Air Canada-Boeing's $6B Deal Fails, Shares Fall

ACE Aviation Holdings Inc (search)., parent of Air Canada, and Boeing Co. (BA) lamented Monday the collapse of the airline's $6 billion order for 32 Boeing jets, as the shares of both companies fell.

Boeing spokesman Todd Blecher said the order -- canceled on Sunday after Air Canada's pilots rejected an agreement crucial to the purchase -- was substantial and that he did not recall a previous cancellation of the same magnitude.

"We share the disappointment of Air Canada's (search) management group with this development," Blecher said.

Shares of Boeing slipped 87 cents, or 1.35 percent, to $63.77 on the New York Stock Exchange.

Air Canada's April 25 agreement with Boeing for 18 777 jets and 14 787 Dreamliners (search) was subject to the Air Canada pilots' union ratifying an agreement to operate the jets.

Canada's No. 1 carrier had reached a tentative agreement with the powerful Air Canada Pilots Association. But the association's membership went against its leadership's recommendation, and voted against the deal last week.

Air Canada Chief Executive Montie Brewer said Monday it would have been difficult for the airline, which emerged from bankruptcy in September, to move ahead with the deal because it had reached a deadline to make an immediate nonrefundable deposit of $200 million on the Boeing purchase.

"To do so (move ahead) without a ratified pilot agreement, which would form a key component of our operating costs, could not be justified," Brewer said in a letter to Air Canada employees. "My hope is that in time we will find ways to bring new aircraft into out fleet in a manner acceptable to the company and our pilots."

ACPA spokesman Peter Foster said the association was also disappointed the deal had collapsed.

"We had a deal that we were quite pleased with. But members rejected it," Foster said, citing lingering unhappiness among some pilots over a long-standing dispute over seniority that stemmed from the merger of Air Canada with Canadian Airlines in 2000.

"That may well have been the catalyst. They used the occasion of this vote as a means to express that dissatisfaction. Contract arrangements have been unfortunately intertwined with other issues," Foster said.

The Boeing order cancellation may bring Airbus back into the fleet renewal plans of Air Canada, which already flies the European aircraft maker's planes.

"I don't want to presuppose the future choices of Air Canada. The main reason this went to a vote is that it called for a change of contract, there was no structure set up for that aircraft," Foster said. "Any other additions to the fleet may well be covered by the current collective agreement."

Air Canada was not immediately available for comment on Monday.

Blecher said Boeing continues to see strong demand for the 777 and 787 aircraft. "We believe we will have many opportunities to place those aircraft elsewhere," Blecher said.

Air Canada emerged from 18 months of bankruptcy protection at the end of September with a much-reduced work force and debt level and a trimmed-back aircraft fleet.