Air Canada Reports 2020 Annual Results
February 12, 2021 at 06:00 AM EST
MONTREAL, Feb. 12, 2021 /CNW/ - 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.
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:
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.
Cost Reduction and Capital Reduction and Deferral Program
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.
Air Canada's 2020 Consolidated Financial Statements and Notes and its 2020 Management's Discussion and Analysis of Results of Operations and Financial Condition are available on Air Canada's website at aircanada.com and will be filed on SEDAR at www.sedar.com.
For further information on Air Canada's public disclosure file, including Air Canada's Annual Information Form dated March 30, 2020, consult SEDAR at www.sedar.com.
Fourth Quarter Analyst Conference Call
Air Canada will host its quarterly analysts' call on Friday, February 12, 2021 at 08:30 a.m. ET. Calin Rovinescu, President and Chief Executive Officer, Michael Rousseau, Deputy Chief Executive Officer and Chief Financial Officer, and Lucie Guillemette, Executive Vice President and Chief Commercial Officer, will be available for analysts' questions. Immediately following the analysts' Q&A session, Mr. Rousseau and Pierre Houle, Vice President and Treasurer, will be available to answer questions from term loan B lenders and holders of Air Canada's bonds.
Media and the public may access this call on a listen-in basis. Details are as follows:
Dial 1-800-806-5484 toll free or +1-416-340-2217
Please allow 10 minutes to be connected to the conference call.
Live audio webcast: https://bell.media-server.com/mmc/p/m74i2d33
CAUTION REGARDING FORWARD-LOOKING INFORMATION
This news release includes forward-looking statements within the meaning of applicable securities laws. Forward-looking statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements may involve, but are not limited to, comments relating to guidance, strategies, expectations, planned operations or future actions. Forward-looking statements are identified using terms and phrases such as "preliminary", "anticipate", "believe", "could", "estimate", "expect", "intend", "may", "plan", "predict", "project", "will", "would", and similar terms and phrases, including references to assumptions.
Forward-looking statements, by their nature, are based on assumptions, including those described in this news release and the documents incorporated by reference herein and are subject to important risks and uncertainties. Notably, Air Canada's expectations with respect to net cash burn are subject to a number of assumptions, including current assumptions regarding its ability to implement its cost reduction programs discussed in this news release and the documents incorporated by reference herein, rates of ticket refunds, and other changes impacting working capital, including the level of advance ticket sales. Forward-looking statements cannot be relied upon due to, among other things, changing external events and general uncertainties of the business of Air Canada. Actual results may differ materially from results indicated in forward-looking statements due to a number of factors, including those discussed below.
Air Canada, along with the rest of the global airline industry, continues to face a severe drop in traffic and a corresponding decline in revenue and cash flows as a result of the COVID-19 pandemic and the travel restrictions imposed in many countries around the world, and particularly in Canada. The impact of the COVID-19 pandemic began to be felt in traffic and sales figures commencing in early March 2020. These impacts include drastic declines in earnings and cash flow from operations. There is very limited visibility on travel demand given changing government restrictions in place around the world and the severity of the restrictions in Canada; these restrictions and concerns about travel due to the COVID-19 pandemic as well as passenger concerns and expectations about the need for certain precautions, such as physical distancing, are severely inhibiting demand. The COVID-19 pandemic is also having significant economic impacts, including on business and consumer spending, which may in turn significantly impact demand for travel. Air Canada cannot predict the full impact or the timing for when conditions may improve. Air Canada is actively monitoring the situation and will respond as the impact of the COVID-19 pandemic evolves, which will depend on a number of factors including the course of the virus, availability of rapid, effective testing, vaccinations and treatments for the virus, government actions, and passenger reaction, as well as timing of a recovery in international and business travel which are important segments of Air Canada's markets, none of which can be predicted with any degree of certainty.
Other factors which may cause results to differ materially from results indicated in forward-looking statements include economic and geopolitical conditions, Air Canada's ability to successfully achieve or sustain positive net profitability, industry and market conditions and the demand environment, Air Canada's ability to pay its indebtedness and maintain or increase liquidity, including through government financial assistance, competition, energy prices, Air Canada's dependence on technology, cybersecurity risks, Air Canada's ability to successfully implement appropriate strategic and other important initiatives (including Air Canada's ability to reduce operating costs), other epidemic diseases, terrorist acts, war, Air Canada's dependence on key suppliers, casualty losses, changes in laws, regulatory developments or proceedings, Air Canada's ability to successfully operate its new loyalty program, climate change and environmental factors (including weather systems and other natural phenomena and factors arising from man-made sources), interruptions of service, Air Canada's dependence on regional and other carriers, Air Canada's ability to preserve and grow its brand, employee and labour relations and costs, Air Canada's dependence on Star Alliance and joint ventures, limitations due to restrictive covenants, pending and future litigation and actions by third parties, currency exchange, the grounding of the Boeing 737 MAX aircraft in certain jurisdictions and risks generally relating to the grounding of aircraft fleet types, pension plans, Air Canada's ability to attract and retain required personnel, insurance issues and costs, as well as the factors identified in Air Canada's public disclosure file available at www.sedar.com and, in particular, those identified in section 17 "Risk Factors" of Air Canada's 2020 MD&A. Furthermore, the acquisition of Transat A.T. Inc. is subject to regulatory approvals and certain conditions, and there are no assurances that the acquisition will be completed as described in this news release or at all. The forward-looking statements contained or incorporated by reference in this news release represent Air Canada's expectations as of the date of this news release or as of the date they are otherwise stated to be made) and are subject to change after such date. However, Air Canada disclaims any intention or obligation to update or revise any forward-looking statements whether because of new information, future events or otherwise, except as required under applicable securities regulations.
The financial and operating highlights for Air Canada for the periods indicated are as follows:
SOURCE Air Canada