AC Maintenance Provider Aveos Shuts Down

9252fly · Mon Mar 19, 2012 1:25 am

AC maintenance provider Aveos closed it's doors today giving it's technicians 30 minutes to leave the property. For those that are not aware,Aveos was spun off and monetized from AC. 2400 employees are now looking for a new job. What happens to all the aircraft that were in some state of repair,can't imagine the chaos!

[Edited 2012-03-18 19:08:39]

yxu737 · Mon Mar 19, 2012 1:33 am

http://ca.news.yahoo.com/aveos-fleet...S1hMmZmLTdhYTU0YzQwMzNhMA--;_ylv=3

This is horrible news

canadianpylon · Mon Mar 19, 2012 2:39 am

Quoting 9252fly (Thread starter):
AC maintenance provider Aveos closed it's doors today giving it's technicians 30 minutes to leave the property. For those that are not aware,Aveos was spun off and monetized from AC. 2400 employees are now looking for a new job. What happens to all the aircraft that were in some state of repair,can't imagine the chaos!

This is just horrible! The people at Aveos here in YWG just gave a tour of their facilities to the Cub Scout group I'm a leader in. Everyone there was soo nice and took their time with the Cubs. The Cubs that attended were treated to a walking tour of the hangar and were allowed on to an A320 that was undergoing a check. For some of the kids, it was their first time on an airplane!

Everyone at Aveos was fantastic with us, and I can't imagine a worse fate for such a wonderful group of professionals.

If anybody from Aveos at YWG reads this.... thank you and good luck! God bless you!

Canadianpylon

yyz717 · Mon Mar 19, 2012 2:57 am

Did Aveos handle all the A32x maintenance for AC at YWG?

Given the large fleet at AC, they must always have a few aircraft under maintenance. So AC must have an immediate back up plan?

Also, if the current contract with AC runs to June 2013, why is Aveos laying off now?

Presumably these layoffs are permanent? Article does not specify.

railker · Mon Mar 19, 2012 3:13 am

It would seem that all they can do is push the plane as it is out of the hangar and tell AC "Come and finish it yourself". A bit of a shame as an apprentice mechanic to see so much work going overseas for the sake of the bottom dollar, reminds me a bit of that Wal-Mart documentary making mention that a Wal-Mart moves in and all the local work goes out of business.

Hope all the AMEs can find themselves new work elsewhere in one fashion or another, even if this layoff isn't permanent, chances are they wouldn't be bringing everyone back again. CTV article used the phrase "ceasing its operations", hints at being shut down completely -- AC apparently was 90% of their work. Take out AC, not much left ...

CTV Article: http://www.ctv.ca/CTVNews/TopStories...0318/aveos-plant-shut-down-120318/

9252fly · Mon Mar 19, 2012 3:23 am

Aveos was called Air Canada Techinical Services up until it was sold off in 2007. ACTS as it was commonly known had it's history tied to the inception of Trans Canada Airlines in 1937. Talk about flushing 70 years down the toilet! I can't but feel AC will be a very different company by year's end. ACTS was one of three divisions sold off during it's restructuring that included QK the regional carrier (Jazz) and Aeroplan the frequent flier program.

LAXintl · Mon Mar 19, 2012 3:41 am

Since Aveos spun off from Air Canada, it had to essentially compete for Air Canada work while it still had an exclusive right to price match until 2013.

However the fact is that cost in Canada are high for maintenance, and Air Canada could find in ever greater volumes of component and airframe work sent out to vendors outside the country.

As one can imagine also having a relative strong CAD further made domestic suppliers ever less attractive compared to foreign peers and made it hard for Aveos to compete.

I wonder what will be of Aveos investment in TACA's Aeroman, which has been a rising star in the maintenance world and has become one of the few global Airbus MRO partners.

canadianpylon · Mon Mar 19, 2012 6:04 am

Quoting yyz717 (Reply 3):
Did Aveos handle all the A32x maintenance for AC at YWG?

A32x maintenance and Embraer EJets were done at YWG. I not too sure what was done at YUL and YVR.

The CTV article said that the YWG, YUL, and YVR are closed. The aveos.com website lists facilities in YYZ and San Salvador... what is happening to those?

