Air Canada: Fleet Modernization to the MAX

With the finalization of a Boeing 737 MAX order, more aircraft purchases could be ahead.

Apr 2, 2014 at 5:50PM

Canada's largest airline, Air Canada (TSX:AC.B), has seen an eventful few years. The airline avoided pension-related insolvency last year and posted a strong rise in profits, driving the stock to multibagger returns.

As fortunes have improved for the airline, long-term strategy is now front and center with fleet modernization at its core.

MAXimum changes
Earlier this week, Air Canada finalized its orders of 61 Boeing (NYSE:BA) 737 MAX aircraft as it looks toward more efficient aircraft for the mainline fleet. The economic side of the 737 MAX is appealing to the airline industry for an estimated 8% decrease in unit cost through maintenance and fuel savings. Although 8% may not sound like that much, in an industry with margins as thin as airline margins, an 8% unit cost reduction is a significant advantage.

Air Canada is far from the only buyer for the 737 MAX. Numerous other airlines have also added their names to the list, including American Airlines Group, Southwest Airlines, United Continental, and Air Canada's top rival, WestJet Airlines.

For Air Canada, the 737 MAX will not only replace older, less efficient aircraft, but it will also mark the entrance of Boeing into Air Canada's narrowbody fleet. Although Air Canada is introducing the Boeing 787 and currently operates numerous Boeing 767 and Boeing 777 aircraft, Airbus Group (NASDAQOTH:EADSY) has held control over Air Canada's narrowbody fleet until the 737 MAX order. For aerospace manufacturing investors, this is yet another part of the ongoing Boeing-Airbus battle to watch.

Next on the shopping list
Air Canada has also been looking to replace part of its regional and smaller jet fleet. Top candidates right now include Embraer SA (NYSE:ERJ) and Bombardier (TSX:BBD.B). Like the Boeing-Airbus rivalry in the larger aircraft market, Embraer and Bombardier are fighting it out for market share and profits in the regional jet market.

Embraer embarked on a program to revamp its regional jet offering by creating a new series of E-Jets. As of Feb. 14, there were a total of 465 E-Jets claimed through orders, options, and letters of interest.

Bombardier has not been as aggressive in updating its series of Canadair Regional Jets, and it has been pouring its development dollars into the new Bombardier C Series. With 201 firm orders and total orders and commitments for 445 aircraft, Bombardier is still trying to reach its goal of 300 firm orders by the beginning of production.

Although Air Canada will still be limited by economic constraints, the C Series may have an edge since both the C Series and Air Canada are Canadian companies. An order from Air Canada would move Bombardier even closer to its goal of 300 firm orders and possibly result in a bump in Bombardier shares. On the other hand, if Bombardier loses that Air Canada deal, investors could react harshly seeing the C Series as failing to succeed even at home.

Manufacturer battle ground
Selling aircraft costing tens or hundreds of millions of dollars requires a keen understanding of the airline industry. At Air Canada, fleet modernization, fueled by changing fortunes and a growth strategy, has led to an order for 61 Boeing 737 MAX aircraft and a sales opportunity for Embraer and Bombardier.

With Air Canada shares still well off their highs because of currency concerns and a disappointing earnings report, investors taking a long-term outlook should consider Air Canada when deciding on airline investments.

Say goodbye to "Made in China"
For the first time since the early days of this country, we're in a position to dominate the global manufacturing landscape thanks to a single, revolutionary technology: 3-D printing. Although this sounds like something out of a science fiction novel, the success of 3D printing is already a foregone conclusion to many manufacturers around the world. The trick now is to identify the companies -- and thereby the stocks -- that will prevail in the battle for market share. To see the three companies that are currently positioned to do so, simply download our invaluable free report on the topic by clicking here now.

Alexander MacLennan owns shares of Air Canada, American Airlines Group, and Delta Air Lines. He also has options on Delta Air Lines and American Airlines Group. The Motley Fool recommends Embraer. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers