Hypothetical Question about AC - CCAA again or Liquidate

[sportingrifle]

I am almost afraid of starting this discussion but I am honestly interested about AC pilots thoughts on this matter. There is a good chance that the questions posed in the thread may proceed from hypothetical to reality in the next year or so and I would like to explore the ideas surrounding options with the luxury of time.

1) Let's assume that AC will run out of money and credit within a year or so. (in my opinion likely)

2) Let's assume that the ballooning pension obligations are not the cause but are the straw that breaks the camels back. (also in my opinion likely)

3) Let's now assume that we are given an option to be part of a restructured AC. This is negotiated with a gun to our heads and looks something like the following. 15% cut in pay and benefits, 10% productivity gains, a salary cap for senior pilots, and massive changes to the pension plan. Let's say defined contribution with the employer kicking in 4% of your salary ( This is what other DC pension plans at AC are modeled after.) Expect to retire with about 40K to 70K /year depending on investment returns and length of service.

4) Let's also assume that if we accept the above, there is no guarentee that we won't go broke again, either by economic circumstances or plundering by future investors.

5) Now let's assume that if we turn down the above the creditors will liquidate the company.

My question is, are we better off grenading the place and starting afresh? There are still 75 000 people/day trying to get somewhere and Via Rail ain't that big. It would take a number on months but would many startups appear, each with a profitable niche? Would some group pick up the pieces and offer us better employment than the re-re-structured AC would? Would many of us be better taking the EI re-training grant and doing something society values more than flying airplanes?

I am hoping to start a serious, constructive discussion here. I also realize that the options look very different depending on age and seniority. Perhaps a general age/seniority comment would help others reading a post.

I'm late 40's, about midway on the list, and starting to think that the only way to really re-structure the place is to let it implode.

Any thoughts???

[ZBBYLW]

Personally I do not think LH would let AC liquidate, they would probably find some back door way to keep AC alive. After seeing LHs profit in the last quarter, this might actually be a good thing.

[bmc]

Has the Canadian govt raised the 25% foreign ownership cap on airlines?

Beyond that, what is the value to LH?

LH flies to YYZ, YYC, YVR. Not sure about YUL, although something tells me it's a code share operated by AC. Beyond the major points, what's left? YOW? YHZ? YWG? YYJ? They can get interline flow without having to buy AC.

If putting the code on flights is critical, they will code share with how ever they want.

[bmc]

I just want to send out to all the AC people that my thoughts are with you as you're reading about CCAA again. Stressful time with much uncertainty. Hope it works for the best. I really do.

[mduffy]

Interesting question...

If AC goes under, senior pilots in their last 5 yrs will either retire from flying or go overseas. So that's about 15% of your workforce gone. When the next airline starts up, AC's former pilots will be well qualified candidates for the new jobs. So many of AC's junior pilots could become dramatically more senior at a new venture if they get hired early. It's hard to imaginge a junior pilot doing any worse at a new company than they are at AC.

The question is, what will the new employers pay? Very little I would imagine.

[Martin Tamme]

Beyond that, what is the value to LH?

FYI

LH is eyeing AC's LHR slots. AC has 30 slots into LHR. Each slot has an intangible value of $50M, for a grand total of $1.5B.

LH doesn't want the airline, but if it means acquiring the LHR slots for less than $100M, it might just pick up AC. Of course, they probably just dismantle AC and do the flying themselves once they acquired the company.

[bmc]

Beyond that, what is the value to LH?

FYI

LH is eyeing AC's LHR slots. AC has 30 slots into LHR. Each slot has an intangible value of $50M, for a grand total of $1.5B.

LH doesn't want the airline, but if it means acquiring the LHR slots for less than $100M, it might just pick up AC. Of course, they probably just dismantle AC and do the flying themselves once they acquired the company.

I wasn't aware that airlines owned slots at LHR and could sell them. When did that change happen?

[palebird]

LH has no interest in AC, they are German, what could they possibly want from AC other than some prime slots??? Seriously Ac is going down the chute this time, all over folks, there will be some reincarnation to maintain Canadian service but it will be a shadow of the former AC and that will not be a bad thing.. Westjet will be the "flag carrier".. Get this I showed up at gate which was still open and tried to board AC aircraft. Gate attendant proceeded to berate me for being late and telling me my carry on was oversize. I have traveled around the world on 10 different airlines including AC with this carry on. It fits in the baggage size checker. This a## does not want to give it up. Then he tells me that I probably missed the flight. So I ask him why the gate is still open and the aircraft is sitting there with baggage doors open waiting for baggage carts. He gets flustered and tells me to board. But he follows me down the gateway telling me I have to run. I ignore him and he makes smart comments. I really wanted to make this flight or I would have had fun with him. Then we sat at gate for 30 minutes waiting for baggage to load. With employees like that AC deserves to fail because they just don't get it.. I paid full fare and I do not need some a## giving me a hard time when I am, in effect, paying him his wage. This "IS" the problem with AC and has been as long as I can remember. I used to work for these bums but quit out of disgust.. No regrets.. Smile and wave..

