Canadian Airlines International could be forced out of business by the turn of the year if employees and shareholders fail to endorse a sweeping programme of cost-cutting being proposed by the management, warns president Kevin Benson.

The cost cuts, which are planned to add C$800 million ($590 million) to Canadian's bottom line over the next four years, include a 10% wage cut and renegotiation of contracts with major suppliers and alliance partner American Airlines, which holds a one-third share in the group.

The Canadian Airline Pilots Association, which represents 1,100 pilots at the carrier, has accepted the proposals, but other unions dismiss the airline's warnings of financial collapse.

Canadian has not made a profit since 1988, and reported losses of C$49 million for the first nine months, blamed on higher fuel prices and competition from low-fare carriers. The full-year result is expected to be less than the C$195 million net loss of 1995, but will still be "significant" says, Benson.

"Our continuing operating losses are threatening the company's viability," says Benson. The airline, which has lost C$1.4 billion since 1990, still has C$111 million cash in hand, but continuing "chronic" losses and debt repayments could result in a "cash deficiency" by early 1997, potentially forcing Canadian into bankruptcy.

The airline plans to generate C$60 million through better use of the fleet to take advantage of cross-border opportunities in the wake of the two-year-old US-Canadian open-skies agreement. Trans-border flights will be doubled. Benson cautions, however, that higher fuel prices could erode C$20-30 million of this improvement.

The carrier's 16,400 employees will be asked to accept a10% pay cut by the end of November, to save a further C$70 million. Another C$70 million will be saved through renegotiating contracts and eliminating 250 jobs.

Canadian will dispense with loss-making routes to Europe and, at the same time, increase services from Vancouver to Asia by 20%. The airline will reduce domestic capacity by 11%, mainly in eastern Canada, partly by transferring routes to its Canadian Regional subsidiary, to be flown by smaller Fokker F28s.

It will also seek "-local partners to assume and develop" certain Canadian Regional operations in Ontario and Quebec.

Canadian will be raising its long-haul operations to Asia by 20%, but cut back elsewhere.

Source: Flight International