MLA questions N.W.T.'s bailout of Discovery Air

Questions are flying about the Northwest Territories government's move this week to give a crucial $34-million loan to Discovery Air.
Discovery Air owns several niche aviation companies, including Great Slave Helicopters and Air Tindi in Yellowknife. (CBC)
Questions are flying about the Northwest Territories government's move this week to make a crucial $34-million loan to Discovery Air, with one MLA suggesting the government fund where the loan came from has turned into a high-risk slush fund for cabinet.

Discovery Air, the parent company of Yellowknife-based aviation firms Great Slave Helicopters and Air Tindi, announced Monday it received the loan from the N.W.T. government's Opportunities Fund.

Without that money, officials say the company — and hundreds of jobs in the N.W.T. — would have been in jeopardy.

"We're replacing a debt — a $33-million debt — that was coming due on Feb. 1," vice-president Chuck Parker told CBC News.

"Without renewing that debt, of course, we would have a great deal of uncertainty for our company and for our employees."

As part of Monday's announcement, Discovery Air said it will move its corporate office to Yellowknife from London, Ont., in the next year. It also promised to move its helicopter training school to the N.W.T. capital from Springbank, Alta.

But those benefits may be moot, said Yellowknife Kam Lake MLA Dave Ramsay.

"If the helicopter school moves here, yes, we'll benefit. If the head office moves here, yes, we'll benefit. If Discovery Air goes bankrupt six months from now, we will not benefit," Ramsay said.

Debt a concern

Discovery Air also owns Hicks and Lawrence, which provides aerial forest fire services in northwestern Ontario; Top Aces Inc., which provides airborne training services to the federal Defence Department; and Discovery Mining Services, a provider of remote mining exploration camps.

Discovery Air vice-president Chuck Parker says the company would have 'a great deal of uncertainty' without the government loan. ((CBC))

Parker said it also has joint ventures with aboriginal-owned companies throughout the N.W.T. and in Nunavut.

Discovery Air's $33-million debt, paired with a drop in business, has been a continuing concern for the company, according to interim financial statements dated Oct. 31, 2008.

"In the current year, the corporation has experienced lower profitability than anticipated in certain of its operations due to the unfavourable weather conditions and lower demand for certain services provided to customers in the exploration, mining and tourism markets," say notes from the statements.

Parker said even Pacific and Western Bank of Canada, Discovery Air's founder, was in no hurry to lend the money that the government was offering.

"We have reached out to that bank [and] other banks for the loan, and this presented [itself] as the most appropriate, fair deal," Parker said of the N.W.T. loan, adding that it will also be a good deal for the N.W.T. Opportunities Fund.

The loan will charge 10 per cent in annual interest.

"At 10 per cent rate of return on this, that will generate — full term, 48 months — $13.6 million worth of interest for the loan fund," Parker said.

Balloon payment

The loan is repayable in "one balloon principal amount," meaning Discovery Air does not need to make payments until the loan is due.

Parker said the company does have the option of making payments during the 48-month period to avoid having to pay it all off in the end.

"I want to know who negotiated the loan on behalf of the [Government of the Northwest Territories]," Ramsay said.

"It's a balloon payment at the end of four years. No interest payments along the way."

Industry, Tourism and Investment Minister Bob McLeod said the loan is backed by hard assets — "something in the neighbourhood of $40 million worth of securities," he said — and more than 400 northern-based jobs will be saved at a time when the economy needs help.

"We see it as a good investment for the government," McLeod said.

"We're getting a very good return on our money and at the same time we are investing in northern businesses and we're keeping the economy going. That's how we looked at it."

McLeod also said the government has been thinking of moving "into an area whereby we would invest in … what we call blue-chip companies, with fairly quick repayments."

"Blue chip" usually refers to large, stable, long-profitable firms like banks.

Discovery Air owes more than $100 million in long-term debt, while the stock market values the company at just $47 million.

When the company made its initial public offering in 2006, each share was valued around 50 cents. Its stock on the Toronto Stock Exchange late Friday was at 40 cents.

'Is it a coincidence that they got the loan?'

Yellowknife MLA Dave Ramsay says he and other non-cabinet MLAs did not know about the loan until after the fact. ((CBC))

Ramsay said there may be another factor behind the N.W.T. government's loan: Discovery Air insiders and major shareholders own or control about 57 per cent of the company, and some of those insiders, he said, have close connections or friendships with people in the government.

"People know who's friends with who, and you know, it happens that way that in this case ... there's the chair of [the Financial Management Board], the finance minister, yeah, he has friends inside that company," Ramsay said.

"I mean, is it a coincidence that they got the loan? I don't know."

Ramsay added that he and other non-cabinet MLAs were left in the dark about the government's decision to give Discovery Air the loan.

"Unfortunately, the public sees it as the government lending the money," he said.

"I just want people to know this was an [Financial Management Board] directive to lend the money to Discovery Air. At no time did regular members know about it, and we found out after the fact."

Parker acknowledged he has a friendship with Finance Minister Michael Miltenberger, who is also chairman of the Financial Management Board. He said he and Miltenberger were present when Discovery Air made its request for a loan to the government on Nov. 27, 2008.

"As a company, we made a presentation to a group, ministers and delegates of the government, and we believe that the arrangement that was put forward and the application had merit," he said. "Acquaintances or no acquaintances, the deal has to stand to scrutiny."

As for Discovery Air's future, Parker said about half of its business is already booked for the next year, while it also seeks new opportunities in northern Ontario and in Alberta.

With files from Lee Selleck