Good morning, ladies and gentlemen, and welcome to the Air Canada Third Quarter 2020 Conference Call. I would now like to turn the meeting over to Kathleen Murphy. Please go ahead, Ms. Murphy.
Thank you, Mo, and good morning, everyone, and thank you for joining us on our Q3 call. With me this morning are Craylon Robynescu, our President and Chief Executive Officer Mike Russo, our Deputy Chief Executive Officer and Chief Financial Officer Yousie Yimyek, our Executive Vice President and Chief Commercial Officer. On today's call, Kaylen will begin by giving you an overview of the impact of the COVID-nineteen pandemic and related travel restrictions on Arcata, what we have been doing in response and how we view the future. Lucie will touch on travel demand, cargo and loyalty, and Mike will provide you with visibility on current plans regarding cash burn rate, liquidity and fleet before turning it back to Calin. We'll then open it up to questions from equity analysts followed by questions from fixed income analysts.
Before we get started, please note that certain statements made on this call are forward looking within the meaning of applicable securities laws. This call also includes references to non GAAP measures. Please refer to our Q3 press release and MD and A for cautionary statements relating to forward looking information and for reconciliations of non GAAP measures to GAAP results. I will now turn it over to Calin.
Thank you, Kathy, and good morning, everyone, and thank you for joining us on our Q3 earnings call. We recorded 3rd quarter negative EBITDA of $554,000,000 and an operating loss of $785,000,000 Operating revenue declined 86% over the Q3 of 2019, somewhat mitigated by our strong cargo revenue performance, highlighted by our cargo group's ability to pivot to dedicated all cargo flights during the pandemic. Since mid March, we have operated over 3,000 all cargo international flights. And building on our 52% year over year cargo revenue increase for the 2nd quarter, our cargo revenues increased 22% in the 3rd quarter, supporting our objective to build a bigger cargo business. Today's results reflect COVID-nineteen's unprecedented impact on our industry globally and on Air Canada in particular in what has historically been our most productive and profitable quarter.
While our revenues improved over Q2 and our domestic operations started showing some signs of recovery, nonetheless, revenue passenger miles declined 91% compared to a year ago, underscoring the stifling effect that travel restrictions have had on aviation in Canada, especially when compared to many markets around the world. The 3 largest carriers in the United States, for example, experienced a traffic decline of almost 80% on average over Q3 2019. Comparatively, our traffic decline based on RPMs translates into an additional $550,000,000 to $600,000,000 of lost revenue in Q3, attributable directly to the Canadian travel restrictions, including the blanket ban on foreign nationals, mandatory 14 day quarantine for all arriving passengers and the Atlantic Canada travel bubble. We continue to operate within these constraints, and from the outset, we have been steadfast in our approach, acting decisively to implement our COVID-nineteen mitigation and recovery plan. Since March, we have raised almost $6,000,000,000 in additional liquidity, leveraging what was one of the industry's strongest balance sheets as we entered the pandemic.
We took the painful step of eliminating 20,000 jobs after having created 10,000 over the previous 5 years. We reduced our 3rd quarter capacity by more than 80%, a devastating figure when considering that entering 2020, we had enjoyed 10 straight years of significant and profitable network expansion. We announced a series of indefinite route suspensions and station closures at the end of June, and our network planning team has identified up to a further 95 domestic, U. S. Transborder and international route suspensions and 9 Canadian station closures required to preserve liquidity, cut costs and reduce capital expenditures as we prepare for a smaller footprint, which is expected to last several years.
Given the public statements made by the Honourable Mark Garneau, Canada's Minister of Transport yesterday regarding commencing immediate discussions with major airlines on aviation industry sector specific support, we are deferring the additional route suspensions and station closures pending the progress of those discussions. We've also made many necessary fleet decisions, carefully 3708 and Airbus A220 deliveries scheduled for 20212022 and entirely canceling 10 Boeing 7378 and 12 Airbus A220 aircraft, representing about 40% of the remaining scheduled deliveries. Through this fleet restructuring and other capital reduction initiatives, we have lowered total projected capital expenditures by about $3,000,000,000 over the 2020 to 2023 period compared to our total projected capital expenditures at the end of 2019, an important part of our mitigation plan and derisking those obligations. Underpinning our mitigation and recovery plan has been our resolute focus on health and safety, both for our customers and our people. We have been a leader in introducing progressive layers of protection, such as our comprehensive suite of biosafety measures, Air Canada CleanCare Plus, and we continue to explore new technologies and processes to further build confidence in customers and regulators.
Amongst the various science based measures we have advocated, testing at airports is by far the most significant, as demonstrated by our partnership with McMaster Health Labs for testing international travelers arriving at Toronto Pearson Airport. It was the largest ever study of its kind and the first in Canada, and preliminary results clearly indicate testing as a viable, responsible and effective alternative to quarantine, which would protect Canadians and facilitate the safe relaxation of quarantine. Indeed, of more than 38,000 test samples collected during the study, more than 99% tested negative, or put another way, less than 1% tested positive. This study was instrumental in providing the federal government and the government of Alberta the confidence to move forward with a testing initiative in Calgary aimed at easing quarantine requirements. I need to here to specifically call out and thank Alberta Premier, Jason Kenney, for his leadership and support of the airline industry.
The Premier of Ontario has also announced that if the trial in Alberta goes well, a similar program could be implemented in Toronto. These developments are encouraging steps towards the safe resumption of air travel to, from and within Canada. In addition to the mitigation steps we have taken, we are executing several foundational initiatives to support our post COVID recovery and long term success. We fully anticipate our new Aeroplan program will be one of the best travel loyalty programs available. Our streamlined aircraft fleet will be highly fuel efficient and well configured for our key routes.
Our fully implemented new passenger service system will provide benefit to our customers and significant revenue opportunities for us. Cargo will become an increasingly important part of our business as we plan to expand to dedicated freighters and focus on e commerce, which Lucie will expand upon. Our proposed acquisition of Transat, if approved, will enable us to better compete globally in a drastically altered global airline market. And most importantly, our culture remains strong. We have employees who remain highly motivated and intensely focused on making our customers safe and feel safe when traveling, and I thank them for their commitment and hard work.
Our airline continues to demonstrate how nimble and innovative we can be in the face of unprecedented challenges, and our response is being recognized. Air Canada was recently ranked as one of Canada's most valuable brands by the brand equity firm Brands. We were the only airline included in their list of top 40 brands in Canada, and we received top rankings in 6 categories, including 1st for best brand experience. The teamwork and collaboration reflected in these rankings will continue to be imperative as we build our recovery momentum. And with that, I'll turn the call over to Lucie.
Thank you, Calin, and good morning, everyone. I'd like to start by thanking our teams for their perseverance and dedication in delivering a safe customer experience as we continue to navigate the realities of COVID-nineteen. Passenger demand in the Q3 continued to be drastically impacted by the pandemic and travel restrictions imposed globally and here in Canada, resulting in a passenger revenue decrease of 90%. We operated just over 18% of our capacity compared to the same quarter in 2019 with 110 of our Mainline and Rouge aircraft and 36 of our Air Canada Express aircraft grounded in the quarter. As Calin mentioned, the severe travel restrictions imposed in Canada have had a direct negative impact on the recovery of air travel relative to other countries, including the United States, where the recovery started earlier and has been stronger than in Canada.
