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Wednesday, June 19, 2024

Air Canada reports an operating loss of $1.133 billion

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Air Canada released its financial results for the second quarter of 2021 today.

  • Operating revenues of $837 million, up $310 million or 59% from the second quarter of 2020.
  • Negative EBITDA (1) (earnings before interest, taxes, depreciation, and amortization) of $656 million, excluding special items, compared to negative EBITDA (excluding special items) of $832 million in the same quarter of 2020z
  • The operational deficit was $1.133 billion, compared to $1.555 billion in the second quarter of 2020.
  • On average, net cash burn (1) is $745 million, or nearly $8 million every day.
  • At June 30, 2021, there will be almost $9.8 billion in unrestricted liquidity.

“In the second quarter, the COVID-19 epidemic continued to weigh on Air Canada and the Canadian airline industry, with the impact on travel reflected in our results. Our personnel, as they always have, focused on taking care of our clients while transporting them securely to their destinations, and they continued to assure our company’s cautious management. “I appreciate them for their continuous concern, innovation, and hard work in this extremely demanding and complex environment,” said Michael Rousseau, President and CEO of Air Canada.

“We are encouraged to see rising immunization rates and recent science-based relaxations of travel restrictions in Canada. The reduction of the quarantine period for fully vaccinated returning Canadians, as well as other travel restrictions announced in June, resulted in a large rise in bookings. We anticipate that this trend will continue following the July 19th release announcing beneficial adjustments to Canadian travel restrictions. Our employees and other stakeholders should be pleased by the positive industry trends and the significant improvement in our airline’s outlook. However, we will continue to manage our cost structure and balance sheet very carefully, as we have done in the past.

“Our cash burn in the second quarter was roughly $8 million per day on average, which was lower than our previous forecasts of $13–$15 million. This is due to increased reservations and our ongoing successful cost constraints. We had about $9.8 billion in unrestricted liquidity at the end of the quarter. We have observed in nations where the reopening process is further along than in Canada that lifting travel restrictions not only enables travel but also stimulates extra demand for air travel and delivers a powerful stimulant to overall economic activity. Our current booking trend appears to support this, and recent science-based relaxation of travel regulations not only allows customers to go but also boosts their confidence in making travel plans. Taking all of these considerations into account, we can confidently declare that we have reached a tipping point and will shortly see commensurate financial gains, as indicated by our third-quarter cash burn projection of $3–$5 million per day.

“We are excited and prepared to welcome back our loyal clients in greater numbers and to expose them to the many modifications we have made to better their journey. “I am certain that Air Canada will rebuild stronger and rise higher than ever before,” Mr. Rousseau added.

Updates for the Second Quarter

Route Network and Capacity

Air Canada raised its ASM capacity by 78% in the second quarter of 2021 compared to the second quarter of 2020. (a reduction of 86 per cent when compared to the second quarter of 2019).

Air Canada and Air Canada Cargo revealed an early list of planned itineraries for the Boeing 767-300ER freighters slated to enter service later in 2021 on June 14, 2021. Since March 2020, Air Canada has flown over 10,000 all-cargo flights using its wide-body passenger aircraft, including temporarily modified Boeing 777 and Airbus A330 aircraft with more cargo space due to the removal of seats from the passenger cabin.

Air Canada announced their peak summer schedule for 2021 on June 15, 2021, serving a total of 50 Canadian destinations from coast to coast. The schedule was devised to aid Canada’s economic recovery and to assist the country’s tourism and hospitality industries during the critical summer season. It features three new routes, the re-establishment of select regional lines, and wide-body aircraft on select transcontinental routes including Air Canada Signature Class and Premium Economy Class. Air Canada also announced its international schedule for Summer 2021, as well as additional service to Hawaii for the Winter 2022 schedule, in the second quarter of 2021, and operated its debut Montreal–Cairo trip on June 18, 2021.

Air Canada released their summer transborder schedule on July 19, 2021, which includes 55 routes and 34 destinations in the United States, with up to 220 daily flights between the United States and Canada. The new schedule coincides with the easing of Canadian travel restrictions between the two countries, which will take effect on August 9, 2021, including the removal of hotel quarantine requirements for all travellers, relaxed testing requirements for Canadians traveling to the US for less than 72 hours, and allowing fully vaccinated citizens and permanent residents of the US to enter Canada for non-essential travel.

Liquidity and financing

Air Canada completed the following finance agreements in the second quarter of 2021:

Air Canada entered into a series of debt and equity financing agreements with the Government of Canada (acting through Canada Enterprise Emergency Funding Corporation) on April 12, 2021, allowing it to access up to $5.879 billion in liquidity through the Large Employer Emergency Financing Facility (LEEFF) program. The financial package includes completely repaid loans that Air Canada might draw on as needed. The package also included a $500 million equity investment for Air Canada shares at a price of $23.1793 per share, as well as an aggregate of 14,576,564 warrants exercisable for the purchase of an equal number of Air Canada shares, subject to customary adjustments, at a price of $27.2698 per share over a 10-year term; 50% of the warrants vested concurrently with the equity investment (excluding the refunds credit facility). More information on these agreements can be found in the “Overview” section of Air Canada’s Second Quarter 2021 MD&A.

Air Canada repaid US $400 million of the 7.750 percent Senior (Unsecured) Notes on April 15, 2021.

