Pension woes are back at the top of Air Canada’s concerns as the carrier seeks a new reprieve from retirement funding to avert a looming financial crisis.
Faced with a cash crunch in 2014, the country’s largest airline is preparing to ask Ottawa for another moratorium on company contributions to pensions, and to request other measures to ease the pressure.
“It is of critical interest for the company to gain that relief now, thereby assuring its long-term solvency,” arbitrator Michel Picher said in a ruling that imposed a five-year contract on International Association of Machinists and Aerospace Workers.
He chose Air Canada’s final contract offer over one proposed by the IAMAW, but emphasized that the union is backing management’s efforts to pressure Ottawa for further pension payment breaks.
The carrier’s pension payments are forecast to soar in 2014 because a cap on contributions previously negotiated with unions and approved by the federal government will lapse at the end of 2013.
“The viability of the company and to a substantial extent, the viability of the pension plan, essentially depend on the granting of an extension of that pension fund relief, hopefully for a period of not less than 10 years beyond 2014,” Mr. Picher said.
As an incentive to secure the IAMAW’s support for lobbying Ottawa, management agreed to remove a 3-per-cent reduction on survivor pension benefits in the company’s final offer.
The new collective agreement has improvements for workers, building on the tentative pact rejected by IAMAW members in February, Mr. Picher said. Hundreds of IAMAW members staged a 14-hour wildcat strike in March.
“The willingness of the company to restore that pension benefit was clearly made contingent on the parties being successful in their joint ventures to the federal authorities for an extension of the pension funding relief beyond 2014,” Mr. Picher wrote. “Should that relief not be obtained, grave existential questions will arise with respect to the future of both the pension plan and of the company itself.”
In 2009, Air Canada secured a 21-month moratorium on past service contributions on pension funding, but the carrier estimated last year that it will be on the hook in 2012 for $359-million in past and current service contributions, followed by further funding obligations of $412-million in 2013 and $550-million in 2014.
The Montreal-based carrier’s pension solvency deficit stood at $2.1-billion on Jan. 1, 2011, and analysts expect the airline to report a sharply higher deficit for Jan. 1, 2012. “Economic events of the last few years, including the recession of 2008 and a fiscal policy that has consistently favoured low interest rates, have in fact led to a significant growth in the pension deficit,” Mr. Picher said.
The 8,600-member IAMAW represents mechanics, baggage handlers, cargo agents, aircraft cleaners and electricians. Under the new contract that runs until March 31, 2016, existing employees will stay on defined benefit plans, but new hires will be placed on a less costly pension program.
PI Financial Corp. analyst Chris Murray said the wage increases in the deal are in line with his expectations, ranging from 2 to 3 per cent annually. The previous contract expired on March 31, 2011.
Mr. Murray said newly hired workers going into an IAMAW-sponsored multiemployer pension will enter plans that are defined benefit in name, but similar to defined-contribution programs.
Arbitrator Douglas Stanley is expected to issue his decision by the end of July to resolve a contract impasse with the Air Canada Pilots Association. Pilots say they are opposed to management making plans for a low-cost carrier that would violate contract rules by having others do the flying without the union’s consent.