Q4 2019 Earnings Call

February 19, 2020

Alana: Good morning, ladies and gentlemen. Welcome to Air Canada's Q4 and Full Year 2019 Conference Call. I would now like to turn the meeting over to Kathleen Murphy. Please go ahead, Ms. Murphy.

Operator: Good morning, ladies and gentlemen. Welcome to Air Canada's fourth quarter and full year 2019 conference call. I would now like to turn the meeting over to Kathleen Murphy. Please go ahead, Ms. Murphy.

Good morning, ladies and gentlemen, welcome to Air Canada fourth quarter, and full year 2019 conference call.

I would now like to turn the meeting over to Kathleen Murphy. Please go ahead Ms Murphy.

Kathleen Murphy: Thank you, Alana, and good morning, everyone, and thank you for joining us on our Q4 and full year call. With me this morning are Calin Rovinescu, our President and Chief Executive Officer; Mike Russo, our Deputy Chief Executive Officer and Chief Financial Officer; Lucie Guillemette, our Executive Vice President and Chief Commercial Officer; and Craig Landry, our Executive Vice President of Operations. On today's call, Calin will begin by highlighting our financial performance for the year. Lucie and Mike will then address our Q4 financial performance and turn it back to Calin before taking questions from the analyst community. We'll start by taking questions from equity analysts, followed by questions from fixed income analysts.

Operator: Thank you, Alana, and good morning, everyone, and thank you for joining us on our fourth quarter and full year call. With me this morning are Calin Rovinescu, our President and Chief Executive Officer; Mike Russo, our Deputy Chief Executive Officer and Chief Financial Officer; Lucie Guillemette, our Executive Vice President and Chief Commercial Officer; and Craig Landry, our Executive Vice President of Operations.

Good morning, everyone.

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On today's call he only begin by highlighting the financial performance for the year.

Operator: On today's call, Calin will begin by highlighting our financial performance for the year. Lucie and Mike will then address our fourth quarter financial performance and turn it back to Calin before taking questions from the analyst community. We'll start by taking questions from equity analysts, followed by questions from fixed income analysts.

We see Mike will then address was quite as Banesto's woman and turn it back the feeling before taking questions from analysts unity.

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Before we get started please know that certain statements made on this call such as those who they were hook that this cost I hope financial targets. The timing of the returned to service. The Boeing 77, Max aircraft, the recovery of Airvantage, China, and Hong Kong business, just as it could be flat are forward looking within the meaning of applicable securities.

Kathleen Murphy: Before we get started, please note that certain statements made on this call, such as those relating to our forecasted costs, financial targets, the timing of the return to service of Boeing 737 MAX aircraft, the recovery of Air Canada's China and Hong Kong businesses, and strategic plans, are forward-looking within the meaning of applicable securities laws. This call also includes references to non-GAAP measures. Please refer to our 2019 year-end press release and MD&A for important assumptions and cautionary statements relating to forward-looking information and for reconciliations on non-GAAP measures to GAAP results. I will now turn the call over to Calin Rovinescu.

Operator: Before we get started, please note that certain statements made on this call, such as those relating to our forecasted costs, financial targets, the timing of the return to service of Boeing 737 MAX aircraft, the recovery of Air Canada's China and Hong Kong businesses, and strategic plans, are forward-looking within the meaning of applicable securities laws. This call also includes references to non-GAAP measures.

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Operator: Please refer to our 2019 year-end press release and MD&A for important assumptions and cautionary statements relating to forward-looking information and for reconciliations on non-GAAP measures to GAAP results. I will now turn the call over to Calin Rovinescu.

Does it grow throughout 2019 year end press release, and Mdna four important assumption cautionary statements relating to forward looking information and for reconciliations of non-GAAP measures to GAAP results.

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Calin Rovinescu: Thank you, Kathy, and good morning, everyone, and thanks for joining us on our call today. I'm pleased to report a strong financial performance in 2019. We generated EBITDA of more than CAD 3.6 billion, 13% above the prior year, and reported an EBITDA margin of 19%, which met our guidance and surpassed the prior year's margin. These results were achieved despite the loss of approximately 25% of our narrow-body fleet for most of the year, following the worldwide grounding of the Boeing 737 MAX, and I'll have a few words to say about this later. Operating income of CAD 1.6 billion reflected an improvement of CAD 154 million from 2018.

Thank you Kathy and good morning, everyone and thanks for joining us on our call today.

I'm pleased to report a strong financial performance in 2019.

We generated EBITDA of more than $3.6 billion, 13% above the prior year and reported an EBITDA margin of 19%, which met our guidance and surpassed the prior years margin.

These results were achieved despite the loss of approximately 25% of our narrow body fleet for most of the year. Following the worldwide grounding of the Boeing 737, Max and I'll have a few words to say about this later.

Operating income of $1.6 billion reflected an improvement of 154 million from 2018.

We generated record operating revenues of $19.1 billion and ended the year with record levels of unrestricted liquidity of 7.4 billion and a leverage ratio of <unk> 0.8.

Calin Rovinescu: We generated record operating revenues of CAD 19.1 billion and ended the year with record levels of unrestricted liquidity of CAD 7.4 billion and a leverage ratio of 0.8. These strong results during a difficult year are further evidence of our ability to effectively and nimbly manage through major challenges and demonstrate the commitment of our 37,000 employees who took care of our customers under extremely complicated operating circumstances. Through our transformation, we built a rock-solid foundation which allowed us to fully deliver on our outlook on key financial metrics for the year, and this is something I'm very proud of. Our discipline was rewarded by an 87% return on our shares in 2019.

[noise]. These strong results during a difficult year are further evidence of our ability to effectively and nimbly managed through major challenges and demonstrate the commitment of our 37000 employees, who took care of our customers under extremely complicated operating circumstances.

So our transformation, we built a rock solid foundation, which allowed us to fully deliver on our outlook on keeping natural metrics for the year and this is something I'm very proud of.

Our discipline was rewarded by an 87% return on our shares in 2019.

Calin Rovinescu: This, when added to our strong stock market performance over the previous 9 years, helped make Air Canada the top-performing stock on the TSX over the past decade, with a 3,575% return. On past calls, I've often spoken about resiliency and consistency as key objectives for Air Canada, and a 10-year consistent track record is exactly what we have aspired to achieve. The agility we displayed in 2019 gives me confidence that we'll successfully execute on several valuable opportunities in front of us. This includes the launch of our new loyalty program later this year, which we expect will be the best airline loyalty program in the world. It will also enable us to successfully integrate Transat, assuming we obtain the requisite regulatory approvals for our proposed merger.

This when added to our strong stock market performance over the previous nine years.

Helped make air Canada, the top performing stock on the TSX over the past decade, with a 3575% return.

On past calls I've, often spoken about resiliency and consistency as key objectives for Air Canada.

And a 10 year consistent track record is exactly what we have aspire to achieve.

The agility, we displayed in 2019 gives me confidence that will successfully execute on several valuable opportunities in front of us.

This includes the launch of our new loyalty program later this year, which we expect will be the best airline loyalty program in the world.

It will also enable us to successfully integrate transalta, assuming we obtain the requisite regulatory approvals for our proposed merger.

Calin Rovinescu: We have no doubt that our wholly Canadian solution is the best possible one as it will secure jobs, result in more travel options for the traveling public, and benefit all stakeholders. We started 2020 with the constraints imposed by the ongoing grounding of the Boeing 737 MAX, as well as emerging economic and geopolitical risks and route suspensions resulting from the 2019 novel coronavirus, now known as COVID-19. However, our strong balance sheet, extensive and diversified network, brand strength as the best airline in North America, young fleet, as well as our remarkable employees equip us to respond effectively to any challenges that come our way.

We have no doubt that our wholly Canadian solution is the best possible one as it will secure jobs result in more travel options for the traveling public and benefit all stakeholders.

We started 2020 with the constraints imposed by the ongoing grounding of the Boeing 737, Max as well as emerging economic and geopolitical risks and route suspensions, resulting from the 2019 not novel grown a virus now known as Cobot 19.

However, our strong balance sheet extensive and diversified network brand strength as the best airline in North America Young fleet as well as our remarkable employees equip us to respond effectively to any challenges that come our way.

Calin Rovinescu: Before turning it over to Lucie, I'd like to acknowledge all employees for their dedication and thank them for delivering exceptional customer service and their contribution to achieving these strong 2019 financial results in the face of greater than normal challenges. I also, of course, thank our customers for their continued loyalty, and with that, I'll turn the call over to Lucie.

Before turning it over to Lucy I'd like to acknowledge all employees for their dedication and thank them for delivering exceptional customer service and their contribution to achieving these strong 2019 financial results in the face of greater than normal challenges I also of course, thank our customers for their continued loyalty and with that I'll turn the call over to Lucy.

Lucie Guillemette: Thank you, Calin, and good morning, everyone. I would also like to thank our employees for their adaptability and commitment to taking care of our customers. Their passion and drive allowed them to deliver excellent customer care despite the challenges created by the grounding of the MAX, as well as the complex cutover to our new reservation system. On this last point, we will undoubtedly achieve the financial benefits outlined in our business case, but more importantly, we remain confident that this much-needed, yet extremely complex transformation will facilitate improvements across our customers' journey. I would also like to thank our customers and our trade partners for their continued loyalty and understanding during these exceptional circumstances and for choosing Air Canada. Throughout 2019, we continued to focus on enhancing the overall customer experience.

Thank you can't and good morning, everyone.

And then also like to thank our employees for their activity and commitment to taking care of our customers.

Their passion and drive allowed them to deliver excellent customer care. Despite the challenges created by the granting INOMAX.

Well as the complex total or to our new reservation system.

On this last point, we will undoubtedly achieved the financial benefits outlined in our business case.

More importantly, we remain confident that is much needed yet extremely complex transformation will facilitate improvements across our customers journey.

I would also like to thank our customers and our trade partners for their continued loyalty and understand unique during these exceptional circumstances and for choosing air Canada.

Throughout 2019, we continue to focus on enhancing the overall customer experience.

Lucie Guillemette: In Q4, we began refurbishing our Airbus A330 fleet to bring it up to the same standards as our Boeing 787 and Boeing 777, offering a consistent product across our mainline wide-body fleet. This refurbishment will be completed within the next 12 months. We also completed installation of high-speed satellite Wi-Fi on our Rouge fleet in December and expect to have completed Wi-Fi installation across the entire Air Canada mainline fleet by the end of 2020 as well. We're honored to be recognized with awards such as the best airline in North America by Skytrax, and Global Traveler's Airlines of the Year in 2019, and we will continue to innovate and invest in our product.

In the fourth quarter, we began refurbishing our Airbus Athree 30 seek to bring it up to the same standards as our going 77, and Boeing triple tenant offering a consistent product across on mainline widebody fleet.

This refurbishment will be completed within the next 12 months.

We also completed installation of high speed satellite Wi Fi on our Rouge fleet in December and expect to have completed Wi Fi installation across the entire air Canada mainline fleet by the end of 2020 as well.

We're honored to be recognizes award catches the best airline in North America by Skytrax and global challenges Airlines of the year in 2019, and we will continue to innovate and invest in our product in fact in 2019, we introduced our air Canada Cafe in Toronto, a unique lounge experience as well as we launched our own.

Lucie Guillemette: In fact, in 2019, we introduced our Air Canada Café in Toronto, a unique lounge experience, as well as we launched our onboard cafe and SkyRiders kids programs. We're very pleased with the feedback received from our customers to date. Turning to our revenue performance for the Q4. On capacity growth of 3.3%, passenger revenues increased CAD 199 million or 5.3% on a traffic increase of 2.9 and yield improvement of 2.3%. The yield improvement versus last year included additional revenue from Aeroplan flight redemptions. Yield and PRASM improvements were recorded on all markets with the exception of the Atlantic.

Board Cafe, and Skywriters Kids program.

We're very pleased with the feedback received from our customers today.

Turning to our revenue performance for the fourth quarter.

On capacity growth of 3.3% passenger revenues increased 199 million or 5.3% on the traffic increase of 2.9 and yield improvement of 2.3%.

The yield improvement versus last year included additional revenue from Aeroplan slight redemptions.

Yield and PRASM improvements were recorded on all markets with the exception of the Atlantic.

Lucie Guillemette: In the business cabin, on a system basis, passenger revenue increased CAD 31 million or 3.7% on yield growth of 4.1%, further highlighting the strength of the premium experience we've created throughout the customer's journey. Turning to the domestic market on capacity growth of 3.4%, passenger revenues increased CAD 46 million or 3.8% for Q4. Yield growth of 3.8% reflected improvements on all major domestic services. PRASM increased 0.3% on the higher yield. Traffic for the quarter was slightly down compared to last year due to a weaker Western Canadian market, transitional impact created from the cut over to our new res system, and less connecting traffic as a result of schedule adjustments related to the MAX grounding.

