Nunavut says “trust us” when it comes to subsidizing airlines
Airlines say they wouldn’t be able to continue operating without government help
Canadian North says its survival continues to depend upon government subsidies through the pandemic. (Photo by Meagan Deuling)
The collapse of passenger demand because of COVID-19 is the most devastating thing to happen to the airline industry, says Chris Avery, the president and CEO of Canadian North, who says it’s “worse than 9/11.”
Airlines across the world are suffering as a result, and it’s better for business to suspend operations and “wait out the storm,” Avery said.
“The biggest difference for us is we can’t suspend our operations,” he said.
Airlines are Nunavut’s highways, Avery said. In a territory with no roads connecting communities, they have to remain operational to provide passenger service for medical travellers and essential workers and to transport cargo, “whether it’s [to fly] hardware for a sewage truck or food to put bread on the table,” he said.
In addition, the airlines are crucial in that they maintain a network of flights to fly medical supplies and COVID-19 tests around, for example, because it would be prohibitively expensive to charter a flight every time a test needed to be transported.
The airline has decreased capital spending and investments, Avery said, but it still needs to maintain its infrastructure to serve the North.
“Trust us”
The Government of Nunavut has spent $24 million since March 30 on Calm Air and Canadian North, two of the airlines that serve the territory, to make sure “they remain in existence,” said Finance Minister George Hickes.
“We recognize it’s a dramatic step … but we really had no other alternative,” he said.
Between March 30 and April 30, the GN paid $9.6 million to the airlines, calculating the amount based on the number of seats it would regularly buy for medical and duty travel.
For the months of April, May and June, the GN gave the airlines $16.2 million between them.
The GN “dug a little deeper” to determine the second subsidy, Hickes said. Through a non-disclosure agreement, the airlines shared their finances with the government.
They went “back and forth with their financial people and with our financial people to determine an amount that would cover their immediate needs,” Hickes said.
“In the legislative assembly in the fall, I still have to be able to defend these numbers,” Hickes said, “without obviously breaking any of the non-disclosure agreements.”
That means that although the GN is spending public dollars to prop up private companies, the public won’t see how the $24-million infusion fits into the companies’ bottom lines.
Along with the GN, officials at Transport Canada had access to Canadian North’s and Calm Air’s finances, which Hickes said means that the spending decisions are transparent “government-wide, at the federal and territorial level.”
“You have to trust us,” Hickes said, “and I have to trust that the industry experts on the government side have done due diligence.… I have to trust their opinion. Which I do.”
While the airlines aren’t defined nationally as an essential service, “without the airline industry here we have zero access to the rest of the world,” said Hickes.
An airline company’s margin is thin at the best of times, Avery said.
“Without support, there’d be [a] huge risk of suspension of operation,” he said.
$49.3M to be retroactively approved, so far
The GN is using federal COVID-19 relief money to help offset close to $50 million in unbudgeted money it has spent since April.
The GN received $30.8 million from the federal government at the end of May, which is in its general revenue fund, Hickes said.
“It’s obviously not enough money,” he said.
The financial management board, headed by Hickes, has approved seven special warrants related to COVID-19 since April, according to the Nunavut Gazette. Special warrants authorize the government to spend money not accounted for in the 2020-21 budget.
The seven warrants total $49.3 million, and will be approved through special appropriation the next time the legislative assembly sits, most likely in September.
The GN has used this money to pay for food programs and for the cost of the isolation hubs, including isolating construction workers coming to the territory for the summer season.
But about half of the money has gone to Calm Air and Canadian North.
And the $24 million spent on airlines to date only covers them until the end of June.
The federal government gave the airlines $5 million in April, on top of the $30.8 million the GN received. In addition, Avery said Canadian North has received subsidies from the governments of Quebec and the Northwest Territories.
Nunatsiaq News reached out to Calm Air by phone and email last week and by Facebook this week, and has not heard back from them.
Hickes called out the federal government in April for shortchanging the GN.
“We’re always trying to get them to realize the uniqueness of Nunavut,” Hickes said.
He and other government officials are in regular communication with their federal counterparts, and his understanding is that the $30.8 million was the first phase of federal relief, and a second phase is coming. He doesn’t know when.
“Green shoots” of hope
Travel restrictions are slowly being lifted in Nunavut—intercommunity travel is now permitted, and Avery said that tickets sales have increased.
