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Canada's only national-scale airline. Simultaneously a great argument for and a great argument against direct state involvement in essential parts of a national economy.

A very brief history

Air Canada began life as Trans-Canada Airlines in 1937. It was a division of the state-run Canadian National Railway; the Canadian federal government worried that the railway (a 19th-century government project to run rails from coast to coast that had essentially created Canada) would lose ground to growing American airlines -- that it would be quicker to go to the United States, take a plane, then come back north, rather than ride the Canadian rails.

In 1964, Trans-Canada Airlines was renamed Air Canada and made a separate entity. In 1978, it was hived off as a Crown corporation (owned by the state but operated at arm's length), then privatized in 1989. Despite the privatization, Air Canada remained a near-monopoly and was therefore closely regulated by the federal Department of Transport, with strict restrictions on how much of the airline any one person could own -- especially a foreigner.

Modern controversy

In the fall of 1999, Canadian merger-and-acquisitions specialist Gerry Schwartz put together a $2.2 billion Cdn. bid to buy control of Air Canada and its upstart competitor Canadian Airlines, intending to merge them into one.

Schwartz's move was very risky. Not only was the bid backed by American Airlines (which would have required the feds to relax the foreign-ownership rules), but it was questionable whether any resulting venture would be profitable: Air Canada was slightly profitable (in a raging economy), while Canadian was on the verge of bankruptcy. Schwartz was betting that by re-establishing a one-airline near-monopoly (Canada had a small number of regional carriers), he could haul that one airline into real profitability.

Schwartz's strategy turned out to be moot. The federal government -- buoyed by moderate public outrage over Schwartz's perceived bullying of the transport ministry -- refused to relax the ownership rules, and the bid fell apart.

Instead, Air Canada bought out Canadian Airlines itself -- if it could work for Gerry, why not for the company?

Well, maybe because Gerry Schwartz knows something about management. Following the buyout, Air Canada started to hemmorhage money. Business analysts say it would have been best simply to buy Canadian and shut it down -- it was nearly bankrupt for a reason. Instead, Air Canada chief Robert Milton set about integrating the two airlines, causing massive headaches for travellers whose tickets didn't match the planes they were flying on, whose flights didn't leave when they were supposed to (if they left at all), whose calls to advertised phone numbers didn't connect to anything.

The regional carriers saw their chance. One in particular, Calgary-based WestJet, started to recast itself as a national discount carrier, flying more and more planes into Eastern Canada. Other small-time operators started following its lead.

September 11, 2001

After The Day The World Changed, Air Canada's calls for a cash infusion from the federal government became more urgent. The U.S. airlines were to share a $20-billion US bailout; Milton asked for $4 billion Cdn. (about $2.5 billion US) for his airline.

The federal transport minister, David Collenette, laughed Milton out of his office. The main problem was that it was impossible to tell how much the airline deserved in legitimate compensation for the government's shutting down of Canadian airspace in the wake of the terrorist attacks on the U.S., how many of the airline's problems were the result of traveller jitteriness (which is a business problem, not a government problem), and how many were the result of Robert Milton's being a damned fool.

Air Canada got something like $40 million from the feds, and promptly went out and started up a discount division, called "Tango," to compete with WestJet and the other main discount carrier, Canada 3000. Canada 3000 (hurting badly after Sept. 11) shut down shortly thereafter amid calls for a government rescue; WestJet says it's comfortably profitable and doesn't see why the government should be bailing out airlines when it's possible to run one and make money at it.

Regulatory problems

The Canadian government operates on the assumption that Canada needs a home-grown airline industry. That's taken as a truism; it's not part of the debate. Accordingly, the government places restrictions on who can do what with airplanes in Canada. No foreign entity can own more than a quarter of a Canadian airline, and no foreign airline is allowed to fly passengers from point to point within the country.

The question, however, is whether Canada can actually support a full-service airline or not. The answer appears to be that it can't. (WestJet is a discount carrier and it picks its routes carefully. Good luck getting to anyplace a little out of the way on a WestJet plane.) The policy debate Canada hasn't yet had is whether the government should be insisting that Canada maintain an unviable industry, when it's possible that foreign carriers (mostly American, maybe British) could deliver better service more cheaply than Air Canada does.

Vince Carter

"Air Canada" is also a nickname for Toronto Raptors basketball player Vince Carter. It's a play on hyperstar Michael Jordan's (somewhat passé) nickname "Air Jordan," and on the fact that the Raptors play in a stadium/ice-rink building called the Air Canada Centre.

One imagines Robert Milton is delighted by the nickname. Unlike the airline, Carter often seems to get where he's supposed to be when he's supposed to be there.

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