Air Canada Vs. Westjet Lawsuit

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FYI
Sort of reminiscent of AA employee getting into Legend's computer system, although I don't remember if that case went to court.

The gist of this is that AC alleges that Mr. Hill (Westjet management) spent an average of 1.5 hr over the course of several months accessing the AC site using the password from a former Canadi<n (AC) employee.

Westjet (Mr. Hill) filed a counter-suit against AC since he caught on a couple of occasions men in a pickup picking up his gargabe & recylables from the driveway of his home.


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Taken from The Globe and Mail
Forensic inspector to search WestJet files
Will look for documents related to rival Air Canada's claim of corporate espionage

By PAUL WALDIE
Friday, July 9, 2004 - Page B3


Executives at WestJet Airlines Ltd. are likely sitting on a pile of documents obtained through corporate espionage that should be turned over to a court as soon as possible, a lawyer for Air Canada told a court hearing yesterday.

Earl Cherniak, a Toronto lawyer representing Air Canada, said his client may seek more court orders prohibiting use of the alleged material once it has been released.

His comments came as an Ontario Superior Court judge finalized an injunction compelling Calgary-based WestJet to preserve all documents related to a lawsuit launched by Air Canada over the alleged spying. The judge also agreed to appoint a forensic inspector to sift through WestJet's internal e-mails and other documents to determine which are relevant to the case.

Air Canada is suing its rival along with two WestJet employees claiming they illegally accessed a confidential website that had information about the number of seats sold on flights at Air Canada and its subsidiary Zip.

During yesterday's hearing, Mr. Cherniak said investigators hired by Air Canada have pieced together shredded documents obtained from the garbage of Mark Hill, a WestJet executive and co-founder who is named in the suit.

Those documents "indicate that the defendants were making use on a considerable scale of the Air Canada information," Mr. Cherniak told the court. "We only have the tip of the iceberg."

WestJet has acknowledged its employees accessed the website, but it has insisted the information did not provide any competitive advantage.

Yesterday, David McDonald, a Calgary lawyer representing the airline, said WestJet is "more than happy to preserve all our records and allow for court-appointed inspection and allow production to the other side of anything relevant in this lawsuit."

However, he warned the court that sorting through thousands of e-mails won't be easy. "A company with over 4,000 employees has a large volume of e-mail," he said after the hearing. "It may be that we are just looking for a few needles in a haystack but you've got to look at the haystack in order to figure out what's in there."

One analyst warned investors that the information obtained by WestJet was potentially useful and the airline could suffer financially now that it has stopped accessing the Air Canada site.

"Based on our experience with the airline industry, we believe the information obtained by WestJet was potentially very valuable and could have allowed the company to better manage its seat inventory, thereby obtaining higher prices than it would have been able to otherwise," Claude Proulx, an analyst with BMO Nesbitt Burns, said in a report yesterday.

"Furthermore, we also believe that this information could have allowed WestJet to better plan its expansion and potentially deprive Air Canada of revenues by selectively lowering prices on some routes where Air Canada had difficulty selling its inventories."

Mr. Proulx noted that Air Canada's domestic traffic figures have improved substantially since WestJet stopped accessing the site last March while WestJet's have deteriorated significantly. That could be due to other factors, he said, but "investors should keep in mind that WestJet's profitability may have been artificially boosted in recent quarters, which could make coming quarters very challenging."

He lowered his second-quarter earnings forecast for WestJet based on other operational issues, including less than stellar passenger levels. And, he added: "Though it is difficult to quantify, we believe investors should keep a cautious stance toward WestJet in light of the lawsuit and the fact that past earnings may have been helped by confidential information to which it no longer has access."

As the lawsuit continued in court, Air Canada told its shareholders that their stock will be virtually worthless under its plan of reorganization. Chief executive officer Robert Milton said existing shareholders will receive "approximately 0.001 per cent of the fully diluted equity of [the new company]."

