New Air Canada bosses may get months to solve woes

Wed Apr 1, 2009 3:58pm EDT
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By Jeffrey Jones

CALGARY, Alberta (Reuters) - Air Canada's new top executives may get a few months to solve thorny labor contract and pension deficit issues as the recession bites before they are forced to do so under bankruptcy protection.

In a surprise move this week, Canada's biggest airline named Calin Rovinescu as chief executive and Duncan Dee as chief operating officer, sparking speculation that a major restructuring is in the works.

Rovinescu is a veteran of Air Canada's last corporate revamp under creditor protection, which began six years ago as the carrier struggled with high debt and falling traffic as the SARS crisis hit Toronto, its main hub.

Now, it must navigate union contract talks, a pension deficit topping C$3 billion ($2.4 billion), debt obligations, weak travel demand and brisk competition on fares from its chief rival WestJet Airlines Ltd.

Barry Prentice, director of the transportation institute at the University of Manitoba, said the airline could have about six months to sort out its problems before being forced to do so under court protection.

"They're going into what is the more profitable season of air traffic -- summertime isn't going to be when an airline's going to fail because they're going to have lots of business," Prentice said. "But if the economy stays in the doldrums, next fall they'll be back with the same problems again even if they get through the summer."

Rovinescu replaced Montie Brewer, who tried to steer the carrier through one of the industry's worst downturns. Brewer cut staff last year by 2,000 jobs and capacity by 7 percent.

Air Canada lost C$727 million in the fourth quarter. As its cash position worsened, the airline scrambled to raise more than C$640 million in new financing by selling assets.   Continued...

<p>Air Canada passengers wait in line to check baggage at Pearson International Airport in Toronto, in this June 17, 2008 file photo. REUTERS/ Mike Cassese</p>