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I'm posting this in response to Genneessee's request that I offer my views on why Angus Kinnear is fully to blame for Canada 3000's demise in 2001 (as opposed to Michel Leblanc).
First of all, even though the background isn't relevant to the demise it is interesting so I'll mention it. Canada 3000 was founded in 1988 as a charter airline. It was grounded immediately (!) as the government didn't believe it met the required 75% controlling interest requirements; it was believed that the Canadian 75% ownership was effectively controlled, indirectly, through by foreign interests. This foreign interest was the British charter operator Air 2000. Canada 3000 was initially also called ... surprise surprise ... Air 2000. The Ministry of Transportation finally granted them their certificate when the name was changed (twice), first to Air 3000 (rejected) and finally to Canada 3000; and Air 2000 sold its shares to Canadian investors (the Deluce family).
There are several reasons things went downhill with Canada 3000. Angus Kinnear has argued that September 11 was the only cause, however, things started to go downhill long before that.
1. Merger with Royal Airlines in January 2001. Michel Leblanc is "always" blamed for what happens since that but I cannot see how Leblanc can be blamed for this. First of all, by acquiring Royal Airlines they made the mistake of completely reneging on their business plan. Canada 3000's business plan had three key points: (1) use modern aircraft, (2) offer one class (i.e. no business class) and (3) avoid direct competition with AirCanada. Royal Airlines (older 737s) used different aircraft than Canada 3000 (new Airbus), Royal Airlines had a business class. Royal Airlines also competed directly with AirCanada on the Montreal - Toronto - Ottawa routes. The acquisition of Royal brought Canada 3000 from one extreme to another. Conceptually, think of a slim and polished Low-Cost Carrier - with one plane type and no business class - acquiring a legacy carrier with several planes types and several in-flight classes. It doesn't make too much sense. (My source on the business plan is the prospectus Canada 3000 filed when they went public in the summer of 2000.) The reality is that the only consistently successful domestic carriers in North American are those who have a plan and stick to it (Southwest, JetBlue, WestJet etc) Second, in June Canada 3000 fired Leblanc and 6 weeks later filed a lawsuit against Leblanc (and two others as well) for "fraud, negligence, breach of contract and conspiracy." In essense, they argued that Leblanc and had lied about Royal's financial situation (to increase the price that Canada 3000 would pay for Royal Airlines). This is the primary reasons why people blame Leblanc for Canada 3000's demise. Those people have not been in business and I have two words for those people: DUE DILIGENCE.
If I want to sell you an old car, I'm going to tell you about all its great features. Ask me about the crack in the exhaust system ... what crack? Oh, that's nothing. Ask me about the noise coming from the transmission ... what noise - I can't hear anything. Oh that, when I took it in to my mechanic he said that was nothing to worry about plus the car runs great - here, let me show you the spare tire... Has anybody ever tried to downtalk something they're selling and, at the same time, received a good price for what you're selling? When it comes to sales we are all honest to the point of "honesty is not lying about things the buyer didn't ask about."
But let me return to the concept of due diligence. What is due diligence? It is, in a nutshell, the process the investor (or bidding company in the case of a takeover) investigates the financial records and statements and performs its own analysis to ensure valuations, projections and past accounting records are appropriate, legal or truly representative.
(See Kessler International's Due Dilligence page on http://www.investigation.com/due_diligence.htm.)
When Canada 3000 filed the lawsuit against Leblanc and Royal Airlines it, in essence, revealed that it hadn't done its due diligence on Royal Airlines. In a nutshell, it bought Royal Airlines and then found out that "hey, things weren't as good as we'd been told." And to most people that is the same as Leblanc being the cause of Canada 3000's demise. But, and this is crucial, when you're in business you need to conduct proper due diligence if you want to merge. Second, any airline CEO will tell you how great their airline is doing - anything else is suicide. What would happen tomorrow if Gerald Grinstein declared that Delta would be bankrupt very soon? What would happen to bookings and passenger numbers? The airline business is very much about consumer confidence. US Airways lost quite a few passengers this winter when people thought they wouldn't last. Convince the flying public your airline is the one that will survive and more people will fly with you - thus reconfirming the idea that your will survice. Canada 3000 went public with their grim situation on October 15, 2001 and booking nosedived.
Canada 3000 did not, and this is very unusual, retain any independent financial advisor to conduct or assist them in their due diligence process. My honest take on this is that Kinnear was too obsessed with his megalomaniac and expansionist thinking to conduct a proper due dliigence process (see #3 below). I don't blame the salesperson (Leblanc) for doing a good job selling his airline, I rather fully blame the buyer (Kinnear) for not the the time and effort to properly investigate and check out the company he was buying.
