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When Air Canada and WestJet Airlines Ltd. report first-quarter financial results this week, investors will be looking for what impact the grounding of the Boeing 737 Max will have on both carriers.

The narrow-body plane is grounded worldwide amid investigations into fatal crashes in October and March that killed a total of 346 passengers and crew.

Preliminary reports link the crashes in Malaysia and Ethiopia to faulty sensors that measure the plane’s pitch or angle of flight, and the subsequent response of automated controls. Boeing Co. has apologized for the crashes and is working to have updated software, training procedures and manuals approved by aviation authorities. Until then, Air Canada’s 24 Max planes and WestJet’s 13 are parked, along with more than 300 others around the world.

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Walter Spracklin, a stock analyst with Royal Bank of Canada, described the first three months of the year as “noisy,” owing to several factors affecting each airline’s financial picture.

For both airlines, the loss of the 737 Max planes will cause a drop in capacity and higher overall costs, and this is on top of rising fuel prices and new accounting rules, Mr. Spracklin said in a research note. For Air Canada, this “noise” includes the addition of financial results from recent acquisition of Aeroplan, a loyalty card program.

Both airlines have taken steps to replace the lost capacity of their 737 Max planes, including extending leases, trying to speed up the delivery of fleet additions and revamping their plane assignments. The airlines have cancelled some flights and routes, delayed the addition of others and suspended their financial outlooks.

Still, Mr. Spracklin noted the carriers are enjoying strong fundamentals: Airline traffic growth is robust and fares are up by 5.6 per cent, year over year.

Montreal-based Air Canada, slated to report on Monday morning, is expected to post a loss of 17 cents a share and revenue of $4.4-billion, according to Refinitiv estimates. Air Canada’s share price has risen by 28 per cent this year on the Toronto Stock Exchange.

WestJet of Calgary, which reports on Tuesday, is expected to post per-share profit of 31 cents and revenue of $1.28-billion, according to Refinitiv. WestJet’s share price has fallen by 11 per cent since March 1, but is up by 4 per cent this year.

Ben Cherniavsky, an analyst with Raymond James, said forecasting airline financial results is a complex and difficult task that is rarely done accurately. As an example, he said Air Canada’s 2018 operating profit of $1.17-billion was 20 per cent less than his forecast and 30 per cent below the analyst consensus. Meanwhile, the stock price has almost doubled.

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“Over the 20 years that we have covered Air Canada and WestJet, our models for these companies have morphed into highly complex, hugely sophisticated, data-rich predictive tools designed to facilitate an analysis of the countless variables that impact the business,” he said. “But with the massive number of inputs that we can drive into the model also comes a massive amount of forecast error that can get compounded in the process.

“We must be honest with ourselves and our clients: We don’t have a tremendous amount of confidence in the precision of our forecasts,” he said.

Even with the Max planes out of the picture till at least mid-summer, Mr. Cherniavsky sees a constant theme for Canadian airlines over the past five years: too many planes for too few travellers. This is the cause of both airlines’ lagging returns and margins, he said.

“With the economy looking progressively tenuous and oil prices back on the rise, we expect this financial underperformance of Canada’s airlines will persist until this capacity issue is addressed,” he said.

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