On July 19, 2021, Air Canada announced that it had begun the syndication of a new senior secured term loan B with a maturity date of 2028 (the “Term Loan”) and had completed the syndication of a new senior secured revolving facility with a maturity date of 2025 (the “Revolving Facility,” together with the Term Loan, the “Senior Secured Credit Facilities”). Subject to market and other circumstances, Air Canada aims to complete refinancing agreements totaling approximately US$5.35 billion in gross funds, which will comprise the execution of the Senior Secured Credit Facilities. The Term Loan proceeds will be used to fund I the refinancing of the Company’s 4.75 percent senior secured notes due 2023 and 9.00 percent second lien notes due 2024, and (ii) the refinancing of the Company’s indebtedness under the loan agreement dated October 6, 2016 and consisting of a syndicated secured US dollar term loan B facility and a syndicated secured US dollar revolving credit facility. The Revolving Facility profits will be used to fund working capital and other general corporate purposes for Air Canada and its subsidiaries. When evaluating these refinancing deals, Air Canada will consider a variety of funding sources. The Senior Secured Credit Facilities are projected to close in the later half of August 2021, subject to lender commitments, market circumstances, and normal closing conditions.

Financial Report for the Second Quarter

In the second quarter of 2021, Air Canada reported a net loss of $1.165 billion, or $3.31 per diluted share, compared to a net loss of $1.752 billion, or $6.44 per diluted share, in the second quarter of 2020.

Operating expenses of $1.970 billion reduced $112 million or 5% year over year in the second quarter of 2021, despite a 78% increase in capacity year over year.

Net cash flows used in operating activities of $1.377 billion decreased by $126 million in the second quarter of 2021 compared to the same quarter in 2020, owing to a fall in cash from working capital of $997 million, which was partially offset by an increase in advance ticket sales. Furthermore, an increase in end-of-lease return charges compared to the same quarter in 2020 contributed to a drop in cash flows utilised in operational activities.

Net cash burn of $745 million, or around $8 million per day on average, in the second quarter of 2021 was lower than management’s projection of $13–$15 million per day, as mentioned in Air Canada’s May 7, 2021 press release. EBITDA in the second quarter was higher than planned, owing to ongoing very excellent cost control and swift capacity adjustments to market demand. The EBITDA variance accounted for $2 million per day of the positive net cash burn variance. Working capital added $2 million per day to the positive variation, owing primarily to higher-than-expected advance ticket sales and continued solid management of trade receivables and other working capital items. Capital expenditures were also lower than expected in the third quarter, owing to the stronger Canadian currency.


Air Canada intends to raise its ASM capacity by approximately 85 percent in the third quarter of 2021 compared to the same quarter in 2020. When compared to the same period in 2019, ASM capacity is predicted to decline by around 65% in the third quarter of 2021. The airline continues to alter capacity dynamically and take other actions as needed to account for public health guidelines, worldwide travel limitations, and passenger demand.

In the third quarter of 2021, Air Canada anticipates a net cash burn of $280–460 million (or $3–5 million each day on average). This net cash burn prediction comprises $2 million in capital expenditures each day, net of financing, and $4 million in lease and debt service costs per day. The remaining amount of expected eligible refunds of non-refundable fares being processed pursuant to the change in refund policy announced on April 12, 2021 for flights impacted by the COVID-19 pandemic is excluded from the net cash burn projection for the third quarter of 2021, as these refunds are eligible for draws under the Government of Canada’s $1.404 billion refund credit facility. As a result, these refunds are generally cash neutral to Air Canada’s liquidity situation, up to the facility’s $1.404 billion ceiling.

Air Canada began offering qualifying customers who purchased non-refundable tickets for travel on or after February 1, 2020 but did not fly the option of receiving a refund to the original mode of payment in April 2021. The deadline for requesting refunds under this COVID-19 Refund Policy was extended to July 12, 2021 on June 10, 2021. Air Canada had paid $997 million as of the end of the second quarter and plans to pay an additional $200 million in the third quarter, which will be eligible for draws under the $1.404 billion refund credit facility established by the Government of Canada.

More information on the COVID-19 Refund Policy can be found in the “Overview” section of Air Canada’s Second Quarter 2021 MD&A and on the company’s website at www.aircanada.com.

Non-GAAP Metrics

The following is an explanation of some of the non-GAAP financial measurements used by Air Canada to provide readers with extra information on its financial and operational performance. Such measurements are not recognized as financial statement presentation measures under GAAP, do not have standardized meanings, may not be comparable to similar measures reported by other businesses, and should not be regarded a substitute for, or superior to, GAAP results. Readers should refer to the section headed “Non-GAAP Financial Metrics” in Air Canada’s Second Quarter 2021 MD&A for a more detailed discussion of such non-GAAP measures as well as a reconciliation of such measures to Canadian GAAP.

EBITDA (earnings before interest, taxes, depreciation, and amortization) is a term often used in the airline business, and it is used by Air Canada to show operating results before interest, taxes, depreciation, and amortization. Because of variances in how airlines finance their aircraft and other assets, these costs can vary dramatically between airlines. Air Canada eliminates special items from EBITDA because they may affect analysis of specific business trends and make comparisons to other airlines less useful. For a discussion of special items relevant to the second quarter of 2021, see the “Non-GAAP Financial Measures” section of Air Canada’s Second Quarter 2021 MD&A.

Air Canada uses net cash burn as a measure of cash used to maintain operations, support capital expenditures, and settle normal debt repayments, all before the net impact of additional financing proceeds. Net cash burn is defined as the difference between net cash flows from operating, financing for aircraft deliveries, and investment operations. Proceeds from non-aircraft financings, lump sum debt maturities when Air Canada refinanced or replaced the amount, and proceeds from sale and leaseback transactions are also excluded. Net cash burn also eliminates cash transfers and short and long-term investments, as well as rebates for non-refundable tickets for flights disrupted by the COVID-19 epidemic. Such refunds are eligible for draws under the Government of Canada’s $1.404 billion refunds credit facility, and hence are generally cash neutral to Air Canada’s liquidity position (up to the facility’s $1.404 billion maximum) and boost net working capital.

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