TURBULENCE: AIR CANADA & BOMBARDIER Introduction In recent times two of Canada’s largest Business went from bad to worse. More Focus companies have fallen prey to the layoffs brought the total for the year to Two of Canada’s downturn in the world economy. Both 12 500. In addition, 84 planes were major transporta- grounded to reduce costs. Air Canada tion companies Air Canada and Bombardier have have suffered incurred large debt loads, which may shares sold for just over $3. greatly since the destroy these Canadian business icons. By early October the government tragedy of 9/11. announced a $100-million aid package Can they weather Air Canada for Air Canada. It was far from the the storm and re- original $4-billion asked for, but was Air Canada’s current financial woes can emerge once again welcome nonetheless. Stock prices as giants in Cana- be traced back to the takeover of Cana- dropped to $1.64. dian industry? dian Airlines in 1999. It assumed a Incredibly, Air Canada launched two massive debt at that time and struggled new airlines within a month. Tango, a to remain profitable. By February 2001 it new discount carrier with limited routes YV Sections was reporting losses of over $200- and no frills sent up its first flight No- marked with this million in one quarter. Following this the vember 1, 2001. Robert Milton said: “In symbol indicate level of competition in the industry the post September 11 world of de- content suitable for increased with the inauguration of new younger viewers. pressed demand, a move in this direction discount carriers. Roots Air lasted only a is all the more necessary, as we need to month before it ceased operations. Air aggressively promote all consumer Canada, wanting to enter the discount incentives that encourage and stimulate airlines arena, purchased controlling travel” (CBC News Online Staff, shares of Skyservice, Roots Air’s parent Toronto, October 10, 2001). The second company. Within weeks, Air Canada new airline, AC JETZ was designed to was asking its employees to reduce their provide a premium service to sports working hours to reduce costs. Despite teams and executives. this, Air Canada continued its efforts to By February Air Canada showed a loss launch its own regional discount airline. of $1.25-billion for the 2001 fiscal year. Air Canada shares were selling in the Stock prices rallied somewhat though, $12 range. By early September they had settling in at $4.70. dropped to $6.50 a share. The end of March and the beginning September 11, 2001, changed every- of April saw the inauguration of two thing. All air traffic was suspended more regional airlines from Air Canada: immediately after the tragedy of the twin Jazz in the east and Zip in the west. By towers of the World Trade Center and April, Air Canada significantly reduced Air Canada accelerated its downward its flights to the Maritimes, citing the slide. Within days, flights across the new federal Security Tax of $24 as a Canada-U.S. border were reduced by 20 contributing factor. By November the per cent. By September 17 Robert new Jazz Airlines was cutting jobs. Milton, CEO of Air Canada, asked the In 2003 the pending war in Iraq drove government for up to $4-billion in cash up oil prices and weakened traveller and loan guarantees. He believed that the confidence. Once again, Air Canada company would falter without aid. He announced an annual loss in February of also knew that even with this aid, there $428-million. Air Canada called for would still be the need for layoffs. CBC News in Review • May 2003 • Page 44 wage concessions by employees. Said meeting its financial obligations. CEO Robert Milton, “The outbreak of In January 2003 a new CEO, Paul war confirms our pressing need to Tellier, arrived and the restructuring of achieve our target of $650-million in Bombardier began. Dealing with a loss labour-cost savings in addition to the job for 2002 of over $615-million, Tellier reductions announced today. I regret the organized a re-evaluation of the impact of this decision on the many loyal company’s assets. With the downturn in employees affected, but we need to the economy, company assets were $2.2- accelerate our transformation into a billion less than originally expected. This leaner, lower-cost carrier” (CBC News loss of asset value plus the loss of rev- Online Staff, Montreal, March 2, 2003). enue from the previous year resulted in On April 1, 2003, Air Canada filed for the need for the company to make some bankruptcy protection. With the suspen- hard decisions. Tellier said: “We have sion of stock trading and putting, Air good products, good people, loyal cus- Canada had to either resolve its financial tomers, and good