TRAN Committee Meeting

37th PARLIAMENT, 2nd SESSION

Standing Committee on Transport

EVIDENCE

CONTENTS

Thursday, April 3, 2003

¹

1510

The Chair (Mr. Joe Comuzzi (Thunder Bay—Superior North, Lib.))

Mr. Jim Gouk (Kootenay—Boundary—Okanagan, Canadian Alliance)

The Chair

Mr. Jim Gouk

The Chair

Mr. Mario Laframboise (Argenteuil—Papineau—Mirabel, BQ)

Captain Jean-Marc Bélanger (Special Advisor, Air Canada Pilots Association)

Mr. Mario Laframboise

Capt Jean-Marc Bélanger

¹

1515

Mr. Mario Laframboise

Capt Jean-Marc Bélanger

Mr. Mario Laframboise

The Chair

Mr. Mario Laframboise

Capt Jean-Marc Bélanger

The Chair

Capt Jean-Marc Bélanger

The Chair

Capt Jean-Marc Bélanger

The Chair

Mr. Paul Middleton (Director, Labour Relations, Air Canada Pilots Association)

¹

1520

The Chair

Mr. Paul Middleton

The Chair

Mr. Paul Middleton

The Chair

Mr. Larry Bagnell (Yukon, Lib.)

Capt Jean-Marc Bélanger

Mr. Larry Bagnell

Captain Donald K. Johnson (President, Air Canada Pilots Association)

Mr. Larry Bagnell

Capt Donald Johnson

Mr. Larry Bagnell

The Chair

Mr. Jim Gouk

Capt Jean-Marc Bélanger

Mr. Jim Gouk

Capt Jean-Marc Bélanger

Mr. Jim Gouk

¹

1525

Capt Jean-Marc Bélanger

Mr. Jim Gouk

Capt Jean-Marc Bélanger

Mr. Jim Gouk

Capt Jean-Marc Bélanger

¹

1530

The Chair

Mr. John Cannis (Scarborough Centre, Lib.)

Capt Jean-Marc Bélanger

Mr. John Cannis

Capt Jean-Marc Bélanger

The Chair

Capt Jean-Marc Bélanger

The Chair

Capt Jean-Marc Bélanger

The Chair

Mr. John Christopher (Committee Researcher)

The Chair

¹

1535

Mr. Nicholas LePan (Superintendent, Office of the Superintendent of Financial Institutions Canada)

The Chair

Mr. Nicholas LePan

The Chair

Mr. Mario Laframboise

The Chair

Mr. Nicholas LePan

The Chair

Mr. Nicholas LePan

The Chair

Mr. Nicholas LePan

The Chair

Mr. Nicholas LePan

The Chair

Mr. Nicholas LePan

¹

1540

The Chair

Mr. Nicholas LePan

The Chair

Mr. Nicholas Le Pan

The Chair

Mr. Nicholas LePan

¹

1545

The Chair

Mr. Nicholas LePan

¹

1550

The Chair

Mr. Nicholas LePan

The Chair

Mr. Jim Gouk

Mr. Nicholas LePan

Mr. Jim Gouk

Mr. Nicholas LePan

¹

1555

Mr. Jim Gouk

Mr. Nicholas LePan

Mr. Jim Gouk

Mr. Nicholas LePan

Mr. Jim Gouk

Mr. Nicholas LePan

Mr. Jim Gouk

The Chair

Mr. Marcel Proulx (Hull—Aylmer, Lib.)

Mr. Nicholas LePan

Mr. Marcel Proulx

Mr. Nicholas LePan

Mr. Marcel Proulx

Mr. Nicholas LePan

Mr. Marcel Proulx

Mr. Nicholas LePan

Mr. Marcel Proulx

Mr. Nicholas LePan

Mr. Marcel Proulx

Mr. Nicholas LePan

Mr. Marcel Proulx

Mr. Nicholas LePan

Mr. Marcel Proulx

Mr. Nicholas LePan

Mr. Marcel Proulx

The Chair

Mr. Marcel Proulx

º

1600

Mr. Nicholas LePan

Mr. Marcel Proulx

Mr. Nicholas LePan

Mr. Marcel Proulx

Mr. Nicholas LePan

Mr. Marcel Proulx

Mr. Nicholas LePan

Mr. Marcel Proulx

Mr. Nicholas LePan

Mr. Marcel Proulx

Mr. Nicholas LePan

Mr. Marcel Proulx

Mr. Nicholas LePan

Mr. Marcel Proulx

The Chair

Mr. Marcel Proulx

The Chair

Mr. Marcel Proulx

The Chair

Mr. Nicholas LePan

The Chair

Mr. Marcel Proulx

Mr. Nicholas LePan

Mr. Marcel Proulx

Mr. Nicholas LePan

º

1605

Mr. Marcel Proulx

Mr. Nicholas LePan

Mr. Marcel Proulx

Mr. Nicholas LePan

Mr. Marcel Proulx

Mr. Nicholas LePan

Mr. Marcel Proulx

Mr. Nicholas LePan

Mr. Marcel Proulx

Mr. Nicholas LePan

Mr. Marcel Proulx

Mr. Nicholas LePan

The Chair

Mr. Marcel Proulx

Mr. Nicholas LePan

Mr. Marcel Proulx

The Chair

Mr. Marcel Proulx

The Chair

Mr. Marcel Proulx

Mr. Nicholas LePan

º

1610

Mr. Marcel Proulx

The Chair

Mr. Marcel Proulx

Mr. Nicholas LePan

The Chair

Mr. Roger Gallaway (Sarnia—Lambton, Lib.)

Mr. Nicholas LePan

Mr. Roger Gallaway

Mr. Nicholas LePan

Mr. Roger Gallaway

Mr. Nicholas LePan

The Chair

Mr. Mario Laframboise

Mr. Nicholas LePan

º

1615

Mr. Mario Laframboise

Mr. Nicholas LePan

Mr. Mario Laframboise

Mr. Nicholas LePan

Mr. Mario Laframboise

The Vice-Chair (Mr. John Cannis)

Mr. Larry Bagnell

Mr. Nicholas LePan

Mr. Larry Bagnell

Mr. Nicholas LePan

The Vice-Chair (Mr. John Cannis)

Mr. Nicholas LePan

The Vice-Chair (Mr. John Cannis)

Mr. Nicholas LePan

º

1620

The Vice-Chair (Mr. John Cannis)

Mr. Nicholas LePan

The Vice-Chair (Mr. John Cannis)

Mr. Nicholas LePan

The Vice-Chair (Mr. John Cannis)

Mr. Nicholas LePan

The Vice-Chair (Mr. John Cannis)

Mr. Nicholas LePan

The Vice-Chair (Mr. John Cannis)

Mr. Joe Comartin (Windsor—St. Clair)

Mr. Nicholas LePan

Mr. Joe Comartin

Mr. Nicholas LePan

Mr. Joe Comartin

Mr. Nicholas LePan

Mr. Joe Comartin

Mr. Nicholas LePan

Mr. Joe Comartin

Mr. Nicholas LePan

Mr. Joe Comartin

Mr. Nicholas LePan

Mr. Joe Comartin

º

1625

Mr. Nicholas LePan

Mr. Joe Comartin

Mr. Nicholas LePan

Mr. Joe Comartin

Mr. Nicholas LePan

Mr. Joe Comartin

Mr. Nicholas LePan

Mr. Joe Comartin

The Chair

Mr. Nicholas LePan

The Chair

º

1630

Mr. J. Clifford Mackay (President and Chief Executive Officer, Air Transport Association of Canada)

The Chair

Mr. J. Clifford Mackay

The Chair

Mr. J. Clifford Mackay

The Chair

Mr. J. Clifford Mackay

º

1635

The Chair

Mr. Jim Gouk

Mr. J. Clifford Mackay

º

1640

Mr. Jim Gouk

Mr. J. Clifford Mackay

Mr. Jim Gouk

Mr. J. Clifford Mackay

The Chair

Mr. Larry Bagnell

Mr. J. Clifford Mackay

Mr. Larry Bagnell

Mr. J. Clifford Mackay

Mr. Larry Bagnell

º

1645

Mr. J. Clifford Mackay

Mr. Warren Everson (President, Air Transport Association of Canada)

The Chair

Mr. Mario Laframboise

º

1650

Mr. J. Clifford Mackay

Mr. Mario Laframboise

Mr. J. Clifford Mackay

The Chair

Mr. J. Clifford Mackay

The Chair

º

1655

Ms. Pamela Sachs (President, Air Canada Component, Canadian Union of Public Employees)

The Chair

Ms. Pamela Sachs

The Chair

Ms. Pamela Sachs

»

1700

»

1705

»

1710

The Chair

Mr. Richard Balnis (Director of Research, Air Canada Component, Canadian Union of Public Employees)

The Chair

Mr. Jim Gouk

»

1715

The Chair

Mr. Jim Gouk

The Chair

Ms. Pamela Sachs

Mr. Jim Gouk

Mr. Richard Balnis

Mr. Jim Gouk

Mr. Richard Balnis

The Chair

Mr. Larry Bagnell

Ms. Pamela Sachs

Mr. Larry Bagnell

Ms. Pamela Sachs

Mr. Larry Bagnell

Ms. Pamela Sachs

The Chair

Ms. Pamela Sachs

The Chair

Ms. Pamela Sachs

The Chair

Mr. Larry Bagnell

»

1720

The Chair

Ms. Pamela Sachs

The Chair

Mr. Larry Bagnell

Ms. Pamela Sachs

The Chair

Mr. Mario Laframboise

Mr. Richard Balnis

»

1725

Mr. Mario Laframboise

Mr. Richard Balnis

The Chair

Mr. Marcel Proulx

Ms. Pamela Sachs

Mr. Marcel Proulx

Ms. Pamela Sachs

Mr. Marcel Proulx

Ms. Pamela Sachs

»

1730

Mr. Richard Balnis

The Chair

Ms. Val Meredith (South Surrey—White Rock—Langley, Canadian Alliance)

Mr. Marcel Proulx

The Chair

Mr. Marcel Proulx

Ms. Val Meredith

Ms. Pamela Sachs

Ms. Val Meredith

Mr. Richard Balnis

Ms. Val Meredith

Mr. Richard Balnis

Ms. Val Meredith

Mr. Richard Balnis

Ms. Val Meredith

»

1735

Mr. Richard Balnis

Ms. Val Meredith

Mr. Richard Balnis

The Chair

Mr. Richard Balnis

The Chair

Mr. Richard Balnis

The Chair

Mr. Richard Balnis

The Chair

Mr. Richard Balnis

The Chair

Mr. Richard Balnis

Ms. Val Meredith

Mr. Richard Balnis

Ms. Val Meredith

Mr. Richard Balnis

The Chair

Mr. Richard Balnis

The Chair

Mr. Richard Balnis

The Chair

Mr. Richard Balnis

The Chair

Ms. Pamela Sachs

»

1740

The Chair

Ms. Pamela Sachs

The Chair

Ms. Pamela Sachs

The Chair

Mr. Richard Balnis

The Chair

Ms. Pamela Sachs

The Chair

Ms. Pamela Sachs

Mr. Richard Balnis

The Chair

Mr. Richard Balnis

The Chair

Ms. Pamela Sachs

The Chair

Ms. Pamela Sachs

The Chair

Ms. Pamela Sachs

The Chair

Captain Kent Hardisty (President, Canada Board, Air Line Pilots Association, International)

The Chair

Capt Kent Hardisty

»

1745

»

1750

The Chair

Mr. Jim Gouk

»

1755

The Chair

Mr. Larry Bagnell

Capt Kent Hardisty

Mr. Larry Bagnell

Capt Kent Hardisty

Captain Steven Linthwaite (Representative, Air Canada Jazz, Air Line Pilots Association, International)

Mr. Larry Bagnell

Mr. Art LaFlamme (Senior Representative, Canada, Air Line Pilots Association, International)

Mr. Larry Bagnell

The Chair

Mr. Mario Laframboise

¼

1800

The Chair

Mr. Art LaFlamme

The Chair

Ms. Val Meredith

Capt Kent Hardisty

Ms. Val Meredith

Capt Kent Hardisty

Ms. Val Meredith

Capt Kent Hardisty

Ms. Val Meredith

Capt Kent Hardisty

The Chair

Capt Steven Linthwaite

¼

1805

Ms. Val Meredith

Capt Steven Linthwaite

The Chair

Mr. Art LaFlamme

The Chair

Mr. Art LaFlamme

The Chair

The Chair

Mr. Marcel Proulx

Mr. George Petsikas (Director, Government and Industry Affairs, Air Transat)

Mr. Marcel Proulx

The Chair

½

1905

Mr. Philippe Sureau (Executive Vice-President, Transat A.T. Inc., Air Transat)

½

1910

½

1915

½

1920

The Chair

Mr. Philippe Sureau

The Chair

Mr. Jim Gouk

The Chair

Mr. Larry Bagnell

Mr. Philippe Sureau

½

1925

Mr. Larry Bagnell

Mr. Philippe Sureau

The Chair

Mr. Mario Laframboise

Mr. Philippe Sureau

Mr. Mario Laframboise

Mr. Philippe Sureau

½

1930

The Chair

Mr. Marcel Proulx

Mr. Philippe Sureau

Mr. Marcel Proulx

Mr. Philippe Sureau

Mr. Marcel Proulx

The Chair

Mr. John Cannis

Mr. Philippe Sureau

Mr. John Cannis

Mr. Philippe Sureau

Mr. John Cannis

Mr. Philippe Sureau

Mr. John Cannis

½

1935

The Chair

Mr. John Cannis

The Chair

Mr. John Cannis

Mr. Philippe Sureau

Mr. John Cannis

Mr. Philippe Sureau

The Chair

½

1940

Mr. Philippe Sureau

The Chair

Mr. Philippe Sureau

The Chair

Mr. Robert Bouvier (President, Teamsters Canada)

The Chair

Mr. Robert Bouvier

½

1945

½

1950

The Chair

Mr. Jim Gouk

Mr. Robert Bouvier

Mr. Jim Gouk

Mr. Robert Bouvier

Mr. Jim Gouk

Mr. Robert Bouvier

Mr. Jim Gouk

Mr. Robert Bouvier

Mr. Jim Gouk

½

1955

The Chair

Mr. John Cannis

Mr. Robert Bouvier

Mr. John Cannis

Mr. Robert Bouvier

Mr. John Cannis

Mr. Robert Bouvier

Mr. John Cannis

Mr. Robert Bouvier

Mr. John Cannis

The Chair

Mr. John Cannis

The Chair

Mr. Mario Laframboise

¾

2000

M. Robert Bouvier

The Chair

Ms. Val Meredith

Mr. Robert Bouvier

Ms. Val Meredith

Mr. Robert Bouvier

Ms. Val Meredith

Mr. Robert Bouvier

Ms. Val Meredith

¾

2005

Mr. Robert Bouvier

The Chair

Ms. Val Meredith

The Chair

Mr. Larry Bagnell

Mr. Robert Bouvier

The Chair

Mr. François Laporte (Director, Government Affairs, Teamsters Canada)

The Chair

¾

2010

Mr. Marc-André Charlebois (President, Association of Canadian Travel Agencies)

¾

2015

¾

2020

The Chair

Mr. Marc-André Charlebois

The Chair

Mr. Jim Gouk

The Chair

Mr. Larry Bagnell

Mr. Marc-André Charlebois

Mr. Larry Bagnell

Mr. Marc-André Charlebois

The Chair

Mr. Mario Laframboise

M. Marc-André Charlebois

Mr. Mario Laframboise

¾

2025

M. Marc-André Charlebois

The Chair

Mr. Marc-André Charlebois

The Chair

Mr. Marc-André Charlebois

The Chair

---

CANADA

Standing Committee on Transport

---

NUMBER 018

l

2nd SESSION

l

37th PARLIAMENT

---

EVIDENCE

Thursday, April 3, 2003

[Recorded by Electronic Apparatus]

¹  (1510)  

[English]

    The Chair (Mr. Joe Comuzzi (Thunder Bay—Superior North, Lib.)): This is the resumption at 3:10 with the pilots. When we adjourned, we had Mr. Laframboise, Mr. Bagnell, then Mr. Cannis on the list. We were with the Air Canada Pilots Association.

    Mr. Jim Gouk (Kootenay—Boundary—Okanagan, Canadian Alliance): Where did I go on that list?

    The Chair: You haven't indicated yet, Mr. Gouk, that you're on the list.

    Mr. Jim Gouk: You mentioned me before we left.

    The Chair: Yes, I have to get a clerk here to get.... He's marvellous at times, but sometimes we just miss. You're on the list now.

    The questioning was with Mr. Laframboise.

[Translation]

    Mr. Mario Laframboise (Argenteuil—Papineau—Mirabel, BQ): I read your brief carefully and listened to the presentation of the situation that you made at the outset. Obviously, what you're asking is that the government examine questions which, in any case, the industry has been putting forward for a number of years, such as rediscussing the security tax, the complete abolition of which we don't accept and the industry doesn't accept, the excise tax on fuel, NAV CANADA charges, airport rents and airport improvement fees.

    What you must make the committee understand is that, as Air Canada has placed itself under the protection of arrangements with its creditors, the situation will inevitably improve, or else the company will simply go bankrupt. Everybody has hopes that, together with employees and creditors, Air Canada will be successfully restructured. That's why you put yourself under the protection of the Companies' Creditors Arrangement Act and request an arrangement with creditors, and I think that will be effective. In the United States, businesses have managed to come to an arrangement after eight months. It will be long, but I believe we'll come out of it with an agreement that will relaunch the business.

    What you're asking today, particularly of the Liberal Party, is whether we are prepared to support you because, once the restructuring is done, the company will have to survive. So we have to attack the problems you have outlined, and I'm astounded to see us coming back again to the question of how to restructure Air Canada. In any case, the creditor arrangement will restructure Air Canada.

    What you want to know today is mainly whether the government is prepared to cut its taxes, to examine what the business has been disputing since September 11, 2001. Requests have been made, and it's not the fault of Air Canada's 35,000 employees that September 11 occurred, that there was a war in Iraq or that SARS has broken out. Throughout history, we have seen problems such as those affecting your industry.

    So what you're mainly asking is whether the government is prepared to review the industry's request. Is that correct?

    Captain Jean-Marc Bélanger (Special Advisor, Air Canada Pilots Association): Absolutely, Mr. Laframboise. If you see in our working paper the efforts we Air Canada pilots made during the last-minute negotiations, you'll see a brief account of how far we were prepared to go to help our company survive, and even to avoid placing ourselves under the CCAA. So, yes, I agree with you.

    Mr. Mario Laframboise: And you are aware that, in any case, in the current procedure with the business, you're going to have to sit down once again and take another look at what you can do as a union and as an individual employee. Can you tell whether you have followed the arrangements that have been made with the businesses, among other things in the United States? I know that one business apparently negotiated an arrangement or is about to negotiate one. Were the concessions reasonable? Have you followed that, or are you not aware?

    Capt Jean-Marc Bélanger: Absolutely, we followed it with interest. You know that the act that applies to pension funds in the United States, for example, is very different from the Canadian statute, so we can't really apply what happened with U.S. Airways or United Airlines to Air Canada. But we Air Canada pilots are the founding members of an alliance of airline pilots that includes people from Lufthansa, United Airlines and other airlines, which is called the Star Alliance. So pilots are together, and we are in very close contact with the United Airlines people and so we're very much aware of their issues.

¹  (1515)  

    Mr. Mario Laframboise: Did they accept concessions similar to those you are considering?

    Capt Jean-Marc Bélanger: These things are a bit confidential. That's mentioned in the working paper we gave you. One thing we haven't talked a lot about is where the request for $650 million came from. Our senior managers told us that it came from their own estimate of the labour costs at WestJet relative to those of Air Canada, which were nearly $1.5 billion. That was divided roughly in half and we were asked for $650 million. It wasn't substantiated in a very scientific way; there were only two paragraphs on a page.

    So these are things that you committee members will have to examine. Where does this labour cost reduction and restructuring request of $650 million come from? Was the question really well studied? Was the request supported by figures? We have received no answer to those questions. We'll have to work with Air Canada and the creditors. We're ready to do so; we have a team currently in negotiations which is prepared to do that.

    I thank you for your trust, and we hope to be able to keep Air Canada in the air to serve our fellow citizens.

    Mr. Mario Laframboise: We hope so too.

    With regard to the early retirement buy-outs, because that's ultimately part of a restructuring, other unions asked that government assistance be provided for voluntary retirements and all the cash that could use up so that it would be possible to restructure the business a bit through attrition. Do you seriously think you will have needs?

[English]

    The Chair: You're two minutes over, so I'm going to let you finish that question and we're going to get a short answer. I apologize, sir, but we're under time constraints.

    Please finish your question.

[Translation]

    Mr. Mario Laframboise: Based on the figures you already have, do you think that, to restructure through attrition, you will need a fairly large envelope that would require government participation?

    Capt Jean-Marc Bélanger: That may happen. The problem is that it is too early to talk about that. It depends on the kinds of aircraft that will be retired from the fleet. For example, in terms of seniority, the Boeing 747-400 pilots are our most senior pilots, those closest to retirement. If we decide to park those aircraft, perhaps we'll have to consider that.

    But we have trouble making Canada's human resources programs work in the context of our pension fund and what we need to compensate Air Canada for early retirement. So that's something that we'll obviously have to look at, Mr. Laframboise. We're going to sit down with the company. There may be things that we can do in this regard. And we've already started by reducing our ranks through attrition in the order of 10% over the past two and a half years, and we're going to continue looking at these ways to help our company.

[English]

    The Chair: Thank you, Mr. Laframboise.

    Next is Mr. Bagnell, but just before we go there, when we broke there was some dispute about the salaries of the Air Canada pilots. We're advised by the Canadian Industrial Relations Board that the salary range can go from a minimum of $30,000 to $200,000 a year. The average salary is between $100,000 and $125,000 a year, and for flying a 737 the salary can go up to $165,000 per year.

    With your permission, when we get the report from the Canadian Industrial Relations Board, we will table it as part of the evidence we heard today. Do you have any problems with that?

    Capt Jean-Marc Bélanger: Mr. Chair, it is a public document, so--

    The Chair: Sure. There was some dispute, and this will settle the dispute in a factual way.

    Capt Jean-Marc Bélanger: If you need our help in clarifying those numbers, they vary with the number of flying hours we do. And we have reduced those, we have taken a reduction. We would be happy to clarify that.

    The Chair: Absolutely. Before we make any determination we'll certainly be back to either you, Mr. Bélanger, or Mr. Middleton.

    Mr. Paul Middleton (Director, Labour Relations, Air Canada Pilots Association): Just to clarify--

¹  (1520)  

    The Chair: I don't want to get into a dispute about this right at this time.

    Mr. Paul Middleton: We don't want to see a dispute either. In fact, as you can see from our brief, we do a lot to avoid disputes.

    Anyway, you have to make sure you're comparing--I know it sounds trite--apples to apples and oranges to oranges. The way Mr. Beddoe described his salary structure at WestJet, the way of bringing that apple to apple is to look at the total package. I believe your researchers would be very able to do that.

    There are other factors as well that factor into total yearly compensation. There's an exhibit in our brief that talks about productivity and salary of pilots at Air Canada to a North American standard, and it's favourable within this country. We're all taxpayers too.

    The Chair: Before we make any final determination, we certainly will pass those numbers through you folks.

    Mr. Paul Middleton: Yes, if you wouldn't mind. Then we could--

    The Chair: But we have to get something factual on the record. We seem to have some dispute there.

    Mr. Bagnell.

    Mr. Larry Bagnell (Yukon, Lib.): Thank you, Mr. Chair.

    Thank you for coming.

    Some of the witnesses, including Air Canada, basically said that where there are passengers, there are going to be planes. Would there be anything wrong if the company went into bankruptcy and whatever happened? Obviously, the passengers in Canada would be picked up by the various other airlines plus someone who picked up the assets of Air Canada and carried on. There would be the same number of passengers carried and the same number of pilots, so everyone would have a job.

    Capt Jean-Marc Bélanger: Would there be something wrong with an Air Canada bankruptcy? I sure hope we can avoid it. Sir, with all due respect, you cannot start transporting 90,000 passengers a day, as we're going to be doing this summer, by just dismantling our fleet and allowing other operators to pick up our assets.

