Air Canada to Go Private; Plan Seeks Initial Sale of 45%

The Canadian government said Tuesday that it will phase out federal ownership of Air Canada, the nation’s largest airline and one of the 10 largest in the world.

In an announcement to Parliament, Deputy Prime Minister Don Mazankowski said legislation will be introduced to permit the initial sale of 45% of the airline to the public. The government will retain control of the remaining shares for now.

He said the measure will call for the eventual transfer of all of the airline, “100% of the shares,” to the private sector.

The sale of the stock will be restricted so that no individual will be allowed to own more than 10%, and foreign investment will be limited to 25%.

Despite these restrictions, the announcement brought cries of outrage from the two opposition parties in Parliament and from some union leaders. John Turner, leader of the opposition Liberal Party, charged that the government is abandoning small, isolated communities. He expressed fear that private ownership of the airline would stop serving such towns because such service is not profitable.

Turner and Ed Broadbent, leader of the socialist New Democratic Party, both charged Prime Minister Brian Mulroney with breaking a 1985 promise not to sell the airline. The decision also runs counter to public opinion polls indicating that 53% of all Canadians oppose selling Air Canada.

There were reports that Mulroney’s powerful inner Cabinet was divided, with some ministers opposing the plan.

The airline, which was founded as Trans-Canada Airlines in 1937, operates 108 planes ranging from jumbo L-1011s and DC-10s to small commuter planes. Its routes total more than 195,000 miles and it employs more than 22,000 people.

Although Air Canada controls about 60% of commercial air traffic in the country and flies to Europe, the United States and Asia, it has been pressed recently by the growth of Canadian Airlines International and WardAir.

And while it has assets of more than $2.4 billion and reported a profit of $36.5 million in 1987, it has an accumulated debt of more than $1 billion and needs to raise $2 billion by 1995 in order to rejuvenate its fleet.

According to government officials, the prospect of a quick infusion of funds to buy new planes was a prime motive in the decision to sell Air Canada stock to the public, since Mulroney had decided that the airline would have to finance acquisitions itself.

Air Canada President Pierre Jeanniot announced in March that he was prepared to buy 34 new planes to replace the company’s obsolescent 727s and DC-9s before the end of the year at a cost of $960 million.

Employees’ Reactions Mixed

Mazankowski, the deputy prime minister, did not outline a schedule for the sale. He indicated that a stock offering will be made as soon as Parliament passes the enabling legislation, a process that is likely to take months. However, the current government has such a strong majority that passage of the legislation is assured.

He said a special effort will be made to sell shares to Air Canada employees, and this brought conflicting reactions from union officials.

Roger Burgess-Webb, spokesman for the airline’s 1,700 pilots, told Canadian Press: “On the face of it, it would seem to be a good thing. Perhaps more than any other group, the pilots’ fortunes are tied directly to those of the airlines. So what’s good for the airline is probably good for the pilots.”

But Ron Fontaine, an official of the union representing most of the airline’s 8,500 ground employees, told the news agency: “You would think that if the airline is really interested in selling to employees first, then there would have already been some meaningful dialogue. . . . It doesn’t seem to be a professional way of getting a partnership.”

Shirley Carr, president of the Canadian Labor Congress, issued a statement charging that Mulroney is “putting part of the country up for sale.”

Financial analysts expressed doubt that the stock offering will be well received. Stockbroker Don Moore said: “It’s a tough call to say how Air Canada shares would sell. It depends on how much debt the airline would have to carry, and there’s tough, tough competition among airlines these days.”

Steven Garmaise of First Marathon Securities in Toronto said the success of the sale will depend on a low price for the stock.

“Air Canada has a lousy balance sheet,” he said, “and it has ongoing needs for aircraft that will cost $2 billion to $3 billion, so it’s going to have to come back into the market.”

The Air Canada sale is part of a privatization program undertaken when Mulroney’s Progressive Conservative Party took office in 1984. So far, the government has sold off two airplane manufacturing firms, De Havilland Aircraft Ltd., and Canadair Ltd., along with Teleglobe Canada and several smaller companies.

AIR CANADA: A FEW FACTS

Founding: In 1937 as Trans-Canada Airlines

Planes: 108, from DC-10s to commuter planes

Routes: 195,000 miles worldwide

Workers: More than 22,000,

including 1,700 pilots

Profit: $36.5 million in 1987

Assets: More than $2.4 billion

Debt: More than $1 billion