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We know why Tim Morgan didn't leave


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Flight plan awry?

National Post

(Thu 03 Nov 2005 - Page: FP3 - Section: Financial Post) Byline: Chris Sorensen

WestJet Airlines Ltd. chief executive Clive Beddoe raised eyebrows a few months ago when he moved his office from the airline's Calgary corporate headquarters to the airline's sprawling maintenance facility at the airport.

Ostensibly a mundane move to take advantage of more office space, some observers nevertheless wondered whether Mr. Beddoe was attempting to wrest more day-to-day control of the airline's operations from Tim Morgan, the airline's former chief operating officer. The speculation mounted further when Mr. Morgan abruptly left WestJet last month for unexplained "personal reasons."

In fact, sources say Mr. Morgan, one of co-founders, left after a major falling out with Mr. Beddoe over the company's strategic direction.

"I get the sense there were a lot of politics involved," said someone familiar with Mr. Morgan's departure, who asked that his name not be used. "I suspect there were any number of issues that Tim disagreed with, or, more than likely, it was the sum of several things all put together."

Another source was more blunt: "There was blood on the floor."

The immediate impact of Mr. Morgan's departure is that it leaves Mr. Beddoe virtually alone at WestJet's helm as the once high-flying airline tries to shake off a period of lacklustre profits and prepares to implement a host of new business initiatives. But it also suggests WestJet's impressive growth from a startup with three used Boeing 737s to a national air carrier in less than a decade, may have finally reached a point where the path to success is no longer clear.

According to several sources, Mr. Morgan clashed with Mr. Beddoe over recent WestJet strategies that deviate from the airline's roots as a low-cost, no-frills airline. Moreover, there are also suggestions that Mr. Morgan worried deeply about the unravelling of WestJet's close-knit corporate culture as a result of a myopic focus on growth -- a situation that threatens to undermine one of WestJet's key attributes and, hence, its competitive advantage.

To be sure, Mr. Morgan's departure and the resulting corporate shakeup have heightened concerns about WestJet's prospects at a time when the airline is desperately searching for a piece of good news. Profits are being poured into fuel tanks. Air Canada has stepped up its game. And the share price has bumped and skidded, at one point last week falling to its lowest point in nearly two years.

Both WestJet and Mr. Morgan declined to comment on the situation, with Mr. Morgan saying only that his leaving had nothing to do with health or family problems.

Some observers, inside and outside the company, have also expressed concerns that three former vice-presidents who reported to Mr. Morgan will now be working directly under Mr. Beddoe.

"More and more power is getting concentrated in Clive's hands -- so much so that I've heard senior managers there talk about CWIs, which means Clive Wanted It," said a source close to the firm.

Such grumblings wouldn't be unusual at a legacy carrier such as Air Canada, but they seem strangely out of place at WestJet, which takes pride in its laid-back, we're-all-in-it-together approach to running an airline. Those who know Mr. Beddoe personally praise his business skills, but say the former real estate developer is someone who more fits the mould of an entrepreneur than a manager of a maturing business. One source described him as having a "my way or the highway" personality. "Others have come to grief," the source said.

With Mr. Morgan gone, there are also worries about what will happen if Mr. Beddoe fails to show up for work one day. "A real critical issue for WestJet is who is going to step into the breach if Clive leaves, whether through an accident or ill-health or whatever," said Karl Moore, a business professor at McGill University, who follows the industry closely.

Indeed, recruiting new executives has never been easy for WestJet, whose founders have attained cult-figure status among staff. "The real problem has more to do with the DNA-fit, rather than the challenge of the job," said Mr. Moore.

Some will remember that Mr. Beddoe tried, unsuccessfully, to step down as CEO in 1999, saying at the time he didn't want to be involved in the day-to-day affairs of running an airline. But his replacement, Steve Smith, who came from Air Canada, barely lasted a year. Mr. Beddoe claimed Mr. Smith didn't fit into WestJet's culture because he practiced a management style that was too top-down.

Whether Mr. Beddoe's replacement is something actively discussed by WestJet's board is difficult to nail down. One director suggested, albeit indirectly, finding a suitable successor is a priority.

