Ottawa says still in talks with Air Canada over pension cap

Wed Dec 5, 2012 12:48pm EST

* Finance minister says looking at long-term implications

* Air Canada seeking cap of C$150 mln a year

By Louise Egan

OTTAWA, Dec 5 (Reuters) - The Canadian government and Air Canada remain in discussions over the flagship carrier's request for a cap on special payments toward its C$4.2 billion ($4.23 billion) pension fund deficit until 2023, Finance Minister Jim Flaherty said on Wednesday.

Flaherty said the government had a "point of view" on the matter but declined to give details or a timeline for a final decision.

"We're continuing to have discussions with Air Canada and the unions and with the pensioners because they all are stakeholders," Flaherty told reporters.

Air Canada wants a 10-year extension of an agreement with Ottawa that is set to expire at the end of 2013. The deal allows it to pay smaller amounts than would otherwise be required toward its defined-benefit pension deficit, which it says ballooned in 2011 due to a drop in the discount rate used to calculate pension liabilities to 3.3 percent from 4.5 percent.

Air Canada's Chief Executive Calin Rovinescu sent a letter to Flaherty on April 26 requesting a C$150 million cap on yearly payments.

The company has won approval from its labor unions and pensioners for a cap, which Flaherty had previously said was a prerequisite for him to consider an extension.

"They have expressed their views but there's an obligation on the government to look at the long term here so we have a point of view also, so we're continuing our discussions," he said.

"That's all I can tell you right now but there's no conclusion."

Air Canada is not the only company facing pension difficulties. The country's regulator of financial institutions said on Oct. 5 that all but 7 percent of the federally regulated, private defined-benefit pension plans were underfunded at the end of 2011.

The agreement signed between Air Canada and the government in 2009 granted an initial moratorium on making any special payments to reduce its pension deficit through 2010, and then a cap on special payments that would rise from C$150 million in 2011 to C$225 million in 2013.

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