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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.

"Robert's very smart and really ahead of his time," says David Neeleman, founder and CEO of JetBlue Airways, the New York-based discount carrier that, along with Southwest, has revolutionized air travel in the United States with its "low-cost, high-quality" service. "It took a lot of guts to do what he did at Air Canada. He took a lot of heat for it. But he only wanted what was best for everyone up there. He's a very unselfish man. In fact, I'd say he's really a tender-hearted guy."

Tender-hearted may not be the first word that springs to mind among ACE's remaining 32,000 employees when they think of Milton. It certainly won't roll off the tongues of the thousands who have been cut from the payroll. But for all the bloodletting, it's a pretty good adjective to describe someone who's been a devout vegetarian since watching his wife bottle-feed a New Zealand lamb two decades ago. In fact, if you'd never before met Robert Milton and were oblivious to the acrimony and hardball tactics that have characterized Canada's airline industry since Air Canada was privatized in 1988, you could easily mistake the ACE CEO for a squeezable teddy bear. His plump cheeks, which inflate when he smiles, make him seem non-threatening in a boyish way. He seems naively indifferent, in a boyish way, to the notable artwork outside his office door, a Jean-Paul Lemieux original that, based on recent auctions, is likely worth more than $200,000 and may just have been one of Air Canada's most valuable assets when it flirted with bankruptcy. Milton, one suspects, would rather talk about the model airplanes that line the window sill behind his desk.

At 45, he remains as enthusiastic about airplanes as the starry-eyed 10-year-old American boy who saw his first Boeing 747 in Belgium and decided then and there what he wanted to be when he grew up. Milton's childhood as the son of an executive at a multinational was one of frequent uprooting—from Boston and Brussels to Beirut, Hong Kong and Singapore. The one constant was airports. Milton never nurtured the typical boyhood dream of becoming a pilot. Even as a child, he set his sights on running an airline. If the restructuring at Air Canada had a downside for Milton, it was that it entailed a move from the airline's headquarters near Montreal's Pierre Elliott Trudeau International Airport, where he could watch planes take off and land outside his window, to the nondescript seven-storey building in lower Westmount that houses ACE. Most people would no doubt prefer the view of the mansions on leafy Mount Royal that Milton now sees to that of a concrete runway. Not him.

"One of the reasons I'm here and not at the airport is that if I stayed at the airport, where I'd been for almost 14 years, I really would not have changed the way I behaved," says Milton, who now watches commuter trains, not planes, go by his window. "I still directly involve myself in the airline, but one of the things I'm trying to do is to give the people who are running [ACE's] various businesses the room to run them." That leaves Milton with the task of implementing ACE's overall strategy of realizing value in each of its divisions. The Aeroplan offering was the first step in this regard; a plan to spin regional carrier Jazz into an income trust has been put on hold as Ottawa contemplates tightening the tax rules governing trusts. Naturally, much of Milton's time is spent making sure ACE's constituent parts—Air Canada, Jazz, Aeroplan and ACTS—all work in harmony. Indeed, the key to the success of Air Canada itself under Milton's model depends largely on a close and continued relationship with its sister companies. Even Milton can appreciate the irony in that. "The pieces of ACE that are delivering value today were termed 'legacy hindrances' only two years ago," he says of the frequent-flier program, regional feeder and in-house maintenance division. "Aeroplan alone has a market value in excess of that of five of the biggest U.S. airlines combined."

The rise of nimble, low-cost carriers—such as Southwest and JetBlue in the United States and WestJet in Canada—has dramatically changed the airline game. Where ticket prices were once influenced by regulation and the near-monopoly power of the legacy carriers, a seat is now a commodity: The lowest price rules. Having four ways to make money gives ACE an advantage over the discounters, who have only one way—and one that's more vulnerable to rising fuel prices.

Still, the discounters must be engaged in their own corner. The revenue model on which Milton is predicating Air Canada's ascent means not just matching the prices of low-cost rivals, something it can do more sustainably now that employees have taken huge pay cuts. It also means getting consumers to pay for the bells and whistles a low-cost operator can't offer. "The attributes of the legacy carrier—the best terminal facilities and lounges, the strongest frequent-flier program, the best flight schedule—all come into play. People do want more and that's one of the ways we're winning right now," Milton explains. "Unlike the low-cost carriers, which can only offer the commodity price, we can offer our passengers the choice of add-ons such as seat assignment, the ability to change flights with greater flexibility, more Aeroplan points. What we want to do is provide every customer with value. So, if someone who paid $200 for his ticket ends up sitting beside someone who paid $100, instead of feeling agitated about it, he's perfectly comfortable because he knows why he paid a different price."

