October 22, 2020
NAV CANADA today released its financial results for the year ended August 31, 2020.
In fiscal 2020, the Company’s air traffic levels decreased 34.1% on a year over year basis, as measured in weighted charging units, as a result of the COVID-19 pandemic. The Company’s revenue for fiscal 2020 was $1,000 million, compared to $1,437 million in fiscal 2019.
The COVID-19 pandemic and the resulting economic contraction has had, and is expected to continue to have, a significant negative impact on global air traffic and on the aviation industry. NAV CANADA has seen the number of air traffic movements decline since March 2020 as a result of a decline in passenger demand given COVID-19 concerns, travel restrictions imposed by governments, the closing of international borders and the economic impact of the pandemic. As a result, the Company’s customer service charges revenue declined significantly in the third and fourth quarters of fiscal 2020 as compared to the same periods in fiscal 2019. This is due to air carriers reducing their operations, grounding fleets and cancelling flights and routes. The pandemic is expected to continue to have a negative impact on air travel globally and this will likely continue until such time as travel restrictions are eased, airline passenger concerns about air travel due to COVID-19 subside, and consumer demand for air travel returns. Industry participants are indicating it may be some time before they fully return to pre COVID-19 operating levels. We expect until this occurs that reduced air traffic activity will have a material negative impact on the Company’s operations and revenues.
“While businesses began to reopen across the country in the last quarter and activities resumed, NAV CANADA continues to be impacted by significantly reduced traffic levels. The Company is not immune to the economic downturn and severe financial impacts that the aviation industry as a whole is experiencing. Along with the aviation industry, the Company is facing the most challenging moments in its history,” said Neil Wilson, President and CEO. “As we work collaboratively with stakeholders navigating these uncertain times, the Company remains vigilant in ensuring its ongoing provision of the essential services customers rely on to do their business and provide services for Canadians.”
In response to the impact of the pandemic, NAV CANADA continues to review, monitor and take actions to reduce capital and operating spending and cash outflows, while at the same time ensuring the continued fulfillment of the Company’s mandate to safely operate and maintain the Canadian air navigation system as an essential service and to protect the safety of its employees. Some of the actions taken by the Company include:
“We have taken unprecedented measures to drive our operating expenses down, with a reduction of more than 720 employees, 14% of our total workforce. In making these difficult decisions, we always take a long-term view to preserve the sustainability of the Company and the integrity and safety of the air navigation system and the services we provide. We still have a long road ahead before we and the aviation industry experience a full recovery and we will continue to take steps to align our services with air traffic levels,” said Mr. Wilson.
Operating expenses for fiscal 2020 were $1,371 million as compared to $1,449 million in fiscal 2019, mainly due to Canada Emergency Wage Subsidy receipts partially offsetting compensation costs and from cost saving measures initiated in the second half of the year.
At the end of fiscal 2020, net other income and expenses was a net expense of $241 million as compared to a net expense of $91 million in fiscal 2019, primarily due to a reduction in the fair value of the Company’s investment in preferred interests of Aireon LLC to reflect the potential impact of the COVID-19 pandemic on the aviation industry as well as increased net interest expense relating to employee benefits.
The Company had a net loss (before net movement in regulatory deferral accounts including rate stabilization) of $584 million in fiscal 2020 as compared to a net loss of $100 million in fiscal 2019. This is reflective of the material decrease in revenue and reduction in the fair value of the Company’s investment in preferred interests of Aireon LLC due to significantly lower air traffic. As a result of the decline in air traffic, the rate stabilization account moved from a credit balance of $93 million at the end of fiscal 2019 to a debit balance of $255 million at the end of fiscal 2020.
The Company ended the fiscal year with a cash balance of $689 million, largely due to the issuance of $850 million of General Obligation Notes in May 2020 and borrowings from its syndicated credit facility. Negative free cash flow(1) of $231 million in fiscal 2020 was primarily due to operating cash flows and capital expenditures exceeding receipts from customer service charges.
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 fiscal 2020 was income of $584 million as compared to income of $100 million in fiscal 2019. This change in regulatory deferrals is primarily due to a $317 million net increase to reflect unfavourable variances from planned results due to the decline in air traffic volumes resulting from the COVID-19 pandemic and a $167 million net increase to adjust the accounting recognition of certain transactions to the periods in which they will be considered for rate setting.
(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.