“We’re optimistic that we’re seeing early green shoots,” he said, “but it’s small.”
Hickes reiterated during a news conference on June 11 that non-essential travel outside Nunavut is not recommended.
But as ticket sales increase, the GN will “continue monitoring that line of balance of what supports they will need … to what the market is providing them already,” he said.
Avery said they have no assurance of subsidies after June.
“I would be lying to tell you it’s easy,” he said. “We’d rather know how much support we have going forward.”
Despite the uncertainty, Avery said the airline is aware of the fact that when passenger demand increases, the airline has to be ready for it.
It laid off 10 per cent of its 1,500-person workforce, Avery said, most of them temporary layoffs.
“We will bring them back so we can operate flights.”
There’s nothing wrong with saving an essential industry, but what exactly if anything is the GN getting in return? Stocks, debt, a stake in the airlines? A promise for higher Inuit hiring numbers in higher management? Or was this an unconditional handout? The idea that there was transparency in this process is ludicrous.
What’s wrong with letting the Makivik and IRC owned Canadian North go bankrupt and use the $25,000,000 to charter other nimbler airlines?
The people of Nunavut should not be expected to pay for non-Nunavut owners.
You’re right. Why spend money on Airplanes built by and operated by Southerners. Why not just build your own airplanes and hire your own pilots… Oh wait… you don’t have any!
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Same reason most of your tradespeople are from the South along with the police officers, judges, and teachers. How much electrical and plumbing did igloo’s traditionally have? How much of a sealift can you get onto a kayak? And the snowmobile brand that’s built in Nunavut… it’s called a “Dogsled” right? Will you be rejecting living in a Southern built house, or one made from lumber grown in the South as well?
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Not everything from the South is bad and evil. But if you’re truly determined that it is, stop using the snowmobile, jacket, boots, and underwear made in the South. And how much Vodka is brewed from all those wheat fields in Nunavut?
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Bringing race into this conversation is just shameful. If a white guy said he didn’t want to work with a Nunavut owned business you’d call it “racist”… why do you think it’s acceptable for YOU to bring race into the conversation and it be acceptable. Every word above is bigoted and racist on purpose so you can see how quickly and how discusting it can get!
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This should be a time to find solutions not to start racist arguments. Just think seriously about where you would be without ALL the technology, inventions, and $$ from the South. Do you really want to be the North Sentinel Island of the Arctic?
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People need their medications, they need to fly out for medical treatment, and perishable goods need to make it up North in a timely manner. Chartering a flight for $300,000 to get 2 patients to a hospital is insane. By covering the expenses for the time being, when things begin getting back to normal, you’ll have reliable transportation AND a longstanding relationship with the carriers. You won’t have to rebuild all of that from scratch.
Thanks for this comment, these visceral anti-southern comments are, as always, predictably shallow with seemingly no thought put into them. The us vs them mentality is the mark of a poor quality mind.
We weren’t moved into communities by choice, we were given sugar, alcohol and diseases to wipe us out. Our dogs were shot by the rcmp so we couldn’t rely on living on the land. We were forced to speak english and not allowed to speak our own language. How dare you talk about our issues as if you think you’re informed, I am only the second generation for speaking english and it’s despicable that you’re making it a racial issue
Better go back and re-read the original poster’s comment again as you have completely missed the point. When you re-read look at the poster’s use of sarcasm to make a point. He or she did a very good job with the writing.
If it were racist or inappropriate the very vigilant Nunatsiaq News moderators would have blocked it.
The original poster did a very good job of highlighting the reflexive and almost automatic habit of many Nunavut Inuit of blaming the ‘south’ and ‘southerners’ as the easy scapegoat for everything that is wrong.
That, my friend, is an example of an insidious and common Nunavut racism.
Yes the airlines need assistance,but before we trust them too much, the company that owns calmair,exchange income check their balance sheet online. Record profits last year.nwc,arctic coops, all benefiting big time.manitoba based company’s,let’s not turn them into corporate welfare clients
Nunavummiut are being monopolized by the Industry to maximize profit to Nunavimmiut. Is it essential service to pay the airlines to fly every single day with almost empty seats and cargo? The most expensive airline in Canada needs help from struggling Nunavummiut.
