Topic Author
Posts: 447
Joined: Mon Feb 12, 2001 5:52 am

Did Canada 3000 Botch The Takeover Of Royal?

Thu Nov 08, 2001 9:06 am

Here's an intersting piece from the Globe and Mail... Ingram asserts that C3 was hurting before Sept 11, because its takeover of Royal was "poorly though out". He seems to understate the effects of the recession... but at the same time, makes a good point that Westjet was targeted them as well...
Between Westjet and Tango competing, along with being very slow to establish itself as a scheduled carrier as opposed to a charter, C3 might have run out of time. They spent too much time fretting over market share, and neglected the product side. Now that they're facing price competion, they've got an inferior product to what is being offered, and are consequently ill-equipped to handle Sept 11 and the recession. Tough, because I really liked their business plan - they just didn't implement it soon enough.

"How not to run an airline industry, Part 12

Globe and Mail Update

Hopefully, someone at a major business school has been taking notes while the Canadian airline industry has been imploding, because you could easily fill an entire year studying the comedy of errors — corporate, political and personal — that have led to the failing health, and possibly imminent downfall of, both Air Canada and Canada 3000. While the former still has some cash left, the latter's pockets are virtually empty, and it is now desperately trying to get out of its recent takeover of Royal Aviation.

On Monday, Canada 3000 made a somewhat bizarre appeal to the little-known Canadian Industrial Relations Board — a quasi-judicial body that oversees various aspects of the Canada Labour Code in federally regulated industries such as airlines. The airline asked the board to rule that Royal Aviation and Canada 3000 are not "common employers," so Canada 3000 could shut down its new subsidiary and lay off all its 1,400 workers.

In other words, just a matter of months after acquiring Royal Aviation in a widely publicized $84-million takeover, Canada 3000 was begging the Industrial Relations Board not to approve the merger of the two, because that would make it harder to lay off everyone at Royal Aviation. The only thing that approaches that level of absurdity is in Silicon Valley, where companies were offering to let new employees keep half their signing bonus — provided they agreed not to accept the job they had been wooed for.

To make matters even more bizarre, former Royal CEO Michel LeBlanc has made an offer to buy back most of his former company. In other words, the chief executive — who left shortly after the takeover closed — is now offering to do Canada 3000 a favour by buying back his former company so it won't be shut down before the merger is even officially over. That's not all, of course: Mr. LeBlanc also happens to be embroiled (along with his former chief financial officer) in a $45-million lawsuit launched by Canada 3000 over the financial information Royal provided during the deal.

Think things have gotten as twisted as they possibly could? Think again. One of the reasons Canada 3000 is looking to shut down Royal as quickly as possible is that it has to cut its costs by at least 30 per cent, a figure that happens to dovetail quite nicely with the amount of its business currently provided by Royal. And why does it need to cut costs by 30 per cent? Because under the terms of its $75-million loan guarantee deal with Ottawa, it had to reduce its business by 30 per cent — and the fastest way to do so is to simply pretend that the Royal takeover deal never happened.

Does that mean Ottawa should be blamed for the potential layoffs at Royal, and/or the eventual bankruptcy of the entire company? Not directly, of course. It's hard to believe that someone from Transport Minister David Collenette's office called and told Canada 3000 that it would have to close down Royal Aviation in order to get the $75-million in loan guarantees. No doubt that seemed like the easiest way to arrive at the required cuts — just as gobbling up Royal seemed like the easiest way to get larger, back when Canada 3000 was going head-to-head with Air Canada.

Canada 3000 CEO John Lecky would like you to believe that the airline's current penniless state is primarily a result of the attacks on New York and Washington on Sept. 11, and the resulting effects on airline travel — plus the recession, of course, and the lower Canadian dollar. It's equally likely, however, that the company's failure to thrive is a result of a poorly thought-out takeover — taken on just as the industry was heading into a cyclical slowdown, in an ill-fated attempt at expansion.

In the larger sense, however, Ottawa's fingerprints are all over the mess at Canada 3000, just as they are all over the mess at Air Canada. The latter wound up taking over Canadian Airlines when the ailing Western-based carrier should have been allowed to file for bankruptcy, which would have allowed it to find some way of restructuring its massive debts — debts that are now helping to drag Air Canada down. After convincing Air Canada to do such a deal, Ottawa then hamstrung the resulting company with restrictive labour agreements that made it more difficult to run a profitable business.

Ottawa's policies toward Air Canada also affected Canada 3000 — along with the self-created problems that came with the takeover of Royal and external factors such as the recession and the attacks on Sept. 11. In addition to accelerating a Western push to try and hurt WestJet, Air Canada has been targeting Canada 3000's market as well, in part by launching its new discount carrier, Tango. At the same time that Canada 3000 is trying to cut costs and raise cash, it is having to run discount promotions to try and compete with an offshoot of the country's largest carrier.

Topic Author
Posts: 447
Joined: Mon Feb 12, 2001 5:52 am

RE: Did Canada 3000 Botch The Takeover Of Royal?

Thu Nov 08, 2001 9:11 am

May I add.. the Canadian Government has fully screwed thigns up as well. They've been completely spineless.. they remind me of an inconsistent referee at t ahockey game.. calling penalties in some situations, and not others.. doesn't fully discount the fact that airlines should be better prepared to handle economic downturns.. which had no doubt begun before Sept 11

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