Employer contributions for past service will be postponed
Another employer with pension problems has reached an accommodation with three of its unions that may solve the problem. On June 8, and with the help of mediator Hon. James Farley, Q.C., the International Assn. of Machinists, the Canadian Auto Workers and the Canadian Airlines Dispatchers Assn. came to a tentative agreement that creates a 21-month moratorium on contributions for past service. Following that, fixed payments would be made for 2011 to 2013.
The agreement does not have any impact on the company contributions to the defined-benefit plan for current employees. The collective agreements for the three unions will also be extended for 21 months with some non-monetary changes affecting work-life balance.
The agreement was reached with the unions representing 60 per cent of Air Canada’s current staff: 12,300 Machinists in maintenance, clerical and finance; 4,100 Autoworkers in sales and customer service; and 70 flight dispatchers. Unusually, an organization called Pionairs that “serves, but does not bind” 15,000 airline retirees was also involved in the negotiations.
The finalization of the deal is not without its hurdles. The federal government must make regulatory changes to permit the moratorium. Financing must be secured. Consultations need to be completed with non-union employees and retirees. The unions must be given an equity stake in Air Canada. The agreements must be ratified by members who gave up a good deal to help to secure pensions in 2003. Finally, the Canadian Union of Public Employees (CUPE), representing 6,700 flight attendants, and the Air Canada Pilots’ Assn., representing 3,200 flight crew, have not yet settled.
CUPE asks whether the changes will be temporary. It also questions the move to corporate rather than government bonds for valuation and expanded asset averaging.
Currently, the Air Canada has a pension deficit of $2.85 billion. During the negotiations in 2003 as the company was under bankruptcy protection, the unions agreed to support the company’s bid to extend the time it had to deal with that reality. Now, despite the fact that Air Canada is losing money, its parent, ACE Aviation Holdings, is sitting on $373 million. ACE shareholders want that money distributed; unions and ACE president Robert Milton want some put back into Air Canada.
This has become a familiar story. As with the auto makers, union members here are most likely going to compare the danger of continuing with an underfunded pension plan against the tender mercies of the bankruptcy court and choose the former. Perhaps with resignation rather than enthusiasm.
And again in both cases, the road forward diverges. If the recession has bottomed and growth is about to resume, as most forecasters suggest, a better operating environment and a better equities market will drag pension plans back towards the black. If it hasn’t, as a smaller number of contrarians claim, the problem may be unsolvable. In both cases, the companies’ issues go far beyond the cost of union labour, and no union concessions — perhaps short of volunteering — could solve them. Which leaves the retirees in the distinctly unenviable position of having a lot to lose and very little bargaining power.