And the business cabin on assistant basis passenger revenue increased 31 million, our 3.7% on yield growth of 4.1% further highlighting the strength as a premium experience we've created throughout the customers journey.

Turning to the domestic market on capacity growth of 3.4% passenger revenues increased 46 million, our 3.8% for the fourth quarter.

He'll growth of 3.8% reflected improvement on all major domestic servicing.

PRASM increased 23% on the higher yield.

Traffic for the quarter was slightly down compared to last year due to a weaker western Canadian market.

Transitional impact created from the cut over to our new Red system and less connecting traffic as a result of scheduled adjustments related to the Max grounding.

Lucie Guillemette: Ancillary revenues were impacted negatively by the grounding as well as the reservation system cut over. Despite the weakness experienced in Western Canada, our important transcontinental services continued to perform very well. Looking to Q1, we anticipate year-over-year domestic revenue and capacity growth. However, we will continue to be impacted by the MAX grounding from a schedule and product consistency perspective. It has been necessary to strategically deploy Air Canada Rouge on select frequency markets that normally would be operated by our mainline service. This deviates from several of our scheduling guidelines and creates inconsistency for our customers. However, mitigation tactics such as this are necessary when faced with the alternative of suspending routes or further reducing capacity. On the US transborder markets, on capacity growth of nearly 1% in Q4, revenues increased CAD 61 million or 7.2% versus the prior year.

Until he revenues were impacted negatively by the grounding as well as the reservation system cutover.

Despite the weakness experienced in western Canada are important transcontinental services continued to perform very well.

Looking to the first quarter, we anticipate year over year domestic revenue in capacity growth. However, we will continue to be impacted by the Max grounding from a schedule and product consistency perspective.

And it's been necessary to strategically deploy air Canada Rouge on select frequency markets that normally would the operated by our mainline service.

Yes, deviates from several of our scheduling guidelines and treats inconsistency for our customers. However, mitigation tactic such as this are necessary when faced with the alternative of spending or further reducing capacity.

On the U.S. trans border markets on capacity growth of nearly 1% in the fourth quarter revenues increased 61 million or 7.2% versus the prior year.

Lucie Guillemette: Yield increased 8.3% and reflected improvements in all major US transborder services and a strong business class performance for the quarter. Traffic for the quarter declined 1%, which reflected reduced capacity on services to Hawaii and on certain long-haul services due to the MAX grounding. Looking ahead at Q1, we expect to see year-over-year revenue growth in the US transborder market. However, we will continue to be impacted by the MAX grounding, and we anticipate a slight capacity reduction. The impact of the MAX grounding is perhaps best exemplified by the significant decrease in our profitable Hawaii operation. In Q1 2019, we had 6 daily flights from Western Canada to Hawaii with the 737 MAX. We have had to half this operation by filling the capacity with less efficient wide-body aircraft and through expensive wet lease operations.

Yields increased 8.3% and reflecting improvements in all major U.S. Trans border services, and a strong business cost performance for the quarter.

Traffic to the quarter declined, 1%, which reflected reduced capacity on services to Hawaii and on certain long haul services due to the Max grounding.

Looking at the first quarter, we expect to see year over year revenue growth in the U.S. transport market. However, we will continue to be impacted by the Max grounding and we anticipate a slight capacity reduction.

The impact of the Max grounding is perhaps best example filed by the significant decrease in our profitable Hawaii operation.

In the first quarter of 2019, we had six daily flights from Western Canada to Hawaii with the 77 Max.

We have had to have this operation backfilling the capacity with less efficient wide body aircraft and through extensive wet lease operation.

This has impacted our overall profitability in just one example of a considerable impact of their lacks founding.

Lucie Guillemette: This has impacted our overall profitability in just one example of the considerable impact of the MAX grounding. Consistent with the last few quarters, our international transit strategy of connecting US customers to international destinations through our hubs has been adversely impacted by the MAX as we consolidate frequencies to several US markets. In the last several years, the strategy has delivered very strong results and has been a key component of our profitable international growth. The negative impact on our transit traffic was felt throughout our international network and will continue into Q1 2020, given the ongoing grounding of the MAX and the impact of the coronavirus. We do, however, see very good results for traffic connecting over Montreal. We took delivery of our first Airbus A220 in December, and this aircraft is currently operating between Montreal and Calgary.

Consistent with the last few quarters, our international transit strategy of connecting U.S. customers to international destinations through our hubs has been adversely impacted by the Max as we consolidate frequencies to several years markets.

In the last several years. This strategy has delivered very strong results and has been a key component of our profitable international growth.

And negative impact on our transit classic was felt throughout our international network and will continue into the first quarter 2020, given the ongoing grounding of the Max and the impact of the grown virus.

We do however received very good results for traffic connecting over Montreal.

We took delivery of our first Airbus to 20 in December and this aircraft is currently operating between Montreal and Calgary.

Lucie Guillemette: Starting in May, once we've taken delivery of three more A220s, we will begin flying between Montreal and Seattle, connecting two important aerospace markets, as well as Toronto and San Jose, California. Benefiting from a modern and efficient aircraft, these routes will bolster our extensive US network and will support our strategy to attract US customers to transit our hubs when traveling internationally. We firmly believe that the A220 will enable us to create new profitable city pairs in our network where other aircraft don't have the economics or operational performance required to do so. Additionally, our customer's experience with the A220 is being enhanced as the aircraft offers large overhead bin space, wider seats, and state-of-the-art entertainment. Suffice it to say we're extremely excited about this aircraft and the opportunities it represents for our North America network, not to mention the reduced environmental impact it will have.

Starting in May once we've taken delivery of three more eight to 20, we will begin flying between Montreal, and Seattle connecting two important aerospace markets as well as Toronto and San Jose, California.

Benefiting from a modern and efficient aircraft leads you to bolster our extensive U.S. network and will support our strategy to attract U.S. customers to transit or hubs when traveling internationally.

We firmly believe that the do 20 will enable us to create new profitable city pairs and our network, where other aircraft don't have the economics or operational performance required to do so.

Additionally, our customers experience with the eight to 20 is being ahead as the aircraft offers large overhead bins me.

Why do you see in state of the our entertainment.

I said to say, we're extremely excited about this aircraft and the opportunities. It represents for our North American network not to mention the reduced environmental impact it will have.

Lucie Guillemette: Turning to our Atlantic performance on capacity growth of 7% in the quarter, revenue increased CAD 52 million or 5.9%. Our capacity growth over the Atlantic was an intentional strategy to reduce our exposure in Asia and to invest in the very stable North Atlantic. Traffic increased on all major Atlantic services with the exception of Halifax and St. John's to the UK, where service was temporarily suspended as a result of the MAX grounding. We saw a 1.8% decrease in yield in the quarter due to competitive pricing activities as a result of increased industry capacity. In addition to the above, we experienced a strong quarter in the Middle East and India, two markets that hit their peaks in the Canadian winter. The growth prospects in India are very encouraging.

Turning to our Atlantic performance on capacity growth of 7% in the quarter revenue increased 52 million or 5.9%.

Capacity growth over the Atlantic was an intentional strategy to reduce our exposure in Asia and to invest in the very stable North Atlantic.

I think increased on all major Atlantic services with the exception as Halifax and St. John's to the UK, where service was temporarily suspended as as a result to the Max Brandy.

We saw and 1.8% decreasing year than the quarter due to competitive pricing activities as a result in increased industry capacity.

In addition to the above we experienced a strong quarter in the middle East in India to markets that had therapy in the Canadian winter.

The growth prospects in India are very encouraging.

Lucie Guillemette: A longer average stage length and currency also played a part in the yield decline compared to Q4 of 2018. Looking at Q1, we anticipate continued capacity growth as we redeploy capacity from the Pacific, especially China and Hong Kong, over the Atlantic due to the impact of the coronavirus, as well as the ongoing geopolitical tensions between Canada and China. PRASM and yield will continue to be under some minor pressure due to increase in domestic capacity, resulting in a competitive pricing environment. However, our strategy is still focused on reducing our exposure to Asia.

A longer average stage length and currency also played a part in the yield decline compared to the fourth quarter of 2018.

Looking at the first quarter, we anticipate continued capacity growth as we redeployed capacity from the Pacific.

Actually China, and Hong Kong over the Atlantic Judy do the impact of the corner of ours as well as the ongoing geopolitical tensions between Canada and China.

RASM in yields will continue to be under some minor pressured due to increasing just fassi, resulting in a competitive pricing environment. However, a strategy so focused on reducing our exposure to Asia.

Lucie Guillemette: We're confident in the performance over the Atlantic, and later this year, we will be introducing our year-round Montreal to Tunis service, connecting Montreal to another important aerospace market, as well as Toronto to Brussels, which was achieved through cooperation with one of our transatlantic joint venture partners, Brussels Airlines. The North Atlantic continues to be a very robust part of our network, and we see considerable opportunities for further profitable growth. Moving on to the Pacific on a capacity reduction of 1.5%, revenues increased CAD 6 million or 1.2%. Yield improved on China, Japan, and Taiwan. Traffic was essentially flat to the prior year's quarter. The geopolitical situation between Canada and China, as well as the tensions in Hong Kong, continued to negatively impact travel demand, particularly business-related traffic.

We're confident in the performance over the logic and later this year, we will be introducing our year round Montreal to to service.

Acting Montreal to another important aerospace market.

As well as strong due to Brussels, which was achieved through cooperation with one of our transatlantic joint venture partners Russell airline.

The North Atlantic continues to be a very robust part of our network and we see considerable opportunities for further profitable growth.

Moving onto the Pacific on a capacity reduction of 1.5%.

Revenues increased 6 million or 1.2%.

Yield improved on China, Japan, and Taiwan.

Traffic was essentially flat to the prior years quarter.

The geopolitical situation between Canada, and China as well as intentions in Hong Kong continued to negatively impact travel demand, particularly business related traffic.

Lucie Guillemette: As mentioned, we were able to redeploy capacity from China and Hong Kong over the Atlantic. In the quarter, we successfully launched our seasonal service from Vancouver to Auckland, supporting our efforts to reduce seasonality throughout our network. Looking forward to Q1, our Pacific capacity will be significantly reduced as we've suspended service to mainland China, as well as from Toronto to Hong Kong until the end of March, which will also significantly impact revenues over the Pacific. We're closely monitoring the situation and will be adjusting the schedule as necessary. We've redeployed this capacity throughout our network, including upgauging certain services as well as increasing frequencies between several markets. Moving on to our other services. On capacity growth of 7.2%, our revenues increased CAD 34 million or 12.1%.

As mentioned, we were able to redeploy capacity from China, and Hong Kong over the Atlantic.

In the quarter, we successfully launched our seasonal service from bank, we would Auckland supporting our efforts to reduce seasonality throughout our network [noise].

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Specific capacity will be significantly reduced as we've suspended service to mainland China as well as from Toronto to Hong Kong until the end of March which will also significantly impact revenues over the Pacific.

We're closely monitoring the situation and will be adjusting the schedule as necessary.

We've redeployed this capacity throughout our network, including our aging certain services as well as increasing frequencies [noise] between several market.

Moving onto our other services.

Capacity growth of 7.2%, our revenues increased $34 million or 12.1%.

Lucie Guillemette: Traffic increased 9.8%, with traffic growth recorded on services to South America and en route to traditional leisure destinations. Yield improved 2.2% with improvements on services to South America and Mexico. In the quarter, we introduced service from Toronto to Quito as well as Montreal to São Paulo. These services bolster our network to South America and, similar to our Auckland service, support our efforts to reduce seasonality in our schedule. We're encouraged by the early results of these efforts. New routes to São Paulo, Auckland, and Quito have all delivered positive results with a favorable outlook. We will continue to explore opportunities to better diversify our network on a year-round basis. For Q1, we anticipate continued revenue and capacity growth supported by our new South American services to Quito and São Paulo.

Traffic increased 9.8% with profit growth recorded on services to South America and on traditional leisure destination.

You improved 2.2% with improvements on services to South America in Mexico.

In the quarter, we introduced service from Toronto to Quito, as well as lunch all the so Paulo.

These services bolster our network to South America, and similar to our often service support our efforts to reduce seasonality in a schedule.

We're encouraged by the early results of these efforts.

New routes to self hollow, Auckland, and Quito have all delivered positive results with a favorable outlook, we will continue to explore opportunities to better to versus if our network on a year round basis.

For the first quarter, we anticipate continued revenue in capacity growth supported by new South American services to ketones Apollo we look forward to reduce introducing our service for months you ought to Borgata later this year.

