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STANDING COMMITTEE ON TRANSPORT

LE COMITÉ PERMANENT DES TRANSPORTS

EVIDENCE

[Recorded by Electronic Apparatus]

Monday, November 15, 1999

• 1801

[English]

The Chair (Mr. Stan Keyes (Hamilton West, Lib.)): Good evening, colleagues. Pursuant to Standing Order 108(2), a study on the future of the airline industry in Canada, this evening we have two slots, 6 p.m. and 7.30 p.m.

At 6 p.m. our presenter is the Air Canada Pilots Association. We welcome Captain Joseph Oakley, president, and Captain Steve Babb. Gentlemen, welcome to the Standing Committee on Transport. We look forward to your presentation of about 10 minutes so that we can begin asking questions of you. When you're comfortable, please begin.

[Translation]

Captain John K. Oakley (Joe) (President, Air Canada Pilots Association): Thank you, Mr. Chairman. I'm Captain Joe Oakley and I'm the Acting President of the Air Canada Pilots Association. With me this evening is Captain Steve Babb.

The Air Canada Pilots Association or ACPA is the union representing approximately 2,200 pilots at Air Canada. Founded in November 1995, ACPA is the largest Canadian-based association of airline pilots.

[English]

As pilots of the largest Canadian-based airline, we view goings-on in our industry from the cockpit. That is to say, we play an active role on the business side of the equation, and we also have a direct window on the day-to-day operations of an airline. However, the most important job we have is to ensure that our passenger safety remains the highest priority. In sum, we feel we have a unique perspective on the industry.

What is that ancient Chinese proverb that is actually a curse? May you live in interesting times.

Certainly that is the case now, where events are passing so quickly that you should make sure your seat belt remains firmly fastened at all times.

[Translation]

ACPA members are firm believers in a healthy, growing, competitive Canadian airline industry. We believe the government made the right decision several years ago when it privatized the airline industry and decided to let market forces regulate activity.

[English]

Since mid-August, the state of the airline industry in Canada has been hotly debated. In this period of time the debate has been shaped primarily by the views held by Onex Corporation, as articulated by its chairman and CEO, Mr. Gerald Schwartz, through a sophisticated and expensive public and government relations campaign.

At the heart of the Onex argument was the claim, widely believed, that there was a crisis in the industry. Onex and others presumed the only solution would be the inevitable emergence of one dominant or monopoly carrier.

The Air Canada pilots do not see the current and future state of our industry through such a dark and pessimistic prism. Canada's airline industry is not in a state of crisis, nor do we share the view that one single, dominant, monopoly air carrier must necessarily emerge from our current situation.

The industry as a whole is not in crisis. There are approximately eight significant carriers in Canada plus four mature, second-tier feeder networks. Of these, only one company is facing a serious financial problem, and that is Canadian Airlines International. These problems at Canadian are not new. Fundamental problems have repeatedly come to the boiling point over the past decade, a situation initially caused by the ambitious mergers and an expansion funded by an unsustainable debt load.

• 1805

Other than Canadian, Canada's airlines are healthy. Our company, Air Canada, and other airlines in Canada are growing and prospering.

As such, the federal government should not be pressured into hasty and potentially disastrous policy decisions based on a false sense of crisis, a false sense that Onex deliberately nurtured to rally public and regulatory support behind their failed takeover bid.

It is our view that a solution to Canadian Airlines' problems lies with Canadian Airlines itself.

First of all, we must have a quick look to see how they got into financial trouble in the first place. Canadian's problems began in the 1980s when Pacific Western Airlines entered into merger agreements with Canadian Pacific, Wardair, Eastern Provincial Airways, and Nordair. It would appear that Canadian Airlines did not pay enough attention to streamlining the airline and building an efficient, competitive carrier.

To illustrate that point, and by North American standards, the average airline has approximately 110 employees per aircraft. Air Canada employs about 120. In contrast, Canadian Airlines has approximately 187 employees per aircraft, nearly 70 more per aircraft than does Air Canada and nearly 80 more than the industry average.

The second factor lies in the fact that Canadian Airlines has never been able to earn significant profitability on its transborder routes when compared to Air Canada. We argue that American Airlines has a systematic plan in place to starve Canadian from carrying more passengers on these routes, which are potentially very profitable. Transborder routes have contributed significantly to recent improvements in Air Canada's financial performance.

The third and most significant factor negatively affecting Canadian Airlines' earnings potential is the fact that American Airlines has been draining hundreds of millions of dollars a year and sending this money to Dallas.

In Canadian, AMR, the parent corporation of American Airlines, saw a company in crisis and moved quickly to lock them permanently into their orbit by agreeing to keep them afloat in exchange for what we now know to be suffocating concessions. Under duress, Canadian agreed to high-priced contracts payable in U.S. currency for services and maintenance, they moved to the AMR-controlled SABRE reservation system, and they moved Canadian jobs south of the border. This shifted a significant degree of financial and management control to American, and Canadian subjected themselves to AMR's prerogative on the immensely profitable transborder routes, the key to any future Canadian profitability.

On that last point, in the current collective agreement signed between AMR and its pilots, American has agreed to seek the route authority on Canadian transborder routes with its alliance partners when revenues reach a certain threshold, namely profitability.

