Former airline - and a canal (6)
I believe the answer is:
panama
'canal' is the definition.
I can't explain the rest of the clue.
Can you help me to learn more?
(Other definitions for panama that I've seen before include "Headgear for a canal" , "Great American canal or tropical hat" , "Central American country" , "Hat woven from jipijapa leaves" , "Hat; Central Am. canal" .)