Several U. S. Carriers, for example, have started to enjoy a quicker bounce back in the Pacific and some markets than we have due to less severe travel deterrent. As well over the Pacific, we are restricted by Chinese authorities to 2 weekly flights, while the U. S.
Government has been able to establish flight parity for Chinese and American carriers. Our domestic recovery has also been comparatively focused on high risk regions based on health data contributing to a stronger domestic recovery for the U. S. Carrier. Despite operating with these restrictions in place, we are laser focused on gradually and strategically building back our airline using principles that will not only be key to our recovery, but will also be foundational to our long term sustainability.
With this in mind, we anticipate operating approximately 25% of our capacity in the Q4 compared to the same quarter in 2019, but we will continue to dynamically adjust capacity while considering passenger demand, quarantine rules, health warnings, travel restrictions and border closures. In the Q3, our domestic operations continued to see the beginning of signs of recovery, specifically with our transcontinental services and in Western Canada. To capitalize on these green shoots and pent up travel demand, we launched the Infinite Canada flight path in September, an innovative and unique product that allows customers to take an unlimited number of flights within Canada for up to 3 months for a fixed fee. The product was available for a limited time and highlights our team's agility in seizing niche opportunities as they arise. However, our domestic recovery remains fragile and uneven partly due to disjointed approaches to reopening the economy as well as interprovincial travel restrictions such as those created by the Atlantic travel bubble still in place.
In the Q3, we were very pleased to reopen our Maple Leaf Lounge at Calgary International Airport for eligible customers and with a spotlight on local products and suppliers. This is the 3rd lounge we have reopened. Our lounges are all feature our industry leading CleanCare plus biosafety measures, including enhanced cleaning and touchless processes, putting the health and safety of our customers and employees first. We will continue to gradually open lounges throughout our network as demand returns and safety measures permit. Looking to our transborder network, a high degree of uncertainty remains around the recovery timeline due to the evolving health situation in the United States as well as the ongoing Canadian border closures.
We do not expect a significant increase in transborder travel throughout the remainder of the year. However, the U. S. Market remains a key component of our recovery and our long term strategy. We have selectively resumed service to key U.
S. Cities to facilitate essential travel and retain a skeleton network after completely suspending all U. S. Services early in the Q2. While we cautiously build back our U.
S. Network, our partnership with United Airlines will be important to expand our reach in the United States and to draw feeder traffic to our network. Our North America recovery will be significantly aided by our modern and efficient fleet, which remains a competitive advantage for us. We took delivery of our 10th Airbus 220 in the Q3 and expect to have 15 by the end of the year. Additionally, we anticipate the reintroduction of the Boeing 730seven-eight 100 aircraft in the Q1 of next year.
Despite modifications made to our orders, these two aircrafts remain the core of our narrow body fleet and enable us to efficiently serve transcontinental North America routes through improved economics and range, while providing an excellent customer experience. Last week, we were pleased to be able to resume Air Canada Rouge operation, which will play an important role in strategically rebuilding our global network. As leisure travel resumes, we will selectively add the Rouge product, makeup of a narrow body Airbus fleet to select North America leisure markets from Eastern Canada. Looking ahead to the December holiday period, we are making our Air Canada jet fleet available to customers for commercial flight, providing an elevated level of comfort and service on several popular winter routes, including Toronto, Fort Lauderdale, West Palm Beach, Barbados, Cancun, from Vancouver to Phoenix, Palm Springs and Puerto Vallarta and Montreal to Fort Lauderdale and Barbados amongst a few others. The 4 all business class Airbus A319s typically transport professional sports teams and other charter groups.
This initiative has garnered significant customer interest already and is another innovative example of how we are seizing niche opportunities in today's environment. The jets and Rouge products will both be operated in accordance with Air Canada's biosafety protocols centered around our Clean Air plus program. International passenger demand continues to be impeded by travel restrictions imposed globally and here in Canada. As such, as part of our recovery efforts, we are refocused our international network to select core markets such as London, Paris, Tokyo, Hong Kong as well as our partners hubs where we can fully leverage our transatlantic joint venture with the Lufthansa Group to reach markets that we do not serve directly. In the quarter, we introduced complementary COVID-nineteen insurance coverage available for eligible Air Canada and Air Canada Vacations customers to give customers added confidence when booking flights and packages for travel abroad and to support our recovery in international market.
Initiatives such as this somewhat mitigate the uneven international recovery caused by the unilateral uncoordinated border openings as well as local restrictions imposed due to the 2nd wave of coronavirus cases that many countries, specifically in Europe, are currently experiencing. However, we have seen the VFR market segment or visiting friends and relatives begin to recover, and we do anticipate this trend to continue. VFR traffic is typically strong on routes to China and India, and these markets will remain a priority for us as travel restrictions are lifted. Our high volume Boeing 777 as well as our efficient Boeing 787 give us the right aircraft to serve this market segment. We are also pleased to have concluded a new commercial agreement with Qatar Airways, which will facilitate our non stop service from Toronto to Doha commencing in mid December on a Boeing 787.
This agreement will enable us to effectively serve many Middle Eastern markets beyond Doha and represents another example of our ability to quickly adapt to evolving market conditions, we will continue in these unprecedented times to look for unique types of commercial opportunities moving forward. Over the course of the pandemic and through the Q3, we have continued our focus on airfreight to meet the immediate and exceptional demand for medical equipment, critical goods and the regular movement of other time sensitive air cargo. As a result, our 3rd quarter cargo revenue increased by $39,000,000 or 22% compared to the same quarter in 2019. In addition to the more than 3,000 all cargo international flights we have operated since March, in the Q4, we plan to operate up to 100 all cargo flights per week using a combination of Boeing 787, Boeing 777 aircraft as well as 4 converted Boeing 777 and 3 converted Airbus 330s. We were the 1st airline globally to remove seats from aircraft to enable cargo capacity in the passenger cabin, which doubles the available cargo space on an aircraft.
In addition to the all cargo flights, our regular cargo service and the underbellies of passenger aircraft continues to perform well for us and plays an important role in supporting our international routes in the absence of typical passenger demand. We operate a profitable cargo business that is expected to deliver more than $850,000,000 of revenue in 2020. We are very excited to be taking the Air Canada cargo business to the next level with our entry into the e commerce world with our partners. Our objective is to grow cargo revenues using our existing fleet by providing specialized e commerce service delivery. Our goal is to drive end to end value through enhanced technology, dynamic pricing and transparency across the delivery supply chain.
This new and exciting initiative will be implemented in phases and is expected to be completed over the next year or so in Canada. In addition, we are exploring the opportunity to convert several of our owned Boeing 767 aircraft to freighters, subject to concluding satisfactory arrangements with our pilots. We believe that this will be an exciting opportunity to leverage the growth of e commerce and Air Canada's global footprint. Looking to Aeroplan performance in the Q3. Member engagement and activities showed continued resiliency, underscoring the strength of the Aeroplan brand.
Co brand credit card spend has largely recovered outside of categories most impacted by the pandemic. Overall spend for the quarter was within 15% of last year's level, while card retention rates continued to be in line with historical norms. We are pleased with the solid execution on our entire loyalty strategy. In 2017, we made a promise to deliver a best in class loyalty program and a smooth transition for customers, and we have passed several important milestones since then. Early last year, we seamlessly integrated Aeroplan and saw an immediate positive impact for the business.
