Air Canada, Ottawa Agree to Aid Package Worth up to $5.9 Billion

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THE CANADIAN PRESS/Graham Hughes

Air Canada and the federal government have agreed to loans and equity financing that would allow the airline to access as much as $5.9 billion.

As part of the package Air Canada has agreed to a number of commitments, including refunds for some customers who did not travel due to COVID-19 and a promise to resume service at regional airports.

Thousands of would-be passengers who paid for tickets remained in the lurch at the end of 2020. Air Canada reported it held $2.3 billion in advance ticket sales during the fourth quarter.

Other restrictions imposed as part of the deal with Ottawa include a $1 million cap on executive compensation and maintaining a minimum number of staff.

Asked whether the Air Canada agreement could provide a framework for a deal with WestJet, Deputy Prime Minister Chrystia Freeland emphasized the importance of two national carriers and characterized negotiations with the Calgary-based No. 2 airline as “constructive.”

 

She said ticket refunds, executive compensation and other requirements would be a factor but any deal would be based on the individual needs of the airline in question.

Travel restrictions introduced through the beginning of the pandemic have been catastrophic for the airline industry.

Air Canada’s passenger numbers declined 73 per cent in 2020 following several years of record growth for the airline. During 2020, it reduced staff by more than 20,000, more than half of the pre-COVID total, then cut another 1,700 employees in January.

The company collected $554 million from the Canada Emergency Wage Subsidy in 2020 and said it would continue to access the program in 2021.

When the airline released its 2020 financial results in February, then-CEO Calin Rovinescu described the period as the “bleakest year in the history of commercial aviation.”

The company lost $4.6-billion in 2020, compared with a profit of $1.5 billion the year before.

Government support for Air Canada “has gone from a nice-to-have, almost to a need-to-have” said RBC analyst Walter Spracklin in a Feb. 12 note analyzing the financial results.

He added that government support would be necessary for Air Canada to provide passenger refunds because the company has been so weakened by travel restrictions it no longer has the means.

“Importantly, government assistance is required in our view to lessen the burden the Canadian airline industry will have incurred by the time the pandemic is over in order to make a viable airline industry in Canada going forward,” Spracklin said.

In early April, Air Canada pulled the plug on its planned $190-million takeover of Montreal-based tour operator Transat AT, citing Europe’s unwillingness to approve the deal, thus triggering a $12.5-million termination fee.

Organizations supporting Air Canada’s calls for a bailout have included unions such as Unifor and the Canadian Air Traffic Control Association, as well as the National Airlines Council of Canada industry group.

This report by The Canadian Press was first published April 12, 2021.

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