If it pleases the committee, I will table a copy of these key provisions of the AMR-allied pilots agreement with the clerk at the end of this presentation.

Over the last three years, Canadian Airlines has lost nearly $1 billion. During that time it is estimated that Canadian has paid out nearly $1.05 billion or nearly $350 million per year to American Airlines. It does not require a degree in finance to see that if American Airlines were removed from the equation, Canadian's problems would be diminished significantly.

The Air Canada pilots believe Canadian Airlines can be operated profitably. At the moment we may be one of the few who are saying this, but we believe allowing Canadian to restructure by seeking protection from its creditors under either the Bankruptcy and Insolvency Act or the Companies' Creditors Arrangement Act, the CCAA, is one solution to resolving Canadian's financial problems. This is a market-based solution to a market-based problem and is in keeping with government policy. It is our view that this will allow Canadian to restructure debt in a manageable manner and address fundamental problems with its flawed relationship with American Airlines.

[Translation]

This committee has been mandated to consider the serious issues associated with government policy in this area and any recommendations it makes will have a major influence on the future of this country's airline industry.

Accordingly, ACPA respectfully submits that, in reaching its decisions, this committee should be governed by the following considerations:

• 1810

[English]

It is our view that given the advantages it provides to American Airlines—AMR Corporation—Canadian Airlines is unlikely to be allowed to go into bankruptcy. The onus is on Canadian Airlines to restructure itself into a leaner and more efficient airline.

The Air Canada Pilots Association supports the need for effective competition on domestic and transborder routes. Competition best serves the public interest by spurring operators to provide the service consumers want, and indeed deserve, at a fair price.

This country can only sustain one strong Canadian flag carrier to compete with foreign airlines and international routes. Having only one international flag carrier is also the norm in most countries. Canada has an abiding national interest in ensuring we maintain an airline that meets our unique needs and national policies.

The direction and operational control of the airline industry's major components should remain in Canada and in Canadian hands. Accordingly, ACPA supports the Minister of Transport in the retention of the essential rule limiting foreign ownership in our airlines to 25%.

We encourage this committee and the government to take the time needed to thoroughly study, evaluate, and consult on all available policy options. This is a serious debate that has a far-reaching impact on the future health and direction of Canada's airline industry. This is not a time to rush through any new policies or decisions.

Air Canada pilots would strongly caution against a government reaction that leads to reregulation of the airline industry. Pilots and all employees of Air Canada have worked together with the company to take advantage of the opportunities presented by deregulation and the open skies agreement with the United States. Recalling the moribund and costly airline system of the past, we are concerned increased controls would stifle the vitality and the sense of initiative we are demonstrating in our industry.

Transport Minister Collenette has asked the House and Senate committees on transport to respond to five issues raised in the policy framework. We would like to comment on two of those issues.

Our association stands against the relaxation of the 10% ownership limit in Air Canada. Air transport is vital to the economic well-being of this country, and the limit was put in place to make sure that Air Canada remains widely held. In our view, this rationale is still valid. Any change to this law would be a considerable shift of public policy and demands a thorough and reasoned debate in Parliament.

The second issue is competition. On this point, the Air Canada pilots are saying something different from our company and indeed the Onex Corporation. We believe the solutions proposed by both of these companies would lead to a dominant carrier monopoly situation that would require government action to protect the consumers and maintain services to the communities.

If Canadian can restructure financially, address its flawed relationship with American, and service North American routes, it will become a successful, independent, and competitive airline. We believe this is the best way to preserve airline competition, protect consumers, and preserve jobs.

In conclusion, Mr. Chairman, Air Canada pilots do not agree that there is a crisis in the airline industry in Canada. There is a significant financial problem at Canadian Airlines that must be resolved in the marketplace through restructuring and addressing Canadian's relationship with American Airlines.

Our friends at Canadian Airlines are among the best, most dedicated, and loyal airline employees in the world. We believe Canadian can reshape itself into a healthy, profitable, and competitive domestic and transborder airline, and Canadian employees deserve no less. This solution best serves consumers by fostering competition in the Canadian market.

We do not agree that the favoured solution of the moment—the emergence of a single dominant carrier—achieves these goals.

Mr. Chair, I'd be happy to respond to questions you may have.

The Chair: Thank you very much, Captain Oakley, for your presentation. We will begin our round of questioning with Val Meredith.

Val.

Ms. Val Meredith (South Surrey—White Rock—Langley, Ref.): Thank you, Mr. Chair, and thank you, Captain Oakley.

Would it be fair to say that the Air Canada Pilots Association does not support the company at this particular time on its proposed merger bid?

Capt Joe Oakley: Mr. Chairman, that would be a pretty clear statement of where we stand. We're not sure what the company is up to. We haven't seen the prospectus or the offer for Canadian Airlines, but we don't think we're going to agree with their resolution to this problem.

• 1815

Ms. Val Meredith: Would it also be fair to say you really haven't changed the position that Air Canada has held over the last 10 years, which is to get Canadian's international routes and to leave them competing with Air Canada in domestic routes? Is it not true that the international routes are where Canadian does make a profit, not their domestic routes?

