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Labour + Industry

Accusations Mount over Aveos Crash Ousting 2,600 Workers

Air Canada's latest move against bankrupt spin-off further enrages unions.

Tom Sandborn 4 May

Tom Sandborn reports on labour and health policy issues for The Tyee. He welcomes your feedback and story tips here.

Last week a crowd of angry workers joined insurgent college students in a boisterous demonstration in Montreal's streets.

What brought them together?

Anger at a chain of corporate actions that ended in a bankruptcy, tossing those protesting workers onto the street without jobs.

The former employees of Aveos Fleet Perfomance, members of the International Association of Machinists and Aerospace Workers, joined student activists in denouncing ACE Aviation, a holding company that formerly owned Air Canada, for its decision to wind down operations while distributing up to $300 million to shareholders. The decision was made at a meeting closed to the press.

While ACE is wound down, Air Canada will continue to operate. However, the spun-off and privatized Aveos, which began its life as Air Canada's in-house plane maintenance unit when the airline was founded in 1937, abruptly filed for bankruptcy in March, putting over 2,600 workers in Vancouver, Winnipeg, Montreal and Mississauga out of work.

Over 350 of those who lost their jobs were B.C. residents.

Machinists union leader Maxime Dolci denounced the government and a succession of Air Canada leaders for the closure, according to the CBC.

"They are responsible for the nightmare we are living right now," said the former Aveos employee.

Air Canada blames Aveos management for the company's failure, citing what they view as productivity deficits and a failure to secure enough additional contract work from customers other than Air Canada. Aveos spokespeople, on the other hand, claim that Air Canada overcharged them for hanger rental and denied them the contracts they needed to remain solvent.

The acrimony among those who lost their jobs has only heightened since the loud protest in Montreal on April 25.

On May 2, Air Canada filed a request with the Quebec Superior Court asking to cancel all its existing contracts with its now bankrupt maintenance contractor, Aveos Fleet Performance Inc.

The move has been sharply criticized by a spokesman for the International Association of Machinists and Aerospace Workers, who says that if the contracts are cancelled, it will make it much more difficult for Aveos to be sold as one business and to save the jobs lost by 2,600 of his members when Aveos sought creditor protection last month.

Air Canada had promised a Parliamentary committee it would help find new investors for a new company that would provide jobs to Aveos workers, noted Dave Ritchie, the union's general vice president. "That's not the way to go about it," he said of Air Canada's latest court filing.

Closure deals a 'body blow': union president

Critics from trade unions and opposition parties suggest the shut down is just the latest in a long-running drama designed to break the power of the unions that had won contracts from Air Canada, and drain the resources of the companies created after the national air carrier was privatized. They allege the changes in Air Canada/ACE/Aveos structures were intended to flow big profits from those firms into the hands of private investors.

Speaking to a Parliamentary committee on April 3, Chuck Atkinson, president of the machinists local in Mississauga said the closure is "the result of a series of government policies and Air Canada actions that have undermined the Canadian aircraft maintenance industry.

"The Aveos closure," he went on to say, "is more than the loss of over 2,600 high-skilled jobs, thousands of spinoff jobs, and many millions of dollars of lost income and tax revenue. It has serious effects on the cities of Montreal, Winnipeg, and Vancouver in these difficult economic times. The Aveos closure deals a body blow to this economically important sector.

"From the time that Air Canada exited from creditor protection in 2004, Air Canada management proceeded systematically to dismantle the corporation, selling off assets and sucking over $2 billion out of the company, rewarding themselves handsomely while financially weakening the airline."

Ontario NDP MP Mike Sullivan told the same committee meeting that "the answer, clearly, appears to be that Air Canada has done everything it can to shed expensive labour."

Liberal MP Denis Coderre told the Machinist officers who testified: "The Conservatives say that they really do care. They say that they care about the fact that you have lost your jobs. The problem is that they are not only killing an industry, but they are also completely disregarding the spirit of the law. The problem is Air Canada. Aveos screwed you, but the problem is still Air Canada."

What grounded Aveos?

As of last September, Aveos's liabilities exceeded the book value of its assets by more than $165 million, and its 2011 Q4 financials showed a net loss (before tax) of $48.9 million, according to court documents filed on March 18 with the commercial division of Quebec's Superior Court.

Consequently, the documents say, Aveos moved to lay off its employees by March 19.

