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Canadian Air Says It Will Shut Down Barring Pay Cut

November 13, 1996|CRAIG TURNER | TIMES STAFF WRITER

TORONTO — The top executive at Canadian Airlines International, the country's second-biggest air carrier, said Tuesday that the company will shut down unless the carrier's unions accept a 10% pay cut by Nov. 27.

Canadian Air, which is one-third-owned by Dallas-based AMR Corp., the parent of American Airlines, has been bleeding cash for years, recording nearly $1 billion in losses since 1990. The requested four-year wage reduction is part of a restructuring plan floated Nov. 1 by Chief Executive Kevin Benson, who was installed in June with a mandate to turn around the airline.

Three of the airline's four unions have rejected the proposal, noting that workers have made repeated wage and productivity concessions in recent years. Only the union representing Canadian's pilots, who earn an average of almost $100,000 a year, has agreed to the rollback.

Benson has responded by taking his plan directly to the airlines' 16,400 employees in mass meetings across the country. In an interview published Tuesday in Toronto's Globe and Mail newspaper, Benson said there is no fall-back plan if the unions refuse to accept the cutback by the deadline.

"If we don't get the support of our employees, we must plan a shutdown," he said.

Union leaders have called on the government either to bail out the Calgary-based airline or waive foreign-ownership rules and permit AMR to buy a bigger piece of Canadian. There is little enthusiasm in the capital of Ottawa for a bailout, however, and AMR says it has no interest in increasing its stake in Canadian.

In addition to across-the-board wage reductions, Benson's rescue plan calls for abandoning some money-losing domestic routes and increasing Canadian Air flights to the Pacific Rim and the United States.

Canadian has withered in the heat of competition from Air Canada, the nation's No. 1 one carrier, and from low-cost charter and no-frills scheduled carriers. In contrast, Montreal-based Air Canada has moved into the black, largely because it has aggressively expanded its Canada-U.S. routing.

Air Canada reported a profit of about $125.5 million for the first nine months of the year, contrasted with Canadian's losses of $36.75 million. In addition to a cash shortage, Canadian has an aging fleet of aircraft.

AMR invested $176 million in Canadian in April 1994, giving it a 33% equity share and a 25% voting interest, the legal limit for foreign ownership of an airline here. AMR also agreed to provide management services to Canadian in exchange for payment of $100 million annually. Benson has asked for a reduction in those payments by an undisclosed sum as part of the restructuring. AMR is considering the proposal and is expected to agree.

Canadian International, which carries nearly 8 million passengers a year, was formed in 1987 from the amalgamation of five smaller airlines, providing nationwide competition to Air Canada, which was shifted from government to private ownership at about the same time.

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