So how do you feel realigning the Canadian airline industry so that Canadian is running unprofitable competition to Air Canada on domestic routes is going to solve the problem?

Capt Joe Oakley: On the international thing, yes, it's no secret that Air Canada would like, they say, some of the international routes. The pilots of Air Canada say we would like all of them. The criterion by which most countries support a successful, world-accepted, international airline is a population base of 50 million people. That seems to stand true in the United States, the U.K., France, Switzerland, and the Netherlands.

We have for years in this country tried to support two international carriers with half of that population base, and we think it's not a very viable proposition. Does Canadian Airlines make money on their international routes? Yes. They probably could do more, if they were in a financial position to service some of the route authorities they presently have. But does it make sense, then, to handcuff Air Canada from expanding internationally in support of Canadian Airlines?

All we're saying is if you take in isolation the domestic and transborder operation in Air Canada, it's a very viable and very profitable sector of the operation. If, on the other hand, at the end of the day there is bankruptcy, we think there is room for a successful airline, domestic and transborder—if we could remove American Airlines' influence.

Ms. Val Meredith: I'll just refer to your Letter of Understanding 17, between Air Canada and the Air Canada Pilots Association. That section, particularly section L17.01, is very clear that in a feeder arrangement, you would see that only an aircraft having a passenger capacity configuration in excess of 70 seats or a combined payload, etc., could be flown. Would you not then consider that Canadian would be a feeder airline to the Air Canada international airline?

Capt Joe Oakley: That part of the contract relates to Air Canada's relationship with its own feeder carriers. No, we would never consider an independent Canadian Airlines to be a feeder to Air Canada.

Ms. Val Meredith: Are you telling me that in the future the Air Canada Pilots Association would look at rewording some of your contract in order to accommodate future changes in the airline industry?

Capt Joe Oakley: We have on a number of occasions expressed our openness to Mr. Milton to do that very thing.

Ms. Val Meredith: So one could feel that the conditions in your contract, I guess—because it's more than a letter of understanding—that limit who can fly aircraft, what aircraft can be used, and the kinds of conditions of a lease agreement—I think it's called a wet-lease agreement—could be renegotiated if there's a change in the airline industry in the future.

Capt Joe Oakley: Absolutely. That's a very minor-scope clause compared to what you would find in contracts of other airlines. They go on for chapters in American Airlines and United Airlines.

Ms. Val Meredith: Fine, but you represent the Air Canada Pilots Association, so I'm asking you if your pilots' association would be willing to renegotiate its contract, keeping in mind the changes we might see in the future of the Canadian airline industry.

Capt Joe Oakley: Absolutely. At the end of the day, we would certainly have to renegotiate our contract to try to maintain as many pilot jobs as possible in this country, and that includes Canadian Airlines, Canadian Regional, and the regional carriers of Air Canada. The end goal of our association is to keep as many pilots employed as we can.

The Chair: Thanks.

Ms. Val Meredith: Okay, thank you.

The Chair: Mr. Fontana.

Mr. Joe Fontana (London North Centre, Lib.): I also want to talk a little about what Val just asked, but I need to ask you some basic questions with regard to your view of the airline industry. You and others have indicated that we don't have a problem in the airlines, but we do have a problem with one major air carrier.

• 1820

I like the two-airline policy, if in the perfect world one could design it to benefit consumers, with competition. Obviously, a two-airline policy worked in the past.

I don't know who you think is going to buy Canadian out there, other than Mr. Milton. There was somebody else, but obviously they couldn't. It has lost $1 billion in three years. What makes you think there's somebody out there who thinks they can run this airline and make an awful lot of money without, as you point out, getting rid of a whole bunch of costly things you say American Airlines has in place?

I suggest that your Star Alliance partners extract an awful lot from Air Canada too. I suggest that a lot of what you've said about the status quo or wishing that somebody was going to save Canadian, Mr. Oakley, is very self-serving for the Air Canada pilots. I'll tell you why. Even on some of the scope clauses you have within your existing agreement that protect Air Canada pilots, and even with the so-called merger, you didn't want the Canadian pilots, who would probably bump seniority positions with Air Canada pilots. My own regional carrier, Air Ontario, can't get RJs because you don't want Air Ontario pilots flying RJ jets.

You have a great agreement, and you want to table the agreement between AMR and the pilots. I wonder if you can table your whole collective agreement with Air Canada so we can take a look at all those scope clauses. I'm having difficulty. Like any good union or association, everything you want points to the fact that you want to protect your members, but I'm just wondering whether or not that's in the best interests of the Canadian public.

Capt Joe Oakley: I would counter by asking whether a dominant, monopoly airline is in the best interests of the consumer, the travelling public, the smaller communities, and the airline employees. Our position is that it is not. Mr. Collenette said months ago that there were three offers out there. We tend to forget he said that. One was from Onex Corporation, which we now know was illegal, or deemed illegal in court. The second one was Air Canada's offer, and the third one was the status quo.

We seem to have dismissed the status quo out of hand because of the financial situation of Canadian Airlines. They've refinanced a few times over the last decade, but have they ever sat down with all of their creditors and come up with an imaginative proposal that would ease the handcuffs off them a little bit—American Airlines have them—and present something?

