Feds, Air Canada, Agree On Seven Year Pension Deficit Repayment Plan

[dagger]

-average payments of $200m per year for a total of $1.4 billion

-$150m minimum payments

-limitation on executive compensation (COLA increases only)

-freeze on pension plan improvements (unless approved by feds)

-No dividends or stock repurchases for the duration of the agreement

http://www.newswire.ca/en/story/1128279/air-canada-pension-funding-arrangements-to-be-extended-with-specific-new-conditions-attached

Air Canada Pension Funding Arrangements to be Extended with Specific New Conditions Attached

MONTREAL, March 12, 2013 /CNW Telbec/ - Air Canada and the Government of Canada have agreed to an extension of Air Canada's pension funding arrangements to January 30, 2021. After lengthy negotiations the initial AirCanada proposal was strengthened with additional required solvency payments, a shortened term and specific new conditions that will ensure that all employees and executives of Air Canada are part of the solution.

This arrangement comes as a result of the upcoming expiration of the Air Canada Pension Plan Funding Regulations, 2009 on January 30, 2014. In the current extremely low interest rate environment, Air Canada's pension solvency deficit funding payments would be unsustainable without this extension in place.

According to the agreement reached with the federal government, new regulations will be adopted under the PensionBenefits Standards Act in respect of special payments under Air Canada's defined benefit plans to cover the period between 2014 to 2020 inclusive, expiring January 30, 2021. According to the terms of the agreement, subject to the maximum past service contribution permitted under the Income Tax Act for the plan year, Air Canada will make payments of at least $150 million annually with an average of $200 million per year over seven years. Over this seven-year period, Air Canada will contribute an aggregate minimum of $1.4 billion in solvency deficit payments, in addition to its pension current service payments.

During the time the regulations are in force, Air Canada will be subject to a series of covenants and undertakings, including no dividends and share repurchases, certain limitations on executive compensation arrangements and no pension plan benefit improvements without regulatory approval.

Air Canada's Canadian-based unions had previously expressed their support for Air Canada's extension request and the arrangements are subject to successfully concluding a consultation process with Air Canada management and retiree beneficiaries. Air Canada will submit to the Office of the Superintendent of Financial Institutions (OSFI) all communications materials it intends to send to pension plan beneficiaries prior to funding the plans in accordance with the new regulations.

The new funding arrangements will become effective upon the execution of formal documentation and the subsequent adoption of new regulations under the Pension Benefits Standards Act, subject to Governor in Council approval.

In July 2009, the Government of Canada adopted the Air Canada Pension Plan Funding Regulations, 2009. These regulations established maximum levels of past service contributions (i.e. special payments to amortize the plan solvency deficits) to its ten domestic defined benefit registered pension plans in respect of the period ending January 30, 2014. During this five-year period, including payments required to be made in 2013, Air Canada will have contributed a total of $1.479 billion in past service contributions and in current service costs.

[airt]

"freeze on executive pay, bonuses"

Thank God there was some bloodletting from someone other than the "troops". CR got under the wire with his 5M though...

[FireFox]

"During the time the regulations are in force, Air Canada will be subject to a series of covenants and undertakings, including no dividends and share repurchases, certain limitations on executive compensation arrangements and no pension plan benefit improvements without regulatory approval."

Where do you get the "freeze on executive pay" from?

"Certain limitations" isn't necessarily a freeze...is it?

[conehead]

This is good news.

[dagger]

"During the time the regulations are in force, Air Canada will be subject to a series of covenants and undertakings, including no dividends and share repurchases, certain limitations on executive compensation arrangements and no pension plan benefit improvements without regulatory approval."

Where do you get the "freeze on executive pay" from?

"Certain limitations" isn't necessarily a freeze...is it?

"During the time the regulations are in force, Air Canada will be subject to a series of covenants and undertakings, including no dividends and share repurchases, certain limitations on executive compensation arrangements and no pension plan benefit improvements without regulatory approval."

Where do you get the "freeze on executive pay" from?

"Certain limitations" isn't necessarily a freeze...is it?

Compensation increases are limited to increases in inflation.

[deicer]

Expect Executive Suite Turnover in 3, 2, 1.......

[dagger]

Expect Executive Suite Turnover in 3, 2, 1.......

Ya, they are all going to take jobs running Porter, where money is clearly no object.

[Seeker]

Expect Executive Suite Turnover in 3, 2, 1.......

Aaahh, you underestimate their ingenuity - the directors will become "senior" directors, the vice-presidents will become "executive" vice-presidents, the executive vice-presidents will become "senior" executive vice-presidents etc, etc. There's no restriction on promotions or pay rates for "new" positions I'd bet.

