Air Canada Jazz Pilots
Make Course Correction

By Gavin Francis, Staff Writer
Air Line Pilot, November/December 2004, p.20

Air Canada Jazz Pilots at a Glance

Pilots: Air Canada Jazz employs approximately 1,300 pilots, with 118 on furlough.

Operations: The airline carries approximately 5.5 million passengers a year on 579 flights daily to 76 destinations across Canada and the United States.

Pilot bases: Halifax, N.S.; Victoria and Vancouver, B.C.; Calgary, Alta.; London and Toronto, Ont.; and Quebec City and Montreal, P.Q.

Company headquarters: Halifax, N.S.

Equipment: 92 aircraft, including BAe 146s, Dash 8-100s, Dash 8-300s, and Bombardier CRJs.

Alliances: Member of Star Alliance

Things are looking up for Air Canada Jazz pilots. After 18 months of relief from creditors, Air Canada, which operates Air Canada Jazz as a wholly owned subsidiary under a capacity-purchase commercial agreement, recently emerged from the legal protection of the Companies Creditors Arrangements Act (CCAA), a Canadian law that allowed Air Canada to reorganize its corporate operations and restructure many of its financial obligations.

"None of this would have been possible without the cooperation of the various labor unions and their leaders," says Capt. Nick Di Cintio, chairman of the Air Canada Jazz Master Executive Council. "ALPA was out front from day one, using all of the resources at our disposal to build consensus among the Jazz unions and work through the problems that needed to be addressed."

Air Canada Jazz had been operating under CCAA protection since the airline and its parent company, Air Canada, filed for CCAA status with the Provincial Court of Ontario in April 2003. At that time, Air Canada was approximately C$13 billion in debt.

In May 2004, a group of creditors led by Deutsche Bank AG proposed underwriting a rights offering of C$850 million to help the company exit bankruptcy protection, but insisted that the deal would hinge on C$1.1 billion in annual labor-cost savings. Additionally, a U.S.$1.5 billion loan package from General Electric Capital Aviation Services (GECAS) was contingent on an agreement between Air Canada and Deutsche Bank.

Labor negotiations were difficult, and concessions were not easily agreed upon. Trinity Time Investments Ltd., a company owned by Hong Kong businessman Victor Li, pulled out of an earlier deal when several labor unions refused to make concessions on pensions. But employee groups worked hard to strike an acceptable deal with the Deutsche Bank group leaving employee pensions untouched, and after tough discussions, the nine labor unions at Air Canada and Air Canada Jazz reached agreement.

Sacrifices that Air Canada and Air Canada Jazz employee groups made to keep their airlines operational have been significant. Air Canada Jazz pilots have given up a total of C$65 million in concessions since the company entered CCAA protection in April 2003, including an additional C$8.9 million in the recent deal with Deutsche Bank. This represents more than half of the total C$14.4 million that all Jazz employee groups handed over in the second round of concessions. Included in the concessions was a collective-bargaining agreement extension that will run to Dec. 31, 2009; however, pay recovery provisions will eventually restore the Jazz pilots to pre-CCAA pay levels under their unique status-pay system.

"We’ve experienced a lot of ups and downs throughout this ordeal," says Capt. Di Cintio. "We’ve had some real crisis moments, and the process has been really hard on our pilots. But we’ve received unqualified support from all of ALPA’s executive officers and staff members in various ALPA departments. In fact, ALPA’s profile in Canada has been raised substantially as a result of the Association’s representation of Jazz pilots in these negotiations."

The court decision to lift the stay-of-proceedings order protecting the airline from creditors and to permit the company to return to normal business operations came after creditors approved a formal plan of arrangement. Under the plan, creditors will recover about 10 cents for each dollar of claims, but will receive approximately 88 percent of equity in the restructured airline. The Jazz pilots will have a share in that claim. Stakeholders believe the plan is the company’s best chance for success in the highly competitive and often-volatile airline industry.

"The plan is to maintain frequency to remain competitive, but to reduce capacity by flying smaller, more cost-effective aircraft," says Capt. Terry McTeer, Air Canada Jazz MEC secretary. "This will put the company in a better position to compete against such Canadian low-cost carriers as WestJet, JetsGo, and CanJet. They’ll do this by down-gauging the aircraft they use, particularly on domestic routes, transferring to Jazz all of the Bombardier CRJs being operated at Air Canada, and going to Bombardier to secure more larger-gauge CRJs to be added to Jazz’s existing fleet of CRJ200s."

The airline left CCAA protection with a much stronger balance sheet, reduced operating costs, and a business strategy designed to achieve future growth and profitability. The newly reorganized company is now in a much better position to generate positive cash flow, having reduced its debt and renegotiated many of its aircraft lease agreements.

Although Jazz’s improving performance throughout the CCAA process suggests that the operation is potentially profitable, Jazz pilots have been through a difficult period and hope that Air Canada’s emergence from CCAA and the company’s overall improved financial situation will provide them with more-stable job security and growth opportunities to restore the jobs of many of the Jazz pilots who have been downgraded and furloughed over the past 2 years.

Air Canada has said that it plans to fly to more international destinations while adding more small-jet service on domestic and transborder routes, phasing out older and less efficient aircraft. Jazz pilots expect that this will mean newer aircraft and an expanded fleet as their former fleet of 31 F-28s has already been phased out and the current fleet of 10 BAe 146s will be removed from service by December as part of fleet restructuring.

"Not only is the company trying to reduce its less profitable operations, it’s also looking to expand into new, more lucrative markets," says Capt. McTeer. "And because of the cost advantage, Jazz is where we’re mostly likely to see that type of expansion. We hope to see significant growth within the next two and a half years."

Already, firm orders for 30 Bombardier regional jets have been placed to augment the existing Jazz fleet. The order includes fifteen 75-seat CRJ700s-705LRs and fifteen 50-seat CRJ200s. Air Canada Jazz will be the first airline to operate the Series 705 LR, which cruises at 475 knots and has a range of 2,200 miles. The deal, which includes an option for an additional 60 aircraft, is valued at U.S.$2.45 billion if the airline exercises all options.

Additionally, Air Canada has signed a deal with Embraer to take delivery of forty-five 93-seat Embraer 190s. The agreement also includes an option for another 45 aircraft, making the deal worth approximately U.S.$2.7 billion. Currently, those aircraft are allocated to Air Canada and will be flown by Air Canada pilots, who are represented by an independent pilots association--ACPA.

Air Canada Jazz was created in January 2001 by the merger of four regional airlines—AirBC, Air Nova, Air Ontario, and Canadian Regional. These airlines can trace their corporate roots back to the mid-1930s. "We’re pretty proud of the fact that despite the merging of four competing pilot groups, we were able to come together with an absolute minimum of acrimony," says Capt. McTeer. "We’ve really worked well together in implementing the merger agreement and in working through all of the operational challenges that that entails. That’s been the key to our ability to stay focused throughout this CCAA process."

And although the Jazz pilots have put CCAA behind them, they know that plenty is still left to do to secure their jobs and their future. Indeed, the ability to remain a strong and unified pilot group will surely prove to be an advantage as Air Canada Jazz pilots confront the many challenges before them.

"Despite the progress we’ve made, we must still ensure that, once our airline is successful, our pilots share in that success," says Capt. Di Cintio. "The road ahead is much clearer now, but we still have obstacles to overcome. However, Air Canada now has a business plan that will allow Air Canada Jazz to join the ranks of 21st century airlines and a strategy that will make our company viable in an increasingly competitive global airline environment."