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37th PARLIAMENT, 2nd SESSION

Standing Committee on Transport

EVIDENCE

CONTENTS

Wednesday, June 4, 2003

1530

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

The Clerk of the Committee

The Chair

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

1535

The Chair

Mr. Jim Gouk

The Chair

Mr. Jim Gouk

The Chair

Mr. John Cannis (Scarborough Centre, Lib.)

Mr. Jim Gouk

Mr. John Cannis

The Chair

Mr. Stan Keyes (Hamilton West, Lib.)

The Chair

Mr. Stan Keyes

The Chair

1540

The Vice-Chair (Mr. John Cannis)

Mr. Doug Kelsey (President and CEO, West Coast Express Ltd. and Skytrain)

1545

The Vice-Chair (Mr. John Cannis)

Mr. Jim Gouk

1550

Mr. Doug Kelsey

Mr. Jim Gouk

Mr. Doug Kelsey

Mr. Jim Gouk

Mr. Doug Kelsey

Mr. Jim Gouk

Mr. Doug Kelsey

1555

Mr. Jim Gouk

The Vice-Chair (Mr. John Cannis)

Mr. Jim Gouk

Mr. Doug Kelsey

Mr. Jim Gouk

Mr. Doug Kelsey

Mr. Jim Gouk

Mr. Doug Kelsey

Mr. Jim Gouk

Mr. Doug Kelsey

Mr. Jim Gouk

Mr. Doug Kelsey

Mr. Jim Gouk

1600

Mr. Doug Kelsey

Mr. Jim Gouk

Mr. Doug Kelsey

The Vice-Chair (Mr. John Cannis)

Mr. Jean-Yves Roy (Matapédia—Matane, BQ)

The Vice-Chair (Mr. John Cannis)

Mr. Jean-Yves Roy

Mr. Raynald Bélanger (Vice-President, Commuter Rail, Agence métropolitaine de transport)

Mr. Jean-Yves Roy

Mr. Raynald Bélanger

Mr. Jean-Yves Roy

Mr. Raynald Bélanger

Mr. Jean-Yves Roy

Mr. Raynald Bélanger

1605

Mr. Jean-Yves Roy

Mr. Raynald Bélanger

Mr. Jean-Yves Roy

Mr. Raynald Bélanger

Mr. Jean-Yves Roy

Mr. Raynald Bélanger

Mr. Jean-Yves Roy

Mr. Raynald Bélanger

Mr. Jean-Yves Roy

Mr. Raynald Bélanger

Mr. Gregory Percy (Director, Rail Services, Greater Toronto Transit Authority)

Mr. Jean-Yves Roy

The Vice-Chair (Mr. John Cannis)

Mrs. Bev Desjarlais (Churchill, NDP)

Mr. Gregory Percy

1610

Mrs. Bev Desjarlais

Mr. Gregory Percy

The Vice-Chair (Mr. John Cannis)

Mr. Joe Fontana (London North Centre, Lib.)

Mr. Gregory Percy

Mr. Doug Kelsey

1615

Mr. Joe Fontana

Mr. Doug Kelsey

Mr. Joe Fontana

1620

Mr. Doug Kelsey

The Vice-Chair (Mr. John Cannis)

Mr. Marcel Proulx (Hull—Aylmer, Lib.)

The Vice-Chair (Mr. John Cannis)

Mr. Doug Kelsey

M. Marcel Proulx

Mr. Raynald Bélanger

Mr. Marcel Proulx

Mr. Gregory Percy

1625

Mr. Marcel Proulx

Mr. Gregory Percy

Mr. Marcel Proulx

Mr. Gregory Percy

Mr. Joe Fontana

The Vice-Chair (Mr. John Cannis)

Mr. Gregory Percy

Mr. Joe Fontana

Mr. Gregory Percy

Mr. Marcel Proulx

Mr. Raynald Bélanger

Mr. Marcel Proulx

The Vice-Chair (Mr. John Cannis)

Mr. Marcel Proulx

Mr. Doug Kelsey

Mr. Marcel Proulx

The Vice-Chair (Mr. John Cannis)

Ms. Liza Frulla (Verdun—Saint-Henri—Saint-Paul—Pointe Saint-Charles, Lib.)

Mr. Raynald Bélanger

1630

Ms. Liza Frulla

Mr. Raynald Belanger

Ms. Liza Frulla

Mr. Raynald Bélanger

Ms. Liza Frulla

Mr. Raynald Bélanger

Ms. Liza Frulla

Mr. Raynald Bélanger

Ms. Liza Frulla

Mr. Raynald Bélanger

Ms. Liza Frulla

The Vice-Chair (Mr. John Cannis)

Mr. Jim Gouk

Mr. Doug Kelsey

Mr. Jim Gouk

Mr. Doug Kelsey

Mr. Jim Gouk

Mr. Doug Kelsey

Mr. Jim Gouk

Mr. Doug Kelsey

Mr. Jim Gouk

Mr. Doug Kelsey

1635

Mr. Jim Gouk

Mr. Doug Kelsey

The Vice-Chair (Mr. John Cannis)

Mr. Gregory Percy

Mr. Joe Fontana

Mr. Gregory Percy

The Vice-Chair (Mr. John Cannis)

Mr. Gregory Percy

The Vice-Chair (Mr. John Cannis)

Mr. Joseph Randell (President and Chief Executive Officer, Air Canada Jazz)

1640

1645

1650

The Vice-Chair (Mr. John Cannis)

Mr. Fred Gaspar (Manager, Government Relations, Air Canada Jazz)

The Vice-Chair (Mr. John Cannis)

Mr. Joe Fontana

Mr. Joseph Randell

1655

Mr. Joe Fontana

Mr. Joseph Randell

1700

Mr. Joe Fontana

The Vice-Chair (Mr. John Cannis)

Mr. Jim Gouk

Mr. Joseph Randell

Mr. Jim Gouk

Mr. Joseph Randell

Mr. Jim Gouk

Mr. Joseph Randell

Mr. Jim Gouk

Mr. Joseph Randell

Mr. Jim Gouk

Mr. Joseph Randell

Mr. Jim Gouk

Mr. Joseph Randell

Mr. Jim Gouk

1705

Mr. Joseph Randell

Mr. Jim Gouk

Mr. Joseph Randell

Mr. Jim Gouk

Mr. Joseph Randell

Mr. Jim Gouk

Mr. Joseph Randell

Mr. Jim Gouk

Mr. Joseph Randell

1710

The Vice-Chair (Mr. John Cannis)

Mr. Jean-Yves Roy

Mr. Joseph Randell

1715

Mr. Jean-Yves Roy

Mr. Joseph Randell

Mr. Jean-Yves Roy

The Vice-Chair (Mr. John Cannis)

Mrs. Bev Desjarlais

Mr. Joseph Randell

Mrs. Bev Desjarlais

Mr. Joseph Randell

Mrs. Bev Desjarlais

1720

Mr. Joseph Randell

Mrs. Bev Desjarlais

Mr. Fred Gaspar

Mrs. Bev Desjarlais

Mr. Joseph Randell

Mrs. Bev Desjarlais

Mr. Joseph Randell

Mrs. Bev Desjarlais

Mr. Joseph Randell

Mrs. Bev Desjarlais

Mr. Joseph Randell

Mrs. Bev Desjarlais

Mr. Joseph Randell

Mrs. Bev Desjarlais

The Vice-Chair (Mr. John Cannis)

1725

Ms. Liza Frulla

Mr. Joseph Randell

Ms. Liza Frulla

Mr. Joseph Randell

Ms. Liza Frulla

Mr. Joseph Randell

1730

Ms. Liza Frulla

Mr. Joseph Randell

The Vice-Chair (Mr. John Cannis)

Mr. Stan Keyes

Mr. Joseph Randell

Mr. Stan Keyes

Mr. Joseph Randell

Mr. Stan Keyes

1735

Mr. Joseph Randell

Mr. Stan Keyes

Mr. Joseph Randell

Mr. Stan Keyes

Mr. Joseph Randell

Mr. Stan Keyes

Mr. Joseph Randell

Mr. Stan Keyes

Mr. Joseph Randell

Mr. Stan Keyes

Mr. Joseph Randell

Mr. Stan Keyes

1740

Mr. Joseph Randell

Mr. Stan Keyes

Mr. Joseph Randell

Mr. Stan Keyes

The Vice-Chair (Mr. John Cannis)

1745

Mr. Joseph Randell

Mr. Stan Keyes

Mr. Joseph Randell

The Vice-Chair (Mr. John Cannis)

Mr. Jim Gouk

Mr. Joseph Randell

Mr. Jim Gouk

Mr. Joseph Randell

Mr. Jim Gouk

Mr. Joseph Randell

The Vice-Chair (Mr. John Cannis)

1750

Mr. Joseph Randell

1755

The Vice-Chair (Mr. John Cannis)

Mr. Joseph Randell

The Vice-Chair (Mr. John Cannis)

Mr. Jim Hallick (Director, Saskatchewan Association of Rural Municipalities)

1800

1805

1810

The Vice-Chair (Mr. John Cannis)

Mrs. Lynne Yelich (Blackstrap, Canadian Alliance)

Mr. Jim Hallick

Mrs. Lynne Yelich

Mr. Jim Hallick

Mrs. Lynne Yelich

Mr. Jim Hallick

Mrs. Lynne Yelich

Mr. Neal Hardy (President, Saskatchewan Association of Rural Municipalities)

Mrs. Lynne Yelich

Mr. Neal Hardy

1815

Mr. Jim Gouk

The Vice-Chair (Mr. John Cannis)

Mr. Jim Gouk

Mr. Jim Hallick

Mr. Jim Gouk

Mr. Jim Hallick

Mr. Jim Gouk

Mr. Jim Hallick

The Vice-Chair (Mr. John Cannis)

Mr. Jean-Yves Roy

1820

The Vice-Chair (Mr. John Cannis)

Mr. Jean-Yves Roy

The Vice-Chair (Mr. John Cannis)

Mr. Jean-Yves Roy

Mr. Jim Hallick

The Vice-Chair (Mr. John Cannis)

Ms. Bev Desjarlais

Mr. Jim Hallick

The Vice-Chair (Mr. John Cannis)

Mr. Stan Keyes

Mr. Jim Hallick

Mr. Stan Keyes

Mr. Jim Hallick

1825

Mr. Stan Keyes

Mr. Jim Hallick

Mr. Stan Keyes

Mr. Jim Hallick

Mr. Stan Keyes

Mr. Neal Hardy

Mr. Stan Keyes

Mr. Neal Hardy

1830

Mr. Jim Hallick

The Vice-Chair (Mr. John Cannis)

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

Mr. Jim Hallick

Mr. Roger Gallaway

Mr. Jim Hallick

Mr. Roger Gallaway

Mr. Jim Hallick

Mr. Roger Gallaway

Mr. Jim Hallick

Mr. Roger Gallaway

Mr. Jim Hallick

Mr. Roger Gallaway

1835

Mr. Jim Hallick

The Vice-Chair (Mr. John Cannis)

Mr. Joe Comuzzi

Mr. Jim Hallick

Mr. Joe Comuzzi

Mr. Jim Hallick

Mr. Joe Comuzzi

Mr. Jim Hallick

Mr. Joe Comuzzi

The Vice-Chair (Mr. John Cannis)

Mr. Stan Keyes

Mr. Jim Hallick

The Vice-Chair (Mr. John Cannis)

CANADA

Standing Committee on Transport

NUMBER 032

2nd SESSION

37th PARLIAMENT

EVIDENCE

Wednesday, June 4, 2003

[Recorded by Electronic Apparatus]

¹ (1530)

[English]

The Chair (Mr. Joe Comuzzi (Thunder Bay—Superior North, Lib.)): Good afternoon, ladies and gentlemen.

The committee today convenes on Bill C-26, An Act to amend the Canada Transportation Act and the Railway Safety Act, to enact the VIA Rail Act and to make other amendments to our Acts as necessary.

On the witness list we have the Greater Toronto Transit Authority, Mr. Percy; West Coast Express Ltd. and Skytrain, Mr. Kelsey; and from the Agence métropolitaine de transport, Mr. Bélanger. Welcome, all.

After this group we have Air Canada Jazz, and then after that group we have Saskatchewan Association of Rural Municipalities. Is that correct?

The Clerk of the Committee: Yes.

The Chair: I want to emphasize to the committee that after the final witness we're moving in camera to consider certain issues.

I don't know how our clerk manages to gain so many witnesses. We'd like to leave at 5:30 p.m. someday. You've just got to stop.

Mr. Gouk, you have a point of order?

Mr. Jim Gouk (Kootenay—Boundary—Okanagan, Canadian Alliance): Yes, Mr. Chair. We could take this up further, adjourn, or go in camera, but I think that in the open meeting I wanted to bring up the concept that while Bill C-26 and any other bill to come before us is important--all legislation that comes before us is important--there is, as we all know, a crisis in the air industry right now. It's one that's being averted from crisis to crisis, and we have another one that's coming up very quickly, and that's the potential labour disruption between Nav Canada and the air traffic controllers. There was a mediation report handed down. The controllers indicated that they accepted it. Nav Canada is studying that.

I've distributed copies of letters,. One is from Buzz Hargrove to the Minister of Labour, indicating that if Nav Canada does not respond by noon Friday, in his words, the union will withdraw its offer of settlement and return to its previous demands and will take strike action at a time and place of its choosing. Also, there is a copy of a letter from ATAC, from the CEO, to the Minister of Transport, indicating that this would be an absolute catastrophe on top of everything else that's happened to the entire aviation industry.

If this moves ahead, then it no longer becomes a transport matter, it becomes a labour matter. And once that happens, then the question is, do they go on strike, how long are they left out to let the system work, and how long does it take to get legislation back?

I think it would be incumbent upon this transport committee to take this issue as a transport issue and try to prevent this crisis from happening rather than working on it afterwards. To do that, I would urge the committee, through the clerk, to ask both Nav Canada and the representatives of the union to come before this committee on Monday to try to discover what issues are there and what might possibly be settled, and then ask the Minister of Labour to come before this committee to ask if she could intervene to assist in this as well, so we can prevent what might indeed be the final straw in this house of cards called the Canadian airline industry.

¹ (1535)

The Chair: You're asking that these meetings be held next Monday?

Mr. Jim Gouk: I think next Monday would be the earliest we could probably make arrangements for that, and it should pre-empt any other activity.

The Chair: And do you want the CAW?

Mr. Jim Gouk: The Canadian Air Traffic Control Association with the CAW and Nav Canada, one at a time of course--or possibly even together. That might be interesting.

Then following that, once we have time to assess what they've done, ask the Minister of Labour if she would meet with this committee so we can try to find some way to resolve the situation.

The Chair: Thank you, Mr. Gouk.

Mr. Cannis.

Mr. John Cannis (Scarborough Centre, Lib.): Mr. Chair, thank you.

On this point of order, as much as I very much agree with Jim on this issue, as we see difficulties in the airline transportation industry, in reading the note--and thank you for passing it around--I see the second page states that both parties have turned to the Canadian Industrial Relations Board for a ruling; a decision is expected to be delivered after more hearings are held during the summer.

Can you elaborate on that for us? I'm expecting a final decision. That being the case--not that I object to your proposal of having these people come in--

Mr. Jim Gouk: What is happening is that there is a hearing before the CIRB right now in terms of designation of what employees have to work and what duties they do in the event of a strike. That ruling is long overdue. Frankly, we don't know when it's coming down. It was originally due last month.

In any case, Mr. Hargrove has indicated that they will strike at a time and place of their choosing. That could involve job action. At this point in time, it is already involving the air traffic control school in Cornwall. That actually could spread. Whether it is done in a manner that is work to rule and whether it's legal or illegal are things this committee should put to Mr. Hargrove, and it should ask what his plans are in terms of potential disruption to this industry.

Mr. John Cannis: I would like to ask you, Mr. Chairman, for your knowledge, or if the clerks could tell us, is it appropriate that while there are negotiations ongoing--and it's the first time in my experience--and is it permitted by the rules we've discussed to permit these people, the CAW, for example, and the others, to come before the committee so we can ask questions?

The Chair: Mr. Cannis, you're so kind as to ask me, is it permitted by the rules? I've just spent four days defending the rules.

Mr. Stan Keyes (Hamilton West, Lib.): Mr. Chairman, could I make a suggestion?

The Chair: Thank you, Mr. Keyes, but we're going to put this to new business.

Mr. Stan Keyes: Great, and in camera, so we can move on with our witnesses.

The Chair: Yes, absolutely.

Thank you, Mr. Gouk. That's if it meets with everyone's approval.

I welcome the witnesses. The usual procedure, gentlemen, is to make some introductory remarks. Then, I'm sure, each of the members present will have some questions.

Now I apologize. Mr. Cannis, you'll take the chair. I'll be back as soon as I can, but they're running me pretty thin today. With your permission, I'll leave the chair and return later.

An hon. member: You don't need permission. You're the chair.

The Chair: I know that. I'm getting asked for permission from anybody these days.

An hon. member: And therein lies the problem.

The Chair: Don't ask.

