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Will the ownership cap crumble?

It’s a political minefield in which one misstep can blow the legs off a government.


October 1, 2007
By Ken Pole

Topics

Like its progenitor, Trans-Canada Air Lines (TCA), Air Canada has been
kept on a tight rein by Ottawa. Any profits from money-making routes
have been used to effectively subsidize service on the many routes that
lose money. The Liberal governments’ rationale all along has been an
altruistic-sounding cant that people in outlying areas are entitled to
air services. But it could be argued that this is motivated more by
keeping voters happy.

But
Air Canada’s marriage to Canadian Airlines International in early 2000
brought a dowry that included $10 billion in long-term CAI debt. It
was, as time has demonstrated, a marriage made in hell long before 9/11
and other factors precipitated the latest meltdown.

Seeming to
ignore the debt issue, the government has said that “the principal
challenge … since Air Canada acquired Canadian Airlines has been the
adequacy of competition.” This is from ‘Straight Ahead’, its latest
transport policy document. “Air Canada’s dominant position in the
domestic market has focused public attention on the importance of being
able to choose among competing services and prices.” Yet the 2000
Canada Transportation Act legislated Air Canada’s maintenance of
service to smaller communities.

It has been suggested that
foreign investors be permitted to buy Canadian operators or set up new
ones, or that foreign carriers be permitted to offer services in Canada
as extensions of their international flights. But the symbolism of
having a ‘flag’ carrier adds an immeasurable element to the debate.
Polls suggest Canadians want their domestic airline industry to be
Canadian-owned. Hypocritically, those polls also indicate that the
prospect of greater choice and lower fares might warrant ownership
changes. It’s a political minefield in which one misstep can blow the
legs off a government.

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