[balfour]

http://www.youtube.com/watch?v=JbirH8-_tG4

[linebacker35]

The Canadian government would not let Air Canada shut its doors! Not only would they not want to see 35,000 direct jobs(many more indirect) disipear overnight. But Air Canada provides a national service that westjet does not. Westjet only flies to a few places that are popular and profitable. Air Canada is a true national carrier that serves all communities, even those that are not so profitable. If Air Canada were to go under, communities across canada would be isolated and travel across the country would ground to a halt creating an even bigger economic mess then the current one

[Rubberbiscuit]

The Canadian government would not let Air Canada shut its doors! Not only would they not want to see 35,000 direct jobs(many more indirect) disipear overnight. But Air Canada provides a national service that westjet does not. Westjet only flies to a few places that are popular and profitable. Air Canada is a true national carrier that serves all communities, even those that are not so profitable. If Air Canada were to go under, communities across canada would be isolated and travel across the country would ground to a halt creating an even bigger economic mess then the current one

First of all I want to start by saying I wish everyone at AC the best of luck in these trying times.

As far as national carrier goes, yes and no. Jazz serves alot more communities than AC if I am not mistaken, and yes they feed the mainline, but also do very well from what I see and hear. Down scaling or liquidating AC would not shut Jazz down.

[2R]

West Jet would take up the slack ,or Canadian North ,or First Air,or Jazz,or Transat,or Skyservice,or....................

[linebacker35]

True, Jazz is the one that serves alot of the communities in Canada. However that is on Air Canada's dime. Jazz recieves a guarenteed income from AC to operate those flights, im not sure about Jazz but US regionals are guarenteed not to take a loss even if the flight was empty. They are Jazz aircraft but they are Air Canada flights paid for by Air Canada. Air Canada goes belly up, so does Jazz.

2R
As for West Jet picking up the slack, as I already said West Jet will ONLY do profitable routes! It is how their low cost model is built. They would not want to be the national carrier with all the extra responsibility, costs, and headaches that it comes with. As for international and transborder, foreign airlines would take over Air Canada's old routes. Canadian jobs becoming foreign jobs, wonderfull
Air Canada still has a strong MAJORITY of the total market share... what would happen if 50% of Canada's air capacity just disipeared overnight? It would be an economic mess! The public has supported open skies and foreign ownership for a while now, guess who would fill the gap left by Air Canada.....

Air Canada will be around for a long long time yet, it is in Canada's national interest

[prop2jet]

True, Jazz is the one that serves alot of the communities in Canada. However that is on Air Canada's dime. Jazz recieves a guarenteed income from AC to operate those flights, im not sure about Jazz but US regionals are guarenteed not to take a loss even if the flight was empty. They are Jazz aircraft but they are Air Canada flights paid for by Air Canada. Air Canada goes belly up, so does Jazz.

To say that Jazz would go belly up because AC goes bankrupt is a little premature. The only way that could happen is if Management at Jazz were really asleep at the wheel and in total denial. Of course that is not entirely impossible given their current track record of sitting back and doing little to broaden the revenue stream.

The cap on foreign ownership is going up to 49% and it is not entirely impossible that a foreign carrier steps in. LH is a bit of a stretch but not entirely impossible. First order of business though should be to send MB and his cronies walking.

[lupin]

With a global recession under way, banks are holding on to cash, no one is lending unless they can get extremely high rates.

Who do you suppose could finance AC through and out of CCAA?

I suppose AC will keep selling assets to raise capital until it has none left to sell. I don't think it will go CCAA again....

[Red1]

The Government .. why not get on the bail out train, it's the perfect time. Don't think the government would.. don't forget it's a Quebec based company. It might be cheaper in the end when you think of the possible pension tabs the government would be required to pick up. Don't worry even Harper is a Keynesian now.

[linebacker35]

Air Canada will be around for a long long time yet, it is in Canada's national interest

At any price ?

You still think that the average tax payer will endorse pouring money into this blackhole ? Your Koolaid is WAY too concentred.. Just add more water to it

Work for the best to happen, but keep preparing for the worst. Nonetheless, i can assure you that the Air Canada you see now, will be very different by the end of the year.

