DAVID KNIBB SEATTLE
The Canadian Government has given Air Canada only a bare minimum of crisis aid and appears reluctant to do more. Meanwhile, the airline's launch of discount carrier Tango, has drawn even more criticism.
The government has provided C$100 million ($65 million) in aid to Air Canada, only a fraction of what the carrier says it needs in the aftermath of the 11 September terrorist attacks. Robert Milton, Air Canada's chief executive, asked for C$3-4 billion, later revised to C$2 billion.
Officials say this was only designed to cover losses when flights were grounded. Any further aid will have conditions. As one insider said: "Why would the government give Air Canada a blank cheque and tell them to go reorganise themselves with our money?"
The government would seem to prefer to withhold further funds and force Air Canada to solve the problems itself. The only other step it may take is to relax ownership caps so that Air Canada can attract private capital.
David Collenette, transport minister, says he would consider removing the cap that restricts any one investor from owning more that 15% of Air Canada's voting stock. That limit thwarted a take-over attempt by Onex two years ago and laid the basis for Air Canada to buy Canadian Airlines.
Even before the US attacks, Air Canada had C$10.7 billion in debt and lease obligations and was expected to hit negative equity before year-end. One analyst estimates its post-attack losses have reached C$16 million a day. Yet, the airline has limited room to manoeuvre. It urgently wants to downsize. When it announced layoffs of 1,280 staff, however, the Industrial Relations Board ordered it to cancel the notice because its labour contract, one of the conditions imposed with its Canadian Airlines take-over, guarantees no involuntary layoffs before March 2004. One positive development is a series of aircraft lease deals freeing up cash.
Air Canada's October launch of Tango, one of two planned discount carriers, has drawn new criticism. The low-cost airline will fly between eight Canadian cities, and as of this month, from Toronto and Montreal to Florida vacation destinations. Fares will be substantially cheaper - up to 80% below full economy rates.
Tango is aimed at stimulating traffic and providing jobs, says Milton. Canada 3000, which claims Tango is designed to divert traffic from it, has asked the competition commission to prevent the carrier's launch. Air Canada has promised to launch a second discount carrier in the western Canada stronghold of WestJet later this year.
Air Canada defends these discount carriers as one of the few ways it can cut costs and adapt to changing markets. Critics claim they illustrate Air Canada's distorted strategies of chasing market share and trying to run rivals out of business.
Source: Airline Business
