Air Canada · TSX:AC
Air Canada — 2019 Aviation, Transportation and Industrials Conference
22 slides from Air Canada's conference presentation, Mar 5, 2019
Slide 1: 2019 Aviation, Transportation and Industrials Conference
2019 Aviation, Transportation and Industrials Conference Amos Kazzaz Senior Vice President, Finance New York March 5, 2019
Slide 2: Caution Regarding Forward-Looking Information
CAUTION REGARDING FORWARD-LOOKING INFORMATION This presentation includes forward-looking statements within the meaning of applicable securities laws. Forward -looking statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet de
Slide 3: Significant Progress, Opportunities Ahead
Significant Progress Opportunities Ahead ✓ Sustainably profitable over New long term reservation system ✓ Delivered on commitments ✓ Much lower risk profile ✓ ROIC well in excess of WACC Loyalty A220 3
Slide 4: Improved Key Financial Targets
Improved Key Financial Targets 1. Targets factor in the expected impact of the new accounting standard change IFRS 16 2. Based on the consolidated results of Air Canada, including the Aeroplan loyalty business starting from the acquisition date of January 10, 2019. 4
Slide 5: Improved Key Financial Targets (cont'd)
Improved Key Financial Targets (cont’d) Over the period 2019-2021 ✓ Annual EBITDA margin 19% – 22% ✓ Annual return on invested capital 16% – 20% ✓ Cumulative free cash flow $4.0B – $4.5B ✓ Leverage ratio No more than 1.2 by end of 2019 Based on assumptions outlined in Air Canada’s February 28, 2019
Slide 6: Project Strong EBITDA Margins
Project Strong EBITDA Margins Unique Competitive Advantages 6
Slide 7: Project Strong EBITDA Margins (cont'd)
Project Strong EBITDA Margins (cont’d) ✓ Investments in technology – new reservation system – Annual incremental benefits of $100M ✓ Cost Transformation Program – Savings of $250M by end of 2019 ✓ Replacement of less-efficient narrow-body aircraft ✓ Incremental benefits from extended capacity purcha
Slide 8: Cost Reduction Remains a Priority
Cost Reduction Remains a Priority Air Canada Rouge • Adjusted CASM is 29% lower than mainline Cost Transformation Program • Renegotiation of agreements Fleet Boeing 787 29% CASM advantage over the Boeing 767 Boeing 737 MAX 11% CASM advantage over the Mainline Airbus A320 Airbus A220 12% CASM advanta
Slide 9: Increased Competitiveness in Regional Sector
Increased Competitiveness in Regional Sector Jazz CPA extended by 10 years (January 1, 2026 to December 31, 2035) • Provides significant network benefits • Bolsters strength of Air Canada Express brand • Improves coast-to-coast regional network • Air Canada Rouge backfilling certain routes 9
Slide 10: Amended CPA with Jazz – Estimated NPV of $275M
Amended CPA with Jazz – Estimated NPV of $275M (2019-2025 period) $50M $50M $53M Competitive rates 2019 2020 2021-2025 2026-2035 $97M equity investment — excellent value for shareholders 10
Slide 11: Loyalty
Loyalty • Aeroplan loyalty business • Launch of new loyalty program in summer 2020 11
Slide 12: Loyalty (cont'd)
Loyalty (cont’d) Incremental benefits incorporated into three-year targets • NPV in excess of $2.5B • Materially contributes to free cash flow • Improves seasonality • Reduces risk profile from introduction of new program 12
Slide 13: Declining Level of Capital Expenditures
Declining Level of Capital Expenditures Narrow-body fleet replacement program – Average mainline fleet age 8.5 years at end of 2021 $600M - $800M annually in non-aircraft expenditures focused on investments in technology Level of projected capital expenditures to decline by $1.4B by end of 2021, whe
Slide 14: Capital Allocation Strategy
Capital Allocation Strategy CUMULATIVE FREE CASH FLOW* OF $4.0B TO $4.5B OVER NEXT THREE YEARS • Continue to aggressively manage debt levels • Purchasing majority of 2019 aircraft deliveries with excess cash • Share buyback program * Excludes the net proceeds on the closing of the Aeroplan transacti
Slide 15: Leverage Ratio of No More than 1.2 Supports Investment Grade Credit Rating
Leverage Ratio of No More than 1.2 Supports Investment Grade Credit Rating SINCE 2012, AIR CANADA’S CREDIT RATING IMPROVED S&P 4 notch improvement to BB with positive outlook Moody’s 5 notch improvement to Ba2 Stable 15
Slide 16: More Aggressive Buyback Program an Opportunity
More Aggressive Buyback Program an Opportunity PURCHASED, FOR CANCELLATION, 23.4M SHARES OR 8% OF OUTSTANDING SHARES (SINCE MAY 2015) • Will continue to utilize Normal Course Issuer Bid • Expect to be more aggressive when opportunities present themselves 16
Slide 17: Much Stronger Balance Sheet
Much Stronger Balance Sheet ✓ Lowered leverage ratio to 2.1 from 3.1 since end of 2012 ✓ Reduced average cost of debt to 4.4% ✓ Average cost of capital of 7.2%, 540 basis points lower than ROIC of 12.6% ✓ Freed up collateral by purchasing new aircraft ✓ US$2.6B unencumbered assets – will increase in
Slide 18: Financial Risks are Very Well Managed
Financial Risks are Very Well Managed PENSION FUEL FOREIGN EXCHANGE RISK MANAGEMENT RISK MANAGEMENT • $2.4B* solvency surplus • Flexible program • U.S cash reserves • 81% of liabilities matched • Currently unhedged • Derivative contracts with fixed income • Derivative contracts • 75% coverage for pr
Slide 19: Much More Resilient to Economic Downturns
Much More Resilient to Economic Downturns ✓ Higher margins ✓ Flexible and more efficient ✓ Lower cost structure fleet ✓ Record liquidity levels ✓ Ability to defer new aircraft future deliveries ✓ Lower leverage ratio ✓ Lease mix allows Air Canada ✓ Unencumbered asset pool to permanently reduce ✓ Div
Slide 20: Much More Resilient to Economic Downturns (cont'd)
Much More Resilient to Economic Downturns (cont’d) By end Unencumbered aircraft Currently of 2021 • Air Canada and Air Canada Rouge 55 100 (23%) (40%) Currently 55% of combined Mainline and Rouge is leased – Ratio will decrease as Air Canada purchases more aircraft with cash 20
Slide 21: Summary
Summary ✓ Record results ✓ Adjusted CASM performance in line ✓ Improved key financial targets with U.S. network carriers ✓ New Jazz agreement – net present ✓ Lower leverage ratio supports value of $275M Investment Grade credit rating ✓ Loyalty program – net present ✓ A more aggressive share buyback
Slide 22: Thank you
Thank you aircanada.com
Air Canada — 2019 Aviation, Transportation and Industrials Conference on 6ix