I will try to post some pics from our tour a YWG a few weeks ago. At the time, there was A320 undergoing a check, and two Embraer 175 undergoing checks and interior refurbishments.

Of the 2400 layoffs, 350 in YWG, 250 in YVR, and 1800 in YUL.

And no mention of it on the aveos.com website....curiouser and curiouser.

ac7e7 · Mon Mar 19, 2012 6:27 am

Unfortunate for sure. However this is the sign of the times. Labour costs are too high to sustain the business. Air Canada sends a lot of their maintenance work to Hong Kong, and other facilities that can do the same job for half the cost.

Two members of my family worked at the Montreal base for many years - they have since retired, however sad day indeed.

yyz717 · Mon Mar 19, 2012 6:51 am

Quoting AC7E7 (Reply 9):
Labour costs are too high to sustain the business.

Aveos was foolhardy in relying on AC for 90% of their revenue. They should have done more to diversify their revenue base and also lower their costs.

bennett123 · Mon Mar 19, 2012 8:06 am

We know that they had some AC aircraft undergoing checks at the time, (but not the level of the checks).

What is the legality of simplyclosing it down if it's contract with AC lasted into 2013.

Also what is the legality of flying a plane which has only partly completed a check?.

Dalmd88 · Mon Mar 19, 2012 9:44 am

Quoting bennett123 (Reply 11):
Also what is the legality of flying a plane which has only partly completed a check?.

If the plane came into the check with time remaining it can still fly with out any special permission. Even if it has run out of time there are provisions to overfly the time I think up to 10% but they need approval, These are FAA regs and I bet Canada is the same. The big issue is the current state of the aircraft. If its in for an C check or D check the plane is most likely in many pieces. The operators will have to put it back to a flyable condition.

jamincan · Mon Mar 19, 2012 11:57 am

Does Air Canada still have their own maintenance personnel in Winnipeg? Because does the Air Canada Public Participation Act require that they maintain a maintenance base there?

WestJet747 · Mon Mar 19, 2012 1:00 pm

So what are the immediate next steps? Does AC have to jump on an emergency contract with someone like Lufthansa Technik until a more permanent company can be found?

Quoting yyz717 (Reply 9):
Aveos was foolhardy in relying on AC for 90% of their revenue. They should have done more to diversify their revenue base and also lower their costs.

I agree that having a single entity as 90% of your revenue stream is poor business practice, but if they were locked into a fixed-term contract I don't see the relevance to the issue at hand. Issues with companies who don't have a very diversified client base usually only run into problems during contract renegotiation, which in this case was quite a while away and likely not a factor in their demise.

Thenoflyzone · Mon Mar 19, 2012 1:45 pm

Quoting AC7E7 (Reply 8):
Air Canada sends a lot of their maintenance work to Hong Kong, and other facilities that can do the same job for half the cost.

Dont know about Hong Kong in particular, but i do know that the productivity levels of Chinese MRO's is nowhere near what North American or European MROs can provide.

I read an article on Aviation Space and Week mentioning this. China in particular, where the productivity level is half of that in North America and Europe. The labor is getting 20+% pay raises every year due to strong inflation, illustrating how the cost base of these MRO's is rising much faster than the productivity levels.

Sooner or later, these MRO's will no longer have an edge on their North American or European counterparts.

Thenoflyzone

[Edited 2012-03-19 06:46:15]

longhauler · Mon Mar 19, 2012 2:04 pm

Quoting yyz717 (Reply 9):
Aveos was foolhardy in relying on AC for 90% of their revenue. They should have done more to diversify their revenue base and also lower their costs.

I certainly understand your sentiment ... but:

Are you aware that AVEOS was just another "spin-off" that ACE pulled from AC, sold, then divided the proceeds among foreign investors? In other words, no different than Jazz or Aeroplan.

Everyone in Maintenance at AC during this process was aware of the eventual outcome. The result being that when the choice was made to stay at AC or move to AVEOS "with job security, wages, benefits, pensions ... etc" the most senior stayed and the most junior were forced to AVEOS ... and are now jobless.

