For the carrier’s customers, the best news coming from Air Canada’s government lifeline was the fact that refunds were being issued for flights canceled in the midst of the COVID-19 outbreak last year. However, there were other conditions imposed as part of the Canadian government’s multi-billion-dollar loan. One of these was that Air Canada would agree to complete its original A220 and 737 MAX aircraft orders. Let’s take a look at the details and numbers surrounding this condition.
Cancelations made in November
Simple Flying reported back in November 2020 that Air Canada would be deferring the delivery of some of its jets while completely canceling its orders for others. The CEO at the time, Calin Rovenescu, stated in an earnings call,
“We are deferring delivery of new Boeing 737-8 and Airbus A220 aircraft scheduled for delivery in 2021 and 2022 and cancelling 10 Boeing 737-8s and 12 Airbus A220s, representing about 40 per cent of the remaining scheduled deliveries.”
This move was made in order to lower the airline’s expenditures and cash burn. The airline’s market had been facing – and continues to face – crippling travel restrictions. The government of Canada has closed its borders to non-essential travel, required mandatory hotel quarantine upon arrival, and negotiated with airlines to suspend flights to sun destinations (which was recently extended).
All of these measures, while intended to limit the spread of COVID-19, have had a devastating impact on Air Canada and other Canadian airlines.
Canceling the cancelations
It was nearly a week ago, on April 12th, that Air Canada announced it was getting a major lifeline from the government of Canada with up to C$5.879 billion ($4.69 billion) in liquidity. This included billions in loans and a C$500 million ($399 million) purchase of shares.
The final condition of the financial package stated as part of Air Canada’s press release on the bailout reads as follows:
“The completion of the airline’s acquisition of 33 Airbus A220 aircraft, manufactured at Airbus’ Mirabel, Quebec facility. Air Canada has also agreed to complete its existing firm order of 40 Boeing 737 Max aircraft. Completion of these orders remains subject to the terms and conditions of the applicable purchase agreements.”
Why would aircraft orders be part of the deal?
Refunds for ticketholders, restoring service to small communities, an agreement to keep jobs – these conditions agreed to by Air Canada will clearly benefit Canadians. And, as with most government actions, there is, of course, some politics at play. After all, it’s taxpayer money being spent to prop up an industry that many Canadians love to hate.
Thus, the condition of completing aircraft orders is also political while, at the same time, being a benefit to one segment of the Canadian public. As part of its own statement on the news, the government of Canada said that this one condition would protect Canadian aerospace industry jobs. The government stated that the aerospace industry supported 235,000 Canadian jobs and contributed over C$28 billion ($22.3 billion) in gross domestic product to the Canadian economy in 2019. Specifically, on the Air Canada deal, it stated:
“This financing agreement will allow Air Canada to continue to be a vital customer of the Canadian aerospace industry by completing its planned purchase of aircraft as set out in its business plan, which includes aircraft built in Canada, such as the Airbus A220. Aerospace is one of the most innovative and export-driven industries in Canada…Ensuring that Air Canada maintains its status as a key customer of Canada’s aerospace industry is important to ensuring the long-term success of the sector and the thousands of jobs it supports.”
Where Canadian jobs are located
It’s fairly common knowledge that A220s are manufactured in Mirabel – thus directly supporting thousands of Canadian jobs in Quebec. But what about the Boeing 737 MAX? It’s an American aircraft, isn’t it? Well, not entirely…
On its website, Boeing noted that its fabrication facility in Winnipeg, Manitoba was responsible for producing major products for its commercial jets, including the inner barrel, wing-body fairings, engine strut forward and aft fairings, and landing gear doors. It also adds,
“This Boeing business is a tier-1 supplier to the 737 MAX, responsible for engineering and manufacturing the one-piece composite acoustic inner barrel on the newly designed engine nacelle inlet.”
Therefore, the government’s strategic decision to impose a condition on A220 and 737 MAX aircraft orders will help to ensure Canadian aerospace manufacturing keeps running during this challenging time.
What do you think of this government-imposed condition? Let us know in the comments.
