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Possible Air Canada pension precedent worries feds

OTTAWA (CP) — Ottawa will have to think very carefully about the precedents it could set if it changes pension laws to accommodate struggling Air Canada, Finance Minister Ralph Goodale said today.

The federal pension regulator says it's willing to extend the amount of time Air Canada is given to pay a massive $1.2-billion shortfall in its pension plan — a key issue for the carrier as it tries to emerge from bankruptcy protection.

But such a major change would need the approval of federal cabinet — and there, things get sticky.

"If you adjust the rules in a one-off situation. . .then you do run the risk of setting a precedent," Goodale, minister responsible for the federal pension regulator, said outside the Commons.

"That's one of the things that government. . .would have to weigh very carefully to make sure that whatever precedent might be set is not one that is impossible for the future."

Germany's largest bank came to the aid of the struggling carrier recently with a planned $850-million injection.

But Deutsche Bank set several conditions that caught the attention of MPs, who grilled the government Wednesday on how far it will go to help close the deal.

Transport Minister Tony Valeri has suggested Ottawa will consider easing some of the regulatory restrictions facing Air Canada, the country's dominant airline.

That raised concerns among Quebec MPs about whether the carrier will continue to offer bilingual service and if its head office will remain in Montreal.

Valeri told the Commons that's all guaranteed in existing legislation.

"Certainly the Government of Canada is aware of the agreement in principle between Deutsche Bank and Air Canada. We are certainly encouraged by this private sector development," Valeri said.

"We continue to expect Air Canada to meet all of its obligations under the Air Canada Public Participation Act and any other applicable legislation."

It's believed that cabinet will be asked over the next few weeks to consider several proposals to help the entire airline industry, from increasing foreign ownership limits to reducing airport rents.

But before any decisions could be made, Goodale said he would want to see the full package of all proposals affecting Air Canada.

And, he added, he hasn't even been asked yet by the Office of the Superintendent of Financial Institutions to double the current five-year deadline for pension debt repayment.

"I will answer the question when I'm asked," by OSFI, said Goodale.

"This is a very complex set of issues involving Air Canada. There are a variety of issues that need to be resolved and it's important for the government to respond in a comprehensive way and not in a series of disconnected one-offs," he said.

"That's why I think we should wait until we see the entire scope of what's being proposed, what's being asked for and then answer in a comprehensive way and not just in bits and pieces.

Before OSFI would ask cabinet to give Air Canada the extension it seeks, the carrier must first agree to several conditions including a pledge of early debt repayments, said spokesman Rod Giles.

It's still waiting for a response from the carrier, he said.

http://www.thestar.com/NASApp/cs/ContentServer?pagename=thestar/Layout/Article_Type1&c=Article&cid=1083190209881&call_pageid=968350072197&col=968705923364

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Guest WA777

Hardly anyone outside AC can really appreciate how the government has handcuffed us for years.....it appears their political and business policy incompetence will continue.

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Guest WA777

Hardly anyone outside AC can really appreciate how the government has handcuffed us for years.....it appears their political and business policy incompetence will continue.

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Chico;

That's what my article in the NP was all about. Now finally its a matter of public conversation and government attention. Its time to get rid the government millstone around Air Canada's neck, get rid of the ACPPA, get rid of the Canada Transportation Act foreign ownership limits of 25%, get rid of the cash-cow mentality of the GTAA and let Air Canada compete on at least a partially level playing field in Canada.

It is simply time to stop the government interference with the market and the use of Air Canada to implement public policy decisions which have nothing to do with making a profit.

If Westjet or any other private business in Canada were subject to the unbelievable administrative shackles that Air Canada has been subjected to (including threats of loss of route rights if AC didn't bend to the Liberals' will), they simply wouldn't survive, low-cost or not.

Air Canada's problem is not "low cost". Its problem is that too many outside agencies are ripping huge chunks out of our glutius.