2. Merger with CanJet in March 2001 (this is CanJet v1, not v2 which is flying now). One question: WHY? CanJet had a very marginal market share and was going bankrupt anyway. CanJet had received its certificates in September 2000 (they started flying on Sept 5th), and was immediately the victim of predatory pricing and supply behaviour by Air Canada - the first of many "cease and desist" orders was issued by Canada's federal Competition Commissioner a month later. (This "cease and desist" meant that Air Canada had to stop selling a new class of fares which fully matched CanJet's fares. AirCanada's fares on previously uncontested routes were previously as much as 5 or 6 times the fares CanJet charged... The order was issued because it was deemed to be uncompetitive behaviour. Read more here: http://strategis.ic.gc.ca/epic/inter.../ct02020e.html and here
http://strategis.ic.gc.ca/epic/inter.../ct02137e.html and after a mere 4 years the finally sorted things out (quicker than Microsoft v DOT I guess ... see here for "the ruling" http://strategis.ic.gc.ca/epic/inter.../ct02973e.html)
CanJet was in financial trouble from the very get-go and it showed. In fact, the company was probably a little too good at revealing their sorry state (see http://www.cbc.ca/story/news/?/news/...5/canjet001115). My question is this: Why bother paying for a company that is going bankrupt anyway? Let them go bankrupt, then quickly move in and secure their business. Buying CanJet's assets (but not their name - which is why they were restarted with the same name) was a waste of $7million. That figure sounds small, but keep in mind that it brought with it even more overcapacity, more personel and requires a lot of micromanagement. However, Kinnear was gone too much to keep the necessary tabs on the operation (see #3 below).
And for the record, WestJet was offered to buy CanJet but Clive Beddoe turned the offer down without even thinking about it. To me Kinnear not only wasted $7m - he also incurred totally unnecessary future operating costs.
3. Big Seats. To kill off Roots Air (which was really a waste of time and money because Roots Air was doing the nicely all by themselves) Canada 3000 introduced their "Big Seats" program in May 2001. Big Seats was their business class program. It is clear that Big Seats, though not a huge mistake was a mistake nonetheless. This mistake isn't quantified in millions, but rather it is indicative of a complete loss of focus: whereas Canada 3000 was profitable before they had by mid-2001 abandoned all principles and their business plan, which specified no business class, was obviously thrown out the window. But in the airline business it is the companies that tries to do everything, and be everything to everybody, which fails.
4. International flights to India. Canada 3000 had grandiose plans to launch the first direct flight from Toronto to New Delhi (with A340 airplanes) and announced their plan to do so in January 2001. The obsession with this, however, meant that Kinnear was away for much of the year and did not have much focus on the domestic arena (he was in India when the Royal merger was announced, he was also gone at other key times in 2001). The problem with this is, in my opinion, that Canada 3000 really needed focused leadership: they had just acquired two other airlines and were undergoing many changes to personel, schedule, equipment etc and could not afford to be put on autopilot at that time. That is not to say there weren't other capable managers there, but rather I'm suggesting that all companies in those situations need a strong leader with a presense to ensure the transitions go as smoothly as possible. With the huge changes in the domestic market Canada underwent from 1999 - 2001, coupled with TWO mergers in TWO months I find it puzzling that Kinnear didn't focus on the domestic operations first. (These acquisitions caused Canada 3000's fleet to go from 15 to 38 planes in two months.)
On Oct 8, 2001, when the India flights were inaugurated, Kinnear claimed that things weren't grim at Canada 3000 and that there wasn't an immediate need to lay off any workers (not much different from Leblanc's comments in 1990 that Intair is profitable or those insinuation just a few months ago that Jetsgo was doing great, mind you). After their bankruptcy filings it emerged that others in Canada 3000 had strongly suggested to Kinnear that (1) he couldn't afford to leave the company (yet again) as critical measures were needed, and (2) the company risked running out of cash by October 28 unless measures were taken. Why didn't Kinnear take the advise? I cannot offer a suggestion other than that Kinnear had lost focus on the things that mattered at the moment - he was too preoccupied with the India expansion and not focused on domestic duties.
In short, Canada 3000's business plan, which had lead it to 11 years of profit, went out the window and the company started to lose money. A lot of money. Kinnear didn't keep focus, nor was he around, nor did he do his job during the acquisitions of Royal Airlines and CanJet. So there it is. That's why I blame Kinnear fully for Canada 3000's demise.
And the gloves are OFF - let the arguments fly!
