Category Archives: Air Canada

Air Canada puts its new Airbus A220 in TCA colors into service

Air Canada took delivery of the latest Airbus A220-300 (the pictured C-GNBN, msn 55112) on April 3, 2021.

The airliner is painted in the historic and retro Trans-Canada Air Lines livery.

On April 5, 2021 the new addition flew its first revenue flight as flight AC 404 from Toronto (Pearson) to Montreal (Trudeau).

Copyright Photo: TMK Photography.

Air Canada and Transat A.T. Inc. agree to terminate arrangement agreement

Air Canada and Transat A.T. Inc. (Air Transat) announced today that they have mutually agreed to terminate the Arrangement Agreement for the proposed acquisition of Transat by Air Canada.

Air Canada and Transat had originally agreed in June 2019 on the acquisition, the terms of which were subsequently amended in August 2019 and then revised in October 2020 as a result of the severe economic impact of the COVID-19 pandemic.

As previously disclosed, the acquisition was conditional on the approval of various regulatory authorities, including the European Commission (“EC”). In order to meet that key condition, Air Canada offered and enhanced a significant package of remedies, which went beyond the commercially reasonable efforts required of Air Canada under the Arrangement Agreement and what has been traditionally accepted by the EC in previous airline merger cases. Following recent discussions with the EC, it has become evident, however, that the EC will not approve the acquisition based on the currently offered remedy package.

After careful consideration, Air Canada has concluded that providing additional, onerous remedies, which may still not secure an EC approval, would significantly compromise Air Canada’s ability to compete internationally, negatively impacting customers, other stakeholders and future prospects as it recovers and rebuilds from the impact of the COVID-19 pandemic. Especially in this challenging environment, it is essential that Air Canada focus on creating the optimal conditions for its full recovery by preserving and leveraging all of its key strengths and assets including its strong employee culture.

Both Air Canada and Transat have agreed to terminate the Arrangement Agreement with Air Canada paying Transat a termination fee of $12.5 million, and with Transat no longer under any obligation to pay Air Canada any fee should Transat be involved in another acquisition or similar transaction in the future.

Air Canada commits to ambitious net zero emissions goal by 2050

Air Canada has made this announcement:

  • 2030 absolute targets of 20 per cent GHG net reductions from flights plus 30 per cent GHG net reductions from ground operations compared to 2019 baseline
  • Investment of $50 Million in SAF and carbon reductions and removals
  • 2050 goal of net zero GHG emissions from all operations globally

Air Canada today announced its long-term commitment to advancing climate change sustainability throughout its business. The airline has set ambitious climate targets to realize a goal of net-zero greenhouse gas emissions (GHG) throughout its global operations by 2050.  To reach this, Air Canada has set absolute midterm GHG net reduction targets by 2030 in its air and ground operations compared to its 2019 baseline, and has committed to investing $50 Million in Sustainable Aviation Fuel (SAF), and carbon reductions and removals.


<p><a href=”https://vimeo.com/522041298″>Air Canada Commits to Ambitious Net Zero Emissions Goal by 2050</a> from <a href=”https://vimeo.com/aircanadamedia”>Air Canada</a> on <a href=”https://vimeo.com”>Vimeo</a&gt;.</p>

“Economic growth and sustainability are equally important, and we have a strong track record for both. Despite the severe impact of the COVID-19 pandemic, we remain deeply committed to long-term sustainability. Climate change is critical, and we believe we can and must do more to address this for the future of our environment. This is why we are further embedding climate considerations into our strategic decision-making, and undertaking a very ambitious plan that is meaningful, will support Canada’s leadership position on climate change, advance de-carbonization in the airline industry while keeping fares affordable for customers,” said Michael Rousseau, President and Chief Executive Officer at Air Canada.

Air Canada is very focused on investing in innovative, long term, sustainable emission reduction solutions. Absolute 2030 midterm GHG reduction targets have been set to ensure meaningful progress towards Air Canada’s ambitions net zero goal while the airline, technology and energy sectors are transitioning to low carbon alternatives.

Air Canada has identified the following key carbon reduction pillars:

Fleet and operations.  Air Canada will continue deploying its newly modernized and energy efficient Airbus A220 and Boeing 737 MAX narrow-body fleets that are more efficient and expected to average approximately 20 per cent less fuel consumption per seat and emit approximately 20 per cent less CO2 and 50 per cent less nitrogen oxides than aircraft they replace, continue to integrate climate factors in route and fleet planning, phase out carbon-intensive ground equipment, further advance electric vehicles and seek other electrification opportunities.

Innovation.  Further evaluate the viability, safety and performance of new electric, hydrogen or hybrid operational technologies, and other innovations such as short-haul transportation opportunities and electric drones to complement and support Air Canada’s global business network.

Sustainable Aviation Fuels and clean energy.  To further its work on sustainable aviation fuels, Air Canada will invest $50 Million in SAF and other low carbon aviation fuel (LCAF) development, evaluate the practical applications of renewable energy sources such as biogas and renewable electricity, and energy transition measures.

Carbon Reductions and Removals.  Air Canada will explore carbon negative emission technologies and other direct emission reduction and removal strategies in addition to further developing its carbon offset strategy for CORSIA compliance, customer offerings and more.

