As Ottawa works on helping airlines, refunds for cancelled flights could come sooner: The Globe's Willis
OTTAWA -- Innovation Minister Navdeep Bains says a federal loan program little-loved by industry will be among the options Ottawa weighs as it sits down with airline executives to negotiate a government aid package.
Bains says the Large Employer Emergency Financing Facility (LEEFF) could play a key role in lifting carriers out of the dire financial straits caused by the COVID-19 pandemic.
The program offers loans of $60 million or more to large companies facing cash problems, but comes with an interest rate that jumps to eight per cent from five per cent after the first year -- far above typical private-sector lending rates.
Groups ranging from the federal Conservatives to Unifor, a union representing 15,000 aviation workers, have criticized the LEEFF due to its operating restrictions and high interest rate.
On Sunday, Transport Minister Marc Garneau said federal aid to airlines will hinge on their refunding passengers for cancelled flights -- a long-standing demand by opposition parties, passenger advocates and thousands of complaints to the Canadian Transportation Agency.
Talks with airline representatives are set to begin this week, Garneau said.
The industry has called for financial support since the spring while brushing off certain options, such as the government buying stakes in carriers.
Private loans backstopped by the government rather than direct loans or an equity stake would be ideal for sector recovery, said Robert Kokonis, president of Toronto-based consulting firm AirTrav Inc.
"We're prepared to put that debt on our balance sheet. We're prepared to service that debt. We just want to have a rate of interest that's much more attractive than the LEEFF program," he said.
However, passenger-rights advocate Gabor Lukacs said purchasing slices of carriers like Air Canada is Ottawa's fairest way forward, as it would give government seat at the board tables.
"There's always the concern about the company's ability to repay the loan, whether it's secured properly, whether it would be forgiven in some way," he said.
Grants should be out of the question, he added. "The idea of privatizing profits while socializing losses should raise concerns from people on both sides of the political map."
Governments around the globe have doled out $123 billion to assist the airline industry, according to Unifor president Jerry Dias, who has said the LEEFF program "just isn't working" due to "incredible restrictions."
Canada, on the other hand, has steered clear of sector-specific support -- the only G7 country to do so -- instead rolling out financial aid such as wage subsidies available to many industries.
Until Sunday, Ottawa had also held off on demanding airlines refund customers whose flights were cancelled due to the pandemic, potentially saving carriers hundreds of millions of dollars.
In contrast, European and U.S. authorities have ordered airlines to offer reimbursement, in addition to the strings attached to financial lifelines that range from limiting dividends and executive bonuses to cutting carbon emissions.
In Germany, authorities opted for a $14-billion bailout of Lufthansa that saw the government take a 20 per cent share of the airline.
A couple billion in potential refunds remain in airline coffers.
Air Canada reported on Monday it held onto $2.3 billion in advance ticket sales last quarter.
The Montreal-based company also burned through than $9 million in cash per day, for a loss of $685 million as travel demand remained in the doldrums.