April 14, 2020
NAV CANADA today released its financial results for the three and six months ended February 29, 2020.
In the second quarter of fiscal 2020, the Company’s air traffic growth was flat on a year over year basis, as measured in weighted charging units (negative growth of 1.1% excluding the effect of an extra day for the leap year). The Company’s revenue for the second quarter of fiscal 2020 was $322 million, compared to $317 million over the same period in fiscal 2019, and reflected revised customer services charges, whereby existing base rates increased on average by 0.8%, effective September 1, 2019, to recover the cost of domestic space-based surveillance data services and by 3.6% on average, effective January 1, 2020, to recover the cost of oceanic space-based surveillance data services.
In late December 2019 and early 2020, a novel coronavirus was confirmed in multiple countries throughout the world and on March 11, 2020, was declared as a pandemic by the World Health Organization. The outbreak and resulting economic contraction has had, and is expected to continue to have, a negative impact on demand for air travel globally.
Starting in the latter part of February and continuing in March and April of 2020, NAV CANADA has seen a decline in air traffic movements as compared to the same period in fiscal 2019. The impact on air traffic movements is due to flight and route cancellations and the introduction of fleet groundings, travel advisories and restrictions occasioned by the pandemic.
While it is still too early to say what the extent of the impact will be on our future results, we anticipate the reduced activity will have a significant negative impact on NAV CANADA’s business and results of operations.
Apart from the impact of this pandemic on our revenues and operations, there may also be disruptions, including to supply chains and third-party service providers, as well as potential disruptions to our workforce. We are working diligently to minimize the impact.
The pandemic may also impact the cost of capital in the future which may arise from disrupted credit markets and credit rating actions.
Given the rapidly evolving situation, Management continues to analyze the extent of the financial impact, which could be material, depending on the duration of the pandemic. The Company has already taken steps to reduce operating costs as well as its ongoing and future capital program spending. The Company also intends to access its available liquidity reserves to support its operations. The Company will also avail itself of government relief where possible.
Management is working diligently to continue to provide the safe movement of aircraft as an essential service and has taken steps to help protect the safety of its employees.
“The Company was effective in containing costs in the second quarter, mindful of the decline in air traffic we saw earlier in the fiscal year. With global uncertainty in the aviation sector and beyond due to the COVID-19 pandemic, NAV CANADA will continue to adapt and manage our operations accordingly, with a continued focus on safety and providing value to our stakeholders,” said Neil Wilson, President and CEO.
Operating expenses for the second quarter of fiscal 2020 were $387 million as compared to $360 million over the same period in fiscal 2019, mainly due to higher compensation costs, including pension current service costs as well as higher costs for domestic and oceanic space-based surveillance data services.
Net other income and expenses for the second quarter of fiscal 2020 was a net expense of $25 million as compared to a net expense of $27 million over the same period in fiscal 2019.
The Company had a net loss (before net movement in regulatory deferral accounts including rate stabilization) of $90 million in the second quarter of fiscal 2020 as compared to a net loss of $70 million for the second quarter of fiscal 2019.
The Company had negative free cash flow(1) of $24 million in the second quarter of fiscal 2020 due to capital expenditures exceeding cash flows from operations, ending the quarter with cash of $48 million.
The Company is subject to legislation that regulates its approach to setting charges. The timing of the recognition of certain revenue and expenses recovered through charges is recorded through movements in regulatory deferral accounts. The net movement in regulatory deferral accounts for the second quarter of fiscal 2020 was income of $40 million as compared to income of $26 million over the same period in fiscal 2019. This change in regulatory deferrals is primarily due to a $15 million net increase in regulatory deferral adjustments to reflect certain transactions in the periods in which they will be considered for rate setting.
On January 23, 2020, the Canadian Transportation Agency (CTA) upheld the Company’s revised service charges which had been appealed by the International Air Transport Association (IATA) in September 2019. In February 2020, IATA, as supported by Air Canada, filed a Judicial Review application in relation to the CTA’s decision. NAV CANADA, as it did with the original appeal, will vigorously defend the Judicial Review application recently filed by IATA.
(1) Free cash flow is a non-GAAP financial measure used by the Company to enhance the overall understanding of its financial and operating performance. Non-GAAP financial measures do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers. The Company defines free cash flow as cash generated from operations, less capital expenditures, investments in Aireon LLC and equity related investments and principal payment of lease liabilities. Management places importance on this indicator as it assists in measuring the impact of its investment program on the Company’s financial resources.
NAV CANADA is a private, not-for-profit company, established in 1996, providing air traffic control, airport advisory services, weather briefings and aeronautical information services for more than 18 million square kilometres of Canadian domestic and international airspace.
The Company is internationally recognized for its safety record, and technology innovation. Air traffic management systems developed by NAV CANADA are used by air navigation service providers in countries worldwide.
This press release contains certain forward-looking statements that are subject to important risks and uncertainties. Actual results may differ materially from the results indicated in these statements for a number of reasons. NAV CANADA disclaims any intention to update any forward-looking statements.