June 21, 2012 / 2:48 PM / in 6 years

Canada eyes Air Canada pension moratorium extension

OTTAWA/TORONTO (Reuters) - The Canadian government will look at the possibility of extending a moratorium it has granted to Air Canada ACb.TO on payments to erase its pension fund deficit, the government and the airline said late on Wednesday.

Passengers walk past Air Canada planes on the runway at Pearson International Airport in Toronto April 13, 2012. REUTERS/Mike Cassese

The current moratorium expires in January 2014, but the estimated deficit doubled during 2011 to stand at C$4.4 billion ($4.3 billion) at the start of 2012, and there is now discussion about extending the moratorium to 2024.

The airline got a big boost from an endorsement by its biggest union, representing its 8,600 mechanics and baggage handlers, which issued a news release on Tuesday saying it supported “the company asking the government to extend its pension plan until 2024.”

A spokesman for the Finance Department, David Barnabe, said: “The government has seen the machinists’ press release and will be reviewing the matter.”

Unless plans are changed, Air Canada would have to eliminate the deficit over five years starting in 2014. The current deficit figure would imply annual payments of C$880 million.

Such a requirement could threaten the company’s survival, according arbitrator Michel Picher, who imposed a settlement between the union and the airline on Sunday.

“Mr. Picher made it clear that leaving the issue of pension relief unresolved places a cloud over the very viability of the company going forward,” the union said in a news release.

Air Canada spokesman Peter Fitzpatrick would not detail what the airline has asked the government, but said it is looking at various strategies to manage the potential pension deficit payments beyond January 2014.

“Like other companies around the world that have approached their respective governments to discuss the issue of pension deficits in the current low interest rate environment, this topic has come up in our discussions with the federal government as well,” he said.

He said he could not get into specifics “as those discussions are ongoing.”

The union said it supported the company’s push for a moratorium after Air Canada agreed to remove a 3-percent benefit reduction from its final offer.

Air Canada shares were down 1 Canadian cent at 99 Canadian cents on the Toronto Stock Exchange on Thursday morning.

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