Although Air Canada bankruptcy filings don’t specify how much the Canadian Office of the Superintendent of Financial Institutions (OSFI) had demanded the company plow into its pension plans, sources quoted by the Toronto Globe and Mail said the payments were in “the range of CDN$30-million to CDN$40-million” a year.
The newspaper said the company’s Canadian bankruptcy filings revealed that its pension plans were underfunded by CDN$1.3 billion as of January 2003. Assets, it said, are approximately 15% less than obligations if the plan were to wind up immediately. “Air Canada was and is of the view that the demands were unreasonable and may have exceeded OSFI’s authority,” the company said in a US court filing.
Air Canada has asked the Canadian courts to refer the pension issue to a special committee. It said it intends to present a restructuring plan proposal for the funds at a hearing, now tentatively scheduled for April 22. That restructuring, Air Canada said in a statement, could involve reducing or freezing the earning of benefits by employees. It could also involve a move to a defined contribution plan for the current defined benefit program, which guarantees employees a benefit based on pay levels and years of service. That would be similar to a recent move by US Airways on its own way out of a bankruptcy court case (See US Airways ‘Follow-On’ Plan Has No Objections From PBGC ).
Unions Protest Potential Pension Cutbacks
Suggestions that Air Canada pension benefits could be cut outraged union officials yesterday. They said they would begin a campaign today to get the federal government involved in the pension issue.
Like most funds, the 10 plans that provide retirement benefits to Air Canada workers have been hit by falling equity prices and low interest rates in the past two years. At the same time that the funds were losing money the airline has been making no contributions to the plans. That’s because under pension regulations, the value of the plan and the level of funding from the employer is generally evaluated every three years, the Globe and Mail said.
Air Canada is also far from the only air carrier in serious financial trouble – not only because of pension funding pressures but passenger dropoffs caused by terrorism fears, uncertainties from the Iraq war, and recent global disease outbreaks(See Fitch: Airlines’ Pension Picture ‘Most Dire’ ). In fact, US airlines have become one of the dominant concerns of the US private pension insurer, the Pension Benefit Guaranty Corporation.