Air Canada 737 decision came down to financials: CFO

Washington DC
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Air Canada’s decision to flip its Airbus A320 fleet in favour of the Boeing 737 Max came down to Boeing having the “best financial terms,” says the carrier’s chief financial officer Michael Rousseau.

“We considered all aspects of the financial decision,” says Rousseau, speaking at the AltaCorp Capital and ATB Corporate Financial Services Institutional Investor Conference in Toronto today.

“[Not just] the purchase price, but the operational benefits of the plane, transitional issues--a number of different aspects that went into the financial analysis.”

He adds: “Boeing had a very, very strong offer, and therefore we chose them.”

After nearly eight months of discussions with both airframers, the carrier announced on 11 December that it had placed a firm order for 33 737 Max 8 and 28 Max 9 aircraft for delivery between 2017 and 2021. The deal also includes 18 options and purchase rights for up to 30 more aircraft.

Air Canada was also able to secure Boeing’s commitment to purchase 20 of its 45 Embraer 190 regional jets, the smallest aircraft in its fleet at 97 seats. The airframer will buy those starting mid-2015, says Rousseau.

The carrier is looking to cut down on the fleet of these relatively young aircraft to save on costs, says Rousseau.

“In hindsight, we bought too many,” says Rousseau, referring to the 45 E-190 in its fleet today and the 15 E-175s that it transferred to Sky Regional last year to operate at a lower cost structure.

At the time, the airline’s strategy was to use the smaller aircraft to build up the frequency of flights. But the airline will be able to find cost savings by transferring out some aircraft in the fleet, says Rousseau.

“We felt that we didn’t need as many E-190s, mainly because our strategy’s changed a bit, and because the cost structure of that plane is not as low as we’d like it to be,” says Rousseau. “It’s still a very, very customer-friendly plane, it’s still an effective plane for us. But we felt we could lower the overall cost of the company and still satisfy our strategic objectives by downsizing that fleet from 45 to 25.”

Air Canada is now undergoing a business analysis to decide whether to maintain the remaining Embraer aircraft in the fleet, and has said that it would choose from aircraft that have between 100 and 150 seats. The options include sticking with the E-190s, replacing the aircraft with new Bombardier or Embraer models or using the Max 7, which typically holds 126 passengers in a dual-class layout.