Air Canada labor fight spills over onto fliers

Air Canada planes sit on the tarmac as many baggage handlers walked off the job at Pierre Trudeau airport Friday, March 23, 2012, in Montreal. A wildcat strike by Air Canada ground workers that started in Toronto and spread to other airports ended Friday, several hours after Canada's largest airline was forced to cancel more than two dozen flights. (AP Photo/The Canadian Press, Ryan Remiorz)
Ryan Remiorz | AP
Air Canada planes sit on the tarmac as many baggage handlers walked off the job at Pierre Trudeau airport Friday, March 23, 2012, in Montreal. A wildcat strike by Air Canada ground workers that started in Toronto and spread to other airports ended Friday, several hours after Canada's largest airline was forced to cancel more than two dozen flights. (AP Photo/The Canadian Press, Ryan Remiorz)
Posted March 27, 2012, at 8:54 a.m.
Last modified March 28, 2012, at 4:32 p.m.

MONTREAL — Air Canada’s customers are becoming collateral damage in a labor standoff between the country’s largest carrier and its biggest unions.

Even after the federal government rushed to Air Canada’s aid with a back-to-work bill, passengers still faced flight cancellations as ground-crew employees staged wildcat strikes on Friday. That was five days after so many pilots called in sick that the airline had to trim its schedule.

The disruptions showed how the bargaining struggle over new union contracts is spilling into operations. Standard & Poor’s Ratings Service said in a statement following the pre-weekend walkout that Air Canada’s debt ratings may be cut and raised the prospect that the labor disputes might erode bookings in the busy summer travel season.

“The long-term viability of the company is in question,” said George Smith, a director of employee relations at the airline from 1982 to 1992 who now teaches labor relations at Queen’s University in Kingston, Ontario. “You’re getting to a tipping point where people will be so uncertain about what they can expect that they may seek alternative means of travel.”

More than 80 flights were canceled during the ground-crew members’ impromptu walkout Friday, which coincided with the start of spring break in Alberta, Canada’s largest oil-producing province. A government arbitrator ordered an end to the strike.

“We recognize that many customers are being inconvenienced and our focus right now is on getting them to their destination safely, and as quickly as we can,” Chief Operating Officer Duncan Dee said.

Operations questions dogged Air Canada throughout last week, as the Montreal-based airline sought government aid to end what it called an illegal sickout by pilots on March 18, which the union denied, and endured the shutdown the next day of heavy-maintenance provider Aveos Fleet Performance.

Aveos was spun off from Air Canada after the airline sought creditor protection in 2004, and unions want the carrier to take back the 2,600 workers who lost their jobs when the repair operator filed for insolvency on March 19. Air Canada said it has no intention of buying Aveos or rehiring the employees.

The week was “probably the worst for Air Canada since they filed in 2004,” said Karl Moore, a professor of business strategy at Montreal’s McGill University who specializes in the airline industry. “They are going to take a short-term hit for this. Obviously there will be some labor problems for a while.”

Liquidity may deteriorate because of the labor strife and the possibility of having to pay as much as a year’s severance to 1,500 Aveos workers, two S&P analysts said in putting the airline on CreditWatch with negative implications. Air Canada’s current S&P rating is B-, six grades below investment level.

Labor’s demands for improved contracts are colliding with a jump in jet-fuel prices of more than 50 percent in the past two years. While most North American carriers have managed to return to profit as fuel prices rebound, Air Canada has posted annual losses starting in 2008.

“The problem for the unions is that they can’t roll back the clock,” said Moore, the McGill professor. “With fuel prices where they are now the airline industry is in tough shape, and there’s not a lot of pie to share.”

With assistance from Colin McClelland in Toronto.

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