Air Canada shares fall as carrier misses forecast profit – blames grounding costs of MAX 737

Air Canada has reported adjusted net income of CA$47 million or CA$0.17 per share for the fourth quarter of 2017 against an average predicted quarterly earning of CA$0.38 per share, resulting in a drop of 2.4% in early morning trading of shares.

The carrier has been hit hard by increased operating costs of less-efficient aircraft brought in to replace its 24 grounded Boeing 737 MAX jets, which have also restricted the ability to fly more passengers. Air Canada has also been forced to cancel all flights to Beijing and Shanghai from January 30 through to February 29 owing to the coronavirus outbreak, with flights to China representing approximately 6% of its available seat miles.

According to Reuters news agency, the airline expects aircraft maintenance expenses to increase 15%, or by about C$150 million this year from 2019. It expects EBITDA (earnings before interest, taxes, depreciation, and amortization) to drop by C$200 million during the first quarter of 2020 largely due to the absence of the MAX, one of its most-efficient aircraft.

For the full year 2020, Air Canada is expecting a “small” increase in EBITDA. Analysts were expecting 2020 EBITDA to rise more than 10% to C$4.05 billion, according to IBES data from Refinitiv. Commenting on the current situation, Michael Rousseau, Air Canada’s CFO, “There is some impact from not flying to China for two months of Q1, including cargo as well, but certainly, the … MAX is the single biggest item.” 

Air Canada is replacing its Airbus narrow-body fleet with Boeing aircraft and had expected to be flying 50 737 MAXs by mid-2020. Rousseau said the carrier has been in discussions with Boeing to reach a financial arrangement in the wake of the grounding, adding that: “an initial settlement payment was made to Air Canada in the fourth quarter of 2019, with any further amounts subject to the finalization of the agreement.” (US$1.00 = CA$1.33 at time of publication.)