Bains suggests Ottawa could lean on scorned federal loan program for airline bailout
OTTAWA – Innovation Minister Navdeep Bains says a federal loan program little appreciated by industry will be among the options Ottawa weighs as it sits down with airline executives to negotiate a program to government assistance.
The Large Employers Emergency Funding Mechanism (LEEFF) could play a key role in lifting carriers out of severe financial hardship caused by the COVID-19 pandemic, Bains said at a press conference on Monday.
The program offers loans of $ 60 million or more to large companies facing cash flow problems, but comes with an interest rate that drops from 5% to 8% after the first year – well above typical private sector lending rates.
According to the Canadian Emergency Business Finance Corporation, only two companies have been approved for LEEFF loans since the Liberals announced the program on May 11: a casino company and a metallurgical coal producer.
Groups ranging from the federal conservatives to Unifor, a union representing 15,000 aviation workers, have criticized the program for its operating restrictions and high interest rate.
On Sunday, Transport Minister Marc Garneau said federal aid to airlines will depend on reimbursing passengers for canceled flights – a long-standing demand from opposition parties, passenger advocates and thousands of people. complaints to the Canadian Transportation Agency.
Talks with airline officials are expected to begin this week, Garneau said.
The industry has been asking for financial support since the spring while ruling out options, such as the government’s purchase of stakes in carriers.
Government-backed private loans rather than direct loans or equity participation would be ideal for the industry’s recovery, said Robert Kokonis, president of Toronto-based consulting firm AirTrav Inc.
“We are ready to service this debt. We just want to have a much more attractive interest rate than the LEEFF program,” he said.
However, passenger rights advocate Gabor Lukacs said buying a slice of carriers like Air Canada was the fairest path for Ottawa as it would give the government a seat at council tables.
“The ability of the business to repay the loan is always a concern, if it is properly secured, if it would be canceled somehow,” Lukacs said.
Subsidies should be out of the question, he added. “The idea of privatizing the profits while socializing the losses should cause concern among people on both sides of the political map.”
Governments around the world have distributed $ 123 billion to help the airline industry, according to Unifor President Jerry Dias, who said the LEEFF program “just isn’t working” because of “incredible restrictions ”.
Canada, on the other hand, has avoided sector support – the only G7 country to do so – instead of deploying financial assistance such as wage subsidies available to many industries.
Until Sunday, Ottawa had also delayed claims for reimbursements from customers whose flights had been canceled due to the pandemic, which could save carriers hundreds of millions of dollars.
In contrast, European and US authorities have ordered airlines to offer a refund, in addition to conditions attached to financial lifelines that range from limiting dividends and bonuses to executives to reducing carbon emissions.
In Germany, authorities opted for a $ 14 billion bailout from Lufthansa, which allowed the government to take a 20% stake in the airline.
A few billion in potential refunds remain in the coffers of airlines.
Air Canada said Monday it had retained $ 2.3 billion in advance ticket sales last quarter.
The Montreal-based company also spent $ 9 million in cash per day, for a loss of $ 685 million as travel demand remained in the doldrums.
WestJet Airlines, unlike its domestic competitors, announced last month that it would reimburse passengers whose flights it canceled due to the pandemic. The process will likely take six to nine months, he said.
“This is ridiculous,” said Bob Scott, who started one of the many reimbursement-related petitions that collected more than 109,000 signatures in total.
Scott took courage in the Liberals’ conditional repayment pledge, but fears airlines will follow the lead of their European counterparts and persist in their efforts to persuade customers to settle for travel vouchers instead of refunds.
Mike McNaney, head of the National Airlines Council of Canada, which represents Air Canada, WestJet, Air Transat and Jazz Aviation, said he was “encouraged” by the prospect of the aid, “but we would like to act much faster than things did not happen. “
“People are still struggling and people are hoping the government will pass,” said his counterpart John McKenna, CEO of the Air Transport Association of Canada, which represents some 30 regional carriers.
“But every time the government tries to please everyone, it ends up pleasing no one.”
This report by The Canadian Press was first published on November 9, 2020.