On the afternoon of Sept. 14, Robert Milton hopped on an Air France flight in Paris knowing he had done the right thing. Just before boarding, Milton had gotten wind of the Chapter 11 bankruptcy filings earlier that day of Delta Air Lines and Northwest Airlines. North America's third- and fourth-largest carriers, respectively, were thus embarking on a gruelling restructuring that would spell an infinity of 20-hour days for senior management—dealing with creditors, bankruptcy court judges and, most painfully, unions.
Milton had been there and done that. Now, as he nipped off for a quick vacation with wife Lizanne to the Italian resort island of Ischia, the chairman and chief executive officer of Air Canada parent ACE Aviation Holdings Inc. had good reason to feel relaxed—and vindicated. Almost a year to the day that Canada's flag carrier emerged from its own restructuring under the Companies' Creditors Arrangement Act (CCAA), on Sept. 30, 2004, events were unfolding as he had predicted they would. On his flight to Naples, Milton, not long ago one of Canada's most criticized chief executives, could confidently say, "I told you so."
By the time Air Canada filed for court protection on April 1, 2003, Robert Milton had become such a pariah in the eyes of the Canadian media, the investment community and the federal government that his odds of emerging one day as CEO of the Year might have seemed only slightly better than those of Enron's Ken Lay. "How can you bankrupt a monopoly?" went the joke. Punchline: "Hire Robert Milton to run it." Two and a half years later, Milton is no longer the subject of cheap shots. He is credited with having recognized before many of his peers that a court-supervised restructuring—no matter how humbling—would be inevitable for most legacy carriers, the airlines that predate U.S. deregulation and whose operations have been hampered by restrictive union contracts.
In a speech delivered only weeks after Air Canada's CCAA filing, Milton warned that airlines clinging to business models conceived in the 1970s or earlier would become the industry's "walking dead." Air Canada, he vowed, would not be one of them. With the grudging co-operation of workers and bankers, he would reinvent the airline. Yes, by wiping out $8 billion in debt and more than $1 billion in annual labour costs. But just as important, by changing the fundamentals of airline management—from the way tickets are priced and sold to the renewal of Air Canada's fleet of aircraft and the creation of an entrepreneurial corporate structure that forces each of ACE's units to act as independent, profit-driven entities. "Robert recognized the emerging international market two to three years before it started kicking in," says Brett Ingersoll, managing director of Cerberus Capital Management LP, the New York-based hedge fund that invested $250 million in ACE and owns an 8.5% stake in the company. "He picked the right strategy for 2005, 2006 and 2007 back in 2003. He nailed it."
Today, Air Canada has the wind at its back. Sure, skyrocketing fuel prices are an irritant—and a drag on the share price. But while Air Canada spilled almost $5 billion in red ink between 2000 and 2004 and wiped out billions more in shareholder value, ACE (the name comes from "Air Canada Enterprises") is poised to post a healthy profit this year and next. The big U.S. carriers are on pace to lose $10 billion (U.S.) this year alone. Air Canada's monthly load factors—the proportion of available seats with bums in them—are now better than those of rival WestJet Airlines Ltd. ACE's balance sheet is considered one of the two strongest (the other being Southwest Airlines) in the North American industry. It has more than $2 billion in cash on hand, thanks in part to a 2004 share issue and this year's conversion of 14.4% of its Aeroplan frequent-flier program into an income trust, the latter raising $288 million. ACE is so flush, it is contemplating a $300-million cash dividend.
Meanwhile, for a mere $75 million (U.S.), ACE this year snagged a 7% stake—and Milton a seat on the board—of the merged US Airways-America West carrier, which should lead to some lucrative route-sharing for Air Canada. And ACE's Air Canada Technical Services unit (ACTS) has a five-year, $1.5-billion contract to do maintenance work on US Airways' fleet of Airbus and Boeing planes. Air Canada's new 70- and 100-seat Embraer regional jets are opening fresh possibilities for profitable point-to-point service, while Milton's plan to renew Air Canada's transatlantic fleet with a $6-billion (U.S.) order for massive Boeing 777s and 787s appears ready to roll, following an arbitrator's recent ruling that ends a dispute with pilots. Milton's detractors, who in this country alone would have filled countless 777s two years ago, have been forced into retreat. For now, at least, Robert Milton's Air Canada has reached cruising altitude.
