Canadian Kickbacks

When he took over as chairman of the government-owned Air Canada in 1968, Yves Pratte was a highly respected lawyer in Quebec and a close friend of Prime Minister Pierre Trudeau. Last week Pratte was a fallen man, his reputation tainted by scandal and charges of ineptitude. In a bitter letter of resignation, he left no doubt that even Trudeau wanted him to go.

Soon after Pratte became chairman, he forced out Air Canada's "Scottish Mafia"--the key executives who had developed the company's profitable foreign routes (to the U.S., West Europe, Japan and Hong Kong) and ran the line with brisk proficiency. To take their places, Pratte appointed people with political connections but little airline experience. Results: Air Canada's flights, once renowned for their crisp punctuality, were constantly delayed, and ground crews regularly managed to lose luggage--including, on two occasions, Pratte's own bags.

The airline, which turned a profit of $6.1 million in 1973, lost $9.2 million last year. Pratte could explain the losses as at least partly due to the rise in fuel costs. But last April, Elmer MacKay, a Tory Member of Parliament, revealed that one of Pratte's appointees, Marketing Vice President Yves Menard, had authorized a curious payment of $100,000 as a "consultant's fee" to one of Montreal's top travel agents. The fact that Menard had resigned under pressure two months earlier did not prevent a scandal from growing, so the Canadian government asked Ontario Court of Appeal Judge Willard Estey to look into the airline's performance.

In two months of hearings, Estey turned up damaging evidence. Menard's $100,000 payment, for example, was explained as "seed money" for investment in a national chain of travel agencies. It had been disguised because both Air Canada's charter and international airline rules forbid the airline to invest in travel agencies; that could give it preferential treatment in ticketing passengers. Menard also was found to have given special "expense accounts" to Lebanese officials in an unsuccessful attempt to obtain landing rights for Air Canada in Beirut.

Regular Payoffs. Though Pratte was known to have had a hand in almost all airline decisions, down to the choice of the plastic forks for in-flight meals, he insists that he knew nothing about Menard's actions--and the evidence supports him. Yet last month Tory M.P. MacKay documented charges that the airline had been regularly paying off Canadian travel agents' "fraudulent" commission claims. What he means is illegal kickbacks on tickets. Pratte's reluctant resignation soon followed.

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