Canada's federal government has been forced to intervene to avert a looming crisis at Canadian Airlines.
Ottawa stepped in because of a growing threat that Canadian might not survive this coming winter. The beleaguered carrier has reported an annual profit in only one of the past 10 years, and experienced mounting losses in the past three quarters. Cash reserves shrunk to C$70 million ($48 million) by mid-year - C$54 million less than a year ago.
Ottawa suspended trading of both Canadian and Air Canada shares while it considers rescue options for Canadian. Preliminary signs point to three possibilities: an increase in the foreign ownership and control limits for airlines; a waiver of antitrust laws to allow collaboration on domestic routes, fares and capacity; or a possible merger of Canadian with another airline in Canada. Buzz Hargrove, president of the union representing many of Canadian's staff, has called on the federal government to consider a minority equity position in the Calgary-based carrier.
Any re-regulation of Canada's domestic skies will draw howls of protest from Air Canada and Westjet, which have both done well since deregulation.
Westjet, which is also based in Calgary, has flowered since its 1996 launch. In July, it raised C$26 million in an oversubscribed public offering to fund further expansion. Both carriers would see any pact on routes, fares, and capacity as a step backwards solely to prop up Canadian.
Most observers consider a relaxation in foreign ownership and control limits as a far more likely prospect than any merger of Canadian with other airlines or direct investment by Ottawa. Throughout this year, Canadian has been searching for a new partner willing to inject C$500 million. Local investors show little interest in adding to the airline's equity, which shifts the search for capital beyond Canada's borders. AMR, parent of American Airlines, already holds the legal limit - 33% equity and 25% voting control.
Even if Ottawa raises or removes the foreign limits, by most accounts AMR is not a likely source of new capital. AMR has come to Canadian's rescue before, but Kevin Benson, Canadian's chief executive, suggests he is now talking with other potential investors.
Source: Airline Business
