'Come together' for Air Canada, CEO urges

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Calin Rovinescu is urging Ottawa, commercial lenders and labour leaders to unite in support of Air Canada, saying the money-losing airline needs their help for the carrier to return to financial health.

The Air Canada chief executive officer wants Ottawa to relax rules on pension funding; he's counting on commercial lenders for much-needed injections of cash; and he hopes unions will agree to contract concessions.

"We just have to weather the storm during this recession, and come out of it very strong. But I can't wave a magic wand and make it happen. It will require a lot of things to come together," he said in an interview yesterday.

Mr. Rovinescu, who became CEO on April 1, made the remarks after the country's largest carrier announced that its first-quarter loss widened by 39 per cent to $400-million as business travellers sharply scaled back their flying or switched to economy class. Last year, the Montreal-based carrier lost $1-billion amid high fuel prices and a weak economy that eroded travel demand.

"The recession is tough but that's when you actually have to be the most creative. You can't just simply stick your head in the sand and hide," Mr. Rovinescu said, noting that even government agencies on the federal and provincial level could play a supporting role in lending money to the carrier.

He cautioned that Air Canada expects a weak economy for the rest of year, but insisted the airline still has numerous options open and it's premature to talk about another filing for bankruptcy protection. The carrier emerged from court protection from creditors in 2004.

Air Canada had $1.09-billion in cash at the end of March, and needs up to $1.3-billion in cash by the end of June to avoid breaching credit covenants.

"Air Canada is currently in negotiations to ease the terms of this agreement" on covenants for credit card processing, "but there is no guarantee that a new deal will be reached," Versant Partners Inc. analyst Cameron Doerksen said in a research note.

The airline expects its seat capacity will shrink between 4 and 5 per cent this year, compared with its previous estimate of a reduction between 2.5 and 3.5 per cent.

Mr. Rovinescu said the recession has been long and unrelenting, but to help fill more seats, he is examining getting rid of some "customer-unfriendly" policies, including selected extra fees.

"We think that the customer needs to be re-engaged," he said after the company's annual meeting in Montreal. "We know what our competition is doing and, frankly, we have to do a better job for our customer to re-engage with him."

As Air Canada's six-year labour contracts expire on May 31 and June 30, the carrier is seeking pension relief from Ottawa and concessions from unions. The carrier's pension solvency deficit has been revised to $2.85-billion from the previous estimate of a $3.2-billion shortfall.

Mr. Rovinescu said the airline has contributed $1.7-billion toward its pension plan since 2004, emphasizing that he wishes to preserve the defined benefit plan and not gut it, as some labour leaders have worried might happen.

Prominent red letters and a red logo formed the backdrop at the hall where yesterday's annual meeting was held.

"The return to red in our marketing communications defines and communicates who we are," Air Canada chief commercial officer Ben Smith said in a recent message to staff, noting blue would no longer be the dominant marketing colour.

The patriotic red theme is also a nod to Mr. Rovinescu, who is the first Canadian to head the airline since 1992, when Claude Taylor was in charge.

Despite Mr. Rovinescu's message about revival, Air Canada's stock price tumbled 26 per cent yesterday on renewed concerns about the cash crunch, pension deficit and potential labour strife.

AIR CANADA (AC.B)

Close: $1.33, down 47¢

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Air Canada

Source: company reports