Air Canada’s Rovinescu has his eyes set on the horizon
SINCE TAKING OVER AN AIRLINE ON ITS KNEES SEVEN YEARS AGO, CEO’S STRATEGY OF TRANSFORMATION IS READY TO TAKE OFF
Calin Rovinescu is an ardent sports fan, intimately familiar with the successful athlete’s mantra: Never get too high after a win, or too low after a loss.
There have been victories for Air Canada’s chief executive during his seven years in the job, as well as some setbacks. In an industry as cyclical as airlines, ups and downs are inevitable.
But looking at the big picture — the long haul, as Rovinescu likes to think of it — the wins are starting to pile up for the 60-year-old executive, who took over the airline at one of its lowest points, just a bad decision or two from skidding off the runway into creditor protection for the second time in six years.
The victory count makes for an impressive list, bolstered most recently by the airline’s announcement it intends to buy as many as 75 CSeries jets from Bombardier, making Air Canada the first major North American carrier to reveal plans to buy the planes. The airline is expected to firm up its order soon, perhaps as early as later in June.
There was also the notable first- quarter profit of $ 101 million, a surge that exceeded market expectations and suggested Air Canada might be on its way to record profitability in 2016.
The signs of a turnaround have been falling into place for several years: a stock value increase of more than 800 per cent since 2012; the launch of Rouge, a successful low-cost leisure subsidiary; new fleets of fuel-efficient aircraft; a big presence on international routes; and, for the first time in memory, labour peace.
Still, Rovinescu is not allowing himself to gloat. Not too much, anyway.
“I prefer to look at things over a long cycle, or a series of cycles,” Rovinescu said in an interview. “We’ve made significant strides against some long odds ... but we have to keep our eye on the ball.”
At a glance, his reserve might seem at odds with his reputation — among friends and foes — as an ultra-competitive, takeno- prisoners leader, even away from the boardroom.
“You would not want to challenge me in a trivia contest on movies or 1960s television programs,” he said. ( It turns out he’s pretty good on ’ 60s and ’ 70s rock ’n’ roll minutiae as well, citing Alvin Lee and Ten Years Af- ter as a favourite band from his younger days.)
The son of Romanian parents, who fled the Communist regime in 1961 when he was five, leaving everything behind but $200 and their clothes, Rovinescu deflects suggestions his immigrant background shaped his ambition and leadership style. “I never expected anybody to give me a special opportunity, nor did I want anyone to be looking at me down their nose,” he once told an interviewer.
Dig a little deeper, though and Rovinescu reveals a mantra he borrowed from That Used To Be Us, a book co- authored by New York Times columnist Thomas Friedman, which suggests thinking like an immigrant can be crucial to success.
“Why think like an immigrant?” he asks. “Because an immigrant is hopeful and optimistic but he is fundamentally insecure. He knows what he wants to achieve but he never takes anything for granted. It’s a pretty good mindset for a competitive business like an airline.”
Being tough, knowing more than the next guy, is Rovinescu’s way of staying focused on the future, said Stanley Hartt, former chief of staff to prime minister Brian Mulroney and someone who Rovinescu has described as a friend and mentor.
“He’s earned that reputation for being hard- nosed and fully prepared, but that doesn’t mean being unreasonable or demanding at everyone else’s expense,” said Hartt, who hired Rovinescu fresh out of law school at the prestigious Montreal firm Stikeman Elliott in the late 1970s. “I think Calin’s secret is fairness. And great social skills.”
Even Jerry Dias, a labour leader who has clashed with Rovinescu in contract talks over the years, begrudgingly agrees.
“The guy is no charm school graduate,” said the president of Unifor, which represents about 3,000 of the airline’s customer service and sales agents. “Calin is driven and he is tough and he is no- nonsense. For me, that is perfect. I might not agree with him, but at least I know I can close a deal with him.”
Rovinescu has a long and complicated history with Air Canada, one that stretches back to the mid-1980s, and one that saw him go from an outsider role — as the lawyer who advised the airline on privatization — to the ultimate insider, the executive chosen to restructure the company after it declared bankruptcy in 2003, crippled by $13 billion in debt.
It was that process that precipitated his departure from Air Canada in 2004, after a $650-million financing deal he’d arranged fell apart when the investor, Trinity Time, demanded changes to pensions for new employees — a non- starter for the airline’s unionized workers.
