Home » The Canadian Press » Air Canada, Ottawa Agree to Aid Package Worth Up to $5.9 Billion

Air Canada, Ottawa Agree to Aid Package Worth Up to $5.9 Billion

April 13, 2021 7:00 AM | The Canadian Press

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By Christopher Reynolds, The Canadian Press

Air Canada Boeing 737 Max 8

An Air Canada Boeing 737 Max 8 aircraft arriving from Toronto prepares to land at Vancouver International Airport, in Richmond, B.C., Tuesday, March 12, 2019. (THE CANADIAN PRESS/Darryl Dyck)

OTTAWA — After months of negotiations, Ottawa has reached a deal with Air Canada that will allow the battered airline to access as much as $5.9 billion in loans and equity financing from the public purse.

Under the agreement, Air Canada must refund passengers whose flights were cancelled due to the COVID-19 pandemic, cap executive compensation at $1 million and restore service to regional airports.

The package, which gives Canada a six-per-cent stake in the country’s biggest airline, also requires the Montreal-based carrier to maintain employment at current levels or higher.

“Taxpayers aren’t footing the bill. This is a loan facility, and the government of Canada fully expects to be paid back,” Finance Minister Chrystia Freeland said Monday night, referring to the $5.4 billion in available credit.

Some $1.4 billion of that is earmarked to help reimburse the thousands of customers who paid for tickets but remained in the lurch at the end of 2020.

“We have agreed with Air Canada that refunds should be issued as soon as possible, beginning in the coming weeks and months,” said Transport Minister Omar Alghabra, though Air Canada has up to seven years to draw on the low-interest loan.

Refunds will be available for flights purchased on or before March 22, 2020, for travel after Feb. 1 of last year, regardless of whether they were cancelled by the passenger or the airline, Freeland said.

Tickets purchased after March 22, 2020, where the flight was subsequently cancelled by the airline will also be refundable, she said.

Air Canada confirmed that customers who accepted flight credit or Aeroplan points as well as those who declined both will be eligible for reimbursement.

The Canadian Union of Public Employees, which represents 10,000 Air Canada flight attendants, decried the deal, saying it “betrays the government’s commitment to support airline workers affected by the pandemic.”

“We had a commitment from the Trudeau government that any relief money for the airline sector would flow directly to support workers, and that commitment is not reflected in this agreement,” CUPE president Mark Hancock said in a statement.

“This deal is exactly what we feared a deal cooked up behind closed doors would look like: it’s a year late, no transparency, and not nearly enough to support the thousands of flight attendants still reeling from the impacts of the pandemic.”

Travel restrictions introduced through the beginning of the pandemic have been catastrophic for the airline industry.

Air Canada’s passenger numbers declined 73 per cent in 2020 following several years of record growth for the airline. During 2020, it reduced staff by more than 20,000, more than half of the pre-COVID total, then cut another 1,700 employees in January.

The company posted a staggering $1.16-billion loss in the fourth quarter of last year, a result that caps off what the carrier’s then-CEO called the bleakest year in aviation history.

Freeland, asked whether the package could provide a framework for a deal with WestJet, stressed the importance of two national airlines and characterized negotiations with the Calgary-based No. 2 carrier as “constructive.”

She said ticket refunds, executive compensation, regional routes and employment thresholds would be a factor but any deal would be based on the individual needs of the airline in question.

The package bars dividend payments and share buybacks, on top of capping executive compensation for as long as the loans play out, Freeland noted.

Ottawa is investing $500 million in Air Canada shares at a price of $23.18 per share, leaving it with a small ownership stake.

“The equity is a little bit of a surprise,” said Jacques Roy, a professor of transport management at HEC Montreal business school.

However, it pales in comparison to the German government’s 20 per cent stake in Lufthansa, announced as part of a US$9.8-billion bailout last May.

Under the terms of the agreement, Canada can also buy millions of shares at $27 per share over 10 years — if Air Canada chooses to go trigger that option.

“Assuming that Air Canada does well and that two, three, five years from now the company shares are back to $40, $50, then the Canadian government can actually make a good deal out of this,” Roy said.

More than $2.3 billion of the available loans have an interest rate below two per cent, a “cheap” rate, he added.

Air Canada has committed to resuming service at 13 regional airports as well as seven others through “interline agreements” with regional carriers.

It has further pledged to complete the purchase of 33 Airbus A220 aircraft, manufactured at the Mirabel facility in Quebec, guaranteeing continued employment for factory workers.

It will go through with an existing order for 40 Boeing 737 Max aircraft as well, the company said.

Air Canada collected $554 million from the Canada Emergency Wage Subsidy in 2020 and said it would continue to access the program in 2021.

The company lost $4.6-billion in 2020, compared with a profit of $1.5 billion the year before.

In early April, Air Canada pulled the plug on its planned $190-million takeover of Montreal-based tour operator Transat AT, citing Europe’s unwillingness to approve the deal, thus triggering a $12.5-million termination fee.

Organizations supporting Air Canada’s calls for a bailout have included unions such as Unifor and the Canadian Air Traffic Control Association, as well as the National Airlines Council of Canada industry group.

— With files from Dan Healing

CP - The Canadian Press


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