Fliers might pay Air Canada's tab

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Fliers might pay Air Canada's tab Troubled airline owes millions in fees
for air-traffic control, airport improvement
SHEILA McGOVERN    The Gazette   Friday, April 04, 2003

Air Canada owes the country's air navigation system $44 million in unpaid
fees and if it doesn't pay up, other airlines and airline passengers might
have to make up the loss. Nav Canada, a non-profit corporation that
provides air-traffic control and weather services to airlines travelling in
Canada, confirmed yesterday that is an unsecured creditor of Air Canada,
which is now restructuring under bankruptcy protection. Unsecured creditors
are the last to be paid, and often get little or nothing of what they are
owed. NavCan's Louis Garneau said the agency is considering all options to
mitigate its losses, including hiking fees to all airlines. "We've
indicated that we would be prepared to increase service charges this year
so that we would break even in the next fiscal year," Garneau said. In the
past, airlines have passed increases in NavCan charges on to customers. And
customers might get hit on another front. Larry Berg, chairman of the
Canadian Airports Council, estimates Air Canada owes the country's airports
about $80 million in unpaid fees. A large chunk of that amount is
airport-improvement fees that the airline collected on behalf of the
airports, he said. The rest is landing fees, rents and other items.
Airports are also unsecured creditors, he said, and it's safe to assume
most are now reviewing their plans to expand or improve their facilities.

Berg, head of Vancouver International Airport, said he's rethinking his
airport's plans and Christiane Beaulieu, an Aeroports de Montreal official,
said ADM is rethinking its long-term plans to renovate Dorval's domestic
terminal. ADM is just completing a $250-million expansion of its U.S.
jetty, and intends to go ahead with its $300-million project to build a new
arrivals area in 2004 and a new international jetty in 2005. The money for
those projects has already been secured and the contracts awarded, she
said, but plans to improve and add a jetty to the domestic wing are being
thought.  Beaulieu could not say exactly how much ADM is owed, but it could
be less than other airports. Until March 31, Montreal and Vancouver
collected their airport improvement taxes themselves.  On the alleged $80
million in cash owed to airports, Stephen Markey, Air Canada vice-president
of government relations, said the only payments Air Canada is holding back
to airports involve airport-improvement fees paid by travellers. He said
there is "a problem" with the arrangement whereby Air Canada's employees
collect the fees on tickets and then pay the airports.

"The reason we're holding it back is because another airline is choosing
not to charge its employees the same way that we do," he said. He did not
name the company. "So we're saying until all of the airlines are back on
the same page, we're simply going to hold these funds in escrow. And that's
exactly where they are." All fees are now collected by the airlines as part
of the ticket price, but when it announced the change last January, ADM
said it was increasing its fees to $17.50 from $15 as a kind of insurance
protection against airlines going bankrupt. Berg said he finds it
particularly annoying that despite the airports' urging, the government
refused to insist that the fees be set aside in a special fund and
protected in the event of bankruptcy. The government did protect its $12
security fee, he said, so Ottawa will be getting its money. The losses for
airports, along with the current slowdown in the airline industry and
potential cutbacks by Air Canada as it emerges from bankruptcy, prompted
bond-rating agencies to issue warnings that they are watching, though not
downgrading the credit ratings of NavCan and the airports.

It's still too soon to determine the exact impact, said Paul Judson at
Dominion Bond Rating Service. And the airports do have a means of
recovering the loss, he said: They could raise their fees. Clive Beddoe,
president and CEO of WestJet Airlines Ltd., is not happy to see his chief
rival's debts being downloaded onto others. "That's a hell of a lot of
money to take out of the (airports) system," Beddoe said. "They've got
debts to pay. " Beddoe said there is now a danger the airports "will be
back at the government saying, 'we're going to go bankrupt unless you bail
us out.' " Berg said the airports have written to Ottawa asking the
government for some relief from the about $270 million they pay the federal
government in rents. "This is not a $270-million industry," he said.

NICOLAS VAN PRAET contributed to this report


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