(Oh, and can the WestJetters who have nothing better to do then bitch about Leblanc please stay out of this unless they'll stick to the facts for a change.)
-Sturla
First of all, even though the background isn't relevant to the demise it is interesting so I'll mention it. Canada 3000 was founded in 1988 as a charter airline. It was grounded immediately (!) as the government didn't believe it met the required 75% controlling interest requirements; it was believed that the Canadian 75% ownership was effectively controlled, indirectly, through by foreign interests. This foreign interest was the British charter operator Air 2000. Canada 3000 was initially also called ... surprise surprise ... Air 2000. The Ministry of Transportation finally granted them their certificate when the name was changed (twice), first to Air 3000 (rejected) and finally to Canada 3000; and Air 2000 sold its shares to Canadian investors (the Deluce family).
There are several reasons things went downhill with Canada 3000. Angus Kinnear has argued that September 11 was the only cause, however, things started to go downhill long before that.
1. Merger with Royal Airlines in January 2001. Michel Leblanc is "always" blamed for what happens since that but I cannot see how Leblanc can be blamed for this. First of all, by acquiring Royal Airlines they made the mistake of completely reneging on their business plan. Canada 3000's business plan had three key points: (1) use modern aircraft, (2) offer one class (i.e. no business class) and (3) avoid direct competition with AirCanada. Royal Airlines (older 737s) used different aircraft than Canada 3000 (new Airbus), Royal Airlines had a business class. Royal Airlines also competed directly with AirCanada on the Montreal - Toronto - Ottawa routes. The acquisition of Royal brought Canada 3000 from one extreme to another. Conceptually, think of a slim and polished Low-Cost Carrier - with one plane type and no business class - acquiring a legacy carrier with several planes types and several in-flight classes. It doesn't make too much sense. (My source on the business plan is the prospectus Canada 3000 filed when they went public in the summer of 2000.) The reality is that the only consistently successful domestic carriers in North American are those who have a plan and stick to it (Southwest, JetBlue, WestJet etc) Second, in June Canada 3000 fired Leblanc and 6 weeks later filed a lawsuit against Leblanc (and two others as well) for "fraud, negligence, breach of contract and conspiracy." In essense, they argued that Leblanc and had lied about Royal's financial situation (to increase the price that Canada 3000 would pay for Royal Airlines). This is the primary reasons why people blame Leblanc for Canada 3000's demise. Those people have not been in business and I have two words for those people: DUE DILIGENCE.
If I want to sell you an old car, I'm going to tell you about all its great features. Ask me about the crack in the exhaust system ... what crack? Oh, that's nothing. Ask me about the noise coming from the transmission ... what noise - I can't hear anything. Oh that, when I took it in to my mechanic he said that was nothing to worry about plus the car runs great - here, let me show you the spare tire... Has anybody ever tried to downtalk something they're selling and, at the same time, received a good price for what you're selling? When it comes to sales we are all honest to the point of "honesty is not lying about things the buyer didn't ask about."
But let me return to the concept of due diligence. What is due diligence? It is, in a nutshell, the process the investor (or bidding company in the case of a takeover) investigates the financial records and statements and performs its own analysis to ensure valuations, projections and past accounting records are appropriate, legal or truly representative.
(See Kessler International's Due Dilligence page on http://www.investigation.com/due_diligence.htm.)
When Canada 3000 filed the lawsuit against Leblanc and Royal Airlines it, in essence, revealed that it hadn't done its due diligence on Royal Airlines. In a nutshell, it bought Royal Airlines and then found out that "hey, things weren't as good as we'd been told." And to most people that is the same as Leblanc being the cause of Canada 3000's demise. But, and this is crucial, when you're in business you need to conduct proper due diligence if you want to merge. Second, any airline CEO will tell you how great their airline is doing - anything else is suicide. What would happen tomorrow if Gerald Grinstein declared that Delta would be bankrupt very soon? What would happen to bookings and passenger numbers? The airline business is very much about consumer confidence. US Airways lost quite a few passengers this winter when people thought they wouldn't last. Convince the flying public your airline is the one that will survive and more people will fly with you - thus reconfirming the idea that your will survice. Canada 3000 went public with their grim situation on October 15, 2001 and booking nosedived.
Canada 3000 did not, and this is very unusual, retain any independent financial advisor to conduct or assist them in their due diligence process. My honest take on this is that Kinnear was too obsessed with his megalomaniac and expansionist thinking to conduct a proper due dliigence process (see #3 below). I don't blame the salesperson (Leblanc) for doing a good job selling his airline, I rather fully blame the buyer (Kinnear) for not the the time and effort to properly investigate and check out the company he was buying.
