Avalon

Extract from a Globe and Mail article Thursday, Jul. 30, 2009

Air Canada lands $1-billion reprieve by Brent Jang

Air Canada (AC.B-T1.620.117.28%) has secured a $1-billion lifeline with help from the federal government, giving the carrier a crucial infusion of cash to help it survive the recession and avoid another trip through bankruptcy protection.

The centrepiece of the financial package is a $600-million loan from a syndicate of lenders. Ottawa will kick in $250-million – $150-million through Export Development Canada and $100-million from the government’s Canada Account, which is used for financings that are in the “national interest” but are either too risky or too large for EDC to accept on its own.

Getting the money has been the top priority of new Air Canada chief executive officer Calin Rovinescu ever since the airline secured a series of labour deals this summer to avoid a strike.

But in a credit environment where lenders are still nervous about higher-risk loans, it comes at a cost: Under the terms of the $600-million loan, the annual borrowing rate for Air Canada will be a minimum of 12.75 per cent.

The new CEO and executive vice-presidents Michael Rousseau and Duncan Dee first had to navigate through the carrier’s hard-nosed unions, then won pension relief from Ottawa before obtaining yesterday’s financing – seen as critical to avoid filing for bankruptcy protection for the second time in six years.

Besides Ottawa’s $250-million in collateral-backed loans, ACE Aviation Holdings Inc. (ACE.B-T4.800.5312.41%) and customer loyalty program Groupe Aeroplan Inc. (AER-T7.73-0.04-0.51%) will lend $150-million each, while General Electric Co.’s GE Canada Finance Holding Co. chips in $50-million. GE Capital Aviation Services is also lending $122-million through a separate deal where Air Canada is selling and leasing back three Boeing 777s.

ACE, which owns 75 per cent of Air Canada, said $600-million has been drawn down on a $700-million credit facility. “The credit facility will provide stability to Air Canada in the current economic environment,” ACE said Wednesday night. ACE formerly owned Aeroplan, but spun off the frequent-flier program in 2005.

The airline has been hard hit by the recession, and its passenger loads have suffered.

Mr. Rovinescu, Mr. Rousseau and Mr. Dee sat down in separate meetings over the past four months with Export Development Canada CEO Eric Siegel, Finance Minister Jim Flaherty and Transport Minister John Baird, and their respective officials.

“EDC’s new domestic powers have allowed it to provide timely and critical financing to Air Canada, with our involvement supporting significant and tangible benefits to Canada,” Mr. Siegel said in a statement, adding that the federal Crown corporation’s $150-million loan is on commercial terms.

Ottawa’s $100-million loan is from its Canada Account, which EDC noted is for “when a transaction falls outside the scope of EDC’s corporate account, usually due to a combination of risks, including the size of the transaction, market risks, country capacity, borrower risks or the financing conditions, but nevertheless is determined by the federal government to be in Canada’s national interest.”

It has been a grueling past four months at Air Canada, with the recession eroding revenue and some union leaders reluctantly agreeing to a pension funding moratorium.

In exchange for supporting the moratorium, unions will be awarded shares to be credited to the pension plan, which has a $2.9-billion solvency deficit. The airline’s five unions combined stand to receive a 15-per-cent equity stake in Air Canada.

So is this intervention by government a good thing? Whose interests are being served?

The government’s point of view is summed up by Melisa Leclerc, a spokeswoman for International Trade Minister Stockwell Day — who is responsible for EDC – who says the federal contribution is legitimate as the airline is operating in “extraordinary circumstances,” and that air travel is “vital” to linking the disparate parts of the country.

Here is a different point of view.
An airline that went bankrupt six years ago, hit hard by the recession, with a $2.9 billion (!) pension deficit, with labour rates bid up by aggressive unions who now have an equity stake, well on the way to bankruptcy again, with which no private lender or lenders wants to be involved, supported only by its parent company ACE and Aeroplan for obvious reasons, is deemed to be worthy of ‘loaned’ taxpayers money via explicit loans and some kind of pension relief.

This ‘national’ airline is, at best, middle-of-the-pack in quality. Anecdotally many people I know don’t like Air Canada and would prefer more choice. There are also perhaps unspoken political considerations. Air Canada is headquartered in Montreal and allowing the national carrier the go bankrupt (again) might look bad for the government.

The cost of the intervention is much larger than the direct support and pension relief the government announced. The real cost comes from impeding Canada from developing a thriving airline industry. Government intervention to keep Air Canada going crowds out better private enterprise solutions to air travel and opportunities for Canadians to create wealth.

The best course of action for Canadians is to deregulate Canada’s air industry and allow Air Canada to sink or swim.

But Finance Minister Jim Flaherty and Transport Minister John Baird (apparently Conservatives) still want to do things the old fashioned Canadian way; one step forward and two steps back for the country is ok as long as government and favoured clients benefit.

