Will Canada's Flag Carrying Airline Survive?

[Smallc]

We need two viable air carriers in canada. if all air canada needs is a break on its pension obligations then it should get it.

They may need slightly more than that at this point, but their position now is not really because of anything that they did. It is as a direct result of high fuel prices followed by the global downturn. Almost no airline is doing well. One thing is certain though, if they get a break on their pensions, it will greatly improve their position.

[kimmy]

The inconvenience of only having 75 planes available instead of over 400? Do you realize that Air Canada has the 8th largest aircraft fleet in the world?

I wonder if that might be part of the reason they're in financial trouble?

-k

[Smallc]

I wonder if that might be part of the reason they're in financial trouble?

-k

Air Canada uses the 201 planes that they operate and the 133 that Jazz operates. They don't have terrible load factors but they could be better and they say that they are taking steps to address any over capacity, I just hope they are left with the capacity to ramp up again when this global situation improves. They may not need all 334 aircraft, but they will need to maintain a large fleet in order to continue with even somewhat reduced operations.

[Visionseeker]

if all air canada needs is a break on its pension obligations then it should get it.

And lo and behold, the elephant in the room has been spotted.

16 years ago, not a single professor in the entire faculty was willing to accept and supervise my original thesis: Trade Liberalization, Population Demographics, Economic Decline and the Demise of Retirements of Leisure. So I had to revert to something that the purveyors of conventional wisdom would accept.

For the last three years, I have found myself rereading my original unfinished work in response to various economic announcements and developments and have repeatedly bore witness to my own prescience of the crisis we now face. My arguments, in a “nutshell” were as follows:

Free trade is an exercise of balance that inevitably lifts and drags to a lowest common denominator. While combined wealth will increase overall, increasing disparities within will be a natural by-product. When divided at the mean, the median income below the mean among developed partners will drop substantially while the median income below the mean in lesser developed partners will increase marginally. In terms of incomes above the mean, the highest echelons will enjoy the greatest increase while lower echelons stagnate or retreat. The lesson: free trade dramatically alters economic self-reliance and increases disparities in wealth. If not properly managed/regulated, it carries the seeds of its own destruction.

Western demographics are entirely out of whack. Advances in health and declining birth rates mean that we live longer and have fewer children. This will present substantial challenges and strains to defined benefits pension plans and universal health care. With fewer and fewer workers available to sustain growing populations of retirees, something is bound to break. Financial markets will do what they can to defer the inevitable collapse, but this will only serve to make the eventual fall far greater than it need be. The lesson: 1- our predictive financial models ignore the full implications inherent to our demographic imbalance and thereby blind themselves of just how disruptive things will be when the day of reckoning appears; 2- universal health care will prove to be both economically and politically unsustainable as the growing ranks of the elderly begin to consume greater and greater shares of health care services.

Economic decline is unavoidable when the working population contracts. As skilled workers become increasingly scares either wages are pushed higher, or operations move to centres with less engaged working populations. Both outcomes diminish domestic productivity and a regressive economic cycle is all but predetermined. The lesson: Only a dramatic increase in immigration of young, working-aged people or who have multiple young children can help maintain a measure of economic growth and diversity.

Retirements of leisure will become increasingly unsustainable while businesses fail to meet pension shortfalls and seniors find themselves increasingly responsible for the health care they consume. In short, the party will soon be over.

[tango]

I just picked out the exact same flights for the same dates in April (April 14, return 23) as an example. In this case, Air Canada was $20 more. For our trip (in August) Air Canada is about $140 per person less no matter if the destination is Halifax of Sydney...and Air Canada has far more convenient times. West Jet doesn't have a big enough fleet to serve demand right now. Air Canada is quite necessary and unless someone can immediately step in and take their place, they can't be allowed to fail.

West jet provides better service. I hope they buy AC out. AC has always had a grouchy arrogance that goes all the way from bottom to top, a whiner, and a lousy employer.

[tango]

It is worth noting that pension funds are the biggest albatross for these older companies and it is time the government stepped an severed the pensions from the companies. i.e. if the employees want a group pension fund they can set one up, negotiate employer contributions but the market risk/reward must be fully assumed by the employees - not the company. Companies like Air Canada are not in business to provide retirement plans to former employees and unions should not be allowed to pressure them into becoming one.

My understanding is that companies choose to keep the pension plan in house so they can manipulate it as they 'need' to.

AC has a problem with "its underfunded pension plan".

As I recall from the Stelco bankruptcy, "underfunded" means the company didn't put in its share when it should have, so it has accumulated debt to the pension plan that it now can't pay. They can't do that if the plan is outside the company, out of their control.

So ... what's the alternative?

Let all the old pensioners die of starvation?

That's what Stelco threatened to do: Just cut them all off.

Perhaps rather than venting anger at the unions, it would be wise to look to the mismanagement of the company and of the pension plan?

I say let AC go under, let somebody competent like West Jet buy it out.

AC has always been an embarrassment.

[Riverwind]

My understanding is that companies choose to keep the pension plan in house so they can manipulate it as they 'need' to.