[chockalicious]

[Seeker]

We look forward to working with the government to create a level playing field and an environment that supports a healthy industry that benefits the travelling public."

Great, I'm looking forward to that too - The "WJAPPA" has a nice ring to it, although the YUL-YYC commute is going to be a real tough one for the HQ staff.

[airt]

Great, I'm looking forward to that too - The "WJAPPA" has a nice ring to it, although the YUL-YYC commute is going to be a real tough one for the HQ staff.

What would you rather have , ACPPA shackles with a benevolent government backstopping AC and saving their bacon with the pension deferral or a free market where AC gets no deferral and goes into CCAA again?

I think your'e way ahead the way things are.

[Guest rozar s'macco]

Air Canada response to WestJet's claim of an "unlevel playing field"

Montreal-

It is Air Canada's contention that since inception in 1996, WestJet's Calgary base of operations has represented an unfair advantage in airline operations. Situated 3557 feet above sea level, WestJet flights departing from and arriving in Calgary have enjoyed significant savings in multiple airline operational categories: time in climb, time in descent, fuel to top of climb, fuel from top of descent, annual days of sunshine, and annual snowfall amount being of primary importance.

For comparable flights originating from Air Canada's main base of operations in Toronto (elevation 571 feet), an aircraft climbing to 38,000 feet out of Calgary enjoys a 3000 foot head start. Likewise in descent, a Calgary arrival lands 3000 feet earlier than one arriving in Toronto. Air Canada estimates that this saves WestJet $93,000,000 per year in fuel burn alone. Additionally, during winter months, Calgary enjoys 61% more days of sunshine and 34% lower average snowfall amounts, providing an unfair operational advantage with respect to winter and low visibility operational costs in WestJet's favour. Combined, the unlevelness of Calgary and Toronto's ground produce an advantage to WestJet approaching $200,000,000.

Air Canada is disappointed that WestJet continues to exploit this unfair, "unlevel" playing field to their advantage. "It is our hope that the government moves immediately to raise Toronto's airport elevation to match that of Calgary, or vice versa", said Air Canada CEO Calin Rovinescu. "Further, we hope the government moves to equalize sunshine and snowfall amounts, or provide tax credits that recognize the disadvantages that Air Canada absorbs as a result of geography and climate. Alternately, we would accept an ongoing equalization payment directly from WestJet in the amount of $50,000,000 or the difference in cost of our pension payments to their location advantage. Either way is good with us."

WestJet could not be reached for comment.

[Seeker]

What would you rather have , ACPPA shackles with a benevolent government backstopping AC and saving their bacon with the pension deferral or a free market where AC gets no deferral and goes into CCAA again?

Obviously the deferral is good but don't make it sound like it's a gift or something - they are simply relaxing the rules which were poorly thought out to begin with. The rule that prevented AC (and other companies) from over contributing when times are good to allow for an inability to contribute when times are bad was in place to generate tax for the government.

[dagger]

Great, I'm looking forward to that too - The "WJAPPA" has a nice ring to it, although the YUL-YYC commute is going to be a real tough one for the HQ staff.

Great, I'm looking forward to that too - The "WJAPPA" has a nice ring to it, although the YUL-YYC commute is going to be a real tough one for the HQ staff.

The feds could change the pension solvency formula to the US rules and tell all DB pension plan operators they are on their own, no extensions, holidays, etc. Also, the feds could change tax law to allow larger surpluses, so companies aren't tempted, or allowed, or forced to take contribution holidays. The feds - our feds - are at least partly responsible for the current situation with many DB plans.

[Fido]

WestJet could apply for the same conditions on pension relief as Air Canada.

[dagger]

WestJet could apply for the same conditions on pension relief as Air Canada.

Yep, stop the dividend, freeze executive pay, no share repurchases, etc.

[Lakelad]

.

Air Canada's pension hole can't be filled by executive pay freeze

Wednesday, Mar. 13 2013 - Globe and Mail

Sean Silcoff

The pitchfork-and-torch brigade is out in full force for highly paid CEOs. Across Europe voters and politicians are clamouring to clamp down on executive compensation. Now Ottawa is angling for a bit of the action.

On Tuesday, Finance Minister Jim Flaherty crowed that the government had struck a tough bargain with Air Canada: In exchange for Ottawa providing relief on the carriers huge pension deficit funding obligations, Air Canada agreed, among other things, to freeze executive pay at the rate of inflation, prohibit special bonuses and limit their incentive plans. It may make good politics to go after the rich, but its poor policy, and its difficult to see how limiting executive pay will fix the carriers problems.

