Westjet Lobbies Against Ac Pension Extension

[Fido]

Joe Halldorson: Contact Homerun and see if he could spare a few days to give you a tutorial on pension plans. You need help.

[Joe Halldorson]

Gee Fido please feel free to discuss your concerns.

[Guest]

I come back to the essential point: Canadian commercial aviation is not a level playing field to begin with. It is tilted already in the favor of every airline not named Air Canada, because the latter is the only airline subject to unique disabilities under an act that bears its name. Nor is it level when the largest airport in Canada, used disproportionately by Air Canada, is subject to a different rent formula than all the other large airports in Canada.

So to Westjet. Stop whining about being disadvantaged competitively. You're not. Period.

The industry isn't a level playing field. The ACPPA has it's limitations, but don't act like AC emerged from crown ownership with this as the only lasting legacy from that era. In the decades leading up to privatization, AC benefitted handsomely from being a crown corporation and still reap benefits to this day. And the bankruptcy of 2003 didn't hurt either. I had the nice job on April 2, 2003 of calling vendors that AC hadn't paid in 6 months (or more in many cases) and telling them that they'll be lucky to get $0.05 on the dollar some time in the next few years... and oh yeah, by law, you can't stop providing service to me or increase my rates... even if we don't actually have a contract with you. My station alone wiped millions off the debt and drove a few small service providers right out of business. Poor old AC for sure.

[Spinnaker]

You are entitled to your opinion but it is clear that you don't have a clue what you are talking about regarding AC's pension plan. Firstly, AC 's pensions are not virtual money, in fact, on a going concern basis they are very close to being fully funded, ie around $11 billion is assets. What this means is that as long as AC continues in business all pension obligations can be met.

Secondly, AC has been contributing hundreds of millions of dollars, each and every year, in addition to the employee contributions.

The problem that AC and every other DB plan sponsor faces is with the "other" or solvency calculation. This assumes that the company goes out of business tomorrow and calculates the amount of money needed to pay everyone's earned pension. The interest rate used in this calculation is not what the plan has actually returned, nor what the plan was assumed to return when the funding requirements were put in place. No, the rate used is the Canadian government bond rate, which for the last solvency calculation at AC was 3.25 %. This is despite the fact that other countries use the corporate bond rate, which is higher.

The actual return on assets in AC's plan in 2011 was 6.8%. It was significantly higher in 2010 and in fact has been in the top quartile of Canadian plans for several years.

The impact of low interest rates in calculating AC pension solvency deficit cannot be overstated. In fact, for every 1% change in the rate, the solvency deficit changes by $1.8 billion dollars.

Federal pension law requires the plan sponsor to make up I believe 50% of the solvency deficit immediately. The relief AC got from this in 2009 sees them paying $150 million per year towards the solvency deficit in addition to current service contributions. It is this relief that AC wants extended and that Worstjet is lobbying against.

A 2% increase in the government bond rate will see the AC pension deficit almost completely disappear.

Thanks Homerun.

I appreciate you typing that as if this pension problem was fresh news to everyone. My issue remains with which company wants to lobby for an advantage. It isn't just a one time payment holiday here. Air Canada has been on record as asking for a moratorium on pension payments until 2024. So just how long is AC requesting not to pay its bills? I understand corporate bonds, talk to Canadian insurance companies if you want real problems. This problem isn’t new to Canadian companies who offer a pension, yet AC wants a 10 year holiday, it just strikes of burning the furniture to operate again. The pension rules were long in place before historic low interest rates. It isn’t going away any time soon and Air Canada seems to have a crystal ball to see the next ten years. What if that 4.4 billion deficit is 8.8 billion, is that when everyone says we we were wrong -time for another haircut? If I were in government I’d be wondering about the stability of the corporation asking and lets face it, Air Canada’s entitlement problem doesn’t exactly have good credit with Canadians. Saying ‘if’s’ and ‘woulds’ in your pension lesson, to me, sounds like a gambler saying ‘if I could just get this, I’d have that’. It’s a weak plan but I’ve seen he government do dumber things, good luck with that.