This past August, we shared the much anticipated details of the program redesign, and we received enthusiastic feedback and praise from our members and travel and loyalty expert communities around the world. And over the weekend, we began the process of cutting over to state of the art technology platforms as we prepare to launch new loyalty features and products for our customers. Looking to the future, we believe that the new programs, data capability and technology platforms will be key to retaining and building customer loyalty and accelerating our demand recovery. Furthermore, we look forward to announcing significant new partnerships that will grow the program, increase appeal to all member segments and accelerate revenue growth. Once again, I'd like to thank our teams in all areas of the airline for continuing to put the health and safety of our customers and each other first, while delivering an excellent customer experience.
With that, I will pass it off to Mike.
Well, thank you, Lucy, and thanks to everyone for joining us on the call today. I would also like to thank our employees for their focus and dedication in this extremely challenging environment. Turning to our costs in the quarter. On a capacity reduction of 81.7 percent, operating expenses decreased $3,000,000,000 or 66% compared to the same quarter in 2019, reflecting the significant progress we've made on managing variable costs and reducing fixed expenses and including a $72,000,000 favorable adjustment to end of lease maintenance provisions. Wages, salaries and benefits expense decreased $313,000,000 or 40%, largely on a 48% decrease in full time equivalent employees.
We continue to monitor the demand environment and will adjust staffing levels accordingly. Regional airline expense decreased $303,000,000 or 60%, reflecting the impact of reduced flying by Jazz and airlines operating flights on our behalf. Aircraft maintenance expense declined $209,000,000 or 82% versus last year's Q3 on a lower volume of maintenance activity due to reduced flying year over year and the retirement of our Boeing 767 and Embraer 190 fleets. In anticipation of returning aircraft to lessors upon lease expiry, primarily Airbus 320s and regional aircraft, we updated our end of lease cost estimates in the quarter, which resulted in a reduction to maintenance provisions of $72,000,000 Moving on to special items. These amounted to a net operating expense reduction of $192,000,000 majority of which was related to the Canadian Emergency Wage Subsidy Program or CUES.
You may recall that in July, the program was redesigned and extended until December 2020. The Government of Canada has now announced a further extension to June of 2021. We intend to continue to participate in the wage subsidy program subject to meeting the eligibility requirements. As Caleb mentioned earlier, since this pandemic began, we have raised almost $6,000,000,000 in liquidity. This was achieved through several transactions, including secured financings, equity and convertible note offerings, and most recently, sale leaseback transactions for 9 Boeing 737 aircraft.
In September, we concluded a private offering of 2 tranches of enhanced equipment trust certificates for a combined aggregate face amount of $740,000,000 We use the proceeds from the financing together with cash on hand to repay in full the US600 $1,000,000 3.64 day term loan previously put in place in April of 2020. We also concluded a committed secured facility of $788,000,000 to finance the purchase of our first 18 Airbus 220 aircraft. This secured financing replaces a bridge financing in the same amount put in place in April 2020. At the end of September, we had $8,200,000,000 of unrestricted liquidity. This amount excludes the proceeds of $485,000,000 from the sale and leaseback of the 9 Boeing 737s as these transactions occurred in early October.
Following the sale and leaseback transactions and taking into account changes to the fair market value of certain assets, our unencumbered asset pool, including the value excluding the value of Aeroplan, Air Canada Vacations and Air Canada Cargo, sits at approximately $1,800,000,000 We've also made progress with our company wide fixed cost reduction and capital reduction and deferral program, which has now reached $1,500,000,000 for 2020, in addition to the significant projected capital commit reductions for the coming years, which I will speak to in a moment. We continue to improve productivity and processes as these are key in being as lean as possible coming out of this crisis. Turning to cash burn. Net cash burn of $818,000,000 or approximately $9,000,000 per day on average the Q3 was significantly better than our expectations. This was due to several factors, including the deferral or elimination of certain capital expenditures, higher cash receipts related to the CUES program and additional working capital benefits resulting from both the deferral of supplier payments into future periods and from income and sales tax recoveries, which has been expected to occur in later periods.
Air Canada uses growth CapEx in its calculation of net cash burn, which is before the impact of aircraft financing. Financing related to aircraft received in Q3 amounted to $130,000,000 or $1,400,000 per day. Looking at the Q4, we estimate a net cash burn of between $1,100,000,000 $1,300,000,000 or 12,000,000 dollars $14,000,000 per day on average. This net cash burn projection includes about $4,000,000 per day in capital expenditures
and $5,000,000 per day in lease and debt service costs.
The higher projected net cash burn versus the 3rd quarter is primarily due to an increase in end of lease payments, given more aircraft are being returned to less ores in the current quarter. The stabilization of supplier payment deferrals and lower cash receipts related to the CUES program, in part due to the changes in the program. A higher level of capital expenditures reflecting additional 220 aircraft deliveries versus the 3rd quarter also plays a part. Financing related to aircraft expected to be delivered in Q4 is projected at approximately $210,000,000 or $2,300,000 per day. Turning to capital expenditures.
We amended our agreement with Boeing to cancel 10 Boeing 737 aircraft deliveries from our firm order of 50 aircraft and to defer our remaining 16 aircraft deliveries over the late 2021 to 2023 period. We also concluded an amendment to our purchase agreement with Airbus, under which we are deferring 18 aircraft deliveries over 2021 2022 and will not be purchasing 12 Airbus 220 aircraft on order from our original firm order of 45 aircraft. We continue to retain options for both the Boeing 737 and Airbus 220 aircraft, providing significant fleet flexibility. These changes significantly reduce our projected capital commitments for the coming years. Compared to our projected capital expenditures at the end of 2019, through successful fleet restructuring and other initiatives, we have reduced our expected total for 2020 to 2023 capital expenditures by $3,000,000,000 An updated projected capital expenditure table is provided in the 3rd quarter MD and A.
Before turning it back to Killan, I'd like to thank employees once again for their devotion and hard work. I'm confident that together we can successfully manage through these very demanding times. With that, I'll turn it back to Calin.
Thank you, Mike. The steps we have taken as part of our COVID-nineteen mitigation and recovery plan are positioning Air Canada to not only sustain itself during the pandemic, but also emerge as a strong and competitive, albeit smaller carrier, well positioned for the recovery when borders reopen, travel restrictions are lifted and the broader economy is functioning again. Our financial position has been considerably strengthened and liquidity bolstered with a nearly $6,000,000,000 raised since March. In addition to lowering our total projected capital expenditures by around $3,000,000,000 over the 2020 to 2023 period through fleet restructuring and other capital reduction initiatives, as Mike just outlined. Our comprehensive and layered approach to biosafety is industry leading and will continue to be enhanced and refined to build confidence in air travel.
These efforts have been supported by several studies on the topic, including a leading Harvard study published last month that concluded when you couple the onboard ventilation systems, which filter out at least 99.97 percent of airborne viruses with other precautions, the risk of onboard transmission is below that of other routine activities in which many people continue to engage, such as grocery shopping, for example. We remain at the forefront of advocating the implementation of a measured, science based approach to travel restrictions, and our testing trial with McMaster Health Labs at Toronto Pearson has encouraged governments to look for science based alternatives to blanket quarantines, such as the Alberta pilot project. There have also been significant developments made in rapid testing technology, and we are encouraged by Health Canada's approval of Abbott's ID. NOW COVID-nineteen rapid response test, as we have been in discussions with Abbott for some time. We acknowledge with interest the public statements made by Canada's Transport Minister yesterday regarding commencing immediate discussions this week with major airlines on possible aviation industry sector specific financial support, which our industry has been actively advocating for and which airlines in most OECD countries have received over the now nearly 9 months since the start of the pandemic.
