Westjet lobbies government against AC pension moritorium

[Fanblade]

http://m.theglobeandmail.com/globe-inve ... ice=mobile

Nearly 30 thousand retiries currently depend on this pension. Another 30 thousand active employees who will eventually depend on it. The discount rate is artificially low.

Nice friendly WJ.

[flyer 1492]

I'm surprised that Harper wasn't there.

[YYZSaabGuy]

http://m.theglobeandmail.com/globe-inve ... ice=mobile

Nearly 30 thousand retiries currently depend on this pension. Another 30 thousand active employees who will eventually depend on it. The discount rate is artificially low.

With that many people relying on this plan, isn't that a great reason to require Air Canada to honour the terms of its 2009 deal and increase the make-up payments to the agreed-on $225 million/year in 2013? For what it's worth, AC had $2.1 billion in cash and short-term investments at September 30th, so the extra $75 million isn't that big a deal. I'm not suggesting AC is out of the woods, but certainly it's in better shape than a couple of years ago and it's not clear why it continues to warrant special treatment.
The discount rate is not artificially low, by the way: it reflects a historically low interest rate environment. All DB plans face this issue.

[CpnCrunch]

The whole final salary pension thing is a bad idea...we were having pension deficits back in the late 90s from these plans, so why has it taken them so long to do anything about it?

As usual, Air Canada is a stinking mess and Westjet got it right from the beginning.

[TheStig]

The whole final salary pension thing is a bad idea...we were having pension deficits back in the late 90s from these plans, so why has it taken them so long to do anything about it?

As usual, Air Canada is a stinking mess and Westjet got it right from the beginning.

Well a lot happened between 1937 and 1996…

Lobbying against special assistance…hmm…isn't that a little hypocritical?

By the way "special assistance", seriously? Nice spin. A pension is deferred income and Air Canada's pension plans are Federally regulated. How would WestJet like its ESOP to be governed by Jim Flaherty? The changes being made are part of the collective agreement, now if you want to talk about 'special assistance' from the government the term 'collective agreement' might be a better place to start!

[twinpratts]

If I were a retiree, I'd want that fund topped up and running at full capacity... not a 4+ Bil shortfall. I say make them pay it.

[yyz monkey]

Better yet, cap the executive salaries to COLA increases only and forego any and all bonuses until the deficit is gone.

[Fanblade]

If I were a retiree, I'd want that fund topped up and running at full capacity... not a 4+ Bil shortfall. I say make them pay it.

So you are saying you want to bankrupt AC.

Good idea. That will keep the pension from failing.

The discount rate is artificially low. Just like mortgage rates they will eventually go up.

Scuttling a pension plan that is solvent on a going concern basis, but by law must forecast gains far below what the fund is actually achieving on a solvency basis is ridiculous.

What happens 10 years from now? Discount rate goes up. Pension solvency goes into surplus. AC takes a pension holiday. WJ going to complain about AC's costs dropping?

I suggest WJ minds its own business. This is a negotiated agreement between employer and employee. Our choice. Our risk to take. Butt out.

[YYZSaabGuy]

So you are saying you want to bankrupt AC.

Good idea. That will keep the pension from failing.

The discount rate is artificially low. Just like mortgage rates they will eventually go up.

Scuttling a pension plan that is solvent on a going concern basis, but by law must forecast gains far below what the fund is actually achieving on a solvency basis is ridiculous.

What happens 10 years from now? Discount rate goes up. Pension solvency goes into surplus. AC takes a pension holiday. WJ going to complain about AC's costs dropping?

I suggest WJ minds its own business. This is a negotiated agreement between employer and employee. Our choice. Our risk to take. Butt out.

The better approach might be to recognize that this is not just an AC issue: it affects something like 90% of Canadian employers offering DB plans.

The problem, as you pointed out, is the discount rate: it's set based on Government of Canada bond rates, currently around 2.5%. That rate is used to discount future pension plan investment yields, resulting in lower returns, but not future plan liabilities, resulting in a relative overstatement of those liabilities. One solution might be to do what regulators elsewhere (the U.S., the U.K., Sweden, Denmark) are considering, i.e. to discount future returns at something other than government bond rates: for example, an average 25-year corporate bond rate. The resulting discount rate today would be in the 5-6% range, with a corresponding reduction in the pension deficit.

That solution is not without its own drawbacks, of course, among them that pension funds globally have over the past couple of years significantly reduced their equity investments in favour of - you guessed it - government bonds. It might be a challenge to argue, given that, why a government bond rate shouldn't continue to be used as the appropriate discount rate.

That said, AC (and other employers) are regulated by OSFI and don't have the ability to negotiate this kind of stuff with their employees. Nor should they. If the end product ever hit the fan, the employees would be looking to the regulator and the federal government (i.e. the taxpayers) to help fund their future retirement benefits. They would also take precedence over a host of other AC creditors when it comes to getting money from the liquidation of the company's assets. Given all that, I believe the regulator should absolutely hold AC's feet to the fire and stick with the original deal. That this indirectly benefits WJA is beside the point.