Mr. Joe Fontana: Mr. Oakley, if you think we're going to leave it up to the bankruptcy courts to solve a marketplace solution.... If you think it's a good buy, maybe Air Canada pilots, with your huge pension fund, should invest $100 million or $200 million and buy Canadian and run it yourselves, if you think it can be done so easily. I'm trying to understand who you think is out there who's prepared to buy this airline.

I'm suggesting to you that if we have to go to a one-airline dominant carrier, you are absolutely right, we will ensure that consumers get good prices and that communities are well served. Regional carriers may have to be separated from the dominant air carrier to make sure there is competition. If there is only one dominant carrier, we will have to change the competitive landscape here to make sure consumers are protected.

I must ask you about the 10% rule, because that's one of the things we're taking a look at. Even Mr. Milton and everybody we've talked to so far have suggested that the 10% rule is not good for shareholders. It's not even good for consumers; it really serves management very well. What would be wrong with a 15% or 20% rule, with regard to Air Canada, in order to ensure that the shareholder and the consumer are protected, not management?

Capt Joe Oakley: Mr. Chairman, I understand there is a five-minute limit on these questions you've asked me.

The Chair: You can take as long as you need to answer.

Thanks, Mr. Fontana.

Capt Joe Oakley: On what we are doing for Canadian Airlines pilots, I think you'll realize that Air Canada's desire to take on the international routes was not just that. It was an offer for the route authority from the government, and the equipment and the employees that went with it. To me, that was one of the ways of guaranteeing as many jobs at Canadian Airlines as possible.

• 1825

We're the front-line managers for Air Canada. We understand the dynamics of the industry. We know the consumer wants RJs down at the feeder level. I say “feeder level”, you say “feeders”. That's a basis for negotiation, who's going to fly them.

We understand they have to get them down there, because nobody wants to fly with those things any more, with propellers going around. We had told Mr. Milton, a number of times over, to make us an offer: We understand the dynamics of the industry; do you want to take the 25 aircraft from us and give it to them, or are we going to refinance more Bombardier products? That would be great for the industry in Quebec.

So there are solutions, but they're negotiable. We're open.

Yes, we would be delighted to table our collective agreement with this committee, Mr. Chairman. I'll have to get it from Toronto.

With regard to the 10% rule, I understand what Mr. Milton has said. He said it again this morning.

We come from a group of pilots who are not experts in corporate governance. We have to believe that the government of the day that enacted the Air Canada Public Participation Act had good reasons to do that. We just have to look south of the border at three of the most illustrious airlines in North America, at their experience with a leveraged-buyout, corporate-robber type of gentleman who managed to amass more than his 10% or 15%. I'm talking about Mr. Lorenzo and Ichan.

Eastern Airlines doesn't exist today. TWA is a shell of its former self. Continental went bankrupt I don't know how many times before they managed to get the formula right.

So until somebody convinces the pilots it's in their best interests to raise that, we don't see any reason to tamper with that law. An airline industry is vital to this country. We have to say it's a strategic resource.

It's not as though Air Canada is building widgets. A number of people are building widgets, but not that many people can provide a very critical portion of our transportation industry in this country. So we think the 10% and the widely held shares of Air Canada should be maintained.

The Chair: Thanks, Captain Oakley.

Mr. Guimond, please.

[Translation]

Mr. Michel Guimond (Beauport—Montmorency—Côte-de- Beaupré—Ile-d'Orléans, BQ): Captain Oakley, thank you for your presentation. Right away, I want to say that I agree with the vast majority of your observations, particularly your comments on page 4. You say that Canada must maintain a national flag carrier and must continue to have airlines that can compete on domestic and transborder routes. This is in line with the position adopted by our party in 1993. This is not a position that I have taken recently, as party spokesperson, merely for the purposes of this debate. Rather, it has been our party's position since 1993.

However, I too must admit, as Ms. Meredith and Mr. Fontana have, that I am troubled by certain things. I've had an opportunity to discuss these concerns in private with Captain Jean-Marc Bélanger and I would like to touch on them here today.

Before entering federal politics, I worked in the field of labour relations for 16 years on the side of management. I could have been perceived as a bad manager because I believed in a fundamental principle of labour relations, namely respect for seniority. This is more of a comment than a question.

Barring a case of collective amnesia, we undoubtedly recall the situation that prevailed when ACPA was first founded. The association was established following a battle with the Airline Pilots Association, International. ACPA was created following a dispute which was brought to the attention of the Canada Labour Relations Board four or five years ago. This issue in dispute was as follows: should regional pilots be given an opportunity to improve their situation and a chance to pilot larger aircraft, or should they be relegated to the bottom of the seniority list? In any event, the Canada Labour Relations Board will have to rule on this matter.

I'm interested as well in hearing your views on what might transpire if the two airlines were to merge.

• 1830

Let's suppose for a moment that Air Canada buys Canadian. Would Canadian pilot with 27 years' seniority be relegated to the bottom of the seniority list? Is that very likely or even realistic? Would that be a healthy or wise move, from a labour relations standpoint?

Capt Joe Oakley: Thank you very much, Mr. Guimond, for that very interesting question.

