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Carr: The Multinational Airline Has to Start Somewhere

Perhaps it is time for Gerry Swartz, Canada and Australia to point the way.


September 27, 2007
By David Carr

Topics

Several regulatory hurdles remain, but sometime next year Gerry
Swartz’s Onex Corporation will have a 12.5% stake in Qantas Airways of
Australia, one of the world’s finest airlines. Since his proposal to
first buy and merge Air Canada and Canadian Airlines crashed and
burned, Swartz has built up an impressive aviation portfolio including
Spirit Aero Systems, formerly the fuselage business of Boeing, and more
recently the business aviation division of Raytheon.

Onex
is reported to be bidding for Air Canada Technical Services (ACTS),
which controls approximately 43% of all heavy maintenance done in
Canada. If successful, Swartz will be a player in both Australian and
Canadian air transport and may want to consider a larger goal, setting
the table for ‘Air Cqantas,’ a merger between Air Canada and Qantas.
Indeed, the Texas Pacific Group, an Onex partner in Qantas showed an
interest in Air Canada as early as 2003.

Airline alliances such
as oneworld and Star are fine marketing and code-sharing vehicles, and
little else. Talk of realizing new economies through bulk fleet buying
and uniform cabins was just that; talk. The time for a multinational
airline cemented by equity, global branding and a modernized regulatory
environment is long overdue.

Air France took over KLM in 2003,
and has analysts scratching their heads over renewed merger talks with
debt-ridden Alitalia. But that is backyard stuff. A European Union
airline can buy a rival. Even so, 51% of KLM voting shares remain
firmly on the ground in the Netherlands.

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Giovanni Bisignani,
director general and chief executive officer of the International Air
Transport Association (IATA), says the failure of governments to
liberalize the airline sector is stalling the recovery. Talk about your
paradigm shift. IATA was the poster boy for the protected flag carrier,
fixing prices, discouraging competition and rewarding inefficiency.

Still,
better late to the game than not show up at all. But where does the
first domino fall? Perhaps somewhere between Canada and Australia.
Swartz’s attempt to merge Air Canada and Canadian around a partnership
with American Airlines may have led to Canada becoming the testing
ground for the pan-global airline. We will never know. What we do know
is Air Canada and Qantas are both niche carriers that could enter the
field from a greater position of strength.

Both are former Crown
corporations, similar in size and serving large countries with very
small concentrated populations. Polar opposite seasons mean
complementary peak periods and greater utilization of common ‘C’ and
‘VH’ registered aircraft. Air Canada has limited year-round flights to
Australia versus Qantas’s seasonal service to Vancouver. That would
change if Canada and Australia agree on an open-skies treaty allowing
airlines to pick up and transport passengers onto a third country.

Onex
is in tough for ACTS but even if successful, there is a sizeable gap
between the maintenance floor of one airline and the executive offices
of another. What are the obstacles?

Geography likely ensures
that the challenge of immediate fleet integration would not be as great
as was the case with Air Canada and Canadian. Ditto, flight crew
seniority and other labour agreements – but don’t expect unions to
stand idly by. One Australian union leader has already declared,
“Qantas should be treated differently because it is an essential part
of Australian society.”

Ballocks yes, but in building a
multinational airline misguided flag waving is unavoidable, even
between two like-minded economies that see neither as a threat.
Australia allows for 49% of its airlines to be owned by
non-Australians. This compares favourably against Canada, which clings
to a 25% cap while other corporate icons such as The Bay, Inco, Dofasco
and Fairmont Hotels slip through Canadian fingers.

A greater
stumbling block will be bilateral agreements, although Canada’s
recently announced “Blue Sky” policy and a global shift to open-skies
should lessen the burden.

A multinational airline is not
impossible, just impossibly difficult. But it is what the industry
needs, what the founders of airline alliances envision, and what
governments must soon embrace. Given this inevitability there is no
reason why Air Canada and Qantas should not take the lead. Air Cqantas
is an impractical name – but it has a nice ring to it.