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File photo of Air Canada president and CEO Calin Rovinescu.Fred Lum/The Globe and Mail

Air Canada CEO Calin Rovinescu is Report on Business magazine's pick for top leader of 2013.

It is still dark when we hit the gravel trail. As we make our way around the Lac des Castors pond, the wind tears away at the last leaves of a summer gone too fast. Only our crackling footsteps on the frozen ground break the silence.

By the time we reach the long staircase that flanks Mount Royal, Montreal is lazily waking up to a cold and sunny day. There are 260 steps, and Calin Rovinescu is climbing to the top, two stairs at a time.

The president and CEO of Air Canada is not the fastest runner, he concedes between two winded breaths. But you can tell the 58-year-old executive wants to stay ahead of his jogging buddies—Fednav Group CFO Paul Setlakwe and Norton Rose Fulbright senior partner Pierre Bienvenu—as we go up and down three times, breaking only for sets of push-ups that he instructs me to do in a tone that brooks no argument. Even if this is no race, the high-flier Rovinescu is going to win.

That he is an über-competitive hard-ass is the one thing his friends and detractors agree on. Testament to that is Air Canada's turnaround. The airline is the comeback story of 2013. Its stock skyrocketed 277% between the start of the year and Nov. 11—although it remains a far cry from its 2006 IPO price of $21. Among North American airline stocks, only American Airlines' pink-sheet-listed shares have fared better, with a return above 1,000%. While all airline shares have gone up, up and away, thanks to high demand for air travel, Air Canada's ascent rests on the belief that the country's biggest airline has finally got its act together.

The contrast with 2009 is glaring. When Rovinescu became CEO, Air Canada was a plane crash waiting to happen. The financial crisis had morphed into a global recession. Plunging oil prices provided no relief. The airline's hands were tied by fuel contracts signed in the fear that crude would spike past its 2008 summit of $147 (U.S.) a barrel—a $400-million mistake.

But it was the sharp drop in equities and basement-level interest rates that almost drove Air Canada back into creditor protection for the second time in six years. Had the airline gone belly-up, it would have had to scramble to find the $2.9 billion required to ensure the pensions of its employees and retirees.

Air Canada lost patience with then-CEO Montie Brewer and asked Rovinescu, former CEO Robert Milton's right-hand man during the 2003-2004 restructuring, to replace him. He started on April Fool's Day, 2009, and many of his friends thought he was the biggest fool of them all to leave Genuity, the investment bank he co-founded with dealmaker David Kassie. "It was impossible for me to pass this up," says Rovinescu.

"For me," he adds, "Air Canada was never just another company."


Unlike Robert Milton, who, at age 10, decided he would preside over an airline after watching a Pan Am 747 glide over Brussels, Rovinescu is no aviation buff. When Milton first mentioned a wide-body to him, he imagined a bulky guy, not a twin-aisle airplane.

But Rovinescu's career is intertwined with Air Canada's history. At 31, the Stikeman Elliott lawyer became lead external counsel on the airline's privatization, completed in 1988. It wasn't the biggest deal he had worked on, but it made him a sought-after expert. As he puts it, it was a "defining moment."

The Air Canada work kept coming. In 1992, he advised the airline when it sold its courier service, Gelco Express, and its enRoute credit card, and again when it tried, but failed, to acquire Canadian Airlines. In 1999, he also helped Milton fend off a hostile takeover by Onex Corp. By 2000, he was so indispensable that Milton asked Rovinescu—then a managing partner at Stikeman—to join the airline.

Any expectation the drama would abate vanished with the deflating tech bubble, the 9/11 terrorist attacks and the SARS outbreak. In 2003, Air Canada hit a wall. Faced with slowing revenues and a debt of nearly $13 billion, inherited largely through its eventual acquisition of Canadian Airlines in 2001, the company sought bankruptcy protection.

