Air Canada pension deal may not be enough: analysts

Tue Jun 9, 2009 1:48pm EDT
 
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By Nicole Mordant

VANCOUVER, British Columbia (Reuters) - A tentative agreement with most of its unionized staff will help ease an immediate cash crunch at Air Canada but it is not enough on its own to fend off the specter of bankruptcy, analysts said on Tuesday.

Canada's largest airline still needs to secure "substantial" financing to help it ride out one of the worst downturns in the industry's history, and stiff competition at home, a difficult task given its already heavy debt load.

Late on Monday Air Canada said it had struck agreements on pension funding and contracts with the Canadian Auto Workers (CAW), the International Association of Machinists and Aerospace Workers (IAMAW) and the Canadian Airlines Dispatchers Association. The three represent about 16,500 employees or more than 60 percent of the airline's unionized workers.

The Air Canada Pilots Association, representing about 3,200 pilots, and the Canadian Union of Public Employees (CUPE), whose members are flight attendants, were not part of the deal but are still in discussions with Air Canada.

The airline's stock rose on the Toronto Stock Exchange on Tuesday. Its B shares gained 9.9 percent to C$1.55 and its A shares rose 2.9 percent to C$1.44.

Monday night's pension agreement calls for a moratorium on past service contributions for 21 months -- something Air Canada began pushing for last month -- and fixed payments after that between 2011 and 2013.

Genuity Capital Markets analyst David Tyerman estimated that an agreement with all its unions on a moratorium will reduce cash outflows by about C$575 million ($523 million) over the 21-month period.

But he said Air Canada still faces about a C$900 million net cash outflow over the next 12 months and needs to secure "substantial" additional funding to remain solvent.   Continued...