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One reason Air Canada’s stock had outperformed the market had to do with the company’s share repurchase program.Fred Lum/the Globe and Mail

Until the coronavirus crisis stuck, Air Canada had been on an unprecedented roll. In 2019, Canada’s flag carrier posted record revenues, record liquidity and a record stock price. Indeed, since emerging from court protection from its creditors in 2004, the Montreal-based carrier had gone from industry laggard to one of the world’s top performing airlines.

“The agility and consistency we displayed in 2019 gives me the confidence that we will successfully execute on the several key opportunities before us,” chief executive Calin Rovinescu said in February as Air Canada reported a year-end profit of $1.48-billion.

Now, Air Canada has lined up with the rest of the Canadian air transportation industry in seeking a government bailout. On Monday, Mr. Rovinescu announced the “extremely painful decision” of temporarily laying off more than 15,000 unionized employees and reducing capacity for the second quarter that begins on Wednesday by as much as 90 per cent.

What’s more, Air Canada’s pending takeover of Transat AT Inc., which has also laid off most of its work force as the COVID-19 pandemic grounds most international flights, is now in question due to a precipitous decline in global air travel that could last far beyond the current crisis.

The coming months promise to be painful for workers. However, no one should shed a tear for Air Canada’s shareholders or top executives. They’ve been richly rewarded in recent years, which will make the thought of their airline now getting bailed out by taxpayers hard to swallow for many Canadians.

One reason Air Canada’s stock had outperformed the market had to do with the company’s share repurchase program. Since 2015, Air Canada has spent more than $800-million buying back its own shares. Last year alone, the airline spent $378-million on share buybacks, which had the effect of boosting a company’s stock price by reducing the number of shares in circulation. The company suspended its share buyback program on March 2.

On Monday, Air Canada said Mr. Rovinescu and chief financial officer Michael Rousseau have agreed to forgo their salaries for the second quarter, while other top managers will take a pay cut of between 25 per cent and 50 per cent. Last August, however, Mr. Rovinescu pocketed a whopping $52.7-million profit by exercising Air Canada stock options originally issued in 2013. That was on top of a 2018 compensation package of more than $11.5-million.

In the United States, Democratic politicians have sought restrictions on share buybacks and executive compensation packages as part of the rescue packages approved under legislation that passed Congress last week. The US$2-trillion bill signed by President Donald Trump provides for tens of billions of dollars in aid to the country’s airline industry, prompting a major push back from left-leaning Democrats and other critics of corporate largesse.

“To what extent are taxpayers being asked to bail out wealthy creditors, and to reward companies that, during the years when they made enormous profits, spent their money propping up their own stock prices?” Columbia University law professor Tim Wu wrote last week in a New York Times Op-Ed, arguing that the relief package “amounts to a bailout of private capital and the endorsement of a decade of self-enriching practices.”

Whether the sacrifices being made by Air Canada’s top management now will be enough to prevent a similar backlash here may depend on whether Ottawa imposes stiff restrictions on share buybacks and executive compensation in exchange for providing a lifeline to the airline. The goal of the airline bailout, of course, is to ensure Air Canada and Onex Corp.'s WestJet are able to resume normal operations once the current crisis has passed. Without government aid, both airlines could face crippling cash shortages that threaten their very survival.

As it stands, global air travel is unlikely to return to precrisis levels for several months after current travel restrictions are lifted. Some of the capacity now being cut by Canada’s airlines may not be fully restored in coming quarters if the economy fails to rebound quickly and unemployment levels remain high for the rest of the year.

Air Canada’s takeover of Transat was already expected to lead the combined airline to cut some capacity on seasonal transatlantic and Caribbean routes. But with 2020 shaping up as a washout, the cuts needed for a return to profitability on those routes could approach or exceed Transat’s entire capacity. So why would Air Canada pay $720-million for Transat now?

With Transat’s stock trading at less than half of the $18-a-share Air Canada offered last year to buy the struggling carrier, Mr. Rovinescu will face pressure to renegotiate – if not kill – the deal.

Editor’s note: An earlier version of this column incorrectly spelled the last name of Columbia University law professor Tim Wu.

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