Investors from Li, to Cerberus and now to the DB have picked up on this business problem and have all said the same thing: Just who are we investing in? The Government of Canada's airline, or a private organization which can make its own decisions? Can they be blamed for the approach taken?

We can understand the problems the government has with changing the pension laws of Canada, but finally the story is making public headlines about why Air Canada has a problem with the federal government.

No wonder Hollis metaphorically slammed the door in Jean Chretien's face and went public after AC was denied Osaka after allowing the Gemini deal to proceed. He knew then that AC couldn't possibly progress until the government actually realized that Air Canada was a real-life private company

Air Canada should have had its apron strings cut in 1988.

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"(including threats of loss of route rights if AC didn't bend to the Liberals' will),"

I have a big problem with that statement Don as it insinuates that Air Canada should receive some sort of special consideration over other carriers regarding routes. I assume you are speaking of Canadian's international routes? If not than what routes are you speaking of?

Routes are contracts and these contracts can be awarded to anyone the contractee wishes to award them to. If a company buys another company then the contracts of that company are part of the package. If, on the other hand, the said company fails the contracts may be awarded to whomever the contractee wishes.

If I had awarded Canadian a contract to do maintenance on my aircraft and Air Canada purchased Canadian then Air Canada would have my maintenance contract. If Air Canada purchased Canadian solely to guarantee it would have that contract and then subsequently ran into financial difficulty would it be my fault? I didn't think so!

If on the other hand canadian failed, should Air Canada be guaranteed that contract? I didn't think so! Its a business decision and to suggest that the government pressured Air Canada into buying Canadian with route threats smacks of a feeling of entitlement.

If my comments above are off on a tangent from what you were speaking of than please elaborate with some specifics.

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You are way off.

The route rights belong to the government and are not part of any contract. They can award and withdraw them at will.

The quote that Don refers to, did not necessarily refer to AC not getting CAIL route rights, but maybe not even keeping a few that they (AC) had already been awarded.

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Hardly anyone inside of Air Canada appreciates how the government built and protected Air Canada for fifty years. That fifty year headstart on market share was more than a little difficult to compete with. Especially when the position of dominance was used irresponsibly.

Perhaps when the dust has settled and there is truly a level playing field any presumed handcuffs can be safely removed.

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"The route rights belong to the government and are not part of any contract. They can award and withdraw them at will."

I'm sure there are some signatures and conditions attached to these route rights therefore making them contracts.

As I said, post some specifics otherwise the statement has no merit.

Maybe not even keeping a few??????????????

What does that mean?

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So Leon Balcer forced Air Canada to fly to Trois Rivieres three times a day?

Sorry, my history is a little weak. When was that? Before or after privatization?

Anything before privatization was government funded and evidence of how Air Canada had opportunities to build market share without financial concern. They could never go broke as a crown corporation. You view it as "look what the government made us do" when thinking people view it as "holy smokes, they have guaranteed jobs whether they make money at it or not."

Correct me if I'm wrong.

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I don't know how it would affect Air Canada directly, but I'm convinced that it would have a positive impact on the country which would benefit Air Canada.

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So after years of requests (mostly polite ;) ) to those at AC who whine about being forced to fly to unwanted destinations, to just name one, somebody rises to the task - Trois Rivieres, OVER 40 YEARS AGO.

AA, Leon Balcer was a Quebec lieutenant in the Cabinet of John Diefenbaker, and this stuff is roughly contemporary with the cancellation of the Arrow and the fight to retain the Red Ensign. Your inability to recall Balcer's crucial role in airline history can be forgiven, I'd think (I believe he was Transport Minister during the final years of Dief's stewardship), and if this is the best example of the alleged yoke of government-indentured route-flying that an AC'er can come up with, well ... come on guys, surely you can do better than that ...

