March 29, 2012 / 7:28 PM / 5 years ago

Air Canada complies with plane service law, Ottawa told

TORONTO (Reuters) - Air Canada is complying with a law that requires it to maintain aircraft-repair services in several Canadian cities, despite the closure last week of spin-off Aveos Fleet Performance Inc, a parliamentary committee was told on Thursday.

That view is good news for the Canadian government, which has come under growing pressure from unions and opposition members of Parliament who want it to force Air Canada to maintain facilities that were shut down earlier this month when Aveos ceased Canadian operations and laid off 2,600 workers.

Air Canada meets a provision in the 1988 law under which it was privatized that obliges it to keep maintenance and overhaul operations in Montreal, Mississauga, Ontario, and Winnipeg, Manitoba, said Pierre Legault, assistant deputy minister in the Department of Justice.

He cited a 2011 Ontario court ruling, which said that Air Canada’s mechanics’ union had failed to show that the country’s biggest airline was failing to meet fleet-servicing requirements set out in the 1988 law.

“The judge also said that it was possible for Air Canada to indeed operate maintenance and overhaul, generally speaking, through its own operations and that there was no obligation to do it in a certain form,” Legault told the committee.

“If you took different elements of the decision, you do come to the conclusion that, in fact, Air Canada can operate without Aveos. They have the obligation to maintain, overall, in Canada, but not necessarily through a specific form.”

Montreal-based Air Canada said it currently employs 2,400 maintenance workers across Canada.

Opposition politicians have said that Air Canada engineered the spinoff and eventual demise of Aveos so that it could benefit from cheaper, non-unionized labor. Privately owned Aveos has said that Air Canada gave it insufficient work to stay in business.

Air Canada Chief Executive Calin Rovinescu denied that charge in heated exchanges on Thursday with politicians on the parliamentary committee, saying the failure of Aveos “was sprung upon us”. The company failed in part due to productivity issues and its inability to adequately diversify its customer base, Rovinescu said.

Transport Minister Denis Lebel has said the conflict is between two private-sector companies and that the government has no intention of bailing out either Aveos or Air Canada.

The Quebec provincial government has threatened legal action against Air Canada and the federal government to keep operations running at the Montreal Aveos facility.

RESURRECTION FOR SOME UNITS?

Air Canada paid C$440 million ($440 million) to Aveos in 2011 for services, and sent jobs to other companies only when Aveos was unable to perform the work, Rovinescu said.

He said some of Aveos’s business units could be resurrected under different ownership through “powerful strategic players” and that laid-off workers could be rehired.

Air Canada, which has sent seven aircraft to two alternative facilities in Quebec for maintenance since the Aveos shutdown, has held preliminary talks with several maintenance, repair and overhaul companies including Richmond, British Columbia-based MTU Maintenance Canada Ltd, he added.

“As a result of the Aveos dynamic, we would expect that we would be looking to hire more people over the passage of time ... in Canada.”

Other companies, including General Electricand Lufthansa Technik could also provide services to Air Canada, Rovinescu said.

“I’d like to categorically state that we would not, and will not, send any work to Aeroman, the San Salvador-based sister company of Aveos, not under any circumstance,” Rovinescu said.

San Salvador is the capital of the Central American country of El Salvador and the site of the Aeroman aircraft maintenance facility, which is owned by Luxembourg-based Aero Technical Support & Services Holdings, which also owns Aveos.

Air Canada is also facing labor disputes with its powerful pilots’ and mechanics’ unions, which the government has sent to binding arbitration.

Air Canada shares were unchanged at 98 Canadian cents on the Toronto Stock Exchange on Thursday. The stock has lost more than 55 percent of its value in the past 12 months.

($1=$1.00 Canadian)

Reporting By Susan Taylor; Additional reporting by Allison Martell; Editing by Peter Galloway

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