Air Canada head Calin Rovinescu spearheaded a lobbying push through the fall and winter as the airline sought relief for its massive pension deficit – an effort that included face-to-face meetings with Finance Minister Jim Flaherty, Bank of Canada Governor Mark Carney and Nigel Wright, chief of staff for Prime Minister Stephen Harper.
In a spurt of lobbying from August through January, Air Canada executives, including Mr. Rovinescu, president and chief executive officer, met with Ottawa officials 12 times to discuss pensions, compared to only four formal meetings on the pension issue in the year prior, an indication of how critical that pension relief was to the airline.
Without an agreement to gain breathing room to whittle down its $4.2-billion pension deficit, the airline would have faced a financial crisis, with the company’s long-term solvency in doubt.
On Tuesday, Air Canada got that breathing room, securing an arrangement in which it only has to contribute an average of $200-million a year over seven years toward that deficit, in addition to its regular ongoing payments. Air Canada expects to pay $471-million into its employee pension plans this year.
The Conservative government on Tuesday portrayed the new deal as setting tough conditions on Air Canada, including stipulations limiting executive compensation and special bonuses.
Competitor WestJet Airlines Ltd., which has a very different pension structure based on share purchase plans rather than Air Canada’s more traditional pension packages, opposed the arrangement. “While we recognize this has been a difficult decision for the government, we are disappointed with this announcement,” said WestJet president and chief executive officer Gregg Saretsky.
“We are supportive of a strong and competitive aviation industry in Canada. To that end, we trust this marks the end of special treatment for Air Canada as such treatment at the expense of other industry players has become too common,” he added in a written statement.
Air Canada’s unions supported the announcement even though they have conceded more than $1-billion in reduced pension benefits in the last round of contract talks to help ease the airline’s pension burden.
“We knew that this needed to be done. And whether that was in our contract or not, the pilots’ association supported and recognized that there had to be some kind of funding relief provided, because the regulations that are in place today just don’t account for the low-interest-rate regime that we’re in,” said Craig Blandford, the association’s president and an Air Canada captain.
Air Canada’s biggest unions, including the Canadian Auto Workers, the International Association of Machinists and Aerospace Workers, and the Canadian Union of Public Employees met with Mr. Flaherty on the pension issue at various times during the past 18 months, CAW president Ken Lewenza said Wednesday.
The most recent meeting was about six months ago, Mr. Lewenza said. “He called in all the unions at our request and asked some pretty tough questions about alternatives, asked questions about long-term liabilities, asked us what we intended [to do],” Mr. Lewenza said. The unions told Mr. Flaherty about changes they agreed to with the airline, including raising the age of eligibility to retire, he said.
The terms granted to Air Canada were close to what the carrier had sought. The carrier currently has a five-year regulatory arrangement, which expires at the end of the year, allowing for limited pension deficit payments. Air Canada was hoping for a further 10-year reprieve. It was granted seven years instead. The hope is that interest rates will rise to help erase the low pension investment returns.
Documents obtained by The Globe and Mail under Access to Information show two briefing notes on Air Canada’s pension plans were prepared for Mr. Flaherty in December – one on Dec. 3 and another update memo on Dec. 14.
Other records show Air Canada has been in frequent contact with the highest level of officials over the past year in connection to the pensions file. Earlier this year, Air Canada’s CEO discussed pensions with Transport Minister Denis Lebel and Louis Lévesque, the deputy minister of transport. Mr. Carney appears in the registry as having met with Air Canada to talk pensions on Nov. 13. The Bank of Canada declined to comment on specifics of the meeting.
The federal lobbyist registry also shows that Mr. Wright, Mr. Harper’s chief of staff, met with Air Canada on Dec. 14 to discuss pensions. The Prime Minister’s director of communications, Andrew MacDougall, said officials of the Prime Minister’s Office regularly meet with government stakeholders on a range of policy matters.
“There is absolutely no conflict,” he said, in response to a question about Mr. Wright and his connections to Onex Corp., which tried to acquire Air Canada in a failed hostile takeover in 1999. Foreign Affairs Minister John Baird is also listed as having met with Air Canada to discuss pensions and other issued on Jan. 7.
Mr. Baird’s spokesman, Rick Roth, stated in an e-mail that the federal government only agreed to Air Canada’s request after including “tough new conditions that will ensure executives are part of the solution.”
Mr. Roth added that “this request was unanimously supported by Air Canada, its unions and its pensioners. This regulatory change is not costing Canadian taxpayers a single dollar.”
Air Canada’s pilots’ association noted that the airline’s employees also shared the burden, such as the pilots’ union giving up $321-million worth of pension benefits in its latest ècontract. That was essential, said the association’s president Mr. Blandford, if Ottawa was to grant more regulatory assistance to Air Canada, beyond the current arrangement that started in 2009 and expires in January.
In 2009, “Minister Flaherty made it clear that we needed to review our own benefits, that we needed to help make our pensions less volatile and more secure ourselves, that we had to contribute more. We had to do something to help with the problem. It couldn’t just be the government coming in and helping,” Mr. Blandford said.