Air Canada (TSX:AC) Stock: Finally Ready for Takeoff?

Whether it’s a bailout or a loan, Air Canada stock’s growth potential remains uncertain. The pandemic is worsening instead of improving, so air travel demand won’t return anytime soon.

| More on:
Aircraft wing plane

Image source: Getty Images

Is Air Canada (TSX:AC) out of the hangar, back on the runway, and preparing for takeoff? Since news broke out on the airline industry’s impending federal bailout, the airline stock is on an upward trajectory.

As of March 12, 2021, the share price has risen close to $30 (+30.5%) from $22.77 at the start of the year. Excitement is building around Air Canada once more, because recovery is on the horizon. But it remains to be seen whether the company can finally spread its wings after a prolonged interruption of operations.

The precondition to financial assistance

Canada’s Finance Ministry confirmed that parties are in discussions on potential additional financial assistance. A statement from the Finance Ministry reads, “We remain committed to supporting airlines and air sector workers during this unprecedented and difficult time for the industry.”

The government side laid down conditions, the priority of which is the payment of ticket refunds to customers for cancelled flights in relation to COVID-19. Airlines must retain and reinstate regional routes in the country and protect jobs across the air sector. Thus far, Air Canada finds the ongoing talks encouraging and constructive.

If talks succeed, management will take into account the government’s policy considerations. Air Canada’s press release said, “While discussions are advancing, there can be no assurance that such discussions will lead to the completion of definitive agreements with the Government of Canada on sector financial support on terms acceptable to Air Canada.”

Loan, not a bailout

Unifor president, Jerry Dias, said in early March that Canada’s dominant carrier has agreed to refund customers. However, the union president adds the absolute agreement of Air Canada was in exchange for a loan, not a bailout.

Dias told Global News then that the loan package that Air Canada seeks is $7 billion, payable in 10 years and at an annual rate of 1%. But since a considerable period has lapsed, the amount could be the floor, not the ceiling. Dias hopes the solution comes quickly, although he describes the negotiations as contentious and difficult.

Catherine McKenna, minister of Infrastructure and Communities, said talks are progressing. She reiterated that airlines offering passengers refunds for cancelled flights is a precondition for a bailout. It’s extremely important, according to Mckenna. Deputy Finance Minister Michael Sabia leads the federal government’s negotiating team.

On the part of WestJet, its CEO Ed Sims said airlines want a recovery plan for the industry, not a bailout. He wrote to senators and MPs, “We are not seeking a policy that strictly supports our bottom line and, frankly, that is not what the nation needs.”

Restarting the sector is also Air Canada’s priority. Perrin Beatty, president and CEO of the Canadian Chamber of Commerce, said the short-term bailout package must come with a strategy to re-open the air travel sector.

Falling behind

According to Goldy Hyder, president of the Business Council of Canada, Canadian airlines are falling behind. Since the financial assistance or bailout is late, Air Canada could lose its competitiveness. Meanwhile, market analysts see the airline stock as a potential growth stock and a top pick in 2021. I think it’s still investing at your own risk for now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned.

More on Investing

worry concern
Dividend Stocks

Worried About a Recession? 2 Canadian Blue-Chip Stocks to Buy and Hold for Dear Life

A recession is worrisome. Buying two blue-chip TSX stocks and holding them for the long term will deliver stable, less…

Read more »

online shopping
Tech Stocks

Why You Should Buy Shopify Stock Before It Rockets Even Higher!

SHOP stock is down 70% from all-time highs. Let's see why it makes sense to buy the dip in February…

Read more »

money cash dividends
Dividend Stocks

TFSA: 3 of the Best Canadian Dividend Stocks to Buy This Year

Are you looking for some of the best Canadian Dividend stocks to buy this year? Here are three great options…

Read more »

Golden crown on a red velvet background
Energy Stocks

3 Canadian Dividend Aristocrats to Buy and Hold for Passive Income

Are you seeking safer options amid elevated market volatility? Consider these three Canadian dividend aristocrats to receive uninterrupted passive income…

Read more »

A colourful firework display
Tech Stocks

3 Venture Capital Stocks That Started 2023 With a Bang

Even if a company starts a year strong, it may not hold that momentum throughout the year. Still, these VC…

Read more »

Group of industrial workers in a refinery - oil processing equipment and machinery
Energy Stocks

Suncor Energy Stock: Has it Bottomed Out?

Suncor Energy Inc (TSX:SU) stock has been falling lately. Has it bottomed out yet?

Read more »

data analytics, chart and graph icons with female hands typing on laptop in background
Stocks for Beginners

2 Top Stocks to Buy in February 2023

Here are two of the best Canadian stocks you can buy in February 2023.

Read more »

Aircraft wing plane

Bombardier Stock: Should You Invest in the Current Bullish Trend?

Capturing a bullish trend from beginning to end is an exception, not the rule. In most cases, you will only…

Read more »