Canada's Air Wars

(This article was originally written in 1999)

What was Buzz Hargrove doing at that love-in with Gerry Schwartz?

That question hasn’t gone away following the withdrawal of the Onex bid to acquire control of Air Canada in the aftermath of a Quebec Superior Court decision ruling the Onex bid illegal. Canada’s air war could quickly flare up once more if, as many expect, financially troubled Canadian Airlines threatens to expire. The sight of Canadian on its death bed will quickly provoke demands for Ottawa to lift the rule barring the acquisition of more than ten per cent of Air Canada by a single purchaser. Schwartz and his backer,American Airlines, could then return to the hunt with a vengeance.

In the next phase of the battle, the CAW president’s endorsement of Onex’s, now expired, takeover bid could come back to haunt him. Hargrove spent a lot of political capital striking a deal with a player who is now, at least temporarily, out of the game. He has antagonized the Air Canada employees who are members of the CAW. And the deal he reached with Schwartz to provide a modicum of job security for his members will be null and void in the next round.

Has Hargrove effectively sidelined himself for the coming, and likely, decisive battle for control of Canada’s airlines?

When the CAW President met with the Onex chief, hard nosed business types put out the word that Gerry had been ambushed by Buzz. In their world, the main point of a corporate takeover is to allow the new management of an enterprise to cut costs. The best way to do that is to lay off thousands of workers. In the present era of crony capitalism, takeovers open the way for millions to be made by shareholders and the deal makers. But if Buzz was blocking Gerry from making the layoffs, the reasoning went, then how could the Onex deal deliver on the splendid promises being made to investors?

Others with a very different outlook asked a very different question. What was the most powerful private sector union leader in Canada, the man who has won good deals for workers in an era when unions are often portrayed as passe, doing with a takeover artist like Gerry Schwartz?

The dilemma for Hargrove is that Gerry Schwartz is the classic corporate raider whose strategy was to acquire 3.1 per cent of Air Canada’s shares on the quiet prior to launching his takeover bid for the company. In a takeover fight, the offers from both sides keep going up. If Schwartz and Onex won, they won. If they lost, the worth of the shares they previously acquired was vastly increased in value. It’s the ultimate game of insider trading---without being illegal---because only the corporate raider knows from the start the game he is playing. Even if his role in the air war goes no further, Schwartz has already been a big winner.

Despite the lull between the last and next rounds of the battle, the threat that American Airlines will be pulling the strings in our national airline, in the not too distant future, remains a palpable one. If the government amends the rules and allows Onex , or some other suitor, to acquire a controlling bloc of Air Canada shares, under NAFTA rules, the door will then be wide open to foreign control of the airline.

I can understand why Hargrove wanted to reach a deal with Schwartz at what he reckoned was the optimum strategic time, the moment when the CAW leader could extract the best possible deal for his members. Make no mistake about it, Buzz Hargrove is usually the best there is when it comes to these kinds of calculations. Purists who criticize Hargrove for striking deals with capitalists have got it wrong. The CAW operates in the real world and that forces its leaders to shake hands with people they don’t much care for.

My concern is that this time, Hargrove made the wrong move. By endorsing one side against the other in a private sector war over who is to control an enterprise, Hargrove has greatly reduced his capacity to push for the kind of public policy framework that alone can now foster the best results for both airline employees and the general public.

A huge, sparsely populated country like Canada needs to control its transportation and communications infrastructure. That has been the key to Canadian existence from day one. It was for this reason in the late 1930s, that the government of William Lyon Mackenzie King created a fledgling, publicly owned airline called Trans Canada Airlines, the predecessor to Air Canada. Collectively, we owned the airline until a few years ago.

Now the key question is: who will be in charge in the future? Canada requires a public policy, which guarantees that our airlines meet the needs of large and small Canadian communities, the interests of the travelling public and the right of airline employees to a secure future.

Buzz Hargrove should be at the centre of the charge to put pressure on the federal government to come up with that set of policies. He should take the present opportunity to vacate the corner he put himself in when he made a deal with a fast buck artist who may well be back in our affairs in the not too distant future.