By: Tomas Ronolski - AllPennyStocks.com News

Thursday, March 14, 2013

In the United States there was plenty of turmoil surrounding the many companies that received bailout funds from the government during the financial meltdown of the Great Recession a few years back. The concept of majors being Too Big To Fail and the potential spiraling effect on both industry and the economy was put in question for starters, but also raising eyebrows were the slew of executives receiving hefty bonuses and salaries while gobbling-up cash from the government to keep them afloat. Well, Air Canada (TSX:AC.B) got its own life preserver tossed to it on Tuesday from the Canadian government as the largest airline in the country is viewed as “too big to fail” itself, but not without some strings attached. The embattled airline, for as long as we can remember, is more than $4 billion in the hole related to its pension fund and seeking a $150 million per year cap on a deficit payment plan to get it caught up.

The government agreed to work with Air Canada, but said “no dice” to the cap it was seeking. In fact, Ottawa regulators made that amount the minimum level that the company can pay each year in addition to its normal payments to the fund. Per the pension relief plan, Air Canada must make payments totaling $1.4 billion over the next seven years, with a minimum annual payment of $150 million, starting in 2014.

As stated, the moratorium extension – Air Canada is already operating under a pension relief plan that was going to expire at the end of the year – has conditions. Air Canada will be prohibited from giving executives any special bonuses, limits executive incentive plans and slows executive salary increases to the rate of inflation. From a shareholder perspective, the plan also states that no dividend or share repurchases programs will happen either without approval.

The mandates will save the company money. In 2012, Air Canada chief executive hauled in nearly $3 million more than his base salary or $1.4 million.

Air Canada rival WestJet Airlines Ltd. (TSX:WJA), a more profitable company that commands a market capitalization more than four times that of Air Canada, was not pleased with the decision from Ottawa, although it publicly took it in stride.

Saying that WestJet realizes it was a difficult decision for the government, president and CEO Gregg Sarefsky conveyed that the company is “disappointed” with the news. “We are supportive of a strong and competitive aviation industry in Canada,” Sarefsky said. “To that end, we trust this marks the end of special treatment for Air Canada as such treatment at the expense of other industry players has become too common. We look forward to working with the government to create a level playing field and an environment that supports a healthy industry that benefits the travelling public.

Twelve months ago, Air Canada was embroiled in disputes with its workers and fending off wildcat strikes as it simultaneously fought to bring the company back to profitability for the first time in five years. Shares sunk as low as 78 cents per share nearly one-year ago to the day. Settling the union disputes, getting some analyst upgrades from the depressed price points and managing to eke out a $53 million profit for 2012 have helped shares ascend to 52-week highs this month.

That high was pushed upward to $2.76 in trading on Wednesday following the news Tuesday as investors seem more pleased about the breathing room and executive salary limits that will help the company revitalize its organization than concerns about no dividends or share buy-backs.

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