Trans-Canada Airlines (TCA), was created by legislation of the federal government as a subsidiary of Canadian National Railway (CNR) on 11 April 1936. The newly created Department of Transport under Minister C. D. Howe desired an airline, under government control, to link cities on the Atlantic coast to the Pacific coast. Using $5 million in government seed money, two Lockheed Model 10 Electras and one Boeing Stearman biplane were purchased from Canadian Airways. Experienced airline executives from United Airlines and American Airlines were brought in. Passenger operations began on 1 September 1937, with an Electra carrying two passengers and mail from Vancouver to Seattle, a $14.20 round trip. On 1 July 1938, TCA hired its first flight attendants. Transcontinental routes from Montreal to Vancouver began on 1 April 1939, using 12 Lockheed Model 14 Super Electras and six Lockheed Model 18 Lodestars. By January 1940 the airline had grown to about 500 employees.
In 1942, Canadian Pacific Airlines suggested merging with TCA. Prime Minister Mackenzie King rejected the proposal and introduced legislation regulating TCA as the only airline in Canada allowed to provide transcontinental flights. With the increase in air travel after World War II, CP Air was granted one coast-to-coast flight, and a few international routes. Originally headquartered in Winnipeg, which was also the site of the national maintenance base, the federal government moved the headquarters to Montreal in 1949; the maintenance base later also moved east. With the development of the ReserVec in 1953, TCA became the first airline in the world to use a computer reservation system with remote terminals. By 1964, TCA had grown to become Canada's national airline, and in 1964 Jean Chrétien submitted a private member's bill to change the name of the airline from Trans-Canada Airlines to Air Canada. This bill failed, but it was later resubmitted and passed, with the name change taking effect on 1 January 1965.
During the 1970s, Air Canada operated with government regulations ensuring its dominance over domestic regional carriers and rival CP Air. Short-haul carriers were restricted to one of five regions where they could operate, and could not compete directly with Air Canada and CP Air. CP Air itself was subject to capacity limits on intercontinental flights, and restricted from domestic operations. Air Canada's fares were also subject to regulation by the government. In the late 1970s, with reorganization at CNR, Air Canada became an independent Crown corporation. Passage of the Air Canada Act of 1978 ensured that the carrier would compete on a more equal footing with rival regional airlines and CP Air, and ended the government's direct regulatory control over Air Canada's routings, fares, and services. The act also transferred ownership of the carrier from Canadian National Railway to a subsidiary of the national government. Deregulation of the Canadian airline market, under the new National Transportation Act, 1987 officially opened the airline market in Canada to equal competition. The carrier's fleet expansion saw the acquisition of Boeing 727, Boeing 747, and Lockheed Tristar jetliners.
With new fleet expenditures outpacing earnings, Air Canada officials indicated that the carrier would need additional sources of capital to fund its modernisation. By 1985, the Canadian government was indicating a willingness to privatise both Canadian National Railways and Air Canada. In 1988 Air Canada was privatised, and 43% of its shares are sold on the public market, with the initial public offering completed in October of that year. By this time, its long-haul rival CP Air had become Canadian Airlines International following its acquisition by Pacific Western Airlines.
On 7 December 1987, Air Canada became the first airline in the world to have a fleet-wide non-smoking policy, and in 1989 became completely privatised. The successful privatisation effort was aided by a public relations effort led by company president Claude I. Taylor and chief executive officer Pierre J. Jeanniot.
In the early 1990s, Air Canada encountered financial difficulties as the airline industry slumped in the aftermath of the Persian Gulf War. In response the airline restructured its management, hiring former Delta Air Lines executive Hollis L. Harris as its CEO. Harris restructured the airline's operations, reduced management positions, moved the corporate headquarters to Dorval Airport, and sold the enRoute card business to Diners Club in 1992. By 1994, Air Canada had returned to profitability. The same year also saw the carrier winning route access to fly from Canada to the new Kansai Airport in Osaka, Japan. In 1995, taking advantage of a new U.S.-Canada open skies agreement, Air Canada added 30 new transborder routes. In May 1997, Air Canada became a founding member of the Star Alliance, with the airline launching code-shares with several of the alliance's members. The second half of the 1990s saw the airline earn consistent profits, totaling $1 billion for the 1997 to 1999 period. On 2 September 1998 pilots for Air Canada launched the company's first pilots' strike, demanding higher wages. At the end of 1999 the Canadian government relaxed some of the aviation regulations, aimed at creating a consolidation of the Canadian airline industry. That year, American Airlines launched a takeover bid of ailing rival Canadian Airlines, spurring Air Canada to submit a competing offer for its largest rival.
In January 2001 Air Canada acquired Canada's second largest air carrier, Canadian Airlines, merging the latter's operations into its own. As a result, Air Canada became the world's twelfth-largest commercial airline in the first decade of the 21st century. However, as Air Canada gained access to its former rival's financial statements, officials learned that the carrier was in worse financial shape than previously thought. An expedited merger strategy was pursued, but in summer 2000 the integration efforts led to flight delays, luggage problems, and other frustrations. However, service improved following Air Canada officials pledge to do so by January 2001. Following the difficult merger, the airline was confronted by the global aviation market downturn, and the challenge of increased competition, posting back-to-back losses in 2001 and 2002.
