BUSINESS

Fear of flying

Ottawa grounds a financially troubled airline

DEIRDRE McMURDY April 12 1993
BUSINESS

Fear of flying

Ottawa grounds a financially troubled airline

DEIRDRE McMURDY April 12 1993

Fear of flying

Ottawa grounds a financially troubled airline

For thousands of sun-starved Canadians, the search for escape from a long winter came to an abrupt—if predictable—conclusion last week. After several weeks of increasing uncertainty, federal regulators grounded Montreal-based charter airline Nationair Canada, leaving hundreds of passengers stranded. Finally, on March 31, the chaos culminated when the National Transportation Agency in Ottawa suspended Nationair’s operating licence because its liability insurance had expired. Now, the airline has 21 days to renew that insurance or it will lose its licence permanently.

The turmoil surrounding Nationair’s future did not surprise those familiar with the company’s turbulent record. On March 22, Nationair filed for bankruptcy protection from 1,000 creditors claiming total debts of about $87 million. Even before that crisis loomed, Nationair had appealed to Ottawa for a federal bailout. Robert Obadia,

Nationair’s owner, had recently attempted to break into the regularly scheduled domestic flight business. Nationair’s losses sustained in that venture, which Obadia abandoned earlier this year, marked the beginning of the 17-plane carrier’s financial troubles.

Although Obadia blames unfair competition from Air Canada of Montreal and

Canadian Airlines International Ltd. of Calgary for Nationair’s failure to expand beyond charter flights, Canadian chairman Rhys Eyton dismissed that notion in an interview with Maclean’s. “Small independents are always present in this business—they come and go,” he said. Eyton added that the sector often “attracts people with grand illusions” who “get carried away.”

For its part, Canadian also suffered a setback last week when an Ontario court dismissed its application to have the Gemini Group computer reservation service declared financially insolvent. That application was part of Canadian’s strategy to shift its business from Gemini to the Sabre reservation system owned by AMR Corp. of Texas. The move to Sabre is a condition of a sorely needed $246-million investment in Canadian by AMR.

But passengers were not the only ones who suffered because of Nationair’s mounting woes. Last week, several major Canadian travel agencies announced that they would

no longer sell vacation packages that included Nationair flights. Even Nationair’s 1,300 employees did not fare any better than the company’s creditors or passengers: at the end of last month, Obadia stranded them too when he failed to meet Nationair’s payroll.

DEIRDRE McMURDY