Pacific Western Airlines was renamed Canadian Airlines in 1987
when it amalgamated with Canadian Pacific Airlines, Eastern
Provincial Airways, and Nordair.
Canada deregulated the airline industry in 1987, which should
have assisted airlines like Wardair, but the change came too
late. Wardair had expanded too fast and problems of not having
an up-to-date reservation system and significant debt led to the
selling of Wardair in 1989 to Canadian Airline’s holding
company, Pacific Western Airlines.
With the expansion of Canadian Airlines, came the debt for
purchases and slowing down of the economy. The debt owed by
Canadian increased to more than $1.5 billion. The air fleet that
was attained from Wardair was not compatible with that of
Canadian Airlines, which meant maintenance costs were higher.
In 1993, Canadian Airlines' expansion saw the creation of
Canadian Regional Airlines as a holding company, which was made
up of regional airlines like Time Air of Lethbridge, Ontario
Express, and a 70 percent share of Inter-Canadian. In July 1998,
Canadian Airlines attained all of Inter-Canadian, but then sold
it to Air Canada in September.
In 1992, the problems felt by Canadian Airlines continued to
mount. A merger between Canadian and Air Canada had been
negotiated, but failed as Canadian had a debt of 7.7 billion.
On 1 November 1996, the problems faced by the airline
appeared to be addressed with a restructuring effort that
streamlined operations and reduced costs over a four-year
period. Canadian Airlines appeared to be strong enough to
recover in 1996, achieving peak performance, carrying 11.9
million passengers to over 160 destinations distributed in 17
Canadian Airlines faced a new challenge when its most
profitable destinations in Asia were affected by the sweeping
economic downturn in the region starting in 1998. At the same
time, there was intense competition between airlines in Canada,
resulting in low fares and aircraft that were not full flying
between Canadian destinations. These problems led to the sale of
Canadian Airlines to Air Canada in 2000. In the same year,
Canadian Regional Airlines became a part of Air Canada as well.
Dramatic changes brought on by deregulation were only some of
the difficulties experienced by Air Canada. Like other airlines,
Air Canada invested heavily in increasing its fleet during the
1980s, but the economic downturn and reduction in passenger
services led to a $15 million loss in 1982.
Air Canada fought the first proposals for deregulation in
1985, and continued up until it was approved in 1987. It was
clear that Air Canada would face a future of significant change
in a marketplace characterized by intense competition.
Deregulation of the air industry in 1987 brought a share
offering for Air Canada, but the initial price of $8 a share and
a lack of confidence in the market meant that the share offering
did not sell out. The result was a fall in the values of shares
offered. This compounded problems, as Air Canada could not raise
the funds needed to cover existing debt.
Competition increased in the deregulated market, as the
recession of the 1990s saw a significant reduction of
passengers, which brought about an attempted merger between Air
Canada and Canadian. The proposal was rejected since Canadian
brought a $7.7 billion debt that had to be absorbed by Air
In the summer of 1999, the federal government changed the
rules for competition, and merger talks started again between
Air Canada and Canadian. Onex Corp, with the backing of American
Airlines and its parent company AMR CORP, put a deal together.
The plan involved buying Air Canada and Canadian and forming a
single airline. The deal was rejected by Air Canada and a series
of richer packages were offered, but the Quebec court ruled that
the deal was illegal. Another plan was presented by Air Canada
to purchase Canadian Airlines, and it was accepted by the end of
The new, larger Air Canada faced a series of challenges that
were to have devastating ramifications on its future. Many
passengers were lost to discount carriers like WestJet,
established in 1996, and later Jetsgo in 2002. The early 1990s
saw a large increase in the cost of jet fuel. In the spring of
2001, federal regulators required Air Canada to reduce rates up
to 50 percent on some of their routes. Added to these pressures
was a major loss of passenger traffic after the terrorist
attacks of 11 September 2001.
The company had a $12 billion debt, with a loss of $1.6
billion accumulated between April 2001 and April 2003, which
caused Air Canada to file for bankruptcy protection on 1 April
2003. As a part of the restructuring process Victor Li, a Hong
Kong investor, offered a $650 million package in December 2003,
with the condition that the unions quickly give the airline
concessions. This arrangement earned Air Canada an extension in
bankruptcy protection until April 2004.
The unions had until 2 April to accept concessions or Li
would withdraw his offer. There were not enough concessions in
place for the unions to keep the Li package, and he withdrew it.
A new deal was reached on 26 April between Air Canada and
Deusche Bank that provided $850 million. The New York based
company, Cerberus Capital Management, agreed to purchase $250
million of new stock in Air Canada. This was the final agreement
needed to complete restructuring of the airline. The court
agreed to extend bankruptcy protection for Air Canada four more
months, as the airline was able to attain concessions from its
unions. On 30 September 2004, Air Canada emerged from
Air Canada has since reclaimed its place as the largest
airline in Canada, but to survive it must keep costs low,
attract a larger share of passenger traffic in Canada, provide
friendly service, and compete aggressively in the no-frills,
discount market dominated by WestJet and Jetsgo.