Air Canada, the closest thing we have to a national heritage, seems to be in a profound crisis. What should we do? Allow a US company such as United Airlines or American Airlines to acquire it?
Nationalize it, again? Or should we encourage new investors (like Onex) to take control? Air Canada has undeniably become the least popular of Canada's major corporations. But this is no reason to be unconcerned.
Until the federal government clarifies its views on air transportation, Air Canada's future will remain in jeopardy.
The capital-intensive airline industry has been cursed. Worldwide, it is in a perennial state of crisis. Yesterday's winners - Delta and British Airways - are in deep trouble today. Even United Airlines, the current high flier, had a brush with bankruptcy 10 years ago.
The airline industry suffers from chronic problems tied to capacity adjustments and excessive indebtedness and has to cope with a volatile and fickle clientele. Last, turbulent labour relations and a fully unionized workplace give the industry a rigid cost structure.
No wonder airlines have a short lifespan. Remember Pan American, Eastern, Canadian, Nordair and Wardair? The ax falls often, lopping off the most vulnerable. By simple process of elimination, it is not surprising that Air Canada finds itself teetering on the brink. One major blow could push it into bankruptcy.
Air Canada's other problem is that it is an east-west airline in an economy that is increasingly forging north-south links.
Does a trans-Canadian airline have any relevance in a continental context? Would it be better to integrate it into the operations of a major North American carrier than to wait for economic reality to impose it?
The federal government can't wash its hands of Air Canada's fate. The airline industry throughout the world is an oligopoly, thus requiring government intervention to ensure meaningful competition. Canada's geography also makes air transport a critical industry. The federal government cannot ignore Air Canada pricing strategies and its service policies toward lesspopulated regions. The government must ensure public interest takes precedence over the greed of airline management, which is as concerned about the stock price as the quality of service to its customers. Particular attention has to be paid to ensure virtual abusive monopolies do not arise in big cities like Toronto, Montreal and Vancouver by the virtue of controlling landing rights. Indeed, if Air Canada were to increase its current market share, government intervention would be advisable.
What's more, if a crisis were to put an alternative airline such as Air Transat or Westjet in jeopardy, the government may have to intervene financially to ensure healthy competition. In short, as essential as Air Canada is to the country, it shouldn't be given free rein.
The lumber crisis showed us the uglier side of US policy making, and the ability of US corporations to enlist the power of their government.
Through well-targeted contributions, US companies can buy the staunch support of the administration and, as in the lumber dispute, use it to counter Canadian policies.
The US forced the provinces to change their forest management systems to bring them in line with US systems.
Just imagine the power a US airline controlling Air Canada and opposing Canadian government policy could wield: phone calls from the US ambassador, stormy declarations in Congress, muted threats of reprisals. When profit is more important than ensuring a costlier public interest alternative, it can happen. Many US multinationals do not feel bound by Canadian public interest. As long as they feel they can marshal the support of friends in Washington to defend their case, we'd better keep them away from our strategic sectors.
Canada needs an east-west transport policy and sufficient political leverage over the airlines serving these routes. The Canadian government should formally declare it will not let Air Canada fall into the hands of a foreign carrier. Such a policy would be addressed to Air Canada's current management and to any group of investors considering taking control with a view to selling the company to foreign interests down the road. Such a decision may affect Air Canada's share price. But let's keep in mind that in the past two years, it has fluctuated between $2 and $20 without government intervention. When all is said and done, the Canadian government will never be as merciless to Air Canada shareholders as financial markets and management have already proven to be.
[Author Affiliation]
Marcel Cote is a senior associate at SECOR Inc. in Montreal
No comments:
Post a Comment