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CANADA: Air Canada, Ottawa agree to aid package worth up to $5.9 billion

The package, which gives Canada a six-per-cent stake in the country's biggest airline, also requires the Montreal-based company to maintain employment at levels no lower than those at April 1
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OTTAWA — After months of negotiations, Ottawa has reached a deal with Air Canada that will allow the battered airline to access as much as $5.9 billion in loans and equity financing from the public purse.

Under the agreement, Air Canada must refund passengers whose flights were cancelled due to the COVID-19 pandemic, cap executive compensation at $1 million and restore service to regional airports.

The package, which gives Canada a six-per-cent stake in the country's biggest airline, also requires the Montreal-based company to maintain employment at levels no lower than those at April 1.

“Taxpayer’s aren't footing the bill. This is a loan facility, and the government of Canada fully expects to be paid back," Finance Minister Chrystia Freeland said Monday night, referring to $5.4 billion in available loans.

Some $1.4 billion of that sum is marked to help reimburse the thousands of customers who paid for tickets but remained in the lurch at the end of 2020.

“We have agreed with Air Canada that refunds should be issued as soon as possible, beginning in the coming weeks and months," Freeland said, though Air Canada has up to seven years to draw on the low-interest loan.

Asked whether the Air Canada agreement could provide a framework for a deal with WestJet, Freeland stressed the importance of two national carriers and characterized negotiations with the Calgary-based No. 2 airline as "constructive."

She said ticket refunds, executive compensation and other requirements would be a factor but any deal would be based on the individual needs of the airline in question.

Travel restrictions introduced through the beginning of the pandemic have been catastrophic for the airline industry.

Air Canada's passenger numbers declined 73 per cent in 2020 following several years of record growth for the airline. During 2020, it reduced staff by more than 20,000, more than half of the pre-COVID total, then cut another 1,700 employees in January.

The company collected $554 million from the Canada Emergency Wage Subsidy in 2020 and said it would continue to access the program in 2021.

When the airline released its 2020 financial results in February, then-CEO Calin Rovinescu described the period as the "bleakest year in the history of commercial aviation."

The company lost $4.6-billion in 2020, compared with a profit of $1.5 billion the year before.

Government support for Air Canada "has gone from a nice-to-have, almost to a need-to-have" said RBC analyst Walter Spracklin in a Feb. 12 note analyzing the financial results.

He added that government support would be necessary for Air Canada to provide passenger refunds because the company has been so weakened by travel restrictions it no longer has the means.

"Importantly, government assistance is required in our view to lessen the burden the Canadian airline industry will have incurred by the time the pandemic is over in order to make a viable airline industry in Canada going forward," Spracklin said.

In early April, Air Canada pulled the plug on its planned $190-million takeover of Montreal-based tour operator Transat AT, citing Europe's unwillingness to approve the deal, thus triggering a $12.5-million termination fee.

Organizations supporting Air Canada's calls for a bailout have included unions such as Unifor and the Canadian Air Traffic Control Association, as well as the National Airlines Council of Canada industry group.

This report by The Canadian Press was first published April 12, 2021.

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Christopher Reynolds, The Canadian Press