Air Canada Provides Update on Restructuring - Highlights of Preliminary
Business Plan Presented to Unions
MONTREAL, April 30 /CNW Telbec/ - Air Canada provides the following
update on the airline's restructuring under the Companies' Creditors
Arrangement Act:
Discussions with Unions
-----------------------
The company today met with representatives of each of the unions
representing employees at the mainline carrier to provide an overview of
certain highlights of a preliminary business plan for a restructured Air
Canada which is subject to further development and approval by Air Canada's
Board of Directors in mid-May.
Overview of Presentation
The presentation gave a general overview of the overall revenue
environment for the airline and the industry, which continues to be under
tremendous pressure and also served as a basis for the request for immediate
relief measures pending negotiations of new labour agreements.
Following on the impact of the war with Iraq, SARS continues to have a
significant impact, not only on Asian routes but also on the airline's entire
network and in particular its Toronto hub. In view of the deteriorating
revenue outlook going forward and other factors, the Company's financial
advisors have estimated the aggregate improvement required to the Company's
operating results on a consolidated basis to be approximately $2.4 billion
annually to ensure a sustainably profitable and financeable entity. This is
targeted to be achieved through the following revenue and cost improvements in
the restructuring plan:
- Product Strategy - Reposition the airline to provide a high
frequency/simplified product, offering customers enhanced value and
service.
- Fleet - Re-gauge the fleet to support a revised domestic/transborder
network and revenue model; introduce new aircraft with 70 to 110 seats
using competitive work rules and pay rates.
- Operating costs - Reduce operating and financial costs to achieve
sustained profitability and fund new, smaller gauge aircraft critical
to the plan's success. This will include labour cost reductions,
renegotiation of operating leases to current market rates and other
cost reduction initiatives in areas such as product distribution
resulting from technological advances.
- Liquidity - Adequate to repay, upon exit, any portion of the DIP loan
from General Electric Capital Canada Inc. and the CIBC/ Aerogold
facility, establish an appropriate level of liquidity upon emergence
from CCAA and finance the fleet changes.
- Corporate Structure - Reorganize the corporate structure to have each
business unit be competitive and self-sustaining as stand-alone
entities and as a means of attracting equity and debt financing.
Labour/Management cost reduction target of $770 million (before benefits
improvements)
The presentation outlined a revised overall labour/management cost saving
requirement of $770 million (before benefits improvements) at the mainline
carrier as an element of the $2.4 billion annual improvement required to
consolidated operating results post-restructuring. This represents an increase
over a previously stated requirement of $650 million in cost savings as it
reflects a deteriorated revenue environment and the product and fleet
modifications contemplated in the new business model.
The Company also reviewed with the unions the situation regarding the
pension deficit and outlined its objectives including:
- Reducing solvency deficits to a manageable level,
- Making employer contributions more certain; thereby eliminating
volatility, and
- Providing Plan members with pension benefits greater than they would
receive in the event of pension plan termination.
The Company also outlined at a high level some alternatives that could
achieve these objectives, including:
1) Reducing the benefit formula and maximum pensions by 10%;
2) Increasing early retirement to age 60 with a reduction of 4% per
year (vs. current 3% per year before age 55); and
3) Changing the Final Average Earnings from 36 months to 60 months.
This would improve the solvency ratio by approximately 15% and would
thereby reduce the solvency deficit. In addition, the Company discussed as an
option going forward a defined contribution plan providing certainty of
company contributions.
The following timelines were proposed to achieve cost reduction
objectives:
- May 1 Discussion of immediate relief measures with Air Canada unions
- May 5 Commencement of financial due diligence; distribution of
presentation to Unions' financial advisors; start of labour
negotiations at mainline
- May 6 Presentation of Restructuring Plan highlights, discussion of
immediate relief measures and start of negotiations with Jazz
unions
- May 26 Target date for completion of labour negotiations
- June 15 Deadline for ratification and execution of Memorandums of
Understanding
- June 30 Implementation of all labour cost savings
"The overview of the elements of our restructuring plan outlined today to
union representatives should be viewed as a basis to commence meaningful
discussions with stakeholders rather than as a final plan," said Calin
Rovinescu, Chief Restructuring Officer. "The increased labour/management cost
reduction target of $770 million (before benefits improvements) is a
reflection of both the current deteriorated revenue environment and the
consequential reduction in capacity going forward. While some form of salary
reductions will be required, in recognition of the personal difficulties these
impose on our employees, the company will focus on obtaining the maximum cost
savings through work rule changes and other productivity enhancements. We are
confident the union leadership shares our view that failure to restructure Air
Canada is not an option," he said.
Extension of Onex Corporation's Exclusive Rights to Negotiate Agreement
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Air Canada has agreed to further extend Onex Corporation's exclusive
right to negotiate a definitive agreement relating to Onex's proposed
acquisition of a 35 per cent interest in Aeroplan from Air Canada until May
31, 2003.
CIBC Agreement on Aerogold and Additional Financing Commitment
--------------------------------------------------------------
A hearing to seek approval of the CIBC Aerogold agreement is scheduled
tomorrow before Justice Farley of the Superior Court of Justice of Ontario
following the Monitor's review of the proposal of an unsolicited and non-
binding expression of interest for a credit card agreement with Aeroplan
received April 28, 2003.
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