Air Canada, Montreal, received an extension from the Canadian government Tuesday on pension funding arrangements until Jan. 30, 2021, according to a news release.
In 2009, the government approved a five-year arrangement that greatly reduced what Air Canada had to pay for past service contributions to erase the pension plans' funding deficit. In Canada, plans are required to repay any funding deficit over a five-year period. That arrangement was set to expire Jan. 30, 2014.
Under the new arrangement, Air Canada will make payments of at least C$150 million (US$146 million) annually with an average of C$200 million over each of the seven years, for an aggregate minimum of C$1.4 billion in solvency deficit payments. Under the previous arrangement, Air Canada did not have to make any past service contributions from April 1, 2009, to Dec. 31, 2010, and then contributed C$150 million in 2011, C$175 million in 2012 and C$225 million this year.
Air Canada has 10 different pension plans with a total of C$11.9 billion in assets. The deficit was C$4.2 billion as of January 2012; the deficit is calculated only once a year, and an updated number has not been released yet.
In addition to the deficit payments, Air Canada plans to contribute an additional C$471 million to the pension plans this year, up from C$433 million in 2012.
However, the extension comes at additional costs for Canada's largest airline. During the extension, it will not be able to distribute dividends or engage in share repurchases. Executive compensation will be frozen at the rate of inflation, and special bonuses will be prohibited.