technology. We can difficulties or fold. On May 2, 2003, Air also rely on a strong backlog of orders, Canada asked its workers to accept a which provides our manufacturing further 10 per cent reduction in wages facilities with two or three years’ work” for 60 days while still negotiating job cuts. (Globe and Mail, Weber, 3 April 03). Tellier issued new stock to generate a Bombardier cash influx of $800-million. Acknowl- Bombardier Inc. began as a family edging the decisions of the past, Tellier business building and selling snowmo- stated, “This company has had perhaps biles in the 1940s. Over the past two too much growth over the last decade. decades it has expanded and diversified It’s not a question of selling more air- frequently. It now has four major divi- craft or more trains, but of making sure sions—aerospace, transportation, recre- these sales are profitable” (The Globe ation, and finance—which produce and Mail, Marotte, April 4, 2003). It was billions of dollars in revenue each year. decided to sell off portions of the com- The most significant portion of the pany to further solidify the revenue base industry is its aerospace division. Over for future operations. The recreational the years it bought out Canadair, de section of the company, which was its Havilland, and Lear, becoming a world historical core, will be sold. Other force in regional and executive air travel. divestitures include Bombardier’s de- The events of September 11, 2001, were fence services operation and the Belfast devastating to the company. Within City Airport holdings. All together the weeks, over 3600 employees had to be sale of these assets is expected to raise released, and orders for future aircraft $1.5-billion. Unfortunately, this restruc- construction fell significantly. The assets turing also includes the layoffs of 3000 of the company declined and the sol- employees in the aerospace division. It vency of the company deteriorated. With remains to be seen whether these efforts the loss of revenue the debt load became will succeed in saving this major Cana- severe. Bombardier faced difficulties in dian company. Responding Why might the demise of Air Canada and Bombardier be important to Canada and Canadians? CBC News in Review • May 2003 • Page 45 TURBULENCE: AIR CANADA & BOMBARDIER YV Video Review 1. Which industry was most severely damaged by the events of Septem- As you review the video for this story, ber 11, 2001? carefully respond to these questions. 2. When air travel resumed a few days after the tragedy, what was the first reason for a reduction in passengers? Further Research To learn more 3. By September 19, 2001, how much money was estimated to have been about current conditions at these lost by the world’s airlines? two national corporate giants, visit 4. What happened to Canada’s second largest airline? www.aircanada.ca and www.bombardier.com 5. What was the result for Air Canada of its takeover of Canadian Airlines in 1999? 6. What is the difference between Air Canada and discount airlines like Westjet? 7. To counter the low-price economy airlines, what two new subsidiary airlines did Air Canada create? 8. How large a cut did Air Canada have to make in its payroll? 9. What is CEO Robert Milton’s goal for Air Canada? 10. What happened in March 2003 to make air travel even less desirable for people? 11. What was the result for Air Canada? CBC News in Review • May 2003 • Page 46 12. Why is Bombardier affected by the downturn in the air industry? Did you know . In spite of all the recent failures in the airline industry world-wide, one Canadian company, Westjet Airlines, 13. What was the original product produced by Bombardier? based in Calgary, stands out as a solid success? 14. What problems did its rail division face with Amtrak? 15. What measures has CEO Paul Tellier taken to address the loss of profits in Bombardier? 16. How much does the Bombardier company owe? 17. What technologies have made air travel less necessary? 18. What reasons since 9/11 have caused a continued reduction in air travel? CBC News in Review • May 2003 • Page 47 TURBULENCE: AIR CANADA & BOMBARDIER Backgrounder Air Canada over $12-billion. The company was in Both Air Canada this financial position when the tragedy and Bombardier Air Canada began its life as Trans have long been Canada Air Lines in 1936. With $5- of 9/11 struck. Since that time Air icons in Canadian million in seed money it purchased Canada has struggled to survive, laying industry. How did three planes from Canadian Airways off thousands of workers and grounding they develop and (later known as Canadian Airlines) and whole fleets of aircraft. Finally, in April grow? began its first flights in 1937.