It's the hottest topic in the airline industry, yet Air Canada doesn't want to talk about it.
If the mounting mechanical problems with Boeing Co.'s new 787-passenger jet, dubbed the Dreamliner, aren't quite an elephant in the room for Canada's biggest carrier, they are at least an elephant on the radar screen.
The grounding of all 787s following a series of incidents has raised the possibility that if Boeing can't get to the bottom of the problems fast, it may have to delay production and (by extension) deliveries of the new jets to customers – including Air Canada, which has 37 of them on order.
Air Canada officials have remained silent about the potential significance of the 787's troubles, and with some justification: The company isn't scheduled to take delivery of its Dreamliners until 2014. If the recent problems turn out to be relatively short-term growing pains for the new jet, Boeing might not even have to slow down production – and even if it has a short slowdown, it will have oodles of time to make up for it before Air Canada's planes are due.
But with the existing Dreamliner fleet grounded, the questions mounting and Boeing's engineers (who are critical to resolving the problems) in the midst of tense contract negotiations, a more significant delay in production is a growing possibility. Credit-rating agency Moody's, in calling the 787's problems a "credit negative" for Boeing, warned that the troubles could lead to "further delay in delivery schedules and future order flow."
Given that the Dreamliner's deliveries to Air Canada are already four years behind the original schedule, you wouldn't think even a few months more (if it came to that) would be a big deal. But until it has the 787s in its hangars, Air Canada's growth plans over the next couple of years may have trouble getting off the ground.
The airline plans to launch its new low-cost carrier, Rouge, next July. The new service will initially use just four aircraft, from Air Canada's existing fleet, and analysts don't expect much, if any, profit contribution from Rouge in 2013. But Rouge is expected to take off in earnest in 2014, when it substantially expands its fleet and routes. Cormark Securities Inc. analyst David Newman said in a research note Thursday that he expects Rouge to contribute roughly $25-million in annual profits once it's up to speed, "or perhaps much more in time." That would be equivalent to roughly one-quarter of analysts' consensus profit forecast for Air Canada in 2014.
But the growth of Rouge hinges on the delivery of the Dreamliners. The discount service won't use them itself, but once the 787s are added to Air Canada's main fleet, the airline plans to shift more of its existing planes to Rouge.
Air Canada could still move some existing aircraft to Rouge even if the Dreamliner deliveries are delayed – but the fleet's flexibility to do this, without reducing flights on the main Air Canada service, would appear to be limited. Air Canada's recent traffic numbers show the airline's flights are operating as close to full capacity as they have at any time in history.
To ramp up Rouge, Air Canada needs more planes, plain and simple. If the Dreamliners suffer a delay, the company's highest-profile growth vehicle may have to sit on the runway for a while.
David Parkinson