Air Canada asks Ottawa for 200 Million.....

[balfour]

http://www.theglobeandmail.com/globe-in ... le1183292/

[northernpilot]

No way should gov't be involved in this anymore. get rid of the air canada act, and get rid of any gov't assistance.

[TyrellCorp]

No way should gov't be involved in this anymore. get rid of the air canada act, and get rid of any gov't assistance.

Please tell me what Government assistance? When?

[crazy_aviator]

Has anyone remembered the Government bailout of GM and the selfish employees pension plan ,,,overall 74.00 / hr. and we are going to pay for it! I would rather help out top heavy, unionized jerkdom A/C than GM

[northernpilot]

No way should gov't be involved in this anymore. get rid of the air canada act, and get rid of any gov't assistance.

Please tell me what Government assistance? When?

ummm...hello Mcfly.....what is the title of this thread?

and, FWIW, I hope all the GM and Chrysler workers in Ontario thank me(well, canadians in general) for paying my taxes to fund their pension....I don't get a pension....and now my taxes are going towards funding someone else's fat pension.

[Cam]

"If I give you a chip...then I have to give one to everyone..."

[c170b53]

What if a bank holding your savings said they couldn't pay you back? In AC's pension plan the money in the plan are my funds and funds of my fellow workers. The money was deducted from our pay with the company making contributions if and when the pension needed it according to the rules set out by Ottawa. Ottawa limited the money that could be put in it, problem is they never put money in during the good times and now don't want to put money in now because the funds are needed to run the business. To think at least with the few rules we have we will do much better than those in the states where the aviation business is a disaster. Individuals in the past have lost their funds or are receiving partial pensions because the companies spent the money in their plans.
Totally understand that people are miffed but maybe the focus should be on government policy, taxation and industry regulation. Things might get interesting once the consolidation in the airline business settles out. Looking at all the heavy industries that have left Canada, is aviation next?

[northernpilot]

What if a bank holding your savings said they couldn't pay you back? In AC's pension plan the money in the plan are my funds and funds of my fellow workers. The money was deducted from our pay with the company making contributions if and when the pension needed it according to the rules set out by Ottawa. Ottawa limited the money that could be put in it, problem is they never put money in during the good times and now don't want to put money in now because the funds are needed to run the business. To think at least with the few rules we have we will do much better than those in the states where the aviation business is a disaster. Individuals in the past have lost their funds or are receiving partial pensions because the companies spent the money in their plans.
Totally understand that people are miffed but maybe the focus should be on government policy, taxation and industry regulation. Things might get interesting once the consolidation in the airline business settles out. Looking at all the heavy industries that have left Canada, is aviation next?

there is no doubt regulation should be reformed. But if a company is allowed to continue for years and years and years and years underfunding its pension fund, then the company is not viable. It should be forced to fund its pension every year as required so that the employees don't get screwed over from the pension side of things. If the company can't make it's payment, then it's insolvent. If AC, GM, etc were never allowed to get this far behind on pension contributions in the first place, they would have gone completely bankrupt around 2002-2004, and I guarantee that something better would have risen from the ashes through the 4 year boom cycle from 04-08. And said new company would probably now be able to survive the current downturn intact. No doubt government rules play a part in this. they should be much more strict.

All this is, of course, IMHO.

[yycflyguy]

As recently as last year, the pension plans were fully funded.

[invertedattitude]

As recently as last year, the pension plans were fully funded.

I'm not defending Air Canada, but that can change rapidly.

When the markets tanked, the interest rates dropped, and paid pension plans are based on payouts on investments they have and the interest rates on those investments.

If you have 200 Million of investments @ 5% return, then within two months it goes to 3% return, all of a sudden you're millions and millions of dollars short of filling your pension requirement.

All Canadian companies fight this illogical battle, it's there to protect the employed workers, but it is I admit quite restrictive on companies.