According to IATA's Chief Economist, governments have already provided more than US1 $160,000,000,000 of aid to airlines globally, recognizing the critical role they play in their country's economies. Beyond sustaining tens of thousands of direct and indirect jobs, a healthy Canadian airline industry is essential for Canada's economic recovery from COVID-nineteen and vital to securing our country's place in a reordered post pandemic world. We will avoid further comment on this until such sector support materializes, at which time we will update the market. Our COVID-nineteen plan includes not only mitigation, but also recovery. And that recovery is going to be driven by several foundational elements.
Our new Aeroplan program, our streamlined fleet, our new passenger service system, our competitive network that will be supported by our global airline partners, our cargo ambitions, our improved customer service and our employee culture, and our planned acquisition of Transat. The combination of our 2 companies will provide stability for Transat's operations and its stakeholders and will position Air Canada and indeed the Canadian aviation industry to emerge stronger as we enter the post COVID-nineteen world. Now before closing, as this will be my next to last earnings call before my retirement next February, I want to add a few more personal observations. I have enjoyed a special relationship with Air Canada for 3 decades, involved with many of our company's defining moments, the 1988-eighty nine privatization and IPO, the company's defense against the hostile takeover bid in 1999, our merger with Canadian Airlines, the aftermath of 9.11, the 2003, 2004 restructuring and many others. But I'm especially proud of the company's transformation over the last decade during which we built Air Canada into one of the world's leading carriers and a global champion for Canada, winning numerous customer and employee awards, growing our global network to all 6 inhabited continents, creating thousands of jobs, protecting pensions, producing record financial results, strengthening our balance sheet, delivering significant shareholder value and above all, developing an entrepreneurial culture and engaged workforce.
I need to publicly call out and thank our past and present extraordinary leadership team as well as the efforts of all of the outstanding people of Air Canada who have supported me in this multiyear marathon with passion, commitment and drive. I also want to thank you, our investment analyst community, as many of you have followed our story for the entire decade. You have challenged us in our evolving plans, strategies and stated priorities with professionalism. Your analyses always motivated us to see how we stacked up against the best airlines in other geographies, whether that was on cost structure and capital allocation, revenue performance, fleet, global hubs or labor relations. You kept us on our toes and held us accountable in the very public forum of these analysts' calls.
You truly made an effort to understand our business and stuck with us through the multiyear marathon. I've always thought that informed analysts make strong companies smarter. You have, in a word, made us smarter, and for that, I am grateful. Getting our succession right was extremely important for both the Board and me after all that we have achieved. As most of you know, Mike has been an invaluable partner and sounding Board for me on virtually all aspects of our journey.
He knows all of our strengths and opportunities and how we can lean into them. So I'm truly delighted that Mike has been endorsed as Air Canada's next CEO, and he and I, with the rest of our executive team, will work hard towards next February to ensure that Air Canada will be ready and able to tackle the post COVID environment with the greatest of success. Thank you. Now I'll be pleased to take some questions.
Thank you. We will now take questions from the telephone lines. Our first question is from Walter Spratlin from RBC Capital Markets. Please go ahead.
Good morning, everyone.
Good morning, Walter.
I guess I have to preface my question with an assumption first before I ask it. The assumption being that we are in a rebounding eventually rebounding scenario with vaccine by Q3 next year. In that scenario, I'll ask the question, do you think that given your fleet as it stands now with the cancellations and deferrals that you've announced, under that scenario of a vaccine in development late next year and a rebounding travel, do you see any further cancellations or deferrals to your fleet? Or is this kind of the fleet you're going
to go with
under that type of scenario?
Yes. Walter, that's a good question. And so what we've looked at doing here is basically making the decision through a combination of what our contractual obligations were to the 2 aircraft manufacturers, looking at the age of our existing fleet, the 767s are already of a certain age. And so we sort of made our bet on the basis that even if there is a rebound by the Q3 with the vaccine, that the vaccine is not going to be instantaneously available throughout the planet that would enable us to return to the kind of operation we had in 2019 as early as by Q3 of next year. And so when we look at that, the fleet that you're seeing now with the deferrals, cancellations and with the excess is basically the fleet that we're going to go with for the next 3 plus years.
But we, of course, have got some great optionality through our Airbus and Boeing contracts. Mike alluded to that. And we have the ability to even though we canceled parts of those orders, we have the ability if there is a more optimistic return to exercise our options and return to additional deliveries, say, starting in the 2022 year.
Yes, that flexibility makes a lot of sense. Absolutely. Turning to cargo, would you say that your focus here on cargo, if you look at the revenue generated, what is the mix international versus domestic and what is the focus going forward of cargo in terms of what markets you'll be looking to address?
Well, look, I think some of this is going to have to be rolled out in the fullness of time, obviously, for competitive reasons, Walter, as you'll appreciate. But certainly, most of our operation thus far has been in the international sphere. And we know that there are opportunities in the domestic sphere. Several we've been approached by several players. So we will assess that in the fullness of time.
But as we basically what we're announcing today is that Air Canada has made the determination to expand its cargo business and to subject to getting our pilots on board to implement some conversion of our 767s into dedicated freighters. And those two factors will drive a certain amount of both primarily international, but it has not been ruled out on the domestic side.
Okay. That makes sense. Last question here is on just the long term. And Calin, you referenced this, that this will be a multiyear recovery. I speak to a number of investors, obviously, that have a wide range of views and most are on the more pessimistic side when it deals with specifically business travel and long haul travel.
Is there anything that you could offer in based on either data you've accumulated or insights taken from studies to suggest that perhaps long haul and business travel might come back quicker than perhaps some of the more pessimistic scenarios out there, and the pessimistic ones are saying 7 years plus.
Yes. No, we're not at 7 years plus. We're not in that category of pessimism. I would say that we continue to be in that 3 to 5 year timeframe in terms of getting back to 2019 levels. But there is no doubt that the pandemic there are 3 factors at play here, and I think people need to understand all three.
One factor that's at play is the state of all of these travel restrictions. And as Lucie alluded to, the uncoordinated fashion that they're introduced, modified, and it's almost on a daily basis. And that there is a certain amount of traveler fatigue in the business world. That traveler fatigue will last for quite a while until such time as everything is removed. So the existence of the travel restrictions, the quarantine, the travel bubbles, the special rules that exist in many places is a very, very negative factor that will have a lasting impact because people will say, well, I want to travel somewhere and they get stuck on some corner of the world and there's a new restriction that's brought in without any consultation at the last minute.
Secondly, there is a real factor here of when does the demand return just based on various companies' travel restrictions and different habits that are adopted and all of the video conferencing and everything else, there is a factor at play there. And then thirdly, our business and many other airlines around the world have built their businesses on connecting networks where people connect to travel. And therefore, so many parts of a route network are dependent on the network working well. And so if parts of the network don't work well, that will impact other parts. And therefore, that's why you see discussions around very large scale cancellations because so many of our routes were interdependent on other routes.