    A lot of people don't think we do a very good job. As a career airline captain with Air Canada, I must tell you that when I fly my airplane with my crew, our passengers are satisfied. It would mean the 35,000 employees throwing their careers down the drain. We work on a seniority system, just as they do at WestJet. When you start at WestJet, you don't start as a captain. You start as a co-pilot, and you move up the ladder. For all the employees it means finding work elsewhere. Some of us will be able to go fly in Asia or Europe. We're not going to start at the bottom of the line as a co-pilot. I hope I made it clear. I think it would be a grave mistake to allow Air Canada to go bankrupt from the point of view of the service we give to our country.

    Mr. Larry Bagnell: Talking about seniority, the last time we talked there was this big problem with the pilots of Canadian Airlines. I had a lineup of them come to me with horror stories about the possibility of suicide or family breakup because they were getting so much seniority pushed back compared to Air Canada pilots. I was actually worried about the safety of the travelling public. I assume that's all sorted out and everyone is relatively happy now.

    Captain Donald K. Johnson (President, Air Canada Pilots Association): Mr. Bagnell, all through that program we had our employee assistance people and trained professionals looking into those kinds of things, and I'm proud to say that not one incident took place on an airplane, not that was reported to us or to the company. So we managed to put those two groups of pilots together, and there were not any problems.

    Mr. Larry Bagnell: And everyone is relatively happy.

    Capt Donald Johnson: I don't know if we're happy yet. We're still in the courts.

    The issue is that we're professional enough that when we get into our cockpit, we leave our problems behind.

    Mr. Larry Bagnell: You're bringing up seniority now, but at that time there wasn't too much accommodation for the seniority of the pilots of Canadian Airlines.

    That's it, Mr. Chair.

    The Chair: Thank you, Mr. Bagnell.

    Mr. Gouk.

    Mr. Jim Gouk: Thank you, Mr. Chairman.

    I found it an interesting comment, gentlemen, that it would be a big mistake to let the airline go bankrupt when indeed that's exactly what your own union proposed should happen with Canadian Airlines. That was your specific thing, saying just let the company fold. That was well reported.

    Capt Jean-Marc Bélanger: I don't know where you got that information, sir, but when we appeared in front of the Standing Committee on Transport, our position was not that at all. The brief we submitted didn't have anything to do with that.

    Mr. Jim Gouk: I'm talking about before the merger actually happened, when there were suspicions of it.

    Capt Jean-Marc Bélanger: Yes, we opposed a merger, but we never wanted Canadian Airlines to fail. In fact, we showed the Minister of Transport how we could restructure Canadian Airlines to be a viable enterprise. We were worried that the debt load of Canadian Airlines would affect Air Canada. But now we're all part of a big family and we want to put that behind us. What can we do together to save our company?

    Mr. Jim Gouk: There's one thing I want to mention, just so that we get this in perspective, and then I have one specific thing I want to ask.

    There has been a lot of talk today about all the problems and obstacles Air Canada has encountered, and they have. We agree with a lot of the things in terms of security charges and a number of other charges, and we want to look at that. But Air Canada started out virtually debt-free 14 years ago. It now owes $13 billion, the bulk of which occurred before both 9/11 and the merger with Canadian. The bulk of that debt was there.

    One of the things we heard today from Clive Beddoe--he has been oft quoted today, so we might as well do it again--is you will never be able to compete against a no-frills carrier like him simply because your cost base is much higher and you will never get it down to the point his is at. You can trim it and make yourself a lot more efficient, but you'll never be able to compete on a cost basis with an airline like WestJet. He said he wants to see Air Canada survive and thinks that it can survive well, but that you're competing in the wrong market. Instead of competing against a no-frills one when you don't have the cost base to do that, you should be going at the high-end market, which is predominantly where you were before they came along and you got almost sidetracked by this. There is a real market for you there, and the company could do extremely well because there is very little competition. Nobody can compete with you there.

    What are your feelings in general, looking at the restructuring of Air Canada so that you're looking at a higher-end market, a higher fare, which you need because of your higher costs, and your international market, which is your most lucrative revenue base, and maintaining that and working where you can be the most profitable and most specialized, just as he's doing in the no-frills market?

¹  (1525)  

    Capt Jean-Marc Bélanger: It's a very interesting question, and it's a flattering proposition that you would think that the Air Canada pilots are actually driving the business plan of our company. We're not. Our management is putting the business plan in front of us. They're asking our help to provide a low-cost carrier presence on the market.

    Mr. Beddoe and others think we have to match WestJet's costs, but he forgets we have economies of scale at Air Canada. If we don't match their costs completely, we still have Aeroplan, we still have Interlining Plus. Perhaps we cannot make as much money on a Zip flight, because the person is going to connect on a Hong Kong flight and spend $3,500 on Air Canada. You have to think about the whole picture.

    It's a fallacy to think we have to match WestJet cost-for-cost. But we, the pilot group, have. We've done our job. We're providing auditing skills to Air Canada that match WestJet's. Actually, our costs are lower.

    In answer to that, I cannot speak for management. I wish Robert were here too.

    Mr. Jim Gouk: I'd like to clarify that I'm not pinning any of this on you guys, or on flight attendants, or even on the baggage handlers, in spite of the fact that they keep wrecking my suitcases.

    The thing is, it's management decisions that have caused these problems. Yes, there might be problems piqued by government, and other factors--natural disasters, terrorists, or whatever--but a lot of it has been caused by management decisions.

    You talk in terms of your carrying at a loss even on the low end because you're connecting to a Hong Kong flight. Well, WestJet is not going into the Hong Kong market, so you would still get the Hong Kong flight, which is where you make your profit. So the argument that's been suggested is should you be even trying to compete against something like WestJet, instead of concentrating on providing the service in the areas where you can provide the best service, and somebody like WestJet isn't going to even compete.

    Capt Jean-Marc Bélanger: Well, let's be careful here. Remember the old system where we had Canadian Airlines and Air Canada. We used to fly to Paris every day out of Montreal and Toronto, but our Canadian passengers out of Vancouver who wanted to go to Paris would fly Canadian, if they liked Canadian, from Vancouver to Toronto, and then hop on Air France. So we take Canadian money and we put it on foreign airlines.

    It's the same thing with Air Canada passengers. They like to travel on Air Canada. In the old days when they wanted to go to Tokyo, they'd fly from Montreal to Vancouver on Air Canada, and then connect to Japan Airlines, not to Canadian Airlines that went there every day.

    So what makes you so sure that WestJet passengers would connect on Air Canada? And if you're obligating Air Canada to take WestJet passengers without a commercial agreement, a feed arrangement, and some control over how we do our pricing, then you're just going to create the demise of the domestic system of Air Canada. That feed doesn't belong to Air Canada. Mr. Beddoe himself says he's feeding KLM out of Vancouver.

    Mr. Jim Gouk: So you're saying that the only way you can successfully restructure is if you come out of this with the ability to compete directly against WestJet and take business from them.

    Capt Jean-Marc Bélanger: Well, no. Compete with them.... WestJet is a great airline. They have a place in the system, but WestJet only flies place to place on profitable routes. Ask the people of Brandon, Manitoba. After three months they went out of there because the route became unprofitable. Air Canada got out of Saskatoon. Are you going to blame us for doing the same thing?

    You have to have a level playing field here. I'm saying you have to be very careful if you're going to strip Air Canada of its domestic base, because we're doomed to failure. The international portion of our airline is going to fail.

¹  (1530)  

    The Chair: Thank you, Mr. Gouk.

    We have Mr. Cannis.

    Mr. John Cannis (Scarborough Centre, Lib.): Thank you, Mr. Chairman.

    Welcome.

    First of all, we're all here to hear from you and get some ideas and pass them on to the minister and make some recommendations. I know this question was asked to previous presenters. How can we turn this whole thing around? The response was fair competition, find the niche, and attract capital, of course, and expand on the 25%.

    You said WestJet is a great company because they focus on profitable areas. It's that niche, I guess, that we've been hearing about. Why, then, I ask, can Air Canada not find their niche, their profitable area, and say “Here's what we're good at. These are the routes where we can really generate some revenue. Let's focus on those, as opposed to expanding here and there, and hopefully we'll capture a percentage here and there.”

    I'd like your comment on that. I'd like your comment also on if indeed the percentage should increase, as was suggested, I think, earlier today--49%.

    Am I correct, Jim?

    You mentioned 49% to 51%, which still holds the majority. So I'd like your views on what you think of that.

    Capt Jean-Marc Bélanger: Well, on the first question, with respect to niche carriers, I'd like to throw a question back at you, sir. Are you telling me that because WestJet is successful in the niche market, we're not going to allow anybody else to compete against WestJet, and if Air Canada is successful in the transatlantic market, we're not going to allow anybody else to compete with Air Canada because we're going to stay in our niche? You see, we're competing against Air France, British Airways, Alitalia, all the American carriers. So in order to be able to have good competition at that level, if you want to have free market forces, please allow us to compete with WestJet and we'll see if we can do a good job at it.

    I'm not sure if my response meets your....

    Mr. John Cannis: So what you're saying is over-regulated industry will prevent you from properly carrying out a successful business.

    Capt Jean-Marc Bélanger: Buzz Hargrove earlier this morning made a good case that the system doesn't work. I'm an airline captain, and I don't know all the answers; we're here to give you some input from our perspective. But at the end of the day we need a successful airline system in the country, and we think Air Canada can play a key role. And if you look back at our accomplishments since 1936, we have done just that. We're a great airline.

    I don't have all the answers. I'm throwing it back at you that if you're going to start playing in that market and allow WestJet on certain routes that are profitable, then who else is going to fly the non-profitable routes and service small communities in Thunder Bay, Val-d'Or, and Kelowna?

    The Chair: Thank you, Mr. Cannis.

    Ladies and gentlemen, if there are no other questions, I want to express our appreciation to the airline pilots. I want you to know that although we may have been a little difficult on the answers today, those of us who fly on Air Canada are very proud of each and every one of your pilots. When we get on an airline, we know that you're dedicated. We know that the Canadian Airline Pilots Association is one of the finest in the world, is well looked upon, and used as a model. You're a great part of the Airline Pilots Association, and we as Canadians are really totally proud of the job you do. We thank you very much.

    Capt Jean-Marc Bélanger: Thank you very much, Mr. Chair. Next time I come, though, I'm going to fasten my seat belt. Thank you very much.

    The Chair: The weather wasn't that stormy.

    Capt Jean-Marc Bélanger: It was pretty turbulent at times, so it felt.

    The Chair: We now deviate a bit from the agenda that's in front of you. We have, because of the pension issue, from the Office of the Superintendent of Financial Institutions, Mr. Le Pan and Ms Taraschuk. They're going to provide some insight. Please come to the front.

    In the interim, I've had a document with respect to the pension issues prepared by our very competent researchers, which I think you should have, and you may want to look at it.

    Mr. John Christopher (Committee Researcher): We'll have to ask Mr. Laframboise about this. It's only in English, but we will get June to read it and have the interpreters interpret it.

    The Chair: We'll get June to read it.

    I apologize, we're under pressure, Mr. Laframboise. I apologize again.

    While we're doing that, I thank you, Mr. Le Pan, for coming on very short notice and shedding some light on this critical issue with respect to the Air Canada pension.

¹  (1535)  

    Mr. Nicholas LePan (Superintendent, Office of the Superintendent of Financial Institutions Canada): Thank you, Mr. Chair.

    The Chair: I'm going to have somebody read this into the record. Do you have a copy of it?

    Mr. Nicholas LePan: Yes, I do, and there's also a document I've provided the clerk that is at the moment only in English but will be, by the end of the day, provided to the committee en français aussi, which I will refer to during my brief remarks, before we take questions. I would like it to be distributed as well.

    The Chair: Thank you.

    On a motion by Mr. Laframboise, seconded by Mr. Galloway, we approve the acceptance of that report--is that correct? I'm sorry...?

[Translation]

    Mr. Mario Laframboise: If he wants to move the motion, I'll second it.

[English]

    The Chair: The motion is made by Mr. Galloway, seconded by Mr. Cannis.

    (Motion agreed to)

    The Chair: Thank you.

    In terms of the report that's in front of you now, on this pension issue, as a federally regulated enterprise, the Office of the Superintendent of Financial Institutions is the regulator of Air Canada's pension plans, which fall under the Federal Pensions Benefits Standards Act, Statutes of Canada, 1985.

    The Public Benefits Standards Act requires periodic, every three years, actuarial valuation of the pension plans, with the company required to make periodic payments in the event of an unfunded liability. Nevertheless, the OSFI, which is the Office of the Superintendent of Financial Institutions, can trigger an earlier planned valuation under circumstances, including concerns about the financial solvency of the company.

    Media reports indicate that Air Canada pension plans were underfunded by about $1.3 million at the beginning of 2003. The OSFI gives companies up to five years to top up pension plans. Do you agree with that statement?

    Mr. Nicholas LePan: Not entirely, Mr. Chairman. There are a couple of points I think are important, which I would be happy to clarify. The broad direction is right, but there are a couple of very important elements that we need to be absolutely precise on, and I would like to do so.

    In particular, the five-year rule is in the legislation. We do not have discretion on the five-year rule, for example.

    I did have a brief opening statement, and if it would be possible for that to be circulated as well, I could perhaps add a little bit to the essence of the points that you have already made, and talk a bit also about the application of those in the situation of Air Canada, which--

    The Chair: You referred to the five-year rule. Where is that?

    Mr. Nicholas LePan: The very last point, for example.

    The Chair: I see.

    Mr. Nicholas LePan: That is actually in legislation and regulations.

    The Chair: That is legislation. It is a statutory requirement.

    Mr. Nicholas LePan: It's a statutory requirement.

    The Chair: Thank you.

    Go ahead, sir.

    Mr. Nicholas LePan: Mr. Chair and members of the committee, when I heard that there were a number of questions, I thought it might be beneficial for me to appear today because I believe there has been some confusion about the pension aspects of the Air Canada situation. I think it's important that I spend a few minutes on our responsibilities. There are some limits, because of confidentiality, about what I can specifically talk about. However, given the court filings made by Air Canada and the related disclosures, I think it is possible for me to describe the main elements of the situation from our perspective.

    We are, subject to statute, the Pension Benefits Standards Act, responsible in the interests of pension plan members to regulate and supervise pension plans for federal employers. That regulation and supervision recognizes that pension plans are voluntary agreements between employers and employees. So while they are affected by legislation and regulation, they are also affected by collective agreements.

    Under the legislation, deficits in pension plans have to be funded by sponsors over five years. The legal requirement to fund a deficit--and I'm now on the fourth paragraph of my notes--is determined by the filing of evaluation report with my office. That normally occurs, as the notes distributed earlier say, every three years, but can be accelerated.

    This approach that is in the legislation and regulations is the result of a trade-off. It is obviously important to protect pension plan members by having plans funded. But it is also important in Parliament's judgment in the legislation, it is my understanding, to provide flexibility to plan sponsors and plan members to negotiate and fund defined benefit plans rather than terminating them, for example, and replacing them by other arrangements. Our administration of the legislation also respects that trade-off.

    Now, briefly, to the Air Canada situation. We began stress-testing the Air Canada pension plans under our supervisory approach about two years ago. As a result of our analysis earlier this year, we became concerned that these plans might be operating at a significant deficit. We subsequently confirmed this with Air Canada. The company, in its court filings, has referred to a deficit of approximately $1.3 billion, as you've noted in the notes, as of January 2003, although the plans were actually in a surplus position at the time of their most recent formal evaluation reports toward the end of 2001.

    My office will only know the precise deficit once the valuation reports are filed and analyzed. But based on our current information, I have no reason to materially differ with the estimate provided by Air Canada and referred to in your notes.

¹  (1540)  

    The Chair: How much?

    Mr. Nicholas LePan: That's the $1.3 billion I referred to that's in the Air Canada filing.

    The Chair: That's “billion”?

    Mr. Nicholas Le Pan: Yes, that is billion, correct.

    The Chair: I'm sorry, on the note I circulated it was $1.3 million.

    A voice: A typo.

    Mr. Nicholas LePan: There is uncertainty about the exact deficit, and the exact deficit will depend on the timing of valuation, what happens to financial markets, what happens in negotiations between Air Canada and its unions with respect to salaries, benefits, and so forth, and what happens with respect to negotiations around any restructuring of the plans.

    There's a further important element, and it's referred to also in Air Canada's filings: Air Canada had been taking a contribution holiday. In other words, they've been taking a holiday from making regular contributions, starting in 2001, and continuing in 2002 and 2003. This is permissible under the regulations and legislation. However, given OSFI's mandate, it is my responsibility as superintendent to come to a judgment as to whether holidays such as that are appropriate, taking into account all of the circumstances, including the plan arrangements. I did not think so.

    Our concerns of course were heightened because of the various other pressures widely reported on the company and the industry. Essentially, it's one thing to be taking a holiday when a plan is in a significant surplus, or roughly in balance, but it's very different, in my judgment, to be taking a holiday when a plan is in significant deficit and there are other issues affecting the company.

    So in order to enhance the position of pensioners, OSFI, my office, did three things. First, we approached the company to require them to stop taking contribution holidays and remit approximately $200 million, which represents contribution holidays taken in 2002 and normal current costs, current contributions, which would have had to have been paid during the remainder of 2003. There have been published reports that OSFI required the company to immediately put $1.3 billion into the plan and that this was a triggering event. This is not the case.

¹  (1545)  

    The Chair: To be clear, Mr. Le Pan, after you reviewed this, you asked for the holiday to cease, and you asked for a contribution of $200 million to bring 2002 up to date, the holiday taken in 2002, and I missed the figure for 2003.

    Mr. Nicholas LePan: The $200 million is approximately the amount of the holiday in 2002 and the current contributions that they would have to have made in 2003. Remember, I said they were taking a holiday in 2001, 2002, and 2003. We did not go back to 2001 because the plans were in surplus at that point. And as I said, taking holidays is permissible under the legislation and regulations. It would have been, in my judgment, unfair to have gone back further than that. But I believe when the plans became in significant deficit, it was inappropriate to be taking holidays.

    So the total of that--and remember we're now part way through 2003--the rest of 2003 plus 2002 contributions would have been about $200 million. It's important, because we are, again, trying to balance here the interests of pensioners but also not precipitating things.

    Prior--and I emphasize this--prior to the company deciding to seek protection under the CCAA, we had indicated to Air Canada that we accepted their proposal as to the funding of that approximately $200 million, provided that agreement was subsequently documented. And I believe that proposal was made by Air Canada, and we, as I say, accepted it on the basis that the company was successful in its other negotiations and thus avoided the CCAA filing. There is reference to that agreement in Air Canada's filings for the CCAA. It's called a so-called interim agreement that's referred to in those filings.

    I believe that our acceptance of their proposal removed the immediate pension funding issue as a reason for Air Canada filing for bankruptcy protection when it did. We had essentially reached agreement with them to say we want the past contributions funded and they had made a proposal as to how they could do that, provided they reached other negotiations that had been reported in the press, which went successfully and they avoided CCAA filing, and we said fine. So if you have the rest of it sorted out, pensions is not an issue for filing for CCAA. There may be other reasons, but it's not pensions in the immediate funding. And those agreements are referred to in very general terms in their filing.

    The second thing we did, in a separate communication, is we requested that Air Canada accelerate the filing with my office of the valuation reports, which are normally every three years. And we requested that they accelerate the filing of those reports to later this month, the end of this month, fundamentally, so that we could better ascertain the real deficit position in the plan. By accelerating the valuations from what they normally would be, we were enhancing the position of members of the plans on an ongoing basis, because they would have had to start funding, or if the company chose to seek bankruptcy protection for whatever reason, because we were creating liability for those payments to fund the deficit.

    Again, let me emphasize that in any event those payments would have had to have been over a period of time. They could not have been immediate under the legislation. So it would not be possible under the legislation to create immediate funding of whatever that deficit actually was. That's very important. It gets back to the point that because the legislation says that you have five years in the regulations, you have five years.

    With respect to that issue of the deficit, which is different from the contribution holiday, we also indicated to Air Canada that there was some flexibility in the precise timing of those reports because of their situation, and we were prepared to discuss that with them. Again, we were not precipitating unduly.

    The third thing we did is we required the company to provide adequate disclosure to members about the situation.

    I'll make one or two other quick points in closing.

    We have indicated to the company that we remain open to work with them in the best interests of members to deal with the current funding issues and any restructuring, and they've indicated they want to restructure.

    Any restructuring of the plans would have to receive the approval of my office. We would consider the fairness of the proposal, its viability, as well as the fairness of the process used to determine the restructuring proposal, so had retirees, unions, been adequately represented in the discussions?

¹  (1550)  

    We are also prepared to discuss how elements of that agreement related to the $200 million, the interim funding, could still be achieved, even with a CCAA filing. It's up to the company to come forward with that as part of the approach.

    The Chair: They didn't pay the $200 million.

    Mr. Nicholas LePan: No. They had reached an agreement with us to fund the $200 million, but the whole situation is stayed. I'm not a CCAA expert, but the whole situation is stayed, so what will happen is that Air Canada will approach the court with a proposal, including a proposal, I hope, that addresses issues of current funding of the plans. But that has yet to come, and you'd have to ask them about their intentions in that regard.

    Even with Air Canada's filing for CCAA, our requirements remain in place, though we're prepared to discuss them in the context of restructuring, for example, and I believe they even enhance the position of pension plan members. This is, of course, a very unfortunate situation from the perspective of pension plan members. I appreciate that, but I think we have worked and will continue to work in accordance with the mandate we have in our legislation to work with plan administrators and others in the best interests of pension plan members.

    I'd be pleased to respond to any questions.

    The Chair: Thank you. That's very helpful, Mr. Le Pan.

    We're going to go to Mr. Gouk.

    Mr. Jim Gouk: Thank you, Mr. Chairman.

    I'd just like to clarify, to make sure I understand. I don't really have questions other than for clarity.

    We came in today understanding that there was a $1.3 billion deficit. As I understand it now, not only is there not a deficit, but as of 2001 there was a surplus, which was why there was a premium holiday. Now, is there a specific deficit at this point, or did you just think it prudent that they suspend that holiday and start making contributions, which would be a total of $200 million to be current?

    Mr. Nicholas LePan: As I said a moment ago, there was a surplus at a point in time. Because of our analysis, we became concerned the surplus might have eroded and have become a significant deficit, and we had our own estimate of what it might be at that point. We approached Air Canada to confirm that it was in the ballpark of what they have talked about. I do not have, as I've said, a precise estimate of the deficit as we sit here today, because it depends on those other matters. The Air Canada filing and the $1.3 billion number is as of January 2003. As I said, from the information I have, I had no reason to materially differ with that estimate at that point in time.

    What it is today, tomorrow, or whenever will depend on some of the factors I mentioned: market performance, what the timing of the valuation is, what the changes are in Air Canada's operations, and of course any proposals to restructure the plan.

    Mr. Jim Gouk: But as of the time you made this agreement with them, it was your best belief based on what information was available to you—I realize it wasn't after a full review—that $200 million would probably be in the right ballpark to level it out?

    Mr. Nicholas LePan: As I have said, we were working on several fronts. One front we were working on was with respect to the contribution holidays, because we believed it was important to try to get some degree of immediate funding, over the next little period of time, into the plan. We were, second, working on the longer-term issue of the deficit, and as I have indicated, the legislative framework is one that suggests that deficits can be funded over five years—a significant period of time.

    The legislative framework does not require that if there is a deficit it be immediately funded, so we balance the interests of pension plan members within the legislative framework with the fact that pension plan sponsors and pension plan members need flexibility in the time period over which they fund deficits. We would have looked at what further funding was appropriate once we got through to the second stage, which was the valuation reports and what liability they created.

¹  (1555)  

    Mr. Jim Gouk: Just one last thing on this Air Canada pension plan. Do you know how the contributions were made up? Was it strictly funded by the company, or is it company and employees together?

    Mr. Nicholas LePan: It's both. I'm just looking a little bit, because there are a number of plans. There are something like 12 plans. Something like 10 of the 12 plans have both employer and employee contributions. Two have only employer contributions.

    Mr. Jim Gouk: Yes, this is important, though. Just one point.

    If there is a premium holiday, does that mean that the employees are not paying to the company, or that they still pay the company?

    Mr. Nicholas LePan: They would normally be paying. The legislation permits employers, as I said in my note, to take a premium holiday.

    Mr. Jim Gouk: The employers. Well, what happens to the employees' money?

    Mr. Nicholas LePan: They would normally be contributing.

    Mr. Jim Gouk: So that's still been going in. Okay.

    The Chair: Thank you.

    Mr. Proulx.

