Ottawa offers ‘expensive’ loans to pandemic-battered airlines

With the national airlines council and unions calling for a bailout, Deputy Prime Minister said Tuesday that struggling air carriers can always apply to the government’s loan program for large employers.

In the wake of WestJet slashing most of its flights to Atlantic Canada last week, questions are again being raised as to whether the federal government will step in with a bailout for the beleaguered industry that would likely run into the billions of dollars.

Freeland’s mention of the large employer loan program will likely do little to soothe the airlines’ concerns over liquidity. The council that represents them and the unions that represent their workers say the loan program is unworkable for a sector that needs low-interest, multi-year assistance.

Meanwhile, the opposition and have said reimbursing passengers for flights cancelled due to the pandemic should be a key condition of any potential bailout.

Last weekend, Intergovernmental Affairs Minister Dominic LeBlanc told CTV’s “Question Period” that the government was exploring a range of options, including taking a stake in the airlines.

When asked Tuesday about financial assistance — and specifically whether the government’s Large Employer Emergency Financing Facility (LEEFF) program would be used — Freeland said she has been having discussions with airline and union officials.

“The LEEFF program … is a form of significant liquidity support that is available for all Canadian companies to apply for,” she said.

Announced in May, the program would provide a loan of at least $60 million to the country’s biggest employers — those with annual revenues of more than $300 million and whose financial needs during the COVID-19 pandemic are not being met through conventional financing.

Freeland also pointed out that the airlines have “taken significant advantage” of the government’s wage subsidy to cover a portion of workers’ salaries since the spring, receiving more than $1 billion.

On Tuesday, about 250 airline workers demonstrated on Parliament Hill, carrying signs reading “Save Canadian aviation,” and demanding federal aid for the sector.

Lisa Kampis, a CUPE union representative with Sunwing in Montreal, said airlines cannot continue to survive “without some form of financial sustainability package,” but rejected suggestions that Ottawa should take an ownership stake.

“You’re asking Canadian airlines to wait it out, and still pay their bills,” she said. “How can you pay millions upon millions in bills every day, be socially responsible, assume more costs, do the wage subsidy program and not get anything to help them ride it out?”

LEEFF loans start with an interest rate of five per cent, rising to eight per cent the following year, which critics say makes them unpalatable to many companies including airlines.

“It’s expensive money,” said John Gradek, a former Air Canada executive who is now a faculty lecturer and program co-ordinator in aviation leadership at McGill University.

“That’s been (airlines’) major concern with applying for LEEFF — the cost of the program is much more than what the market would normally charge for those types of loans.”

The president of one of the unions representing Canada’s pilots said LEEFF has been raised in government-airline discussions.

“Certainly over the last number of months that has been reiterated as a program that’s available,” said Tim Perry, Canadian president of Airline Pilots Association International, which represents pilots from airlines including WestJet and Air Transat.

“However, it’s not a program, upon consideration, that seems to be really workable for this sector, and that has been sort of evidenced by a distinct lack of participation.”

It’s unclear just how many airlines have applied to LEEFF. Porter Airlines confirmed it did apply to better understand the terms of the loan, but “we are currently assessing our ongoing capital requirements and whether pursuing a LEEFF loan is appropriate for Porter,” the company told the Star on Tuesday.

Representatives of Air Canada and WestJet did not respond to requests for comment on Tuesday.

The National Airlines Council of Canada has urged Freeland to move beyond the program to ensure the survival of an industry whose business is down 90 per cent or more.

“LEEFF was not designed in the context of a specific industry remaining at Stage Zero for an indeterminate time period, while other aspects of the economy are allowed to methodically reopen across the country,” council president and CEO Mike McNaney wrote to Freeland in August.

“Aviation is remaining at Stage Zero because of sector-specific policies. We therefore require a sector-specific liquidity response.”

The council called for measures that included loans or direct assistance, with an approach that recognizes “recovery is going to be a multi-year process and ensures government financial terms reflect the potential lengthy downturn in industry revenue.”

LEEFF would also allow the government to take a stake in public companies. Gradek said while airlines may not be interested in the LEEFF program itself, they could be open to government taking a stake as part of a bailout package — a reversal from their stance in the spring.

“I think the industry is saying, ‘Wait a second this is now four months later … We’re ready to talk about what it is the government is prepared to offer us in terms of dollars and the conditions attached to those dollars,’” Gradek said.

Perry, whose union has been pushing for low-interest loans, agreed that there appears to be an openness now to the idea of the government getting more involved.

“I think that earlier on in the pandemic … most airlines were reluctant to entertain that at all,” he said.

“Now the situation has grown in severity and I think the willingness to participate in a program such as that would really come down to the details.”

With files from Tonda MacCharles

Jacques Gallant is a Toronto-based reporter covering legal affairs for the Star. Follow him on Twitter: