The worldwide grounding of Boeing 737 Max 8 aircraft has put a damper on many an airline’s plans, including Air Canada (Air Canada Stock Quote, Chart TSX:AC), which had hoped to be expanding its fleet of Max 8’s over 2019. But the detour shouldn’t cause too much worry, says Scotia Wealth’s Cole Kachur, who nonetheless argues that investors might want to steer clear of the stock until AC figures out its forecast.
Earlier this month, Canada’s Transport minister Marc Garneau announced he’d be banning Boeing 737 Max 8 indefinitely from flying in Canadian airspace, a response to the deadly crash of an Ethiopian Airlines jet, the second such event involving a Max 8 within a few months. The impact on Canada’s airlines Air Canada and WestJet proved immediate as both companies suspended their previously-stated financial forecasts for 2019.
Currently, Air Canada has 24 Max 8’s, representing about ten per cent of its main fleet, and intended on expanding that number to 36 by the end of 2019. Now, with Boeing having suspended deliveries of its Max 8 aircraft, those plans are put on hold.
Kachur says how AC’s share price will respond to the issue is unclear.
“It’s too soon to tell,” says Kachur, portfolio manager at Scotia McLeod, to BNN Bloomberg Monday. “They’re delaying [guidance] for a reason and it’s because they don’t really know how it’s going to impact their business. I wouldn’t be surprised if over the next couple of quarters they’re still trying to figure out exactly how that’s going to impact them, and then most likely their stock will adjust accordingly.”
After trading sideways for much of 2018, AC was on the move early in 2019, gaining 27.5 per cent over the months of January and February. March has proved a different story, however, with the stock now down 6.5 per cent for the month.
Kachur says that there may be an entry point coming up for investors.
“It’s too soon to jump into it, but in that regard, over a medium term, if it does come down, I think it’s a quality company and you could look at it then,” he says.
Air Canada last reported its earnings on February 15, where its operating revenue grew to $4.25 billion over its fourth quarter, compared to $3.82 a year prior. Fuel costs impacted the company’s bottom line, however, with AC listing a loss of $231 million while nonetheless beating the consensus estimate on EPS, coming in at $0.20 per share versus the expected $0.15 per share.