In a March 23 letter to employees, Air Canada CEO Calin Rovinescu explained his version of the reasons for the closure. It reads, in part:

"Aveos' closure and the abrupt and irresponsible manner in which their employees were treated is not only regrettable, it is reprehensible -- especially as most of the senior leadership of Aveos left Canada before the bankruptcy filing rather than face their employees. But, as to what Air Canada could or should have done, I need to be crystal clear -- Air Canada did as much as it could to assist Aveos."

Related Document

In its March 18 CCAA filing, Aveos stated it had experienced "uncertain work volume" across its business lines from its principal customer, Air Canada.

"Since the beginning of 2012, Air Canada has reduced, deferred and cancelled maintenance work with Aveos, which has resulted in $16 million lost revenue in less than two calendar months. While Aveos remained ready, willing and able to perform such work, the loss of such work has been devastating to Aveos' financial position."

Union leaders have their own version of events, and some groups are taking action to protect laid-off workers.

Christopher Hiscock, an Air Canada employee who serves as president of the Machinists local lodge 764 representing laid-off Aveos employees in B.C. says his members are victims of an elaborate game of corporate "Three-card Monte."

"We have fought this all along. Now with the Aveos shut down we are losing an industry and thousands of good, skilled, family-supporting jobs," Hiscock said. "Our members are being used as chips in a game of high stakes poker."

"This sitution is straight out of the corporate playbook for destroying good-paying Canadian jobs," Jim Sinclair, president of the BC Federation of Labour told The Tyee. "They've made decisions over the years to divide up Air Canada and sell off the pieces, and now this. Air Canada should take over again and do its own maintenance with the existing highly-skilled workers who just lost their Aveos jobs."

The province of Quebec has launched legal action against Air Canada, and mayors of cities hurt by the Aveos shut down called for federal action to bring Aveos and Air Canada together to resolve the crisis. As well, the B.C. Legislature passed a unanimous resolution insisting that B.C. Aveos workers be protected from job loss together with the company's other workers.

BC gov't calls for worker protection

Responding to the shut down, B.C.'s Jobs, Tourism and Innovation Minister Pat Bell sent two letters to his federal counterpart, Minister of Transport Denis Lebel, urging the federal government to bring Aveos's B.C. workers under the protection of the Air Canada Public Participation Act. The act was created in 1988 and required the airline to maintain heavy maintenance operations jobs in Canada, specifically in Montreal, Mississauga and Winnipeg.

Because Air Canada later acquired maintenance facilities in B.C. when it merged with Canadian Airlines in 2001, the union representing Aveos workers has argued that the protection of the act should extend to the company's Richmond facilities as well as those explicitly named in the Legislation.

Both Air Canada and a federal government legal opinion hold that the firm's obligations under the act are met by its existing in-house plane repair employees and that it has no responsibility for the workers (all formerly Air Canada employees) who lost their jobs in the Aveos shut down.

Minister Bell declined an interview for this story, but his letters to Minister Lebel can be found to the right of this page.

One dated April 24 reads in part: "I understand that the Quebec government is pursuing legal action against Air Canada under the Air Canada Public Participation Act. While the Greater Vancouver facility is not specifically referenced in the Act, it is the view of the Province that B.C.'s workers deserve the same protection offered to their colleagues in Winnipeg, Montreal and Mississauga.

"I believe that the spirit and intent of the Act was to prevent the outsourcing of Canadian jobs and to protect workers in the aviation industry. The federal government has an obligation to defend these Canadian jobs -- including the affected workers in British Columbia."

Several sources told The Tyee that Minister Lebel did not respond to repeated contact attempts from the government of B.C. On April 19, The Tyee emailed a request for an interview with the minister, including questions about what contact, if any, he had with the B.C. government since its all-party resolution called for action to protect the B.C. workers who had lost Aveos jobs.

Minister Lebel declined interview for this story and did not respond to questions about contact with B.C., though a press aide provided this statement.

"This is devastating for the workers who have lost their jobs. Minister Lebel is pleased that Air Canada is committed to keeping the jobs here and Air Canada confirmed that they are in contact with foreign companies to do business in Canada. According to the legal advice that Minister Lebel received, Air Canada is in compliance with the Act. This is a private sector issue between two companies, so we are not considering a bailout."

BC NDP Leader Adrian Dix told The Tyee he believes that Minister Bell is genuinely working on a solution for B.C.'s Aveos workers, citing the all-party support in the Legislative Assembly resolution on Aveos.