"I can tell you, in a general sense, that all boards have a responsibility when it comes to succession -- in fact, it's one of their main responsibilities," said Larry Pollock, the president and CEO of Canadian Western Bank. "And we have a very good board."

Nevertheless, despite Mr. Beddoe's previous apprehensions about managing an airline, it's unlikely he will leave the CEO's office until he has put WestJet back on to a firm footing. That will mean implementing new strategies that include chasing business passengers in Eastern Canada, considering partnerships or alliances with foreign and domestic air carriers and flying longer routes over water to Hawaii and, potentially, Europe.

All are initiatives that would have likely been considered too costly by WestJet when it first launched as a low-cost carrier in 1996.

Analysts, however, seem to like such moves and most have "buy" ratings on WestJet shares. But others are worried that the nature of Mr. Morgan's sudden departure suggest the growth strategies are risky and could erode WestJet's cost structure, not to mention its vaunted corporate culture, which has helped WestJet consistently receive top marks for its customer service.

For example, sources say that one of the reasons Mr. Morgan left is because he disagreed with proposals to create a second crew base in Eastern Canada as part of WestJet's expansion efforts in the region. That would make it easier for the airline to recruit bilingual flight attendants and customer service agents, but Mr. Morgan was apparently worried that having workers spread out across the country would make it difficult to keep them steeped the WestJet way of doing things. Moreover, a divided workforce also threatens to create an opportunity for labour unions, which have so far been shut out by WestJet's focus on profit sharing and unusually strong employee-management relations.

It's no small concern. Both the airline and analysts often cite WestJet's "strong culture" as the airline's key competitive advantage in an industry characterized by surly flight attendants and byzantine rules and regulations that can quickly turn a dream vacation into a travel nightmare.

While such pressures are common among companies that are making the transition from a startup to a mature business, they nevertheless come when WestJet needs all the competitive advantages it can muster. Rival Air Canada, which dramatically trimmed its costs during its restructuring, is increasingly borrowing from WestJet's playbook by using its lower-cost regional carrier Jazz to do the bulk of its domestic flying.

Indeed, Ben Cherniavsky, an analyst with Raymond James, recently argued in a research report that Air Canada appears to have taken the title of "low-fare leader" away from WestJet on domestic routes -- an observation that has drawn a strong rebuke from the country's largest airline. "Air Canada's strategy on pricing was supposed to be about matching, dollar for dollar, WestJet's lowest fares," Mr. Cherniavsky said. "Instead, we've seen them cut. They've instigated lower fares."

Regardless, it's clear the gap between WestJet and Air Canada's fares has dramatically narrowed, meaning WestJet is becoming more reliant than ever on its reputation for comedic flight attendants and friendly customer service agents.

The good news is that Mr. Beddoe seems to have recognized that his airline risks becoming more buttoned-down with each passing day. For one thing, the airline's latest advertising campaign seems to be aimed equally at employees as it is at potential customers. One television spot, for example, shows a WestJet employee trying to impress his girlfriend's father by referring to himself as a company owner.

As well, Donald Bell, the only other co-founder besides Mr. Beddoe who is still with the company, recently had his management portfolio updated to include the rather nebulous duty of "culture."

"That announcement, to me, suggests that WestJet has some internal concerns that culture was no longer being managed actively," says Marc-David Seidel, a business professor at the University of British Columbia's Sauder School of Business.

"They probably thought that there was potential threats to culture because of WestJet's growth. And that can be a serious threat, particularly if that's what constitutes your competitive edge."

- - -

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Guest rattler
I guess you did not listen to the call this morning? It was talked about why he left. Unless you were a fly on the wall in the board room I guess you will never know the real reason, will you?

And what was the reason given today???

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On the call, Beddoe categorically denied that Morgan left because of a dispute. He said quite strongly that he left "for 100% personal reasons".

