Air Canada, Montreal, plans to seek an extension of funding relief regulations from the Canadian government to keep its pension plans viable, according to a second-quarter earnings call on Wednesday.
The Canadian government in 2009 approved an agreement between Air Canada and its five labor unions to halt fixed payments to employee pension plans of C$150 million (US$150.8 billion) in 2011, C$175 million in 2012 and C$225 million in 2013.
Arbitrators in both the International Association of Machinists and Aerospace Workers, and Air Canada Pilots Association recent arbitrations “concluded that an extension of funding relief regulation is essential to the viability of Air Canada's pension plans. We plan to pursue such an extension for the benefit of all our stakeholders,” said Calin Rovinescu, Air Canada president and CEO, during the call.
Air Canada is “currently formulating our position,” Peter Fitzpatrick, Air Canada spokesman, said in an e-mailed response to questions about what kind of funding relief Air Canada is seeking. He said both arbitrators recommended a 10-year period to eliminate the pension deficit.
“At the end of the day, these are pension funds that need to be worked out between the employers and their employees,” said Jack Aubry, spokesman for the Canadian Department of Finance, in a telephone interview. “It's a private matter, except that there's a legislative vehicle in place, if they want to follow the distressed pension plan model. There's a way of proceeding.”
As of Jan. 1, Air Canada's DB plans had an aggregate solvency deficit of C$4.2 billion.
“Valuations do not increase our past services cost-funding obligations required prior to 2014,” said Michael Rousseau, executive vice president and CFO, in the earnings call. The solvency pension deficit increased C$2 billion from Jan. 1, 2011, primarily from the discount rate decreasing to 3.3% from 4.5%, he added.
Recent collective bargaining agreements with unions will result in a solvency deficit reduction of C$1.1 billion, effective Jan. 1, 2014.