By Roger Annis, April 26, 2012
The Globe and Mail and Canadian Press news articles below report on an important milestone in the years-long looting by directors and investors of the former state enterprise (“crown corporation”) Air Canada following its privatization in 1988 by the Conservative Party government of Prime Minister Brian Mulroney.
In a secretive meeting held in Montreal on April 25, 2012, shareholders voted to liquidate ACE Aviation Holdings, the shell holding company established in 2004 to hold Air Canada shares following the declaration of “bankruptcy” by the airline in 2003.
The scale of the looting is breathtaking. Upon its dissolution, ACE will pay make an “initial payment” to shareholders of $200 million to $300 million for the assets being dissolved. Over its life, the company earned some $4.5 billion from dividends and the dismantling and sale of various departments of the airline, including its heavy maintenance division.
One Air Canada director alone, Robert Milton, earned $82 million over the course of his term as president and CEO from 1999 to 2008. He was also president and CEO of ACE.
Amidst all these earnings, says the Canadian Press article, Air Canada has accumulated debt and unsecured pension obligations of $4.3 billion.
One of the lucrative sale of assets by Air Canada was that of its heavy maintenance division in 2007. A new shell company, AVEOS, was created that year to facilitate the spinoff. In March of 2012, AVEOS caused an uproar across Canada when it unilaterally dissolved itself overnight, throwing 2,800 former Air Canada workers out of a job. Read this author’s article on that story here, including postscripts from June and August 2012 on the failed efforts of IAM union officials who held out to workers the hope of finding a new owner for AVEOS.
Background on Air Canada looting during the reign of Robert Milton:
* Here is a December 2008 Toronto Star article.
* Here is a lengthy profile of the Milton years at Air Canada from the Globe and Mail Business Magazine on May 29, 2009.
* And, see the appendix below: The failed economics of airline deregulation in the U.S.
Investors agree to ACE liquidation
Globe and Mail, April 26, 2012
Hundreds of protesters – including employees of Aveos Fleet Performance Inc. – blocked a street in downtown Montreal in front of the building where shareholders voted to liquidate ACE Aviation Holdings Inc., the former parent of Air Canada and Aveos. Security guards at the venue, the Montreal Museum of Fine Arts, locked the doors and would not let visitors or the media into the meeting, which they insisted had been cancelled.
But ACE said in a news release Wednesday that the annual and special meeting occurred earlier in the day and that shareholders approved a special resolution to convert all Class A and Class B variable voting shares into a new class of common shares on a one-to-one basis.
The company also said shareholders approved the special resolution calling for the voluntary liquidation of ACE through the distribution of the remaining assets. ACE said it will make an initial distribution to shareholders of between $250-million and $300 million, within the coming weeks.
The protesters, including politicians, students and union officials, slammed Air Canada and the federal government for allegedly allowing Aveos to wither away. They targeted the federal government, saying it has failed to enforce a law requiring major maintenance work for Air Canada to be done in Canada.
The demonstrators also took aim at senior management at Air Canada and ACE, some holding signs referring to reports that ACE chief executive Robert Milton made about $82-million for spearheading the selling off of assets that included Aveos.
ACE was at one time Air Canada’s largest shareholder. Between 2004 and 2011, ACE returned $4.5-billion to shareholders from the sale of its equity interests in Air Canada’s former operations, including aircraft-overhaul company Aveos.
Aveos, formerly known as Air Canada Technical Services, shut down last month, putting 2,600 people across the country out of work.
Protesters say ACE cash should be theirs
By Ross Marowits, Canadian Press, published in Winnipeg Free Press, April 26, 2012
MONTREAL — Air Canada’s former parent company was accused Wednesday of betraying workers by distributing millions of dollars among its shareholders as it winds down operations. Hundreds of protesters blocked a downtown Montreal street where shareholders at ACE Aviation’s annual meeting approved the plan to dissolve the holding company after less than 10 years of operation.
“They are going to distribute $350 million that belongs to us,” Jean Poirier, vice-president of the International Association of Machinists and Aerospace Workers, said on the steps of the Montreal Museum of Fine Arts.
