Air Canada gets more time to erase pension deficit
OTTAWA - Air Canada (TSX:AC.B) is being given more time to eliminate a deficit in its pension plan, the federal government announced Tuesday.
The deal requires the airline to make contributions to the plan of at least $150 million a year totalling at least $1.4 billion over seven years.
The special contributions would be on top of the current service payments required by the pension plan.
The agreement also freezes increases in executive pay at the rate of inflation, prohibits special bonuses will be prohibited and puts limits on executives’ incentive plans.
"By taking this action, we are ensuring that Air Canada remains viable, that thousands of jobs are protected and the service is there when Canadians need it," Finance Minister Jim Flaherty said in a release.
"Air Canada is the country’s largest airline and contributes significantly to the Canadian economy."
The relief, Flaherty added, is not "costing Canadian taxpayers a single dollar, but it is providing Air Canada time to pay off the sizeable pension deficit."
The airline will also be prevented from paying dividends and buying back stock as well as making any pension plan benefit improvements without regulatory approval.
Air Canada's pension deficit has been a chronic problem for the airline due to low interest rates which have driven up liabilities.
The Air Transport Association of Canada had argued against Ottawa granting Air Canada pension relief, saying it would create an unlevel playing field.
The group, which represents small regional carriers and training centres, argued that Ottawa should provide broad pension assistance to all Canadian companies, instead of giving a competitive advantage to the former Crown corporation.
Air Canada has said that cost savings from its recent labour agreements, startup of low-cost carrier Rouge and pension relief will help to lead the airline to sustainable profits.
Shares in Air Canada closed down six cents to $2.57 Tuesday on the Toronto Stock Exchange.