[English]

You probably have more background on the reasons why ACPA was formed than I do. But on the basic question that down the road—and perhaps that's where we're going—Air Canada will certainly want to merge with Canadian Airlines, we understand that dynamic is out there, and perhaps at the end of the day that will happen.

I would say to you it's totally unreasonable for us to demand that Canadian Airlines pilots go to the bottom of our seniority list. We know a lot of them. We trained in the military or flying clubs or flew in smaller carriers together with these people.

We would just ask that you, or the Canadian Industrial Relations Board, allow the two groups of employees to work out their problems together. Let us come forward at the end of the day, if there is a merger, and present a solution that is acceptable to the Canadian pilots, the Air Canada pilots, and the Canadian Industrial Relations Board.

There are a number of formulas out there. I'm not familiar with them all, but Canadian pilots certainly wouldn't go to the bottom of the list. It would respect seniority, it would respect the aircraft they're on now, and it would respect their present salary rates and working conditions. It would not be our position to put them at the bottom of the list—far from it.

The Chair: Thanks, Mr. Guimond.

Mr. Sekora.

Mr. Lou Sekora (Port Moody—Coquitlam—Port Coquitlam, Lib.): Thank you very much.

I thought it was Mr. Milton sitting there for a little while. I could have sworn that, by not looking at you and listening to your speech.

The Chair: Go ahead, Lou.

Mr. Lou Sekora: Just a week ago in the House, the Bloc put forward 10% ownership and it was voted down. So it doesn't matter what Onex says, what Air Canada says, or what Canadian might say; that's a fact.

There are a few questions I would like to ask, Mr. Chair, and I hope—

The Chair: You'd better get started, Lou. You're running out of time.

Mr. Lou Sekora: What is the average salary of a pilot at Air Canada, and how many shifts a month do they fly?

Capt Joe Oakley: I'll try to answer that. I don't have my calculator in front of me. The average salary would be slightly over $100,000. That would range from the newcomer at $38,000, to the 747 captain at over $200,000—maybe $220,000.

Mr. Lou Sekora: How many shifts would a captain do in a month for the $220,000?

Capt Joe Oakley: He's the lucky fellow. He's on a larger, long-range aircraft. He will fly 80 hours, so he can accumulate his 80 hours in perhaps 10, 11, or 12 days, whereas the newcomer on the regional jets, flying stage lengths of maybe 45 minutes, would probably work 17, 18, or 19 days a month, perhaps more.

Mr. Lou Sekora: Okay. You mentioned that the 10% share in Air Canada should not be changed. Why do you say that, in your own estimation?

Capt Joe Oakley: I'm sure this committee will make their recommendations to the government, but if it was good enough 10 years ago to protect our airline industry—

Mr. Joe Fontana: [Editor's Note: Inaudible]...going down the tubes.

The Chair: Order.

Go ahead, Captain Oakley.

Capt Joe Oakley: It would be a shift in policy and a shift in the law, and it should be debated. We think it has served this country very well, and the airline industry has not been subject to corporate robbers—leverage buy-out specialists who want to sell off the profitable components of this thing.

Mr. Lou Sekora: But the fact is, both Air Canada and Canadian Airlines did not make any money. You can say you made money, but you sold a whole lot of assets to make the money. It's like me owning a business. If I get rid of all my equipment, furniture, and everything else, I will show a profit. Is it really a profit?

That's what Air Canada did. I asked Mr. Milton the same thing and he admitted that, but not to the extent you might. Tell me.

• 1835

Capt Joe Oakley: I'll make a comment, because I don't think you really asked me a question.

You say in the last 10 years Air Canada didn't make a profit. Well, they did make some money. They restructured for the future, they renewed their fleet, and they managed to put $1 billion in the bank.

Mr. Lou Sekora: Well, they sold a whole lot of assets, and the fact is, when Air Canada was privatized, it was a much better, richer settlement than what there was for Canadian Airlines. So there is a little problem.

I want to say one thing to you, sir. You mentioned Onex a couple of times. Onex is gone, and I'm not interested in this business of bashing each other, because it's not doing this committee a bit of good, not for you and not for me, sir. That kind of rhetoric has to go and has to go soon out of here if I'm going to listen and make a decision.

To me it's very simple. I'll make a decision on what I think is best for the Canadian people across Canada and what is best for the employees of both airlines. That's precisely what I'm interested in, as well as the service to the small towns. I know of one small old town in British Columbia where Air Canada has deserted them. It was not viable; it wasn't profitable. People are phoning me from there saying, “Hey, we want to go to a cancer clinic. We need to get service.”

Those are the things I'm going to listen to here, and I'm going to make that decision. I want to get rid of Onex, I want to get rid of Benson, and I want to get rid of Milton. I want to get rid of all that. I want to concentrate on what's best for Canada as a whole. That's what I want to do.

I'll tell you, when you made this presentation, I wish you would have given me a presentation on the future of all airlines, not one. I would have been more interested in it. This was more bash, bash, bash, and I'm not interested in that.

Thank you, Mr. Chair.

The Chair: Thank you, Mr. Sekora.

Captain Oakley, did you want to respond to any of that before we move on? You have the option.

Capt Joe Oakley: I will.

