TORONTO Jan 22 Air Canada expects a
small pension surplus based on preliminary estimates, Canada's
largest carrier said on Wednesday, eliminating a C$3.7 billion
($3.37 billion) deficit at the same time a year ago.
The airline said the swing to a surplus for registered plans
as of Jan. 1, 2014, reflected in part a 13.8 percent return on
investments last year and savings from its pension benefit
changes. Those measures helped cut the deficit by about C$970
million, said the company, which also contributed C$225 million
to the solvency deficit last year.
Shares in Air Canada rose more 4 percent after the
announcement, to C$9.32 on the Toronto Stock Exchange.
Air Canada's pension surplus estimate is calculated using a
3.9 percent discount rate, versus a 3 percent rate last year.
Each 10 basis point change in that rate results in about a C$150
million change in solvency liabilities, the carrier said.
Discounts rates, which are used to assess a plan's solvency
and are based on long-term government bonds, help actuaries
judge how much assets will earn over time. The lower the
discount rate, the bigger the deficit.
Final pension plan valuations will be completed in the first
half of 2014.
Last March, Air Canada won a seven-year extension on the cap
on special payments to erase its large pension fund deficit.
Under the terms of that arrangement, Air Canada must pay a total
of C$1.4 billion over seven years, with a minimum of C$150
million a year.
The carrier said on Wednesday it could consider opting out
of that arrangement when it is confident it will not incur
another significant pension deficit in the future and when
annual solvency deficit payments are below C$200 million. It
does not expect to opt out in 2014.