The Canadian Government is to provide loan guarantees of up to C$75 million ($48 million) to Canada 3000 after the carrier provided the federal government with a restructuring plan. It will include job losses and capacity reductions, cuts in lease payments and increased shareholder investment.

Canada 3000, which recently acquired Royal Airlines, has already slashed its winter schedule by 31%. Last month, the airline said it could run out of cash by the end of the year without loan guarantees from Ottawa.

Meanwhile, Air Canada has been told it won't get federal aid until it comes up with a feasible strategy to overhaul its business, and proves it has a plan for recovery.

The loan given to Canada 3000 is intended to overcome a short-term cash shortage, while Air Canada's problems are more fundamental, says transport minister David Collenette.

The depth of Air Canada's troubles recently prompted Ottawa to remove the 15% individual ownership cap on its stock, making it easier for individuals to invest in the airline - or even gain majority control. Air Canada has hired financial advisors to deal with its C$11 billion debt.

Air Canada faces further problems in the shape of a coming battle with its powerful pilots' union over job cuts. The airline says it will issue redundancy notices to hundreds of pilots unless the Air Canada Pilots Association agrees to help reduce labour costs.

However, the union argues it negotiated a new contract with Air Canada last year that gives pilots protection from involuntary lay-offs until the end of 2004.

If Air Canada hands out redundancy notices, the union says it will take the case to the Canadian Industrial Relations Board to reverse the job cuts.

Source: Flight International