Comparing AC with US airlines.Quick refresher comparing AC with other US airlines. Following the structure from my last post on the same topic, here are some updated numbers/info. AC continue to building towards the best opportunity amongst North American airlines. And also a very strong investment opporunity.
See below table. The data from this table has come from latest financial statements and last year investor-day documents. Some data about AC from TD bank analysis. You can search for these online easily.
Situation has not changed much since last time I posted this same analysis.
One look at the leverage ratio, can explain how strong AC is financially compared to other airlines.
| Compare Airlines - All figures in Billions unless specified |
| | Revenue 2022 | Total Debt | Liquidity | Net debt | Target net debt by 2024/25 | Capex - 3 years | 3 year Free cash flow - '23-'25 | Outstanding shares (MM) | Adj Debt/ EBITDAR (2024/26) |
| Air Canada | $ 14.2 | $ 17.2 | $ 9.80 | $ 7.40 | $ 5.7 | $ 3.50 | $ 3.0 | 357 | 1.5X (2024 end) |
| Delta Airlines | $ 50.0 | $ 31.5 | $ 9.50 | $ 22.0 | $ 15.0 | $ 15.0 | $ 10.5 | 641 | 2-3X (2025) |
| United Airlines | $ 45.0 | $ 37.0 | $ 18.2 | $ 18.8 | $ 25.0 | $ 20.3 | | 329 | 2.5X (2025/26) |
| American Airlines | $ 49.0 | $ 44.3 | $ 12.0 | $ 32.3 | $ 20.0 | $ 9.0 | | 721 | >3X (2025/26) |
Let’s compare US airlines with Air Canada as an opportunity.
Leverage ratio: Net Debt/EBITDA. Lower the better
EV/EBIDTA: (SP*outstanding shares+Net Debt)/EBITDA Lower number means lower valuation
As of end of 2022
Leverage ratio EV/EBITDA
United Airlines 3.32(3.8 my calc) 6.62
Air Canada 5.0 10.0
American Airlines 6.7 4.7
Delta Airlines 4.0 3.0+
As per guidelines provided by airlines at end of 2023
Leverage ratio EV/EBITDA
United Airlines >=3.32 >=6.62
Air Canada ~2.25 6.62 (@ 38 per share: Assume market evaluates AC similar to United)
If market evaluates AC lower then the ratio will be even stronger and conservative.
- As of end of 2022, Air Canada seems worse but there is a catch. Air Canada (Canada) was impacted by OMICRON in early 2022 and as a result lost 4-5 months of business compared to US airlines and leading to lower EBITDA (lower denominator). But AC in 2023 will catch up and will produce full year EBITDA similar to US airlines. Thus reducing the leverage ratio. In fact few weeks months (Q2) from now, trailing leverage ratio will be lower than United.
- In 2023, United will spend billions in capital spending to acquire new fleet. This will not allow to lower the leverage ratio but Air Canada on the hand will end up with lower ratio than United in 2023. Delta and American will also spend billions in capex but less than Air Canada.
- If United didn’t need to spend on fleet renewal they would be strongest airline investment. Remember AC chose to spend that money in the past and not distribute dividends.
- As of now, there are no indication of revenue impact in 2023 and if it does it won’t be large enough dent to derail the outlook. We are already in Q2 with solid demand/booking for next key peak revenue months.
Air Canada has the strongest opportunity not only amongst North American airlines, but also as independent investment opportunity.