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Air Canada to get bailout, as union deals appear done - and so, protectionism rules

17-Jun-2009

Privately owned Air Canada is to ask for – and probably get – a USD200 million government loan as part of a USD600 million refinancing, now that it appears unions have agreed to the pension moratorium that management has been seeking. Under a recent agreement with its credit card supplier, its ready cash reserve requirement was reduced to USD800 million, but the carrier is still reportedly having problems meeting that target.

The sad irony of this outcome is that ACE’s CEO Robert Milton was one of the many at last week’s IATA AGM calling for change in the airline industry – where it “is often harder to exit than to enter”.  ACE is the parent company of Air Canada.

(However, at the AGM, Mr Milton had also sought to justify the Canadian government’s protectionist attitude towards new entry by Middle East airlines on the grounds that they were not merely carrying end-to-end traffic – the core argument for the archaic regulatory structure that has brought the industry to the catastrophic condition it is in today.)

Most national airlines – suffering some of the most difficult conditions ever - are talking the talk of change, but when it comes to the crunch it is often simply the same old, same old. And the well-protected Air Canada will now simply be propped up, effectively “in the national interest”.

Once the government-selected mediator had been appointed to work with Air Canada management, and its often-militant expectant unions sniffed a deal, the likelihood was going to be that the government would introduce a sweetener. But government financial support depended on the resolution of all employment disputes. This circle now appears to have been joined.

According to Toronto’s Globe and Mail, the loan would probably come formally from the nation’s Export Development Canada (EDC), or from the Business Development Bank of Canada (BDC). Both are independent crown corporations, with sovereign backing.

Meanwhile the company’s pilots have concluded a deal through the ALPA, allowing the airline to maintain a moratorium of nearly two years on topping up its pension fund. Other negotiations, with the flight attendants’ CUPE, are continuing, but are expected to be resolved shortly, now that the pilots have accepted the arrangement.


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