Update from NBF Resetting 2021 expectations
TARGET EST. TOTAL RETURN
C$17.00 5.6%
(Unchanged)
STOCK RATING
We believe the pandemic and associated travel restrictions will keep travel demand depressed for longer than our prior expectations. For 2021, we previously assumed full-year capacity would be at 65% of 2019 levels with a return to more “normal” operations in Q3 and Q4. We now assume that 2021 full-year capacity will be at only 45% of 2019 levels. We previously forecast positive EBITDA of $1.2 billion in 2021, but now forecast an EBITDA loss of $854 million. We note that the current 2021 consensus EBITDA forecast for Air Canada is positive $2.0 billion, which looks exceedingly optimistic, in our view.
Introducing 2022 forecast
We have also introduced a 2022 forecast in which we assume an end to pandemic conditions, which will allow Air Canada to return its network to ~75% of the 2019 level. We forecast 2022 EBITDA of just under $2.3 billion, which would still be well below the $3.6 billion the company reported in 2019.
Liquidity still looks sufficient
In our updated forecast, we see Air Canada ending 2021 with total cash of $4.3 billion (with an expectation that FCF will turn positive in 2022), which is comfortably above the $2.4 billion minimum cash level. Our model also only assumes new financing related to new aircraft deliveries, so we remain confident in the company’s ability to manage through the crisis.