Great Moments In Stonewalling

Morgan: "Nothing to do with health or family problems"

Beddoe: "100% personal reasons"

NHL coaches: "...its an undisclosed upper body injury"

Bill Clinton: "...that depends on your definition of the word 'is'"

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Now, if I was on the junior sde of the pilot group this sort of thing would make me rather nervous. unsure.gif Not much in the way of retirements, growth is going to be slow, sad.gif might be beter off at Jazz or AC. ph34r.gif

AC or Jazz for the young guys or a quick type rating and a few hours for older guys before they jump ship. WS just may become known as the type and go airline. cool.gif

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On the call, Beddoe categorically denied that Morgan left because of a dispute. ...

It would have been refreshing to hear Clive say anything else, but he couldn't/wouldn't.

How about this:

"Tim quit because we had a fight and he called me an "Naughty Word""?

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On the call, Beddoe categorically denied that Morgan left because of a dispute. He said quite strongly that he left "for 100% personal reasons".

Great Moments In Stonewalling

Morgan: "Nothing to do with health or family problems"

Beddoe: "100% personal reasons"

NHL coaches: "...its an undisclosed upper body injury"

Bill Clinton: "...that depends on your definition of the word 'is'"

Any day of the week, I will take Tim's word over that of CB.

Tim is a very wise and astute man, whether you WJ'ers know it or not, you will miss him greatly. I dare say you will miss him more than you would miss CB if he had left.

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Any day of the week, I will take Tim's word over that of CB.

Tim is a very wise and astute man, whether you WJ'ers know it or not, you will miss him greatly. I dare say you will miss him more than you would miss CB if he had left.

Of course it was personal reasons

He took what Clive said personally

laugh.gif

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Of course it was personal reasons

He took what Clive said personally

laugh.gif

You're taking WJ's results rather hard. I can tell that by your excessive pettiness. laugh.gif

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I think someone is looking for bones in the ice cream.

My guess is Tim decided to get off the treadmill and reap the financial rewards of about 12 years of hard work.

Maybe he'll do what some of the other execs have reportedly done and find a nice home on a warm quiet beach somewhere, move there from October to April and bore others with tedious war stories about the airline business.

Sounds like a plan to me......

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I think someone is looking for bones in the ice cream.

My guess is Tim decided to get off the treadmill and reap the financial rewards of about 12 years of hard work.

Maybe he'll do what some of the other execs have reportedly done and find a nice home on a warm quiet beach somewhere, move there from October to April and bore others with tedious war stories about the airline business.

Sounds like a plan to me......

Except for the fact that the way he snuck out the back door late at night had the effect of casting a suspicious cloud over the whole company.

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Some cloud......with 17% operating margins, higher than Southwest Airlines and way higher than Air Canada, even after spending far more, percentage wise, on maintainance than Air Canada.

If that's a cloud, I'll take it anyday.

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Some cloud......with 17% operating margins, higher than Southwest Airlines and way higher than Air Canada, even after spending far more, percentage wise, on maintainance than Air Canada.

If that's a cloud, I'll take it anyday.

I see there is a new member of the chorus. Listen, you can repeat the mantra all you want, but nobody in a very senior position in a company - certainly not one who is beloved by so many - skulks out of his job in the night, not even making the rounds to say goodbye.

Nobody believes it except a few of you in the WS Kultur Kamp.

Whatever differences the man had, they were enough to provoke a hasty, ill-timed departure. If it's all innocent, all he has to do is tell the Post, "Hey, I really wanted to take a long vacation and see places I have never seen.." So does he? No, in fact the one thing he says is that it wasn't personal, and Clive basically calls him liar.

There is zero chance he just wanted to go count his money all day.

As for the 17% operating margin. Congratulations. It is a nice performance. Not so much the net which was far from a record, mind you.

And yes, it was more than AC although the New York analyst quoted in today's Globe had the AC op margin at 11.3%, which is pretty nice anyway.

You see, when two carriers make a lot of money, that one does a slightly better in margin terms than the other becomes irrelevant. Boasting rights only, not meaningful.

I don't even know what your maintenance thing even means, by the way. Who gives a rat's åss?I'm sure AC spent more on business class lounges, caviar and French translation.

If AC had less shop time for its fleet in Q3 when yields are highest, I guess you could even say that it managed its business better.

