Seen some comparisons of Air Canada with Sabena and Swissair, both of which folded over similar issues recently.Can WestJet fill in for Air Canada?: Ottawa wants to know
National Post
(Fri 19 Mar 2004 - Page: FP1 - Financial Post) Byline: Paul Vieira, with files from Ian Jack
Federal Transport officials, worried about a potential unravelling of Air Canada's restructuring, recently contacted WestJet Airlines Ltd. to determine how much of a void it can fill should the country's dominant carrier fail, sources say.
The move is an attempt by Transport Canada to develop a contingency if the insolvent carrier collapses due to the pension impasse between Trinity Time Investments Ltd. and Air Canada unions.
The developments come as Trinity issued a warning on Wednesday that it is reviewing its offer and is prepared to walk away from its $650-million investment because the unions' refuse to allow employees a choice between participation in a defined benefit or defined contribution plan.
The unions, which vow to protect their defined benefit plan, showed no signs yesterday of budging.
"What has Trinity got to lose by trying to squeeze more from those who can least afford it," said Pamela Sachs, head of Air Canada's unit of the Canadian Union of Public Employees, which represents flight attendants.
The fear, she said, is that Trinity will want more after squeezing concessions on the pension front.
"They will try to come back and take four or five more kicks at the can after that."
Last year, the unions agreed to $1.1-billion in wage and job concessions in return for a promise from airline management that their pension benefits would remain intact.
Meanwhile, the deep impasse between Trinity and Air Canada unions has Transport Canada officials scrambling. Sources indicate Transport officials contacted WestJet to see how much of a void it could fill in the event Air Canada collapsed.
"There have been some rather direct conversations," said one source, speaking on condition of anonymity.
Calls to WestJet chief executive Clive Beddoe were not returned.
One industry insider, however, said it is unlikely a carrier such as WestJet could fill the void immediately because it would not have enough aircraft at its disposal. It would also have to hire a number of people for each new plane it adds.
One scenario that may evolve, the insider said, is Transport Canada permitting WestJet to "wet lease."
This would see the low-cost airline use a U.S. carrier's planes and crews to fly to certain domestic destinations, even though the flights would operate under WestJet's banner. Such a scenario could be allowed for a certain time period.
A Transport Canada spokesman declined comment on whether the government has specifically approached WestJet about what it could do in the event of an Air Canada collapse. But Brian McGregor said government officials are in regular contact with all Canadian airlines.
"We're very much aware of WestJet's abilities and capacities. But our focus as a department right now is to make sure there is a private-sector solution looked at here," he said.
Meanwhile, Trinity's review of its offer for 35% of Air Canada is likely to take weeks, a source close to the restructuring said. Trinity is concerned its offer is no longer economically viable because the defined-benefit program has to be maintained as is.
The unions have refused a Trinity proposal that unionized employees be offered a choice in opting for either the defined-benefit, which guarantees a certain payout upon retirement, and a defined-contribution scheme, whose payouts depend on accumulated contributions and investment returns.
Under the contribution plan, the planholder is responsible for investment decisions and returns, as opposed to the company.
Air Canada has a $1.3-billion pension shortfall because the returns from the stock markets have failed to meet required payouts to retirees under the defined-benefit scheme.
Is it the end of the legacy carriers? Down south, American Airlines has major problems, United is in Chapter 11, Continental owns nothing (everything sold and leased back) and is deeply in debt, and none of these majors are posting any profits.
This is not just a Canadian phenonemon, rather, it is a problem affecting most of the world's air carriers. Whatever the future of these legacy carriers will be, I can only see it adversely affecting our career standards as a whole.