    Mr. Marcel Proulx (Hull—Aylmer, Lib.): Thank you, Mr. Chair.

    Bonjour, Monsieur Le Pan.

    Mr. Nicholas LePan: Bonjour.

    Mr. Marcel Proulx: We'll do this in English, okay.

    You say that you have the mandate to decide if this is acceptable or not for them to take a contribution holiday, and you say you did not think so. When was that, sir? When did you not think?

    Mr. Nicholas LePan: When we became aware and confirmed that the plan had moved into significant deficit position.

    Mr. Marcel Proulx: That would be roughly what date?

    Mr. Nicholas LePan: Earlier this year, as I've indicated.

    Mr. Marcel Proulx: 2003.

    Mr. Nicholas LePan: Yes, because as I've said, the image I think you need to have is that the plans were, as Air Canada said in its filings, funded in fact in a surplus position. It was during the course of 2002 that the plans were starting to move down to flat and then into deficit position.

    Mr. Marcel Proulx: Okay. You said that in 2002 and the first part of 2003 it was worth approximately $200 million.

    Mr. Nicholas LePan: Correct.

    Mr. Marcel Proulx: What would have been the value of the plan in 2001? Because my understanding is that they took the holiday for 2001, 2002, and 2003, until you stopped them.

    Mr. Nicholas LePan: Yes, the plans were in surplus. I don't have that number in front of me, but I can provide it to the committee subsequently, as per the reports that were available at that time.

    Mr. Marcel Proulx: Could you, please?

    Okay, if the plan was in surplus--let's say it was only $1 in surplus for the purpose of this--it's now short $1.3 billion. You appraised the value of 2002 and 2003 at $200 million. Where is the other $1.1 billion? Is it strictly because of market performance?

    Mr. Nicholas LePan: What I was trying to do for the committee was separate in part the issues of current funding from the issues of what the deficit is in the plan at any point in time. The $1.3 billion referred to by Air Canada is the deficit in the plan as of January 2003. Okay?

    Mr. Marcel Proulx: Fine.

    Mr. Nicholas LePan: Now, if we think of, say, $100 million being the contribution holiday in calendar 2002, for example, suppose it was $100 million for those 12 months, that's roughly accurate. The plan's value is reducing and going into deficit fundamentally because of market performance, so that's the rest.

    Mr. Marcel Proulx: Okay, so the route was as of 2001. That will be the start of 2001--

    The Chair: I'm going to give you more time, Mr. Proulx, because you're on a very fundamental issue that we're all trying to figure out.

    Mr. Marcel Proulx: Thank you.

    I just want to understand this. I don't want to lose sight of.... At the start of 2001, I assume there was a surplus, otherwise you would not have allowed them to take a holiday right then. Right?

    Okay, at the start of 2001 there's a surplus and then you have a second look at this in early 2003, when you thought it was not proper for them to take a holiday.

º  (1600)  

    Mr. Nicholas LePan: The valuations of the plan that show it in surplus--and there are several plans--also include valuations that were done during the course of 2001, so I believe it's quite likely that the plans were also in surplus through a considerable part of 2001, if not the whole of 2001.

    Mr. Marcel Proulx: Okay, so let's assume it was in surplus until the end of 2001. You looked at it again in early 2003 because of Air Canada's situation and you then realized that, geez, we're down $1.3 billion. You assessed the value of the holiday of 2002 and whatever part of 2003 at $200 million, which they haven't paid. That's fallen through. Okay.

    Mr. Nicholas LePan: I wouldn't say it's fallen through. What happens to that will depend on the application that is made under the CCAA money.

    Mr. Marcel Proulx: No, but until now it has fallen through. It hasn't happened. Right?

    Mr. Nicholas LePan: Right.

    Mr. Marcel Proulx: Okay. This is a last little question, Mr. Chair.

    You say: “Thirdly, we also required the company to provide adequate disclosure to members about the situation.” Have they done so, to your knowledge, sir?

    Mr. Nicholas LePan: They have provided some disclosure to members. I believe they are providing further disclosure to members as we speak.

    Mr. Marcel Proulx: How long are you going to tolerate this?

    Mr. Nicholas LePan: I think our actions show that we've been pretty activist. We took specific regulatory action. We took that action proactively, and as I've said, that action and some of the implications of that action remain in place with the consequences that go along with it, even though the company is in CCAA. I think that's as much as I can say, given the situation, to describe our general approach here.

    Mr. Marcel Proulx: Okay. In conclusion, through the chair, I can say that Air Canada has been the victim not only of September 11, not only of the war, not only of SARS, but also of the market downfall, because they've lost potentially—

    Mr. Nicholas LePan: —a significant amount of money.

    Mr. Marcel Proulx: —potentially $1.1 billion since potentially the end of 2001.

    Mr. Nicholas LePan: The market is a factor here, yes. No question, it is a factor.

    Mr. Marcel Proulx: Thank you very much.

    Mr. Nicholas LePan: You're very welcome.

    The Chair: You may want to ask one more question, Mr. Proulx, and the question you might want to ask is how many people are covered through this pension plan.

    Mr. Marcel Proulx: Well, I understood it was all of Air Canada's different pension plans, was it not?

    The Chair: But how many people have already retired and rely on a pension plan?

    Mr. Marcel Proulx: Mr. Chair, it wouldn't only be the ones who have retired. It would be the 35,000 present employees who would risk losing in the long run.

    The Chair: Okay. I think the question is 35,000 plus how many? How many are there?

    Mr. Nicholas LePan: The information I have is that for the total of the 12 defined benefit plans, there are some 36,500 members, as we understand it—current members—and about 15,000 retired members. It is not possible for me to say at the moment exactly what happens to those, because it depends on some of the factors I've talked about. It also depends on negotiations to come and on things like the priority rules. As I indicated earlier, it's not just the legislation and regulations, but plan agreements have rules in them about what happens if there's a deficit. So it depends on those kinds of situations. It's up to Air Canada, who will have to clarify together with other parties those impacts.

    The Chair: I'm going to allow you some more questions, Mr. Proulx.

    Mr. Marcel Proulx: Here is a short supplementary. There are 12 plans.

    Mr. Nicholas LePan: That's correct: 12 defined benefit plans, yes.

    Mr. Marcel Proulx: Do we know which ones apply to presently employed people and how many apply to retired personnel?

    Mr. Nicholas LePan: No. I shouldn't say no; that's not the right way to answer the question. Excuse me.

    Normally, a defined benefit pension plan has—and that's why I talk about plan members—both active members who are currently working and retired members. The image to carry in your mind is that a plan would have a mix of both, depending on the nature of the plan. Some of these are predecessor plans from former companies—Canadian Airlines and so forth.

º  (1605)  

    Mr. Marcel Proulx: So potentially ten-twelfths of 51,000 people could be affected.

    Mr. Nicholas LePan: Well, depending on the negotiations, depending on market performance, depending not only on negotiations for the plans but on negotiations on employment conditions and so forth, all the members in one way or another could be affected. There's uncertainty precisely because it depends on the situation being negotiated.

    Mr. Marcel Proulx: So basically Air Canada can only be blamed for missing out on what? Is it $200 million or $250 million input into the plans? The rest, as you mentioned, would be market performance?

    Mr. Nicholas LePan: As I've said, the legislative structure here and the administration by my office provides a balance, and when we think that balance is going too far in one way or another, we act. Hence our action with respect to contributions, and our action to accelerate the valuations, which is a very important part of this, because it starts to actually accelerate the need to address these kinds of liabilities.

    Mr. Marcel Proulx: Yes, but excuse me, let's just remove a dark cloud here. You're not saying, and we're not hearing from you, that Air Canada took money out of the system to finance other operations. That's the sense of my question.

    Mr. Nicholas LePan: No, you're not hearing that, correct.

    Mr. Marcel Proulx: I'm not hearing that, and the problem is that Air Canada did not put $200 million or $250 million into the pension plan for 2002 and 2003—period.

    Mr. Nicholas LePan: Plus the plan, because of market forces, was in a deficit and had to be funded somehow or restructured.

    Mr. Marcel Proulx: No, no, but the responsibility of Air Canada stops there, at the $200 million or $250 million, as far as the shortage is concerned--is that it? What am I missing?

    Mr. Nicholas LePan: As I indicated in my statement, the responsibility of sponsors includes, once valuation reports have to be filed, either funding the deficits or restructuring the plan—one way or another.

    Mr. Marcel Proulx: Oh, I see, okay.

    Mr. Nicholas LePan: It's over a five-year time period. So if that had been sitting there and they had been funding it progressively over five years, and then for some other reason, halfway through the five years, they had gone into bankruptcy protection, there would have still been some unfunded liability at that point.

    The Chair: I'm sure you're going to want to ask the following question.

    Mr. Marcel Proulx: Well, before I ask that one, I was going to conclude by saying that Air Canada failed to put in, let's say, the $250 million to the pension plan, but now, because there's a shortage of $1.2 billion or $1.3 billion, they would be liable for the $1.2 billion or $1.3 billion to rebalance the plan.

    Mr. Nicholas LePan: Or the plan sponsors, according to their union contracts and the contracts that set the plan, have to renegotiate the plan to make it possible to meet those obligations.

    Mr. Marcel Proulx: What was the question you wanted me to ask, Mr. Chairman?

    The Chair: I'm sure you were going to want to ask who is responsible, number one, for administering the plan. Who is administering the funds that are put into this pension plan on behalf of the employees? And I'm sure the corollary question you would want to ask is are the employees treated the same way as mid-management and top management of the company.

    Mr. Marcel Proulx: This is somewhat a dysfunctional committee. Normally, we should go through the chair, and now it's the chair coming through the member.

    The Chair: Then we can go on to other issues. But those are critical.

    Mr. Marcel Proulx: Do you want to address these questions?

    Mr. Nicholas LePan: I just want to emphasize, as I said earlier, that it is not only the legislation and regulations, but it is also the agreements—and they'll vary plan by plan; another employer than Air Canada would have a different kind of agreement—the collective agreements and the plan arrangements covering whatever was actually agreed to in the plan when it was set up that will govern who has to be involved and what happens in various circumstances.

    The key point I want to make is the legislation permits some flexibility in funding, and our office is there to protect the interests of members without guaranteeing every benefit will always be met, because the legislation does not guarantee that every benefit will ultimately be paid in all cases. But when there is a significant gap between the promise and the capability to fund, something has to happen. You either have to figure out how to fund it or restructure it.

º  (1610)  

    Mr. Marcel Proulx: Thank you.

    The Chair: Well, we didn't get an answer.

    Mr. Marcel Proulx: I know.

    Mr. Nicholas LePan: I'd be happy to come back, because I didn't get all the specifics.

    The Chair: Mr. Gallaway.

    Mr. Roger Gallaway (Sarnia—Lambton, Lib.): Thank you, Mr. Chairman.

    Mr. Le Pan, if I understand this, we are led to believe the number of Air Canada employees somehow involved in these 12 plans who will retire.... Some of them are going to retire; some of them are going to be laid off. If the number of early retirements or just plain retirements is accelerating, the potential liability vis-à-vis these plans is increasing. Is that correct?

    Mr. Nicholas LePan: Not necessarily, no. That would depend on the terms of arrangements about what happens.

    Mr. Roger Gallaway: All right, I'll accept that. That's good enough.

    The next question I have is, then, there is this number—this liability—out there, which is a lot of money, and the company is in peril. It has gone to court and has been afforded the shelter of CCAA. Does that application and the granting of that order under CCAA shut your agency out?

    Mr. Nicholas LePan: No.

    Mr. Roger Gallaway: Is it tantamount to bankruptcy, in one sense?

    Mr. Nicholas LePan: No, I don't believe so. For example, let's consider the possibility that there will be negotiation to restructure the plans, which the company has announced it would like to pursue, and whether it does that successfully will depend....

    Suppose there was a restructuring of the plans. My office would still have to approve, as I said in my statement, that restructuring. Normally the court would not get involved directly in the restructuring. It would look at whether the funding requirements coming out of the restructuring could be met within the overall plan of arrangement that the court would be approving with all the creditors, and so forth.

    So my office is not shut out in its entirety. We are involved, but the CCAA filing does stay, in other words, all kinds of payments, including payments into the pension plan. Normally companies that go into CCAA will come forward to the court fairly early on with a proposal about how they plan to deal with a number of things, including payments into the pension plans. There's a lot of history in which companies come forward and the court approves restarting payments. I don't know what their intention is.

    The Chair: Thank you, Mr. Gallaway.

    I apologize to Mr. Laframboise for missing him on the last turn, so I turn the microphone over to him.

[Translation]

    Mr. Mario Laframboise: Thank you, Mr. Chairman.

    Is the fund's management a traditional type of management? Since you're talking about markets, what percentage of the pension fund is represented by Air Canada shares? Is there a special clause, or is it traditional management where investments are allocated based on the markets or, in specific cases, is the interest of those pension funds in the company greater?

    Mr. Nicholas LePan: Affiliation: Mr.

    I would like to emphasize that we didn't act out of fear that the plan would be managed irresponsibly with regard to investments or that type of thing.

    So I have no specific details on investments, but our actions were not in response to a concern about fund management; it was only with regard to a thing like investments, the situation as a whole. The fund's managers are responsible under the act for managing the fund prudently, as a prudent person would. We currently have no concerns in this regard. It was the company's situation as a whole and what happened as a result of the general market slowdown, for example.

º  (1615)  

    Mr. Mario Laframboise: Except that you have no information that could suggest, for example, whether the fund had a larger interest in Air Canada or whether, if Air Canada's situation returned to normal and Air Canada's shares climbed, it might return to profitability more quickly because the company was returning to normal.

    Mr. Nicholas LePan: Affiliation: Mr.

    No, it's not a question of investment in the company itself. It's not a situation like that; it's the market in general.

    Mr. Mario Laframboise: Perfect, thank you.

    So that we understand each other clearly, in 2001, when the analysis was mandatory, the fund probably had a surplus like many other funds in Canada. In 2001, the funds were in quite good position, but that has deteriorated in the past two years, just as other funds have deteriorated over that time. That's ultimately what you're telling us.

    The only problem is that you advised Air Canada to reinvest in the fund to replenish it and that you reached agreements that were not fulfilled because the company placed itself under the protection of the Companies' Creditors Arrangement Act. Is my understanding correct?

    Mr. Nicholas LePan: Affiliation: Mr.

    On the whole, yes, that's true.

    Mr. Mario Laframboise: Perfect. Thank you.

[English]

    The Vice-Chair (Mr. John Cannis): Finished?

    Larry? Question?

    Mr. Larry Bagnell: When Air Canada decided to take a holiday on making those payments, contributions of its part of the contributions, did they have to inform the employees and the unions and/or have the agreement of the employees and unions to take this holiday?

    Mr. Nicholas LePan: As I said earlier, the legislation and regulations permit these holidays to occur. They do not require the permission of everybody, like the employees or whatever. The legislation and regulations do not require the permission of those other parties to take a holiday.

    I suppose in certain circumstances that could be covered by the actual agreements that had been set up for the plan. That's between the various parties to include or not include in the agreements. Normally we would not see--I think that's fair--agreements of all of the parties as being part of a normal set of pension plan agreements. It's possible, but I don't believe that occurred in this case. It's not required by the legislation and regulations.

    Mr. Larry Bagnell: If the legislation and regulations would not allow companies to take holidays from contribution plans when their plans were not in surplus, that would avoid all problems like this.

    Mr. Nicholas LePan: We're in part talking about a situation that can evolve relatively rapidly. The picture of this plan's asset values declining occurred relatively quickly in the overall scheme of things. It moved, as I said, from a surplus to a significant deficit. There would always be a question of exactly what state the plan was in and so on. That's the kind of assessment we're doing.

    As I said earlier, because of our stress testing, we realized the plan wasn't just flat, it was probably down significantly. That's when we said the contribution holidays, including the ones that were taken previously, were probably inappropriate.

    The Vice-Chair (Mr. John Cannis): Mr. Le Pan, as you can see, we're all very concerned on this issue because we've heard from previous presenters. I want to ask you this question. The employees' contribution that was collected by the employer, Air Canada in this case, was that portion remitted?

    Mr. Nicholas LePan: I believe so, yes. There is no problem here....

    The Vice-Chair (Mr. John Cannis): You believe so. They either did or they did not.

    Mr. Nicholas LePan: They did. There's no problem here, that we're aware of, of contributions not having actually been put in the plan. That's not the issue.

º  (1620)  

    The Vice-Chair (Mr. John Cannis): The question we're concerned about here is the share of the employers.

    Mr. Nicholas LePan: Correct. That's right.

    The Vice-Chair (Mr. John Cannis): I'm surprised that once you saw it in arrears in such numbers that you didn't step in, even though the provisions were there for them to have a holiday in that short surplus they had.

    I'll tell you what the concern is here. I know the tourism association and other associations are coming forward saying give us tax breaks, support us, etc. Earlier on it was told to us here in committee in an indirect way about the pensions, and there are some negotiations going on with HRDC. I'm getting the feeling because of the CCAA situation here that at the end of the day, with regard to this shortfall, Air Canada, given the circumstances, will not be able to meet this obligation and they're going to go back to HRDC. Is that what you're referring to indirectly--that some negotiations are going on to ask the government to step in and offset this shortfall?

    Mr. Nicholas LePan: I can't comment on negotiations that did occur or may occur between the company and other parties, including the government. I do believe, however, that the existence of a material deficit has been known by the company for some time, and it was therefore possible for the company in whatever negotiations it was pursuing to take that fact into account.

    The Vice-Chair (Mr. John Cannis): But you have the tools. You have the legislation. I'm surprised you--your office--didn't step in earlier and say stop, knowing very well this situation with Air Canada didn't happen yesterday; it's been ongoing.

    Mr. Nicholas LePan: No, and our actions didn't start yesterday either.

    The Vice-Chair (Mr. John Cannis): When did they start?

    Mr. Nicholas LePan: As I said, our actions started when we became concerned that there was likely a significant deficit in this plan. This plan was moving into a deficit position, I believe--you won't know for sure--sometime during 2002. I think moving precipitously causes problems. We try to balance our responsibilities to protect the interest of pension plan members with the need to have reasonable flexibility, so plan sponsors and employees can maintain defined benefit plans in place.

    As I said, our initial stress testing of these kinds of plans for market events started two years ago and did not reveal initially serious problems at that point, because there weren't serious problems at that point. It's a question of degree and it's a question of judgment.

    The Vice-Chair (Mr. John Cannis): We heard from the pilots and we heard from other presenters, and I'm very concerned, of course, for their future, as we all are. But I'm also very concerned how we as a government--all of us--are going to answer to Canadian taxpayers if we're going to go back and support this system at some point in time, as it seems by the sounds of it, to offset this shortfall.

    Anyway, that's my comment. We'll go to Mr. Comartin.

    Mr. Joe Comartin (Windsor—St. Clair): Thank you, Mr. Chair.

    Mr. Le Pan, thank you for coming. I'm sorry I came in a bit late.

    Do we know what the total value is of all of these pension plans? Can we put in context what percentage of the $1.3 billion--

    Mr. Nicholas LePan: I don't have that number here in front of me, I'm sorry, but I can get it to you subsequently.

    Mr. Joe Comartin: Can you give me a ballpark figure? Is it 10%? Is it 5%?

    Mr. Nicholas LePan: No, it's more than 5%, it's more than 10%. As I understand, the assets of the plan are a little bit north of $8.5 billion, of all the plans.

    Mr. Joe Comartin: That's what they're supposed to be?

    Mr. Nicholas LePan: No, no, that's what they are.

    Mr. Joe Comartin: That's what they are now.

    Mr. Nicholas LePan: I wouldn't say “now”, but as of earlier this year, at a consistent time when the estimates were done that are referred to in the Air Canada filings.

    Mr. Joe Comartin: Okay, if the $1.3 billion is correct, it should be $9.8 billion.

    Mr. Nicholas LePan: I don't want to say “should be”, but you can compare the $1.3 billion to the $8.6 billion, let's say.

    Mr. Joe Comartin: If I understand the way this works, there is no backup. There's no trust fund that employers contribute to. There's no insurance and there are no government guarantees on this.

    Mr. Nicholas LePan: Correct. Pension plan moneys are separate from other assets of the company, but there is no government guarantee here, no.

    Mr. Joe Comartin: In the $1.3 billion.... I'm sorry, just before we go to that, the filing in 2001, was that including 2001, or was that just up to the end of 2000?

º  (1625)  

    Mr. Nicholas LePan: No, that would normally be up to approximately the date of filing. You file it a few months after you've actually made the estimates. It would vary plan to plan.

    Mr. Joe Comartin: So they were showing as of the end of December 2001 that they were current in their obligations to the pension.

    Mr. Nicholas LePan: Well, some of the valuations were done during the course of 2001, they weren't all at the end. They're different plans, so the times differ. They were not only showing current, they were in surplus--significant surplus, I believe.

    Mr. Joe Comartin: Can you give us any estimate of how much the $1.3 billion could be off by? Is it...?

    Mr. Nicholas LePan: No, I'm sorry, I can't, for the reasons I've indicated. That's why--and I agree, Mr. Chair, it's very unfortunate--it's hard to know what the actual impact is for real people. That's one of my concerns as well. There have been cases when even with significant deficits it's been possible to work out situations and meet the vast majority of those deficit positions so that pensioners are not seriously affected. It depends on a lot of events. So it's not possible, in my judgment, to sit here today--for anybody to sit here today--and say that we can just take those simple calculations and therefore assume as a result that pensioners or current retirees or current members are going to take this much of a reduction. It's going to depend on so many of those other kinds of factors. That's precisely why there is the flexibility to fund these kinds of things over a period of time. There are opportunities to spread out things and actually improve the position of pension plan members.

    Mr. Joe Comartin: As the monitoring body, do you have any responsibility to make recommendations to the legislatures as to changes that should be made from an experience like this one?

    Mr. Nicholas LePan: No, my responsibility is to administer the statutes, so I'm not in a position to comment on legislative changes at this point.

    Mr. Joe Comartin: Thank you, Mr. Chair.

    The Chair: Thank you, Mr. Comartin.

    I think maybe--and I respect what Mr. Gouk said to me during one of the breaks--we've gone too far. We just wanted to ascertain what the position of the pension plan was. I think you've been able to do that for us, Mr. Le Pan.

    We don't want to leave all of the former Air Canada employees and those who are approaching retirement with.... That's an issue we're going to have to address, but not today. We will address it in the very near future.

    You've been very forthright and you've given us excellent evidence today and we want to thank you and the folks over here you've referred to on several occasions, and like a good administrator, they have all the answers.

    Mr. Nicholas LePan: Thank you very much, Mr. Chair. I appreciate coming here today. I apologize that my statement was only in English. We'll get it

[Translation]

in both official languages immediately,

[English]

    and I would be happy to come back at the committee's request at any time. Thank you.

    The Chair: Thank you so much, Mr. Le Pan. I apologize again; we just get carried away sometimes.

    Now we have the Air Transport Association. Mr. Mackay, welcome. Mr. Everson, welcome. We've been seeing a lot of each other the last little while.

º  (1630)  

    Mr. J. Clifford Mackay (President and Chief Executive Officer, Air Transport Association of Canada): Yes, unfortunately, Mr. Chairman.

    The Chair: If we could keep the introduction within reason....

    Mr. J. Clifford Mackay: I certainly will, Mr. Chairman.

    Let me start by apologizing in advance. My colleague Mr. Everson is going to have to leave because we have another engagement, and of course we're running somewhat late, so if you don't mind--

    The Chair: I apologize for that, but the issue that was before us was--

    Mr. J. Clifford Mackay: Oh, no doubt.

    I would just ask the committee's indulgence if he leaves during the session.

    The Chair: He may be glad to get out.

    Mr. J. Clifford Mackay: I have a brief opening statement and then I obviously will be available for questions.

    Before I start, though, I know the committee has spent most of the day focusing very specifically on the issues around Air Canada. I want to take a few minutes to try to talk a little bit more generally about the industry, because I think there are a number of issues that impact on Air Canada, issues that I think the committee needs to be aware of from the industry generally. So that's what my remarks are about.

    I don't need to tell anyone sitting in this room that the events of 9/11 really resulted in an enormous increase in costs from many different sources for our industry, and one of the largest sources was the government. We have estimated that in the first year after 9/11 about $800 million of new costs came into the industry, largely as a result of security-related items. At the same time that was happening, commercial costs also rose dramatically, particularly fuel costs and insurance costs.