The latest "add-on" is the $2 that short-haul passengers will be forced to fork over beginning this month if they want a "comfort zone" kit that includes an inflatable pillow and synthetic blanket. Milton sees the kits—an idea that came to him after he saw a vacuum-packed pillow on a Japanese airline—as a welcome hygienic replacement for the used headrests and blankets that formerly were passed from passenger to passenger. Consumer advocates decry the move as the ultimate in nickle-and-diming, running hand in hand with the elimination of free meals on flights under four hours and new limits on luggage weight—the latter measure being one the airline's "weight reduction team" has identified as necessary to meet a target of cutting fuel costs by as much as $45 million annually.

But making customers happy likely won't be nearly as hard as keeping employees contented. And therein lays Milton's biggest challenge. "I think he's done an awful lot of smart things at the airline, but I think he's based them on the premise of labour peace. I'm not at all convinced that's guaranteed," says Douglas Reid, a professor of strategy at Queen's University School of Business. "The unions do not see current compensation levels as adequate. They see them as an aberration."

As ACE begins racking up profits, the 26,500 employees at the mainline carrier will want their cut. Unfortunately for them, Reid points out, the holding company structure was specifically designed to isolate ACE's most profitable units (Aeroplan, Jazz and ACTS) from the less profitable mainline carrier. A profit-sharing program was put in place at the latter in exchange for union concessions during the restructuring. But if employees can't partake in the booty from ACE's other units, it may not be long before workers begin to balk. If they do, don't expect Milton to cave.

"Our employees have to recognize how well they've fared relative to their industry peers," Milton says. "This is a turbulent industry that's been through a particularly turbulent patch. But we are now one of only two airlines [in North America, the other being American] that will likely end up with a pension plan for employees. The others have either demolished them through restructuring or are about to."

Milton's knack for being ahead of the game elicits awe from his peers, who now turn to him for advice. Indeed, a seat next to Milton may well be the hottest ticket at the next meeting of the Conquistadores del Cielo (Conquerors of the Sky), the secretive and select global all-boys' club of aviation, aerospace and air-force leaders to which he belongs. "He's the one who gave me the idea for the E190s," says JetBlue's Neeleman, a fellow Conquistadore whose airline has since placed the single largest order for the 100-seat Embraer regional jet. (JetBlue is buying 100 E190s, while Air Canada has 45 on order.) "Robert was going on a couple of years ago about these new, big RJs and I thought he was crazy. But then I went back and worked on the numbers and said, 'Wow.'"

If Milton, despite his youth, is one of the airline industry's longest-serving CEOs, it's not just due to his talents as a strategic thinker. He owes a lot of his staying power to sheer survival skills. Since taking over at Air Canada from Lamar Durrett in 1999, Milton has weathered a hostile takeover bid from Gerry Schwartz's Onex Corp., a disastrous merger with Canadian Airlines, the Sept. 11 terrorist attacks that decimated global airline traffic and the 2003 arrival of SARS in Toronto, which pretty much destroyed whatever was left of passenger traffic at Lester B. Pearson International. Through it all, Milton developed an antagonistic, almost hostile, relationship with then-federal transport minister David Collenette, whom he describes in his 2004 book, Straight from the Top, as "two-faced." Milton accused Collenette of issuing a thinly veiled order to buy Canadian before it failed or risk seeing Ottawa award its routes to Air Canada's rivals.

Air Canada's CCAA filing was equally fraught with setbacks. Indeed, the airline's outright collapse appeared to be a distinct possibility when, in April, 2004, Hong Kong billionaire Victor Li withdrew his offer to invest $650 million for a one-third stake. Then Calin Rovinescu, the shrewd lawyer who'd been Milton's right-hand man since 1999, bailed. "Robert is a guy who despite the low periods—and there have been many—has been very resilient," says ACE board member and CAE Inc. CEO Robert Brown, who served as Air Canada's chairman during the restructuring. "He just stuck it out and did a great job."

"A lot of the fun has gone out of it," Milton says wistfully, when asked how long he plans to stick around now that the airline is profitable. It's astonishing that anyone who has endured the past six years at Air Canada could identify anything during that period that remotely resembled fun. Milton's kick was the logistical Rubik's Cube of managing an airline—co-ordinating plane selection and schedules to maximize profit. But since he surrendered his operating titles at the mainline carrier, it's a task that now falls under the purview of Air Canada CEO Montie Brewer.

Still, Milton's not likely to be looking for a new job any time soon. More than two-thirds of his one million ACE options—which allow him to purchase shares at $20, a differential worth about $15 million as of early November—will not vest until his current three-year contract expires in December, 2007. And although he no longer takes a direct hand in overseeing Air Canada's schedule, he still monitors it—and those of its competitors—with the obsession of a man who loves his job. "You and I go home and watch the news," says one Milton colleague. "Robert goes home and watches flight patterns on his computer." And maybe, just maybe, gloats a little.