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Contact: Karen C. Cook |
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Financial Post: Canada Air Canada could very well expand its service, as opposed to reducing it, once it emerges from bankruptcy protection because of the increased use of regional jets, says the U.S. investment banker and restructuring expert hired to advise the insolvent carrier. "We're just too early into the process to know exactly what's in store for Air Canada -- but executive management here has been working on those kinds of ideas," said John Luth, president of New York-based Seabury Group. "They anticipate the regional jet could play a significant role that could lead actually to an expansion of service -- not a contraction of service ultimately resulting from this restructuring." Early indications are that Air Canada's reorganization will bear a great similarity to that of U.S. Airways' -- another client of Mr. Luth's that emerged this week from bankruptcy protection in the United States. Seabury Group has assigned 20 of its most senior staff to the Air Canada file, most of whom will commute from cities across the United States to Air Canada's suburban Montreal headquarters. In the near term, the bulk of Mr. Luth's time will be spent in Montreal, reporting to and working with Calin Rovinescu, Air Canada's appointed chief restructuring officer. While Mr. Luth agreed to speak with the Financial Post, he declined to discuss specifics regarding Air Canada, such as the difficulty of voiding collective agreements under the Companies Creditors' Arrangement Act and his thoughts on its Tango, Zip and Jazz subsidiaries. If U.S. Airways succeeds with its new plan, it would mark only the third time in recent history an airline re-emerged successfully from Chapter 11 protection. (America West Airlines and Continental Airlines are the others.) As part of its restructuring, U.S. Airway reduced its fleet, to 276 aircraft from 311, chopped 35% of its workforce, or 36,000 jobs, scaled back international routes and rewrote its strategy to revolve around the use of regional jets. "The further reductions was essentially about being able to restructure the flying operations in such a matter in order to retain all of the revenue while extracting about 10% of the fleet -- which is the most favourable outcome for all stakeholders ... rather than continuing with an inefficiency," said Mr. Luth, formerly a chief financial officer at Continental Airlines. "[U.S. Airways] was able to derive, through better network planning and routing, the ability to use [its] aircraft for longer hours and more efficiently, and so to maintain the footprint of their network." He said a revamp of Air Canada's fleet is likely, with an emphasis on adding regional jets. Robert Milton, the airline's CEO, said as much during a conference call after the airline's CCAA filing. The addition of such jets was a key component of U.S. Airways' reorganization. The number of regional jets has climbed to 140 from 70, and that will increase to up to 450 in half a decade. Though the mainline fleet of wide-body jets shrunk 10%, U.S. Airways' network will experience a significant increase in flying, three to four years into its business plan, Mr. Luth said. "That's achievable because it's putting in aircraft whose [operating] costs are much more balanced correctly, in terms of size and cost, to the revenue that's likely to be generated from that aircraft." U.S. Airways was able to introduce more regional jets after its pilots agreed to concessions regarding the so-called "scope clause." However, introducing regional jets at Air Canada and getting pilots to agree on changes to their work rules may prove more difficult for Mr. Luth, as CCAA forbids the voiding of contracts. During the last collective bargaining talks between Air Canada and its pilot unions, in the summer of 2000, the question of scope -- limits on what pilots fly what planes -- was the biggest hurdle. Through scope clauses, pilot unions attempt to protect jobs by limiting the number, size and even routes flown by affiliates or subsidiaries of mainline carriers. Pilots who fly regional jets are also paid less than pilots on wide-body aircraft. But Mr. Luth is convinced this is a key element of any reorganization involving a network carrier, such as Air Canada. "The key to this business is ensuring that your particular trip is of a cost that matches up with the revenue that you can achieve at that particular time of day, that particular day of the week, that particular month. And so really that's why you need a mixture of jets -- ultimately that leads to strengthening, not weakening, of the demand for the mainline jet flying. The more points that are connected into a hub, the stronger the hub and the more sustainable the mainline jet operations are." |
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