Air Canada and WestJet Downgraded by S&P on Extended Cash Burn

Air Canada planes at an airpark in Arizona.

S&P Global Ratings said that the largest airlines of Canada would burn through cash as they experience a long retrieval for the industry, adding that as it downgraded Air Canada and WestJet Airlines Ltd.

Air Canada finds itself not encouraging to return to last year’s levels recently until 2023 as it will not see revenue and capacity which has kept its outlook negative, S&P further said in an analysis that led to a one-notch downgrade to BB.

Last week, Air Canada said it will reach a point to cutting 20,000 jobs as its revenue at the Montreal-based carrier has been expected to experience the fall of 50% to 60% resulting the lose of as much as C$800 million ($575 million) in earnings before interest, taxes depreciation and amortization this year.

The agency said that the focus of westjet is more on the domestic travel which recovers before international routes. However, About 70% of the airline’s passenger revenue comes from routes to the U.S. and overseas.

S&P in a statement spoke, “Beyond the pandemic, sharply weaker oil prices could have a disproportionate effect on the company’s air traffic. This stems from approximately 40% of WestJet’s available seat miles touching down in the province of Alberta, where economic conditions are underpinned by the petroleum industry.”

S&P has downgraded westjet twice this year which currently B- with a negative outlook. Further, in December in a leveraged buyout led by Onex Corp, westjet was investment grade before it was taken private.

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