And I think that, that is something that folks really need to bear in mind.
Okay. That's all my question. I just wanted to say that obviously a very trying time, but your efforts by you and Mike and the team have been very commendable.
I'll pass it on. Thank you very much Walter.
Thank you. Our following question is from Kevin Chiang from CIBC. Please go ahead.
Hi, thanks for taking my question this morning. And again, congrats, Calin, on your retirement and Mike on your taking over the role as CEO here. Maybe if I just go back to your prepared remarks, Caitlin, I think you said if you look at the lost revenue based on where U. S. Traffic trends are, it was about $600,000,000 to the top line.
If I think of the flow through and what your cash burn was in the quarter, if my math is correct, it seems to suggest to get the breakeven cash burn, you need to have revenue or demand kind of back to, I guess, 40% of pre pandemic levels. Is that kind of a right ballpark to think of where cash flow neutral or cash flow neutral starts to make sense for Air Canada?
Yes. I mean, I'll punt that to Mike because we've done a lot of analysis. I'm not sure how far we can go in terms of guidance here. But I just want to make a quick comment, Mike, just before I turn that over. On the question of the differential with the U.
S. Carriers, the reason we called that out is to say, while obviously traffic is low in the U. S, traffic is low in Canada, people assume it's more or less the same. But what we're saying is that because of the very onerous Canadian travel restrictions, we're $550,000,000 to $600,000,000 less than the average of the 3 carriers. That's sort of why we were calling that number out.
The cash burn is not a direct correlation because as Mike mentioned, there are a lot of factors that go into what we have deferred into the Q4. And so you almost have to look at the if you were to look at a cash burn number, you'd have to almost look at it over the 3 quarters to get an average. But on the question of the breakeven, I'll turn it over to Mike.
Good morning, Kevin. So we there's no doubt that our breakeven point has declined versus where it was historically because we've done a very good job taking out fixed costs. And that is the key issue. And then obviously, we've also pushed out capital expenditures. So that breakeven point is dropping over the last couple of months.
And there's no doubt that our variable margin on those incremental sales that we otherwise could have had if it was a similar environment to the United States is relatively high. And so we don't have a number to give the market right now as to what the beginning point because that is changing all the time, frankly, as we get better at reducing our fixed cost structure and modifying our capital expenditures. But certainly, I want to leave the message to the market that, that breakeven point is declining from where we were historically.
That's helpful. And maybe just my second question, a lot of comments on cargo. I think last week there was an article noting that Air Canada is one of the bidders to be a logistics provider for the Canadian government in terms of the shipment of a future COVID-nineteen vaccine. Just wondering, is there anything you need to do to your fleet in terms of the way it's configured today to be able to handle pharmaceuticals? Are there any processes you need to implement to move what is more highly regulated type of cargo versus general cargo?
Mike, again, fairly detailed question and our team is working on this. And we were one of the participants in the RFP process the Government of Canada is putting together. Certainly, as you know, there's going to be specific requirements such as temperature controlled. We may not step into that type of investment, but more our view is what can we do with our existing fleet and how can we partner potentially with other participants in the RFP process to make this a very, very efficient process for everybody.
That's it for me. Thank you very much.
Thank you for your comments very much, Kevin.
Thank you. Our following question is from Chris Murray from ATB Capital Markets. Please go ahead.
Thanks. Good morning, folks. And let me echo my regards to both Calin and Mike. I guess my first question guys, thinking about as we move into 2021, one of the strategic initiatives is around the acquisition of Transat. And when we go back to when you first proposed an acquisition, the world's certainly changed a lot, including your restructuring of erosion and parking a lot of aircraft.
Can you explain maybe how you think Transat fits into a world over the next 3 to 5 years? And how you take advantage of
the brand and what they bring to you?
Okay. No, it's a very important question, Chris. So we liked Transat before COVID and we continue to like Transat after COVID. And it's basically as simple as this. It's to say that as we look at the changes that are taking place
in the industry,
we recognize that Transat has had one of the leading leisure brands around, and we've always appreciated that in them. We were going to have a lot of questions here around where it fits in with Rouge and so on. But now with the removal of the 767s from the Rouge fleet, this does give us a lot of additional heft as we look to reenter some of those markets as they start coming back. So when we look at what we will be able to do with Transat in some of these international leisure markets through their attractive fleet 330s, which, of course, we operate ourselves and the 321neos that they have on order. Those aircraft fit very well within our fleet expertise.
Their brand is a strong leisure brand. And so when we look forward to competing with other international carriers that are operating in leisure and there, of course, there are many, many European competitors that fly across the Atlantic, and we expect to be a stronger competitor as a result of that. And certainly, with the 25767s having exited the fleet, as the market returns, we will be well positioned to respond. And so people often do mergers or acquisitions to gain cost synergies. That is not what this exercise is about.
This is much more about revenue synergies and expansion into the leisure market for us. And while it will be different post COVID than pre COVID, there's no question about that. And while we will be smaller and they will be smaller, remember, our requirement is that on closing that their downsizing is at least proportional to our downsizing. While we will be smaller and they will be smaller, we will be well positioned for the recovery as a result of their good brand and the breadth of these leisure operations. All right.
That's fair.
And then my other question is around testing. And so a couple of parts of this. I mean, if I look at where your business has sort of been operating as you move as you go into Q4 and maybe early next year, most of your international travel seems to be at least heading over the Atlantic. Number of the European governments, the UK, Italy, France and Spain have been talking about testing protocols and shortening timing. Just overall, how are you feeling about your ability to move forward on a testing regimen on a regular basis just to facilitate international travel?
Testing has to we launched that testing protocol to really prove the point and we did it really under the auspices of the McMaster Health Labs oversight. So it's not a sort of a commercial testing dynamic. It was a scientific one. Obviously, that cannot be replicated in that fashion by us throughout the world. That's not realistic.
And so our expectation is that if the testing protocol proves positive as it has been based on the more than 35,000 tests already done, We would have the government, and this is why we're working with the government to try to prove the case, to set up these sorts of protocols. And as people arrive into the country, they have the test and then the expectation is that the quarantine will be reduced. And this is what's going on in Alberta right now. But we could see a test on departure and a test on arrival. And I think that will at some stage, that will be the way to really break the back of the quarantine requirements.
But I think it will come in phases. I will be very, very happy to see all Canadian airports that have international traffic to have a test on arrival that is overseen by the we that's really what we are working for. On the outbound side of things, of course, travelers would love to know that everyone who is on that aircraft has tested negative before boarding the aircraft. That requires rapid testing. And that's why we're anxious to see these Abbott tests more in circulation.
We know that there have been some supply chain challenges that relate to them, but we're anxious to see the government do that. So we continue to work both on the departure and on the arrival testing. It is feasible, but of course, it's not going to exist around the world instantaneously. So it will take some sort of blocking and tackling to get it there.
Okay, fair enough. And then if I can, just one last kind of cleanup question. Mike, is there any idea what the magnitude of your CUES payments will be in Q4?
Yes. They're going to be slightly lower than I think we recorded about $190,000,000 in Q3. They'll be slightly lower than that because the per person amount is dropping a bit in Q4. So I would say in probably in the range of $125,000,000
Okay, fair enough. Thanks folks.
