Financing

Opinion: Canadian Airlines Need Grants, Not Loans To Survive

It is not only fair to pay airlines for political office, it is essential for the health and well-being of Canadian society

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The federal government finally approved the $ 190 million purchase by Air Canada of Transat AT. While this is certainly the right decision, it remains to be seen whether or not it will weigh on Canada’s largest carrier at a time when the company suffers heavy losses, first from the pandemic and then from restrictions on transportation. aggressive government travel far exceeding international best practice. If the government is serious about allowing Canadian airlines to thrive, or even just to survive, it has to back down.

On February 3, following Prime Minister Justin Trudeau’s suspension of all Canadian flights to the Caribbean and Mexico, Air Canada’s low-cost carrier Rouge suspended all operations and laid off staff after its last flight. Meanwhile, American carriers continue to offer such flights, passing through the United States.

Just two days earlier, the Trudeau government announced it would provide a $ 375 million Large Employer Emergency Financing Facility (LEEFF) loan to Sunwing Vacations and Sunwing Airlines, hard-hitting travel agencies. affected first by COVID-19 and now by these effective bans on going abroad on vacation.

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Sunwing loans are important because they can serve as models for future loans to Air Canada, Air Transat or WestJet. Under the agreement with Sunwing, the money will be a loan, not a grant. And with that comes a lot of conditions, including reasonable limits on executive compensation or share buybacks, but also the requirement that Sunwing separate the money already received for canceled trips so that the government can later decide to. how to demand refunds.

The segregation mandate, and the fact that it is loans rather than grants, risks turning Sunwing into a “dead business” with little hope of returning after the crisis. To the extent that this agreement sets a precedent for Air Canada and others, we risk turning Canada’s entire airline industry into a shell of itself. Plus, given that government travel mandates actually precipitated the current existential crisis for airlines, there is a strong moral case for grants over loans. Thousands of small businesses and millions of individual Canadians have received government grants, and rightly so, in part on the logic that if the government shuts down your business or your job, it is right for the government to compensate you for the harm. Not to lend, but to compensate.

Within legal circles, this debate has been going on for decades under the name of “regulatory levies”. A “take” is when the government grabs something of value, usually to help it achieve a political goal. So if the government decides that your donut store cannot sell coffee, they must compensate you for this lost business. Just as you would have to compensate yourself for taking half of your backyard to widen a road. It does not matter, morally, whether the ban on movement or travel was justified – the principle is that the victims of politicians must be compensated.

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It is of course very easy to overlook the airlines. They seem tall and able to handle a crisis. But the point is, airlines around the world operate on extremely thin margins. From 2015 to 2019, according to IATA, they average only 4.3 percent. With a average domestic ticket price from $ 176.60 in 2019, that would imply about $ 7.50 in profit per domestic flight in Canada. Airlines simply don’t have the reserves they need to survive tough mandates with almost no notice or prep time.

If Canadians want to continue to enjoy convenient air links to what is, after all, one of the greatest countries on the planet, it is not only fair to pay airlines for their strategic mandates, but it is essential to the health and well-being of Canadian society. This is true whether we live in large cities with great flight options (today and in the future too, we hope) or in remote communities for which Canada’s airlines are literally a lifeline. rescue.

Michel Kelly-Gagnon is President and CEO of the Montreal Economic Institute, where Peter St. Onge is an associate researcher.

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