Canada launches loan program to help airlines deal with high fuel prices

Airlines worldwide are reeling from ‌skyrocketing jet fuel prices caused by the Iran conflict, which is eroding margins, straining balance sheets and threatening future operations.

That pressure has prompted governments to consider extending support to their domestic carriers, aiming to keep airfares affordable and preserve competition.

Under the loan program, the Canadian government will offer eligible airlines up to C$150 million ($107.5 million) in repayable liquidity support, it ⁠said, adding that carriers taking advantage of the program would have to restrict executive compensation and maintain their domestic operations.

Governments, however, face a delicate balancing act as they also seek to protect the free market.

Canadian carrier WestJet opposed Ottawa's proposal to issue loans to airlines, urging the government instead to help build a sustainable future for the country's aviation industry rather than "continue with costly and market-distorting subsidies."

"The United States, our direct competitor, has deliberately stayed away from bailing out airlines in the spirit of fair and level playing field competition," Onex Corp-owned (ONEX.TO) WestJet said.

A spokesperson for Canada's finance ‌minister ⁠said the facility provides "immediate and specific liquidity support" to the country's aviation sector amid an unprecedented global fuel shock, and was crafted after discussions with every airline.

When asked about the government's loan program, the country's largest carrier, Air Canada, said it "has a very strong balance sheet built in anticipation of events such as ⁠the recent spike in fuel prices and we are able to adapt in response and manage this situation."

In the U.S., Transportation Secretary Sean Duffy said last month that he did not believe the government needed to bail out ⁠low-cost carriers that had sought $2.5 billion in relief, urging the airlines instead to turn to the private market.

The jet fuel crisis claimed its first casualty in May after U.S. low-cost carrier Spirit ⁠Airlines ceased operations.

S&P Global Ratings on Monday downgraded U.S. carrier JetBlue's (JBLU.O) credit rating further into junk territory as losses mounted due to the sharp spike in fuel costs.

($1 = 1.3947 Canadian dollars)