Bailouts and ownership

Two pieces of the federal government’s bailout of Air Canada will likely garner the most attention.

First, the fact that the airline will be paying out refunds to scores of customers left in the lurch by flight restrictions caused by the COVID-19 pandemic — a requirement that many Canadians who bought tickets in good faith before the pandemic will welcome.

And second, the requirement that the airline restore a number of regional routes that it had dropped as it tried to stem growing losses.

That will no doubt receive support, especially in parts of the Atlantic region that have seen flights vanish.

Not so large on the radar is the mainly-about-optics requirement that the company also cap executive pay.

DEAL STRUCTURE

More interesting, in the long-term, however, is the structure of the deal. The federal government is essentially becoming both the airline’s bank and its partner: in a series of five loans, the Canadian government will give the airline $5.9 billion at rates far better than the airline could get anywhere else — giving the company the opportunity to pay off higher interest loans and replace them at lower rates.

The federal government is also buying 21.5 million Air Canada shares at a 15 per cent discount, and being granted warrants to buy 14.6 million more — enough shares that the government could end up owning as much as 10 per cent of the airline.

That does a couple of things: first, if air travel bounces back significantly after the pandemic gets under control, the federal government might be able to reap a profit by selling its holdings.

As well, as a significant shareholder (the federal government has agreed not to increase its holdings to more than 20 per cent of the company), there is now a political voice at the Air Canada boardroom table.

GOVERNMENT INPUT

The other thing to keep in mind? Air Canada’s deal is likely to set the template for federal support for Canada’s other airlines. Which means, of course, federal government input at several boardroom tables.

What that means depends on where you stand. Remember, the federal government has listened in the past to passengers’ (and voters’) concerns about Canadian airlines and the airlines’ polices governing things like abrupt cancellations, lost luggage and deliberate overbooking.

The benefit of the federal government’s new equity stake in Air Canada — and likely, soon, in other Canadian airlines — probably depends on your point of view.

From the corporate side, it might look like an unreasonable constraint on airline companies’ ability to compete.

For politicians, it might be a valuable lever. And for individual customers? It may look like a chance to be heard.

One thing’s for certain, it is the most significant part of the deal, even if the flashier parts are likely to get most of the immediate attention.