MHC

Auto bailouts, financial bailouts.... need i say more?
And let me tell you that Air Canada at this moment in time is more vital to the Canadian economy then say GM. Trans Canada airlines was started and run by the government because canada is so large and so vast that air travel is a neccesity in this country.
Do you honestly believe that the PM would stand by and watch 35,000 people loose their jobs and the country loose essential air service. Not to say the thousands more indirect jobs that would be lost! The movement of cargo and people in the country would slow to a crawl. Yup that is every primeministers dream

Watch the news... they seem to be very keen on job creation, not job loss and they are willing to throw billions into it

And for the record i am very anti-bailout with all thats going on, but Air Canada is an essential service and will recieve government assistance if need be

[rudder]

Could an AC liquidation be the result of a second CCAA filing - yes. Is it the most likely outcome - no.

Fact is that in an AC CCAA filing that proceeds to liquidation all AC assets are up for grabs. Jazz would survive with its O/C intact. The aircraft that were previously subleased from AC would be the subject of negotiations directly between Jazz and the leasing companies.

Jazz could either be used as a vehicle to continue its previous domestic route structure, and add domestic capacity to begin to backfill the AC void, or get picked up by WJ thru commercial agreement to operate as a feed network to/from secondary communities.

International routes are not considered 'essential service'. Most have alternative service providers anyway. There are many established carriers in Canada with the wherewithal to backfill necessary domestic capacity.

Yes, life can go on without AC. But is that desireable? A naiive belief that AC is indispensable is the first step to its extinction.

[crazy_aviator]

Has anyone ever heard of the 1.2-3-4-5- BILLION Gun registration scheme that has saved 1, 2, 3 lives and employed How many ? Dont worry , Canadian taxpayers WILL come to the rescue of AC whether they like it or not ,,, whether or not they are brainwashed by the media. leaders etc

[tonysoprano]

..

[tonysoprano]

Has anyone ever heard of the 1.2-3-4-5- BILLION Gun registration scheme that has saved 1, 2, 3 lives and employed How many ? Dont worry , Canadian taxpayers WILL come to the rescue of AC whether they like it or not ,,, whether or not they are brainwashed by the media. leaders etc

At the end of the day, politicians and Canadians will have to decide. And BTW, were not talking 1, 2, 3 lives. We're talking about 30,000 jobs in Canada and worldwide, just so you know. The railway service of the 19th and 20th century has become irrelevant. There is no doubt the airline service that AC provides is needed but does AC have to do it? So let's take a quick picture of the industry. Does WJ want to change the model that has been so successful? I doubt it. Remember the Ottawa guys will have much to say about how things are done by the "new AC". Yep, Big Risk. Do the other players want to invest big bucks in becoming Canada's Essential Service, Flag Carrier or whatever you wanna call it? I don't think so. Again, Big Risk. Chicken Shit they is, me thinks. Or maybe just smart guys who are not willing to take certain risks. Remember the apple and oranges thing? I think if Canada Post can be successful, so can a certain airline that everyone hates. That will be up to us taxpayers. But don't count the foreigners out. The Luftwafe needs AC, big time. So does the rest of the biggest airline alliance in the world. LuftCanada? Or just a taxpayer's investment. Stay tuned. I think Canadians are smart enough not to be brainwashed by the media. They will decide what's right in the end. Either way, it's quite likely the ship will keep sailing. Like it or not. Only if it's needed of course.

[yycflyguy]

Has anyone ever heard of the 1.2-3-4-5- BILLION Gun registration scheme that has saved 1, 2, 3 lives and employed How many ? Dont worry , Canadian taxpayers WILL come to the rescue of AC whether they like it or not ,,, whether or not they are brainwashed by the media. leaders etc

At the end of the day, politicians and Canadians will have to decide. And BTW, were not talking 1, 2, 3 lives. We're talking about 30,000 jobs in Canada and worldwide, just so you know. The railway service of the 19th and 20th century has become irrelevant. There is no doubt the airline service that AC provides is needed but does AC have to do it? So let's take a quick picture of the industry. Does WJ want to change the model that has been so successful? I doubt it. Remember the Ottawa guys will have much to say about how things are done by the "new AC". Yep, Big Risk. Do the other players want to invest big bucks in becoming Canada's Essential Service, Flag Carrier or whatever you wanna call it? I don't think so. Again, Big Risk. Chicken Shit they is, me thinks. Or maybe just smart guys who are not willing to take certain risks. Remember the apple and oranges thing? I think if Canada Post can be successful, so can a certain airline that everyone hates. That will be up to us taxpayers. But don't count the foreigners out. The Luftwafe needs AC, big time. So does the rest of the biggest airline alliance in the world. LuftCanada? Or just a taxpayer's investment. Stay tuned. I think Canadians are smart enough not to be brainwashed by the media. They will decide what's right in the end. Either way, it's quite likely the ship will keep sailing. Like it or not. Only if it's needed of course.

