Business

Flying the Flag

Robert Sheppard October 4 1999
Business

Flying the Flag

Robert Sheppard October 4 1999

Flying the Flag

Business

Robert Sheppard

So this is what has become of economic nationalism in the 1990s. On the one hand, Air Canada president Robert Milton—Georgia-educated, a soft drawl, the third Air Canada CEO in a row to come from the United States— wrapping himself gingerly in the Canadian flag to avoid being gobbled up by a desperate competitor. On the other, the

patrician Donald Carty—Montreal-raised, a graduate of Queen’s University, the big cheese at giant American Airlines, the secretive, string-pulling partner in the $ 1.8-billion proposed takeover-merger of Air Canada and money-losing Canadian Airlines—sharp as a Yankee trader.

Last week was supposed to belong to the Air Canada counter-offensive. The Montreal-based carrier emerged from a lengthy stock-taking to urge its shareholders to reject the

As merger rivals embrace the Maple Leaf, American Airlines clips Air Canada’s nationalist wings

proposed takeover by Gerald Schwartz’s Toronto-based Onex Corp., charging the bid would strip the assets of the country’s only profitable major airline and “turn over control to Dallas” and American’s parent, AMR Corp., which owns a substantial one-third interest in Calgary-based Canadian. Milton also sent his lawyers to court in Quebec to try to curb Onex’s—and AMR’s—bid to exceed Air Canada’s 10-percent ownership limits. But then Carty stole the show.

“I don’t get back this way as often as I’d like,” the Dallas-based executive told an impromptu news conference in Toronto, where AMR was holding a board meeting. Dropping his Canadian references like Timbits at a hockey arena, the silverhaired Carty proceeded to deride Milton as “an American CEO who is wrapping himself in the Canadian flag”—something Milton responded to later as “irrelevant.” (In fact, the son of a globe-travelling businessman, Milton spent half his formative years shuttling between Asia and Europe before remming to the States to go to college.) And where Milton had painted the Onex bid as nothing more than a stalking horse— “a face”—for American Airlines to dominate Canada’s skyways, Carty countered with a snort: “There is nobody in Dallas who is interested in running a Canadian airline. In this world of global alliances, we simply want strong partners.”

Carty s main argument was that the Onex-AMR proposal would spur new development in Vancouver and Toronto because it is in the interest of American—rather than Air Canadas U.S. partner United Airlines—to use the centres as North American feeders to the Far East and Europe. He also said AMR intends to sell off its proposed 14.9-per-cent stake in the new carrier over a period of five to 10 years, though this pledge is not cast in stone.

Carty s bombshell, however, was that in merger talks between Air Canada and Canadian back in January, Air Canada was prepared to dump its U.S. and European partners and sign on with the AMR alliance known as Oneworld. According to Carty, the two sides agreed on the merits of a merger, the number of job losses and the value in using AMR’s state-of-the-art Sabre reservation system. He says the deal fell apart only because Air Canada wanted to pay far less for Canadian’s stock than it was worth.

Milton rejects this characterization—save for the lowball offer for Canadian. He says it was AMR, not Air Canada, that ended the discussions and, more importantly, that Air Canada never agreed to join AMR’s Oneworld alliance. The two distinct views are notable for the chasm of mistrust—a divide deepened perhaps by Carty’s earlier stints as an executive with Air Canada and CP Air and his confident air of knowing what is best for the Canadian airline industry. With federal competition laws suspended for 90 days to deal with restructuring, and corporate anxieties over a forced merger at a fever pitch, the personal stakes are also becoming more intense. A Toronto judge is to decide, probably this week, whether Air Canada must hold a shareholders’ meeting by Nov. 9, when the Onex offer expires, rather than on Jan. 7 when Air Canada would like it. Schwartz says the deal may die if it can’t be done on his timetable.

For its part, Air Canada claims the Schwartz proposal amounts to a $1-billion (or $5 a share) transfer from Air Canada to Onex and Canadian Airlines shareholders because of Air Canada’s superior fleet and greater cash reserves. It also says its Star Alliance, with such partners as United and Germany’s Lufthansa, is the better moneymaker for Air Canada. Still, despite the tough talk, Milton does not rule out a deal if the Onex offer is sweetened—and, as he told Macleans, if the 10-per-cent ownership limits are respected. If so, that may underestimate the political reaction. Transport Minister David Collenette is promising antsy Liberal MPs a full hearing and wants to lay out clear conditions on customer service and job losses if there is only going to be one major domestic airline in the near future. Milton’s anti-Dallas rhetoric struck a chord with Liberal backbenchers who have Air Canada employees in their ridings. But those sentiments have to be tempered: “There is no political stomach for Canadian going bankrupt and 16,000 jobs being lost,” a federal official said. With both MPs and CEOs reaching to wrap themselves in the flag, is there fabric to go around?

With John Geddes in Ottawa

John Geddes