    Before any of that even happened, these new costs arrived at the same time there was a profound change going on in the marketplace. As everybody knows, during the last couple of years Canada has witnessed an enormous shift in customer demand toward the discount air service. Just to give you a sense of it all, Canadian carriers have responded to that market shift and we've seen the second-largest growth in the world in the discount service here in Canada. So the change has been dramatic and the response from the industry has really been quite vigorous.

    At the same time all that was happening in the more traditional network markets, the business traveller was simply not prepared to pay the same prices they had paid in the past. They were seeking out no-frills or low-frills and low-cost service. That trend has not changed at all.

    The bottom line is that the customer has changed, and in our world the customer is always right. These commercial changes can't be resisted, and they demonstrate that there's a healthy competitive industry out there. However, while the market has shifted it has really put us on a collision course with government policy, which has seen aviation as a source of revenue in the past. Today, despite all the turmoil and tragedy that's gone on in the last couple of years, the government is taking much more money out of our sector than it did three years ago. Even the most profitable airlines like WestJet have been affected and have had to look at their business plans. They've been squeezed by rising costs.

    Just to give you one example of that, three years ago the taxes and government charges that came from WestJet represented about 173% of their profit. Last year they represented 245% of their profit. The government is making more money out of WestJet than WestJet's shareholders are making. Government strategy has been to profit largely through costs that are hidden from the consumer. In general, consumers don't know where all this money is going.

    I think a critical issue for the committee, if you look at the industry as a whole, is to ask yourselves who really controls transportation policy in Canada. I certainly don't want to diminish the role of Minister Collenette, as we work very closely with him every day, but it is clear that government policy in aviation is being heavily influenced by financial policy rather than transportation policy. I believe this is a holdover from the battle against the deficit. Today we see that many of our most important cost items have nothing to do with promoting efficient transportation; they actually, in many cases, work against that goal.

    No one attempting to stimulate cost-efficient travel would impose an excise tax on fuel in our industry. No one wanting to stimulate regional and business development would extract hundreds of millions of dollars in airport rent out of key hub facilities.

    I absolutely believe that members of this committee understand the extraordinary contribution that aviation makes to our economy. I know this committee understands the remarkable shifts that have been going on in the industry that I've been talking about. But I'm not sure that the entire government understands this or the damages that these taxes and charges are doing to the emerging business model and the efficiency of our system.

    I've heard many government officials use lines like “We hear the argument that everybody wants lower taxes and the government would be setting a serious precedent if it provided relief to aviation”. I'll just remind the committee the airline industry has been uniquely singled out for taxes and charges that are not borne by any other part of our economy. It's very hard for me to understand why.

    Government policy has also arbitrarily imposed on the aviation security 100% of those costs on the user, although no other mode of transportation is faced with that same issue. The government's stated policy with regard to modes of transportation is to be neutral. There's something wrong here.

º  (1635)  

    The committee knows that our airports and our air navigation system are also 100% financed by the user. Again, that's not true in other modes of transportation.

    We sometimes hear that government charges are really quite inconsequential in the big picture of the industry. Frankly, ladies and gentlemen, that's absolutely untrue. We are talking here about hundreds of millions of dollars a year, so these are very significant numbers.

    Finally, we hear that the airlines' problems aren't unique to Canada. I would agree with that, and I think the minister made that point this morning. But what wasn't mentioned was that other nations--and I think it's especially true of the United States, our largest trading partner--are taking substantial steps to try to look at ways and means of assisting their industries through very difficult times. In the case of the U.S., they're talking about very large subsidies.

    I want to hasten to add that we are not here today looking for that kind of relief. What we are looking for, though, is an understanding of the dynamics of what's going on out there and a shift in the government policy to be more in tune with the needs of the industry, and more broadly, the needs of the economy and the travelling public.

    We believe the current track the government is on is going to sacrifice jobs and hurt business competitiveness, and we really believe that's very short-sighted. As an example of that, only a few short weeks after 9/11, and after our second-largest carrier went bankrupt, the amount of rent taken out of major airports in Canada went up.

    There is a fundamental disconnect between what's going on with our financial policies and what's going on in the marketplace. I know government always has great difficulty acknowledging that somehow the charges and taxes have gone a bit too far, but I think the evidence is very clear in our case, and it's time that the government looked very seriously at it.

    Only a strong message from the people who are ultimately responsible--and in my view, that's the members of Parliament--will impact on current thinking. I would simply urge you to think very seriously about putting these kinds of thoughts into your report.

    Thank you very much, Mr. Chairman.

    The Chair: Thank you.

    Mr. Gouk.

    Mr. Jim Gouk: Thank you.

    I just want to clarify a couple of things. On what we have recommended, I think most of the people around here--I don't want to speak for them, they can speak for themselves--are looking at the concept that there is a problem with airport rents, with fuel taxes for airlines, and with the security tax. There are differing opinions on how we deal with those things.

    My personal opinion on the airport rent is that considering the government used to lose money, now that they're getting all these improvements paid for, as long as it doesn't cost them anything we should be looking at a more neutral base than what we have.

    On fuel taxes, I went back a long way, and it was my understanding that there was a tentative understanding with the airlines when the GST was brought in that it would take care of the other credits and taxes they were paying.

    On the security tax, the argument has been that it is an airline-driven cost, or at least an air-traveller-driven cost, and therefore it should be an air-traveller-driven payment. But other than regular taxes, we don't go around charging citizens for port security or railway security. I personally think that should be a general type of thing, especially given there's no way to apply it equitably so that small airlines on very short hauls are not being heavily penalized by this.

    We are here to deal with the air industry in general, but of course we can't help but look specifically at Air Canada. If these measures were applied, they would apply to everybody. Do you see anything other than this being called for at this time, particularly in the case of Air Canada?

    Mr. J. Clifford Mackay: Let me start by just commenting on these measures. If these measures alone were taken by the government in the short term, this would have a major impact on both the cash flow of our companies and the cash in the pockets of our customers. Those would be the two big impacts.

    We've estimated that the total impact would be in the order of about $800 million, split about half and half. Half of it would go straight into the customers' pockets because of the way the security tax is structured, and the other half--assuming the cooperation of airports--would flow into the cash flow of the service providers, the carriers.

    If you look at that from the perspective of the overall industry, most of that benefit, particularly on the $400 million that flowed to companies, would flow to Air Canada because they are by far the largest provider of service in the country. That would have an immediate and positive impact on their cash flow as a company. It would also have an immediate and positive impact on many other companies--WestJet, Jetsgo, etc. So in our view it would be a major step forward.

    On the second half of your question, sir, I don't know the answer to that. I know for sure it would have a very positive influence on both the market, in terms of customers, and the financial position of companies. I don't know if it would be enough. It's very difficult to answer that question without being on the inside of Air Canada's financial plans.

º  (1640)  

    Mr. Jim Gouk: I just have one follow-up to that, then. What other government measures, if any, do you see as being necessary to be taken at this point in time?

    Mr. J. Clifford Mackay: As to other government measures, there are a couple of areas I would point you to. These are the big three from our point of view. We are faced daily with more demands for various kinds of support and services in support of government activities, whether customs, immigration, security of various shapes and types, environment, or food inspection. I could give you an endless list.

    It's not that these things are not important, but what happens is they all run in their own little silos and there's no understanding whatsoever of the cumulative nature of these on the ability to operate and provide good air transportation service. If there were some way some of these matters could be brought together and made a little more coordinated by government officials, frankly, it would be a huge step forward.

    The last point I would make for you is an issue that is a direct consequence of Air Canada's filings, and that relates to our major service providers. Both Nav Canada and airports are caught up in all of this because of course there are significant receivables outstanding as a result of the filing. We are very concerned that this could put even more pressure on costs in the near term if these institutions, the airports and Nav Canada, are forced to raise their prices in the early term. This is an area we think government should look at in the short term.

    I'm not here advocating that we walk away from the principle of user pay, but there's a really serious problem out there. I don't know the order of magnitude of it financially, but I'm sure the number is pretty big.

    Mr. Jim Gouk: I have one last thing. Did you hear the part of Mr. Beddoe's presentation where he explained that in his opinion, when the costs go up and they have to pass on those costs, the ridership goes down, which takes away the revenue, so they have to adjust the price upward, and it's a downward spiral? Do you agree with that, and do you agree that if we took some kind of funding initiative in the short term, as you say, we could actually maybe turn it around to where it would ultimately generate more revenue?

    Mr. J. Clifford Mackay: I think the basic logic in that is unassailable. That's particularly true when you're talking about short-haul and discount markets, where the customer does have some alternatives.

    The Chair: Thank you for those very stimulating questions.

    Mr. Bagnell.

    Mr. Larry Bagnell: Thank you.

    Is Air North a member of your association?

    Mr. J. Clifford Mackay: No, not at the moment, but they're with NATA, and we have a close relationship.

    Mr. Larry Bagnell: You can imagine that my interest is in protecting companies like that. I assume that your association would support the principle that anything that's done in this turmoil for Air Canada should be done equally for everyone else, that it would not prejudice the other airlines.

    Mr. J. Clifford Mackay: Yes, the basic position of our members has always been, let the market work. If you're going to intervene, intervene in such a way that it doesn't completely skew the market.

    Mr. Larry Bagnell: We've heard a lot today about these various fees and taxes and everything. Do you or any of the airlines have any specific study that actually scientifically analyzes the marginal effects of changes in these fees and the differentiation in the reduction of travellers due to these fees as opposed to September 11, to SARS, or to whatever?

º  (1645)  

    Mr. J. Clifford Mackay: I'd point you to two studies, the first of which we released in November of last year. It had a very detailed look at all the various fees and charges and how they have influenced pricing in various markets over the last three to four years. There's a lot of detailed data in there about city fares and what proportion of the actual fare the customer is paying is going to whom. That's very good data.

    The second thing is studies that were undertaken by the Department of Finance as part of the review of the tax, which confirmed--I'm going to have to get technical here--the price elasticities in various markets for travel. They confirmed those, and if you combine what happens with price with the elasticity numbers, you can get a direct assessment of what the impact is if you change the price up or down in various kinds of markets. So there's good data on that subject.

    The one thing I think you can't find, and it's very difficult, is how you can segment out that demand curve and say, okay, this is because of SARS, and this is because of the war. It's very, very difficult to do that. But it is absolutely clear that the analysis all shows that if you have more cost and raise the price, you are going to drive customers out of the market. There's no doubt about that.

    Mr. Warren Everson (President, Air Transport Association of Canada): If you don't mind my adding, Cliff just talked about something that really raises my hackles. Whenever we deal with finance especially, they always do just that. They start saying, well, you can't demonstrate to us that your problem is uniquely because of government charges. It could be this thing and that thing and six other things. You can never isolate it and say that taxes and charges are the key crippling factor, and therefore we don't have to do anything.

    Honestly, it should be clear to the committee that since September 11, while the entire airline industry has been turned on its head and everybody's business plans have been radically revised--and not just the airlines, but all the other players in our game--the Government of Canada has actually not changed anything. They receive more money today than they did on September 11 from our industry, exactly as if we were just having a hell of a good time. They have not incurred any major new costs on behalf of our industry. They pass all the security charges on to our passengers.

    The point that Cliff made in his brief is very effective here. These are not transportation policies at all. There's been no adjustment of transportation policies to accommodate the fact that we've gone through really major changes. These are in fact finance policies, and the policy of finance is to gather as much money for the fiscal framework as possible.

    The Chair: Thank you, Mr. Bagnell.

    We will now go to Mr. Laframboise.

[Translation]

    Mr. Mario Laframboise: Thank you, Mr. Chairman.

    This isn't the first time you've appeared before our committee; it's not the first time you've made these requests. There is an implacable logic in your industry. I attended your last conference. Everyone was at the private meeting the minister had with most of the owners of businesses, small, medium-size and large; everybody was represented.

    Your requests simply reflect the cry from the heart of an industry that has suffered from repercussions beyond its control and is asking that the government allow it to stop paying a special security tax which other industries do not pay, the rail transport industry among others, and airport improvement fees, which other types of industries that compete with you do not pay. This isn't the first time you've asked for this. The only thing you've been given is a reduction in the security tax. You asked that it be abolished because, you said, had it not been for September 11, you would have incurred an increase in costs in the order of $800 million.

    Obviously, what flabbergasted me last week was that you had a request that amounted to telling us not to encourage the railways to compete with you through Via Rail by creating the high-speed train. Well, believe it or not, while Air Canada was in crisis, the government announced that it was going to help bring about the high-speed train between Quebec City and Windsor, which, once again, will compete with the airline industry. If it is sensitive to one sector, the government must also be sensitive to the airline industry. It's a matter of equity, and it's the federal government's role to be fair to industries.

    Once again, I thank you for coming. The problem today--we heard it from my Liberal colleagues--is simple: everything is on Air Canada's back, everything's a matter of poor management, poor administration. How will that be resolved? Probably through an increase in foreign investment in businesses. We want to increase foreign investment from 25 to 49 percent. That's what I'm hearing in the discussion today.

    Your cry from the heart has always been the same: your industry has suffered from various repercussions, and it seems to me you've just told us the same thing today. We charge you taxes, you must bear costs that other types of industries that compete with you do not have to bear, and it is the government that has that responsibility.

    Am I correct?

º  (1650)  

[English]

    Mr. J. Clifford Mackay: Yes, that's right. What I'm saying to the committee very clearly is yes, there are issues and problems around Air Canada, but even if those issues and problems are solved tomorrow, there are some fundamental disconnects in the way the federal government's policy framework has evolved in the last four or five years as it relates to the industry. It is causing serious problems and it desperately needs to be addressed. That's essentially what I'm saying.

[Translation]

    Mr. Mario Laframboise: I'm going to extend my remarks. The hard problem for air service is often service in the regions, that is to say that, regardless of restructurings, the routes where there are more inhabitants and more population will obviously survive. But it's the regions in Quebec and Canada that inevitably pay the price. So if we don't ensure that the industry is at least competitive with the other modes of passenger transport, the regions will inevitably pay the price. We're going to see how Air Canada is restructured, but my great fear is that the regions will pay the price once again by receiving less service and fewer services. That's the reality, and it's not your fault. Your members are private companies that are accountable to boards of directors for the presidents, often to shareholder meetings. So, as a result of that, transport in the regions suffers the consequences.

[English]

    Mr. J. Clifford Mackay: I think that's a market reality, but we're Canadians too, and we understand the nature of this country. It is important that you try to provide the best transportation services possible to smaller regions. Many of our members, frankly, go out of their way and in some cases incur significant financial hardship before they finally have to decide that they just can't do it any more.

    I think this is one of the most difficult challenges of transportation policy in Canada. It always has been, it is today, and it will continue to be so. But I want to say to you, sir, that we're not indifferent to it and as an industry we're quite prepared to sit with government and try to find the best solutions possible to that problem. It's a very challenging problem, because you're absolutely right, the market is always tenuous. It's always difficult.

    The Chair: Thank you very much, Mr. Laframboise.

    If there are no other questions, I want to thank you very much for your interventions again today. As usual, they were very incisive and very important to the deliberations, and we'll certainly be in discussions with you in the near future. Thank you very much, Mr. Mackay.

    Mr. J. Clifford Mackay: Thank you, Mr. Chairman.

    The Chair: We will now have Air Canada CUPE, Ms. Sachs and Mr. Balnis. Welcome.

    The brief is only in English. Unfortunately, because of the problems we're having....

    All in favour of accepting the brief as it's presented with the understanding that it will be translated and circulated to the committee.

    Some hon. members: Agreed.

    The Chair: Thank you.

    Ms. Sachs, you've heard some of the evidence that's been presented today. I don't want to interfere with your submissions, but I would like you to comment, if you would, because your members are very much involved with the evidence we've heard about the pension plan. We'd like to know if you were aware of this, and if you were, when were you aware of it, and were you aware of the deficit?

º  (1655)  

    Ms. Pamela Sachs (President, Air Canada Component, Canadian Union of Public Employees): Mr. Chair, we were not aware of the deficit. We weren't aware of the shortfall at all, and our conversations in bargaining with Air Canada--which to a great extent surrounded the pension issue--were as late as the 5th of December 2002.

    The Chair: What kind of reaction are you going to get today from your membership?

    Ms. Pamela Sachs: Utter surprise, total shock. We have a lot of people who are ready to leave, and they were counting on the moneys that Air Canada promised would be there, according to their last pension statements.

    The Chair: Thank you for that.

    Ms. Pamela Sachs: Mr. Chair, members of the committee, I am Pamela Sachs, president of the Air Canada component of CUPE, the Canadian Union of Public Employees. With me is Richard Balnis,senior CUPE national research officer. We thank you for the opportunity to meet with you today.

    Let me begin by explaining who our union represents. CUPE is the largest union in Canada, representing 525,000 workers in the public and the private sectors. CUPE's Air Canada component represents more than 8,000 flight attendants and other cabin personnel at Air Canada, including Air Canada's Zip. That number has been reduced, because as of today, 400 flight attendants were laid off, with a further 200 scheduled to be laid off in May. Our membership is predominantly female. Our median annual income is approximately $35,000.

    We are intimately familiar with the airline industry and know how it operates. CUPE flight attendants play a key role in ensuring the safety and comfort of 100,000 passengers daily across Canada and around the world. We bring that experience and expertise to our analysis.

    We'd like to begin by taking you through some of the recent events.

    On Monday, March 31, at 5 p.m., Air Canada delivered an ultimatum to our employees. We had 13 hours to surrender our contractual rights or the company would proceed to file for bankruptcy protection. Robert Milton demanded we accept an immediate across-the-board wage cut of 22%, a permanent freeze on wages, and the end of layoff protection guaranteed by Air Canada as recently as December 2002.

    We negotiated through the night to find a resolution, but it was not possible to accept such a deal. Our members, among the lowest paid of Air Canada's employees, could not afford to support their families if their wages were cut by almost a quarter.

    We are not convinced these cuts would lead to the types of changes that are needed to make Air Canada strong. We could get no assurance from the company that were we to accept these terms, they would not file for bankruptcy protection in any event.

    On April 1 we learned further that Air Canada obtained the power to unilaterally amend and potentially terminate our pension plans. They did this after an order from the federal Office of the Superintendent of Financial Institutions attempted to correct the underfunding status of our plans, caused in part by years of Air Canada's contribution holidays.

    Where has the federal government been though all of this? The Canadian airline industry has been in crisis in 1992, in 1996, in 1999, and now again in 2003. While our members have been in similar situations before, there's no comfort in the frequency of these crises.

    We must be clear on why this chaotic situation exists today. It is a result of the failure of the federal government to play a leadership role in creating a policy framework that assures a viable Canadian airline industry and supports a viable national carrier. In our view, the primary goal of air transportation policy is to provide Canadians with a safe, efficient, affordable, and adequate air service.

    Air transportation maintains an infrastructure supporting social and economic development as well as equitable regional development. It also provides good jobs for Canadians, and is the basis for a strong economy. Yet our government has been conspicuously absent during these crises. Where it has intervened to foster its cherished private sector solutions, its interventions have not restored stability to our industry. On August 13, 1999 the current minister allowed the merger of Air Canada and Canadian Airlines to proceed.

»  (1700)  

    With the eventual creation of an unregulated monopoly, the government intervened with Bill C-26. Since then, Air Canada has been attacked, sometimes at the same time, for setting fares too high or setting predatory prices too low.

    In the environment of Bill C-26, everything that Air Canada did was wrong. In the aftermath of September 11, Minister Collenette presided over the demise of Canada 3000, with a little too late. The financial assistance offered to our industry was a tiny fraction of that offered to our U.S. competitors by their more understanding government.

    Affected unions called on the minister in December 2001 to create a blue ribbon committee to study the future of our industry. Mr. Collenette has never had the courtesy to reply.

    The week preceding Air Canada's CCAA filing, Mr. Collenette offered a minimal $300 million as a heavily conditional loan guarantee. Mr. Milton despaired of being abandoned by the federal government.

    While the government has been guilty of neglect in some areas, where it has acted it has frequently had a punitive effect on Canada's airlines, including Air Canada.

    On the taxation side, the Canadian air transportation system is saddled with excessive hidden costs and taxation. These costs are hurting our air operators, who are already reeling under the effects of reduced travel due to the public concern over security, the war in Iraq, and now the spread of SARS.

    Excessive fees and taxes levied on air travel in Canada are increasingly difficult to pass along to our travelling public, who are travelling less and are fed up with the high costs of travel. These hidden costs include airport rents, which according to the Canadian Airports Council have increased 430% in seven years; Canada's air travellers' security tax, which remains among the highest security taxes in the world, despite the recent reduction of $14 per domestic round trip--this tax remains a particular disadvantage for Air Canada passengers, who face a $24 transborder and international flight fee; and the federal excise tax on aviation fuel, which continues to suck $70 million to $90 million out of the system annually.

    In addition, air navigation fees levied to air operators are expected to increase in response to falling traffic. Though these fees are assigned by a non-governmental agency, they are derived in part to meet the debt obligations to the federal government.

    In order to build a stable airline industry with a profitable national carrier, the federal government must undertake an urgent review of the excessive fees and tax policies under which we presently operate. This industry requires immediately relief during this time of dire need.

    I'd now like to address the allegation recently made in the media, and most recently today by Mr. Marchi, of Air Canada president Robert Milton's allegation that the core cause of Air Canada's recent insolvency filing lies in high labour costs. This is simply not true.

    Booz Hamilton Allen is a global management consulting firm specializing in the airline industry that regularly acts as an adviser to governments and airlines. In recent studies it was examined why American low-cost carriers could produce a seat-mile for 7¢, compared to 15¢ per seat-mile at network hub-and-spoke carriers. It did so by comparing the costs of operating the same aircraft over the same distance, and under the same normalized conditions.

    Only 15% of this gap was the result of different work rules and labour relations practices. Another 12% was due to differing balance sheet structures and financial arrangements. Fully 70% was due to the built-in cost penalties of synchronized hub operations to provide seamless service, passenger handling practices, and costs of distribution and computer reservation systems.

»  (1705)  

    The results of this analysis lead to one of the central dilemmas facing Air Canada at present, and to the role of the federal government in this crisis. The hub-and-spoke system collects passengers from smaller centres and feeds traffic into concentrated mainline routes. Without such a system, travellers from smaller centres would increasingly face inconvenient and fractured connections between regions of the country. In order to preserve the existing service to smaller communities and to link smaller communities to other regions of the country, a hub-and-spoke system is virtually essential.

    Yet such hub-and-spoke systems have created new and serious problems for the full-service air carriers such as Air Canada. They are costly to operate, given the capital-intensive nature of the industry and embedded cost structures. Hub-and-spoke airlines carry significant costs related to significant physical infrastructure, diverse fleets of aircraft, and complex scheduling.

    Air Canada could adopt a point-to-point system of flying. However, this transformation would take place on the backs of smaller centres, and would significantly complicate international travel for those departing from small to mid-range centres. It is only Air Canada that provides a network from smaller centres to larger centres, and only Air Canada links all the regions of the country. As a result, federal government assistance is necessary to support Air Canada as a national carrier providing service to all regions of Canada.

    Finally, decisive action must be taken to protect the pensions of some 36,000 current employees and of thousands of retirees and survivors. Given Air Canada's sad history of legal contribution holidays and poor investment returns, OSFI appears to have ordered an end to such holidays, triggering in part the CCAA filing—according to Air Canada's American bankruptcy filings. Workers should not be penalized for Air Canada's legal neglect of its pension plans and the late arrival of the federal regulator.

    Action can and must occur in three different ways: the creation of a government-guaranteed fund for all federally regulated pension plans; special one-off assistance to the Air Canada plans themselves; or regulatory relief on the solvency and funding side. Our preference is for option number one, which would be available to all federally regulated companies in a non-discriminatory fashion, and would have low or no costs to the government in the long term, once the stock markets rebound.

    In total, we're calling on the federal government to support Air Canada by taking action in four key areas. We need proper, smart regulation to shape an airline industry that meets the needs of Canadians across the country, reducing excess capacity while assuring safe, efficient, affordable, and reliable air service. We need to reduce the burden of user fees on airlines and passengers for basic public services, which should be supported through our tax system. We need bridge funding to support Air Canada in the context of the current downturn in travel tied to the war against Iraq and the SARS outbreak. And we need immediate action by the federal government to guarantee the pensions of Air Canada employees, which in some cases have been built up for three and four decades and are at risk of being decimated in this restructuring process.

