Air Canada posts billion dollar loss in Q1

by Emily Atkins
Air Canada remodelled a Boeing 777 to carry PPE from China to Montreal.

MONTREAL – Air Canada recorded a net loss of $1.049 billion in the first quarter of 2019.

The company today reported first quarter 2020 EBITDA (earnings before interest, taxes, depreciation and amortization) of $71 million compared to first quarter 2019 EBITDA of $583 million.

The airline reported an operating loss of $433 million compared to operating income of $127 million in the first quarter of 2019.

“Our first quarter results reflect the severity and abruptness of the impact that the COVID-19 pandemic has had on Air Canada, which started to be felt across the global airline industry in late January with the suspension by many carriers, including Air Canada, of services to China,” said Calin Rovinescu, president and CEO, in a statement.

The past quarter was the first in 27 consecutive quarters that the airline failed to report year-over-year operating revenue growth.

Rovinescu called the current environment “the darkest period ever in the history of commercial aviation”.

“While the duration of the pandemic and its fallout remain unknown, it is our current expectation that it will take at least three years to recover to 2019 levels of revenue and capacity,” Rovinescu added.

“We expect that both the overall industry and our airline will be considerably smaller for some time, which will unfortunately result in significant reductions in both fleet and employee levels.”

The company reported it has taken or will take the following measures in response to the COVID-19 pandemic:

  • Reduced second quarter 2020 capacity by 85 to 90 per cent when compared to 2019’s second quarter. Third quarter 2020 capacity is expected to be reduced by approximately 75 per cent when compared to the third quarter of 2019. The airline will continue to adjust capacity and take other measures as required to account for health warnings, travel restrictions, border closures globally and passenger demand.
  • Drew down its US$600 million and $200 million revolving credit facilities for aggregate net proceeds of $1.027 billion. As at March 31, 2020, Air Canada’s unrestricted liquidity amounted to $6.523 billion.
  • Concluded a 364-day term loan in the amount of US$600 million, secured by aircraft and spare engines, for net proceeds of $829 million. After giving effect to this facility and estimated declines in asset valuations as a result of COVID-19, Air Canada’s unencumbered asset pool (excluding the value of Aeroplan and Air Canada Vacations) amounts to approximately $2.6 billion. As part of Air Canada’s ongoing efforts to increase liquidity levels, additional financing arrangements continue to be pursued.
  • Concluded a bridge financing of $788 million for 18 Airbus A220 aircraft which may be used for general corporate purposes and which the company expects to replace with longer-term secured financing arrangements later in 2020 with the same lender.
  • In addition to cost savings associated with the significant capacity reductions, workforce reductions and other mitigation programs, the airline initiated a company-wide cost reduction and capital reduction and deferral program which has now reached approximately $1.050 billion, increased from an initial target of $500 million, and continues to seek additional opportunities for cash preservation.
  • Accelerating the retirement of 79 older aircraft from its fleet – Boeing 767, Airbus 319 and Embraer 190 aircraft, with the Embraer aircraft exiting the fleet immediately. Their retirement will simplify the airline’s overall fleet, reduce its cost structure, and lower its carbon footprint.
  • Suspended share purchases under its Normal Course Issuer Bid in early March 2020 and does not intend to renew it upon its expiry.
  • Operated more than 500 all-cargo international flights since March 22, 2020, and plans to operate up to 150 all-cargo flights per week in the second quarter using a combination of Boeing 787 and Boeing 777 aircraft as well as four newly converted Boeing 777 and four converted Airbus 330 aircraft where it has doubled available cargo space by removing seats from the passenger cabin.
  • Adopted the Canada Emergency Wage Subsidy (CEWS) for most of its workforce which allowed it to return previously furloughed Canadian-based employees to its payroll for the March 15 to June 6, 2020 period.