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It was an all-or-nothing bet.

In a series of press interviews on Oct. 15, Canada 3000 Inc.'s chairman and largest shareholder John Lecky warned that Canada's second biggest airline would be out of cash by Christmas without government aid.

It was a bold move for the reclusive investor and the repercussions were immediate.

"After that it was just hell around here," said one former employee at the airline's Toronto head office. "All the suppliers started calling up and asking for payment. The morale of staff went through the floor. And the only [customer]calls coming in were people calling to cancel bookings."

As the airline went into a financial tailspin, Canada 3000 officials repeatedly gambled that the government had no political choice but to save the biggest competitor to Air Canada.

"I had always hoped that they would come through and that we could meet all of the requirements that they placed on us," president Angus Kinnear said.

But the gamble backfired horribly.

Less than a month after Mr. Lecky's warning, Canada 3000 filed for bankruptcy and suspended operations, dooming 4,800 employees and stranding some 50,000 passengers as far away as India and Australia.

It was a dizzyingly quick downward spiral for a company that had been profitable for all but one of its 13 years and was generally admired by competitors and customers.

The airline's crash wiped out the stock of a company that once had a market capitalization of more than $425-million.

It also left creditors on the hook for more than $260-million and transformed up to $100-million in tickets into worthless souvenirs.

Left with egg on their faces after the debacle are federal government and Canada 3000 officials who encouraged creditors up until the final days not to seize assets because they said the airline could be saved.

"I got hoodwinked out of a lot of money," said Rex LeDrew, president of the St. John's International Airport Authority, which is owed $450,000 by Canada 3000.

Mr. LeDrew isn't the only stakeholder pointing fingers after Canada 3000's rapid demise. Government officials blame Canada 3000 for assuming that Ottawa would save the carrier.

Analysts say the company tried to grow too fast.

Company officials blame Ottawa for attaching onerous terms to its loan guarantees, unions for not giving more concessions and Air Canada for launching its discount brand Tango when Canada 3000 was most vulnerable.

Regardless of who may be at fault, the behind-the-scenes story of Canada 3000's final months will be held up for years as a case study of one of the country's most poorly managed corporate rescue attempts.

In the corporate cockpit when Canada 3000 crashed were the same pilots who launched the airline in 1988: Mr. Kinnear and Mr. Lecky, the airline industry's odd couple.

Mr. Kinnear was so obsessed with his company that he lived by himself in an airport hotel and spent most of his waking hours working.

Revered "like a God" by head office employees, he knows hundreds of workers by their first names and shunned the best seats when flying to leave them for paying passengers.

Mr. Lecky, by contrast, prefers to travel in style. Grandson of H.R. MacMillan, one of the founders of former forestry giant MacMillan Bloedel Ltd., Mr. Lecky inherited some of the family fortune. The former Olympic rower and his family own a number of homes in Alberta, British Columbia and Britain, and he is so reluctant to speak to the media or investors that one analyst describes him as the "Howard Hughes of the Canadian airline industry." Mr. Lecky did not respond to numerous requests for an interview.

While the good times lasted, the contrasting personalities complemented each other well. But when the airline flew into turbulence, the rapid developments took a toll on communication between management and the board.

"It was chaos," an associate said. "There wasn't good communication at all."

To understand when things started to go wrong for Canada 3000, one needs to go back to late January, when Canada 3000 announced that it was buying its smaller rival Royal Aviation for $82-million in stock.

Notably absent from the Toronto press conference where the deal was announced was Mr. Kinnear, who was in India preparing for Canada 3000's entry into that market.

After the deal closed, it quickly became apparent that there were problems with the merger. Canada 3000 began writing down assets and even launched a lawsuit against two former Royal executives alleging that they had misrepresented Royal's finances.

By late summer, Canada 3000 officials were growing concerned about their cash position. On July 31, the airline had just $82-million in cash available, but faced $106-million in liabilities for prepaid flights. In simplified terms, the airline had taken in cash for roughly 26 days worth of tickets, but had only enough cash available for 20 days of operations.

Getting through the slow fall period would be difficult, but not impossible since bookings were strong. And if worst came to worst, the airline would be able to secure lines of credit to get it through to the winter period.

On Sept. 10, Canada 3000 sold about 25,000 tickets -- one of the best days in the company's history.