Thanks Chris.
Thank you. Following question is from Karnar Gupta from Scotiabank. Please go ahead.
Thank you and good morning. I would like to echo comments on Kevin, Caitlin and Mike for the successful career and the new leadership ahead. So maybe the first one on the cash burn guidance. So I think you just said the Qs will be down obviously from Q3. But wondering in your cash burn guidance for Q4, which I think implies $3,000,000 to $5,000,000 per day in operating cash burn, What are your assumptions for transborder restrictions?
And perhaps any sense on the traffic? I know capacity is down 75%, but what are you expecting for U. S. Transborder and traffic?
Good morning, Konark. It's Mike. Unfortunately, we're not expecting much change from Q3. I think as Lucy said in her prepared comments, transborder, we don't expect a lot of additional activity in Q4. There may be some additional sun activity into the Florida markets and into the Caribbean markets, but it's not going to be material to move the dial in.
And again, the cash burn in Q4 is really comprised of CapEx is a little bit higher than it was in Q3, which is about $1,000,000 a day. Lease returns, we're starting to return a lot more planes and that's going to be probably at least $1,000,000 extra a day. Now that has a long term benefit because it gets rid of costs that are currently we're assuming. And the rest of it is, as you said, EBITDA and working capital, which obviously has an opportunity to improve depending on how the markets improve over the next couple of months.
Okay. That's great. Thank you. And I just want to kind of run by you guys, my hypothesis here. I know obviously vaccine is being developed and it could be around the corner here.
But as soon as the vaccine comes out perhaps like would you expect new bookings to rebound first or the traffic? And the reason I ask is obviously the new bookings will bring you cash while some initial traffic rebound might be a use of cash given it's already booked.
Yes. I think our sense is that there would be some new bookings. I'll ask Lucie to reflect on this. Lucie studies the booking trends very closely. I think that there's a lot of demand for this VFR traffic, visiting friends and relatives dynamic.
And so I think there are a lot of people who are very, very hesitant to make any travel arrangements now based on these restrictions and quarantines. Even if they feel safe to travel and we've made all these precautions that it's safe to be on the airplane, they can't justify coming back and taking 2 weeks at home on a quarantine dynamic. And so they're just simply not booking future travel. But the interplay between the travel that has already been booked and paid for versus the new bookings, Lucie, I'll ask you to comment on that.
Sure. So hello. There's no doubt that 2 different market segments perhaps that I can comment on. The first is when we look at the VFR markets or the leisure markets, we anticipate that with the vaccine or with changes to travel restrictions, notably the quarantine upon return, we believe that those markets would probably rebound the quickest. The one area though that we are monitoring very closely and we've actually taken a look at what we have observed in other countries where we've seen the removal of the quarantine restriction and it pertains to business traffic.
So in the current environment, because there are many different restrictions that stifle traffic, quarantine for sure is the most important one when it comes to business. And our belief is that with the introduction of a vaccine, we would actually see close in business demand materialize, where today most of the bookings we have on hand are leisure bookings. So if the environment changed, we believe that the new bookings that we would start to see would really be more geared at SME and business travel.
That's great color. Thank you. And then talking about obviously the bookings here, maybe perhaps I can ask you on the advanced ticket sale liability. Looks like the rate of decline in that liability item slowed in Q3 versus Q2. Can you share any underlying trends in cash bookings and cash refunds?
And also remind us, if you can, what portion of this liability is in refundable tickets and travel vouchers, please?
Sure. It's Mike. So in Q3, cancellations or refunds, sorry, slowed a bit versus Q2. So that's part of the rationale. And revenues were up a little bit as well.
So those two components would are the support for the change in the dance ticket sales. And then on refundable fares, roughly 65%, 2 thirds are in of that amount are in refundable fares.
Okay. Thank you. And last one for me, Mike. Thanks for
your question. Sorry, let me correct that. About 2 thirds of that amount are in non refundable fares, and about 20% of that amount is in refundable fares.
Sorry. So 2 thirds is non refundable, 20% is refundable and the rest would be something else?
It wasn't. Advanced is for future bookings.
Okay. Last one from me before I turn it over. Cargo, so I think I heard you converted about 4 Boeing 777s and A330s. Are these conversions permanent and to the freighter specs?
And what would sorry. No,
No, no. It's a good clarification. I mean, we weren't clear. No, the 777 and 330s, these are temporary during this time of COVID, so to speak. These are temporary conversions, which are intended to be reverting to passenger aircraft in due course.
When we were referring to freighter conversions of our 766 of some of our 767s, those would be permanent conversions, meaning we would be getting into the freighter business, which is obviously an important step for Air Canada. We would only do that with the approval of our pilots on terms and conditions for that flying. But those would be if executed, those would be permanent conversions of some of those 767 aircraft.
No, that's great clarification, Caleb. I just wanted to understand on the 767 conversion, if you can share us. I understand it's obviously confidential at this point, but are you looking at a big fleet of conversion 767s? And what is the timing? Could that be in 'twenty one?
Could that be 'twenty two or beyond?
I think we'll start in 2021. We haven't yet fully completed all our plans, but certainly we have the opportunities to convert a couple in 2021 and test the market, again, subject to the pilots coming to terms with pilots. But we certainly have the opportunity to expand that as the market grows.
Perfect.
Thank you so much. And thank you for your nice set remarks, Conor.
Thank you. Our following question is from Hunter Keay from Wolfe Research. Please go ahead.
Hi, good morning everybody.
Good morning.
Calin, can you help
me understand, in terms of the vaccine, I know this is a very dynamic situation, but can you help us understand, this isn't necessarily an airline question, but just how the approval and execution of a vaccine in Canada will work as it relates to FDA approval? Can the vaccine be distributed and administered without FDA approval in Canada? Can you help us get a timeline for some of the gating items that we should make in Canada? Thank you.
Yes. No. So first of all, FDA approval in and of itself will not be adequate to distribute the vaccines in Canada. It does require the Canadian health authorities on top of that. I know that obviously the U.
S. Process has been under this warp speed dynamic, has been moving these various vaccines at pace and totally supportive of that. Canada has preordered large quantities of vaccines sort of they've gotten into the queue early, which was obviously a good sign on from Canada's perspective. And I would say that if FDA is there, the assumption is that the Canadian health authorities would move quickly on the back of that. But there are some circumstances in which they may choose to go more slowly.
We hope that would not be the case if the tests have been proven to be adequately robust. In terms of distribution, I mean, this has always been the problem and we're even seeing it right now with respect to the rapid tests, the Abbott rapid tests. The supply chain complexity here is very, very large and I think that governments generally are not well suited to moving quickly on supply chain issues. And I think that is a risk factor here for sure. So that's why I'm saying I'm cautiously optimistic.
And I know the market sort of has gotten out ahead of everybody this morning on what this vaccine means and 90% efficacy, etcetera. But basically, I would be cautiously optimistic and not assuming that it's distributed instantaneously throughout the planet because, of course, we know that's not the case. And again, given that air travel touches so many continents at the same time, I think that a word of caution has to be brought to bear before we get ahead of our skis here.
Okay. And then while we're talking about government, can you give us the latest on Transport Canada's certification time on the MAX? And I'll also just add, by the way, my congratulations to you, Caelin. It's been great working with you in the short period of time. And Mike, you too.