Air Canada currently reports its carbon footprint, targets and climate protection strategy through the CDP and will also be reporting through the Task Force on Climate-related Financial Disclosures (“TCFD”) framework as of 2022.

Air Canada has built a solid foundation in energy sustainability through numerous comprehensive initiatives to reduce its environment footprint.  Since 1990, Air Canada has improved fuel efficiency by 43 per cent.  From 2016 to 2019, the airline reduced more than 135,000 tonnes of GHG from its air operations through fuel efficiency initiatives, and its work in fuel sustainability includes:

  • Participating in eight biofuel flights with ongoing, active support for the development of SAF in Canada including working with the Government of Canada on policy development to support a Canadian-based sustainable aviation fuel industry.
  • Lead airline on Canada’s Biojet Supply Chain Initiative (CBSCI), a project to identify and solve supply logistic barriers that arise when aviation biofuels are introduced at major Canadian airports.
  • Contributing to the Civil Aviation Alternate Fuel Contrail and Emissions Research project (CAAFCER) to test the environmental benefits of biofuel use on contrail formation, benefiting all aviation stakeholders and climate science researchers.
  • Implementing a technologically advanced livery paint and painting process resulting in significant weight and fuel savings, with no chrome, lead or other heavy metals and is expected to last longer when compared to standard paint.
  • Operational improvements realized through more than 100 projects to optimize fuel consumption,  including  profile departure, RNPAR (a type of performance-based navigation), single engine taxiing to aircraft weight reduction such as the use of lightweight crew luggage, iPads for pilots replacing paper manuals and lighter weight composite onboard carts.

In 2020 and 2019, Air Canada was recognized by Vancouver Airport Authority as the YVR Green Excellence winner for green initiatives on Sea Island including water and energy conservation, waste minimization and the Richmond Ocean Shoreline Cleanup.

In 2018, Air Canada was named Eco-Airline of the Year by Air Transport World for Air Canada’s leadership in fuel efficiency and innovative sustainability, initiatives through a $10 Billion fleet modernization, sustainable aviation fuel development and support in Canada, and fuel efficiency program and route improvements.

Since 2007, a long-standing program offering customer carbon neutral purchase options has resulted in more than 60,000 tC02e of emissions offset.

 

Jazz to become the sole Express operator for Air Canada

Air Canada today announced an agreement to amend the Capacity Purchase Agreement (CPA) with Jazz Aviation LP, a wholly-owned subsidiary of Chorus Aviation Inc., under which Jazz currently operates certain regional Air Canada Express flights.

Through the revised agreement, Air Canada will transfer operation of its Embraer E175 fleet to Jazz from Sky Regional and Jazz will become the sole operator of Air Canada Express services. The revisions to the CPA are subject to Jazz reaching an agreement with the Air Line Pilots Association, International. If this condition is satisfied, the CPA will be amended on a retroactive basis to January 1, 2021.

“Air Canada is consolidating its regional flying with Jazz in response to the ongoing devastating impact of COVID-19 upon the airline industry. This necessary realignment of our regional services will help Air Canada achieve efficiencies and reduce operating costs and cash burn by consolidating its regional operations with one provider. Moreover, by streamlining the regional fleet, this agreement will also position Air Canada to operate more competitively with a single provider as traffic returns following the pandemic,” said Richard Steer, Senior Vice President, Operations and Express Carriers.

Video:

“Sky Regional has provided excellent service to Air Canada and its passengers over the past decade with an impeccable safety record and excellent on time performance and cost management. We thank Sky and all of its employees for their effort, dedication and valued partnership,” said Michael Rousseau, President and Chief Executive Officer of Air Canada.

Sky Regional Fleet is currently comprised of 25 Embraer 175 aircraft.

Sky Regional Airlines Inc. is a Canadian company that operates regional routes on behalf of Air Canada under the Air Canada Express banner. On May 1st in 2011, Sky Regional operated its first commercial flight and went on to service markets such as Toronto City Centre, Montreal, Ottawa, Moncton and Quebec City with a fleet of Bombardier Q400.

In 2013, the airline expanded, adding 15 Embraer E175 series aircraft serving the Northeastern United States, flying in excess of 100 flights per day into cities including Boston, New York, Newark, Philadelphia, Washington, Dallas, and Chicago. In 2016, Sky Regional Airlines expanded its fleet with an additional five E175 aircraft serving such markets as Jacksonville, Houston, Denver and Atlanta.

While early in 2017 the airline saw the departure of the Q400’s, an additional five E175 were added to the fleet. Sky Regional’s entire fleet is now comprised of twenty-five Embraer E175 series aircraft.

Sky Regional routes:

As a result of the CPA revisions and consolidation of regional flying, Air Canada expects to realize $400 million in cost reductions over the 15-year term of the agreement ($43 million per year until 2026 and $18 million per year thereafter). This includes:

  • Increasing near term-cost certainty as a result of the combined fleet under a single operator;
  • Reducing Air Canada’s overall regional flying compensation;
  • Creating related operational costs savings;

In addition, the revised CPA will lower future contractual capital expenditure and leasing costs through a restructured CPA fleet, avoiding an estimated $193 million in future capital expenditures.

