Painful lessons courtesy of Air Canada by

[Driving Rain]

http://www.thestar.com/comment/article/587559


Andy Wilson

The release of Air Canada's year-end results last week – the airline announced a loss of $1.03 billion – provides an opportunity to take stock of the changes that have taken place at our country's largest airline since it emerged from bankruptcy protection. The case study of Air Canada's dismantling and diminishment offers some valuable and painful lessons for legislators and regulators – and the public they are supposed to serve.

It was 2003, when Air Canada was in trouble, that the financial sharks first smelled their opportunity. Air Canada employees were told that they had to "do their part" to rescue their employer. And they did, with more than $2 billion in concessions. Employees also understood the logic of restructuring the business in order to realize the promised long-term prosperity of their airline.

Unfortunately, that logic was not allowed to prevail. The sale of Aeroplan and Jazz to a new parent firm, Air Canada Enterprises (ACE), was engineered in 2006, at a deep discount. Then ACE announced distributions of $2 billion to its shareholders. Through an elaborate series of transactions, the result was that the employee concessions all ended up in the hands of the vulture funds who were supposed to be the "rescuers" of Air Canada. The billions extracted from the airline represent an amount greater than the entire aggregate profit earned by Air Canada since 1937. Little, if anything, remains for the enduring benefit of Air Canada.

The final windup of ACE is now imminent. All that remains is a squabble over the remaining scraps. When the plan of arrangement is eventually approved, Air Canada will be worth less on the market than the price of a single Boeing 777.

ACE is a poster child for what ails the Western world's economic system. That system's success was built on the model of corporations assembling capital, ingenuity and human resources for the purpose of efficiently producing high quality goods and services. In return, businesses earn a well-deserved profit and reinvest some of that profit in the corporation so that the cycle of success can continue and grow. In the process, businesses also employ people, who are then able to buy the products and services they need, creating consumer demand that powers our entire economy. We all recognize this model as the primary source of the immense wealth and productive capacity the West has built up over generations.

But somewhere along the line Western economies seem to have lost their way. International financial moguls have learned that there is more quick and easy cash to be had through financial shell games than through the hard work and rigorous management of efficient, productive enterprises.

Our system of corporate law and regulation offers no protection from such unethical attitudes and actions. Our system is based on the naive assumption that corporate activity is essentially ethical, beneficial and productive. This assumption underlies our inadequate financial disclosure regulations and a tax structure that in some cases actually provides incentive for the decapitalization of industry. The recent Canada Revenue Agency ruling, which significantly reduces the amount of tax that ACE preferred shareholders will pay on their distribution, is a case in point. It is little wonder that Air Canada employees see this public subsidization of the ACE deal as a final insult to their history of dedication and the contributions they have made to the viability of the company.

Western nations are further hampered by a dysfunctional collective corporate culture that is focused on the short term, with a dearth of leadership and vision to create a better long-term future. Worse, we have embraced a culture that accepts this as the norm. We hear continuous reports by breathless stock cheerleaders without considering long-term economic consequences. We rely on a flood of cheaply produced foreign goods to give us lower prices, but fail to see how this has deprived us of the productive capacity to generate the national income that pays for them. In a very real way, we have all contributed to the financial situation we now face.

In the case of Air Canada, this has resulted in our flag carrier – the largest part of our national air transportation system and the hope and pride of its dedicated employees – being weakened and diminished.

We all want to live in a prosperous country, where our laws, policies and practices encourage efficient, productive and competitive industry. But today, our laws, actions and attitudes are permitting financial carpetbaggers to prosper, while employees, the travelling public and the communities Air Canada is supposed to serve are left holding an empty bag.

It's time to consider how we allowed this to happen and what we can all do – as employees, consumers, shareholders, regulators and legislators – to stop it from happening again.



Capt. Andy Wilson is president of the Air Canada Pilots Association.

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[bmc]

Bring back the Viscounts !!!!

[Siddley Hawker]

Bring back the DC-3's.

[bmc]

Bring back the DC-3's.

Ok Smartass. Bring back the Lodestars !!

[Rotten Apple #1]

How about bringing back the little red plastic dc-8 I had as a kid. Must have been early to mid 70's; I got it from the crew on a trip to NF to see my grandparents.

On the nighttime trip back, the pilots had me up front and I remember the Captain saying how I should tell my friends I saw the moon shining off of Lake Winnipeg. Thanks for the memory whoever you were!

[bmc]

Anyone remember the little grey plastic Air Canada planes that had about a 2-3 inch wingspan?

I really do not mean to derail this thread. My comment about the Viscount was a smart ass way of saying bring back the good olde days. The changes at AC were "interesting". But to suggest leaving it alone would have risked putting AC out to pasture.

Am I reading him right that he is suggesting that the changes of 2003 have a direct impact on AC of 2008 and a $1.0 Billion loss? Is he suggesting that if it was left as AC of 2003 or better yet 1995, AC would be stronger today?