Lucie Guillemette: We look forward to introducing our service from Montreal to Bogotá later this year. Turning to cargo, the Q4 2019 saw a year-over-year reduction in cargo revenues of CAD 31 million or 14.2%. The Atlantic and Pacific continue to be impacted by an industry-wide decrease in air cargo demand due to continued global trade uncertainty. Overall, cargo yield was down 8.7%, while traffic declined 6% versus the prior year's fourth quarter. Looking ahead, we anticipate cargo to be significantly impacted by the suspension of service to China and Hong Kong. While facing exceptional circumstance, our cargo group remains focused on continuing to invest in new technology and artificial intelligence to optimize our revenue generation capabilities and also enhance the collection and use of data.

Turning to cargo fourth quarter of 2019 saw year over year reduction in cargo revenues 31 million or 42%.

The Atlantic in Pacific continue to be impacted by an industry wide decrease in air cargo demand due to continued global trade uncertainty.

Overall cargo yields was down 8.7%, while traffic declined 6% versus the.

Prior years fourth quarter.

Looking ahead, we anticipate cargo to be significantly impacted by the suspension of service China Hong Kong.

While facing exceptional circumstances, our cargo group remains focused on continuing to invest and new technology and artificial intelligent optimize our revenue generation capabilities and also enhance the collection and use of data.

Turning to other revenues, we saw an increase of 34 million or 50% in the quarter within net margin recorded on the redemption and delivery of non air goods and services related to the airplane program being the largest contributor.

Lucie Guillemette: Turning to other revenues, we saw an increase of CAD 34 million or 15% in the quarter, with the net margin recorded on the redemption and delivery of non-air goods and services related to the Aeroplan program being the largest contributor. We also saw an increase in ground package revenue from the Q4 at Air Canada Vacations, contributing to a record year for Air Canada Vacations. I will now turn the call over to Mike for a discussion on our cost performance and balance sheet metrics.

We also saw an increase in ground package revenue from the fourth quarter at Aircentre vacation contributing to a record year for Aircentre vacation.

I'll now turn the call over to Mike for a discussion on our cost performance and balance sheet.

Thank you Lucy and good morning to everyone. I would also like to thank our employees for their park and teamwork and achieving these solid results by their continued focus on taking care of our customers.

Michael Rousseau: Thank you, Lucie, and good morning to everyone. I would also like to thank our employees for their part and teamwork in achieving these solid results by their continued focus on taking care of our customers. We reported EBITDA of CAD 665 million in Q4, CAD 46 million or 7% above prior year's Q4. Operating income amounted to CAD 145 million. Q4 EBITDA was negatively impacted by two items, which we want to call out. First was a one-time negative revenue impact from our transition in mid-November to our new passenger service system. The second was higher than expected stock-based compensation expense, reflecting the increase in our share price and an increase in employee incentive program accruals. The combination of these two items had the effect of reducing EBITDA by CAD 60 million in the quarter.

We reported EBITDA of 665 million in the fourth quarter 46 million or 7% above prior years fourth quarter.

Operating income amounted to $145 million.

Fourth quarter EBITDA was negatively impacted by two items, which we want to call out first was a onetime negative revenue impact from our transition in mid November through our new passenger service system.

The second was higher than expected stock based compensation expense, reflecting the increasing our share price.

In an increase in employee incentive program accruals.

The combination of these two items had the effect of reducing EBITDA by $60 million in the quarter.

Michael Rousseau: Each item contributed similarly to the impact. CASM increased 2.5% in the quarter, while adjusted CASM, which excludes fuel expense, ground package costs at Air Canada Vacations, and the operating expenses of Aeroplan, increased 5.5%. Consistent with prior quarters, these increases were largely due to the impact of the MAX grounding, which resulted in an ASM increase of 3.3% in the quarter versus a planned ASM growth of 4.6%. The relatively higher costs associated with the replacement aircraft and the ongoing MAX-related operating expenses, including depreciation and pilot wages, which continued to be incurred despite the grounding.

Each item contributed similarly to the impact.

CASM increased 2.5% in the quarter, while adjusted CASM, which excludes fuel expense ground package costs at Air Canada vacations, and the operating expenses of Aeroplan increased 5.5%.

Consistent with prior quarters. These increases were largely due to the impact to the Max grounding, which resulted in an <unk> S. M increase of 3.3% in the quarter versus a planned SM growth of 4.6%.

The relatively higher costs associated with replacement aircraft.

And the ongoing Max related operating expenses, including depreciation and pallet wages, which continued to be incurred despite the grounding.

As disclosed in our news release. This morning, we've estimated that had we operated the 36 Boeing Max aircraft as originally planned in 2019, adjusted CASM would have a reflected an increase of approximately 2.5% when compared to 2018.

Michael Rousseau: As disclosed in our news release this morning, we've estimated that had we operated the 36 Boeing MAX aircraft as originally planned in 2019, adjusted CASM would have reflected an increase of approximately 2.5% when compared to 2018. This speaks to our continued focus on cost reduction and containment, which remains a key priority at Air Canada. Turning to fuel expense decreased CAD 78 million, or 7%, in the quarter on lower jet fuel prices year over year. The average price of fuel was 75 Canadian cents per liter in the quarter, down 11% versus the same quarter in 2018. Looking ahead, we expect the price of jet fuel to average 71 Canadian cents per liter in Q1 and 74 Canadian cents per liter for the full year.

The speaks to our continued focus on cost reduction and containment, which remains a key priority at air Canada.

Turning to fuel fuel expense decreased 78 million or 7% in the quarter on lower jet fuel prices year over year. The average price of fuel was 75 cent Canadian sense for leader in the quarter down 11% versus the same quarter in 2018.

Looking ahead, we expect the price of jet fuel to average 71 Canadian since rallied in the fourth quarter and 74 can 18 cents per liter for the full year.

Michael Rousseau: Air Canada has not entered into any fuel hedging contracts for 2020. Wages and salary expenses came in above the prior year by CAD 93 million or 17%, largely driven by an increase in full-time equivalent employees of 9.2%. This growth in the workforce included the impact of the acquisition of Aeroplan in January 2019, incremental personnel to support technology projects, and the insourcing of certain IT functions previously outsourced to third parties. As mentioned earlier, we also recorded increases in stock-based compensation expense and expenses related to employee incentive programs. Communication and information technology expenses increased CAD 40 million over the prior year's Q4. This increase reflected additional information technology projects year over year, notably those related to security, data platforms, systems resiliency, and monetization.

They are Canada has not entered into any fuel hedging contracts for 2020.

Wages and salary expenses came in above the prior year by 93 million or 17% largely driven by an increase in fulltime equivalent employees of 9.2%.

Growth in the workforce include the impact of the acquisition of Arrow plant in January 2029 team incremental personnel support technology projects and the in sourcing of certain IP functions previously outsourced to third parties.

As mentioned earlier, we also recorded increases and stock based compensation expense and expenses related to employee incentive programs [noise].

[noise] communication and information technology expenses increased 40 million over the prior years fourth quarter. This increase reflected additional different technology project year over year, notably those related to security data platforms system resiliency in monetization and also include the impact to the acquisition of Aeroplan transitional costs associated with.

Michael Rousseau: It also included the impact of the acquisition of Aeroplan, transitional costs associated with the insourcing of certain functions previously outsourced to third parties, as well as transaction fees related to the new reservation system. I would now like to provide you some guidance for 2020. For the full year 2020, we project an EBITDA margin of approximately 19%, which would result in in a small increase in 2020 EBITDA versus the 2019 EBITDA of CAD 3.636 billion. We expect system ASM capacity growth of 1% to 2% when compared to the full year 2019. In addition to the other assumptions we provide our twenty...

Sourcing of certain functions previously outsourced to third parties as well as transaction fees related to the new reservation system.

I would now like to provide you some guidance for 2020.

For the full year 2020, we projected EBITDA margin of approximately 19%, which would result in a small increase in 2020 EBITDA versus between 19 EBITDA of 3.636 billion.

We expect to system may have some capacity growth of 1% to 2% when compared to the full year 2019.

In addition to the other assumptions we revised our 20, we provide our 2020 outlook for the first quarter and full year with respect to both EBITDA and is some capacity, notably it soon.

Michael Rousseau: We provide our 2020 outlook for the Q1 and full year with respect to both EBITDA and ASM capacity, which notably assumes, one, that Air Canada's mainline China and Hong Kong services fully recover by the Q3 of 2020, and two, that the Boeing 737 MAX aircraft gradually return to service commencing late in the Q3 of 2020. If either or both of these assumptions should change and impact our projections, we will revise guidance as appropriate.

One.

That air Count as mainline, China, and Hong Kong services fully recover by the third quarter of 2020.

And to that the Boeing seven to seven Max aircraft gradually return to service commencing late in the third quarter of 2020.

If either or both of these assumptions should change and impact our projections, we will revise guidance as appropriate.

We had operated up to 24 Boeing seven piece of a Max aircraft for the in the first quarter 2019, and the impact of their grounding along with the suspensions to mainland China and from Cronto to Hong Kong and a higher proportion of projected annual operating expense increases in both aircraft maintenance and employee benefits in the first quarter 2020.

Michael Rousseau: We had operated up to 24 Boeing 737 MAX aircraft in Q1 2019, and the impact of their grounding, along with the suspensions to mainland China and from Toronto to Hong Kong, and a higher proportion of projected annual operating expense increases in both aircraft maintenance and employee benefits in Q1 2020, is expected to result in a Q1 2020 EBITDA that is approximately CAD 200 million lower than Q1 2019. Given the overall projected EBITDA increase in 2020, we expect to more than make up for the Q1 2020 shortfall over the remainder of the year. Our annual fuel assumption of CAD 0.24 per liter is well above the current fuel curve.

Is expected to result in a first quarter 2020, EBITDA that is approximately $200 million lower than the first quarter 2019.

Given the overall projected EBITDA increase in 2020, we expect more that make up for the first quarter 2020 shortfall over the remainder of the year.

Our annual fuel assumption on 2014 cents per liter is well above the current fuel curve.

Michael Rousseau: We believe that as the China-based business returns, fuel prices will move closer to 2019 levels. As a result, we believe that our EBITDA guidance has more upside than risk, assuming our MAX return to service and China recovery assumptions prove to be accurate. Moving on to the balance sheet and liquidity. As Calin mentioned earlier, we ended the quarter with unrestricted liquidity of almost CAD 7.4 billion, another record. Looking at the full year 2019 and excluding one-time proceeds related to our acquisition of Aeroplan, free cash flow amounted to CAD 2.075 billion. This reflected an increase of CAD 748 million from 2018 and was higher than the free cash flow of between CAD 1.3 billion and CAD 1.5 billion projected in our Q3 news release.

We believe that as the China based business returns fuel prices will move closer to 2019 levels. As a result, we believe that our EBITDA guidance has more upside than risk assuming our Max returned to service and trying to recovery assumptions prove to be accurate.

Moving onto the balance sheet liquidity.

As Kelly mentioned earlier, we ended the quarter with unrestricted liquidity of almost 1.4 billion another record.

Looking at the full year 2019, and excluding onetime proceeds related to our acquisition of Aeroplan free cash flow amounted to 2.075 billion.

This reflected an increase of 748 million from 2018 and was higher than the free cash flow of of between 1.3 billion and 1.5 billion projected in our third quarter news release.

Michael Rousseau: This improvement was due to a combination of factors, including higher cash from operations, a lower than projected level of capital expenditures due to certain projects being deferred to 2020, and an initial settlement payment from Boeing. Air Canada continues to project cumulative free cash flow of CAD 4 billion to CAD 4.5 billion over the 2019 to 2021 period, which now includes the CAD 2.075 billion of free cash flow recorded in 2019. We have been in discussions with Boeing to seek to settle the terms of an arrangement in relation to the grounding of the Boeing 737 MAX aircraft. Until this arrangement is finalized, information on the outstanding purchase commitments for aircraft is subject to change.

This improvement was due to a combination of factors, including higher cash from operations are lower than projected level of capital expenditures due to certain projects being deferred to 2020 and tuna initial settlement payment from Boeing.

Air Canada continues to project cumulative free cash flow of 4 billion to 4.5 billion over the 2019 to 2021 period, which now includes the 2.0. So in 5 billion of free cash flow recorded in 2019.

We had been discussions with Boeing to seek to settle the terms of an arrangement in relation to the grounding the Boeing 707 Max aircraft.

Until this arrangements finalize information the outstanding purchase commitments for aircraft is subject to change.

