Air Canada says it in talks for compensation from Pratt & Whitney over the grounding of seven Airbus A220s fitted with engines made by the Connecticut-based aerospace company.

Michael Rousseau, Air Canada’s chief executive officer, said the Montreal-based airline is set to lease Boeing 737 Max jets to replace the A220s, which are awaiting repair parts as part of a global inspection order issued by the U.S. Federal Aviation Administration in 2021.

“Some of those planes are sitting on the ground without engines right now,” Mr. Rousseau said. “We’re working closely with Pratt on that and there are solutions but it will take time.”

A spokesperson for Pratt & Whitney owner RTX Corp. did not immediately respond to questions.

The airline has 33 A220s, a narrow-body plane developed as the C Series by Bombardier. The unaffected A220s continue to fly safely, but Air Canada has no more spare engines and faces a supply chain shortage from Pratt & Whitney.

Mr. Rousseau declined to say how many 737s will join the fleet. Like other affected airlines, Air Canada is in talks with the engine maker for compensation, he said on a conference call with analysts to present the company’s first-quarter financial results.

For the three months ending on March 31, Air Canada AC-T slumped to a loss as the country’s largest airline faced higher expenses after it added seat capacity.

Air Canada lost $81-million or 22 cents a share, compared with profit of $4-million in the same quarter a year earlier.

Operating revenues rose 7 per cent to $5.2-billion from a year ago, and capacity increased 11 per cent, Air Canada said in an earnings release on Thursday.

Operating expenses climbed by 6 per cent or $311-million, compared with the same quarter of 2023. “The increase was due to higher costs in nearly all line items reflecting higher operated capacity and traffic year over year, in addition to higher labour, maintenance and information technology expense. Lower fuel expense partially offset the increase,” Air Canada said in a statement accompanying the results.

Investors reacted to the results by sending down Air Canada’s stock price by 8.3 per cent to $18.75 on the Toronto Stock Exchange.

Royal Bank of Canada analyst James McGarragle said Air Canada’s results missed expectations. In a note to clients, he said higher labour costs and maintenance expenses weighed on profit margins. Margins for the quarter were 8.7 per cent; analysts expected 9.9 per cent.

Executives on the call said corporate travel sales were steady but cargo revenue fell by 10 per cent. In response, Air Canada will remove two freighters from its cargo fleet.

Passenger revenue rose by 7 per cent from a year ago to $4.4-billion. About 30 per cent of this increase was because of strong growth in the transpacific markets of Asia and Australia.

Mark Galardo, Air Canada’s vice-president of network planning, said demand from business travellers to and from the United States was strong in the first quarter, while domestic corporate sales were flat.

Air Canada employs 37,000 people and flies 366 aircraft. In the first quarter, its planes were 84-per-cent full, unchanged from the same quarter of 2023.

The global airline industry saw demand rise by 14 per cent in March, year over year, led by international seat sales, the International Air Transport Association said on Wednesday. Airlines added an average of 12 per cent capacity.

Meanwhile, mediated contract talks continue with the union representing the airline’s 5,000 pilots. The Air Line Pilots Association and Air Canada have been in talks since June. “The process will continue at least for the next little while,” Mr. Rousseau said.

Charlene Hudy, head of the Air Canada pilots’ union, said she expects a contract in line with pilots at U.S. airlines. “Air Canada pilots make on average half of what their peers make in the United States, a condition that fails to improve the pilot-supply challenges and which misses an opportunity to attract and retain experienced pilots to Air Canada’s ranks,” Ms. Hudy said.