Swoop

Analysis: Westjet, Ottawa break off aid talks

Westjet and the federal government mutually agree to break off months of talks on public loans for airline staggered by the COVID-19 pandemic

Westjet aid talks
A Westjet Boeing 737-800NG takes on passengers at Edmonton International Airport June 9, 2021 (Brett Ballah)

Westjet revealed Tuesday it was no longer in talks with Ottawa over public pandemic aid for the airline.

“Given encouraging vaccination rates across the country, both parties have mutually agreed to shift focus from these negotiations, and away from taxpayer-funded support, to leading the safe restart of the travel and tourism sector,” said Westjet spokesperson Morgan Bell in an email.

Westjet did not give any reason for the withdrawal.

“The WestJet Group confirms it is not actively pursuing financial support from the federal government,” said Bell. “WestJet and the Government of Canada remain open to resuming financial support discussions in the future.”

Right from the get go, it wasn’t obvious what levers either the airline or the government would have in negotiations.

Let’s compare airline support

So far, Ottawa has supported four large Canadian carriers, slapping conditions on each deal. Sunwing was the first to receive a loan from the Large Employer Emergency Financing programme. On February 1, Sunwing received up to $348 million in taxpayer-supported loans. The government billed the loan as designed to protect 3,000 jobs. It allowed Sunwing to carry on and eventually restart operations. In June, the agreement was amended with Sunwing agreeing to refund passengers money for flights that were cancelled.

When the pandemic struck in March 2020, airlines cancelled flights and dropped routes across the board. To preserve cash, they generally did not refund passengers with non-refundable tickets. Instead, airlines offered passengers vouchers for future flights. The move caused an uproar and even landed the Liberal government in hot water. It was, to say the least, a political mess.

Charter carrier Transat faced a class action lawsuit because of its refusal to refund tickets. In April, Transat received $700 million in support. Again, almost half the money was destined to provide passengers refunds for cancelled flights.

Toronto-based Porter Airlines accepted up to $250 million in support. Again, the airline had to guarantee jobs, limit executive compensation, and refund passengers. Less than two weeks later, Porter announced plans to buy up to 80 Embraer E195 jets, launch service from Toronto-Pearson, and spread its wings across the continent.

Air Canada’s financing conditions

Because of its size and central role in the Canadian airline industry, Air Canada’s support stands alone.

Air Canada signed on May 12. As you would expect with the country’s biggest airline, this was a big complicated deal. Canadian taxpayers bought $500 million in Air Canada shares, with the option of buying more. It also gave the airline access to $5.4 billion in loans and vouchers. Though by the end of June, public records show Air Canada had only tapped $858 million of that money. But the money came with significant strings attached.

First and foremost, there was a political win for the government. Like the other carriers, Air Canada would have to refund passengers hundreds of millions for cancelled flights. But because of its national importance, Air Canada faced several unique conditions. During the pandemic, Air Canada abandoned service to dozens of smaller communities. To local politicians, the decision left a bitter taste, with their communities cut off from the outside world. That bitter taste tricked up to the national level. As part of its support, Air Canada had to reinstate service to 13 communities:

  • Bathurst
  • Comox
  • Fredericton
  • Gander
  • Goose Bay
  • Kamloops
  • North Bay
  • Penticton
  • Prince Rupert
  • Saint John
  • Sandspit
  • Sydney
  • Yellowknife

Next, Air Canada had to follow through with a planned purchase of Airbus A220 aircraft, built in Quebec. This allowed the government to boast it had protected thousands of jobs in Canada’s aerospace industry.

Why Westjet was different

Thing is, none of those levers applied to Westjet. Though the airline revealed months ago it was negotiating for support, the negotiations were shrouded in mystery. So a bit of reading of the tea leaves is necessary.

First, Westjet promised as early as October to refund all passengers for cancelled flights. That took one negotiating topic off the table. Next, Westjet did withdraw service from a handful of communities, promising to return from the outset. By late June, even though the full network had not been restored, Westjet was back in all the communities it served pre-pandemic.

“We continue to work towards the restoration of our pre-COVID domestic network to ensure that when our guests are ready to travel, we are there for them,” said John Weatherill, WestJet Chief Commercial Officer, in a June 25 release. Another card off the table.

Then there’s the question of jobs. Westjet laid off thousands in the pandemic. But in the past few months, the airline has signed deals with CUPE, one of its largest unions, and started to bring people back. The last tentative agreement came just five days ago with Encore employees. That had workers sounding an optimistic note. “Our flights are filling up, more staff are coming back from layoff,” said CUPE Vice President Jamie Loiselle. “We are hopeful that we will soon have collective agreements covering all our members at the three WestJet companies.”

Finally, there’s the question of ownership. Westjet is owned by Onex, a large private equity firm. Onex lead Gerry Schwartz spent almost 30 years trying to get into Canada’s airline industry. Westjet is a private company, with no public markets to satisfy.

So long as Onex was willing to keep footing the bills, public support was more of an aspiration than a needed lifeline.

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