If any one does not see this as the eventual future for Jazz/Chorus, they are very naive. It is the same script. Make big promises, sign a lucrative "exclusive" contract, sell the entity for a boatload of cash for your buddies ... then leave them to fend for themselves, which by design, they can not.

The only "spin-off", in my opinion, that appears capable of maintaining a future on their own is Aeroplan.

I really feel for these gentlemen and ladies, as through no fault of their own they are left with nothing. No jobs, no pensions, etc. And all so that those at the top of ACE can have a bigger boat or a chalet closer to the lifts in Switzerland.

Ychocky · Mon Mar 19, 2012 2:28 pm

LH MX already beginning? C-GFAH, Airbus A330-343, ACA2074, YUL-FRA http://flightaware.com/live/flight/ACA2074

ACA442 YYZ-YOW was operated by a 77W this AM, so perhaps any members of the fleet with a fluid schedule will be swapped in as needed.

Sad, but it was in the cards.

braynfeeble · Mon Mar 19, 2012 3:00 pm

Sorry to hear about this. Wonder if this will affect other cities/contracts?

connies4ever · Mon Mar 19, 2012 3:52 pm

Quoting longhauler (Reply 16):

If any one does not see this as the eventual future for Jazz/Chorus, they are very naive. It is the same script. Make big promises, sign a lucrative "exclusive" contract, sell the entity for a boatload of cash for your buddies ... then leave them to fend for themselves, which by design, they can not.

The only "spin-off", in my opinion, that appears capable of maintaining a future on their own is Aeroplan.

I really feel for these gentlemen and ladies, as through no fault of their own they are left with nothing. No jobs, no pensions, etc. And all so that those at the top of ACE can have a bigger boat or a chalet closer to the lifts in Switzerland.

Completely agree, Longhauler. When RAM was brought in he was considered the "whiz kid". Now, if there was some way, some how, to bring criminal charges against him ...

WestJet747 · Mon Mar 19, 2012 4:04 pm

Quoting connies4ever (Reply 19):
When RAM was brought in he was considered the "whiz kid". Now, if there was some way, some how, to bring criminal charges against him ...

I'm not particular fond of how he goes about his business either...but exactly what crime did he commit? Unethical and illegal are two very different things.

longhauler · Mon Mar 19, 2012 4:29 pm

Quoting WestJet747 (Reply 20):
I'm not particular fond of how he goes about his business either...but exactly what crime did he commit? Unethical and illegal are two very different things.

This is 100% correct.

Ten years ago, when the writing was on the wall and ACE was first envisioned, ACPA complained to the government and was told ... it is NOT illegal.

I think was conniesforever was saying, is that IF there was some way to bring criminal charges ... we all acknowledge that there is not.

yyz717 · Mon Mar 19, 2012 4:56 pm

Realistically though, its easier to maintain say 777's in China or HKG or SIN since they will fly there (or near there) anyway. But a short haul fleet of A320's and E190's pretty well has to be be maintained in the Americas (ie, Panama and north) since otherwise the ferry flights to far flung maintenance sites would be too expensive and logistically challenging for shorthaul aircraft. So, based on this, AC will have fewer options to relocate their A320/E190 maintenance and hence Aveos, in theory, should have a shot at retaining the business, or some of it.

Aveos should be looking at what costs it can reduce to retain some of the business. Yes, that means labour costs.

AC is not the villain here. The increasingly commoditized airline business has reached into aircraft maintenance (which has been happening for years and years anyway) and these Aveos employees are going to have to agree to work for less $ if want to keep their jobs (assuming this is still an option).

Quoting longhauler (Reply 16):
Are you aware that AVEOS was just another "spin-off" that ACE pulled from AC

I know, but Aveos has had 4 years to lower their costs and diversify their revenue base. They failed.

connies4ever · Mon Mar 19, 2012 5:10 pm

Quoting WestJet747 (Reply 20):

I'm not particular fond of how he goes about his business either...but exactly what crime did he commit? Unethical and illegal are two very different things.

Quoting longhauler (Reply 21):
I think was conniesforever was saying, is that IF there was some way to bring criminal charges ... we all acknowledge that there is not.

