Rival tried to 'destroy' WestJet, suit says

The nasty fight in Canada's aviation sector heated up yesterday as WestJet Airlines Ltd. launched a $30-million lawsuit against Air Canada, including chairman Robert Milton, alleging that he and two other executives conspired to win market share by predatory means for personal gain.

Other defendants named by WestJet are Stephen Smith, Air Canada's senior vice-president of customer experience, and Calin Rovinescu, who resigned as Air Canada's chief restructuring officer in April.

The two carriers are already locked in a bitter eight-month legal battle over WestJet's alleged spying in the airline industry.

In its lawsuit filed yesterday in Ontario Superior Court, WestJet alleges that the three men engaged in "predatory conduct" when they adopted a business plan of cut-rate fares in late 2003 or early 2004.

"In essence, the plan was for Air Canada to destroy WestJet and then have the Canadian market to itself, at which point Air Canada could return to its former pricing policies and seek to gain profitability," said the statement of claim.

Air Canada issued a news release yesterday to vehemently deny any wrongdoing.

Mr. Milton is chairman and chief executive officer of ACE Aviation Holdings Inc., the new parent company of Air Canada. Mr. Smith had served as WestJet president for 19 months until September, 2000.

"Milton, Smith and Rovinescu stood and stand to gain financially, either directly or indirectly, by way of increases to their salaries, bonuses, the value of their Air Canada stock options and other benefits" by "damaging or destroying WestJet as a competitor," WestJet alleged in the court document.

Air Canada, which emerged from bankruptcy protection on Sept. 30, countered that WestJet is trying to divert attention from Air Canada's $220-million espionage lawsuit against the discount carrier. It accuses Calgary-based WestJet of electronically snooping on a confidential reservations website.

"WestJet's action is without merit and the statement of claim describes no viable cause of action," Air Canada said.

In its news release, Air Canada reiterated its court filings that allege WestJet executives, including CEO Clive Beddoe, were involved in a "massive misuse of Air Canada's confidential information" for one year until March, 2004.

Montreal-based Air Canada filed for bankruptcy protection in April, 2003, and emerged 18 months later.

WestJet alleges that Air Canada feared losing further market share, pointing out that WestJet's domestic share grew to 28 per cent this year from just 4 per cent in 1998.

Mr. Milton, Mr. Smith and Mr. Rovinescu expected that equity investors would be "prepared to have Air Canada incur losses for up to a couple of years, and up to a couple of hundred million dollars, while Air Canada attacked WestJet on all of its routes and drove it out of the market," according to the 16-page lawsuit.

Zip Air Inc., a former Air Canada subsidiary, is also named as a defendant. Air Canada shut down Zip in September, just two years after starting what it had hoped would be a strong western-based regional rival to WestJet.

WestJet alleges that Mr. Milton and Mr. Rovinescu previously embarked on a predatory pricing strategy between April, 2000, and March, 2001.

Six weeks ago, the federal Competition Bureau said it wouldn't proceed at the Competition Tribunal with allegations that Air Canada broke the law through anti-competitive behaviour in 2000 and 2001, saying that competition in the industry had changed since then.

In its lawsuit launched in April, Air Canada alleges that WestJet and one of its co-founders, Mark Hill, hacked into an internal Air Canada reservations website and stole sensitive information to further WestJet's commercial interests.

Discount carrier Jetsgo Corp. is also suing WestJet for alleged spying activities, claiming $50-million in damages.

Yesterday in its lawsuit, WestJet complained that Air Canada hired detectives to search Mr. Hill's trash in the Victoria suburb of Oak Bay, where shredded documents were "unlawfully seized." Air Canada later used a U.S. firm to digitally reconstruct the papers, which included summaries of Air Canada's "best and worst" routes based on passenger loads.

WestJet denies any wrongdoing, saying that Air Canada's internal website wasn't confidential, and that information about flights could be obtained by counting passengers boarding planes.

WestJet noted in its lawsuit yesterday that Air Canada originally sought $5-million in damages and then the "concocted" claim soared in July to $220-million. Last month, Air Canada added Mr. Beddoe to its list of defendants.

None of the allegations have been proved in court.

WestJet said in its latest court filing that it isn't impressed with Air Canada's legal tactics: "Competition is one thing, but the use of the litigation as a stalking horse to advance other avenues of attack, for the purpose of eliminating a competitor, is another."

WestJet also alleges that Air Canada failed to terminate access to its website in mid-2003, even though it had learned of unusual electronic activity at the time.

Yesterday's lawsuit seeks $25-million for "abuse of process, intentional interference with economic interests and conspiracy," and $5-million in punitive damages.