Air Canada Supplier Aveos Shutdown Puts 2,600 Jobs at Risk

The company said it sought protection from creditors amid “uncertain work volume” after losing as much as $16 million in revenue in less than two months as Air Canada, its largest customer, canceled and delayed maintenance work. Airframe maintenance work stopped permanently yesterday and the company hasn’t yet decided on its other operations.

Aveos employees in Montreal, where the company is based, were told not to report for work today, Marcel Saint-Jean, president of Machinists Local 1751, said in a telephone interview. The union’s initial efforts to obtain more information from the company were unsuccessful.

“The way Aveos did this speaks to how much trouble they are in,” Karl Moore, a professor of business strategy at Montreal’s McGill University who specializes in the airline industry, said in a telephone interview. “It’s definitely not the appropriate way to do it.”

Air Canada, which holds a stake of 17.5 percent in Aveos, said the shutdown won’t affect day-to-day maintenance of in- service aircraft, which the carrier handles directly with its 2,300 maintenance employees.

“Air Canada still has staff that does line maintenance work, so this isn’t a huge problem for them,” said McGill’s Moore. “I’m sure they’ve had many calls this morning offering to help. Many maintenance and repair companies would absolutely love to have their business.”

Canada Employees

Aveos’s payroll in Canada includes about 1,800 employees in Montreal, 350 in Winnipeg and 300 in Vancouver, Tony Didoshak, general chairman of Machinists District 140 said in a telephone interview. Didoshak, who took part in recent bargaining talks with Aveos, said the company was late in paying pension contributions and union dues.

“We knew they had financial issues,” Didoshak said from Winnipeg, Manitoba. “Three weeks ago we asked their VP of labor relations how broke they were, and we got no answer. And today, we’ve heard nothing from Aveos.”

The union estimated earlier today that as many as 3,000 jobs might be affected, and Canada’s RDI television network showed images of the company’s employees blocking streets near the Montreal headquarters of Air Canada to protest the closing.

Aveos posted a termination letter to airframe union employees on its website, along with a schedule for retrieving personal belongings and toolboxes.

‘Capital Resources’

“Given that we have faced reduced, deferred, and canceled maintenance services despite Aveos’ exclusive contracts with our principal customer, we no longer have the capital resources we need to continue to do business,” Chief Executive Officer Joe Kolshak said in a memo on the website.

Aveos said it has about 2,600 employees in Canada, and the remainder work in El Salvador. The company was created in 2007 when Air Canada parent ACE Aviation Holdings Inc. (ACE/B) sold a majority stake in its aircraft maintenance unit.

Aveos said Oct. 31 it had raised C$50 million ($50.4 million) in financing from a group of lenders including Credit Suisse Group AG to invest in its component center and expand its engine-maintenance capabilities.

More than a year earlier, in January 2010, Aveos reached an agreement to reduce its debt to C$75 million from about C$800 million, with lenders including Air Canada converting some debt into equity. The company obtained an additional C$75 million working-capital facility from some of the lenders at the time.

Air Canada

“The goal was to emerge stronger and better aligned to meet the needs of a changing market,” Kolshak said in the memo. “Today’s filing is a tragedy on many fronts, but beyond the institution, we recognize the human toll and dislocation this action will cause.”

Air Canada (AC/B) has a contingency plan to use other providers, primarily in the U.S. and Canada, for maintenance services Aveos can’t handle, the airline said. The airline has three main service contracts with Aveos for airframe, engine and component maintenance.

The component- and airframe-maintenance contracts expire in 2013, while the engine-maintenance contract continues through 2018.

“Safety is Air Canada’s highest priority and the safety of Air Canada’s fleet will not be compromised by this development,” the carrier said today in a statement posted on its website.

Air Canada fell 1.1 percent to 91 cents today in Toronto. The shares have dropped 8.1 percent this year.

The airline has sought bids from other providers as the contracts’ expiration dates draw closer, and said it has no intention of purchasing Aveos or assuming its operations.

“Air Canada had hoped that Aveos would grow and capture additional market share while the airline served as its major customer,” the carrier said today. “However, that did not materialize.”




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