In the airline’s second quarter earnings call held on July 31st, Air Canada’s President and CEO, Calin Rovinescu, stated that the airline could cancel some of its remaining 737 MAX and A220-300 orders. Mr. Rovinescu said this step could be taken if the airline receives no government support or the relaxation of travel restrictions.
Threatening to cancel outstanding aircraft orders
Air Canada’s President and CEO, Calin Rovinescu, stated the following:
“Without government industry support and as travel restrictions are extended, we will look at other opportunities to further reduce costs and capital including further route suspensions and possible cancellations of Boeing and Airbus aircraft on order, including the Airbus A220, the former Bombardier CSeries manufacturered at Mirabel, Quebec.”
Air Canada’s CEO has been one of the most vocal opponents of travel restrictions and quarantines in the air travel industry. The airline has taken some decisive actions during the current crisis. The carrier suspended 30 routes and closed eight stations and retired 79 aircraft, including all of its Boeing 767s.
As part of the crisis, however, the airline has been trying to figure out how to get out of the “darkest period ever.” In May, the carrier announced 20,000 layoffs and decided to stop accepting the government wage subsidy.
Will Air Canada cancel its A220 order?
Explicitly naming the A220, one of two aircraft types on order, Air Canada’s CEO was surely trying to get the attention of its government. By specifically stating the Canadian-made (and designed) plane, any cancelation could have negative repercussions to Mirabel in Montreal and the local economy– putting politicians in a tight spot.
Air Canada has seven A220s in its fleet. With a firm order for 45, this leaves 38 outstanding orders. Air Canada expects to take delivery of eight more of these planes bringing its fleet to 15 aircraft.
In April, Air Canada concluded a bridge financing of C$788 million secured using 18 A220s. Essentially, Air Canada would need a minimum fo 18 A220s in its fleet, so Air Canada would have to ensure a minimum total of 11 outstanding A220 orders. So, essentially, the flag carrier would be canceling 27 A220 orders at most.
However, it makes almost no sense for Air Canada to cancel its A220 order. The airline has continued to take A220s during the current crisis. And, earlier this year in the airline’s virtual Shareholders’ Meeting, Mr. Rovinescu called the aircraft “gamechanging.” And, despite the cost of acquiring the plane, the type is one of the best for navigating the current crisis and, even when all this is over, can give Air Canada a flexible aircraft that can do plenty of missions and open up some exciting routes.
What about the MAX order?
Canceling the MAX order is far more likely for Air Canada than the A220. First off, Air Canada would need to invest in additional pilot training since it has no 737s in its fleet currently. The added complexity also increases inefficiencies and thus increases costs. Already, the airline has 24 of the type in its fleet. It could reasonably stop at this point, or else take on a couple more to cover for retirements of other aircraft.
In addition, Air Canada has shown a willingness to modify its 737 MAX order. Early on, before the crisis even hit, Air Canada trimmed its Boeing 737 MAX order. Still, if the airline is targeting additional efficiencies, taking on the full of its MAX order would allow the airline to accelerate A320 retirements and pursue a more fuel-efficient future– which is cheaper.
In any case, if the airline cancels any aircraft orders, it probably means the state of affairs is a lot worse than previously thought about Air Canada. This quarter, the airline lost C$1.555 billion. However, it stated its liquidity stood at over C$9 billion. But, it remains to be seen if Air Canada’s threats lead to any government support or an easing of travel restrictions.
Do you think Air Canada will cancel any of its outstanding aircraft orders? Let us know in the comments!