CANADA'S AIRLINE PROFITS SEEN HIGHER

  Canada's airline industry, shaken up by
  a recent merger that creates a powerful new competitor for
  government-owned Air Canada, has begun its first serious drive
  for profitability in 50 years, industry analysts said.
      "Now we've got a company that can compete with Air Canada,"
  said Thomas Bradley of Richardson Greenshields of Canada Ltd.
  "Clearly, it can go head-to-head in any market."
      The new airline, which arose from the 300-mln-Canadian-dlr
  takeover of Canadian Pacific Air Lines Ltd by the small but
  cash-rich Pacific Western Airlines Corp, was launched last week
  as Canadian Airlines International Ltd.
      Canadian Airlines will have 35-40 pct of the
  6-billion-Canadian-dlr domestic market, against Air Canada's
  50-55 pct. Wardair International Ltd is third with about nine
  pct.
      Analysts believe Pacific Western's aggressive and
  cost-conscious chairman Rhys Eyton will develop the true
  potential of the former CP Air, which floundered for four
  decades inside the bureaucracy of conglomerate Canadian Pacific
  Ltd.
      They said CP Air's management style had been not much
  different from that of Air Canada, formed 50 years ago, because
  neither airline was held accountable to its owners.
      "Not that long ago, maybe even just six months ago, these
  two airlines were totally fiscally irresponsible. Neither
  seemed that concerned about the bottom line," said Bradley.
      "But with CP Air being run by Eyton, it will be very
  conscious of profitability and shareholder return. And Air
  Canada is on the verge of going that way," he said.
      CP Air, always fighting for market share rather than
  profits, was "a perennial money-loser," analyst Wilfred Hahn of
  Bache Securities Inc said in a recent report.
      Prior to its takeover in December, it had accumulated
  long-term debt of 600 mln Canadian dlrs. From 1981 to 1985, its
  losses totaled 87 mln Canadian dlrs.
      Air Canada, widely expected to be privatized later this
  year in a public share offering, lost 14.8 mln Canadian dlrs on
  revenues of 2.72 billion dlrs in 1985. It has a debt of more
  than 2 billion dlrs.
      Although only a minority interest is likely to be sold to
  the public, the prospect of privatization at a time of
  increased competition is forcing Air Canada to pay more
  attention to finances, analysts said.
      It recently disclosed that it expects to report a profit "in
  excess of 35 mln to 40 mln dlrs" for 1986. However, this profit
  recovery was due less to management skill than the fact that
  all Canadian airlines had a good year in 1986, analysts said.
      Tourists came to Canada in record numbers last year,
  attracted by the relatively weak Canadian dollar and Expo 86 in
  Vancouver, which alone had more than 22 mln visitors.
      For the next few years, most analysts see three-six pct air
  traffic growth, and they expect profits will come from
  cost-cutting and careful spending.
      Peter Friend of Walywn Stodgell Cochran Murray Ltd said
  institutional buyers will be eager to add Air Canada to their
  portfolios as a blue-chip investment, but warned that new
  competition makes profit growth less certain.
      "The airline with something to lose will be Air Canada. At
  one time, it had a fixed system which was theirs and nobody
  else's," Friend said.
      Many analysts recommend that investors buy and hold airline
  shares for at least a year.
      Analysts said Air Canada's immediate concern ahead of a
  public stock offering will be unloading unprofitable air routes
  without setting off a political storm.
      It also will be faced with an expensive but necessary
  updating of its aging fleet of 111 aircraft.
      Wardair, preferring strong medicine now instead of later,
  already has embarked on a one-billion-Canadian-dlr purchase of
  a dozen aircraft from Europe's Airbus Industrie.
      Canadian Airlines, which has 81 aircraft, last week ordered
  six commuter planes from British Aerospace and said it would
  soon buy as many as six wide-bodied aircraft from Airbus or the
  Boeing Co.
      Analysts said Canadian Airlines, with its newer fleet,
  needs to make fewer replacements and can afford these without
  hurting profits.
      Steven Garmaise of Wood Gundy Inc expects Canadian
  Airlines' profit in 1988 will more than double last year's 29.8
  mln Canadian dlrs by Pacific Western.
  