I am not so sure that Joe Public hasn't been brainwashed by the media or isn't heavily influenced by it. How many people still think AC is a Crown Corporation? Or that the government is continually bailing out Air Canada? Or that it is the unions fault for piss poor management that has stripped everything away? Joe Public is a drunken parrot that merely repeats what is heard. That said. You are right. It would be political suicide to allow 30,000+ employees be without their livelihood and will intervene at some level. My latest fear is that the Germans do arrive and in typical efficiency, strip down AC even further for the profitable routes leaving a skeleton airline and massive layoffs.

[rudder]

Bankruptcy protection nuts and bolts



Accounts payable, legal actions as a rule are frozen



The GazetteFebruary 20, 2009



In the corporate world, no word is more dreaded than bankruptcy.
To avoid it, a growing number of distressed North American companies are opting for creditor protection, hoping to come up with a viable plan to stay in business while partially compensating the people to whom they owe money.
To help explain the process, The Gazette called on Phil Manel, a senior partner and bankruptcy trustee at RSM Richter Inc., which specializes in financial reorganizations.
Q: Does a company normally make a decision to seek creditor protection itself, or is it suggested by bankers, lawyers and/or bankruptcy trustees?
A: Normally, the board of directors decides, after initial consultation with legal counsel, company accountants and a bankruptcy trustee. In many cases, but not all, the company also will consult its bankers and major stakeholders. Unless the banks buy into the process, however, a successful reorganization is unlikely.
Q: What is the job of the bankruptcy trustee and at what point in the process does he or she enter the picture? Who determines which firm is picked?
A: Bankruptcy trustees are licensed by the federal government to act under the Bankruptcy and Insolvency Act of Canada, and can either reorganize the company and make a proposal to creditors, or liquidate the assets. Generally, the debtor meets with the trustee prior to its decision to file for protection from creditors or to liquidate. In a case of reorganization, the company generally chooses the trustee, often with input from its lawyers, bank and other major stakeholders. Depending on the circumstances, the trustee can be chosen by the company or a creditor, including the bank. The firms that trustees work for have different areas of expertise, experience and reputation, which are key factors in their selection.
Q: How, if at all, does creditor protection affect day-to-day operations?
A: Creditor protection can affect day-to-day operations in many ways. Generally, accounts payable and legal actions against the debtor are frozen, so the company is not obliged to use its limited funds to pay old debt. Instead, the savings in cash flow can be utilized for future operating expenses and ability to reconsider various restructuring alternatives. Company management normally continues to administer the business without the trustee's intervention, unless major stakeholders insist.
Q: How long does creditor protection normally last?
A: The law provides for initial automatic protection of 30 days. After that, it can be unlimited, provided creditors and the court concur. Uncomplicated situations normally get resolved in a few months, but complex ones can take significantly longer. A reorganization case we handled, Cable Satisfaction International Inc., took about three years to resolve, with creditors finally receiving 100 cents on the dollar and the business continuing, in modified form.
Q: Are employees' jobs secure during that period and what protections, if any, do they have during and after creditor protection?

A: They are neither more nor less secure. In today's economy, management must make hard decisions regardless of the situation. If a company has limited financial resources, it may well be obliged to adjust its employment. To the extent the company can enhance its cash flow by not paying arrears of "old" payables, it may have more financial resources to retain its employees during the reorganization period.
Q: Who assumes pension obligations if a company folds?
A: That one's complicated. In general, amounts owed by a company which have not been paid to a prescribed pension plan are treated as a "super priority" (ahead of the banks) claim on the assets of a bankrupt company. But that's not the case for any actuarial deficit (the difference in the current value of the pension plan and the amount that actuarial experts calculate to meet plan liabilities, primarily arising from poor investments or a drop in plan value due to the stock-market situation). In addition, it's possible the realization value of assets from a bankrupt company will be insufficient to pay the "super priority" pension obligations.
Q: How common is it for companies that enter creditor protection to emerge, restructured, and carry on?
A: It depends on many factors. While there are no statistics I'm aware of kept by the Superintendent of Bankruptcy of Canada, I would suggest reorganizations are accomplished from 25 to 40 per cent of the time.

[tonysoprano]

yycflyguy.
There's not much more stripping down to be done. That has been part of the problem. AC needs to compete globally. That means taking more of the market which also requires more manpower. The efficiency will come in other ways. Less management, more lower cost front line employees will be part of it. Europe style.

[WJ700]

Yeah right... like the Government would let AC implode with already soaring un-employment and 11.5 months to the 2010 Olympics. Can't see it... you guys are going to get attacked, and I think every pilot in Canada has something to lose when that happens. I wish AC pilots the best and hope they bode well in the upcoming year.