Q3 2020 Air Canada Earnings Call
Oh participants please standby your conference will begin momentarily once again, please could you stand by we thank you for your patience.
[music].
All participants please standby your conference Cincinnati to begin.
Good morning, ladies and gentlemen, and welcome to the Air Canada third.
2020 conference call I would now like to attend a meeting over to Kevin Murphy. Please go ahead this machine.
Thank you Michelle and good morning, everyone and thank you for joining us on our third quarter call.
With me. This morning are preliminary <unk>, President and Chief Executive Officer.
Like we said I, typically chief Executive Officer, and Chief Financial Officer.
And that's our executive Vice President and Chief Financial Officer.
On today's call appeal will begin by giving you an overview of you've got a good cook at Nike pandemic, and we need to travel restrictions on Air Canada.
We have been doing in response in how we view the future.
Lucy will touch on travel demand cargo and loyalty and Michael because I you Isabella young current plans regarding cash burn rate liquidity and free before turning it back to Karen well.
Well, then open up to questions from equity analysts coupled with my questions have fixed income analysts.
Before we get started please note that certain statements made on this call are forward looking within the meaning of applicable securities laws.
This call also includes that they just did not get measure.
Are you referring to a two quarter press release, and MTV cautionary statements relating to forward looking information and for a reconciliation of non-GAAP measures to GAAP results.
I'll now turn it over to Kevin.
Thank you Kathy good morning, everyone and thank you for joining us on our third quarter earnings call.
We recorded third quarter negative EBITDA of $554 million and an operating loss of $785 million.
Operating revenue declined 86% over the third quarter of 2019 somewhat mitigated by our strong cargo revenue performance.
Weighted by our cargo group's ability to pivot to dedicated all cargo flights during depending on mix.
Since mid March we have operated over 3000, all cargo international flights.
And building on our 52% year over year cargo revenue increased for the second quarter, our cargo revenues increased 22% in the third quarter supporting our objective to build a bigger cargo business.
Today's results reflect cobot nineteens unprecedented impact on our industry globally and on Air Canada in particular, and what has historically been our most productive and profitable quarter.
Well, our revenues improved over Q2, and our domestic started showing some signs of recovery Nonetheless.
Nonetheless revenue passenger miles declined 91% compared to a year ago underscoring the stifling affect the travel restrictions has had on aviation in Canada, especially when compared to many markets around the world.
The three largest carriers in the United States for example experienced the traffic decline of almost 80% on average over Q3 2019.
Apparently our traffic decline based on RPM strands leads into an additional $550 million to $600 million of lost revenue in Q3 attributable directly to the Canadian travel restrictions, including the blanket ban on foreign Nationals mandatory 14 day quarantine for all arriving passengers and the Atlantic Canada travel Bubba.
[music].
We continue to operate within these constraints and from the outset, we have been steadfast in our approach acting decisively to implement our COVID-19 mitigation and recovery plan.
Since March we have raised almost $6 billion in additional liquidity leveraging what was one of the industrys strongest balance sheets as we entered the pandemic.
We took the painful step of eliminating 20000 jobs after having created 10000 over the previous five years we.
We reduced our third quarter capacity by more than 80% the devastating figure when when considering that entering 2020, we had enjoyed 10 straight years of significant and profitable network expansion.
That was a series of indefinite route suspensions and station closures at the end of June.
And our network planning team has identified up to a further 95.
Domestic U.S. trans border and international routes suspensions and nine station Canadian station closures required to preserve liquidity cut costs.
And reduced capital expenditures as we prepare for a smaller footprint.
Which is expected to last several years.
Given the public statements made by the honorable Mark Garneau, Canada's Minister of transport yesterday regarding commencing immediate discussions with major airlines on the aviation industry sector specific support we're deferring the additional route suspensions and station closures pending the progress of those discussions.
We've also made many necessary fleet decisions carefully rationalizing our existing fleet by accelerating the retirement of 79 mainline and Rouge aircraft.
We are deferring, new Boeing 7378, and Airbus eight to 20 deliveries scheduled for 2021, and 2022 and entirely canceling 10, Boeing 7378, and 12 Airbus eight to 20 aircraft representing about 40% of the remaining scheduled deliveries.
Through this fleet restructuring and other capital reduction initiatives, we have lowered total projected capital expenditures by about $3 billion over the 2020 to 2023 period compared to our total projected capital expenditures at the end of 2019 and important part of our mitigation plan and de risking.
Those obligations.
Underpinning our mitigation and recovery plan has been our resolute focus on health and safety.
Well, it's for our customers.
And our people, we've been a leader and introducing progressive layers of protection services, such as our comprehensive suite of bio safety measures, they're counted a clean care plus.
We continue to explore new technologies and processes to further build confidence in customers and regulators.
Amongst the various science based measures we have advocated testing at airports is by far the most significant as demonstrated by our partnership with Mcmaster health clubs for testing International travelers, arriving at Toronto Pearson Airport.
It was the largest ever study of its kind and the first in Canada and preliminary results clearly indicate testing as a viable responsible any effective alternative to quarantine, which would protect Canadians and facilitate the safe relaxation of quarantines.
Indeed of more than 30000 test samples collected during the study more than 99% tested negative or put another way less than 1% tested positive.
This study was instrumental in providing the federal government and the government of Alberta, the confidence to move forward with the testing initiative in Calgary aimed at easing quarantined requirements.
I need to hear to specifically call out and think Alberta Premier Jason Kenney for his leadership and support of the airline industry.
The <unk> the Premier of Ontario has also announced that if they tried in Alberta goes well a similar program could be implemented in Toronto.
These developments are encouraging steps towards the safe resumption of air travel to from and within Canada.
In addition to the mitigation steps we have taken we are executing several foundational initiatives to support our post cobot recovery and long term success.
We fully anticipate our new airplane program will be one of the best travel loyalty programs available our.
Our streamlined aircraft fleet will be highly fuel efficient and well configured for our key routes.
Our fully implemented new passenger service system will provide benefit to our customers and significant revenue opportunities for us.
Cargo will become an increasingly important part of our business as we plan to expand to dedicated freighters and focus on E Commerce, which Lucy will expand upon.
Our proposed acquisition of trends that if approved will enable us to better compete globally in a drastically altered global airline market and most importantly, our culture remains strong we have employees, who remain highly motivated and intensely focused on making our customers safe and feel safe when traveling and I. Thank them for their commitment and hard work.
Our airline continues to demonstrate how nimble and innovative we can be in the face of unprecedented challenges in our responses being recognize there Canada was recently ranked as one of Canada's most valuable brands by the brand equity from brands.
We were the only airline included in their list of top 40 brands in Canada, and we receive top rankings in six categories, including first for best brand experience.
The teamwork and collaboration reflected in these rankings will continue to be imperative as we build our recovery momentum and with that I'll turn the call over to Lucy.
Thank you, Kevin and good morning, everyone.
I'd like to start by thanking our team for their perseverance and dedication and living a safe customer experience as we continue to navigate the reality is COVID-19 [noise].
I can do demand third quarter continued to be drastically impacted by the pandemic and travel restrictions imposed globally and here in Canada.
Turning in a passenger revenue decreased 90%.
We also made it just over 18% of our capacity compared to the same quarter in 2019.
110 of our mainline aircraft and 26 of our Air Canada Express aircraft grounded in the quarter.
As Kevin mentioned, the severe travel restrictions imposed in Canada.
On a direct negative impact on the recovery of air travel relative to other countries.
In the United States, where the recovery started earlier and has been stronger than Canada.