I'm looking forward to working with you as well.
Thank you very much, Hunter. More good morning, Chris. Yes.
Yes.
Appreciate the good words. So on the MAX situation, of course, the Transport Canada is one of the key regulators involved in the MAX certification process. They've been following the decisions of the FAA throughout the piece and have had communications participated in some of the trials that have gone on over the last several months. We don't have a definitive date, but the way it's playing out now is that there would be we expect there to be an airworthiness directive issued this year, but that the that our expectation at this moment in time is that the airplane would only be flying next year, early next year and in Canada. And we say in Canada or to Canada.
So that, of course, includes any U. S. Carriers that might have ability to fly sooner, would not be able to fly to Canada until early next year. From our perspective, given the current dynamic, that is not something that is necessarily a bad thing right now as we get ourselves geared up to complete our training protocols, our additional requirements that have come out of the FAA and out of Transport Canada. Transport Canada had some issues that they worked alongside EASA with, and those are now also being worked through.
But from all indications, it's heading in the right direction for an airworthiness directive this year and a lifting of the ban for customer travel early next year.
Thank you very much.
And thanks again, Hunter, for your good words and look forward to seeing you follow the company for a long time. Thank you.
Thank you. Following question is from Suri Syth from Raymond James. Please go ahead.
Hey, good morning all. Kayla and Mike, I'd like to echo their remarks and congratulations here on the call so
far. Hi, Taylor.
I just had a few kind of follow-up questions to some of the commentary so far. Maybe first, Lucy, kind of based on your comments, should we expect capacity declines in 4Q to moderate from 3Q levels across all regions, but maybe perhaps kind of the most moderation in the domestic market and least in the transborder? And do you expect that kind of to continue into 1Q based on what you see so far?
I'll ask Lucie to comment, but it's quite dynamic Savi based on how the travel restrictions moderate and whether these testing trials lead to a reduction in quarantine. I said that could be a major change in our current thinking, but Lucy has set the capacity plan for Q4. Maybe you could just comment Lucy, on that.
Yes, for sure. Yes. So basically and maybe one just one comment I wanted to make because we're on the subject of testing and quarantines. But if we look at just the test that's just been recently launched in Alberta, so basically, we would be in a position to quickly be able to react to that. If we do see a change in demand as a result of the quarantine changes, we would be in a position to be able to alter our capacity plans for the Q4 to perhaps add more transborder flying from Western Canada into the United States, into Hawaii, for example.
So those are the kinds of things that we're watching very, very closely. And with respect to other markets, domestic Canada, we continue to see good improving recovery, I should say, within the domestic markets. The Intra West and TransCon markets are the ones that are most solid. And of course, because of the travel bubble restrictions that we were referring to for Atlantic Canada, it does, of course, stifle the demand into the Maritimes. With respect to the transborder networks, we continue to operate a skeleton schedule, but with a very, very close eye for Q4 and Q1 on the S.
Sun markets, which we are now in the peak of that booking window for Q4, Q1. So we're going to obviously watch that very, very closely.
So that's helpful. Thank you. And then just like on the cash breakeven commentary, Sean might be so cute, U. S. Airlines had pointed to maybe 60% to 70% of revenue to get cash breakeven.
And without kind of giving an actual level, I was just wondering if there's something fundamentally different at Air Canada that would result in a kind of a lower level or a high lower level of getting to cash breakeven?
No, there's nothing fundamentally different between Air Canada and the 3 large network carriers in the U. S. Our cost structures pre COVID were very similar and our productivity levels were fairly similar.
The only thing we can say is that I think some of the steps that we've taken and the speed that we've taken these steps as part of this COVID mitigation plan, given the fact that we didn't have sector support from the government, required us to move really, really quickly to take out an additional layer of cost that I'm not sure that was at the same pace in the United States. And to that end,
you just
got to And so it's That's the CapEx. I would caution you And so it's That's the CapEx. I would caution you on the benchmarking.
Makes sense. And then just my last follow-up on the cargo front. Prior to the crisis, we were looking at oversupply in the kind of the global cargo market. Is your decision here to expand that kind of get into that dedicated, is that based on a view that we might not have as many wide body aircraft in the kind of the global capacity here for the next several years. Is that what changed?
I think there's 2 factors. I think certainly, I think that is one of the factors. But we also believe there will be an incremental or accelerating growth of e commerce and we're well positioned to take advantage of taking a piece of that marketplace. And so that's I think of the 2 factors that would be the more important one from our perspective.
And think of it like this, I mean, so those are the 2 drivers, sort of lower number of wide bodies built on circulation plus the e commerce opportunity. But then when you couple a network, a large passenger aircraft network with a dedicated freighter network in that environment, it doesn't have to be a big the idea doesn't have to be a very, very large dedicated freighter network. You could actually see lots of synergies, which can expand a $850,000,000 revenue base that we're starting with.
Makes sense. All right. Thank you.
Thanks.
Thank you. Following question is from Cameron Doerksen from National Bank Financial. Please go ahead.
Yes, thanks very much and good morning and let me echo my congratulations to both Calin and Mike as well. A question really for Mike, just looking at the CapEx numbers for the next two years, so $1,400,000,000 in 2021 and roughly $1,800,000,000 in 2022. Are there any aircraft deliveries in those numbers over those 2 years where there would be potentially some of the financing so that the net CapEx number would be lower than that?
I think all aircraft deliveries over those 2 years are soon to be financed.
And how many are there after all the, I guess, deferrals and cancellation of orders? Just trying to get a sense of what, I guess, financial will not be coming in.
Yes, I don't have that number off the top of my head. I think next year in 2021, we've got I think we've got 3 737s coming in towards the end of the year. And on the 220s, I believe we have 12, so 15 next year. And then in 2022, I think we have the remaining 6 220s and I think we have 9 MAXs coming in that year.
Okay. No, that's very helpful.
Don't hold me to those numbers, but I think that's roughly what the math is basically. And we can firm that up basically after the fact. There's no issue giving you the number of aircraft expected to be delivered in those two fleet types over the next couple of years.
Okay, perfect. That's very helpful. And just the second question for me, just on, I guess, sort of on the cost structure. Have you, at this point, significantly reduced your airport footprint? I mean, obviously, you're going to be a smaller airline here for the next few years.
I'm just wondering if there's still some cost savings to come from that?
So Cameron, Calin here. And again, thank you for your comments earlier. The answer is yes. We're aggressively looking at our airports, the key, the large airports. And of course, as you know, we've pulled out of some of the stations that we announced closures from the first route announcement.
So the answer is yes. And obviously, you saw what we included in our release this morning about looking at 95 additional routes. And were that to happen, obviously, you'd see a smaller footprint in airports there as well. But of course, we've put that on pause pending these discussions with the government. So there's not I wouldn't say that there's a tremendous amount more to come barring this discussion on the 95 route suspension.
Okay. That's helpful. Thanks very much.
Thank you, Tamara.
Thank you. Our following question is from Tim Jain from TD Securities. Please go ahead.
Thanks and good morning. Congratulations, Calin, on your retirement. It's certainly well deserved. And my congratulations on the appointment. Looking forward to your continued success.