We're on the same sheet of music, Mr. Chairman. We stand solidly behind competition in this country. We don't want to desert the small communities, and we want to do what's best for the employees. Is that a dominant merged monopoly, or is that independent airlines providing the competition and the service to the smaller communities?

I submit to you, sir, that we stand foursquare behind competition, and we're not that far apart, Mr. Sekora.

The Chair: Thanks, Captain Oakley.

Ms. Desjarlais, please.

Ms. Bev Desjarlais (Churchill, NDP): One of the thoughts out there as to why neither Air Canada nor Canadian is profitable is that they're fighting neck to neck all the time, leaving cities at the same time or 10 minutes apart and this kind of thing, and that there isn't enough capacity for both of them to survive.

From my perspective, there are only two ways to address that situation: either we have one airline or we regulate to ensure there isn't this dog-eat-dog world out there, and we recognize that there is enough for both, but maybe not a whole bunch for both.

You commented, as do a lot of our witnesses, “Gosh, we don't want to go to reregulation. Heaven forbid that we should reregulate!” However, everybody at some point recognizes that we have to have some rules in place in order for both to survive. In my view, that's regulation. You can call it what you will. I'm not talking about reregulation to the point where it was some time ago. I'm not talking about getting rid of open skies. But it is recognizing that neither airline is going to survive with the status quo. I don't believe the status quo is a third option if we expect the airline industry in Canada to survive.

You said you don't want reregulation. How do you expect both airlines to survive?

Capt Joe Oakley: Well, I don't think Air Canada is on the brink of bankruptcy.

Ms. Bev Desjarlais: Just for the record, none of us here came out of the cabbage patch last night, okay? We all know where Air Canada's debt is, and we know where Canadian's is. We know Canadian was first off the post, but we're not so naive as to believe there wouldn't have been some problems further on down the road.

• 1840

So I would hope people at least give us, as committee members, credit for not thinking Air Canada has a windfall profit sitting in the bank, because we know it doesn't exist. That's why we're here ensuring that we're fighting for the airline industry in Canada and coming up with the best policy.

So, as you suggested, give us credit as committee members that we know where things are at.

Capt Joe Oakley: Well, then I'm not quite sure how to respond, Mr. Chairman, because one of them is reasonably healthy and could be healthier, and the other one, we're submitting, can be healthy, can be brought back to life within a very short period of time, as long as we clarify some of the constraints it has with a foreign carrier, if you like—an American airline.

If we can rationalize the international flying, why can't we make any money? Canadian and Air Canada together are only carrying 34% of the international traffic to and from Canada. To me, on bilateral agreements, there's something wrong there. We should be up around the 50% mark. So there's something wrong with our bilaterals, or the way each airline is servicing in the bilaterals.

We know a number of authorities are presently not being used by Canadian Airlines. We don't have service in this country to Australia or Thailand, and we're underserviced to the Mexican market and South America, only because of the financial viability of one airline.

There's money to be made out there. I talked about this threshold where American wants the routes that are presently code-shared with Canadian Airlines. It's strictly profitability. Canadian pilots are handcuffed to flying into the States, building up loyal clientele, building the load factors up to profitability, and then the Americans come in and take it. How the heck can you make any money if you have an arrangement with an American carrier that says you can't make any money?

Ms. Bev Desjarlais: In regard to that, is your arrangement with your pilots and their flights any different from the type of arrangement American has, in which certain carriers can't go into certain communities? Is that a different arrangement?

Capt Joe Oakley: We don't have that type of arrangement.

Ms. Bev Desjarlais: You have situations where connector carriers may only operate certain aircraft with so many seats. Is that any different an arrangement from what Canadian has with American Airlines?

Capt Joe Oakley: We gave the connectors in this country, all of the routes, all of the city destinations they presently serve—

Mr. Joe Fontana: [Editor's Note—Inaudible].

The Chair: Order.

Capt Joe Oakley: That came out of my career, sir.

When Air Canada decided that flying jets to some communities was no longer economical, they gladly pulled out of 16 to 22 destinations in Canada when forming their connector carrier.

Ms. Bev Desjarlais: Why do you have this kind of clause in your agreement? What's the benefit to your pilots of having this type of clause?

Capt Joe Oakley: A guarantee that Air Canada will honour its contract with its pilots and won't start giving up all domestic flying to a feeder carrier that we've been building up for 62 years.

Ms. Bev Desjarlais: So it ensures profitability from your side, but not necessarily the other side, which would be the feeder carriers?

Capt Joe Oakley: The feeder carriers are very profitable.

Ms. Bev Desjarlais: Is that a wrong assessment?

Captain Steve Babb (Government Affairs, Air Canada Pilots Association): Joe, could I say something?

I think, with all due respect, what you're suggesting are two completely different things here. On the one hand, you're talking about Canadian Airlines' relationship with a foreign carrier, American Airlines. Then you're coming back and trying to say that's no different from the relationship Air Canada and its pilots have within their contractual agreements with the regional carriers, within the umbrella of Air Canada.

I would say they're really two completely different subjects. One is a grouping of Canadian jobs, through Canadian pilots, losing that opportunity to the Americans through the American Airlines agreement. The other is enhancing jobs within Canada.

