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Air Canada seeks overhaul of pilots’ pension plan

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Air Canada (AC.B-T) is seeking to revamp its pension payouts for pilots, hoping union members will ratify a tentative labour pact that calls for new hires to join a separate plan.

Under the existing defined benefit pension plan pilots will be paid a guaranteed level of money once they retire, but under the proposed defined contribution (DC) pension, the amount received will vary based on the performance of the investments held by each member of the plan.

All new hired pilots after April 1, 2011, will be on the DC plan, according to the tentative agreement between the carrier and the Air Canada Pilots Association. “Pilots hired after Nov. 1, 2010, will have a one-time opportunity to switch to the DC plan.” The defined benefit plan would be wound down, long-term.

In 2004, while Air Canada was under bankruptcy protection, Hong Kong businessman Victor Li insisted that the unions agree to an array of labour concessions. Mr. Li’s Trinity Time Investments Ltd. offered to bail out Air Canada but later withdrew its offer.

While he wanted the risk in Air Canada’s pension plans to be gradually shifted from the airline to its employees, the unions dug in their heels and refused.

Some labour leaders have expressed concerns about Air Canada’s defined benefit plan being gradually switched over to what they view as a less-attractive defined contribution plan.

The proposed pension changes are among the key issues in the tentative agreement being released to more than 3,000 Air Canada pilots this week. ACPA unveiled details Monday in Vancouver, the first stop in a cross-country tour this week. ACPA’s master executive council has authorized an April 15-27 ratification vote for the tentative labour pact reached last month.

Across-the-board increases of 5 percent in the first year, then annual wage hikes of 3 percent, 2 percent and 2 percent are proposed in the four-year deal, according to a six-page ACPA backgrounder accompanying the lengthy tentative agreement.

Another highlight of the tentative pact is Air Canada’s plan to create a low-cost leisure carrier to compete on routes to Europe, Mexico, the Caribbean and other popular vacation spots. The move will ratchet up the competitive pressure on tour operators such as Transat A.T. Inc., Sunwing Travel Group, WestJet Vacations and Thomas Cook Canada Ltd.'s Sunquest Vacations.

The goal is to launch the low-cost carrier (LCC) with four Boeing 767s and six Airbus A319s, then enlarge the fleet to 50 planes, according to a letter of understanding attached to the tentative labour pact between the company and ACPA.

“The mandate of the LCC will be limited to the market segment seeking low-cost air travel,” according to the letter. “The LCC is not intended to replace mainline routes the company considers financially viable. The LCC’s success and viability depends on the parties’ ability to fulfill this mandate on a competitive basis.”

Air Canada envisages having 20 Boeing 767s and 30 Airbus A319s in the new division. The Montreal-based carrier wants to reconfigure the low-cost cabin for economy and “premium economy” seating. At the end of last year, under a configuration with business and economy class, Air Canada had 38 120-seat Airbus A319s and 30 Boeing 767s, which seat from 191 to 213 passengers.

The aim is to hire as many as 462 pilots – 238 captains and 224 first officers – by 2015 for the fledgling discount unit. Air Canada “wants to launch its own LCC to stop market share erosion,” according to the ACPA backgrounder.

ACPA and Air Canada have declined comment.

Air Canada has experimented with discount divisions in the past, notably the Zip Air Inc. fleet in Western Canada, which was launched in 2002 as the low-cost rival to Calgary-based WestJet Airlines Ltd. But Air Canada shut it down in 2004, just two years after starting what it had hoped would be a strong western-based carrier.

With distinctive purple planes, Air Canada also operated Tango as a low-cost carrier for less than two years, closing it in the fall of 2003, though the name Tango lives on as the label for the airline’s lowest-fare category.

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