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Early last week, feeling refreshed from a family ski trip, Jetsgo Corp. founder Michel Leblanc was looking forward to promoting his discount airline's Lucky Penny Sale, one of many low-fare marketing strategies he had up his sleeve.

But then the phone rang at 9:15 a.m. on Monday, March 7. It was his long-time acquaintance, Nav Canada president John Crichton, on the line. As head of the country's air traffic control system, Mr. Crichton had red-flagged the Jetsgo file a month earlier, and now he wanted to spell out in stark terms just how worried he was about the Montreal-based carrier's finances.

Jetsgo owed Nav Canada millions of dollars, and Mr. Crichton didn't mince words. He wanted a Yes or No answer to his question of whether Jetsgo would pay its debts immediately.

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"It was pay or die," Mr. Leblanc recalled bitterly in an interview this week. "That's what we call a hostage payment. You either comply or we kill you."

The Globe and Mail has pieced together the final dramatic weeks of the carrier after a series of interviews with airline rivals, aircraft brokers, Nav Canada, airport workers, government officials, aviation industry analysts and Jetsgo employees.

Just how it got to this point where creditors were breathing down 2½-year-old Jetsgo's neck -- just before March break, when thousands of travellers counted on the airline -- is a tale of high fuel prices, fierce fare wars, untimely safety audits and bad luck with winter weather.

All those factors would weigh on Jetsgo, forcing it to seek bankruptcy protection two minutes after midnight on March 11, stranding 17,000 passengers and leaving 1,200 employees out of work. Jetsgo's grounding also stirred consumer anger at having to pay more for Air Canada and WestJet Airlines Ltd. tickets as Jetsgo exited the market.

While unnerved by Nav Canada's payment demand, Mr. Leblanc calmly told Mr. Crichton that Nav Canada's March 7 request was unreasonable. Mr. Crichton -- an aviation industry veteran with 35 years of experience who got his start as a pilot -- replied that he would get back to the Jetsgo majority owner.

Minutes later, Mr. Crichton responded with a phone call and an e-mail that would shake Jetsgo's world.

Nav Canada instructed its lawyer, Clifton Prophet at Gowling Lafleur Henderson LLP, to seize Jetsgo's planes by noon on March 7. Shocked, Mr. Leblanc quickly called his lawyers at Montreal law firm Ogilvy Renault LLP to thwart Nav Canada's strategy, which included a threat to refuse granting flight plans.

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If even one plane were seized, word would get out to other creditors and "that would have been the end of Jetsgo," Mr. Leblanc, 58, said in his office near Montreal's Trudeau Airport, as he butted out a Camel Light and lit up another one.

Jetsgo cut a deal with Nav Canada, writing it a certified cheque for $1.25-million immediately, and pledging to pay another $750,000 by March 11, $1.5-million by March 15 and the last instalment of $1.5-million by March 22, according to a letter drafted by Mr. Prophet and signed by Ogilvy Renault.

For an upstart airline already stretched to its financial limit, Nav Canada's squeeze was painful. Since mid-2002, when Jetsgo launched, the carrier had 30 days to pay the previous month's bill. Now, it had to not only pay up for what it owed for February air traffic control fees, but also fork over March fees, too, before March was even over.

"It was extremely disruptive to our cash flow," Mr. Leblanc complained.

Still, thinking that Jetsgo had solved its Nav Canada problem, he went home on March 7 and had a good night's sleep, counting his blessings that other creditors weren't descending.

But Mr. Leblanc was about to face many more situations that would deprive him of sleep. On March 8, the Greater Toronto Airports Authority, overseer of Pearson International Airport, pressed Jetsgo financial vice-president André Deslauriers to pay the airline's debts.

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GTAA chief financial officer Judy Fountain, who keeps her desk tidy at Pearson, sent an "arrears letter" to Jetsgo, telling it to pay overdue bills. Then other airport authorities and creditors began demanding speedier payments and started tightening their credit terms.

