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Dec 19, 2012

WestJet wants to ground Air Canada’s pension extension

Air Canada wants leniency on $4.2 billion pension gap, WestJet lobbies against it
By Randall Palmer
    
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(Reuters) — WestJet Airlines is concerned about special treatment for its main competitor, Air Canada, which is seeking leniency over a gaping pension fund deficit and records show WestJet launched a concerted lobbying campaign with the federal government over pensions.

Executives from WestJet, Canada’s second-largest airline, held a series of meetings on pension issues on Nov. 20-21 with four members of cabinet, including Finance Minister Jim Flaherty, who is in charge of the Air Canada pension file. WestJet executives also met with numerous senior officials as well as lawmakers from the governing Conservative Party.

The meetings and the topic of pensions are recorded in the federal Register of Lobbyists.

Flaherty is considering a request filed by Air Canada for a 10-year extension to the cap on special payments it must make to reduce the deficit in its defined-benefit pension funds, which reached $4.2 billion at the start of 2012.

"We won't comment on the specifics of individual meetings like these," WestJet spokesman Robert Palmer told Reuters. "But at a general level, we are concerned about the impact on the state of competition caused by Air Canada repeatedly asking the federal government for special assistance, especially at a time when they are expanding their fleet, buying new aircraft and have billions of dollars on the balance sheet."

In 2009, Air Canada won agreement from the government for a moratorium on making special pension deficit payments through 2010. After that, Ottawa agreed to a cap on such payments that would rise from $150 million in 2011 to $225 million in 2013.

Air Canada CEO Calin Rovinescu wrote Flaherty on April 26 to ask for a cap of $150 million a year in special payments from 2014 through 2023.

The airline has won the reluctant support of its unions for the plan, as well as the backing of its retirees, which Flaherty had said was a prerequisite for him to consider an extension. Air Canada was hoping for a decision by Flaherty this year.

A decline in interest rates used to calculate solvency gaps in the plans has badly hurt Air Canada, as with other employers with defined-benefit pension plans.

A reduction in the discount rate to 3.3 per cent from 4.5 per cent resulted in an approximate doubling of Air Canada's pension gap to $4.2 billion last year.

It was not clear whether WestJet was lobbying against any extension of Air Canada's pension cap, seeking a higher cap or pushing for other changes. Flaherty's office declined to say whether he was moved by WestJet's representations.

"We cannot comment on the specifics of individual companies. We also do not speculate about possible policy actions or discuss what might be under consideration," Flaherty press secretary Kathleen Perchaluk said.

WestJet has been able to compete successfully with Air Canada as a no-frills carrier largely because it has a cost structure about one-third lower that Air Canada's, though the spread between the two has shrunk as the result of aggressive measures by Air Canada.

In its representations to the government, WestJet met Transport Minister Denis Lebel, Labour Minister Lisa Raitt and Citizenship and Immigration Minister Jason Kenney, who is the senior minister for Alberta, where WestJet is based.

WestJet also talked pensions with the most senior bureaucrat in the government: Privy Council Office Clerk Wayne Wouters, Deputy Finance Minister Michael Horgan and Assistant Deputy Finance Minister Jeremy Rudin, the point man on pensions.

Unlike Air Canada, WestJet does not have a defined-benefit pension plan. It offers an employee share purchase plan, and matches employee purchases of shares one to one.

Air Canada's legacy as a national carrier once owned by the government has worked for and against the airline. The government is unlikely to allow it go under, but its past means it is saddled by decades of regulations, crippling labour agreements and pension obligations.

The airline has worked hard to whittle back the costs, and on Tuesday it was unveiling a new low-cost leisure carrier, Rouge, intended to attract budget vacationers.

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