TORONTO -- Cara Operations' $155-million-a-year food service contract with insolvent Air Canada is up in the air, prompting a selloff yesterday in the company's stock and forcing Canada's biggest food services company to rethink its plan to go private. Cara said Air Canada, its largest customer, has "repudiated" its catering and food service contract -- raising the prospect of a hit to the company's revenues and profits and leading to a selloff by investors that wiped out 12 per cent of the Toronto company's stock market value.

Work will continue under the contract until the airline completes its bankruptcy court restructuring, which it hopes to finish by Dec. 31 and not later than March 31.

Although Cara said it will hold discussions this week on a potential new deal, the company's CEO wouldn't say whether he's optimistic.

"In terms of service within Canada, we're the exclusive supplier to the airline. Whether that remains, changes -- whether we become a zero-per-cent supplier or continue to be a 100-per-cent supplier -- remains to be seen," Gabe Tsampalieros said. "We're in a level of uncertainty here. We don't know where it goes."

Air Canada's repudiation of the contract on Friday was called a "material adverse development" by Cara Holdings Ltd., an investment company controlled by members of Cara's founding Phelan family and including Tsampalieros.

Cara Holdings said it is re-evaluating its plan to privatize Cara Operations, which in addition to the airline catering operation owns the Harvey's, Swiss Chalet, Kelsey's and Second Cup restaurant chains.

The contract with Air Canada represented 13.7 per cent of Cara's $1.13 billion in gross revenue during its last financial year.

Shares of Cara Operations plunged as low as $6.25 -- down 19 per cent or $1.45 per share -- on the Toronto stock market before recovering to close at $6.80, down 12.26 per cent on the day.

"It's clearly not good news," said Bill Chisholm, an analyst at Dundee Securities. He doesn't expect an immediate impact on Cara's operations, but said Air Canada's move will create uncertainty "until we know what the terms are with a new contract, if they do get a new contract with them."