    We remain convinced that with the active support of the federal government, we can build a strategy that will make Air Canada a stronger and more viable airline, protect quality service for Canadians in every region of the country, and defend the rights of our members.

    Thank you for your time, and I'll be pleased to answer any questions you may have.

»  (1710)  

    The Chair: Thank you.

    Mr. Balnis, do you have anything to add to the report?

    Mr. Richard Balnis (Director of Research, Air Canada Component, Canadian Union of Public Employees): No, I do not, Mr. Chairman.

    The Chair: Thank you.

    Mr. Gouk or Ms. Meredith, or whoever wants to take the lead, please do.

    Mr. Jim Gouk: I'll address the four conclusions you've come to, as shown on the back page.

    I'd like to reiterate that when I talk about problems the company brought onto itself, I'm talking about the company, not your people, your union, or any of the other unions. It was primarily a corporate management decision that caused the things I'll refer to.

    In your first one you talk about the need for regulation that would, among other things listed on here, reduce excess capacity. I have trouble seeing how that would be done through regulation, because that means the government would have to step in and decide who could fly where and how often they could fly there. So if Air Canada was flying into a particular location and it was decided that was all the capacity there was, then no one else would be allowed to compete. Frankly, I would have trouble with that, and I think the people at those locations would have trouble with that.

    On number two, I completely agree with you. We talked about that considerably today and in the past. A lot of charges levied by the government on the airline industry as a whole are quite inappropriate and are causing a lot of the problems throughout the industry. We've heard that from a number of players. I'm sure there's going to be some heavy conversation with us after. I think there will be general agreement--to what extent it will remain to be seen--when we get to talking about that.

    On bridge funding for Air Canada, I assume by that you mean providing funding to Air Canada to see them through this. As I pointed out earlier and other people have mentioned, this airline was handed over to your company virtually debt-free 14 years ago, and they've managed to run it right into the ground. While the Iraq situation, 9/11, and even the Canadian merger were factors in that debt, the predominant portion of it was done before any of those things occurred. I have to question whether it's the taxpayer's role to bail out a company that has squandered the credible potential they had.

    On the final one--and I would ask you to comment on any of these you like--this pension plan really troubles me, and I think it troubles all of us. We've already agreed that we're going to have further meetings to deal with this; however, no other private sector company gets guarantees from the government. It is horrifying that the airline would do this, and we need to check to see if there's any way we can deal with this. But to have an arbitrary bail-out of a company, whatever it might be, that does that and have the government step in, a lot of companies have done things like that and the government hasn't stepped in. If we did we would establish a precedent, and would then have to step in whenever any private sector company mishandled their pension plan and their employees ended up short. I shudder to think where that might end up.

    I'm not saying we're going to turn our back on it--quite the contrary. We're alarmed by this and we're going to do everything we can to find some way of dealing with it. But I don't think the government should just gallop in to guarantee it, because if we did we would have to do the same thing in virtually every sector.

    Do you have any comments on any of those points?

»  (1715)  

    The Chair: Is there a question there?

    Mr. Jim Gouk: I'm telling them where I'm coming from and I'm inviting them to comment.

    The Chair: No problem. Thank you.

    Ms. Pamela Sachs: When I speak about smart regulation, we look at people in Yarmouth wanting to go to Vancouver, or people in Bathurst, New Brunswick, wanting to go to Calgary. Right now, the hub-and-spoke system is a costly thing for Air Canada. I think people understand that the surplus in the industry over the years has caused many of the carriers to not be here today.

    I'm not talking about permanent regulation, but some softer form of regulation that's not as hard and fast as it was in the earlier years before deregulation. But there needs to be some intervention from the federal government so airlines aren't bleeding themselves to death at the cost of the employees who are left over.

    Mr. Jim Gouk: If you have WestJet and Air Canada going into a place that has an overcapacity, which one do they tell to get out?

    Mr. Richard Balnis: I personally and our union have been here since 1987 trying to explain to the committee the consequences of deregulation. As Pamela tried to explain, we keep coming back in crises: 1992, 1996, 1999, and 2003. I would predict, unfortunately, from hearing the members who were here this morning who also talked about more expansive opening up, foreign ownership, and things like that, that I'll be back here again in 2005.

    We made a number of proposals to this committee over the years for smart regulation. Actually, in the June 1993 report of this committee on the National Transportation Act Review Commission, if I could just quote from it, the committee at that time said it saw a need “...to regulate better and smarter to harness the market mechanisms in order to provide what the public interest requires. In other words, it has to be recognized that the discipline of competition may not always work and the public interest may well require public intervention.”

    Mr. Jim Gouk: I just have one question that I pose. If WestJet and Air Canada are both going into a place under this scenario, who gets told they can't go in?

    Mr. Richard Balnis: We would develop a mechanism that would allow both of them to go in, but so that both of them wouldn't go in to kill each other. That's the point.

    Mr. Jim Gouk: There's no reason for both to go in—

    The Chair: Thank you, Mr. Balnis. I apologize, but we're not going to solve that debate—today, anyway.

    Mr. Bagnell.

    Mr. Larry Bagnell: Thank you.

    The concern I have to think about with your recommendations is the burden would then partly be on the people in society who can least afford it if their taxes went up.

    I have three questions. I don't have a problem with the wages, but just for curiosity, in the Air Canada family—Zip and Jazz and everyone—are the wages of flight attendants the same in each of all those companies, or do they differ?

    Ms. Pamela Sachs: Jazz is slightly lower, and Zip is much lower. That was one of the concessions we gave Air Canada in the last round of bargaining.

    Mr. Markey said this morning that only one union, I think, helped out in Air Canada's financial crisis. We were the first union into bargaining in 2002, and Air Canada's issues were on the table at that point. We negotiated quite a substantial reduction for the flight attendants who would be hired off the street for Zip.

    Mr. Larry Bagnell: I assume you're relatively equivalent to WestJet.

    Ms. Pamela Sachs: Zip is, yes.

    Mr. Larry Bagnell: Or Air Canada?

    Ms. Pamela Sachs: The mainline carrier is more than WestJet.

    Mr. Larry Bagnell: Okay.

    The Chair: What is Zip?

    Ms. Pamela Sachs: Oh, I'm sorry, Zip Airlines is Air Canada's newest carrier.

    The Chair: Zip Air.

    Ms. Pamela Sachs: It's a very odd name.

    The Chair: What colours do they have?

    Ms. Pamela Sachs: Fluorescent.

    The Chair: I'm sorry, Mr. Bagnell.

    Mr. Larry Bagnell: That's all right.

»  (1720)  

    The Chair: All right, the question is, where do they fly?

    Ms. Pamela Sachs: They fly out of Calgary to Winnipeg, to Vancouver, and they've just announced they're coming east. They'll probably take over Canada, in the end.

    The Chair: Thank you.

    I'm sorry to interfere, Mr. Bagnell.

    Mr. Larry Bagnell: One of the determinants of a successful airline is good service, as I think we'd probably all agree, and the answers to problems, if a company's in a problem, often lie with the people who are right on the ground working with the people, not in the upper echelons, the management.

    Do you find the company is effective in consulting your views on solutions to things that would make the company better and improve the company through talking to employees who are farther down in the organization?

    Ms. Pamela Sachs: No. I think Mr. Milton runs a top-down operation. I don't believe he hears the grassroots. He doesn't listen to employees. I've been in many meetings with him and the board and shared the concerns that we as a union have.

    You can't batter people and then send them out to the front lines and expect them to be your best asset. As a rule, flight attendants spend the most time with our customers.

    The Chair: Thank you very much, Mr. Bagnell.

    Mr. Laframboise.

[Translation]

    Mr. Mario Laframboise: Thank you, Mr. Chairman.

    First, thank you for appearing. You've brought new points to my attention. You say that Booz-Allen & Hamilton Inc. conducted an independent study for you on the incremental costs between low-cost carriers and your business and that you realized that 70% of the costs were... I would like you to explain the 70% difference to me. Is that what you call the hub concept?

[English]

    Mr. Richard Balnis: Perhaps I could answer Monsieur Laframboise.

    The study that was done was based on American carriers; it was not a study of Air Canada. They took the average of American network hub-and-spoke carriers like American, Delta, all those carriers, and compared them to an average of low-cost carriers such as Southwest, JetBlue, and other carriers. They essentially said that there is a cost difference. Is it because the workers are overpaid, or are there extra costs because you run a network carrier hub and spoke? They examined that.

    We do have the studies here if the committee would like them. They are in English only, off the Internet.

    They went through, they drilled down, and they said let's look at that gap of 7.2¢ U.S. They broke it down and said yes, there are some work rule problems, but the overwhelming majority was the way hub-and-spokes do business.

    If you don't want a hub-and-spoke carrier that takes people from Yarmouth perhaps through Halifax or Montreal and gets them to the west coast, if you just want to fly point-to-point in high-density markets such as what WestJet does, you can have that system. But what about those communities that are not part...? I know you have spoken eloquently in the past of smaller communities. What will happen to those smaller communities?

    The point in case is that if you look at Air Canada's Tango, which I know has been criticized, it is actually a very clever business move by Air Canada. What they did was say let's have a point-to-point carrier, no frills, no interlining, no computer reservation system, just on the Internet, but pay the mainline wages, nothing extra. They are able to operate Tango at a 25% cost reduction compared to their mainline hub-and-spoke operation while paying the workers the regular rates of pay. In fact, Tango is a very clever application of what Booz Allen & Hamilton did.

    So you're absolutely right: they are looking at the differences between a hub-and-spoke network carrier, and I guess that's why we disagreed when Mr. Milton and Mr. Markey today came and said it's labour costs; give us $650 million and we will be forever fine. We respectfully disagree with that, because they can never be as cheap as WestJet because they have extra responsibilities.

    That's what we're trying to bring to this committee, to help you understand what happens when you have a national network carrier that links Canada coast to coast to coast. Otherwise, you're just doing point-to-point, and anyone can do that quite easily, sir.

»  (1725)  

[Translation]

    Mr. Mario Laframboise: I find that all the more interesting since, this morning, Mr. Beddoe, the CEO of WestJet, said that, in his mind, it really wasn't a hub, that it was more of a spider web concept. He did not agree with the hub idea. I understand because it's not profitable, except that it takes hubs to have a service and to be a company that serves all of Canada. That's ultimately what you're telling us. There are hubs in the United States and there are hubs here; so that's what it takes. Otherwise the entire reservation system and the entire system would be changed. That's roughly what I understand.

[English]

    Mr. Richard Balnis: Southwest is also encountering the spider network phenomenon. I would suggest, as they begin to have passengers cleverly working their way through the spider network, that they may start to take on some of the features of a hub and spoke. I would suggest that at that point their costs will increase.

    The Booz Allen & Hamilton study also looks at how passengers are handled through the traditional expensive computer reservation systems as compared to what Tango and Zip use, the Internet. It's much cheaper. There's really no human contact from the company; the passenger does it all, and there's a cost saving to that.

    Some travellers are quite good. I would suspect that parliamentarians and business travellers know how to make their travel arrangements quickly and get on a flight. But people who need assistance would still need the traditional computer reservation systems because they wouldn't know how to do it on the Internet, to make the connections, or for that matter to spend the time.

    What Booz Allen & Hamilton said is maybe we have to differentiate how passengers are treated, and then this hub-and-spoke creature would have fewer costs. It has nothing to do with driving down labour costs, which Mr. Markey and Mr. Milton seem intent upon doing to save their airline. We're saying that we have to look at the whole model. It's not Milton's model; I think that was a very unfair statement toward Mr. Markey. It's the hub-and-spoke model, the traditional model.

    Now, we may not like what Mr. Milton has done with his little pieces, Tango and Zip and things like that; that's Mr. Milton's creation. The hub-and-spoke model has to be looked at as a general model throughout the world, particularly in Canada and the U.S., and it was fascinating to see that response.

    The Chair: Thank you, Mr. Laframboise.

    Mr. Proulx.

    Mr. Marcel Proulx: Thank you, Mr. Chair.

    Thank you for appearing in front of the committee today. When you say, Ms. Sachs, that you had 13 hours to surrender your contractual rights. Are you trying to tell us that you had no indication whatsoever prior to Monday, March 31, at 5 p.m. that they were going to be asking for breaks?

    Ms. Pamela Sachs: Mr. Milton had his first meeting with all of the union leadership on February 6, 2003. It was six weeks after we signed our collective agreement with Air Canada. The next meeting we had with the company was Monday, March 3, and at that point Air Canada was asking for 22%, not wages but other areas of working conditions. We asked the question, “What do you need in the immediate?” The answer was, “Nothing; we need the 22% over the long haul.” So when Robert Milton called me at five o'clock on Monday afternoon, I was stunned, to say the least.

    Mr. Marcel Proulx: And when you say it was not possible to accept such a deal, obviously you didn't go to your membership for a vote on that. You made that decision.

    Ms. Pamela Sachs: We made that decision as a committee, yes.

    Mr. Marcel Proulx: Okay, I need a favour of you. You say “Affected unions called on the Minister in December 2001 to create a 'blue ribbon' committee to study the future of our industry. Minister Collenette has never had the courtesy to respond”. This is unusual--very unusual, unheard of--of Mr. Collenette. Could you, through the clerk of the committee, give us copies of letters or requests that were made to the minister so we can find out why this never happened, because it is highly unusual for Minister Collenette.

    Thank you.

    Ms. Pamela Sachs: Yes, and you're welcome.

»  (1730)  

    Mr. Richard Balnis: If I can answer, we had a face-to-face meeting with Mr. Collenette involving ourselves, the machinists' union, airline pilots, and the laid-off workers of Royal. We put it to him: “Mr. Milton, we need a blue-ribbon committee.” We spent an hour with him, he thought about it, and he said, “It has some merit; I'll get back to you.”

    We can give you the date of the meeting. We have had no correspondence back from him, and that's why we made that point--through the chair, because we're always talking through the chair.

    The Chair: Mr. Proulx is a marvellous parliamentary secretary, inasmuch as he comes to the defence of the minister in all instances.

    Ms. Meredith.

    Ms. Val Meredith (South Surrey—White Rock—Langley, Canadian Alliance): Maybe he needs to remind the minister of his commitment.

    Mr. Marcel Proulx: I didn't defend; I asked.

    The Chair: I liked the way you handled it.

    Mr. Marcel Proulx: Thank you.

    Ms. Val Meredith: I want to deal with a number of issues. I'm struck because I was part of the debate over the merger as to whether the Onex deal would be the better one or Air Canada would buy Canadian. I remember clearly at the time that there was very little sympathy from Air Canada employees for the government moving in and bailing out Canadian Airlines, so I'd like to know why employee representatives have changed their position when they're faced with the same thing Canadian Airlines was faced with three years ago.

    Ms. Pamela Sachs: I think the government had assisted Canadian Airlines many times in the past--I think.

    Ms. Val Meredith: Well, they weren't given an airline with all the assets of an airline either, as Air Canada was.

    Anyway, I'm wondering, why the change in attitude?

    Mr. Richard Balnis: Could I ask what attitude change you see?

    Ms. Val Meredith: When we were dealing with the takeover between Onex and Air Canada, there was very little support from Air Canada employees for the government moving in and helping Canadian Airlines out with any kind of package deal, any kind of financial subsidy, or call it whatever you want. What I heard from your presentation was that's what you would like the Canadian government to do for Air Canada right now, to move in with some kind of subsidy package to prevent Air Canada from any further--

    Mr. Richard Balnis: I would suggest that what happened during the Onex versus the Air Canada management takeover was slightly more nuanced than the way you're presenting it. I think you had Onex, Canadian Airlines, and those employees rallying together to say that their bid was better, this against Air Canada, Mr. Milton, and his employees. But when Canadian Airlines-Pacific Western back in 1992 ran into financial trouble, we did write to the Honourable Minister Mazankowski, who was finance minister, seeking financing for PWA to help them through the gap, and the government then did respond.

    Now we're turning around and saying we have a national carrier that's in trouble, and I think it justifies the assistance, so I think it's slightly more nuanced.

    Ms. Val Meredith: So you feel that there isn't a discrepancy there at all.

    Another issue I'd like to raise here is your assumption that the smaller communities will not be served with any kind of air service. And I refer to your comment on point-to-point, where Air Canada flies from Halifax to Vancouver or Halifax to Ottawa, but the smaller communities wouldn't have any air service.

    I want to bring up my own experience where a small carrier tried to provide scheduled air service from a community that was three hours away from the major air centre, and it didn't work because people didn't use it, and they had to cancel it.

    If it's required, if the demand is there, if the people are willing to pay for air service to get from Yarmouth to somewhere or Sydney to somewhere, somebody will fill that gap. I think you're wrong in assuming that only Air Canada can fill that gap.

    Mr. Richard Balnis: I don't think we want to leave you with the impression that it's only Air Canada that will fill that gap. And I think Mr. Hargrove raised it today. If you want to go from one end of the country to another country, having a patchwork of different carriers that may interline, that may not have convenient connections, that takes you a day to go from east to west, or vice versa, is not an efficient system. If you do have a network carrier that can link to communities, those connections are made easier, your bags are interlined, the schedules are coordinated.

    So we're not suggesting that only Air Canada is the saver, because, quite frankly, in certain parts of this country, including Quebec, they have not had very good service to smaller communities. We're trying to say that if you're going to have a national integrated system and you have a national carrier doing it, that's preferable to a patchwork of carriers by happenstance creating connections.

    Ms. Val Meredith: Some witness this morning or one of my colleagues suggested that perhaps what has to happen is Air Canada needs to concentrate on their international carrier and leave the national, the domestic carrier, to somebody else. In other words, perhaps Air Canada should be concentrating on what nobody else has the capacity for, and that's international destinations.

»  (1735)  

    Mr. Richard Balnis: I think Mr. Markey answered your question on the same point quite well. Mr. Markey can speak very knowledgeably about the airline industry. Who would they be taking from Canada overseas if they didn't have the domestic feed into an international network?

    Ms. Val Meredith: So you're saying nobody else can feed the traffic to Toronto or to Vancouver?

    Mr. Richard Balnis: I think the example is you're not going to have that guaranteed feed coming onto Air Canada planes. In fact, I think Mr. Keyes or Mr. Fontana said let them go to Vancouver and then perhaps pick Cathay Pacific. How can you build an international service if you're not guaranteed feed from your domestic home position of 30 million? If you're going to rely on happenstance, your international services will collapse.

    When Canadian Airlines went through its painful restructuring in 1996, and we were there, at that time, with Associate Deputy Minister Louis Ranger, Canadian said if we stopped all our domestic services our international services would die; we wouldn't have the feed.

    So you're creating a truncated carrier that is not going to work, in our view, to feed or have enough traffic internationally to survive.

    The Chair: Thank you, Ms. Meredith.

    I want to thank you, Mr. Balnis and Ms. Sachs, for presenting and for coming before us today on short notice. I listened to your report very closely, and I would like to debate some of those issues with you at another time. I agree with some and there's some that require further discussion, but I thank you very much for taking the time.

    Mr. Richard Balnis: Sir, could I make one point on our recommendation in relationship to the federal role in guaranteeing pensions?

    There was the implication left earlier that this is a unique situation, but other provincial jurisdictions already provide these guarantee funds, so there is ample precedent in the Canadian dominion for this to happen.

    The Chair: Can you give me an example, please?

    Mr. Richard Balnis: I believe Ontario is an example. Ontario provides a pension guarantee fund, and there will be other provincial jurisdictions....

    The Chair: Ontario provided a guarantee fund to what private corporation?

    Mr. Richard Balnis: They provide the guarantee as part of their pension plan regime. The representative from OSFI said we don't do that. Other provinces do that. All I'm suggesting is what we're proposing is not unique and from Mars; it actually happens somewhere in Canada. And I would suggest an examination of those regimes may be very useful.

    The Chair: That's for another day, though.

    Mr. Richard Balnis: No, that goes to our point four; that's what we're calling for.

    The Chair: But that's not done today. That goes for a debate.

    Mr. Richard Balnis: In the federal jurisdiction it is not done today. In provincial jurisdictions it is done.

    Ms. Val Meredith: I have a point of order. Is that a guarantee for pensions in the private sector, or for their own public service? It's their own public service pensions they guarantee. No?

    Mr. Richard Balnis: My advice is that it is public and private.

    Ms. Val Meredith: Can you tell us what private sector company pensions are guaranteed by the provincial government in Ontario?

    Mr. Richard Balnis: Well, they all are as part of the provincial regime. So if one went into bankruptcy, as Air Canada did, you would then have a regulator that would provide the guarantee. They don't provide the guarantee as a matter of course, because you go through the dips of the stock market up and down. It's when you come to a crisis, as Air Canada has, and the plan is terminated that provincial guarantee would kick in. So it's not on a daily basis--

    The Chair: I don't think we're going to get to the.... Let me get our researchers to.... Your position is that the Ontario government pension plan...give me the name of it.

    Mr. Richard Balnis: It's the Ontario regulatory regime for pensions that differs from OSFI.

    The Chair: The Ontario regulatory regime for pensions guarantees the pension plans for both government operations and private organizations.

    Mr. Richard Balnis: Yes.

    The Chair: We will get that information.

    Mr. Richard Balnis: I think that would inform your debate.

    The Chair: We will get that information and it will be circulated, Mr. Clerk.

    Now that we're into it, Ms. Sachs, you are the representative of 8,000....

    Ms. Pamela Sachs: Yes, sir, flight attendants.

»  (1740)  

    The Chair: I'll get these names straight eventually. During my heyday we called them something else.

    How long have you been in that job?

    Ms. Pamela Sachs: As a flight attendant with Air Canada?

    The Chair: No, as president.

    Ms. Pamela Sachs: I've been in this job for six years.

    The Chair: Have you ever been involved in asking or getting their permission, or getting involved in who administered this money? Let's follow the money. You collect money off your cheque and it goes some place and you think it's secure forever. Have you ever, in your six years, been asked to give the membership some indication or some say in the administration of your pension funds?

    Mr. Richard Balnis: In fact, we put forward a proposal in our last round of bargaining.

    The Chair: I'm asking if you've ever been asked.

    Ms. Pamela Sachs: By a member?

    The Chair: No, by whoever administers your pension plan.

    Ms. Pamela Sachs: No.

    Mr. Richard Balnis: Absolutely not. They have rejected joint trusteeship or greater union involvement.

    The Chair: Who's they?

    Mr. Richard Balnis: Air Canada, the employer. They are the plan sponsor and the administrator. We put forward a proposal for joint trusteeship. They said that it is beyond our mandate, it will never happen, go away. That's a polite paraphrasing of what they said.

    The Chair: So your membership has never been involved in the administration of your pension plan funds.

    Ms. Pamela Sachs: That's correct. We've never been involved. Air Canada won't let us in.

    The Chair: Thank you. That's very helpful.

    Ms. Pamela Sachs: You're welcome.

    The Chair: I still want to debate with you on some of those other things you've said.

    Ms. Pamela Sachs: Okay, another day.

    The Chair: I now welcome the Air Line Pilots Association: Mr. LaFlamme, Mr. Hardisty, and Mr. Linthwaite. You come with a great reputation. It's the Canadian Air Line Pilots Association. Am I correct?

    Captain Kent Hardisty (President, Canada Board, Air Line Pilots Association, International): It was formerly the Canadian Air Line Pilots Association, merged with the Air Line Pilots Association in 1997, yes.

    The Chair: Okay. I apologize for being now only 15 minutes late.

    Capt Kent Hardisty: Thank you, Mr. Chairman.

    We understand the committee has had a very full day, so we'll endeavour to be as brief as we can in respect of our submissions. We have provided a written submission that is somewhat detailed. We will not undertake to go through all of it. What I will do is attempt to highlight the main points of our submission through speaking notes.

    I'm Captain Kent Hardisty. I'm here representing the Air Line Pilots Association, International. I'm an executive vice-president of ALPA and president of ALPA's Canada board. As well, I'm a pilot for Air Canada Jazz.

    With me today are ALPA's senior representative for government affairs in Canada, Mr. Art LaFlamme, and Captain Steve Linthwaite, who is a member of the negotiating committee representing ALPA's bargaining unit at Air Canada Jazz. We would like to thank you for the opportunity to speak to the committee today.

    ALPA represents the collective interests of more than 66,000 professional pilots who fly for 42 airlines in Canada and the United States. As a representative of the majority of pilots in North America for over 70 years, ALPA has a significant interest in the economic health and well-being of the industry.

    ALPA believes it is in the public interest to have a national flagship airline that provides domestic and international service to all Canadians. Simply put, with Canada's dominant carrier in bankruptcy protection, the airline industry in Canada is in crisis and requires major surgery.

