Air Canada reaches cost-cutting deal with pilots' union

Air Canada and its main pilots’ union reached a cost-cutting deal today that clears the way for Canada’s national airline to restructure its business under bankruptcy protection.

Details were not revealed. But the carrier said the agreement with the Air Canada Pilots Association means the airline now has achieved its overall labour cost reduction target.

“It’s business as usual for Air Canada and customers may book with confidence,” the airline said in a statement.

Air Canada had already reached agreements with eight of its nine unions in an effort to cut 800 million Canadian dollars (€494m) from its 3 billion Canadian dollars (€1.85bn) labour bill.

Air Canada and the pilots union reached the agreement after extending discussions past a court-imposed deadline of midnight Saturday (5am Irish time) in an effort to save Canada’s national airline from bankruptcy.

Just minutes after the deadline passed, a spokesman for the airline’s low-cost, regional subsidiary, Jazz, announced that it had reached a deal with its pilots.

Ontario Superior Court Justice James Farley has ordered a rare Sunday morning hearing scheduled for 8am (1pm Irish time) at which he will consider whether Air Canada should be pushed into bankruptcy.

After years of poor management, and beleaguered by competition from inexpensively operated regional airlines and the plunge in air travel from fears of terrorism and now Sars, Air Canada stood at the brink of extinction.

Since filing for bankruptcy protection two months ago, Air Canada has lost nearly 5 million Canadian dollars (€3m) a day while feverishly trying to secure cost concessions from its nine unions.

While eight of those unions agreed to pay cuts and layoffs in an attempt to save some of their members’ jobs along with the airline, Air Canada’s pilots refused to go along.

But after the pilots rejected Air Canada’s latest offer last week, Farley gave the two sides an “absolute” deadline of midnight Saturday to work out a deal or face a court-imposed settlement that could have resulted in the airline ending up grounded and its planes seized.

Air Canada has played down the airlines potentially ominous fate, with its officials insisting the carrier is conducting “business as usual.”

Trading in Air Canada shares was halted on Friday after Farley issued his deadline.

“There is no time to leisurely reach a solution on this,” Farley said, otherwise “We will have an academic debate over the bones once the buzzard has already picked them.”

Lawyers for Air Canada and the 3,100 members of the Air Canada Pilots Association told Farley on Friday they had not been able to reach agreement after exhausting the previous three-day deadline the judge set for them.

A report issued May 29 by Ernst & Young, the court-appointed monitor of the case, said all eight of Air Canada’s other union and non-union employees have agreed to a total of 766 million Canadian dollars (€473m) in annual savings for the airline through a combination of job cuts, wage concessions and changes to working conditions.

Air Canada lacks the cash to cover all the financial obligations it has amassed since obtaining court protection from creditors on April 1, the Ernst & Young report said.

On Friday, the pilots association offered to cut their annual costs by more than 250 million Canadian dollars (€154m), according to association spokesman Serge Beaulieu.

Beaulieu offered no details of the offer except to say it included job cuts and salary reductions similar to those made by the other unions.

Air Canada is insisting the pilots on both its flagship carrier and its regional subsidiary, Jazz airlines, compete for assignments. But the pilots have rejected this, because it would mean forcing higher-paid Air Canada pilots to work at the cheaper rates paid to Jazz fliers.

Air Canada management hopes a new deal with its workers and creditors will allow it to restructure its operations. The airline plans to fly fewer big jets and buy about 85 regional jets that are cheaper to operate and more suited to its reduced passenger traffic.

The airline, created as a government-owned carrier in 1937 and privatised in the 1980s, is considered a national symbol by the Canadian government, which is unlikely to let it die. But Nick Di Cintio, chairman of Air Canada Jazz, suggested that if the airline reaches a restructuring deal, Jazz would become the airline’s main carrier.

Di Cintio said under the deal reached with its parent company, Jazz is ready to set up a new, low-cost carrier for short- and medium-haul trips across Canada and into the United States. This plan could potentially save the corporation 166 million Canadian dollars (€102.4m) and include 25-30 jets, he said.

While Di Cintio would not comment on the state of negotiations between Air Canada and its flagship pilots union, he said that after securing a separate deal, Jazz and its pilots are “on the way to becoming Air Canada’s national low-cost carrier.”