The Star's David Olive's thoughts:

[Mitch Cronin]

Shared shame in airline bids

Dec. 5, 2003. 06:58 AM

David Olive

Air Canada deserves better than this.

The customers who still fly it do. So do the employees who can't or won't defect from the once-proud carrier.

Air Canada has been a bad-news story for so long, at least three years, it's hard to keep in mind that the airline is still one of the world's oldest, largest and safest carriers.

It is also Canada's national flag carrier, with more than 50 per cent of the domestic market, and it is the sole Canadian scheduled carrier on its international routes.

It's more than a shame that the contest for who gets to revitalize this national icon has been narrowed to a couple of unsuitable candidates who, by all early indications, know little about airline management and care less, and are preoccupied with seizing a quick payoff two or three years hence when the carrier is restored to some semblance of health.

What Air Canada really needs — this is Crisis 101 stuff to those who know something about airline bailouts — is a new, nose-to-the-grindstone management team. One that is headed by a new CEO who is by turns stubbornly persistent about achieving customer-satisfaction goals, and is almost cuddly in befriending a long-demoralized workforce.

A proper bailout requires transparency, so that all can see that ambitious goals are being set and met. A 10-year business plan rather than a quick-exit strategy. Corporate governance in the executive suite that is worthy of the name. And a mixture of profit-sharing and bonus programs for the rank and file to truly engage grassroots employees in the turnaround mission.

We've gone too far down the road of deregulation and privatization for a straightforward Ottawa bailout to be credible. Never mind that Air Canada's humiliation has been entirely at the hands of private-sector managers. Memories have grown so dim that Pierre Jeanniot, a former CEO of the carrier, was compelled to write to readers of the Financial Post.

On the paper's letters page this week, he reminded readers that "until recently, Air Canada returned a profit to its Canadian taxpayer owners, contrary to popular belief."

One imagines, too, an attractive French-English entente among the Caisse de dépôt et placement du Québec, headquartered in Air Canada's hometown of Montreal, and either or both of Ontario Municipal Employees Retirement System and the Ontario Teachers Pension Plan Board.

A fanciful notion, perhaps. But each of those groups, with their deep pools of capital, has the required staying power, a commitment to the long haul, and an enviable track record with the vast majority of their investments. Albeit a latecomer to high corporate governance standards, the Caisse has joined OMERS and Teachers in the vanguard of demanding high performance from chief executive officers, and exposing the more odious cases of excessive executive pay.

Alas, the auction for an Air Canada saviour too quickly narrowed to a couple of bidders whose antics these past few weeks in seeking maximum advantage prompted Mr. Justice James Farley of the Ontario Supreme Court, a noted corporate scold, to implore the putative rescuers to start acting like adults, or the entire eight-month exercise in getting Air Canada out of bankruptcy is sure to founder.

Bidders Victor Li, scion of the wealthiest family in Asia, and Cerberus Capital Management, a Manhattan hedge fund, both lack experience in airline management. Their track records in other businesses are mixed.

And they are both absentee parties, easily distracted. Li's family manages everything from telecommunications operations in Asia and Europe to shipping ports on the Panama Canal. Cerberus is a player in Canadian telecom, Italian sportswear, Japanese banking, and U.S. car-rental agencies and bottle makers.

What's at stake for Li and Cerberus is The Deal.

Who can get away with a low-ball price for one of the world's dozen largest airlines? Who can leave as little on the table for creditors as possible? Who can get away with disenfranchising the airline's pensioners the most?

Li demands the right to claim the prize he was awarded in early November, when he appeared to win the Air Canada bidding, and has threatened to take his bat and ball and go home if the auction is re-opened at the urging of Cerberus. For its part, Cerberus is in clear contravention of the auction terms to which it agreed, with its recent demand that the bidding be re-opened.

What characterizes these manoeuvres is a proliferation of investment bankers acting for both bidders, who expect to be cut in on the deal's hoped-for riches when Air Canada is returned to solvency, and the stock of the restructured airline correspondingly spikes, however briefly.

That and copious management and other fees that Li, for one, hopes to extract from Air Canada over the next few years before cashing out.

This is the kind of operation that works better when you have a compliant management team. Which may explain why the dubious stewardship of Robert Milton and his second-in-command, lawyer Calin Rovinescu, has been promised continued employment by each bidder, along with groaning financial inducements.