 

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The Toronto Star
July 15, 2004


WestJet CEO's halo tarnished
Beddoe's first hire, Mark Hill, resigns

DAVID OLIVE

Suddenly Clive Beddoe appears to have a character problem.

Consistently among the most respected Canadian CEOs in recent years, the co-founder of WestJet Airlines Ltd. has played the underdog role to near-perfection.

The folks at OPEC and the Weather Channel have yet to feel his wrath or ridicule, so far as we know. But long after Beddoe's 8-year-old airline had secured a reputation as one of the savviest carriers on the continent, he has continued to inveigh against the predations of Air Canada, the lunacy of upstart fellow discounter Jetsgo, the feds who imposed new security taxes after the 9/11 tragedy, and court rulings that denied WestJet favoured slots at Pearson International.

Seldom content to twit a rival, the former real estate developer typically jumps in with both boots. Early this year, Globe and Mail transportation reporter Keith McArthur invited Beddoe to shed a tear, a tiny droplet of sympathy, for bankruptcy-humbled Air Canada. Nothing doing. "They pursued a policy of destroying every competitor that come along," he said, "no matter what the cost to Air Canada." The idiots.

As for Jetsgo — or "Jetsgone," as Beddoe has dubbed his smaller rival since its inception — Beddoe dropped an anvil on the gnat in a New York investor presentation in February. "Jetsgo's on-time performance is appalling," claimed Beddoe, warming to his detailed indictment. "Their airplanes are filthy. Their pilots are desperate to get out. Morale is appalling. I don't think it's sustainable."

I met Beddoe once. He stepped into the editorial boardroom at the Star, with its view of the Toronto skyline, and promptly declared, "So, this is the centre of the universe." I thought he was joking, but his tone was sour. Eastern bastards.

Never mind that it was the Ontario Teachers' Pension Plan Board that lent priceless credibility to Beddoe's then-paper airline by taking up one-quarter of its mid-1990s private placement, since bolstered by an additional $100 million investment by Teachers in the airline. Or that another pillar of the Eastern financial establishment, Boston's Fidelity Investments, is WestJet's largest shareholder.

The chip on Beddoe's shoulder has served WestJet well. For years, a fawning press, including this reporter, has feasted on the irreverent views of a David from Cowtown pitted against a Montreal-based near-monopoly whose insensitive treatment of its customers and its own employees is boundless.

As with The Body Shop and Ben & Jerry's, the model of enlightened corporate stewardship that WestJet seemed to represent generated sufficient media accolades that the early WestJet got by on word of mouth and was largely spared the cost of traditional advertising.

Then came the airline's first test of moral character, and WestJet's upper echelon appears to have come up short.

By now you're familiar with Air Canada's allegation, in a lawsuit dating from April, that WestJet engaged in "corporate espionage on a massive scale" in tapping into one of its rival's internal Web sites to obtain sensitive data on the profitability of Air Canada's routes.

Lawsuits are inherently arcane. But certain elements of the saga leap out.

For bizarre business practices, Air Canada wins a special prize for maintaining a Web site of sensitive data to which thousands of current and former employees and retirees are granted access. Also curious is Air Canada's judgment in waiting several months after it began to suspect WestJet of spying on it before launching its lawsuit. And most entertaining is Air Canada's conscription of a B.C. gumshoe to collect the curbside trash of a Victoria-based WestJet executive, Mark Hill, in its search for evidence to build its espionage case.

Those same factors loom large in WestJet's self-defence. The data it monitored was widely available from other sources, it says. Air Canada waited to pounce because it ached for the opportunity to use the courts to smear its adversary, it says. And Air Canada's own unorthodox data mining in the upscale Victoria suburb of Oak Bay was, it suggests, the grubbier conduct in the affair — albeit a practice to which the likes of Procter & Gamble Co., Oracle Corp. and British Airways PLC have also reportedly resorted over the years.

