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Ottawa agrees to aid package with Air Canada worth up to $5.9 billion


Ottawa agrees to aid package with Air Canada worth up to $5.9 billion

After months of negotiating, Ottawa and Air Canada have settled on an aid package that will provide as much as $5.9 billion to the airline to help it recover from the economic damage brought about by the COVID-19 pandemic.

In exchange for the money, Air Canada has agreed to several requirements from the federal government, including customer refunds, reinstated service to regional communities, new environmental disclosures and job security for the tens of thousands of workers that the company temporarily laid off since the pandemic began.

At a news conference Monday evening, Deputy Prime Minister Chrystia Freeland said Air Canada will be required to repay all the financial aid offered to the company.

The aid includes $4 billion in general repayable loans, as well as a $500-million equity investment that will give the government an unspecified stake in the company. Air Canada will also have access to a $1.4-billion loan that it will draw from to repay customers who bought non-refundable fares but did not travel due to the pandemic. The aid is offered through the Large Employer Emergency Financing Facility program, Freeland and Transport Minister Omar Alghabra said.

“It is essential we maintain connections between people and our communities, large and small. Protecting Canadian customers is important. And maintaining a competitive Canadian air sector, Canadian airlines, and the thousands of good jobs in this sector is a priority. This is what today’s announcement with Air Canada guarantees,” Freeland said in a statement on Monday.

Air Canada customers who booked a flight on or before March 22, 2020, for travel after February 1, 2020, will be eligible for refunds as soon as April 30. The refunds will also apply to those who purchased tickets after March 22 that were subsequently cancelled by the airline.

Regional routes to and from places such as Yellowknife, Fredericton, Bathurst, North Bay and more will begin to be reinstated come June 1.

In addition, Air Canada has agreed to a $1-million cap on executive compensation and to maintain a minimum number of staff operating its services.

The deal comes after a turbulent year for the airline and its customers. Travel restrictions imposed on Canadians beginning in March 2020 were devastating for Air Canada, prompting a dramatic decline in passengers and revenue.

The company’s customer base declined by 73 per cent in 2020, following years of record growth. It reduced staff by over half its pre-pandemic total, leaving more than 20,000 sector workers out of work. The company lost $4.6 billion in 2020, in contrast with a profit of $1.5 billion the year before.

When the company released its 2020 financial results in February, then-chief executive Calin Rovinescu described the year as the “bleakest” in the history of commercial aviation.

In early April, the company dropped its planned $190-million takeover of Montreal-based tour operator Transat AT, citing Europe’s unwillingness to approve the deal and triggering a $12.5-million termination fee.

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Government support for Air Canada “has gone from a nice-to-have, almost to a need-to-have,” said RBC analyst Walter Spracklin in a Feb. 12 note analyzing the financial results.

Meanwhile, thousands of would-be passengers whose flights were cancelled by Air Canada when travel restrictions were first imposed were largely turned away from the company’s refund desk, instead receiving vouchers for a flight of an equivalent price at a later date.

The decision to withhold passengers’ money sparked public outcry and a wave of class-action lawsuits from its customer base.

The Canadian Transport Agency, notably, received an unprecedented number of complaints regarding the airlines in the following months, over half of them relating to refunds and customers.

Air Canada reported it held $2.3 billion in advance ticket sales during its fourth-quarter filings.

Since federal aid negotiations were first announced in November 2020, Ottawa, which initially shied from addressing passengers’ concerns, made clear that it would not support Air Canada or the other airlines financially without assurance that the company would repay customers along with several other conditions.

In February, while negotiations were ongoing, the deputy prime minister’s spokesperson emphasized any federal aid would hinge on three demands: refunding Canadians for cancelled flights; retaining and reinstating regional routes in Canada; and protecting jobs across the sector.

On Friday, the government said it is still negotiating with other airlines, including Sunwing, Air Transat and WestJet for separate aid packages.

Canada is one of the later western countries to offer aid packages to its airline industry. The United States has already offered more than $50 billion (U.S.) in grants to its struggling airlines. France has provided roughly $12 billion to Air France-KLM alone, while Lufthansa recently raked in $10 billion from the German government.

Why did the Canadian aid package take so long? The wait was necessary to ensure Air Canada met Ottawa’s demands to repay customers and reinstate regional routes, Freeland said.

“These were conditions that needed to be met first. Sometimes a good deal can take a little time.”

With files from The Canadian Press

Jacob Lorinc is a Toronto-based reporter covering business for the Star. Reach him via email: [email protected]

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