Air Canada - Organizational Changes

Company Overview

Air Canada was established by Canadian parliament on April 10, 1937. The company was initially incorporated under the Trans-Canada Air Lines Act, as Canada’s national airline service. At the time of incorporation, Air Canada was established as a wholly-owned subsidiary of the Canadian National Railway Corporation.(AIF) In 1977, Air Canada reorganized under the Air Canada Act, at which time it became property of the Canadian government. In 1988, Air Canada was reorganized under the Canada Business Corporations Act, and shares were sold to the public. On April 1, 2003, Air Canada filed for creditor protection and on September 30 2004, ACE Aviation Holdings Inc. became successor and parent holding company of the reorganized Air Canada and its subsidiaries. Various Air Canada subsidiaries include Aeroplan, Air Canada Jazz, Air Canada Technical Services, and Air Canada Cargo. Finally, Air Canada “is Canada’s largest domestic and international provider of scheduled passenger services in the domestic market”.(AIF)

At the end of 2004, Air Canada employed 33, 124 employees worldwide. Air Canada operates within a unique lexicon of human resource relationships; the company employs workers from ten different unions, some of which include Canadian Auto Workers (CAW), Canadian Union of Public Employees (CUPE), International Association of Machinists and Aerospace Workers (ACPA), and Air Canada Pilots Association (ACPA). Historically, the relationship between employees, their respective unions, and Air Canada top management has been characterized by considerable animosity. These antagonistic relations had a direct impact upon the nature and outcome of organizational change at Air Canada.

Three Influential Parties

It is important to note that during the restructuring process, Air Canada’s top management found itself trying to appease the demands of two contrasting bodies: the employees, represented by their respective unions, each with distinct needs and perspectives, and a myriad of prospective investors. Employee objectives centered around the preservation of salary and benefits, as well as continued job security. The investors, who were of crucial importance in Air Canada’s quest to obtain equity financing (especially in light of the government’s unwillingness to contribute) included companies like Deutsche Bank AG, and Cerberus Capital Management LP. The objectives of the investors were company-wide cost reduction, specifically in the area of labour expenses. As such, investors and employees, two groups whose participation was impertinent in the restructuring process, possessed contrasting and often mutually exclusive objectives. The aforementioned situation made for a delicate context of management decision making.

Robert Milton

Robert Milton became President and CEO of Air Canada in August 1999. He has led the company through many considerable challenges, including the bursting of the high technology bubble, the aftermath of the September 11th terrorist attacks, the SARS epidemic, and the company’s restructuring process.

Before taking the helm at Air Canada, Milton was a founding partner in Air Eagle Holdings Inc., and an independent commercial aviation consultant to British Aerospace. In his book entitled “Straight from the Top: The Truth About Air Canada”, Robert Milton speaks of his perpetual childhood answer to the frequent question, вЂ?What do you want to be when you grow up?’ His answer, according to his book, was “I wanted to run an airline. Not to be a cowboy or a fireman. Not an astronaut or an athlete. Not even a pilot or a navigator. It was the idea of running an airline that appealed to me-choosing the aircraft, selecting the destinations, scheduling the flights, and overseeing the operation.” (www.douglas-mcintyre.com) This is one of the strengths Robert Milton brings to the table as a leader: his genuine passion for what he does, and the вЂ?product’ he sells.

Purpose of Report

The purpose of this report is to analyze the changes that took place between 2002 and 2004 at Air Canada. The scope of analysis includes all matters pertaining to the restructuring of the company, and the subsequent downsizing of employees. Special attention will be given to the actions of Robert Milton, and to William Bridges’ three stages of transition.

Description of the Organizational Change

Declaration of Bankruptcy and Corporate Restructuring Plan

On April 1, 2003, (as was previously alluded to), Air Canada obtained an initial order from the Ontario Superior Court of Justice, providing creditor protection under the Companies Creditors Arrangement Act. (CCAA) This initial order was amended on various occasions throughout the court proceedings, based on motions from Air Canada, its creditors, and other stakeholders. The court order afforded Air Canada a �stay’ on proceedings, which meant that the company received temporary immunity from its creditors. (AIF). As part of its restructuring program, Air Canada reduced its operating costs to a competitive level through the re-negotiation of labour agreements, aircraft leases and various other commercial agreements. The company also underwent a complete restructuring of debt and lease obligations, redefinition of Air Canada core product offerings, and a reorganization of corporate structure. (www.aircanada.ca)

Effects on Employees

Air Canada underwent a complete restructuring and downsizing of its labour force. The company negotiated new long-term collective agreements with each of its ten unions, all of which allowed for the elimination of unconditional employment security conditions, permanent pay reductions (for 7 of the 10 unions), and various modifications to work rules. The following are short descriptions of the agreements reached by various unions:

CUPE agreed to $51.6 million worth of pay and benefits cuts, including a 10% pay cut over

two years. (Toronto Star, 2004.) Canadian Auto Workers agreed to $45.3 million in cuts, and the Air Canada Pilots Association $38.5 million. The International Association of Machinists and Aerospace Workers, which is Air Canada's largest union and represents 11,500 mechanics, baggage handlers and clerks, surrendered $36.5 million. As part of its deal, the machinists agreed to wage cuts of as