[c170b53]

Fully funded correct? I thought the plans were underfunded by a little over 1 billion at the beginning of 2008, which suggests AC had underfunded for 2007. As well was the underfunding not the cause of our last visit to CCAA? I thought in that go the company got to extend the payback period and now that period will be extended again and payments frozen for two years.

[Campanola]

As recently as last year, the pension plans were fully funded.

what do you mean by "fully funded"? No deficit in the payments for this particular year or the whole dept to the pension plan was repaid?

[rudder]

As recently as last year, the pension plans were fully funded.

wrong.

[c170b53]

The degree of funding might be debatable depending on how the assets within the fund are valued. But clearly the spin has tightened.

[yycflyguy]

As recently as last year, the pension plans were fully funded.

wrong.

My bad, both pension plans were within 2% of being fully funded within the past 2 years (18 months I, believe). Thanks for pointing out the error.

[Jaques Strappe]

No way should gov't be involved in this anymore. get rid of the air canada act, and get rid of any gov't assistance.

When you say "anymore" what exactly do you mean? Are you referring to the non stop government interference with a private company since the late eighties? I hope you are not one of those who is convinced that Air Canada has been getting assistance of any kind from the government. If so, please give us the details of said assistance because to date, anyone who has made such accusation has been unable to back up their statements. If you want to discuss how Air Canada is used as a government tool used to grease politicians pockets in aircraft purchases or to fatten the coffers of Liberal supporters like Onex, then fine. Plenty of facts there.

As for pension funding, did you know that the government will not allow a company to invest for a rainy day in the pension fund? If Air Canada had tried to increase its' pension investment to cover a market meltdown like the one we are in now, it would have been taxed accordingly, just as any individual would who tries to put more than their maximum allowable annual contribution into an RRSP.

and, FWIW, I hope all the GM and Chrysler workers in Ontario thank me(well, canadians in general) for paying my taxes to fund their pension....I don't get a pension....and now my taxes are going towards funding someone else's fat pension.

You really should do your homework a little before making blanket comments like this.

Ottawa limited the money that could be put in it, problem is they never put money in during the good times and now don't want to put money in now because the funds are needed to run the business.

Even if Air Canada wanted to, they couldn't. See above.

But if a company is allowed to continue for years and years and years and years underfunding its pension fund, then the company is not viable.

This did not actually happen. The company took a pension holiday throughout the nineties because the fund was performing well enough that it could not make contributions, again, see above. The market literally had the rug pulled from under it which has created the current deficit. Market comes back, deficit goes away. It is not from "years and years and years of underfunding."

[roger.roger]

Deregulation of the Canadian airline market, under the new National Transportation Act, 1987 officially opened the airline market in Canada to equal competition.[11] In 1988 Air Canada was privatised, and 43% of its shares are sold on the public market.[8]

On 7 December 1987, Air Canada became the first airline in the world to have a fleet-wide non-smoking policy,[12] and in 1989 became completely privatised.

non stop government interference with a private company since the late eighties?

you mean the same company that interfeared with every other private company's operations for the 53 years it was a crown corparation. You boy's sure are proud of that 75 on your tail when the truth be told you have only been a private company for 7 years more than westjet. come to think of it happy 20th birthday. The way I see it they got 33 more years of fucking with you guy's before you can actually cry foul and have it mean something.

then again that's just my 2 cents

[tonysoprano]

then again that's just my 2 cents

Well at least you're smart enough to know that much.

You boy's sure are proud of that 75 on your tail when the truth be told you have only been a private company for 7 years more than westjet. come to think of it happy 20th birthday.

Nice spin brainwashed pissbrain. You got 68 years to go. Only by that time we'll still have 68 years on you. Keep dreaming of those J class seats. Actually let's be frank. The closest you'll get is with binoculars from terminal 3.

[c170b53]

Tony your correct about the company being limited on over-funding on an annual basis and also correct in that there were funding holidays for the company. There may or may not have been room to add but without knowing the numbers who knows for sure? Was not the first venture into CCAA due to pension liabilities? And for those out there that think that Rob masterminded the whole thing should know that this tactic has been successfully used by companies for sometime especially the big ones.

