Will Air Canada Fly High or Crash Land in 2021?

Here’s why Air Canada’s (TSX:AC) bailout is a mixed bag of news for investors bullish on the recovery coming out of this pandemic.

| More on:
Plane on runway, aircraft

Image source: Getty Images.

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Air Canada (TSX:AC) has been touted as one of the best reopening plays on the TSX for quite some time. It has been on the watchlist of many investors who are seeking a dependable rebound stock. Indeed, there’s ample room for optimism right now.

However, there are some concerns that have made investors cautious with this stock. Here’s my view on Air Canada considering the current circumstances.

Air Canada finally bags its bailout deal

The much-awaited airline bailout deal has finally materialized.

The $5.9 billion stimulus package from the federal government is a big one. And many investors think the liquidity provided to Air Canada should be more than enough to get the airline through this difficult time.

Additionally, investors now have certainty with respect to the details of this arrangements.

The bailout encompasses both debt and equity components. The government will actually be taking a stake in Air Canada and has added some stipulations to the deal. Various job safety and job protection measures have been put in place. And Air Canada will need to refund ticket sales, finalize its airplane orders and resume regional routes.

In its entirety, the deal is a mixed bag. On the one hand, Air Canada gets a bag of low-interest money and a zero-interest equity injection. On the other hand, it needs to play by the government’s rules now. Accordingly, Air Canada’s stock price has languished since the bailout announcement. However, in recent days, Air Canada stock has been coming back.

The ultimate trajectory with Air Canada remains unknown. However, investors should sleep well at night with Air Canada stock, knowing the government has shareholders’ backs, because they are shareholders too now (and have said they want to participate in the upside).

Bottom line

The stipulations the bailout package provides don’t appear to be overly onerous. That said, other headwinds such as rising jet fuel costs and a slower vaccine rollout could be more insidious for investors.

I think how the pandemic-related restrictions are lifted or loosened over time will determine a lot of Air Canada’s stock price trajectory from here. Canada is accelerating its efforts, and I’d expect more exports from the U.S. to materialize once the population south of the border is mostly vaccinated.

However, timing is the key issue with Air Canada stock right now. Whether or not to jump in at these levels is the question. And to be honest, I don’t know which direction this stock is headed right now.

Accordingly, investors may want to be patient with Air Canada right now. For those bullish on the outlook coming out of this pandemic, perhaps phasing in an investment over time is the best approach.

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 Chris MacDonald has no position in any of the stocks mentioned.

More on Investing

A solar cell panel generates power in a country mountain landscape.
Top TSX Stocks

3 TSX Stocks You Can Hold for the Next 3 Decades

While the market faces significant headwinds, it's crucial to ensure that you can commit to the TSX stocks you're holding…

Read more »

energy oil gas
Dividend Stocks

2 High-Yield Energy Stocks to Buy as Recession Approaches

Energy stocks such as TC Energy and Canadian Natural Resources allow investors to generate income even in recessionary times.

Read more »

green power renewable energy
Dividend Stocks

3 Top Dividend Stocks to Drive Your Passive Income

These three high-yielding, safe dividend stocks could boost your passive income.

Read more »

Dial moving from 4G to 5G
Tech Stocks

TFSA Investors: 2 Canadian Stocks With Unbelievable Staying Power 

Amid economic uncertainty, investors look for stocks that can thrive in any crisis and grow long term. Here are two…

Read more »

protect, safe, trust
Dividend Stocks

TFSA Wealth: How to Earn $363 in Monthly Passive Income for Life

Canadian investors can harness the power of the TFSA to generate steady tax-free passive income for decades.

Read more »

Canadian Dollars
Dividend Stocks

TFSA Millionaire: How to Turn $40,000 Into $1.2 Million for Retirement

Here's how TFSA investors are using the power of compounding to buy top Canadian dividend stocks to build retirement wealth.

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Superb Income and Growth Stocks for Every Portfolio

The market is full of superb income and growth stocks, but not all belong in your portfolio. Here are three…

Read more »

stock market
Stocks for Beginners

Worried About Stagflation? 2 Canadian Stocks for All Market Cycles 

Stagflation delays economic recovery. You can keep your portfolio stagflation ready with these Canadian stocks that are suitable for all…

Read more »