¹ (1540)

The Vice-Chair (Mr. John Cannis): Mr. Comuzzi has done the opening and I understand he's done the introductions.

Gentlemen, we're awaiting your presentations, so by all means, we'll start with Mr. Kelsey.

Mr. Doug Kelsey (President and CEO, West Coast Express Ltd. and Skytrain): Thank you.

Good afternoon. I'd like to read a few comments into the record, if I may.

Thank you for the opportunity and privilege to appear before you today. With me today is Mr. Greg Percy, director of rail services of GO Transit in Toronto; Mr. Raynald Bélanger, vice-president of commuter rail in Montreal, from the Agence métropolitaine de transport. Acting in an advisory capacity specific to commuter rail issues will be my retained legal counsel, Mr. Forrest Hume. I am president and chief executive officer of West Coast Express and president and chief executive officer of Skytrain in Vancouver.

I would like to take a few minutes and read into the record some specific comments on behalf of the urban commuter rail authorities. We would then be pleased to address any questions members of this committee may have.

To provide you with some brief background, our commuter rail organizations carry more than 59 million riders per year. Including Skytrain, that would be an additional 60-plus million riders, totalling over 115 million riders per year. For context, VIA Rail Canada carries approximately 4 million riders per year and Rocky Mountaineer Railtours approximately 100,000. Our business focus is on urban commuters, whereas these other passenger rail operations are over longer distances and serve different markets.

We also represent more than $4 billion in combined public assets that are deployed on behalf of our taxpayers in the three largest urban centres in Canada. The areas we serve represent approximately 30% of Canada's population. We are here today to make a joint submission because we have shared interests, shared challenges and shared points of view, and we all safely serve the same public, the taxpayer.

Commuter rail is one of the most popular forms of public transit, producing an approximately 50% modal shift for those who have the choice of taking their vehicles to work or for other purposes. This is the highest modal shift among all forms of urban public transportation. A good visual example of the power of commuter rail is Toronto, where GO Transit carries the equivalent in rush hour of four Don Valley Parkways' and four Gardiner Expressways' worth of traffic.

The benefits of commuter urban rail are strategic and considerable. It helps to reduce greenhouse emissions from single-occupant vehicles. Forty per cent of greenhouse gases are generated from urban transportation. It helps reduce significant congestion. It contributes to economic competitiveness of the cities and the quality of life in expanding our urban centres. People are spending hours per day in their vehicles, time that is for the most part unproductive, wasteful, and stressful. A healthy workforce is a competitive and productive workforce.

On-time performance and reliability are incomparable to other forms of transportation. Urban commuter rail is extremely competitive. Laying more new roads is not the answer to getting people out of their cars. For commercial goods movement to succeed, commuter rail needs to succeed by getting cars and other vehicles off the road.

We are a source of capital to the railways. Commuter rail infrastructure investment supports both the success of commuter rail as well as commercial goods movement.

Today we would like to first thank Transport Canada as well as the CTA review panel for their commitment and interest in our urban centres and in the tool we provide to help solve some of the significant congestion, environmental, and quality-of-life issues we face.

We believe the proposed legislation for commuter rail is urgently needed and appropriate. We are pleased with the proactive steps in this proposed legislation, specifically proposed section 5, whereby Transport Canada has recognized the importance of the environment in maintaining the well-being of Canadians. This, combined with the specific section covering the needs of commuter rail in Canada's urban areas, starts to make commuter rail a key tool in supporting the liveability of these centres. It will result in expanded service and the railways will make a reasonable return on this business.

¹ (1545)

We hope we will not need to use the proposed legislation. We also believe in market checks and balances where they can be effectively achieved. In the absence of effective competition, these checks and balances are needed. I would refer to them as “in case of emergency, break glass” legislation. We always want to negotiate our agreements on a tendered or commercial basis first. We want positive relationships with all of our suppliers, including class 1 railways, but a relationship must demonstrate mutual respect and must not take advantage of the taxpayer. Since past experience has shown we can not always achieve effective competition through natural market forces, we have asked for specific legislation, as you see contained in Bill C-26.

We are also pleased with the provision calling for the release of our contracts for the public to see. As leaders of our organizations, we need to be held accountable for the business we do, including that with the railways. The railways also need to stand up to the public scrutiny of how they elect to charge the public for the services and conditions that go with the agreements.

We support the approaches and frameworks for pricing and the types of variables that are to be considered in Bill C-26. The railways must make a return on their operations in providing services to commuter rail. The issue becomes one of reasonableness. We know we must pay our way, including a reasonable return to the railway. If we do not achieve more reasonable pricing mechanisms, expansion will be in jeopardy. In fact, in some instances, you may see service reduced.

We support the approaches set out in Bill C-26 for the disposal of rail corridors. Urban rail corridors are often uniquely situated, providing the opportunity for transportation routes that would otherwise be prohibitively expensive to assemble. In that regard, we are very supportive of the provisions in Bill C-26 that provide for the selling of corridors for net salvage value and the inclusion of urban transit authorities to be part of the purchaser's list.

It is critical to ensure as part of the legislation that commuter rail has access to the Canadian Transportation Agency as an expert and neutral third party to assess unresolvable access, rate, and service issues.

In summary, urban transportation plays an essential role in the social, environmental, and economic well-being of Canadian cities, which in turn are emerging as one of the engines of our national economy. Commuter rail is a key tool for all levels of government to support mobility, productivity, and the previously mentioned national and local goals. We strongly support Bill C-26 as it relates to the commuter rail portion of the bill and encourage its passage into legislation as soon as possible. We would hope that, at a minimum, the commuter rail portion of the bill is legislated. After all, this is all about the public interest.

Thank you. We'd be pleased to answer any questions you may have.

The Vice-Chair (Mr. John Cannis): Thank you very much, Mr. Kelsey.

Mr. Percy and Mr. Bélanger, are there any comments you would like to add before we get into questions from the members?

If not, Mr. Gouk, we'll start with you.

Mr. Jim Gouk: Thank you.

Thank you for coming today, gentlemen. As you may be aware, because I've certainly not kept my comments quiet, I'm very strongly supportive of commuter rail, high-volume corridor rail, and tourism. I think those are the only viable aspects of the rail industry, other than the fourth one, that being isolated communities, and that's a different situation. I have a real problem, frankly, with VIA Rail competing where it does against the private sector in any way in any of those categories.

One of the things you mentioned in your presentation was that expansion might be in jeopardy. That is in relation to pricing; it may interfere with your ability to expand. Now particularly as it applies to West Coast Express, Skytrain of course having its own track system, what other constraints do you see in terms of expansion into the Vancouver hub, in terms of coming into that central point in Vancouver? Are there any other impediments to expansion for commuter rail in the Lower Mainland of B.C.?

¹ (1550)

Mr. Doug Kelsey: That's a very good question, specifically to B.C., which is the area I focused on. I think a very large one is the pricing mechanism and the access for ensuring a balanced playing field, if you will.

I believe there are quite a number of opportunities. Part of this is not just about commuter rail; it's about urban and transportation corridors where you can serve multiple applications of transit or transportation. So some of them may have some good operational applications for commuter rail. We are working and developing a long-term plan now to look at other corridors beyond just where West Coast Express runs today.

I believe those opportunities are there, but it is absolutely critical that through the support of Bill C-26 this will help us to ensure what the rules of the game in that relationship might look like for all parties. I don't see a lot of other limitations in the future.

Mr. Jim Gouk: You don't see a capacity limitation or constraint right now going into the central part of Vancouver?

Mr. Doug Kelsey: I think West Coast Express is a great example of capacity. For example, between Mission and downtown Vancouver is about a 43-mile trip. When West Coast Express was started, the government of the time gave $64 million in capital, which not only benefited commuter rail, it actually put in centralized train control that actually expanded capacity that benefits the movement of goods as well as passenger rail.

I think one of the interesting parts might be if we each carried our weight. It'd be interesting to see. Nobody else that I'm aware of has invested any capital in that same corridor, private sector or public, and yet is benefiting from the expansion of commuter rail. We can work with railways. Actually, we are a source of capital for them that benefits, frankly, all parties. I think the track record of dealing with capacity has been quite consistently demonstrated across the country.

Mr. Jim Gouk: I understood that the Greater Vancouver Gateway Council had expressed concerns about the volume of traffic it's getting in total between freight and commuter rail, that it's restricting the potential for growth in the port of Vancouver, and if indeed there is any capacity for growth, it's very limited. I understand they've suggested perhaps there isn't even room for growth in capacity without causing severe problems for the port of Vancouver at this point because of interference with freight operations.

Mr. Doug Kelsey: It's kind of interesting. If I wear the Skytrain hat for a second--maybe it's sort of selective memory in public documents--the Canadian Pacific Railway also published that it was looking to consider putting a third rail line down that same area where Skytrain was looking to come along.

So there is capacity. We've done analysis on gross tonne measurement. You do the number of incidents of trains; you do time. Under any of those measurements on that corridor and specifically on the one I'm more familiar with, we consume less than 10% of capacity. So there's significant capacity that is not utilized on that corridor.

One always has to be careful, is it number of incidents of trains? If one looks at it on that basis, then you'd say we run about five trains in, five trains out, totalling 10 trains. Well, if we run an additional 20 trains, we would say that we're approximately 30% of the incidence on that track. That shouldn't be how you look at it. You look at the capacity and what percentage of capacity you actually utilize. So on that basis, we're at less than 10%.

Mr. Jim Gouk: Where, of course, I have concerns from comments I've heard before from the gateway council isn't whether you take 10%, 50% or 5%, but in fact how you impact on the operation of the freight service, primarily going into the port of Vancouver.

Mr. Doug Kelsey: I think any time a train is on there, you're tying up a slot, if you will. The question is what's a slot? Under CROR rules, two minutes after our train has left, the next train can run. Even talking to people--the ex-president of B.C. Rail, who used to work for Canadian Pacific and others--there's tremendous capacity available that is unutilized on that corridor particularly.

I think each corridor has to be evaluated on its own limitations and merits. If you look across the New Westminster bridge, for example, I think it's extremely restrictive. Regardless of passenger rail usage or not, it's just a corridor, a bridge that's served its life cycle very well and probably needs to be evaluated. How do you evaluate capacity in the future? Part of that is how we all successfully coexist together.

¹ (1555)

Mr. Jim Gouk: Mr. Chair, maybe the clerk could check to find out if the Greater Vancouver Gateway Council is scheduled to speak to us at all, and if not, then we could put it on the list. In fact, the minister is the honorary chairman of that group.

The Vice-Chair (Mr. John Cannis): I've just been told that it is on our list to appear before the committee.

Mr. Jim Gouk: Thank you.

One of the other things you brought up was the idea of urban corridor abandonment. Can you give us any examples? I understand CN and CP looking at rail abandonment and all kinds of low-utilization areas. It's happening inside my riding. It has certainly happened extensively in the Prairies. Could you give us an example of where this has happened, particularly in British Columbia, as that's your area of expertise, where they've abandoned rail lines inside an urban corridor? Is there much of that actually going on?

Mr. Doug Kelsey: I think in the long term, yes, it's going on. I think there's one example right now that has some reasonable exposure. It's referred to as the Arbutus corridor. It is located in a very high-cost real estate area of Vancouver that cuts partially between downtown Vancouver out to the south area of Vancouver. That's been part of a contention that if you build another type of transit line, you have to use that corridor.

The City of Vancouver has been in a fairly significant legal dispute with the railway over its abandonment and ultimately what the line's worth. That one hasn't concluded successfully yet, but I think it has gone through some litigation.

Mr. Jim Gouk: Has the railroad indicated its intention to abandon that or does it simply want to operate it until an interested buyer is found?

Mr. Doug Kelsey: It is up for sale. I believe it has been posted in the Canada Gazette to be abandoned. There is currently no rail service on it. In fact, my understanding is that it gave notice last year to one of its freight customers.

Mr. Jim Gouk: Okay. So it has actually gazetted it for abandonment?

Mr. Doug Kelsey: That is my understanding, correct.

Mr. Jim Gouk: So it is not under the current CTA. If it is offered for sale and there is no buyer, does it then go in a line of hierarchy from federal to provincial right down to local government at net salvage value?

Mr. Doug Kelsey: I'm not sure of the exact process where that one is because of some of the litigation between the two. I'm not sure of the actual details.

Mr. Jim Gouk: In your presentation, did you indicate that you liked something in the bill that would deal with that or that you wanted to see something in the bill that would deal with that situation?

Mr. Doug Kelsey: Yes. I think there needs to be something in the bill that talks about urban corridor abandonment. I came from the private sector myself. I worked for an organization, Shell Canada, a large capital investment type company. Typically, you'd want the highest to best use for a piece of real estate that you would expose. In the case of the Arbutus corridor, I think the City of Vancouver has indicated it wants it not for highest to best use, but it should be dealt with on a transportation basis only level versus highest to best use. So part of that is in net salvage value. We are looking for a net salvage value approach to dealing with rail corridors in the future.

Mr. Jim Gouk: Could you perhaps then table or present to the committee, through the chair, your proposal as to what you would like to see in the bill that would deal with that, and maybe we'll circulate it.

º (1600)

Mr. Doug Kelsey: I think it's already outlined in the actual bill itself. It talks about net salvage value.

Mr. Jim Gouk: No, I know net salvage value. I mean, what would you like to see in the bill? You said there needs to be something in the bill to deal with urban corridor abandonment. If you could present that to the committee, then we can give that consideration.

Mr. Doug Kelsey: Okay.

The Vice-Chair (Mr. John Cannis): Thank you.

Mr. Roy.

[Translation]

Mr. Jean-Yves Roy (Matapédia—Matane, BQ): Thank you, Mr. Chairman.

Thank you for your presentation. Of course, we have heard much about the Vancouver region, and now I would like to hear about the Toronto region and the Metropolitan Transit Bureau.

Do you have the same problems as Vancouver? Can we maintain that, for instance, railways in the Montreal area are currently being used to their full extent? I do not think so. In Toronto, it might be different. I would like to get a picture of the situation.

Regarding the retrocession of railways, do you, in Montreal as well as in Toronto, wish that there be a provision whereby you could access the railways more quickly?

[English]

The Vice-Chair (Mr. John Cannis): Monsieur Roy, maybe you could start your question, because there was an interruption there.

[Translation]

Mr. Jean-Yves Roy: What I meant is that, from the outset, we heard a great deal about the Vancouver region. I wanted to know whether the Toronto and Montreal regions had more or less the same problems. I would also like to know the usage rate of railways around the City of Montreal because I do not believe that there is any overuse of railways, far from it. I believe that they are underused and that the Montreal region is far from having achieved its potential in railway urban transit development.

As for Toronto, I am not certain because I know less about this region, but I believe that there is full use. That is what I wanted to know.

With regard to the retrocession of railways to provincial governments and then to municipal ones, I had difficulty in understanding your statement. Would you, as a carrier, want to have access to the railways if the local or provincial government decides not to take them back? Would you become the owner and manager of that railway? Did I understand you correctly?

Mr. Raynald Bélanger (Vice-President, Commuter Rail, Agence métropolitaine de transport): This is covered by the current act. The act says that railways must follow a certain procedure when dealing with abandoned tracks. Their final recourse is to offer it to the provincial or municipal government, and for now, that is as far as it goes.

Bill 26 proposes that public transit organizations, like the Agence métropolitaine de transport should be added to the list of those who could purchase them for their net salvage value. Thus we become potential purchasers at net salvage value, in addition to the current provisions of the act.

Mr. Jean-Yves Roy: If I understand you correctly, pursuant to this bill, you will be treated just like any other private purchaser, which means that you will have to submit a tender.

Mr. Raynald Bélanger: That is right. We will have to negotiate with them and, obviously, they will prefer the market value to the...

Mr. Jean-Yves Roy: Would you not prefer that priority be given to municipal urban transit organizations rather than to the private sector? This is a good question, is it not?

Mr. Raynald Bélanger: It is indeed a good question, but we did not dare to go that far.

We are letting things unfold, and then we shall see. Often, private companies can recycle into the railway business, these things are often called coach lines, and there is a potential for that. At this time, we are satisfied because we have been added to the list of potential purchasers “at the net salvage value”.

Frankly, in the Montreal region, this potential is not great because there are not necessarily any lines completely abandoned by the railways that could be used for commuter services at this time. Thus, this will not become a critical issue for us overnight.

Mr. Jean-Yves Roy: What is the situation with the sharing of tracks at this time?

Mr. Raynald Bélanger: Regarding the sharing of tracks, railways have a very simple philosophy. Supposing they are using 50 per cent of capacity and the other 50 per cent remains available. If we want to use 10 per cent of this, they do not want to take them out of the 50 per cent; they must be added. In other words, they always want to keep their current reserve in capacity. We cannot access the remaining capacity. This is why, every time, we must propose adding some signage so that they can keep their remaining capacity for freight trains.

This is our current situation, and there are some problems.

º (1605)

Mr. Jean-Yves Roy: This certainly hinders your development.

Mr. Raynald Bélanger: Of course, sooner or later, very expensive facilities will be needed, for instance signage, or when we want to add a third track.

Mr. Jean-Yves Roy: This is on top of what you have to pay for the use...

