Pensions are at the heart of a dispute that threatens to wreck Air Canada's restructuring as it attempts to exit the protection of the bankruptcy court.
Victor Li's Trinity Time Investments, Air Canada's would-be C$650 million ($495 million) investor, has reached an impasse with airline unions over Trinity's insistence that pensions covering most employees switch from a defined benefit to a defined contribution basis. The unions insist that when they agreed last summer to a package of labour concessions worth an estimated C$1.1 billion, the quid pro quo was that pensions would be left alone.
This is no minor spat. Changing from a benefit to contribution basis effectively shifts the market risk on pension investments from a company to its employees. Air Canada's current C$1.2 billion defined benefit pension deficit emphasises why this is such a key issue. After two months of jockeying, neither side has budged. The court overseeing the restructuring has ordered negotiating sessions, but refuses to impose its own solution.
Now Trinity has raised the stakes by "releasing" Air Canada from its exclusive investment deal because it does not believe it can resolve the dispute. It is hard to tell where posturing ends and real positions begin. Li seems prepared to walk away, yet he has left the door ajar by adding that he would reconsider if there is substantial progress. The unions act as if they would be glad to see Li go, but they do not seem concerned that Air Canada could also fail.
Li has tried to blame the unions, but his ardour for a deal may have waned when Air Canada released its 2003 results. The airline had its largest annual loss yet - C$1.86 billion - more than double the year before. This news came the same day that one Air Canada union broke ranks and tried and failed to take over its local negotiations from the national union office to make a separate pension deal. The next day Trinity announced it was "releasing" the airline.
Air Canada now faces a host of issues: whether Trinity or its unions will end their brinkmanship; whether Trinity will try to amend its investment in light of Air Canada's weaker condition; whether GE Capital will agree to extend the deadline for its $1.5 billion lease restructuring and exit finance; and most importantly, whether Air Canada can find another investor if Trinity pulls out. The court has given the airline until 21 May to resolve these issues.
Source: Airline Business
