Share in Air Canada could soar in the coming years if the airline continues to show signs of stabilization, according to Will Randow, Citigroup Global Markets analyst.

“While our C$4 target implies 81% upside in the stock, a C$13 valuation could be plausible, over the next few years,” he said in a note to clients.

Firstly, he said the country’s largest carrier’s free cash flow, which is currently not accounted for in his 2011 base target, may add $2 a share in 2012.

Secondly, if the company’s multiple returns to previous levels following more signs of stability, like its second quarter result, it could incrementally add another $2, he said.

Finally, if Canadian interest rates rise once again it could “wipe out” the $2.7-billion pension solvency deficit that currently penalizes his valuation by $5 a share, Mr. Randow said.