OTTAWA (Reuters) - Air Canada has won key union support for its bid for more relief on payments to erase its pension fund deficit, pressuring the Canadian government to agree even though Ottawa recently rejected similar requests from other companies.
The pension deficit of the country's largest airline doubled to C$4.4 billion ($4.4 billion) during 2011, primarily because of unusually low interest rates rather than any sudden demand on assets. Unions recognize the danger that such a big shortfall presents for Air Canada even though the deficit has subsequently dropped by C$1.1 billion due to recent labor contracts.
"In this extraordinary circumstance, we don't want to do something that pushes the airline over the brink," Paul Moist, president of the Canadian Union of Public Employees, which represents Air Canada's flight attendants, said on Tuesday.
In 2009, Air Canada won agreement from the government to allow it a moratorium on making any special payments to reduce its pension deficit through 2010, and then a cap on special payments that would rise from C$150 million in 2011 to C$225 million in 2013.
The company is now seeking to extend that cap until 2024, and labor arbitrators have ruled that without such relief "grave existential questions" would arise about the future of the airline and its pensions.
Moist was one of several union leaders who met Finance Minister Jim Flaherty on July 23 at Flaherty's request to discuss Air Canada's pension situation.
Flaherty had told reporters a month earlier that the most important condition that must be met for the government to agree to any extension would be that all parties -- company management, current union members, pensioners and the country's financial regulator, Julie Dickson -- also agree.
Flaherty's position is delicate because in June he told a group of six big corporations -- including BCE Inc's Bell Canada and Canada's two national railroads -- that he was not prepared to enact special measures to give them more time to pay down their pension deficits.
He wrote them that reforms introduced in 2010 were designed to give companies flexibility and avoid volatility in running their defined benefit plans. He added that providing new temporary relief now could result in notably higher special payments later to eliminate deficits. A copy of the letter was obtained by Reuters.
"The big challenge for Air Canada is they (the six companies) have been rejected, and so what makes it possible for Air Canada to do this?" said one Ottawa insider, who declined to be identified.
The fact that Air Canada has hired Flaherty's former chief of staff, Derek Vanstone, to oversee government relations and strategy may also make the minister want to appear not to show the airline any favoritism.
But for Bruce Aubin, who heads the pension committee for Air Canada's retirees, comparing the air carrier with the six corporations is like comparing apples and oranges.
"Air Canada's pension, it goes without saying, is in some difficulty. The other guys aren't," he said.
The retirees have not voiced an opinion yet on whether to back an extension of the special payment cap to 2024, and want to understand the ramifications, but Aubin said "we're not opposed to it".
"We're supportive of buying time," he said, adding that he was looking forward to meetings with the government and airline.
The head of another union who attended the July 23 meeting with Flaherty, Dave Ritchie, said the rules under which the pension deficit is being measured are too harsh because they look at the ability to pay out benefits if the company goes under rather than its ability to make payments if it stays in business.
"We've said to the government, 'Lookit, you need to send a message...to the investment community and let them know that a company is not going to fail because they are going to have this unfunded liability because of the way the funding mechanism is set up,'" said Ritchie, Canadian general vice president of the International Association of Machinists and Aerospace Workers.
"We have a lot of members that are retired, that need to know that they're going to keep getting their checks uninterrupted, for the amount they went out with. If they go into default, everybody takes a haircut."
Moist said Flaherty was noncommittal at the July meeting but appeared sensitive to the airline's plight: "I think he feels the same way the unions do. Nobody wants to do anything that precipitates, that puts the airline in any more difficult position than it's already in."
Additional reporting by Nicole Mordant in Vancouver; Editing by Peter Galloway