Theres no question CEOs are highly paid, possibly overpaid, a situation that was decades in the making in the mid-20th century, and exacerbated by huge corporate scandals and the credit crisis in the 2000s.

But while governments and their appointed agencies have a role to play to ensure markets are transparent and uncorrupted, the job of determining how much to pay top executives of private-sector corporations should be left to owners (i.e. shareholders) of companies, their appointed board directors and management to sort out.

Giving governments a role to rein in pay is a mandate with no end in sight to the chronic dissatisfaction of the rabble. Even, say, forcibly cutting executive pay in half would leave a sizable gap between CEOs and the average worker and would lead to a flight of executive talent to jurisdictions with friendlier pay rules. Compensation consultant Ken Hugessen points out that setting ceilings would do little to help redistribute overall income, as foregone compensation would merely be transferred to corporate earnings, which are taxed at a lower rate (at least in Canada) than individuals.

In fact, backlashes from increasingly vigilant shareholders and increased regulatory disclosure requirements have already helped to usher in better compensation practices. Indeed, Air Canadas proxy shows it has been doing the right things: It limits top salaries by paying in the second quartile or lower of comparable companies. More than half of CEO Calin Rovinescus pay package depends on him earning a certain threshold of operating earnings. The board is entitled to claw back his compensation awards, and the CEO is required to own at least the value of his base salary of $1.4-million in shares. In their first say on pay vote last year, Air Canada shareholders voted 92 per cent in favour of the executive pay structure.

Now, consider what reining in Mr. Rovinescus pay will do to address Air Canadas pension solvency deficit, which stood at $4.2-billion at the start of last year: almost nothing. Mr. Rovinescu earned $4-million in 2011 and, in addition to his regular compensation, got a $5-million retention bonus from the board last year. Even if, hypothetically, he paid that bonus back, and all that money went toward the pension deficit, it would be a rounding errors worth of difference.

What Air Canada does need to fix its pension deficit problem is two things: a rise in interest rates over which management has no control, and improved financial performance, which management does. Reining in the incentives the board can offer its leaders wont help with the latter, and might just chase away talent.

.

[Seeker]

Now, consider what reining in Mr. Rovinescus pay will do to address Air Canadas pension solvency deficit, which stood at $4.2-billion at the start of last year: almost nothing. Mr. Rovinescu earned $4-million in 2011 and, in addition to his regular compensation, got a $5-million retention bonus from the board last year. Even if, hypothetically, he paid that bonus back, and all that money went toward the pension deficit, it would be a rounding errors worth of difference.

Sure, that's true. I just don't think we should reward substandard performance even if it's not going to make a significant difference to the bottom line. What was that bonus for again? Retention? People have been calling me "retentive" for years - nobody gave me a bonus for it though.

[Guest rozar s'macco]

That is an idiotic argument in reference to a business that sells headsets for $3.

[nozel]

Posted Today, 09:54 AM

Air Canada response to WestJet's claim of an "unlevel playing field"

Montreal-

It is Air Canada's contention that since inception in 1996, WestJet's Calgary base of operations has represented an unfair advantage in airline operations. Situated 3557 feet above sea level, WestJet flights departing from and arriving in Calgary have enjoyed significant savings in multiple airline operational categories: time in climb, time in descent, fuel to top of climb, fuel from top of descent, annual days of sunshine, and annual snowfall amount being of primary importance.

For comparable flights originating from Air Canada's main base of operations in Toronto (elevation 571 feet), an aircraft climbing to 38,000 feet out of Calgary enjoys a 3000 foot head start. Likewise in descent, a Calgary arrival lands 3000 feet earlier than one arriving in Toronto. Air Canada estimates that this saves WestJet $93,000,000 per year in fuel burn alone. Additionally, during winter months, Calgary enjoys 61% more days of sunshine and 34% lower average snowfall amounts, providing an unfair operational advantage with respect to winter and low visibility operational costs in WestJet's favour. Combined, the unlevelness of Calgary and Toronto's ground produce an advantage to WestJet approaching $200,000,000.

Air Canada is disappointed that WestJet continues to exploit this unfair, "unlevel" playing field to their advantage. "It is our hope that the government moves immediately to raise Toronto's airport elevation to match that of Calgary, or vice versa", said Air Canada CEO Calin Rovinescu. "Further, we hope the government moves to equalize sunshine and snowfall amounts, or provide tax credits that recognize the disadvantages that Air Canada absorbs as a result of geography and climate. Alternately, we would accept an ongoing equalization payment directly from WestJet in the amount of $50,000,000 or the difference in cost of our pension payments to their location advantage. Either way is good with us."

