Says Airline Needs To Save Funds For Rainy Days

Who's running this airline, anyway? That's a question Air Canada's pilots are asking, as they want to have more say in how things are run. To that end... they've filed a suit seeking to foil a plan to spend the airline's profits.

The Toronto Star reports management at Air Canada parent company ACE Aviation wants to pay out up to $2 billion to several Wall Street hedge funds, investments and other shareholders who helped finance it out of bankruptcy. That plan isn't setting well with the Air Canada Pilots Association, who filed suit Wednesday, claiming the airline needs that $2 billion as a hedge of its own -- to guard against future economical downturns.

"If this payout goes through there's going to be a massive depletion of capital from the company's core resource," said ACPA president Andy Wilson. "Air Canada won't have the capital to backstop a downturn in the economy and everyone knows that the airline business is cyclical. We have to be able to withstand headwinds."

The filing came one day before Air Canada's parent company Ace Aviation convened a shareholders meeting to discuss the plan. Ace paid out $300 million to shareholders last fall despite opposition from its unions. The unions say they gave up over a billion dollars to keep the airline afloat... and Air Canada should eliminate pension deficits before paying off shareholders.

ACPA's suit claims if ACE makes the planned payout, Air Canada won't have the earnings to meet obligations for pensions, employee benefits, aircraft lease and finance fees and other unspecified debt -- accusations Air Canada spokesman Peter Fitzpatrick refutes.

"ACE is currently reviewing the claim and will defend its position," Fitzpatrick wrote the Star. "The proposed plan calls for an initial distribution to ACE shareholders of units in Aeroplan Income Fund. ACE is able to distribute units of Aeroplan without reducing its cash reserves, borrowing funds or incurring any balance sheet liabilities."

"The distributions are a key part of ACE's value-enhancement strategy which are designed to benefit not just shareholders but also the employees of ACE companies as a whole by ensuring each company's ability to grow and reinvest in their respective businesses," Fitzpatrick added.

The unions say the airline isn't healthy enough to support the loss of cash, especially if the economy tanks again. ACPA's president told the Toronto Star the airline must be able to withstand headwinds... and a cash reserve does just that.

"The actions of the controlling shareholder, ACE, and of the board of directors of Air Canada are unfair and may, if not remedied, imperil its existence," ACPA said in its court filing. "If these transactions are allowed to proceed Air Canada would be left with depleted earnings while carrying substantially all of the pension obligations, most of the debt, employee obligations and aircraft lease and finance obligations of the ACE group."

Other unions at the airline have rallied to ACPA's cause.

"If they go ahead with this, what'll be left of the company? It'll be a skeleton," said Pamela Sachs with the Canadian Union of Public Employees -- the union representing Air Canada's 7,000 flight attendants.

FMI: www.aircanada.com, www.acpa.ca