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Dagger:

There's no question that ACE's 3Q numbers were a quantum leap better than their US bretheren, however, with due respect, why bother comparing anything to any carrier in the US, with the possible exception of Southwest and Air Tran.

As you know, for the first time in years, the Canadian market is in pretty good shape. Nobody is in CCAA, nobody is flooding the market with unsustainable capacity and everyone needs to be responsible to their BoD, shareholders or to Ken Rowe.

The US market is a mess and it'll be a mess for a while. If it weren't for their hedge, SWA would be losing money as well.

ACE's largest single point to point competitor is Westjet and WestJet produced a margin considerably higher than ACE. WestJet has a much larger margin cushion than ACE entering what we all know is the rough six months of the year. WJA relies on the passenger air transportation business to be profitable. ACE is fortunate to have some ancilliary businesses to fill in what might be an unprofitable air transportation business.

As for Tim Morgan, I don't see how you could possibly understand the motivation for a guy who's taken 12 years of his life and dedicated it to WJ. He took the airline from 2 aircraft to about 60, from 240 employees to about 5,000 and from a revenue stream of $37m in 1996 to something around $1.5b in 2005.

With all due respect Dagger, I doubt you or anyone else on this board could have any comprehension of what it takes to accomplish this.

Tim's now in his mid 50's and has decided to move on. He's a millionaire multiple times over, he hasn't needed to work for years. There's no right or wrong time to do it, but I'd suggest to you that Tim's timing was done knowing that WJ was going to produce the highest margins of any airline in North America in the quarter. That's probably the right time to do it.

I don't think ACE's yields were the highest in 3Q but by cramming all the capacity in 3Q, they maximized their profits for a quarter and even in doing so, their margins were about 5 pts below WJ. The maintenance has to be paid for at some point and it is disruptive to cram 4 quarters of maintenance into 3 quarters.

I am surprised at your seeming contempt for WestJet's culture. Are you equally contemptuous of Southwest's culture? There isn't an analyst or investment banker on Wall Street that doesn't think that the principle reason for SWA's success is it's culture.

I suggest to you that if ACE had WJ's culture, ACE would be an unstoppable machine. Unfortunately, the culture at AC seems to be as screwed up as it has ever been and that will ultimately cost the company far more than could ever be imagined.

Nice chatting.

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Dagger: 

There's no question that ACE's 3Q numbers were a quantum leap better than their US bretheren, however, with due respect, why bother comparing anything to any carrier in the US, with the possible exception of Southwest and Air Tran.

As you know, for the first time in years, the Canadian market is in pretty good shape. Nobody is in CCAA, nobody is flooding the market with unsustainable capacity and everyone needs to be responsible to their BoD,  shareholders or to Ken Rowe.

The US market is a mess and it'll be a mess for a while. If it weren't for their hedge, SWA would be losing money as well. 

ACE's largest single point to point competitor is Westjet and WestJet produced a margin considerably higher than ACE. WestJet has a much larger margin cushion than ACE entering what we all know is the rough six months of the year. WJA relies on the passenger air transportation business to be profitable. ACE is fortunate to have some ancilliary businesses to fill in what might be an unprofitable air transportation business.

As for Tim Morgan, I don't see how you could possibly understand the motivation for a guy who's taken 12 years of his life and dedicated it to WJ. He took the airline from 2 aircraft to about 60, from 240 employees to about 5,000 and from a revenue stream of $37m in 1996 to something around $1.5b in 2005. 

With all due respect Dagger,  I doubt you or anyone else on this board could have any comprehension of what it takes to accomplish this.

Tim's now in his mid 50's and has decided to move on.  He's a millionaire multiple times over, he hasn't needed to work for years. There's no right or wrong time to do it, but I'd suggest to you that Tim's timing was done knowing that WJ was going to produce the highest margins of any airline in North America in the quarter.  That's probably the right time to do it.

I don't think ACE's yields were the highest in 3Q but by cramming all the capacity in 3Q, they maximized their profits for a quarter and even in doing so, their margins were about 5 pts below WJ.  The maintenance has to be paid for at some point and it is disruptive to cram 4 quarters of maintenance into 3 quarters. 