If airlines are essentially roads in Nunavut, why does government not own them? Why would the GN allow itself to be in a situation where airlines say give us money or we will stop flying. No where else does essential infrastructure reside with the private sector alone because they will screw the public over. Time for change, as covid isn’t going anywhere and new pandemics will happen eventually.
Exactly. This is why the GN controls the utilities; petroleum, electricity, water, etc. Might be best to control the airlines 2
This is a black and white question. Do you want apples in the store? No subsidy, no apples.
Bert, it’s not as if Canadian North are the only airline with available cargo space to fly those apples.
What are the alternatives, General? Would love to hear
Doesn’t NorthMart have there own cargo plane?
They do – flying into western Ontario and eastern Manitoba. Likely notable to fly into the arctic
Or instead of handing out free money buy the failing company, run it at break even, and gets your apples for less forevermore.
Hugely ironic.
If Canadian North were publicly traded like Air Canada or Westjet, where ownership is extended to any beating heart capable of opening a trading account, the longest you would have to wait in order to figure out how well they were doing financially is 3 months until they post their next quarterly earnings statement.
Yet here in the north, where airlines are outright owned or operate within joint ventures with indigenous groups (partly to become more accountable to their primarily indigenous customers), people including the publicly elected representatives of same said indigenous people live in the dark regarding the financial performance of these companies.
When it comes to northern airlines, it really can be said the intents are at odds with the results.
Maybe the next time Inuit want to dabble in the airline industry, for the good of Inuit individually, Inuit organizations, company customers especially government, perhaps our dear leaders are better advised to go out and buy some airline stock.
It’s funny how these companies can have year after year of million dollar profits but can’t see far enough ahead to save for a rainy day.
But hey, why bail yourself out when the government will do it for you?
First, Canadian North and Calm Air used to carry the freight (food), but they set their freight prices too high. Now Northmart and the Co-ops use their own airlines for freight because it saves them money.
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Canadian North and Calm Air mostly carried passengers before COVID-19. Now they mostly carry air.
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The GN has a mechanism for supporting important but unprofitable businesses. It’s the Nunavut Business Development Corporation. It takes an equity interest in the business in exchange for providing operating and/or capital expenditure funds. It would need a budget increase, but that could be done.
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The GN should have seats on the Boards of these airlines and full access to all their books of account until such time as they have re-paid the money advanced to them by the GN.
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Let me speculate that it is not the airlines themselves that are really losing lots of money. They’ve cut their expenses and fuel prices are at record lows. Where’s the negative fuel surcharge???
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Let me suggest that each airline probably has a sister company that leases airplanes to the airline. Let me suggest that those are the businesses that used to be very profitable, but now have to keep paying the banks for the money they used to buy/rent the airplanes. Those airplanes have no value today because there are thousands of airplanes around the world that are not being used. Airplanes can be bought today for pennies on the dollar. This is the perfect time for a new, owned-in-Nunavut airline to be created for very low cost.
In September 2019, well before the COVID-19 kicked the airlines in the sensitive region called “profit”. A medium-sized airline that had been around for decades went out of business. On Sept 23, approx 600,000 passengers they had flown to destinations, were scrambling to find their way home as Thomas Cook stopped flying.
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Just think of that for a moment, 600,000 people on vacation. How long is an average vacation… you get 2 weeks off work so take 10 days someplace warm? September would have been the start of the busy season, so say 4 months so about 120 days, or 12 x 10-day vacations, so approx 7,200,000 this airline would move September to December? And it still found their way into the bankruptcy heap.
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This airline couldn’t be profitable after decades in business and moving 600,000 passengers every couple of weeks. or 60,000 people a day!
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Nunavut with its population of 40,000 could not generate that kind of business unless every single person bought 3 tickets every 2 days. And that would be just enough to go bankrupt… not stay in business and surely not enough to make a profit for the airline.
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What I’m saying is this.
Operating an airline is about 4 key factors.
1- Deep pockets to finance the aircraft (the more you finance the less profit you keep)
2- Experience to manage the business
3- Skilled workforce to maintain and operate the business
4- A large enough client base to support the business.
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Nunavut only has the first one, so how long do you think such a venture would last.
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And if GN was in the business of buying Northern Businesses… there’s a little mine up for sale right now for $149,000,000 that would provide a great opportunity for the North rather than letting the Chinese buy it. Start with a ground-based business… the fall will be smaller.