Mr. Raynald Bélanger: Operating costs, precisely.

Few freight transportation clients invest directly in railways. We are a rather special kind of client. If we want room, we must pay for it. Not only do we pay for operating costs afterwards, which is another issue, but moreover, from the outset, we need money to enable us to find our niche in this field.

Mr. Jean-Yves Roy: How will transportation evolve in the future...?

Mr. Raynald Bélanger: I think that Mr. Kelsey emphasized this point. This part of the act is basic to our interests. If it is not adopted, development will probably come to a standstill. This could jeopardize a whole range of services. For instance, we will have to reduce service on weekends, or to reduce service outside of the rush hours, and if things go on in this way, we will reduce service during rush hours.

At this stage, development is not so easy. Now, we really need instruments enabling us to negotiate on an equal footing with railway companies, with the participation of a third party, so we can finally reach an agreement.

Mr. Jean-Yves Roy: Is the situation the same in the Toronto region?

Mr. Raynald Bélanger: I will let Greg answer this question, but there are similarities.

Mr. Jean-Yves Roy: But I do think that the use is more intensive there.

Mr. Raynald Bélanger: Yes, Toronto's investment problems are greater than the ones we have in Montreal. He can tell you about them. A $1 million investment has already been announced in the Toronto region. It is largely meant for railway infrastructure.

I will let Greg answer this question.

[English]

Mr. Gregory Percy (Director, Rail Services, Greater Toronto Transit Authority): The situation in Toronto is a little bit different. We operate seven lines, six on CN and one on CP. Each line you look at separately in terms of capacity, in terms of how many tracks and that kind of thing. We are at the point now where we have grown so quickly over the last four years that all seven lines are at capacity, and for us to increase service, the railway view--and both railways have the same view--is that if it were not for commuter we would not have to invest in the assets.

Therefore, it's 100% your investment. In general terms, they're prepared to work with us, but it becomes very expensive. Whenever we express interest in expanding service over a given quarter, that quarter becomes the most valuable quarter in North America. Therefore, they look to recover that money from us, and it's public dollars.

[Translation]

Mr. Jean-Yves Roy: Very well.

Thank you, Mr. Chairman.

[English]

The Vice-Chair (Mr. John Cannis): Ms. Desjarlais.

Mrs. Bev Desjarlais (Churchill, NDP): Mr. Kelsey, you mentioned that studies have been done on the capacity of the rail lines. I believe in previous committees of transport I did see some of those studies. However, maybe it would be beneficial for committee members who haven't seen it, and if you have a study available about the rail line capacity in your area, perhaps you could make that available to the committee.

Mr. Percy, you talked about becoming the most valuable line in the country, if not in North America. Have you had some specific indication of where you think there may have been a slightly inflated value put in place for a line you were wanting to access?

Mr. Gregory Percy: It's very difficult to assess how inflated it would be, because often the case is that there's a political push to increase access over a given corridor, and if that word gets out more quickly than we can get into a negotiating table, then that becomes market price.

We are not in a position to tell either railway how much capacity they have on a line. I could give you an example of the one CP line. I should first say that we have a good relationship with both railways. We work to keep a good relationship, but it can be an expensive relationship.

So for us to add one more train on the CP line right now, we're looking at something in the order of $40 million before we can add one train. That's for infrastructure investment. Such cases continue on other corridors. There are CN corridors as well. It's a case where we have no leverage and we go in, and if we want to add one, two or three trains, if we had the equipment available, which right now we do not, they basically dictate terms.

It's pretty much every line we're dealing with. It's kind of a corporate philosophy, because as Mr. Kelsey said, we wind up supplying the capital to enhance their lines.

º (1610)

Mrs. Bev Desjarlais: So when you're done this initial discussion with either rail line, do you leave saying, oh heck, they're asking $10 million too much, or, gee, gosh, they're asking $20 million too much, or is it a little bit more expressive?

Mr. Gregory Percy: Based on our experience, we have a rough idea of what we should be paying. We know the asset values of rail facilities and we know property values. We often will hire an independent engineering opinion, generally, to give us some idea of whether there's capacity.

We also have various ways to get a track of freight activity over those lines. We kind of gather what information we can and we go in and negotiate. However, what it boils down to is that unless we can exert political pressure we have no leverage.

So, no, we cannot with confidence say that we have overpaid by $5 million, $10 million, or $15 million. All we know is that, based on comparables of previous service starts, we're paying more. We also compare one rail against the other and try to compare like corridors as well.

The Vice-Chair (Mr. John Cannis): Thank you very much.

Mr. Fontana.

Mr. Joe Fontana (London North Centre, Lib.): Thank you, Mr. Chairman.

Welcome to the witnesses. I, too, want to pledge my support for rail, as Jim has. You know I'm a great supporter of VIA Rail and, hopefully, more of it than Mr. Gouk might like, but that's beside the point.

Rail is the way of the future--I've always said that--in terms of dealing with transportation issues in our cities, and commuter rail is a great alternative. I applaud your respective corporations for doing that and looking to the future.

I need to ask some questions as they relate to what you said, Doug, Gregory, and Raynald. I'm trying to understand what you believe this balanced playing field should be, because then I hear questions of fees, I heard Gregory talk about paying way too much, too expensive, and yet you're supportive of Bill C-26.

You now have an opportunity, under the CTA, that if you don't like what you're being charged, understanding that you don't have to build your own infrastructure, even though you might want to comment as to whether or not that might be a possibility and looking to government to help you do it, but you're using somebody else's infrastructure and therefore need to pay for it on a commercial basis.... That's what it's all about. So I'm getting mixed signals here. Yes, we get along with the railway, but they're hosing me.

Second, you say you want a balanced playing field but the fees are too high. You like Bill C-26. Could you be a little more forthcoming as to what, if any, changes you would need, because the opportunity to go to the CTA exists now. If you think you've been mistreated, I'd be interested, Gregory, in how you would figure you ought to be paid, on what formula, on what you would base it. There are negotiations back and forth; I mean, that's what business is all about. These conflicting messages got me confused about where you're coming from.

Mr. Gregory Percy: What we pay is a negotiated rate based on capacity as we see it. The provisions that are in the proposed CTA do cover our concerns. We are comfortable with what's written in the proposed CTA revisions. That gives us a few mechanisms that we did not have before.

We do not see ourselves on an equal footing with a freight shipper. The legislation as now drafted gives us a lot of those mechanisms we did not have before. So if I go in to negotiate with one of the railways, we negotiate as entrepreneurs. I'm a private sector person from my background and that's how I negotiate. We get to the point where we reach an impasse. They own the asset, so we can't push any further. Our opportunity to negotiate fairly disappears at that point, so we can go the political route, but what we would prefer to do is seek intervention from the CTA. The CTA can come in and say that this is too high or too low. It is the expert, the neutral expert, and we look to the CTA to come from that position.

The provisions as drafted cover our requirements. They were not there before.

Mr. Doug Kelsey: Perhaps I could add to what Greg has said.

For example, at West Coast Express we had a challenge in an existing contract with the class 1 railway, and looking at it through long-run variable costs, which is the methodology the agency utilizes, we saw it was charging over 1,000% markup. In addition to that was the capital charge of $64 million. So I think 1,000% is clearly reflective of the fact that there is no effective choice or competition, because in effective competition it's also relative to the risk that you carry.

I used to do business evaluations in a past life, buying and selling large corporation businesses--and, by the way, that was also guaranteed for 20 years, escalates every year, and the escalator compounds on top of the escalator. So it increases, and again, relative to the risk, through our insurance policies and due diligence, we carry the majority of the risk on the line.

If you look at what you make on a T-bill and you start looking at those kinds of rates of return, that's where we refer to the document we are supportive of. It's about reasonableness, and that's where, if it's 20% or 15%, whatever the appropriate time is, that's where the agency would be able to assist us. But my definition of fair and reasonable is not 1,000% whether it comes from the private sector or the public sector. That, frankly, is abusive on behalf of the taxpayer.

These types of remedies that start to outline a framework of what kind of elements should be included in pricing, I think, are new and quite helpful to put us in the same box, to try to negotiate first, which we really do want to do.

º (1615)

Mr. Joe Fontana: Unlike Europe, which has a passenger-based system, which is a whole different system, in Canada we have a freight-based rail system. Therefore, when you try to integrate freight and passenger, especially on private sector infrastructure, because you're not talking about public infrastructure here.... The British had their own model; they tried it and so on. I'm trying to understand, because I want you to look to the future. If in fact we want to look to more commuter, more rail, more passengers, higher-speed freight in order to ensure that we have the competitive advantage to look after our trade, I want you to look at capacity, because obviously that has everything to do with the price they want to charge you. More important, there comes a point in time when somebody has to make a decision as to whether carrying their own freight is much more a return on investment than it is to allow you to put more trains on. That's a business decision on which both parties have to agree. When it's on their infrastructure, I agree. Whether you're ever going to get a balanced position, I don't know. We strive.

I want you to think about whether there might be opportunities. I know the federal government has talked about strategic infrastructure programs, working with municipalities and working with the provinces to start looking at building additional capacity by having your own infrastructure or helping the existing rail with the capital investments that are required to build new capacity, with new technology and new infrastructure to be built. Could you talk a little bit about your view of that?

Mr. Doug Kelsey: That is a really good comment. I think that actually is existing today. If I go to my own example—I know Greg and Raynald have theirs—we are bringing capital to the table. For example, where we run there was no centralized train control system. It was non-existent. In fact, we actually put it back in, which actually enhanced the movement to a whole other stair step of capability for the successful coexistence of freight. It's a tribute, in our case, to Canadian Pacific, which does a great job, on how you successfully coexist in that.

As I think I outlined in my opening comments, we are a source of capital for them. It's how you blend the goods movement and passenger movement together, how you optimize a system to successfully coexist. The challenges is comes back to what is a fair and reasonable return for the risks they carry and on what kind of cost basis.

I think there are some pretty successful examples. It's trying to corner in the parameters of that type of costing relationship in the future.

Mr. Joe Fontana: I have just one final comment about building your own infrastructure. I know that might be difficult in corridors where rights of way don't exist, and so on and so forth, but at the end of the day, if we really want to start thinking outside the box and propelling ourselves into looking at rail being a real alternative, and not necessarily only feel that we can only move this much, if we want to move people out of cars and be able to move them as quickly as possible, then it may very well be that we have to work with others and look for new rights of way and, essentially, look at totally dedicated passenger infrastructure.

º (1620)

Mr. Doug Kelsey: Those actually are examples that I think we talked about earlier, using the Arbutus corridor. The owners of the corridor, in this case the class 1 railways that we're discussing, are looking to get out. It's served its life purpose as a corridor for them. And I think that is where it could be used more, not just as rail corridor but as a transportation corridor. It could be with bikes. It's about the combination of levers to get people out of their cars, not in totality, because the car is going to be around, but to get them out where it's appropriate.

I think each one has to be looked at on its own business case: on the density, the velocity, on whether the investment is appropriate, and where you can, it may be appropriate to do your own corridor. Conversely, it may be, can you leverage and actually work with the railways and help them so that both parties win? That would actually solve bigger problems, the goods-moving problems, as well as the people-moving problems.

So I think each one has to be evaluated on its own merits. I think we each have examples of that actually going on today, quite successfully, even with the railways.

The Vice-Chair (Mr. John Cannis): Thank you, Mr. Fontana.

We'll go to Mr. Proulx.

Mr. Marcel Proulx (Hull—Aylmer, Lib.): Thank you, Mr. Kelsey and Mr. Percy.

[Translation]

Thank you, Mr. Bélanger, for appearing before this committee today.

[English]

We appreciate your coming to Ottawa.

There's been some talk from some other people that they'd like to see us scrap this bill, Bill C-26, and start over. If this bill isn't passed, would there be an consequences? How would you be affected?

The Vice-Chair (Mr. John Cannis): We'll start with you, Mr. Kelsey.

Mr. Doug Kelsey: As I indicated in our opening remarks, this is a very important bill for us, from the commuter rail perspective; in fact, I would say critically important.

We are at the point, as I think we've been discussing.... A lot of our business involves capital and long-term planning, and it's difficult to dial it down and dial it up, because there are a lot of implications that go with it. The largest cost in my business is the track rate.

The first part is that we have to make sure, before we can ask for support of legislation like this, we have our house in order first. I've moved my operating cost recovery in the last three years from approximately 33% to over 60%. So we've moved up fairly reasonably.

In terms of the legislation, you probably will not see West Coast Express expand based on these types of existing track rates, once your largest cost in the business. The majority of it is margin. I'd like to have those assets, being the rolling stocks, really working hard on counter-flow trains and such. That's when I think you have the leverage.

I am actually developing scenarios whether, frankly, I have this legislation or if I don't. So it's critical.

M. Marcel Proulx: Mr. Bélanger.

[Translation]

Mr. Raynald Bélanger: In fact, the railways will receive the message that the door is open. In our case, in Montreal, we applied for railway status. But they refused to give us the federal rail certificate of fitness. We could have appealed, but we dropped the matter because we expected the act to provide more or less for what we wanted. We had two arms and we were trying to move forward. Now, our arms have been cut off.

This will only worsen the abuse that already exists with regard to our applications. We had identified several lines with potential for development. Now this will not only stop this development in its tracks, but it could even reduce traffic on one of the lines.

Our point is that it is essential for this part of Bill C-26 to be deferred, even indefinitely. As things now stand, if we do not obtain this, we will go home to Montreal in a very pitiful state.

[English]

Mr. Marcel Proulx: Mr. Percy.

Mr. Gregory Percy: For GO Transit, if this legislation does not go through it means a couple of things. It constrains our ability to expand our operating network. It limits our ability to intensify our existing network. We have pent-up demand that we cannot satisfy. It increases the cost of doing business.

My cost of doing business is using public dollars. It would be effectively running to stand still. I'll be using more public sector dollars to stay where I am. I don't think that's the right way to do business.

º (1625)

Mr. Marcel Proulx: A short one. If you do expand, and you've mentioned that, do you have the necessary equipment? Do you have the equipment you would need to expand, or would you use the equipment you have now and just roll it more?

Mr. Gregory Percy: I can speak for GO Transit. Up until late last year we neither had the infrastructure nor the equipment to expand. We have customers standing for 40 minutes on our trains. We are a 40-minute-long subway ride, with people often standing all the way.

Through cooperation by the various levels of government--and hopefully this afternoon the province is matching infrastructure money that the federal government has put forward--that will turn the page for us on infrastructure. When we invest that into the CN and CP lines, we will be able to grow from the infrastructure point of view. With the blink of an eye, we need money for rolling stock. You can't have one without the other.

The big dollar item is the infrastructure. It looks like we're going to be in good shape probably after about five years of putting it in place. We will need rolling stock within the next two years to start taking advantage of the infrastructure investment. They go hand in hand.

Mr. Marcel Proulx: Where would you get your rolling stock, here in Canada?

Mr. Gregory Percy: We are the largest user of the Bombardier bi-level car, which is made in Thunder Bay. If we cannot grow, Thunder Bay will not be making cars for their largest customer.

Mr. Joe Fontana: The chair would be shocked.

The Vice-Chair (Mr. John Cannis): Not this chair.

Mr. Gregory Percy: The chair, I believe, is aware of that.

Mr. Joe Fontana: Is he? Well, we'll make sure we tell him.

Mr. Gregory Percy: I understand Bombardier has expressed that concern to him also.

[Translation]

Mr. Marcel Proulx: Mr. Bélanger, the same applies to you, I presume?

Mr. Raynald Bélanger: Yes. Of course, the rolling stock is still needed. We do not have any in reserve. As soon as we can install it, we begin to plan on purchasing it.

As far as we are concerned, we followed a somewhat simpler procedure during the past few years, but we cannot go on like this indefinitely. Used material must be renewed. For those who are aware of this issue, this did allow us to put in operation the Delson, Saint-Hilaire and Blainville line.

We are currently going through a tendering process in order to build 22 new railway cars for the Rigaud line. Cars dating back to the 1950s must be replaced. So far, we have received two offers. Bombardier made an offer of new cars of the same kind that Go uses, and these new cars are the state of the art in the industry.

Another supplier, ALSTOM, made an offer. They proposed used material, two-storey coaches that would be set aside, overhauled and then offered to us.

We must therefore do an economic analysis to determine which offer is the better one. We are doing this right now.

Mr. Marcel Proulx: All right.

[English]

The Vice-Chair (Mr. John Cannis): Very quickly, can we get a comment from Mr. Kelsey?

Mr. Marcel Proulx: Very quick response, if you could.

Mr. Doug Kelsey: In our business the first thing you do, as I think most people would do, is leverage and optimize the assets you currently have. Spending capital is very precious. It's the last thing you would most want to do after you've leveraged your existing base of assets, return trips of trains, refurbishment of trains, etc. On top of that, then, yes, you would look to expand into bi-level cars. It should be your last option, but it's one that moves you to the next level.

Mr. Marcel Proulx: Thank you very much, merci, Monsieur Bélanger.

Thank you, Mr. Chair.

The Vice-Chair (Mr. John Cannis): Ms. Frulla.

