengers, as it did in the last round of court-approved restructuring.

Since emerging from bankruptcy protection in 2004, Air Canada has reduced certain services on basic fares that were formerly free, scrapping complimentary hot meals on North American flights and charging for items such as an inflatable pillow and polyester blanket. For the cheapest fares, collecting Aeroplan points is harder than before, frustrating travellers trying to save up for free flights.

WestJet plans to start its own frequent flier program by the end of 2009, attempting to woo business travellers from Air Canada, which is also feeling the financial squeeze from the growth of Porter Airlines in the busy Toronto-Montreal-Ottawa corridor.

Air Canada class B shares fell as much as 18 per cent on Tuesday morning, hitting an intraday low of 94 cents. The stock has fallen 95 per cent since its initial public offering at $21 a share in 2006.

ACE Aviation Holdings Inc., created after the airline emerged from bankruptcy protection in 2004, owns 75 per cent of Air Canada. ACE class B shares fell 3 per cent early Tuesday afternoon to $5.62.

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