More expressing an emotion than a realistic option. But geez, the guy has an ego, he even 'bought' C-FRAM for one of the T7s. I guess if you can afford it you do it. Fortunately I'm not in that bracket.

I remember checking in at YWG several years back during one of the earlier labour issues, and the agent was very good. I commented that he looked healthy since RAM hadn't had the time to suck the blood out of him today. Fellow bumped me to J for the trip to YOW. Need to update that for CR.

PDPsol · Mon Mar 19, 2012 5:17 pm

Quoting longhauler (Reply 16):
Are you aware that AVEOS was just another "spin-off" that ACE pulled from AC, sold, then divided the proceeds among foreign investors? In other words, no different than Jazz or Aeroplan.

Quoting longhauler (Reply 16):
If any one does not see this as the eventual future for Jazz/Chorus, they are very naive. It is the same script. Make big promises, sign a lucrative "exclusive" contract, sell the entity for a boatload of cash for your buddies ... then leave them to fend for themselves, which by design, they can not.

When ACE made a strategic decision to divest Jazz, Aeroplan and Aveos, they of course needed to find owners for these businesses. In the case of Jazz and Aeroplan, the existing ACE shareholders received equity in the spun-off entities. In the case of AVEOS, the buyer was a private equity consortium, including KKR.

Equity investors are savvy and will assign a value to a commercial enterprise based on its fundamental value. ACE did nothing wrong in divesting these businesses, it fulfilled its fiduciary obligation to its own shareholders by maximizing the value of its own equity. ACE also spun off AC itself and it continues to be a minority shareholder in the business. One could argue AC itself would had failed had it not divested these businesses and expended scarce management resources on a disparate portfolio of unrelated entities.

The management of AVEOS had several years to diversify its business, implement thorough efficiency programs, outsource operations further to El Salvador, whatever was necessary to maximize its value for its owners. Everyone knows the Canadian dollar has traded at parity [or even above parity] with the US dollar for years, making operations in YUL and YWG expensive and difficult.

ACE and its management are not to blame here. The failure of AVEOS rests in hands of its own management team and its owners.

LAXintl · Mon Mar 19, 2012 5:32 pm

If it matters - Aveos received several new executive team members last summer and fall including a new CEO and CFO - The appointed new CEO is Joe Kolshak formerly of United and Delta Airlines.

The new team probably were given marching orders by the Board to get on with repositioning the company and this is culmination of such orders.

longhauler · Mon Mar 19, 2012 5:48 pm

Quoting PDPsol (Reply 24):
ACE did nothing wrong in divesting these businesses, it fulfilled its fiduciary obligation to its own shareholders by maximizing the value of its own equity.

Not at all. That was the only intent of "making up" AVEOS, then selling it. There was no need to do such a thing, other than to extract equity from AC, and sell it externally.

B6JFKH81 · Mon Mar 19, 2012 6:16 pm

UGH....I can't imagine how many rotable units that AVEOS has repair contracts with us for are stuck in facilities now. This is going to be a clusterf**k on my side of things

My heart goes out to all the great folks from AVEOS...

Viscount724 · Mon Mar 19, 2012 9:53 pm

Quoting yyz717 (Reply 3):
Also, if the current contract with AC runs to June 2013, why is Aveos laying off now?

Presumably these layoffs are permanent? Article does not specify.

You'll find links to their press release, internal announcement to staff and related layoff notice etc. on their website.
http://www.aveos.com/EN/Pages/Home.aspx

ElPistolero · Mon Mar 19, 2012 10:02 pm

Quoting WestJet747 (Reply 14):
So what are the immediate next steps? Does AC have to jump on an emergency contract with someone like Lufthansa Technik until a more permanent company can be found?

I doubt that will be cheap. I suspect they already have something in place and that this (shutting down Aveos) was a mere formality.

Quoting thenoflyzone (Reply 15):
I read an article on Aviation Space and Week mentioning this. China in particular, where the productivity level is half of that in North America and Europe. The labor is getting 20+% pay raises every year due to strong inflation, illustrating how the cost base of these MRO's is rising much faster than the productivity levels.