On 1 April 2003, Air Canada filed for protection under the Companies' Creditors Arrangements Act; it emerged from this protection on 30 September 2004, 18 months later. During the period of bankruptcy protection, the company was subject to two competing bids from Cerberus Capital Management and Victor Li. The Cerberus bid would have seen former Prime Minister Brian Mulroney installed as chairman, being recruited by Cerberus' international advisory board chair Dan Quayle, himself the former vice president of the United States. Cerberus was rejected because it had a reputation of changing existing employee pension agreements, a move strongly opposed by the CAW. At first, Air Canada selected Victor Li's Trinity Time Investments, which initially asked for a board veto and the chairmanship in return for investing $650 million in the airline. Li, who holds dual citizenship from Canada and Hong Kong, later demanded changes to the pension plan (which was not in his original takeover bid), but since the unions refused to budge, the bid was withdrawn.
Finally, Deutsche Bank unveiled an $850-million financing package for Air Canada, if it would cut $200 million in annual cost cutting in addition to the $1.1 billion that the unions agreed on in 2003. It was accepted after last-minute talks between CEO Robert Milton and CAW president Buzz Hargrove got the union concessions needed to let the bid go through. ACE Aviation Holdings became the new parent company under which the reorganised Air Canada was held. In October 2004, Canadian singer, Celine Dion became the face of Air Canada, hoping to relaunch the airline, and draw in a more international market after an eighteen month period of bankruptcy protection. She recorded her single, You and I, which subsequently appeared in several Air Canada commercials.
On 31 October 2004, the last Air Canada Boeing 747 flight landed in Toronto from Frankfurt as AC873, ending 33 years of 747 service with the airline. The Boeing 747-400 fleet was replaced by the Airbus A340 fleet. On 19 October 2005, Air Canada unveiled a new aircraft colour scheme and uniforms. A Boeing 767-300ER was painted in the new silver-blue colour, and the green tail was replaced with a new version of the maple leaf known as the 'Frosted Leaf.'
On 9 November 2005, Air Canada entered into an agreement to renew its widebody fleet with Boeing by purchasing 18 Boeing 777s (10 -300ERs, 6 -200LRs, 2 777 Freighters), and 14 Boeing 787-8s. It also placed options to purchase an additional 18 Boeing 777s and 46 Boeing 787-8s and -9s. All of the 777s will be powered by the GE90-115B engine, and the 787-8s, by the GEnx engine. Deliveries of the 777s began in March 2007 and deliveries of the 787s are to begin in the second half of 2013. As the 777s are delivered, and as the 787s are delivered, it will gradually retire all Boeing 767s and Airbus A330s.
On 24 April 2007, Air Canada announced that it has exercised half of its options for the Boeing 787 Dreamliner. The firm order for the Dreamliners is now at 37 plus 13 options, for a total of 50. This makes Air Canada the largest customer of the Dreamliner in North America and the third largest in the world (behind Qantas and All Nippon Airways). It also announced that it has cancelled orders for two Boeing 777Fs. In November 2007, Air Canada announced that it will lease an additional Boeing 777-300ER from ILFC. Air Canada has now taken delivery of the 18 Boeing 777s on order (12 -300ERs, 6 -200LRs) and still holds options for 16 more, totaling 34.
Air Canada has also taken delivery of 15 Embraer 175s and 45 Embraer 190s. It holds options on an additional 60 Embraer 190s. These aircraft are being used to expand its intra-Canada and Canada/USA routes. Additionally, some of the Embraer 190s will replace older A319/A320s.
Started in July 2006, and now completed, Project XM: Extreme Makeover, is a $300-million aircraft interior replacement project to install new cabins on all aircraft. New aircraft such as the Boeing 777 are being delivered with the new cabins factory installed. In Executive First, new horizontal fully flat Executive First Suites (on Boeing 767s, Boeing 777s and A330s). New cabins in all classes on all aircraft, with new entertainment options. Personal AVOD (8.9 in/230 mm touch-screen LCD) in Economy class (domestic and international) and Executive Class (domestic). Larger AVOD (12 in/300 mm touch-screen LCD) equipped with noise-cancelling Sennheiser headphones available in Executive First Suites. Interactive games at all seats in Executive and Economy; XM Radio Canada available at every seat. USB ports to recharge electronic devices and for game controllers; 120 Volt AC plugs in most seats, in both classes.
Since the late 2000s, Air Canada has been facing a number of financial difficulties, including the global recession, leading to speculation that it could file for bankruptcy, just several years after it exited bankruptcy on 30 September 2004.
President and CEO Montie Brewer was replaced by Calin Rovinescu effective 1 April 2009. Rovinescu became the first Canadian President since Claude Taylor in 1992. Rovinescu was Air Canada's chief restructuring officer during its 2003 bankruptcy, and he resigned that year after unions rejected his demands, and is reported to be "an enforcer".
Federal finance minister Jim Flaherty appointed retired judge James Farley, who had presided over Air Canada's 2003 bankruptcy, to mediate pension issues between the company and its unions and retirees. The contracts with four of its unions also expired around this time. The airline stated that its $2.85-billion pension shortfall (which grew from $1.2-billion in 2007) was a "liquidity risk" in its first-quarter report, and it required new financing and pension "relief" to conserve cash for 2010 operations. The company was obligated to pay $650-million into the pension fund but it suffered a 2009 Q1 loss of $400-million, so it requested a moratorium on its pension payments in 2009. The unions had insisted on financial guarantees before agreeing on a deal.
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