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AC rules out 'colossal failure' of government stake for aid; bailout debate thread

AC rules out 'colossal failure' of government stake for aid; bailout debate thread

Old Jun 2, 21, 9:52 pm
  #136  
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Originally Posted by yulred View Post
Then perhaps these bonuses are a good thing given federal aid and the federal acquisition of equity.
As an (indirect) AC shareholder, I'm fine with trying to keep the people managing my investment motivated.

Which is to say, the optics are entirely redundant.
Perhaps not entirely, but largely. As is often the case.

Originally Posted by Fiordland View Post
Not suggesting dropping there compensation or anything inconsistent with their contract. I am suggestion it is reasonable to not give out bonuses.

If you managing 1/10 the number of people, with 1/10 the sales in market 1/10 the size, with an organization that is in the red it is hard to make the argument you should get a bonus.
What about the people in legal or finance who worked 125% of the hours they would normally work in a year?
​​​​
Headcount is not a good metric on which to determine compensation.

Originally Posted by tomvancouver View Post
Well sure, 'weekends' - how about being on call for a hospital 24/7 or working in an ICU?. What about the health care workers who have given way more, for their basic wage.
My wife is an emergency nurse, by the way.

Bonuses are a normal part of the compensation package for a large number of AC employees. Doctors and nurses generally don't have variable compensation, so you're comparing apples to oranges.

Alberta recently paid out several hundred million dollars to "critical workers", which is essentially a bonus. I don't know what other provinces have done on that front, but that's a decision for politicians to make, since they control the health care system. The Air Canada board of directors' job is to oversee Air Canada.

If AC were truly independent of government support then I guess it would entirely be up to them, but its not really is it?
The bonuses were likely decided and paid before AC accepted government support, so yeah, it is up to them.

If I was transport minister (a job I would not be good at) I'd have the AC leadership in my office and read them the riot act - and then reverse the recent financial promises, and take the flak/lawsuits as the public would be behind me.
AC would undoubtedly win those suits very quickly.

I guess I was brought up to believe that if you do a great job you get to keep your job in difficult times when others are losing theirs, rather than keeping it and getting a bonus
Again, these people get bonuses every year. The bonuses they got this year were far less than in recent years.

Originally Posted by mileageking View Post
Prime Minister Justin Trudeau said bonuses Air Canada paid to executives while the company was negotiating a government bailout are “completely unacceptable” and the airline owes Canadians an explanation.
Rather rich. These bonuses were likely approved in February before AC released its YE20 results and paid well before the bailout was announced. I have a hard time believing that the government wasn't informed that this had been done, well before they committed to the bailout.
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Old Jun 2, 21, 10:44 pm
  #137  
 
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My father had very little formal education (pulled from school due to economic necessity, then sent off to war) but he was one of the smartest people I've ever met. He had a couple of favourite expressions, one of which was "just because you can, doesn't mean you should."

AC executives may well have earned their bonuses, and no question Adam is quite right when he notes these would have been decided on long before government funding was secured.

But ....

The reality is, AC was wailing about a government bailout last summer. Long before any bonuses were discussed, much less decided upon.

The reality is, AC quickly laid off thousands of people "just to survive."

The reality is, optics do matter.

The reality is, AC management have painted themselves as a bunch of money-grubbing fat cats who came straight off a Monopoly board, lighting their cigars with $100 bills.

Just because you can award your executive team a bonus while laying off thousands, doesn't mean you should. Make no mistake, there will be implications, near-term and long-term. No question this will come up next time AC sits down to negotiate with one of the unions.

It's not often that I agree with Justin Trudeau, but in this instance, he's absolutely right.

AC management had a chance for a public perception win, and they blew it.
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Old Jun 3, 21, 12:20 am
  #138  
 
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We don't know the what bonus splits are between executives. According to Deputy PM interview video in post #87 above (scroll to 13:00 and again 20:00), total executive compensation under the agreement is restricted with a cap of $1m for as long as the loan lasts. So I guess as long as total comp including bonus is within $1m it should be ok?
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Old Jun 3, 21, 12:42 am
  #139  
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Originally Posted by Symmetre View Post
The reality is, optics do matter.