And productivity in India is between 1/3 and 1/2 that of the west, and salaries there are rising, but it hasn't stopped the flow of jobs. Its optimistic to believe that the west will retain its edge. For one, even with exorbitant pay rises, salaries are significantly lower than they are in the west (as is cost of living). They don't need to earn $50,000 to live a life comparable to what a Canadian earning $50,000 achieves. On that alone, I would be willing to wager that they will be able to undercut western countries for a long time to come. And productivity will improve over time. FWIW, once a job gets outsourced, it either gets eliminated or stays abroad. It rarely comes back.

Quoting longhauler (Reply 16):
The only "spin-off", in my opinion, that appears capable of maintaining a future on their own is Aeroplan.

Mostly because of its ownership of Nectar. Aeroplan itself is a middling-to-poor product and not nearly as lucrative as the Nectar program.

Alnicocunife · Mon Mar 19, 2012 11:32 pm

Quoting LAXintl (Reply 25):

If it matters - Aveos received several new executive team members last summer and fall including a new CEO and CFO - The appointed new CEO is Joe Kolshak formerly of United and Delta Airlines.

Yes a few of Delta Air Line Rejects were "running" AVEOS. Look into their history after leaving Delta and it appears they were run out of a couple of airline jobs. One even worked for a bus company after leaving United. They maybe were given marching orders to cut everything but (likely the case) bad management drove AVOES out of business!

RJLover · Mon Mar 19, 2012 11:46 pm

Quoting Ychocky (Reply 17):
LH MX already beginning? C-GFAH, Airbus A330-343, ACA2074, YUL-FRA http://flightaware.com/live/flight/A...A2074

Nope. That was an extra section, to pro pax off the cancelled AC874 YUL-FRA/18MAR.

Quoting Ychocky (Reply 17):
ACA442 YYZ-YOW was operated by a 77W this AM, so perhaps any members of the fleet with a fluid schedule will be swapped in as needed.

The 77W was not swapped in due to maintenance constraints, but for pax pro. There were multiple cancellations for the market over the weekend, so you have to clean it up somehow!

multimark · Mon Mar 19, 2012 11:48 pm

Quoting longhauler (Reply 16):
If any one does not see this as the eventual future for Jazz/Chorus, they are very naive. It is the same script. Make big promises, sign a lucrative "exclusive" contract, sell the entity for a boatload of cash for your buddies ... then leave them to fend for themselves, which by design, they can not.

Sadly Air Canada, at least in its current form, will not be around to see the 2020 expiry of its contract with Chorus.

ac7e7 · Tue Mar 20, 2012 12:06 am

Quoting longhauler (Reply 16):

Quoting yyz717 (Reply 22):

Air Canada is not to blame here. Of course the unions and some politicians will blame the airline for moving work out of the country. If Aveos could do the job at the same cost or lower, they would have won the contracts on those aircraft. They can't compete. As yyz717 mentions, they had 4 years to secure contracts outside of AC.

Air Canada made no promises back when they were spinning off these divisions that they would always go to them with business. They indicated that they would have to bid for contracts just like every other supplier. Chorus did not win the Toronto Island contract. Aveos did not win all the maintenance contracts.

What about capacity? Was Aveos able to handle all of Air Canada's heavy maintenance work?

longhauler · Tue Mar 20, 2012 12:29 am

Quoting multimark (Reply 32):
Sadly Air Canada, at least in its current form, will not be around to see the 2020 expiry of its contract with Chorus.

Or a quick trip through CCAA, show hardship, and done ... the contract is canceled.

Looking at how the government has "assisted" Air Canada in the last few months, this scenario is not all that far fetched. And ... as I am fast learning, never say never!

flyyul · Tue Mar 20, 2012 12:56 am

Longhauler - you seem to have all the answers. So what's your proposal for an AC go forward plan. How do you propose AC sheds $500M-1Billion in cost per year. I'm very interested!

ElPistolero · Tue Mar 20, 2012 12:57 am

Quoting AC7E7 (Reply 33):
Air Canada is not to blame here.

"“Since the beginning of 2012, Air Canada has reduced, deferred and cancelled maintenance work with Aveos which has resulted in $16 million lost revenue in less than two calendar months,” said the its court petition.