I just have one question remaining at this point. And I'm thinking for those of us that are maybe a little more optimistic on the recovery, if it does end up occurring more quickly than expected, outside of pilot training costs, which I think are pretty well understood, are there any other temporary costs or inefficiencies that we should think about that would be unusual, not necessarily continuing as it relates to ramping back up the business if it does need to be done more quickly?
No, I think look, I think that the key drivers to ramping back up are availability of aircraft on a timeline and a schedule that we like, the pilot training for those aircraft types and of course, availability of slots and access to the preferred gates and this sort of thing. We are not giving up any of our slots at slot constrained airports. We have very, very carefully held onto them and we are going to look for creative ways to ensure that if there's a use it or lose it dynamic that we're going to use them adequately to preserve access. In terms of aircraft, while we've exited a lot of aircraft to get the costs out, as we mentioned, we do have some optionality. And based on the number of bankruptcies going on in the space elsewhere in the world, we know there are going to be a lot of aircraft available on short notice.
You saw what we did last year with the Wow aircraft. When Wow went into bankruptcy, we quickly picked up, what, 8 Airbus 321s at that time 320s, yes, 321s at that time almost in a couple of months. And so there are going to be a lot of opportunities for short term aircraft. And so then that will result, of course, in pilots. But our pilots the way we structured our deal with our pilots is that there have not been permanent terminations for the major parts.
So pilots are still available on a recall basis. So that could be wrapped up as well. And then if you're looking at something that extends beyond looking beyond, say, 2021, the options on the MAXs and on the A220s are able to be actioned and that's based on our original pricing, which was quite attractive in both of those cases given that there were large orders. So you could see us ramping back into our original preferred fleet site. But there are usual requirements of maintenance and getting maintenance slots for heavy maintenance dynamics and that if you try to do that at the last minute that sometimes becomes challenging.
But we have taken into account the possibility of some requirement to ramp up more quickly than we are currently planning. We would obviously, we'd be delighted to have that will be a high class problem to have. But we think that the, let's just say, the combination of the various drivers of this, including the network effect, that's why I need to underscore the network effect. It's going to take before us to get to 2019 levels, it's still going to take several years in our view.
Okay. Thank you very much.
Thanks, Tim. Thanks for your generous words. Appreciate it.
Thank you. Following question is from Helane Becker from Cowen. Please go ahead.
Thanks very much, operator. Thanks everybody for squeezing my question in. So, Calin, I know you have one more call, but congratulations and Mike, same to you. Any thoughts on CFO succession?
Well, of course, you'll be amongst the first to know. We just love to declare that here today on the call. We'll make sure that you're amongst the first to know. We will be announcing that at the beginning of the year.
Okay. That's fair enough. And then the other question I had is on the MAX order book. Why can you just remind us why you have that aircraft on order at all? Why you're not just focusing on the A220 and the A320neos or A321neos as the 767 replacement?
So first of all, when we made the original decision on the 7,378, we at that stage, we compared its functionality and its the cost drivers that what missions we needed it to accomplish, what the cost structure was to accomplish those missions and what was the best aircraft to do that. And I think we were very transparent, and I would say, I can even repeat it today that we always considered the C Series as it then was, the A220, as being the best aircraft in its category. So we thought that the C Series, the A220 was better than the 730seven-seven hundred MAX, the 7 and was better than the A319. We considered, however, the 7378 to be the best of that size when compared to the A320. And we always liked the 321neo as being the in the large category, materially better than the 7,379.
And of course, while we had enough missions to accomplish all of that and therefore have several fleet types, we're now in the position and certainly if we complete our acquisition of Transat, we'll have the opportunity to have 321neos coming in sooner than later. But we did like the 7,378 for the missions that it was intended and we still do.
And just to add on that, we do take into our economic analysis the friction costs associated or the lack of efficiencies potentially by not having a larger fleet in one fleet type. So that's all considered. And again, to Calin's point, it's been a long time and we like the 7378, we like the 220 and we like the 321. We think those given our profile are the right planes for Air Canada as we go forward.
Right. Got you. Okay. Well, thank you very much. That's very helpful.
Thanks, Elaine.
Thank you. Our following question is from Jamie Baker from JPMorgan. Please go ahead.
Hey, good morning. And gentlemen, my congratulations to both of you. I can't say we've been here as long as others on the equity side, but we have on the credit side. And Mark wanted me to add his congratulations as well. Mike, the yes, thank you.
You're welcome. This $72,000,000 reduction in maintenance reserves on leased aircraft, can you discuss that calculus a bit more? Was that an Air Canada only phenomenon or something you negotiated with lessors that kind of flew by in your prepared remarks?
Yes. So we have a liability on our books that represents the expected end of lease payments for lease planes. And we look at that every quarter. And so we look at it this quarter, given the relative inactivity on some plane types like 320s and some of the regional aircraft, we the end of lease payments declined for the planes that were expected to be returned in the next year or so. So it's really a function of inactivity because as you know these end of lease payments is typically a return it at half life or whatever.
And so given the fact that a lot of these planes are grounded, that liability has declined and therefore the reduction in the maintenance provision.
Okay. That makes perfect sense. And also can you expand on the, I guess, our scope provisions that you mentioned in regards to the pilots and all freighter aircraft?
Yeah, Jamie, it's Cale here. So as you know, similar to the U. S. Airlines, our pilots have scope on all the flying that Air Canada does, including cargo flying, freighter flying. And so we would look to have rates that are more competitive with cargo carriers to operate these dedicated freighters.
We had Air Canada was in the freighter business twice in the past, and neither of those two circumstances were particularly appealing successes. And so for this time around to get it right, especially with the opportunity that arises with the fewer number of wide bodies in circulation and the e commerce opportunity, we think that the right kind of deal with the right kind of cost structure would make sense. And so we're in discussions with our pilots try to come to the right outcome here.
So with the lack of dedicated freighter wage rates that are in the contract right now?
Correct.
Okay. I understand better now. Thank you very much and congratulations again. Take care.
Thanks, Tim.
Thank you. Our last question is from Stephen Trent from Citi. Please go ahead.
Yes. Good morning, everybody, and thanks very much for taking my question. I extend my congrats as well, Kevin and Mike, that's terrific.
Thank you, Steven.
Just one very quick follow-up for me, and I apologize for the background noise. When you think about longer term, the impact that we've seen from the pandemic, has anything in the economics of fleet financing given you any, Paul, any reason to think differently about leasing versus buying? Or is this just a matter of looking at where the short term cost is most advantageous?
Good morning, Stephen. It's Mike. It's a very interesting question. Certainly, long term interest rates are lower at this point in time and expected to be lower. So financing a plane will potentially become cheaper as time goes on if you fix the rate.
On the other side, to Calin's earlier comments, we think there will be some supply of planes in the marketplace over the next couple of years. And so leasing rates should be more competitive as well. So it's going to be a very, very interesting market as we look for planes, as we hunt for planes over the next couple of years to fill the capacity needs as to whether we want to buy or lease. And again, I think that will be a function of how the market evolves over the next little while. But certainly from a financing perspective, our view our long term view on interest rates is they're going to remain low and that will provide good incentive for us to buy and good incentive for us to negotiate effective lease rates if we decide to lease.
Thank you. So we have no further questions registered at this time. Back to you, Ms. Murphy.
Well, thank you, everyone, for joining us on our call today. Thank you very much.
Thank you. The conference has now ended. Please disconnect your lines at this time,