Air Canada suspends financial guidance after regulators ground 737 Max 8

MONTREAL — Canada’s largest airline suspended its 2019 financial guidance after regulators in Canada and the United States closed their skies to the Boeing 737 Max 8 aircraft over safety concerns.

Air Canada said Friday that “in light of the current uncertainty” it is freezing the sunny forecast it released last month for the 2019 financial year, though its healthy predictions for 2020 and 2021 remain in place.

Analyst David Ocampo of Cormark Securities said the Max 8 ban will be “a significant hit” in the near term, “and they don’t necessarily know how long this ban will last.”

Max 8 aircraft, which aviation authorities across the globe grounded in the wake of the deadly Ethiopian Airlines crash Sunday, make up about 10 per cent — 24 airplanes — of the main 243-plane fleet operated by Air Canada and its low-cost offshoot, Rouge.

The Montreal-based airline can delay retirement or scheduled maintenance for some planes, but older aircraft such as the Airbus A320 are not as fuel efficient and others can only avoid maintenance for so long before heading back to the hangar, further reducing capacity.

On Friday, Air Canada reassured investors that its guidance for the years 2020 and 2021 for margin on earnings before interest, taxes, depreciation and amortization (EBITDA) and return on invested capital, as well as the cumulative free cash flow over the 2019-2021 period, remains in place.

The airline predicted on Feb. 28 annual EBITDA margins of between 19 per cent and 22 per cent through 2021, topping the street consensus of 17.5 per cent, according to analyst Doug Taylor of Canaccord Genuity Corp.

Air Canada had also said it expected cumulative free cash flow of between $4 billion and $4.5 billion from 2019 until 2021, beating the previous guidance of between $2 billion and $3 billion.

Analyst Walter Spracklin of RBC Dominion Securities advised investors not to be alarmed.

“We believe the company has avenues to work around the grounding, including the longer in-service use of older aircraft, possible access to third-party aircraft, the temporary use of different gauge aircraft and if necessary the temporary suspension of some routes,” he said in a research note Friday.

Spracklin said the airline’s move “does not come as unexpected and, more importantly, we do not consider it to be impacting our longer-term view on the shares.”

Regulators around the world grounded the Boeing 737 Max 8 and Max 9 aircraft over safety concerns arising from the crash of Ethiopian Airlines Flight 302 that killed 157 people, including 18 Canadians.

Concerns have been raised regarding apparent similarities with a Lion Air flight involving the same aircraft that plunged into the Java Sea shortly after takeoff on Oct. 29, killing all 189 passengers and crew.

The Federal Aviation Authority has mandated Boeing Co. to update by April the software on the more than 375 Max 8s now out of commission around the world, a cost that will likely fall on the plane maker, Ocampo said.

An Air Canada spokeswoman wrote in an email it is “too soon to say” how much the software update might cost either company.

This is not the first time Boeing has faced a ban. In 2013, regulators worldwide grounded its 787 Dreamliners due to safety concerns around the jetliner’s lithium-ion batteries. The company paid airlines an undisclosed amount as a result.

“They do pay for delays with delivering aircraft, so I imagine that there is some sort of offset with the grounding of the fleet,” Ocampo said, regarding possible compensation for the Max 8 ban.

Air Canada and WestJet Airlines Ltd. have declined to reveal those service agreement details to analysts, he said.

Collectively, the airlines cancelled more than two-dozen flights Thursday, affecting roughly 12,000 spring-break passengers as they scrambled to rearrange flight schedules over the next three weeks.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Trudeau cancels Caribbean trip amid pipeline protests

OTTAWA — Prime Minister Justin Trudeau is cancelling his planned trip to… Continue reading

Town of Ponoka facing lawsuit from pair of local residents

Ponoka town council members and administration have been served with a lawsuit… Continue reading

Trudeau confers with cabinet ministers as rail blockades continue

The Trudeau government has been criticized for not doing more to end the blockades

Minister reports ‘modest progress’ after blockade talks with First Nation

TYENDINAGA, Ont. — Hours of talks between the federal government and representatives… Continue reading

Red Deer County investing in fibre optics

County investing $7 million over two years to improve Internet connections

Fashion Fridays: Apple body types: What you need to know

Kim XO, helps to keep you looking good on Fashion Fridays on the Black Press Media Network

Your community calendar

Feb. 6 A Perogie Supper is being held Thursday, Feb. 6 from… Continue reading

Woman loses 50 pairs of shoes after boyfriend accidentally donates them to thrift store

Cassandra Converse can’t wait to go shoe shopping. Last month, Converse’s boyfriend… Continue reading

RDC Queens fall in double OT to MacEwan University Griffins

Griffins 4 Queens 3 (2OT) The RDC Queens managed to salvage a… Continue reading

Trump takes Daytona 500 warmup lap in presidential limousine

DAYTONA BEACH, Fla. — President Donald Trump gave an election-year embrace to… Continue reading

Canada expected to support heavy fuel ban in Arctic despite costs to northerners

The federal government is expected to support international measures that would reduce… Continue reading

Nurses’ unions warn national standards for coronavirus protection too low

OTTAWA — The Canadian Federation of Nurses Unions is warning that the… Continue reading

‘Sonic’ speeds to $57M debut; ‘Parasite’ sees big Oscar bump

NEW YORK — The redesigned “Sonic the Hedgehog” showed plenty of teeth… Continue reading

Justin Timberlake on ‘trauma’ of being pelted with bottles at SARS concert

TORONTO — Justin Timberlake is still haunted by being pelted with what… Continue reading

Most Read