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Air Canada earnings: Airline posts 'grim' results but 'very encouraged' by government talks over aid

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Alicja Siekierska
·4 min read
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TORONTO, April 27, 2020 .Travellers wearing protective gears arrive at the Air Canada check-in counters of Pearson International Airport in Toronto, Canada, April 27, 2020. Air Canada suspended all scheduled flights to the United States for four weeks starting on Monday. As of Monday afternoon, there were 48,230 confirmed COVID-19 cases in Canada and 2,701 deaths. (Photo by Zou Zheng/Xinhua via Getty) (Xinhua/Zou Zheng via Getty Images)
The Montreal-based airline reported a net loss of $1.16 billion, or $3.91 per diluted share, in the fourth quarter ending Dec. 31. (Xinhua/Zou Zheng via Getty Images)

Air Canada’s (AC.TO) chief executive said he is “very encouraged” by ongoing discussions with the federal government over airline-specific financial support, as the company posted financial results for “the bleakest year in the history of commercial aviation.”

The Montreal-based airline reported a net loss of $1.16 billion, or $3.91 per diluted share, in the fourth quarter ending Dec. 31, compared to a profit of $152 million, or 56 cents per diluted share, in 2019, capping a brutal year for the airline industry.

“While undeniably grim, results such as these are being reported the world over in our industry due to the impact of COVID-19 (and) extremely onerous government-imposed travel restrictions, quarantines and advisories,” Air Canada CEO Calin Rovinescu said on a conference call with analysts Friday.

“In Canada, we continue to contend with a patchwork of new and ever-changing travel restrictions that are stifling travel demand, impacting our ability to operate or plan, and even preventing us from formulating reliable financial guidance.”

Despite the challenging environment, Rovinescu struck an optimistic tone when it came to potential financial aid to help the beleaguered sector.

Rovinescu said the airline has held talks with the government on airline-specific financial support over the last several weeks, and that he was “very encouraged by the constructive nature of discussions.” He added that the company chose to reference the negotiations in a statement released Friday because “for the first time, we view that the discussions have gone to a more advanced nature.”

“While there’s no assurances at this stage that we will arrive at a definitive agreement on sector support, I am more optimistic on this front,” he said.

“The discussions have picked up to a pace I would characterize as more of a negotiation that is in line with something that leads to an outcome. I’m more confident that there can be an outcome now than I was say a month ago.”

Rovinescu said that any deal with the government will include a resolution on passenger refunds, a return of regional routes as well as a form of support for the aerospace sector. He also said that reducing the mandatory 14-day quarantine restrictions on international travellers has been part of the discussions the airline has held with the government. Air Canada has pushed Ottawa to remove its quarantine mandate – which Rovinescu said was “unnecessary” and “less effective than rigorous testing and tracing”” – and rely instead on testing protocols.

Ottawa approves Transat takeover

Air Canada’s financial results were released the day after the federal government approved Air Canada’s proposed purchase of Transat, concluding it was the best probable outcome for workers, Canadian travelers and other industries that rely on air transport. Transport Minister Omar Alghabra said in a statement that the deal “will bring greater stability to Canada’s air transport market.”

Air Canada’s chief rival, WestJet Airlines, slammed the government decision late on Thursday, saying the decision shows that Canada is “closed to competition.”

“This decision shows blatant disregard for all Canadians who believe in healthy competition," WestJet chief executive Ed Sims said in a statement, adding that Canadians will face fewer choices and higher fares when travel returns post-COVID-19. He pointed to a Competition Bureau statement that said “eliminating the rivalry between these airlines would result in increased prices, less choice, decreases in service and a significant reduction in travel by Canadians on a variety of routes where their existing networks overlap."

“It is hard to imagine a deal as anti-competitive in any industry where the number one player buys number three without meaningful remedies,” Sims said.

“This is a serious setback to Canada's economy. The Competition Bureau themselves described such cosmetic remedies as inadequate. Canadians should be profoundly disappointed."

The transaction, which received approval from Transat shareholders in December, still needs regulatory approval from the European Commission.

Air Canada reported a net loss for the 2020 fiscal year of $4.65 billion, or $16.47 per diluted share compared to a net income of $1.45 billion, or $5.44 per diluted share, in 2019. In the fourth quarter the airline burned through $15 million cash per day, bringing the 2020 cash burn to $4.67 billion, or $13 million per day. National Bank analyst Cameron Doerksen wrote in a note to clients Friday that, assuming a cash burn of $17 million per day, the airline would have enough liquidity to last approximately 11 month without any further improvements in revenue.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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