WestJet could not be reached for comment.

Shoulda saved this for April 1...

[Dork]

Well,well,well,

I guess I wiill get back to collect my money after all.Good time to get out.

It was sure a laugh to have the massaged document arrive backdated to Nov 2012 .... It arrived March 2013 to settle the money owed. They pretend to be efficient. i will give them 7 days to pay up.

Kind of like the Dagger's assurance that losing 1200 numbers on the seniority list was OK years ago....because I had a pension plan..."Get some time in aviation he said after 38 years in the biz".LOL...The only way to get the cash is to leave while the pundits keep the game going to pad their pockets...Talk about a huge money grab..1200 numbers and now a pension...a quandry shall we say..The now outsourced 1000 numbers don t pay so well....

Amazing how those who fly the desk let others fight their wars and comment on our careers while they take our pension money and expect us to fly for free and set up low pay carriers...may the farce be with you.

Great post on the ``pension plan``.....that is an oxymoron for sure...

Dork

P.S. Union, management and Dagger types....You have to throw a rock at a pidgeon to get it off the ground..Get some time in...

[inchman]

Ok.. I'll do the elephant in the room....

How many times among AC employees have I heard "If I save a buck, Calin will take it as a bonus", or some similar comment. At least hundreds. Maybe thousands.

Now, that argument for wasting money is no longer there.

People who have been wasting money and throwing away "Calin's" money for years will no longer any reason or excuse to do so. And maybe some of the spineless who, until now, have just smiled when someone boasted about wasting money will now man up and say "That's money that could be fixing the pension deficit".

As a result AC might actually start realizing substantial cost savings, and maybe people will stop sitting back and letting others waste money.

This isn't about Calin's $5 million bonus, it's about the $50 million that people will no longer have the excuse to waste in Calin's name.

And executives will have the incentive to get the pension deficit paid down as quickly as they can so they can start receiving bonuses again.

This might be the best thing to happen to AC in years!

[Seeker]

Ok.. I'll do the elephant in the room....

How many times among AC employees have I heard "If I save a buck, Calin will take it as a bonus", or some similar comment. At least hundreds. Maybe thousands.

Now, that argument for wasting money is no longer there.

People who have been wasting money and throwing away "Calin's" money for years will no longer any reason or excuse to do so. And maybe some of the spineless who, until now, have just smiled when someone boasted about wasting money will now man up and say "That's money that could be fixing the pension deficit".

As a result AC might actually start realizing substantial cost savings, and maybe people will stop sitting back and letting others waste money.

This isn't about Calin's $5 million bonus, it's about the $50 million that people will no longer have the excuse to waste in Calin's name.

And executives will have the incentive to get the pension deficit paid down as quickly as they can so they can start receiving bonuses again.

This might be the best thing to happen to AC in years!

No, no, no. People do say; if I save money, Calin gets a bigger bonus - but they say it as they are doing a single-engine taxi or choosing to hook up ground air conditioning rather than running the APU. IOW, I rarely, rarely see any intentional waste. The waste at AC is infuriating because it's out of the average employees hands - poor management - having aircraft waiting off the gate for a ramp crew to show because the station is short-staffed (for example). Penny-wise but pound-foolish. I choose a runway based on a short taxi, do a single engine taxi in, delay starting the APU and then wait 10 minutes for a ramp crew to arrive! The ramp manager get's a bonus due to his tight scheduling while some other department pays the fuel bill.

[inchman]

You must be kidding, seeker.

You're either not paying attention or are part of the problem.

I'm not going to get into this any deeper because I'm going to end up insulting somebody, but a lot of people in this company do a lot of things that waste money for their own gain or laziness (or just to act tough) and use the Calin bonus as an excuse.

[FireFox]

No, no, no. People do say; if I save money, Calin gets a bigger bonus - but they say it as they are doing a single-engine taxi or choosing to hook up ground air conditioning rather than running the APU. IOW, I rarely, rarely see any intentional waste. The waste at AC is infuriating because it's out of the average employees hands - poor management - having aircraft waiting off the gate for a ramp crew to show because the station is short-staffed (for example). Penny-wise but pound-foolish. I choose a runway based on a short taxi, do a single engine taxi in, delay starting the APU and then wait 10 minutes for a ramp crew to arrive! The ramp manager get's a bonus due to his tight scheduling while some other department pays the fuel bill.

Exactly, well put.

Seldom, if ever, see intentional waste.