The federal cabinet is deliberating a targeted bailout package for Canada’s airline industry that includes offers of low interest loans and rollbacks of airport fee increases to help it cope with the fallout from the coronavirus pandemic.
The package of options that cabinet is reviewing recognizes that air travel is essential to the Canadian economy, and could come in the November economic statement or the next federal budget, expected in February or March, according to a senior government official and three industry sources. The Globe and Mail is not identifying the sources because the the government official is not authorized to discuss cabinet deliberations, and the others are not authorized to speak on behalf of their companies.
The federal government plans to make financial support conditional on two potentially controversial requirements: Public money cannot be used to pay air executives, and carriers may be asked to restart flights on routes that have been closed during the pandemic, according to the government source.
Air Canada cancelled 30 domestic routes in June, and WestJet Airlines Ltd. cut 80 per cent of its flights to the Atlantic provinces this month. Ottawa does not expect that the airlines would have to resume all routes to receive the bailout. According to the government source, financial support would require airlines only to resume key regional connections.
Large and small airlines have been lobbying for support from the federal government for months in the unprecedented crisis, as the pandemic kept passengers off planes and closed routes, bringing significant financial losses. In the past, Air Canada chief executive Calin Rovinescu has said government support should have minimal strings attached.
“If you look at the airline industry, it has taken a significant hit," Navdeep Bains, Minister of Innovation, Science and Industry, said when asked about the issue at an unrelated news conference on Thursday. "We recognize that as a government. We continue to work with the airline industry and all the relevant stakeholders to look at next steps of how we can support them, and support the workers and communities.”
Canada’s airlines had more than 50,000 employees when the pandemic began. In addition, tens of thousands of Canadians have jobs directly tied to the sector, including those who work at airports, in air transport and 4,600 employees at Nav Canada, the national air traffic controller.
To cope with reduced traffic, many airports and Nav Canada increased fees in recent months, hiking the cost of a cross-country flight for a family of four by about $100. Airlines want fees rolled back as part of a campaign to get the public to resume air travel.
While the government official cautioned that no decision has been made, cabinet is looking at offering loans at low interest rates through the Business Development Bank of Canada, Export Development Corporation or some other means of direct government backing.
It’s unlikely federal money would come from the Large Employer Emergency Financing Facility program set up by former finance minister Bill Morneau. The program offers loans at rising rates of 5 per cent to 8 per cent, but few companies have used it. The large airlines can sell bonds at 4 per cent. John McKenna, chief executive officer of the Air Transport Association of Canada, said the airlines need forgivable loans, or access to low-cost credit.
The federal cabinet is also considering a payroll support package that mirrors a U.S. initiative, the government source said. In March, the U.S. Treasury department rolled out a US$25-billion program for domestic airlines. By the end of September, seven of the largest U.S. carriers had received loans under the program, including American Airlines and United Airlines. To tap this funding, the U.S. airlines must fly to all destinations they served before the pandemic, unless they receive a government waiver.
The Liberals have not ruled out buying shares in smaller airlines that face a serious financial crunch, particularly those serving northern communities. However, the industry sources said the government is unlikely to invest in larger airlines such as Air Canada, WestJet and Porter Airlines.
The official stressed that the government will make it a condition of the bailout that no federal money go to executive compensation. In 2017, Ottawa issued a $372.5-million loan to Montreal-based Bombardier Inc., which makes business jets and rail products, and the company gave its executives US$32.6-million in bonuses.
In the absence of government support, Nav Canada announced in May that it would hike its fees by 29.5 percent, effective in September. In a press release at the time, the company said: “NAV Canada acknowledges this increase comes at a time when its customers are also in exceptionally difficult circumstances as a result of the COVID-19 pandemic.” Chief executive officer Neil Wilson said: “All available alternatives, including further government assistance, will continue to be explored and utilized in order to minimize or avoid the proposed rate increase.”
The Greater Toronto Airports Authority, owner of Toronto Pearson International Airport, increased its airport improvement fee by 20 per cent to $30 per departing passenger at the end of September – the first hike in 12 years. The Winnipeg Airports Authority raised its fee by more than 50 per cent, from $25 to $38, in September. Early this month, Halifax’s airport announced plans to increase its improvement fee by 25 per cent to $35 in January.
With a report from Emma Graney
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