As chief restructuring officer, Rovinescu did most of the dirty work. But he threw in the towel in 2004, when the $650-million investment he had brokered with Victor Li's Trinity Time Investments collapsed. The deal-breaker: Li had requested that Air Canada's new hires receive cheaper defined-contribution pensions. For the union employees, who felt they'd already made huge sacrifices in the restructuring, this was the last straw. In his letter of resignation to Milton, Rovinescu compared the trying negotiations to "playing full-contact, multidimensional chess in a fishbowl."

As painful as this was, the restructuring experience gave Rovinescu a clear idea of the "unfinished business" he had to tackle when he returned five years later. "I hit the ground running," he says.

Flash-forward four years, and Rovinescu has transformed the legacy carrier. He is overseeing the international expansion of the airline with new, fuel-efficient Boeing 777s and 787s. And he launched Rouge, a leisure carrier that could operate up to a quarter of Air Canada's fleet using the main line's older planes. New labour contracts that cut Rouge crews' wages are a key factor in the company's turnaround, according to National Bank Financial analyst Cameron Doerksen. Rouge's cost per available seat mile, a widely used industry measure to compare airline costs, will fall by 21% to 29%, depending on the aircraft.

"It takes a great entrepreneur to start a business with a clean sheet of paper, but it takes enormous entrepreneurial talent to convert a 75-year-old company into something that is entrepreneurial," says Rovinescu. And yes, he's talking about himself.

Despite the 13% increase in capacity since 2009, the company's load factor—the percentage of available seats that are filled—hit a company record of 82.7% last year. The momentum is still there, with an 83.6% load factor in the first nine months of 2013.

This has translated on the company's bottom line. Air Canada recorded a net income of $131 million in 2012, its first profit in five years. And profits in the second quarter were the highest for that period in the company's history. Those strong results have allowed the company to refinance $1.4 billion in debt at lower rates. Its adjusted net debt (a homemade accounting measure) has dropped by roughly $1.5 billion since 2009, and stood at $4.1 billion on Sept. 30.


Air Canada's turnaround is not winning unanimous support, however. It is straining the airline's already contentious relationship with its 27,000 employees—still on shaky ground from when Rovinescu led the restructuring. "He was the Gretzky from the other team that you just hated because he was very effective at putting the puck in your net. And now he was playing for our team," says Captain Craig Blandford, president of the Air Canada Pilots Association.

The labour situation did not improve when, in 2011, the Conservatives threatened Air Canada's service agents with back-to-work legislation to force a deal. On three other occasions, Ottawa intervened to prevent walkouts, sparking wildcat strikes.

"Calin turned the company around to some extent and delivered value to shareholders, but employees have contributed to that enormously, and that hasn't been recognized," says Paul Moist, national president of the Canadian Union of Public Employees, which represents Air Canada's 7,000 flight attendants. "Talk to any flight attendant and they will tell you their interests have been put at the back of the plane," he adds.

"We can take much comfort in the fact that the airline is in a better position than it was a decade ago," says Blandford. "But the relationship with the employees must be rebuilt, or the corrosive effect might act as a long-term drag on performance."

Rovinescu is unfazed by the criticism. If employees were so unhappy, he argues, it would show, and consumer research firm Skytrax would not have named Air Canada best international airline in North America four years straight. Says Rovinescu: "It ain't so bad."

"We did what we said we would do," he adds. "We preserved the pensions."

While rising interest rates have worked wonders—the lower the discount rate, the more money a company is required to set aside for its retirees—Air Canada would still be in a precarious position had Rovinescu not wrestled with the unions in 2011 and 2012 to reduce pension costs by $1.1 billion. Those contracts opened the door to defined-contribution pension plans—a key factor in persuading Ottawa last spring to give the airline another break on its pension deficit. Finance Minister Jim Flaherty has now agreed to spread out through 2021 the extra payments Air Canada must make to fill its pension hole, which sat at $1.7 billion in June (and analysts estimate it has since fallen even more).

Air Canada is now basking in the unfamiliar glory of being a stock darling. Peter Letko, a partner at Letko Brosseau & Associates, has amassed 19% of its B shares since 2009. He believed Air Canada and other airline stocks were undervalued—a call that was hotly debated at his Montreal investment firm. Air Canada was one of his best picks, along with British carrier easyJet. "Obviously, the cycle is important, but without leadership, there is a lack of focus. So you got to give Calin the credit," he says.