Michael Rousseau: An initial settlement payment was made to Air Canada in Q4 of 2019, with any further amounts subject to the finalization of the agreement. From an accounting perspective, the compensation will be reflected as an adjustment to the purchase price of the current and future deliveries and will flow through Air Canada's consolidated statement of operations as reduced depreciation expense over the life of the aircraft and as a reduction to the additions to property and equipment on Air Canada's consolidated statement of cash flow. Net debt of CAD 2.8 billion in 2019 decreased CAD 2.4 billion from 31 December 2018, reflecting an increase in cash equivalents, and short- and long-term investment balances of almost CAD 1.7 billion and a decrease in long-term debt and lease liabilities of CAD 679 million.

And initial settlement payment was made to air Canada in the fourth quarter 2019, with any further amount subject to the finalization of the agreement.

From an accounting perspective, the compensation will be reflected as an adjustment to the purchase price of the current and future deliveries.

And will flow through air candles consolidated statement of operations as reduced depreciation expense over the life of the aircraft.

And as a reduction to the additions to property and equipment on Air Canada is consolidated statement of cash flow.

Net debt of 2.8 billion in 2019 decreased 2.4 billion from December 31, 2018, reflecting an increase in cash cash equivalents in short and long term investment balances of almost 1.7 billion.

And a decrease in long term debt and lease liabilities of $679 million.

Michael Rousseau: Our leverage ratio was 0.8 at the end of the year, in line with the leverage ratio not exceeding 1 projected in our Q3 news release. Our return on invested capital was 15.5% at year-end, in line with our guidance provided in the Q3 news release, and significantly higher than our weighted average cost of capital of 7%. Excess cash amounted to almost CAD 2.7 billion at the end of 2019. As discussed in prior earnings calls, we expect to deploy this excess cash over the next several years to purchase aircraft, make strategic investments, and reduce existing gross debt levels. Shareholder buyback programs will be funded by annual free cash flows.

Our leverage ratio was 0.8 at the end of the year in line with leverage ratio not exceeding one projected in our third quarter news release.

Our return on invested capital was 15.5% at year end inline with our guidance provided in the third quarter news release and significantly higher than our weighted average cost of capital of 7%.

Excess cash amount to almost 2.7 billion at the end of 2019 as discussed on prior earnings calls, we'd expect to deploy this excess cash over the next several years to purchase aircraft.

Make strategic investments and reduce existing gross debt levels [noise].

Shareholder buyback programs will be funded by annual free cash flows.

In respect to there are normal course issuer bid, we repurchased approximately 9.1 million shares in 2019 at an aggregate consideration of $378 million for net average cost per share of $41 per se.

Michael Rousseau: In respect to our normal course issuer bid, we repurchased approximately 9.1 million shares in 2019 at an aggregate consideration of CAD 378 million for an average cost per share of CAD 41.64. Of course, additional information can be found in our financial statements and MD&A, which were posted on our website and filed on SEDAR this morning. With that, I'll turn it back to Calin.

Of course additional information can be found in our financial statements and Mdna, which were posted on our website and filed on SEDAR. This morning, and with that I'll turn it back to killing.

Calin Rovinescu: Thanks, Mike. Before closing, I want to take a few minutes to say a bit more on the MAX, our mitigation program and its impact. At the time of the worldwide grounding of the MAX in March 2019, Air Canada was operating 24 MAX aircraft and was in a significant ramp-up phase for scheduled deliveries from Boeing. By the summer peak of last year, of July 2019, Air Canada was scheduled to operate 36 MAX aircraft. By year-end 2019, there were 8 billion MAX ASMs that were effectively not flown as a result of the grounding. To mitigate, in part, the loss to Air Canada of the ASMs that would have been flown by the MAX, we kept in our fleet certain aircraft that otherwise were scheduled to exit, either through lease extensions or through sale deferrals.

Thanks, Mike.

Before closing I want to take a few minutes to say a bit more on the Max our mitigation program and its impact.

At the time of the worldwide the grounding of the Max in March 2019 Air Canada was operating 24, Max aircraft and wasn't a significant ramp up phase for scheduled deliveries from Boeing.

By the summer peak of last year of July 29, Teen Air Canada was scheduled to operate 36 Max aircraft.

By year end 2019, there were 8 billion Max Asms that were effectively not flown as a result of the grounding.

To mitigate in part the loss to air Canada of the terms that would have been flown by the Max.

We kept in our fleet certain aircraft that otherwise were scheduled to exit.

Either through lease extensions or through sale deferrals, we source new aircraft from other airlines and lessors. We went leased aircraft with crude from other operators and we covered mainline flying with ruse and with regional partners.

Calin Rovinescu: We sourced new aircraft from other airlines and lessors. We wet leased aircraft with crew from other operators, and we covered mainline flying with Rouge and with regional partners. In total, we operated approximately 97% of our schedule in 2019, and our efforts from the outset have been focused on minimizing disruption for our customers so they maintain confidence to book with Air Canada while also preserving value for our shareholders. For 2020, our plans were to have 50 MAX aircraft operating by the summer for a total of 13 billion ASMs flown by the MAX during the year. As it stands today, all MAX aircraft scheduled for delivery beyond the original 24 have not been delivered, and Boeing has now suspended production of new aircraft.

In total we operated approximately 97% of our schedule and 29 team.

And our efforts from the outset have been focused on minimizing disruption for our customers. So they maintain confidence to book with their Canada, while also preserving value for our shareholders.

For 2020, our plans were to have 50, Max aircraft operating by the summer for a total of 13 billion asms flown by the Max during the year.

As it stands today, all Max aircraft scheduled for delivery beyond the original 24 have not been delivered and Boeing has now suspended production of new aircraft.

Calin Rovinescu: Now, I assume everyone heard that Boeing announced on 21 January 2020 that it expects that the 737 MAX aircraft will start to return to service during mid-2020. We will continue with our mitigation plans, but as the ungrounding date continues to shift to the right, this becomes increasingly challenging and operational complexity is compounded. We're quite confident that the Boeing 737 MAX will fly again, and we believe customers will regain confidence in this aircraft. To be clear, safety is paramount, and we're working closely with the governing bodies involved to achieve absolute certainty that this aircraft is safe for our customers and for our crews before it takes to the skies again. Once the aircraft is ruled safe by the regulators, by Boeing, and by our own internal safety and pilot groups, we will be fully dedicated to returning it safely to service.

Now I assume everyone heard that Boeing announced on January 20 Onest.

2020 that it expects that the Max aircraft will start to return to service during mid 2020.

We will continue with our mitigation plans, but as the Undergrounding date continues to shift to the right. This becomes increasingly challenging and operational complexity is compounded.

We're quite confident that the Boeing 737, Max will fly again, and we believe customers will regain confidence in this aircraft.

To be clear safety is Paramount and we're working closely with the governing bodies involved to achieve absolute certainty that this aircraft as safe for our customers and for our crews before it takes to disguise again.

Once the aircraft is ruled safe by the regulators by Boeing and by all our own internal safety and pilot groups, we will be fully dedicated to returning it safely to service.

[noise] more generally I feel 2019 tapped an incredible decade of transformation at our Canada.

Calin Rovinescu: More generally, I feel 2019 capped an incredible decade of transformation at Air Canada. In the year, we recorded record revenue of CAD 19.1 billion and achieved record levels of liquidity. Our stock was a top performer, increasing 87% during the year. We have a pension solvency surplus of about CAD 2.5 billion versus a major deficit not so long ago. In the year, we received significant upgrades from two major debt rating agencies, moving us to within one level of our goal of investment grade. Perhaps more importantly for the future, we also continued to put in place the building blocks to achieve even further growth and increase profitability.

In the year, we recorded record revenue of 19.1 billion and achieved record levels of liquidity, our stock was a top performer increasing 87% during the year, we have a pension solvency surplus of about $2.5 billion versus a major deficit not so long ago.

In India, we received significant upgrades from two major debt rating agencies, moving us to within one level of our goal of investment grade.

Perhaps more importantly for the future. We also continue to put in place the building blocks to achieve even further growth and increased profitability.

Calin Rovinescu: Throughout the year, we consummated transformative transactions, such as the acquisition of Aeroplan, which will be foundational for our new loyalty program, and the signing of our new capacity purchase with our major regional partner, Jazz, rationalizing our important regional flying operations and securing estimated annual savings of approximately CAD 50 million. We also signed a definitive agreement, of course, to acquire Transat. This was subsequently approved by 95% of Transat's shareholders. We're now awaiting regulatory approval of the transaction, which we are confident of obtaining as it provides a wholly Canadian solution that'll benefit travelers, employees of both companies, and other stakeholders while also strengthening the economy of Québec and Canada as a whole. In Q4, we launched our new reservation system and took delivery of our first Airbus A220, two foundational elements for the next stage of our transformation.

Throughout the year, we consummated transformative transactions such as the acquisition of Aeroplan, which will be foundational for our new loyalty program.

And the signing of our new capacity purchase with our major regional partner jazz.

Rationalizing our important regional flying operations in securing estimated annual savings of approximately $50 million.

We also signed a definitive agreement of course to acquire transaction. This was subsequently approved by 95% of Transacts shareholders.

We're now awaiting regulatory approval of the transaction, which we are confident of obtaining as it provides a wholly Canadian solution that will benefit travelers employs about companies and other stakeholders. While also strengthening the economy of Quebec, and Canada as a whole.

In the fourth quarter, we launched our new reservation system and took delivery of our first Airbus eight to 22 foundational elements for the next stage of our transformation.

The introduction of new reservation system, something we last did 25 years ago is tantamount to heart lung transplant for an airline never undertaken with old residual effects and we fully appreciate and regret any issues our customers have encountered.

Calin Rovinescu: The introduction of a new reservation system, something we last did 25 years ago, is tantamount to a heart and lung transplant for an airline. It's never undertaken without residual effects, and we fully appreciate and regret any issues our customers have encountered. However, we have continued to operate our regular schedule without disruption, and as the system continues to stabilize, all stakeholders, particularly our customers and our travel agency partners, will increasingly see the benefits of the new system. Since implementation of the new system, we have already carried nearly 12 million customers. As Lucie mentioned, the A220 is another game changer, helping transform the traveling experience for our customers. In its short time in service with Air Canada, the aircraft has already garnered rave reviews from our customers.

However, we have continued to operate our regular schedule without disruption and as the system continues to stabilize all stakeholders, particularly our customers in our travel agency partners will increasingly see the benefits of the new system.

Since implementation of new system, we have already carried nearly 12 million customers.

As Louis mentioned, the eight to 20 as another game changer, helping transform the traveling experience for our customers and its short time in service with Air Canada. The aircraft has already garnered rave reviews from our customers.

Calin Rovinescu: We know it'll serve us well and open new market opportunities for us, all the while achieving operating efficiencies that will flow directly to the bottom line. We also continued to receive affirmation throughout the year that Air Canada has truly become a leading global carrier. This includes the Skytrax award for best airline North America for the third consecutive year and eighth in the last 10, and other awards for all aspects of our service. One reason for this and our numerous other accolades is the engagement of our employees, and our success was recognized through awards such as that for the one of the top 100 employers in Canada and one of the top diversity employers in Canada. What makes these and other achievements notable is that 2019 was a year of tremendous adversity.

We know it will serve us well and opened new market opportunities for us all the while achieving operating efficiencies that will flow directly to the bus bottom line.

[noise]. We also continue to receive affirmation throughout the year that air Canada is truly become a leading global carrier. This includes the Skytrax Award for best airline North America for the third consecutive year, an eighth in the last 10 and other awards for all aspects of our service.

One reason for this in our numerous other accolades is engagement of our employees in our success was recognized through awards as that for the to one of the top 100 employees in Canada, and one of the top diversity employers in Canada [noise].

What makes these and other achievements notable is a 29 team was a year of tremendous adversity.

Calin Rovinescu: With ongoing geopolitical events, a more complex regulatory environment, significant weather events, and of course, the sudden and ongoing grounding of the 737 MAX. This Black Swan event, unseen previously in our industry, now coupled with the impact of the COVID-19 virus on our industry, the magnitude of which only became apparent in early February of this year, would have been an existential threat a decade ago. There's no question that we are now not only stronger than we were ten years ago, but that we are truly transformed. The crux of our strategy has been to build an airline that is sustainably profitable for the long term. These crises have put this sustainability to the test, a test that I'm proud to say we're passing with flying colors.

With ongoing geopolitical events, a more complex regulatory environment significant weather events and of course, the sudden and ongoing grounding of the 737 Max.

This black Swan event unseen pretty previously in our industry now coupled with the impact of the cobot 19 buyers on our industry the magnitude of which only became apparent in early February of this year.

I would have been an existential threat a decade ago.

Theres no question that we are now not only stronger than we were 10 years ago, but that we are truly transformed.

The crux of our strategy has been to build an airline that is sustainably profitable for the long term.

