(Reuters) — Air Canada on Tuesday said it plans to redeploy capital toward share buybacks, debt repayment and increased investment in new aircraft, as its once-huge pension fund deficit has now been wiped out much earlier than expected.

Its pension fund deficit stood at CA$4.2 billion ($4.23 billion) in 2012, and Air Canada struck a deal with the government in 2013 that gave it more time to fix the funding gap.

At the time Air Canada agreed to not pay any dividends, cap executives' pay and abstain from share buybacks as it worked on erasing the deficit by making annual solvency payments of CA$200 million, on average, over a seven-year period.

The deal only went into force officially in early 2014, though, and by that time strong equity markets coupled with a revamped investment strategy had already moved Air Canada's pension plan into a small surplus.

The company said it now estimates the total solvency surplus as of May 20 at CA$1.2 billion ($997.2 million), roughly 13.5 times greater than the CA$89 million ($83.8 million) surplus level as of Jan. 1, 2014.

Air Canada said it has stress tested its pension plans and has decided its previously committed deficit funding contributions of CA$1.1 billion ($895.7 million) over the next six years can be redeployed to further improve its competitive position.

"Our ability to return to normal funding rules for our pension plans represents a highly significant and positive milestone in the execution of our strategy to transform Air Canada into a sustainably profitable company for the long term," said Chief Executive Calin Rovinescu in a statement.

It said over the next several years it plans to spend CA$9 billion ($7.33 billion) mainly on new aircraft and equipment, in a bid to boost its operating margins. It also pledged to lower its net debt and leverage ratio and to continue to improve its credit rating.

It also announced a "modest" share buyback plan, saying its board has authorized the repurchase of up to 3.5% of its outstanding shares over the next 12 months.

Air Canada's share price has more than quintupled over the last two years, as its pension deficit woes have faded along with some of the pressure from higher fuel costs.