Air Canada wins extension on cap on special pension payments
By Randall Palmer
OTTAWA (Reuters) - Air Canada ACb.TO won a seven-year extension on Tuesday of the cap on special payments to erase its sizeable pension fund deficit, over the objection of its smaller rivals, but will have to make higher payments than it originally requested and abide by certain conditions.
Finance Minister Jim Flaherty said the airline, which had sought to limit its special payments to C$150 million ($145.6 million) a year for 10 years, will have to pay a total of C$1.4 billion over seven years, or an average of C$200 million a year, with a minimum of C$150 million a year.
"It's important to note that Air Canada's unions and retirees have been supportive of the company's request for further solvency funding relief for its pension plans," Flaherty said. "This regulatory change ... is providing Air Canada time to pay off the sizeable pension deficit."
Air Canada is Canada's largest airline, and rival West Jet had cried foul over what it said was repeated requests for special assistance, especially when it was expanding its fleet.
Executive compensation at the troubled airline, Canada's largest, will only be allowed to grow at the rate of inflation, special bonuses will be prohibited and limits will be imposed on executive incentive plans, the Finance Department said.
Dividends and share repurchases will be banned during the period, the department said. And no pension benefit improvements will be allowed without regulatory approval. The airline currently does not pay a dividend.
In 2009, Air Canada won agreement from the government for 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.
That deal, which sought to address a major gap in its defined benefit plans as yields declined, expires at the end of January 2014, and the new arrangement goes through to the end of January 2021. Continued...