2. Merger with CanJet in March 2001 (this is CanJet v1, not v2 which is flying now). One question: WHY? CanJet had a very marginal market share and was going bankrupt anyway. CanJet had received its certificates in September 2000 (they started flying on Sept 5th), and was immediately the victim of predatory pricing and supply behaviour by Air Canada - the first of many "cease and desist" orders was issued by Canada's federal Competition Commissioner a month later. (This "cease and desist" meant that Air Canada had to stop selling a new class of fares which fully matched CanJet's fares. AirCanada's fares on previously uncontested routes were previously as much as 5 or 6 times the fares CanJet charged... The order was issued because it was deemed to be uncompetitive behaviour. Read more here: http://strategis.ic.gc.ca/epic/inter.../ct02020e.html and here
http://strategis.ic.gc.ca/epic/inter.../ct02137e.html and after a mere 4 years the finally sorted things out (quicker than Microsoft v DOT I guess ... see here for "the ruling" http://strategis.ic.gc.ca/epic/inter.../ct02973e.html)
CanJet was in financial trouble from the very get-go and it showed. In fact, the company was probably a little too good at revealing their sorry state (see http://www.cbc.ca/story/news/?/news/...5/canjet001115). My question is this: Why bother paying for a company that is going bankrupt anyway? Let them go bankrupt, then quickly move in and secure their business. Buying CanJet's assets (but not their name - which is why they were restarted with the same name) was a waste of $7million. That figure sounds small, but keep in mind that it brought with it even more overcapacity, more personel and requires a lot of micromanagement. However, Kinnear was gone too much to keep the necessary tabs on the operation (see #3 below).
And for the record, WestJet was offered to buy CanJet but Clive Beddoe turned the offer down without even thinking about it. To me Kinnear not only wasted $7m - he also incurred totally unnecessary future operating costs.
3. Big Seats. To kill off Roots Air (which was really a waste of time and money because Roots Air was doing the nicely all by themselves) Canada 3000 introduced their "Big Seats" program in May 2001. Big Seats was their business class program. It is clear that Big Seats, though not a huge mistake was a mistake nonetheless. This mistake isn't quantified in millions, but rather it is indicative of a complete loss of focus: whereas Canada 3000 was profitable before they had by mid-2001 abandoned all principles and their business plan, which specified no business class, was obviously thrown out the window. But in the airline business it is the companies that tries to do everything, and be everything to everybody, which fails.
4. International flights to India. Canada 3000 had grandiose plans to launch the first direct flight from Toronto to New Delhi (with A340 airplanes) and announced their plan to do so in January 2001. The obsession with this, however, meant that Kinnear was away for much of the year and did not have much focus on the domestic arena (he was in India when the Royal merger was announced, he was also gone at other key times in 2001). The problem with this is, in my opinion, that Canada 3000 really needed focused leadership: they had just acquired two other airlines and were undergoing many changes to personel, schedule, equipment etc and could not afford to be put on autopilot at that time. That is not to say there weren't other capable managers there, but rather I'm suggesting that all companies in those situations need a strong leader with a presense to ensure the transitions go as smoothly as possible. With the huge changes in the domestic market Canada underwent from 1999 - 2001, coupled with TWO mergers in TWO months I find it puzzling that Kinnear didn't focus on the domestic operations first. (These acquisitions caused Canada 3000's fleet to go from 15 to 38 planes in two months.)
On Oct 8, 2001, when the India flights were inaugurated, Kinnear claimed that things weren't grim at Canada 3000 and that there wasn't an immediate need to lay off any workers (not much different from Leblanc's comments in 1990 that Intair is profitable or those insinuation just a few months ago that Jetsgo was doing great, mind you). After their bankruptcy filings it emerged that others in Canada 3000 had strongly suggested to Kinnear that (1) he couldn't afford to leave the company (yet again) as critical measures were needed, and (2) the company risked running out of cash by October 28 unless measures were taken. Why didn't Kinnear take the advise? I cannot offer a suggestion other than that Kinnear had lost focus on the things that mattered at the moment - he was too preoccupied with the India expansion and not focused on domestic duties.
In short, Canada 3000's business plan, which had lead it to 11 years of profit, went out the window and the company started to lose money. A lot of money. Kinnear didn't keep focus, nor was he around, nor did he do his job during the acquisitions of Royal Airlines and CanJet. So there it is. That's why I blame Kinnear fully for Canada 3000's demise.
And the gloves are OFF - let the arguments fly!
(Oh, and can the WestJetters who have nothing better to do then bitch about Leblanc please stay out of this unless they'll stick to the facts for a change.)-Sturla
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