Sky Regional Airlines aircraft photo gallery:

Sky Regional Airlines aircraft slide show:

Air Canada paints a new Airbus A220-300 in the TCA retro livery

Air Canada made this announcement on social media with photos:

Fresh from the Airbus paint shop in Montreal Mirabel, our brand new Airbus A220-300 (C-GNBN) proudly recognizes our heritage with a special Trans-Canada Air Lines (TCA) livery. It will soon join our fleet in the sky, stay tuned!

Air Canada records a net loss of $4.647 billion in 2020

Air Canada made this announcement:

Total revenues of $5.833 billion in 2020 declined $13.298 billion or 70 per cent from 2019. The airline reported 2020 negative EBITDA(1) (excluding special items) or (earnings before interest, taxes, depreciation and amortization) of $2.043 billion compared to 2019 EBITDA of $3.636 billion.  Air Canada reported an operating loss of $3.776 billion in 2020 compared to operating income of $1.650 billion in 2019.   Unrestricted liquidity amounted to $8.013 billion at December 31, 2020.

“With today’s release of 2020 fourth quarter and full year results, we close the book on the bleakest year in the history of commercial aviation, after having reported several years of record results and record growth at Air Canada. The catastrophic impact of COVID-19 and government-imposed travel restrictions and quarantines has been felt across our entire network, deeply affecting all of our stakeholders. It has resulted in a 73 per cent decline in passengers carried at Air Canada during the year and an operating loss of nearly $3.8 billion. Yet, despite a year-long onslaught of bad news, uncertainty and challenges posed by constantly changing requirements, our employees valiantly served our remaining customers professionally and transported them safely to their destinations, operated hundreds of repatriation flights and our Cargo team transported essential Personal Protective Equipment to Canada and around the world. I commend them for their courage as well as for their tireless efforts in these exceptionally trying circumstances to position our company well for when we emerge from the pandemic,” said Calin Rovinescu, President and Chief Executive Officer of Air Canada.

“As we move into 2021, while uncertainty remains as a result of the new variants of the virus and changing travel restrictions, the promise of new testing capabilities and vaccines is encouraging and presents some light at the end of the tunnel. As our success raising significant liquidity throughout 2020 indicates, investors and financial markets share our optimistic long-term outlook for our airline.  I am also very encouraged by the constructive nature of discussions that we have had with the Government of Canada on sector-specific financial support over the last several weeks.  While there is no assurance at this stage that we will arrive at a definitive agreement on sector support, I am more optimistic on this front for the first time.

“Given these circumstances, we have made many painful decisions over the past year. These include reducing staff by more than 20,000, dismantling a global network ten years in the making, suspending service to many communities and aggressively cutting fixed costs. At the same time, we have bolstered our liquidity position through several debt and equity financings to allow for additional operational flexibility and to support the implementation of our COVID-19 Mitigation and Recovery Plan. We rationalized our fleet, accelerating the permanent removal of older, less efficient aircraft, and restructured new aircraft orders so that we will have a more fuel-efficient and greener fleet that is right-sized for the post-COVID-19 recovery period. In addition, we completed essential customer-oriented initiatives, such as rolling out our new reservation system and delivering on a much-improved Aeroplan loyalty program that will be amongst the industry leaders. Our Cargo team delivered stellar results in 2020 and showed that we can build a strong, dedicated cargo fleet going forward,” said Mr. Rovinescu.

“As we announced last Fall, I will be retiring as President and Chief Executive Officer effective February 15th and Michael Rousseau, our Deputy Chief Executive and Chief Financial Officer, who has worked very closely with me for the last 12 years, will assume the role.  I have absolute confidence in Mike and the entire leadership team – and know that as a result of our strong culture and discipline, Air Canada has the strength, agility, and resources to overcome the current crisis and to keep adapting to remain a global leader in the post-pandemic world. I am extremely grateful to our customers for their trust and confidence, our employees and partners for their unwavering dedication and loyalty to our airline, and to our Board of Directors for their full support throughout my tenure,” concluded Mr. Rovinescu.

Air Canada has implemented or will be implementing the following measures as part of its COVID-19 Mitigation and Recovery Plan:

Customer Service and Safety 

Air Canada makes safety its first consideration in all that it does and has been continually updating its health and safety policies and procedures for travellers and employees in airports, onboard aircraft and in other workplaces to account for new information about COVID-19 as it becomes available. This includes a requirement for customers and crew to wear a protective face covering, as well as enhanced protective personal equipment for airport agents and crews, the reinforcement of safe practices such as frequent handwashing and collaborating with the Canadian federal government to screen passengers to help determine fitness for flying.

