AID FOR AIR CANADA, BUT WHAT ABOUT THE OTHERS?
Westjet and Calgary airport authority say their very future is now at stake
Air Canada is heading down the runway with a $5.9-billion aid package from Ottawa, preparing for liftoff once the pandemic passes.
In Calgary, the future of Westjet Airlines — and the local airport authority, which is considering selling off assets as it loses money — is less certain as negotiations continue between the Trudeau government and the air carrier.
Both the Calgary-based company and the airport will need some form of federal help if they're to throttle back quickly once the crisis fades.
“They are joined at the hip,” says Robert Kokonis, president of Airtrav Inc., a Toronto-based aviation consultancy.
“The fortunes of where Westjet goes will reflect very directly on the Calgary Airport Authority.”
After months of discussions, Ottawa announced a financial aid package this week for Air Canada. It includes the government taking equity in the company and providing $4 billion in low-interest loans.
As well, Air Canada will receive an additional $1.4 billion loan to provide customers with refunds tied to pandemic-related cancellations, a thorny issue for the sector.
Talks are continuing with other Canadian airlines, including Westjet, Finance Minister Chrystia Freeland told reporters Monday.
In a memo sent to Westjet staff on Wednesday, CEO Ed Sims said the company remains at the table with the federal government and described the relief package to its largest competitor as “bittersweet.”
“Sweet, that the government has finally recognized the vital role airlines play in our national economy,” Sims wrote.
“But bitter nonetheless that by total contrast to the U.S. or U.K., our government has not taken a sector-wide approach and has instead chosen to negotiate one by one. This is slowing down Canada's economic recovery. The entire tourism sector needs help and quickly.”
The federal government owning a stake in Air Canada could also “prove to be problematic,” Sims added, noting Westjet will seek assurances from Ottawa it's treated equitably on regulatory and policy issues.
It's clear the entire Canadian airline industry will need a comprehensive assistance package and a full relaunch plan, given its precarious state.
Many international competitors have already received sizable bailouts to put them on a faster path to recovery. Sims said European and American airlines have seen a stronger bounce back in traffic of more than 30 per cent. In Canada, Westjet's travel remains at “an anemic” 10 per cent of 2019 levels, as the industry faces hurdles such as government-imposed quarantines and mandatory hotel stays.
In February, Air Canada said it was burning through about $15 million a day.
More than 4,500 employees have left Westjet, which is owned by Onex Corp., since the pandemic began. Another 5,100 workers are inactive, leaving about 4,900 on active duty.
The pain doesn't stop there. Air travel drives a lot of economic activity in Alberta, including tourism and hospitality businesses — and the local airport.
At an annual meeting Wednesday, Calgary Airport Authority CEO Bob Sartor painted a grim picture of the economic pounding caused by the pandemic.
Traffic plunged by more than two-third to 5.7 million passengers last year — a far cry from 18 million reported in 2019 — and it's expected to drop again this year.
While the airport lowered its costs by 38 per cent, revenues tumbled by 61 per cent. An eye-popping 80 per cent of its eating and shopping outlets remain temporarily closed.
The authority reported its net loss for the year was $242.5 million; its cash deficit came in at $23 million.
Total long-term debt, which climbed after the building of a new runway and international terminal last decade, increased to $2.98 billion last year.
Sartor said a rebound will depend on several factors, from the pace of vaccinations to the border reopening and travellers growing more confident and getting back on planes.
“The key to the success of recovery is keeping the air carriers healthy,” he said during the online event.
“Air Canada's announcement of additional liquidity was positive, but ... they will take on that debt and have to basically repay it with interest over time. That will slow their recovery — and it will also slow the recovery of airports.”
One way the federal government can help airports would be on their rent.
The Calgary airport paid $44 million for ground lease rent to Ottawa in 2019. Along with 20 other airport authorities, it was granted a rent waiver by the government from March until December.
That's not the case in 2021. The authority forecasts paying $14 million in federal rent for this year, although payment can be deferred until 2024. Last fall, the Trudeau government announced it would waive 2021 rent payments for small and mid-sized airports while deferring bills for the largest ones, including Calgary.
With fewer people flying this year, the Calgary Airport Authority is now considering other options, such as selling off noncore assets.
“We do have buildings that we own on campus and other facilities that are not essential for managing air travel,” Sartor said.
Last week, the Calgary Airport Authority received a credit rating downgrade from Moody's Investor Service. It said passenger traffic losses will likely continue to be substantial “at least through 2023” with ongoing travel restrictions.
“Calgary airport entered the pandemic with relatively high levels of debt ... and have not really grown yet into their new facilities,” said Catherine Deluz, a senior vice-president at Moody's Canada.
The Canadian Airports Council has warned the sector's full recovery isn't expected for at least another five years. It's calling for a moratorium on airport rents and interest-free loans for at least five years or until the industry recovers.
By the end of 2021, airports are projected to take on an additional $2.8 billion of debt, said council president Daniel-robert Gooch.
“I do hope the federal government will consider rent relief for the airports,” Mayor Naheed Nenshi told reporters Tuesday.
In Calgary, Westjet is the No. 1 driver of traffic at the airport. It will need the airline to be ready to recover quickly once the pandemic eases.
While the federal government is in talks with the airlines, it should also look at the financial sustainability of the country's airports, said Calgary-based industry analyst Rick Erickson.
“There really needs to be some kind of assistance to these airports for the same reason you're assisting the airlines,” Erickson said.
“Their revenue dried up through no fault of their own ... and they have large capital costs to cover.”
There really needs to be some kind of assistance to these airports for the same reason you're assisting the airlines.