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Fiordland

I can go along with warrants or convertible bond. Over the next year the government may have to force these guys to keep certain routes open. Any such intervention should be limited and only until the regular markets can take over.

Key thing is they should not get a free ride. If that tax payers help them out, the tax payers need to be compensated when life is back to normal.

WestJet and Air Canada are to big to fail and we need some domestic competition when this is all over. The other players not so much.

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Adam Smith

I really don't understand what you're implying. A bailout doesn't require any amendment to the ACPPA to be put in to effect, and there's nothing in that act that's causing AC's current situation.

I agree. There should be a price to the support.

Debatable, but since this is the AC forum, we should probably just set that aside

This is not massive policy intervention, this is a financing transaction. Given that AC and WestJet both had very good liquidity going in to this, it's not nearly as urgent as you make it out to be. But even if it were, I would happily write the term sheet for the government in a matter of minutes and could hammer it out with senior management of the airlines in a few hours.

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drvannostren

What I don't wanna see is some pricey bailout then watch AC (or anyone) go quickly-ish back to record profits and not have any repercussions. That KIND of thing seems to happen all too frequently.

My friends and I were spitballing today, just thinking out loud, and someone posed the idea that maybe instead of just giving private citizens a cheque, money could get given to companies to dole out...I don't trust that at all, I have no confidence that corporate greed would far outweigh corporate good. Any money from the govt too would need to come with serious conditions, no share buybacks, no bonuses, no raises, no dividends, just straight pay to front line employees.

Fiordland

I think Adam Smith quoted me.

I think the critical factor is when we get to the other side of this for the rest of the free market to function there has to be some basic level of air travel that is functional. This is in the same camp as the electrical system, phone network, the railways, or the ports.

There needs to be two players that are strong enough to defend themselves against each other.

Where the head office is located is not material to the overall outcome. If one has its head office in Montreal and the other in Calgary that is a minor detail.

hoipolloi

bailout ok with some strings attached such as better passenger treatment and rights

colombianbrew

and that there is the key - what are the repercussions? I think any sensible person familiar with how our economy works would agree that AC and WS should not be allowed to shut down so a bailout may be needed. I cannot imagine the terms of it though would dictate how they operate in the future but rather just how the government gets repaid (eg stock, loan repayment etc.).

The Feds already don’t look good in handling this whole crisis so I doubt they’re keen to add corporate giveaways to the opposition’s arsenal.

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Admiral Ackbar

As long as it isn't capitalize the gains while we socialise the losses I am all for government assistance. Banning stock buybacks post-bailout would be a great start. Too early to tell how this plays out.

Adam Smith

I never said this wasn't a political decision. Of course it's political, and Cabinet and the PM will have to sign off. But it's not "massive policy intervention". What we're talking about here isn't allowing AC to throw out its labour contracts, or giving away ownership of the airports to the airlines, or something like that. That would be "massive policy intervention". What we're talking about here is financing to bridge the airlines through a difficult period.

What's different now from the CP discussions you referred to earlier, or post-9/11, or AC's 2003 restructuring, is that the airline business has cleaned itself up. For decades, it was consistently unprofitable, with overcapacity and unsustainable costs for wages etc. That has changed significantly in the past 10-15 years as the industry has consolidated, negotiated better labour contracts, and generally made itself profitable. The cause of this crisis for airlines is a true externality, and the airlines might be happy to keep operating if not for all the travel bans and other restrictions placed on their business, so it's really a government decision to shut their business down that will hurt them.

Money is fungible. Many of those restrictions are impractical or counterproductive. Banning share buybacks as long as the loan remains outstanding is probably the most sensible thing to implement. You also can't restrict AC to just use money to pay employees. There will be suppliers that need to be paid (else they won't be able to pay their own employees) and so on.

The government can legislate passenger rights any time. In fact, it just recently implemented APPR, and botched it. They don't need a bail-out to do that.

AC will obviously push to get itself the best deal possible. But the government could also tell them to pound sand and go restructure in the private sector - think of how much less disruptive an airline bankruptcy would be when it had no flights operating, no passengers stranded, etc.

The logical solution is for the government to lend money with an equity kicker. AC would be bridged through the difficult period, the government would get some post-recovery upside, AC's shareholders and existing debtholders stay in place, and it costs shareholders some of their upside. What I'm advocating is a structure that was used a number of times in the financial crisis, this isn't rocket science.

As for location of HQ, it will be very hard for the government to give AC a better deal than WS.

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Fiordland

No question AC has people on staff who job is to figure out how to optimize what they get from government. No reason the government should be more accommodating to what they are pitching now than before.

As for head office relocation that is something no one is going to touch. AC head office is in Montreal. It is not moving. The rules that fore it to be in Montreal are not changing. WS head office is in Calgary that rules that fore it to be somewhere in Canada are not changing. The government is not going to touch that Pandora box. The MPs and local politicians from Quebec will go to local media and claim how they saved local jobs as they should. However those jobs were never at risk of moving.

As for Calgary, the Liberals know they need to at a minimum not appear to be against Alberta. My gut instinct is the objections to the trans-mountain pipline will die down and it will quietly get built. It may be the only major oil project being run out of Calgary for the next year or two given where the price of oil is going. WestJet will be "saved" and no one is going to be pushing for its head office to move either.