    ALPA, which represents the pilots at Air Canada Jazz, has recognized this. We have been actively at work with the company over the course of the last several weeks to find solutions that will attempt to utilize the productivity of their company so that it may adapt to the changing economic environment.

    With respect to the broader policy issues at hand, it would appear by necessity that all stakeholders, including the Government of Canada, must come together to find solutions to the urgent issues that confront us. For that reason we believe it is doubly important that our views be known. We thank you for the opportunity to make these submissions.

    We believe that strong medicine is needed in the current circumstances to ensure that the industry is one that is safe, profitable, accessible, and affordable. In addition, as an organization that represents employees who spend their careers in the industry, we think it is important that the government recognize a further important industry value, a value we believe has not been given adequate attention in the government's recent policy formulation. That value is stability.

    The value of stability, which is critical to the lives of the people working in the industry, underpins our first recommendation. In order for the Canadian airline industry to be more stable and to ensure that there are sufficiently strong players to permit meaningful competition, it is necessary to provide as a measure of last resort government stabilization assistance in emergency situations.

    In ALPA's view, it is short-sighted to believe that the market corrections that characterize a market with easy access and entry is somehow good for the airline industry. Quite to the contrary, such airline failures make the travelling public nervous and less willing to commit their hard-earned money to the purchase of tickets on airlines. For workers, the effects are devastating as huge numbers of workers lose their livelihoods and thousands of families are financially blind-sided without any notice. While the government's direct role in the restructuring of Air Canada may still be in question, we believe that in the last resort the government should step in to ensure the survival of this vital transportation system.

    In this context, we ask you to note that the Air Canada system is not just another airline, as others have pointed out. It is Canada's only network carrier. The infrastructure cost for a network carrier such as Air Canada is considerably higher than for a point-to-point operation. Only a network carrier will serve small centres as well as international routes.

    While we do not suggest that Air Canada be protected from competition, the fact of the matter is that the existence in the market of point-to-point carriers erodes a network carrier's ability to perform the international and smaller-centre flying that is the hallmark of the full service carrier.

    An airline such as Air Canada is more than just the sum of its parts. It cannot simply be replaced with a multiplicity of new entrants. We believe the government ought to bear this important economic fact of industry life in mind when it considers stabilization measures for Air Canada, in order to ensure the continuation of the valuable service it provides.

    Since it is the only network carrier, there is a clear public interest in having Air Canada provide services to small or remote communities. Connection to the route structure that Air Canada provides is a link that we believe is a service to all Canadians, or that all Canadians should enjoy. However, we do not believe it makes any sense at all to saddle Air Canada with the additional cost for providing such services.

    Therefore we ask the government to consider providing subsidies to ensure that there is transportation available to link remote communities to larger centres from which further connections may be made to a hub. In this regard, we ask the government to consider the U.S. essential air service program as a source of ideas for this important service.

»  (1745)  

    One area that is absolutely imperative for the government to address is the current unfair taxation of the airline industry. The myriad of taxes, surcharges, and additional costs that have been heaped upon this industry have had a significant and negative impact upon its viability. These costs generally add between 7% and 40% to ticket prices, and even more in some circumstances. At a time when the industry by any measure is in a state of crisis, the policy direction reflected by such imposed costs is seriously misplaced and completely unfair.

    Specifically, the government must immediately end the air travellers security charge in its entirety. In our view, the user pay concept is completely inappropriate and misplaced. The September 11 terrorist attacks were not targeting the air transportation system; they were utilizing it to turn aircraft into weapons of mass destruction against the general public and corporate institutions. We think it is telling that there have been no similar charges for users of marine ports or border crossings, where extensive and costly measures have been incorporated to facilitate the flow of goods into the United States. There is no valid reason for the airline industry to bear this cost.

    Similarly, the fuel excise tax for airlines must be eliminated. When it was introduced more than 20 years ago, it was to be a temporary measure. The rationale for that tax no longer exists, in our view, and we recommend the elimination of this measure, which is punitive in the circumstances.

    Airport rents are another area where the government is unfairly extracting revenue from the industry. The government received more than $250 million in rents last year, and this amount will increase by more than 90% in 2003. ALPA strongly recommends that the government stop collecting rents and that airports be required to pass on these savings through reductions in airport fees.

    ALPA believes that the government's handling of aircraft financing, which could be critical to a restructuring of Air Canada, needs to be addressed immediately. Currently, Air Canada's transborder competitors are able to acquire Canadian-built aircraft more cheaply than Air Canada, owing to financing programs that are only available upon export. We believe that this discrepancy must be addressed, so that Air Canada is on a level playing field with its competition in the important transborder market.

    Airport and Nav Canada fees must also be addressed. The costs of operating an airline in Canada have increased dramatically as a result of the government's policies, which have resulted in the devolution of air transport system. Because the government-constructed system in which they have been placed provides few alternative sources of revenue, airports are required to raise their prices in order to offset reduced traffic volumes. Similarly, Nav Canada must do the same. This makes no economic sense, whatsoever. In turn, these cost increases occur precisely when airlines are least able to afford them. We think this is a case of clear unfairness, and what is missing is a system of protection or insurance from fee increases during downturns in the economy.

    Also unfair, we submit, is the government-subsidized competition provided by VIA Rail and airline short-haul routes. The substantial subsidies that VIA enjoys places it in a position where it is able to offer a service to the public well outside its market value. We think the fact that the taxpayer provided 55 cents of every dollar that VIA Rail spent last year speaks for itself. Transportation competition must be fair and equitable across all the modes. It is patently unfair to encourage one mode of transportation over the other.

    In the midst of the current crisis, it is easy to lose track of some of the larger policy issues the industry faces, but we realize that these ought to be addressed in this context as well. ALPA has on many occasions appeared before this committee to oppose efforts to open up our domestic markets to foreign carriers. We believe that a case for this has yet to be made, and our position remains unchanged. ALPA believes that permitting foreign airlines to conduct cabotage operations in Canada is both impractical and unwise. Cabotage operations would employ foreign workers subject to foreign labour laws, would operate in our domestic market, and would ultimately replace Canadian workers in high-value jobs.

    Further, while foreign carriers would be happy to serve the major routes within Canada, there is little prospect of them serving remote areas. We see little benefit to consumers with the introduction of these services, other than to further reduce the profitability of Canadian carriers. There is no indication that either the United States or Mexico is considering eliminating their respective prohibitions on cabotage. The United States, in particular, has repeatedly stated its intention not to open its routes to foreign competition. We believe that the Canadian government should not open up our skies in these circumstances.

    Finally, now is not the time to weaken the principle that the Canadian air transportation system should be in the control of Canadians. We do not believe that access to funds from other countries should outweigh the values inherent in domestic ownership. Canadians have invested heavily to establish the transportation infrastructure of the country, and it would not be appropriate for foreign investors to have control over the direction of the airlines, which are a major component of that infrastructure. Therefore, we are of the view that airline control must remain in Canadian hands.

»  (1750)  

    Once again, I would like to take the opportunity to thank you. I hope I was able to briefly present the highlights of our views. We'd be happy to address them again. Captain Steve Linthwaite is available for any discussion specific to our Air Canada Jazz component. Thank you.

    The Chair: Thank you.

    Do you have a comment, Mr. Gouk?

    Mr. Jim Gouk: Yes, very quickly, Mr. Chair, and they can make any comments or rebuttal.

    The problem with subsidies for remote airports is then you would be receiving a subsidy to compete against those who would carry passengers out of there, be it WestJet, Hawk Air, or any one of a number of other airlines. I agree with your position on the air security tax, the fuel tax, and the airport rents.

    The aircraft financing is something I hadn't seen before just recently. It is a concern, and I think we should look at it.

    Nav Canada should have a contingency fund. There were fatter days, and they as well as the airlines should have a contingency fund. That's what they should be falling back on, not a cushion created by government.

    On VIA Rail, I completely agree with you. Your figures are a little wrong; they're a little high. I would use those figures of yours if I could justify it, but it's still terrible. Believe me, that's one of my pet peeves.

    With regard to cabotage, your final remark on that, I would have no problem with cabotage, provided there were reciprocal arrangements. I am absolutely and totally opposed to it unless that reciprocal arrangement is in place.

    That's all I have to say, Mr. Chair. Any comment they might have....

»  (1755)  

    The Chair: Thank you.

    Mr. Bagnell.

    Mr. Larry Bagnell: Do you all work for Air Canada or its list of a bunch of companies?

    Capt Kent Hardisty: I'm an active line pilot with Air Canada Jazz, as is Captain Steve Linthwaite. Mr. Art LaFlamme is a senior staff representative in Canada for the Air Line Pilots Association.

    Mr. Larry Bagnell: What's the difference between you and the Air Canada pilots' union?

    Capt Kent Hardisty: If I can turn that question over to Captain Linthwaite....

    Captain Steven Linthwaite (Representative, Air Canada Jazz, Air Line Pilots Association, International): Thank you.

    We're part of a separate bargaining unit. The mainline pilots are represented by the Air Canada Pilots Association, and the Air Canada Jazz pilots.... To give you a bit of background, we are the result of a merger of Air Ontario, Air BC, Air Nova, and Canadian Regional Airlines. Together we became Air Canada Jazz. We're represented by the Air Line Pilots Association. We're a wholly owned subsidiary of Air Canada and a separate bargaining unit.

    Mr. Larry Bagnell: Okay.

    As a last question, can you explain how the U.S. essential air service program works in relation to Mr. Gouk's question about whether it's in competition with existing service or if it goes only to places that are not served by anybody?

    Mr. Art LaFlamme.

    Mr. Art LaFlamme (Senior Representative, Canada, Air Line Pilots Association, International): To answer the question, we can send the committee the details of the program if you wish, but essentially, if a community that is not being served is farther than 50 miles from an airport, they can apply for federal subsidy assistance to ensure they have connections to a full-service network.

    Mr. Larry Bagnell: Thank you.

    The Chair: Thank you, Mr. Bagnell.

    Mr. Laframboise.

[Translation]

    Mr. Mario Laframboise: Thank you, Mr. Chairman.

    Gentlemen, I believe you have very clearly summarized the situation of the airline industry and the way to assist the entire industry. Moreover, the answer of my Canadian Alliance colleague, who took a very good position on what you advanced, explained that clearly. The problem we're experiencing today is that members of our committee, the Liberals, still doubt that the airline industry needs help.

    They want to straighten out Robert Milton and Air Canada. I'm convinced that's going to be done. In any case, the Companies' Creditors Arrangement Act will force the reorganization of Air Canada, and you will no doubt have your share of work to do. You know it, and you are going to take part in the negotiations.

    However, there is one obvious problem, and this isn't the first time the government has been told; the industry repeats it. And you have very clearly summed up the situation in less than three pages. I will do something like what my colleague did. I believe that, yes, airlines offering services to remote and small communities should receive assistance. An assistance program is required. To avoid it being a company, I seriously think we should provide assistance directly to the local airport organizations, which will choose the company they decide to do business with. I really think that can be done. I think that, even in the United States, this solution has been considered rather than helping one business to the detriment of others, because that frustrates a lot of people in the West. Assistance could actually be given to local entities, which would select the carrier of their choice to provide the service.

    The industry is unanimous on fees, the security tax: the problem is competition with other types of businesses. You were clear-sighted enough to target Via Rail and to say that the government doesn't hesitate to make promises, even monetary ones, to other types of passenger carrier industries which compete directly with you and do not have to pay the same charges. You have the airport improvement fees, you have all kinds of things to pay that other industries don't have to pay, and once again the government closes its eyes and thinks that the airline industry can get through it.

    I also thank you for talking about liberalization. Your position has obviously been firm on cabotage. As for foreign investment, people seem to have been telling us since this morning that the solution may be to increase foreign investment from 25 percent to 49 percent. I don't see how. The only time when that could have been done was when foreign industries were in good financial position. They could have taken an interest through exchanges and point systems. That could have interested them, but even foreign airlines are in financial difficulty. I don't see how we can do that. And even today, we're trying to come up with a solution such as this to say that it will prevent the government from having to take money out of its pockets, and, once again, we're going to put a band-aid on an enormous problem.

    So I would like you to tell me--because I obviously have to ask you a question--whether the assistance to small communities program to guarantee transportation in the regions could target local airport authorities so that they can choose the best carrier on their own? Could that be an option?

¼  (1800)  

[English]

    The Chair: If you could keep your answer to one minute, I'd appreciate it, because we'll be over time again. The question took four minutes.

    Mr. Art LaFlamme: If I understood Mr. Laframboise correctly, the question at the end was solely with respect to local airport authorities being given assistance to choose their airlines versus assistance to the carrier. I think that's a policy issue for the government to decide. We are not strong on the mechanics of that; it's more the principle that smaller communities be served.

    The Chair: Thank you, Mr. Laframboise.

    You have one short question, Ms. Meredith.

    Ms. Val Meredith: From your brief here, the one claim to fame you have for Air Canada is that it's Canada's only network carrier. You mentioned that over and over again in your presentation. I have two questions. If that's the case, why didn't they make money, why didn't it work? And if that's the case, why Zip?

    Capt Kent Hardisty: If I understand the question correctly, we can all speculate. We have certain assumptions ourselves. Of course, the corporation, in our view, did not conduct themselves properly in terms of corporate governance. That's an issue.

    On the issue of how to turn the matter around and make it realistic moving into the future, we certainly had some very specific ideas on what we think the structure of the airline should look like in terms of how it can better produce value to the marketplace and the Canadian public interest.

    I'm sorry, the second part of your question....

    Ms. Val Meredith: Why Zip, if they--

    Capt Kent Hardisty: Zip is--

    Ms. Val Meredith: Zip is not part of the network.

    Capt Kent Hardisty: It is, in effect, in our view, in that Zip is a model that attempts to emulate a low-cost operation. In some respects that may have been presented, but in reality it's still a very high-cost operation. It is an attempt to try to operate in a lower-cost environment.

    Ms. Val Meredith: But the lower-cost environment is point to point, not part of a network, so it doesn't fit into the mould of a network carrier.

    Capt Kent Hardisty: Mr. Chair, the fact of the matter is that in many cases we can document to date that the Zip model is not in effect working as a low-cost, point-to-point operator. All they're really doing is acting in many circumstances as a replacement for the mainline product. So we have yet to see any real effort to undertake this low-cost model in a realistic environment.

    The Chair: Mr. Linthwaite, I'll ask you to comment on that, and we'll end with that.

    Capt Steven Linthwaite: I agree with you that WestJet is not a network carrier. We heard people talk previously about connecting Yarmouth and smaller communities. Really, that's us. It's Jazz that does that.

¼  (1805)  

    Ms. Val Meredith: That's right, not Zip.

    Capt Steven Linthwaite: We're the shorter spokes in the hub. Right now we're mainly a short-haul operator with some medium haul, which is growing.

    We recognize the fact that this has to change. To be quite honest, the current model won't work for us at Air Canada Jazz. We have to adjust what we're doing. That's why approximately six weeks ago our local union created a bargaining committee, which I'm part of, and we recognize this. We've been working actively with Air Canada Jazz management. We have to change this model or we are not going to survive. You're correct.

    The key is stability. We want to bring stability to the communities we serve and to the people we represent. To do that, it's basic. I'm sure you've heard it today. It's about putting the right equipment at the right price into the right market. In a lot of cases that's what WestJet has been doing well. We have to do better at it. The problem is we need the tools to do that, and we don't have them right now.

    I could go further--

    The Chair: Thank you.

    One of the problems of being toward the end of the program is that many of the submissions are heard prior to your coming here. So in order for us to compensate you folks for being at the end of the program, after we've heard about the security fee, no rents, etc., all the substance of your submission, the next time you will be at the top of the program. The next time we have a transport committee hearing and you want to make a representation, we'll put you on in the morning. We've heard the arguments many times today. I think the committee doesn't have to hear any more of that evidence.

    We want to thank you all so very much for coming.

    Mr. LaFlamme, you want to make another comment?

    Mr. Art LaFlamme: I know the committee has had a long day, so--

    The Chair: We're here till nine o'clock, so carry on, as long as it's short.

    Mr. Art LaFlamme: Okay.

    Mr. Chairman, a lot has been said. We feel the committee should take on seriously two questions. One, is there value to having a full network service, a flagship carrier, in Canada? If so, how do you balance the cost of such an operation, as stated by CUPE and the CAW this morning, against the cost advantages of a point-to-point carrier? Secondly, how destabilizing are the effects of unfettered or easy access to the marketplace? Are there some mechanisms that could be built into the system to provide stability to increase the chances that we won't be here three years from now discussing the same thing all over again?

    The Chair: Thank you, Mr. LaFlamme.

    I'll give you a quick answer to that. I'll tell you, you want to limit the number of people who can open an airline in Canada. If we don't charge rent at the airports, don't charge fuel tax, and there is no security fee, I can see the floodgates opening and compounding the problem.

    I think what our committee will wrestle with is a balance, and I hope we come up with something. Our intention is that at this point. We've gone through this in 1992, 1993, 1996, 1999, 2002, 2003, so I don't intend to go through it ever again, thank you very much, and I hope you guys don't.

    A witness: We wish you good luck in your deliberations, and thank you.

    The Chair: I thank you all for coming.

    Who do we have next? It will be Air Transat.

¼  (1809)  

---

½  (1902)  

    The Chair: We will reconvene the hearings of the transport committee with an examination of the viability of the airline industry in Canada.

    We welcome our next group of witnesses, from Air Transat, Mr. Sureau.

    Mr. Proulx, will you introduce our witnesses please?

[Translation]

    Mr. Marcel Proulx: We welcome Mr. Sureau, Mr. Bernard Bussières and Mr. George Petsikas.

    But I believe there is an s missing from your given name. Do you write it in English?

    Mr. George Petsikas (Director, Government and Industry Affairs, Air Transat): Yes, most of the time.

    Mr. Marcel Proulx: So there's no mistake.

[English]

    The Chair: Now, everybody said that the only people who came into the hearing today with smiles on their faces were from WestJet, and rightly so. You operate between the seams, and Air Transat is never mentioned. But I have to tell you, try to get a reservation with you folks, and you are busy. You run a good airline, and I compliment you on that.

    You're very busy, and I notice the smiles on your faces are almost as broad as the smiles on Mr. Beddoe's face. Am I correct in that?

    A witness: [Inaudible—Editor].

    The Chair: So you come without any concerns.

    Carry on, Mr. Sureau.

½  (1905)  

    Mr. Philippe Sureau (Executive Vice-President, Transat A.T. Inc., Air Transat): Good evening, Mr. Chair, distinguished members of the committee.

[Translation]

    My name is Philippe Sureau and I am Executive Vice-President of Transat A.T. Inc., a company located in Montreal. Two of my colleagues are here with me today: Bernard Bussières, Vice-President, Legal Affairs and General Counsel, and George Petsikas, Director, Government and Industry Affairs at Air Transat.

[English]

    I would like to start by thanking you for the invitation to appear before the committee in order to share with you our thoughts on the financial viability and sustainability of Canada's air carrier industry as well as on the potential initiatives of our federal government to offer financial assistance in this regard.

[Translation]

    Before addressing the subject before us today, with your permission, I would like to provide the committee with a brief overview of our business. Transat A.T. Inc. was founded in 1986 by its present officers, Jean-Marc Eustache, President, and myself, together with a group of former Quebecair pilots and managers. We started up Air Transat in 1987 with an L-1011 aircraft. In less than 16 years, since its inaugural flight, Air Transat has become the leader in the Canadian vacation travel industry. Apart from Air Transat, which now has a fleet of 17 wide-body aircraft and operates from bases located in Toronto, Montreal and Vancouver, we own the largest tour operator in Canada, Vacances Air Transat Holidays, and known names in the industry such as World of Vacations, which was also known as Canadian Holidays and Nolitour. We have travel agencies, Travel Plus-Club Voyages, which is a large franchise group in Canada, and we also hold extensive interests in Europe, in particular a French company, Look Voyages, which is the third largest tour operator in that country. In 2002, we had sales of approximately $2.1 billion and we have a labour force of nearly 4,500 employees.

[English]

    Mr. Chairman, to paraphrase that old Chinese curse, I think I can say with some certainty that the worldwide travel industry is definitely living in some interesting times. I'm sure the committee is well aware of the sobering and quite frankly shocking numbers and statistics we have seen from the industry since the September 11 attacks: over $30 billion U.S. in losses, 80,000-plus jobs lost, numerous failures and chapter 11 filings, including of course Air Canada's recent filing under the CCAA.

    For our part, we have certainly not been spared the market's wrath, although we have weathered the storm better than others. After declaring a net loss of $99 million in 2001, Transat posted a modest after-tax profit of $7.7 million in 2002—well ahead of expectations, as a matter of fact.

    Unfortunately, prospects for 2003 are rapidly turning sour as a result of the likely possibility of a protracted conflict in Iraq and the totally unexpected threat posed by the SARS scare.

    I can confirm that our forward number of season's bookings over the last few weeks, not including the recent impact from SARS, is down by an average of 15% to 20% across the system compared with the same period last year. In short, we are continuing to face substantial challenges in the short to medium term as a result of this instability in our revenue picture. I dare say we are not alone in this regard.

[Translation]

    To face these challenges, we have focused our efforts on cost reduction and consolidation to maintain our financial situation and be in a position to react to the expected turbulent market conditions in the coming months. We have developed a number of emergency plans similar to the quick measures we took during the shock wave that followed September 11, measures that have proven themselves and that we will implement if circumstances require. As a result, because of declining demand, we have announced that a 10% reduction to date in our flight schedules as of May 1 and the withdrawal of two Boeing 757 aircraft that are part of our fleet. Despite these measures, and although we intend to address our internal costs in a responsible manner, we are still no less subject to considerable outside cost-related pressures over which we exercise no control. It is precisely at that level that the federal government could and should intervene to assist our industry which is in difficulty.

    Here then are a few suggested initiatives that the government could take immediately, and which we respectfully submit to you.

½  (1910)  

[English]

    The first one is an 18-month freeze or suspension of airport ground rent payments. The federal government is scheduled to collect almost $275 million this year in rent payments from airports under ground rent formulas negotiated in the transfer leases. This represents a 25% increase over the $219 million in rent revenue collected in 2001, well above average rates of inflation. At the same time, federal government expenditures in the air transportation mode have steadily declined, from $405 million in 1999 to only $133 million in 2002. Thus, while the underlying economic policy of this revenue extraction from Canada's air transportation system was dubious to start with, it has now become, in the current difficult context, nothing less than a disguised tax on the system, and its users can no longer support it.

    The government has been reviewing this rent policy for almost two years. We can no longer afford to wait for concrete action. The requested freeze in payments would provide vital short-term cost relief to carriers and would preserve much-needed liquidity in the airport system, given the massive airport infrastructure and development projects that still need to be paid for.

    I can tell you that in our case, it would keep approximately an extra $9.6 million in our pockets, which may end up being a critical financial buffer for this year. The suspension period could also be used to properly reflect on and eventually implement a long-term rent formula based on a much fairer cost- and revenue-neutral approach for the government.

[Translation]

    The second point is the elimination of the Air Travellers' Security Charge (ATSC) in all travel sectors and the government's assumption of direct and indirect costs related to air safety and law enforcement.

    As Canadian air carriers have contended on a number of occasions, the main threats to civil aviation today stem from the hatred and resentment fomented by a number of extremist groups against policies advocated by certain key industrial powers. The claims in question here quite obviously have nothing to do with lost baggage. Instead they concern our society, our values and perceived injustices. The disaster on the ground caused by the aircraft high jacked on September 11 permanently discredited the argument that air security costs should be borne by travellers, who are the assumed beneficiaries. Since September 11, air security costs incurred by Air Transat have exceeded CDN$2.3 million. In addition, the government announced in its last budget a significant reduction in the ATSC for domestic segments, but unfortunately maintained the amounts applicable to transborder and international travel at the same level. Those amounts are by far the highest and exceed even those charged by Israel, which amount to CDN$12.42 per round trip. This difference, which affects more than 80% of our customers at Air Transat, is discriminatory and unjustified by the costs since passengers in all segments use the same detection services. So you will understand why we find it particularly unacceptable that our passengers should arbitrarily be required to pay a 300% increase per use for this service relative to the costs I spoke of. Briefly stated, the solution to this abnormal situation is to eliminate, or at least suspend, the ATSC, which would result in a sharp increase in demand, which is flagging as a result of the circumstances I referred to a moment ago. In short, Canada must shoulder its responsibilities in this area rather than place the entire cost burden on system users.

