April 2, 2003
STRAIGHTEN UP & FLY RIGHT::
No public bailout for Air Canada: Airline gets private loan to stay open, granted protection from creditors (Joan Bryden and Shannon Kari, April 02, 2003, The Ottawa Citizen)Spared the necessity of providing $300 million in loan guarantees to Air Canada, the federal government may yet provide some aid for Canada's financially strapped flagship carrier in the form of cuts to airline fees and taxes.Transport Minister David Collenette said yesterday that cabinet is "reviewing" the fees and taxes imposed on the airline industry.
He made the revelation just hours after Air Canada was granted bankruptcy protection from its creditors. [...]
Mr. Collenette confirmed that the federal government had offered the airline a loan guarantee, but Air Canada turned down the offer after securing private financing from GE Capital, one of the world's biggest industrial lenders and a major creditor.
He would not reveal details other than to say the loan guarantee, reportedly worth $300 million, would have been 100 per cent secured with no risk to taxpayers.
"They knew that we would be there to provide bridge financing so that they got their debtor-in-position financing in place. So, we would not have allowed them to go under in the sense that we would have been there to backstop them."
Mr. Collenette said Air Canada is now free to restructure itself, including cutting service to remote communities, as it sees fit.
"It's not for us to interfere in this restructuring. This is a private company. They've arranged their own financing. They will make the best decisions that they can for the employees, for the creditors, for all concerned." [...]
In documents filed yesterday, Air Canada blamed the federal government -- along with world events and its employees -- for its gloomy financial picture.
The airline said it has been "hampered in its fight for survival" by existing collective agreements with some of its nearly 40,000 employees.
Air Canada chief executive Robert Milton said he made "one final attempt" this week to convince union leaders at the airline about the need to reduce labour costs by $650 million or 22 per cent immediately, without having to file for bankruptcy protection.
The Sept. 11 attacks, the war in Iraq and the recent outbreak of Severe Acute Respiratory Syndrome were all described as having a negative impact on Air Canada's revenues.
Air Canada said its domestic market share has fallen to 72 per cent from 90 per cent since its takeover of Canadian Airlines in 2000.
"Air travel has become a commodity where travelers will choose the lowest cost airline. Business travelers, who used to represent a significant portion of Air Canada's profit margin, are now increasingly booking with low-cost carriers," the airline said in the court documents.
What does it say that even the Canadians are willing to let an airline sort out its own problems while our Congress is backing up the bailout dumptruck, loaded with your money and ours? Posted by Orrin Judd at April 2, 2003 1:42 PM
It isn't a straightforward calculation, but there is value in a transportation network, above the sum of the value of all the routes that make it up.
Kahn destroyed the US airline business because he never understood that.
We could do without so much air travel. Bring back trains.
Posted by: oj at April 2, 2003 2:42 PMMight be generally true, but Canada is big and empty and trains are not efficient in those conditions.
Posted by: Harry Eagar at April 2, 2003 2:57 PMAm I the only one who thinks the rest of the airlines might be profitable if they'd let
a couple of them go out of business and reduce the overcapacity?
We're going to seeing the same thing, in slow-motion, in the global auto industry...
It's important to note two things: 1) David Collenette and the rest of the Liberal government have done a remarkably complete job of screwing up Canada's airline industry, so lauding them for letting Air Canada sort out its own problems is a bit silly. Not that I believe in corporate welfare mind you. 2) Air Canada has in effect a monopoly. How poorly do you have to be run in order to screw up a monopoly?
Posted by: Steve Martinovich at April 2, 2003 5:57 PMAren't all monopolies badly run precisely because they don't have competition?
Posted by: oj at April 2, 2003 7:31 PMCanada 3000 went belly up without benefit of government subsidy and with benefit of competition.
mike's question is a very good one. In Hawaii, there is an airline duopoly. There have been numerous new entrants, despite the high threshold to enter, who have all failed but left the original two so damaged they have had a hard time keeping up. In fact, one didn't and went through 2 bankruptcies. It's still flying, but all the profits it had asssets between 1929 and 1995 were destroyed.
Kahn thinks that's swell.
There are desiderata in life beyond mere efficiency.
"bring back trains"
They never went away.
In countries as large as the US or Canada, they are very efficient at transporting commodity goods like coal, grain, lumber, or containerized freight. Unfortunately, what's best for such freight is not what's best for passenger service, which were always, even in the Age of Steam, money losing operations. So unless you want to invest in a whole new rail network, it ain't gonna happen.
As for airline bankruptcy, nothing new there other than a lack of historical knowledge. People should go back and read about all the railroad bankrupcies from the 1870s through such fiascos as Penn Central, the Rock Island and Milwaukee Road of the 1970s and 1980s.
Raoul:
Exactly, if airlines are money losing operations too, let's bring back trains which at least fostered community.
OJ:
Full disclosure: I am a laid-off airine pilot.
Keep in mind that up to 40% of the price of an airline ticket is tax. Are there any other sectors of our economy that are faced with such a burden? Especially including the railroads?
Additionally, for reasons I can't fathom, airlines get tagged for security costs (e.g. emplanement taxes). Terrorists using aircraft as weapons is a national security issue.
Air v. Train travel. Except for the first and last several minutes of flight, airliners are out of sight, out of mind. Additionally, because of working with three dimensions rather than two, the topology of an air route network is infinitely more flexible than a rail route network (e.g., have you ever seen an air route crossing?) Then there is time. For journeys under 240 or so miles (assuming no stops) trains are time competitive with planes. Above that, forget it.
I am not in favor of airline bailouts. But I am also not in favor of the airlines bearing national security costs; therefore, refunding the emplanement security tax seems only reasonable.