Air Canada Seen Turning to ‘Bench Strength’ After COO Poached

(Bloomberg) -- Air Canada has a succession gap now that its No. 2 executive is leaving to run Europe’s largest airline. But the Canadian carrier has a deep management bench that will minimize disruption, say Cowen & Co. and RBC Capital Markets.

Chief Operating Officer Ben Smith will leave Air Canada Aug. 31 to take charge at Air France-KLM, the companies said late Thursday. Smith was widely seen by analysts as a likely successor to Air Canada Chief Executive Officer Calin Rovinescu, who will turn 63 next month.

Smith is leaving Air Canada after the carrier reported records last year for sales and a broad measure of earnings. During a decade-long revamp under Rovinescu, the Montreal-based airline has added more fuel-efficient aircraft such as the Boeing Co. 787 Dreamliner, expanded the Rouge discount unit and cut costs with a 2016 debt financing.

“Ben will be missed, but Air Canada remains well positioned to drive profitability over the next several years,” Cowen’s Helane Becker said in a note to clients. “Air Canada has good bench strength to replace Ben with an internal candidate. We do not expect there will be much deviation from current plans.”

Air Canada fell 1.1 percent to C$23.60 at 9:52 a.m. in Toronto. The shares slid 7.8 percent this year through Thursday, compared with a 5.9 percent decline for major U.S. carriers. Air Canada soared 89 percent last year following a gain of 34 percent in 2016.

Over the last few years, Smith spearheaded the expansion of Air Canada’s network to more than 200 destinations worldwide with a fleet of about 350 planes. He also worked to develop Toronto’s Lester B. Pearson International Airport as the carrier’s main global hub under a so-called “sixth freedom” strategy designed to entice U.S. passengers to fly through Canada on their way to Europe and Asia.

‘Many Architects’

Smith’s departure is “a negative” for Air Canada in the near term, said Walter Spracklin, an analyst at RBC Capital Markets in Toronto.

“We had considered Mr. Smith to be the airline’s next CEO and therefore his departure leaves a gap in terms of succession,” Spracklin said in a report. “Nevertheless, while Mr. Smith had been a key member of senior management, we highlight that Air Canada is a large organization with a number of experienced managers.”

In a statement Thursday thanking Smith for his contributions, Rovinescu highlighted the role played by the “many architects” that helped to restore Air Canada’s health following years of financial losses and labor strife.

“Our deep and highly experienced leadership team will continue to deliver on our global ambitions, achieve our targets and drive our operational performance well into the future,” Rovinescu said.

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