These crises have put this sustainability to the test a test that I'm proud to say, we're passing with flying colors.

Calin Rovinescu: I applaud the nimbleness of our people and the agility of our leadership team, which was fully displayed in 2019. It also gives me great confidence for the future. I'd like to close by thanking again our employees for a tremendous year and for continuing to keep our customers at the core of everything that they do, as well as our customers for their continued loyalty. Now we'd be pleased to take some questions from the analyst community.

I applaud the nimbleness of our people and the agility of our leadership team, which was fully displays in 29 team. It also gives me great confidence for the future.

I'd like to close by thanking again, our employees for a tremendous year in for continuing to keep our customers at the core of everything that they do as well as our customers for their continued a loyalty and that would be pleased to take some questions from the analyst community.

Thank you we will now take questions from the telephone line.

Operator: Thank you. We will now take questions from the telephone lines. If you have a question and you're using a speakerphone, please lift your handset prior to making your selection. If you have a question, please press star one on your telephone keypad. If at any time you wish to cancel your question, you may press the pound sign. Please press star one at this time if you have a question. There will be a brief pause while the participants register. Thank you for your patience. The first question is from Walter Spracklin with RBC Capital Markets. Please go ahead.

If you have a question and using speakerphone. Please proceed your hands up prior to making our selection.

A question. Please press star one on your telephone keypad, if at any time you. Mr. Canceling. Our question you May press the pound sign. Please press star one at this time, if you have a question and I'll be brief possible. The participants Rochester. Thank you for your patience.

The first question is from a Walter Spracklin that with RBC capital markets. Please go ahead. Thanks very much good morning, everyone Marni Walter So so focusing on your comment with regards to redeployment of capacity over to a Atlantic as result of the try to service service disruption. It you know the impact there is as all other airlines.

Walter Spracklin: Thanks very much. Good morning, everyone.

Calin Rovinescu: Morning, Walter.

Walter Spracklin: Focusing on your comment with regards to redeployment of capacity over to Atlantic as a result of the China service disruption, you know, the impact there is as all other airlines are doing the same would be suggestive that of competitive pressures that you alluded to. Is it possible that we could see yields effectively turn negative in the early part of 2020 here as that capacity is redeployed?

During the same would be suggestive that a of competitive pressures that you are leader alluded to is it possible that we could see yields a effectively turned negative in the early part of 2020 here as that capacities report.

Calin Rovinescu: You know, first of all, the redeployment of this kind of capacity when the duration of the China situation is still unclear means that people will be largely doing it on a short-term basis. Of course, you know, airplanes, especially wide-body aircraft like this, being redeployed, is not an easy feat. It's not as if people are gonna change their entire plans for the rest of the year. I think that you'll probably see some tactical capacity redeployment, Walter, but it's not going to be a wholesale dynamic where everyone changes their plans for the summer.

First of all at the redeployment of this kind of capacity when the when the duration of the China situation is still unclear I mean that people will be largely doing it on a short term basis and of course airplanes.

Lastly wide body aircraft like that being redeployed is a is not a easy feat. So it's not as if people are going to change their entire plans for the rest of the year as I think that you'll you'll you'll probably see some tactical capacity redeployment, Walter but it's not going to be a wholesale dynamic where everyone changes their plans.

For the for the summer.

Walter Spracklin: you don't see yields as being because of that tactical. You don't see it being overly impactful on overall yields as a result. Is that right?

So you don't see yields as being because of that the tactical you don't see it being a overly impactful on overall yields as a result, Miranda no with us at this stage, we don't see that and then you could also assume that given the pressures in Asia that that the Atlantic will become an even more attractive destination with the with greater demand.

Walter Spracklin: you don't see yields as being because of that tactical. You don't see it being overly impactful on overall yields as a result. Is that right?

Calin Rovinescu: No. At this stage, we don't see that. You could also assume that, you know, given the pressures in Asia that the Atlantic will become an even more attractive destination with greater demand.

Okay, turning to CASM I don't have you Mike you can give us what your implicitly.

Walter Spracklin: Okay. Turning to CASM, I don't know if you, Mike, you can give us what you're implicitly putting into your 2020 there for CASM. But the real question here is, let's just say the MAX does return in Q3, looking at your ability to bounce back to, let's call it, your 2018 level for CASM. How quickly do you think it would take for you know, to get back to that level? Or is it a multi-quarter, you know, duration where we may not see that level in 2021?

Putting into your 2020, there for for CASM, but the real question here is.

He is when you do lows see the Max does return in the third quarter.

Looking at your ability to bounce back to let's call. It your 2018 level for CASM. How quickly do you think it would take for you.

To get back to that level or is it a multi quarter.

Yes, multi quarter duration, where we may not see that level in 2021.

I think a good morning, Walter I think you'll see it in 2021 as you probably have seen from our our discussion today. The Maxwell we believe the Max and start gradually coming back into our operation in Q3.

Michael Rousseau: I think, Good morning, Walter. I think you'll see it in 2021. As you probably have seen from our discussion today, the MAX will—we believe the MAX will start gradually coming back into our operation in Q3. So there will be a little bit of overlap during that transition period. But certainly as we get critical mass for the MAX in early part of 2021, there's no reason why the CASM-ex can't get back to pre-grounding levels.

So there will be a little bit overlap during that transition period, but certainly as we get critical mass for the Max in early part of 2021, There's no reason why do the CASM ex can't get back to two to pre grounding levels.

Walter Spracklin: Perfect. Just last question here is on the cadence of your free cash flow. Mike, I know before you gave the before the MAX grounding occurred, your free cash flow was essentially, you know, starting low and then ramping up significantly over the three-year period you would forecast. Now that the MAX was grounded, you know, kind of an early lift in free cash flow, and now it's probably gonna come back down as you accept deliveries. Over the course of that time, you're still gotten to the same level cumulatively.

And just last question here is on the cadence your free cash flow Mike before you gave the.

Before the Max grounding occurred your free cash flow was essentially if starting low and then ramping up significantly over the over the three year period, you would forecast, but now that the Max was granted you got to.

Kind of an early lift in free cash flow and now it's probably going to come back down as you accept deliveries.

Over the course of their time, you're still going into the same level cumulatively.

Walter Spracklin: You know, any risk that, you know, because of this pushback we do and the CapEx increase that would come in 2021 as we accept delivery that you don't hit the 4.5 level or 4 to 4.5 level over that period?

You know any any risks that you know because of this push back we do it and the Capex increase that would come in 2021 as we accept delivery that you don't hit the deport half level or four to four to half level over that period.

Michael Rousseau: We don't think so, and that's why we reaffirmed the long-term guidance. We've spent a lot of time looking at different scenarios and, you know, where the MAX may fall in. Right now, we're obviously assuming 30 will be operating by year-end, 20 being pushed into next year, and that's built into our CapEx plans. We do not see, at this point in time, assuming, you know, given all the assumptions we put around the guidance, that the CAD 4 to 4.5 billion of cumulative free cash flow is at any risk.

We don't think so that's why we reaffirmed the long term guidance you spent a lot time looking at different scenarios and where the Max may fall in right. Now we're all see assuming 30 will come in well 30 will be operating.

By year end 20 being pushed into next year and that's built into our Capex plans. So so we do not see.

At this at this point I'm, assuming you know given all the assumptions we put around the guidance that the four to 4.5 billion of Cuba free cash flows.

Any risks.

Walter Spracklin: Okay. That's all my questions. Thank you very much.

My question. Thank you very much.

Calin Rovinescu: Thanks, Walter.

Thanks Walter.

Thank you.

Operator: Thank you. The next question is from Kevin Chiang with CIBC. Please go ahead.

A question is from a Kevin Shamelessly RBC. Please go ahead.

Kevin Chiang: Hi, good morning, and thanks for taking my question here. Maybe I could just start with, on the Boeing front. Just from an accounting perspective, when you come to a finalized agreement here, should I think of that as a one-time benefit to, let's say, 2020 CapEx, or does that bleed through multiple years as you take delivery of the MAX? Then secondly to that, I think you planned for about CAD 475 million of CapEx in Q4, and it looks like you were roughly CAD 220 million shy of that. Would that be primarily related to the Boeing preliminary settlement or are there other moving parts in that number?

Hi, Good morning, Thanks for taking my question here, maybe I could just on the Boeing front just from an accounting perspective, when you come to a [noise].

A final have finalized agreement here should I wasn't trying to think of that as a result, as a onetime benefit to let's say 2020, capex or [noise] or does that bleed through multiple years as you took delivery of the Max and then secondly to that I think you plan for about 475 million of Capex in Q4, it looks like you're roughly two.

<unk> hundred 20 million.

Million shy of that would that be primarily related to the Boeing preliminary settlement or there other moving parts in that number.

Let me start with a Q4 number.

Michael Rousseau: Let me start with the Q4 number. CapEx was lower in Q4 than we had anticipated, for a couple reasons. One, we did defer some capital into 2020, and also we did net the initial payment from Boeing to that CapEx, and I can't give you the breakdown of what that variance is. To your first question, Kevin, any cash we receive in 2020, and we expect, you know, upon finalization of the arrangement to receive cash in 2020, will go against, you know, CapEx in whatever quarter we receive the cash. Aside from that means the cost of the aircraft that we currently have on property and the ones to be delivered will be reduced in book cost.

Capex was lower in Q4 than we had anticipated for a couple of reasons. One we did defer some capital into 2020.

And also we did net the initial payment from Boeing.

To that Capex that I can't give you the breakdown of what that variances.

To your first question, Kevin any cash we received in 2020 and we expect.

Upon finalization of the arrangement to receive cash in 2020.

We'll go against.

Capex in in whatever quarter, we received the cash.

Aside from that of that means the the cost of the aircraft.

With that we currently have on property the ones to be delivered will we be reduced in the cost and so that our depreciation will be slightly lower over the next 2025 years electronically.

Michael Rousseau: There, our depreciation will be slightly lower over the next 20 to 25 years of life of the plane than it otherwise would be.

Otherwise would be but that's helpful. Thank you and then can you just update us on on where you are in terms of how many Mac simulators you have it and maybe how many will be receiving over the next.

Kevin Chiang: That's helpful. Thank you. Can you just update us on where you are in terms of how many MAX simulators you have and maybe how many you'll be receiving over the next, I don't know, let's call it, 6 to 12 months as you prepare your pilots for the recertification here?

Panel is call it.

Six to 12 months as you as you prepare your pilots floral for the recertification here.

Michael Rousseau: We have 2 sims. You know, we've always had 2 sims for the most part, and we think that's more than sufficient for our fleet size. We do have access to another half sim on a rental basis that we'll probably be using to bring our pilots up, you know, up to requalify once the MAX is ungrounded. You know, certainly that 2 to 2.5 sims are more than sufficient for our fleet size.

We have to Sims.

And we've always had to Sims for most part and we think thats more than sufficient for our for the the fleet size.

We do have access to another half assume on on a rental basis.

That that will probably be using to bring our palace up up to two requalify once the Max is on grounded.

So certainly that two to two and a half sims or more than sufficient for our for our fleet size.

Kevin Chiang: Thank you for that. Just lastly from me, I appreciate on the cargo front, there's uncertainty with how the coronavirus plays out here. When I look at Q4 results, down year over year, but sequentially up 5%, I think the last time we saw sequential growth was over a year ago. Were you at least maybe seeing some signs of stabilization before the coronavirus broke out? Is that something that, you know, if you think of that being a transient headwind, you know, at least the cargo revenue might have found a floor here exiting 2019?

And then thank you for that and just lastly from me and I appreciate them on the cargo front there is a [noise].

Uncertainty with with our just how the tone of ours plays out here, but when I look at Q4 results.

Down year over year, but sequentially up 5% and and I think the last time, we saw sequential growth was was was over a year ago.

Are you are you at least where are you at least maybe leasing some signs of stabilization before the court of ours broke out and is that something that if you think of that going to translate headwind.

At least a cargo revenue modified found a floor here exiting 2019.

Michael Rousseau: Yeah. Kevin, I think that's a fair statement. You know, and Lucy can confirm this, but our China business was stabilizing, if not showing some signs of growth. Small growth, very small growth, but some signs of growth. I think your observation is absolutely correct. Also our cargo group has looked at other ways of generating revenue and primarily looking at domestic opportunities as well. A combination of a stabilization, if not a small growth in China or Asia in Q4, plus some very good initiatives on the domestic front, you know, helped the

Kevin I think that's a fair statement I think.

Lucy can confirm this but our China business was stabilizing if not showing some signs of a growth.

Small growth sort of small growth of some signs of growth. So I think your observations that absolutely correct also our Carter group has looked to other ways of generating revenue and primary looking at domestic.

