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An Air Canada Boeing 787-9 Dreamliner takes off from Montreal's Pierre Elliott Trudeau International Airport on Dec. 11, 2019.DANIEL SLIM/AFP/Getty Images

The federal government will take an equity stake in Air Canada as part of a multibillion-dollar pandemic rescue plan for the country’s largest airline.

The government will allow Air Canada to access up to $5.9-billion through the Large Employer Emergency Financing Facility (LEEFF) program, Finance Minister Chrystia Freeland and Transport Minister Omar Alghabra announced. As part of the package, Ottawa is buying $500-million of Air Canada stock, or 21.6 million shares, at just over $23 each and has the right to buy 14 million more. The federal government’s voting interest in the airline is capped at just below 20 percent.

“This will give the Canadian government a stake in the company,” Ms. Freeland told a virtual news conference in Toronto. “This support comes with strict conditions to protect Canadian travellers, Canadian taxpayers and Air Canada’s workers. Air Canada workers’ jobs, pensions and collective agreements will be protected.”

Before the announcement, Air Canada and other airlines had resisted the idea of equity stakes over concerns about government meddling.

Canada’s other carriers will line up for financing on similar terms, predicted John Gradek, a business professor at McGill University who worked in the airline industry. He said: “Everyone will be at the trough.”

Ottawa is providing $5.375-billion in repayable loans to Air Canada, including a $1.4-billion credit facility on which the airline can draw to refund customers for flights cancelled because of the pandemic. Air Canada holds $2.3-billion in prepaid fares, including cancelled flights, according to company documents. Travel agents who were paid commissions to book cancelled flights will not be required to repay them.

Under the rescue package, Air Canada will not be able to use the money to buy back its own shares, and executive compensation will be capped at $1-million. It also requires Air Canada to immediately restore key regional routes and current orders for 33 Airbus A220 aircraft produced in Montreal.

“It was very important to get a good deal for Canadians,” Ms. Freeland said. “The government of Canada expects to be be fully paid back.”

Air Canada shares closed at $27 on Monday, well above the price the government is paying.

Michael Sabia, the veteran corporate executive recently recruited as deputy minister of finance, finalized the package over the weekend. The former chief executive officer of Caisse de dépôt et placement du Québec took the reins for the negotiations from Transport Canada after he was recruited as Ms. Freeland’s deputy in mid-December.

Air Canada president and chief executive officer Michael Rousseau said the airline raised nearly $7-billion during the pandemic as air traffic was halted, but needed additional access to capital.

The federal aid “enables us to better resolve customer refunds of non-refundable tickets, maintain our workforce and re-enter regional markets,” he said. “Most importantly, this program provides additional liquidity, if required, to rebuild our business to the benefit of all stakeholders and to remain a significant contributor to the Canadian economy through its recovery and for the long term.”

Industry leaders welcomed the support for the airline industry. The deal “recognizes the unique challenges faced by Canada’s hard-hit travel sector in the COVID-19 pandemic,” said Goldy Hyder, chief executive officer of the Business Council of Canada. “But government assistance is only one step. To get Canadians flying again and to bring back jobs, we need a clear plan for the economic restart.”

Canadian Labour Congress president Hassan Yussuff said the deal is good for Air Canada workers, for communities dependent on regional air service and Canadians who felt cheated out of their refunds.

Rival carriers such as Calgary-based WestJet Airlines Ltd. were not included in the package announced on Monday, but negotiations with the government are continuing. Late Monday, WestJet spokeswoman Morgan Bell said the company already paid refunds in a manner consistent with carriers in the U.S. and Europe and “continues to operate self-sufficiently with the exception of the Canada Emergency Wage Subsidy (CEWS), which flows through directly to our employees.”

Smaller carriers such as Porter Airlines and Transat A.T. Inc. welcomed the government’s support for the country’s largest airline. “This is a positive sign,” Transat spokesman Christophe Hennebelle said. “Our discussions are very advanced, and we trust that the government will have a fair approach towards all industry players, so this makes us even more confident that we will also receive help in the coming weeks.”

Porter spokesman Brad Cicero said: “We look forward to a broader industry solution being finalized as part of our continuing discussions with the government.”

Talks between Mr. Sabia and the industry have been going on for months, with all the participants signing non-disclosure agreements as Finance Department officials delved deeply into the financial records of airlines.

Mr. Gradek said the catalyst for the deal between Air Canada and the government was last week’s pandemic lockdowns in Ontario and British Columbia.

“Air Canada was pushed into this agreement by the new constraints on demand for flights,” Mr. Gradek said. “If you look at airlines around the world, most have accepted government support in order to keep their professional employees trained and on staff, so they can start flying again when the pandemic eases.”

U.S., Asian and European airlines have accepted government bailouts that include direct equity investments and boardroom influence. Last Tuesday, the French government agreed to contribute to a €4-billion recapitalization of Air France-KLM and more than double its stake to nearly 30 per cent. Last May, the German government invested €9-billion in Lufthansa, and holds a 20 per cent stake, along with the right to veto a hostile takeover of the airline.

Globally, governments have put an estimated US$183-billion into the aviation industry during the pandemic, according to British-based consulting firm Ishka.

Air Canada’s revenues declined by 70 per cent last year to $5.8-billion, as the pandemic kept passengers off planes. The airline lost $3.8-billion in 2020, compared to a $1.7-billion profit in 2019.

Early this month, Air Canada called off its planned $180-million takeover of Transat because of concerns from European Union competition regulators. Air Canada agreed to pay Transat a $12.5-million termination fee.

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