Air Canada

Air Canada negotiates $5.8 billion government support

Support includes $500 million equity stake in Canada’s largest airline and billions in loans. The support comes with conditions.

Air Canada support
An Air Canada A220 departs Vancouver International Airport. As part of a government support package, Air Canada agreed to proceed with an order for 33 airplanes (Brett Ballah).

Air Canada started life as a Crown corporation, so it only seems fitting that the Canadian people once again own a piece of the struggling carrier, thanks to a massive support package announced Monday. The deal comes after months of negotiations.

The federal government will take a $500 million ownership stake in the airline, at more than $23 a share. That will give Canadians 21 million shares, a little more than five per cent of the company. Other provisions could give the public up to a 10% stake, with a maximum public ownership cap of just under 20%.

Other supports include $1.5 billion in loans secured against Air Canada’s stake in Aeroplan. Added to that are $3.8 billion in unsecured loans. Both can be converted to a larger ownership stake, according to the Canada Enterprise Emergency Funding Corporation.

As part of the settlement, Air Canada will have to refund money for flights it cancelled because of the pandemic. When the pandemic hit, Air Canada offered vouchers for non-refundable tickets. The move infuriated customers and passenger rights groups. It also became a hot topic at the political level and for regulators.


Historic agreement

Canada’s Transport Minister, Omar Alghabra, called the deal historic.

“With today’s announcement, we are supporting workers in the air services that Canadians need,” he said in a video statement.

The deal comes with several conditions. Among them:

  • Air Canada will proceed with the purchase of 33 Canadian-made Airbus A220s. Air Canada will also complete its purchase of 40 new Boeing 737 Max.
  • Restrictions on executive compensation
  • Protect the jobs of thousands of employees

Air Canada will also resume flying to 13 airports it cut during the pandemic. They include six cities in Atlantic Canada, North Bay, Ontario, five cities in British Columbia, and Yellowknife. Local business and community leaders complained the withdrawal of air service left them cut off from the rest of the world.

Other airlines have already started to move into those markets. One example is Pacific Coastal starting service to Kamloops, British Columbia. It was not immediately clear what the impact would be on their service.

Air Canada has permanently abandoned service at seven airports, most of them in the province of Quebec. For those communities, the airline will try to reach deals with other carriers to assure service.

“This marks a great milestone in our efforts to help Canadians and our economy weather the impacts of the pandemic and build back better,” said Alghabra.

Piece by piece

Critics have been demanding government support for Canadian aviation. Air Canada’s support comes after Sunwing already received a $375 million loan from Ottawa. Monday’s deal represents only a small piece of the puzzle. Other airlines say their negotiations are ongoing.

Part of the reason for the piecemeal approach is the different conditions each carrier faces.

Rival Westjet, which has suffered its own share of setbacks due to the pandemic, did not hesitate to share its thoughts on the Air Canada deal.

“We have already communicated we will restore service to all 42 airports that we served pre-COVID and did so at our earliest opportunity,” spokesperson Morgan Bell said in a statement. “Since October 2020, WestJet’s refund policy has been industry-leading in Canada, and consistent with the U.S., UK and EU.”

The airline is involved in its own negotiations with the federal government.

“The WestJet Group of Companies continues discussions with the Government of Canada on a safe travel-restart framework,” said Bell. “We remain focused on a long-term solution that will serve the best interests of Canadians. We will provide updates on our discussions with the Government of Canada at the appropriate time.”

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