Air Canada, Montreal, on Wednesday said it eliminated its C$3.7 billion (US$3.3 billion) pension deficit in 2013 and projects that it will start this year with a small surplus.
The airline cited a 13.8% investment return in 2013, C$225 million in pension contributions and a higher discount rate, to 3.9% from 3% at the start of last year, as reasons for the eliminated deficit, according to an Air Canada news release. It did not detail how much of a surplus there would be but said final valuations for 2013 would be completed in the first half of this year.
Air Canada's pension fund had C$13.2 billion in assets as of Dec. 31, 2012, according to its latest annual report.
The airline said its pension derisking strategy, adopted in 2010, has led to a cumulative 11.8% return over the four years. Currently 70% of Air Canada's pension liabilities are matched with fixed income, with an ultimate goal of matching 100% of the pension liabilities with fixed income, depending on market conditions, according to the news release.
Its overall asset allocation at year-end 2012 was 54% equities and 46% fixed income, according to the annual report.
Air Canada is required by Canadian regulations to make pension contributions of at least C$150 million annually, with an average of C$200 million per year, up to minimum total of C$1.4 billion over seven years. The airline can opt out of the regulations when its annual deficit contributions would be less than an average C$200 million per year over three years with “a strong basis for confidence” that the derisking strategy would make a future significant deficit unlikely to recur, according to the release. Air Canada does not expect to opt out of the pension regulations in 2014.
Peter Fitzpatrick, Air Canada spokesman, could not be reached for further details.