WHAT ABOUT WESTJET?
Federal aid for airline likely
A federal aid package for Calgary-based Westjet will likely be announced soon, analysts say, though exactly what form that assistance will take remains to be seen.
News broke Monday that Air Canada — the country's largest airline and Westjet's main competitor — will receive a multibillion-dollar relief package from the federal government and, in return, will restore domestic routes and refund customers whose flights were cancelled because of the COVID-19 pandemic.
Both Air Canada and Westjet have been lobbying for months for government help amid COVID -19 and the resulting cascade of travel bans, restrictions and quarantine orders that have decimated the airline industry and forced both companies to cancel routes and lay off thousands of people. Westjet, whose overall passenger volumes in 2020 were down nearly 90 per cent from the year before, had more than 14,000 staff before the pandemic and now has just 4,900 active employees. Air Canada reports its workforce was reduced last year by about 20,000, or more than half of its pre-pandemic levels. Porter, Sunwing and Air Transat have laid off most employees and suspended service.
But while Air Canada will now have access to up to $5.9 billion in low-interest loans and equity financing to kick-start its recovery, there has been no word on federal support for the country's second-largest airline, Westjet.
In a statement Monday, the company said it will provide updates on its own discussions with the government of Canada “at the appropriate time” and emphasized that it has already committed to restoring service to all 42 airports it served PRE-COVID.
“We remain committed to building back even stronger for the betterment of all Canadians,” the airline said.
Karl Moore, an airline industry expert and professor at Mcgill University, said with a package for Air Canada now a done deal, the federal government will be under the gun to also quickly reach an agreement with Westjet.
“Westjet is Alberta, in a sense,” Moore said. “With a federal election perhaps coming up in the fall, the government wants to make sure that Western Canada, and Calgary, feels looked after. There will be a lot of pressure.”
However, any aid package for Westjet will look different from the Air Canada one announced Monday, Moore said. That deal will see the federal government buy $500 million worth of shares in Air Canada, a roughly six per cent stake in the publicly traded company. Westjet is privately held, owned by the Toronto-based Onex Corp., making any type of federal ownership stake highly unlikely.
“Westjet is a whole different circumstance. … The ownership position, I don't think they would give,” Moore said. “We don't even know for sure what Onex needs (in terms of financial aid for Westjet), because their books are closed.”
“I can't begin to imagine that Westjet would want any kind of government representation in the airline,” said Rick Erickson, an independent aviation analyst based in Calgary. “You couldn't do the same deal at Westjet that you could at Air Canada.”
Erickson said he is sure a deal is coming for Westjet, as well as for the country's smaller airlines, but he “couldn't hazard a guess” at exactly when. He said he was surprised by some of the concessions Air Canada made, such as limiting executive compensation to a maximum of $1 million until the federal loans are paid back. (For comparison, Air Canada CEO Calin Rovanescu was set to receive $12.8 million in compensation in 2020 until the pandemic hit.)
“Top talent doesn't come around at $1 million,” Erickson said. “I'm afraid that some of the quality executives in the Canadian airline industry are going to get poached and go work elsewhere, and that's not good for our country.”
Air Canada also agreed to forgo all share buybacks and the payment of dividends to shareholders.
The deal is a win overall for Canadians, Erickson said.
“You can't in any way, shape or form call this a bailout. Virtually everything on offer has to be repaid,” he said.
“It's very different from what we've seen in other jurisdictions, including in the U.S. where we saw $50 billion in outright bailouts given to the airline sector.”
Westjet CEO Ed Sims has been publicly critical of the government's slowness to respond to the crisis in the aviation sector, and earlier this month called Ottawa's failure thus far to offer an industry-specific aid package for airlines “scandalous.”
However, Sims also said recently the airline has been buoyed by the recent rollout of vaccines as well as the coming of summer that will allow Canadians to spend more time outdoors. He said Westjet is anticipating an uptick in demand this summer, and the airline will introduce 11 new domestic routes across Western Canada to help support the domestic tourism industry.
In a statement on Tuesday, Calgary Economic Development president and CEO Mary Moran emphasized the importance of Westjet to Calgary's economy.
“One of the reasons Calgary thrives as a city and a leading business centre is because Westjet is based here, and the connections it provides to other global cities creates opportunities for business and tourism,” Moran said. “Westjet is a homegrown success story for Calgary that has national importance.”