I am surprised at your seeming contempt for WestJet's culture.  Are you equally contemptuous of Southwest's culture?  There isn't an analyst or investment banker on Wall Street that doesn't think that the principle reason for  SWA's success is it's culture.

I suggest to you that if ACE had WJ's culture, ACE would be an unstoppable machine. Unfortunately, the culture at AC seems to be as screwed up as it has ever been and that will ultimately cost the company far more than could ever be imagined.

Nice chatting.

Wow, you even have the arrogance of Mark Hill down pat. You speak as if you are one of the founding fathers yourself.

As for some of your absurd conclusions and self-justifications, don't take us all for idiots.

"WJA relies on the passenger air transportation business to be profitable. ACE is fortunate to have some ancilliary businesses to fill in what might be an unprofitable air transportation business."

Those ancillary businesses are all intimately related to, and couldn't exist if AC weren't an airline. As you know, Aeroplan is the largest single purchaser of Air Canada capacity. Aeroplan functions much like a tour operator, except that people buy its travel with points instead of cash. Air Canada could have operated Aeroplan as a break-even marketing tool, charging it double for the seats. That would goose up its operating margin. But that's just a stat. Instead, ACE has operated it as a significantly profitable growth business in which it still holds 87.5% economic interest. Cargo is a strong contributor to AC but it only functions because it has claim to all of the cargo space on Air Canada aircraft worldwide, while WS is just not big on cargo. I suppose Air Canada should be expected to fly around with its cargo holds empty to forcefeed your passenger air transportation comment. AC does not see itself as only a passenger transportation company. (One might also say that if Westjet were forced by law to have its HQ in Montreal, and operate in two official languages where it is often arguably not necessary, and have been the government's whipping boy for decades that it too might be a marginal business.)

By the way, what is your nine-month margin? And what was your year-ago margin? And your full year 2004 margin? Stop crowing because you had one good quarter. Go tell your shareholders - the ones who bought a $25 or $30 stock before the last split. Ask them how good you have done the past year, and then ask an ACE shareholder for the past year how he feels.

Don't extrapolate from 2004 Q3-Q4 to 2005 Q3-Q4 because AC's cost reduction initiatives have continued. Capacity has grown, more domestic flying has been shifted to Jazz and its lower cost structure. There is a slow but steady transition to B scale hiring. I don't believe ACE will make a big profit for the quarter, but I don't accept your assessment of October. Each month will have a different b/e load factor, so taking a quarterly average and applying the average to October is, IMHO, disingenuous.

You talk about cramming four quarters of maintenance into three quarters, but surely you know that AC has a maintenance overhang it is compelled to maintain by law: Three bases where only one is really needed. So cramming isn't an issue. Keeping the place busy is the issue. However, as AC is sending old 767-200s to the desert and adding new narrowbody lift for the North American market, they don't necessarily have a big maintenance "cram" coming. How WJA had such a Q3 expense when you are retiring your dozen 737-200s is intriguing to say the least.

As for Tim Morgan's departure, I have gone through enough time on God's green earth to know that someone that respected who has contributed that much doesn't go into the dark night in such a manner if all is well. His "retirement" would have been pre-announced - the way AC did with Paul Brotto, for example. A nice farewell would have been arranged, and he would have taken some time to go to the stations and say bye to people. Now, amid nasty speculation about why he left, Morgan is silent, except to say he DIDN'T leave because of personal or family reasons. If this was all innocent, he would surely answer the reporter's question with a big chuckle and seek to dispel the rumors of discord. The fact he doesn't deny the discord validates the reporter's conclusions.

You can babble on all you like about his achievements, which are tremendous, but the way in which he departed is absolutely inconsistent with the seeming innocence you'd like to attach to it. Calin Rovinescu had a more respectful sendoff from AC and he was widely DESPISED! So don't give us your bullcrap.

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Well, well, well, dagger has a new sparring partner. Entertaining if nothing else.

Why Tim Morgan left will forever be speculated but so what? Whether he was shown the door or threw in the towel (my bet, I know some things you don't) is absolutely irrelevant. He is off to the beach and good on 'em. If I get a chance I will buy him a beer, he's a good man and I'm happy for the contribution he has made to WestJet and wish him all the success in the future.

