Air Canada, Montreal, will opt out of a 2013 agreement with the Canadian government and Air Canada employees that required the airline to contribute an average of C$200 million ($166 million) annually to its pension funds through 2020.
The airline is opting out of the agreement because “it believes the funding risk associated with the solvency of its pension plans has largely been eliminated,” Air Canada said in a news release. The airline has said it could opt out when its annual contributions to the pension funds would be less than C$200 million under normal funding rules “and when there would be a strong basis for confidence that the airline’s derisking strategy would make a future significant deficit unlikely to reoccur.”
Air Canada had an estimated pension surplus of C$1.2 billion as of May 20, and it expects to make no contribution in 2016, the airline said. The airline’s pension funds had a combined C$660 million surplus as of Jan. 1 and a C$3.7 billion deficit reported at the start of 2013.
Under normal funding rules, Air Canada will contribute about C$90 million in 2015 instead of the C$200 million it would have had to contribute under the agreement, saving C$110 million, the airline said.
Air Canada’s pension assets as of Dec. 31 totaled C$16.3 billion. Currently, 75% of its pension liabilities are matched with fixed-income products.
The airline will use the savings from the reduced contributions to repurchase as much as 10 million shares, or about 3.5% of its outstanding stock, commit about C$9 billion to capital expenditures, primarily related to new aircraft and equipment, and lower its net debt and leverage ratio.