The $40 million or so in stock grants promised to Milton and Rovinescu by Victor Li, along with the almost stunning absence of a grassroots profit-sharing plan of the sort that has worked so well at start-up WestJet Airlines Ltd., back-from-the-dead Continental Airlines Inc. and the like, pretty much ensures that the rancid labour relations characterizing Air Canada in the past will be a thing of the future, as well.

And so this is a story about a very small group of people looking out for themselves, either at the expense of the vastly larger population of other stakeholders, or at least with scant regard for them.

Having the government or public sector pension funds step in and take complete control of this icon of Canadian nation-building would doubtless have been a far worse option. So says the prevailing ideology. But if Air Canada falters again a few years hence, someone will have to explain to me, once again, just why that is.

And why deal makers at airlines — like the unlucky Carl Icahn at the thrice-bankrupt TWA, for instance — so seldom fix airlines so that they stay fixed. It couldn't be that they are so intent on taking their rewards from the top, early and often.

No, that would be too obvious.

dolive@thestar.ca

[Don Hudson]

Mitch;

You beat me posting Olive's article by about 17 minutes!

The article is the clearest assessment yet of the frenzied and sickening shenanigans surrounding our company's future.

Secretive, grasping, untrusting and untrustworthy, uninterested in airplanes and aviation and distracted by the golden goose, those who are fighting tooth and claw to elbow themselves through the investment door to reap the brilliant rewards our company will almost certainly offer to the lucky ones who will own the stock, this process which has unfolded before our eyes is the clearest sign yet that greed and baseness not vision, will "save" our company.

Truly...what can one say, in the face of it all?

[Don Hudson]

Mitch;

I was going to post the article too. Great, and fast work on the keyboard, Mitch.

From the Toronto Star, no less, David Olive's perceptive article is the clearest assessment yet of the frenzied and sickening shenanigans surrounding our company's future.

Secretive, grasping, untrusting and untrustworthy, uninterested in airplanes and aviation and distracted by the golden goose, those who are fighting tooth and claw to elbow themselves through the investment door to reap the brilliant rewards our company will almost certainly offer to the lucky ones who will own the stock, this process which has unfolded before our eyes is the clearest sign yet that greed and baseness not vision, will "save" our company.

Truly...in this day of corporate governance issues what can one say, in the face of it all?

[Don Hudson]

Mitch;

From the Toronto Star, no less, David Olive's perceptive article is the clearest assessment yet of the frenzied and sickening shenanigans surrounding our company's future.

By the public evidence thus far seen and the obvious concerns of Mr Justice Farley, I believe it is fair to observe that the process has been secretive, grasping, untrusting and untrustworthy, uninterested in airplanes and aviation, and obscenely distracted by the golden goose.

Those who are fighting tooth and claw to elbow themselves through the investment door to reap the brilliant rewards our company will almost certainly offer to the lucky ones who will own the stock have shown that this process which has unfolded before our eyes is the clearest sign yet that greed and baseness, not vision, will "save" our company.

Truly...in this day of corporate governance issues, as an employee, what can one say in the face of it all?

Thank goodness for the Justice.

[DEFCON]

Wow - This article says it all!!!

[GTFA]

Now THERE's a story!!!

GTFA

[Guest Operation Bomberclad]

There is an obvioius swindle going on when a major investor is cast as "the boss" and told day after day that control would rest solely with such a rich man, nobody would argue with him. He then goes around telling the pile-it groups, who are on murderous terms, that they should make kissy-face. Then the same patsy decides on the drop of a hat that the deal may as well be off because somebody else makes a better offer and tears a page out of Uncle Milty's restructuring plan.

Which brings me to my next subject, which is the possibility that one of the characters in the Airbus scandal, which is not restricted to the mothercorp alone, but the shining example of how globalisation works, could very likely become the single owner of an airline which is the obvious route as a stepping stone to the job of Prime Minister, which is his only goal. Aside from that fact, people seem to be siding with the three headed pooches attempts to pee on the hydrant.

My readers must be reminded at this point that the backroom deals with Airbus and purchasing departments of airlines which were more under political control than the boardroom caused more than one bankruptcy in order that planes get shoved out the door.

All in the hands of the inestimable Judge Hornswoggled.

If ACPA gets led to the guillotine and have their heads chopped off, would the public be slaked in their desire for blood at the hands of private equity?

:[

OB