Opportunities as well so a combination of the stabilization if not small growth in China or Asia in Q4, plus some very good initiatives on the domestic front.

Helped to help the of the value the issue in Q4.

Calin Rovinescu: The backup.

Michael Rousseau: ... the issue in Q4.

Kevin Chiang: Thank you for that.

Thank you for that.

Thank you.

Operator: Thank you. The next question is from Konark Gupta with Scotiabank. Please go ahead.

Your next question is from corner <unk> with Scotiabank. Please go ahead.

Good morning, and thanks, everyone.

Konark Gupta: Good morning, and thanks, everyone. Glad to see some good free cash flow numbers despite the perfect storm here. Our first question is on the Q1 EBITDA guidance. Mike, you called out some items that caused EBITDA to decline by CAD 200 million in Q1. Now, maintenance and employee benefits are about CAD 85 million of that. Can you quantify the remaining items and also clarify if the reservation system will continue to have impact in Q1?

And I'd love to see some good free cash flow numbers, despite the perfect storm here.

On our first question is on a on the Q1 EBITDA guidance. So Mike you called out some items that.

Thats caused EBITDA declined by 200 million dollar in Q1, no maintenance and the employee benefits thought about $85 million off that I can't quantify the remaining items and also clarify if the reservation system will continue to have them back in Q1.

I can't I cant publicly qualifier reconcile the items, but certainly the largest item.

Michael Rousseau: I can't publicly quantify or reconcile the items. Certainly the largest item is the absence of the MAX. 24 MAX that are not operating in Q1 that were operating last year in Q1 are one of our most efficient aircraft. You know, being somewhat backfilled by less efficient aircraft is certainly not helping. Now again, that will come full circle in Q2, where we're up against the ungrounding, the grounding last year as well. Certainly the biggest, largest item is the absence of the MAX. Certainly there is some impact from not flying to China for two months of Q1, including cargo as well. Certainly the absence of the MAX is the single biggest item.

Is the absence of the Max a 24 Max that are not operating Q1 that we're operating a last year in Q1 are well one of our most efficient aircraft and being somewhat backfill by less efficient aircraft is is certainly not healthy again that will.

Come full circle in Q2, where we're up against the on grounding the grounding last year as well so so certainly.

The biggest largest item is the absence of the Max and certainly there there is some impact from not playing to China for two months of the of Q1.

Including cargo as well, so so but certainly the Max.

Absence, the Max is the single biggest lighter and remember conoco and we've talked with this in past calls its kalen here.

Calin Rovinescu: Remember, Konark, we've talked about this in past calls. It's Calin here. In addition to flying less efficient aircraft to replace the MAX flying, we're also, because of our unique situation, covering the cost of the pilots who are assigned to the MAX when the aircraft was grounded, the 24 aircraft in our fleet. We had 400 or so 737 pilots. Because we did not fly the 737NG before, our situation is different than the other North American carriers that were all operators of the 737NG. In addition to operating less efficient aircraft, we're also continuing to carry the cost of the pilots that had been trained on the MAX and that are now

That a in addition to flying less efficient aircraft that to replace the Max applying were also.

Because of our unique situation.

Covering the floor covering the cost of the pilots who are described the Max.

When the aircraft was granted a 24 aircraft in our fleet, we had 400 or so.

77 pilots.

And because we did not fly the LNG before our situation is different than the other north American cars that are were all operators of the of the 77 Angie. So in addition to operating less efficient aircraft were also continuing to carry the cost of the of the pilots that had been.

Trained on the on the Maxim that are now kind of a waiting for the Max come back into service because there is no energy to for them to fly so so that as an incremental.

Calin Rovinescu: Kind of awaiting for the MAX to come back into service because there is no 737NG for them to fly. That is an incremental, you know, cost, which we, you know, certainly, had not expected to cover in our operating budget.

Cost, which so we certainly had not expected to cover in our in our operating budget.

Konark Gupta: That's a good color. I understand obviously, I mean, there's some kind of noise around that as well as I think you are kind of assuming a slightly higher fuel price than what's kind of implied by quarter to date or year to date numbers, right? I'm like, you're probably keeping some conservatism there as well.

That's good color and I understand obviously, I'm I guess kind of some noise around that as well as I think you are you are kind of assuming a slightly higher fuel price than what's kind of implied by quarter today at all year to date not much like some of you probably keeping some conservatism there as well.

Michael Rousseau: Yeah, yeah, we're looking at that conservatively. Also, I think we do see a correlation between the return of China and the, you know, potential increase in fuel price over that period of time. We think that there's some correlation, but you're right, we have taken a conservative approach to that.

Yeah, we're looking at that conservatively also I think we do see a correlation between between the return of China, and the and the potential increase in fuel price over that period of time. So we think that theres some correlation, but you're right. We have taken a conservative approach to that.

Konark Gupta: Okay, thanks. Then on CapEx, so there seems to be like CAD 900 million reduction in 2020, and then there's a similar increase in 2021. I'm guessing that's mostly related to the push out of the 737 MAX deliveries from 2020 to 2021. But were there any other nuances beyond that? I'm like, I understand there's some Boeing compensation noise as well, but anything else that we should be looking out for?

Thanks, and then on Capex, a there seems to be like 900 million dollar reduction and 22 of the and then there's a similar increasing 2021 I'm guessing that's mostly related to the push out of the 20 Max deliveries from 2020 to 2021.

But were there any other nuances beyond that I'm like I understand there's some foreign competition noises around but anything else that we should be looking out for.

Yeah, certainly the largest item was the push the 20, Max but there were other items, we've had to defer some.

Michael Rousseau: Yeah, certainly the largest item was the push of the 737 MAX, but there were other items. We've had to defer some work we're doing on some of our planes, notably the Signature Class to our A330 fleet. Some of that was initially thought we could get that done this year, it'll be pushed into next year. There's a, you know, again, that's all because of the MAX situation where we need the aircraft flying and not in MRO for the most part. MAX certainly, but then also capital projects, which would improve our product, are being pushed out a bit as well.

Some some.

So work, we're doing on warplanes, notably the dream cabin to our Threethirty fleet and so some of that was initially thought we'd be get that done this year it'd be pushed into a into next year. So theres. A you know again, that's all because of the Mac situation, where we need the aircraft flying and not in the not immoral most part so.

So back certainly, but then also capital projects, which would improve our products are being pushed out to bid as well.

Konark Gupta: Okay. If I can clarify, Mike, is the Boeing compensation you mentioned on future settlements already reflected in the CapEx schedule, or will that be incremental?

Okay, and if I can clarify Mike because it's a Boeing competition. The you mentioned the on future.

Settlements as that already reflected in the Capex schedule I will that be incremental.

Michael Rousseau: No, that is already reflected.

That is already reflected.

Konark Gupta: Okay, thanks. Lastly-

Okay, Thanks, and our ACMI, our expectation perfect. Thanks, and lastly on the free cash flow. So you you said the forward before and a habit and on our free cash flow cumulatively and that seems still unreachable, but if I look out of the in a different way maybe you already have half of that in 2019, and then capex has been pushing out.

Michael Rousseau: Our expectation.

Konark Gupta: Perfect. Thanks. Lastly, on the free cash flow. You said the CAD 4 to 4.5 billion free cash flow cumulatively, that seems still reachable. If I look at it in a different way, like you already have half of that in 2019 and then CapEx has been pushing out, what gives you comfort that, you know, this number is not conservative significantly?

What what gives you comfort that down this number is not conservative significantly.

Oh Wow, our internal analysis gives it gives us the comfort to continue to.

Michael Rousseau: Well, our internal analysis gives us the comfort to continue to tell the market that we believe in that number. You know, 4 and 4.5 is, you know, we think is realistic at this point in time. You're right, you know, we achieved half of that in almost more than half of that in the first year of a three-year plan. To Walter's earlier question, you know, when we went into this from Investor Day, we thought it was a bit of a hockey stick, and it's turned out to be quite different given the situation. We still believe that 4 to 4.5 is a realistic target over that period of time.

To do tell the market that we that we believe in that number that's all for Ford and a half is you know we think is realistic at this point in time and you're right. You know we achieved half of that in almost more than half of that in the first year of a three year plan.

And to Walters you know earlier question you know when we went into this will from Investor day, We thought was a bit of a hockey stick in is turned out to be quite quite different given the situation, but we still believe the four to four and a half is a is it realistic target over that period.

Konark Gupta: Okay. That's all for me. Thank you so much.

Okay. That's all for me thanks, so much.

Thank you next question is from cross Marine was Altacorp capital. Please go ahead.

Operator: Thank you. The next question is from Chris Murray with AltaCorp Capital. Please go ahead.

Chris Murray: Thanks. Good morning, folks. Just thinking about the reservation system. I know we had some conversations last year about, you know, being prepared for it and the whole bit. Just trying to understand, I guess, you know, there have been a number of issues, and then of course, compounded, I think, maybe by some of the shutdown of the Pacific operations. Can you give us a kind of a timeline or an idea on when you think you're going to have those systems normalized? And any expectations for additional costs as we go through Q1 and into Q2?

Thanks, Good morning folks.

Just the reservation system I know, we had some conversations last year about being prepared for them, all but I'm just trying to understand I guess.

There has been a number of issues and then of course Compounder I think maybe by some of the shutdown of the the Pacific operations.

Can you give us some kind of a timeline or an idea on when you think you're going to have those systems normalized and [noise] any expectations for additional cost as we go through Q1 into Q2.

Hi, how it's let's see first I just want to put a few things in perspective for the New records and so when we say in the quarter and that we did see some you know revenue impact as a result in the cutover I want to make sure. It's understood that our new reservation system is not preventing us from generating revenue.

Lucie Guillemette: Hi, it's Lucy. First, I just want to put a few things in perspective for the new RES system. When we say in the quarter that we did see some, you know, revenue impact as a result of the cut over, I want to make sure it's understood that our new reservation system is not preventing us from generating revenue from bookings. That's a very stable environment. The area where we faced more difficulties on the revenue side was with ancillary revenue collection. In certain cases, once we cut over, we chose to waive some of the fees in order to reduce some of the friction for our customers.

From bookings, that's a very very stable environment the area, where we faced more difficulties on revenue side was with ancillary revenue collection selling in certain cases.

Once we cut over we chose.

Two two waves some of the fees in order to reduce some of the friction for our customers.

Lucie Guillemette: In areas, frankly, where we were a little bit surprised and some of the functionality wasn't performing as planned, you know, we quickly worked, you know, in conjunction with our IT team to make sure that we could restore that functionality. I could tell you that even post cut over on 19 November, we saw enhancements come in, roll in in December, January, and we continue to move to improve in those areas. You know, we're very confident that we're going to get there. You know, as we said earlier, we regret some of the inconvenience that it may have caused.

And in an area is frankly, where we were a little bit surprised and some of the functionality wasn't performing as planned and you know we we quickly worked a you know in conjunction with our I team to make sure that we could restore that functionality. So I can tell you that even post cut over on the 19th in November we saw enhancement.

Yeah, I mean enrolling in December January and we continue and we continue to to move to land to improve in those areas. So.

We're very very confident that we're going to get there and a you know as we said earlier, we regret and have an inconvenience that he may have car, but by and large you know given the size of our airline in the complexity of the system like a new vessels stem and we're confident that we're going to be able to get through this relatively quickly.

Lucie Guillemette: By and large, you know, given the size of our airline and the complexity of a system like a new RES system, we're confident that we're going to be able to get through this relatively quickly.

Chris Murray: Okay. Now do you have any particular timeline when you think you're actually going to be stable? It would be a fair way to put it.

Okay.

So no I didn't give any particular timeline when you think you're actually going to be stable it wouldn't be a fair way to put it.

Well, we were certainly the system is very very stable now now there are some areas where you know we're looking to two.

Lucie Guillemette: Well, we're certainly the system is very, very stable now. Now, there are some areas where, you know, we're looking to bring in some significant improvements quickly. Notably, you know, one of them is in the call center environment where our call center wait time is still long. Some of that is due to, you know, us, you know, improving on the new system, you know, being more used to using the new RES system.

Bring incident significant improvements quickly and notably in a one of them is in the call Center environment, where our call Center wait time is it still long.

And some of that is due to.

Yes.

You know improving or on the new system, you know being more used to.

Using the new Red system and at the same time, you know dealing with.

Lucie Guillemette: At the same time, you know, dealing with call volumes that regrettably we should not be facing because of some of the system issues that we faced on some of our direct channels. You know, given the size of the airline and the volume of bookings that we actually generate, we believe that we are, that our system is stable. Now, the other item that I didn't talk about, but in truth, as we were cutting over at the end of November, we were starting to face the situation with the coronavirus, which had massive implications on the schedule change side. You can only imagine that at that time, not only were we canceling bookings, but we were also busy re-accommodating customers onto other flights.