While Air Canada struggles under the weight of more than $4.3 billion of debt and hefty pension obligations, ACE shareholders will split the spoils of selling its various divisions.
ACE barred reporters from its annual meeting. In a statement, it confirmed shareholders approved the windup of the company and plans to distribute between $250 million and $300 million in the coming weeks. “The final distribution to shareholders will not occur earlier than mid-year 2013 in order to allow that any remaining contingent liabilities be settled or otherwise provided for,” it said in the statement.
The protesters, many of them aerospace workers of insolvent aircraft maintenance company Aveos who just recently lost their jobs, were joined by a number of students. They accused the Harper Conservatives of being in a conspiracy with Air Canada by not enforcing a law critics say requires heavy maintenance work to be done in Canada. They also vented their anger at former airline CEO Robert Milton, who earned millions of dollars by spinning off Air Canada into pieces, including Aveos.
Union leader Maxime Dolci denounced the government and a succession of Air Canada leaders, including current CEO Calin Rovinescu. “They are responsible for the nightmare we are living right now,” said the former Aveos employee and local union vice-president.
The protesters were supported by the NDP’S transportation critic and Bloc Québécois Leader Daniel Paille, who denounced the federal government’s hands-off attitude toward Aveos. “The federal government’s silence smells like a conspiracy, smells like abandonment, smells like treason,” said the NDP’S Alexandre Boulerice.
Paille said only Canada would abandon the world’s third-largest aerospace sector — after Seattle and Toulouse, France — by claiming Aveos’ battles are between private companies. He said the government must force Air Canada to respect the federal Air Canada Public Participation Act requiring it to maintain heavy maintenance operations in Winnipeg, Montreal and Toronto. “We ask the government to respect the law, it’s also their job and we ask the Quebec government to continue to support — but a little stronger please — to prevent the loss of the advantage we have in the world.”
The province said it’s willing to provide financial support to potential buyers of Aveos as long as they maintain jobs in Montreal. It is also taking Air Canada to court, aiming to force it to adhere to the law enacted when the airline was privatized in 1988.
Appendix:
Years ago, I wrote a piece on deregulation of all kinds and developed a mini-obsession about the absurdity of the airline sort. It had produced bankruptices, savage wage-cutting, union-busting, awful service, and the abandonment of marginal cities while not producing any improvement in affordability. It’s hard to get people to believe this, but it’s true.
Matt Yglesias is out with a post (“Passenger Aviation in the United States: 40 Years of Failure”) on how the U.S. airline industry is a “stunning business failure.” Is it ever. But he doesn’t mention deregulation.
The industry was deregulated in 1979. Though it’s forgotten now, dereg—even though it’s destroyed unions—was a project of Democrats. Their initial base was in Teddy Kennedy’s office (as a wit once remarked, this shows Kennedy’s merchant origins, since merchants—bootleggers in the case of the Kennedy family—always want to reduce transport costs). Dereg’s intellectual guru was Alfred Kahn of Cornell, an advisor to Jimmy Carter, who signed dereg into law as president. Route and fare regulation was replaced by a free-for-all. The result has been disastrous.
A few numbers to make the point. Good stats on the industry (Annual Results: U.S. Airlines) begin in 1948. These tell us that the entire industry has cumulatively lost money since then. Add up all the gains and losses between then and 2011, and you get $37.7 billion in total losses. Adjust that for inflation, and you get $12.9 billion in total losses (2011 dollars). But what a difference deregulation has made. Between 1948 and 1978, the industry made $5.5 billion in total (or $28.7 billion in 2011 dollars). Between 1979 and 2011, it lost $37.7 billion (or $41.6 billion in 2011 dollars). Of course, I’m not here to defend corporate profits, but it’s hard to see how an industry can survive under capitalism in a chronic state of loss.
Ah, but fares are down and ridership has grown faster, right? No.
First, prices. Between 1963 (when the figures begin) and 1979, the airfare subindex of the CPI grew 25% more slowly than the overall CPI. Since 1979, it’s growth 2.4 times as fast as overall inflation. A major reason for this is that there are many fewer nonstop flights than in the regulated days, and far tighter advance purchase restrictions. To the Bureau of Labor Statistics, which computes the CPI, such quality decreases are the same as price increases. (This is the opposite of the logic prevailing in computers, where rapidly increasing power is the same as a price decline.)
