Air Canada’s new CEO, lawyer-come-investment banker Calin Rovinescu, is expected to focus on slashing costs in the midst of the current recession, but his task won’t be easy.
While he played a key role during Air Canada’s reorganization under bankruptcy protection in 2003 and 2004, he is taking the controls at a time when demand for air travel is falling and Air Canada’s cash obligations are on the rise because of debt repayments, bad bets on fuel hedges and significantly heightened pension obligations.
The challenge this time around is that there are few obvious places to make deep cuts.
As well, most of the airline’s side businesses, including Aeroplan and regional carrier Jazz, have already been spun off.
A key issue to be addressed is the airline’s ballooning pension obligations, which would require changes to federal funding rules. Air Canada now estimates that deficits in its various employee pension plans total $3.2 billion.
Another federal policy change that could bolster Air Canada’s prospects would be raising the limit on foreign investments in Canadian airlines to 49 per cent from 25 per cent currently — something Transport Minister John Baird has committed to achieving alongside a new “Open Skies” pact signed with the European Union.
That could open the door to a strategic investment from the likes of Germany’s Lufthansa AG.
On the operations side, some analysts are expecting an overhaul of Air Canada’s network to remove unprofitable flying and increase the focus on the most lucrative domestic and international routes.
• Air Canada posted a loss of more than $1 billion last year.