Canada Post warns it will need a significant cash infusion by the middle of next year to meet pension payment obligations estimated at $1 billion.

“Based on our current financial projections, we believe we are going to require additional liquidity by mid-next year,” said Canada Post spokesman Jon Hamilton. “We’re talking to the shareholder, the government, about options to address the challenge.”

Hamilton had no specifics about what that might entail, whether it would be increased borrowing or a subsidy, though Hamilton said Canadians have made it clear they don’t support such government subsidy.

The warning about a cash shortfall was tucked inside the corporation’s third quarter earnings, which were released Thursday. The Canada Post segment lost $129 million, before tax, in the third quarter, an improvement from last year’s $161 million, in the same period.

The improvement was attributed to labour savings, as the company adopts changes to delivery methods, including having one carrier deliver both parcels and letters in a small van.

For Canada Post, the obligations of the pension plan are a growing concern, in part due to low interest rates. While the plan has assets with a market value of $17 billion, its pension solvency deficit – the amount needed to meet obligations if it were wound up – is estimated at $5.9 billion as of the end of 2012.

Canada Post has been making its current service contribution to the pension plan, with $203 million paid in the first three quarters of the year, estimated at $269 million for the year, plus special payments of $28 million.

According to the management discussion & analysis report, in 2012, the federal government allowed Canada Post to delay making back payments to top up the deficit until June 2013, but then extended it again until June 2014, but it will be on the hook for $1 billion in 2014.

“These options include seeking additional pension regulatory relief and securing additional financing,” the report says. “Canada Post is also looking for support to restructure its business model and pension plan framework to assure its long-term financial sustainability.”

Canada Post is trying to figure out how to reinvent itself in the age of email, texting and Skype. Letter mail volumes keep falling, dropping 7 per cent – or 73 million fewer pieces -- in the third quarter, compared to the same period a year ago.

Parcel revenues were up by $32 million, or 11 per cent in the third quarter, thanks to increased online shopping. Volumes were up by more than 1 million items from the same period last year, but it wasn’t enough to offset the drop in mail demand.

Canada Post is looking at ways to cut costs including looking at ending door-to-door delivery or alternate-day delivery, though it has no timelines of when it will put forward a proposal.

“Our focus is on transforming the business to serve the future needs of Canadians,” said Hamilton. “There is a lot less mail and a lot more parcels.

“We have been gathering feedback from Canadians so that we can put forward the changes that are needed,” he added.

It is unclear what the federal government will do. In March, Air Canada, which was also facing a whopping pension solvency deficit, won an extension to stretch out its outstanding payments.

Under that deal, the airline promised to pay at least $150 million a year, with an average of $200 million a year, totaling at least $1.4 billion until 2021. In return, Air Canada had to cap executive pay and is barred from issuing any dividends or share buybacks

Transport Minister Lisa Raitt is in charge of Canada Post, and her office declined to say what measures are being discussed, emphasizing Canada Post is responsible for its own operational decisions.

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“Since 1981 Canada Post has had a mandate to operate on a self-sustaining financial basis. We are very concerned that they are posting significant losses,” the statement said.

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