[...]

Make no mistake, there will be implications, near-term and long-term. No question this will come up next time AC sits down to negotiate with one of the unions.
How do they matter? What are the implications? Are you going to buy a ticket from WestJet instead of AC because AC gave out an insignificant sum in bonuses to its staff? I can assure you that Onex likely gave an even more generous package to the WS staff, because they didn't have to worry about this PR nonsense.

The unions are going to get whatever they can get at the next negotiation, based on market conditions at the time. They will complain about these bonuses, but talk is cheap. If AC execs had put on their hair shirts and taken zero pay for all of 2020, the union would still have squeezed every last penny out of AC the next time it got the chance.

This will generate some outrage in the press and in social media for a few days, then everyone will move on.

It's not often that I agree with Justin Trudeau, but in this instance, he's absolutely right.
Even though he's likely being incredibly misleading in acting like he knew nothing about this?

AC management had a chance for a public perception win, and they blew it.
How could they possibly have won this? If bonuses had been zero, there would have been no story. AC could have messaged this better by emphasizing the massive cut in bonuses and total executive comp, but even if they had paid $10 in bonuses instead of $10MM, someone would have been up in arms.

Originally Posted by mileageking View Post
We don't know the what bonus splits are between executives. According to Deputy PM interview video in post #87 above (scroll to 13:00 and again 20:00), total executive compensation under the agreement is restricted with a cap of $1m for as long as the loan lasts. So I guess as long as total comp including bonus is within $1m it should be ok?
The bonuses pre-date the bailout. They could have given execs $10MM each and the government couldn't do anything about it.

Last edited by Adam Smith; Jun 3, 21 at 10:29 am Reason: Corrected typo
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Old Jun 3, 21, 4:26 am
  #140  
 
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I love that some of the people who are dismissing this executive comp issue as a tempest in a teapot are likely some of the same people that would be up in arms if their connecting flight wasn't held three minutes for their late inbound or their FA didn't know know the difference between the Sauvignon Blanc or the Chardonnay or the Concierge team didn't proactively contact them during a delay or a checkin agent wouldn't let them slide on an extra kilo in their bag or re-open a flight that closed 30 seconds ago.

A lot of FTers are all about the ROI and the P/L and the RASK until they are the number being crunched and then it's all about how AC "needs to realize it's in a people business! You can't put a price on customer goodwill!", etc etc ad nauseum.

I don't know if it's simple cynicism or some kind of cognitive dissonance or what but anyone who can't draw a line between this incident and the much-maligned "AC customer service culture" isn't trying hard enough or is being disingenuous.
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Old Jun 3, 21, 8:58 am
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Originally Posted by Adam Smith View Post
As a finance guy, I'd like to try to make a couple of dispassionate points regarding these bonuses....
With all due respect. A finance guy justifying a bonus is like wait staff justifiying a tip.
Quite frankly there's no good reason for either.

Here's your wage, do your job.
If you do a poor job the boss should retrain or turf you.
If the employee works extra hard, here's a raise.
If the employee works extra hours, here's overtime.
If the employoee isn't happy, quit.
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Old Jun 3, 21, 9:29 am
  #142  
 
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I'm kind of meh about the bonuses, but i hope these controversies will help force AC to become less arrogant in general, as seen with past issues (refunds, denied boarding, undermining of consumer protections/compensation,...)
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Old Jun 3, 21, 9:50 am
  #143  
 
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Originally Posted by YYZC2 View Post
I love that some of the people who are dismissing this executive comp issue as a tempest in a teapot are likely some of the same people that would be up in arms if their connecting flight wasn't held three minutes for their late inbound or their FA didn't know know the difference between the Sauvignon Blanc or the Chardonnay or the Concierge team didn't proactively contact them during a delay or a checkin agent wouldn't let them slide on an extra kilo in their bag or re-open a flight that closed 30 seconds ago.

A lot of FTers are all about the ROI and the P/L and the RASK until they are the number being crunched and then it's all about how AC "needs to realize it's in a people business! You can't put a price on customer goodwill!", etc etc ad nauseum.