But Air Canada's new popularity has been a long time in the making. "That is not because of what Calin did in 2013 as much as what he did in the past four years," points out David Kassie, now group chairman at Canaccord Genuity.

The groundwork for the turnaround goes back to Rovinescu's first months as CEO. At the time, he says, "our number one objective was survival." Internally, few executives believed Air Canada could make it without another devastating restructuring.

Rovinescu compares the parallel deals he had to broker in 2009 to working a Rubik's cube. Air Canada had to renew, at no additional cost, all of Air Canada's labour contracts with unions that felt the time for payback had come. The airline also had to persuade the government to give Air Canada that first break on its pension deficit. And with liquidity running low, it had to find $650 million in financing. Somehow, all the coloured squares had to come together. "This is a complicated industry at the best of times," says Rovinescu.


Air Canada executives hustle in to the dark boardroom, grabbing sandwiches, crudités and a pop before settling around the long oval table for the weekly executive meeting (Report on Business attended with the agreement it would keep sensitive information confidential). In princely manner, Rovinescu is one of the last to arrive. He has lost the running hat and black tights from our morning jog and, with his dark blue suit, light green tie and slicked-back hair, he looks like all five million bucks of his retention bonus.

That running an airline is complicated becomes obvious as each executive gives updates on the latest developments. From the perturbing Vancouver weather to the cutthroat competition on certain routes to the choice of a narrow-body plane to the PR nightmare that followed the death of an Italian greyhound that escaped its handlers, all of Air Canada's moves are in the public eye.

At the end of the table, Rovinescu listens intently as he attacks a fruit plate stacked precariously high. While Milton was fascinated by Air Canada's fleet and easily bored by the rest, Rovinescu is attentive to all, as he takes notes or swings his chair back, crossing his fingers behind his neck. His comments are sparse, but each word carries weight. "Calin is the smartest guy in the room, but he never lets it on. He is careful to get everybody's input," says Marc Parent, CEO of simulator manufacturer CAE.

This is an uneventful week, by Rovinescu standards, with meetings in New York, Ottawa and Montreal. He doubles as chairman of Star Alliance and as incoming chairman of the International Air Transport Association, which means he's used to a gruelling schedule.

But Rovinescu doesn't want to go soft, fearing Air Canada will lose its resolve as things improve. "It is easy to fall back into bad habits," he says, to justify the latest $50 million in cuts. Among other measures, Air Canada is putting the squeeze on its suppliers, requesting new contracts at lower prices. "We want you to share our pain," Rovinescu says with a shark's smile.

At the same time, he thinks big—a striking departure for a company long stuck in survival mode. He wants Toronto to become a "killer hub." He wants Air Canada to become a global champion, with a brand akin to the one BlackBerry once had. That will never happen if Air Canada remains frail. "The company needs to become solid enough to weather any blow," he says.

This outlook comes from his upbringing. Rovinescu rarely speaks about his arrival in Canada, because he doesn't think of himself as a Romanian immigrant. (He even turned down a tribute from a group that wanted to showcase newcomer success.)

In 1961, at age 5, he came to Montreal by boat with his older sister, parents and grandmother. In Bucharest, his father, Ionel, was a urologist. His mother, Adriana, who held two master's degrees and spoke several languages, worked in the foreign affairs department, where she liaised with Chinese officials.

When they fled the Communist regime, they had to leave everything behind. They had $200 and their clothes when they moved to a rough street in Montreal's Côte-des-Neiges neighbourhood. Adriana worked as a clerk at Singer Sewing Machines and at Simpsons, while Ionel requalified as a surgeon. She insisted that Calin and sister Olivia become fluent in both English and French, so they would fit in. "I never expected anybody to give me a special opportunity, nor did I want anyone to be looking at me down their nose," Rovinescu says. "I am an integrated Canadian."

And yet, Rovinescu admits he thinks like an immigrant. "An immigrant is optimistic about the future, but is also fundamentally insecure, which makes him sharper. He never takes anything for granted."