The Alberta government fulfilled its 1982 campaign promise to get out of the airline business last week. It put Calgary-based Pacific Western Airlines (PWA) on the market and, as investors promptly bought the 3.7 million shares, it was clear that political and financial circles welcomed the move. For their part, stalwart Tories were relieved that they would no longer have to endure charges that they were closet socialists. At the same time, investors had the opportunity to buy into one of the few airlines in North America that reported a profit last year.
The government’s sale of 85 per cent of its interest in PWA, generated $37.7 million. It was part of a 10million-share offering which also included the company’s equally well-received issue of 6.3 million new shares. The deal marked the end of a nine-year relationship between the Lougheed administration and the airline designed to give the province a foothold in the airline industry and to ensure that its oil and gas companies were well served by northern routes. On that score, the arrangement was successful. At the same time, until recession struck, the financial fortunes of the company soared along with the energy industry. Currently, PWA is still making a profit, unlike other major airlines, including loss-plagued Wardair International Ltd. Last week Wardair announced its intention to sell a still undetermined number of shares and new debentures to raise much needed cash to offset its debt of $212 million. But while the Alberta government is surrendering most of its stake in profitable PWA, it has also taken unusual legal steps to ensure no one group gains control of the airline.
The Alberta government bought Canada’s third-largest airline in 1974 for $37.5 million after a secret takeover bid directed by an inner circle of Premier Peter Lougheed’s cabinet and advisers. The government move was prompted in part by worries that then NDP Premier David Barrett, NDP premier of British Columbia at the time, had similar designs on PWA. The company, then based in Vancouver, mainly served British Columbia, Alberta and the Western Arctic. Lougheed believed that by taking over PWA and moving the head office to Calgary, his government could ensure that the airline continued to serve the North and the interests of Albertabased oil and gas exploration companies.
But as champions of free enterprise, the Alberta Tories had little desire to turn PWA into a Crown corporation, like federally owned Air Canada, the coun-
try’s largest airline. As a result, the government left PWA to run itself. There were no cabinet ministers or government bureaucrats named to the board or executive positions. Instead, Lougheed appointed powerful party loyalists and corporate leaders, like ATCO Ltd. President Ronald Southern, as directors. Nor was PWA encouraged to dip into government revenues. “We never made any loans to PWA. It had to go to the banks just like any other company,”
said Marvin Moore, Alberta’s transportation minister. By last week, when it sold all but a 14.9-per-cent interest in PWA, the Alberta government had made about $20 million on its original investment through dividends.
As the rest of Alberta’s fortunes grew, so did those of PWA. Between 1974 and 1979, PWA’s revenues more than doubled to $202 million, and net income soared to $12.7 million from $1.3 million. And while profits have declined since, PWA still looks healthy compared to most airlines. Last year Air Canada and CP Air nose-dived into the red. At the same time, Wardair, which is currently moving its headquarters from Edmonton to Toronto, lost $13.49 million in 1982 and $4 million in the first half of 1983. By contrast, PWA managed to stay airborne with a modest profit of $6.3 million in 1982. According to Robert Grandy of Wood Gundy Ltd., which managed the share issue for the Alberta government, the PWA offering sold in hours because the airline has shown it
can be profitable even during severe downturns in the economy. “It has done relatively well compared to other airlines in Canada and the United States,” he said.
Moore said that the government decided to sell PWA about four years ago but did not know how to go about it. Just before last fall’s provincial election, Premier Lougheed, under increasing pressure from right-wing separatists who used PWA as an example of a government that extolled free enterprise but acted like socialists, announced the establishment of a task force to study
the privatization of PWA.
While the government has given up its airline, it has insured its future as an Alberta corporation. Legislation dealing with the sale limits holdings to four per cent of the shares, a move that guarantees that no individual or company can take over the airline and move it out of the province. Although the government is still the largest shareholder, it intends to reduce its holdings to four per cent over the next two years. Moore says that Albertans likely will buy about 40 per cent of the stock, although there is no way of guaranteeing that those shares remain in the hands of Albertans. Investors also seem to have made a good deal. Only two days after the issue, the stock increased by 75 cents to $11.50. Said Moore: “I guess people feel that if the Alberta government is involved, it must be a good company.” More probably, however, investors were primarily attracted by PWA’s impressive earnings record.
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