BUSINESS

Air Canada, Pilots To Enter Contract Negotiations, Hoping To Avoid Previous Bitterness

09/15/2014 02:40 EDT | Updated 11/15/2014 05:59 EST
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An Air Canada Boeing 777 sits at a gate after it was forced to return to Sydney Airport in Sydney, Thursday, July 28, 2011, after crew members saw smoke coming from an oven in the galley. No one on Flight AC34 was injured in the incident, which forced the pilot to dump fuel before safely landing. (AP Photo/Rick Rycroft)
MONTREAL - Air Canada is moving to begin contract negotiations with its pilots union early in hopes of avoiding the acrimony that marked the last round talks that ended up being eventually settled by a federal arbitrator.

"We are in talks to determine if there is basis for achieving an early renewal of the pilots' collective agreement," Air Canada spokeswoman Isabelle Arthur wrote in an email.

The pilots union typically has four-year deals, but a five-year deal retroactive to April 2011 was selected in 2012 in final-offer arbitration.

The Air Canada Pilots Association said the airline approached it to discuss changes prior to the contract's expiry March 31, 2016.

"The current contract is the result of an arbitration award and our members would also like to see changes and improvements, which we are discussing with Air Canada," said an union spokesman who was unwilling to provide details.

Chris Murray of AltaCorp Capital said a longer contract would offer additional stability.

"We believe a longer-term agreement, particularly in advance of the current expiry in the first quarter of 2016, would be very constructive in reducing the company's risk profile," he wrote in a report following recent meetings between airline management and institutional investors.

In addition to pilots, Air Canada is set to open talks with flight attendants and customer service representatives, ahead of the contract's expiry March 31, 2015.

"We are presently preparing for the next bargaining round. We will consult our members soon to set our priorities," said Michel Cournoyer, president of the Air Canada Component of CUPE, which represents 6,500 flight attendants.

Murray said Air Canada (TSX:AC.B) indicated that unlike the last round of negotiations there are just "a few number of highly contentious issues" for flight attendants and customer service workers this time.

Pension issues have long been a major area of dispute. But structural changes have already been made by moving new hires to cheaper defined-contribution pension plans, and the airline has eliminated its pension deficit. The launch of low-cost subsidiary Rouge that is able to service leisure markets more profitably by using lower-wage employees and planes with more seats has also created new opportunities for younger pilots, especially given the Supreme Court of Canada's decision to raise the retirement age to 65, he said.

"There will be, as in any negotiations, puts and takes, but my expectation is that this negotiation will be much more conventional than what we saw in 2011," Murray said in an interview Monday. "There's nothing that I would think would be so egregious as what we saw last time."

The Canadian Union of Public Employees is challenging a federal decision to reduce the ratio of flight attendants to passengers required on aircraft even though the change was granted to competitors Transat (TSX:TRZ.B), WestJet (TSX:WJA) and Sunwing and is common practice among international carriers.

No hearing dates have been set, but Murray said he expects the challenge will fail.

Air Canada's last round of labour talks were among the most acrimonious in its history. They included a 12-hour illegal walkout by baggage handlers and ground staff that disrupted flights, the tabling of a back-to-work bill in Parliament and final-offer selection in which an arbitrator sided with the airline.

Air Canada's shares soared after the airline moved from the shadow of the challenging labour period. They were the top performer of all public companies in Canada in 2013 and peaked at $10.90 over the past 52-weeks before falling back.

The stock closed up 57 cents or 6.7 per cent at $9.05 Monday in heavy trading of more than 5.5 million shares on the expectation it will follow WestJet Airlines (TSX:WJA) and charge fees for first checked bags on domestic flights.

David Tyerman of Canaccord Genuity who increased his one-year target to $14 on Monday, expects the airline's earnings have potential to grow because of initiatives such as Rouge, more seating in Boeing 777s and new Boeing 787 Dreamliners that together are expected to reduced costs by 15 per cent.

Tyerman also said labour negotiations may be different this time "as the federal government demonstrated a willingness to step in quickly in the last negotiations."

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Note to readers: This is a corrected story: A previous version said the closing stock price was $9.07