  • To underscore its commitment to customer and employee safety, Air Canada introduced Air Canada CleanCare+. This program is designed to reduce the risk of exposure to COVID-19 through such measures as enhanced aircraft grooming, mandatory preflight customer temperature checks and facial coverings, in addition to required health questionnaires and providing all customers with care kits for hand cleaning and hygiene. In January 2021, Air Canada received the Diamond certification from the Airline Passenger Experience Association (APEX) Health Safety powered by SimpliFlying. The Diamond Certification recognized the airline for achieving hospital-grade levels of biosecurity across multiple passenger touchpoints. The certification program aims to create a global standard for health and safety measures focused on airline customers.
  • Air Canada has introduced numerous touchless processes throughout the customer journey, including: TouchFree Bag Check for flights departing from Canadian airports, the ability to order food directly in Maple Leaf Lounges from smartphones and tablets, touchless self-entry to the Air Canada Café for when it reopens, and provisioning of all newspapers and magazines in digital format via PressReader.
  • Air Canada has undertaken several medical collaborations to continue advancing biosafety across its business, including with Cleveland Clinic Canada in Toronto, a renowned global healthcare leader, to provide additional science-based evidence in our ongoing COVID-19 response; with Ottawa-based Spartan Bioscience to explore rapid COVID-19 testing in an aviation environment; and, since early 2019, with Toronto-based BlueDot, a company that monitors infectious diseases globally in real time to provide accurate, relevant information to make business and safety decisions quickly.
  • Air Canada partnered with McMaster HealthLabs and the Greater Toronto Airports Authority in a study of international travellers arriving at Toronto Pearson International Airport. Preliminary results have indicated that testing can provide an effective, responsible alternative to facilitate the safe relaxation of quarantines. Final results are currently being analyzed and are expected to be published by McMaster HealthLabs and the University of Toronto during the first quarter of 2021.
  • Air Canada is finalizing an initial order of Abbott’s ID NOW COVID-19 rapid response tests as part of its ongoing evaluation of COVID-19 testing technology and protocols, one of the first private sector companies to do so.
  • Air Canada recently conducted a trial with the application of COVID-19 contact tracing technology in its workplace using the Bluetooth enabled TraceSCAN app and wearable technology developed by Canadian-based Facedrive Inc. Following an initial pilot, the use of this technology is being further expanded on a trial basis in other Air Canada workplaces.
  • Air Canada is collaborating with Shoppers Drug Mart to provide Air Canada customers with the opportunity to take a pre-departure COVID-19 PCR test to support compliance with international travel requirements. The test is now available to travellers in OntarioAlberta, and British Columbia.
  • Air Canada is working with the Creative Destruction Labs rapid testing consortium on rapid antigen screening in the workplace starting with pilots in Toronto and Montreal.
  • Air Canada is the first Canadian airline to offer its customers the safety and convenience of a new boarding option utilizing facial biometrics. The technology is now available for customers departing from San Francisco International Airport. The airline plans to expand biometric boarding options to other U.S. airports in the near future and is currently exploring options which could be viable at Canadian airports.

Capacity and Route Network

As a result of the impact of the COVID-19 pandemic and related travel restrictions, Air Canada reduced ASM capacity by 67 per cent in 2020 compared to 2019 and plans to reduce first quarter 2021 capacity approximately 85 per cent compared to the first quarter of 2019 (also represents a reduction of approximately 83 per cent compared to the first quarter of 2020).  The airline will continue to dynamically adjust capacity and take other measures as required to adjust for demand, including as a result of health warnings, travel restrictions, quarantines, border closures and market and regulatory conditions.

Canadian travel and quarantine restrictions include the following:

  • Travel bans prohibiting all foreign nationals from entering Canada by air under provisions of the Aeronautics Act and Quarantine Act under two different orders (one for United States arrivals and one for all other international arrivals), subject to limited exceptions (for example, for family members, compassionate reasons, and international students).
  • 14–day quarantine requirements under the Quarantine Act for all travellers entering Canada, including Canadians.
  • Interprovincial restrictions on travel and/or quarantines in numerous provinces, including Nova ScotiaNew BrunswickPrince Edward IslandNewfoundlandManitoba, and in the three territories – for all persons including Canadians.
  • The Government of Canada also has a global travel advisory in place advising Canadians to avoid all nonessential travel outside of Canada.
  • Effective January 7, 2021, the Government of Canada requires airline passengers five years of age or older entering Canada from an international destination to provide, prior to boarding a flight, a negative COVID-19 PCR test, subject to limited exceptions (for example, airline crews re-entering Canada and aircraft maintenance engineers). Despite a negative COVID-19 PCR test, all customers entering Canada are required to complete the full mandatory 14-day quarantine.
  • On January 29, 2021, the Canadian Government announced the following additional restrictions and measures:
    • Effective February 4, 2021, all scheduled international passenger flights into Canada must land at the following four airports: Montréal-Trudeau International Airport, Toronto Pearson International Airport, Calgary International Airport, and Vancouver International Airport.
    • All Canadian airlines have suspended flight to Mexico and the Caribbean between February 1 and April 30, 2021.
    • All air travellers arriving in Canada, with limited exceptions, will shortly be required to take a COVID-19 PCR test upon arrival and quarantine at a Government of Canada-approved hotel at their own expense while they await their results.  If the result of the COVID-19 PCR test is negative, travellers will be able to complete the 14-day mandatory quarantine at a suitable location of their choice that allows them to observe their quarantine. If the COVID-19 PCR result is positive, travellers will have to complete the mandatory 14-day quarantine at a Government of Canada-supervised facility.

