Estimated reading time 6 minutes, 47 seconds.
The Greater Toronto Airports Authority (GTAA) reported its financial and operating results for the three- and nine-month periods ended Sept. 30, 2020. Passenger activity decreased 69.5 per cent during the first nine months of 2020 as compared to 2019. This decrease is due to global aviation industry challenges, specifically the COVID-19 pandemic.
“The GTAA has taken important steps to protect passenger health by introducing leading health and hygiene practices at Toronto Pearson, as well as partnering on research studies to facilitate the safe relaxation of blanket quarantine restrictions,” says Deborah Flint, president and CEO, GTAA. “Our industry continues to face significant barriers to recovery due to border closures and quarantine requirements. We believe the competitiveness of Canada’s aviation sector is at stake and welcome the recent statement by Transport Canada that the government intends to enter into discussions regarding financial relief to support airports through this period.”
The COVID-19 pandemic and resulting economic contraction has had, and is expected to continue to have, a negative impact on demand for air travel globally. Toronto Pearson has experienced material declines in passengers and flight activity during the first nine months of 2020, as compared to the same periods in 2019. Due to the pandemic and the resultant severe financial impacts and economic contraction, there have been multiple travel restrictions including border closures and flight and route cancellations by air carriers. The reduced activity is having a material negative impact on the GTAA’s business and results of operations, including aeronautical and commercial revenues and airport improvement fees.
The GTAA has implemented significant reductions to operating and capital expenditures, including the reduction in planned 2020 capital spend by $265 million and temporary closure of over 40 per cent of its terminal facilities. In addition, the reduction of approximately 500 positions announced in July 2020, represents a reduction of 27 per cent of the GTAA’s workforce. The GTAA has also successfully completed an amendment to the Corporation’s Master Trust Indenture (MTI) that temporarily exempts the GTAA from complying with its rate covenant, which is comprised of two covenant tests, for both fiscal years 2020 and 2021.
The Government of Canada has waived ground lease rent for the period of March 2020 to December 2020. The GTAA is also participating in the Canadian Emergency Wage Subsidy (CEWS) program.
The pandemic has had a significant negative impact on air carriers operating at the Airport, including Toronto Pearson’s key hub airlines, Air Canada and WestJet. During the third quarter of 2020, the GTAA amended its long-term aeronautical fees agreements with each of the carriers to adjust the fees paid under the agreement to reflect the reduced current and projected flight activity.
Many of the GTAA’s commercial partners, concessionaires and tenants have also experienced significant negative impacts to their businesses. The GTAA has provided financial accommodation and other assistance through a number of programs including payment abatements, deferrals and contract relief through proposed and amended contracts, but in doing so, has taken a measured approach so as to offer these arrangements to partners that are in good standing and that the GTAA believes will be critical partners post COVID-19. These relief actions have, and will continue to have, over the period covered by the relief, an adverse impact on the GTAA’s business and related cash flows. The deferred payments are expected to be paid over the 2020 to 2021 periods.
Earnings before interest and financing costs and amortization (EBITDA) and net income for the three- and nine-month periods ended September 30, 2020 were materially lower as compared to the same periods in 2019 due to significant revenue reductions caused by the impacts of COVID-19 offset by the cost savings mentioned above.
As at Sept. 30, 2020, the GTAA had unrestricted cash of $92.9 million and available undrawn committed credit under its Operating Credit Facility of $875.1 million for total available liquidity of $1.0 billion.
On Nov. 3, 2020, the GTAA issued $500.0 million Series 2020-1 Medium-Term Notes (MTNs) due May 3, 2028 at a coupon rate of 1.54 per cent for net proceeds of $497.8 million. The net proceeds partially paid down the outstanding commercial paper (CP). As at Nov. 3, 2020, the MTNs issuance increased available liquidity to $1.4 billion.
As a result of COVID-19, there is very limited visibility on travel demand given changing government restrictions in place around the world. These restrictions and concerns about travel due to COVID-19 are severely inhibiting demand. Management continues to analyze the extent of the financial impact of COVID-19, which is and continues to be material. While the full duration and scope of the COVID-19 pandemic cannot be known at this time, Management believes that the pandemic will not have a material impact on the long-term financial sustainability of the airport.
Apart from the impact of the pandemic on GTAA revenues and operations, there may also be disruptions, including to air carriers, supply chains and third-party service providers. The pandemic may also impact the cost of capital and the ability to access the capital markets in the future which may arise from disrupted credit markets, and possible credit ratings watch or downgrade of GTAA debt.
Healthy Airport
In carrying out Toronto Pearson’s Healthy Airport commitment, the airport will look to implement improved technologies resulting in faster and reduced touch processes. New innovations include a variety of UV light applications for sanitization throughout the airport; over three kilometers of Plexiglas barriers installed throughout the terminals; the introduction of personal protective equipment vending machines; and the use of probiotic spray to sanitize high-touch areas.
Air Canada and the GTAA are providing resources and support for a COVID-19 research study being conducted at Toronto Pearson by McMaster HealthLabs. The study began on Sept. 3, 2020 and ran until late October 2020 with the aim of gathering data to explore the effectiveness of various quarantine periods. The study is the largest of its kind and has been designed in accordance with research ethics board-approved scientific protocols.
The GTAA’s Sept. 30, 2020 financial results are discussed in more detail in the GTAA’s Condensed Interim Consolidated Financial Statements and Management’s Discussion and Analysis, each for the three- and nine-month periods ended Sept. 30, 2020, which are available at www.torontopearson.com and on SEDAR at www.sedar.com.
