"Welcome aboard Pension Air Flight 163, bound for Vancouver. Please ensure your seat belt is securely fastened, your bags safely stored under the seat in front of you and your seat back is in the full, upright and locked position."

Pension Air, a.k.a. Air Canada, has become a flying retirement fund, where a shrinking workforce toils for a much larger generation of retirees.

The company's pension solvency deficit ballooned in the past year to $4.4-billion, from $2.2-billion – a bad situation made worse by today's low interest rate environment. If the Montreal-based airline's defined pension plans were wound up today, Air Canada would be billions short of meeting its obligations to current and future pensioners.

Story continues below advertisement

And, unfortunately, it's not at all clear when, or if, the airline will meet its commitment to workers. The airline hasn't turned a profit since 2007, and with more retirees than employees (29,000 versus 26,000), the deficit is a millstone that grows heavier every year. Something has to give.

Federal Finance Minister Jim Flaherty confirmed last week that he's in talks with Air Canada about extending a moratorium on the money it is legally bound to put into its pension plans in 2014 and beyond. It would mark the second time in three years the airline makes such a request.

Without some slack, Air Canada would face a rapidly growing annual pension bill, including upward of half a billion dollars in 2014.

Air Canada will no doubt argue that its problems are transitory – that it will eventually be in a position to fill the yawning pension hole by reducing employee costs, in part by giving new hires less generous pensions.

Even then, pension stability is likely more than a decade off for Pension Air. Federal arbitrator Michel Picher warned bluntly last month JUNE that Air Canada is facing "grave existential questions" and must choose between pension solvency and corporate solvency.

"The viability of the company and to a substantial extent, the viability of the pension plan, essentially depend on the granting of an extension of that pension fund relief, hopefully for a period of not less than 10 years beyond 2014," Mr. Picher concluded.

Air Canada's predicament highlights a deepening national pension crisis. A recent survey by AON PLC found that 97 per cent of Canadian defined-benefit pension plans have solvency deficits. On average, those plans' assets covered only 69 per cent of liabilities – meaning they would be able to pay out less than 70 cents on the dollar.

Story continues below advertisement

Air Canada chief executive Calin Rovinescu mused recently that it would be a lot easier if Air Canada could just fold, and start anew. "Sadly, life doesn't work like that," he acknowledged.

Like steelmakers, railroads and automakers, Air Canada carries a legacy. It's a legacy of better days, when flying wasn't a commodity and employees were both numerous and richly rewarded with high salaries and rich pensions. Fewer, less well-paid young workers must now carry the weight of a larger group of retirees. In some cases, their pay and benefits are cut, while retirees' pensions ratchet up with inflation.

Compounding Air Canada's predicament, it competes against two upstart airlines – Westjet and Porter – that aren't saddled with this heavy pension and demographic baggage. The hope for Air Canada, and other companies with badly underfunded pension plans, is that interest rates eventually climb high enough to wipe out the deficit. But that's unknowable.

The defined benefit plan has become a government-sanctioned untruth that punishes younger workers. Companies promise unconditional benefits in retirement, when in fact the ability to pay is contingent on a very specific set of economic and financial circumstances, pointed out Bob Baldwin, an adviser to Ontario's 2008 Expert Commission on Pensions and a former Canadian Labour Congress official.

"We allow plans to run as if there's no problem right up to the moment they fall apart, and then we make adjustments that only fall on one portion of the plan membership," he lamented. "Future plan members and young workers are bearing all the risk."

Neither Air Canada, its 26,000 employees nor Mr. Flaherty know with any degree of certainty if the airline will ever be able to deliver the pensions promised to younger workers. Governments and employers can't easily change the external environment. But they can deliver generational fairness by telling workers the truth, and then scaling benefits to economic reality.