Air Canada faces $1.6-billion pension bill

Air Canada faces $1.6-billion in pension-funding contributions over the next four years, spurring management’s push for contentious reforms.

In contract talks this spring, the country’s largest carrier has proposed placing new hires on defined-contribution plans, which don’t provide a guaranteed level of payout upon retirement.

The proposal, designed to ensure Air Canada’s long-term health, has riled union leaders. But Air Canada argues that its existing defined-benefit plans are in jeopardy because of the looming heavy burden of pension funding.

The Montreal-based airline recently resumed making regular payments to its pension plans, after a 21-month moratorium on past service contributions expired at the end of 2010.

Air Canada estimates that it will be on the hook this year for $320-million in past and current service contributions, followed by further funding obligations of $359-million next year, $412-million in 2013 and $550-million in 2014.

Payments are forecast to soar in 2014 because a cap on pension contributions previously negotiated with unions will lapse at the end of 2013.

“As a 75-year-old former Crown corporation, Air Canada has about $13-billion of pension liabilities,” Air Canada spokesman Peter Fitzpatrick said in a statement Monday. “As at Jan. 1, 2011, based on preliminary estimates, the company’s pension deficit stood at $2.1-billion, which was $600-million better than a year ago as a result of a strong fund performance in 2010. However, this deficit is not sustainable and has not been sustainable for most of the decade, as it puts at risk both the viability of the company and the pensions of all employees.”

Mr. Fitzpatrick said Air Canada has been “discussing a number of possible solutions within the context of labour negotiations to preserve defined pension benefits for current employees.”

Air Canada’s unions, however, are balking at the airline’s plans to introduce defined-contribution plans for new hires.

The Canadian Auto Workers (CAW) union is collaborating with the International Association of Machinists and Aerospace Workers (IAM) and the Air Canada component of the Canadian Union of Public Employees (CUPE) on the issue.

“With this joint declaration, the leadership of the CUPE, CAW, and IAM bargaining units at Air Canada declare our joint commitment to preserve Air Canada’s defined-benefit pension plan for current retirees, current employees and future employees alike,” the unions said Monday.

The three major unions, which are in contract talks, said the rebounding economy has strengthened the airline’s finances.

“We will make the maintenance of the plan, including employer contributions that are the necessary consequence of past funding deferrals, a central priority during our coming collective bargaining with Air Canada. And we commit to the most determined and active solidarity between our members to defend the pension against the company’s illegitimate demands for benefit reductions and two-tier structures,” the unions said.

The Air Canada Pilots Association (ACPA) declined comment on why it isn’t part of the declaration, but the union noted that its negotiators are slated to return to the bargaining table this summer. ACPA also pointed out that its members recently rejected a tentative labour agreement that called for the creation of defined-contribution pensions.

Air Canada’s pension contribution estimates are subject to change, depending on interest rates and market returns on investments.

CUPE, which represents nearly 6,800 flight attendants, is willing to look at other proposals, notably management’s bid to make it tougher to attain early retirement – staff in existing defined-benefit pension plans would have to work 30 years to qualify, instead of the current 25 years.

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