Air Canada seeks C$150 million special pensions cap, letter shows
OTTAWA (Reuters) - Air Canada wants to cap special payments toward its pension fund deficit at C$150 million ($150 million) a year for the next decade, a letter from Chief Executive Calin Rovinescu to Finance Minister Jim Flaherty shows.
The April 26 letter, received by Reuters on Thursday under access-to-information legislation, formally requested a cap of that amount from 2014 through 2023, as long as the pension fund remained in deficit.
Air Canada has already won approval from its labor unions and its pensioners for a cap, but as recently as November 8, Rovinescu declined in a conference call with analysts to confirm that the amount of the cap he was seeking was C$150 million.
Rovinescu said the C$2.2 billion increase in Air Canada's pension deficit during 2011 was the result of a reduction in the discount rate used to calculate pension liabilities, to 3.3 percent from 4.5 percent.
"This is not sustainable in the current context, assuming no material increase in interest rates," Rovinescu wrote to Flaherty.
He said the increase brought the total deficit to C$4.4 billion. The airline, Canada's largest, has subsequently revised that down to C$4.2 billion.
Air Canada, like other employers with defined-benefit pension plans, has been badly hurt by the decline in the interest rates that are used to calculate solvency gaps.
All but 7 percent of Canada's federally regulated, private defined-benefit plans were underfunded at end-2011, the federal supervisor said on October 5.
In his conference call with analysts on November 8, Rovinescu said, "We have no assurance of being able to get anything along the lines of what has been asked" for a cap on the special pension payments. "I think that there were some references that were made in the arbitration materials that talked about the numbers along the lines of what you've indicated. Continued...