Several U.S. carriers for example, that's starting to enjoy it quicker bounced back in the Pacific and sound market and we have due to less severe travel deterrent as.
Well I think we are restricted by Chinese authorities to two weekly flight, while the U.S. government has been able to establish psych parity for Chinese and American carriers.
Our domestic recovery has also been comparatively hampered by blanket interprovincial quarantine measures.
Both by the Atlantic provinces, whereas in the U.S. Most interesting restrictions are focused on high risk region based on health data contributing to a stronger domestic recovery for the U.S. carrier.
Despite operating with these restrictions in place we are laser focused on gradually and strategically building back our airline using principles that will not only be key to our recovery, but we'll also be foundational to our long term sustainability.
With this in mind, we anticipate operating approximately 25% of our capacity in the fourth quarter compared to the same quarter in 2019.
He will continue to dynamically adjust capacity, while considering passenger demand quarantine rules health warning travel restrictions and border closure.
In the third quarter, our domestic operations continued to see the beginning of signs of recovery.
[laughter], we with our transcontinental services and in Western Canada.
To capitalize on heap Leach and Doug travel demand, we launched the Infinity, Canada Safe passage September an innovative and unique product that allows customers to take an unlimited number of sites within Canada for up to three months for a fixed fee.
The product was available for a limited time and highlights our team's agility and seizing niche opportunities as the right.
However, our domestic recovery remains fragile and uneven hardly do joint get approaches to reopening economy as well as interprovincial travel restrictions such as those created by the Atlantic travel bubble still in.
In place.
In the third quarter, we were very pleased to reopen Army police Lounging County International Airport for eligible customers and with a spotlight on local products its entirety.
[laughter] lounge, we have real thing.
Now these are all feature industry, leading clean airplanes bio safety measures.
Meeting enhance cleaning and actually its profit is putting the health and safety of our customers and employees.
[noise], we will continue to gradually open lounges throughout our network as demand returns and safety measures permit.
Looking to our Trans border network, a high degree of uncertainty remains around their recovery time line due to the evolving health situation in the United States.
Well is the ongoing chadian border closures.
We do not expect a significant increase in transport and travel throughout the remainder of the year. However, the U.S. market remains a key component of our recovery and our long term strategy.
Selectively resumed service he U.S. cities to facilitate essential travel and retain its skeleton network. After completion spending all U.S. soon.
Early in the second quarter.
While we cautiously build back our U.S. network, our partnership with United Airlines will be important to expand our reach in the United States and to draw feature traffic to our network.
Our north American recovery will be significantly aided by our modern and efficient fleet, which remains a competitive advantage for us.
We have our 10th Airbus to 20 in the third quarter and expect to have 15 by the end of the year.
Additionally, we anticipate the reintroduction of the Boeing 737, 800 aircraft in the first quarter of next year.
Despite modifications made to our orders. These two aircrafts remain the core of our narrow body fleet and enabled us to efficiently serve transcontinental North America routes.
<unk> economics and range, while providing an excellent customer experience.
Last week, we were pleased to be able to resume air Canada, whose operation, which will play an important role in strategically we building our global network as.
At leisure travel reasons, we will selectively add the rouge products make up of the narrow body Airbus seats to select North America leisure markets from Eastern Canada.
Looking ahead to the December holiday period, we are making our air Canada Jets fleet available to customers for commercial site, providing an elevated level of comfort and service on several popular went to.
Including thrown in Fort Lauderdale, West Palm Beach, Barbados can <unk>.
Thank you Phoenix Palm Springs, and Puerto Vallarta, and Montreal to Fort Lauderdale in Barbados amongst a few others.
For all business class Airbus Athree, 19th typically transported professional sports teams and other charges.
This initiative has garnered significant customer interest already and is another innovative example of how we are seizing opportunities in today's environment.
A jet engine products will both be operating in accordance with their candidates bio safety protocols centered around our clean air PLAQPRO Ben.
International passenger demand continues to be impeded by travel restrictions imposed globally and here in Canada.
That's part of our recovery efforts, we are refocused our international network to select core markets, such as London, Paris, Tokyo, Hong Kong as well as our partners' hubs, where we can fully leverage our trans Atlantic joint venture with those tons into two each markets and we do not serve directly.
In the quarter, we introduce complementary COVID-19 insurance coverage available for eligible Air, Canada, and Air Canada vacations customers.
To give customers added confidence when booking sites in packages for traveling abroad and to support our recovery in international markets.
And he said she is this somewhat mitigate the uneven international recovery caused by the unilateral uncoordinated border openings as well as no restrictions imposed due to the second wave of growing the virus cases that many countries specifically in Europe are currently experiencing.
However, we have seen the V.F., our market segment or visiting friends and relatives begin to recover and we do anticipate this trend to continue.
If our traffic is typically strong lungs to China, and India end use markets will remain a priority for us as travel restrictions are lifted.
Our high volume going triple seven as well as our fishing going 77 give us the right aircraft to serve this market segment.
We are also pleased to have concluded a new commercial agreement with Qatar Airways, which will facilitate our nonstop service from Toronto to Doha commencing in mid December on the Boeing 787.
This agreement will enable us to effectively serve many middle eastern markets beyond door and represents another example of our ability to quickly adapt to evolving market condition.
We will continue in these unprecedented times to look for unique types of commercial opportunity moving forward.
Over the course of the pandemic into the third quarter. We have continued are focused on airfreight to meet the immediate an exceptional demand for medical equipment critical goods and their regular movement of other time sensitive air cargo.
As a result, our third quarter cargo revenue increased by 39 million or 22% compared to the same quarter in 2019.
In addition to the more than 3000, all cargo international flights. We have operated since March in the fourth quarter. We plan to operate up to 100, all cargo flights per week using a combination of going 77, Boeing triple seven aircraft as well as for converted Boeing 777, and three convert.
Airbus Securities.
We were the first airline globally to remove seats from aircraft to enable cargo capacity in passenger cabin, which doubles the available cargo space on an aircraft.
In addition to the all cargo flight or regular cargo service and the underbelly of passenger aircraft continues to perform well for us and plays an important role in supporting our internationally in the absence of typical passenger demand.
We also made a profitable cargo business that is expected to deliver more than 850 million of revenue and 2020.
We are very excited to be taking the air Canada cargo business to the next level with our entry into the E Commerce World with our partner.
Our objective is to go cargo revenues using our existing fleet by providing specialized E Commerce service to Navy.
Our goal is to drive end to end value through enhanced technology dynamic pricing and transparency across the delivery supply chain.
This new and exciting initiative will be implemented in phases and is expected to be completed over the next year or so in Canada.
In addition, we are exploring the opportunity to convert several of our owned Boeing 767 aircraft to freighters.
Objectives, including satisfactory arrangements with our pilots.
We believe that this will be an exciting opportunity to leverage the gross and E Commerce and air Canada's global footprint.
[noise] looking to airplane performance in the third quarter member engagement and activity showed continued resiliency underscoring the strength of the airplane brand.
Co brand credit card spend has largely recovered outside of categories most impacted by the pandemic.
Overall spend for the quarter was within 15% of last years level, well card retention rates continue to be in line with historical norms.
We are pleased with the solid execution on our entire loyalty strategy.
In 2017, we made a promise to deliver a best in class loyalty program and a smooth transition for customers and we've got several important milestones since then.
Early last year, we seamlessly integrated Aeroplan and saw an immediate positive impact for the business.
This past August we shared the much anticipated details of the program redesign and we received enthusiastic feedback and praise from our members and travel and loyalty expert communities around the world.
