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Winnipeg Free Press - PRINT EDITION
Air Canada loss takes off
Airline targets labour, maintenance costs
Darryl Dyck / The Canadian Press archives Air Canada President and CEO Calin Rovinescu (CP)
TORONTO -- Air Canada's chief executive was on the defensive Friday after the country's largest carrier reported a first-quarter loss that had swelled tenfold from a year ago on higher fuel prices, labour disruptions and the costs associated with the collapse of its former maintenance unit, Aveos Fleet Performance Inc.
Calin Rovinescu said the company's goal remains to return to profitability, and given the legacy structure of the airline, the easiest approach would be to rip everything up and start fresh, he said.
"Sadly, life doesn't work like that," he said on a conference call. "So what you're seeing is the chipping away through a transformational process of many inefficiencies that are built in and inherent in a legacy environment like this."
He pointed to the recent collapse of Aveos as an example, saying it would lead to cheaper maintenance costs on a long-term basis through partnerships with cheaper suppliers.
More than 400 workers in Winnipeg lost their jobs in the local Aveos plant closing.
At the same time, the carrier has been tackling its cost structure, including through ongoing labour talks, and driving up its yields through the introduction of various new products, he said.
Rovinescu said the airline has given its employees very good lifestyles over the years, but change is needed through making adjustments without wage cuts.
The goal is to deliver returns to shareholders and bondholders who invested in the carrier, especially as it tried to avoid a potential bankruptcy in 2009 and 2010.
"We're seeking to have dramatically improved operations. Achieving it, as you have seen through what has gone on in the first quarter, is not done without many bumps in the road," he said.
He said the recent talk in the media and elsewhere of another bankruptcy protection filing at the carrier was of "no interest" to him.
"It would be very easy to take an alternative course, but we're not looking to have the easy way of achieving this. We're looking at doing this thing so that folks who have invested will have an opportunity to see some return," he said.
The challenges continue. Air Canada's pension solvency deficit has ballooned to $4.4 billion as a result of low interest rates and poor equity markets, double what it was a year ago.
While the company has a cap on its pension contributions through 2013 stemming from a deal with its unions in 2009, its obligations will skyrocket again in 2014 without further relief.
Management said it would be able to reduce the deficit by $1.1 billion if it wins the similar amendments to the pension plans of its pilots, mechanics and ground crews that it has from the other unions. At the same time, for every one per cent increase in interest rates, the solvency deficit is reduced by roughly another $1.7 billion.
Rovinescu said the company has joined with other similarly affected companies to lobby the federal government for relief from its current funding formula.
While Air Canada's cash position was at $2.2 billion at the end of the first quarter, the company has not turned an annual profit since 2007.
It reported a further $210-million loss for the first quarter Friday, including a $120-million charge stemming from the collapse of Aveos.
-- Postmedia News
Republished from the Winnipeg Free Press print edition May 5, 2012 B4
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