Air Canada given pension plan relief

OTTAWA—A move by Ottawa to help Air Canada deal with a $4.2-billion deficit in its pension plan gives the airline some breathing room as it works to launch a new discount service.
But the rules imposed on Air Canada in exchange for the relief may turn off other companies looking for the same help with their pension plans, which have been hurt by volatile stock markets and super-low interest rates.

“In the current low-interest rate environment, Air Canada’s pension solvency deficit funding payments would not be sustainable without the seven-year extension in place,” Walter Spracklin wrote in an RBC Capital Markets note.
“The funding cap allows Air Canada the ability to invest in new growth opportunities, including a fleet replacement plan with 37 Boeing 787s, which is set to further improve profitability and operating cash flows,” he added.
Air Canada is this country’s largest airline but it’s in stiff competition with WestJet Airlines—a far more profitable company over the past decade.
WestJet said yesterday that Air Canada should get no more special treatment from the government.
“We look forward to working with the government to create a level playing field and an environment that supports a healthy industry that benefits the travelling public,” WestJet chief executive Gregg Saretsky said in a statement.
In exchange for the pension relief, Air Canada agreed to rules that set limits on executive pay and prevent it from paying dividends to shareholders and buying back stock.
It is those rules that will make other companies think twice before asking Ottawa for help.
Canadian Pacific Railway, Canadian National Railway, Bell Canada, MTS Allstream, Canada Post, and NAV Canada had lobbied the federal government in hopes of gaining some measure of funding relief for their pension plans.
However, the railways and telecommunications companies pay regular dividends to shareholders, and any move to cut or eliminate them likely would anger shareholders.
Fred Hospes, president and directing general chairman of District Lodge 140 of the International Association of Machinists and Aerospace Workers, which represents workers at Air Canada, welcomed the limits on executive pay.
“I think the restrictions were required,” he said.
“Our membership has been frustrated for years with the bonuses that the executives of Air Canada have been receiving while the employees have been giving up wages and pension concessions,” he added.
Hospes dismissed notions the limits would hinder Air Canada’s ability to recruit top executive talent at the airline.
“At the end of the day, let’s be honest, these people are making a damn good living,” he charged.
In a statement, Finance minister Jim Flaherty noted Air Canada’s unions and retirees were supportive of the company’s request for help, adding that the “regulatory change is not costing Canadian taxpayers a single dollar.”