Skip to main content
Canada’s most-awarded newsroom for a reason
Enjoy unlimited digital access
$1.99
per week
for 24 weeks
Canada’s most-awarded newsroom for a reason
$1.99
per week
for 24 weeks
// //

Air Canada finally plunged into bankruptcy protection yesterday, vowing to keep its planes in the skies while it tries to slash labour costs and restructure its balance sheet.

The airline assured customers they won't lose their Aeroplan frequent flier points, and said it hoped to emerge from bankruptcy protection in six months, as a stronger carrier using smaller airplanes, but serving most of the same routes.

The filing is expected to render current shares worthless and could involve a major reduction in employee pensions. It could also lead to a regime change among top executives as the company's creditors take control.

Story continues below advertisement

"This is a day which none of us would ever have wanted for Air Canada or our people," president and chief executive officer Robert Milton said.

Mr. Justice James Farley of the Ontario Superior Court yesterday declared the company insolvent under the Companies' Creditors Arrangement Act, meaning it is no longer able to fulfill its financial obligations. Air Canada said it is burning through $2-million a day.

The court filing marks a sharp fall in the fortunes of the 40,000-

employee airline. Air Canada was expected to become a strong and healthy carrier through its acquisition of Canadian Airlines three years ago.

But it has been unable to turn an annual profit since the takeover because of merger challenges, a slowing economy, high fuel prices, terrorist attacks and the war in Iraq.

The filing had been expected for weeks. Various U.S. carriers have either filed, or are said to be on the verge of filing, for bankruptcy protection. United Airlines's parent, UAL Corp., is still under protection, and US Airways emerged from protection on Monday.

Air Canada provided several explanations for its filing yesterday, lashing out at labour unions and the Office of the Superintendent of Financial Institutions, which had ordered it to put hundreds of millions of dollars into its pension plan by Friday.

Story continues below advertisement

Air Canada also said it has been in discussions with a private equity partner, Sean Dunphy, a lawyer representing it said yesterday.

Mr. Dunphy declined to identify the partner, but said talks have been under way for a short time.

There was speculation on Bay Street yesterday that the mystery investor could be Onex Corp. chairman Gerald Schwartz, who tried to take over Air Canada in 1999 and recently struck a deal to buy 35 per cent of the Aeroplan frequent-flier program for $245-million.

But sources said Onex had not expressed any recent interest in taking a major stake in the airline.

The Onex-Aeroplan deal has also been called off because of the CCAA filing, but the parties say they would still like to do a deal -- possibly as Air Canada emerges from CCAA.

Air Canada has received $700-million (U.S.) in debtor-in-possession financing from GE Capital Corp., funds that will be used to carry the company through its restructuring. GE Capital is also a major creditor, through aircraft it leases to Air Canada.

Story continues below advertisement

Air Canada's flight schedule is not expected to be immediately affected by the CCAA filing, but the airline has cancelled some flights to cope with a drop in passenger bookings because of the war in Iraq and the outbreak of severe acute respiratory syndrome.

Although the airline has not yet filed its formal plan of restructuring, it said it will retire some of its larger planes and order a number of new regional jets.

And Mr. Milton said that even if the airline shrinks during the CCAA process, he is still hopeful that Air Canada can grow even larger than it is today by lowering its costs through a filing.

"If you get your costs right, run the airline right, offer a good product with good value, you will grow," he said.

A lawyer representing one of the airline's creditors said he suspects that Air Canada's board of directors and its top executives could be replaced now that the airline has filed for CCAA.

"I've got to believe that there will be big pressure behind the scenes for a change in management and a change of the board."

Story continues below advertisement

In Ottawa, Transport Minister David Collenette said the federal government had offered short-term bridge financing -- a lifeline federal sources said amounted to $300-million in loan guarantees -- that Air Canada could have used to keep it afloat while it sought out longer-term cash.

He said Air Canada informed him Monday night that it didn't need the assistance because GE Capital was providing loans.

In a conference call yesterday with reporters and analysts, Mr. Milton took aim at Air Canada's unions, blaming them for being unwilling to give the company the concessions necessary to save the troubled carrier.

In February, the airline had asked unions to help reduce its $3-billion labour bill by $650-million.

Yesterday, the company hinted that the unions could be asked to give even more now that it has filed for CCAA. Air Canada also said it is looking at options to reduce pension-plan benefits.

Mr. Milton said union leaders have been "burying their heads in the sand" and need to "get with the program."

Story continues below advertisement

Union officials responded that the company had not been completely forthcoming during the negotiations and accused Air Canada's senior managers of heavy-handed tactics.

"This company has always pretended that the problem has been the employee group and we simply don't see it that way. We believe that this company has been mismanaged and that together with federal mismanagement are the root causes of Air Canada's problems," said Pam Sachs, who speaks for the carrier's flight attendants at the Canadian Union of Public Employees.

Report on Business Company Snapshot is available for:

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the authors of this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies