About Air Canada’s Aircraft Maintenance OperationsRevised: March 28, 2012
- On March 20, Aveos, a private company that performed certain aircraft maintenance activities on behalf of Air Canada since October 2004, announced that it would proceed with liquidation after ceasing operations two days earlier.
- Aveos is a totally separate company from Air Canada.
- Air Canada’s day-to-day aircraft maintenance and repair activities continue to be performed directly by Air Canada, at the airline’s own facilities by Air Canada’s 2,300 maintenance employees.
- The closure of Aveos’s facilities will not have an impact on Air Canada’s scheduled operation.
- Air Canada has activated a contingency plan for the portion of maintenance work previously done by Aveos. This work has already begun with other qualified and government approved maintenance facilities in full compliance with all regulatory requirements and consistent with the high standards of Air Canada’s maintenance programs.
- Safety is Air Canada’s highest priority and the safety of Air Canada’s fleet will not be compromised by this development. The airline will continue to uphold the highest standards for passenger safety.
Air Canada Comments on Aveos Closure
Air Canada believes that Aveos has failed to act in the interests of its employees, customers and other stakeholders by abruptly abandoning its business while other viable options to closure were available. Management at Aveos failed repeatedly to attract new business to expand and diversify its revenue stream. By its own admission in court filings, the company was not cost competitive and suffered operating losses for several years.
Aveos claims that Air Canada withheld or directed elsewhere maintenance work it should have properly received. Since the beginning of 2011, Air Canada undertook 135 airframe checks and Aveos performed 123, or 91 per cent of them. As well, Aveos performed 52 of 56, or 93 per cent, of engine checks performed for Air Canada. Work was sent to third parties only when Aveos was unable to perform it and only in accordance with the terms of the commercial agreements between the parties and the applicable collective agreements.
Contrary to Aveos's court filings and public statements, Air Canada was very supportive of Aveos and provided financial and other assistance to the company. Among other things, Air Canada:
- Participated in the 2010 out-of-court restructuring through a $22 million term note, that among other things allowed Aveos to defer payments without interest penalty when its cash reserve fell below a prescribed level.
- Committed up to $50 million to reimburse Aveos for airframe operating losses as part of the 2010 restructuring.
- Paid or advanced approximately $9 million on March 15, 2012 in respect of various invoices including invoices in dispute.
- Offered Aveos on several occasions financing support to permit an orderly restructuring and allow it to remain in business, including most recently the $15 million DIP financing.
- In 2004, Air Canada, as part of a court-assisted restructuring, became a wholly-owned subsidiary of ACE Aviation Holdings (ACE) and the former Air Canada constituent parts were reorganized as separate business entities. This reorganization, mandated by the private equity investors who financed the restructuring, placed the Air Canada technical services division (referred to then as ACTS) into a separate entity owned and controlled by ACE. This resulted in dividing the maintenance division of Air Canada into two distinct entities. The airframe, engine and component maintenance operations (sometimes referred to as MRO) were taken over by ACTS and Air Canada retained the day-to-day aircraft maintenance and repair work (often referred to as line maintenance) as well as other maintenance functions, i.e. Ground Support Equipment.
- This corporate re-organization was part of the Plan of Arrangement to ensure Air Canada’s successful emergence from CCAA. Key to the success of this change included the support of the unions who voted in favour of the new arrangements. Air Canada received $2.2B for the sale of three of its divisions (Aeroplan, Jazz and ACTS) to ACE, including approximately $600M for the sale of ACTS.
- At that time, employees, based on eligibility and seniority, were able to bid on jobs in either Air Canada’s line maintenance operations or at ACTS
- At that time, Air Canada and ACTS had separate management; however, employees of both organizations were initially covered by the same collective agreement.
- Air Canada and ACTS negotiated contracts for services on the Air Canada Fleet to be performed in existing facilities in Canada
- ACTS would have the ability to seek new customers
- By 2007, ACE had sold ACTS to a group of external investors who were committed to maintain jobs in Canada while growing the overall scope of the business and become a larger, stronger entity. In 2008, the company changed its name to Aveos Fleet Performance Inc. Then, in 2010, Aveos needed to recapitalize with the end result that Air Canada acquired a 17.5% minor equity position.
- In January 2011, the Canada Industrial Board issued an order which created separate bargaining units, each with their own collective agreements at each of Air Canada and Aveos. As a result, a process commenced whereby employees that were part of the bargaining unit now split in two were allowed to bid on jobs at both companies in seniority order.
- In addition to participation in its 2010 recapitalization, Air Canada has been supportive of Aveos’s business and its management team, providing long-term maintenance contracts at rates which should have been expected to provide Aveos with financial stability as it worked on executing its new business model. Contracts between the two companies have a variety of expiry dates. The component and airframe maintenance contracts end in 2013 while the engine maintenance contract continues through to 2018.
- Air Canada continues to operate its own maintenance facilities in Montreal, Winnipeg, Toronto, Vancouver and elsewhere with its 2,300 maintenance employees.
- The airline Maintenance, Repair, Overhaul (MRO) industry has evolved to become highly globally competitive. Air Canada had hoped that Aveos would grow and capture additional market share while the airline served as its major customer. However, that did not materialize.
Aveos was formed out of the former technical services division of Air Canada in 2004 and many former Air Canada employees were employed there.
Air Canada had three main separate service contracts with Aveos for airframe, engine and component maintenance: component and airframe maintenance contracts until 2013 and an engine maintenance contract until 2018.
Of importance to note – as these contracts approached expiry, Aveos had been invited to submit proposals for renewal, so this should not be considered part of Aveos’s current financial circumstances.
The upshot is that Air Canada received $2.2 billion for its former subsidiaries (including $600M for the sale of its maintenance unit) This money was then used to help pay for 76 new aircraft -- 60 Embraer and 16 Boeing 777s and other investments in the company including the extensive cabin refurbishment as well as inflight entertainment systems now installed. Without these asset spin-offs Air Canada could not have renewed its fleet and would have been left in an untenable and uncompetitive position, coming out of its restructuring.
The transition process agreed to between Air Canada, Aveos and the IAMAW and sanctioned by the CIRB is for all intents and purposes completed. The process allowed for eligible employees to bid, on the basis of seniority, for positions at Air Canada and Aveos. The transition process provided employees with seven different options when choosing their employer as well as having dealt with pension matters for those employees transitioning to Aveos.