Li May Drop Bid For Air Canada
By JOHN PARTRIDGE
From Thursday's Globe and Mail
Victor Li, Air Canada's would-be major shareholder, is threatening to abandon his plan to invest in the insolvent airline over its unions' refusal to consider pension changes.
Mr. Li's Trinity Time Investments Ltd. said in a statement late Wednesday afternoon that it has initiated a full review of its planned $650-million equity investment in Air Canada because of “union intransigence” in refusing to discuss converting the company's pension to a defined-contribution plan from a defined-benefit plan.
The statement also said Trinity and its financial adviser Goldman Sachs will, as part of the review, “closely examine” the “achieved value” of concessions the Air Canada unions made in negotiations last year “in relation to the levels promised by each union.” It estimated the total for all unionized employees to be about $850-million.
The concessions were the bulk of $1.1-billion in annual cost savings Air Canada pledged to achieve.
“Air Canada's unions have placed ideology ahead of their members' interests in refusing to discuss the pension structure,” Trinity director Sonny Gordon said in the statement. “By refusing even to discuss the issue, union leaders are now forcing us to reconsider the entire investment. If the numbers are not there, we will be forced to walk away from investing in Air Canada.”
The statement was Trinity's first since Friday, when Mr. Justice James Farley of the Ontario Superior Court, who is overseeing Air Canada's efforts to restructure, refused to order the unions to sit down and negotiate on pensions.
Air Canada would not comment on Trinity's threat to walk away.
It came just hours after a lawyer for GE
Capital Aviation Services (GECAS), Air Canada's other would-be financier, asked Judge Farley at a hearing in Toronto on another issue involving the airline to delay those proceedings until the pension issue has been resolved.
GECAS, which is based in Stamford, Conn., has agreed to provide it with $1.85-billion in financing.
However, GECAS spokesman Eric Jones reiterated Wednesday that the company is growing increasingly concerned that Air Canada will not meet the April 30 deadline set by GECAS and Trinity for it to emerge from bankruptcy protection.
The pension battle is the biggest of a number of “thorny disputes” blocking progress, Mr. Jones said, “and the parties involved really ought to be focusing on ... getting that resolved.”
An Air Canada lawyer warned last week that the impasse over pensions is almost certain to delay the insolvent company's exit from bankruptcy protection by two months.
Trinity has argued that switching to a defined-contribution plan would make long-term financial planning easier and give younger employees more flexibility in their retirement planning. It wants to make the change for those workers with fewer than 60 years in combined age and service. However, the unions oppose the switch because, in contrast to a defined-benefit plan, the company would no longer be on the hook for any payments needed to bring retirement payouts up to guaranteed levels should investments in the plan fail to perform.
Union leaders have repeatedly countered that leaving the pension plan untouched was the key quid pro quo for agreeing to the concessions last year, and several reiterated Wednesday that they are not willing to reopen those deals.
“They want more concessions from the employees and that's not on,” said Dave Ritchie, who heads the International Association of Machinists and Aerospace Workers of Canada, which represents about 12,000 Air Canada employees.
Don Johnson, president of the Air Canada Pilots Association, which represents about 3,100 mainline pilots, said that in its agreement to invest in the airline, Trinity had looked at the union deals and not challenged the cost savings. “I guess now they're saying they don't agree,” he said. “Whether they didn't do their homework or are using this as an excuse to walk away, I don't know.”