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Air Canada shares rise on encouraging forecast

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Shares of Air Canada (AC.B-T) climbed as much as 16 percent on Friday after it offered a stronger-than-expected first-quarter profit estimate, bringing a ray of optimism to the country's largest airline after months with labor strife.

The carrier, which also reported a bigger cash position than some analysts had expected, said it would take charges of $120 million related to the collapse of Aveos Fleet Performance Inc., its plane maintenance contractor.

Shares touched a high of 96 cents on Friday before drifting lower. It is still a far cry from the $21 initial public offering price in November 2006.

The airline, which reports its financial results May 4, said late on Thursday it expected first-quarter earnings before interest, taxes, depreciation, amortization and aircraft rent to come in at between $170 million and $180 million.

That is well above Canaccord Genuity analyst David Tyerman's forecast of $75 million and a $101 million estimate by PI Financial analyst Chris Murray.

Tyerman raised his stock target to $6.50 from $5.25 on the news, which he said may reflect higher ticket prices.

The Montreal-based company also said it had $2.25 billion in cash and short-term investments as of March 31, up about $135 million from a year earlier.

"The company's liquidity position remains very strong, as we believe it only requires about $1 billion to operate," Tyerman said in a note.

The results may also get a boost from the deferral of heavy maintenance expenses to future quarters, due to the shutdown of Aveos, which filed for creditor protection on March 19.

Air Canada had previously forecast a 10-percent increase in maintenance costs in 2012, with much of the impact felt in the first quarter, Murray said.

"We expect some costs to shift to future periods, although we anticipate maintenance expenses to be lower than prior forecasts given more competitive pricing obtained from alternate vendors," he wrote in a note.

"Initial reporting from a number of comparable airlines has also shown some improvement over our previous assumptions for passenger yields, particularly on a number of international routes."

Air Canada expects it will have sent about 50 planes to two Quebec maintenance, repair and overhaul companies -- Avianor and Premier Aviation -- from Aveos' closure to the start of peak summer travel in June.

Constraints in Canadian capacity and capability means the airline must send about 60 planes out of Canada for maintenance work, said Air Canada spokesman Peter Fitzpatrick.

Those facilities include Premier's New York operation, Aeroframe and TIMCO in the United States, ST Aerospace in Singapore, Lufthansa Technik in Ireland and HAECO in Hong Kong, he said.

"We said from the beginning work might have to go outside Canada, but that we would give priority to Canadian providers," Fitzpatrick said.

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