Financing and Liquidity

Air Canada concluded a series of financing transactions in 2020, totalling $6.780 billion, to support the implementation of its planned mitigation and recovery measures in response to the COVID-19 pandemic and provide it with additional operational flexibility.

  • In March 2020, Air Canada drew down its US$600 million and $200 million revolving credit facilities for aggregate net proceeds of $1.027 billion.
  • In June 2020, Air Canada concluded an underwritten public offering of 35,420,000 Class A variable voting shares and/or Class B voting shares of Air Canada at a price of $16.25 per share, for aggregate proceeds of $576 million, and a concurrent private placement of convertible senior unsecured notes due 2025 for aggregate proceeds of US$748 million ($1.011 billion).
  • In June 2020, Air Canada completed a private offering of $840 million aggregate principal amount of 9.00 per cent Second Lien Secured Notes due 2024, which were sold at 98 per cent of par.
  • In June 2020, Air Canada completed a private offering of one tranche of Class C Enhanced Equipment Trust Certificates (“EETCs”) with a combined aggregate face amount of approximately US$316 million ($426 million), which were sold at 95.002 per cent of par.
  • In September 2020, Air Canada concluded a private offering of two tranches of EETCs, the proceeds of which were used to purchase equipment notes issued by Air Canada and secured by three Boeing 787-9 aircraft, three Boeing 777-300ER aircraft, one Boeing 777-200LR and nine Airbus A321-200 aircraft. The two tranches of certificates have a combined aggregate face amount of US$553 million ($740 million) and a weighted average interest rate of 5.73 per cent. Air Canada used the proceeds from this financing together with cash on hand to repay in full the US$600 million ($803 million) 364-day term loan originally put in place in April 2020 and discussed in Air Canada’s second quarter 2020 MD&A.
  • In September 2020, Air Canada concluded a committed secured facility totaling $788 million to finance the purchase of the first 18 Airbus A220 aircraft.  As aircraft are financed under this facility, the bridge financing of $788 million put in place in April 2020 (and discussed in Air Canada’s second quarter 2020 MD&A) will be repaid concurrently.  At December 31, 2020, there were 15 Airbus A220 aircraft financed under this facility with the corresponding bridge financing repaid.
  • In October 2020, Air Canada completed sale and leaseback transactions for nine Boeing 737 MAX 8 aircraft for total proceeds of US$365 million ($485 million). The nine aircraft were delivered to Air Canada in the past three years.
  • In December 2020, Air Canada concluded an underwritten public offering of 35,420,000 Class A variable voting shares and/or Class B voting shares of Air Canada at a price of $24 per share, for aggregate proceeds of $850 million. In January 2021, the underwriters exercised their over-allotment option to purchase an additional 2,587,000 shares at a price of $24 per share, for gross proceeds of $62 million.
  • Air Canada’s unencumbered asset pool (excluding the value of Aeroplan, Air Canada Vacations and Air Canada Cargo) amounted to approximately $1.7 billion at December 31, 2020.  As part of Air Canada’s ongoing efforts to maintain adequate liquidity levels, additional financing arrangements continue to be assessed and may be pursued.
  • Air Canada suspended share purchases under its Normal Course Issuer Bid in early March 2020 and did not renew its issuer bid upon its expiry in the second quarter of 2020.

Cost Reduction and Capital Reduction and Deferral Program

  • Air Canada completed a company-wide cost reduction and capital reduction and deferral program for 2020 which reached $1.7 billion.  On a capacity reduction of 67 per cent, 2020 operating expenses decreased $7.872 billion or 45 per cent from 2019, reflecting the significant progress made on both managing variable costs and reducing fixed expenses. Air Canada continues to seek additional opportunities for cost reduction and cash preservation.
  • Air Canada completed a workforce reduction of approximately 20,000 employees, representing more than 50 per cent of its workforce.  This was achieved through layoffs, terminations of employment, voluntary separations, early retirements, and special leaves. In January 2021, Air Canada announced another workforce reduction of approximately 1,700 employees. The airline is working with its unions on mitigation programs.
  • Air Canada adopted the Canada Emergency Wage Subsidy (CEWS) for most of its workforce effective March 15, 2020. The net benefit for employee wages under this program in 2020 was $554 million, which has supported the airline in retaining a workforce well in excess of current capacity levels.  In September 2020, the Government of Canada announced an extension of the program to June 2021. Air Canada intends to continue its participation in the CEWS program, subject to meeting the eligibility requirements.
  • Air Canada is permanently retiring 79 older aircraft from its fleet – consisting of its less efficient Boeing 767, Airbus A319 and Embraer 190 aircraft. Their retirement will reduce Air Canada’s cost structure, simplify the airline’s overall fleet, and lower its carbon footprint.
  • Air Canada concluded an amendment to the purchase agreement for Airbus A220-300 aircraft which became effective in early November 2020 and pursuant to which Air Canada has deferred 18 aircraft deliveries over 2021 and 2022.  Also, Air Canada will not be purchasing the last 12 Airbus A220 aircraft from its original order of 45 aircraft.
  • In early November 2020, Air Canada also amended its agreement with Boeing to cancel 10 Boeing 737 MAX 8 aircraft deliveries from its firm order of 50 aircraft and to defer its remaining 16 aircraft deliveries over the late 2021 to 2023 period.
  • Through its fleet restructuring and other capital reduction initiatives, Air Canada lowered its planned capital expenditures by approximately $3.0 billion for the 2020 to 2023 period compared to its projected capital expenditures at the end of 2019.

