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After its first full year since emerging from a humiliating 18 months of bankruptcy protection, Air Canada found itself with an embarrassing problem on its hands: $300 million.

Having a wad of cash is an anomaly in North American aviation - at least for the so-called full service carriers like Air Canada.

The Montreal-based airline distinguished itself among the continent's aviation industry for its strong balance sheet. It accumulated $361 million in net profits in the first nine months of 2005, while most other carriers have fallen into bankruptcy protection, teeter on the brink, or have just emerged.

That was achieved despite a year that continued to be tough for the industry as a whole, mainly as a result of soaring fuel prices, the second-largest cost for an airline.

Calgary-based WestJet Airlines (TSX:WJA) also posted strong profits in 2005, but Air Canada's discount rival has been a consistent money-maker anyway, thanks to its low cost base.

Besides churning out profits, Air Canada's parent company ACE Aviation Holding (TSX:ACE.B) raised $287.5 million when it sold 14.4 per cent of its customer loyalty program Aeroplan (TSX:AER.UN) in an initial public offering in June.

There are more spinoffs coming, to provide more cash for ACE and boost its stock values.

ACE announced Nov. 28 it will turn the Jazz regional carrier into an income trust.

This will be followed by an initial public offering for Air Canada Technical Services (ACTS), its maintenance arm that has captured third-party aircraft overhaul contracts.

«The year kicks off with the efforts on Jazz,» Milton said in an interview.

«ACTS remains a focus which looks to be about a year away as it develops its own independent financial statements,» he said, noting that Aeroplan's and Jazz's separate bookkeeping eased their spinoff.

«The other key focus obviously is Air Canada,» Milton said. He pointed to new Embraer aircraft being added to the fleet and onboard amenities being installed such as seats that drop into beds for overseas flights and video screens on the back of every seat.

Milton even bragged that discount carriers like WestJet and Southwest will have to watch out for the mainline carriers coming out of bankruptcy with a lower cost base.

Karl Moore, professor of business strategy at McGill University, agreed that the cost difference between the two Canadian carriers has been cut dramatically.

Jazz will up the competition with its new Canadair and Embraer jets coming into service, and in addition, WestJet is starting to face problems typical to any growing company.

«WestJet is facing a more competitive Air Canada,» Moore said; «but on the other hand they have a good culture and a good CEO in Clive Beddoe.»

«Can they continue to maintain their culture in the face of a much bigger employee base? The Southwest (Airlines) example suggests you can.»

Air Canada's surplus cash is something of an embarrassment because ACE shareowners voted to allow ACE to distribute the money to its investors.

The airline's 32,000 employees, who took pay cuts to help the airline get back on its feet, feel they are owed part of that money.

Paying the post-bankruptcy shareholders - concentrated in a few large institutions - also rubs salt in the wounds of thousands of original Air Canada investors who lost their shirt when the company sought court protection.

CEO Milton loves to crow about his airline's performance and he makes no apology that the shareholders should be rewarded.

He said airlines that treat their shareholders well also do well for employees.

Milton claims the North American industry has only one example - Southwest Airlines - where shareholders have done consistently well, and where «employees have the best existence in the industry at this stage.»

«Every other example I could give you is one where shareholders have done badly and the employees have done disastrously.»

Aside from more stock issues for ACE assets, there will be more changes in store in 2006 for Canadian aviation:

-Coming into effect in September, 2006, a new clause in the Open Skies Agreement will allow carriers from Canada and the United States to pick up people and goods in the other country and move them to third countries.

-The year will also see more court hearings into allegations of corporate espionage by WestJet and Air Canada against each other.

-WestJet announced it will complete in 2006 a new reservation system that will allow it to make alliances with other airlines.

-The International Air Transport Association predicts another difficult year for the world's airlines, with a return to improved profits only in 2007 following six years of heavy losses - depending on the price of fuel.

- This also may be the year Milton decides he wants a different challenge.

A fighter by nature, he fought off a takeover bid by Onex Corp., took over bankrupt Canadian Airlines, suffered through the effects of the 2001 terrorist attacks, and kept Air Canada going through 18 months of bankruptcy protection.

With all the challenges behind him, he told a news conference after the annual meeting in November: «This long ago ceased to be much fun.»

«Sooner than later, I look forward to riding off into the sunset.»