THE WEEK

Insolvent

Can buffeted Air Canada rebound as a national carrier?

KATHERINE MACKLEM April 14 2003
THE WEEK

Insolvent

Can buffeted Air Canada rebound as a national carrier?

KATHERINE MACKLEM April 14 2003

Insolvent

Can buffeted Air Canada rebound as a national carrier?

THEWEEK

The planes, at least, are still airborne. But last week, against the backdrop of an increasingly fragile industry, Air Canada declared itself insolvent, filing in both Canadian and U.S. courts for protection from its creditors. For weeks, blunt CEO Robert Milton had called on the airline’s labour groups for givebacks to the tune of $650 million—half of what he claimed was the difference between the cost of running Air Canada and its smaller, more nimble competitors, among them Calgary’s Westjet. Air Canada’s business model was “broken,” he said, as Westjet and others siphoned off 25 per cent of the national carrier’s domestic fares. The Iraq war cut international bookings, and the worldwide outbreak of the respiratory disease SARS just made it worse. Simultaneously, the airline was staggering under $13 billion in debt. But the straw that broke the camel’s

back? Demands from regulators to address a pension plan shortfall.

Still, even insolvent, the airline assured the travelling public its planes would continue to deliver passengers to their destinations. Its popular Aeroplan program remains in place, although the deal to sell a portion of it to Gerry Schwartz’s Onex Corp. may be on ice. Under court-ordered protection and supported by $1.05 billion in private financing, the airline will restructure. Already, potential suitors, including Texan and British investment houses, are lining up, envisioning a leaner, meaner—and profitable—airline. But in the end, Ottawa— whose financial help Milton rejected—will have to decide whether Canada still needs its own national flag carrier. Or something else, potentially smaller, and possibly foreign-owned.

KATHERINE MACKLEM

Boss Milton wanted $650 million in employee concessions