Company Seeks Compromise with Unions

Air Canada's new controlling shareholder offered its non-union workers a compromise on planned changes to the insolvent airline's pension plan and called for talks with the carrier's unions, which have already rejected such proposals. Trinity Time Investments announced it has revised its pension reform proposal to offer Air Canada non-unionized employees the choice of choosing between a defined contribution or defined benefit pension program.

Trinity Time, controlled by Hong Kong businessman Victor Li, has proposed changes to Air Canada's pension system to cut millions of dollars in future pension costs and make it easier for the airline to restructure under bankruptcy protection. However, Air Canada's unions have rejected the idea, saying pension guarantees were a key part of the deals they made with Air Canada last year, in which workers accepted more than $1 billion in cost-cutting contract concessions, including hundreds of layoffs.

The dispute threatens to derail the Montreal airline's restructuring. Li, who plans to invest $650 million into Air Canada for a nearly one third stake in the company, wants long-term changes to the pension plan to lessen the future financial risk Air Canada faces in a competitive airline industry. On a separate pension issue, however, the company and unions have already agreed to a plan to pay down the airline's $1.24-billion pension deficit over 10 years, but that deal has to be approved by the federal Office of the Superintendent of Financial Institutions.

Under the new Trinity plan announced Sunday:

• Air Canada's current retirees would not be affected;
• All current non-unionized employees would have the freedom to choose to stay under the defined benefit plan or transfer to a defined contribution plan by next Jan. 1;
• Workers who convert their plans would get a 10 per cent bonus at the time of an initial public offering of a restructured Air Canada, with some conditions, and;
• New hirings at the airline would automatically fall under the new defined benefit plan.

Defined-contribution pensions can be easier for a company to budget for, while defined-benefit pensions can become more costly if the investments intended to finance them start to sink - as occurred around the world in the stock market downturn of recent years.In its initial plan last month, Trinity proposed that the defined benefit regime be grandfathered for current retirees and employees with 60 years or more in combined age and work service, and all other current Air Canada employees move on to the defined contribution system.

"We have listened and learned from Air Canada employees," Harold Gordon, a Trinity director, said in a release Sunday. "Through their messages on our web site and other individual contacts, they have put the case forward in clear, compelling terms that many wanted to learn more about the defined contribution system and to have personal freedom of choice."

Gordon said Trinity "strongly" believes a defined contribution pension system "is the best option for Air Canada's long term viability and for individual employees."

"That's why we will be giving them a financial incentive to opt for it. But we also recognize the concerns of longtime Air Canada employees. That's why we've decided to give them the choice. Unfortunately, Trinity is currently prevented from enabling Air Canada to offer the same freedom of choice to its unionized employees based on the outright rejection of this choice by Air Canada's union leadership."

Trinity said the pension issue must be resolved and urged the airline's unions to engage in talks over the issue. "The survival of Air Canada depends upon resolving the pension challenge, to make the airline a viable, growing business with a real future," he said.

However, unions slammed the proposal.

"We have a pension plan that is better than the defined contribution plan," said Gary Fane, director of transportation for the Canadian Auto Workers. "(The proposal) shifts the long-term risk of a pension plan to the employee instead of the employer living up to their financial responsibility. The employer is trying to reduce costs and give employees less. The investor (Li) is going to make billions."

Last month, Air Canada CEO Robert Milton sent a letter to the more than 30,000 Air Canada employees, saying he wanted to offer them the choice of having a defined-contribution pension or a defined-benefit pension as the company is restructured.

Gordon said Sunday that many North American employers are implementing defined contribution plans.

"In fact, the Air Canada pension plan - under a defined contribution regime - will still continue to be one of the most generous in the industry. But no one can ignore the need to make our airline more competitive - especially when you consider that our major domestic competitor, WestJet, doesn't even offer its employees a pension plan."

FMI: www.aircanada.ca