Air Canada Rescue May Rest With Giant Funds

Mon Apr 05, 2004 10:36 pm

Interesting article, to say the least. My question here is, do not these
interested parties wonder WHY exactly Victor Li - Trinity Time elected to walk?
Let's do the math: $14 Billion in debt, $1.8 Billion posted 2003 losses, and the archaic union divisions hell bent on no defined pensions.

Air Canada rescue may rest with giant funds

From Monday's Globe and Mail

Some of Canada's largest pension funds are among those kicking tires at Air Canada and looking to replace Hong Kong businessman Victor Li as the airline's would-be rescue investor.

The airline's top executives are scrambling to find an alternative investor after Mr. Li announced Friday he will likely abandon his deal because Air Canada has not met anticipated financial forecasts and because the airline's unions have refused key changes to their pension plans.

But sources say that if that deal can't be saved, other investors may be prepared to fill the gap, including the airline's creditors, Cerberus Capital Management LP, and some of the country's largest pension funds.

Sources say there have been preliminary talks between the Caisse de dépôt et placement du Québec, the Ontario Municipal Employees Retirement Board and the Ontario Teachers Pension Plan Board about putting in a joint bid for the airline, should Mr. Li abandon his plans.

"There's a high level of interest among Canadian pension funds for a made-in-Canada solution to this thing ....." according to a source.

"They won't come to the forefront until [Mr. Li's] clock has run out. They would want Li to be out of the way before they show any real interest."

Mr. Li's deal — through which his Trinity Time Investments Ltd. would have bought about one-third of the airline for $650-million — is set to expire on April 30.

On Thursday night, he advised Robert Milton, the airline's chief executive officer, that he would not extend that date and was unlikely to complete his deal.

Since then the airline's top executives, directors and unions have held a flurry of meetings about how to respond to the latest crisis in the restructuring that began on April 1, 2003.

Air Canada's board was scheduled to meet last night — the latest in a series of daily meetings.

And the airline's unions met yesterday morning and vowed to take a more active role in efforts to rescue the insolvent airline.

By lining up an alternate investor, Air Canada would be able to steer clear of liquidation — and the loss of 30,000 jobs.

The three pension funds were among the many potential investors worldwide that the company and its advisers contacted last year when the search for an equity investor began, according to a person close to Air Canada.

However, OMERS and Teachers dropped out after a preliminary look, while the Caisse de dépôt, stayed in only a little longer and was not in the final round of 10, the source said.

"We definitely have heard that there are pension funds that are interested in being involved," one union official said yesterday.

The source added that OMERS, Teachers and the Caisse de dépôt are among the pension funds interested in obtaining a stage in the troubled carrier.

Buzz Hargrove, president of the Canadian Auto Workers union, said the union is talking to a "number of interested parties" about investing in Air Canada, but would not confirm or deny that those pension funds were among them.

OMERS president Paul Haggis could not be reached. His counterpart at Teachers would not comment. A Caisse spokeswoman said the giant Quebec pension fund does not comment on "rumours or possible transactions."

One source familiar with the discussions said any bid from the funds would likely be contingent on changes to the pension plans along the lines of those that Trinity was demanding.

According to the source, it is expected that a new investor could have more luck in getting concessions from the airline's unions — possibly through a change in senior management.

Mr. Milton and his chief restructuring officer Calin Rovinescu drew ire from the airline's employees because they stood to receive millions of dollars worth of stock through their tentative deal with Mr. Li, while rank and file employees gave up hundreds of millions of dollars in concessions.

Mr. Milton and Mr. Rovinescu obtained those concessions on the condition that pensions not be touched, so unions are loath to agree to new concessions from the same bosses.

"There's a sense that the concessions that the main unions were unable to give Victor Li ..... that somebody else would be successful in getting," the source said.

One barrier to the Teachers investment is that the fund is a major investor in Calgary-based WestJet Airlines Ltd., Canada's second-largest carrier.

But it is believed that the pension funds would look to shrink and carve up Air Canada — selling off assets such as its regional carrier Jazz and its frequent-flier program Aeroplan — which could make it logical for Teachers to invest in both WestJet and Air Canada. Some investors believe that if Air Canada shrinks, all Canadian airlines will benefit.

"Teachers would be beneficiaries by having a foot in both doors," said a source.