But on Sept. 11, everything changed.

The terrorist attacks brought air travel to a halt across the continent, and it would be days before Canada 3000 could resume its full schedule. The long-term effects were more severe. The week after the Sept. 11 terrorist attacks, Canada 3000 saw bookings plunge 50 per cent to 46,000 tickets.

Airlines around the world quickly began cutting tens of thousands of jobs. But at the Canada 3000 annual general meeting on Sept. 19, Mr. Kinnear said he hoped to avoid layoffs. On the same day, the company reported a surprisingly steep first-quarter loss of $15.8-million.

As airlines around the world reeled from the impact of the terrorist attacks, the U.S. government came forward with a $15-billion (U.S.) aid package for its airlines, involving both cash and loan guarantees. Airlines in Canada reasoned that Ottawa would follow with a similarly generous package. But Mr. Collenette announced a much slimmer bailout -- just $160-million (Canadian) to compensate Canadian carriers for the days airspace was closed.

Canada 3000 officials quickly sought to impress on Mr. Collenette that Canada 3000's meagre share of the bailout -- roughly $10-million -- would not be enough to save the troubled carrier. They felt Ottawa did not understand just how close to the wall the airline was.

"It was: 'Don't call us; we'll call you.' It was like we were an Air Canada and had another six months to sort ourselves out," one director said.

That's when Mr. Lecky rolled the dice, telling three reporters that without help from Ottawa, Canada 3000 would run out of cash by Christmas. It was a stunning move not only because it was sure to frighten both customers and suppliers, but because Mr. Lecky was acting alone, catching Mr. Kinnear and officials in Ottawa by surprise.

Government officials say they were "disappointed" by the broadside because they felt it worked against their attempts to save the carrier.

The warnings also appeared to further spook a public that was already worried about the war in Afghanistan and the new threat of anthrax. Canada 3000 sold just 49,000 tickets the week of Mr. Lecky's warning, compared with 63,000 two weeks earlier, before the United States began bombing Afghanistan.

Mr. Lecky's comments also forced Canada 3000 to fight a number of backroom battles to stop some of its more than 3,000 creditors from pulling the plug.

The airline had no immediate worries with its biggest creditors, aircraft leasing companies, which had already agreed to reduced payments on the 38 leased aircraft. Since Sept. 11, airlines around the world were cutting back their fleets and aircraft lessors reasoned that it was better to lease a plane for partial payment than for none at all.

But Canada 3000 was on much shakier ground with dozens of airports and air traffic control agencies around the world. These creditors had no direct pledges on Canada 3000's assets and the airline was months overdue paying tens of millions of dollars in fees -- including an estimated $5-million in airport improvement fees the airline had collected from passengers on behalf of the airports.

After Mr. Lecky dropped his cash-crisis bomb on Oct. 15, airports and agencies that operate air traffic control centres began to panic. A number of Canadian and international airports put Canada 3000 on notice that they wanted bills paid and some hired lawyers to explore court actions.

"We all wanted Canada 3000 to survive and we acted in good faith for a long time to help keep them afloat, but we needed to protect our money," said Paul Benoit, president of the Ottawa International Airport Authority.

One of the first to take action was the Winnipeg Airports Authority. On Oct. 24, the airport called a meeting of its directors to consider a proposal to seize one of Canada 3000's planes.

Halfway through the meeting, the airport's president Murray Sigler got a call from Mr. Benoit, who is also the Canadian Airport Council chairman. Mr. Benoit had a message for Mr. Sigler from senior officials at the Department of Transportation.

"They were basically asking us if we would be prepared to hold off for a week," said Mr. Sigler.

The airport's board agreed and they learned late the next night why the government had initiated the unusual call. At 7 p.m. on Oct. 25, a late hour even by Ottawa standards, Transport minister David Collenette announced a $75-million loan guarantee for Canada 3000 to stanch what he described as a "short-term cash crunch."

It had been a tough fight, but Mr. Collenette had been able to convince his cabinet colleagues to agree to step in to keep the airline afloat. In his statement, Mr. Collenette indicated he believed the airline "could return to profitability."