And over the weekend, we began the process of cutting over the state of the art technology platform as we prepare to launch new loyalty features and product for our customers.
Looking to the future we believe that the new programs data can people the team and technology platforms will be key to retaining and building customer loyalty and accelerating our demand recovery.
Furthermore, we look forward to announcing significant new partnerships that will grow the program increasing appeal to all members sentiment and accelerate revenue growth.
Once again I'd like to thank our teams in all areas of the airline for continuing to put the health and safety of our customers and each other first while delivering an excellent customer experience.
I will pass it off to Mike.
Well, thank you Lucy and thanks to everyone for joining us on the call today.
I would also like to thank our employees for their focus and dedication in this extremely challenging environment.
[music].
Turning to our cost in the quarter on a capacity reduction of 81.7% operating expenses decreased $3 billion or 66% compared to the same quarter in 2019 roughly.
Reflecting the significant progress we've made on managing variable costs, and reducing fixed expenses and including a 72 million dollar a favorable adjustment to end of lease maintenance provisions.
Wages salaries and benefits expense decreased 313 million or 40% largely on a 48% decrease in full time equivalent employees.
We continue to monitor the demand environment, and we'll adjust staffing levels accordingly.
Regional airline expense decreased 303 million or 60%, reflecting the impact of reduced flying by jazz and other airlines operating flights on our behalf.
Aircraft maintenance expense declined 209 million or 82% versus last year's third quarter on a lower volume of maintenance activity due to reduced line year over year and the retirement of our Boeing 767, and Embraer 190. Please.
[noise] anticipation of returning aircraft lessors upon lease expiry, primarily Airbus there three twentys and regional aircraft, we updated our end of lease cost estimates in the quarter, which resulted in a reduction to maintenance provisions of $72 million.
Moving on to special items.
Amounted to a net operating expense reduction of $192 million majority of which was related to the Canadian emergency wage subsidy program or queues.
You may recall that in July the program was redesigned extended until December 2020.
The government of Canada has now announced a further extension to June of 2021.
We intend to continue to participate in the wage subsidy program subject to meeting the eligibility requirements.
As Kim mentioned earlier since this pandemic began we have raised almost $6 billion and liquidity.
This was achieved through several transactions, including secured financings equity and convertible note offerings and most recently sale leaseback transactions for nine Boeing 737 aircrafts.
In September we concluded a private offering of two tranches of enhanced equipment Trust certificates are combined aggregate face amount of $740 million.
We used the proceeds from this financing together with cash on hand to repay in full the U.S. $600 million 360, 40 term loan previously put in place in April of 2020.
We also concluded a committed secured facility of $788 million to finance the purchase of our first 18 Airbus to 20 aircraft.
The secured financing replaces a bridge financing in the same amount put in place in April 2020.
At September we had 8.2 billion unrestricted liquidity. This amount excludes the proceeds of 485 million from the sale leaseback of the nine Boeing seven through Sevens as these.
Transactions occurred in early October.
Following the sale and leaseback transactions are taking into account changes to the fair market value of certain ounces, our unencumbered asset pool, including the value excluding the value of Aero plan are kinda vacations and air Canada cargo sits at approximately $1.8 billion.
We also made progress with our company wide fixed cost reduction and capital reduction the deferral program, which has now reached 1.5 billion for 2020. In addition to the significant projected capital commitment reductions for the coming years, which I will speak to them more than.
We continue to improve productivity and processes as these are key and being as lean as possible coming out of this crisis [noise].
Turning to cash burn net cash burn of 818 million or approximately $9 million per day on average in the third quarter was significantly better than our expectations.
It was due to several factors, including the deferral or elimination of certain capital expenditures.
Higher cash receipts related to the queues program.
And additional working capital benefits, resulting from both the deferral of supplier payments into future periods and from income and sales tax recoveries, which had been expected to occur in later periods.
Their counter uses gross capex in this calculation of net cash burn, which is before the impact of aircraft financing.
Financing related to aircraft received in Q3 amounted to $130 million or $1.4 million per day [noise].
Looking at the fourth quarter, we estimate a net cash burn of between 1.1 billion and 1.3 billion or 12 million and $14 million per day on average.
This net cash burn projection includes about $4 million for Dane capital expenditures and $5 million per day lease and debt service costs.
The higher projected net cash burn versus the third quarter is primarily due to an increase in end of lease payments given more aircraft are being returned to less source in the current quarter.
The stabilization of supplier payment deferrals.
And lower cash receipts related to the queues program in part due to the changes in the program.
The higher level of capital expenditures, reflecting additional 220 aircraft deliveries versus the third quarter also plays a part.
Financing related to the aircraft are expected to be delivered in Q4 is projected at approximately 210 million or $2.3 million per day.
Turning to capital expenditures.
We amended our agreement with Boeing to cancel 10, Boeing 737 aircraft deliveries from our firm order of 50 aircraft and to defer our remaining 16 aircraft deliveries over the late 2021 to 2023 period.
We also concluded an amendment to our purchase agreement with Airbus under which we are deferring 18 aircraft deliveries over 2021 and 2022.
And will not be purchasing 12 Airbus to 20 aircraft on order from our original from order of 2045 aircrafts.
We continue to retain options for both seven Boeing some three seven and Airbus to 20 aircraft, providing significant fleet flexibility.
These changes significantly reduce our projected capital commitments for the coming years.
Compared to our projected capital expenditures at the end of 220 19 through successful fleet restructuring and other initiatives, we have reduced our expected total.
Total to 2020 to 2023 capital expenditures by $3 billion.
An updated projected capital expenditure tables provided third quarter Mdna.
Before turning it back to kill and I'd like to thank employees once again for their devotion and hard work I'm confident that together, we can successfully manage through these very demanding times with that I'll turn it back to Kevin.
Thank you Mike.
The steps, we have taken as part of our COVID-19 mitigation and recovery plan.
Positioning air Canada to not only sustain itself during the pandemic, but also emerge as a strong and competitive, albeit smaller carrier.
Well positioned for the recovery when borders reopened travel restrictions are lifted and the broader economy is functioning again.
Our financial position has been considerably strengthened and liquidity bolstered with the nearly $6 billion raised since March in addition to lowering our total projected capital expenditures by around 3 billion over the 2020 2023 period through fleet.
Fleet restructuring and other capital reduction initiatives as Mike just outlined.
Our comprehensive and layered approach to biosafety is industry, leading and will continue to be enhanced and refine to build confidence in air travel. These.
These efforts have been supported by several studies on the topic, including a leading Harvard study published last month that concluded when you couple the onboard ventilation systems, which filter out at least 99.97% of airborne viruses with other precautions the risk of onboard transmission is below that of other routine activities.
In which many people continue to engage such as grocery shopping for example.
We remain at the forefront of advocating the implementation of a measured science based approach to travel restrictions and are testing trial with Mcmaster health clubs, a Toronto Pearson has encouraged governments to look for science based alternatives to blanket quarantines, such as the Alberta pilot project.
There have also been significant developments made in rapid testing technology and we are encouraged by health, Canada as approval of Abbott's I'd now COVID-19 rapid response test as we have been in discussions with Abbott for sometime.
We acknowledge with interest the public statements made by candidates transport Ministry yesterday regarding commencing immediate discussions this week with major airlines on possible aviation industry sector specific financial support.
Which our industry has been actively advocating for AMETEK Airlines and most OE CD countries have received over there now nearly nine months since the start of the pandemic.
