Air Canada says Aveos layoffs could cause flight delays

MONTREAL — Air Canada said Monday it could be forced to cancel flights and strand thousands of passengers if the maintenance company that obtained creditor protection Monday is unable to complete repairs to several planes.

MONTREAL — Air Canada said Monday it could be forced to cancel flights and strand thousands of passengers if the maintenance company that obtained creditor protection Monday is unable to complete repairs to several planes.

Despite saying earlier in the day it won’t be affected by the closure, the airline’s lawyers argued in vain Monday for a Quebec Superior Court judge to order Aveos Fleet Performance to not lay off more workers and meet its obligations to complete the repairs.

Three widebody planes and several narrowbody aircraft are sitting in Aveos facilities across the country, some missing landing gear.

Air Canada lawyer Louis Belanger said the next 24 to 48 hours will be crucial in determining if the aircraft repairs can be completed on schedule. He said nearly 3,000 passengers daily could be affected if the planes aren’t promptly returned to service.

Despite what it argued in court, Air Canada (TSX:AC.B) said in a news release that its fleet’s maintenance and repair activities are done in-house and won’t be affected by the plant closures.

“The airline’s line maintenance has always been performed directly by Air Canada, at the airline’s own facilities by Air Canada’s 2,300 maintenance employees,” the airline said in a statement.

“The airline typically performs its line maintenance activities overnight or between flights, as necessary.”

Montreal-based Aveos said it has permanently shut its airframe repair business. The move will affect about 1,800 of the company’s 2,600 employees.

The remaining employees repairing engines and components such as landing gear have not been let go but it wasn’t immediately clear when they will be called back to work.

Aveos said it will be able to restart operations if it can secure liquidity and develop a restructuring plan.

“This was an extremely difficult decision, one we made only after lengthy and careful consideration of all other options. We deeply regret the job losses and the impact this decision has on our employees in Canada,” stated Aveos CEO Joe Kolshak.

Justice Mark Schrager denied an Air Canada request that would have forced Aveos to maintain operations and employment to complete the contracted repairs.

“Accommodation, if there is any between Aveos and Air Canada, is going to be made in a boardroom, not a courtroom,” he said before granting creditor protection Monday.

The airline was forced to cancel several flights over the weekend because it said several pilots called in sick, there was heavy fog and a fire closed a runway at Toronto’s Pearson Airport.

The head of the pilots association denied it led a co-ordinated protest to have pilots book off sick. But Capt. Paul Strachan said the stress of the labour dispute has had a clear effect on some workers.

The Canadian Industrial Relations Board will determine the merits of Air Canada’s complaint that the pilots called in sick as a protest and that the action constituted an illegal strike after hearing from the two sides next week.

Aveos shut down three main plants in Vancouver, Winnipeg and Montreal, as well as other facilities in Edmonton, Calgary, Trenton and Mississauga, Ont. The International Association of Machinists and Aerospace Workers maintains Air Canada caused the problems at Aveos by sending its heavy aircraft maintenance business to other providers.

It said the layoff of Aveos workers is a violation of the Air Canada Public Participation Act and it wants the federal government to intervene and save their jobs.

“We want the federal government to intervene, otherwise a viable industry and its highly skilled workers will vanish forever,” said Dave Ritchie, Canadian General Vice President of the IAMAW.

The union contends the government and Canada Industrial Relations Board should have done more to ensure Aveos was financially viable before approving the transfer of workers from Air Canada.

Aveos argues Air Canada is responsible for $10 million in severance payments owed to laid off airframe workers.

Some of those employees protested outside an Air Canada office in Montreal on Monday morning, blocking access to the building near Pierre Elliott Trudeau International Airport.

A few kilometres away, another group of laid-off workers protested outside an Aveos building. A similar protest took place in Vancouver.

Union spokesman Marcel St-Jean said if Air Canada was still sending its planes to Aveos for maintenance, the company might not be in the position it is in right now.

St-Jean said that Air Canada called the company on Friday to say they weren’t sending anymore planes.

“We’ve been told by Aveos that Air Canada owes them more than $54 million and they are not paying their bills,” said St-Jean, president of the Montreal Local of the IAMAW.

In its court filing, Aveos said it has been hurt by “uncertain work volume” across all its business lines from its main customer Air Canada and high labour costs.

“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,” said the its court petition.

“While Aveos remained ready, willing and able to perform such work, the loss of such work has been devastating to Aveos’ financial position.”

Aveos said it was owed $60 million, mostly from Air Canada. As of January, its liabilities exceeded the book value of its assets by $165 million.

The company said it lost nearly $49 million before taxes in the fourth quarter and $9.5 million in the first nine months of last year.

Aveos was once Air Canada’s technical services division but was later spun off as a separate company.

Chris Murray of PI Financial said he doesn’t foresee any major impact to Air Canada’s finances in the near team because of the Aveos shutdown.

“Line maintenance is provided internally by Air Canada and therefore should not present any operational issues,” he wrote in a report.

Air Canada says it has a contingency plan involving other companies if Aveos is unable to ensure the work can be done. Air Canada is Aveos’ largest customer, providing about 90 per cent of its maintenance overhaul work. Its exclusive airframe contract expires in June 2013, while engine work is guaranteed until 2018.