Aviation Sector Financial Support

In the fourth quarter of 2020, the Canadian government announced that it was developing a package of assistance to Canadian airlines, airports and the aerospace sector and indicated that any assistance provided as part of such package would (i) include strict conditions to protect Canadians and the public interest, (ii) require airlines to provide ticket refunds for flights postponed or cancelled in relation to the COVID-19 pandemic, and (iii) ensure Canadians and regional communities retain air connections within Canada.

Unlike in many other countries, including the United States, the Canadian government has not provided any financial assistance or other relief specifically for Canadian airlines in response to the COVID-19 pandemic. For example, the United States, through several initiatives under the CARES program, has provided the U.S. industry approximately US$65 billion in support through various loans, grants and other programs, which most of the U.S. airlines have accessed.

Air Canada is encouraged with the constructive nature of discussions that it has had with representatives of the Canadian government with a view to securing financial support to help ensure the competitiveness of Air Canada and the Canadian airline industry and which, if successful, would be expected to take into account the above policy considerations set out by the Canadian government. While discussions are advancing, there can be no assurance that such discussions will lead to the completion of definitive agreements with the Government of Canada on sector financial support on terms acceptable to Air Canada.

Proposed Acquisition of TRANSAT A.T.

On October 10, 2020, Air Canada announced amendments to the acquisition transaction with Transat A.T. Inc. (“Transat”) previously disclosed. The acquisition agreement provides for the acquisition by Air Canada of all the shares of Transat for $5.00 per share, payable at the option of Transat shareholders in cash or shares of Air Canada at a fixed exchange ratio of 0.2862 Air Canada share for each Transat share (representing a price for the Air Canada shares of $17.47). However, the transaction remains subject to certain conditions including, notably, the ongoing approval process of regulatory authorities.

Under the acquisition agreement with Transat, closing of the transaction was to be completed no later than February 15, 2021; it may be extended at any time by agreement of the parties and remains in force unless terminated by either of them.

Full Year 2020 Summary

Air Canada recorded a net loss of $4.647 billion or $16.47 per diluted share compared to net income of $1.476 billion or $5.44 earnings per diluted share in 2019.

In 2020, net cash used in operating activities of $2.353 billion deteriorated by $8.065 billion from 2019 on lower operating results and lower cash from working capital due to lower advance ticket sales, both reflecting the impact of the COVID-19 pandemic. The first quarter of 2019 was favourably impacted by receipts amounting to $1.612 billion in conjunction with Air Canada’s acquisition of Aeroplan.

In 2020, net cash flows from financing activities of $4.702 billion increased $6.151 billion from 2019.  In 2020, net proceeds from equity and debt financings amounted to $7.553 billion, reflecting the impact of the financing transactions discussed above.

In 2020, net cash flows used in investing activities of $733 million reflected a reduction of $2.062 billion from 2019, mainly due to a lower level of capital expenditures year-over-year, proceeds from the sale and leaseback of nine Boeing 737 MAX 8 aircraft, and movements between cash and short and long-term investments.  At December 31, 2020, Air Canada had 15 Airbus A220 aircraft in its operating fleet.  Additions to property and equipment is net of additional settlement payments received from Boeing related to the grounding of the 737 MAX fleet.  The first quarter of 2019 included the impact of Air Canada’s acquisition of Aeroplan on January 10, 2019.

At December 31, 2020, net debt of $4.976 billion increased $2.135 billion from December 31, 2019, reflecting the impact of net cash used for operating and investing activities in 2020, as discussed above.  The impact of a stronger Canadian dollar, at December 31, 2020 compared to December 31, 2019, decreased foreign currency denominated debt (mainly U.S. dollars) by $346 million.

In 2020, net cash burn(1) was $4.672 billion, or approximately $13 million per day, on average.

Fourth Quarter Summary

Air Canada recorded negative EBITDA (excluding special items) of $728 million in the fourth quarter of 2020 compared to EBITDA of $665 million in the fourth quarter of 2019.  The airline reported an operating loss of $1.003 billion and a net loss of $1.161 billion or $3.91 per diluted share in the fourth quarter of 2020 compared to operating income of $145 million and net income of $152 million or $0.56 per diluted share in the fourth quarter of 2019.

In the fourth quarter of 2020, net cash flows used in operating activities of $796 million deteriorated by $1.473 billion from the same quarter in 2019 on lower operating results, reflecting the impact of the COVID-19 pandemic.

In the fourth quarter of 2020, net cash flows from financing activities of $558 million improved $959 million from the fourth quarter of 2019.  Net proceeds from equity and debt financings amounted to $1.066 billion in the fourth quarter of 2020 while reduction of long-term debt and lease liabilities amounted to $508 million.

