by James Careless
Aveos, Air Canada’s primary MRO, declared bankruptcy on March 19, 2012. But just because Canada’s largest MRO has closed its doors, does not mean Air Canada can now transfer its maintenance work to lower-cost offshore MROs.
“Air Canada really needs to get their costs down,” said David Tyerman, managing director, Transportation and Industrial Products, with Canaccord Genuity. Based in Toronto, Canaccord Genuity is a global investment bank, and Air Canada is part of Tyerman’s beat. “However, their options for doing so may be limited,” he explained. “The reason is political. Aveos’ closing put 2,600 skilled technicians out of work, at a time when well-paying jobs are hard to find in Canada. This might be why Air Canada can’t just send their maintenance jobs out of country, even though they need to save money. The politics may prevent it.”
It’s not just current politics that are limiting Air Canada’s options. When the Canadian federal government sold this flag carrier back in 1988, the government did so by passing the ‘Air Canada Public Participation Act’. In order to satisfy a Canadian public leery of losing jobs, the privately-owned Air Canada was required to continue doing its MRO work in Canada.
The subsequent spinning-off of the flag carrier’s Air Canada Technical Services (ACTS) maintenance division into the separately-owned MRO Aveos (a.k.a. Aveos Fleet Performance) in 2004 didn’t change things. In fact, Aveos’ financial viability was founded in the Air Canada Public Participation Act, because Air Canada was by far Aveo’s biggest customer.
Unfortunately, Aveos got into trouble this year when Air Canada “reduced, deferred, and cancelled maintenance work, which resulted in approximately $16 million in lost revenue in less than two months,” said the March 20, 2012 Aveos news release that confirmed its bankruptcy. “While Aveos remained ready, willing and able to perform such work, such work did not materialize. This was a devastating blow to Aveos.”
Is Air Canada compelled to keep purchasing MRO services in Canada, now that Aveos is defunct? “The law is the law,” replied Canadian Federal Transport Minister Denis Lebel during a conference call with reporters. “The Air Canada Public Participation Act requires Air Canada to maintain operational and overhaul centers in Montreal, Mississauga [Toronto] and Winnipeg.” (Source: Reuters)
Actually, Air Canada still employs 2,300 workers who do day-to-day maintenance at the airline’s own facilities across Canada; including Montreal, Winnipeg, Vancouver and Toronto. As a result, Air Canada has said that it is not in violation of the Air Canada Public Participation Act. So has Air Canada violated the Act by allowing Aveos to fail? That’s for the lawyers to decide. According to Reuters, Lebel told reporters that, “We are examining the advice we receive, but for now, nobody is saying that.”
While this issue is being examined by lawyers, Air Canada still has aircraft to maintain. In the interim, “the airline has identified qualified and government-approved maintenance facilities in Canada and the U.S. to undertake work that was scheduled to be performed by Aveos consistent with the high standards of Air Canada’s maintenance programs,” says a statement posted on www.aircanada.ca.
As for the long-term? “Given the insolvency and unexpected closure of Aveos, we encourage MRO companies from across Canada and around the world to conduct due diligence and assess which of the former Aveos businesses may be viable in Canada under new ownership,” said Alan Butterfield, vice president, Maintenance and Engineering in the same Air Canada statement.
Applicants take note: “Air Canada has a strong preference for working with a Global MRO which has an interest and ability to provide component, repair and overhaul services in Canada, with particular emphasis given to Montreal, Winnipeg, Vancouver and Toronto,” Butterfield is quoted as saying. “There exists a pool of well-trained, qualified and talented people available in these cities. Air Canada will favor MROs with globally competitive cost structures that have or will establish some portion of their operation in one or more of these cities employing the skills of Canadian aviation technicians.”
Despite taking this politically-smart position, keeping safely within the rules of the Air Canada Public Participation Act, Air Canada still wants to save money. This point is made perfectly clear in the last line of Butterfield’s quotation: “The company expects to work collaboratively with governments and other stakeholders towards viable long-term arrangements that are cost competitive.”
“We really don’t know what Air Canada’s management is thinking; whether they are sincere in their desire to keep MRO work in Canada, or whether they need to keep the business in Canada for political reasons,” mused Canaccord Genuity’s David Tyerman. “But one thing is clear: Air Canada’s eye is on the bottom line. If it can find a way to cut MRO costs while mollifying Canadian governments – both federal and provincial – it will.”