‘More financing’ probably needed, says Air Canada
Nation’s biggest airline hunts for cash as interest in domestic travel resurfaces
MONTREAL Air Canada will probably need to look for additional financing even after raising almost $1.6 billion this month via a stock and convertible debt sale, its finance chief said.
With chief executive Calin Rovinescu warning last month the company would require at least three years to fully recover from the impacts of the COVID -19 pandemic, “there will probably be some need for more financing,” chief financial officer Mike Rousseau said Tuesday during an online discussion hosted by National Bank Financial.
“Plus potentially some financing for aircraft deliveries.”
Faced with border closings and government-imposed lockdowns at home and abroad, Air Canada slashed capacity by up to 90 per cent in the first quarter, entering what the CEO called a “state of hibernation.” It also furloughed more than half of its 38,000 workforce and stepped up a cost-reduction plan that’s now estimated to yield more than $1 billion in annual savings.
The recent share and convertible debt issue is “an important overall ingredient in maintaining the balance sheet,” Rousseau said.
“There’s no doubt our comfort level with liquidity is better than it has been.”
Air Canada had unrestricted liquidity of $6.5 billion as of the end of March, according to its first-quarter financial statements. That’s down from $7.4 billion at the end of 2019.
The company still has $2.6 billion of unencumbered aircraft available for financing “if we so choose,” the CFO said.
Aeroplan, Air Canada’s frequent flyer program, could also serve as an additional source of cash.
Canada’s biggest airline will monitor developments at United Airlines after the U.S. carrier said Monday it would use its Mileageplus frequent flyer program as collateral for a new Us$5-billion loan aimed at shoring up cash reserves.
“We are going to be very interested in seeing the terms of conditions of that loan,” Rousseau said. “That just provides us information to make better decisions.”
After forecasting last month that Air Canada would probably burn through about $20 million of cash this quarter, Rousseau said the company is looking for additional savings to ease the financial pressure — potentially by renegotiating some contracts.
“There are certainly additional levers we can pull to lower that cash burn,” he said. “They are more difficult because they typically involve contractual relationships, so they take a little more time and effort, but we’re working on those opportunities as well.”
One positive trend: Leisure customers have resumed buying tickets for travel within Canada.
Corporate travellers, however, may require a bit more time.
“We’re obviously hoping to see some business activity come back post-summer as large corporate clients get back into their offices, probably in September,” the CFO said. “As soon as the U.s.-canada restrictions are lifted, we see the North America markets improving, both from a leisure and a business perspective.”
Based on his personal experience with remote conversations, Rousseau said he’s convinced business travel will eventually rebound. “Not seeing people across the table, talking interactively, I think is a loss for everybody. I’ve had hundreds of these (online) meetings, and I’m hearing from the vast majority of the marketplace that they’re eager to get back and meet clients face to face.”
As soon as ... restrictions are lifted, we see the North America markets improving.