[Translation]

Ms. Liza Frulla (Verdun—Saint-Henri—Saint-Paul—Pointe Saint-Charles, Lib.): Thank you, Mr. Chairman.

[English]

Thank you for coming.

My question follows a little bit Marcel Proulx's comment.

[Translation]

Mr. Bélanger, you said that you want to extend the Rigaud line, and this raises some questions. You called for tenders to purchase vehicles. Now you bought the 22 used vehicles which are yours.

Mr. Raynald Bélanger: There are two projects. That one is in anticipation of the Mascouche line. We had an opportunity to buy used railway cars...

º (1630)

Ms. Liza Frulla: There you are!

Mr. Raynald Belanger: ... at a ridiculously low price; we are talking about $15,000 per car. We expect to put the Mascouche line in operation. This is why we decided to take advantage of this opportunity. It allowed us to start a line at a minimal cost. This is what we had in mind when we bought those cars.

If there is no Mascouche line, we can still sell the cars and certainly get our money back. So, this is not a bad decision.

Ms. Liza Frulla: But why could you not use those cars for the Rigaud line?

Mr. Raynald Bélanger: There is nothing to stop us from doing so. This option could be envisaged.

Ms. Liza Frulla: Do you think that the trains that you bought, the ones that were refurbished by ALSTOM can, in spite of their low cost, compete with new trains from Bombardier? Would the quality and the advantages be the same?

Mr. Raynald Bélanger: There's a relatively simple rule that it is worthwhile to buy a refurbished-used car with a life of 15 years if it costs half the price of a new car. It's a bit like the choice between a used car and a new car, or between leasing and purchase. It's that kind of dynamic.

If the price of the used car is more than half the price of a new car and it is expected to last only five or ten years, it's better to buy a new car. Through this kind of exercise it is possible to ensure that the choice of a used car represents an equivalent value in terms of money. It would be an economic analysis over 30 years. All the parameters involving maintenance, fuel consumption and other criteria are taken into account. It is an economic model.

Ms. Liza Frulla: But you said that you bought them at a price that is ridiculously low compared to the present purchase price.

Mr. Raynald Bélanger: That is true. ALSTOM bought these cars at a very low price. It paid less than we paid. Because of this initial cost, the company is able to invest a lot of money in renovation and is still able to supply a car [Editor's Note: Inaudible].

We have to be careful because we are involved in a bidding process at the present time.

Ms. Liza Frulla: We were expecting the decision last week.

Mr. Raynald Bélanger: That is true. It is now before the board of directors. We are carrying out further analyses and a decision was postponed to June 11.

Ms. Liza Frulla: We will be eagerly awaiting the result, Mr. Bélanger. Thank you.

[English]

The Vice-Chair (Mr. John Cannis): Do you have a question, Mr. Gouk?

Mr. Jim Gouk: There are a couple of things I would like to find out, if I can, just quickly.

Mr. Kelsey, do you run on CN track, primarily?

Mr. Doug Kelsey: No, I don't, Canadian Pacific.

Mr. Jim Gouk: You are on CP. Does CP have additional capacity that you could expand on, on that track? Do they have capacity available?

Mr. Doug Kelsey: We believe so, definitely.

Mr. Jim Gouk: If you expanded on that track, under the formula that would be provided for you, that you could access under Bill C-26, would get more operation on their track for less money, more for the same amount of money, or would you actually increase their revenue, maybe not proportionally to what you pay now, or would you actually end up paying more money to them than you pay now, but getting quite a bit more usage of their track?

Mr. Doug Kelsey: It would have to be looked at under this legislation. First, we would be asked what are the direct costs related to our being there, in fairness to the railway, so they would incur some costs to be there. Whatever those are, then we would try to negotiate an appropriate return on top of that. Each, shall we say, timeframe, whenever we put service in place, might have a different economic and maybe even congestion factor that we would have to try to negotiate. Relative to where we are today, it would be a definite reduction in track rates.

Mr. Jim Gouk: For the same amount of usage?

Mr. Doug Kelsey: Yes.

Mr. Jim Gouk: You keep talking about how you are providing revenue to the railway. I'm just wondering, if you get this additional capacity you want, if you would be using more of your track for less money, you surely must have looked at that if you are doing your planning, as you say. You have the two scenarios ready now, with Bill C-26 and without it. With Bill C-26 and with your expanded capacity, you would use more of the rail line. Would you pay more of the same or less?

Mr. Doug Kelsey: In the existing contract we have, it's a set contract, and we have about 13 years remaining on the contract. Running the five trains in and five trains back, we pay about $6.7 million a year, I think it was, for the track rate--for the rent, if you will. That's separate from the crewing agreement. We have a separate agreement to pay for crews. So this is just for the rental. That went down to $4.7 million this year, thanks to some pressure we were able to bear on altering because of the extreme situation we had.

From there, if we put on several more trains, this would be a new agreement. The agreement only covers those existing five trains, so we would have to negotiate a full agreement. In our expectation of this legislation, compared to where we are today, it would definitely be a significant reduction in track rates, and we would still be making quite a healthy return.

º (1635)

Mr. Jim Gouk: Just to clarify, you would pay what you are paying now, plus you would pay some additional amount but at a lower rate?

Mr. Doug Kelsey: Yes. You pay for each service. Each train you negotiate would have its established rate.

The Vice-Chair (Mr. John Cannis): Thank you very much.

I just want to add to this, if I may, Mr. Percy. You commented on the infrastructure money that was coming by the federal government here. I was just curious, because I understand, or I'm led to believe, that the provincial government in Ontario has an obligation. Have they been forthcoming with their financial commitment to GO Transit as yet, or is it still under discussion?

Mr. Gregory Percy: Your question is very timely. When I leave this meeting, with one phone call I'll find out if the Premier of Ontario went to our Port Credit station at 2:30 today to match the money.

Mr. Joe Fontana: If I give you a phone, do you want to find out for us now?

Mr. Gregory Percy: I'm hopeful that the answer is a strong yes, and that it was this afternoon.

The Vice-Chair (Mr. John Cannis): It would seem to me from your comments that, given what the relationship is, you are quite pleased with how the federal government is responding to GO Transit.

Mr. Gregory Percy: I am extremely pleased with the level of listening and cooperation and understanding of GO's business case.

The Vice-Chair (Mr. John Cannis): Thank you very much for your presentation. Thank you very much for your comments on Bill C-26. Hopefully we'll be seeing you again in the future.

º (1635)

º (1639)

The Vice-Chair (Mr. John Cannis): We have as our next witnesses Air Canada Jazz, and we're very pleased today to have with us Mr. Joseph Randell, president and chief executive officer. Welcome. With him is Mr. Fred Gaspar, manager of government relations. Mr. Gaspar, welcome to the committee. We look forward to your comments, and I'm sure you're looking forward to some of the questions that will be coming back your way from the committee members.

The floor is yours.

Mr. Joseph Randell (President and Chief Executive Officer, Air Canada Jazz): Thank you, Mr. Chairman. Bon après-midi, good afternoon, honourable members of the committee.

I'll say at the beginning--and I guess it is nothing new--that the airline industry in this country is in crisis. We need to be very careful in terms of ensuring that Canadians across the nation have safe, reliable, and affordable transportation.

We believe that Bill C-26 is the wrong bill and addresses the wrong issues at the worst possible time for the airline industry in Canada. The proposed airline sector amendment specifically to the Canada Transportation Act as contained in this bill should be rejected.

Specifically I will address four provisions within this bill that impose what we believe to be further threats to the viability of our industry: first, the provisions for forced domestic interlining; second, forced access to frequent flyer programs; third, CTA-initiated pricing investigations; and fourth, enactment of the VIA Rail Canada Act.

First of all, the provision for forced domestic interlining should be removed as it again serves to significantly increase costs for carriers. It is a fundamental contradiction to the principles of a free marketplace and an overall objective of reducing the overheads of the industry.

We cannot continue to sustain the ever-increasing fees, surcharges, and taxes that have been imposed on our industry. This legislation will further force carriers to invest in expensive support systems in order to have the ability to offer interlining to other carriers, and quite often these carriers are in fact direct competitors.

Interlining arrangements, outside of the established network alliances, are part of the old model, and that simply doesn't work anymore. You'll find this throughout the world. Today's industry requires low-cost, low-fare air transportation. That is the reason carriers such as JetBlue, Southwest and WestJet have a healthier bottom line than the full-service legacy carriers such as American, United, Air Canada, etc. We're moving away from this, not further toward it.

The provision is out of touch with the industry and its trends. If imposed, it will increase the costs for travellers and will be one more reason for passengers to take alternate modes of transportation.

The industry continues to evolve and change in response to many forces. The future viability of air transportation in Canada is dependent upon the ability of this sector to evolve freely and naturally as market forces determine, not as government-imposed restrictions dictate.

Second is frequent flyer points. Forced access to a private company's loyalty program is a direct expropriation of private property and should not be supported in any government regulation. No other industry in the world is expected to simply hand over an asset that has been fostered by tremendous investment of time and resources. This section of the legislation is concerning and in contradiction to the principles of a free market.

Imagine if Petro Canada were forced to provide Petro points to any gas station in Canada. If this legislation is meant to protect the interests of small business in Canada and promote competition, why focus just on frequent flyer programs? Why not incorporate all programs in the mix? Perhaps Delta Hotels could extend the benefits of its Delta privilege program to the guests of Hilton or Fairmont hotels.

Third is the CTA-initiated pricing investigations. Again, there are, and have been, provisions for investigations into the pricing aspect of our business. We need to let market forces and the principles of free enterprise reign if we are to have sustainable and viable air transportation. The provision to give the CTA total freedom to arbitrarily initiate full investigation into air fares is in violation of free market principles and should be removed from this piece of legislation.

Only customers can determine if the price of a product is too high these days in our industry. They respond either by not making the purchase and using alternate modes or by issuing a complaint. Not only does this proposal threaten the ability for air carriers to properly match their products with the demands of the market, it also imposes significant costs and time to fulfill the requirements for a formal investigation.

As I mentioned, the CTA was originally granted the power to investigate a carrier with monopoly powers if complaints were received regarding suspected cases of price gouging or anti-competitive behaviour. This legislation proposes to remove the requirement for an official complaint in order to conduct an investigation.

º (1640)

By removing that requirement, the government risks creating an out of control investigative bureaucracy in the CTA. The minister has stated in his transportation blueprint document his preference of free market principles guiding the development of the industry. We trust that you will recognize how this provision stands in stark contrast to that objective.

I wish to digress for a moment to tell you about Jazz's experience with one of the regulatory parts of our government, the Competition Bureau. Last January Jazz withdrew all of its service within the province of Newfoundland and Labrador as a result of being priced out of the market. Our inability, because of regulation, to match our competitors' air fares because we were classified as a dominant carrier by the Competition Bureau meant we could not compete with these carriers and maintain a viable market share. As a result, we were forced to abandon all of our services within Newfoundland and Labrador because we were not permitted to fairly compete on these routes.

This is an example of public policy and its institutions going in the wrong direction. In this case competition was in fact discouraged and eliminated.

In leaving this market we received significant pressures from the communities, the local media, and yes, even politicians to retain those services. Sadly, this is not the first time that Jazz has been given contradictory signals from government. It is said that one hand washes the other, but sadly, when it comes to the conflicting interests of competition regulators and service regulators, it is often uniquely Jazz and our customers, employees, and communities who suffer in the process.

To give you a measure of this, if you look at Jazz today versus what it was three years ago, you will see that our revenue has decreased by close to 50% in the last three years. We formerly operated 137 aircraft and now are down to 93. We served 91 destinations and now are down to 70. We had 1,100 flight attendants, and with the latest announced layoffs we will have 500 flight attendants. We've been the brunt of a lot of these policies gone wrong.

On the enactment of the VIA Rail Canada Act, one of Jazz's greatest competitors is VIA Rail. The proposed amendments to this bill as they pertain to VIA Rail encourage one mode of transportation over another through government subsidies. I applaud the efforts of this committee in its examination and subsequent challenge of VIA's spending estimates. The proposed future plan for VIA has incredible implications for our short-haul service in Canada. All efforts must be made to work toward a level playing field for all modes.

I'd like to speak for a moment on the Jazz restructuring in the future. Much work needs to be done to transform the Canadian transportation industry to ensure safe, viable, and competitive services. As part of the Air Canada family, Jazz is working hard to restructure the company through CCAA and has a plan to return the organization to profitability. Along with our recently achieved labour agreements, which was a significant achievement, our plan is also contingent upon two important components: the addition of new-generation regional jet aircraft and the ability to conduct our business affairs with as much freedom and flexibility as our competitors and our shifting customer demand requires. The Canadian government can help us on both fronts without additional costs to airlines or taxpayers.

It is our intention to introduce 25 to 30 regional jets at 75 seats or less as we emerge from bankruptcy protection. We will seek the most competitive proposals from aircraft manufacturers, even though our preference would be to buy Canadian, as we must examine the best financing options that are available.

Changes must be made with respect to the financing programs and loan guarantees provided by the Export Development Canada to non-Canadian buyers of Bombardier regional jets. No such financing is available for Canadian airlines.

These provisions significantly disadvantage Canadian airline operators from buying Canadian-made aircraft. It makes absolutely no sense that a non-Canadian air carrier can buy a Canadian-built aircraft for effectively 20% less than a Canadian carrier can. Many of these buyers are based in the U.S. and they compete head to head with Jazz on transborder routes. We must explore all options, including the Brazilian-made Embraer aircraft, to fulfill our restructuring plans. Of course, as I mentioned, our preference would be to find a Canadian solution.

º (1645)

Second, Jazz's restructuring plan is contingent upon our ability to manage our business affairs with an understanding of our current operating and regulatory environment. In other words, we're assuming that there will not be significant regulatory changes or additional costs imposed on our industry over the next 12 to 18 months.

I would like to say that most recently the Nav Canada increases in the case of Jazz are well over 8% and almost 9%. On top of that, we've just had announcements of increased AIFs at Toronto's Pearson airport for both originating and connecting passengers, so we're still heading in the wrong direction with all these cost increases.

An hon. member: Move to Hamilton.

An hon. member: London.

Mr. Joseph Randell: We'll consider that.

So at this time our focus is solely on the safety of our operation and our restructuring, and I respectfully request that the proposed amendments in this bill be rejected until our industry stabilizes and we are able to reassess and determine if such legislation is required. To move ahead with a bill like this at this time, with this tinkering, doesn't make sense in the restructuring of our industry.

In closing, I'd like to commend this committee, though, for the serious attention it has given to the issues we face. I strongly support the recommendations made within your second report, entitled “An Industry in Crisis: Safeguarding the Viability of the Canadian Airline Industry”. There is no question that the recommendations to establish a multi-modal transportation security authority, to eliminate the air travellers security charge, to suspend federal rent payments at airports for a two-year period, and to reduce federal aviation fuel excise taxes by 50% would contribute significantly to the recovery and the future viability of this industry.

Merci. Thank you for the opportunity. I look forward to your questions.

º (1650)

The Vice-Chair (Mr. John Cannis): Thank you very much.

Mr. Gaspar, is there something you would like to add?

Mr. Fred Gaspar (Manager, Government Relations, Air Canada Jazz): No.

The Vice-Chair (Mr. John Cannis): We're going to start our questioning with Mr. Fontana, for one minute.

Mr. Joe Fontana: Thank you, Mr. Chairman.

Welcome, Joe and Fred. I am a great supporter of Jazz, of course, because London, Ontario, is the place where Air Ontario began. I think you do a fine job, considering the shackles that you have around your feet, neck, and arms, Joe.

I have a couple of questions. I have great sympathy for what you're saying in regard to the CTA amendments as they relate to the airline industry in terms of where you're coming from. I think this committee has to look seriously at it. The fact is that the blueprint goes a long way to saying how we can look at reducing costs, especially during the crisis situation or time we're in. I think there is, at least on my part, great sympathy for all the areas you've touched on.

I won't talk about VIA because I think people want competition. People do want choice. We just had the rail people talking about it. I want to talk about Jazz and I want to talk a little about the future, because I think that's what's very important.

You talked a little about your revenues being down 50%. We might understand why, obviously with what's happening and less service, less planes, and so on, but you seem to blame the government for all of that, as opposed to, in my opinion, what I said before: having a lot of shackles placed on you by your parent company, Air Canada. Essentially, in my opinion, that has served to de-market your great airline and service to our communities. Yes, there are competitive factors, but let's face it. I think Air Canada has not served you very well. You may or may not be able to answer that.

Second, I have a question. Is Jazz still for sale?

Third, I'm a little confused as to what was negotiated on the weekend, because I like what in fact Air Canada may or may not want to do, especially if it wants to grow Jazz again, if that's what I understand, by giving you more RJs. We've been pushing for you for a long time for that. Hopefully that will let you become an even better service, but I'm trying to understand what the court said. Now the court has said on the scope clause that both Air Canada pilots and Jazz pilots can essentially fly the same planes. I'm just trying to understand how this is going to work and whether or not you can comment on this, because the scope clause has always been a real detriment to regional airlines, especially Jazz. I'm just wondering what that all means.

Mr. Joseph Randell: Those are tough questions but good questions.

