MONTREAL — Canada’s major airlines are relatively well-positioned to weather the financial storm that has been unleashed by the COVID-19 pandemic, but regional players may find it tougher to stay afloat, experts say.
Air Canada, which is laying off more than 5,100 flight attendants and suspending most of its routes abroad by the end of the month, has a $7.3-billion cushion to fall back on — more than the most profitable U.S. carrier, Delta Air Lines.
WestJet Airlines Ltd. has halved its domestic capacity and cancelled all overseas and U.S. routes for 30 days. The carrier has posted quarterly profits for 14 years straight, with the exception of one quarter in 2018. It is also shielded from stock market judgment after Onex Corp. acquired it in December and the company was delisted from the Toronto Stock Exchange.
Executives and lobbyists are pressing Ottawa daily for relief. While Prime Minister Justin Trudeau has announced an $82-billion aid package to help Canadians get through the novel coronavirus outbreak, none of the funding is so far earmarked for airlines.
Some countries have already tossed their carriers a financial lifeline. Norway is preparing a loan to its aviation sector worth $736 million, with about half going to the country’s largest carrier, Norwegian. New Zealand has offered Air New Zealand $360 million in loans.
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Jacques Roy, a professor of transport management at HEC Montreal business school, says the threat of going out of business faced by some airlines around the world is extremely unlikely at Canada’s two network carriers, despite “a very bad year” ahead and Air Canada’s plummeting stock price.
“They’re in big trouble these days, but companies like Air Canada have some money in the bank so they can go through this difficult period without too much damage,” Roy said.
In Europe, where high-speed trains and budget airlines such as EasyJet and Ryanair have eaten into flagship carriers’ profits, margins can be thinner and liquidity more precarious than in North America, where ultra-low-cost carriers haven’t made as significant a dent, he said.
“The airline industry globally is going to look very different than it does today,” said National Bank analyst Cameron Doerksen. “There are many airlines that will probably not survive, and those that do are going to have very strange positions.”
He said numbers returned to normal within two years of the Sept. 11 attacks in 2001, the SARS outbreak in 2003 and the 2008-09 financial crisis. In the case of COVID-19, it remains unclear how long the pandemic will extend before recovery can begin.
In any case, smaller airlines are in “dire straits,” said John McKenna, who heads the Air Transport Association of Canada.
The trade group, which counts 30 regional carriers as members, is calling for $5 billion in grants or low-interest loans from the federal government.
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“Cash flow. That’s all we need right now,” he said.
“What they can’t do is promise us money and a year down the line,” he said, citing fixed costs that can’t be delayed, such as lease and loan payments on aircraft.
The National Airlines Council of Canada is asking Ottawa for relief from taxes and airport fees, but has heard no definitive response from Transport Canada.
“The situation is just so fluid,” said industry group CEO Mike McNaney. “We’re into completely unprecedented territory.”
The disruption is poised to trickle down to manufacturers as airlines pause deliveries and new orders, rippling out to makers of engines, wings and other components.
Longview Aviation Capital Corp. said Friday it was suspending new production of Dash 8-400 and Series 400 Twin Otter aircraft in a move that will affect nearly 1,000 employees.
Flight simulator maker CAE Inc. and aircraft landing gear manufacturer Heroux-Devtek Inc. may also feel the pinch as airlines impose a pilot hiring freeze and factories ramp down jetliner production.
© 2020 The Canadian Press
Mortgage rates are rising in Canada despite virus-relief cuts – BNNBloomberg.ca
Canada’s mortgage rates are creeping up — even though the country’s central bank has slashed borrowing costs to combat the COVID-19 pandemic.
That’s due to the “enormous pressure” Canadian banks face amid disruptions caused by the outbreak, said Sherry Cooper, chief economist at Dominion Lending Centers.
“The costs of funds for banks is skyrocketing and bank earnings are plunging,” Cooper said Monday in a phone interview. “Every single business they have ever loaned to is subject to a massive decline in revenues, and therefore their own revenues are going down because nobody is taking out new business with banks except to extend debt.”
The Bank of Canada has cut its overnight interest rate three times this month, bringing the benchmark to 0.25 per cent. The large Canadian banks matched those moves by cutting their prime rates, which influence borrowing rates for variable mortgages and credit lines, to 2.45 per cent from 3.95 per cent at the start of the month.
As those rates have dropped, banks have been eliminating discounts off prime on variable mortgages. At the start of the month, qualified borrowers could get a rate of prime minus 1 per cent from HSBC Canada, for example, while Canada’s large domestic lenders were also offering “prime minus” deals as well.
But those discounts have shrunk by 75 to 85 basis points, said Rob McLister, founder of mortgage comparison website RateSpy.com.
Typical five-year fixed rates at also rising. Rates at large Canadian bank are now at 2.99 per cent to 3.04 per cent versus around 2.49 per cent to 2.59 per cent at the end of February, McLister said.
“The big banks are leading the charge higher here, on both the fixed side and the variable side,” he said. Preferred borrowers can still get some prime minus deals at big banks, but they’re more like prime minus 10 or 15 basis points.