Aside from the pension funds, it is possible that some or all of Air Canada's creditors could step forward to fill the gap left by Trinity. Topping the list are Deutsche Bank AG or GE Capital, which have worked closely with the airline's top executives.

"Clearly, Deutsche Bank and GE Capital are already partners in this restructuring and therefore figure prominently in where things go forward," a source close to Air Canada said yesterday. "But they have not provided any commitments about a greater stake, and we haven't sought any [such] commitments."

It is also possible that bondholders could redouble their efforts to provide capital through a rights offering involving all creditors. A rights offering would give everyone owed money by Air Canada a chance to buy new shares in the airline at a discount price — possibly with the involvement of Cerberus, which came second to Trinity in the equity solicitation process last spring.

Sources said Friday that Cerberus would be interested in taking another run, but only at a much reduced price.

Other sources said there is little appetite for another run at Air Canada at Toronto-based Onex Corp., which made a joint proposal last year with Texas Pacific Group (TPG) of Fort Worth, Tex.

One source close to Air Canada said the top priority for the airline's board and management now is to establish the process for selecting which investors will replace Trinity. There could be a power struggle between Air Canada's management and its unions and creditors over who will control the search for an alternative investor.

A report dated Friday from Air Canada's court-appointed monitor recommends that the airline be given more time to find an alternate source of cash, but suggests that the monitor work with Air Canada and its advisers "in consultation with the applicants' stakeholders" to determine the process.

The report recommends that Air Canada's court protection from creditors be extended for a "sufficiently long" period, although no specific date is cited. The monitor notes that the airline has $957.2-million in cash on hand as it enters the strong summer period.

One source close to the restructuring said the next equity solicitation process would have less management control than last time.

"It will be a process run by the court, but it will have a lot more involvement from creditors," the source said.

When Trinity was selected over Cerberus in January, Air Canada's unions and creditors complained that they had little say in the process through which Trinity was chosen.


RE: Air Canada Rescue May Rest With Giant Funds

Mon Apr 05, 2004 10:37 pm

"Mr. Milton and Mr. Rovinescu obtained those concessions on the condition that pensions not be touched."

Give me a break!

RE: Air Canada Rescue May Rest With Giant Funds

Mon Apr 05, 2004 10:38 pm

Clarification: Milton & Rovinescu negotiated their respective CAD$20 Million
bonuses with Li on the condition the pensions would not be touched.


RE: Air Canada Rescue May Rest With Giant Funds

Mon Apr 05, 2004 10:48 pm

And more from the ill fated AC. This time we look at the wonderful unions, and how Buzz Hargrove, Pam Sachs and the likes look upon themselves as the
saviours of AC. Ah yes, and with all the other ills at AC, the current pension plan will oh so enticing to any potential investors. Ahem.

If the unions are so bloody blind to the fact that a revamped pension plan infrastructure could possibly be ONE factor which would bring investors on-board, then I shudder to think how they themselves would conduct serious
negotiations. Not that they should, in my opinion. They've already screwed the division members, and now they wish to figuratively screw the future of AC as well.

The second paragraph with a quote from Pilots Association head Don Johnson pretty well sums up the collective arrogance and ignorance. Don, got news for ya: YOUR bargaining divisions are one of the main catalysts which are steering your carrier towards oblivion. Would your members rather have a JOB and a percentage of their current pension, or none at all?

Air Canada's Unions Seek Active Role

From Monday's Globe and Mail

The leaders of Air Canada's unions say they will be much more involved in trying to rescue the insolvent airline than they have been to date, now that Hong Kong businessman Victor Li appears to have all but abandoned his plan to pump in $650-million.

“We have decided that as a group we're going to be there to solve the problems that the company's in, and we're going to take a much more active role in the development of a plan to get us through this thing,” Don Johnson, president of the 3,100-member Air Canada Pilots Association, said Sunday.

“We've agreed to work together with the company to seek out new equity investors,” concurred Pamela Sachs, who heads the Air Canada component of the Canadian Union of Public Employees, which represents mainline flight attendants.

“Nobody wants to see this carrier fail — everybody wants to make sure it continues to fly,” said Steve Vodi, who heads the transportation industry division of the International Association of Machinists and Aerospace Workers (IAM), Air Canada's largest union.

