Air Canada has struck an outsourcing deal with IBM Canada that will see the two companies co-develop new technologies for the airline industry.

Worth $1.4 billion over the next the seven years, the deal is the largest Big Blue services agreement worldwide and is expected to save Canada’s biggest airline about $200 million in IT costs over the term of the contract, which takes effect Sept. 1.

Armonk, N.Y.-headquartered IBM will replace 20,000 computer workstations and several network servers, develop and install software upgrades and maintain Air Canada’s Web site. Air Canada’s data centre will be dismantled and moved to an IBM facility in Montreal. No job losses at the airline are expected as a result of the deal. IBM already has about 1,300 people working on the Air Canada contract.

Calin Rovinescu, the Montreal-based carrier’s executive vice-president of corporate development and strategy, said the partnership goes beyond managing the airline’s computer systems. “This partnership is about innovation,” he said, adding that the deal will allow Air Canada to invest in new technology despite the economic downturn. Without the help of IBM, he said, “the amount of resources we could bring to technological innovation would be restricted.”

As part of the partnership, IBM will invest an undisclosed amount in joint business ventures. Alice Keung, Air Canada CIO, said joint projects will focus on improving customer service. The first project will be a wireless, mobile computer that Air Canada employees will use to check in travelers at the airport before they even step inside the terminal.

Air Canada expects new revenue to come from selling the technology developed with IBM. The two companies have already developed a computer check-in kiosk for Air Canada fliers using electronic tickets. Some of those kiosks have since been sold to other airlines, including 11,000 to United Airlines in April.

Ownership of the any new technologies developed under the partnership will be decided on a case-by-case basis.

Jason Bremner, senior analyst, outsourcing services with IDC Canada in Toronto, said senior executives are becoming much more tech savvy and are looking for more value from their outsourcing suppliers. “What we’re seeing [now] is strategic relationships between customers and suppliers.”

In the past, Bremner said, these types of deals were often strategic and favorable for the vendor, but not necessarily the customer. “Before a lot of it was just driven by cost reduction and cost control.” Now customers are looking at technology partnerships to help fuel future growth, he said. “It’s a visionary approach.”

Air Canada originally outsourced the management of its computer systems to IBM in 1994.

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