And then ridership. Between 1948 and 1978, annual passenger miles flown grew 12% a year; since then, they’ve grown less than 4%.
And, man, are flights ever more crowded. From 1948 to 1978, planes were an average of 57% full. Since 1979, they’ve averaged 68% full. Over the last three years, they’ve averaged 82% full.
But almost no one respectable will ever say airline dereg has been a failure. You read it here not quite first (because if you’d been subscribing to LBO in 1989 you would have read it there), but it’s not too likely you’ve seen it elswhere.
See chart on the economics of the U.S. airline business:
http://www.slate.com/blogs/moneybox/2012/06/04/passenger_aviation_in_the_united_states_40_years_of_failure.html
Postscript:
Two bidders eye defunct Aveos
“After considerable discussion with MTU Canada regarding the engine business and AJ Walter Aviation concerning the components business, it is our opinion that both would be a good fit for the business and for Canada,” Atkinson said in his note. “Both companies have expressed interest in employing a number of former Aveos employees. It would certainly be a positive step toward keeping the aircraft maintenance industry alive in this country.”
“We have also been in discussion with … Quebec and British Columbia and there is considerable interest in maintaining these highly skilled jobs in their provinces.”
Jane Goring, a U.K. spokesperson for AJ Walter Aviation, said from Gatwick that “if you saw the letter, then yes, you are aware that the company has shown an interest in this (components refurbishing) business. But at the moment, it does not want to comment in any more detail.”
But a person familiar with the companies and the negotiations said that “whatever happens, over the course of the next three or four days, that may well change.”
In an email, Air Canada spokes-person Isabelle Arthur said that “the awarding of the engine maintenance Air Canada contract is entirely a matter for (chief restructuring officer Jonathan Solursh of monitor FTI Consulting Canada Inc.) to determine. However, Air Canada has reminded (him of) the importance of awarding the contract to a supplier who will perform services in Canada.”
“(Rovinescu) has publicly affirmed Air Canada’s objective to have Air Canada maintenance services performed by a supplier with the qualifications, proven expertise and capability required and the capacity to do so from Canada.”
Rovinescu has expressed “hope” that some former Aveos functions would remain in Canada but has refused to commit the airline to any concrete measure.
Atkinson said that “we’ve had good discussions with both companies,” the only two who approached the union. No one has expressed interest in the heavy maintenance division, he added. The engine and components business accounted for about 1,000 of the 1,800 Montreal employees.
Union members have maintained that Air Canada engineered the Aveos bankruptcy to get rid of legacy costs.
But the union is open to negotiating a new contract, Atkinson said. The IAMAW has “successor rights” that in normal circumstances could bind acquirers to the contract in effect at the time of purchase – in this case, at the time of the filing.
Atkinson could not say how many of the 2,800 former employees have found a new jobs. MTU Canada executives did not return calls Friday.
Sale of coveted Aveos unit could save 300 jobs
Paul Delean, The Gazette, Aug 3, 2012
An estimated 300 Montreal jobs lost in the collapse of Aveos Fleet Performance Inc. appear saved now that British-based AJ Walter Aviation has entered into a purchase agreement for the company’s component-repair business.
“I was expecting that news. It’s good news. I’m so happy,” said Richard Guay, president of Local 1751 of the International Association of Machinists and Aerospace Workers.
AJ Walter announced Thursday it had signed an asset purchase agreement to buy the component-maintenance business, the most coveted of the Aveos operations. Terms were not disclosed. “We plan to safeguard an outstanding facility and talent base that will take fresh heart from AJW’s entrepreneurial ethos,” company president Christopher Whiteside declared in a statement.
Aveos, a Montreal-based aircraft repair and maintenance firm spun off by Air Canada in 2007, filed for bankruptcy protection in March, putting 2,800 people out of work, 1,800 of them in Montreal. Air Canada accounted for 90 per cent of its business.
Guay called AJ Walter “the most promising” suitor for the component business, because it was large enough not to depend on Air Canada. “If they get it, it’s a plus. But they don’t need it. They’re self-sufficient.”