Mr. Vodi said the unions have agreed to establish a joint restructuring committee.

The unions met in Toronto Sunday morning for a three-hour strategy session, two days after Mr. Li's Trinity Time Investments Ltd. said it would not seek to extend the April 30 deadline of its investment agreement and freed Air Canada to look for other equity partners.

In a statement Friday afternoon, Trinity attributed its decision to Air Canada's financial prospects being weaker than it had expected and to what it considers to be the confrontational labour environment at the company.

In particular, it cited the refusal of the unions to discuss pension changes it wanted to make. It also, said, however, that it would not rule out a deal “if circumstances change sufficiently.”

Some officials at the Canadian Auto Workers union and elsewhere think Mr. Li is simply trying to pressure Air Canada's unions to make more concessions.

Mr. Johnson at ACPA said he still thinks a deal with Mr. Li is possible. “There is a possibility that if we can do this right, Trinity won't walk away, and we need to have those discussions,” he said.

The timing of Trinity's announcement came as a surprise. The firm said last Monday that it would decide by April 15 whether to walk away or to extend its agreement and on what terms.

One person close to Air Canada said Sunday that the airline's chief executive officer Robert Milton and chief restructuring officer Calin Rovinescu first learned of the decision in a call from Mr. Li and his chief lieutenant Frank Sixt in Hong Kong at about 9.30 Thursday night.

“It was really quite a bombshell,” the source said. “There were no prior discussions to suggest it would take place so soon.”

Mr. Milton then held a conference call with various key players in the restructuring, including Air Canada's main external lawyer, Sean Dunphy and the company's court-appointed monitor, Murray McDonald of Ernst & Young Inc., the source said.

The source also suggested that the final straw triggering Trinity's move may have come when, in a bizarre twist Wednesday and Thursday, the IAM took over its Montreal-based airline division and ousted the entire executive over an allegedly unauthorized deal on pensions they secretly negotiated with Air Canada.

The IAM's District Lodge 140, as the division is known, struck a tentative deal under which members of the union would have been allowed to choose between staying in the airline's existing defined-benefit pension plan or moving to a defined-contribution plan Mr. Li wanted to introduce. New employees joining the IAM bargaining unit would automatically be enrolled in the defined-contribution plan.

CAW president Buzz Hargrove said last week that Air Canada's unions had been united from the beginning against Trinity's push for a defined-contribution pension and that nobody had to put any pressure on the IAM to disavow the deal cut by District Lodge 140.

“There's been a consensus from the outset that this would just be a disaster, not just for the Air Canada workers but for the labour movement more generally,” he said.

Unions adamantly oppose defined-contribution pensions because, as Mr. Hargrove put it, “the risk moves from the employer to the worker to provide a decent pension at the end of one's working life. It's that simple. It's great for companies, but there's absolutely no logic in it for workers.”

Meanwhile, investors are bracing for a major slide in Air Canada's bonds when markets open this morning. “I would imagine things are going to be pretty ugly,” said one U.S. bondholder.

Bondholders are not generally concerned about an increased short-term risk of liquidation at the national carrier. Rather, they worry that Mr. Li's Friday announcement raises new questions about the value of the company. They also worry that another investor could ask for a greater share of equity at the airline, which would minimize creditor recovery.

“The bonds are going to get crushed,” another former creditor said.

Mr. Li's announcement does not appear to have an impact on the value of Air Canada's shares. That's because the company's current shares are expected to be all but eliminated whether or not the company emerges successfully from its restructuring.


RE: Air Canada Rescue May Rest With Giant Funds

Mon Apr 05, 2004 11:27 pm

"Air Canada has a huge cash reserve," (in reference to the $900 Million the carrier claims it has on hand) said Pamela Sachs, president of the Air Canada component of the Canadian Union of Public Employees, which represents the airline's flight attendants. "This doesn't look like a company headed for liquidation."

Ding Dong! Hellloooooo? Pam, open 1L and smell the coffee brewing in
the fwd galley, honey!

I think I'll insert B747-437B's quote from another AC thread here:
Pam Sachs wouldn't know a clue if it walked up and bitchslapped her.

Frightening to think how these people's minds work.

