Battered and bruised by the current recession, it was clear early on that this year was going to be one of the toughest on record for Air Canada. Not only was the carrier facing an intense round of labour talks, it entered the year on the heels of a $1-billion loss in 2008 with no signs of relief in sight.
Speculation on the Street was Air Canada was headed for a second bankruptcy filing in less than a decade, and Air Canada's board of directors decided in early March it was time to make a change at the top and to try to steer the airline in another direction.
While one might think it would be difficult to find someone to take such thankless job, it turned out not to be the case.
In fact, it took only one call to Calin Rovinescu.
Mr. Rovinescu said Friday in his first interview with the Financial Post since assuming his new position as chief executive that his motives are simple for joining the airline again after a five-year hiatus.
"I can tell you [the reason] in one sentence," he said. "The stimulation and the challenge of being able to make some contribution to this very complicated picture."
A very complicated picture indeed. The country's largest carrier continued its losing streak Friday, posting a $400-million loss in the first quarter driven by a drop in sales as demand for air travel dwindled and the carrier cut fares to try to fill its planes.
But Mr. Rovinescu says he's up for the challenge. After playing a part at the airline since its privatization two decades ago, defending it from a hostile takeover by Onex Corp. and guiding it through most of its previous bankruptcy restructuring six years ago, his track record speaks for itself.
Friday, he laid out his plan for tackling his greatest challenge yet at the airline. "The recession is the common enemy here," he said. "The common ally is keeping this thing out of a second filing."
With liquidity concerns mounting at the airline, Mr. Rovinescu noted the carrier still has access to dozens of planes it can leverage through sale-leasebacks, but the crux of its strategy to improve cash flows is to drive up sales by reconnecting with the customer.
That means eliminating unnecessary fees, like its recent add-on for call centre bookings, to assessing the company's whole approach to branded fares and "a-la-carte" pricing, both legacies of predecessor Montie Brewer.
Moreover, the airline needs to aggressively cut its costs, he said, and can no longer rely on its business class fares to offset the 40% cost advantage its main rival, WestJet Airlines Ltd., had in the first quarter. Outside consultants have identified $250-million it can cut from its operations over the next 18 months and will spend the next two months looking for more.
In addition, the airline is in the process of negotiating relief, or an outright elimination, of the liens its credit card-processing company has on its free cash. Currently, Air Canada is required to keep $1.3-billion in the bank by the end of June or risk further deposits. It had only $1.1-billion at the end of March.
All of Air Canada's unions are set to renegotiate their labour pacts this summer, and striking deals with its employees is essential in not only bringing stability to the airline, but to keeping it out of a second CCAA filing, Mr. Rovinescu said. "You just have to look at the auto sector and what's going on between Chrysler and GM," he said. "That's not a picture any of us would like to see happen here."
The first priority, however, will be to get some relief on its pension funding obligations, he said. In a best-case scenario, management said they would be required to pay $570-million this year after its solvency deficit ballooned to $2.85-billion last year.
While Air Canada expects the federal government to loosen its regulations on its pension payments this fall, sources say management has already approached the unions for a one-year moratorium on its pension payments, to be followed by looser restrictions for the following five years.
Most of the unions said they were open to discussing some sort of "temporary and balanced" solutions, but they flatly rejected the initial request.
anopinion, Saturday, May 9, 2009
anopinion, May 9,2009 Past CEO took millions from this company. Pensions of these employees should be paid first. His employees get the shaft. Hard working people who worked many years thinking they would have a pension, not cut in half. Nobody in this country would like that done to them. No CEO should recieve millions when they do their job so bad. Laws to stop these CEO's from getting paid large sums before pensions are funded is needed.
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brazierdv, Friday, May 8, 2009
This must be sorted out between the CAW and AC. But you can be sure the union will be after Ottawa to backstop the pensions if AC goes into bankruptcy and reneges on some of its pension commitments. Ontario said no to the same request re autos and Ottawa must say no. Employee pensions are a private deal with the employer over and above what is available in the way of publicly funded pensions.
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Stewart Pid, Friday, May 8, 2009
The CAW wants tax payers to back stop this mess ... why should I pay for Air Canada pensions. I have no pension ... CAW is not paying for mine nor are the Air Canada employees helping me out ... Ken & AC you go first ... send some cash my way & then I'll give you free loading welfare bums a handout.
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Mickey35, Friday, May 8, 2009
"I've said to our employee group that we're firmly committed to find a way to maintain Air Canada's pension plan." This is the problem that they are having, and yet they are unwilling to fix it - they are mainly hoping the Canadian government foot the bill of the short falls. Time these CEO's wake up and stop giving in to these unreasonable requests made by these unions and cost operating costs to reasonable levels similar to the rest of the population.
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