Stephen,
Other Airlines would be allowed to fly the routes of Canadian.
What other airlines? Obviously Air Canada could service these routes - after all, they are really the only other proven international air linein Canada. Sure, the regional carriers, West Jet and some charter operators, are possible considerations, but remember that none of them currently have the capacity to be flying international routes, and I doubt that some would be able to handle the heavy main-line routes - at least with quality of service expected by AC or Canadian's passengers. I would suspect that in the case of the liquidation of Canadian, Air Canada would get most of the routes.
West Jet would probably be a good bet to pick up some of Canadian's routes. But West Jet's business model seems to based on short-haul flights in Western Canada using 737 aircraft. They have standardised the aircraft to lower their costs. Obviously if they were to pick up longer routes, or international routes, they would need to get different aircraft. New routes are expensive to set up, especially if it involves adding a new aircraft to the fleet.
I can also see Canadian debt holders suing Air CAnada, in American courts, for having acted in a predatory way. I can see the liens being placed on Air Canada planes down there. Of course you are aware about what happened to Loewen Corp in a US court.
On what basis would debt holders sue Air Canada - could you clarify what you mean by "having acted in a predatory way"? Please provide some examples - or is this some kind of a euphamism for "passengers picking the winner in a free market"?
I don't see how American holders of Canadian's debt would be able to use the American courts to sue Air Canada. For several reasons:
1) Why would Canadian's bond holders sue? If Canadian went under, the bond holders would likely get paid off completely. Its American who might not get all their money back. The common shareholders will get nothing.
2) I don't see where Air Canada has engaged in a predatory way. I do not recall Canadian complaining about uncompetitive practices from AC. Surely they would be asking the government to enforce the competition laws, not suspend them, if this was the case.
If Canadian itself has not been complaining about unfair competition, I don't see how the bond holders could be able to successfully argue a case of unfair competition. Could you imagine Air Canada calling Canadian's executives as defense witnesses!
3) Jurisdiction: Air Canada and Canadian are regulated by Canadian laws, and govern themselves to be in compliance with these laws. The American courts are not competent to judge cases involving Canadian law. Also, surely the Federal Government, the Canadian courts and the Canadian competition bureau would be the places to go with allegations relating to unfair competition, not the US courts.
There's lots of good articles at the Globe and Mail the past couple of days. Unfortunately, its impossible on SI to post the URL's to individual Globe Articles, so go to globeandmail.com and search on "Air Canada".... So I will put the headlines and dates so that you can find the whole article for yourself and read it if you want, or I have also put some excerpts here, if you don't want to look at the whole article:
Here's one quote from Naiveté evident in redesign of airlines by HUGH WINSOR, Wednesday, September 15, 1999
The reason Mr. Benson and his board [of Canadian] (which includes Liberal Senator Ross Fitzpatrick, former Chrétien director of operations Jean Carle and two former premiers, Peter Lougheed and Bob Rae) have blown their once warm welcome in the corridors of power in Ottawa is they have made it very difficult for Mr. Collenette and the government to appear evenhanded in the whole airline restructuring business.
The hot point is the deal they struck with American Airlines and Onex Corp. that in effect precludes any further offers or negotiations until the Onex offer expires in November. It is reasonable to speculate that if Mr. Collenette, Industry Minister John Manley and the other ministers who agreed to invoke Section 47 of the Canada Transportation Act in August had foreseen how the Onex-American-Canadian proposal took shape, they would have had serious second thoughts about the temporary lifting of the Competition Act.
Without getting into the business of good faith and of who said what to whom, it is now clear that the reason given for the anticompetition holiday by the ministers in August -- i.e. to permit the two national airlines to talk to one another and for other proposals to come forward -- has been frustrated. There may be several reasons that the original government intentions went off the rails, including a large amount of naiveté on the part of ministers and bureaucrats about the ability of the so-called invisible hand of market forces to solve problems that go far beyond the parameters of the free market.
...
As Mr. Manley said at the first press conference in August, if restructuring was inevitable, it was better to have a managed process than to have it occur through a Canadian bankruptcy. The ministers knew they were taking a risk but it is not clear they realized how many different groups they would have mad at them, especially since they thought their move would permit an Air Canada counterbid.