According to layout as chief economist governments have already provided more than us $160 billion of age the airlines globally, recognizing the critical role they play in their countries' economies.
Beyond sustaining tens of thousands of direct and indirect jobs, a healthy Canadian airline industry is essential for Canada's economic recovery from COVID-19, and vital to securing our country's plays in a reordered post pandemic world.
We will avoid further comment on this until such sector support materializes at which time, we will update the market.
Our call with 19 plan includes not only mitigation, but also recovery.
And that recovery is going to be driven by several foundational elements.
Our new Aero plan program our.
Our streamlined fleet.
Our new passenger service system, our competitive network that will be supported by our global airline partners.
Our cargo ambitions are improved customer service and our employee culture.
And our planned acquisition of trends that the combination of our two companies will provide stability for transacts operations and its stakeholders and will position there, Canada and indeed, the Canadian aviation industry to emerge stronger as we enter the post COVID-19 world.
Now before closing that this will be my next to last earnings call before my retirement next February I want to add a few more personal observations.
I have enjoyed a special relationship with air Canada for three decades involved with many of our companies defining moments the 1980 889 privatization and IPO.
The company's defense against a hostile takeover bid a 1999.
Our merger with Canadian Airlines, the aftermath of 911.
The 2003, 2000 and for restructuring and many others.
But I'm, especially proud of the company's transformation over the last decade during which we built air Canada into one of the world's leading carriers and a global champion for Canada, winning numerous customer and employee awards growing our global network to all six inhabited continent, creating thousands of jobs protecting pensions producing record financial results.
Strengthening our balance sheet, delivering significant shareholder value and above all developing an entrepreneurial culture and engaged workforce.
I need to publically call load and thank our past and present extraordinary leadership teams as well as the efforts of all of the outstanding people of Air Canada, who have supported me in this multiyear marathon with passion commitment and drive.
I also want to thank you our investment analyst community as many of you have followed our story for the entire decade you.
You have challenged us and our evolving plans strategies and stated priorities with professionalism.
Your analyses always motivated us to see how we stacked up against the best Airlines and other geographies, whether that was on cost structure and capital allocation revenue performance fleet global hubs or labor relations.
You kept us on our toes and hold us accountable in the very public Forum of these analysts calls you.
Truly made an effort to understand our business and stuck with us through the multiyear marathon.
I've always thought that informed analysts make strong companies smarter you have in a word made us smarter and for that I am grateful.
Getting our succession right was extremely important for both the board and me. After all that we have achieved as most of you know Mike has been an invaluable partner and sounding board for me on virtually all aspects of our journey.
It was all of our strengths and opportunities and how we can lean into them.
So I'm truly delighted that Mike has been endorsed as air Canada's next CEO and you know with the rest of our executive team will work hard towards next February to ensure that our Canada will be ready and able to tackle the post coven environment with the greatest of success. Thanks.
Thank you and I will be pleased to take some questions.
Thank you.
I will take questions from the telephone lines.
You have a question then you are using a speaker phone. Please lift your handset before making your selection.
I have a question. Please press star one on your devices keep that.
But anytime you wish to cancel your question. Please press the pound sign.
Please press star one at this time, if you have a question that wouldn't be a brief pause from all participants would just have a question. We thank you for your patience.
Our first question is from Walter Spracklin from RBC capital markets. Please go ahead.
Good morning, everyone.
Good morning Walter.
I guess I'd to.
Preface my question with an assumption first before I ask it or you know the assumption being that we are in a rebounding eventually rebounding scenario with vaccine.
My third quarter next year in that scenario Oh I asked the question do you think that.
Given your fleet as it stands now with the cancellations and deferrals that you've announced.
Under that scenario other vaccine in development late next year and a rebounding travel do you see any further cancellations or deferrals to your fleet or is this kind of the fleet you're going to go with.
On under that type of scenario.
Well Thats a good question and so what Weve looked at doing here is is basically making the decision through a combination of what our contractual obligations word to the to the two aircraft manufacturers.
Looking at the age of our existing fleet. The other seven six sevens are already of a certain age and so we sort of made our bed on the basis that even if there is a rebound by the third quarter with a with a vaccine that the vaccine is not going to be instantaneously.
Mailable throughout the planet that would you know a a enable us to return to the kind of operation. We had in 2019 as early as by the third quarter of next year and so when we look at that the fleet that you're seeing now with the deferrals or cancellations and with the excess is basically the fleet that we're going to go with for the next three plus years.
We of course have got some great optionality through our Airbus and Boeing contracts, Mike alluded to that.
And we have the ability to up even though we canceled parts of those orders we have the ability. If there is a a more optimistic a return to to exercise our options.
And and return to a you know traditional deliveries you know say starting the 2022 year.
That flexibility makes a lot of sense absolutely.
Turning to cargo a would you say that your focus here on cargo you look at the revenue generated what what is the mix international versus domestic and what is the focus going forward.
Of of cargo in terms of what markets you will be looking to address.
Well look I think that some of this is going to have to be rolled out a you know in the in the fullness of time, obviously for competitive reasons. So Walter as you'll appreciate it but certainly most of our operation. Thus far has been in the international sphere, and we know that there are opportunities in the domestic space fair several.
We've been approached by several players. So we will we will assess that in the fullness of time, but as we.
Basically what we're announcing today is that the air Canada has made the determination to excel.
Expand its cargo business and to subject to getting our pilots on onboard to a implement some conversion of our seven six sevens into dedicated freighters.
And those two factors will drive a certain amount of both the internet primarily international but it has not been ruled out on the on the domestic side.
Okay that makes sense.
Last question here is on on just the long term and killing you referenced is that this will be a multiyear recovery.
I speak to a number of investors obviously to have a wide range of views and may.
Most are on the more pessimistic side when it when it when it deals with specifically business travel and long haul travel is there anything that you could offer in based on either data you've accumulated or or into its taken from studies to suggest that we <unk> that.
Perhaps long haul and business travel might come back quicker than perhaps some of the more pessimistic scenarios out there and the pessimistic ones are saying seven years plus.
Yes, we're not we're not we're not we're not in seven years, plus we're not in that category of pessimism, a I would say that we continue to be in that three to five year timeframe in terms of.
In terms of getting back to 2019 levels.
But but theres no doubt that depend dynamic there there are three factors at play here and I think people need to understand all three one factor that that play is the is the state of all of these travel restrictions and and as loosely alluded to the uncoordinated fashion that they're introduced a modified and it's almost on a day.
Only basis and that you know there is a certain amount of traveler fatigue in the business world that traveler fatigue will last for quite a while until such time as everything is removed. So so that the existence of the travel restrictions the quarantine the travel bubbles the special rules that exist in many places.
As a is a very very negative factor that will have a lasting impact because people say you know what I want to travel somewhere in that gets stuck on some corner of the world and Theres, a new restriction that brought in without any consultation at the last minute.
Secondly, there is a real reality, there's a a real factor here of when does the demand return just based on on Uh Huh.
Various companies travel restrictions and different habits that are adopted in all of the video conferencing and everything else. There is a factor at play there.
Then thirdly, you know our business and many other airlines around the world have built their businesses on connecting networks, where people connect to travel and therefore, you know so many parts of our route network are dependent on the network working well and so parts of the network don't work well that will impact other parts and therefore, that's why you see.
The discussions around very large scale cancellations, because so many of our roots where interdependent on other routes and I think that that is something that folks really need to bear in mind.
Okay. That's all my question I, just wanted to say that obviously, a very trying time, but your efforts by you and Mike and the team has been very commendable I'll pass it on that thank you very much welcome.
