Air Canada Obtains Pension Funding Relief

On August 9, 2004, the Government of Canada adopted the Air Canada Pension Plan Solvency Deficiency Funding Regulations, which will allow Air Canada to amortize the solvency deficiencies in its ten defined benefit registered pension plans over ten years by way of variable annual payments rather than over five years by way of equal annual payments, as required under the regulations ordinarily applicable to federally-registered pension plans. They came into force on September 30, 2004.

The new Regulations are based on a term sheet which was agreed to by Air Canada, each of its labour unions and representatives of its retirees and non-unionized active employees on February 18, 2004, and on a protocol which was signed by Air Canada and the federal pension regulator, the Office of the Superintendent of Financial Institutions (OSFI), on May 14, 2004. Together, the term sheet, protocol, and Regulations provide a mechanism for Air Canada to pay down the aggregate $1.2 billion solvency deficit in its pension plans in a manner consistent with the business and financial requirements of the restructuring it began under the Companies’ Creditors Arrangements Act on April 1, 2003, while preserving all existing pension plans and benefits.

Air Canada was represented on pension matters by John M. Baker, senior vice-president and general counsel, who was assisted by a team from Stikeman Elliott composed of Gary Nachshen, Lorna Cuthbert and Andrea Boctor (pensions), Sean Dunphy and Ashley Taylor (insolvency and restructuring), and Ron Ferguson and Craig Mitchell (banking).

The pension plan beneficiaries were represented as follows: the Air Canada Pilots Association by Richard Jones of Jones, Rogers; the Canadian Auto Workers by Sean Dewart of Sack Goldblatt Mitchell; the Canadian Union of Public Employees by Murray Gold of Koskie Minsky; the International Association of Machinists and Aerospace Workers by Hugh O’Reilly of Cavalluzzo Hayes Shilton McIntyre & Cornish; the non-unionized active employees by Brian Bellmore of Bellmore & Moore; the unionized retirees by Susan Ursel and Terri Hilborn of Green & Chercover; and the non-unionized retirees by John Varley (pension insolvency) of Pallett Valo, assisted by Bobby Sachdeva (insolvency) and Michael Nowina (pension insolvency).

OSFI was represented by Carol Taraschuk and, for litigation, Ian Dick and Jacqueline Dais-Visca. Stonecrest Capital Inc., who acted as collateral agent in respect of the ongoing arrangements, was represented by Borden Ladner Gervais, with a team led by Joanne Foot, and including Howard Silverman, Carlyn Klebuc and Shane Pearlman. The prospective lenders to Air Canada in the GE group were represented on pension matters by Ian McSweeney and Douglas Rienzo of Osler, Hoskin & Harcourt.