At first, it seemed that Mr. Lecky's gamble had worked. Some creditors agreed to give Canada 3000 more breathing room and investors began gobbling up its stock. The day after Mr. Collenette's announcement, investors purchased more than 200,000 Canada 3000 shares, pushing its price up 22 per cent to close at $4.10 apiece.

"It was great news. On the surface the government seemed to be saying a financial package was coming through," Winnipeg's Mr. Sigler said.

But behind the scenes, Canada 3000 officials were realizing that it would not be easy to meet the conditions Ottawa had attached to the guarantee.

In addition to demanding that investors inject $10-million in new capital, the government also wanted warrants entitling it to acquire one sixth of the airline. Ottawa also wanted to charge the airline an annual interest rate of 6 per cent for the loan guarantee, in addition to the rate it would have to pay to a commercial bank for the underlying $75-million loan.

Canada 3000 officials say the financial conditions were severe and almost unworkable.

But the requirement that Canada 3000 supply Ottawa with a viable business plan to return to profitability was an even bigger stumbling block, since it required major concessions from the airline's unions.

Industry and government officials say Mr. Collenette had little choice but to set harsh terms for the ailing carrier. Other airlines, aerospace companies and even travel agents were looking to Ottawa to help them recover from Sept. 11. And the government was also under pressure to help Algoma Steel Inc. with its problems.

"The government feared a rush of loan guarantee applications and the government just can't do that given the way revenue had gone down," one senior government official said.

Faced with the huge challenge of satisfying Ottawa's demands, Canada 3000 concentrated its efforts on two fronts. Management would work to get concessions from unions, while a three-person subcommittee of the board of directors would keep Ottawa informed of the airline's desperate situation.

Burning through its cash reserves at a rate of $700,000 a day, Canada 3000 was dangerously close to going broke at the end of October, even though it had already stopped making payments to many of its suppliers. And bookings still weren't improving. Company officials realized that with revenue down 30 per cent, the only way they would be able to get back to profitability would be to sever one-third of the airline and its staff.

It was now Mr. Kinnear's turn to roll the dice. On Nov. 3, he filed what he called his "last-ditch stand" -- an application with the Canadian Industrial Relations Board seeking permission to close down Royal.

If the labour board agreed -- and that was a big if -- the move would fundamentally alter the company. But although he had briefed Mr. Lecky on his intentions, Mr. Kinnear had not taken the plan to either his board of directors or the federal government.

At a CIRB hearing the evening of Nov. 6, Mr. Kinnear raised the ante with an astounding ultimatum backed by the board. He warned that if the labour board didn't approve his unusual request, the airline might be forced to cease operations.

Mr. Kinnear understood the stakes. He told the CIRB that when his comments hit the press, the airline's bookings and revenue would "decrease dramatically."

Indeed, a warning designed to step up pressure on the board and Canada 3000's unions only succeeded in hastening the airline's final descent when the CIRB turned down Mr. Kinnear's request.

Some caterers refused to load meals on airplanes until their bills were paid and fuel companies threatened to cut off the airline. Canadian and international airports began to take steps to seize the company's airplanes.

"It was closing in on us," a Canada 3000 director said.

But Canada 3000 continued to hold off its creditors with promises that it would be receiving the loan guarantee within days. In an e-mail to most of Canada's major airports on Nov. 7, Canada 3000 vice-president Linda Turk said the airline was "very confident" that it would soon get the guarantee.

"The government is planning on having all of the paperwork done by Friday [Nov. 9] If you can bear with us for another day or two, everyone will get payment in full," the e-mail said.

"We discounted that note," Winnipeg Airport's Mr. Sigler said. That afternoon, the airport won an order from Manitoba Superior Court to seize a Canada 3000 plane at 7:25 p.m. local time as security for its unpaid debts. In the end Winnipeg decided the order was enough protection against the airline's potential bankruptcy and 80 passengers caught a flight to Toronto, unaware that they had nearly been grounded.

Canada 3000 had another near hit in Gatwick Airport, outside of London. Shortly after Canada 3000 landed its last plane in the airport on Nov. 7, the airport seized the plane and warned the airline that it would not release it for its scheduled departure the next afternoon until the airline paid its overdue bills.

Canada 3000 managed to pay Gatwick in time for the plane to meet its 1:40 p.m. local departure time Nov. 8, but it wasn't much of a victory. As rumours spread in the airport fraternity that planes were being seized, other creditors began to pull the trigger. And despite an all night session the day before with its key unions, Canada 3000 still felt it would not be able to obtain the concessions it needed to secure the loan guarantees from Ottawa.

