Aviation lawyer Jason MacIntyre on how airlines survived the pandemic (so far)

Airlines were one of the industries most impacted by the COVID-19 pandemic in the last two years. This has forced them to find alternative and novel financing sources to alleviate the economic hardship, says Jason MacIntyre, partner at Blake Cassels & Graydon LLP and chair of the firm’s aviation & aerospace group.

In 2020, the number of airline passengers departing from and arriving at Canadian airports dropped by 71.8 percent, according to Statistics Canada. In response, says MacIntyre, airlines laid-off workers and cut routes. Worldwide, the decline in traffic led to airlines losing around US$370 billion in 2020, said Statista. Canadian airports were not spared the misfortune. Canadian Airports Council interim president Monette Pasher said they have lost $6 billion in revenue and assumed an extra $3 billion in debt since the pandemic began.

According to MacIntyre, to withstand the pandemic’s economic disaster, airlines sought alternative funding sources, such as sale-leasebacks, lease restructuring, capital markets, foreign investment and government relief. He says that they refinanced existing deals by resizing fleets, retiring older aircraft, and focusing on newer aircraft and technology. The industry also benefited from 2018 changes to the Canadian Transport Agency’s foreign ownership restrictions, which allowed them to take on more foreign investment.

“Overall, it’s obviously been a tough road over the last two years, but the airlines have all been really responsive to the market – really doing their best at cutting costs, accessing funds from the government – where possible or practicable,” says MacIntyre. “As, hopefully, COVID and the cloud of the pandemic starts to wane, Canadian airlines will be back at it soon.”

Airlines took advantage of various federal relief packages offered by the federal government, such as the Canada Emergency Response Benefit, and some individually reached agreements for aid packages, he says. Air Canada, for example, got a loan for $5.9 billion in early 2021 but withdrew from the aid deal that November when business rebounded, leaving most of the money on the table.

According to MacIntyre, airlines accessed capital markets, refinancing bond deals and issuing new ones. To borrow money against existing assets, airlines such as Air Canada also entered into leaseback transactions. He says that the airline would sell the aircraft they owned and then lease it from the buyer to continue using it in their fleet.

Airlines also devised longer-term plans, says MacIntyre. These included amending existing financing arrangements and negotiating a settlement with current financiers. Airlines also made plans to resize their fleets, including retiring some older aircraft. Air Canada, which operates around a dozen different aircraft models from many manufacturers, began to phase out the Boeing 767. Along with retiring specific models, airlines shifted some roles from commercial to cargo.

“The airlines really took a look at their fleet and what their fleet needs would be in the longer term, given the recalibration that was caused by the pandemic. As a result, it perhaps allowed them to cut down on costs or to operate a smaller fleet coming out of the pandemic, based on the expectation of where they thought their passenger demand would be post-COVID.”

Due to recent regulatory changes, the industry also benefitted from wider access to capital. In 2018, the Transportation Modernization Act raised the international ownership limits from 25 to 49 percent of voting interests. The federal government said they expected these changes would enhance competition in the sector, achieve more connectivity for underserved regions in Canada, help airports and suppliers and provide more choice for Canadians.

This allowed carriers, “new and old,” to increase their investor base, and the airline industry has seen new players enter the market in the last few years, says MacIntyre.