The Government of Canada has taken a hard line in an agreement to support the viability of Canada’s largest airline. During lengthy discussions with the company, the Government demanded that Air Canada strengthen its initial proposal with tough new conditions such as greater solvency payments, a shortened term and measures that will ensure that employees and executives of Air Canada are part of the solution. This is the first time that the Government of Canada has imposed such conditions in exchange for granting a new set of special regulations.
This new agreement is required in anticipation of the expiration of the Air Canada Pension Plan Funding Regulations, 2009 on January 30, 2014.
“By taking this action, we are ensuring that Air Canada remains viable, that thousands of jobs are protected and the service is there when Canadians need it,” said Jim Flaherty, Minister of Finance. “Air Canada is the country’s largest airline and contributes significantly to the Canadian economy.”
According to the Government’s terms:
- In addition to its current service payments, Air Canada will make payments into its pension plans of at least $150 million annually, with an aggregate minimum amount of $1.4 billion required over seven years.
- Increases in executive compensation will be frozen at the rate of inflation, special bonuses will be prohibited and limits will be imposed on executives’ incentive plans.
- Air Canada will also be subject to a series of covenants and undertakings, including no dividends and share repurchases, and no implementation of pension plan benefit improvements without regulatory approval.
“It’s important to note that Air Canada’s unions and retirees have been supportive of the company’s request for further solvency funding relief for its pension plans,” said Minister Flaherty. “This regulatory change is not costing Canadian taxpayers a single dollar, but it is providing Air Canada time to pay off the sizeable pension deficit.”
The regulations on the special pension funding will be subject to Governor in Council approval.