"It was a pressure cooker," Mr. Leblanc said. "I remember André said that 'All hell is breaking loose.' If these guys get all crazy at the same time and try to seize planes, we won't be able to assure reliable operations."

A preview of the Jetsgo's troubles came two days before Christmas, 2004, when the airline had to cancel its flights amid a Toronto winter storm, stranding or delaying an estimated 3,000 passengers. That would bruise Jetsgo's reputation, and to placate irate customers, the airline issued vouchers offering discounts on already cheap tickets.

"I would take the whole blame for Dec. 23. There was no excuse. We goofed," Mr. Leblanc said.

On Jan. 20, 2005, a Jetsgo Boeing MD-83 botched a landing, veered off the runway at Calgary International Airport, and as it tried to take off again, hit a sign and damaged its left landing gear and wing flaps.

That Jan. 20 Calgary incident is important because it caught the attention of the Transportation Safety Board, which would later launch a full so-called Class 3 investigation into the bungled landing.

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Safety-related issues would later eat into Jetsgo's finances. After a special inspection that started on Valentine's Day, the safety board suspended a certain category of licence, forcing Jetsgo to fly its planes at lower altitude, which burns more jet fuel.

During a Feb. 15 conference call, WestJet chairman Clive Beddoe -- a brash executive who prefers jeans over suits at his Calgary head office -- vowed to match any Jetsgo fare, and undercut it if necessary, to protect market share.

Jetsgo's business model was based on low ticket prices, but with so many vouchers outstanding and with WestJet pledging to intensify the dogfight in the skies, Mr. Leblanc didn't like how deeply discounted the fares were getting.

"We were trying to raise the prices because we were operating below cost," he said. For the six months ended Dec. 26, 2004, Jetsgo lost $33.7-million, then lost another $12-million in January and an estimated $10-million in February, according to company documents filed in the Quebec Superior Court as part of its filing under the Companies' Creditors Arrangement Act.

"I underestimated the viciousness and the unfairness of one of my competitors," said Mr. Leblanc, so disgusted with WestJet that he couldn't bear to even utter its name.

Jetsgo filed a $50-million lawsuit against WestJet last year, alleging that the Calgary-based discount carrier engaged in espionage, gaining access to confidential Jetsgo data. WestJet has denied the allegations.

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Mr. Beddoe dismisses Mr. Leblanc's criticisms, saying Jetsgo had a flawed business plan from the get-go, and that brutal fare wars, high fuel prices and safety issues over "deficiencies" in training manuals hampered Jetsgo.

"It was a combination of all of these things and the guy finally throws in the towel," Mr. Beddoe said of Mr. Leblanc.

Nav Canada also takes umbrage with Mr. Leblanc's blame game.

"Jetsgo was, in fact, on a monthly basis, starting in September, exceeding our $4-million credit limit," Nav Canada spokesman John Morris said. "We're not responsible for the way Jetsgo manages its business affairs. We're responsible for the integrity of the air navigation system."

Nav Canada had warned Jetsgo on Feb. 9 to stay within the credit limit. Then, it sent a stern follow-up letter by e-mail to Mr. Leblanc on Feb. 25, seeking to tighten credit terms. The problem was that the Jetsgo founder didn't see the letter right away because he headed for a ski trip with his family at their cottage in the Laurentians near Montreal.

So the Feb. 25 letter fell into the lap of Mr. Deslauriers, Jetsgo's chief financial officer. By March 2, after another letter from Nav Canada, Mr. Deslauriers grew nervous about the tone of his dealings with Nav Canada. He called Mr. Leblanc on his ski holiday and explained the looming crisis.

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Mr. Leblanc scurried back to Montreal on March 3, sensing that there was a financial fire to put out. On March 4, he called Mr. Crichton and asked him for a compromise solution. An amicable settlement at that time seemed possible. Mr. Deslauriers met with his counterpart at Nav Canada, William Fenton, in Ottawa to discuss ways to ease the tensions. That meeting seemed to go well, or so Mr. Leblanc thought, since he returned to his family ski holiday on the weekend.

