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GE Unit May Seek Return of 100 Air Canada Planes

The carrier, which is behind on payments, also may face a challenge by the pilots union to its attempt to restructure.

June 24, 2003|From Bloomberg News

General Electric Co.'s aircraft-leasing unit may seek the return of more than 100 planes from Air Canada, which hasn't paid for them since obtaining protection from its creditors in April.

The carrier must agree to new payments in the next 10 days or possibly lose the planes, Robert Thornton, a lawyer for GE Capital Aviation Services, said during a court hearing Monday. The General Electric unit is the airline's biggest lessor.

Canada's largest airline intends to halve its cost of leasing aircraft among its 232-plane fleet, arguing that severe acute respiratory syndrome and fears of terrorism have reduced the market rate by decreasing demand. Air Canada began talks with General Electric on Monday after suspending payments April 1.

"Air Canada gets to use aircraft for free until a deal is negotiated," Thornton said. Avoiding talks with the biggest lessor, while negotiating with smaller leasing companies, was "unacceptable," he said, and discussions have begun "in earnest."

Air Canada said last week that it won lower rates from GATX Corp. on leases for three Airbus A-321 jets and resumed payments for the planes. The airline plans to reduce annual lease costs by $536 million a year.

GE Capital and Air Canada are posturing as they try to reach an agreement, said Karl Moore, a business professor at Montreal's McGill University. "GE doesn't want 100 planes back," he said, adding that, without enough demand, the planes might end up parked somewhere in the desert without anyone to lease them. An Air Canada spokeswoman declined to comment on the talks.

Air Canada's attempt to restructure also could face a challenge from pilots. Some are upset by an arbitrator's ruling on seniority and may oppose concessions the airline wants as part of its cost cuts.

Air Canada is waiting to hear whether pilots and flight attendants will ratify new labor accords that extracted concessions from their unions. The airline's mechanics and ticket sales agents have agreed to rollbacks as part of labor savings Air Canada negotiated last month.

The pilots union said in a statement Monday that its members may resist the concessions because of opposition to an arbitrator's ruling on seniority. The association wants its 3,200 members to delay voting on the concessions until after Thursday, the day the union is to meet with Canadian labor regulators in a bid to have the seniority decision overturned.

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