The Air Canada relationship with these regional carriers goes back quite a number of years. The relationship is a good one in terms of the connectivity, I think, in terms of it being part of a large network. There is no question about that.

In terms of being within the corporation, there are many priorities with respect to where you spend your money, especially when you don't have very much. While there are some things, for instance, along the way that may have made sense from a Jazz point of view, with Jazz being part of the larger corporation there are trade-offs that have to be made, and I accept that. Still, the benefits that have been derived from the Air Canada relationship are very good for Jazz in terms of the network, the access,and the flow of customers. No matter what scenario, I think the relationship between Air Canada and Jazz is a very important one.

As for the nature of that relationship and exactly what that relationship is, there are many different models and we had been moving toward changing and improving that relationship, we felt, when CCAA came upon us. As a matter of fact, we were looking at changing the relationship and it was fairly clear that there was an announced interest and intention on the part of Air Canada to sell a part of Jazz going forward, as other large airlines have sold some of their regional carriers south of the border. Frankly, I believe that with the right business arrangement it is a very positive thing to have happen, and something which I would very much support in terms of it being good for Air Canada, good for Jazz, and good for all stakeholders to have that happen.

With respect to the whole issue of the scope clause, I think it's been fairly clear for the last number of years that Jazz and its employees have always felt they could do more in terms of lowering the cost of air transportation and in terms of providing services with regional jet airplanes and being freer in terms of the type of equipment they operate. We at Jazz feel that through this restructuring of Air Canada through the CCAA process, and actually along the way, the view of improving and increasing Jazz's role within Air Canada has been supported by Air Canada management, frankly. Through this restructuring, we feel it is a great opportunity for us to make some strides in that area. I think Jazz would benefit and I think the communities we serve would benefit through increased and improved services, especially with the addition of the regional jets, as I've mentioned.

But going into this, all of these groups have collective agreements, and some of the challenges that have been there in the CCAA processes are unprecedented. It is unclear through legislation the impact that CCAA has on collective agreements and in fact whether the courts even have the power to change collective agreements. Notwithstanding that, we at Jazz have worked very closely with our unions in putting together a plan for the restructuring of Jazz. We think it's a very positive plan. It addresses a lot of the issues in terms of reducing the costs of the operation.

We've had great cooperation from our unions. We've put forward a proposal and actually agreed with our unions on it whereby we would provide the services of aircraft of up to 75-seat jets. That is in conflict with the arrangement Air Canada has with its own pilot group and a dispute mechanism has been outlined as a result of that.

º (1655)

Mr. Joe Fontana: You've had some of the finest, I think. You're absolutely right. I think it's been demonstrated over the past number of years that the Air Line Pilots Association for Jazz and the flight attendants as well have been very responsible and are prepared to work with the company to make sure that Jazz is still not only viable but has a future. I applaud you and your employees. I think you'll go a long way.

Mr. Joseph Randell: Despite the difficulties we face with people having to take things like wage rollbacks, etc., I don't think our relationship with our unions has ever been better.

» (1700)

Mr. Joe Fontana: Thank you.

The Vice-Chair (Mr. John Cannis): Thank you, Mr. Fontana.

Mr. Gouk.

Mr. Jim Gouk: Thank you, Mr. Randell. It certainly is a breath of fresh air hearing you and talking with you as compared to our great friend Mr. Milton. It's a different sort of discussion.

An hon. member: He comes from Atlantic Canada--

Mr. Jim Gouk: Yes.

These are in no particular order. Obviously over time the airlines have tried to develop a cushion against sudden problems popping up. With all the things that have befallen them, with 9/11 and Iraq and SARS, you've just about run out of ability to weather further storms.

Mr. Joseph Randell: We're wondering when the locusts are coming.

Mr. Jim Gouk: Yes. They've already been nibbling, from what I understand. What impact would it have on you if there were a disruption in the air traffic control system at this time?

Mr. Joseph Randell: The locusts are probably here. To have a disruption would be very difficult, because we already face some very significant cashflow issues, as people are aware. That's a matter of the record. Frankly, this industry can take very little more, if any. It's going to be very difficult. The other thing, as I mentioned, is that a lot of the solutions of the service providers out there for our business are, “Oh, volumes are down? We'll just put the prices up to compensate for that”.

We're in a spiralling situation here. You can tell by the reduction in the size of Jazz and the reduction in the short-haul traffic these last three years that it is a spiralling-down situation. Just three years ago, from Halifax to Saint John, New Brunswick, between us and our competitor there were 13 flights a day. Now there are two flights a day and we're struggling with the economics of that. That's an example of the impact on short-haul travel.

Mr. Jim Gouk: When you talk in terms of what happened to you in Newfoundland and Labrador, what is your capability and what is the practicality, if you will, of contracting with a different carrier on a co-chair type of basis to have them carry passengers to connect with Air Canada or Jazz at other locations serviced from there?

Mr. Joseph Randell: We do have those sorts of relationships. Originally Jazz managed those relationships for and on behalf of Air Canada, but now they are directly with Air Canada. There are several relationships, including those with Air Labrador, Air Georgian, and Central Mountain Air, etc., whereby these carriers are contracted to provide connecting services.

Mr. Jim Gouk: Would I be correct to say that inside of Canada for domestic service the Montreal-Ottawa-Toronto triangle is probably one of the best routes for Air Canada to be flying, that it is potentially your best revenue generator?

Mr. Joseph Randell: Historically it probably has been. I can't comment on that, because those are really Air Canada routes and are flown primarily by Air Canada in the triangle. Jazz provides services from Ottawa to Toronto City Centre Airport, but the other services are provided by Air Canada.

Mr. Jim Gouk: Under this new agreement, though, of course there might be a change in that.

Mr. Joseph Randell: There may be.

Mr. Jim Gouk: If VIA were funded to put in a high-speed rail corridor between Toronto and Montreal, would that have some impact on you?

Mr. Joseph Randell: It will have a very great impact and I'm sure it will have an impact all the way, not only within the triangle but all the way from Quebec City to Windsor, at a minimum, which incorporates a lot of cities we serve. For example, we serve Quebec-Toronto and Ottawa-London and cities of that nature, so within that whole corridor I would say there would be a significant impact.

Mr. Jim Gouk: Okay.

We've spent quite a bit of time at this committee looking at a variety of things we hoped would be able to help the airline industry, and we made some recommendations, as you noted. Beyond that, within CATSA, you operate primarily from smaller airports, and I've raised the issue that it seems kind of absurd to me to be putting in incredibly expensive, sophisticated equipment at the major airports and then boarding passengers at small airports with less sophisticated equipment and flying them around that more sophisticated equipment. Then, of course, at small airports you're subject to constraints for size in terms of being able to do the full security check on people.

It must create, I would assume, more hesitancy on the part of your customers to fly, particularly in the short haul, when they say, I have to get to the airport so much earlier now; I have to go through all this hassle. I can't take this, I can't take that. I think I'll just drive.

Do you believe that is having an impact on your ridership, particularly in terms of short-haul, smaller airports and regional airport operations?

» (1705)

Mr. Joseph Randell: Very definitely. The hassle factor at airports has a very direct impact on demand on short-haul services, there is no question.

Mr. Jim Gouk: Let us look at the possibility of eliminating security at airports that had only turbo prop service. Passengers flown from there would fly into a non-secure portion of a terminal building. For example, if you are aware of Calgary, a small little hallway of 100 feet would put you right out into the baggage area without ever being in the secure part of the terminal. If that could be eliminated, along with all the associated costs, the backup of your passengers for going through security checks and everything, would that be an asset to the operation of your airline?

Mr. Joseph Randell: It would be an asset. However, we would have to consider, of course, and ensure that it's safe, that the security checks are done appropriately for the operation.

There is another issue derived from that. We schedule flights so that they make quick and easy connections. Generally speaking, when you go through security, at least in Canada, you only have to go through once, you don't have to go through multiple times, whereas if we had a situation where, for instance, you were flying into Toronto, you went through security, and then you had to go through security yet again, in Toronto--

Mr. Jim Gouk: I'm suggesting you wouldn't go through security until you got to Toronto if you were connecting.

Mr. Joseph Randell: Oh, at all. That's the whole debate about whether these airplanes should be secure or not. Our approach has been that for the benefit of our customers and the travelling public, we have to secure our aircraft.

Mr. Jim Gouk: Of course, we're talking in terms of a Beech 100 or a Dash 8. First of all, they are not much of a target for hijacking purposes or for terrorist purposes. Second, they are the kind of aircraft that you can charter in any case. Then you would have full access to that without any scrutiny whatsoever.

Mr. Joseph Randell: I believe there are certain regulations for charters as well with respect to security now. I don't think you are able to charter an aircraft and avoid the whole issue of security. They are fairly stringent in that regard, as well.

It's a very interesting question. Given the shock of 9/11 and everything that happened, we certainly have taken the conservative route, whether it has gone too far in terms of cost and infrastructure or gone beyond what is sensible. It is something that should be looked at as the fallout happens here. We certainly believe in ensuring that our flights and passengers are protected through the security system.

Mr. Jim Gouk: Are there a number of regulatory changes that you believe would help the industry as a whole? For example, I understand the airline wants to make interventions with regard to the number of passengers that a flight attendant can deal with in terms of the regulation.

Are there a number of different regulatory changes that could be considered that would enhance the viability of the operation of airlines?

Mr. Joseph Randell: I think the changes that were recommended by this committee through the report I mentioned earlier are the key areas where we need support. I mentioned some of the regulatory things with respect to Bill C-26, obviously, but our greatest pressure is on the cost side and getting customers back in the air.

The airfares on some of these routes are so low. It's when people put on all these add-ons and charges that they say they can't afford to take that. They don't even pay any attention to airfares anymore. They just say, and assume, that with the hassle factor, all the add-on charges, etc., that it is not even worth considering flying. Therefore, they say that they're going to take the car and not have to worry about any of that. It's very simple.

I look at these airfares and I've been in the business for years. You can travel for $104 one way from St. John's, Newfoundland, to Toronto, which is a three-and-a-half-hour flight. I question whether it's sustainable at these levels. Still, the add-ons are all there. I've seen the bottom lines from the airports. I've seen some of the airports and the profits they are producing. It's not right. There's something wrong about this model that just doesn't make sense.

» (1710)

The Vice-Chair (Mr. John Cannis): Thank you.

Monsieur Roy

[Translation]

Mr. Jean-Yves Roy: Thank you, Mr. Chairman. I was listening to your answer. I'll give you time to put on your earpiece.

In your statement, there is a remark that I find difficult to accept. On page 2 of your statement you say the following:

Again, we need to let market forces and the principles of free enterprise reign in Canada if we are to have a sustainable and viable air transportation industry.

In the area I come from, there were two air carriers before September 11. The market was totally free. There was such fierce competition that today no one is left.

We used to be served by Inter Canadian and Air Canada. Competition was so fierce that Inter Canadian disappeared, as you know because you were the ones who bought it. That is free market at work. I then came to the realization that because of the deregulation of the air transport system we no longer have any air service in my region.

There is one carrier left today, Air Canada and far fewer flights. We are told that the route is not profitable. It's hard for me to believe because the airplane is always full. There's even overbooking and people are not all able to get onto the plane. Still they say that the route is not profitable and we may find ourselves without air service in my region! All of this is because of the free market. It's strikes me as illogical.

You also talked about the price of a ticket. I can understand but I'd like you to give us a clear explanation and to provide us with the actual cost of the ticket before taxes and the various fees that are added on. How much would it actually cost to buy a ticket? You gave us the precise figure for St. John's, Newfoundland.

I can't understand how you can state that this would promote air transport. In our area, deregulation had exactly the opposite effect, that is it killed air transport in our region.

[English]

Mr. Joseph Randell: First, the problems in Quebec go back far before deregulation. Quebec Air, under a regulated environment, wasn't a viable operation. The whole issue of the air services in Quebec and the economic issues around the services in Quebec didn't arise with deregulation. They were there long before this. I worked in the industry prior to deregulation. The whole issue of the economics of air transportation in Quebec...as a matter of fact, there were millions of dollars in subsidy paid to Quebec Air to provide services to Îles de la Madeleine and to the North Shore of Quebec. This was all prior to regulation.

These days, I know of no subsidies that are being paid by the government in Quebec. InterCanadian was not part of the buyout with Air Canada. InterCanadian went out of business and filed for bankruptcy prior to the purchase of Canadian Airlines by Air Canada. It was Air Alliance that had the financial difficulties in Quebec, and not InterCanadian.

When Air Alliance and Air Nova merged, we realized that we either had to do something in Quebec to become more competitive, or we would not be there. We did do things. We increased a number of flights. We went after the market more aggressively in terms of advertising and promotion than previously was there. Unfortunately, it caused problems for InterCanadian and InterCanadian expanded in Atlantic Canada. It took on Air Nova as well at that particular time. I suggest that there were some very wrong business decisions that were made by InterCanadian that caused the demise of InterCanadian that happened before Canadian Airlines was purchased by Air Canada.

With respect to the fares in Quebec, we have brought down airfares very substantially through the use of the net fares. The fares that are charged in the province today are far lower than the fares that were charged when both Air Nova and InterCanadian flew those routes. Even though there was competition, the fares were far higher then than they are now. As well, when you look at Quebec, you say you can't get on the flights. Our load factor--in other words, percentage of seats occupied--in the province of Quebec is approximately 60%. While there are flights that are full, many flights that are not full. People generally look and say that they travelled the other day on the 5 o'clock flight, and it was oversold. I'll tell you, if our 5 o'clock flight is not booked, we're in big trouble, because the 10 o'clock flight has a lot of empty seats.

In terms of the economics, there is competition in Quebec. Quebec Air Express has just started off by flying from Montreal to Quebec, to Baie Comeau, and up the North Shore, etc., and announced intentions to compete aggressively with Air Canada Jazz. By all means, people are free to compete and they will be there. I think I saw it in the private sector when we started Air Nova; people will rise to the opportunity and there will be competition.

» (1715)

[Translation]

Mr. Jean-Yves Roy: You have not convinced me. Of course we can go back to the time of Québécair and note that it was subsidized but the fact remains that there was still competition and it did not get us anywhere.

Of course there were the events of September 11, 2001 along with other factors. Let us take the example of the bus transportation system. When a profitable line is given to a bus carrier, the carrier is given the possibility of providing a service on a less well-paying line. Would you like to see something similar in the air transport sector?

[English]

Mr. Joseph Randell: Cross-subsidization? No.

I think the right approach in our industry is the approach that is taken in the United States with respect to the provision of essential air services. In this country we went from a subsidized transportation system to a system where there is no ability to support any carriers in the provision of services to communities that no one is interested in providing because they are uneconomic.

In the U.S., millions of dollars are put into supporting communities. These are put out for bids and the most cost-effective carrier provides the service. Otherwise, it becomes very complicated and we're back to a regulated environment. You say there was competition. When it was regulated, Quebecair was there, and there was no competition for Quebecair. Quebecair had the monopoly.

Mr. Jean-Yves Roy: Merci.

The Vice-Chair (Mr. John Cannis): Thank you very much.

Mrs. Desjarlais.

Mrs. Bev Desjarlais: There has been a thought in the last number of years under deregulation that anyone who is using a specific transportation system--and let's take the airline industry--should pay their own way. The NavCan fees came into place, the airport authorities came into place, and it brought along the airport improvement fees and a variety of other ones. You've indicated that you support the committee's recommendation that we should get rid of some of these things because of the effect they're having on the industry. Obviously I agreed with that; I supported the committee's recommendation.

I want to ask you, do you believe air travellers should be responsible for paying for the NavCan services that are provided in order for the industry to operate? Do you think they should be paying for the airports that they're utilizing, etc.?

Mr. Joseph Randell: That's a very good question.

I think we should pay our fair share. By fair share I mean, for instance, in the case of Nav Canada, Nav Canada provides all of these navigational services for the general aviation industry in this country, all of these air traffic towers, etc. For the general aviation side, the private consumer, there is no charge. You know who pays for that? The airlines pay for that.

Mrs. Bev Desjarlais: There's no charge to any private services for Nav Canada?

Mr. Joseph Randell: In terms of the general aviation support services that are there, Nav Canada provides many, many services for which it is not compensated in terms of the cost of providing that service.

Mrs. Bev Desjarlais: Just so we can get clarification, is it possible for the committee to research this? I'm of the understanding that Nav Canada charges for pretty much everything it does for anybody at this point in time.

» (1720)

Mr. Joseph Randell: The issue becomes how much is charged for what service. You may pay $5, but if the true cost of it is $20, then there is an issue.

With regard to airports, the whole issue of communities taking responsibility for airports and what's happened under the airport tax makes a lot of sense in a number of ways. Where it doesn't make sense is that in some cases the governance is not, I don't think, holding some of the people that are making the decisions accountable for their decisions. That's one part of it.

The other part of it is I believe the federal government should have been just very happy to get out of the airport business without having to take hundreds of millions of dollars in airport rent, because it was a liability to the government to have to provide those services. If you sell any business and you get out of the business and you're getting out of a loss, it's better to give it away. Then when you say, okay, we're going to devolve these airports and at the same time we're going to take hundreds of millions of dollars back in airport rents, I fail to see how that makes any sense.

