Air Canada Workers Reject Wage, Pension Concessions

By Roger Annis. July 6, 2009-Members of the largest union at Air Canada have narrowly voted to reject an extraordinary agreement that would have frozen their wages for the next 21 months and allowed the company to suspend payments into the employee pension plan. The International Association of Machinist (IAM) members voted “No” by a 51 per cent majority.

Similar agreements were negotiated with all five of the airline’s unions. Air Canada is the former state-owned, national airline. It was privatized in 1989 and today employs some 28,000 workers. It is the fourteenth-largest airline in the world.

The IAM represents some 11,000 technical, mechanical and support workers at Air Canada. Other unions include the Canadian Union of Public Employees (6,700 flight attendants) and the Canadian Autoworkers (5,000 service and sales employees). The CAW has already voted in favor of an agreement; votes among pilots and CUPE members will conclude on July 13.

The extraordinary agreements were negotiated after Air Canada announced earlier this year that it may head into bankruptcy protection. It says it needs emergency financing of hundreds of millions of dollars as well as relief from its pension obligations. Its current pension deficit is $3 billion.

The law governing federally registered pension plans requires that payment schedules cover any deficits within five years. Canada’s largest industrial employers, Air Canada included, are lobbying hard to extend deficit payment schedules to ten years.

Ottawa demands concessions

The Canadian government has said it will provide up to $600 million in financing to the airline, but on condition that employees offer up monetary concessions, including on pensions. The company wants to suspend most payments to the pension plan for the next 21 months.

In exchange for monetary and work-rule concessions from workers, Air Canada will place stock value in the employee pension plan. Air Canada shares currently trade at $1.43, down from more than $8 at the outset of last year’s world financial collapse.

The IAM and the airline are now discussing what next steps to be taken. One option being considered by the union is to simply hold another vote. Voter turnout was low, less than 50 per cent of union members. Another option is to negotiate what one IAM leader called “a tweaking of the contract” to address worker concerns over job security.

The main reason for the “No” vote is anger and concern over job security in the airline’s maintenance division. Last year, Air Canada took further steps to spin-off its maintenance division, now called AVEOS. The division includes a repair facility in El Salvador, Aeroman, that the airline acquired in 2007. Union members are convinced that the company intends to transfer much of its maintenance work there in order to profit from significantly lower wages.

The “No” vote was strong in Montreal and tipped the national balance. Rank and file members of the union there reportedly organized against the deal. Air Canada’s largest repair facility is located in Montreal; its other two facilities in Canada are in Winnipeg and Vancouver.

Union members are also angered over the years of wages and work rule concessions they have taken, all the while watching shareholders and executives loot the company. The reviled former CEO, Robert Milton, earned a cool $39 million for the two years 2006 and 2007.

Corporate looting

At first glance, it would seem strange that Air Canada would be approaching bankruptcy for a second time. Six years ago, it emerged from bankruptcy protection and has since made a killing for its investors and executives. But as the June 2009 Globe and Mail Report on Business magazine reported, the source of the investor bonanza was a combination of financial gimmickry and the spinning off of profitable divisions into separate corporate entities. These include regional carrier Air Canada Jazz, the Aeroplan rewards program, and the aforementioned AVEOS.

Altogether, the former “Air Canada” has been looted of its profit-making divisions. What’s left is a fleet of large aircraft flying national and international routes in the face of very stiff competition.

“It was raped by Cerberus,” airline analyst Ben Cherniavsky told Report on Business, referring to Cerberus Capital Management, a New York “equity” firm that became one of Air Canada’s largest shareholders after the airline emerged from bankruptcy. “The good cash-flow businesses were taken out of it.”

There are striking similarities in all of this to the fate of Chrysler, General Motors and other recently bankrupted enterprises.

As with autoworkers, the unions of airline and aerospace workers need a political program and course of action to end the corporate looting of social wealth and place vital services such as transportation under public ownership and planning. One of the pressing goals of economic planning must be a radical change in urban design and transportation modes in order to end the environmental destruction that accompanies the reckless proliferation of fossil-fuel burning cars and aeroplanes. The vote of IAM members at Air Canada and questions over the fate of the airline opens up more space for such discussion.

Roger Annis is an aerospace worker in Vancouver and a member of the International Association of Machinists.

3 thoughts on “Air Canada Workers Reject Wage, Pension Concessions

  1. Roger Annis


    July 16, 2009

    Below is a press release from the International Association of Machinists announcing the result of a second vote of the union at Air Canada in response to the company’s demand to freeze wages and most payments into the company pension plan for the next 21 months. (My recent news article on the subject erroneously reported that there were also concessions to work rule changes involved). The company says the concessions were required if the company is to avoid going into bankruptcy protection.

    IAM leaders argue that the acceptance vote provides better legal protection to employee pensions and other work benefits and conditions should the company nonetheless decide to proceed into bankruptcy. “If this tentative deal doesn’t go through, Air Canada will have to file for bankruptcy protection,” IAMAW local vice-president Mike Sanghera in Vancouver is quoted in the Globe and Mail. “If that happens, we’re behind the eight ball because we can’t really bargain.”

    The IAM says the agreement does not constitute “concessions” to the company.

    Sixty per cent of IAM members took part in the second vote; only 33 per cent voted the first time, in late June. At the time of the first vote, airline workers who are members of the CAW had already ratified a nearly identical agreement. Two other unions have since approved it–CUPE and airline pilots.

    The second vote of the IAM involved two ballots. The first was a yes or no to the agreement. The second was a strike mandate. Had the first vote failed to receive a majority, then a tally of the second ballot would kick in. If the strike mandate failed to achieve a two-thirds majority, then the agreement would be automatically approved.