[Guest rozar s'macco]

The funding rules are too strict and are out of step with other countries. They were drafted in an era unlike that of today's economy. Air Canada has adapted and stopped offering DB pensions to new employees. The choice for the government is a) don't help and watch AC (and several dozen other large corporations) liquidate b.) update the rules and carry on.

I don't see the issue with updating regulations to reflect reality. Cheap shot coming, but do you support the US keeping the second amendment, and continuing to allow assault weapons? Or is that just not reflective of reality anymore? Easy.

Its a no brainer.

[Spinnaker]

The funding rules are too strict and are out of step with other countries. They were drafted in an era unlike that of today's economy. Air Canada has adapted and stopped offering DB pensions to new employees. The choice for the government is a) don't help and watch AC (and several dozen other large corporations) liquidate b.) update the rules and carry on.

I don't see the issue with updating regulations to reflect reality. Cheap shot coming, but do you support the US keeping the second amendment, and continuing to allow assault weapons? Or is that just not reflective of reality anymore? Easy.

Its a no brainer.

So the minister of Finance, the Governor for the BOC, even the IMF spend their last few years touting the fortitude of Canada's fiscal policy, but you feel we need to 'update' to be like other countries? Sorry... how did the gun thing creep in here?

[Kip Powick]

So the minister of Finance, the Governor for the BOC, even the IMF spend their last few years touting the fortitude of Canada's fiscal policy, but you feel we need to 'update' to be like other countries? Sorry... how did the gun thing creep in here?

I think he put it out there to show that the "gun thing" is outdated as well and needs to be ammended as do the funding rules....(funding rules need to change/gun rules based on something formulated in 1776 need to be changed as well)..just a WAG.

[DEFCON]

I think the DB plan should be treated more as a DC than anything else, but with restrictions to protect the plan holder from bad corporate management and themselves. If I had 1.5M accumulated in a 'plan' of any kind and I retired at 65 taking 7K a month out, I would be able to persist at this level until I was at least 85. Good enough...no?

[Homerun]

Thanks Homerun.

I appreciate you typing that as if this pension problem was fresh news to everyone. My issue remains with which company wants to lobby for an advantage. It isn't just a one time payment holiday here. Air Canada has been on record as asking for a moratorium on pension payments until 2024. So just how long is AC requesting not to pay its bills? I understand corporate bonds, talk to Canadian insurance companies if you want real problems. This problem isn’t new to Canadian companies who offer a pension, yet AC wants a 10 year holiday, it just strikes of burning the furniture to operate again. The pension rules were long in place before historic low interest rates. It isn’t going away any time soon and Air Canada seems to have a crystal ball to see the next ten years. What if that 4.4 billion deficit is 8.8 billion, is that when everyone says we we were wrong -time for another haircut? If I were in government I’d be wondering about the stability of the corporation asking and lets face it, Air Canada’s entitlement problem doesn’t exactly have good credit with Canadians. Saying ‘if’s’ and ‘woulds’ in your pension lesson, to me, sounds like a gambler saying ‘if I could just get this, I’d have that’. It’s a weak plan but I’ve seen he government do dumber things, good luck with that.

You don't seem to understand what AC is asking for. They are not asking for a moratorium on all pension payments. Regulation requires (I believe) 50% of a solvency deficit to be made up immediately. Given AC's most recent pension solvency test, that would mean a payment of $2.2 billion dollars. Instead, they are asking to make payments of $150 million per year. In 2012 AC is paying $175 million towards the deficit plus another $180 million for current service costs.

Asking AC to fork over $2.2 billion would lead to a immediate CCAA filing. How does that make the pension plan any more secure?

The pension act is bad regulation which needs to be changed for everyone. Why subject plans to a solvency test using an artificially and historically low interest rate that doesnt represent the rate used in constructing the plan nor the real world return that these plans are able to obtain? In AC's case, the pension plan is constructed, and payments established using a return of 5.4% (going from memory here). So if the actuaries establish the funding schedule based on a return of 5.4% and you then turn around and assess it based on a return of 3.25 % of course it will be in deficit.

