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Summary
- The Canadian aviation sector, reeling under the impact of coronavirus pandemic, has sought government intervention and some sort of bailout.
- Air Canada (TSX:AC) and WestJet (TSX:ONEX) are trying to hold strong amidst the turbulent weathers, waiting for the economy to rebound and passenger travel to resume back.
- Air Canada stocks are 68 per cent down this year.
The Canadian aviation sector is reeling from the effects of the Covid-19 pandemic and awaiting federal financial aid. But no announcement has been made on that front from Trudeau-led Canadian government yet. Two of Canada’s largest air carriers Air Canada (TSX:AC) and WestJet (TSX:ONEX) are trying to hold strong amidst the turbulent weathers, waiting for the economy to rebound and passenger travel to resume back.
WestJet, a part of asset management firm ONEX Corporation will be discontinuing operations in some parts of Atlantic Canada and the Quebec City for an indefinite period of time, reduce flights to 100 per week and eliminate close to 100 jobs. According to a memo issued by the company in light of the Canadian government’s decision to restructure the federal wage subsidy, WestJet furloughed employees dependent on the Canada Emergency Wage Subsidy (CEWS). Their weekly payout slashed by 53 per cent from C$847 to C$400, effective September 27.
While Air Canada awaits Ottawa to relax travel restrictions that requires passengers who arrive from abroad to go into a 14-day quarantine to contain spread of the virus in the region. The airline is also reportedly on the verge of finalizing an initial order to procure 25,000 rapid testing kits from Abbott Laboratories. The Canadian aviation sector has sought the government’s intervention and some sort of bailout to avoid bankruptcy in the immediate future.
Though the stocks of Air Canada and WestJet have plummeted during the crisis, investors are keeping a close watch.
Air Canada (TSX:AC)
Current Stock Price: C$15.52
Air Canada is one of the largest airline carriers in Canada, and a founding member of the Star Alliance – an international alliance of airlines with 26 members and 40 affiliates. The company recently announced the retirement of its President and CEO Calin Rovinescu. He will be succeeded by Deputy CEO and Chief Financial Officer, Michael Rousseau.
The airline recently announced a revised deal to acquire holiday travel operator Transat AT (TSX:TRZ).
AC STOCK PERFORMANCE
Year-to-date performance of the scrips show a steep decline of 68 per cent, from C$48.51 at the beginning of the year to C$15.52 currently. In the last six months, the stock has witnessed slumped by 14 per cent.
Air Canada’s current market capitalization is C$4.60 billion.
As per data on the TMX portal, the stocks’ profit-to-book (P/B) ratio is 2.25 and profit-to-cash flow (P/CF) ratio is 17.40. The company offers positive return on equity (RoE) and return on assets (RoA) of 115.86 per cent and 11.59 per cent, respectively.
Air Canada is among the most active stocks across the TSX and the TSXV with a 10-day average trading volume of nearly 3.6 million.
AC FINANCIAL HIGHLIGHTS
Air Canada’s total revenue dropped by 89 per cent in the second-quarter 2020 (ending June 30, 2020) due to Covid-19 imposed travel ban to C$527 million.
With grounding of aircrafts and travel restrictions imposed by the Government, the airline saw an operating loss of C$1.55 billion, compared to operating income of C$422 million in the second quarter of 2019. Cargo revenue, however, increased by 52 per cent to C$269 million.
Operating expenses reduced to C$195 million the latest quarter from C$718 million last year. The airline reported negative EBITDA of C$832 million compared to C$916 million same quarter last year.
To help weather the COVID-19 crisis, the company raised C$5.5 billion in new equity, debt and aircraft financings in the capital markets, thus making for unrestricted liquidity of C$9.12 billion and excess cash amounted of C$6.82 billion as of June 30, 2020.
The company will be releasing its third-quarter results for 2020 on November 9.
WestJet (TSX:ONEX)
Current Stock Price: C$59.57
WestJet’s holding company Onex Corp is an asset management organization that invests and manages wealth on behalf of its shareholders, investors, and high-net worth individuals. The company owns assets approximate C$36 billion, of which C$6 billion is shareholder capital. It has presence in Toronto, London, New Jersey, and New York. It will be announcing its third-quarter results on November 13, 2020.
ONEX STOCK PERFORMANCE
As per data on TMX, the profit-to-book (P/B) ratio is 0.677 and profit-to-cash flow (P/CF) is 9.10. The company announced quarterly dividends of C$0.10. The scrips are down 27.50 per cent this year, from C$82.17 on January 1 to C$59.57 at present.
However, during the last six months, the scrips are trading flat. The company has a current market capitalization of C$5.65 billion.
ONEX FINANCIAL HIGHLIGHTS
Net earnings for second quarter (ending June 30, 2020) was C$689 million, including C$657 million from investing segment. Net earnings from asset and wealth management segment totaled C$32 million. For the six-months ended June 30, 2020, total segment net loss was C$363 million. The cash and near cash-on-hand as of June 30, 2020 is C$1.96 billion.