Ms. Bev Desjarlais: Don't get me wrong; I recognize one is going to American and one is strictly staying within Canada, but the point I was making is that one ensures profitability for this group and one ensures profitability for that group, without consideration for the other.

The Chair: Thanks, Ms. Desjarlais.

Captain Oakley, do you want to respond to that?

Capt Joe Oakley: You can't look at that in isolation, because Air Canada wouldn't be where it is today if it didn't have a feeder network. It's like the hub of a wheel: you take one spoke out and the wheel is loose. If we can't get the feed from the outlying communities to the transcontinental stuff to feed the international stuff, then we don't have an airline. The feeders are very critically important to the airlines of this country.

• 1845

The Chair: Thanks, Captain Oakley.

Colleagues, we've gone through one round already. I just wanted to get a question in myself.

Captain Oakley, in your presentation you certainly delivered a certain flavour to the report. I don't think anyone can deny where you stand on a one-airline versus two-airline policy, where you stand on the Canadian pilots versus your own pilots' association. Given the flavour of your report, in your opinion should Air Canada or Mr. Milton really have anything to do with Canadian Airlines at all? I get the impression you're saying Canadian is one company; Canadian got into financial trouble, and whatever happens to Canadian happens; leave us alone because we're doing just fine. Does that just about sum it up?

Capt Joe Oakley: I think the first part of your statement is right, Mr. Chairman. Should Canadian be left to its own devices in the marketplace to restructure, refinance, and remain a vital component of the transportation industry in this country? Yes. We were led down the garden path for the last two months, thinking there was another solution out there that was patently against the law. Are we now going to embark on another roller-coaster ride as if there's only one solution out there? I think all we're offering, sir, is that there are other options out there that should be investigated.

I'm sure the Air Canada pilots are not the authority on how to restructure this airline industry, but we're saying there are other options. Hopefully we're not going to be myopic enough that we don't look at all available options out there and start believing what we read in the press.

The Chair: Okay, well, he who has the gold makes the rules. In this case, we have a situation in which Mr. Milton will be making the rules, because he has the opportunity now to restructure—restructure, Captain Oakley, and nothing short of that—the airline industry in this country. What this committee is seized with, of course, are the principles that we stand by in terms of how we ensure that there is fair pricing. If there is one airline left in this country, there are no guarantees on pricing. There is no guarantee that there won't be any price gouging. How do we ensure that there is no price gouging?

Then we have to look at the regional situation, and we have to look at the employees concerns at the one airline where they're in a little bit more trouble than Air Canada is today. We have to look at competition. We have to look at control. We're doing all of that in order to ensure that when the new Air Canada flies—because that's what it looks like down the road; I don't think anyone here would disagree with the fact that it looks like we're going to have one airline at the end of the day—Canadian sits back and says that Air Canada doesn't have to own it to force it into bankruptcy, because Canadian might be able to do that just fine on its own, thank you very much.

So when you deliver the message that you have delivered to us today, there are many people out there who work for Canadian Airlines, for example, who might be saying to them that it doesn't sound like the Air Canada Pilots Association is too sympathetic to their pilots.

So is there really any difference from where we were two months ago as compared to where we are today?

Capt Joe Oakley: Mr. Chairman, perhaps there's not. You have a very difficult mandate in your committee.

The options available to Canadian apparently are very limited. Does that mean we have to go down the monopoly road in this country? Who is going to speak for the consumers? For a banker, it would be great. If I were a banker listening to Mr. Milton's proposal, I would be getting my cheque book out.

Five years down the road, I don't think he has a mind to keep these as two separate entities. How would you service the debt load of the two airlines combined if you didn't have a monopoly situation? In our view, the only way you're going to service this debt is to have a monopoly and to maybe have a certain latitude on pricing of your product. Yes, you have a very difficult mandate in this committee.

The Chair: Some of these questions I'm asking you now may be a little unfair, because you are the airline pilots, not the company. Maybe what this committee ought to ask itself is whether or not we should invite Mr. Milton back, given the new situation going on in this country today with the conclusion of Onex, etc. We might just have to summon Mr. Milton back to our committee to fill in some of the blanks for us.

On the other question I had for you, you mentioned that the 10% rule has worked just fine, thank you very much, and it has in fact protected Air Canada. Is that correct? Is that what I heard you say?

Capt Joe Oakley: Yes, it has protected Air Canada from the leveraged buyout specialists.

• 1850

The Chair: In this country we also have only two railway companies, CN and CP. When CN was privatized, it had no foreign ownership limit—unlike the airline industry with 25%—and a 15% restriction on individual ownership. Yet it seems to be working very well for CN. It has gone from a $100-million-a-year loss to a $600-million-a-year profit. Granted, the ownership isn't all in Canadian hands, but somehow the control and the direction of the board, etc., are. As situations change, as they did in the railway industry, do you see the possibility of change in the airline industry whereby maybe 25% ownership can be justified? There is an option for cabinet to go above that. We don't have to tell them what to do about that, but on the 10% rule we have the option to take it to 15% or 20%—

Mr. Michel Guimond: Thirty-one.

The Chair: Or 33%.

