There is still hope. Government agencies report that passenger traffic is now on the rise. This is from a very low base, but no one is complaining about the increase in numbers right now.
Is it finally time to buy Air Canada shares?
This is the deal
This week we learned some terrible news regarding Air Canada’s actions. The market largely ignored the news, but if you own any stock in the airline, you should be very nervous.
But before we get to this news, it’s important that you understand what’s going on right now.
When COVID-19 hit hard in March, the shares of every air carrier plummeted. Few have bounced back. Some have gone bankrupt. Those who get hung up are time bombs.
Look at Air Canada. In the last quarter, the company recorded a loss of $ 1.7 billion. That’s after a loss of $ 1.1 billion the previous quarter. This quarter, wait another loss of a billion dollars. The current conditions are a nightmare. The business is simply losing money.
No business can generate billions of dollars in losses forever. This includes Air Canada. If something doesn’t change quickly, its future is in jeopardy.
Let’s review the numbers.
Air Canada executives estimate that the company has about $ 9 billion in cash left. This figure was announced at the end of the last quarter, so liquidity has probably fallen to just $ 8 billion. Add another billion dollars in recent funding, and you end up with the same $ 9 billion in total cash.
In the past six months, the company has lost nearly $ 3 billion. That’s a loss of $ 6 billion a year. The numbers are clearly frightening. Liquidity could dry up in 18 months or less.
The ability to raise additional funding may also be limited given that its market capitalization is less than $ 5 billion. Air Canada could lose more in 2020 than its entire valuation!
Who knows the numbers best? Company managers. They’re probably doing the same math, wondering how the business will survive in 2021. There aren’t many ways to win. Either current conditions hold and the airline goes bankrupt or additional funding continues to close the gap, massively diluting existing shareholders.
This leads us to the terrifying news that hit earlier this week.
Air Canada is a lost cause
If business leaders know the business best, you need to take recent events seriously.
“Air Canada President and CEO Calin Rovinescu will retire on February 15 after more than a decade at the helm of the carrier,” reports News from business travelers.
This is of particular concern since Rovinescu has never avoided hard work before.
“Rovinescu previously oversaw Air Canada’s bankruptcy reorganization in 2003 as head of restructuring, after which he left to form Canadian investment bank Genuity Capital Markets,” News from business travelers detailed.
The calculations just don’t match. Air Canada is heading for a crash landing in 2021, and its CEO doesn’t seem to want to participate in the race.
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Mad contributor Ryan Vanzo has no position in the stocks mentioned.