Thank you.
Following question is from Kevin Chang.
Please go ahead.
Hi, Thanks for taking my question this morning and again.
That's cool and on the retirement and life on a war or taking a little less CEO here.
Maybe if I just go back to your prepared remarks, Colin I think you said if you look at the lost revenue and somewhere U.S. traffic trends are it was about 600 million to two of the top line.
If I think will flow through and or what the cash was in the quarter.
Manav its purpose it seems to suggest to get to breakeven cash when you need to have a revenue were denied tunnel box.
Almost 40% of the pandemic level, because that kind of a right ballpark that nickel.
Cash flow neutral cash neutral.
It starts to make sense for the four quarter Canada.
Yes.
I'll put that that to me because we've done a lot of analysis I'm not sure how far we can go in terms of guidance here, but.
But I was wondering a quick comment Mike just before a a trade that over on the question of the differential the U.S. carriers and the reason, we called that out as to say well you know obviously.
Obviously, a traffic is low in the U.S. traffic.
Traffic is low in Canada people assume it's more or less the same but what we're saying is that because of the very onerous Canadian travel restrictions were $550 million to $600 million less than the average of the three carriers. That's sort of why we were calling dot dot that number out the cash burn is not a direct correlation because as Mike mentioned there are lot of factors that go into what we have.
Deferred into the fourth quarter and so you almost have to look at the you know if you were to look at a cash burn number you have to almost look at it over the three quarters to get to an average but on the question of the breakeven I'll turn it over to Mike.
Hi, good morning, Kevin.
So.
We there's no doubt that our break even point has declined versus where it was historically because we've done a very good job taking out fixed cost and that that is the key the key issue.
And also we've also pushed out capital expenditures.
That breakeven point is dropping over.
Over the last couple of months.
And there is no doubt that our variable margin on those incremental sales that we otherwise could ahead. If it was a similar environment to the United States.
Is relatively high and so we don't have a number to give the market right now as to what the breakeven point 'cause. It that is changing all the time frankly, as we get better at reducing our fixed cost structure and modifying our capital expenditures, but certainly I want to leave the message to the market that breakeven point is declining.
From where we were historically.
No. That's helpful. And then just my second question.
Well a lot of comments on cargo I think last week. There was an article noting that the air Canada was one of the bidders to build logistics provider for.
For the Canadian government in terms of the shipment of a future COVID-19 vaccine.
Just wondering is there anything you could do to your fleet comes with the with the figure today with the handle pharmaceuticals are there any.
Processes, you need to implement.
What is more highly regulated type of cargo versus general cargo.
Mike again fairly detailed question and our teams working on this and we were one of the Oh participants in the RFP process. The government, Canada is putting together.
Certainly as you know there's going to be specific requirements such as temperature controlled so we may not step into that type of of investment, but more our view is what can we do with our existing fleet and how can we partner potentially with other participants in the RFP process to make this a very very efficient process for everybody.
That's it for me thank you very much.
Thank you for your comments a very much Nick.
Thank you.
First question is from Chris Marai from Keybanc capital markets. Please go ahead.
Thanks, Good morning, folks and let me Echo.
My regards to both came in there Mike.
I guess my first question guys thinking about you know as we move into 21, one of the one of the strategic initiatives is around the acquisition of transact and when we go back to when you first proposed an acquisition overall certainly changed a lot, including your restructuring aversion and parking a lot of aircraft.
Can you explain maybe how you think.
Friends that fits into a.
A world over the next three to five years and how how you take advantage of the brand and what they bring to you.
Okay No. It's a very very important question, Chris So we.
We liked trends out before cove it that way.
I continue to like friends up after Cove it.
And it's basically it's simple as this is to say that as as we look at a you know the changes that are taking place in the industry.
Were we recognize the transact has had one of the leading.
Leisure brands around and we've always appreciated that and then we were going to have a lot of questions there around where it fits in with Rouge, and so on but now with the with the set with the removal of the seven six sevens from the ruse fleet. This does give us a lot of additions.
I'll have to as we look to re enter some of those markets as they start coming back. So when we look at a what we will be able to do with the trends out in some of these international leisure markets.
Through their Oh, attractively, three thirtys, which of course, we operate ourselves and the 321 neos that they have on order those aircraft fit very well within our fleet expertise their brand is a strong leisure brand and so when we look forward to competing with a other international carriers that are operating in leisure and therefore.
There are many many European competitors that fly you know across the Atlantic and we expect to be a stronger competitor as a result of that and certainly with the seven within 20 576 Sevens, having exited the fleet.
As the market returns, we will be well positioned to respond and so you know people.
People, often do mergers or acquisitions to gain a.
Cost synergies that is not what this exercise is about this is much more about revenue synergies and expansion into the leisure market for us and while it will be different post covance than pre coven Theres no question about that and and while we will be smaller and they will be smaller I remember you know our requirement is that on closing.
That they're downsizing is at least a proportional to our diet downsizing, while we will be smaller and they will be smaller will be well positioned for the recovery as a result of their good brand in there and the breadth of these that leisure operations.
All right that's fair.
And then my other question is around testing and so a couple of parts of this I mean, if I look at where your your business is sort of been operating as you go into Q4 and maybe early next year.
Most of your international travel seems to be at least heading over the Atlantic.
Number of the European governments, the UK, Italy, France, and Spain have been talking about test.
Testing protocols and shortening timing.
Just overall how are you feeling about your ability to move forward on a testing regimen on a regular on a regular basis just to just to facilitate international travel.
You know to testing has two we launched that testing protocol to really prove the point that we did at a really under the auspices of the Mcmaster Health labs oversight. So it was not a sort of a commercial testing a dynamic it was the scientific one obviously.
Obviously that that cannot be replicated in that fashion by us through.
Throughout a you know throughout the world that's not realistic and so our expectation is that if the testing protocol as as proves positive as it has been based on the.
More than 35000 tests already done we.
We would have the government and this is why we're working with the government to try to prove the case.
To set up these sorts of protocols and you know as people arrive into the country. They have the test and then the expectation is that the quarantine will be reduced and this is what's going on in Alberta, right now, but we could see a test of departure and they test on arrival and I think that will you know at some stage that will be the way to really break the back.
The quarantine requirements.
But I think it'll come in phases, I will be very very happy to see you know all Canadian airports that have international traffic to have a test on arrival that has overseen by by the government of Canada and the <unk> provinces.
And that the current and can be reduced from 14 days to say five days based on a certain number of protocols and that's really what we are working for a while.
On the outbound side of things of course try.
Travelers would love to know that everyone, who is on that aircraft has tested negative before boarding the aircraft that requires rapid testing and that's why we're anxious to see these abbott tests more in circulation, we know that there have been some up some.
Some supply chain challenges, so that relate to them, but we're anxious to see the government do that so we continue to work both on the departure and on the arrival testing it is feasible but.
But of course, it's not going to exist around the world you know instantaneously. So it'll take some you know sort of blocking and tackling to to get it there okay fair enough.
And then if I can just one one last kind of clean up question, Mike I'm sorry.
Any idea what the magnitude of your cues payments or.
In Q4.
Yes, they are going to be slightly lower than I think we recorded about $190 million in Q3, a they'll be slightly lower than that because the the per person amount is dropping a bit in Q4, So I I would say in probably in the range of 125.
Okay fair enough thanks folks.
Thanks, Craig.
Q.
Following question.
Okay from Scotiabank. Please go ahead.
Thank you and good morning, I would like to Echo <unk> comments on the Caribbean Gillam, and Mike as far as the successful career and <unk> and the new leadership ahead.