Posts: 3155
Joined: Sat Aug 24, 2002 11:41 am

RE: Air Canada Rescue May Rest With Giant Funds

Mon Apr 05, 2004 11:40 pm

I say if Air Canada goes under let them. The unions already agreed to alot of cuts, and in some ways the pensions are all they still hanging on to. Trust me, the unions at AC will never give much up on the pensions so if the people were smart they wouldnt even go there. The problem really is the overpaid management what gets millions of dollars in bonusses while the employees are taking cuts all over the place. Personally I would love to see Milton himself (and some of the other management also) take a pay cut and a pension cut and no bonusses till they are in the black.

HS-748, just like a 747 but better!

RE: Air Canada Rescue May Rest With Giant Funds

Mon Apr 05, 2004 11:57 pm

CanadianNorth, I agree with you to a certain extent. However, the current AC employee pension fund, should it remain in place, will be a dark shadow that will come back to haunt AC again and again. Mr. Li is not an imcompentent man in any sense of the word, and he strongly felt that a ratification of the pensions was imperative and condusive to a healthier AC. In short, there is no choice, unfortunately; a defined pension fund is the only logical solution the unions must face up to. Many many companies have the defined pension
plan in place; the AC unions and members have to wake up and face the facts.

One wonders if the unions have prepared themselves (and their members) for the very real possibility of additional job cuts/layoffs that I'm sure any
investor(s) will deem mandatory for a healthier carrier to emerge.

This whole scenario of Victor Li 'walking' couldn't have come at a worse time for Air Canada. Now that the 2003 1.8 Billion loss has been announced, those numbers will be in the forefront of any potential investors minds.

And you're right: it's "criminal" that Milton, Rovinescu and the board continue to reap their respective financial windfalls and benefits while the employees have to date made numerous sacrifices. But remember, there are two teams of players here, and each is contributing to a poor portfolio being presented to potential investors.

Note: there ate quite the discussions going on on the AC employee website, where many are rather disgruntled at the firm stand the unions are taking.
It would seem that some AC employees value their jobs and can see the forest for the trees.

RE: Air Canada Rescue May Rest With Giant Funds

Tue Apr 06, 2004 1:05 am

An excerpt from a National Post AC article published today:

But at the same time, division also appears to be emerging between union leadership and their members.

Mitch Cronin, an Air Canada maintenance worker, said there are many employees who are willing to make further concessions if it would mean preventing the airline's demise.

"Some of us are indeed willing to speak out in opposition to our union leaders who would have us all believe it's all a game of chicken," Mr. Cronin said.

"I'm willing to do what's needed to keep this company flying, and I know of a great many others who are, as well.

Having myself had direct experience with the airline division of CUPE
for 5 years (Worldways Canada Ltd. Local) this really angers me, and brings back quite negative memories. I truly believe the 5 AC unions are NOT really and truly listening to the growing voices of opposition to the firm stand taken by the leaders re fixed pensions. In truth, and in my experience, "Unions" in and of themselves are not the quintessential representative of the collective voice; rather, they are the heard voices but of a few with egos (and archaic mindsets) to stroke and nourish. And let's not forget, unions are 'corporations' unto themselves, with money to make and invest.

"I just want to keep fixing airplanes and feeding my family, and I have no reason on Earth to trust the likes of [union leadership] to help me maintain that ability," he said.

Amen. This sounds all too sadly familiar. To all the Air Canada employees who can truly see the truth and reason through this distorted dangerous political game, I sincerely wish you all the best. Stand up and let your voices be heard, do NOT be intimidated by your bargaining division heads. Buzz Hargrove, Pam Sachs, Gary Fane and the likes have elected to put your jobs, your carrier and your future on the cutting block. Forget about Milton and Rovinescu and think about what is "the right thing to do". Time is of the essence, if it's not too late already. It's now or never.

Posts: 5411
Joined: Mon Aug 25, 2003 12:53 pm

RE: Air Canada Rescue May Rest With Giant Funds

Tue Apr 06, 2004 4:48 am

"Air Canada rescue may rest with giant funds"

We will continue to see really stupid headlines like this for a while for a few reasons:

1) News organizations have to fill inches/minutes and will accept any garbage that AC or the unions feeds them as "news worthy".

