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Airline association says competition hurt by granting Air Canada pension relief

By: Ross Marowits, The Canadian Press

Posted: 02/26/2013 2:04 PM | Comments: 0 | Last Modified: 02/27/2013 10:21 AM

An Air Canada passenger jet takes off over the terminal at Halifax Stanfield International Airport on Jan. 21, 2013. . THE CANADIAN PRESS/Andrew Vaughan

Ottawa will create an unlevel playing field if it grants Air Canada's request for a decade of relief from the $4.2-billion deficit in its defined benefits pension fund, the Air Transport Association of Canada said Tuesday.

The group, which represents small regional carriers and training centres, said Ottawa should provide broad pension assistance to all Canadian companies, instead of giving a competitive advantage to the former Crown corporation.

"Rather than dealing with the problem with Air Canada's pension funds, deal with Canadian pension funds as a rule because if they (politicians) create this precedent, I can think of all the other industries that are going to line up at the PM's door and say: 'Me too,'" association president John McKenna said from Ottawa.

In a recent letter to Prime Minister Stephen Harper, McKenna said singling out a company that has already received "immense support" not forthcoming to its competitors would seriously impact the competitiveness of the airline industry.

Any relief should instead be short-term and based on annual approvals using established financial measurement tools, instead of locking in assistance over 10 years.

McKenna said it's hard to predict what financial shape the airline will be in over the next few years, adding that interest rates could rise and the airline's recent profits could accelerate as it expands its fleet and ramps up its new low-cost carrier.

The country's largest carrier wants Ottawa to put a $150-million cap on its annual solvency deficit payments for the next decade, starting in 2014. This would mean $700 million a year in relief in each of the first five years. The payments are in addition to its ongoing pension funding contributions that will total $1.5 billion between 2009 and 2013.

Air Canada (TSX:AC.B), which has been supported in its efforts by its unionized employees, declined to comment on the association's position.

The National Airlines Council of Canada, a group founded in 2008 to address issues affecting large carriers such as WestJet Airlines (TSX:WJA), Air Transat and Jazz, also declined to comment.

However, WestJet executives met with cabinet ministers last fall to oppose its rival's pension relief request, according the federal Register of Lobbyists.

WestJet said it did not want to specifically comment about the meetings.

"But at a general level, we are concerned about the impact on the state of competition caused by Air Canada repeatedly asking the federal government for financial assistance," said airline spokesman Robert Palmer in an email.

The Air Transport Association cancelled a news conference Tuesday because it didn't want to give the impression that it was attacking Air Canada.

"We're not on the war path here. We're just letting our position known," McKenna said.

Although its membership includes smaller and newer carriers, including Sunwing and Porter, some face the challenges of funding defined benefit pension plans, albeit at a smaller scale than Air Canada.

"It may not be of the same magnitude but still in this highly competitive world, you don't come up with a solution that favours one carrier."

McKenna added that he doesn't know why Ottawa would intervene to help Air Canada when Transport Minister Denis Lebel refused to support insolvent aircraft maintenance company Aveos, claiming the government won't help private companies.

But Robert Kokonis, president of airline consulting firm AirTrav Inc., believes the Conservatives will approve the 10-year moratorium request but perhaps not the cap requested by Air Canada. He said the government signalled its willingness to help the airline during its labour disputes last year with unionized employees.

"So based upon that track record, I just, for the life of me, can't see the government of Canada backing off," he said.

Kokonis said the Air Transport Association likely doesn't have enough sway to get the government to back down fully from providing pension relief, but may be able to prompt it to carefully consider the shape and form of such relief.

"I think something needs to happen but unfortunately it can't be all things to all people."

Air Canada has said that cost savings from its recent labour agreements, startup of low-cost carrier Rouge and pension relief will help to lead the airline to sustainable profits.

Failing to get pension relief will have some effect on those plans, said Kokonis.

"Will it threaten Air Canada's viability? No, I don't' think so. It will slow down that return to recovery," he said.

On the Toronto Stock Exchange, Air Canada's shares closed down one cent at $2.36 in Tuesday trading.

Note to readers: This is a corrected story. An earlier version sent out Tuesday misidentified the president of ATAC as John McKay, rather than John McKenna.

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