No. It is because they are on the hook for short falls so they are entitled to surpluses. The way to fix this is by giving the risk to the employees where it belongs.

its underfunded pension plan

Most pension plans become underfunded when the markets collapse because liability is calculated based on the current asset value. It is not the fault of Air Canada. It should not have been their responsibility in the first place.

Let all the old pensioners die of starvation?

They will be more likely forced to give up their condos in florida. Pensioners with union pension plans the wealthiest of retirees. A lot of people out there have to make due with GIS, OAS and CPP which is ok if you have qualified for full benefits and have a modest life style. The airline co pensioners can do the same.

I say let AC go under, let somebody competent like West Jet buy it out.

WestJet is non-union. It has no interest in inhieriting an inflexible union structure and all of the legacy costs associated with it. If the AC goes under then all those union jobs will be gone because no new player would ever grant the same cushy terms - even if the workers managed to organize.

[tango]

They will be more likely forced to give up their condos in florida. Pensioners with union pension plans the wealthiest of retirees. A lot of people out there have to make due with GIS, OAS and CPP which is ok if you have qualified for full benefits and have a modest life style. The airline co pensioners can do the same.

Is that what you plan to do? OAS, CPP, GIS?

enjoy your poverty.

What's your source for this?

Pensioners with union pension plans the wealthiest of retirees.

[Riverwind]

Is that what you plan to do? OAS, CPP, GIS?

I have no intentions on depending on such monies. But your comment was what current retirees can do. And the fact is those plans do offer a modest income that is adequate for a couple with a house paid for. Things get a bit dicery if one is single or has a big city rent to pay but they would hardly starve.

Pensioners with union pension plans the wealthiest of retirees.

Based on the people I know the pension fund retirees are the wealthier than anyone other that self-employeed people that were able to sell their business. Self-employeed people who simply had to close down their business and no-pension fund workers are generally the worse off.

[tango]

I have no intentions on depending on such monies. But your comment was what current retirees can do. And the fact is those plans do offer a modest income that is adequate for a couple with a house paid for. Things get a bit dicery if one is single or has a big city rent to pay but they would hardly starve.

Based on the people I know the pension fund retirees are the wealthier than anyone other that self-employeed people that were able to sell their business. Self-employeed people who simply had to close down their business and no-pension fund workers are generally the worse off.

Based on people I know, you are right.

Self-employed business people are the wealthiest in retirement.

And nobody owns a condo in Florida on ONE union pension.

Maybe a two pension income family, and maybe a time-share, but even that is stretching it.

Edited April 1, 2009 by tango

[tango]

oops!

Edited April 1, 2009 by tango

[Riverwind]

Self-employed business people are the wealthiest in retirement.

You missed the key point: Self-employeed people who simply had to close down their business are generally the worse off.. Unlike union workers, self-employeed people actually took a risk and that did not pay off for everyone. So on average, self-employeed people are no better off than the average union pensioner.

Bottom line, those that take the risk are entitled to the reward. If union workers want a cushy pension they should take the risk if the market goes haywire. They have no business expecting the future customers of their employer or (god forbid) the taxpayer to bail them out.

[Vancouver King]

Do you realize that the majority of people (I've heard in the range of 80%) still fly Air Canada?

West Jet is poised to pass Air Canada in domestic passangers as the Calgary based airline has a 37% national market share this year. Air Canada's only advantage is in international flights.

[normanchateau]

I sincerely hope the people in government don't think like you when it comes to this. By spending what could be a relatively small amount of money we could be saving the economy a comparatively large amount of money.

Transport Minister John Baird said the government is concerned about Air Canada's problems and is watching the situation closely.

"We're certainly going to keep the door open to talk directly with them, but this is a private sector company and I think a private sector solution is the way to go," he said in Ottawa.

http://www.thewhig.com/ArticleDisplay.aspx?e=1504543

[Smallc]

West Jet is poised to pass Air Canada in domestic passangers as the Calgary based airline has a 37% national market share this year. Air Canada's only advantage is in international flights.

So they have 37%...you know what that means? About 60% of domestic flights are probably still with Air Canada. We still could not do without them...not to mention that we would have very little way to fly international until other airlines increased their service here. If West Jet had twice as many flights and served all major and semi major cities I wouldn't be concerned. The problem is, they don't have enough aircraft and they don't serve enough locations.

[Wilber]

Air Canada is in this position largely because it was raped by its holding company ACE Aviation as well as the inept management ACE put in place for the airline which has abandoned many parts of the western domestic market to Westjet almost without a fight. There is definitely a Central Canada mentality to the way Air Canada operates. The employees gave up a lot during the last round of CCAA on the understanding the savings would be invested back into the company. The company was also given an extension to ten years in order to meet its pension obligations which is part of what they are asking for again. Instead they watched ACE sell off 2.8 billion worth of the company's most profitable assets and put the money in ACE shareholders pockets, leaving the airline with few assets and borrowing US dollars to renew its fleet, instead of being able to pay for a lot of it in cash. Since the Canadian dollar hit the skids, that US dollar debt is now killing them. For this, Robert Milton of ACE and formerly of Air Canada was the third highest paid CEO in Canada last year. Until Milton and the other ACE carpet baggers are out of the picture, it will be more of the same and there will be zero trust in management from the employees. The old adage, fool me once, shame on you, fool me twice, shame on me, applies in spades here. It's likely to get ugly.