So it isn't, I don't think, the core policy that's wrong; it's some aspects of what has happened that have created these problems.

Mrs. Bev Desjarlais: With that comment coming from you, and your statement which Mr. Roy has also mentioned, that it is a contradiction to the principles of free marketplace and overall objective of reducing the overheads of the industry, that's your feeling from the industry side. From the side of government, which people want to see act like a business, isn't it a contradiction to criticize a government that's making some rent from those properties that belong to the taxpayers of Canada? Under your free market principle, which you so readily support, how can it seem wrong that the government, for the taxpayers of Canada, is ensuring that some dollars come in?

Mr. Fred Gaspar: If I could add one thing to address that point directly, Mrs. Desjarlais, I always like to use the landlord example. To your point that if the government was behaving like a business--

Mrs. Bev Desjarlais: You don't get to use the landlord one here. I'm referring to the free market principle, where you're going to make a buck.

Mr. Joseph Randell: First of all, we have no choice, if we serve Calgary, but to go to that airport. So it's not a free market. Who has the monopoly here? It's the airports that provide this. That's who has the monopoly.

Mrs. Bev Desjarlais: I think everybody around this table knows that I don't necessarily support the total concept of a free marketplace system in the transportation industry in Canada, but I'm not the one who's defending it on one hand and saying we shouldn't get charged these rents and then criticizing the fact that dollars would be recommended for VIA Rail. It's either good for both or not good for either.

Mr. Joseph Randell: The dollars recommended for VIA Rail, how does that relate to free enterprise?

Mrs. Bev Desjarlais: If you suggest that Nav Canada shouldn't be able to charge what they're charging, that somehow that should be picked up from somewhere else, or that the airport authorities shouldn't be able to charge what they're charging, that should be picked up by somebody else but somehow VIA Rail shouldn't get any subsidy, that's the issue I have. I don't think you can have it both ways.

Mr. Joseph Randell: I'm not asking for any subsidy.

Mrs. Bev Desjarlais: As a committee member, I want to see a transportation system overall that benefits all Canadians. Quite frankly, and other committee members know this, I am very annoyed at hearing this complete criticism of subsidies for VIA Rail, or the fact that we've got to have a free marketplace system, but somehow when it affects you negatively, in the same way as it has affected Canadians negatively for a number of years, then of course we can't have it all; we have to have someone come in and help us out.

I agreed with that report; the committee knows this. But I have to admit, when I saw your notation about VIA Rail, I thought, you can stuff that one, guys, I'm sorry.

Mr. Joseph Randell: I just want to make something absolutely clear. I have not anywhere, anytime, looked for subsidy in terms of our business, absolutely nowhere. All I'm saying is that there needs to be some fairness here in terms of how these policies are applied and how these charges are applied.

Mrs. Bev Desjarlais: You're suggesting that Nav Canada is charging increased rates that they shouldn't be charging to the airline industry?

Mr. Joseph Randell: I believe there are some issues with respect to Nav Canada that need to be looked at in terms of the model under which it was put in place.

Mrs. Bev Desjarlais: That's all for now. Thank you.

The Vice-Chair (Mr. John Cannis): Thank you, Bev.

Ms. Frulla.

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Ms. Liza Frulla: On Air Canada's restructuring, I heard Jean-Yves saying it is hard to serve all communities within Quebec, and it must be the same thing within Canada. Shouldn't Air Canada just concentrate on the major and international routes and let private competition and the others serve those far-away communities? You have pressure, being Air Canada; you have more social obligation than perhaps another company. Everybody is talking about WestJet, for example, and they're saying that they must do things right.

Mr. Joseph Randell: First of all, while Air Canada Jazz is a part of Air Canada, it is a separate company with its own employees, with its own unions, with its own stakeholders. If Air Canada were to pursue what you're saying, as long as Jazz is a part of Air Canada that would mean there would be no Jazz, because our business in Jazz is only to provide the short-haul services.

We operate a fleet of 73 Dash 8s on very short routes, small communities, etc., and we have a fleet of regional jets that we want to increase. That is Jazz's business. If you say Air Canada shouldn't do that, either it would eliminate Jazz or Jazz would have to become separate from Air Canada.

Ms. Liza Frulla: Become private, yes. Is that viable?

We're just asking questions. Seeing what's happening to Air Canada, being very disturbed and sorry about it, we're just asking ourselves why Air Canada doesn't concentrate, as I said, and Jazz could be a private company like WestJet or whatever. Shouldn't that be considered?

Mr. Joseph Randell: I guess that's a valid question.

In terms of Jazz, Jazz is a business unto itself. We're looking to make Jazz a viable business unto itself through this restructuring. The relationship that exists with Air Canada is an important one for customers and communities because of the connecting, etc.

Our focus is on Jazz. Our role in life is to provide short- and medium-haul services using smaller aircraft. That is our niche. That's what we're really trying to make work, and we believe it's important to the country that it does work.

Ms. Liza Frulla: You talk about short distances, and I think that's one of your major problems, that sometimes it's not profitable. That's what you were saying. Is it possible to foresee a day when it is going to be profitable for airlines so people will be well served?

I have the same comment as Bev. We felt very uncomfortable in giving more money to VIA Rail, seeing what was going on with the airlines and whatever. I think we did our job here on VIA Rail, but VIA Rail, being a train, can also compensate for what the airline doesn't do. Certainly we have to serve those people and those communities even if they are far away.

Mr. Joseph Randell: I think that on the shorter distances, obviously between Montreal and Ottawa, rail makes a lot of sense. It's difficult to compete on a route of that nature and that short distance. It is one of the reasons, for instance, we are interested in operating more regional jets. Our average route length has been generally around 240 miles, and we would look to increase that because some of the markets have virtually disappeared. They have disappeared, but a lot of it is that people have gone to their cars as well, because there has been an improvement in road networks in a number of areas.

I'll use an Atlantic Canada example again, because that's where I live. If you go to Fredericton, you can drive on a four-lane highway from Halifax within five hours. A number of years ago, it probably would have taken seven hours on a very difficult highway.

For those reasons the traffic on the short-haul routes has decreased as well. There are a number of reasons, but our focus is primarily on routes that are going to be probably 250-plus miles in terms of distance.

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Ms. Liza Frulla: There's only one thing. You're saying also in your proposal that changes must be made with respect to loan guarantees by Export Development Canada. saying that in the United States, for example, they buy jets at 20% less than a Canadian carrier does. Is there pressure made? Do you see any? This is a very viable demand.

Mr. Joseph Randell: We have had numerous conversations with a number of departments and with Bombardier as well to point out this issue.

There are two issues in the U.S. that allow U.S. carriers to effectively lower their costs of these jets. One is the EDC financing that is provided, which is not available to Canadian carriers. The second is that in the U.S. they still have tax leverage leases, which allows the effective cost to be reduced through third-party leases. That mechanism was eliminated in Canada in the early 1980s.

A combination of those two things makes our monthly payments on these airplanes over 20% higher, with the same purchase price, than a U.S. carrier. We're competing against these carriers across the border. Of course it means more expensive services for Canadian consumers.

The Vice-Chair (Mr. John Cannis): Mr. Keyes.

Mr. Stan Keyes: Thanks, Mr. Chairman.

Joseph Randell, thank you for your presentation to the committee.

I have to tell you, there are times I really feel for the airline industry in this country. I don't know how the hell they stay alive in this country. Aside from all the obvious problems that the industry went through with the security concerns, and short of mad cow, just about every other thing in the newspapers today has affected the airline industry. Add to that, from the government's point of view, all the issues that the airline industry has to be involved in, everything from food inspection to the environment, to all the different departments that come on, and then layer all these things independent of one another onto the industry.

There is no real coordinating body that takes all these issues and, instead of layering them on, says, “All right, it's coming through me”, to establish all these different charges. In that way we could understand or get a better idea anyway of the difficulties of the industry when we do start layering on. We must work in some coordinated fashion when it comes to government and the need to do what it does and the method by which it's done.

That brings me to my question. You spoke of Jazz pulling out of Newfoundland and Labrador because the Competition Bureau classified you as a dominant carrier. Why did they do that?

Mr. Joseph Randell: I think they were trying to protect and listen to the protestations of the carriers that were trying to enter the market.

Mr. Stan Keyes: Come on now, Joe, protestations and protests with signs, or whatever you want, aren't going to have the Competition Bureau making a decision to say that you are classified as a dominant carrier. Is Jazz cross-subsidized in any way by Air Canada?

Mr. Joseph Randell: No.

Mr. Stan Keyes: So if Jazz decided to fly into a community in Whereverville, other than a major urban centre, and it could only put x number of people in the seats, and obviously it would be at a loss to Jazz to do such a thing, as a wholly owned subsidy of Air Canada, would there be no protestations from Air Canada, as the company that owns you, to say, whoa, you can't do that because you're costing us money in an attempt to get market share?

» (1735)

Mr. Joseph Randell: No, I think, generally speaking, Air Canada would support our continuing to lose in some of these places because of the fee contribution that Air Canada derives from those operations.

Mr. Stan Keyes: The fee contribution it derives. What do you mean by that?

Mr. Joseph Randell: Well, we would connect passengers to the Air Canada mainline operation. If we don't operate that service, then those are passengers who are lost to Air Canada.

Mr. Stan Keyes: Joseph, you know it's no secret to many of us and to industry watchers, etc., what would happen to a small airline flying in and out of Newfoundland and Labrador if it were hanging on by its fingernails because passenger loads were tight, etc. Along would come Jazz saying, hey, we're going to go into that market too because we think it's a viable market for Jazz and for Air Canada. Yes, they know they will take the hit, that they will not have the passenger load that, say, a WestJet would have going into that particular community, but they are okay with that because they have a big company watching over them. They will go for market share instead of profitability, even though they would see that there was probably no justification for two airlines flying out of that particular community.

Mr. Joseph Randell: I can see how you would feel that; however, I think the facts and what has happened probably repudiate that.

Mr. Stan Keyes: They certainly do. You had to pull out.

Mr. Joseph Randell: We pulled out not only where we were forced to pull out because of reasons like that, but there were other things. Air Canada had certain service undertakings that we as Jazz had to provide to continue to service a number of communities at a loss, because of the undertakings that Air Canada entered into as a result of the acquisition of Canadian Airlines. There were a number of services that we sustained for a couple of years at a loss because of that undertaking. There were other services that we just pulled out of because they just didn't make sense anymore.

Mr. Stan Keyes: Who was the undertaking with? Who made the promise that you had to keep flying into an area at a loss? Who was that undertaking with?

Mr. Joseph Randell: The undertaking was an Air Canada undertaking, of which Jazz was a part, and there were many other undertakings there as well related to no layoffs, no voluntary transfers, and on and on. There was a whole list of undertakings that Air Canada had and committed to as a result of the merger of the two companies.

Mr. Stan Keyes: In other words, Air Canada knew going into the game of taking over Canadian Airlines that it would have to do this type of activity. But I remember, sitting as transport chair, that it was okay; it was going to be able to handle this. It was going to be absorbed. We're going to do what we can and we are going to be successful at the game. And, Gerry Schwartz, you can't do it; we can handle it.

It didn't come out that way.

Mr. Joseph Randell: I can't comment on that other than that a lot of extraneous things have happened within this industry in the last couple of years, especially since September 11, that I don't think anyone could possibly--

Mr. Stan Keyes: Well, we were talking Competition Bureau, Joseph, here with Air Canada long before 9/11 and long before the security challenges came to the fore. You know that. You probably were monitoring it.

However, let's go over to the airport side for a second. And I sympathize somewhat with what Ms. Desjarlais was talking about because, as you know, this committee worked hard to commercialize the airports in this country.

Yes, you're absolutely right, Joe, we realized as a committee that there were many airports in this country that we really didn't need to own anymore as a country. As a result, there was devolution of many airports, except for the 26 that we retained under NAP, and that was for reasons of importance to the country, etc.

At the same time, we have to be responsible back to the taxpayers who own all this property and who own the infrastructure that is called an airport at any particular location. So we compromised. We said that we were still going to own it, that we were not going to give it away. As you say, if it's a problem like this, why don't you just give the damn thing away and be done with it and then you don't have to worry about the loss? Well, it's the infrastructure and the property for which we're the trustees for the taxpayers, so we're going to hold on to it.

Then we said that since we were not very good at managing these things, we were going to lease them back. We'll own them and we'll lease them back.

I think the airport people are doing a hell of a good job trying to run these airports, keep them up to snuff and up to the demands of the airline industry and all the rest that they have to do in order to make things happen.

But you're really in a squeeze now, aren't you? I'm thinking of Toronto, for example--the profitability that Toronto is showing on its balance sheets, and then, of course, off it goes and builds a Taj Mahal. It's bad timing for that, isn't it? It has a huge airport terminal now and we have an airline industry that's hanging on by its fingernails. I think Air Canada is getting a deal from the GTAA to move into the new terminal for free because the GTAA is going to pick up the cost of doing that.

This is another scream of the private sector--don't mistake me for a NDPer here, Mr. Chairman--but you've got the scream of the private sector, “Let us do what we do best and we'll do just fine”.

So an airport like Toronto is commercialized and it's in the business of running an airport. You have the airline that's private sector, and it's in the business of moving people and airplanes. But the private sector airport and the private sector airline can't get their act together enough to understand that we have to keep this industry alive in order to keep each other alive, and the airports make a profit and the airlines come to us complaining about the profitability at the airport. Then they say, you have to do more for us in taxes because we can't afford to pay these rents at the airport, and all the other problems that come along with the expenses.

I'm rambling a bit here, but there's a bit of a frustration from our point of view.

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Mr. Joseph Randell: I'm just familiar with the port side of things, and the frustration that I feel is the inconsistency of federal policy with respect to how the various modes are treated.

I did have the opportunity to sit on a port authority. I will tell you that the approach the federal government took on security risks and the recovering of costs on security from ports was totally different from and inconsistent with what was done in the airline business.

Mr. Stan Keyes: We're not disagreeing with you there. We even made a recommendation to that effect.

Mr. Joseph Randell: The approach that's been taken with ports in terms of how ports compensate the federal government in terms of a percentage of revenues is totally different from the hundreds of millions of dollars that are being paid out by airports in terms of rent.

This is where the governance is there. I think Toronto, as an example, is suffering. That's why the AIFs are going up. I will tell you that if you have to charge people an $8 connecting benefit to go through Pearson airport, which you don't have to pay to fly through Montreal, and you're a customer and you're looking at $16 on a return ticket, you are going to see diminished passengers going in there. But quite often, I don't think a lot of these people look at the total number of people going through these facilities and, consequently, have a smaller base, and they keep putting up the charges rather than saying they just need to make it more competitive and to be more responsive to customers.

Mr. Stan Keyes: Can I just leave the witnesses with this, then, Mr. Cannis?

Bill C-26 is the wrong bill addressing the wrong issues at the wrong time, according to you and Jazz. Here is what would be helpful for this committee if Bill C-26 progresses and we have to deal with it. I think it would be welcome to this committee to get from you and your airline, Jazz, what you consider to be constructive amendments to the bill's specifics, constructive amendments to the bill.

You have Fred Gaspar, a very important government relations guy with Air Canada. He could figure out all of this. Give us constructive amendments to the bill so we can rationalize changes to the bill in order to help the airline industry and its problems with airports and airport rents, etc., whatever we can do through this particular bill.

The Vice-Chair (Mr. John Cannis): I assume the response might possibly be that you could put another recommendation to the committee as to how we can do that, because we've heard from other witnesses as well, Mr. Randell, prior to you--I don't know if you were in the room--how they praised Bill C-26, and they made some adjustments and recommendations. I think what Mr. Keyes is really saying is that you can pinpoint certain things to look at.

An hon. member: And I think the airports people are doing a hell of a good job.

» (1745)

Mr. Joseph Randell: Okay. Mr. Chairman, I would also undertake to provide the committee...Air Canada already, aside from being forced, has interline arrangements with many carriers within this country. As a matter of fact, there are provisions, which again were there in the undertakings on Air Canada-Canadian Airlines with the provision on joint fares, with respect to the provision of access to the frequent flyer program. There are many carriers, our competitors for instance, that are part of the Aeroplan program. The provisions are being honoured and were part of the undertakings.

Therefore, I fail to see where all of these demands come from for joint fares, interlining fares, and access to frequent flyer programs. Where are all these requests coming from that have been denied and are leading to the requirement for legislation?

Mr. Stan Keyes: I'll agree with the witness, Mr. Chairman. There isn't a single airline owner out there that believes interlining is a good idea. If that's the case, and I haven't heard of a single airline that supports it, then it's not industry driven. But these are the kinds of amendments we need, Joe, and Fred knows what I'm talking about. We need the amendments to say, look, if you change this, this and this, it's going to help the industry. Let's help you, instead of just knocking the hell out of it.

Mr. Joseph Randell: We're clear on that. That's great. I appreciate your wanting us to go there.

The Vice-Chair (Mr. John Cannis): We'll go to Mr. Gouk.