To suggest, and I'm not clear if he is, that 2008 financials are because AC had dramatic restructuring in 2003 is puzzling. I don't get it. I would have assumed that fuel prices, weakening economy and low cost competition would have had more of an impact in 2008 than restructuring five years ago.

Sure, AC was a grand quality airline. But so was Pan Am and Eastern. AC, despite all the bitching and whining, is on a global scale, much further ahead in terms of re-inventing itself than many many other airlines. I worked for Canadian long ago, so by team spirit, I should not like AC. But, to be fair, AC is good airline today. Yes it had a bad year. So did just about every other airline out there. AC will do what it has to do to survive. If it doesn't say adios Canada. Alternatively, bring back a regulated environment that will remove competition, raise airfares to levels that responsibly reflect cost, park the excess capacity and lay off a couple of thousand people. AC would be much stronger. Pilots could earn more money.
And then, we will be back to 1969. When we saw Viscounts on the ramp.

[365TAS]

Reserving this 1st spot for future comments

Bring back the free hot meals, the open bar, and smoking aft section!!!!

It's a real shame what's been done to AC by both the managment AND the unions..looking no further that the next year or two getting whatever they can and screwing the future. Looks like management and the preferred shareholders won this round. Oh yah, they won the last one as well during the last bankruptcy. Problem is the zombie keeps coming back to life...with the same unions and same management.
So far Westjet and Porter seem to have avoided those problems, both are growing and have great company cultures and at PD there are free cold meals, free wine and beer and the aft crew is usually smoking ...is that good enough for ya?

[Rockie]

Not long ago ACE, which is a parent company set up to sell off Air Canada assets to raise money, sent 2 billion dollars cash to the loansharks that bailed it out in 2003. Now, even while Air Canada (airline) is strapped for cash and seems to be swirling down the same toilet they were before, ACE is in the process of sending an additional 800 million cash to those same loansharks.

Those loansharks are not interested in Air Canada as a viable company, they only want their money within a certain timetable even if it means the death of the airline. ACE is only too happy to accomodate them and is not so much as mildly objecting to the peril it places Air Canada in.

Shareholder first, last and always.

Company and its employees be damned.

[looproll]

Air Canada has really become quite unimpressive. Whenever I hear the name now, I cringe.

[GilletteNorth]

Employees of major airlines usually endeavor to make a career with their companies. They dedicate themselves to a long term veiw. When their efforts are laid to waste by greedy "investors" trying to make a short term profit it's a damn shame. Isn't it about time, in the interests of preventing "investors" from playing "shell games" or taking all the best parts of a company and using them to make a quick profit, that the investors are also required to maintain their investment for a longer period and accept the slings and arrows of share market value like everyone else?

Would regulating that investments must be for a specific length of time, say 5 years, prevent this? My theory is that by forcing the stock market to change it's ability to buy shares at the beginning of the day and sell shares at the end of the day (or even within short periods of a few months) would reduce the volatility of the market.

It's my understanding that people are supposed to use the stock market to invest in companies and to buy commodities that are not produced in their country or that they can get cheaper from competitors. However, due to the huge monetary clout of some very rich individuals and/or corporations, when the stock market opens, a large buy in a share can result in the impression that the stock is worth more resulting in other "investors" buying shares as well while trying to get in on the increased value. After the stock has risen by even a few points the major corporation or individual can start selling their shares and make a fast profit by essentially removing the new investment money and putting it into their own pocket. The same situation occurs when immoral individuals unfairly influence the market by starting false rumors about certain stocks in order to sell their shares during the period when the share price has increased unrealistically. Insider trading also unfairly influences the stock market. All of the above situations occur regularly within the market and must be stopped.

I think they need to change the regulations on the buying and selling of shares. Certain stocks concerning produced goods like grain, cattle, oil, mining-resources would only have a buy-only option. You buy it, and use it, no further trading. Other stocks concerning industry, technology, banking, aviation would have a 5 year buy option. You buy the stock and must hold on to it for 5 years come good or bad. At the end of 5 years you must sell. I have a feeling that when this "forced sell" occured, one of two things would happen. First, depending on the magnitute of the sale, the stock price might drop and that might cause new investors to snap up the shares at the lower market value so that the share value rebounds quickly. The second thing that might occur is that the person/company selling the stock may realize that the company is still worth investing in and immediately re-buy it's shares for another 5 years therefore maintaining the same market value. Either way, the company being invested in will be protected from quick-gain stock market vultures and, if it is maintaining a good business, it's share value will remain stable with investors still seeing a fair return on investment.

I read in the papers all the time how investors don't like what happened to their investments, more often because they didn't remove them when others did, resulting in a loss. Isn't that what investing is about? Taking a chance that you may make a profit? It is not guaranteed.
But the market attitude toward making a quick buck is a serious detractor to financial stability for the average investor.

