- Air Canada has made prepayments of over $580 million on its aircraft-related debt.
- The prepayments were made on loans used to acquire Airbus A220 and Boeing 787-8 aircraft.
- The significant debt reduction will lead to a reduction in interest expenses and positions the carrier to continue reducing its debt further.
Air Canada is getting on top of its steep aircraft-related debt with the announcement of prepayments on Thursday. The carrier paid back more than $460 million from a hefty loan used to acquire Airbus A220 aircraft and over $120 million toward another loan used to help the carrier purchase Boeing 787-8 aircraft.
The announcement comes as the airline has made deleveraging a main goal post-pandemic. Air Canada added the A220 to its fleet in 2020, whereas the 787 first flew with the airline nearly 10 years ago.
Approximately $589 million repaid
On August 30th, Canada’s largest airline prepaid loans of approximately $462 million from Export Development Canada (EDC). The funds were used to support the acquisition of 14 A220-300s developed in Canada. On Wednesday, the carrier prepaid financings of approximately $127 million from the Export-Import Bank of the United States (Exlm), which was used to help the airline buy four of its eight 787-8s. Air Canada officially announced the prepayments on Thursday, confirming they were subject to accrued interest.
Photo: Elena Berd/Shutterstock
John Di Bert, Executive Vice President and Chief Financial Officer of Air Canada, spoke about the carrier’s financial advancements.
“One of Air Canada’s top priorities following the pandemic is to deleverage and since late last year we have now pre-paid approximately $1.87 billion in debt. This strengthens our balance sheet and provides us more flexibility to make strategic investments, including to improve the customer experience, and to continue upgrading our fleet such as through our previously announced acquisition of Canadian-made Airbus A220 aircraft.”
According to the airline, the A220s are paid in full, while the 787s are paid partially. With the prepayments, Air Canada’s unencumbered asset pool totals approximately $6.3 billion, excluding Aeroplan, the carrier’s loyalty program.
Reducing debt further
Nearly $1.9 billion accounts for the airline’s total amount of debt prepayments, which reportedly includes the repurchase of some of its outstanding 4.000% convertible senior notes that are due in 2025 but were completed last year. The total leads to an aggregate reduction in interest expense of approximately $158 million, or approximately $114 million in cash, on an annualized basis, according to the airline.
With the forward momentum, Di Bert believes Air Canada will be able to put a dent in its debt further.
“With our very solid liquidity position and cash flow we will continue to look for more opportunities to reduce debt further. We were pleased to partner with EDC in supporting the Canadian aerospace industry and we thank Exlm for facilitating our acquisition of Boeing aircraft,” the executive said.
A better operating environment
An analyst with ATB Capital Markets, a Canadian investment banking and financial services company, said the payments indicate that Air Canada has returned to a “normalized operating environment” following the pandemic’s negative impact on the industry, according to The Globe and Mail.
“With significant liquidity in place and demand conditions remaining robust, we expect the deleveraging process to continue, positioning the company to return to an investment-grade credit rating over the medium term,” the analyst explained to The Globe and Mail.
Photo: Tom Boon | Simple Flying
Air Canada first ordered the A220-300 in 2016 but has since placed more orders. Currently, it has more than 30 aircraft in its fleet. The airline introduced the 787-8 in 2014, which replaced the 767-300ER on several international routes, according to Wingborn.