Cheers, IFG - ROTFLMAO :P

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Guest Marion Vanderlubbe

CP Air's rights to Japan were granted by Douglas MacArthur, not by the Canadian government. The only way Ottawa could have removed those rights would have been to revoke CP Air's license to operate. There was no arrangement between Ottawa and Japan.

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You guys are priceless...do you think that Dr. Humdinger and Dr. Sprocket are arguing over what HMO did what procedures first, who was forced to do vasectomies while the other did breast implants? When was the last time you heard of a dispute between a big-city (read main-line) doctor or a rural (lo-cost) or a specialist and a family doctor. Yup I can just see the fights at the Canadian Medical Association annual meetings.

When we start identifying more with the colour on the side of the airplane than the fact that we are all in this together.

We as pilots are the laughing stock of Canada. All self-induced.

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What a preposterous statement. Douglas MacArthur has been dead for half a century. Air Canada got rights to Osaka because the Canadian and Japanese governments amended their bilateral agreement. The Japanese wanted as many carriers to serve Kansai Airport.

Don't confuse what may have happened in a past life with the state of affairs over the past generation-plus.

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You don't know what you were talking about. First of all, Air Canada was required to pay an annual dividend to the Crown, so if it was profitable, it didn't have the right to retain all of its earnings for corporate purposes.

But aside from that, the airline couldn't fart without a politician making a stupid demand. Air Canada had to maintain DC-9 service to Yarmouth and Sydney when a prop would have done. If it tried to close a downtown ticket office in Podunk, the local MP stood up and excortiated the minister until the minister called AC headquarters and had the decision reversed. AC couldn't close a maintenance base - and still can't today because of the ACPPA - even though it is patently uneconomic to have five maintenance bases. Maintenance bases, like call centres, were like a form of regional economic development. If you think the system of regional economic development is corrupt, you can imagine how much smoother the same corrupt principles were applied when the government could bully Air Canada and Canadian National into maintaining unneeded facilities, like a maintenance base in Winnipeg or a major rail repair centre in Moncton. While CP Rail got out of Montreal entirely, long ago, CN only really got into a more efficient and profitable mode when it was privatized (without foreign ownership limits or other special disabilities either).

When it came to labor relations, Air Canada could not do what Wardair did when Max Ward hired scab flight attendants and trained them in Florida to undercut his unionized flight attendants. Air Canada was a lightning rod for every "labor cause", good or bad, including bilingualism in the air. And the government could be counted on to find a compromise rather than let the airline play out negotiations to its possible advantage.

Thus Air Canada was not allowed to chart an independent course on labor which might have left it in 1988 with more streamlined and less costly labor agreements.

Air Canada was a dumping ground for politicians - a prime patronage post. Its board and for a time in the late 1960s through the mid-1970s its senior management, too. Its board was alternately a repository for Liberal bagmen and for Tory hacks. Remember Yves Pratte? There was an experiment in social engineering. Air Canada had been a largely anglophone company and the government set about "francisizing" it. That would have been well and good if the government had allowed the airline to hire the best Quebec business talent, but no - it had to be Liberal party loyalists with no capability for running a 7-Eleven let alone a major international airline.

It is to impossible to cost out the disabilities and liabilities Air Canada endured as a Crown corporation, some of which handicap it to this day. It is a lot easier to attempt to cost out the benefits it received as a Crown corporation, like certain international route rights, though all of the major rights Air Canada received are now in "open skies" countries like the US, Britain, France and Germany where we have ample competition from foreign and Canadian airlines (Transat, Zoom, Skyservice, etc.)

I happen to believe that if Air Canada had been allowed to behave like a private company after the Second World War, retaining earnings and performing only compensatory services and negotiating the labor agreements it wanted, it would be better shape today. Maybe it would have merged with CP three decades ago to form a truly powerful system. Who knows? But I do know that the assumption that AC's Crown status was a one-sided benefit to the airline is quite simply bogus. I was in Quebec, very much knowledgable about the story, so to speak, while all of this history was being written.

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