Thomas Cooke is a false comparison and you know it.
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Part of any business is that there are good times and bad. Why should airlines, who are already subsidized by government with lucrative government contracts, cheap fuel, rent and southern labor costs, along with 0 competition, be handed over millions of dollars? Let them have losses for half a year, get a bridge loan, and then profit again like before when travel resumes. No, this is people in the GN with deep connections to the airlines getting their friends money by justifying this an ’emergency’, when they have had 90 days since March to plan and find other carriers to bid on flying. There are only hundreds and thousands of planes grounded across Canada to choose from. Why not see if Air Canada or Westjet would fly for less? Who on earth would immediately think sure, let’s just hand them free money, rather than have bids come in?
If the airlines in the North are truly an essential service then they should be owned and operated either by the Government of Nunavut or Canada as is the case in Greenland. The fact is the airlines are privately owned for profit companies and as a result should be subject to the same market forces as all privately owned entities, i.e. they survive or fail based on their profitability and competitiveness. The reality is that Givernmmeyts have for decades subsidized sirkine travel in thd north through cargo and medical travel contracts. It needs to stop and the governments need to acknowledge that air travel is an essential service that should eithet be:
A: owned and operated as a public not for profit service.
B: should be heavily regulated to ensure equitable access and cost.
This argument is so wrong it’s sad.
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Communications is an essential service. None of it is owned by GN. Nortel is a Bell subsidiary (yes, the evil southerners even own your communications system).
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Sealift – Both NEAS and Desgagnes Transarctic (and it’s subsidiary NSSI it partners with the Co-ops) are private companies that have joint ventures with businesses/governments in the North. They’d rather be delivering to the tropics, avoiding stationary reefs instead of being chased by titanic icebergs.
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Those are essential service and neither one is government-owned. Nor should they be. Unless you want the government declaring food an essential service and “heavily regulating” the grocery store and the pizza shop on how much food they can sell to you.
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But I do agree with you until the North comes up with a viable plan on how to connect to the Southern economy without paying $2,000 for North-South flight when a 3 hour East-West flight costs $300, the living standard of the South will remain out of reach for Nunavummiut.
Communications services providers like Bell are completely regulated by government. Government owns the bands they operate on and can do what it wants. Northwestel just improved services in Nunavut because of government contracts requiring it to do so with a new sattelite.
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Sealift MTS is also owned by govt and functions fine. If anything, the private sector complains they have to compete with government.
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It’s obvious the private airlines have reached a point where they are no longer working in the public interest. Government should own majority shares in these or start building bridges to the south.
Private airlines don’t exist to serve the public interest. They exist to serve the shareholders’ interests. So ends this lesson.
Now, should a service that is so much in the public interest be in the hands of a private corporation? That is a legitimate question and conversation, but don’t make the mistake of thinking that Calm Air/Canadian North the like exist to serve the public interest.
Laws allow corporations to exist for the sole purpose of the public interest. Generating wealth is generally in the public interest. Generating wealth for a few shareholders is in the public interest. Requiring bailouts from non shareholders at the expense of the public interest is another matter. No one thinks the airlines are here for taxpayers, the corporate model and private sector no longer serve the broader public interest.
That very well may be, and I’m not disagreeing with you at all, but the way that the airlines that serve Nunavut are structured and run are not in the public interest.
This can be changed, but that would require action by the legislature. I don’t see any movement in that direction.
Hey Folks: Do any of you really believe that ANY government can run a business? Why do you think they stay away from it now? Without the subsidies, created by GN rules around passenger service, the business would be dropping a lot of the flights we are getting now.
Then what? Not that I want to cause myself any backlash cuz I have cargo going up to Kugluktuk from Hay River. But, doesn’t the GNWT, who took over the sealift operations on the MacKenzie, have a number of court claims in the system because of their inability to think ahead.
The GN is thinking ahead here and is keeping an essential service afloat here. Don’t ask them to take it over please.
Paul it’s really simple. Own shares in a company. Let the company drive itself. When they try to screw the government, basically say they won’t fly unless you pay, then as a shareholder they can be held accountable. There is no accountability when all we are is customers. Ownership is needed. These millions would buy a large piece of these companies.