WestJet: Aircraft Deferrals Could Boost Results - RBC

WestJet Airlines Ltd. (WJAVF.PK) said on its second quarter conference call that it is in discussions with Boeing Co. (BA) and leasing companies about deferring some aircraft scheduled for delivery in 2010 and beyond. The airline has eight aircraft scheduled to arrive next year and 20 slated for delivery between 2012 and 2013.

Deferrals could have a positive impact on WestJet's financial results, according to RBC Capital Markets analyst Nick Morton. He told clients that aircraft efficiency (load factor/hours flown per day per plane) would increase as planes could be flown more hours, and lower ownership costs could result in improved profitability.

“In this scenario leverage declines and cash builds as WestJet saves what it would have spent to rent aircraft,” Mr. Morton said.

He estimates that 2010 earnings per share would rise from C$1.00 under a best case scenario to C$1.35 if all eight aircraft are deferred.

“The benefits would include less aircraft rent and a higher load factor,” he said, adding that any penalties WestJet might have to pay to defer deliveries have not be factored in.

The analyst rates the stock Sector Perform with and raised his price target from C$11 to C$14.