DC is extremely concerned...

[Guest George]

The bold emphasis is mine...

OTTAWA/MONTREAL, March 21 (Reuters) - The Canadian government said on Friday it would not rule out coming to the aid of Air Canada (Toronto:AC.TO - News) as the money-losing airline struggles with the slump in the travel sector and faces union anger over a new round of job cuts.

"We are extremely concerned about the fragility of the industry and in particular how it's affecting Air Canada, " Canadian Transport Minister David Collenette told reporters in Ottawa.

Air Canada, the dominant airline in Canada and world's No. 11, said on Thursday it was in a "force majeure situation" because of the war in Iraq and needed to take immediate action on its plan to cuts annual labor costs by C$650 million ($436 million), or 23 percent.

The carrier unveiled plans to cut 3,600 jobs, or 9 percent of its workforce of 40,000, and trim its fleet capacity -- cost-saving moves that have been mirrored by airlines around the world.

Collenette said the carrier had not yet come to Ottawa for help. Asked whether the government might offer aid to the carrier, the minister replied, "I don't rule anything out."

Collenette added: "Air Canada will survive. We are committed to the survival of the nation's flag carrier, but in what form and in what shape is to be determined."

Officials said that any airline seeking loan guarantees must present the government with a viable business plan.

Analysts said Ottawa would be hard pressed to bail out Air Canada without offering help to domestic competitors such as profitable no frills carrier WestJet Airlines Ltd. (Toronto:WJA.TO - News).

"I can't picture the government providing some sort of financial support for Air Canada without doing the same for all airlines in Canada," said Cameron Doerksen, an analyst at Dlouhy Merchant.

UNIONS TO FIGHT LAYOFFS

As part of its latest cost-cutting moves, Air Canada is trimming its fleet of 323 aircraft by 8 percent in March and 15 percent in April and May. That would remove a total of 53 aircraft from its fleet.

Unions expressed outrage at the plan by Robert Milton, Air Canada's president and chief executive, to cut 3,600 jobs this year across management and union ranks.

"We think that's an illegal layoff and are consulting with our lawyers to take the next step," Pam Sachs, head of the union representing Air Canada's 8,500 cabin crew members, told Reuters.

"It's clear to me that Mr. Milton is capitalizing on a situation," she said, referring to the U.S.-led war in Iraq. "He is using force majeure because it it is the only tool he has available to him."

Sachs said Air Canada cannot invoke force majeure to suspend contracts because Canada is not at war with Iraq. The union has scheduled a conference call with Air Canada management on Monday afternoon, but may seek "rapid arbitration" of the airline's layoff plan.

The layoffs would affect 600 of the most junior flight attendants at Air Canada and disrupt life for others that likely would have to relocate to Toronto to replace them, Sachs said.

The Canadian Auto Workers union, which represents about 9,500 airport and reservation employees at Air Canada, said a "no-layoff clause" in their current contract makes the airline's job cut plan illegal. The union also stands to lose 600 jobs at the carrier.

CAPACITY CUTS AFFECT MARKET SHARE

Analysts said Air Canada's capacity reduction plan suggests it may be willing to concede market share to WestJet and other low-cost operators such as closely held Jetsgo and CanJet.

"To me, the message is that things may be even worse for the company than previously thought," said Doerksen.

After losing C$364 million in its 2002 fourth quarter, Air Canada is expected to post a deep loss in the first quarter and face a difficult year, Doerksen said.

He has a sell recommendation on Air Canada shares, which rose 5 Canadian cents to C$3.05 on the Toronto Stock Exchange (News - Websites) on Friday.

"The company's balance sheet is a disaster and any investment at this point is highly speculative," he said.

Air Canada has almost C$13 billion of debt, less than C$600 million in cash reserves and big debt repayments due this year.

[Vsplat]

Anyone who believes this is good news for them personally should immediately check themselves.

Remember, DC was trying to help C3 and could not drive the machinery to do it. Government assistance comes with such inertia and lack of specific control devices that it is at best swinging a blunt instrument to hit a fly. You may or may not get the fly, but what a mess.

"Air Canada will survive". That is a nice sentiment, and it beats other things he might have said. How it survives will depend on where the greatest political hay is to be made and what routes serve the government agenda.

My opinion, expressed in platitudes: This is the equivalent of George Bush's 48 hour warning. If the unions and the company managers don't get things on the rails then they will be treated to DC's version of shock and awe.


Vs