Aveos said it was owed $60 million, mostly from Air Canada. As of January, its liabilities exceeded the book value of its assets by $165 million."

http://www.thestar.com/business/arti...os-files-for-bankruptcy-protection

The story claims AC will take a big hit, with several narrowbodies and three widebodies currently at Aveos facilities.

Interesting.

9252fly · Tue Mar 20, 2012 12:57 am

This story is getting more interesting by the hour with AC trying to intervene in the court-room today.

http://www.winnipegfreepress.com/bre...ontract-obligations-143326426.html

ElPistolero · Tue Mar 20, 2012 1:23 am

Quoting 9252fly (Reply 37):
This story is getting more interesting by the hour with AC trying to intervene in the court-room today.

They're extending $15 million in emergency funding. Furthermore, Aveos claims AC is responsible for $10m worth of severance payments to laid off workers.

The CEO - an American - has apparently returned to the US, so maybe this isn't a stunt -maybe its an endgame.

Quoting flyyul (Reply 35):
Longhauler - you seem to have all the answers. So what's your proposal for an AC go forward plan. How do you propose AC sheds $500M-1Billion in cost per year. I'm very interested!

I imagine he would start by suggesting AC fix relations with its workers - or else its not going to get very far. For instance, why is AC pointing the finger at pilots (or more explicitly, asking the CIRB to investigate wrongdoing) by conflating 3 mainline flight cancellations with 20 regional flight cancellations - and implicitly blaming ACPA for all.

http://www.cbc.ca/news/canada/new-br...9/air-canada-pilot-disruption.html

I don't think employees are going to be part of any solution if they are publicly attacked and see management deliberately misleading everyone to blame them.

Want to fix things? Start by firing the brilliant minds who saw a weather disruption and used it to smear pilots.

multimark · Tue Mar 20, 2012 1:46 am

Quoting longhauler (Reply 33):
Or a quick trip through CCAA, show hardship, and done ... the contract is canceled.

Looking at how the government has "assisted" Air Canada in the last few months, this scenario is not all that far fetched. And ... as I am fast learning, never say never!

A quick trip through CCAA will see AC pilots and other work groups take a big hit to their living standards.

According to statements on upcoming CPA arbitration between AC and Chorus, the disputed amount is peanuts. Something like $20 million out of nearly $10 billion in revenue. And given that Chorus flies to, staffs the stations, and owns the a/c that service politically sensitive smaller communities, that would be a minefield for the Tory government.

Quoting ElPistolero (Reply 37):
I imagine he would start by suggesting AC fix relations with its workers - or else its not going to get very far. For instance, why is AC pointing the finger at pilots (or more explicitly, asking the CIRB to investigate wrongdoing) by conflating 3 mainline flight cancellations with 20 regional flight cancellations - and implicitly blaming ACPA for all.

See above. The last thing that will improve management/labour relations at AC is the inevitable trip through bankruptcy.

ANM604 · Tue Mar 20, 2012 2:32 am

Quoting PDPsol (Reply 23):

Great post.

Quoting longhauler (Reply 25):
other than to extract equity from AC, and sell it externally.

Which AC needed. AVEOS was an expensive operation to run, and was sucking money from AC. They did the right thing by reducing the operation back to what matters the most, and getting what they could for the pieces. It's sad for the AVEOS workers, but AC isn't to blame for this.

Quoting ElPistolero (Reply 37):
conflating 3 mainline flight cancellations with 20 regional flight cancellations

That was one station. There were lots more throughout the system but that's for a different thread.

I love how the union says AC is to blame, because they have been sending their work elsewhere. That's great, just shows what some of these guys expect. AVEOS not being competitive has absolutely nothing to do with AC, in case they forgot they are separate companies.

ElPistolero · Tue Mar 20, 2012 2:44 am

Quoting ANM604 (Reply 39):
I love how the union says AC is to blame

Aveos has blamed AC as well. They have told the court AC owes them $60 m.

longhauler · Tue Mar 20, 2012 3:04 am

Quoting multimark (Reply 38):
A quick trip through CCAA will see AC pilots and other work groups take a big hit to their living standards.

