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Airline Mergers & Acquisitions, Canadian Operators, Regional Airlines

Mega Canadian Airline Merger in the Works as Canadian North and First Air Start Discussions

It was announced yesterday that Makivik Corporation, the owner of First Air and NorTerra Inc. the owner of Canadian North started to talk about merging the two northern Canadian airlines, which will create a single airline entity that builds on the strengths and identities of the two airlines. They say no lay offs are planned, but who are we kidding, combining two airlines will create many duplicate jobs in administration, marketing, sales and possibly engineering and flight ops as the route networks will be combined, rationalized and they will find they have too much capacity on hand, anyway for now, no layoffs.

These merger talks come right after the April 1st acquisition of Nunasi Corporations (representing the Inuit people of Nunavut) 50% shareholding in NorTerra Inc.(the owner of Canadian North), by the Inuvialuit Development Corporation (IDC) (representing the Inuvialuit people of the western artic) and the owner of the other 50% in Canadian North.

So now, IDC owns 100% of Canadian North and Makivik is the 100% owner of First Air and also the 100% owner of Air Inuit, so things will get interesting, if the merger goes ahead, at this point nothing has been mentioned about Air Inuit, it is only my assumption, but given Air Inuit’s size and fleet composition, it would make sense to bring it into the fold and make it a three way merger of possibly 70 aircraft.

This deal will go forward, there is nothing stopping it, so some employees, the 27 communities affected and some of Canadian North’s code share partners will see negative impact from the merger.

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Canadian North’s, current fleet is composed of 17 aircraft (8 x B737-200ADV, 5 x B737-300’s and 4 x DHC-8-100’s).

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First Air’s, current fleet is composed of 27 aircraft (9 x B737-200ADV, 4 x B737-400’s, 1 x B767-200 freighter, 2 x Lockheed L-100-30 Hercs, 9 x ATR-42-300’s, 1 x ATR-72-200 freighter and 1 x ATR-72-200 in passenger configuration). By the way in Transport Canada’s documents, the 705 is still in the legal name of Bradley Air Services for those of you around back then, with trade names of First Air, Ptarmigan Airways, Northwest Territorial Airways and NWT Air. Those names bring back memories, and we just may see Canadian North added to the list.

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Air Inuit’s, current fleet is composed of 26 aircraft (4 x B737-200ADV, 3 x DHC-8-100’s, 11 x DHC-8-300’s, 1 x HS748 freighter, 7 x DHC-6-300’s).

Whether it will be a two way or three way merger, we are talking about very large airlines by Canadian standards, 44 aircraft if First Air and Canadian North tie the knot and 70 if Air Inuit is part of it.

This merger has been discussed before, when Tracy Medve was then the President of Canadian North, but talks failed and Mrs. Medve moved on to Kelowna Flightcraft in Kelowna, BC. All of this comes very fast on the heels of the March 25, 2014 TSB accident report on the August 20, 2011 crash of a B737-200ADV (C-GNWN) at Resolute, Nunavut where pilot error on approach resulted in 12 fatalities out of the 15 people on board, opening the door to several lawsuits against First Air.

There is a great deal of overlap in the networks of the two carriers, while First Air (7F) is strong in the eastern Artic and Canadian North (5T) is stronger in the western Artic, the two do compete rather heavily. In fact 27 destinations have both airlines flying in and out regularly:

Inuvik, Norman Wells, Fort Simpson, Kugluktuk, Ulukhaktok, Edmonton, Cambridge Bay, Taloloyoak, Gjao Haven, Kugaaruk, Baker Lake, Chesterfield Inlet, Rankin Inlet, Whale Cover, Arviat, Winnipeg, Coral Harbour, Cape Dorset, Iqaluit, Ottawa, Pangnirtung, Qikiqtarjuaq, Clyde River, Pond Inlet, Hall Beach, Igloolik, 

These communities will be affected if the merger goes through as competition will disappear and monopoly pricing will come into play, driving fares higher, which in some cases of yields greater than $2.00/RPM already (that is $2.00 per mile).

Canadian North being the smaller of the carriers uses 704 operators to cover several destinations on a code share basis to cover its network, and some of these carriers may be affected if the merger goes ahead:

1. Aklak Air serves the northeast Northwest Territories from Inuvik, places such as Sachs Harbour, Tuktoyaktuk, Aklavik, Fort McPherson,  Paulatuk that First Air does not serve and therefore I see no change there.

2. North Wright Air serves a few destinations out of Norman Wells, places such as Tulita, Deline, Fort Good Hope, Colville Lake, and here as well no change is expected as first Air serves Norman Wells and Inuvik in this region.