At his cottage, he figured that with perhaps $12-million raised from selling five of the fleet of 15 company-owned Fokker F100s, that would relieve the cash crunch. Two buyers, one from the United States and one from Europe, had been lined up for March. And the 14 leased Boeing MD-83s would continue to be used for the major routes in Jetsgo's network of 30 cities in Canada and the United States.

Then came the morning of Monday, March 7, and that fateful 9:15 a.m. call from Mr. Crichton.

Until then, Mr. Leblanc still reckoned Jetsgo could have turned the corner, cutting its monthly loss in March to less than $3-million.

"A creditor put a gun to our head," he said, again blaming Nav Canada for authoring the beginning of the end.

On the night of March 9, seeing the writing on the wall, Mr. Leblanc instructed his executives to devise plans to ground the fleet. In a frenzied night for Jetsgo on March 10, Jetsgo supervisors ordered the bulk of the Fokker fleet to be flown to Quebec City, under the guise of maintenance checks -- a "white lie, but a necessary lie" in Mr. Leblanc's view.

That same night, Transport Minister Jean Lapierre and Air Canada chairman Robert Milton, who chat every two or three weeks, discussed the swirling rumours about Jetsgo's shutdown and whether Air Canada would be ready to handle stranded passengers if Jetsgo closed.

There was never any serious talk in government of cautioning the public about Jetsgo's financial troubles, one official said. Such a warning was seen as potentially triggering a Jetsgo collapse that might not otherwise occur. As well, some airlines have sought bankruptcy protection, but kept flying anyway.

Mr. Leblanc isn't sure what the future holds for him.

"It isn't going to be easy to start another airline, but impossible? That's not right, either."

He is keeping the faith, saying there's still room in Canada for a niche player to take on Air Canada and WestJet.

"Who knows? To me, it's a function of opportunities that we could identify."

An airline's descent

Montreal-based Jetsgo Corp. Canada's third-largest airline, filed for bankruptcy protection on March 11. Here are some key events leading up to the grounding of its fleet.

Dec. 23, 2004: Jetsgo cancels flights amid Toronto storm.

Jan. 20, 2005: A Jetsgo plane landing in fog in Calgary veers off the runway and hits a sign.

Jan. 28, 2005: WestJet shares jump as U.S. hedge funds hear rumours of possible financial woes at privately owned Jetsgo.

Feb. 9: New Canada sends first of four letters to Jetsgo warning about credit limits.

Feb. 14: New Canada officials tell Transport Canada deputy minister Louis Ranger that they're having trouble collecting unpaid bills from Jetsgo.

Feb. 28: The federal Air Travel Complaints Program says the number of complaints about Jetsgo, tripled in 2004, compared with 2003.

March 7: Nav Canada turns up the heat on Jetsgo for payments owed.

March 8: The Globe and Mail publishes a story about a Jetsgo plane leaving debris on a Toronto runway; Greater Toronto Airports Authority and other creditors seek speedier payments, Transport Canada issues 30 day safety warning notice to Jetsgo

March 9: Jetsgo, sensing the end is near, meets with chartered accountants RSM Richter Inc.and law firm Ogilvy Renault LLP

March 10: Jetsgo supervisors instruct pilots to fly bulk of Fokkers to Quebec City, under guise of "air worthiness" checks.

March 11: Jetsgo issues news release two minutes after mid night to announce its shutdown. Airline later files for protection from creditors in Quebec Superior Court in Montreal. Court appointed monitor is Richter.

March 17: Jetsgo founder Michel Leblanc speaks out publicly for the first time since ceasing airline operations, apologizing to passengers but standing by what he calls a "white lie" told to pilots to get them to fly Fokkers to Quebec City.

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