I don't know if it's simple cynicism or some kind of cognitive dissonance or what but anyone who can't draw a line between this incident and the much-maligned "AC customer service culture" isn't trying hard enough or is being disingenuous.
The “line” is visible to everyone. It’s not unprecedented or novel - we already see it in the other semi-protected industries.

Frankly, this is several levels of magnitude less egregious than the routine rent-seeking/lobbying/corporate welfarism/regulatory capture/whatever-you-want-to-call-it that are part-and-parcel of these semi-protected industries. Those have a material impact on millions of Canadian. This does not. Making it - unfortunately - a tempest in a teacup.

Now, I don’t necessarily agree with the reasons being put forth by some who, like me, dismiss this as such. I’m far from convinced that “success” in any of these semi-protected markets requires above-average skill. Ergo - I don’t buy the notion that a few (or perhaps even many) executives walking away in a huff will tangibly impact the only thing that matters here - profitability. These semi-protected markets are set up to make sure that they do not.

Yes, there’ll be noise. But does it matter? Our experience with other semi-protected sectors suggests otherwise. As a former CRTC vice chair succinctly reminded us a few days ago:

“In the end, Bell always wins”

Replace Bell with any sacred cow industry/ company, and you get the idea. That’s by design, not happenstance. Everything derives from there - from bonus culture to “customer service culture”.
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Old Jun 3, 21, 10:22 am
  #144  
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Originally Posted by YYZC2 View Post
I don't know if it's simple cynicism or some kind of cognitive dissonance or what but anyone who can't draw a line between this incident and the much-maligned "AC customer service culture" isn't trying hard enough or is being disingenuous.​
As someone who flies a lot of different airlines, I would tell you that AC's customer service is, overall, decent. As an investor, I would remind you that the board and management's job is to generate returns for the shareholders, and that having the best customer service is not always a profitable decision (you can, in fact, put a price on goodwill; it just may not be as high as some would like). As a customer, I don't really care how management is compensated; I care about the product I get (including the service) and the price I pay.

Call it cognitive dissonance if you want, but there's nothing wrong with seeing something from multiple perspectives. For instance, I've pointed out a number of times in the refund thread that the customer in me was mad at AC about the lack of refunds, but the corporate finance expert in me understood why they were doing it. Obviously those two positions are in opposition.

But I see no conflict between being annoyed at AC for customer service fails and not being bothered by this bonus program.

Originally Posted by tracon View Post
With all due respect. A finance guy justifying a bonus is like wait staff justifiying a tip.
Quite frankly there's no good reason for either.

Here's your wage, do your job.
If you do a poor job the boss should retrain or turf you.
If the employee works extra hard, here's a raise.
If the employee works extra hours, here's overtime.
If the employoee isn't happy, quit.
You're entitled to your opinion, but that's not how the vast majority of businesses work, especially companies that are large and/or publicly traded. If AC wanted to adopt that approach, it would undoubtedly have to significantly increase salaries for many positions, because if you can make $50K base + potential for 20% bonus somewhere else, why would you work at AC for $50K base and nothing else? Or make all head office/management type workers eligible for overtime, which most usually aren't, to the point where the expected overtime pay makes up for the lost bonus.

A lot of the AC employees eligible for this program likely worked both extra hard and extra hours last year. So would it make you feel better if AC had called the $10MM "raises" and/or "overtime"?

There has been some research that incentive-based pay isn't as effective as shareholders would like it to be, and I would agree with you that executive compensation as a whole is is too high (especially for CEOs). But that's a very macro issue, well beyond whether AC should or shouldn't have paid these $10MM of bonuses.
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Last edited by Adam Smith; Jun 3, 21 at 10:31 am Reason: Clarification
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Old Jun 3, 21, 12:45 pm
  #145  
 
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Originally Posted by Adam Smith View Post
As someone who flies a lot of different airlines, I would tell you that AC's customer service is, overall, decent. As an investor, I would remind you that the board and management's job is to generate returns for the shareholders, and that having the best customer service is not always a profitable decision (you can, in fact, put a price on goodwill; it just may not be as high as some would like). As a customer, I don't really care how management is compensated; I care about the product I get (including the service) and the price I pay.