In the fourth quarter of 2020, net cash flows received from investing activities of $159 million reflected an increase of $312 million from the fourth quarter of 2019, mainly due to proceeds from the sale and leaseback of nine Boeing 737 MAX 8 aircraft.

In the fourth quarter of 2020, net cash burn of $1.384 billion, or approximately $15 million per day, on average, was in line with management’s expectations provided in Air Canada’s December 15, 2020 news release of between $14 million to $16 million per day, on average. Air Canada’s net cash burn included $4 million per day in capital expenditures and $4 million per day in lease and debt service costs. Net cash burn, after including proceeds of the aircraft financing consummated in the fourth quarter of 2020 (related to the delivery of five Airbus A220 aircraft), was $12 million per day, on average.

Outlook and Major Assumptions

As indicated above, Air Canada plans to reduce its first quarter 2021 capacity by approximately 85 per cent from the same quarter in 2019 (a reduction of approximately 83 per cent compared to the first quarter of 2020), which is greater than the 80 per cent reduction (compared to the same quarter in 2019) that Air Canada announced in its January 13, 2021 news release.  The revised lower projected capacity is primarily driven by the more severe travel restrictions recently announced, including the requirement of a negative pre-departure COVID-19 PCR test from international destinations, the suspension of flights to Mexico and the Caribbean effective February 1, 2021, the announcement of required arrival testing at four designated funnel airports from all international destinations, and the imposition of supervised quarantine periods at government-mandated hotels. The airline will continue to dynamically adjust capacity and take other measures, including as required to account for health warnings, travel restrictions, border closures globally and passenger demand.

For 2021, Air Canada has updated its definition of net cash burn to include net financing proceeds received related to aircraft deliveries, as these proceeds reduce net cash flows related to investing activities.  Refer to “Non-GAAP Measures” below for additional information.

Based on this updated definition, Air Canada projects net cash burn of between $1.35 billion and $1.53 billion (or between $15 million and $17 million per day, on average) in the first quarter of 2021.  This net cash burn projection includes $4 million per day in lease and debt service costs and $2 million per day in net capital expenditures.

The increase in projected net cash burn versus the net cash burn of an average of $12 million per day in the fourth quarter of 2020 is primarily due to lower EBITDA and lower advance ticket sales and other working capital items.  In addition, net capital expenditures increased $1 million per day compared to the fourth quarter of 2020.

(1) Non-GAAP Measures

Below is a description of certain non-GAAP financial measures used by Air Canada to provide readers with additional information on its financial and operating performance. Such measures are not recognized measures for financial statement presentation under GAAP, do not have standardized meanings, may not be comparable to similar measures presented by other entities and should not be considered a substitute for, or superior to, GAAP results.  Readers are advised to review the section entitled Non-GAAP Financial Measures in Air Canada’s Fourth Quarter 2020 MD&A for a further discussion of such non-GAAP measures and a reconciliation of such measures to Canadian GAAP.

EBITDA (earnings before interest, taxes, depreciation and amortization) is commonly used in the airline industry and is used by Air Canada as a means to view operating results before interest, taxes, depreciation and amortization as these costs can vary significantly among airlines due to differences in the way airlines finance their aircraft and other assets.  Air Canada excludes special items from EBITDA as these items may distort the analysis of certain business trends and render comparative analysis to other airlines less meaningful.

Net cash burn is commonly used in the airline industry and is used by Air Canada as a measure of cash used to maintain operations, support capital expenditures, and settle normal debt repayments, all before the net impact of new financing proceeds.  Net cash burn is defined as net cash flows from operating, financing, and investing activities, and excludes proceeds from new financings, lump sum debt maturities made where the Corporation has refinanced or replaced the amount, and proceeds from sale and leaseback transactions.  Net cash burn also excludes movements between cash and short and long-term investments. For 2021, net cash burn will also include net financing proceeds received related to aircraft deliveries, as these proceeds reduce net cash flows related to investing activities.

Transat announces approval of its arrangement with Air Canada by Canadian authorities

Transat A.T. Inc. (Air Transat) issued this statement:

Transat A.T. Inc. has announced that the Canadian government has approved the arrangement with Air Canada contemplated under the revised arrangement agreement between Transat and Air Canada dated October 9, 2020.

This authorization is subject to the implementation of significant undertakings agreed to by Air Canada, the object of which is firstly to ensure effective competition, and secondly to ensure public interest benefits (including maintaining a Transat head office in Québec, the preservation of jobs and the Transat brand, and the launch of new routes).

With the approval of Canadian authorities now in hand, the other significant regulatory approval remaining to allow the parties to consummate the Arrangement is the approval of the European Commission. Given the time required for the Commission to review the last additional information requested, the review period has been extended and a decision of the Commission is now expected to be rendered in the first half of 2021.

Transat will discuss with Air Canada the appropriateness of extending the outside date for the consummation of the Arrangement under the Arrangement Agreement, which is currently set at February 15, 2021. After this date, if it is not extended, the Arrangement Agreement will remain in effect, unless terminated by one of the parties.

“We are currently working on adjusting all of the deadlines, including our financing agreements, in order to align them with the anticipated completion of the Commission’s review process” commented Mr. Jean-Yves Leblanc, Chair of the special committee of the Board of Directors of Transat.

