Airlines receiving Nunavut’s cash aren’t allowed to pay bonuses
Airline financial records will get independent audits to ensure money isn’t misused
Nunavut government officials have assured MLAs that airlines receiving territorial government money to get through the COVID-19 pandemic aren’t allowed to pay bonuses to their executives.
The officials made these assurances during the Nunavut legislature’s committee of the whole discussions on Thursday and Friday last week.
The Nunavut government has already paid about $24 million to Canadian North and Calm Air, through agreements that cover the period from April to July this year.
“The company isn’t allowed to pay any bonuses or dividends during the term of the agreement. That’s April to July,” William MacKay, the deputy minister of executive and intergovernmental affairs, said in response to a question from Iqaluit-Manirajak MLA Adam Arreak Lightstone.
Those conditions will also apply to new agreements, still under negotiation, that will cover the period from July to Dec. 31 this year.
Airline bonuses a sensitive issue
The question of bonuses for airline executive employees and board members is a sensitive issue in northern Canada.
In the fall of 2008, people across northern Canada were shocked to learn that members of the board of directors overseeing one of Canadian North’s pre-merger, predecessor airlines, First Air, had voted to pay themselves $1.5 million in bonuses.
At that time, some of those First Air board members were employed as either elected officials or full-time staff with the airline’s sole owner, Makivik Corp. Pita Aatami, the president of Makivik, received a $600,000 payment, and other First Air directors received lesser amounts.
All this happened at a time when the Quebec government was spending $12.1 million over three years to reduce the cost of transportation in Nunavik.
But Finance Minister George Hickes said all that’s unlikely to happen now.
That’s because airlines receiving COVID-19 relief money from the Nunavut government must submit their financial records to the government and be subjected to independent audits.
“I know it’s a concern of many people that has been brought to our attention,” Hickes said in response to a question from Lightstone.
“I think the thing that we have to remember is that we are getting an independent audit of the financial records of the airline after, so we would know and they have to justify usage of every dollar that [we’re] providing to them and any unused funds come back to us,” Hickes said.
Lightstone also asked if the government can protect itself against the airlines making use of certain accounting devices, such as moving retained earnings into future years.
But Jeff Chown, Nunavut’s deputy minister of finance, said he believes the government’s agreements with the airlines will guard against that.
“We in the Department of Finance shared the same concerns,” he said.
“That’s why within our requirements for the independent audit we specifically asked for the auditors to certify that the expenditures recorded were related to Nunavut operations,” Chown said.
Airlines must justify revenues, expenses
At the same time, the airlines may not use the Nunavut government’s money to make capital expenditures, and they must return any money that is not used.
“With these agreements with the airlines, there’s not a profit margin. It’s a break-even point. They have to justify their revenue and expenses during the period of the contracting, during the contract period, and any unused funds have to be returned to us,” Hickes said.
Another complicating factor is that the airlines are also likely to get assistance from other governments for routes outside Nunavut.
“We wanted to make sure that we are not subsidizing other routes that aren’t in Nunavut or helping to support other jurisdictions that already have their own arrangements made, like N.W.T. and Northern Quebec had arrangements made with the shared airlines,” Hickes said.
Because Canadian North is a privately held company, owned on a 50-50 basis by Makivik Corp. and the Inuvialuit Development Corp., the financial records they provide to the government will be protected by a non-disclosure agreement, Hickes said in response to question from Arviat North–Whale Cove MLA John Main.
Calm Air, which serves the Kivalliq region, is one of a group of companies owned by Exchange Income Corp., which trades on the Toronto Stock Exchange and is legally obligated to make its financial information available to the public.
Exchange Income Corp.’s financial statement for the second quarter of 2020, which covers the months of April, May and June, said the parent company’s overall revenue was down by 25 per cent during that period, compared with the same period in 2019.
The company’s regional northern airlines, which include Calm Air, saw a 90 per cent drop in passenger volumes, but by the end of June, that had risen to between 40 per cent and 60 per cent of capacity, depending on the airline.
That was partially offset by stronger cargo volumes, the company said.
Overall, the parent company’s aviation and aerospace revenues dropped by $99 million in the second quarter of this year.
As for how much Nunavut will receive from a special fund the federal government has announced to help maintain airline service in rural and remote communities, that is still under negotiation.