Call volumes that regrettably, we should not be facing because in some of the system issues that we faced on some of our direct channels. So you know given the size of the airline and that the volume of Gen as bookings that we actually generate.

We believe that we are.

That that our star system. It is stable now the other item that I didn't talk about but in truth as we were cutting over at the end of November we were starting to face situation with the krona virus, which hadn't nice in implications on the schedule change. So you can only imagine then at that time, not only where we canceling bookings, but we are.

We also did they re accommodating customers onto other flight.

Lucie Guillemette: that, you know, at the same time as the cut over of our RES system, you know, made it that much more difficult.

So that you know at same time, they've cut over a very rare system.

You know.

Made it that much more aren't that much more that much more difficult.

Chris Murray: Okay, I'm gonna leave it there. Just as we go into Q1, just if you can give us a rough idea, how much of your Pacific capacity does China and the Hong Kong route represent? You know, assuming that, I think you talked about 1% to 2% capacity increase overall, but I guess that'll be just reallocated either domestically or to the Atlantic, as you talked about. How much should we be really thinking about pulling out of the Pacific in Q1?

Okay, we'll leave it there.

Since we go into Q1, just if you can you give us a rough idea.

How much of your Pacific capacity.

Does China and Hong Kong Roop represent an extremely well yeah, you talked about a 1% to 2% talk capacity increase overall, but I guess I don't think just reallocated, either either domestically or or to the Olympics talked about.

How much should we really thinking about pulling out of the Pacific in Q1.

Well.

Michael Rousseau: Well, in numbers, I think China represents, as I think as Calin said or someone said earlier, about 6% of annual ASMs for us. Hong Kong is another, I think, 3% roughly. Now, we pulled out one frequency from Hong Kong, or from Toronto to Hong Kong-

<unk>.

Numbers I think China represents I think as kilns at or someone said earlier about 6% of annual Asms.

For us in Hong Kong is another I think 3% roughly.

Now we've pulled out one one frequency from Hong Kong Oh for tunnel all our March March.

Lucie Guillemette: For March.

Michael Rousseau: ... for March. Those are kind of the background numbers. And as Calin talked about and others have talked about, we're looking to redeploy those on a more opportunistic basis or fill-in basis.

So so those are kind of the background numbers and as killing talked about others have talked about we're looking to redeploy those on more opportunistic basis or filling basis.

Okay and overall, you don't think that there'll be a tremendous yield impact.

Chris Murray: Okay. Overall, you don't think that there'll be a tremendous yield impact with the trade-offs at this particular point? Is that fair to keep thinking about that?

With the trade offs that this particular appointed fared I keep thinking about that.

Michael Rousseau: Well, that's our going-in view at this point in time.

That's our that's our going in view at this point in time is a though it will not be.

Chris Murray: Okay

Michael Rousseau: ... that there will not be an impact on yield.

Impact on yield.

Chris Murray: All right. Thanks. I'll leave it there.

Alright.

Thanks, I'll leave it there.

Thank you. The next question is from Andrea Teixeira with Bank of America. Please go ahead.

Operator: Thank you. The next question is from Andrew Didora with Bank of America. Please go ahead.

Hi, good morning, everyone and thanks for taking the questions. Mike CASM ex question for you, obviously been pressured kind of in the up mid.

Andrew Didora: Hi, good morning, everyone, and thank you for taking the questions. Mike, a CASM-ex question for you. Obviously, it has been pressured kind of in the up, mid- to high-single-digits as the MAX has been grounded. As we lap the grounding and the costs are in the base, how should we think about kind of the core inflation in your business as the, you know, as the MAX continues to sit here? Should it still kind of be tracking in this up- to mid-high single-digit level, or as you lap it, does that come down a little bit?

The high single digits says the Max has been grounded and so as we lap the grounding and the costs are in the base how should we think about kind of the core inflation in your business says about now as the Max continues to sit here should still kind of be tracking in this up to mid high single digit level or as you lap. It does that comes down a little bit.

Michael Rousseau: No, I think, Andrew, you know, we didn't provide specific guidance on CASM-ex, consciously, but you're right. The CASM-ex for 2020 will come down a bit versus the run rate in 2019.

No I think Andrew we didn't provide specific guidance on casmex.

Consciously, but but you're right. The CASM ex for 2020 will come down a bit versus the run rate in 29 King.

Okay, and then I guess CASM ex over the longer term do you think you can drive CASM ex down and what kind of growth rate would you need in order to accomplish that yeah to the earlier question I I think we can get back to where we were once once the new apartment stabilized and we've got the Max back up and running in the two twentys and Uh Huh.

Andrew Didora: Okay. I guess, CASM-ex over the longer term, do you think you can drive CASM-ex down, and what kind of growth rate would you need in order to accomplish that?

Michael Rousseau: Yeah. To the earlier question, I think we can get back to where we were once the environment's stabilized and we've got the MAX back up and running and the 220s. Again, those are all key drivers to better CASM-ex as we go forward.

And those are all key drivers to to do better CASM ex as we go forward.

Calin Rovinescu: Andrew, it's Calin here. You'll see as we mentioned in the press release, and I think we mentioned in our remarks as well, that we extrapolated the CASM-ex number, and concluded that, basically had we operated 36 MAX as originally planned, that CASM-ex would have it reflected an increase of about 2.5% compared to 2018.

Andrew is killing here you will see as we mentioned in the press release I think we mentioned our remarks as well that.

We extrapolate it the CASM ex number.

And concluded that a basically had we operated 36 Max as originally planned that CASM ex would have it reflected an increase of about 2.5% compared to 2018, right and that was based on our original capacity.

Michael Rousseau: Right. That was based on our original capacity plan of roughly 4.8%.

Plan of roughly 4.8%. So that's another proxy that you can use in your analysis.

Michael Rousseau: That's another proxy that you can use in your analysis.

Andrew Didora: Right. No, got it. Okay. Just a last question from me, more of a mechanics issue of the model. I guess with China and all the cancellations, how do we think about the kind of PRASM, CASM trade-off of all these cancellations? It seems like maybe you're a little bit more bullish on yield. When we kind of forecast our earnings hit from the loss of China, do you think it's probably more CASM than PRASM at this point in time?

Right got it Okay and then just a last question for me, it's more of a mechanics issue or the model I guess with with China and all the cancellations how do we think about the kind of PRASM CASM trade off of all of these cancellations <unk>. It seems like maybe you're a little bit more bullish on yield so when we kind of forecast our earnings.

Its head from both the loss of China do you think it's probably more CASM than PRASM at this point in time.

Good question, Andrew and you need to think of about one let us think when that would come back to you.

Michael Rousseau: This is a good question, Andrew, and we need to think about that one. Let us think about that one and come back to you on what we-

Okay. Thank you on that that's it for me thanks.

Andrew Didora: Okay. Thank you.

Michael Rousseau: ... on the-

Andrew Didora: That's it for me. Thanks.

Thank you. The next question is from Turkey with Wolfe Research. Please go ahead.

Operator: Thank you. The next question is from Hunter Keay with Wolfe Research. Please go ahead.

Andrew Quach: Hey, this is Andrew Quach on for Hunter. In your MD&A, you noted a significant acceleration in direct channel share in 2019. Can you talk about how that's looked over the past few years and how you expect that to trend following the implementation of new Aeroplan?

Hey, this is Andrew quashed on Kronur and your Mdna you noted a significant acceleration indirect channel share in 2019 I'm can you talk about how does looked over the past few years and how you expect that the trend following the implementation of new Arrow plan.

Sure I'm sure rights, if it's they see a couple of things [noise].

Lucie Guillemette: Sure. It's Lucy. A couple things. In the very short term, we did take a little bit of a slowdown in that area, and the reason for that was because we were preparing for the new reservation system and, as you rightfully say, Aeroplan. Once we have completed all the work with the new Amadeus system, we will be in a very good position to be able to significantly shift demand from our current channels to our direct channels at a much better cost. It was necessary for us to get the system implemented, get the new Amadeus product in, and then we can start to focus on how we can, you know, move forward with our distribution strategy.

In in very short term, we did take a little bit of light a slow down in that area and the reason for that when it's because we were preparing for that a new reservation system is and as you rightly say arantine.

Once we have completed all the work within new remedies system, and we will be in a very very good position to be able to.

Significantly shift.

And from and our current channels.

Add to our direct or indirect channels.

At a much much better at cost body was necessary for us to get it just can implemented yet the new Amadeus product in and then we can and start to focus on how we can.

I'll move forward with our distribution strategy, but definitely a this is something that we look forward to.

Lucie Guillemette: Definitely, this is something that we look forward to, in you know, 2020, 2021. Very big opportunities ahead for us.

In 2020 2021.

Okay, very big opportunities and Fred.

Andrew Quach: Great. Thanks. For my second question, can you tell us when exactly in 2020 you expect to complete the final stage of the reservation system cut over and realize the greater than CAD 100 million benefit? Thanks.

Great. Thanks for my second question can you tell us when exactly in 2028, you expect to complete final stage of the reservation system cutover and realize the greater than 100 million dollar benefit. Thanks.

Craig Landry: It's Craig Landry here on the operations side. You know, from our perspective, the system is already very stable. It's important to note that the system doesn't impact our ability to either sell to customers or to operate our global schedule of flights. The impacts that we're experiencing now are more in the servicing level, perhaps from a customer service side, and we're seeing rapid improvements in that area. In terms of our ability to generate revenues or to operate our schedule, we don't have any impacts from what we've seen so far.

It's a Craig venter here on the operation side you know.

From our perspective the system is already very stable. It's important to note that the system doesn't impact our ability to either sell to customers or to operate our global scheduled flights. So the impacts what we're experiencing now are more in the servicing level, perhaps from a customer service side and we're seeing rapid improvements in that area, but in terms of our ability to generate revenue.

News or two operator schedule.

We don't have any impacts from what we've seen so far.

Calin Rovinescu: Second phase.

<unk>.

Craig Landry: The second phase will continue to roll out in H1. We expect to be completed by the mid-year point.

The second phase that we'll continue to roll out a in the first half of the year, we expect to be completed by the midyear point.

And just to finish off that Andrew the majority of the benefits will start accruing after the entire programs in place.

Calin Rovinescu: Just to finish off, Andrew, the majority of the benefits will start accruing after the entire program is in place. H2 of this year.

So back half of this year.

Great. Thank you.

Andrew Quach: Great. Thank you.

Thank you next question is from her own bucker with Cowen. Please go ahead.

Operator: Thank you. The next question is from Helane Becker with Cowen. Please go ahead.

Thanks, very much operator, hi, everybody and thank you very much for your time I just had a question about timing of trends that have can you just kind of update us on where that stands and when you're thinking about completing it.

Helane Becker: Thank you very much, operator. Hi, everybody, and thank you very much for your time. I just had a question about timing of Transat. Can you just kinda update us on where that stands and when you're thinking about completing it? That's part one of my question.

That's part one of my question.

Calin Rovinescu: Okay. Good morning, Helane. Calin here.

Okay, and good morning, Helane calendar.

So the filings with all of the requisite regulatory authorities of of course, all been made.

Helane Becker: Hi, Calin

Calin Rovinescu: The filings with all of the requisite regulatory authorities have, of course, all been made. There are approval requirements in both Canada and in the EU, and you know, primarily there's one or two others as well, but those are the two primary filing jurisdictions. Our people are now engaged in discussions. The Minister of Transport has an approval as well, and the Minister has indicated in his initial communication that the date by which he would receive recommendations from Competition Bureau is in the May timeframe. We continue to look at that date as being a useful target.

There are a approval requirements in both Canada.

And in the EU and a in a primarily there's one or two others as well, but those are the two primary filing jurisdictions. Our people are are now engaged in discussions and Ah. The minister of transport has an approval as well and minister has indicated in his initial communicate.

And that the the date by which you would receive recommendations from the Bureau is in the May timeframe and so we continue to look at that date as being a a useful target but of course as you know in these in these environments.

Calin Rovinescu: Of course, as you know, in these environments, you know, we can't take that target fully to the bank. We're, you know, optimistic. We think that good progress is being made and look at that as being the earliest possible date where we can get the approval.

You know, we can't take that to target fully to the bank. So so we're optimistic we think that a good progress is being made and look at a at that as being the.

The earliest a possible data with that the approval.

Helane Becker: Gotcha. That's very helpful. My second question is, I know you guys said that you were wet leasing in some aircraft. Are you able to wet lease aircraft in from Transat, or does it have to be, you know, specific ACMI providers?

Okay. That's very helpful. And then my second question is I know you guys said that you are about leasing in some aircraft.

