BUSINESS

Turbulent skies

Canadian Airlines is at odds with its unions over a marketing deal

ANDREW WILLIS July 31 1995
BUSINESS

Turbulent skies

Canadian Airlines is at odds with its unions over a marketing deal

ANDREW WILLIS July 31 1995

Turbulent skies

Canadian Airlines is at odds with its unions over a marketing deal

At most companies, pinning the corporate logo on a sports centre would be seen for what it is: one part of any comprehensive marketing and promotion campaign. In recent years, General Motors of Canada Ltd. has hung its name on GM Place, home of the Vancouver Canucks hockey team, and Air Canada Centre is set as the future home of the Toronto Raptors basketball club. But last week, when Canadian Airlines Corp. pledged to spend about $20 million (the company will not confirm exactly how much) for a 20-year deal that will turn Calgary’s Olympic Saddledome into the Canadian Airlines Saddledome, the announcement inflamed some of its 12,000 unionized employees. After all, they declared, the cash-strapped airline is in the midst of negotiations aimed at wringing $125 million in salary concessions and productivity improvements from them. “Our members were extremely disappointed—they felt this was very inappropriate,” said Tim Eaton, Vancouverbased spokesman for the 7,000-member International Association of Machinists and Aerospace Workers. “The company has some short-term problems, and we would suggest this is not the proper time for such a move.” For its part, Canadian Airlines defends the Saddledome deal as another way of promoting the airline using its existing marketing budget; the company spends over $700 million annually on marketing, sales and passenger services. Furthermore, Canadian’s chief executive officer, Kevin Jenkins, 38, is the first to acknowledge that his company faces significant problems. At the top of the list, he says, is the challenge of transforming a company with 1960s-style collective agreements with six disparate unions into an airline that can compete in the global deregulated business environment of the 1990s. Jenkins says the time for change is now: despite a $200-million

investment by employees in 1993 and a $246million capital infusion from AMR Corp. of Fort Worth, Tex., in 1994, Calgary-based Canadian lost $38 million last year on revenues of almost $3 billion. Over the past five years, the company has lost a staggering $1 billion, the result of the recession and an extended price-cutting battle with Air Canada.

But getting a new regime off the ground is proving difficult. In May, Canadian initiated voluntary talks with some unions aimed at reducing the company’s fixed costs. But at least one of the six unions, the flight attendants, refuses to even get involved in the process before its contract— and that of the other unionized employees—expires at the end of the year. The flight attendants are represented by the Ottawa-based Canadian Union of Public Employees, and a spokesman says the workers made concessions in 1993 to get the contract that expires in January, and will wait for that to expire before breaking new ground.

Canadian Airlines went to the wall in 1993, when a cash squeeze led to a painful restructuring and a brush with bankruptcy. At that time, workers volunteered wage and benefit concessions valued at $200 million over four years to save the company—and their jobs. In exchange, they acquired a 25-per-cent stake in Canadian and two seats on the board of directors. Those concessions, in turn, paved the way for the investment of AMR Corp.—parent of American Airlines Inc.—in exchange for a 33.3-percent stake in Canadian.

But despite such strong measures, the air-

line still faces a turbulent future. A joint letter from management and union leaders was sent to all Canadian employees in May. It set out two clear scenarios for the airline: Plan A, which called for growth in several markets, no layoffs, but $125 million in voluntary operating cost cuts; and Plan B, which outlined the potential for layoffs resulting from cuts to Canadian’s domestic operations and its aircraft fleet. The letter stated: “The airline cannot afford to continue with its current cash flow and survive.”

To keep Canadian aloft, Jenkins must now bring down the cost of carrying its passengers, currently about 13 cents per available seat per mile. His goal is to pare operating expenses (wages account for nearly 30 per cent of Canadian’s overhead) to compete with those of its Montreal-based rival, Air Canada—at 10.5 cents per mile— and seven cents per mile incurred by such upstart charter airlines as Canada 3000 Airlines Ltd. of Toronto.

To bring Canadian’s operating costs down to earth, however, Jenkins must win the co-operation of its workers. Many appear to feel that they have already made a sufficient sacrifice. Among them is John Dunlop, chairman of the Canadian Airlines section of the Canadian Air Line Pilots Association, and a key supporter of the 1993 employee investment program. Last week, Dunlop said: “I dispute that you can realize all the needed savings by changing workplace rules. Our workforce compares favorably with other North American airlines—we operate at 86 per cent of the cost of the average airline.”

But for many employees, Canadian’s pricey sponsorship of the Saddledome has reopened old wounds. Says Jim Busby, president of the Winnipeg chapter of Canadian’s machinists’ union: ‘When &; finances are tight, you wonder i if this is the best way to spend § money.” But, he added, “the I Saddledome is easier to swalI low than the bonuses and the I shares given to executives last I year. That really hurt.” In‘fact, while employees were trading their wages for shares purchased at 80 cents each, Jenkins received three million shares at 60 cents each and three other senior executives split a total of $450,000 in bonuses. Says Busby: “The bonuses are in the back of everyone’s mind. The only deal will be one where we all sacrifice.” With these sentiments in the air, it may take more than a new name on a Calgary hockey arena to put Canadian Airlines on a flight path to sustainable financial stability.

ANDREW WILLIS