Even if we concede the ministers didn't foresee the Canadian-Onex-American short circuit, the big question now is whether they admit they were snookered and take some corrective action or whether they have to wait while the not-so-invisible hand plays out.
Then we have Why did Ottawa suspend the Competition Bureau's powers? The Onex bid for Air Canada raises troubling questions about the Liberal government's intervention Wednesday, September 15, 1999 which asks some very good questions:
Question One:The cabinet's authority to suspend the Competition Act exists only under the threat of an "extraordinary disruption" to the national transportation system. Did Canadian Airlines state to the Minister of Transport that it would face bankruptcy unless something was done? Would anything less qualify as "extraordinary disruption"? Why has Canadian Airlines subsequently downplayed suggestions that it is in financial crisis?
Question Two:Whatever Canadian Airlines said about bankruptcy, the Minister of Transport was told in June that Canadian's solution involved a bid by Onex Corp., backed by American Airlines, for both Canadian and Air Canada, with a merger to follow. Canadian Airlines had no intention of exploring ways to re-divide the marketplace with a separate Air Canada, which might have contravened the Competition Act. The Competition Tribunal has wide discretion to consider all the circumstances behind a merger and place conditions on it to sustain competition. Why then was the Competition Act suspended?
Question Three:Did Canadian Airlines' CEO Kevin Benson tell Transport Minister David Collenette that a condition of Onex's bid included a suspension of the Competition Act, before Aug. 13?
Question Four:Why is the suspension of the Competition Bureau's authority for 90 days said to be a condition of the Onex bid, which expires two days before the bureau's authority returns? Why did the Royal Bank's mutual-fund subsidiary see so much value in the 90-day suspension period that it intervened in court to support Onex's demand for an early vote by Air Canada shareholders?
Question Five:The Canada Transportation Act requires that the Aug. 13 decision to suspend the Competition Act be placed before Parliament "within seven sitting days after the order is made," and that a parliamentary committee review it. Parliament is in summer recess, and it is now apparent that Parliament's scheduled Sept. 20 opening will be delayed until Oct. 12. Seven sitting days after that is Oct. 20. The 90-day suspension of the Competition Bureau's authority ends on Nov. 11, two days after Onex's bid for Canadian and Air Canada expires. Are the Liberals frustrating the intent of the act for early parliamentary review to avoid political heat?
Onex has made a conventional takeover and merger bid, which should come under the full authority of the Competition Bureau, at arm's length from the Liberal government. If the Onex bid doesn't make sense without political intervention that effectively favours Onex over other bidders, let some other scenario unfold.
Then there's Air Canada denied access to recordsCourt hints airline may have to go to OSC for Onex's trading activities before it made takeover bid JACQUIE McNISH and RICHARD BLACKWELL The Globe and Mail Wednesday, September 15, 1999
Air Canada lost a court bid yesterday to get its hands on trading and disclosure documents from Onex Corp., raising the possibility that it may take the matter before securities regulators.
Ontario Superior Court Justice Robert Blair denied an application from Air Canada seeking documents and trading records fromOnex that relate to what he described as "insider trading" issues. He also denied the airline's request for disclosure documents concerning Onex's activities preceding its hostile $1.8-billion proposal to merge Air Canada with Canadian Airlines International Ltd.
In his decision, Justice Blair said his court was not the appropriate place to consider broad issues involved "in a big league battle between big league players and, partially, big league hitters." Instead, he hinted that Air Canada take its issues to the Ontario Securities Commission.
....
A source at the OSC said that if there was any concrete evidence that Onex purchased its current 3.1-per-cent stake in Air Canada after it learned about the government's plans for suspending competition rules, the OSC would clearly have to take investigative action.
So far, however, there is merely conjecture and speculation, the source said, and that's not enough to prompt any investigation. "There's nothing to be done unless some evidence comes forward."
Gotta love that OSC attitude! Never mind actually going out and looking for evidence, they actually wait for it to be delivered before they start an investigation!
Continued..... |