[Fanblade]

The new arrangement goes much much further than the previous in reducing the pension deficit and increasing pension sustainability. Benefit reduction, working longer and a 50% increase in employee contributions amount to a 25% decrease in obligation.

Westjet is just pissed off that AC's elephant in the closet ( the one that makes them easy to compete with) has been partially off loaded on to the employees.

I agree on that point. The government intervention has allowed AC to achieve cost savings in many areas they would never have otherwise achieve. In a competitive environment I would be pissed at the government as well.

Let's just stick with fact. Government intervention has cut at WJ cost advantage over AC. The only target left to recoup some of that advantage is to convince the government not to approve the arbitrated solution to pension. This isn't about some new found moral high ground for pensions. It is about WJ.

[43S/172E]

Only one word for west jet management AMORAL

[43S/172E]

For those who get a nose bleed reading other then the "Calgary heretic" here is the article in question

WestJet complains in Ottawa about Air Canada pension request
Randall Palmer
Ottawa — Reuters
Published Tuesday, Dec. 18 2012, 3:01 PM EST
Last updated Tuesday, Dec. 18 2012, 3:04 PM EST
WestJet Airlines Ltd. is concerned about special treatment for its main competitor, Air Canada, which is seeking leniency over a gaping pension fund deficit, and records show that WestJet launched a concerted lobbying campaign with the federal government over pensions.
Executives from WestJet, the country’s second-largest airline, held a series of meetings on pension issues on Nov. 20-21 with four members of cabinet, including Finance Minister Jim Flaherty, who is in charge of the Air Canada pension file. WestJet executives also met with numerous senior officials as well as lawmakers from the governing Conservative Party.
The meetings and the topic of pensions are recorded in the federal Register of Lobbyists.
Mr. Flaherty is considering a request filed by Air Canada for a 10-year extension to the cap on special payments it must make to reduce the deficit in its defined-benefit pension funds, which reached $4.2-billion at the start of 2012.
“We won’t comment on the specifics of individual meetings like these,” WestJet spokesman Robert Palmer told Reuters. “But at a general level, we are concerned about the impact on the state of competition caused by Air Canada repeatedly asking the federal government for special assistance, especially at a time when they are expanding their fleet, buying new aircraft and have billions of dollars on the balance sheet.”
In 2009, Air Canada won agreement from the government for a moratorium on making special pension deficit payments through 2010. After that, Ottawa agreed to a cap on such payments that would rise from $150-million in 2011 to $225-million in 2013.
Air Canada chief executive officer Calin Rovinescu wrote Mr. Flaherty on April 26 to ask for a cap of $150-million a year in special payments from 2014 through 2023.
The airline has won the reluctant support of its unions for the plan, as well as the backing of its retirees, which Mr. Flaherty had said was a prerequisite for him to consider an extension. Air Canada was hoping for a decision by Mr. Flaherty this year.
A decline in interest rates used to calculate solvency gaps in the plans has badly hurt Air Canada, as with other employers with defined-benefit pension plans.
A reduction in the discount rate to 3.3 per cent from 4.5 per cent resulted in an approximate doubling of Air Canada’s pension gap to $4.2-billion last year.
It was not clear whether WestJet was lobbying against any extension of Air Canada’s pension cap, or seeking a higher cap, or pushing for other changes. Mr. Flaherty’s office declined to say whether he was moved by WestJet’s representations.
“We cannot comment on the specifics of individual companies. We also do not speculate about possible policy actions or discuss what might be under consideration,” Mr. Flaherty press secretary Kathleen Perchaluk said.
WestJet has been able to compete successfully with Air Canada as a no-frills carrier largely because it has a cost structure about one-third lower than Air Canada’s, though the spread between the two has shrunk as the result of aggressive measures by Air Canada.
In its representations to the government, WestJet met Transport Minister Denis Lebel, Labour Minister Lisa Raitt and Citizenship and Immigration Minister Jason Kenney, who is the senior minister for Alberta, where WestJet is based.
WestJet also talked pensions with the most senior bureaucrat in the government: Privy Council Office Clerk Wayne Wouters, deputy finance minister Michael Horgan and assistant deputy finance minister Jeremy Rudin, the point man on pensions.
Unlike Air Canada, WestJet does not have a defined-benefit pension plan. It offers an employee share purchase plan, and matches employee purchases of shares 1:1.
Air Canada’s legacy as a national carrier once owned by the government has worked for and against the airline. The government is unlikely to allow it go under, but its past means it is saddled by decades of regulations, crippling labour agreements and pension obligations.
The airline has worked hard to whittle back the costs, and on Tuesday it was unveiling a new low-cost leisure carrier, Rouge, intended to attract budget vacationers.

[squawk]

Westjet also unofficialy supported the right for AC employees to strike. I am sure they lobbied the industry minister to allow such strikes to proceed. The result? No such luck. Why weren't you wolves howling over this type of interference? In WestJest's best interest? Sure was! Probably was in yours too. Quid Pro Quo! Or Could simply be a case of Contradictio in terminis.
I ain't sayin, i'm just sayin.

