...and this just in.
Canada 3000 says it may go under
Company's board holding crucial meeting at midday: Says it will become insolvent unless it can get rid of Royal Airlines and its 1,400 jobs
Peter Fitzpatrick
National Post
Canada 3000 Inc., the country's second largest airline, could seek court protection from its creditors as early as noon today unless it gets permission to shut down its Royal Airlines division, the company's president said yesterday.
Angus Kinnear told a Canada Industrial Relations Board hearing last night that the airline must be able to immediately cut costs 30% by closing Royal or it will no longer be viable in the face of the downturn in the airline industry brought on by the Sept. 11 terrorist attacks.
"I would suggest to you, following another [Canada 3000] board meeting at 12 noon tomorrow, if we are unable to resolve this issue the board will probably have to request a filing under the Company Creditors Arrangement Act," Mr. Kinnear told a hushed hearing room crammed with about 150 uniformed Royal Airlines employees.
The CCAA gives insolvent companies an opportunity to restructure under court supervision. In such cases shareholders usually get little or nothing.
Canada 3000 is asking the CIRB for permission to sever Royal from its common employer certificate. That would effectively hive off Royal from Canada 3000's other operations and allow the parent company to close it and terminate 1,400 employees without triggering union bumping and other complications.
The hearing is to continue this morning. It was not clear last night whether the board will make its ruling today.
Mr. Kinnear said a favourable ruling is imperative, otherwise laid-off Royal employees will be able to displace less senior employees in other parts of the company. The airline says that would be prohibitively time-consuming and expensive because people would have to be retrained, which could take up to a year in the case of pilots.
"Unless the CIRB provides a decision which avoids the cost and time delay of retraining resulting from bumping the company will be unable to continue a viable business plan that would sustain the employment of two-thirds of its 4,800 workforce, leading to a cessation of operations of Canada 3000," he said.
Mr. Kinnear painted a grim picture. By Friday, he said, Canada 3000 expects to have only $5-million in the bank -- provided it gets an expected $3.5-million GST credit from the government this week -- while losses are $700,000 a day and climbing.
Canada 3000 has stopped paying aircraft leases on its fleet for October and is looking for deferrals of 50% on its annual $200-million leasing costs for the next three months.
Last month, Ottawa agreed to give Canada 3000 a $75-million loan guarantee. However, Canada 3000 cannot get the money until it produces a viable business plan and cuts its costs.
Industry sources said the federal government was scrambling last night to find a way to support the carrier after learning it would not be able to meet the conditions of the loan guarantee.
Compounding the airline's difficulties is that Air Canada's new low-cost Tango brand overlaps virtually all of its network, Mr. Kinnear said.
As a result, the airline has been forced to run a costly seat sale in which, for example, a one-way Toronto-Calgary flight that costs the airline $314 per passenger is being sold for $169.
The situation will likely worsen as news of the airline's dire situation comes out and passengers, afraid of seeing flights cancelled or of being stranded, book on other airlines, Mr. Kinnear admitted.
Even if Canada 3000 wins its case and is able to lay off Royal employees, he is uncertain the company will find the estimated $6.5- million it needs for severance.
As an indication of how difficult business is, Mr. Kinnear said he cannot be certain there will be a turnaround until 2003 or 2004.
Union officials greeted Mr. Kinnear's warning with some skepticism.
"We've seen these figures fluctuate from day to day. I don't mean to appear cynical, but we've been exposed to this from the outset," said Humberto DaSilva, president of the Royal division of the Canadian Union of Public Employees.
The union has been in talks with the company for weeks about ways to mitigate layoffs through such means as job sharing.
Dave Ritchie, Canadian vice-president of the International Association of Machinists and Aerospace Workers, said the company may be in trouble but it must obey the law.
"They've just tried to put the CIRB between a rock and a hard place. What they've said is, 'If we don't get what we want, you've just put this entire operation into jeopardy,' " he said.
But Neil Sharp, president of Royal's pilots association, said the risks of threatening to go out of business are so great, it seems unlikely the company is bluffing. He thinks the best option is for Canada 3000 to consider an offer to buy Royal that is expected to come today from Michel Leblanc, the former chairman, president and chief executive.
Lawyers for the two affected unions, the pilots association and the Canadian Union of Public Employees, urged the board to deny Canada 3000's request, arguing that as recently as last week, both sides were moving co-operatively to finalize the common employer status, but now the company wants to renege.
During cross-examination, Steve Waller, a lawyer for the pilots union, produced an agreement signed by the company on Nov. 1 that showed the airline wanted to lay off only 50 pilots. He expressed skepticism the situation could have deteriorated so quickly.
"The board doesn't have the jurisdiction to grant this request by the company and even if it did ... this application is a fundamental attack on the statute and processes of this board," said Denis Ellickson, a lawyer for CUPE.
Air Canada, meanwhile, is to lay off 171 pilots, after their union, the pilots association, failed in a bid to block the cuts at the CIRB yesterday. The Montreal-based carrier, which has about 3,200 pilots, wants to cut labour costs by $500-million and plans to trim its workforce by 9,000 jobs.
What a difference a day makes?