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After a major overhaul, the Royal Mail is enjoying at rising profits. (ANDREW WINNING/REUTERS)
After a major overhaul, the Royal Mail is enjoying at rising profits. (ANDREW WINNING/REUTERS)

privatization

Royal Mail’s IPO success triggers envy in Ottawa Add to ...

Forget Twitter. The hottest stock offering of the year is the Royal Mail.

Shares in Britain’s 500-year-old postal service soared as high as 50 per cent over their initial offering price in the days after being listed this month, proving that a very mature business can still excite investors.

That has triggered a sense of postal envy in Ottawa. This could have been Canada Post’s big payday.

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It probably should have been.

“I think Ottawa missed the boat,” lamented Michael Warren, a former Canada Post chief executive and long-time proponent of privatizing the Crown Corporation. “Timing is everything in business.”

The federal government quietly shelved plans to privatize Canada Post soon after taking power in 2006.

Now, Canada Post finds itself at risk of becoming irrelevant – squeezed between a government mandate that requires it to deliver mail to every Canadian address and a population that no longer sees the post office as a vital method of communication.

The postal service is now delivering a billion fewer pieces of mail than it was just six years ago.

Add in heavy pension, health and benefit obligations, and the picture is grim. Canada Post is losing money, and by its own estimation, will run out of cash by next summer.

Instead of a big payoff for taxpayers, the post office risks becoming a growing financial burden on the government.

If nothing is done to fix its broken business model Canada Post says it will be losing nearly $1-billion a year by 2020.

This financial mess could easily turn into a public relations fiasco for the Conservative government.

None of the proposed options for fixing the post office are very palatable. They include moving all Canadians to community mailboxes, going to three-day-a week delivery from the current five, franchising more post offices, raising stamp prices and slowing mail delivery, according to a recent Conference Board of Canada report commissioned by the post office.

“Given its financial position and outlook, Canada Post believes changes must be implemented as quickly as possible,” the company said bluntly in late August.

The problem is that reduced service at higher rates could alienate even more customers, accelerating Canada Post’s financial problems.

Investors are clearly betting that the Royal Mail is moving in the opposite direction. After shedding tens of thousands of jobs and spending nearly £3-billion ($5-billion Canadian) to automate its operations over the past decade, the company is looking at rising profits and revenue.

Canada Post’s future once looked brighter too.

The stars seemed to be aligned to make privatization happen in the mid-2000s. Not only was Canada Post profitable, but it could point to steadily rising revenue and mail volumes.

At the helm was Moya Greene, now CEO of Royal Mail. She pitched a plan to the government for a phased privatization, including selling some shares to investors to raise cash for modernizing operations.

The Conservatives, perhaps fearful of their then-minority status, wouldn’t go for it.

Ms. Greene left, taking her ideas and expertise to Britain. The Royal Mail got an executive and veteran bureaucrat whose credentials at the time included key roles in selling Canadian National Railway and deregulating the Canadian airline business.

One might have expected the government to be more open to privatization. After all, Stephen Harper’s government came to power committed to smaller government and getting out of the way of the private sector.

The government opted instead for a fatter Canada Post. It gave the federal Crown Corporation vast new borrowing powers to help it modernize its distribution technology, paid for with a $1-billion bond offering. Ottawa also gave the green light to a 20-per-cent rate increase by 2014 and approved expansion into new e-commerce businesses.

The results so far are disappointing.

It’s now Ottawa’s time to make a move. It must choose between more losses and unpopular service cuts.

The Royal Mail’s improbable IPO success suggests there could be investor appetite for a slimmed and more efficient Canada Post.

And that just might put the privatization option back in play again.

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