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Canadian Pacific

Small Airlines Bought Up

Max Ward Sells to Canadian


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Small Airlines Bought Up

Pacific Western Airlines was renamed Canadian Airlines in 1987 when it amalgamated with Canadian Pacific Airlines, Eastern Provincial Airways, and Nordair.

Cartoon of Pacific Western AirlinesCanada 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 countries.

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.

Air Canada

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 Canada.

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 year.

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 bankruptcy.

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.

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