Re corporate pension plans in Canada. Government rules are partially to blame. Companies are only required to contribute if the plan is underfunded so if the market is doing fine, they contribute nothing. When the market goes into the tank, they are in no position to contribute so the plans go farther into deficit. In short, they are allowed to take pension holidays when they don't need them and make up contributions when they need a holiday. Under present rules, companies are required to stop contributing if the funds become more than 110% funded which prevents them from building up a cushion during good times. The dudes who thought up this system must have been bureaucrats. Before the market tanked last year, Air Canada's plans were close to fully funded by employee contributions alone.

Not to knock Westjet, it's a good outfit but try getting to Beijing on a 737. Hope you enjoy the stops in Anchorage and Magadan.

[Riverwind]

The company was also given an extension to ten years in order to meet its pension obligations which is part of what they are asking for again. Instead they watched ACE sell off 2.8 billion worth of the company's most profitable assets and put the money in ACE shareholders pockets, leaving the airline with few assets and borrowing US dollars to renew its fleet, instead of being able to pay for a lot of it in cash.

I was just reading about this. This kind of monkey business is is common with small cap companies. Never heard of it happening to a company as large as AC. I will booking my flights on any carrier other than AC until the union and managment settle. Sounds like a lot of bad blood between management and the union that I don't want to deal with.

[Wilber]

I was just reading about this. This kind of monkey business is is common with small cap companies. Never heard of it happening to a company as large as AC. I will booking my flights on any carrier other than AC until the union and managment settle. Sounds like a lot of bad blood between management and the union that I don't want to deal with.

Wouldn't worry about it, the airline industry has been in turmoil for over two decades and most people in it take pride in the way they do their jobs and are capable of acting in a professional manner in spite of it all. I was part of the chaos myself for 35 years and never lost my enjoyment for the actual job regardless of what might have been going on around it. As a matter of fact, when times get tough, people often try harder. It will however have a big effect on the way the unions approach the company during any restructuring negotiations. They will want to make very sure the abuses of previous management are prevented in future before they make any concessions.

[Riverwind]

As a matter of fact, when times get tough, people often try harder.

Does not make a difference if they are working harder on a picket line.

[Wilber]

Does not make a difference if they are working harder on a picket line.

A picket line is not really in anyones best interest, particularly if the company is already on the edge. I've been there a few times myself. To emerge from CCAA, (assuming they go that route which is far from certain at this point) the unions have to be on board for the restructuring, they don't have to go on strike. The difference between those times and this one is that after the last round, Air Canada employees found they were more concerned about the best interests of the company than the people who were running it. After all, they have the most to lose if it fails. I don't know about you but I have never seen a company destroyed by its employees. While they may have played a part it's always poor leadership and bad management that are ultimately responsible. I've worked for five different airlines, three Canadian and two Japanese. One thing that was common to all of them is that most of the employees wanted to do a good job and be proud of their company. Too bad management isn't so consistent.

[tango]

You missed the key point: Self-employeed people who simply had to close down their business are generally the worse off.. Unlike union workers, self-employeed people actually took a risk and that did not pay off for everyone. So on average, self-employeed people are no better off than the average union pensioner.

Bottom line, those that take the risk are entitled to the reward. If union workers want a cushy pension they should take the risk if the market goes haywire. They have no business expecting the future customers of their employer or (god forbid) the taxpayer to bail them out.

I'm sure that if it was to the company's advantage to place pensions outside the company, that's exactly what the companies would have done. Obviously they chose not.

The pensions must be honoured, as it's part of a contract. If the company wanted to negotiate it otherwise, they should have.

Edited April 2, 2009 by tango

[Riverwind]

I'm sure that if it was to the company's advantage to place pensions outside the company, that's exactly what the companies would have done. Obviously they chose not.

Don't waste time rationalizing. No company would agree to take on the liability of a deferred benefit plan unless it had no choice.

The pensions must be honoured, as it's part of a contract. If the company wanted to negotiate it otherwise, they should have.

When a company is in trouble everything is up for negotiation.

[tango]

I have no intentions on depending on such monies. But your comment was what current retirees can do. And the fact is those plans do offer a modest income that is adequate for a couple with a house paid for. Things get a bit dicery if one is single or has a big city rent to pay but they would hardly starve.

Oh well then ... as long as they are not going to starve unless they have to pay rent.

[tango]

Don't waste time rationalizing. No company would agree to take on the liability of a deferred benefit plan unless it had no choice.

No choice ... how?

[Wilber]

Don't waste time rationalizing. No company would agree to take on the liability of a deferred benefit plan unless it had no choice.

When a company is in trouble everything is up for negotiation.

Pension plans are an agreement between employers and employees. An agreement that both have freely entered into.