Only if they agree ... the big difference between CCAA and Chapter 11 in the US.

Quoting multimark (Reply 38):
According to statements on upcoming CPA arbitration between AC and Chorus, the disputed amount is peanuts. Something like $20 million out of nearly $10 billion in revenue. And given that Chorus flies to, staffs the stations, and owns the a/c that service politically sensitive smaller communities, that would be a minefield for the Tory government.

I was not aware there was any dispute, and I think you misinterpreted what I was saying.

It is well within the public domain that ACE signed a CPA with jazz at over double the going rate to bolster the sale of jazz trust shares. Just like Aveos. Then, now that the sale is complete, it is not hard to envision the same thing happening to jazz/chorus that happened to Aveos. Is it fair? Of course not. Are the employees to blame? Just like Aveos, of course not!

Will it never happen ... as I say ... never say never.

yyz717 · Tue Mar 20, 2012 3:15 am

Quoting flyyul (Reply 34):
So what's your proposal for an AC go forward plan. How do you propose AC sheds $500M-1Billion in cost per year. I'm very interested!

The answer is obvious (short of reducing AC wages 25% which won't happen), is to greatly reduce AC capacity in all markets. That is, reduce AC to a profitable core. The pullback on capacity would increase yields for all airlines but AC would also benefit. Yes, AC would lose passengers but so what, it's a profit game, not a market share game. A sharp 1/3 pullback on the AC fleet with 1/3 layoffs will enable fares to sky rocket on reduced capacity. This assumes aircraft leases can be ended easily.

Yes WS will gain from an AC capacity pullback also...but who cares? If it returns AC to profit, that's all that matters.

PS......yes....1/3 of HQ staff can be jettisoned also.

The current model of AC with its current fleet size and market share IS NOT WORKING. AC needs to shrink. Nothing else will work. Shrink it baby.

ElPistolero · Tue Mar 20, 2012 3:20 am

Quoting yyz717 (Reply 42):
The answer is obvious (short of reducing AC wages 25% which won't happen), is to greatly reduce AC capacity in all markets. That is, reduce AC to a profitable core. The pullback on capacity would increase yields for all airlines but AC would also benefit. Yes, AC would lose passengers but so what, it's a profit game, not a market share game. A sharp 1/3 pullback on the AC fleet with 1/3 layoffs will enable fares to sky rocket on reduced capacity. This assumes aircraft leases can be ended easily.

Thats a great idea.

Make Canadian consumers pay more so that we consumers can keep a questionably-run AC afloat. Either that, or let AC shrink its fleet, and then face competitive pressure on its pricing (ie not be able to charge higher prices either). It will work for routes on which AC has a monopoly, but on any route where they're facing competition (look at YUL-CDG for example), they will lose, lose and lose. The end result is that you're propagating higher prices on domestic routes served primarily by AC, which amounts to them staying afloat at the cost of Canadian consumers.

Why don't we just institute a "Air Canada survival tax" instead?

[Edited 2012-03-19 20:21:16]

[Edited 2012-03-19 20:21:59]

yyz717 · Tue Mar 20, 2012 3:31 am

Quoting ElPistolero (Reply 43):
Make Canadian consumers pay more so that we consumers can keep a questionably-run AC afloat.

It's a corporate strategy that would work. UA, AA, Delta, NW, US, JAL, Swiss, Brussells Airlines.....all emerged from bankruptcy smaller. Only AC did not reduce size when it emerged from bankruptcy....a huge mistake.

Anyone flying AC is doing so voluntarily and hence no one is forcing AC customers to pay more.

But the only solution for AC at this point is a massive drawdown in capacity to a profitable core. There is too much capacity chasing too few passengers at fare levels that can generate profit, so the only solution is to reduce capacity, drastically.

longhauler · Tue Mar 20, 2012 3:34 am

Quoting yyz717 (Reply 42):
The answer is obvious (short of reducing AC wages 25% which won't happen), is to greatly reduce AC capacity in all markets. That is, reduce AC to a profitable core.

That would only work if the competition did not grow to fill in the void.