For Westjet to lobby against these changes is unbelievably despicable in my opinion.

[anonymous]

I propose that AC employees lobby the Fed gov't to have Westjet brought under the auspices of the ACPPA, and rename the act the "National Airlines Act" and ensure that WJ has to abide by the same or similar regulations and restrictions as AC does....

Then the field will be even, right?

[airt]

I propose that AC employees lobby the Fed gov't to have Westjet brought under the auspices of the ACPPA, and rename the act the "National Airlines Act" and ensure that WJ has to abide by the same or similar regulations and restrictions as AC does....

Then the field will be even, right?

I propose that WestJet employee's lobby the Fed gov't to have Air Canada give back all the International routes and gates they have been awarded over the years and put them up for auction to ensure that AC has not had an unfair advantage.

Then the field will be even , right?

Ludicrous , isn't it? AC has benefitted by it's cozy relationship with the Fed's FOREVER. ACPPA is a small price to pay.

[dagger]

I propose that WestJet employee's lobby the Fed gov't to have Air Canada give back all the International routes and gates they have been awarded over the years and put them up for auction to ensure that AC has not had an unfair advantage.

Then the field will be even , right?

Ludicrous , isn't it? AC has benefitted by it's cozy relationship with the Fed's FOREVER. ACPPA is a small price to pay.

This is a stupid argument because it cherry picks only one side of what AC's relationship with the feds, whether it was putting planes into markets it didn't want, or having to have ticket offices in places that didn't warrant it, all because some jackass MP got up and whined to the minister. I still remember when AC closed its ticket office in Hamilton, and gave Yarmouth, NS prop service in place of a DC-9. Oh, the howls of outrage in the Commons. And the politicians couldn't stomach strikes, so AC always had to pay top rates, and it had to be more bilingual than the Academie Francaise. All for political reasons. It had to have three maintenance bases, even after the need for such evaporated. All for political reasons.

Or the obligatory 20% dividend AC paid out of any profits. And yes there were profitable years in the regulated era.

In many cases, AC actually purchased the slots and gates at airports like LGA and DCA, even some of its current LHR slots. So you didn't get that right either.

Here's the bottom line. Westjet is starting to feel a bit of heat because the cost gap between the airlines is getting smaller. When it had a 50% cost advantage over AC, it had a field day, and actually preferred having AC around rather than risk someone smart (not Michel Leblanc) starting a low cost airline - WS not being that low cost anymore. WS knew it could grow indefinitely, with very low risk, with a competitor crowding the marketplace but not making any money. Now, however, the game is changing. And the talk around the Kool-Aid machine in Calgary isn't so bullish on chances of easy growth at the expense of the plodding behemoth.

[dagger]

By the way, if there is any one thing that will help AC refocus employee discontent with their management, I suggest it's Westjet's campaign against the pension extension. With luck, Westjet has done AC an enormous favour by presenting itself as an external threat to their jobs. Heck, if I were a little more cynical, I'd wonder who leaked this to the media because it helps AC more than WS.

[airt]

Dagger

AC would probably not exist if not for the Federal Government.

I say again , ACPPA is a small price to pay.

I believe your bottom line is correct. Not unlike AC's response to competition over the last ...FOREVER. Whack a Mole. Whenever anyone dared to challenge their dominance the route and fare adjustments were made to eliminate them. Very successfully I might add. Until WestJet...

It's just business.

[runaway]

I propose that WestJet employee's lobby the Fed gov't to have Air Canada give back all the International routes and gates they have been awarded over the years and put them up for auction to ensure that AC has not had an unfair advantage.

Then the field will be even , right?

Ludicrous , isn't it? AC has benefitted by it's cozy relationship with the Fed's FOREVER. ACPPA is a small price to pay.