2) AC has a "War Room" that is stuffed with high priced PR consultants that will spin the best possible news. AC management KNEW from day one that there was always a possibility that the Li deal would crater. When Li told AC that Trinity was pulling out, Milton probably only had to say: "OK, put out Press Release No. 13 now".

3) AC or the unions are at liberty to say to the press that they are contacting any or all the pension funds/investors they want to - even George Soros, for example. Does that mean that anyone will want to a) accept their calls, b) listen to them, and c) even think about flushing any money down the toilet -- NO!!! It is just pure spin.

It the unions truly believe that AC is worth saving - and such a cash cow for a future investor, and that they should have a more direct role in saving it, they should put their money where their mouth is. Why don't all the union members just pony up $10,000 (the pilots could at least "invest" $20,000 considering how much more they make) and take a major stake in AC. But of course they won't - they have UAL as an example of what happens when the lunatics take over the asylum.
Nationalism is an infantile disease. It is the measles of mankind. - A. Einstein

RE: Air Canada Rescue May Rest With Giant Funds

Tue Apr 06, 2004 5:12 am

"Why don't all the union members just pony up $10,000 (the pilots could at least "invest" $20,000 considering how much more they make) and take a major stake in AC."

What with the concessions already made by AC employees to date, and given the fact many, many of these people (FA's, pax agents, mechanics and baggage handlers, etc.) have mortgages to pay and children to feed and clothe, plus support themselves, I find your comment rather ignorant, to say the least.
Posts: 5411
Joined: Mon Aug 25, 2003 12:53 pm

RE: Air Canada Rescue May Rest With Giant Funds

Tue Apr 06, 2004 5:19 am

Obviously 1) you don't understand that I was being flippant, and 2) that I was making the point that the union leadership is all hot air - i.e. AC has bags of money, has a great future, etc., etc... so why should we give up anything more!
Nationalism is an infantile disease. It is the measles of mankind. - A. Einstein

RE: Air Canada Rescue May Rest With Giant Funds

Tue Apr 06, 2004 5:28 am

Your comment was not interpreted by me as being flippant, but then again, I'm rather dense with a low IQ, so there you go.

No argument re Union leadership full air.

I'd like to know who in their right minds would invest in AC at this point, especially with the fixed pensions and a $1.8 billion loss. I found it wryly ironic that the Teachers Pension Fund (!) was looking into AC, or so the unions

Posts: 5411
Joined: Mon Aug 25, 2003 12:53 pm

RE: Air Canada Rescue May Rest With Giant Funds

Tue Apr 06, 2004 5:47 am

"I found it wryly ironic that the Teachers Pension Fund (!) was looking into AC, or so the unions claimed."

"Claimed" is correct. The unions will say ANYTHING to offer some sort of hope to the membership after sending Li "packing". I also think that it is shoddy journalism to just print whatever the union "source" says. Afterall, in the sentence prior it says: "However, OMERS and Teachers dropped out after a preliminary look..." a year ago. What on earth would make them reconsider now when AC is in much worse shape - completely illogical.

I found this on CP Online. It destroys the myth of the overwhelming loyal AC biz passenger that "some people" claim will "save" AC. And it further bolsters Li's decision to walk away from a bad deal:

Air fares descended 5.4% last year as discounters expanded: corporate survey

Mon Apr 5,12:50 PM ET

TORONTO (CP) - The average cost of airline tickets fell by 5.4 per cent last year as business travellers increasingly embraced low-cost carriers, according to a study by travel management consultancy BTI Canada.

BTI said Monday that its survey of corporate clients indicated that domestic and transborder fares tumbled nine per cent, while overseas ticket costs declined by slightly less than one per cent.

"The acceptance of low-fare carriers by corporate travellers has forced dominant 'traditional' airlines to rethink their fare and distribution models, and to continue focusing on maximizing yields instead of adding flights to capacity," observed Michele Ferrari, senior vice-president for client management at BTI Canada, a unit of British-based Hogg Robinson PLC.

Ferrari said low-fare-carrier ticket purchases rose in one year from seven per cent to more than one-quarter of total airline revenue in Canada.

"Business travellers appear to be considering these low-fare carriers, and are prepared to forgo service and schedules for the price and value that these smaller airlines tend to offer," she said.

[Edited 2004-04-05 22:49:03]
Nationalism is an infantile disease. It is the measles of mankind. - A. Einstein

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