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Will Air Canada go bankrupt again?

Air Canada

Air Canada Bankrupt It was a hell of an April Fools joke. Seventeen years ago Wednesday, Air Canada (Air Canada Stock Quote, Chart, News TSX:AC) filed for protection under the Companies’ Creditors Arrangement Act.

On a day that celebrates practical jokes, Air Canada share holders and Canadian taxpayers were not amused.

Could it happen again?

Over the past two weeks more than fifty global airlines have grounded their planes in an effort to flatten the COVID-19 curve.

American news agency CNBC reported that U.S. airlines are mulling over the idea to halt all commercial domestic travel. At a White House press conference on Sunday, Homeland Security Secretary Chad Wolf said “all options remain on the table” when questioned about the possibility of halting domestic air travel.

Is Canada considering the same? Well no, not right now.

 

On March 19, a measure under the Aeronautics Act came into effect which states “the Minister of Transport requires air operators to deny the boarding of a traveler who is symptomatic (regardless of citizenship status) and keep them from boarding an international flight to Canada, including a trans border flight”.

The death of an American Airlines flight attendant from COVID-19 has left the aviation community fearful and frustrated.

CBC News, meanwhile reported that many flight attendants were sick with coronavirus, including one who was recently released from intensive care. A flight attendant for a major Canadian airline, who chose not to be named, told CBC News: “We are on the front line and we are exposed to people from all around the world. We have connections from all over the world.” She went on to say, “I’ve asked several times, ‘Why are we not wearing hazmat suits?’ Other airlines are wearing hazmat suits”.

Air Canada Bankrupt
In late March, Air Canada laid off more than 5000 people.

A declining demand for Canadian air travel has led to Air Canada and WestJet announcing layoffs, more than 16,000 for the former.

This has resulted in airline stocks being crushed the world over, and Air Canada did not escape the carnage. Shares of the country’s largest airline, which were trading north of fifty dollars earlier this year, fell to a low of $12.15 on March 19.


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So, what is the next step for these airlines?

It is not an absurd question to ask: “Will Air Canada go bankrupt once again?”

The circumstances of seventeen years ago were much different, but bear one eerie similarity: a global pandemic.

Air Canada
“SARS will clearly have a sustained impact in every affected area of the world and has already had a ruinous effect on our summer, 2003,” Air Canada CEO Robert Milton said at the time.

Air Canada grounded 40 airplanes during the company’s peak summer season, a month before it filed for bankruptcy protection. It was 2003 and the threat of Severe Acute Respiratory Syndrome (SARS) had fewer people travelling.

“SARS will clearly have a sustained impact in every affected area of the world and has already had a ruinous effect on our summer, 2003,” Air Canada CEO Robert Milton said at the time.

Of course, Air Canada was also struggling under mountains of debt following its takeover of Canadian Airlines in 1999. There was also fresh competition from upstarts such as CanJet, Jetsgo and WestJet.

The situation, before COVID-19, was very different for Air Canada in 2019 and early 2020, as it had become nothing less than a market darling.

Even in January, after the stock posted more than 80 per cent gains in 2019, some were arguing that Air Canada was undervalued.

“They’ve been doing all the right things,” said James Telfser of Aventine Asset Management. “They’ve been checking all the boxes with the pension liability, with bringing down costs and streamlining their operation, bringing Aeroplan in. So, they’ve done all of these things and we’re going to see the benefits of that for years to come, I think, especially with the consumer and how much they’re flying.”

Of course, Telfser could not have known that the entire world would be plunged into chaos, and that airline would be on the front lines of the siege.

How bad is it? Consider this recent take.

“By the end of May-2020, most airlines in the world will be bankrupt,” said a recent report published by the Centre for Aviation (CAPA), a market intelligence agency for the aviation and travel industry.

Air Canada

And Brian Pearce, an economist at International Air Travel Association, told The Globe and Mail “revenue losses have already reached the industry group’s worst-case estimate of lost revenue of US$113-billion.”

So will Air Canada exist a year from now? Many think a substantial bailout will happen instead, though the federal government has not yet tipped its hand.

“There’s no doubt about it that the aviation industry is going to need to some help,” John Gradek, a former Air Canada exec and faculty lecturer and program coordinator in aviation leadership at McGill University, told The Star recently. ““All expenses would be shut down. That will provide them some breathing room,” Gradek said of an order closing the airspace. “But they will also need money to get back up and running again.”

Gradek estimates it could take as much as $10-billion to save Canada’s airlines.

Others say it must happen quickly or some airlines could indeed go under.

“If nothing happens in the next couple of weeks we’re going to see some people shut down,” Air Transport Association of Canada president John McKenna said. “What we need is a cash inflow.”

 

 

File Under: Air Canada stock predictions 2020

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About The Author /

Tara Whittet is Senior Sales Manager at Cantech Letter.

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