McLister said the rising cost of short-term funding, used for variable mortgages, explains the jump. Spreads are wide, fewer people want to lend big banks money at preferable pricing, so that gets passed through to the borrower, McLister said.
Fixed-rate mortgages, which are tied more to swings in the bond market, are also creeping up after Canadian bond yields hit record lows earlier in the month, added Cooper.
“The banks just can’t afford to price their loans at what are de minimis bond yield levels,” Cooper said.
She expects banks to start charging prime plus a premium for variable loans, as well as higher rates for fixed mortgages than those seen earlier in the year.
“I believe mortgage rates will trend around current levels,” Cooper said. “I don’t think interest rates in general are going to be a lot higher in the next year.”
Air Canada to reduce workforce by 16,500 as it parks planes during COVID-19 – Financial Post
Air Canada will send home 15,200 unionized employees and 1,300 managers due to the “unpredictable extent and duration” of the COVID-19 pandemic.
Canada’s largest airline announced Monday it will place the unionized members on off-duty status and furlough the managers as it reduces capacity by about 85 to 90 per cent from April through June. It intends for the cuts, which will come into effect on or about April 3, to be temporary.
“To furlough such a large proportion of our employees is an extremely painful decision but one we are required to take given our dramatically smaller operations for the next while,” Air Canada chief executive Calin Rovinescu said in a statement.
“I understand and regret the impact this will have upon our employees and their families.”
Rovinescu and chief financial officer Michael Rousseau will forgo 100 per cent of their salaries, while other senior executives will take a 25 to 50 per cent pay cut. Board members agreed to a 25 per cent pay cut. Other managers’ salaries will be reduced by 10 per cent.
On Monday, Prime Minister Justin Trudeau announced the government will subsidize 75 per cent of wages for companies that lose 30 per cent of their revenue during the shutdown. It’s not yet clear how Air Canada could benefit from this, but the airline said it will assess how the subsidy could affect its workforce reduction plans.
Trudeau also acknowledged the airline industry has been “extremely hard hit” by the pandemic and said the government will do more to help the industry, but did not reveal any details.
The prime minister and senior government officials have been working with Canada’s major passenger airlines as they seek help during the crisis. Ottawa has already agreed to provide Toronto-based Porter Airlines with $135 million in commercial financing, but has yet to reveal a comprehensive package for other airlines including Air Canada, WestJet Airlines Ltd., Transat A.T. and Sunwing.
To help deal with plummeting revenue, Air Canada is also looking to cut $500 million in costs and capital spending. It will draw down about $1 billion in operating lines of credit for additional liquidity and suspended its share buyback program on March 2.
Air Canada is working with Ottawa to repatriate Canadians abroad. It will continue to operate a select number of flights after April 1, pending further government restrictions, as well as operating cargo-only flights to ensure movement of goods, such as medical supplies.
Air Canada employed about 33,000 people at the end of 2019, according to financial statements.
Air Canada employs about 4,400 pilots. It’s not clear how many pilots will be affected by the decision, but last week the Air Canada Pilots Association reached a deal with the airline to reduce pilot pay, allow pilots to retire earlier and plan for a maximum of 600 redundancies in the coming months.
Pilots placed on furlough will continue to accrue seniority and service and will be recalled in order of seniority, the ACPA said in a statement.
The International Air Transport Association predicts airlines around the world will lose US$252 billion in revenue due to the COVID-19 pandemic.
Coronavirus: Air Canada to lay off 16,500 workers amid COVID-19 pandemic – Global News
Effective this Friday, the layoffs of 15,200 unionized workers and 1,300 managers will last through April and May amid drastically reduced flight capacity from the Montreal-based airline.
“To furlough such a large proportion of our employees is an extremely painful decision but one we are required to take given our dramatically smaller operations for the next while,” chief executive Calin Rovinescu said in a statement.
The carrier has halted most of its international and U.S. routes in response to the global shutdown.
States from Sweden to China to the United States have rolled out aid packages for the airline sector over the past month as borders closed and travel demand plummeted amid the spread of the novel coronavirus.
Air Canada said its cost reduction scheme aims to save least $500 million. It includes a pledge from both the CEO and chief financial officer Mike Rousseau to forego 100 per cent of their salaries, while the rest of the executive team will give up between 25 per cent and 50 per cent.
The company will draw down about $1 billion in lines of credit to provide additional liquidity for a carrier that has a $7.3 billion cash cushion to fall back on — more than the most profitable U.S. carrier, Delta Air Lines.
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Earlier this month Air Canada’s flight attendant union said 5,149 cabin crew would be temporarily laid off due to the COVID-19 outbreak. The newly announced layoffs do not include the earlier job reductions.
The pandemic has cost thousands of jobs in the airline sector. Transat AT Inc. has laid off at least 3,600 flight attendants while WestJet has seen 6,900 departures including early retirements, resignations and both voluntary and involuntary leaves.
WestJet said Monday it is cancelling all transatlantic and U.S. routes until May 4, extending its 30-day suspension by two more weeks.
Both Air Transat and Porter Airlines have halted all flights.
© 2020 The Canadian Press
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