If you can't get to sleep at night I offer the following
Strategic Bankruptcy and Private Pension Default By: Orr, Douglas V.,Journal of Economic Issues, 00213624, Sep98, Vol. 32, Issue 3

All little excerpt albeit geared towards the US, something Rob feels comfortable with;
As a worker approaches retirement age, the termination value of the pension promise converges on the PBO value. If a large cohort of workers approaches retirement simultaneously, for example the baby-boom cohort, the funding requirements of the pension trust rise rapidly. This greatly reduces the ability of the firm to make dividend payments to shareholders, and terminating the plan just before the cohort retires will not solve the problem. If management wants to continue to satisfy shareholder demands, a new strategy will be necessary. That new approach may be strategic bankruptcy.

Strategic bankruptcies are qualitatively different from ordinary bankruptcies. In general, firms will work very hard to avoid bankruptcy. Bankruptcy generally reduces investor confidence in the firm, which lowers its stock price. It also reduces the firm's credit rating, which makes operating in the future much more costly. And most importantly from the shareholders' perspective, it puts them last in line to claim the firm's assets. However, if a firm's credit and investor rating is already low, or if the firm expects its future liabilities to greatly exceed its future assets, the shareholders have the incentive to precipitate a Chapter 11 bankruptcy. Chapter 11 bankruptcy allows the firm to continue to operate while it restructures its assets and liabilities through negotiations. By timing the onset of bankruptcy properly, the firm is able to maximize its bargaining position in the bankruptcy proceedings. In order to precipitate the bankruptcy, the firm behaves in a manner opposite to that in "normal" circumstances. That is, the firm will strive to inflate estimates of current liabilities and deflate estimates of current assets so as to gain bankruptcy protection [Delaney 1992].

A well-known example of this strategy involves Continental Airlines. When the airline industry was deregulated, competition eroded profit levels, and union contracts threatened profitability. Different airlines followed different strategies to try to renegotiate these contracts. However, Continental Airlines' strategy was unique. It shifted most of its assets to a newly created, non-unionized subsidiary and then manipulated actuarial assumptions used to evaluate its assets and liabilities so as to appear insolvent. It then declared bankruptcy and declared all of its existing labor contracts null and void. At the time, both organized labor and most managerial consultants assumed this action was illegal. However, the legality of this strategy was ultimately upheld by the U.S. Supreme Court [Neilson 1984].

In order to cut labor costs, Frank Lorenzo, then owner of Continental Airlines, was willing to spend $60 million in legal fees [Graham 1992]. The benefit to Continental of violating the existing labor contracts was a reduction in labor costs of almost 45 percent. Since the existing employees had limited other employment opportunities, few actually left Continental; so, despite a strike that lasted three years, the cost of defaulting on the contracts was minimal.

[tonysoprano]

Was not the first venture into CCAA due to pension liabilities?

NO. That was Milton's excuse to take us there in order to kickstart his aspiring millionaire venture. The pensions were not touched in any noticeable way. Labour was the source of the "problems". So we gave them a few hundred million in concessions (closer to a billion, actually).

If you can't get to sleep at night I offer the following
Strategic Bankruptcy and Private Pension Default By: Orr, Douglas V.,Journal of Economic Issues, 00213624, Sep98, Vol. 32, Issue 3

I'm sleeping very well thanks.
c170.
Don't overanalyze. Here's what I do know. Every recession has it's uniqueness. This time around AC is holding it's own, operational wise, thanks in great part to labour concessions. In this case it's all due to pension underfunding due to market devaluation and company underfunding, not to mention bad hedging. If some union wants to play hardball, they have to consider the fact that CCAA will most definitely make their present lives and future pensions worse. Eastern Airlines (for those old enough) went under because the flt attendant's union didn't sign on. That has got to be one of the greatest injustices to any labor organized group that ever egsisted. It has the potential to be repeated at AC by the rampies.