On Tuesday, Air Canada’s shares closed down slightly after a bout of morning volatility. The airline had reached a multi-billion-dollar support deal with the federal government, which will take an equity stake in the company.
Initial Market Reaction
Air Canada shares opened up over five percent at $28.40 but quickly plummeted, reaching as low as six percent below their opening price. However, they rebounded and closed at $26.92, just 0.3 percent lower than Monday’s closing price of $27 in Toronto.
Analysts’ Reaction to the Bailout Package
Analysts had varying opinions on the bailout package, but most saw it as a positive development for Air Canada. The package provides Air Canada with access to significant liquidity at favorable interest rates, which should help the airline recover from the pandemic.
- Canadian Imperial Bank of Commerce analyst Kevin Chiang expected the government to fund a $9-billion support package for the whole aviation industry. However, he viewed the agreement as positive, given its size and the favorable interest rates.
- Bank of Montreal analyst Fadi Chamoun saw the affordable refund facility as a boon for customer loyalty and confidence in future bookings.
- Canaccord Genuity analyst Doug Taylor maintained a buy rating but noted that the added liquidity reduces the downside risk, while the additional dilution impacts the potential upside.
Terms of the Bailout Package
In exchange for the bailout package, Air Canada will have to:
- Refund tickets for passengers who had previously cancelled trips due to COVID-19
- Restart regional routes it axed during the pandemic
- Maintain or grow its April 2021 employee count
- Purchase 33 airplanes from Airbus’s Quebec facility
The bailout package is a significant development for Air Canada, and investors and analysts will be closely watching how the airline implements these terms.
Conclusion
Air Canada’s shares closed down slightly on Tuesday after the announcement of the bailout package. While the market reaction was mixed, most analysts saw the agreement as a positive development for the airline. The terms of the package require Air Canada to refund tickets, restart regional routes, maintain or grow its employee count, and purchase new airplanes. As the airline implements these terms, investors and analysts will be closely watching how it impacts the company’s recovery from the pandemic.