Are you able to wet lease aircraft in from Transat or does that have to be you know specific case, Tim I providers. No. We are able to an impact have done so already we've done it onto occasions throughout this Max grounding of scenario of course, you know Transcat operates now is a fairly third party carrier.

Calin Rovinescu: No, we are able to, and in fact, have done so already. We've done it on two occasions throughout this 737 MAX grounding scenario. Of course, you know, Transat operates now as an entirely third-party carrier. Until our—the completion of our transaction, that's the basis of our relationship, and so we have arm's length third-party rates consistent with what we have with other wet lease providers. The use of their A330s have come in very, very handy for us so far.

Until our the completion of our transaction that's the basis of our relationship and so we have a.

Arm's length that third party rates consistent with what do we have with other with other wet lease providers and the use of their three thirtys have come in very very handy.

So far.

Helane Becker: Okay. I just have one maintenance-related question, probably for Mike. I know you said in the MD&A discussion that, you know, you were gonna spend an extra CAD 150 million this year with a third of that in the current quarter. As we think about, you know, 2021 potentially being a normal year, would we see a big decline? Would we see that decline in maintenance flow through the income statement?

Okay, and then I just have one maintenance related question, probably for Mike I know you said in the.

M.D. any discussion that you know you were going to spend an extra 150 million.

Is this year with a third of that in the current corner. So as we think about you know to 2021 potentially being a normal year, where would we you know we would you see a big decline would we see that decline in meeting in flow through the income statement.

I think I think you'll probably see some decline because law that some of that 150 is a incremental maintenance costs to keep some of the planes that we're keeping longer than we expected because of the Max situation.

Michael Rousseau: I think you'll probably see some decline, because some of that 150 is incremental maintenance costs to keep some of the planes that we're keeping longer than we expected because of the MAX situation.

Right. So are you going to keep those planes in service even as the Max comes back so no those planes.

Helane Becker: Right. Are you gonna keep those planes in service even as the MAX comes back?

Michael Rousseau: No. Those planes.

Helane Becker: Okay

Michael Rousseau: primarily the Embraer 190 and the A320 will go back once the MAX is ungrounded.

Primarily the Embraer one ninetys in the three Twentys, we'll go back once the Max's on ground.

Great. That's all very helpful. Thanks, gentlemen, and ladies.

Helane Becker: Great. That's all very helpful. Thanks, gentlemen and ladies.

Calin Rovinescu: Thank you. Thanks, Helane.

Okay. Thanks Lynn.

Thank you.

Operator: Thank you. The next question is from Cameron Doerksen with National Bank Financial. Please go ahead.

The next question is from Cameron Doerksen with National Bank Financial. Please go ahead.

Cameron Doerksen: Yeah, thanks. Good morning. Maybe just to follow up on that last question, just as far as flexibility you have with the fleet, with the narrow bodies that are, I guess, scheduled to go back to lessors. I mean, what kind of flexibility do you have should the 737 MAX grounding maybe extend longer than what's even expected today?

Yeah. Thanks, Good morning, maybe just a follow up on that last question just as far as flexibility you have with the fleet.

With the narrow bodies that are scheduled to go back to lessors I mean, what kind of flexibility do you have should the 737 Max.

Grouting, maybe extend longer than what's even next anticipated today.

I think I mean, Cameron we've we've looked at different scenarios internally I think we've got fairly good flexibility to old probably the ended the year.

Michael Rousseau: I think, I mean, Cameron, we've looked at different scenarios internally. I think we've got fairly good flexibility till probably the end of the year. Then after that, it becomes a little more challenging, because maintenance costs will go up, and some of these planes need to go back to lessors, because of that reason. Certainly, I think we've got reasonable flexibility up till the end of the year.

And then after that it becomes a little more challenging because maintenance costs will go up and some of these planes need to go back to two or two lesser wars or because of that because of that reason, but certainly I think we've got reasonable flexibility up till the end of the year.

Craig Landry: Okay, that's good. Just secondly, I just wondering, Mike, if you can just update us on some of your most recent discussions with some of the credit rating agencies and, I guess, anticipation for a potential upgrade to investment grade. I'm guessing that maybe there's some, you know, maybe some anxiety around the coronavirus situation and what that means for airlines. I'm just wondering if you can just update what the sort of latest feedback has been from them.

Okay. That's good and the secondly, a I'm just wondering Mike if you can just update us on some of your most recent discussions with some of the credit rating agencies, and I guess anticipation for potential upgrade to investment grade.

Guessing that maybe there's some.

Yes, maybe some anxiety around the corner virus situation and what that means for airlines, but I'm just wanted to get this update what the third the latest feedback has been from them.

Michael Rousseau: Yeah, we haven't had a conversation yet about our year-end results. We will have those conversations in the next little while, using our strong year-end results as a proxy to try and convince them to upgrade us. You know, I wanna manage everyone's expectations. It does take some time for the agencies to put you up to investment grade, that last level. But certainly our metrics for the most part hit majority, if not all the criteria. We'll be having a conversation with Moody's and S&P in the next month to month and a half.

Yeah, we havent had a conversation yet about our yearend results. We will have those conversations in the next next little while using our strong yearend results as a as a proxy to trying to convince them to upgrade us.

Yeah, I want to manage everyone's expectations that it does take some time for the agencies to put you up to investment grade that last low.

Last level.

But up but certainly our metrics for the most part a hit majority of not not all the criteria and so we'll be having a conversation with Moody's and S&P in the next.

And with Uh Huh.

Craig Landry: Okay, great. Thanks very much.

Okay, great. Thanks very much.

Thank you.

Operator: Thank you. The next question is from Jamie Baker with J.P. Morgan. Please go ahead.

Next question is from Jamie Baker with JP Morgan. Please go ahead.

Hey, good morning, everybody I'm. Most of my question has been answered, but the first one on the assumption regarding a full snap back in China by the third quarter, obviously, helping you are correct, but.

Jamie Baker: Hey, good morning, everybody. Most of my questions have been answered, but first one on the assumption regarding a full snapback in China by Q3, obviously hoping you're correct. Is there much analysis that lies at the root of that forecast? Was it, you know, shaped by data that might have emerged, I don't know, during SARS or after 9/11? I'm just curious as to the genesis of that forecast.

Is there much analysis that lines at the router that forecast was it shaped by data that might have emerged I don't know during Sars or after 911, I'm just curious as to the Genesis of that forecast right yeah.

Calin Rovinescu: Right. Yeah. Yeah, Jamie, good question. The answer is yes. Although obviously the analysis isn't perfect because each one of these viruses is different than the last. Our folks here did analyze how long it took post SARS in particular for things to recover. You know, kind of depends when you start counting as well. You know,

Got any good question and the answer is yes, although obviously they analysis is in perfect because each one of these viruses is different than the last but but our folks here did analyze.

How long it took a post sars in particular, a for things to recover and a and kind of depends when you start counting as well he knows as.

Jamie Baker: Mm-hmm.

Calin Rovinescu: I think Lucy mentioned, you know, there were already signs starting in November, in the November timeframe. So the question is how quickly does the global health community get their arms around this? Yeah, I mean, so, you know, we looked at SARS and we looked at a couple of other epidemics that have affected the airline industry. There were several after SARS, where SARS was the most visible. So yeah, that's the nature of that. I think while, you know, we certainly appreciate the amount of anxiety that there is out there now, especially in China, we've seen the other Asian markets still being relatively strong at this stage-

It was you mentioned you know there were already assigned starting in November in the November timeframe.

And so the question is how quickly does the global health community get their arms around us and yeah. I mean, it's what we looked at Sars and looked at a couple of other epidemics that have affected the airline industry. There were there were several up after stars were Sars was the most to what was the most visible.

So yes, that's the nature of that and I think while you know we certainly appreciate the amount of anxiety that there is out there now and especially in China. We've seen the other of the Asian markets still being relatively strong at this stage, but nothing that fall off a cliff.

Jamie Baker: Mm-hmm.

Calin Rovinescu: Not seeing them fall off a cliff like Japan and so on. You know, we're hopeful that continues. The answer is yes. It was done on the basis of having looked at-

Like Japan, and so on it but we're hopeful that that continues but the answer is yes. It was done on the basis of having looked at okay recoveries from my past.

Jamie Baker: Okay.

Calin Rovinescu: At the recoveries from past epidemics.

Epidemics.

Jamie Baker: Perfect. A second question, Max, related, and I'm sorry if I missed this before, but how confident are you in the timeline for recertification? Do you anticipate, you know, starting to put pilots through the sims prior to recertification? Will you start doing the, you know, the maintenance prior to recertification, or do you really need that event, recertification, before you start the work associated with the ungrounding?

Perfect.

And second question Max related and I'm, sorry, if I missed this before but how confident are you in the timeline for recertification you anticipate starting to put pilots through the Sims prior to recertification, where you start doing the you know the maintenance prior.

To recertification or do you really need that event recertification before you start them work associated with the on grounding right. So our situation while it was more difficult because we were not operating the Angie.

Calin Rovinescu: Right. Again, our situation while it was more difficult because we were not operating the 737NG from the pilot cost perspective, it was better from the perspective that we were the only carrier in North America that have had the simulators from the beginning because we didn't operate-

On the pilot cost perspective. It was it was it was a better from the perspective that we were the only carrier North America that have had the simulators from the beginning because we didn't operate the energy. So we've had the simulators from the beginning so our pilots have been going through the simulators for the last a year basically since the grounding. This has been going on so they.

Jamie Baker: Mm-hmm.

Calin Rovinescu: The 737NG. We've had the simulators from the beginning. Our pilots have been going through the simulators for the last year. Basically since the grounding, this has been going on. The training has continued. Now, as the final fix, so to speak, is approved by the FAA and Transport Canada, of course, there will be incremental time for our pilots to go through that. That will, by definition, be a shortened environment because they've been in the simulator for the past year.

The training has continued now as as the you know final fix so to speak as is approved by the a epay and transport Canada of course, there will be incremental time for our pilots to to go through that but that will by definition via shortened environment, because they've gone they've been into simulator for the past here.

Jamie Baker: Okay.

Calin Rovinescu: As Mike says, in addition to our two simulators, we also have, you know, bought access to another simulator. This is, you know, we're relatively in good shape when it comes to that. As far as maintenance, you know, taking care of these aircraft, throughout the grounding, we've had authority to move aircraft for maintenance purposes. You know, they've been properly taken care of because there's all kinds of procedures that have to be undertaken while they're grounded.

And as Mike said in addition to our two simulators. We also have bought access to another simulator. So this is a you know were relatively in good shape when it comes to that and as far as maintenance that you know taking care of these aircraft a throughout the throughout the grounding we've had authority to move their move aircraft for maintenance purposes and.

And you know they've been up properly taking care because of all kinds of procedures that have to be undertaken while they're grandmother. So so that has all been going on and so you know we're hopeful that im assuming that the a Boeing estimates of so called mid year come to pass and remember this mid year.

Jamie Baker: Yeah.

Calin Rovinescu: So that has all been going on. You know, we're hopeful that, you know, assuming that the Boeing estimates of so-called mid-year come to pass. Remember, this mid-year announcement by Boeing only came out on 21 January. You know, this is in a way relatively new information for us as to what their timeline was because, you know, sort of following Q3, our expectation was that this would have occurred sooner. This most recent event of mid-year announcement came on 21 January, and we're still, you know, kind of adjusting for that.

This this this mid year announcement by Boeing only came out on January 21st and so this is in a way a relatively new information for us to as to what their timeline was because you know sort of lost the following the third quarter. Our expectation was that a that this would have occurred sooner. So.

This most recent event of the of mid year announcement came on January 21st and so we're still no kind of the adjusting for that and I think what you're seeing today is a.

Calin Rovinescu: I think what you're seeing today is our best view on how the Max comes back into service. We think that we'll start introducing it in the Q3, as Mike has outlined, but not be, you know, fully up to our numbers until after the Q3.

As a our best the view on how the Max comes back into service, we think that will start introducing isn't the a and the third quarter as Mike has outlined.

But not the fully a up to our numbers until a until after the third quarter.

Jamie Baker: Got it. Thank you very much for the detail. Take care.

Got it. Thank you very much further detail take care. Thanks Stan.

Calin Rovinescu: Thanks, Jamie.

Operator: Thank you. There are no further questions registered at this time. I'd like to turn the meeting over to Ms. Murphy.

Thank you all are no further questions registered at this time I'll turn the meeting over to Miss Murphy.

Kathleen Murphy: Thank you, Elena, and thank you everyone for joining us on Q4 call. Thank you very much.

Operator: Thank you, Elena, and thank you everyone for joining us on Q4 call. Thank you very much.

And thank everyone for joining [noise].

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