Air Canada aims to hire 350 pilots ahead of eventual Boeing 737 Max return
Air Canada has removed the Max from its flight schedule until at least Feb. 14, while WestJet Airlines Ltd. has ruled the aircraft's return until Jan. 4
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MONTREAL – Air Canada says it plans to hire 350 pilots next year in anticipation of the return of the Boeing 737 Max, whose grounding continues to weigh on Canada’s largest airline.
Chief executive Calin Rovinescu said once authorities lift the airspace ban it could take up to a year for all 50 Max jetliners slated to be in operation by mid-2020 to hit the skies.
“This is a process that will indeed be gradual. This is not an overnight process,” he said.
Rovinescu cited “the serious disruption to our overall operations and to our cost structure and profitability” caused by the now eight-month grounding of the 24 Max planes in its fleet and 12 more that had been scheduled for delivery by mid-2019.
“The removal of 36 737 Max aircraft, or about 24% of our narrow-body fleet, from our schedule during our peak summer season exacted a toll,” he said on a conference call with analysts Tuesday.
Rovinescu’s reiteration of the “extremely challenging and complex situation” of the 737 Max came less than an hour before Boeing CEO Dennis Muilenburg sat down for withering questions from U.S. senators about two fatal crashes and whether the company concealed information about a critical flight system.
“We have made mistakes, and we got some things wrong,” Muilenburg conceded.
Some members of the Senate Commerce Committee cut Muilenburg off when they believed he was failing to answer their questions about a key flight-control system implicated in both crashes.
Boeing successfully lobbied regulators to keep any explanation of the system, called MCAS, from pilot manuals and training. After the crashes, the company tried to blame the pilots, said Sen. Richard Blumenthal.
“Those pilots never had a chance,” Blumenthal said. Passengers “never had a chance. They were in flying coffins as a result of Boeing deciding that it was going to conceal MCAS from the pilots.”
The 737 Max crashes in Indonesia and Ethiopia within five months killed 346 people, including 18 Canadians.
Air Canada has removed the Max from its flight schedule until at least Feb. 14, while WestJet Airlines Ltd. has ruled the aircraft’s return until Jan. 4 but is mulling an extension.
While Air Canada covered more than 95% of planned flying in the third quarter, it was forced to cancel some routes and lease a pair of Airbus A330s on top of lease extensions for Airbus A320s and Embraer 190s, all of which are less fuel efficient than the Max 8.
The 12 undelivered Max aircraft now sit on Boeing lots, delaying Air Canada’s hiring of pilots – the company currently has about 400 Max pilots, relegated to training for the time being. Fourteen more Max 8s were slated for delivery in the first half of 2020, but may now be pushed back.
The company will be able to remove about 15 planes from its fleet over the next 12 to 15 months, on top of the two A330s, chief financial officer Michael Rousseau estimated.
Air Canada shares hit an all-time high Tuesday after the airline reinstated its 2019 profit forecast, even as the absent Max continues to hamper its earnings.
The Montreal-based company’s earnings fell slightly below expectations last quarter, but its stock climbed nearly 4% or $1.70 Tuesday to close at a record $47.42 on the Toronto Stock Exchange.
Analyst Walter Spracklin of RBC Dominion Securities said the effects of the grounding were to be “most significantly felt” in third quarter, when summer travel demand soars and capacity becomes tightest.
“With the Max assumed to re-enter the fleet mid February, we expect 2020 to be a bit of a choppy year as capacity and capex bump up and spending on re-crewing increases,” he wrote in a note to investors. “That said we expect this to be largely absorbed, even if noisy.”
Doug Taylor, an analyst with Canaccord Genuity, highlighted how “the company has been able to effectively pass the added costs through to customers.”
Air Canada reinstated its financial guidance, which it had suspended in March due to uncertainty over the Max grounding, with an adjusted earnings margin of 19% and a free cash flow target of between $1.3 billion and $1.5 billion for the year.
Net income fell 9% year over year to $636 million in the quarter ended Sept. 30. Revenue dropped 3% to $5.53 billion.
On an adjusted basis, earnings per diluted share rose to $2.27, up from $2.10 a year earlier but below analyst expectations of $2.34, according to financial markets data firm Refinitiv.
Aircraft fuel, which comprises close to one-quarter of Air Canada’s operating expenses, cost the company $1.09 billion last quarter, 11% less in the third quarter of 2018.
The company saw capacity decline year over year for the first time in several years, but expects capacity growth of 3% in the fourth quarter, said chief commercial officer Lucie Guillemette.
Revenue from high-yield business cabin passengers increased by $33 million or nearly 4% year over year.
Domestic passenger revenues rose by $123 million or nearly 9% despite a slight capacity reduction, with a new fare category adding to a higher yield.
Despite capacity reductions in all key markets, Air Canada saw growth in its revenue, yield – average fare per passenger per mile – and passenger revenue per available seat mile, another key metric.
Rovinescu said he hopes Air Canada’s acquisition of Transat A.T. Inc., which shareholders approved overwhelmingly in August, will receive regulatory approval by mid-2020 following heavy scrutiny from the Competition Bureau.