Opinion: Air Canada bailout comes with strings

When former senior government official Paul Boothe negotiated the $13.7-billion bailout of the auto sector just over a decade ago, Ottawa felt it didn’t have much of a choice but to pump public money into General Motors and Chrysler.

The companies couldn’t go to the markets for financing because the markets were dry. The U.S. was bailing out its auto sector. And if Ottawa didn’t pony up, the automakers would have moved south.

That wasn’t the case with Monday’s bailout of Air Canada.

“This is a political decision by the government,” Boothe said in an interview on Tuesday.

The $6-billion package, after months of intense talks, tells us a lot about the political priorities in dealing with the private sector – and what lessons from the crisis a decade ago still haunt the key players.

Unlike the automakers in 2009, the airline industry has still been able to access credit during the pandemic, and has been heavily supported by the federal wage subsidy throughout the crisis.

There’s no doubt, though, it hasn’t been pretty. International travel has evaporated, domestic travel has dwindled to a trickle, layoffs have been large and repeated. Other airlines around the world have had to either take government bailouts or tip into bankruptcy. Air Canada lost $1.16 billion in the fourth quarter. And now, with COVID-19’s third wave making the timeline for reopening uncertain.

From the get-go, when the Canadian airline industry dove deep into crisis a year ago now, the federal government made it clear that it would be willing to help. Prime Minister Justin Trudeau has said whenever asked that he wants a Canadian airline industry to be there when the pandemic is over.

First, it set up and then amplified the wage subsidy system with the airline industry top of mind. A month later, it set up a facility to bail out large companies that had nowhere else to turn.

But there were many strings attached, in large part because of the ghosts of the previous crisis. Back then, governments propped up failing banks and automakers alike because they were considered too big to fail. Governments didn’t require much in return from them such as protecting jobs.

The political corollary was populism – a grassroots backlash that rebelled against the cosy relationship between money and power and eventually led not just to the Occupy movement but also to the angry election of populist leaders in Europe and the United States.

Bailing out corporations has been fraught with political risk since then. And so, when former finance minister Bill Morneau set up the bailout facility last May, he made sure to include plenty of caveats for any company thinking they might have a quick path to government largesse.

Government help if necessary, for sure – but not if recipients were going to boost executive compensation, hurt labour or have no respect for the environment. And by the way, the government reserved the right to take an equity stake in your company, just to keep an eye on things and also benefit from the upside once the economy recovers.

Organized labour has played a role, too. Canadian Labour Congress president Hassan Yussuff was around in 2008 and 2009 as the CLC’s secretary treasurer, and recalls the talks with then-finance minister Jim Flaherty to rescue Air Canada from the depths of recession back then. The company got its refinancing, but future workers paid the price because their pensions weren’t protected, Yussuff says.

“We already made a sacrifice back then. We didn’t want it to happen again,” he said Tuesday.

In that context, it’s no surprise that talks with the airlines didn’t get serious until their financial prospects grew bleaker last fall, and didn’t come to any kind of firm conclusion until now.

Air Canada will get $6 billion in low-interest loans. In return, it must reimburse customers for their tickets cancelled during the pandemic, re-establish 13 regional routes, cap executive compensation, commit to not buying back shares, and hand over a stake in the company to the federal government. For labour, the company needs to keep its current workforce and respect collective bargaining agreements.

The agreement sets the stage for arrangements now in the works for WestJet, Air Transat and other airlines.

That’s not enough for some, since Air Canada staffing levels are down by about 20,000 from pre-pandemic days. The federal Conservatives complain that the package does nothing for those laid-off workers and is too little too late for consumers.

But criticism from that side of the political aisle underlines just how much has changed for the relationship between private money and political power since the last crisis. It’s not about corporate posterity anymore. It’s about consumers, it’s about demonstrating help for workers instead of elites, and it’s about keeping angry populist forces at bay.

Heather Scoffield is a National Affairs writer.

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