Ailing Air Canada, Pilots Agree to Last-Minute Cost Cutbacks

Air Canada took to the skies as scheduled Sunday after reaching a last-ditch cost-cutting pact with its 3,400 pilots, avoiding a court decision that could have grounded Canada’s largest airline and forced its liquidation under bankruptcy.

“With this significant hurdle in our restructuring behind us, I wish to reassure Air Canada’s customers that it is business as usual and I encourage them to continue booking Air Canada with confidence,” said Robert Milton, chief executive of the Montreal-based airline.

Details of the deal were not immediately available, but Air Canada had been asking for more than 800 layoffs, wage concessions and changes in working conditions under which some pilots would fly smaller aircraft for less pay.

The agreement will have to be ratified by union members over the next few weeks.

Air Canada said that along with agreements by other unions representing nonunion employees in its workforce of 40,000, the tentative pact with the pilots would allow the carrier to cut $800 million from its annual labor costs.

The No. 11 airline in the world, Air Canada has been under court protection from creditors since April 1. It is now expected to begin negotiations with creditors on restructuring about $9.5 billion of debt and aircraft lease obligations.

Air Canada and its pilots found common ground just hours before a judge in Ontario was to hold an extraordinary Sunday morning hearing to decide whether the company could continue with its restructuring. There was speculation the judge could have imposed a settlement with the pilots or even ordered the liquidation of the airline.

“No one is happy with a situation where salaries will be cut and jobs lost. However, our pilots realize the gravity of the situation and are willing to do what it takes to help build a new future for Air Canada,” Air Canada Pilot Assn. President Don Johnson said in a statement.

After wrangling layoff agreements and concessions from its other key unions, Air Canada needed to bring the pilots on board to have any hope of slashing labor costs. The airline plans to lay off about 10,000 of its 40,000 employees.

Air Canada said that with the tentative labor agreements, it would be able to cut more than $558 million of costs at its mainline carrier.

The airline, Canada’s flagship carrier dating back to 1937 and formerly government-owned, is losing about $3.6 million a day.

Its woes have stemmed from the slump in travel brought on by a weak global economy, the Sept. 11, 2001, attacks, the war in Iraq and the severe acute respiratory syndrome epidemic.

The pilots had been the company’s only union group that had not agreed to layoffs and concessions. Those agreements would have been voided if the pilots did not agree to contribute to the cost-cutting measures.