Still can't figure out why WJ is immune to the Official Langages Act as far as airlines are concerned....which applies to AC only!

[AMEfirst]

Dagger

AC would probably not exist if not for the Federal Government.

I say again , ACPPA is a small price to pay.

I believe your bottom line is correct. Not unlike AC's response to competition over the last ...FOREVER. Whack a Mole. Whenever anyone dared to challenge their dominance the route and fare adjustments were made to eliminate them. Very successfully I might add. Until WestJet...

It's just business.

AC exists in spite of the government.

The fed has kept the shackles on since privatization.

[Boney]

Air Canada Act

[runaway]

Dagger

AC would probably not exist if not for the Federal Government.

Are you referring to pre-merge or post-merge?

[Kip Powick]

Are you referring to pre-merge or post-merge?

Oh...... P U L E A S E..............in the spirit of the season..let's all give this "bashing crap" a rest....

[airt]

Oh...... P U L E A S E..............in the spirit of the season..let's all give this "bashing crap" a rest....

Yeah. I wasn't going to touch that one.

[Spinnaker]

You don't seem to understand what AC is asking for. They are not asking for a moratorium on all pension payments. Regulation requires (I believe) 50% of a solvency deficit to be made up immediately. Given AC's most recent pension solvency test, that would mean a payment of $2.2 billion dollars. Instead, they are asking to make payments of $150 million per year. In 2012 AC is paying $175 million towards the deficit plus another $180 million for current service costs.

Asking AC to fork over $2.2 billion would lead to a immediate CCAA filing. How does that make the pension plan any more secure?

The pension act is bad regulation which needs to be changed for everyone. Why subject plans to a solvency test using an artificially and historically low interest rate that doesnt represent the rate used in constructing the plan nor the real world return that these plans are able to obtain? In AC's case, the pension plan is constructed, and payments established using a return of 5.4% (going from memory here). So if the actuaries establish the funding schedule based on a return of 5.4% and you then turn around and assess it based on a return of 3.25 % of course it will be in deficit.

For Westjet to lobby against these changes is unbelievably despicable in my opinion.

http://online.wsj.com/article/BT-CO-20121108-716601.html

"We are in discussions with the federal government, where we would like to extend the moratorium, where we have a cap for the next 'x' number of years, hopefully 10, that would take away that risk of interest rates being low for that period of time," said Mr. Rousseau.

Hopefully he is right.

[CanadaEH]

I think everyone is getting a little too anal about the specifics of why or what.

To think airlines don't "lobby" for the upper hand or a competitive advantage from time to time is ignorant. We've had a pretty cozy duopoly for years and next year the landscape is going to shift dramatically with Encore and Rouge launching. I believe that something is going to change with Sunwing next year (growing from 10 to 30 aircraft in the winter using foreign pilots). Heck, maybe something changes with how WestJet operates to Hawaii using 757's.

[airt]

Just to be clear , I personally would have no problem with AC being released from the ACPPA. It's a relic.

It bugs me though to see the ACPPA card being played umpteem times on this forum as an excuse for AC's woes. Reminds me of the Kabbalistic "Bread of Shame".

My position is that AC got a lot more out of their "Deal with the Devil" over the years than what the ACPPA cost them.

[Specs]

Just to be clear , I personally would have no problem with AC being released from the ACPPA. It's a relic.

It bugs me though to see the ACPPA card being played umpteem times on this forum as an excuse for AC's woes. Reminds me of the Kabbalistic "Bread of Shame".

My position is that AC got a lot more out of their "Deal with the Devil" over the years than what the ACPPA cost them.

It is what it is and it's dealt with as a cost of doing business but If AC started lobbying for Westjet to provide all services to the public in both official languages wherever they fly how do you think Westjet would deal needing to hire or train a several hundred (thousand?) bilingual employees to be stationed around their network 24/7/365 and on board all aircraft?

[runaway]

but If AC started lobbying for Westjet to provide all services to the public in both official languages wherever they fly

Big Red tried that....it was a failure!