May 4, 2009 / 2:13 PM / in 9 years

Air Canada seeks pension relief, union bristles

TORONTO (Reuters) - Air Canada said on Monday it was seeking support from its unions for “a moratorium and other conditions” on funding its more than C$3 billion ($2.5 billion) pension deficit, but at least one of the unions warned against gutting its pension plans.

Concessions from Air Canada’s unions, which represent around 18,000 of its employees, are widely seen as crucial to keeping the country’s biggest airline from re-entering bankruptcy protection.

Air Canada said in a statement the moratorium would allow it to establish financial certainty over the next several years and help it maintain its defined benefit pension plans.

But the Canadian Auto Workers union, which represents about 4,500 unionized staff at the airline, demanded on Monday that the company continue funding its pension plan.

“If the company insists on getting rid of the pensions, they’ll have the fight of their life, by not only the CAW, but all the unionized employees of Air Canada,” said Leslie Dias, president of CAW Local 2002.

Dias said the last time Air Canada went into bankruptcy protection, in 2003, CAW members gave up the equivalent of 20 percent of the overall labor costs, and the company is still in dire straights.

Cameron Doerksen, aerospace analyst at Versant Partners, said funding its pension deficit is a “significant problem” for Air Canada but so are the large debt repayments the airline faces as well as the renegotiation of several union contracts.

“All three of those things combined result in a significant degree of uncertainty around Air Canada,” Doerksen said.

Air Canada spokeswoman Angela Mah declined to comment further on Monday’s brief statement.

The collective agreement between Air Canada and the CAW-- the country’s largest private-sector union -- expires at the end of the month.

The CAW presented a five-point plan on Monday designed to keep the airline out of creditor protection. The proposals included a call for the federal government to retake a stake in the airline, which was privatized by Ottawa in the late 1980s.

“An equity stake in the national carrier would allow the government to make sure that the communities stay connected from one end of this country to the other,” said CAW President Ken Lewenza. “The fact of the matter is, when Air Canada is in the air, Air Canada represents Canada.”

The union also called on Ottawa to block the windup of Air Canada parent ACE Aviation Holdings and to reinvest the company’s capital in the airline.

The plan would also see new regulations on capacity in the airline industry and the creation of a federal fund to backstop pension guarantees.

Finally, the union said it would like to block all future bonuses to ACE Chief Executive Robert Milton.

The union said that Milton has received tens of millions of dollars in compensation since 2003, and will receive millions more upon the successful windup of ACE, while Air Canada itself is now worth only slightly more than C$80 million.

“Our members are demoralized by the fact that ... their sacrifices have, in the end, benefited only a few,” said Dias.

Air Canada has recently cut capacity by 7 percent, resulting in 2,000 layoffs, and has been working to raise capital to shore up its balance sheet.

Shares of Air Canada were up 4 Canadian cents at 84 Canadian cents on the Toronto Stock Exchange, while ACE was up 1 Canadian cent at C$5.13.

($1=$1.18 Canadian)

Reporting by John McCrank; additional reporting by Nicole Mordant in Vancouver; Editing by Jeffrey Hodgson

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