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TORONTO, Jan 22 (Reuters) - 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.