It was quickly becoming clear that the airline was going to have to follow through on its threats to file for court protection under the Companies' Creditors Arrangement Act. Officials hoped the filing would buy more time to negotiate with unions and enable them to meet the governments' terms.

The CCAA is designed to give financially desperate companies breathing room to restructure their finances and ultimately improve prospects for creditors. Bankruptcy judges will issue orders temporarily restricting creditors from seizing assets after a company has convinced the court that such protection will allow it to restore its financial health.

Sadly, Canada 3000 left itself almost no time to file for court protection, having retained Deloitte & Touche as monitor only one day before the filing on Nov. 8. The result was an unusually short court filing that bankruptcy experts call one of the "sketchiest" and "flimsiest" ever to land in a Canadian court.

Worse still, Canada 3000 had also failed to enforce the protection in foreign jurisdictions, and within hours of the filing, a number of foreign airports, aircraft maintenance companies and air traffic control agencies had begun making preparations to seize aircraft.

The only hope for Canada 3000's long-term survival would be if it could keep its planes in the sky during the restructuring -- a key condition in the judge's order to hold creditors at bay.

At 5 p.m., hours after the filing, Canada 3000 put out a press release advising that it would continue operating and that it was confident of its future prospects. But Mr. Kinnear, who says he did not authorize the 5 p.m. release, saw things differently.

"It was becoming very obvious as people were demanding money and seizing aircraft that to send other aircraft out and then have [them]seized and God knows what else all over the place -- we were not helping the situation. Things were going to get worse, not better," Mr. Kinnear said.

In a telephone conference call later Nov. 8, Canada 3000's board passed a motion approving Mr. Kinnear's painful recommendation that the airline bring its aircraft back to Canada and cease operations.

The decision came as a shock to managers across the country, who had been advising local officials that it would be business as usual. Astoundingly, even the company's court-appointed monitor Deloitte & Touche had not been advised that the airline was grounding its planes.

Mr. Collenette was waiting for a delayed flight at the Toronto airport when he received a call from an aide advising him of Canada 3000's decision.

"We absolutely did as much as we could," Mr. Collenette said later. "We had an obligation to be prudent with the taxpayer's dollar."

Newfoundland Airport's president Mr. LeDrew heard the news on the radio Nov. 9 when he was shaving.

"My shave got faster," said Mr. LeDrew, who had been advised late the previous night by a Canada 3000 manager that the airline would keep operating. "I was ticked off big time, having been assured that everything was okay."

It was a very confusing day for Canada 3000's domestic creditors. Although the court had granted protection to the airline the day before, it was no longer clear whether the order applied as a result of Canada 3000's shutdown. Some, like Mr. LeDrew, took matters into their own hands. Faced with $450,000 in overdue payments, Mr. LeDrew raced to the airport Nov. 9 to seize what assets he could.

The biggest asset was a 737 plane due to depart at 9 a.m. with 80 passengers for Toronto. Canada 3000 may have been shut down, but the airline still hoped to get some passengers home. Surrounded by crying airline employees and confused passengers, some of whom already had their baggage loaded on the plane, Mr. LeDrew ordered the airline's staff to hand over their security passes. The flight was cancelled and 10 days later some passengers are still trying to raise money to return home.

It would take days of "legal mumbo jumbo" and even a jail threat before Mr. LeDrew agreed that he had no legal claim to the airplane. But by then, it was too late. On Nov. 10, Mr. Kinnear resigned with the rest of the company's directors and officers and on Nov. 11 Deloitte obtained a court order placing the company into bankruptcy.

The planes might be grounded, but Mr. Kinnear continues to work as hard as ever. His former partner Mr. Lecky has retreated to a residence in Britain, but Mr. Kinnear is still showing up at Canada 3000's offices every day.

Although technically no longer an executive or even an employee of the airline he founded, Mr. Kinnear says is he is there as "a concerned Canadian" helping the monitor deal with the winding down of the business.

Canada 3000, as one adviser put it, may have "run out of room on the runway and hit the wall," but Mr. Kinnear appears unwilling to leave the wreckage.

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