I am reminded of the mid 1990s when Canadian Airlines tried that. The rest of North America was profitable, but CP and AC were not. The reason ... over capacity. So CP tried to reduce capacity, only to have AC fill in the void ... thus keeping fares down to an unprofitable level. Theory being that AC could outlast CP during these low fares.

Ironic that AC is now faced with the other side of the fence!

Quoting yyz717 (Reply 42):
The current model of AC with its current fleet size and market share IS NOT WORKING. AC needs to shrink. Nothing else will work. Shrink it baby.

I don't doubt your theory, but as your education background is similar to mine, I am sitting here wondering if there has ever been a case of an airline "shrinking" to profitability. Looking at AC's structure, I can't see it working. I can see growth working though, but only if the internal structure stays the same, reducing unit cost.

longhauler · Tue Mar 20, 2012 3:40 am

Quoting yyz717 (Reply 44):
It's a corporate strategy that would work. UA, AA, Delta, NW, US, JAL, Swiss, Brussells Airlines.....all emerged from bankruptcy smaller. Only AC did not reduce size when it emerged from bankruptcy....a huge mistake.

The number of equivalent full time employees is quite a bit less now than during CCAA. The number of managers? That is still a mystery.

AC's trip through CCAA though is more related to the merger with CP. And one would see that the present size of AC is quite a bit less than the original combination of the two airlines.

But I do agree that JAL is a perfect example of how an airline should be restructured. Right down to the CEO making $90,000 a year until a profit is made!

[Edited 2012-03-19 20:42:14]

yyz717 · Tue Mar 20, 2012 3:48 am

Quoting longhauler (Reply 45):
I am reminded of the mid 1990s when Canadian Airlines tried that. The rest of North America was profitable, but CP and AC were not. The reason ... over capacity. So CP tried to reduce capacity, only to have AC fill in the void

True, but the competition now is a very disciplined, very profit focused WS who will not dump more capacity into the market. Neither CP nor AC were disciplined in the 90's. AC still isn't.

The capaciity pullback by AC will benefit all carriers but most importantly it will benefit AC yield.

Quoting longhauler (Reply 45):
I can see growth working though, but only if the internal structure stays the same, reducing unit cost.

I don't see AC management having the discipline or competence to manage down unit cost or fixed cost in a fleet growth strategy. That option has landed with a thud so many times in the past.

ANM604 · Tue Mar 20, 2012 4:00 am

Quoting yyz717 (Reply 47):
The capaciity pullback by AC will benefit all carriers but most importantly it will benefit AC yield.

AC really hasn't increased capacity that much, I believe they just recently lower their year-over-year capacity increase to around 1% which is inline with past years. As well, there is not much growth planned either, as the fleet has stayed at basically the same numbers since the arrival of the last T7. They have gotten much better at using their aircraft efficiently as well. If it was up to me, I'd dump the entire 330 fleet right now, and maybe try to scrape up some used 767's to replace them. After that, I would set my sights on the CPA with Jazz.

multimark · Tue Mar 20, 2012 6:19 am

Quoting longhauler (Reply 41):
I was not aware there was any dispute, and I think you misinterpreted what I was saying.

It is well within the public domain that ACE signed a CPA with jazz at over double the going rate to bolster the sale of jazz trust shares. Just like Aveos. Then, now that the sale is complete, it is not hard to envision the same thing happening to jazz/chorus that happened to Aveos. Is it fair? Of course not. Are the employees to blame? Just like Aveos, of course not!

Will it never happen ... as I say ... never say never.

With regards to the arbitration, Chorus seems confident they will win:

"..The capacity purchase agreement (CPA) with Air Canada calls for two rate adjustments. The first was scheduled for 2010 based on its 2009 calendar year and the second is set for 2016, based on the 2015 calendar year using a complicated formula that adjusts the markup to market rates of peers.

“We were surprised by the Air Canada filing,” CEO Joe Randell told analysts, “most particularly on the amount of the claim and the peculiarity of its assertions. We think our definition not only meets the intent but the spirit of the contract. Air Canada’s approach is not a recognized industry standard for benchmarking and we think no adjustment will be required.”
http://www.centreforaviation.com/ana...z-airlines-outpaces-us-peers-62359

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