globeandmail.com, Thursday, February 14, 2002
Canada 3000 plans hit turbulence
By KEITH McARTHUR
From Friday's Globe and Mail
Efforts to revive Canada 3000 may not get off the ground because potential
investors are worried about Air Canada's plans to expand in the discount market.
Insiders say investors were willing to put up the $75-million in required
start-up capital until Air Canada president and chief executive officer Robert
Milton said last week that he wants Air Canada to become more of a discount
"That sort of did a lot of damage to the whole process," said Ajay Virmani,
president and chief executive officer of Canada 3000 Cargo Inc., who has said he
wants to invest between $2-million and $10-million in the new carrier.
"I'm a little more of a risk-taker . . ." Mr. Virmani said. "But investors who
are not industry-related are a little bit more skeptical. The biggest fear is
that Air Canada hasn't let anybody survive in this country ever, so why would
they let this one survive?"
Potential investors are worried that Montreal-based Air Canada will continue to
aggressively expand its discount brand Tango, which is aimed at the lower-cost
side of the market, just like the new Canada 3000.
Canada 3000 Inc. of Toronto ceased operations and went bankrupt in November,
stranding an estimated 50,000 passengers as far away as India and Australia.
Angus Kinnear, former president of Canada 3000, has been working on plans to
launch a new carrier using employees and equipment from the failed company and
possibly the Canada 3000 brand name.
The new airline, which goes by the name NewCo, was to start selling tickets in
April to launch service in late May to nine Canadian cities using 10 Airbus
A319s and A320s.
Mr. Virmani said there is a still a good chance that NewCo will get off the
ground, but he said it might be hard to make its target launch date.
"It might be pushed back a bit," Mr. Virmani said. "We're still hoping for May
23, but it's a $75-million investment, give or take, and people are very nervous
about investing their money when they don't know what the rules of the game are.
And I don't blame them, actually."
Mr. Virmani said NewCo officials have been working the phones to try to
persuade investors to stick with the proposed carrier.
Mr. Kinnear did not return calls yesterday. But another former Canada 3000
executive said he is still hoping for a May 23 launch.
"We have a number of investors that we have to manage to put together into a
group that would actually work together," said Don Kennedy, former chief
financial officer of Canada 3000.
In a conference call last week with reporters and analysts, Mr. Milton said Air
Canada's traditional business model has been unable to generate sustainable
profit, unlike the low-cost model pioneered by Dallas-based Southwest Airlines
Co. and adopted in Canada by Calgary-based WestJet Airlines Ltd.
Mr. Milton said he wants Air Canada's domestic product to become more like a
discount carrier. By the summer, Tango will represent 10 per cent of Air
Canada's domestic capacity.
Michel Leblanc, former chairman of Royal Aviation Inc., has also been working
on plans to get his airline back in the skies. Royal was acquired by Canada 3000
before it went bankrupt.
Mr. Leblanc said yesterday that plans are progressing for his new airline. He
said he's not concerned about Air Canada's discount efforts: "I think that's pie
in the sky. You can't be a discount carrier with a high cost structure. That
Mr. Leblanc would not say whether he has been able to line up any investors for
his proposed airline.
A former associate said plans for the new Royal are facing the same challenges
as Canada 3000 when it comes to raising capital.
Roland Blais, Royal's former chief financial officer, said investors are
concerned about whether they will be protected from Air Canada's discount brand
Mr. Blais, who is not involved with the new Royal, said that if Tango's wings
are clipped, both of the proposed airlines will get off the ground. Otherwise,
neither will launch.
The federal Competition Bureau said it was about to ground Tango for alleged
anti-competitive behaviour when Canada 3000 failed in November. Air Canada said
it did nothing improper with Tango. The dominant carrier said it has only used
the discount brand to match competitors' prices and not to undercut them.
Because the new Canada 3000 would be incorporated as a new company, it would be
insulated from the debts and contracts of the previous Canada 3000. The company
would have to buy any assets and the brand name from Canada 3000's trustee in