Call it cognitive dissonance if you want, but there's nothing wrong with seeing something from multiple perspectives. For instance, I've pointed out a number of times in the refund thread that the customer in me was mad at AC about the lack of refunds, but the corporate finance expert in me understood why they were doing it. Obviously those two positions are in opposition.
.....
There has been some research that incentive-based pay isn't as effective as shareholders would like it to be, and I would agree with you that executive compensation as a whole is is too high (especially for CEOs). But that's a very macro issue, well beyond whether AC should or shouldn't have paid these $10MM of bonuses.
There are three perspectives that need to be taken into account. The customer, the shareholder, and the government. For completeness the employee probably belongs in there.

I don't disagree with your observation on customer service. The level of customer service is fundamentally a marketing decision as AC figures out how to position itself in the market to maximize shareholder returns. It is figured out being a full service legacy with customer service on part with others is the place to be.

Shareholders want to make money. That is a given.

What is now unique is AC has the government as a shareholder (or holder of some weird debt that can be converted into shares). They have some other unique constraints to keep the tax payers happy. Refunds and limits on bonuses being two of these. It is going to be weird seeing how this shareholder plays with the others.
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Old Jun 3, 21, 2:49 pm
  #146  
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Optics are everything these days as top AC exec's being paid bonuses makes big headlines while their voluntary salary deferral from Spring 2020 didn't. Granted, it was a largely a symbolic gesture only amounting to $750K total however don't recall that being acknowledged or applauded so I see this $10M, which BTW is only half what the BOD approved, as repaying in part what given up and for helping to navigate the airline through some very turbulent times. Just MHO and it's okay if YMMV.
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Old Jun 3, 21, 3:00 pm
  #147  
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Originally Posted by Fiordland View Post
There are three perspectives that need to be taken into account. The customer, the shareholder, and the government. For completeness the employee probably belongs in there.

I don't disagree with your observation on customer service. The level of customer service is fundamentally a marketing decision as AC figures out how to position itself in the market to maximize shareholder returns. It is figured out being a full service legacy with customer service on part with others is the place to be.

Shareholders want to make money. That is a given.

What is now unique is AC has the government as a shareholder (or holder of some weird debt that can be converted into shares). They have some other unique constraints to keep the tax payers happy. Refunds and limits on bonuses being two of these. It is going to be weird seeing how this shareholder plays with the others.
I don't disagree, for the most part, but I would like to stress that the government was not a shareholder when the decision was made on these bonuses.

They do, however, get a vote at the AGM in a few weeks, and they're free to vote against the say-on-pay resolution, and/or against the directors who approved the program.
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Old Jun 3, 21, 3:21 pm
  #148  
 
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I don't think Air Canada is going to get off so easy. Consider the term: Bad faith negotiating.

The Air Canada rescue shares some characteristics of the Canadian auto sector rescue of 2009-2010. As many will recall, the federal government bailed out Chrysler Group LLC and General Motors Co. for a total of $13.7 billion. In 2018, the feds wrote off $3.5 billion in loans. Putting aside the politics and justifications ,there was considerable criticism of the conduct of the automakers following the bailout. The lack of restraints and conditions that allowed the conduct and subsequent financial loss was highlighted. Like the auto rescue package, the Air Canada $5.9 billion rescue package is built upon loans and financial guarantees. However, unlike the auto rescue, it appears that the feds did add some strict good conduct conditions such as; Limiting executive compensation to $1million, restricting dividends and share buybacks and limiting bonuses paid to executives. Following the rescue, it is unlikely the bonuses paid to the executives would have been allowed.

Air Canada was agreeing to the bonuses prior to signing and I would be surprised if it had declared this to the feds. My understanding of insolvency financing is that it is unacceptable to be paying out undeclared bonuses and benefits while in the midst of negotiating a rescue package.I do not consider such conduct a good faith gesture. I expect that in the eyes of most people, that's the core issue - that the bonuses were concealed until forced to be declared. They paid the bonuses while at the same time the airline was telling the public it was in dire straits, was forced to abandoned communities and to lay off employees. Making the bonus payout more egregious was that the airline holding on to passengers' money and refusing to reimburse the passengers.

