Exclusive: Canada eyeing loans for airlines that are 'running out of runway' - sources

David Ljunggren and Steve Scherer
·3-min read

By David Ljunggren and Steve Scherer

OTTAWA (Reuters) - Canada is finally close to an aid package for airlines that will likely offer low-interest loans to carriers versus taking outright stakes, three sources say, eight months after the COVID-19 pandemic decimated air travel.

"We're running out of runway on this," said a government source, citing concerns about the viability of both airlines and airports. The source requested anonymity given the sensitivity of the situation.

Several countries, including the United States and Australia, have offered billions in direct emergency support to their airlines. But Canada - the world's second largest country by area and one heavily dependent on airline travel to connect remote regions - has not.

Although Air Canada and WestJet, the two main carriers, and transport unions have been pleading for help for months as passenger demand cratered, Canada's finance ministry initially resisted the idea of providing specific sectoral aid, said two of the sources.

Under pressure from some key ministers, Finance Minister Chrystia Freeland, who took over in August, is now looking at how to specifically help the airlines because it became clear the airline sector would not bounce back in the fall, the first source said.

Air Canada and WestJet have already cut many routes, especially to smaller airports.

"Discussions are ongoing, they're positive," said the first source, adding that the focus now is on "making sure the sector and those regional routes are protected and the airports remain operational."

One major option for helping the airlines is low-interest loans, but the sources could offer no details on amounts or conditions. This idea is favored by the unions, which want a C$7 billion, 10-year low-interest loan.

The other possibility is the government taking a stake in airlines, but this is unlikely, two sources said.

Air Canada has already laid off around 20,000 workers, about half its workforce. According to the Canadian Airports Council, Canadian passenger traffic from April through August was down 92% from the same period in 2019.

An aid package would involve major financial commitments undoubtedly prompt appeals for similar help from other sectors.

"We absolutely understand that it's a frustrating and difficult time for the workers and the airline industry," a third government source said. "We obviously have to be very careful to get it right for workers in the sector and invest responsibly for Canadians."

Ottawa's initial response was to set up emergency programs to help all firms and individuals.

Airlines have used C$1.3 billion in federal subsidies to help pay wages to employees during the pandemic. The government has also provided C$192 million in support to northern air carriers and waived ground lease rents until December 2020 for 21, a move worth C$330 million.

"(We are) fully seized with the issue of how hard the air sector has been hit because of the pandemic. We are working closely with airlines and other partners in the air sector," said a spokeswoman for Finance Minister Chrystia Freeland.

Jerry Dias, head of the private-sector Unifor union, which represents more than 16,000 members of the airline sector, urged Ottawa to move quickly.

"This isn't rocket science ... you can't have a strong recovery without strong airlines," he said by phone.

(Additional reporting by Allison Lampert in Montreal; Editing by Steve Orlofsky)