The Written Word
for November 7, 1999

It’s hard to imagine a worse screw-up than we now see in Canada’s airline industry.

Going back to the beginning, it is true to say that when Air Canada went from a wholly owned crown corporation to a public company it had a considerable boost given it by the government. In essence it was started on its journey debt free and with the better set of routes. To counter that, a few years back Canadian Airlines International was given a bailout package by the federal government and the governments of Alberta and British Columbia – the two provinces getting involved because that’s where CAI employees worked. That was intended as the bailout of all bailouts and CAI was expected thereafter to stand on its own two feet. It didn’t. Whether that was due to bad management as many claim or other reasons the fact is that it has all but collapsed. It might keep going until next March at the latest.

When Onex, under Liberal fair haired boy Gerry Schwartz wanted to make its bid to but both Air Canada and CAI the Minister David Collenette, fresh from massive screwups as Minister of Defence, suspended the operation of the Combines Act so that Schwartz could make a deal including American Airlines that would have 10% of the line owned outside Canada. Then the bidding began, as we all know.

The issue is hugely complicated by contractual arrangements by CAI for computer passenger lists with a different "partnership" than that Air Canada has. This is the "poison pill" which has to be taken if Onex were to win the bidding and own both Air Canada and CAI.

Now the normal person looking at all this would assume that if Onex put together a deal where it would buy Air Canada and more than 10% would be owned outside Canada that would be tickety-boo with everyone. After all, hadn’t Mr Collenette suspended the 10% rule?

Well he had, but it was sort of like a policeman prepared to overlook an outdated licence plate until someone comes along and challenges his actions in court. That’s what Air Cansda … it went to court and said "My Lord, Mr Collenette may be prepared to wink at the 10% rule for purposes of encouraging competition for a deal but there’s going to be a shareholders’ meeting of Air Canada and if the Onex deal passes, more than 10% of the airline will be owned outside Canada and that’s against the law now matter how prettily Mr Collenette winks." The judge agreed and now Onex, millions of dollars later, is screwed because he relied on his Liberal pals to clear the road for him.

Now what? Air Canada has an offer on the table – so far – for CAI but why wouldn’t it simply wait until CAI collapses, shed a few tears at the funeral, then pick up the pieces?

There is only one reason. The Liberals will threaten, privately if not publicly, to actually change the 10% rule so that Onex can get back into the fight. They have to do that or there is no incentive whatever for Air Canada to spend all that money – at least not yet. It does covet CAI’s overseas routes but wouldn’t, say, February be a better time to make a final bid when CAI is having problems getting it’s planes in the air?

There are huge political implications in all this. The loss of employment in Alberta and BC will be enormous if CAI is not somehow bailed out.

But, why would the Liberals care about that? They’ve never cared for the Far West before.

Maybe this time they will, though, The next election is no slam dunk as the Tories threaten the Liberals Ontario base. Maybe Far Western votes will count.

If the Liberals do decide they need those votes, look for David Collenette to change that 10% rule this week so as to get Onex back in the game just in the nick of time.