(Reuters) — The Canadian government will look at the possibility of extending a moratorium it has granted to Air Canada on payments to erase its pension fund deficit, the government and the airline said on June 20.
The current moratorium expires in January 2014, but the estimated deficit doubled during 2011 to stand at $4.4 billion at the start of 2012, and there is now discussion about extending the moratorium to 2024.
4.4 Billion dollars? Something in this has to give. I do feel sympathy for the older employees who will likely lose out over this, however there is a lot of blame to go around.
Did the company over promise pension benefits, offering money that is unsustainable?
Did the union ask for too much over the years?
Did the employees not look into the sustainability of the pension fund over all these years, and just assume that the money would be there?
The money to fix this will have to come from somewhere, but where? Taxpayers? (is this fair to the rest of us?), The company? (with shares at less than $1 and really treading on thin ice), The customer? (airfares are high in Canada, how high can they go before people stop flying with AC?)
For one, I see bankruptcy at AC, which would dump the pension liability, with the routes/service being snapped up by another airline. United Canada?
Did the company over promise pension benefits, offering money that is unsustainable?
Did the union ask for too much over the years?
Did the employees not look into the sustainability of the pension fund over all these years, and just assume that the money would be there?
No one in the pension business foresaw interest rates this low for such a long time. If there was a reasonable expectation that interest rates would bounce back to 4-7% range, the pension problem would evaporate overnight. This reason accounts for maybe half the AC pension deficit (although anyone else with defined benfit pension - interest rate relief would solve the problem).
Part of the unique AC pension problem are the former CP Pensions. Of the 14 or so AC pensions, the former CP pension schemes are the most underwater. This is because contributions were scaled back in mid to late 90s. Further many CP employees nearing retirement were given large wage increases when AC took them over. These near retirees stayed at the new AC long enough to maximize their five best years of earnings, then bolted once the pension payment for life was locked at much higher rates than their initial contributions would have provided for.
Finally, automation over the past 10 years has forced a situation where there are now more retirees than active AC staff.
I see this as an issue for a lot of older companies.
Look at GM or government. Large groups of retirees and fewer workers paying in.
The US government's pension is underfunded by several trillion dollars, just wait till that issue erupts.
Do the unions, or individuals owe something to the company to ensure the continual success of the company? or is the relationship just a short term cash cow until the company collapses?
my thought is both to management and to workers/unions. I agree that everyone wants to have the highest wages and benefits possible, but at what point does the high cost of wages hit the wall of destroying the profitability of the company?
The teachers union here in BC where I live wants a 14% raise. This is so high that the school would have to raise taxes or cut services for the students, they are currently in a work to rule mess.
CEO's and executives at AC, as well as at other companies are paid 7 figures routinely, in addition to golden handshakes. The CEO of BC ferries for example is paid over 1 million dollars a year, and he runs a car/passenger ferry system for the islands off the coast of BC which routinely operates at a deficit.
I am not blaming anyone, I am part of the problem myself, being an overpaid federal worker with a defined benefit pension.
(Reuters) - Canada's government has had discussions with Air Canada regarding the moratorium on its "enormous" pension liabilities and a resolution on the issue is needed over the next couple of years, its finance minister said on Thursday.
Programs: Fairmont Platinum | AC Gate Lice Status | VIPorter
Posts: 2,395
AC - the flying pension plan!!
Globe says Air Canada faces tough pension questions
Tuesday July 03 2012 - In the News
The Globe and Mail reports in its Monday edition Air Canada has become a flying retirement fund, where a shrinking work force toils for a much larger generation of retirees. The Globe's Barrie McKenna writes the company's pension solvency deficit ballooned in the past year to $4.4-billion, from $2.2-billion -- a bad situation made worse by low interest rates. If the airline's defined pension plans were wound up today, Air Canada would be billions short of meeting its obligations to current and future pensioners. The airline hasn't turned a profit since 2007, and with more retirees than employees (29,000 versus 26,000), the deficit is a millstone that grows heavier every year. Something has to give. Finance Minister Jim Flaherty confirmed last week that he is in talks with Air Canada about extending a moratorium on the money it is legally bound to put into its pension plans in 2014 and beyond. It would mark the second time in three years the airline makes such a request. Without some slack, Air Canada would face a rapidly growing annual pension bill, including upward of half a billion dollars in 2014. Even if new hires get less generous pensions, pension stability is likely more than a decade away.