Beddoe's dilemma is that revelations of rough-house behaviour by Air Canada surprise absolutely no one. But that WestJet is alleged to have tapped Air Canada's proprietary Web site more than 240,000 times is a bit of a shocker given the carrier's holier-than-thou image.

WestJet's defence of its conduct is in some respects disingenuous. Contending the data it acknowledges having accessed was of no competitive value, it leaves unanswered the question of why its executives were obsessed with monitoring it daily for the better part of a year. Or why it troubled to develop a software program to analyze data that did not belong to it. And why, if WestJet did not actually use the data, as it claims, there appears to be a correlation between WestJet's market-share gains during the period of its data-gathering beginning in March of last year, and a subsequent decline in WestJet's performance since it was forced to stop gazing intently at its rival's inner workings last winter.

On Bay Street, which has experience in knowing to expect the worst in such matters, WestJet shares lost more than 11 per cent of their value within a few days of the initial espionage allegations. They are currently trading at about one-third below their January peak.

The accusation of spying strikes at least one analyst as credible. "We note Air Canada's domestic traffic figures have improved substantially since WestJet stopped obtaining information from Air Canada, while WestJet's load factor deteriorated significantly," wrote analyst Claude Proulx of BMO Nesbitt Burns earlier this month.

Even analyst Cameron Doerksen of Dlouhy Merchant, still a WestJet booster, allowed that the airline's image has taken a hit because of "at the very least, some questionable behaviour — WestJet can hardly take the high moral ground any longer."

Beddoe was asked by the New York Times in January how he planned to maintain WestJet's underdog culture even as the carrier expects to more than double its employee population over the next few years. Beddoe said the carrier's continued success is "very much a function of who you hire and how intolerant you are of people who don't fit the culture."

As it happens, Beddoe's first hire was Mark Hill, who abruptly announced his resignation last night. WestJet is the brainchild of Hill, an aggressive young real estate leasing agent in Beddoe's office who studied Southwest Airlines and other discounters in the mid-1990s, and persuaded a reluctant Beddoe to make the leap from pilot of his own Cessna eight-seater to one of the four Calgarians to spearhead the first viable competitor to Air Canada in modern times. The name WestJet was conceived by Hill's mother, Moira, after the likes of Altius and Trekker were mercifully rejected.

It is Hill, self-described vice-president of strategic planning "and paranoia," as related in Paul Grescoe's recently published book about WestJet, who acknowledges obtaining the password to the Air Canada Web site from a WestJet financial analyst laid off by Canadian Airlines in its merger with Air Canada, but still entitled to book two free trips a year with his former employer until 2005. That employee, it bears noting, immediately sought some kind of indemnification from WestJet should any legal problems arise from his actions.

In a sworn affidavit, Hill also revealed that it was Don Bell, another WestJet co-founder and vice-president, and a software entrepreneur in a previous life, who conscripted a colleague from WestJet's computer department to develop the software program for rapidly analyzing the treasure trove of data on the Air Canada Web site.

In the press release announcing Hill's resignation last night, WestJet said that "in view of the current circumstances, WestJet has accepted Mr. Hill's resignation."

A few years ago, Beddoe in an oddly high-profile manner, aborted Steve Smith's brief tenure as WestJet's CEO, explaining loudly that Smith lacked the consensual skills required in an employee-friendly firm where the executive lair at headquarters is labelled Big Shots and HR is the People Department. It was Smith, landing on his feet as head of Air Canada's WestJet fighter, Zip, who first alerted Robert Milton of his suspicions that WestJet was a Peeping Tom at the Air Canada Web site.

There is the scent of mere mischief and not almighty vengeance in Air Canada's legal gambit, in which Milton has wisely delegated the trash talking to his firm's lawyers. Given the industrial voyeurism to which WestJet has already confessed, Milton appears to have made his point. The hitherto sainted WestJet will have some difficulty explaining that there is not, in fact, a seamy side to its culture, residing quite tolerably at the top of the organization.