[ettw]

Was this done because it is believed it would benefit Westjet? Of course. That's business. Expand your business and take advantage of your competitions weaknesses.

As far as I'm concerned, AC should square up the shortfalls. There are alot of people on that pension plan that did their jobs just the way AC told them to do it for years. In return AC paid them and agreed to continue to pay them in their retirement. To mess with that agreement now is immoral.

My father worked for Nortel for years. He tried to opt out of the pension because of the possibility of exactly what happened. Now his pension is 30% smaller than he was promised. Not too bad for him as he had other investments to cover this sort of thing but he has friends who are now in their 70s and really having a tough time. That's not right!!

I for one would let the airline collapse to keep the pension fund in good health. Look after the ones who need it the most first. If the pension contributions are the make/break issue that will determine whether or no not AC continues to fly airplanes, there are other problems.

ETTW

[Fanblade]

Was this done because it is believed it would benefit Westjet? Of course. That's business. Expand your business and take advantage of your competitions weaknesses.

As far as I'm concerned, AC should square up the shortfalls. There are alot of people on that pension plan that did their jobs just the way AC told them to do it for years. In return AC paid them and agreed to continue to pay them in their retirement. To mess with that agreement now is immoral.

The irony is that people who understands the current solvency issues DB pensions face in Canada, don't believe the deficit is anywhere near as big as stated. It is a fictitious future prediction based on actuarial principles that currently don't work. No one believes it should be paid in full. For example for every 0.25% increase in the discount rate the deficit reduces by 400,000,000. A 2.5% change and the deficit is gone.

2009 - 2014 AC will have paid 1.25B toward the pension solvency deficit. That is ABOVE and beyond regular payments.

The 10 year proposed moratorium amounts to another 2B thrown at it between the 150,000,000/year from AC (ABOVE and beyond regular pension payments) increased employee payments and reduced benefits.

I think the employees have made (forced to) good long term decisions. Attempting to scuttle the agreement is nothing more than self serving at the expense of about 60,000 Canadians plus their dependents.

It doesn't come across very Westjettie. Business and ethics are not mutually exclusive. WJ's image is based on "Caring". Behavior like this is damaging to it.

For AC? Not so much. Everyone knows they are evil. LOL. I laugh but we both know there is truth in the statement.

WJ's indiscretions are more objectionable because of the image they have tried to personify. Kinda like Tiger.

My father worked for Nortel for years. He tried to opt out of the pension because of the possibility of exactly what happened. Now his pension is 30% smaller than he was promised.

Exactly why the best way to protect a pension is operational sustainability. Sustainability is a balancing act when coming back from the edge. That would be OUR balancing act. None of WJ's business.

[Bede]

It doesn't come across very Westjettie. Business and ethics are not mutually exclusive. WJ's image is based on "Caring". Behavior like this is damaging to it.

WJ is a profit driven corporation whose investors expect a ROI. WJ delivers this by being caring to passengers and employees, not by being caring towards AC's shareholders. All WJ is lobbying for is for AC to play by the existing rules.

Yes the discount rate is a detriment to your pension solvency, but let's be honest, it isn't the sole reason. Your management underfunded your pension for years choosing instead to pay exorbitant executive compensation packages for truly marginal performance.

I still can't understand why ACPA is supporting continued pension deferments.

[mbav8r]

For the most part they have to, it is in the contract the was forced on them.

[altiplano]

This a PR excercise by Westjet plain and simple, "Air Canada, special treatment, blah blah blah," anyone who understands the file knows the only ones who will take a hit are the employees if the moratorium isn't extended. The shortfall is solely theoretical. The WS knows it, the ministers know it, can't believe they are even getting an audience for it...

[43S/172E]

Altpiano I think the real reason is what I found on PPRuNe is from the December 07th Desjardins Securites daily pulse which is copied below

Desjardins Securities Daily Pulse Re: WestJet

--------------------------------------------------------------------------------
Good Afternoon All:

This just came in from Desjardins Securities on WestJet:

December 7, 2012
Canada
Demand for REITs insatiable as investors chase higher returns. The best year on record for Canadian publiclytraded real estate just keeps getting better.
Canadian banks ring up hefty profits as consumer lending boom continues. Stratospheric consumer borrowing is a worry for policymakers but so far it’s been nothing but good news for Canadian banks.

WestJet looking to cut costs as ‘cushion’ over Air Canada shrinks.

WestJet has long boasted a 30% cost advantage over Air Canada, but WestJet’s chief executive Gregg Saretsky said that has shrunk considerably.

[altiplano]

Except the gov't ministers know that forcing this will only push the pension plan into bankruptcy, long term effect on AC would be minimal and may actually reduce future obligations... it will slash the retirements of 60,000 Canadians. WestJet knows this, it's simply politicing for headlines and misunderstood public opinion.