So maybe the first one on the cash burn guidance. So I I think you just said the queues will be down obviously from Q3, but wondering in New York Ashland guidance for Q4, which I think implies a three to five minutes I would put in operating cash one what are your assumptions for.
For Transborder restrictions and perhaps any sense on on the traffic I know capacity is down 75%, but what are you expecting for U.S. transporter and traffic.
Yeah. Good morning, Conor, it's Mike Unfortunately, we're not expecting much change from Q3.
I think it's Lucy said in the prepared comments Trans border, we don't expect a lot of additional activity.
In a in Q4, there you know there may be some additional sun activity.
Into the Florida markets and into the Caribbean.
Caribbean markets, but it's not going to be material to move the dial in again.
The cash burn in Q4 is really comprised of you know capex little bit higher than it was in Q3, which is about a million dollars. A day lease returns were starting to return a lot more planes and that's going to be probably at least a million dollars extra day now that has a long term benefit because it gets rid of costs that are their current.
We're assuming and the rest of it is as you said EBITDA and working capital, which obviously has an opportunity to improve depending on how the markets improve over the next couple of months.
Okay. That's great. Thank you and just want to kind of run by a by you guys a lot this year.
I know, obviously vaccine is being developed and it could be around the corner here, but you know as soon as the vaccine come so perhaps like what do you expect a new bookings to rebalance was all the traffic and the reason I ask is obviously the new bookings will bring you cash was some initial traffic rebound might be a use of cash given its already booked.
Yeah, I think I think our sense is that there would be some new bookings all of Lucy to reflect on its Lucy studies, the booking trends very closely.
I think that Theres a lot of demand for this via far traffic visiting friends and relatives dynamic and so I think there are a lot of people who are very very hesitant to make any travel arrangements now based on the on these restrictions and quarantines, even if they feel safe to travel and we've made all these precautions that it's safe to be on the airplane they can.
Justify coming back and taking two weeks at home with the on the quarantine that dynamic and so that just simply not not not booking future travel, but the interplay between the.
He traveled that has already been booked and paid for versus the new bookings of lithium I'll ask you to comment on that.
So.
There's no doubt that Tom.
Two two and.
[noise] different market segment, perhaps that I can comment on the first is when we look at that as he at farm, our kitchen that leisure markets. We anticipate that we said vaccine or with changes to it to travel restrictions.
Thirdly, the Cortine upon return, we believe that those markets would probably lead down the quickest.
The one area that we are monitoring very closely and we've actually taken a look at what we have observed in other countries, where we've seen the removal of the quarantine restriction and it pertains to business traffic.
So in the current environment, you know because there are many different cat and restrictions that stifle traffic quarantine for sure is the most important one when it comes to business.
And our belief is that with the.
Introduction of a vaccine and we would actually see close in business demand materialize square today most of the bookings we have on hand, our leisure bookings. So if the environment changed we believe that the new bookings that we would start to see would really be more geared at SMB and and business travel.
No that's great color. Thank you.
But talking about obviously the bookings here and maybe perhaps I can ask you on the advance ticket sales alive. Both the looks like the rate of decline in that liability items lower than Q3 versus Q2 can.
Can you share any underlying trends and cash and bookings and cash refunds and also remind us. If you can what portion of this liability is on the Sunday, both tickets and troubling about your speech.
Sure it's Mike.
So.
In Q3, cancellations or refund, sorry slowed a bit versus Q2 sub par as part of the rationale.
And revenues were up a little bit as well so those those two components would.
Our the support for the for the change in the in advance ticket sales.
And then on on Refundable fares are roughly.
Roughly 65% two thirds are and of that amount or in rough refundable fares.
Thank you and last one for me my thanks, sorry.
Alright, let me correct that about two thirds of that amount or a non refundable fares and about a 20% of that amount is in refundable fares.
I'm, sorry to do purchase nonrefundable, 20% this refundable and the rest would be or something else that it wasn't advance for future bookings.
Oh I see okay. Okay last one for me.
Identical what cargo so I think I heard you can what the boats were boring triple seven cents, we eat sweet Codis.
These conversions per month, then and still with the greater specs and what would you like.
No I think that's a good clarification I mean, if we weren't a clear now that the triple seven and three Thirtys. These are temporary during the time of Covance so to speak.
These are temporary conversions, which are intended to be reverting to a passenger aircraft Ah you know in due course, when we were referring to a freighter conversions of our 760 some of our seven six sevens that those would be permanent conversions, meaning we wouldn't be getting into the freighter business, which is obviously an important step for air Canada, We would only.
To do that with the.
The approval of our pilots on a.
On a oh on terms and conditions for that flying but those would be a if executed those would be permanent the conversions of some of those 767 aircraft.
Oh no that's good that's good.
Just wanted to understand on sounds excellent conversion, if you can share to us I understand that it's it's obviously a confidential at this point but are.
Are you looking at a big lead to conversion sounds like severance and what is the timing of it could that be in 21 could that be 22 or beyond.
I think we'll start in 21, we haven't yet fully.
Completed all our plans, but certainly we have the opportunities to convert a a couple in 2021 and test the market again subject to the pilots are coming to terms with pilots.
We certainly have the opportunity to expand that as a as the market grows.
Perfect. Thank you so much.
Thank you for your nice set remarks Connor.
Thank you.
The following question is from onshore Kay from Wolfe Research. Please go ahead.
Hi, good morning, everybody.
Okay and can you help me understand in terms of the vaccine I know this is a very dynamic situation, but can you help us understand this isn't necessarily in airline question, but just.
The approval on distribution of the vaccine in Canada work as it relates to FDA approval can can the vaccine be distributed in a minute administered without FDA approval in Canada can do help us give a timeline for some of the gating items.
We should pick up in Canada. Thank you yeah, no. So first of all as FDA approval in enough itself will not be adequate to distribute the vaccines in Canada. It does require the Canadian health authorities are on top of that I know that obviously the U.S. process has been under this warp speed a dynamic.
Has been moving these these various vaccines that at pace and would totally supportive of that Canada has a preorder large quantities of vaccines, you know sort of they've gotten into the queue.
Early which was obviously a good sign on and from Canada is perspective.
And I would say that if FDA is there the assumption is that the Canadian health authorities would move quickly on the on the back of that but the you know there are some circumstances in which they may choose to go more slowly we hope that would not be the case, if the if the tests have been proven to be adequately.
But in.
In terms of distribution I mean this is this has always been the problem and we're even seeing it right now with respect to the to the rapid tests the epic the habit at rapid tests.
The supply chain complexity here is a is very very large and I think that governments generally are not well suited to moving quickly on on the supply chain issues and I think that that is a risk factor here for sure.
So that's why I'm, saying I'm cautiously optimistic and I know the market you know sort of has gotten out ahead of everybody. This morning on the on what this vaccine means that 90% efficacy et cetera, but but basically a I would be cautiously optimistic.
And not assuming that it's distributed instantaneously throughout the planet because of course, we know that's not the case and again given that air travel touches so many continents at the same time.
I think that a word of caution has to be brought to bear before we got ahead of our skis here.
Okay and.
And then what we're talking about the government can you give us the latest on transport Canada's a certification time on the Max and also just add by the way my congratulations to you Caylin knutsen.
Great working with you in the short period of time, and Mike you too I'm looking forward to working with you as well.
Thank you very much a hunter I appreciate it.
Of course I appreciate it appreciate that good words so.
So on on the.
The the Max a situation.