He quit soon after, famously writing in his resignation letter to then- chief executive Robert Milton that the restructuring talks were like “playing full-contact, multidimensional chess in a fishbowl.”
Hartt remembers it as a frustrating experience for his friend. “He had an outcome in mind that wasn’t going to happen and he felt he had to fall on his sword,” he said. “Not because there was anything wrong with his plan, but because he’d had enough.”
Little wonder that when the airline’s board of directors came offering the top job five years later, Rovinescu believed he had unfinished business.
Not that things were going to be easier this time around. But he knew from experience what he was getting into, and as he said at that time, “I hit the ground running.”
Rovinescu has covered a lot of ground since then, much of it rocky terrain. For a while, it appeared Air Canada might not be able to avoid another bout in bankruptcy court. The airline was facing serious labour discord, soaring fuel costs and a $4-billion pension deficit, uncertainty that plunged the airline’s shares into the realm of penny stock.
Rovinescu had barely settled behind his new desk before he had to renew all the airline’s labour contracts — without adding costs — with unions looking to settle up for years of sacrifices. He had to convince the federal government to give the airline a break on its pension shortfall and, with cash getting low, he had to find more than $600 million in financing.
Part of his counterattack was to take a broadsword to costs. Seeking savings in every corner, from a revamped Aeroplan to wringing concessions from employees, he managed to put enough air under Air Canada’s wings by 2014 to push its share price up sevenfold.
Along with the tough slogging came a little luck. By early 2014, the pension plan was reporting a small surplus compared with a $ 3.7- billion deficit a year earlier, a remarkable turnaround owing largely to a strong yield on investments and new labour deals that trimmed pension liabilities by $1 billion.
But even as the airline was working to get its finances in shape, Rovinescu’s eyes were locked on the horizon and one of his great passions: transformation.
“I often tell our people to look at the amazing brands that have been battered by not reacting to what the marketplace is telling you,” he said, citing Kodak and Blockbuster as examples.
“I have insisted from the start that we be responsive to customers ... that we identify change before our competitors. I think we have been at the forefront of many ( recent) changes and we will continue to be there.”
The i ntroduction of t he budget carrier Rouge is one of the “transformative innovations” Rovinescu likes to talk about: “We really hit it out of the park with Rouge.”
Using older planes from the fleet, Rouge was created to offer low- cost service to leisure markets — Barcelona, Athens, Venice, the Caribbean, the list goes on — where Air Canada could not make a business case in the past. “Over time, I think, Air Canada would have exited some of those routes except for these new products,” he said.
Also transformative was the delivery of new planes: the highdensity Boeing 777s — industry jargon for putting more people into smaller seats — and Boeing 787s, the so- called Dreamliner, which have fewer seats but can cover long- haul routes while burning less fuel.
The 787s are ideal for markets such as India, where yields are generally lower. Bombardier’s mid- sized CSeries jets are expected to open still more markets.
The moves are the core of a strategy aimed at major capacity expansion — flying more people over longer distances — as well as cutting by 21 per cent the cost of flying one airline seat one mile by 2018, and improving the airline’s margins and returns on invested capital.
Some investors are worried demand won’t match the capacity additions, but Rovinescu argues that 90 per cent of new capacity is on international flights, which carry much lower risk than domestic routes.
A lot of that new capacity is also low cost, flying on the fuelefficient 787s, while the older 767s they are replacing are going to Rouge, which flies longer routes and, because of its economy nature, has more seats.
Union leader Dias, while saying Air Canada has a way to go make up for the sacrifices made by its employees over the years, concedes they are better off now than they were when Rovinescu arrived.
“He is determined he is going to keep Air Canada profitable and there’s nothing wrong with that,” he said. “But Calin is smart enough not to commit suicide doing it, and if that means bending a little for workers to achieve stability, he’ll do it.”
For the next cycle, Rovinescu said, he’ll focus on convincing wary investors to set aside their caution and come aboard for the long haul.
“We’re showing the market we can deliver strong results even in what are perceived to be weak economic times,” he said.
“We’ve transformed some fundamental things that give us more flexibility, have reduced our cost structure, added more international breadth and made us less reliant on the domestic product. I think people are starting to understand our strategy.”
CALIN IS DRIVEN AND HE IS TOUGH AND HE IS NO-NONSENSE.