"We need B.C. to speak with one voice on this," Dix said, "and our voice has to be heard."

ACE a 'shell game': analyst

In a major feature article in the April 20 Financial Post, Raymond James analyst Ben Cherniavsky said he believes Air Canada and its various subsidiaries would have been better off if they were not spun out from the airline under ACE Aviation.

"From a financial re-engineering perspective, they accomplished a great deal," Cherniavksy is quoted as saying in the article. "From a business restructuring perspective, they accomplished very little, if anything."

Cherniavsky described the ACE Aviation experiment as a "shell game." He told the Post that the creation of ACE not only created entities that had few opportunities, like Chorus Aviation Inc., Air Canada's regional affiliate, and Aveos, but it also saddled Air Canada with uncompetitive long-term contracts with those subsidiaries that boosted their value when they were spun off as stand-alone entities.

"With the end in sight, serious questions remain about what will be the lasting legacy of the bold experiment that was ACE Aviation," wrote the reporter of the Post feature story, Scott Deveau. "Some say it was the right thing to do to secure and reward needed financing. Others liken it to a wholesale ransacking of one of Canada’s most important companies. The holding company did manage to unlock and distribute more than $5-billion to its shareholders, including its former creditors, in the form of special distributions, share buybacks, and other financial mechanisms over the years."

As Maclean's magazine observes in a recent feature article on the Aveos debacle: "Union leaders have also accused the management of ACE Aviation, Air Canada's holding company, of stripping the airline of profitable sub-businesses in a bid to generate big returns for its private equity investors -- namely New York's Cerberus Capital Management. That includes the 2005 spinoff of loyalty program Aeroplan as an income trust, which generated $250 million in exchange for a 12.5 per cent stake. By contrast, Air Canada's current market cap is just $241 million."

On April 26, Machinists Western Region general chairperson Fred Hospes said his union was in talks with investors who might want to acquire Aveos and keep the work in Canada. Hospes emphasized that his union believes it will have "successorship" status at any company resulting from such a purchase, meaning that current collective agreements with Aveos will apply to employment with a new owner.

Exit plan

ACE Aviation has served as a holding company for Air Canada, the ACTS Unlimited Partnership (formerly Air Canada's in-house maintenance arm and later, after several more shuffles of corporate identity, the Aveos firm that shut down last month), Aeroplan, and the low-cost carrier Jazz since 2004.

As Air Canada CEO Rovinescu told a Parliamentary committee on March 29, after a court-approved restructuring in 2004, Air Canada became "a wholly owned subsidiary of ACE Aviation Holdings, as several of the former Air Canada constituent parts were reorganized as separate business units."

"This reorganization, mandated by investors who financed the restructuring and approved by the more than $8 billion of creditors' claims, was supported by the affected labour groups and employees who ratified the new arrangements through a very public court process," he said.

Air Canada and Aveos were legally separated last year, making Aveos the employer of record for thousands of plane maintenance workers who had previously worked for Air Canada. That arrangement ended with the decision to kill ACE. The wind down includes another distribution of funds to its investors, Air Canada continues as an independent company, and its former subsidiaries are left to their various fates.

Aeroplan and the low-cost carrier Jazz (now operating under a holding company called Chorus Aviation) seem to be doing relatively well.

As noted by the Financial Post, the process of spin off and privatization culminating in Aveos's final separation from Air Canada last year has been unquestionably successful in creating cash flow for investors, who have seen over $5 billion in disbursements since 2004. It's also meant success for top management figures like current CEO Rovinescu, who received over $4.5 million in compensation in 2010 and a "one time retention payment" of $5 million in 2012.

"Less than a year ago, Aveos employees were all employees of Air Canada, many with more than 30 years experience," writes BCFED president Jim Sinclair in The Federationist. "Air Canada only completed the contracting out [of] its maintenance operations to Aveos in July 2011. Workers had the untenable choice of leaving Vancouver, leaving their jobs, or taking a position with Aveos.

"With families rooted in this community, and guarantees from Air Canada and Aveos that the company was viable, few of the workers had any choice but to take the equivalent post with Aveos directly, performing the same work, in the same planes, in the same shop. They were told they had no reason to worry.

"It turns out, they had much to worry about. On March 18, they arrived at work to find the doors locked if they weren't phoned and told to stay home."

The Tyee's request for an interview with Prime Minister Stephen Harper's office about the Aveos shut down was not granted.  [Tyee]

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