[English]

    The third point would be a two-year moratorium on the special excise tax on aviation fuel.

    In 1978 the government started taxing aviation fuel, one of the few major industries in Canada to have business inputs charged in such a manner. Although rebates were initially provided to commercial users, this practice stopped in 1985 in order to help cover budgetary deficits. In 2002 the federal government took in approximately $90 million to $100 million in excise aviation fuel tax revenue on the basis of a four-cent-per-litre charge.

    Relief from this tax—which is not unprecedented, since the government has already suspended it twice in the past for various reasons—would save Air Transat approximately $1.1 million per year.

½  (1915)  

[Translation]

    I would now like to share a few thoughts with you on Air Canada's situation and direct financial assistance which the government may potentially provide it. To start with, we were very interested to see the government's apparent willingness to provide CDN$500 million in the form of loan guarantees to help Air Canada in the short term.

    Since the airline has chosen for the moment to opt for a private sector solution, we think the government should be disposed to provide assistance not only to Air Canada, but to the entire industry, in accordance with the recommendations I have just outlined.

    Furthermore, we believe we are currently witnessing the inevitable result of the corporate policies and strategies implemented by the government in recent years. This began with the disastrous takeover of Canadian Airlines and the resulting job and service guarantees which undermined efforts to adjust capacity to market realities. There followed the harmful “market share at all costs” approach adopted by Air Canada in the domestic sector and the international vacation travel sector, which concerns us in particular. It is time this stopped. Consequently, we strongly recommend that financial assistance, whatever it might be if it exists, be subject to certain conditions, as follows.

[English]

    Air Canada must be required to undertake substantial restructuring and to conceive and implement a sound business plan. To this end, it must significantly reduce capacity by grounding aircraft and reducing services on competitive domestic transborder and long-haul leisure markets. Its new business plan should be disciplined and focused, contrary to the current strategy of a hodge-podge of brands and dumping of capacity in any and all market sectors in a desperate attempt to generate short-term cash.

    The new Air Canada should be dedicated to offering a cost-efficient domestic mainline service and to the development of its international and transborder alliance network.

    In brief, Canadians do not need to see Air Canada jets in Shanghai and Punta Cana, the latter being a low-yield leisure destination that is already extremely well served by numerous Canadian carriers, including Air Transat. The same logic goes for services to several holiday destinations in Cuba and Mexico that Air Canada has introduced over the last years.

[Translation]

    Air Canada must be prohibited from using taxpayers' money to control prices in competitive markets or to behave aggressively toward the competition by establishing trademarks for the sole purpose of fighting players in all sectors whatever they might be, including international vacation travel. This condition is entirely common in Europe with regard to government financial assistance to a carrier. The underlying logical objective is to prevent a distortion funded out of taxpayers' money of what is supposed to be a free competitive market.

[English]

    The offered assistance must be made available to any requesting Canadian carrier under credible conditions. This is essential in order to signal to investors, financiers, bankers, suppliers, and so on that the government will not be playing favourites. Indeed, it does not take much to upset and disturb the delicate balance in dynamics in the market if one competitor is seen to be privileged by government aid and guarantees. Competitors in difficult marketplaces who do not have access to the same cash guarantees or related benefits could suffer from investor panic or nervousness, as well as from adverse or more onerous credit conditions imposed by private sector bankers, suppliers, etc., aircraft lessors, fuellers, ground handlers.

    I trust this will be of some assistance to the committee's deliberations. I would be pleased now to take any questions you may have.

    I thank you for your very kind attention.

½  (1920)  

    The Chair: Thank you, Mr. Sureau.

    I'm very glad you summarized your report, rather than giving a full report.

    Mr. Philippe Sureau: It was supposed to be ten minutes, wasn't it?

    The Chair: I'm just putting you on. It was fine.

    Do you have any questions, Mr. Gouk?

    Mr. Jim Gouk: Basically, what you say, I agree with. I think it is very important that anything we do to help the industry--and we are here to look at the aviation industry, not just Air Canada--needs to be done across the board so we're not favouring one airline. Frankly, cutthroat competition is what created a lot of this mess we're in right now. Certainly government fees have been a part of that, but we think Air Canada to some degree is master of its own demise.

    I don't see anything in here I disagree with. Certainly I am not in favour of providing any cash to Air Canada, because that will only make them stable enough to go back and start this cutthroat competition again. They're going to have to come out with a new plan, much as you've said, that focuses on what they can do best, and leave things they can't compete with to those who can supply that service.

    I appreciate you coming and providing this information. The more backing we get to this type of thinking, the more possible it is that we'll come to some consensus on the committee and do something that will help the industry.

    The Chair: Thank you, Mr. Gouk.

    Mr. Bagnell.

    Mr. Larry Bagnell: Thank you.

    I'm not sure I agree. I think overseas security costs more than domestic, if you weren't saying that's true. But I do agree with you that Air Canada shouldn't get anything that all the industry is not eligible for.

    I have two questions. First, has there been anything in Canada, in your experience, that has tried to inhibit competition in Canada, inhibit your ability to compete in a free market in Canada? And is there anything we might do about that?

    Mr. Philippe Sureau: What I'm referring to is what we've seen in the last 18 months to two years since Air Canada has acquired Canadian and sort of launched its new initiatives. We've seen--I guess it was a good reason to them--a surplus of aircraft being dedicated to some markets where they don't particularly belong. And with the commercial strength of Air Canada, which is good for them, they can definitely upset the market very easily by adding capacity, simply for the sake of having aircraft flying.

    This is why we mentioned more specifically what our own bread and butter is, the Caribbean and Mexico. We think in that regard it's not a market where they've been terribly good in the past, and have proven again, unfortunately, to be not very successful. But adding capacity in those markets that are not particularly growing at this point in time is damaging to our own business.

    For instance, at this point in time in some markets, such as the Toronto market, which is obviously the number one market in Canada for us as well, and is by far the largest market for Air Transat, we're seen very often as being a Montreal-based carrier, but more than 50% of our income comes from the Ontario marketplace. After that, the west is our third best market, but very close to Quebec, as a matter of fact. So it's interesting to see we have more balance than people may think.

    In the Ontario marketplace, we've seen aircraft coming from the U.K. as well. The concept of having this control about the ownership of airlines is a nice thing we think we have, but when it comes to the actual reality, aircraft fly and they fly from country to country. It is British aircraft during the summer and Canadian aircraft during the winter, and we see that happening. Then Canada is used a little bit, let's say, as a dumping ground for some extra capacity not needed in some markets, such as the U.K. during winter, for instance. That is not very good for us.

    Is it unfair competition? That's not for me to say, but it's happening in my market every winter.

½  (1925)  

    Mr. Larry Bagnell: We had a couple of witnesses say today that Air Canada should get out of the domestic market, that they could never compete against the low-cost people, and now you're saying they should get out of half of the international market. That would leave a pretty small airline. Do you have a problem with that?

    Mr. Philippe Sureau: I don't think they should go away from the domestic market. I think it's a too drastic assessment. I don't think they should go away from international markets. That's not what I'm saying.

    I'm saying we should pay attention to.... We are referring to our market as a leisure market, and Air Canada is a full-service airline providing excellent service. I have nothing to say about that. And they have tools in order to be successful for their alliance. Their model of development could be very successful. It doesn't have to be a Southwest or WestJet. I think there are other airlines that are very successful--well, “very” may be far-fetched, but within the environment with other business models. So not everybody has to be a low-cost carrier. I don't think it's the answer. There's room for a healthy Air Canada in Canada, definitely.

    The Chair: Thank you, Mr. Bagnell.

    Mr. Laframboise.

[Translation]

    Mr. Mario Laframboise: Thank you, Mr. Chairman. Thank you for being here today. I have a few questions, including the following: in your opinion, if September 11 hadn't happened, would Air Canada nevertheless have developed derivative products in a hurry in an attempt to compete and quickly make its operations profitable. In short, if those events hadn't occurred, would Air Canada be in the same position as it is today?

    Mr. Philippe Sureau: I think that's speculation, but, since you've just engaged in it, we will too. However, from the moment their cost structure became generally what it was, with regard to human resources or debt in general, they found themselves in very bad position. It seems clear to me that the equation wasn't easy for them to solve. Market conditions subsequently turned catastrophic. They definitely worsened the situation.

    Lastly, as we emphasized today, the aviation industry is penalized by certain policies which might perhaps be acceptable in a highly flourishing market, but which, in the present circumstances harm the entire industry, Air Canada all the more so. Zip, Jetz and Tango are ultimately marketing ideas. In one way, this is a strategy to sell a fleet. Is it the right method? That's a bit of a moot point. I'm sorry; I don't mean by that that your question is moot, but simply that this is a marketing strategy on their part. There are others. It's not very important to know whether it's right or wrong. We aren't here to do Air Canada's marketing; that's up to them. The problem is that it's not working.

    Mr. Mario Laframboise: I ask you that question because even Air Canada didn't request direct assistance from the government. Except immediately after September 11--when it requested $2 billion--its argument has always been the one you're advancing, that is to say that, in Canada, we have to deal with certain excess costs, whereas other communities around the world don't have to do so. We haven't compared the direct assistance that the United States provided to their industry; Air Canada tells us that it amounted to $22 billion. However, other countries provided direct assistance and Canada appears not to have done so.

    I think you have the key. The problem is that the Liberal Party and Canadian Alliance colleagues--you saw this earlier--still think that the problem is poor administration on Air Canada's part. But it's not just that. A large part of the problem is probably attributable to poor administration, but the problems of the industry that you have been lamenting for more than a year are also involved.

    I'm following your comments and those of the industry in committee and I see that the government is highly skeptical about the request. In the example you cite, we see that you were at plus $7 million last year, then minus $90 million. So you're always on the line. It's a very delicate situation when you have creditors. We see that you could make the industry work to your advantage if you didn't pay fees and recovered rents.

    Once again, I would like you to explain clearly to committee members the importance of reviewing what you are proposing to us. You're submitting figures which, in my view, clearly illustrate the situation.

    Mr. Philippe Sureau: I must say that the part of my remarks concerning Air Canada is a bit defensive. It's, as it were, a way of emphasizing that we are not in favour of assistance, but that if there were to be any, extremely strict ground rules should be applied. In other words, it's a warning. It's clearly not what we want.

    In addition, the important part of my remarks--and I thank you for pointing it out--concerns the industry, which, with or without Air Canada, is currently in difficulty. My WestJet colleague, for example, flashed a big smile, but I know they've been conducting seat sales since January and that their load factor is not particularly exciting. It's not that their product isn't good, that they aren't dynamic or that they don't have a good game plan; it's because the environment is difficult and the airlines are faced not only with internal costs--people like us and those at WestJet are particularly vigilant about our costs--but also costs over which we have no control.

    Today, what I'm asking you is to act and to insist, as we have done with the minister, on the items that can have an immediate impact on our results. We have identified three main ones: the security tax, which will stimulate demand, although we are a tax collector; the excise tax, which can help us greatly with regard to fuel; and, lastly, the question of airports. Suspending payment of airport rents would allow us to breathe for a certain time. It would enable us to think of other arrangements. Today, we need air. That's normal for an airline.

½  (1930)  

[English]

    The Chair: Thank you very much, Mr. Laframboise.

    We'll take a short question from Mr. Proulx and then Mr. Cannis, and I imagine that will be the end of the questioning for this group.

    Mr. Proulx.

    Mr. Marcel Proulx: Thank you, Mr. Chair.

[Translation]

    We were told this afternoon and early this evening that Air Canada would be highly penalized by having to limit its domestic network. Its international network would suffer greatly as a result, since it is fed by its domestic network.

    Aren't you in the same situation since you don't have a domestic network? You fly out of only three international airports in Canada, as far as I know.

    Mr. Philippe Sureau: First, for your information, I would note that there are more than three airports. To a lesser extent, we are present in Quebec City, Calgary and Edmonton. So we serve Canada more broadly, but still essentially outward bound.

    Mr. Marcel Proulx: All right.

    Mr. Philippe Sureau: Perhaps it's an exaggeration to give me expert status, but, in my view, like all thoughts, this one contains both true and false elements.

    First, it would be aberrant for Air Canada to have no domestic network since, in its own model, it links itself to other carriers that have networks. One can imagine that, under its agreement with Lufthansa, for example, a passenger arriving from Frankfurt and wanting to go to Edmonton will perhaps transit and need that route. He therefore clearly needs a certain number of domestic connections.

    Does it need a deep regional network? That's another story. Does it need to serve each community itself and to control those markets? I'm not sure.

    Mr. Marcel Proulx: Thank you.

[English]

    Thank you, Mr. Chair.

    The Chair: Mr. Cannis.

    Mr. John Cannis: Mr. Chairman, I came a little bit late, and I apologize.

    Are your employees unionized?

    Mr. Philippe Sureau: Yes, they are. In the airline, both pilots and flight attendants are. As a matter of fact, we share the same union as Air Canada for flight attendants and mechanics. We have our own for pilots.

    Mr. John Cannis: Does your company have a company pension plan, as Air Canada has?

    Mr. Philippe Sureau: Obviously we don't have exactly the same structure, but we have a Canada Pension Plan, with a formula.

    Mr. John Cannis: You have just a Canada Pension Plan, but not a separate company plan in addition to the Canada Pension Plan?

    Mr. Philippe Sureau: No, it's obviously not as comprehensive as the Air Canada one.

    Mr. John Cannis: You mentioned to us that Air Canada should not be a company that is able to ride the storm with subsidies. In the past, governments have supported it financially, and it has repaid.

    Correct me if I'm wrong, Mr. Chairman, but there hasn't been a recent subsidy to Air Canada except for the most recent loan guarantees.

½  (1935)  

    The Chair: Up to the point in time that we introduced the security tax, all of the security costs at airports were borne by the percentage usage of each airport by individual airlines.

    Mr. John Cannis: So, was it fair?

    The Chair: No, it wasn't. I think it relieved Air Canada's actual costs by about $80 million a year.

    Mr. John Cannis: The last question I have is regarding your good reputation and reasonable fares. I'm just curious, how are your fares cheaper or less expensive? The big question often asked of us from our constituents is “Why does it cost us double the price to fly from Toronto to Vancouver as to go from Toronto to Spain, or Toronto to England, or Toronto to Italy, or Toronto to Greece?” That's the million-dollar answer I'm looking for.

    How can your airline offer cheaper fares than Air Canada, for example, when you're going to similar destinations? You have unionized staff, and you use the same fuel and have the same landing fees. Why is your airfare $100 or $200 cheaper than Air Canada's?

    Mr. Philippe Sureau: That is a simple and a difficult question in a way. Obviously, the cost structure of Air Canada overall is totally different from ours.

    Of course, if we look, for instance, at flight attendants specifically, we have the same union. But when we negotiate with CUPE, they understand that we don't have the same revenue as Air Canada, so we benchmark Air Canada and we say “Okay, you guys can come here, but you can't get there, because we won't make it”. We have unions who understand this. With the pilots, it's the same concept; we say “You have to understand that by flying at Air Transat you can't get the same paycheque as by flying at Air Canada”.

    Mr. John Cannis: Are you telling me that the union is part of the culprit here, because the union says Air Canada is making so much and Air Transat is not, so it will negotiate a little bit more for that side than the other side?

    Mr. Philippe Sureau: I don't think so. I wouldn't say that.

    What I'm saying is that the benchmark is Air Canada. The goal or Holy Grail would be to have Air Canada revenues for employees, but because the figures speak for themselves, they understand that if we were to match those salaries it would be to the detriment of their very jobs themselves. They understand this. So we do have a gap. If we did not have a gap, it would be unmanageable. But this is only one part of the cost structure.

    Air Canada's fleet is almost unmanageable. There are so many aircraft types that they have the vehicles for a kind of service that, in all fairness, we do not offer. We don't fly the first class that they offer; we don't offer the kind of environment they offer very often. We have to be fair to their product, as well.

    Do they get the kind of money that they should for their product? Or do they have the appropriate capacity to cover their routes all the time? That's another story. But in all fairness—and this is not to the detriment of my company—you are more squeezed in an Air Transat aircraft than in an Air Canada aircraft. It's a fact of life. The payoff is that you get to fly a less expensive airline, which you can afford to do using your after-tax dollars in the leisure market. We mainly deal with people using their after-tax dollars, or discretionary money, and who have a choice not to go on vacation. Air Canada caters to a different kind of clientele, the “must-go” traveller who is using pre-tax money and has to travel. So there are differences there.

    The Chair: If there are no other questions, for your information, Mr. Gallaway, who is not here now, and someone else were in Washington for three days this week, and we had the occasion to meet with Senator Graham, Representative Stearns, and Representative Shaw from Florida, who are very concerned about the tourist business dropping off. They expressed to me that they're concerned about the lack of space coming out of Montreal, Toronto, and other centres in Canada into Florida. They judge that, and they see a very great decrease in the availability of seats to any area in Florida. They're quite interested in talking and getting their airport authorities to discuss with you the possibility of providing more service at those critical periods of time.

    I'll leave that with you. If you want to pursue it with me I'll be more than happy to participate with you. I think there's a market there that could be very helpful. I know you go there now.

½  (1940)  

    Mr. Philippe Sureau: Thank you, Mr. Chairman. It's appreciated.

    The Chair: I think business is timing. They're very interested in talking to you folks.

    I thank you all very much for coming.

    Mr. Philippe Sureau: Thank you very much.

    The Chair: Next are Mr. Bouvier, François Laporte, Michael Crawford, Ms. Pamenter, and Mr. Benson. We welcome you all. We're glad you have such an interest, but I want you to know right here and now that only one of you is going to speak. I don't care who it is, but we'll have one presentation and then we'll have some questions.

    You're here from the Teamsters, who are very important to our other deliberations, as Mr. Benson well knows. We met with your people in Washington two days ago. You're here particularly because you're the representatives of Jetsgo.

    Mr. Robert Bouvier (President, Teamsters Canada): We are representatives of Air Canada Jazz. We represent all 1,400 flight attendants of Jazz. We also represent members at Jetsgo--either the flight attendants or the ground crew. We also represent small airlines like Propair in northern Quebec, Air Inuit, and Air Labrador. We represent people in the catering and security areas also.

    The Chair: I'm going to introduce you to Air North over here. I think you may want to go to talk to those guys up there. We will tell them that Mr. Bagnell sent you. How's that?

    Please continue. Who's giving the presentation?

    Mr. Robert Bouvier: I'll do that.

[Translation]

    Mr. Chairman, it's an honour for us to have the opportunity to present our brief, even though we have prepared it in the past two or three days and had to work fairly fast.

    On behalf of the 105,000 Teamsters Canada members, we thank the members of the House of Commons Standing Committee on Transport for agreeing to hear our views about the important issue of the Canadian airline industry's future. We are here today to ensure that you consider the views of the 4,500 workers that we represent who are directly and indirectly at the service of the industry.

    The impact of the airline industry crisis goes beyond its direct effects as experienced by the financially troubled carriers and reported in the different media. Without necessarily lingering on the subject, we would like to bring to your attention that this crisis has repercussions on thousands of workers in the air transport-related sectors, in, for example, airport security services, aircraft catering supplies, aircraft maintenance services, tourism and hotel industry and many others, and it is high time that long-term global solutions are implemented.

    For years now, unions have been stressing at the fact that deregulation of the airline industry in this country is not working. Repeatedly, government authorities, that thought maybe that we were just trying to protect our turf, have rejected our proposals and our solutions. Government has continued its pursuit of policies that, in a small market such as Canada, have pre-empted logic in the name of competition and in the name of market forces. As a result, we are faced with an ongoing crisis that will keep repeating itself time and time again, if we don't find long-term global solutions.

    Because of the geopolitical situation as we know it today, air transportation is going through major changes in its service structure. Income deflations, the arrival of new competitors, the increase in operating costs related to fuel are all part of the phenomenon that forces air carriers to re-examine their entire operations. Air Canada and its regional carriers, including Air Canada Jazz, where we represent a significant number of employees and, as I mentioned, some 1,400 flight attendants, will not be spared.

    Some forty per cent of laid-off employees at Air Canada Jazz are members of our organization. With losses of $90 million in 2002 and an outlook for 2003 not much brighter, it does not augur well.

    With every new crisis in the airline industry, the workers are the first ones to suffer. As you know, every time things go badly in the industry, people always say that the workers earn too much money. When business is good, they say we have good managers. People are geniuses when things are going well, and it's our fault when things are going badly. We find this situation deplorable, and it is made worse as proposed solutions have been ignored every time.

    We believe that, if we want to find long-term solutions to the airline industry's financial problems, it is imperative to make a distinction between regional markets and high volume routes. Historically, Canada has always supported regional development, either by using wealth distribution programs or by direct economic assistance to the establishment of business enterprises. Now we think that the airline industry crisis is jeopardizing regional survival and development by depriving citizens of essential services that allow them to progress and prosper.

    High volume routes between large Canadian urban centres will always be served by carriers, whatever the future holds for the industry, simply because there are enough passengers (therefore a potential for profits) to justify the operations. It is not the case, however, for the regional carriers and services.

    Therefore, we are proposing the creation of a national fund for regional carriers, which will force the re-distribution of part of the revenues from high volume routes of passengers towards regional routes where it is most needed. In that sense, we believe that all airlines operating in high volume markets should contribute to a portion of the regional transport financing. This form of equalization adjustment could be achieved with payments into a national fund of amounts pre-established by Transport Canada and collected on every ticket sold for air transport service from one large urban centre to the other.

    As we do not see any will on the part of the government to re-introduce a regulatory framework for rate fixing in the airline industry, we therefore propose an intermediate solution between the total economic regulation of the industry and the non-interference in the market forces.

½  (1945)  

The advantage of our proposal is that it answers the imperatives of free competition where the market allows it, thus ensuring support to the Canadian regional populations.

    In other respects, the survival of the industry automatically depends on the participation of all concerned, including the governments and company managements. As we have mentioned before, the employees have paid the price for all crises suffered by the airlines. Once again, the unions are involved in a negotiation process to find solutions that would ensure the survival of the companies that employ our members.

    The governments, which benefit from revenues of the different taxes levied from the industry and by the economic activities it generates, must share the burden. Government policies with regard to air transport have to be reviewed, to allow some flexibility to carriers, in terms of capital acquisition financing as well as service fees.

    As for company managements, they must realize that yesterday's solutions cannot apply to today's problems. The rich and relax management era is over. The employees of that industry have done their share and it is high time that the employers do theirs.

    We thank the members of the Standing Committee on Transport for allowing us to express our views and to tell you all about our frustrations in the face of the present situation in the Canadian airline industry. We look forward to a free discussion on the issue and to answering your questions.

    Thank you.

½  (1950)  

[English]

    The Chair: Thank you, Mr. Bouvier.

    Mr. Gouk.

    Mr. Jim Gouk: Thank you, Mr. Chair.

    Sometimes when we look at the big picture we forget the individual worker and the hardship that poses on them. I have a great deal of sympathy with that. However, a lot of what has happened I believe, as you have alluded to in here, is due to some very questionable management decisions by Air Canada.

    I would ask how you would justify your recommendation in here where you have suggested that there be a creation of a subsidy funded by the high-density routes to have someone subsidized to go into small regional airports where other operators now operate without subsidy and indeed make good money. I don't know the whole route structure everywhere, but in British Columbia certainly we have WestJet going into a number of places. At smaller airports still, we have Hawk Air doing very well and trying to grow except being very careful because they don't want to be clobbered by Air Canada coming in and running against them at a huge loss, because they can't afford that kind of a fight. They're a small start-up outfit.

    So how can you justify subsidizing someone to go in where people already go in and make a profit as long as they're not hit by somebody who is indeed cross-subsidizing their operation, such as Air Canada's been doing?

    Mr. Robert Bouvier: As you're saying, there are a lot of start-ups, a lot of bankruptcies. They go up, they go down. They never can guarantee service to the smaller community.

    What we say is that anybody in Canada can start an airline. Jetsgo's the last one that came up. You start an airline, you milk the big routes. You get an airline, you operate from Montreal, Toronto, Winnipeg, Calgary and Vancouver. Then you take the volume out of those big routes and you let the bit competitors fight each other.

