Sunday, November 27, 2005

Air Canada Profits From Bankruptcy

ACE Air Canada's holding company has watched its share prices steadily increase since the airline declared bankruptcy last year. In fact the bankruptcy model of corporate restructuring is becoming all the rage both in the Amercian and Euro airline industries and now with GM and Delphi. What it means is using pensions and benefits and workers wage concessions as well as job losses to refinance the corporation. And while ACE has made profits for its shareholders it has been structured to isolate the company from paying any of those profits back to its workers in the form of wage increases. As a weekend special on Air Canada's boss Robert Milton in the Globe and Mail reports;

But making customers happy likely won't be nearly as hard as keeping employees contented. And therein lays Milton's biggest challenge. "I think he's done an awful lot of smart things at the airline, but I think he's based them on the premise of labour peace. I'm not at all convinced that's guaranteed," says Douglas Reid, a professor of strategy at Queen's University School of Business. "The unions do not see current compensation levels as adequate. They see them as an aberration."

As ACE begins racking up profits, the 26,500 employees at the mainline carrier will want their cut. Unfortunately for them, Reid points out, the holding company structure was specifically designed to isolate ACE's most profitable units (Aeroplan, Jazz and ACTS) from the less profitable mainline carrier. A profit-sharing program was put in place at the latter in exchange for union concessions during the restructuring. But if employees can't partake in the booty from ACE's other units, it may not be long before workers begin to balk. If they do, don't expect Milton to cave.

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