In 2007 the Select Committee on Participation in the Democratic Process was created in Nova Scotia after the historic low voter turnout of 59.89% in the 2006 Nova Scotia election. After two years a 45 page draft report was delivered by Michel Sampson, MLA to the Speaker on May 1 2009.

The report can be accessed here.

The committee recommends educating voters, primarily youth, about our political system. Yet these suggestions do nothing to remedy the root causes of declining turnout alluded to in feedback during public consultations. So what happened?

The official mandate in Resolution No. 1221 was ‘to increase the percentage of Nova Scotians voting in an election and to enhance the effectiveness of our representative form of government’. Bold and commendable indeed. However when the committee heard much dissatisfaction with the current voting system, First-Past-The-Post, this issue was said to be ‘beyond the mandate of our committee’.

The Executive Summary restates the purpose of the Committee as ‘to encourage the public to be more engaged in the electoral process’. So political engagement is simply being a dutiful voter? There is so much more to political engagement than just voting. It involves thinking about issues of the day and not just those that parties say are issues, debating them with family and friends, organizing committees and initiatives, being involved in a party and coming to a considered opinion that will influence the voting and composition of the legislature.

So ‘educating the youth’ was an easy out. Several presenters at the public consultations spoken to by the author indicated that this was decided early on.

Why did the committee back away? Simple. The problems facing our political system, which are the causes of declining turnout, cannot be addressed by committees of entrenched politicians. They could not say or even suggest the real substantive changes that are needed for the common good because they are not in the interests of the existing political structures:

1. A reformed voting system where votes are not wasted, such as PR-based STV. You cannot convince people of ‘the importance of each and every vote’ if the bulk of votes cast are wasted under First-Past-The-Post.

2. Our representatives must be freer to consider voter concerns. It is simply wrong to try to convince voters that ‘Everyone does have a voice in how things are run’ if the party leaders are directing the voting in the house.

3. Make the legislature independent to break up our top-down political command structure so ‘politicians and bureaucrats can think outside the box’ and allow voters real influence over their government’s actions.

The committee recommended educating people so they will return to the polls. Paradoxically the committee stated that ‘as people become better informed they tend to become more cynical towards government’. As people become better informed they see an executive and legislature controlled by the Premier, whose whim can be policy, where the citizen has no voice.

Therefore we should applaud these and other educational measures that inform the voter on the political process, not for the reasons hoped for by the committee – higher turnouts to re-affirm the legitimacy of our poor governance system, but rather as a precursor to the reforms that are to come.

In 2007 the Select Committee on Participation in the Democratic Process was created in Nova Scotia after the historic low voter turnout of 59.89% in the 2006 Nova Scotia election. After two years a 45 page draft report was delivered by Michel Sampson, MLA to the Speaker on May 1 2009.

The report can be accessed here.

The proposals of the Committee are good ones; reach out to youth in a variety of ways to educate them on the importance of voting and governance, making voting even easier and increasing the exposure of representatives in the community. These should be implemented on their own merits even if the impact on voter turnout is probably negligible. The Committee acknowledges this probability by stating that provinces with similarly mandated committees in BC, Ontario, PEI, NB and Quebec have continued to have declining turnouts after various initiatives similar to those proposed here were undertaken.

The proposals then do not address the root cause of why citizens of all ages are turning away from the political system in record numbers. The cause is a growing realization among the electorate that our political system lacks popular sovereignty, that the voter is not truly represented and that the electoral system is not fair. The Committee’s proposals amount to the proverbial rearrangement of deck chairs on the Titanic. At least the Committee could have acknowledged these problems, they came up in the consultations many times, and suggested further study. So what happened?

In 2007 the Select Committee on Participation in the Democratic Process was created in Nova Scotia after the historic low voter turnout of 59.89% in the 2006 Nova Scotia election. Although the committee was limited to Nova Scotia, undoubtedly the issues involved pertain to all Atlantic Canadians.

After two years a 45 page draft report was delivered by Michel Sampson, MLA to the Speaker on May 1 2009. The event was briefly mentioned in the press amidst a provincial election.

The report can be accessed here.

This article will give a summary of the report.

The committee’s mandate was to ‘consider measures designed to increase the percentage of Nova Scotians voting in an election and to enhance the effectiveness of our representative form of government’. While noting that declining turnout is a pandemic in the western democracies they did identify some underlying variables: urban versus rural, complacency & cynicism, socioeconomic status, age, polling station convenience, and ethnicity.

Through a combination of literature search, public forums and consultations, focus groups and written submissions the committee came up with these recommendations:

1. A Committee be formed to ensure that all Nova Scotian public school students are exposed to the mechanics and importance of the electoral process.
2. Continue the D250 initiative in some form.
3. Have more school visits to the Legislature.
4. Guarantee access for elected officials to schools.
5. Provide Legislative Television on cable TV.
6. Investigate making voting more voter friendly.
7. Improve the conduct of members in the legislature.

In part two (and maybe three) we will critique the report.