Mr. Jim Gouk: Thank you, Mr. Chair. I just wanted to clear up a couple of points for the record for anybody who might actually take the time to read our minutes. With regard to the Nav Canada fees, which are 100% recoverable for Nav Canada, is it your contention that you're not looking for a subsidy, but rather, because some parts of the industry aren't paying the full cost, then other parts have to pick up the difference and you're in that latter category?

Mr. Joseph Randell: A fair allocation of costs is what we're looking for.

Mr. Jim Gouk: With regard to the airport fees you pay, I just want to clarify what you feel, and I happen to agree, if I'm reading you right. We have taken something that used to be a liability to government and used to cost hundreds of millions of dollars a year and set up an authority that has removed that liability for the government and has taken on responsibility for all the improvements that have been neglected for a lot of years. The airline industry is prepared to operate it as long as there's some constraint on what these airports build, which Mr. Keyes referred to, but you shouldn't, over and above that, have to dig into your pockets so the government can show a profit on what it used to lose money at without having done the necessary updates.

Mr. Joseph Randell: I agree. I find it ironic that there's such criticism of the transportation system when there are so many stakeholders taking profitability out of that system. It goes far beyond the cost of providing the service.

You're absolutely right. For years there was no investment in infrastructure in airports in this country. It was absolutely terrible. It was one of the main reasons why we as an industry supported Nav Canada. There was no mechanism to provide investment in air traffic control systems because it was all wrapped up in the federal budget, capital expenditure budget constraints. So in order to free up the business to get some investment, that's why as an industry we've been very supportive of this.

A lot of good things have happened out there in airports that are being paid for by consumers and by airlines, not by the government. But our concern is that in some cases it's gone just way too far, because, in the end, who are these bodies accountable to? How do we ensure that? When we get a notice from Calgary, as we did in January, that they're putting up all our fees by 9%, we can do absolutely nothing about it. But here's where the rubber hits the road: who's going to pay the ticket and who's going to pay the cost? If the consumer, the customer, isn't there, we just get squeezed in that sandwich, and that's exactly what's happened.

Mr. Jim Gouk: The worst of it is that as a result of a 9% increase you lose 9% of your customers, and the next thing you'll get is an 18% fee increase.

Mr. Joseph Randell: That's what's happening, because the response of all of these bodies is, oh, we don't have the volume anymore, so we have to put up the rates. I'll tell you, if we could do that and if our customers did that, we'd be fine, but our customers are saying, no, thank you, we're just not going and we're just not going to pay for it.

The Vice-Chair (Mr. John Cannis): Thank you, Jim.

As we close, I'd just like to add a comment and maybe ask quick question, predicated on what Mr. Keyes was saying.

Mr. Randell, you talked about the rents and the lease agreements between the government and the airport authorities. We've been around here 10 years or so in government. Let's go back to when these decisions were made. For anybody you want to lease to, if they don't feel they have a good business plan to generate revenue or meet their goals, they should never undertake to do it. It goes back to what Mr. Keyes was saying. From a formal business point of view, I would never undertake an assignment if I felt I was going to lose on it. When they undertook the lease agreements, I think they felt very confident about the numbers, which we all expected to go in a healthy way, given what we were all anticipating at that time, 10 years or so ago. I believe there was goodwill on all parts.

Nobody, of course, anticipated 9/11, Iraq, and SARS, and the list goes on. Unfortunately, they're with us and we have to deal with them. This is where I believe this committee, of the many committees I sit on, as I've found, indeed has a genuine interest in trying to work with all the stakeholders to come up with some solutions, to have some suggestions to make.

You said in your presentation, “When the numbers are down, let's put up the prices”. I know what you're driving at. I agree with you. I don't believe as much that the extra $10 or $15 added per ticket would prevent somebody who wants to go on vacation from going, not solely that. It could have an impact, but as these service charges were coming in, all these other things occurred and as a result the numbers started to drop.

You talked about the profits at the airport. I received a letter that was cc'd to GTA members, Mr. Klees, Minister of Transport, nominating agencies, and the CAC board of directors, etc. Mr. Turpen states, and I quote:

Given that there are limited opportunities to immediately increase general revenues, and the fact that the GTAA is prohibited from operating at a loss, we may have to resort to an immediate increase in aeronautical charges or Airport improvement fees, both of which would exacerbate the current downturn in air traffic. We have since September 11, 2001 been engaged in a constant effort to minimize expenses without doing violence to the airport development program which this community so desperately needs.

I find it hard to accept and I'll tell you why. Every member in this committee has heard...and I think our reports speak for themselves in trying to reduce, eliminate, etc., the various fees, the airport improvement taxes, the security fees, and what have you. When we're making such an effort, I find it hard to accept this type of statement, to accept that the GTAA--and maybe other airport authorities--has the fortitude to make this kind of statement. It's like on one side we're trying to fix it, but he says it's just trying to exacerbate it on the other side.

What's your comment on that? Are they are within their rights? Can they not adjust, just as we're trying to adjust and you're trying to adjust?

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Mr. Joseph Randell: This goes back to the comment I made earlier that there's something wrong with this set-up. Anywhere else, if the demand is down, you try to stimulate more business by lowering your prices. These institutions work in completely the opposite manner: demand is down, so put our prices up. The assumption is that they will have the passenger no matter what. That's not a valid assumption.

They are prohibited and they must watch their bottom line. As an example, I know that Nav Canada must be very concerned about its bottom line because of its credit rating and all the debt there, which was put in place when Nav Canada was set up.

I think this where the role of this committee, along with these institutions, is important in saying, okay, well, we are in a different environment here. What are we going to do about this? We have a joint problem. As for finger pointing and that sort of thing, I guess I've done my share of it here, but nevertheless, it's difficult when we're in the situation we're in, where we have all of these losses and we're fighting for our very survival and yet we see no change. As a matter of fact, I wake up every morning and wonder what's next in terms of what's going to impact our business and what added costs we're going to have to face.

I think this is where we need to look at this model. We do need relief in this business because our air transportation industry is in very poor shape. The United States has been more proactive. I can't say at all that I agree with everything the United States has done, but nevertheless they realize that something needs to be done because it's such an important part of the economic fabric of the country.

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The Vice-Chair (Mr. John Cannis): Thank you. I appreciate the comments and the input. I think one thing we'll forward to, as soon as you can provide them to the committee, are some suggestions following the exchange with Mr. Keyes with respect to Bill C-26 as we're reviewing it.

Thank you very much.

Mr. Joseph Randell: Thank you, Mr. Chairman.

The Vice-Chair (Mr. John Cannis): We're on to the next stage of our committee. I'd like to take this opportunity to welcome the Saskatchewan Association of Rural Municipalities. With us we have Mr. Jim Hallick,director, Arita McPherson, and two other people who are accompanying them. Welcome to the committee.

Jim, are you going to present?

Mr. Jim Hallick (Director, Saskatchewan Association of Rural Municipalities): Thank you, Mr. Chairman and members of the committee. Good afternoon. On behalf of the Saskatchewan Association of Rural Municipalities, I would like to thank you for the opportunity to speak to you this afternoon about the proposed changes to Bill C-26.

The last time SARM made a presentation to the committee, we did so by satellite hook-up, so we appreciate being here in person.

My name, as the chair has indicated, is Jim Hallick. I'm a director with the Saskatchewan Association of Rural Municipalities. With me today is our president, Mr. Neal Hardy, and the executive director, Mr. Ken Engel.

Transportation is an important issue to our members. We are the local road authorities responsible for approximately 161,000 kilometres of roads in our province, so any changes to the grain transportation legislation has a potential to affect them.

The majority of the SARM delegates are involved in primary agriculture and rely on the transportation system to get their grain to the export position.

There are some positive changes proposed in Bill C-26. For example, the level of service provisions was kept, and the substantial commercial harm test was removed. Also, the grain monitor and the revenue cap are being retained.

We do, however, have some concerns with the bill, and that's what we want to focus on today. Our concerns are related to the national transportation policy, the treatment of sidings in rural areas, final offer arbitration, running rights, competitive connective rates, and the statutory review period.

The current national transportation policy statement contains several important statements regarding competition. Competition is given an upfront recognition as being important to obtaining national transportation objectives. Bill C-26 removes this recognition, so competition is only mentioned along with other objectives in the national transportation policy.

Secondly, the proposed statement no longer makes reference to the role of transportation in maintaining the economic well-being and growth of Canada and its regions, and that the national transportation policy is a key to regional economic development. In Saskatchewan, exports contribute over $21 billion to our GDP, so it is clear that transportation is important to the economic well-being of our province of one million people.

Lastly, we are concerned about the new reference in the statement that the price paid by users of transportation services better reflect the full cost of services chosen. The cost recovery policy would place western Canada at a disadvantage because of a widely dispersed, small population and the reliance on the transportation system to get our products to market.

We recommend that the committee disregard the proposed policy statement in Bill C-26 and amend the existing policy statement to include a secure transportation system that respects the environment.

Another concern relates to sidings and related infrastructure. Bill C-26 contains provisions that recognize the importance of preserving and existing rail infrastructure--that is, railway sidings and spurs--in metropolitan areas, but it does not extend this to rail infrastructure in rural areas.

Sidings, switches, and related infrastructure are crucial for economic development in western Canada. For example, new or existing processing, manufacturing or other value-added industries could use the infrastructure to enhance their operations. Retaining this infrastructure also gives producers the opportunity to reduce the transportation and handling costs by using alternate loading facilities. Retaining sidings is also important to minimize road costs in rural municipalities. When we keep the grain on the rail, everyone benefits.

The bill proposes that a list of available sidings be kept in the western division, and that a 90-day notice be given before removing a siding. These steps are in the right direction, but they do not go far enough to protect sidings, switches, and related infrastructure in rural areas.

Our recommendation is that railway sidings, switches, and related infrastructure in rural areas should be treated the same as those in metropolitan areas.

Regarding the issue of final offer arbitration, we're very concerned about the proposed amendment to the FOA process for disputes under $750,000 that would require the arbitrator to consider whether a shipper has alternative, effective, adequate, and competitive means of transporting goods. During the Kroeger process, the majority of participants agreed that since Justice Estey made no reference to restricting access to FOAs, no restrictions should be included.

¼ (1800)

The intent of creating a shortened process for disputes under $750,000 was to minimize the time and expense of resolving a dispute. Railway carriers were the only ones at the Kroeger process that argued that access to competitive transportation should be included in the FOA process. FOA is considered a shipper protection. Shippers fought to have the requirement left out of the 30-day FOA in the Kroeger process. If this amendment were to go through, it would create an obstacle for small shippers who are seeking recourse against large and powerful railways. The committee should retain existing FOA provisions and reject the proposed captivity test.

In the area of multi-party FOA provisions, the purpose of this amendment to the FOA provision would extend FOAs to incidental services, such as demurrage, and to a group of shippers. If this were done properly, it could be a benefit to the agricultural industry.

We have concerns that this provision may not be an effective remedy for the entire industry, because Bill C-26 is worded such that the terms of the offer submitted by all shippers must apply equally to all shippers.

I'll give you an example. A group of shippers wants to participate in a joint offer that is common to all of the shippers, such as a change to demurrage rules or rates. These shippers are located at different origins, have different volumes to be shipped and/or have different equipment requirements. Based on the wording proposed by the multi-party FOA, this group could not proceed simply because some terms of the final offer would not apply equally to all of them.

The committee should omit the language requiring that the terms of the offer submitted by all shippers must apply equally to all of them. It should be sufficient that the matter submitted to the agency for FOA be common to all shippers and that they make a joint offer in respect of the matter.

The issue of running rights is very important to western shippers. Some recent rulings made by the Canadian Transportation Agency on the OmniTRAX and Ferroequus applications have created doubts as to whether the current running rights provisions will ever provide any meaningful competition for western Canada.

We had hoped that the government would address competition in its “Straight Ahead” document and in Bill C-26. However, since the government did not introduce meaningful changes to the running rights provisions, this committee must amend Bill C-26 to adopt case-by-case reverse onus running rights based on the following principles: any person may apply to the agency for the right to solicit and carry traffic located on the track served by another railway; reverse onus, where the railway may prove the application is not in the public interest; and access fees based on the host railway's cost of providing service plus a reasonable rate of return.

If running rights are not to be adopted, then the committee must recommend that costing reviews, performed every four years, be reinstated. The costing reviews would ensure that the railway's productivity gains are indeed shared between the railways, shippers, and producers in the absence of competition, and that appropriate costs are being used in the determination of the revenue cap.

We are also recommending that subsection 150(5) of the current act be removed so that railways can no longer use amortized industrial development fund contributions as revenue deductions. IDF contributions should not be allowed because they are paid to companies to fund capital investments and they are not necessarily passed back to producers.

The next item we'll deal with is the CCR, the competitive connection rates. CCRs are not as effective a safeguard as the existing competitive line rates, CLRs. Removing the requirement that shippers have a pre-existing agreement with a connecting carrier was sought by shippers during the Canadian Transportation Act review. However, requiring the agency to determine if a shipper has no alternative effective, adequate, and competitive means of transferring the goods is essential, creating a captivity test.

CCRs were introduced to be a competitive safeguard in the absence of rail competition. As proposed in Bill C-26, CCRs place too much burden on shippers requesting relief. It's prescriptive rather than competitive. The committee should keep existing CLR provisions with an amendment that excludes the requirement for an agreement with a connecting carrier as a condition to obtain that relief.

¼ (1805)

I will now speak to the statutory review. Bill C-26 proposes that the act be reviewed by 2010, which could be up to seven years after the bill is enacted. This is an extremely long time if there are problems caused by the legislation. Our recommendation is that the committee should leave the statutory review period at four years after the bill is enacted.

We also are requesting an amendment to schedule 1. The last time the act was revised, an error was made on schedule 1, the list of grain-dependent branch lines. The Northgate subdivision, a CN line, was omitted from the list even though it is a grain-dependent line.

Correspondence between CN and some of SARM's members indicates that the Northgate subdivision between mile 3.7 and mile 39.4 no longer meets grain-dependent line criteria. However, their letters are silent about mile 0 to mile 3.7 of the subdivision. The only traffic that moves on this subdivision is grain and it moves on mile 0 to mile 3.7. Therefore, the whole subdivision needs to be recognized as grain-dependent and the first 3.7 miles should not be severed from the subdivision.

We believe this is the only instance of an omission to schedule 1 and request that the necessary amendment be made.

In conclusion, SARM's recommendations to the standing committee are: disregard the proposed policy statement and amend the national transportation policy statement to include a secure transportation system that respects the environment; treat railway sidings, switches, and related infrastructure in rural areas in the same manner as they are treated in the metropolitan areas; retain existing final offer arbitration provisions and reject the proposed captivity test; and adopt case-by-case reverse onus running rights on the principle that “any person” may apply to the agency for the right to solicit and carry traffic located along the tracks served by another railroad; reverse onus, where the railway may prove the application is not in the public interest; and access fees based on the host railway's cost of providing service plus a reasonable return on investment; if running rights are not adopted, then costing reviews, performed every four years, should be reinstated, and subsection 150(5) regarding the use of the industrial development fund as a railway revenue reduction should be removed; keep existing CLR provisions, with the addition of an amendment that excludes the requirement for an agreement with the connecting carrier as a condition to obtaining that relief; retain the current statutory review period; amend schedule 1 to include the Northgate subdivision.

Thank you.

¼ (1810)

The Vice-Chair (Mr. John Cannis): Thank you very much for your presentation.

We'll start with Ms. Yelich.

Mrs. Lynne Yelich (Blackstrap, Canadian Alliance): Thank you.

I have a couple of quick questions, one on VIA Rail. It's been heavily subsidized since 1993 and has cost about $140 million. Can you see that money would be better spent elsewhere instead of subsidizing VIA Rail?

Since you are concerned about infrastructure, I'm wondering why you haven't mentioned highways. I'm interested in what you think of the amount of money the federal government takes in highway excise fuel taxes and how much they give back to our province. If there are no substantive amendments and the minister said that he won't pass it if there aren't, do you think the bill should be passed as it is, or not at all?

Mr. Jim Hallick: Certainly, we would have various serious concerns if it's passed the way it is, because it's regressive, even worse than the original CTA as far as we're concerned, when it comes to competition.

On your question about the highways, yes, we didn't mention highways. We're trying to keep as much traffic on the rail as we can because that's going to mitigate the need for highway funding, but we would certainly take all the gas tax money you would be willing to share with us. Right now we get back very little of the federal tax, and something we certainly need is a national highway program. If we had a national highway program with considerable federal funding, that would then free up provincial funding for our roads.

Mrs. Lynne Yelich: Would it be a dedicated tax, then, for national highway infrastructure?

Mr. Jim Hallick: That's something we would certainly look at favourably. We don't really care how we get the money as long as we get the money. If that's one way of doing it, we'll take it that way, but there seems to be--

Mrs. Lynne Yelich: How are you going to answer if our future prime minister decides to give it to only urban centres, if he does decide to--

Mr. Jim Hallick: He wouldn't do that.

Some hon. members: Hear, hear!

Mrs. Lynne Yelich: As for VIA Rail, do you believe in continuing to heavily subsidize VIA, as you have with $140 million since 1993?