    Mr. Jim Gouk: No, what I'm talking specifically about is what's--

    Mr. Robert Bouvier: But the small regional ones, they're not all surviving, sir. They're all up and down and give you service whenever they can. They will be good for a couple of days, a couple of weeks, six months, a year, a year and a half. One will survive. The other ones will fall down. Then the numbers of flights that are given to the outlying areas are not as good as they should be and the prices are just impossible to live with. If you want to go from Ottawa to Quebec City, you might as well go to Europe. Why is it so? Sure, there's survival. They charge these prices that don't make sense because there's no volume.

    Mr. Jim Gouk: Actually, in British Columbia we're finding the exact opposite. Air Canada serves Castlegar to Vancouver. Air Canada and WestJet serve Kelowna to Vancouver, relatively similar distances. Castlegar's $399, where it's Air Canada only. Kelowna's $99 and WestJet makes a profit.

    Mr. Robert Bouvier: How much does it cost to Whitehorse?

    Mr. Jim Gouk: I haven't flown there recently.

    Mr. Robert Bouvier: That's it. It's where you have volume. There are some regional places where you have some volume. Kelowna might be one of these, but you have to go to Whitehorse, you have to go to the Gaspé, you have to go to La Malbaie--some of the smaller areas.

    Mr. Jim Gouk: In places like Terrace and Smithers, Hawk Air is doing just fine. A lot of the airlines that start up and go under do so because Air Canada's gone in there for half of their costs and flown out with their 30% of their seats or less filled and taken away that little margin of profit these small operators have. Basically, they've gone into the hole. That's why they're $13 billion in debt; it's in part because they heavily subsidize going in and crushing these small start-ups. WestJet, for example, started a direct route to New Brunswick. Air Canada didn't fly there. Immediately, Air Canada started flying there at 30% of the cost that we do to all other Atlantic Canada destinations of similar distance.

½  (1955)  

    The Chair: Thank you, Mr. Gouk.

    Mr. Cannis.

    Mr. John Cannis: Thank you, Mr. Chairman.

    Welcome.

    On the second page of your presentation you talk about how our country traditionally distributed wealth, provincial transfers and what have you. I think that's where you relate your proposal. At least you're coming forward with a proposal. If I understand it correctly, you're saying here that a certain fee or charge should be applied to the user on certain routes that would go into a consolidated fund to offset. Did I understand it correctly?

    Mr. Robert Bouvier: That's right--to some of the routes, where the regional small carriers will go into certain destinations when they know they have the volume. There's a possibility the volume may be in B.C. and Kelowna, but if you go to Whitehorse from Vancouver it will probably costs you $1,000. The reason is simple: there's not that much volume. To think that the small carrier in every region will give you full service is totally unfounded.

    For example, if you take Quebec--it might be B.C., it might be some part of the country--if you go to Val d'Or from Montreal, it will cost you a fortune. Then if you go to James Bay or if you go to Saguenay and all those places, there's hardly any service, there are hardly any flights. Sure, they're going to get one flight a week or one flight every day, but they're deprived.

    Mr. John Cannis: Mr. Bouvier, in the House we've heard this argument about the charges--the service charges, the airport tax--continuously. The minister, in the most recent budget, has been reducing it and there's been some relief. I then ask myself, how do we go back with this proposal to Canadians and now say yes, we reduced the airport tax or security tax, but now we're going to charge you this other fee to subsidize the airlines in terms of the low volume here and low volume there? Quite frankly, I can't see how we can sell it to the public.

    Mr. Robert Bouvier: You can't sell it to the public because it's your opinion you can't sell it to the public. But on the other hand, there's an obligation in Canada to--

    Mr. John Cannis: Why am I obligated to support a company here that know it's going to lose money, and is losing $90 million? If they can't run a business, they should close down and let somebody else run it profitably.

    Mr. Robert Bouvier: I think we have an obligation to the population also to give them service, don't you? Don't we have, as a society? We subsidize all kinds of things in Canada. I can send a letter and post it across the country for 50¢. Everybody pays the same price.

    Mr. John Cannis: I don't normally spar with my witnesses, but if there was one essential service, one essential airline, that could provide that and only that service, I would consider it. But the fact that there's competition, which is what we're trying to create.... We've had other presenters who have come to us today who have said there's too much regulation, make a competitive environment, but you're saying the opposite here.

    Mr. Robert Bouvier: We're saying for some parts of the country. We're not saying for the big routes. We're not talking on the main line. We're talking about the outlying areas, where we know that the service to Canadians is not rendered in a proper fashion.

    Nothing in our document says you should subsidize any company. We say that those who get into the marketplace, in general, will go where there's money to be made, which is perfectly normal. We agree with that. We think it makes a lot of sense. But also, as a country, we have to give service to our people. And in some areas we have to find a way or we'll wind up where in a lot of our outlying areas in every province in Canada we won't have any more service, or very little service.

    Mr. John Cannis: My time is up, Mr. Chairman. Thank you.

    The Chair: Mr. Cannis, your time is up and you're all through harassing the witness.

    Mr. John Cannis: I never do. I don't.

    The Chair: Monsieur Laframboise.

[Translation]

    Mr. Mario Laframboise: Thank you, Mr. Chairman.

    First, thank you very much for raising this new point because the debate today has focused on the problems of Air Canada, and, according to some, those problems are its own fault; they're purportedly due to their poor administration, but you're starting another debate.

    In the past few days, many experts have said that Air Canada should focus on international operations, where there are profits to be made, and to leave aside domestic flights. But you're right, the problem is that there won't be any more service in the regions. Witnesses before you, the Air Line Pilots Association, made suggestions to us. They told us that there is an essential air services program in the United States serving 89 communities there and which is subsidized by the state.

    You're proposing a type of equalization in which the industry could subsidize, but that could be done directly. I agree with Mr. Cannis that the industry is going through hard times. The government should provide subsidies, should introduce an aid program such as that in the United States. You would have no objections to money coming directly from government, as is done in the United States, rather than going about it through equalization.

    You're suggesting a different solution to us, and I think this gives the government a new way to look at the problem because, in any case, when Air Canada has finally been restructured, the result will be that we'll have fewer services in the regions and, obviously, right across Canada. I believe you're proposing a promising solution. The government need only accept the fact that assistance should be provided for regional service, as the United States has done. I think you have a good message. I would just like you to be open to other solutions, but to achieve the same objective, that of providing assistance for transportation in the regions.

¾  (2000)  

    M. Robert Bouvier: Our proposal of saying, for example, that there would be an additional ticket cost is an option; it's not the miracle solution. What concerns us in this debate is that we're talking about Air Canada or national carriers. We represent the employees of Jetsgo. We shouldn't conceal the fact: they are our members. Our Jetsgo employees are on routes where there's a lot of money. And if you go to Val-d'Or, it costs you a fortune. Why do the people from Val-d'Or have to pay $700 or $800 to come to Montreal? They would do better to travel from Montreal to Paris for the weekend. We're emptying our regions on the unquestioned ground that it's free enterprise at all costs. We agree on that. We live in the system, we work in the system and we're used to it. We are a business union, and we're used to living in this system. But we're saying that someone should help Canadians who live in the regions so that they are treated fairly by society. When you mail a letter in Montreal, it costs 50 cents to send it to Toronto. If you mail a letter in the Yukon to send it to Gaspé, it also costs 50 cents. But if I take the plane, it's going to cost me $150 to go from Montreal to Toronto, but $800 to go to Val-d'Or. Are citizens being treated fairly?

    Whether it's free enterprise, or whether the government subsidizes it or there is a kind of equalization... You have to figure that the other carriers just take the manna where it falls. They take the money where they find it. They don't go where there's none.

    The purpose of our proposal is to find a way to ensure that Canadians have effective transportation in their region, and I don't think we can consider air transport today as a luxury; it's an essential service because when there's talk of a potential airline strike, the government immediately tells us that it's an essential service. It's an essential service if you live along the major routes, but it's a disposable service if you live in the regions.

    Our main concern or involvement is in the various regional carriers. As one speaker said earlier, we represent regional airlines such as, for example, Propair, in Quebec, which has been around for many years.

[English]

    The Chair: Thank you, Mr. Laframboise.

    You're over, Ms. Meredith, so you have only one question.

    Ms. Val Meredith: Thank you, Mr. Chair, and I'll be very short.

    I look at your proposal and I don't see how it can possibly work. We're dealing with Air Canada, which is under bankruptcy protection, and yet your proposal is asking mainline carriers like Air Canada to put more money into a pot for regional carriers. How is that possible when they're in bankruptcy protection because they can't manage any more costs?

    Mr. Robert Bouvier: We're not asking that it be done tomorrow--when they come out of the restructuring. We know at this time what the situation is. We're negotiating with Air Canada's representative, Jazz, and we're making some concessions to try to get out of it.

    What we're afraid of is at the end of the day the big picture will be taken care of, but the rest of the regions in Canada will be second-class citizens. They need good airline services in the regions also at decent costs. Anybody can start an airline in Canada now and do the main line and compete with everybody. There are seven or eight competitors in there.

    Ms. Val Meredith: But anybody can start a small air service in rural Canada, and have in the past, and make a living if they do it right.

    Mr. Robert Bouvier: They make good livings in small areas, but the majority, even the small carrier, when it gets down to a certain point, a destination, and he thinks he doesn't have the volume, he'll stop going there.

    Ms. Val Meredith: Yes, but if he doesn't have the volume, then how do you justify that a person can rent a private airplane and make the trip for less than they would if an air carrier had to charge them what it cost to maintain that service?

    Mr. Robert Bouvier: You see, that's why I'm afraid of what would happen, Madam, because, just like you say, if there's not enough volume there will be no service.

    Ms. Val Meredith: That's called supply and demand. I lived in northern Canada for 15 years, and most of us drove. We didn't expect somebody to start up a loser airline so that once a year, if we wanted to fly, it would be there. Living in northern Canada, the reality is it's a long distance from the urban centres and you get used to driving.

¾  (2005)  

    Mr. Robert Bouvier: I have to disagree with you, Madam, because I think the people of the north have the same rights as Canadians as everybody else, and it doesn't mean that they cannot be subsidized.

    The Chair: What's going on here? I've lost control.

    Ms. Val Meredith: I lived in northern Canada. I know what it's like.

    The Chair: Thank you very much for that very short question.

    Mr. Bagnell.

    Mr. Larry Bagnell: I have one comment. I wasn't going to get into this, but I know that because you represent small airlines you're sympathetic to them and you wouldn't want any solution to hurt them.

    You kept mentioning the Whitehorse route, and I have to explain to you what happened there. With Air Canada, as you said, it probably cost $1,000. They had a monopoly, offered two flights a day, and a local regional airline owned by Canadians and first nations came in and put on one flight a day.

    There was less market. So Air Canada, this huge company, with all its power, instead of cutting down the number of flights actually added two flights. There were more flights than there had ever been in history; they were flying almost empty planes, losing millions of dollars, money that could go to your wages and whatever. They tried to put this regional airline out of the north out of business, and of course they lowered their prices way down below their cost. So the only thing the little regional airline needs to service the Yukon is fair competition to stay in business and serve that market just nicely.

    In fact, Air Canada and Air North could both have a plane or two a day and everyone would be happy. But that's not what happened. It was very unfair tactics.

    Mr. Robert Bouvier: I've travelled the north and I've travelled northern Quebec for a lot of years, and we used to have jets go to the northern part of Quebec. Now we're down to almost no flights going in and out of these communities.

    Now, that's fair market, that's free market, everybody trying to make a dollar. But also I think the airline has an obligation to Canadians to have access to decent airlines and at decent prices. If Air Canada or anybody wants to put four jumbo jets to go to Whitehorse they'll go bankrupt. That's probably why they're bankrupt.

    We're not discussing the issue of how Air Canada was managed; that's too easy to do. Everybody has done that; you've heard that all day. We're saying that in all the things that are going to be remodeled in the airline industry, do not forget the regions.

    Thinking that a small company operating today is going to be in business in five years from now or that they're going to give adequate service to the people of those communities, this is what we're worried about, and that's why we're trying to bring a new approach or a new look at the situation so that they can fight on the larger market. There's nothing wrong with that. It's a free market out there.

    The Chair: Have we exhausted this conversation? Is there anybody else who wants to add anything to this? Is there anybody at your group, Mr. Bouvier, anybody?

    Mr. François Laporte (Director, Government Affairs, Teamsters Canada): I have one comment about what he just mentioned. What he just mentioned, maybe it is the example that deregulation for regional airline transportation doesn't work. You have to make a distinction between the regional transportation and the mainline transportation.

    Maybe it's time to put some guidelines to who can get into the market and compete in some markets, such as the regional transportation.

    The Chair: And on that, Mr. Laporte, I thank you very much.

    I thank you, Mr. Bouvier, and I thank all of your contingent for coming in and being able to participate in the hearings today. I'm not sure that your submissions met with a lot of approval, but that's the whole purpose of the democratic system: you come here and you have freedom to say as you wish and you're heard. I thank you. And I thank you, Mr. Benson, for bringing your group with you.

    The next group is from the Association of Canadian Travel Agencies.

    Folks, I understand the travel association, Mr. Charlebois and Martin Taller, brought doughnuts. You're so gracious. Pass them around, and thank you so much.

    I know you're the last witnesses for the day, and I guess you're the last witnesses because you were the last ones to make an application to be heard.

    Go ahead, Mr. Charlebois.

¾  (2010)  

    Mr. Marc-André Charlebois (President, Association of Canadian Travel Agencies): Mr. Chairman, ladies and gentlemen, I am Marc-André Charlebois, president and CEO of the Association of Canadian Travel Agencies. We've been representing the retail travel sector for more than 25 years, and let me tell you, it does not get easier, even if we are past our silver anniversary.

    I know you've been in committee all day, and I will try to the best of my ability to be short and to the point and end your day on a positive note.

    Our industry employs more than 24,000 travel professionals, and we generate several billion dollars worth of business every year. We're an important player in the travel and tourism scene, even though our contribution to the Canadian economy is not always well understood. Our members have been in the forefront of technological revolution and among the first to computerize their business. We're still on the leading edge, using dedicated global distribution systems and the Internet to provide our clients with the most accurate advice and the best support for their travel needs. We represent a range of businesses handling business and leisure travel needs, from the very small entrepreneur to the very large agencies. We're an essential component of the airlines' distribution channels, and we handle more than 70% of the airline business in Canada.

    We are here today to present to you possible solution options to problems of significant proportions that are plaguing the entire travel and tourism sector. We believe in healthy airlines as well as a competitive and vibrant consumer-friendly trading environment. We will not dwell on what air carriers are doing wrong. They should understand their business better than anyone else, and they find themselves in their present predicament despite their best intentions.

    We would like to explore with you very quickly two broad areas where we think swift and decisive action could help turn the situation around. The first area concerns the airline business model, and we would like to look at two aspects of the present model we feel need to be corrected. The first aspect has to do with carriers' distribution strategies, how they bring their product to market.

    The most significant cost factors to airlines are those related to labour contracts, fuel, and distribution, in that order. Air Canada, our flag carrier and the dominant carrier in Canada, has been doing everything in its power to reduce these costs. Air Canada management has striven to reduce distribution costs, first by reducing and then eliminating commissions paid to travel agencies, not because they were the most significant sources of costs but because they were the costs that could be reduced most quickly with the least resistance. Travel agencies could hardly threaten to go on strike or to boycott the carrier handling around 70% of the airline business in Canada.

    We're of the view that any business that alienates its sales force will ultimately face serious consequences. However, despite the elimination of base commissions, travel retailers have continued to distribute the carriers' products diligently, reluctantly shifting the onus of cost onto consumers by charging processing and professional fees.

    We would like to suggest that we remain the best distribution tool available to carriers. No Internet site or call centre can provide the depth and breadth of quality personalized service we offer to our clients.

    Ironically, the retail travel industry is still the preferred option for clients who wish to purchase travel online or in a traditional agency setting. No other distribution channel can offer airlines the marketing tools we have at our disposal to reach out to consumers, reassure them about the present situation, and secure for them the most convenient and safe way to travel, whether it be for business or leisure.

    In some discussions I've just had with my colleague this afternoon, I'm told that if Air Canada were to close down all their call centres, they might save upwards of $70 million a year. We could pick up the slack right from day one. We could handle all these calls, because the workforce is there at the ready to serve that industry. In fact, we're the best-equipped and the most effective workforce to put bums back into aircraft seats. Over the years our members have refined their customer relations management practices to the point where no other distribution system can reach out and achieve comparable results. And by the way, we have reliable research to prove this.

    Anything the government could do to promote and sustain our retail force would go a long way in helping our industry weather the present storm. Airlines should be encouraged to abandon their current practices designed to bypass professional travel retailers. They're doing this in ways that are often uncompetitive and at a cost that usually defeats their original purpose: to bring costs down.

¾  (2015)  

    This is not the forum to explore this issue in any detail, but we would be more than pleased to provide you or a working group with specifics at a future date.

    The present legislative framework hardly addresses these issues, and the proposed amendments to Bill C-26 also fall short in this regard. We are not suggesting massive re-regulation is required, but simply stating that vigorous government intervention on a limited range of critical issues would go a long way in crisis-proofing our industry.

    The second aspect of the airline business model that badly needs corrective action is the cashflow management. At present, airlines take deposits from customers for future trips, often for trips several months down the road, and use this money to finance the next day's operation. This is a worrisome trend, which is being further confirmed and made even more nefarious by a recent decision in the U.S. to allow same-day reporting by travel agencies booking flights for their customers. This practice will ensure the airlines can access these partial or full deposits even earlier than before, which means if an airline were to go bankrupt, customers would be left holding the proverbial bag.

    We invite you to be alert and ensure such a threatening precedent not be condoned in Canada. The remedy to this poor cashflow problem management practice is simple: you either vigorously encourage airlines to transfer to a trust accounting system, or you adopt legislation that will protect Canadian consumers from end-supplier failure in the form of a very simple and affordable passenger protection plan. Again, we could provide you with more details on these proposals at a later, more convenient time for this committee.

    The second broad area we would like to quickly review with you tonight is one that has already been brought to your attention, I'm sure, by other stakeholders today. We need to see some very immediate and drastic action taken to eliminate systemic problems that have been plaguing the airline industry and preventing it from building a solid financial footing. I'm referring here to the very onerous and debilitating charges to the industry in the form of airport rents, aviation fuel excise tax, and security tax. Airport leases are extremely onerous to airport authorities and are crippling the very foundations of our industry.

¾  (2020)  

    The Chair: We've heard that evidence in and out today. Would you please just acknowledge that you've put it on the record?

    I know you're going to talk about the tax on fuel, the airport rents, the security charge. Whatever it is, it's on record that you oppose those and you want us to do something about them. Am I correct?

    I'm not trying to cut you short, but it would be very helpful if you'd like to put that on the record.

    Mr. Marc-André Charlebois: You're bang on, and I thank you for saving us some time here.

    The Chair: Thank you.

    Mr. Gouk.

    Mr. Jim Gouk: Thank you, Mr. Chairman.

    First of all, I do lament what is happening with the travel agents. I use a travel agent in my riding. I pay the fees; I consider it money well spent. I get a lot of service from them.

    Interestingly, I have a letter from Air Canada that I've passed out to all the agents in my riding that specifically says they don't provide a particular service and the customer in question should refer to their agent, because they are the ones who provide that service. It was a very enlightening letter for them.

    I would certainly be interested in seeing your recommendations on that, as I'm sure everyone on the committee would.

    The other one you raised was a very good point that no one else has raised yet tonight, with regard to the deposits. And ironically, given the timing right now, with Air Canada under bankruptcy protection, it may be helpful to them as well. Because what happens when an airline has some problem is immediately customers start thinking maybe they shouldn't book with them, maybe they shouldn't fly with them--what if they buy the ticket and then they go under? So this may indeed even serve to help them.

    I would certainly be most grateful for any presentation you have to send to the committee dealing with that.

    That's it.

    The Chair: Thank you, Mr. Gouk.

    Mr. Bagnell.

    Mr. Larry Bagnell: Thank you.

    I'd be quite interested in getting your recommendations too, especially on the guarantee of purchased tickets so people don't lose them in case of bankruptcy.

    My understanding is the biggest Canadian offender in your losing the fees for flights was Air Canada. Is that true? They cut off the fees to travel agents?

    Mr. Marc-André Charlebois: The commissions, yes. Most international airlines have done the same, but Air Canada has followed suit. They've eliminated base commissions.

    Mr. Larry Bagnell: So if Air Canada disappears in this sort of crisis and a successor comes in and takes over, perhaps you'll have more luck.

    Mr. Marc-André Charlebois: It depends on the business model, truly. WestJet still provides commissions. Tango provides commissions. It's a creature of Air Canada.

    You see, the airlines with the old business model have eliminated commissions for the reasons I've expressed. I think it is easier for them to do this and save a few million dollars than to really focus on the big cost concerns, which are labour, contracts, and fuel costs.

    The Chair: Thank you, Mr. Bagnell.

    Mr. Laframboise.

[Translation]

    Mr. Mario Laframboise: Thank you.

    Concerning what you're suggesting to us, that is to say protection for plane tickets and all that, I think this is very timely. Can you confirm for us that there is concern?

    You probably witnessed the bankruptcy of Canada 3000. We know the matter is not yet completely settled; as for the cases that have been settled, they represent roughly half. Is that causing you any problems at this time? Do you have any fears, complaints or lots of things coming in to your office?

    M. Marc-André Charlebois: Enormous problems. First of all, let me tell you that there are statutes in effect which concern our industry in three Canadian provinces: British Columbia, Quebec and Ontario. Where there are laws in effect, the governments and the industry in those provinces have established a fund to protect consumers in case our members go bankrupt, not in airline bankruptcies. So when Canada 3000 went bankrupt, that taxed the system to an enormous degree, and there are people who, after all this time, have not yet been compensated for their losses.

    Here's what we're suggesting. Hotels don't charge you fees before you have finished your stay. So why couldn't the airlines adopt a similar system? Your money is kept in trust until you have completed your trip; we're paid after that. It seems to me this is a simple model.

    Mr. Mario Laframboise: Talking about simplicity, you seem to suggest two options. A trust is an easy matter for a notary; we have our own fiduciary accounting. But for a certain protection plan, would that be insurance?

¾  (2025)  

    M. Marc-André Charlebois: Yes. There's been an international effort to create this kind of program, which was put forward by the IATA. According to the IATA's decision-making system, for a decision to be adopted, there has to be unanimity, but an enormous American carrier opposed the plan. Here's how it was supposed to work. Passengers were going to pay $1 or $2 per ticket. That was going to be done on a global scale, which would have been enough to create a fund to protect consumers from airline bankruptcies. The American carrier opposed the plan on the ground that it would encourage less capitalized, less prepared, smaller carriers to come into the market and do business at the risk of disappearing, without there being any impact on consumers. In principle, they cut the program simply to prevent competition. We're trying to relaunch the program, but this must be more than a national effort; it must be an effort that goes beyond our borders.

    But, even in Canada, we could create a similar program with the federal government's assistance; it wouldn't cost much. Consumers would be prepared to pay $1 or $2 per ticket to know that their money was protected and that, if the airline went bankrupt, they would not lose their deposit.

[English]

    The Chair: Thank you, Mr. Laframboise.

    I want to thank you, Mr. Charlebois and Mr. Taller, for coming and visiting with us.

    Mr. Marc-André Charlebois: It's been a pleasure.

    The Chair: I think the points that both Mr. Bagnell and Mr. Gouk made with respect to the payment scheme and the fact that this may be affected is very important information. Today is the first time it has come before the committee. So I thank you both very much for drawing that to our attention.

    I hope you don't think I cut you short on the airport taxes. We think we heard it, and I think we know what we have to do on it.

    Mr. Marc-André Charlebois: You've heard it. We're convinced that it's important.

    The Chair: We have been sitting now for two minutes short of twelve hours straight.

    I want to thank the messengers, who have done a tremendous job; our interpreters, who have lived with us all day, and I don't know how many shifts they've gone through; and the console operators, who have been with us since early on. I want to thank June Dewetering and our wonderful research staff. I think our clerk, who was able to spend four days with us in Washington and still put this meeting on, has done a tremendous job.

    More importantly, I want to thank you committee members for realizing the importance of the events as they're unfolding with respect to the airline industry in Canada, and for realizing how important it is that we take some serious note of all the evidence that we heard today.

    We will get our minds together on this. We still have some evidence to hear, hopefully early next week, and then we can make the recommendations. Always remember the recommendations. We are a committee of the House of Commons, and we want to get our recommendations to the House of Commons, for the whole Commons to consider, and to the administration of this government.

    I thank you all very much for bearing with us through this very long and tedious process.

    The meeting is adjourned.