UPDATE 1-Canada seeks plan from postal service to stem big losses

Wed Aug 28, 2013 5:23pm EDT

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(Adds comments from finance minister's office, Canada Post)

By David Ljunggren

OTTAWA Aug 28 (Reuters) - The large losses being racking up by Canada's postal service are of great concern to the government and it wants to see Canada Post's plans for stemming them, an official said on Wednesday.

Canada Post reported a loss on Tuesday of C$104 million ($99 million) for the second quarter of 2013 and said it was on track to run short of cash by the middle of next year.

Like the U.S. Postal Service, Canada Post is suffering as customers switch to digital communications. Canadian mail volumes fell by 6.3 percent from the second quarter of 2012.

The postal service's other big challenge is a C$5.9 billion deficit in its pension plan.

Canada Post - which has a mandate to be self-financing - is an arm's length corporation that reports to Parliament through the office of Transport Minister Lisa Raitt.

"We are very concerned that they are posting significant losses," said Raitt's spokeswoman, Ashley Kelahear. "The minister has met with Canada Post to request their plans for rectifying the financial under performance."

Canada Post says it is looking at a number of ways to save money, such as cutting back on deliveries, raising prices and relaxing delivery standards. Last year it signed a deal with the Canadian Union of Postal Workers to reduce labor costs by lowering wages for new hires and freezing wages for a year.

"We have a 19th century business model that we have to pull into the 21st century ... we are exploring all options and clearly talking to the government about those options. We haven't landed on anything yet," said Canada Post spokesman Jon Hamilton.

Canada Post is required to make a series of special payments to help make up the shortfall in its pension plan. Earlier this month Raitt and Finance Minister Jim Flaherty offered the corporation some relief, saying it could put off making the first special payment until June 30, 2014.

Even so, Canada Post says it will have to make a special payment of C$1.1 billion in 2014. To help avert a cash crunch it says it is "seeking regulatory relief and changes to the pension plan framework". Hamilton declined to give more details.

In March this year the finance ministry granted Air Canada, the country's biggest airline, a seven-year extension of an agreement that allows it to limit its special payments to its pension fund.

A spokesman for Flaherty, asked whether the ministry might offer Canada Post a similar extension, said he would not comment on the specifics of a particular pension plan.

The Canada Post Group of companies, which includes courier firm Purolator, has annual revenues of around C$7.5 billion and employs about 68,000 people.

The Canadian Union of Postal Workers said on Wednesday it wanted an open discussion about Canada Post's future.

"Even once we find a solution for the pension fund, we still need to work out how Canada Post's operations can remain self-sustaining in the long run," said union President Denis Lemelin.

($1=$1.05 Canadian) (Reporting by David Ljunggren; Editing by Peter Galloway)

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