Air Canada is facng a rapidly unwinding dilemma with its parent company and major shareholder stuck in corporate limbo while its labour union contracts head for a late-June expiration.
The carrier's parent, ACE Aviation Holdings,planned to dissolve itself, buying back its stock and distributing the proceeds to shareholders. But shareholder resistance, threats of legal action by dissident investors and the airline's unions, along with saggingmarkets, have forced it to put the wind-down off indefinitely.
While the dissolution of ACE had been the plan from the beginning, since former chief executive Robert Milton devised the holding company as a way to take Air Canada out of bankruptcy in 2003-2004, and then set its eventual dissolution, shares in the airline have sagged to penny stock levels. The unwinding of the parent, the plan had held, would free up the Air Canada shares and let them rise to real market value. ACE owns 75% of the airline.
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A larger concern is in the ongoing viability of the airline, regardless of the ownership structure. The airline lost C$1.03 billion ($780 million) last year and has cash liquidity of about C$1 billion, which chief executive Montie Brewer calls about the minimumto keep it in operations. But cash is not rising and a credit-card company covenant could be triggered in the second quarter, decreasing the airline's cash. Some Canadian securities analysts have predicted a second bankruptcy. Jacques Kavafian, Research Capital securities analyst, does not mention the 'B' word, but calls the outlook "bleak and getting bleaker". He sees "no upside" in its dire situation.
Its unions, which gave the carrier some C$1 billion in concessions during its bankruptcy, say they deserve any proceeds of the ACE dissolution for their sacrifices. The largest union at the airline, the International Association of Machinists, is on the verge of suing,while two other major unions are challenging the ACE wind-down plan.
Meanwhile, Air Canada unions, which gave the carrier some C$1 billion in wage, benefit and work-rule concessions during its bankruptcy, say they deserve any proceeds of the ACE dissolution for their sacrifices and for their pension funds. The largest union at the airline, the 9,000-member International Association of Machinists, is on the verge of suing. Its general vice president, Dave Ritchie, says: “Workers and retirees have already made sacrifices that helped Air Canada survive the last economic downturn. The shareholders of ACE have done well for themselves. Now is the time for ACE to meaningfully recognise those sacrifices by using its assets to support Air Canada and Air Canada’s employees and pension-plan beneficiaries.”
While the workers have not threatened any work stoppage, they have been so vocal about their dissent that the flying public is wary. Kavafian says “a work stoppage is not necessary to hurt the company. That objective can be achieved by vocal threats that unions or their members send out in the public domain. As these threats frighten passengers, they may switch their bookings.”
The airlines’ two other major unions, the Canadian Auto Workers and the Air Canada Pilots Association, are challenging the ACE wind down plan, asking the nation’s Office of the Superintendent of Financial Institutions to intervene.
Click here to read our cover interview from 2006 with ACE Aviation chairman Robert Milton
Source: Airline Business