Of course, the transport, Canada is one of the key regulators involved in the Max a certification process they've been following the the decisions of the epay throughout the the piece and that's had communications participated.
In in some of the you know the trials that have gone on over the last several months.
We don't have a definitive dates but the way it's playing out now is that there would be we expect.
There to be a airworthiness directive issued this year, but that they own that our expectation at this moment in time is that the airplane would only be a flying next year.
Early next year and in Canada.
And you know, we say in Canada or or to Canada. So that of course includes any U.S. carriers that might have ability to fly a sooner it would not be able to fly to Canada until.
Early next year from our perspective, you know given the current dynamic that is not something that isn't necessarily a bad thing right now.
As we or get ourselves so geared up to complete our training protocols are additional requirements that have come out of the epay.
And out of Transport, Canada Transport, Canada had some issues.
Issues that they worked alongside yeah, so with and those are now also being up work to work through but you know from all indications, it's up heading into right direction for an airworthiness directive this year and a lifting of the ban for a customer travel early next year.
Thank you very much.
In fact again the entre for your your good words and I look forward to seeing you follow the company for a long time.
Thank you.
Thank you.
Following question is from Sotheby's sites from Raymond James. Please go ahead.
Hi, Good morning, I'll kill him, Mike I'd like to Echo there Mark and congratulations to you on the call so far.
Okay.
I just want to see you can as a follow up question just some of the commentary made so far just maybe freshly seeking a based on your comments can you should we expect capacity declines in four key to moderate from threeq levels across all regions, but maybe perhaps kind of the the most moderation in the domestic market at least in the trust border and do you expect that.
Can you run into one team based on what you see so far.
Oh, it's Lucy to comment, but it's but it's quite dynamic savvy based on how the travel restrictions moderate and whether they be self testing or trials leads to a reduction in quarantine so that could be a major change in our current thinking but you know Lucy has set the capacity plan for for Q4, and maybe you could just comment on the ceiling.
Yes for sure, yes, so basically and maybe one that just one comment I wanted to make because we're on the subject of testing and quarantines, but if we look at just the.
They test that's just been recently launched in Alberta, So basically.
We would be in a position to quickly be able to react to that if we do see a change in demand as a result of and that the quarantine changes.
We would be in a position to be able to.
Alter our capacity plans for the fourth quarter to perhaps add more trans border flying from Western Canada into.
Into the United States into Hawaii. For example, so those are the kinds of things that were that were watching very very closely and with respect to other markets and domestic Canada, we continue to see and good night.
Improving recovery I should say within that within the domestic market and you know the intrawest and transcon markets are the ones that are.
Most solid and of course.
Because of that the travel a bubble restrictions that we were referring to for Atlantic Canada. It does of course stifle the demand into a into the Maritimes with respect to that trans border networks, and we continue to operate at scale Skelton schedule.
Within a very close eye for Q4, and Q1 on the U.S. Southern markets, which you know we are now in the peak.
That that booking window for Q4 Q1, so we're going to obviously watch that very very closely.
That's helpful. Thank you and then.
Just like on the cash breakeven commentary and.
So it might be so Q U S Airlines had pointed to maybe 60% to 70% of revenue to get cash breakeven and without kind of giving actual level. I was just wondering if there's something fundamentally different that air Canada that would result in a kind of a lower level or a high level of getting to cash breakeven.
No there's nothing fundamentally different between air Canada, and the three large network carriers in the U.S. Our cost structure is pre cobot were very similar and our productivity levels were fairly similar so the only thing we can say that I think some of the steps that we've taken and the speed that we've taken these steps as part of this that covert mitigation plan given the fact.
If we didnt have a sector support from a from the government.
Artists actually move really really quickly to take an additional layer of cost that Oh I'm not sure that that was at the same at the same pace in the United States and to that end I'm just gonna be careful obviously as you know everyone.
We define cash run differently or breakeven differently and sold it.
Capex I would caution you on on the on the benchmarking.
Makes sense and then just my last follow up on the cargo from prior to the crisis. We were looking at oversupply in that kind of the global cargo market is your decision here to spend that kind of getting to that dedicated is that based on a view that we might not have as many wide body aircraft.
In the kind of global capacity here for the next several years is that what's changed I think I think there's two factors I think certainly I think that is one of the factors, but we also believe there will be incremental or accelerating growth of ecommerce and we're well positioned to take advantage of taking a piece of that market place and so that's.
I think are the two factors that would be the more important one from it from our perspective and think of it like this I mean does it so.
So those are the two drivers you know sort of lower number of wide body build in circulation plus the E commerce opportunity, but then when you couple a you know.
A network a large passenger aircraft network with a dedicated freighter network in that environment and doesn't have to be a big you know the idea doesn't have to be a a a very very large dedicated freighter network and you could actually see lots of synergies, which which can expand you know.
The $850 million revenue base that we're starting with.
Makes sense all right. Thank you. Thanks.
Thank you.
Following question is from Cameron Doerksen from National Bank Financial Please go ahead.
Yeah, Thanks, very much and good morning, and let me Echo my congratulations to both killing and Mike as well.
A question probably for Mike I'm just looking.
Looking at the Capex numbers for the next two years 1.4 billion in 21, and roughly 1.8 billion. In 2022 are there any aircraft deliveries in those numbers over those two years, where there would be potentially some of financing so that the net capex number would be lower than that.
I think all aircraft deliveries over those two years, our soon to be financed.
And how many are there after all the I guess deferrals or cancellation of orders or just trying to get a sense of what I just wonder what's coming in.
Don't have that number off the top my head I think next year in 2021, we've got a.
I think we've got a.
Three.
73 sevens coming in towards the end of the year and on the two twenties I believe we have 12, so 15 next year.
And then in Twentytwenty two.
I think we have the remaining.
Six to.
To twentys.
And I think we have nine a max is coming in in that year.
Okay. That's very helpful and don't hold me to those numbers, but I think thats roughly what the math is basically and we can we confirm that obviously after the fact, there's no issue will give you the number of aircraft expected to be delivered over in the <unk> in those two play types over the next couple of years. Okay. Perfect. No. That's that's very helpful and just the second question for me just on I guess sort of on the cost.
Structure.
Have you at this point significantly reduce your airport footprint I mean, obviously going to be a smaller line here for the next few years I'm just wondering if there's still some cost savings to come from from that.
So Kevin Kevin here and again, thank you for your comments earlier.
The answer is yes, we're aggressively looking at our airports you know the key the large airports and of course as you know we've pulled out of some of the stations that we announced closures. They know from the first read announcement.
So the answer is yes.
And obviously you know you saw would be included in our release. This morning about looking at 95 additional routes and were that to happen, obviously, if you'd see a smaller footprint and airports there as well but of course, we put that on pause pending these discussions with the with the government. So.
So you know the theres not I wouldn't say that there's a tremendous amount more to come.
Barring this this discussion on the 95.
Root suspension.
Okay. That's helpful. Thanks very much.
Thank you Sam.
Thank you.
Question is from James from TD Securities. Please go ahead.
Well I think some good morning, and congratulations can you went on your your retirement, so certainly well deserved and my congratulations on the appointment just looking forward to your continued success.
Just one question meeting at this point.
And I'm thinking for those of US that are maybe a little more optimistic on the recovery doesn't end up occurring more quickly than expected outside of pilot training costs, which I think are pretty well understood are there any other temporary costs or inefficiencies that we should think about.
That would be unusual not necessarily continuing.
As it relates to ramping back up the business if it does need to be done.
More quickly.