Absolutely absurd to blame unions for fulfilling their mandate to maximize the benefits of their members.
Isn't it equally absurd to suggest that being unemployed, or retired and pensionless, because the company is functionally insolvent, is a benefit to the employees? This is what we call a reality check in modern language. If you choke a living creature long enough, it dies.
OTTAWA — Air Canada has won key union support for its bid for more relief on payments to erase its pension fund deficit, pressuring the Canadian government to agree even though Ottawa recently rejected similar requests from other companies.
The pension deficit of the country’s largest airline doubled to $4.4-billion during 2011, primarily because of unusually low interest rates rather than any sudden demand on assets. Unions recognize the danger that such a big shortfall presents for Air Canada even though the deficit has subsequently dropped by $1.1-billion due to recent labor contracts.
In this extraordinary circumstance, we don’t want to do something that pushes the airline over the brink
“In this extraordinary circumstance, we don’t want to do something that pushes the airline over the brink,” Paul Moist, president of the Canadian Union of Public Employees, which represents Air Canada’s flight attendants, said on Tuesday.
I see this as an issue for a lot of older companies.
Look at GM or government. Large groups of retirees and fewer workers paying in.
Already forgotten when they put their fingers in the cookie jar?
You forgot that back in the nineties, when interest rates hit historically high values and the sky became the limit, pension finds were "so overfunded" that many organizations including GM went for the money and distributed it as dividend.
Next, as interest rates came back to earth, pension funds suddenly found themselves underfunded. Currently historically high rates make them look even more underfunded. Which is why a moratorium makes sense.
Now, if there were a way to go back to the shareholders and ask to pay back what they shouldn't have received in the first place...
(Mind you, these shareholders may well be largely some pension fund or another...)
Moderator: Air Canada Aeroplan & Mileage Run Forum, FlyerTalk Evangelist
Join Date: May 2002
Location: YEG
Posts: 38,144
http://www.reuters.com/article/2012/...8LPAN320121025
Oct 25 (Reuters) - The Canadian Auto Workers union said on Thursday it would back Air Canada's request to the Canadian government for further relief on funding its deep pension deficit, becoming the final union at the airline to give its blessing to the proposal.
--------------------
Finance Minister Jim Flaherty has said he would only consider granting the extension if the airline, Canada's largest, had the support of current unionized workers and pensioners - representing 27,000 employees and 25,000 retirees.
__________________
Please sponsor me for my June Underwear Affair cancer fundraiser. Donate and learn more here.
OTTAWA (Reuters) - Air Canada wants to cap special payments toward its pension fund deficit at C$150 million ($150 million) a year for the next decade, a letter from Chief Executive Calin Rovinescu to Finance Minister Jim Flaherty shows.
The April 26 letter, received by Reuters on Thursday under access-to-information legislation, formally requested a cap of that amount from 2014 through 2023, as long as the pension fund remained in deficit.
Air Canada has already won approval from its labor unions and its pensioners for a cap, but as recently as November 8, Rovinescu declined in a conference call with analysts to confirm that the amount of the cap he was seeking was C$150 million.
__________________
Please sponsor me for my June Underwear Affair cancer fundraiser. Donate and learn more here.
OTTAWA (Reuters) - The Canadian government and Air Canada (ACa.TO: Quote) remain in discussions over the flagship carrier's request for a cap on special payments toward its C$4.2 billion ($4.23 billion) pension fund deficit until 2023, Finance Minister Jim Flaherty said on Wednesday.
__________________
Please sponsor me for my June Underwear Affair cancer fundraiser. Donate and learn more here.
Air Canada’s request for pension help spurred WestJet lobbying blitz
OTTAWA — WestJet Airlines Ltd is concerned about special treatment for its main competitor, Air Canada, which is seeking leniency over a gaping pension fund deficit, and records show that WestJet launched a concerted lobbying campaign with the federal government over pensions.