Justifications given for the payments are weak and do not reflect reality. For example;
-Need to retain experienced executives: The industry is awash with redundant experienced competent executives.All major airlines had hiring freezes. Where exactly would the AC executives have gone?
- Additional work hours: Really? The workloads diminished as traffic collapsed. Yes new and additional responsibilities would have arisen, but that additional work would have decreased after the initial few months.The airline was barely operating. \(I am not sympathetic, I worked weekends, 10+ hour days, with no vacation or holidays and did not receive a bonus, last year . I know others had the same situation, so don't expect a sympathetic ear from us.
3. Change in Operations to carrying more cargo: This comment really annoyed me. On the contrary, the cargo activity was an infusion of easy money. I believe that the added cargo activities provided a significantly greater profit than passenger flights. Most Canadians are unaware that last year when Canada was caught without PPE and medicines, the country was obliged to pay inflated prices for the goods and for cargo. For example, a shipment of PPE purchased at $3 million (normal cost $1million) could have a cargo cost of $500,000+. The federal government preference for the airline to move federal purchases ensured that money flowed to the airline.
As was stated earlier, the optics are bad because the airline knew it was not going to be allowed to pay bonuses as a condition of the bail out.
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Old Jun 3, 21, 4:40 pm
  #149  
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Originally Posted by Transpacificflyer View Post
I don't think Air Canada is going to get off so easy. Consider the term: Bad faith negotiating.

[...]

Air Canada was agreeing to the bonuses prior to signing and I would be surprised if it had declared this to the feds.


What makes you think they wouldn't have disclosed it to the feds? AC knew it would come out when they mailed the proxy circular, so it would have been (a) stupid and/or (b) grossly negligent to not mention anything to the feds, and for all that many on this board dislike AC's management team, those are not terms that describe how they've run the business in recent years.

My understanding of insolvency financing is that it is unacceptable to be paying out undeclared bonuses and benefits while in the midst of negotiating a rescue package.
AC was not insolvent. But if you want to bring up insolvency, it's actually quite common for companies to institute bonuses and/or other incentives for executives to stay through a restructuring. Those used be be tied to milestones during the insolvency itself, but apparently in the US, in a few recent cases, the payments have been made up front even before the insolvency filing has been made. This article has some history on the topic as well as some recent examples: https://www.jdsupra.com/legalnews/pa...ing-use-43713/

I have sat on a creditor committee that had to approve millions of dollars of incentives for executives who had just cost the lenders billions of dollars. I assure you it wasn't fun, but putting the plan in place was deemed to be the least worst alternative.

In this case, AC paid the bonuses before the negotiations were concluded with the government, so the feds didn't even have a seat at the table.

I expect that in the eyes of most people, that's the core issue - that the bonuses were concealed until forced to be declared.
The bonuses weren't concealed. They were disclosed the same way they're disclosed every year, in the proxy circular.

They paid the bonuses while at the same time the airline was telling the public it was in dire straits, was forced to abandoned communities and to lay off employees.
Actually the airline has spent the past year and change telling investors what a good position it was in, how it was managing cash burn and had significant liquidity.

I am not sympathetic, I worked weekends, 10+ hour days, with no vacation or holidays and did not receive a bonus, last year . I know others had the same situation, so don't expect a sympathetic ear from us.
I don't know what you do or how you're compensated, but it sounds like it's nothing like how AC executives and employees are compensated, which suggests to me that this is not a very useful comparison.
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Old Jun 3, 21, 5:00 pm
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Adam I guess we will just have to agree to disagree on this. While I do get what you're saying, AC voting to hand out management bonuses right after laying off thousands of people and months of crying for federal aid simply will not contribute to it building a positive brand image. It will only reinforce widespread public opinion that management cares only about stuffing their snouts - which is, I believe, essentially accurate.
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