[Flaps 1 Billion]

I wonder if Uncle Milty and Mike the White have hot tub sessions together. A few glasses of wine, a cigar and discussions on how to mount millions whilst mounting the backs of those that suffer. Ah Milton, he was such a hero wasn't he? Until he bent everyone over and made off with a stinnk load. Another disgusting example of the CEO's of the late 90's/2000's.

[crazy_aviator]

Isnt it time to take a cue from the auto sector ?? OVERpaid employees incessently demanding more of EVERYTHING and trying to work less and less! Middle managers sitting on their arse continually trying to find ways to substantiate their existance, upper management competing with each other over the most expensive car or the best tee off times and sucking every possible million from the company with NO regard for integrity and honesty and concern for the well-being of the company! Politics and beurocracy with a lawyer around every corner to assure that no one in power is going to get sued or hung out to dry. Corrupt deals the norm ! Air GM or Air Canada ? The fat , selfish woman that is Air Canada needs to trim down and stop eating the chocolates or else she is gonna get sick and die !!!

[Letterhead]

Mr. Wilson has identified the issue succinctly and yet both he and ACPA continue to try and force a round peg into a square hole. The fact is that capital can move and unions members cannot. In a modern globalized economy mobility is extremely important, capital recognizes this fact. Sadly, for its members ACPA has tied itself to the seniority system. The legacy pilots in Canada, while correctly identifying the business issues, have not created new structures to deal with a very dynamic business environment. Other more sophisticated union groups, The Carpenters Unions comes to mind, recognize that employers fail and their internal organizational structures are able to meet their members needs despite this harsh business reality. Simply put, labour must have the ability to move to serve its interests, just as capital does. This means there is a requirement for multi-employer defined benefit pension plans and more flexible seniority systems.

There are many pilots at Air Canada that see the writing on the wall and fully appreciate that smart labour would leave if it could and join a better managed company. Hell, many would have left in 2003 if they weren't tied to a seniority system (although a few did). Under the current system the vast majority of the senior pilots will be forced to ride out the storm and, if things get really bad, go down with the ship. Without transferrable skills most pilots must stay with the ship until it crashes into the iceberg they all see sitting dead ahead.

In such circumstances, much like the situation in the U.S., many pilots will be forced out of the business forever. This is because the only currency unionized pilots have - seniority - has value only at their present failing employer. Once that employer completely withers, they have nothing of value that any other unionized airline will compensate them for at their current rates of pay. The trouble isn't the business environment, or corporate raiders, the trouble is that the unions, while smart enough to see what is happening, are committed to solutions to problems that no longer work.

If pilot unions are going to act in their member's interests they must learn to bend and flex with the changing business environment. So far, Mr. Wilson has clearly identified the issues, now, rather than crying over spilled milk, he and his brothers and sisters at ACPA and ALPA should work on a method by which they can leverage the current environment for the benefit of their members.

[Polikarpov]

From the National Post today,

Air Canada could face bankruptcy protection

http://network.nationalpost.com/np/blog ... 41281.aspx

[jetfuel]

Oh yeah another bashing of Air Canada.....

The corporate vultures keep winning... and yet its always the greedy pilots of AC and many defunct airlines that are at fault.....and yet the young up and coming pilots that pay up to $50000 for their licences continue to work for substandard wages in this industry just to become one of the greedy pilots at the show!....You can bet that if AC fails and really does close down, how many of you would be lining up to fly the big aluminum at a restructured airline for bus driver wages and no respect .

WAKE UP people.... you continue to crap on the Airline that is trying to maintain the standards of pay/working conditions and safety that pilots deserve!

If AC fails then Westjet will become the new whipping boy as the highest paid pilots in Canada(if they aren't already) and the rest will be getting what they deserve..... Walmart wages in a Walmart world....the lowest cost wins!!

We have to stop demeaning ourselves as pilots and start standing up for what our profession once was..

Jetfuel

[...]

...is that good enough for ya?

Deal...now get me into Porter...I like taking a boat ride to work...makes me feel nostalgic...like a Viking or something....yeah a Viking

[EPR]

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[oldncold]

I sincerely hope that the now BIG WJ learns from its competitor. That it realizes that its about the net diposable income of the traveling public.
There are exceptions> but overall joe-q public couldn't give a rats ass about fuel cost, maintenance and the like .9-11 with all it barriers has not helped either I.M.H.O.

Air Canada is a descent airline but with old school ingrained ideaologies. its kind of like a 1940's bush pilot walking into a garmin world /it can be done but it will take longer than expected. THE 2BILLION ? IS will the markets have the patience to wait.

For all who aspire to the left seat of the lastest whiz bang multi eng /multi contential jet . it is in the best interest of all to believe regardless of the outcome.

[xsbank]

No sweat, no big business can fail nowadays! Government will bail out Air Canada just like the way they made it possible for GM to keep building all those Escalades and Hummers. That pension plan thats 3 billion in the hole? "No sweat, no big business can fail nowadays! Government will bail out Air Canada just like..."