LONDON – In its third-quarter earnings today, Air Canada (AC) has announced an 83% drop in revenues, encouraging the airline to take measures such as deferring aircraft orders and cutting down in size.
The airline has recorded revenues at C$757m as well as a net loss of C$685m as the COVID-19 pandemic continues to wreak havoc on the industry. Because of such losses, the airline stated that it may suspend a further 95 domestic, U.S and international routes from its portfolio in order to preserve liquidity.
It is also understood that nine more Canadian stations may be closed too, which will be more added to the 30 routes suspended and eight stations that were closed in June.
Order Deferrals, Cancellations
As a result of such negative performance, AC has taken the decision to defer and cancel orders for Boeing 737 MAX and Airbus A220 aircraft it has in the backlog. 10 737 MAX 8 aircraft will not be making it to the Air Canada fleet, followed by 12 Airbus A220 aircraft as well.
The airline has 10 A220s in the fleet at the moment, with a total order for 33 units. Five more units are due in this quarter, followed by the additional 18 in 2021-22. For the MAX, it has 24 in its fleet currently, with the remaining 16 due to be delivered between late 2021 and 2023. Such deferrals has saved the airline money, as Rovinescu explains:
“Through this fleet restructuring and other capital reduction initiatives, we have successfully lowered total projected capital expenditures by about $3.0 billion over the 2020 to 2023 period compared to our total projected capital expenditures at the end of 2019.”
Canadian Government Bailout
As announced a few days ago, the Canadian Government is close to producing a bailout for the airline industry. AC’s CEO Colin Rovinescu stated that suspensions and station closures will be placed on hold until more details of the bailout are subsequently released as the Canadian Government may be able to subsidize such costs.
It is understood that the bailout could represent a C$7bn loan into the industry which would be repaid on a low-interest basis over 10 years. Then again, with the government’s initial reluctance to invest in the industry, it may be still small to the point where AC go through with the closures either way.
Continued uncertainty surrounding the Boeing 737 MAX has Rovinescu’s attention on this, with the expectation that the aircraft will not fly in the short remnants of 2020 that is left. “We expect there to be an airworthiness directive issued this year”, he said at the earnings call.
With the MAX’s delayed until late next year, this gives the airline some financial leeway, especially with the aircraft it has had on the ground currently due to the crisis but also because of the pandemic as well. AC hopes that by the late period of 2021, the aircraft will be clear of problems and flying once again.
Strategizing for the Worst Case Scenario
It remains clear that Air Canada has taken the steps it needs to in order to remain viable going to the end of the year and into the beginning of another.
As well as the COVID pandemic being a hurdle in growth, so is the 737 MAX crisis as well. AC will be hoping that this comes to an end very soon so then it can get those aircraft making revenue again. But for now, all the airline can do is strategize for the worst-case scenario and make sure it is liquid enough to cope with any situation.
Finally, we will have to see what the outcome of the Canadian Government bailout will be and whether it will reduce the chances of station closures and route suspensions.
Featured Image: Air Canada Airbus A330-300. Photo Credit: Liam Funnell