    Leaders of the union in Montreal where the largest repair and overhaul base of Air Canada is located did not endorse the agreement. They also expressed opposition to the ballot procedure.

    Meanwhile, today’s Canadian Press reports that the number of work days lost to strikes in Canada during the first three months of 2009 is double that of the same period in 2008. Commenting on the upturn in strike action that has continued in 2009, including thousands of municipal workers in Toronto and 3,000 Vale Inco miners in Sudbury, Alan Hall, director of labour studies at the University of Windsor, says its unusual to see workers so willing to strike during a sharp economic downturn.

    “I think part of the reason the workers are willing to stay out in these kinds of conditions is they see the causes of the current recession and crisis as being clearly not of their making, and that there’s a certain level of anger out there that can be mobilized.”

    Machinists Ratify Air Canada Agreement!

    Wednesday July 15, 2009, For Immediate Release

    Toronto, On – The members of the International Association of Machinists and Aerospace Workers employed at Air Canada have ratified a tentative agreement with the national air Carrier.

    The Machinists, the largest union at Air Canada with 12,300 members, representing technical, maintenance and operational support workers, ratified the agreement by a margin of 60.32 per cent. “The majority of the membership has spoken in favour of this agreement so we can now move forward knowing our pensions, our contract, our benefits and our jobs are protected for the next 21 months,” said IAMAW District 140 President and Directing General Chairperson Chuck Atkinson.

    The agreement includes a 21 month past service funding deferral on the pension plan, clarification on work out-sourcing issues and as well as other non-monetary improvements. The Defined Benefit pension plan remains unchanged and protected. All of this was accomplished without any concessions.

    IAMAW, among the largest industrial trade unions in North America, represents more than 700,000 active and retired members, and administers more than 5,000 contracts in transportation, woodworking, aerospace, manufacturing and defense related industries.

  2. Roger Annis


    Air Canada in for a bumpy ride

    Airline will need massive restructuring, including layoffs, to survive, analyst says

    By ROSS MAROWITS The Canadian Press
    Jylu 22, 2009

    MONTREAL — Deteriorating market conditions will force Air Canada to dramatically reduce costs by laying off thousands of employees despite recently winning agreements to extend labour contracts, an industry analyst said Tuesday.

    Jacques Kavafian of Research Capital said Canada’s largest airline needs to undergo a more severe restructuring than previously anticipated, likely through bankruptcy protection, to respond to a worsening outlook for the airline industry this fall.

    That means cutting costs by at least 25 per cent just to break even.

    “They have to do this quick. The market out there is ugly, prices are depressed and volume isn’t there,” he said in an interview after releasing his harsh restructuring recipe.

    Air Canada has previously rejected Kavafian’s suggestion that it cut the number of domestic and transborder route by more than half and capacity by 25 per cent.

    CEO Calin Rovinescu repeatedly said it won’t cut its way to prosperity.

    But Kavafian believes the airline deliberately underplayed its restructuring intentions to win union support to 21-month contract extensions and a pension moratorium on past service contributions.

    “They had to make the unions believe that there won’t be massive layoffs so they accept the agreements,” he said.

    Analysts expect Air Canada will post large losses over the coming quarters. Kavafian said the second-quarter loss will exceed $260 million, rising to $1.1 billion for the year and $672 million in 2010.

    Market conditions have forced U.S. carriers to shed thousands of jobs. Continental announced plans Tuesday to shed 1,700 workers.

    Securing union support for Air Canada’s changes was the easy part, Kavafian said.

    More challenging is undoing the damage caused by parent company ACE Aviation Holdings’ unbundling strategy that removed Air Canada’s flexibility to weather the economic storm, he wrote in a report.

    He advocates terminating the relationship with Air Canada Jazz, renegotiating terms with Aeroplan and re-acquiring Aveos (formerly Air Canada Technical Services).

    Rovinescu, who helped devise this strategy, has said spinning off the feeder airline, loyalty rewards program and maintenance division Aveos provided the airline with $2 billion to pay pensions and purchase modern aircraft.

    But Kavafian said the airline got long-term pain for short-term gain.

    The assessment is belated vindication for pilots who went to court in 2006 in a failed bid to stop the previous restructuring, said Andy Wilson, president of the Air Canada Pilots Association.

    He agrees that Jazz, Aeroplan and Aveos have profited at the expense of Air Canada by being paid well above market rates for their services.

    But Wilson said his members were under no illusion during the recent contract vote about the need for a significant airline restructuring after Air Canada was “stripped to the bone” by ACE, bad financial management and a market meltdown.

    “Those are three pretty big tidal waves. I think everybody understands that there would have to be a restructuring,” he said.

    The head of the union representing service agents doesn’t believe the airline’s problems will be solved by dramatically reducing capacity.

    Leslie Dias, local president of Canadian Auto Workers’ Union, said fall layoffs are a routine part of the cyclical travel business.

    “If there’s huge layoffs they would be surprised,” she said of her members.

    “If there’s some layoffs I don’t think they would be all that surprised. We encounter this almost every fall that there’s a cutback of some sort and the economy obviously still have a long way to go to recover.”

  3. Roger Annis


    A colleague at Air Canada sent to me several corrections to my article as well as additional information, as follows.

    Roger Annis

    “You refer to concessions on work rules, but I don’t know of any. As far
    as I know, the federal gov’t did not demand concessions per se but just
    that cost neutral agreements be signed by all unions.

    “There is a new vote taking place on July 14, including a strike vote
    which requires 2/3. If the strike vote is not carried, the contract will
    be signed regardless of whether it receives a majority.

    “I understand a main issue in Montreal is the spin off of AVEOS from Air Canada. More people will be forced to join AVEOS and leave Air Canada than at any other base.”

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