BUSINESS/ECONOMY

The remaking of a household name

MARC CLARK January 20 1986
BUSINESS/ECONOMY

The remaking of a household name

MARC CLARK January 20 1986

The remaking of a household name

This week more than a thousand CP Air employees will gather in a massive hangar at Vancouver International Airport. There, they will watch the unveiling of the first DC-10 painted in the company’s new colors. The bold orange and red scheme conceived in the adventurous 1960s is giving way to a more sober pattern of red, white and blue. At the same time, the company plans to revert to its original name—Canadian Pacific Air Lines, Ltd.—because it is convinced that few people outside Canada identify the ini-

tials CP with a Canadian line. But the new colors and the revised name are only symbols of much larger changes in CP Air. Indeed, Canada’s secondlargest airline is undergoing the most radical shakeup in its 44-year history.

The architects of the new, tougher CP Air are two talented administrators imported from the United States. Airline executives Dan Colussy and Donald Carty both emerged as successful warriors during the fierce battles that were touched off in 1979 when Washington deregulated the U.S. airline industry. At the time, Colussy was president of Pan American World Airways Inc. of New York while Carty, a Montrealer, was senior vice-president of American Airlines Inc. in Dallas. The two men were attracted to Canada by CP Air’s owner, Canadian Pacific Ltd. of Montreal, when it became apparent in the early 1980s that Canadian air-

lines would soon be confronted with the same deregulation pressures faced by their U.S. counterparts. Colussy, who became president in 1982, and Carty, who succeeded Colussy last March after he took over the presidency of UNC Resources Inc. of Virginia, had the expertise to pare costs and prepare CP Air for ongoing deregulation of the Canadian airline industry.

Within two years of his appointment Colussy had cut staff by 800 to 7,200, negotiated a 10-per-cent wage and benefits reduction with pilots and re-

organized the airline’s flights around a more efficient “hub-and-spoke” network. Equally important, Colussy purchased Eastern Provincial Airways Ltd. of Halifax in 1984 for $20 million and gained entry to the Maritime market. But it was Carty, a lanky and personable graduate of the Harvard Business School, who filled the last gaps in CP’s domestic network—the vital Ontario and Quebec markets. Last week CP announced that it had won control of 52 per cent of Nordair Inc. of Montreal after a bitter three-month battle with Nordair’s rival, Quebecair. Said Carty: “We are now, for the first time, something we’ve pretended to be in the past—a true national airline.”

Carty has also pressed CP’s unions to ease restrictive work rules and lower wage demands. As well, he has arranged to swap CP’s four Boeing 747s for four DC-10s owned by Pakistan In-

ternational Airlines Corp. That leaves the company with only two types of aircraft to operate and maintain —12 wide-bodied DC-lOs and 40 Boeing 737s. The result: yearly savings of $12 million and a one-shot bonus of $20 million from the sale of equipment.

The airline’s financial recovery has been impressive. In 1982, before Colussy took over, CP Air suffered a record $39-million loss. Harold Wolkin, a vice-president of investment dealer Nesbitt Thomson Bongard Inc. in Toronto, estimates that in 1985 the airline earned about $6 million, as well as $15 million from the lucrative CP Hotels chain it acquired from Canadian Pacific Enterprises Ltd. in 1983. He expects the airline’s profit to approach $11 million this year. As for Carty, Wolkin says, “Since the day he took the job, CP Air has been in overdrive.” But Carty has his critics. Some CP Air employees still speak fondly of Colussy’s predecessor, Ian Gray, an engineer who worked his way up to the presidency. “It was like a family business,” recalls Gary Fane, a CP ticket agent in Ottawa and Tog ronto for 13 years and g chairman of the airline z division of the BrotherS hood of Railway and Airline Clerks, which represents 1,400 CP employees. “People always went the extra mile for the customer. But now it’s just another company.” He adds, “Carty has a lot of personality, but he loves the company more than he loves the people.”

The airline also has a $650-million debt. Carty says the company would like to issue shares, partly to raise money to pay off the debt. But Steven Garmaise, an analyst with Wood Gundy Inc. in Toronto, warns that “it would be hard to sell CP Air stock, given the concern over the airline’s earnings record.” Carty acknowledges the problem. But he says he is confident that the airline will soon be able to assure investors of a steady 12to 15per-cent return on investment. “We’ve made a lot of changes,” he says. “Now we have to see if we can make money.”

— MARC CLARK in Toronto