The company has offices in London, Miami, Singapore and Dubai, inventory hubs across Europe and North America, a customer base of more than 800 airlines and annual group sales of more than $400 million.
AJ Walter said it plans to establish the Montreal facility as its new global headquarters for the maintenance, repair and overhaul of aircraft components. It added it has “worked closely” with the union to formulate “a new business structure that is both fair and commercially competitive,” and with the Quebec government.
Guay said the local jobs could be restored as early as next month.
Union backs pension plan
Wants government to extend cap on payments to reduce deficit
By Randall Palmer and Louise Egan, Reuters (The Gazette), Aug 8, 2012
Air Canada has won key union support for its bid for more relief on payments to erase its pension fund deficit, pressuring the Canadian government to agree even though Ottawa recently rejected similar requests from other companies. The pension deficit of the country’s largest airline doubled to $4.4 billion during 2011, primarily because of unusually low interest rates rather than any sudden demand on assets. Unions recognize the danger that such a big shortfall presents for Air Canada, even though the deficit has subsequently dropped by $1.1 billion because of recent labour contracts.
“In this extraordinary circumstance, we don’t want to do something that pushes the airline over the brink,” Paul Moist, president of the Canadian Union of Public Employees, which represents Air Canada’s flight attendants, said on Tuesday.
In 2009, the government agreed to Air Canada’s request for a moratorium on making any special payments to reduce its pension deficit through 2010, and then a cap on special payments that would rise from $150 million in 2011 to $225 million in 2013.
The company is now seeking to extend that cap until 2024, and labour arbitrators have ruled that without such relief, “grave existential questions” would arise about the future of the airline and its pensions. Moist was one of several union leaders who met Finance Minister Jim Flaherty on July 23 at Flaherty’s request to discuss Air Canada’s pension situation.
Flaherty had told reporters a month earlier that the most important condition that must be met for the government to agree to any extension would be that all parties — company management, current union members, pensioners and the country’s financial regulator, Julie Dickson — also agree.
Flaherty’s position is delicate because in June he told a group of six big corporations — including BCE Inc.’s Bell Canada and Canada’s two national railroads — that he was not prepared to enact special measures to give them more time to pay down their pension deficits.
He wrote them that reforms introduced in 2010 were designed to give companies flexibility and avoid volatility in running their defined benefit plans. He added that providing new temporary relief now could result in notably higher special payments later to eliminate deficits. A copy of the letter was obtained by Reuters.
“The big challenge for Air Canada is they (the six companies) have been rejected, and so what makes it possible for Air Canada to do this?” said one Ottawa insider, who declined to be identified.
The fact that Air Canada has hired Flaherty’s former chief of staff, Derek Vanstone, to oversee government relations and strategy might also make the minister want to appear not to show the airline any favouritism.
But for Bruce Aubin, who heads the pension committee for Air Canada’s retirees, comparing the air carrier with the six corporations is like comparing apples and oranges.
“Air Canada’s pension, it goes without saying, is in some difficulty. The other guys aren’t,” he said.
The retirees have not voiced an opinion yet on whether to back an extension of the special payment cap to 2024, and want to understand the ramifications, but Aubin said “we’re not opposed to it”.
“We’re supportive of buying time,” he said, adding that he was looking forward to meetings with the government and airline.
The head of another union who attended the July 23 meeting with Flaherty, Dave Ritchie, said the rules under which the pension deficit is being measured are too harsh because they look at the ability to pay out benefits if the company goes under rather than its ability to make payments if it stays in business.
“We’ve said to the government, ‘Look it, you need to send a message … to the investment community and let them know that a company is not going to fail because they are going to have this unfunded liability because of the way the funding mechanism is set up,”’ said Ritchie, Canadian general vice-president of the International Association of Machinists and Aerospace Workers.
“We have a lot of members that are retired, that need to know that they’re going to keep getting their cheques uninterrupted, for the amount they went out with. If they go into default, everybody takes a haircut.”
Moist said Flaherty was noncommittal at the July meeting but appeared sensitive to the airline’s plight. “I think he feels the same way the unions do. Nobody wants to do anything that precipitates, that puts the airline in any more difficult position than it’s already in.”