No no I think look I think that the the key drivers to two ramping back up.
Our availability of aircraft on time, a timeline and schedule that we like the.
The pilot training for those aircraft types.
And of course, you know availability of slots and.
Access to the preferred gates and this sort of thing we are not giving up any of our slots at slot constrained airports. We have we have very very carefully held on to them and we are going to look for creative ways to ensure that if there's a use it or lose it dynamic that we're going to use them adequately to preserve.
To access.
In terms of aircraft.
Yeah, well, we've exited a lot of aircraft to get the cost out.
As we mentioned, we do have some optionality and based on the number of bankruptcies going on in the in the space elsewhere in the World, We know they're going to be a lot of aircraft available on short notice you saw what we did last year with a Wow aircraft would allow went into bankruptcy. We we quickly picked up about what eight eight to eight.
Airbus a 321.
<unk> Threetwenty, one Tim 320 ones at that time.
Just a.
A couple of months and so there are going to be a lot of opportunities for short term aircraft and so that that will resolve courses pilots, but our pilot the way we structured our deal with our pilots is that you know there's not been permanent terminations for the for the major part so pilots are still available on a reported basis.
So that could be wrapped up as well and then if you're looking at something that extends beyond just looking beyond say 2021, the options on the Max's and not be a.
Eight to 20 days.
Our April to be action and that's based on our original pricing, which was quite attractive in both of those cases, given that there were large orders so I could see us wrapping back into our original prefer Lisa.
Their usual requirements up maintenance and you know getting maintenance law, so for heavy maintenance dynamics and that's if you try to do that at the last minute that sometimes it becomes challenging but we have taken into account the possibility of some requirement to wrap up more quickly than we are currently planning a we would obviously.
We'd be delighted to have that will be a high class problem to have but we think that the Oh you said the combination of the various drivers of this included that network effect you know that's why he to underscore the the network effect you know, it's going to take for us to get to 2019 levels. It still going to take several years in our view.
Okay. Thank you very much.
Thanks, Tim Thanks for the thanks for your generous words I appreciate it.
Thank you.
The following question is from here.
Cohen. Please go ahead.
Thanks, very much operator, thanks, everybody.
Everybody for squeezing my question <unk>.
Tailing.
One more call, but congratulations and Mike.
And any thoughts on CFO succession.
[laughter] yeah.
Well, you'll be you'll be amongst the first to know.
Lastly, part of that I guess, the other call, we'll make sure that your amongst the first to know we will be announcing that at the beginning of the beginning of the year.
Okay. That's fair enough and then the other question I had was on the Max Order book.
Well.
Can you just remind us why you have that aircraft on order at all why are not just focusing on the 80 20, and the 320 neos retreat to anyone.
The 767 replacement.
So first of all they when we made the original decision on these 7378 Oh you know we are at that stage, we compared to its a functionality and its you know the cost drivers that that what what missions, we needed it to accomplish what the cost structure was to accomplish those missions and what was the best.
Aircraft it to do that and I think.
We were very transparent and and I would say Oh I can even repeated today that we always considered the C series as it then was the 80 20 as being the best aircraft in its category. So.
So we thought that the that the C series. The eight to 20 was better than the 737 700 Max Max.
The seven and that was better than the Athree 19.
We considered however, the 7378 to be the best of that size when compared to the Athree hundred 20, and we always.
Like the 321 neo as being the best in large category materially better than the 7379.
And of course.
Well you know we had enough missions to accomplish.
All of that and therefore have several three types. We're now in the in the position and certainly you know if we complete our acquisition of Oh transact, we'll have the opportunity to have 321 neos coming in sooner than later.
But we did like the 7378 for the missions that it was intended and we still do.
And just to add on that we do take an art into our economic analysis, the friction costs associated or the lack of efficiencies potentially by not having a larger fleet in one fleet type. So that's all considered and again to Kevin's point.
Went a long time and we like we like the the 77 eight to link the 220 and we like the 321, we think those given our given our profile or the Oh, the White Plains for Canada as we go forward.
Okay, well, thank you very much thanks.
Thanks Helane.
Thank you [noise].
Following question is from Jamie Baker from JP Morgan. Please go ahead.
Hey, good morning, gentlemen, my congratulations to both of you I can't say, we've been here as long as others on the equity side, but we have on the credit side.
And Mark wanted me to add his congratulations as well.
Mike the yeah. Thank you you're welcome this $72 million reduction in maintenance reserves on leased aircraft can you discuss the calculus a bit more was that an air Canada only phenomenon or something you negotiated with less or is it kind of flu by were in your prepared remarks.
Yes, so we have a liability on our books that represents a the expected end of lease payments for leased planes and.
We look at that every quarter.
So we look at it this quarter given the relative in activity on some plane types like three twentys and some of the regional aircraft.
We have the end of lease payments declined a further.
For the fleets that were expected to be returned the next year or so so it's really a function of in activity because as you know these in lease payments is typically up get the return to a half life or whatever and so given given the fact that lot of these planes are grounded that liability has declined and therefore the reduction in the a in the meat.
This provision okay that make that makes perfect sense and also can you expand on that.
I guess, our scope provisions that you mentioned in regards.
For the pilots and all freighter aircraft.
Yeah, James Kayler, Yeah. So as you know similar to the U.S. Oh Airlines. They know our pilots have scope on a all deploying that air Canada does including.
Cargo flying freighter flying and so we would look to have rates that are more competitive with cargo carriers to operate. These dedicated freighters. We had a air Canada was into freighter business twice in the past and neither of those are the two circumstances, we're we're particularly appealing successes and so forth.
For this time around to get it right.
Especially with the opportunity that arises with the fewer number of wide bodies and circulation and the E. Commerce opportunity, we think that a the right kind of deal with the right kind of cost structure would make sense.
And so we're in discussions with our pilots to up to try to come to the right outcome here. So it's a lack of dedicated freighter wage rates that are under contract right now.
Correct, Okay, I understand better now thank you very much and congratulations guys take care. Thanks.
Thank you.
Last question is from Stephen Trent from Citi. Please go ahead.
Oh, yes, good morning, everybody and thanks very much for taking my question I extend my congrats as well.
Terrific.
Hi, Steven.
Yes.
Just one quick follow up for me.
I apologize for the background noise.
Think about a longer term.
From the time that it.
As anything and the economics of financing.
Given you any <unk> any reason to think differently about leasing versus buying or is this just a matter of.
Looking at where the you know that there's more corn cost is most advantageous.
Hi, Good morning, Stephen it's like a very interesting question.
Certainly our long term interest rates are are lower at this point in time and expected to be lower so financing a plane will potentially become come cheaper as time goes on.
If you fix the rate.
On the other side kilns earlier comments, we think there will be some supply of planes in the marketplace over the next couple of years until <unk>, so leasing rates should be more competitive as well so it's going to be a very very interesting.
Market you know as we as we are as we look for planes as we hunt for planes over the next couple of years.
To fill the capacity needs as to whether we want to buy or lease.
And again I think that will be a function of how the market evolves over the next little while but certainly from a financing perspective, our view our long term view on interest rates is they're going to remain low.
And that will provide a good incentive for us to to buy and a sort of good incentive for us to negotiate a effect of lease rates, if we decide to lease.
Okay very helpful. That's Super and thank you very much for taking my questions.
Thank you.
Thank you. So we have no further questions. So at this time back to you Miss Murphy.
Thank you everyone for joining us on our call today. Thank you very much.
Okay.
Thank you.
Conference has now ended please disconnect your lines at this time and we thank you for your participation.