And dagger, remember the forum rules about peoples identities, you are always the first to whine to the moderators if someone attempts to "out" you. Best to not make veiled threats to others, N'est pas?

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Guest Loquacious1

So why is he still hanging onto the BoD spot then Mav?

And if it is cool that he does stay on the BoD, why no mention of it ?(which may have helped prevent/reduce that dangerous plummet in the stock thereafter)

I am still lost....

Loq1

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I'm sorry you're still lost, really.

As for "hanging out" on the BOD, he is still an extremely knowledgeable individual that can provide guidance with an insiders POV, doncha think? As for mentioning it.....there was no mention of any other BOD members. Seems redundant to me but then again I don't see the bogeyman behind every check-in counter either.

Night, night!!

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Well, well, well, dagger has a new sparring partner. Entertaining if nothing else.

Why Tim Morgan left will forever be speculated but so what? Whether he was shown the door or threw in the towel (my bet, I know some things you don't) is absolutely irrelevant. He is off to the beach and good on 'em. If I get a chance I will buy him a beer, he's a good man and I'm happy for the contribution he has made to WestJet and wish him all the success in the future.

And dagger, remember the forum rules about peoples identities, you are always the first to whine to the moderators if someone attempts to "out" you. Best to not make veiled threats to others, N'est pas?

Sweetie, I haven't got a clue who Baldy is, just as I don't have a clue about who 737Girard is on FlyerTalk, though there is a good bet that they are one and the same.

Cheers

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Sweetie, I haven't got a clue who Baldy is, just as I don't have a clue about who 737Girard is on FlyerTalk, though there is a good bet that they are one and the same.

Cheers

Excellent!! As long as we're clear on it. I enjoy your stuff on FlyerTalk too. laugh.gif

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I don't think anybody outside Westjet is disputing the fact that there is a cloud over the way Morgan left- its obvious this wasn't a retirement. Just as obvious as the fact that, despite wild protestations of some AC'ers, there is rampant nepotism currently going on in the pilot hiring side at AC with the current (to paraphrase a denizen on another board) "juicy seniority numbers" up for grabs. As I said, as long as you're removed from the situation you can observe objectively.

In any case, dagger you bring up some pretty weak justifications for AC's lack of comparable profitability from airline passenger operations. To me, the fact that ACTS and Aeroplan are such large contributors to the bottom line is quite disturbing indeed, particularly in light of the measures already taken.

Those ancillary businesses are all intimately related to, and couldn't exist if AC weren't an airline.

Money is money and profit is profit, sure- but if you aren't making money in your core competency, something is seriously (still) wrong. Those other businesses should be adding to the profit from pax ops, not subsidizing them. What I really can't understand and this is purely from an outside point of view, is how AC isn't making money domestically. Loads are always rammed, the yield management system is leaps and bounds more sophisticated than Westjet's, and you have a monopoly on the business class product. Kind of baffling really.

The other comment, well gee I dunno what to think about this except that you must have a really, really short memory.

One might also say that if Westjet were forced by law to have its HQ in Montreal, [...] and have been the government's whipping boy for decades that it too might be a marginal business
Headquarters is headquarters, you can't honestly say that moving it to YYZ would save money. Its a nice scapegoat to trot out every once in a while, but let's be realistic and admit that wouldn't save a nickel. And whipping boy?! (cough) Buddy, ya just came out of bankruptcy where every single contract you have was rewritten, by you, in your favour. A clean sheet was started 12+ months ago, so other than the language thing the playing field is LEVEL.

I think your piece de resistance had to be this, however.

Go tell your shareholders - the ones who bought a $25 or $30 stock before the last split
Uh, yeeeeeeeeahhhh riiiiiiiiiiight.
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Welcome to the AEF Baldy. smile.gif

Dagger, you might want to be reading twice before responding the odd time now you know.... this guy clearly knows things. Just between you and me and the fencepost, I think he's quite right about the cramming.... but I didn't say that! wink.gif

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