 

Government of Canada approves proposed purchase of Transat A.T. Inc. by Air Canada

Transport Canada issued this statement:

Air travel is essential to Canada’s economic growth and prosperity. Travellers and businesses alike benefit from a safe, efficient and resilient air industry.

The Honourable Omar Alghabra, Minister of Transport, today announced that the Government of Canada has approved the proposed purchase of Transat A.T. Inc. by Air Canada, subject to strict terms and conditions that are in the interests of Canadians.

In determining the proposed purchase is in the public interest, the Government of Canada considered a broad range of factors, such as level of service, wider social and economic implications, the financial health of the air transportation sector, and competition.

The COVID-19 pandemic was a key factor in the final decision. As Transat A.T. itself noted in December 2020, current uncertainty casts doubt on its ability to continue, as it faces significant financing challenges. Noting the effects of the pandemic on air service in general, and on Transat A.T. in particular, the Government of Canada has determined that the proposed acquisition offers the best probable outcomes for workers, for Canadians seeking service and choice in leisure travel to Europe, and for other Canadian industries that rely on air transport, particularly aerospace.

The public interest assessment conducted by Transport Canada was complex, and necessitated a rigorous analysis and consultation with Canadians and stakeholder groups.  Online public consultations ran from November 4, 2019, to January 17, 2020. The public interest assessment also included input from the Canadian Commissioner of Competition, who looked at how the proposed purchase would affect competition in the air sector; and his report was published in March 2020. Transport Canada completed the public interest assessment in May 2020.

This proposed acquisition, which was endorsed by Transat A.T.’s shareholders on December 15, 2020, provides clarity and stability with regard to the company’s future, despite the effects of the pandemic. It will also result in enforceable terms and conditions intended to facilitate future connectivity and competition on routes to Europe previously operated by Transat A.T. These terms and conditions reflect extensive engagement with Air Canada and Transat A.T. regarding measures they were prepared to undertake to address issues raised by the public interest assessment.

The Government of Canada is aware that some Transat A.T. customers are still waiting for refunds for flights cancelled due to COVID-19. Refunds are an integral part of the negotiations with airlines regarding any assistance plan, and the government will continue to take into account the needs of Transat A.T. customers.

Above and beyond the terms and conditions, Air Canada will have a duty to ensure that, as a subsidiary of Air Canada, Transat A.T. will provide communications and services to the public in both official languages.

The terms and conditions associated with the proposed acquisition include:

  • Measures to facilitate and encourage other airlines to take up former Transat A.T. routes to Europe;
  • Preserving the Transat A.T. head office and brand in Quebec;
  • Employment commitment of 1,500 employees around the new entity’s leisure travel business;
  • Commitment to facilitate aircraft maintenance in Canada, prioritizing contracts in Quebec;
  • A price monitoring mechanism; and
  • Launch and operation of new destinations within the first five years.

As per the legislative process, the final decision rests with the Governor in Council.

Air Canada suspends all Rouge operations

Air Canada suspended Air Canada Rouge operations as of February 8 due to COVID-19 travel restrictions.

Air Canada previously announced that beginning on January 31, it was temporarily suspending flights to Mexican and Caribbean destinations for 90 days in response to ongoing COVID-19 concerns, particularly during the Spring Break period. The decision, designed to achieve an orderly reduction in service and minimize customer impact, was taken in collaboration with the Government of Canada following consultations.

Air Canada Rouge operated most of those flights.

Air Canada to suspend flights to the Caribbean and Mexico

Air Canada today said that, beginning January 31, 2021, it is temporarily suspending flights to Mexican and Caribbean destinations for 90 days in response to ongoing COVID-19 concerns, particularly during the Spring Break period. The decision, designed to achieve an orderly reduction in service and minimize customer impact, was taken in collaboration with the Government of Canada following consultations.

“Air Canada believes a collaborative approach with the Government of Canada involving all air carriers is the best means to respond to the COVID-19 pandemic, especially given concerns around the variants of COVID- 19 and travel during the Spring Break period. Through consultation we have established an approach that will allow us to achieve an orderly reduction in service to these destinations that minimizes the impact on our customers and will support important public health goals to manage COVID-19.  System-wide the incremental impact on Air Canada’s cash burn is not material given the already reduced levels of passenger traffic resulting from COVID-19 and travel restrictions,” said Calin Rovinescu, President and Chief Executive Officer at Air Canada.

Following consultations with the federal government, Air Canada has agreed to suspend operations to 15 destinations beginning this Sunday, January 31 until Friday, April 30. To help ensure Canadians are not stranded abroad, Air Canada plans to operate a number of one-way commercial flights from affected destinations after January 31 in order to return customers at the suspended destinations to Canada.

Affected customers will be offered full refunds given the services are being suspended with no alternative available.

Suspended destinations include:

  • Cayo Coco
  • Cancun
  • Liberia
  • Montego Bay
  • Punta Cana
  • Varadero
  • Puerto Vallarta
  • Antigua
  • Aruba
  • Barbados
  • Kingston
  • Mexico City
  • Nassau
  • Providenciales
  • San Jose