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."