3. Air Tindi serves a few destinations from Yellowknife like Whati, Gameti, Wekweeti which have no First Air flights, but Fort Simpson is served from Yellowknife, and here I am sure a decision will need to be made on whether a Beech 1900D from Air Tindi will fly the route or an ATR-42 from First Air, it could also be the smaller DHC-8-100 coming from Canadian North if the merger goes through and the DHC-8-100’s stay.

4. Calm Air serves the eastern Hudson Bay markets of Arviat, Whale Cove, Rankin Inlet, Chesterfield Inlet, Coral Harbour and Repulse Bay from Winnipeg through Thompson and Churchill. I see some big changes in this market as First Air serves those markets with ATR-42’s as does Calm Air, which of these has lower costs ? probably Calm Air, but then First Air has the aircraft, so some good analysis has to be done here. Calm Air brings people down south on Medical flights with the ATR-42 and their new Dornier 328Jet aircraft, so they have and will have to stay in those markets anyway due to the very important, high yield medical flights.

This is an important development, as consolidation in Canada’s airline industry picks up speed, and we will see fewer operators but bigger operators emerge, the days of the fragmented regional airline industry are now changing very fast, the days of the ‘mom and pop’ operations are numbered as big money comes into this industry, changing it forever and I will be covering more on this in my next few posting, stay tuned. Do check out the List of 704 and 705 Operators in Canada, fleet size, seat numbers and ownership in my April 10th article :

PASSENGER AIRLINES IN CANADA, A FAST CHANGING LANDSCAPE IS UNFOLDING – PART 1: THE FEW SMALL 704 OPERATORS LEFT

I wrote that article in this Blog one day before this merger went public, just goes to show I am not wrong about what is slowly taking shape, a wave of consolidations, eat or be eaten and a few will just die, the industry is changing, look at the US, the only real regional airlines left are in Alaska and then there is Silver Air, the others are just ACMI operators for the big airlines, not real airlines just operators of regional aircraft that grow and shrink depending on the state of scope clauses between the big airlines and their pilots.

As well, I will discuss some possible big moves in the industry in the coming year and so far not really noticed by many, I think there is a move by one of our existing 705 operators to become Canada’s next low cost carrier (LCC), as we all know that WestJet has abandoned the low cost model for something more hybrid, as RASM for WJ and AC are now plus minus the same, so a LCC (low cost carrier) would be good for consumers in Canada, but it will take huge amounts of capital and the right management team, both of which are slowly coming together, without any fanfare so far, as only Jetline has captured the attention of the media so far.

I also want to weight in on the future of Bombardier’s strugging CSeries C100/C300 airliner, Porter Airlines, Air Transat, Rouge, Wasaya Airways, REAL (Air Georgian/R1), Summit Air, North Cariboo Air, Enerjet and the eventual WestJet order announcement for B787’s, oh its shaping up to be a real exciting year for strategically minded people like myself, the moves and counter moves, got to love it ! and that is just in Canada. Overseas we have the development of long distance LCC’s, lead by Norwegian Air Shuttle (NAI) out of Ireland and Air Asia X out of SE Asia, and the acquisition spree of Etihad Airways, as it continues to add to its equity alliances, and now it plans to take 40% of Alitalia to add to the 7 other airlines it partly owns, as profits rise 48% thanks to CEO James Hogan.

Till next time, thank you.

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About Aviation Doctor - Helping aviation companies to transform the present into a more profitable tomorrow

I am a Canadian and EU national with an MBA and 33+ years experience in aviation business development with 20 years overseas and work in 25+ countries. A former investment/merchant banker (mergers and acquisitions to corporate turnarounds). airline and OEM senior executive and past owner of 6 successful aviation companies in 3 countries (executive jet charter/management companies, aircraft sales, aircraft broker, airline/aerospace consulting to aircraft insurance). I have a very diverse aviation background with 75+ aviation companies (45+ airlines of all sizes, OEM's, airports, lessors, MRO to service providers) as consultant, executive management, business analyst and business development adviser. Excellent success track record in International Business Development. Most work with airlines is with new start-ups and restructuring of troubled carriers. I sold new business jets, turboprops and helicopters for Cessna, Raytheon, Gulfstream to Eurocopter as an ASR as well as undertaking sales and marketing of commercial aircraft for Boeing, de Havilland, Dornier, Saab and Beechcraft. Brokered everything from LET-410's to B747's and from piston PA31 to G550 business jets. I look beyond the headlines of the aviation news and analyze what the meaning and consequences of the new information really means. There is a story behind each headline that few go beyond. Picked the name Aviation Doctor, as much of my work has been with troubled companies or those that want and need to grow profitably. I fix problems be in the business, and help with restructuring for a better tomorrow. You can reach me with comments or suggestions at: Tomas.Aviation@gmail.com and I comment a lot on Google+, my Facebook and LinkedIN.

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