Few certainties attached to Air Canada regional jet plans

 - February 2, 2007, 7:23 AM

In a scenario all too familiar since the advent of the regional jet age, the pilots of Air Canada and its regional airline subsidiary, Air Canada Jazz, could hold the key to the insolvent company’s plans to field at least 90 new jets from Bombardier and Embraer. A pair of MOUs for 15 Bombardier CRJ200s, 30 CRJ700s and 45 Embraer 190s signed in late December remains subject to Air Canada’s ability to attract $4 billion in new investment upon emerging from bankruptcy protection. But the largest potential investor, Hong Kong-based businessman Victor Li, has made his proposed $650 million contribution contingent on the company’s ability to resolve a conflict between Air Canada pilots and those flying for Air Canada Jazz over who controls the right to fly the new jets.

It all should have come as no surprise to Air Canada, which until it formed Air Canada Jazz from the remnants of its four wholly owned regional subsidiaries assigned any newly acquired 50-seat CRJs to the mainline, avoiding the kind of conflict that has resulted in costly and time-consuming wrangling over RJ control at nearly every major airline in the U.S. But as the airline fell deeper and deeper into debt, Air Canada could no longer ignore the cost benefits of the U.S. model and created Jazz in part to deploy regional jets more cheaply and efficiently. Jazz now flies 10 CRJ200s and 10 BAE 146s in accordance with a deal forged between Air Canada and its mainline pilots that, according to the Air Canada Pilots Association, restricts Jazz from flying any more regional jets certified to carry 50 seats or more.

However, a cost-cutting deal ratified last June by a majority of Air Canada Jazz’s 1,400 pilots–represented by the Air Line Pilots Association–promised the regional pilots the rights to airplanes certified with 75 seats or fewer. They also thought they won the right to bid against the mainline pilots for aircraft holding up to 110 seats, a scenario that would almost certainly favor the deployment of the Embraer 190s at Air Canada Jazz. As expected, the Air Canada pilots called the deal “unacceptable,” and on June 1 forged  concessionary contract of their own that placed much more severe limitations on RJ use at Jazz.

The sides agreed to the tentative contract just in time to avert a court-ordered liquidation of the bankrupt national carrier, perhaps explaining the company’s willingness to issue promises on which it knew it couldn’t deliver. For their part, Air Canada’s pilots accepted a 15-percent wage cut and less restrictive work rules. “Our collective agreement stipulates that Air Canada pilots fly the 50-seat jets, except for the 20 small jets that are flown by Air Canada Jazz,” said ACPA president Don Johnson. “However, last spring Air Canada Jazz made promises to its pilots that conflict with our agreement–promises that breach our contract and set the stage for confusion and conflict.”

How the company expects to resolve the conundrum remains a mystery, but the pilots themselves planned to open dialogue at a January 17 arbitration hearing involving ALPA and ACPA officials. Talks between the sides over the summer failed to result in an agreement.

The ACPA also questioned Air Canada’s choice of the Embraer 190 over the Airbus A318 for its 90- to 100-seat requirement, given the airline flies Airbus A320-family jets. “We are somewhat surprised at their choice of aircraft,” said Johnson. “Adding a whole new type into the fleet adds complexity to the operation, and triggers additional startup, training and infrastructure costs.”

Of course, if the ACPA suspects that Air Canada wants to place the 190s with Jazz, the commonality argument smacks of pure rhetoric. Furthermore, even if the 93-seat jets end up with the mainline, circumstantial evidence in the form of a 100-airplane Embraer 190 order from highly regarded Airbus operator JetBlue would seem to validate assertions that the 190 and the A318 occupy sufficiently distinct cost, size and flight-profile categories to justify a mixed fleet.

ALPA, as one might expect, has applauded the move. Air Canada Jazz pilot representatives have for months lobbied the airline to commit to more small jets as part of its restructuring plan “to ensure Air Canada’s continued success in the increasingly competitive North American market with the ultimate objective of maximizing shareholder value and economic return for all stakeholders.” ALPA estimates that the company would save more than $100 million a year if it assigns all the new jets to Air Canada Jazz.

If confirmed, the firm orders would be worth $1.3 billion to Bombardier and $1.5 billion to Embraer. Options, if exercised, could raise the value of the orders to $2.7 billion each. GE Capital Aviation Services has agreed in principle to lease-finance 43 of the airplanes, contingent upon the airline’s successful restructuring. Deliveries of CRJ200s would begin during this year’s third quarter, while CRJ700 and Embraer 190 deliveries would start in the second and fourth quarters of next year, respectively.