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Air Canada earnings fall under weight of Boeing 737 Max grounding

MONTREAL — Air Canada’s shares hit an all-time high Tuesday even though its earnings fell slightly below expectations last quarter as the grounding of the Boeing 737 Max continues to weigh down the country’s largest airline.

The shares gained about five per cent or $2.30 at $48.02 in late-morning trading on the Toronto Stock Exchange.

Chief executive Calin 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 slated for delivery by mid-2019.

“The removal of 36 737 Max aircraft, or about 24 per cent 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.

While the carrier covered more than 95 per cent of planned flying in the third quarter, it was forced to lease two Airbus A330s on top of leases and life extensions for other aircraft that are less fuel efficient than the Max 8.

Air Canada has removed the Max from its flight schedule until at least Feb. 14.

The 12 undelivered Max aircraft sit on Boeing lots, delaying Air Canada’s hiring of pilots. Fourteen more Max 8s were slated for delivery in the first half of 2020, but may now be pushed back.

“This is a process that will indeed be gradual. This is not an overnight process,” Rovinescu said, noting it could be up to a year after the airspace ban is scrapped before all 50 Max jetliners are in operation.

Analyst Walter Spracklin of RBC Dominion Securities said the effects of the grounding were to be “most significantly felt” in third quarter, when capacity is tightest.

However, he said the cost impact was not as bad as had been expected.

“The key takeaway in this quarter from our perspective is that Air Canada has demonstrated that it can successfully manage a significant external event through better pricing and nimble cost management to achieve strong results,” Spracklin said in a note to investors.

Doug Taylor, an analyst with Canaccord Genuity, highlighted how “the company has been able to effectively pass the added costs through to customers.”

Net income fell nine per cent year over year to $636 million in the quarter ended Sept. 30. Revenue dropped three per cent 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.

This report by The Canadian Press was first published Oct. 29, 2019.

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Christopher Reynolds, The Canadian Press