In depth
New Air Canada CEO makes his mark
Calin Rovinescu is credited with rebound from edge of creditor protection
Last Updated: Wednesday, October 21, 2009 | 1:37 PM ET
By Dave Simms CBC News
It was a rare sight for Calgary.
In September, Air Canada executives swaggered onto arch rival WestJet's home turf for their regular senior management meeting, usually held at the airline's Montreal headquarters.
Since his appointment was announced in April, Rovinescu has made peace with Air Canada's unions. (Air Canada) Calgary-based aviation analyst Rick Erickson was invited for a meet-and-greet before the meeting and remembers thinking that it was meant as "a shot across WestJet's bow," a signal that things have changed at Air Canada in the six months since the appointment of CEO Calin Rovinescu.
The airline has gone from being cash-strapped and facing a reprise of its 2003 entry into court protection from creditors into one of the better-positioned of its international rivals to handle the downturn.
Erickson credits Rovinescu.
"He's absolutely the right guy, right person, right time, right place," he says. "We're starting to see Air Canada do things we haven't ever seen them do before. I mean really going head-to-head with WestJet on WestJet's turf."
Air Canada has, for instance, introduced a Calgary-to-Honolulu service, knowing WestJet would be forced to match it in order to hold onto market share. Erickson says that was a clever move, given that WestJet will struggle to make it pay, because it will have to leave 20 to 25 seats empty to compensate for the weight of the extra fuel needed.
Karl Moore, associate professor of management at McGill University, has been surprised by Rovinescu's moves so far. Moore assumed Rovinescu was being brought back for a return engagement as chief restructuring officer after his hard headed approach guided the airline through court protection from creditors in 2003 and 2004.
'He's not at all played the hard man' —Karl Moore, McGill University
"He was a man who stood up to the unions and was not beloved by them," Moore told CBC News from his office in Montreal. "I was quite surprised by what he's done. He's not at all played the hard man."
Rovinescu has signed a collective agreement that gives the unions a 15 per cent stake in the airline and a seat on the board. He's negotiated a deal to buy time to resolve a $2.9 billion pension deficit, getting a 21-month holiday on overdue payments.
Challenges remain. Air Canada lost $245 million in the first six months of this year, and with a $5 billion debt, the airline remains in what DBRS, the bond rating service, calls a "precarious financial position."
Still, in an industry with losses of more than $6 billion US in the first half of 2009, Air Canada now has close to $1 billion in cash, which will give it "the next 21 months to 'right-size,'" said Erickson.
The question is, what is the right size?
Erickson believes Air Canada must scale down to compete with WestJet for low-fare traffic.
An Air Canada Olympic-themed Boeing 777. Industry watchers differ on how much the airline should try to match WestJet's low costs. (Air Canada) Moore doesn't entirely agree. He concedes Air Canada must compete with WestJet for the growing number of Canadians who want the lowest fares, and that will mean trimming costs to compete. However, he says, there will always be clients willing to pay a premium to travel business class, especially to the other side of the globe.
"Business class actually makes sense, to even hard-nosed accountants who will look at it and say 'Wait a minute, is this a good business decision?' he says.
"If you're going to ask someone to fly over there, be up all night, sit in a cramped seat and then negotiate a multi-million-dollar deal, I think it's wise and prudent to spend a few thousand more."
That will mean cultivating two distinct facets of a single corporate culture. Managing that change while downsizing, Moore expects, will be tough but doable — even when dealing with 20,000 employees. It will, however, take several years and a subtle touch.
Not a hatchet man
Moore says that's something of which Rovinescu is quite capable, despite his previous portrayals in the media as a job-cutting hatchet man. Rovinescu's career has taken him to positions as a senior partner at law firm Stikeman Elliott and as co-founder of investment bank Genuity Capital Markets.
Through those different experiences, Moore says, Rovinescu has proven himself "a sharp guy, an astute judge of human nature."
What Air Canada has to say, we won't learn for a while. When asked for an interview with an executive — any executive — about its future, the company said it would address that when its third-quarter results come out.
That's not until early November.
Moore says that whether Rovinescu succeeds in pulling off a turnaround or not, it'll make a fascinating case study for his business students.
"Sometimes, when it's tough times, you need to be stronger, but other times you want to win people over, and I think he's shown the capability of being able to have both styles in his repertoire," Moore says. " It's not every executive that can do that."