Mr. Neal Hardy (President, Saskatchewan Association of Rural Municipalities): If you don't mind, I would like to say a couple of things about VIA Rail. VIA Rail may well use some money to keep running. We live in a rural area, and VIA Rail really doesn't mean so much to rural Saskatchewan; we're mostly car transportation or vehicle transportation. So it's really hard to judge what the value would be to the major centres.

The one thing I would like to mention a little bit more is our national highways program. I think we're so far behind on one. The Americans, years ago, decided they were going to have a national highways program and they put funds into it to make it happen. It's important that we have this. It ties Canada together. You know, with the passenger rail line service gone--I mean, one way or another it's pretty well gone, in our part of the world anyway--it's time we took a serious look at how we can put together a national highways program to connect across Canada.

It has to be a decent type of highway. In Saskatchewan we've started some twinning of our highways through there now, but, you know, there are a lot of vehicles and a lot of heavy transports trucks. Safety is an issue. Just the quality of the highway system we need in this country, I think, needs to be addressed. So a national highways program, however it's started, has to start, it has to continue, and it has to be built on. It was started in Saskatchewan this year. We received some assistance from the federal government. It is a really good start, but we need to build on there and, I'm sure, across the other provinces and across Canada.

I don't think I can say enough about the need for a national highways program.

Mrs. Lynne Yelich: And would you agree with a dedicated tax for a national program from the federal government?

Mr. Neal Hardy: Well, whether it is dedicated taxes or dedicated funding, I think within government dedicated tax is a difficult thing, but dedicated funding or a commitment to get dedicated funding would be a really positive step forward. I know they can always change, but they can change it if it's dedicated tax too. I just think, one way or the other, we need to start some place and I think it's time to start now, as Canadians, to build the type of national highway system that we need out there.

¼ (1815)

Mr. Jim Gouk: Do we still have some time left here?

The Vice-Chair (Mr. John Cannis): Yes, go ahead. We have about four minutes or so.

Mr. Jim Gouk: One of the things I've heard from a lot of shippers and people with interest in shippers--and I certainly agree with them--is that they are concerned about access to rail and being able to move their goods at a reasonable rate. My concern is what kind of formula we use, because the class 1 railways counter that by saying that if we throw it wide open to anyone who wishes to use it, we could end up finding ourselves largely out of business and then there won't be any structure for these people to get this open access.

You agreed in your comments to pay their costs and a reasonable contribution toward their investment. What kind of formula do we use to ensure fairness to the shippers to have that access and fairness at the same time to the class 1 railways so they do indeed get a reasonable return and don't risk the viability of their business?

Mr. Jim Hallick: As I understand it, it would be on a case-by-case basis and it would be a commercial arrangement. If that could not be arrived at, then I would think the agency perhaps would do an arbitration and come up with a fair assessment on it. We're certainly not here to break the railways. We think they're doing quite well right now and probably a little better than we'd like them to do.

Mr. Jim Gouk: I can well understand. The Prairies, in particular, are very rail dependent and we have to come up with some kind of viability. It's kind of a roll of the dice if we don't have some ideas, or if we were to say--and I'm being facetious--that we want it for free and the railways said they want 100% markup and profit and everything else on all our costs, and then we're going to throw the dice.

What kind of points should we at least try to get some agreement over between what the shippers are prepared to pay and what the rail is prepared to accept? Where is our starting point, rather than just going blindly to the CTA and asking it to decide?

Mr. Jim Hallick: One of the things that adds to this problem, I think, is the fact that we haven't been having costing reviews and we don't really know what the real costs are. When you look at the rationalization that is taking place, there has to be significant revenue coming back now that wasn't there before the rationalization. So maybe a starting point is another costing review just to see where we're at for a starting point.

Mr. Jim Gouk: Yes.

One of the inputs we've had from a couple of large shipper groups that have come together is 7% toward fixed costs, over and above all actual operational costs, and 37%, I believe it is, for short line operators. That's 7% for interchange, 37% toward fixed costs for short line operations. Do figures like that seem to be in the right ball park from your perspective?

Mr. Jim Hallick: We're not a railroad, so this is a bit out of our expertise. I think we would leave it up to those people who are in the railroad business. I think we have a feeling that perhaps the threat of running rights would be as effective as running rights in a lot of issues.

The Vice-Chair (Mr. John Cannis): Mr. Roy.

[Translation]

Mr. Jean-Yves Roy: Thank you, Mr. Chairman.

I also come from a rural area, different from yours because it has mountains rather than plains. I was listening to what you said and I note that there is a contradiction between the request that you make at the very end, in dealing with VIA Rail, train transportation and the improvement of routes, and the position taken by other witnesses. Before you, we heard from people working for the air transport sector tell us that train transport was being subsidized and that this had a harmful effect on them.

¼ (1820)

[English]

The Vice-Chair (Mr. John Cannis): Mr. Roy, speak so that what you are saying will get through to the translators.

[Translation]

Mr. Jean-Yves Roy: It is a complicated system, it should be explained to the witnesses. I am going to recommend, Mr. Chairman, that an explanation be provided to the witnesses at the beginning of a meeting because it never fails, there is always a problem.

[English]

The Vice-Chair (Mr. John Cannis): Okay.

[Translation]

Mr. Jean-Yves Roy: There is a contradiction between your position and the view of another witness. Before you came, we heard from people working for the air transport sector who told us that rail travel was being subsidized and that this was to their disadvantage. They then talked about subsidies for highways. From the point of view of the railways, it can be said that subsidies for highway construction will result in the disappearance of rail freight. The main competitor of rail transport is trucking. At the present time, wherever there is a good highway system, including in the United States, truck transport has become a real nuisance. I do not think that there will be any end to enlarging and improving the highway system because for as long as it is possible to move goods by trucks, there will be a decrease in rail freight.

I think that there should be a certain balance and I note a contradiction. I can understand that citizens, who do not feel safe on the road because there is so much truck transport, would like to have a good highway but it is an illusion because whenever it is enlarged, then this will mean competition for the train and will result in the reduction of train freight and increased use of the highways by trucks. What we need is a balance and I feel like saying, even though I consider myself to be a social democrat, that we should not tamper with this. This is more of a comment than a question but if you would like, you can certainly respond.

[English]

Mr. Jim Hallick: I think the situation in western Canada is much different from what it is in eastern Canada. Because of our distance to market, trucks don't work. We're 1,500 miles to port, so truck competition to rail competition doesn't exist to the same degree as it probably does in Ontario and Quebec because of the shorter hauls. Once you get over 500 miles you're basically out of competition with trucking. So that would be my comment on that side.

Building more highways would not lessen the rail service. Because of the distance involved, it's just not economically possible to move those kinds of goods that distance with trucks. It's just not viable.

The Vice-Chair (Mr. John Cannis): Merci, Monsieur Roy.

Ms. Desjarlais.

Ms. Bev Desjarlais: I just want to make sure we will be left with a copy of your report, because I believe a lot of the recommendations that you made we heard from others as well. So rather than go over it all again, I just want to thank you for coming and bringing that different western perspective to things, because it is quite different travelling those distances. I just want to make sure we get the report.

Thank you.

Mr. Jim Hallick: We apologize that we didn't get here in time for the translations, so we will certainly leave you copies.

The Vice-Chair (Mr. John Cannis): Thank you.

Mr. Keyes.

Mr. Stan Keyes: Thank you, Mr. Chair.

I want to thank the witnesses for what is obviously a very thorough report. They worked very hard on the information they presented to us today, so I want to thank them for their thoroughness. It does provide the committee with a lot of help when we have to deliberate to make these decisions.

You can understand that in the grain industry, like any industry, if there's competition, if there are alternate methods of shipping goods to market, competition usually provides for the fairness that the industry will be looking for. With all the provisions that you've laid out for us today, would I be safe in assuming that we are speaking about the captive shippers?

Mr. Jim Hallick: Exactly.

Mr. Stan Keyes: Of all the grain producers that have to ship their grain, what's the percentage of captive shippers versus non-captive shippers, where there is availability of competition?

Mr. Jim Hallick: Speaking from the Saskatchewan point of view, if you look at the province of Saskatchewan you'll find a strange situation. Basically, the southern half of the province is CP and the northern half is CN, so we're all captive.

¼ (1825)

Mr. Stan Keyes: So you're 100% captive in Saskatchewan?

Mr. Jim Hallick: Basically, yes. There are situations where you have two lines within the required 35 kilometres, but that hasn't changed the freight rate.

Mr. Stan Keyes: Can I get a reaction from you on something? I've heard this said before and I'm somewhat of a believer in it myself. What would your reaction be if the railways came to you and said that they wanted to sit down and commercially negotiate the movement of your grain on their railway, and that they we're quite prepared to sit down and do that in a fair and cost-effective manner for you? I've heard what you're recommendations have been. I get the feeling that you don't trust the railways to provide that service to you at what they are saying is commercially negotiated.

Mr. Jim Hallick: I guess we have a bit of a problem because we can never find out what their costs are and profits are. It's hard to negotiate blindly when you don't seem to get cost factors from them.

Mr. Stan Keyes: But as you said, 100% of your shippers are captive. One would hope that all the shippers are talking to one another, particularly with the strength of the many shippers that are in the province of Saskatchewan using a railway to move their grain.

Now, I'm an urban guy, not a rural guy, but I also understand somewhat how business works. If CN or CP decided that they wanted to gouge you or gouge the captive shippers, eventually the captive shippers would go out of business. If they were to go out of business, then the railways would be in big trouble because they need your business.

So it's not in the best interests of railways to turn around and gouge their customers to the point where the customers are no longer doing any more business because they're out of business. I don't understand why the captive shippers wouldn't come together and say that they are many and they are prepared to do business with the railways, and to get a deal here that everyone would be happy with.

Mr. Neal Hardy: I'll answer that. First, you have to recognize--and I'm sure you do--that we live out on the plains of Saskatchewan. We're captive to whatever transportation there is, and trucking is out because of the distance. The minute you go beyond that 500-mile zone--I don't care what the highways are like--you can't ship that way. It becomes too expensive. The dollar signs become so great that you can't ship.

Therefore, we're captive to whatever the two major railways decide is a reasonable price to ship. I guess what we don't have is an alternative. We don't have some other railway that could come in on the joint running rights or some other alternative. We don't have that; we don't have that option. If you're in Ontario, you could probably haul it to Thunder Bay or someplace. If you're in the eastern part of Manitoba, you might get away with it, but when you get away out in Saskatchewan where you're 1,500 miles from Thunder Bay, it's a long way and that just makes it very difficult.

When we say we're captive, we mean we're captive to the area we're in, not necessarily to the railways, because the railways are just there supplying a service. I don't want to downplay their role. I guess what we're saying is that we need some competition out there to make it fair for us producers, because we have no way of knowing what the real costs are and we don't want to go broke.

Mr. Stan Keyes: And you wouldn't be satisfied with, say, a group of you in Saskatchewan who ship grain, who are captive shippers, deciding on a price. If there's a dispute, you as a group then pool your resources in order to go to the CTA and say you think this is out of line and, as a result, you want the CTA to examine the cost that CN and CP are charging to see if indeed it's fair to charge as much as they're going to charge you.

Mr. Neal Hardy: I guess we could do that, but there's a bottom line to how we do it. How many dollars can we raise? How many producers are there--50,000 producers--producing a product that they will need to ship one way or another? That's very difficult to do.

You must remember that we've now centralized terminals for our grain delivery. We used to have local terminals. We're hauling probably up to 75 to 100 miles to deliver our grain to the nearest terminal. We're somewhat even captive to that market, never mind the rest, and they've centralized their systems. They've done a good job of it, but I'm not sure--what can I say? I don't want to be unfair about it, but we don't really know if we're getting a reasonable rate.

I would like to give you an example. To ship and handle a tonne of grain--on average, that's about what we produce on farms out there in Saskatchewan and Manitoba--is about $60 a tonne. That's one acre. That's about what we produce on one acre. So we take $60 right off the top for transportation alone. And I know we're landlocked, but that makes a big difference. We have no competition.

If we could ship to the port of Churchill and use the freight rate, it's way down, and yet it's still close to 1,000 miles away. But shipping through the port of Churchill sometimes is difficult. There's only summer shipping and all the rest. We don't really have anything to monitor our costs. We don't know whether or not we're getting a reasonable rate, and our costs are high.

¼ (1830)

Mr. Jim Hallick: I think one of the other problems we have in addition to not having competition is that we have differential pricing. Because we're captive, that is used to lower the rate, for example. There is also competition from the seaway. That's another problem we have.

The Vice-Chair (Mr. John Cannis): I think I'll move to Mr. Gallaway, Mr. Keyes.

Mr. Gallaway.

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

Many of us here sympathize with anyone who lives 1,500 miles from Thunder Bay. But in any event, I agree with virtually everything you say, save and except one thing, and that is your provision for reverse onus.

Using the analogy of a landlord, a perspective tenant comes along and says, I'm going to occupy your apartment, and although I acknowledge you own it, I'm going to pay you $500, notwithstanding that you want $1,000 for it. A reverse onus, as I understand what you're saying--and maybe you can explain this to me--is a side-bar form of expropriation. It's saying, we're going to use your property and you're going to have to prove why we shouldn't, and perhaps on what commercial basis.

Is that what you're saying?

Mr. Jim Hallick: That's probably a simplified case of it. The other alternative is that we must prove that it's in our best interest, and that is pretty onerous on a producer. That's why we think that if it's on a commercial basis it shouldn't be that difficult for them to demonstrate that it's not in the best interests of their system.

Mr. Roger Gallaway: Okay.

Would you require that they demonstrate that it's not in your best interest?

Mr. Jim Hallick: In their best interest. Not in the public interest.

Mr. Roger Gallaway: Not in the public interest. All right.

Under the present regime, there have been suggestions that you would band together and follow the route proposed in terms of costs. Can you give us any indication of what costs are involved in proceeding before the CTA? It's probably not a fair question because it obviously is contingent upon the complexity.

Mr. Jim Hallick: Yes, and I guess the delays and the cost factors could go on for a considerable length of time.

Mr. Roger Gallaway: Can you give me any indication about the normal time period from start to finish on a panel?

Mr. Jim Hallick: I don't know. We don't have that information. We haven't gone through that exercise.

Mr. Roger Gallaway: I have one final question. You mentioned the number of 50,000. I assume you're referring to 50,000 agricultural producers, farmers.

Mr. Jim Hallick: Right.

Mr. Roger Gallaway: What sort of collectivity is there amongst them? I know that you represent rural municipalities. But is there one collective in Saskatchewan of farmers--or some organization when I call them collective--which speaks for farmers in Saskatchewan?

¼ (1835)

Mr. Jim Hallick: SARM is probably the most universal because of our membership. We have 297 RMs. I'll give you an example of the numbers at our annual convention. We have about 22,000 to 25,000 that are all producers, 95% of them. We cover the province completely. Our mandate is to be involved in agriculture. The growing, handling, and transportation of agriculture products is one of the objects of the corporation. Being somewhat of a very broad umbrella, we're probably as close to what you're talking about as anybody.

The Vice-Chair (Mr. John Cannis): Thank you, Mr. Gallaway.

Mr. Comuzzi.

Mr. Joe Comuzzi: Thank you, Mr. Chair, and I'll be brief.

Thank you very much for coming.

During the review of the Canada Transportation Act, we've been advised that there was a consultative process. Who did that process? I am referring to the CTA review panel. Were you involved in that consultation?

Mr. Jim Hallick: Yes, we were.

Mr. Joe Comuzzi: And did you make recommendations to the panel? Do you see those recommendations reflected in the legislation?

Mr. Jim Hallick: No, we don't, except for the removal of the substantial harm clause. Removal of the substantial harm clause was one of our recommendations that were accepted. But that's about the only one.

Mr. Joe Comuzzi: And about how many recommendations did you make?

Mr. Jim Hallick: Basically the ones that we're making here today.

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

The Vice-Chair (Mr. John Cannis): Thank you, Mr. Comuzzi.

I too want to thank you for coming.

In closing, I would like to thank you, Mr. Hardy, for your comments in terms of the question that was asked earlier. You made two statements, if I may, that the federal government had started and it was a good start. You were asked a question in terms of a dedicated tax, the gas tax portion, and I was so pleased in listening to your response. It was a very honest response, I must say, because of other presenters that have come before this committee.... As you read and hear in the news, everybody is asking for that portion of the gas tax.

I enjoyed your response, as you said that dedicated funding would be much better as opposed to taking it from one specific segment or another. I appreciated that very much.

Thank you, and thank you for your presentation.

Mr. Stan Keyes: By the way, can I ask a quick one?

You're saying $60 a tonne for your transportation costs, for a shipper's transportation cost. I've got to keep reminding myself you're not shippers. What do they make a tonne? I know there are variables.

Mr. Jim Hallick: You're probably looking at a scenario of about $180 an acre, and about $60 of that is transportation, getting it on the ship. So it's a good third of your income.

The Vice-Chair (Mr. John Cannis): Thank you very much.

We'll suspend the committee for a two-minute break before we go in camera.

[Proceedings continue in camera]