Mr. Michel Guimond: Thirty-one percent for Gerald Schwartz.

The Chair: What do you think, Captain Oakley? Should we keep our minds open to increasing that 10% rule, or shall we just freeze it at 10%?

Capt Joe Oakley: No, I think you're going to hear all sides of the argument, Mr. Chair. I'm going to—

The Chair: No, I'm asking you.

Capt Joe Oakley: Well, we stand behind a limit on how widely dispersed you would like the Canadian or Air Canada shares to be held in this country. We would hate to see what happened south of the border, where somebody managed to amass enough shares to take over the airline, sell all the profitable—

The Chair: No, we're not talking about unlimited amounts here. We're talking about 15% to 20%, not 50% or 60%.

Capt Joe Oakley: It may be healthy from a corporate governance point of view or a shareholder's point of view, but we're speaking from the employee's point of view. You must appreciate that we would like as much security and stability in our industry as possible. If that goes against the grain, or if it goes against the common corporate governance ideas of this country, then we're going to have to live with your findings, sir.

The Chair: Thanks, Captain.

Mr. Calder, please.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): Captain Oakley, I'd like to go to page 3 and just pick away at some of the figures you gave here. You made a statement here that Canadian Airlines has lost nearly $1 billion over the last three years—that's stated in the second-last paragraph—yet Canadian Airlines' annual report for 1998 stated that it lost $319 million in the last three years. I would just like you to fill in the rest of the dollars that are missing there, or put some fact behind that statement.

Capt Joe Oakley: Mr. Chairman, without some of my financial advisers beside me here, I think I would be unable to do so. This report was put together by a committee.

You're shooting the messenger, Mr. Calder. I'm afraid I can't answer you.

Mr. Murray Calder: Oh, okay. Still, we could go to the next one. You also made a statement here that Canadian has paid out nearly $1.05 billion, or nearly $350 million a year, to American Airlines, whereas Canadian says it provides approximately $120 million worth of air traffic flow to American Airlines. In return, American Airlines returns $110 million in traffic flow to Canadian. First of all, I wonder how you arrived at the $350 million figure. Secondly, I'm kind of curious about what Air Canada receives and provides to United Airlines.

Capt Joe Oakley: If I'm not mistaken, Mr. Chairman, I took some of those numbers from Mr. Benson's presentation before the Senate. I would have to go back to my notes.

I'm not in a position to discuss the value of an arrangement that is marketing passenger yield back and forth. The $350-million figure comes from what we know it's costing Canadian up front for the support provided by American Airlines, over and above what it's getting from the exchange of passengers. These are contracts for information technology, contracts for yield management, for load, for weight and balance, for this and that, and they're costing them upwards of $17 million a month. There must be some other ancillary costs in there that brought us up over $300 million, but $17 million a month straight up just for the support plus some other contracts would easily bring the total up over $300 million a year.

• 1855

Mr. Murray Calder: Yes. So what does Air Canada provide to United Airlines then?

Capt Joe Oakley: Nothing of the sort. We don't have any contract or service arrangements, other than the fact that of course if we flew to Chicago they would probably do our ground handling there, and when they flew into Toronto we would do their ground handling in Toronto. So I think it would be a zero sum game of service contracts between the two airlines.

Mr. Murray Calder: What I'm trying to drive at here is that it's been constantly said that Canadian is carrying this huge debt load, etc. Any time I see figures here I'd like to get verification, and what I'm hearing right now, Captain, is that you're having a hard time verifying the figures you put forward in your statement.

The other thing is that in the last paragraph on page 3, you also said we could go for bankruptcy protection to allow Canadian to restructure itself.

Canadian's debt right now, it's my understanding, is largely foreign held, and about 50% of Canadian's flying is international. How can the CCAA protect Canadian outside of Canada? That would be one question. Secondly, I'd like your opinion as to whether it's reasonable to assume that Canadian can be successfully restructured.

Capt Joe Oakley: I'm not an expert, Mr. Chairman, on the CCAA, but I understand there are provisions in that act to deal with foreign debt holders. I'm 100% sure there are provisions for foreign debt holders, but how they would affect this particular situation, I couldn't be more precise on that.

It's just that we don't think it's ever been tried at Canadian Airlines. They seem to have restructured their debt with their most important debt holders, probably two or three of them, and all they seem to do is get more handcuffs or more shackles put around them. Have they ever sat down in a room with all of their debt holders and all classes of debt holders and tried to work this thing out? We don't think they have.

I apologize. I forget the second part of your question.

I wanted to comment on the numbers. You could hold me to $305 million, $300 million, $365 million, but I think the problem this committee, and in fact the Senate committee, has is a lack of clarity in this whole situation.

I think you've heard Mr. Milton say we don't know what we're getting ourselves into, because nobody has any idea of what arrangements Canadian Airlines has had with American.

So if I'm a little loose in some of my estimates, you have a bigger problem as a committee. You're trying to get to the bottom of why Canadian says their only solution is to now join Air Canada or they're going to go bankrupt.

There's a lack of clarity in these arrangements, in these numbers and service contracts they have. All of these service contracts, I may point out, sir, were all in Canada at one time. Not only are they contracts that are now costing $17 million a month, but the jobs went with them south of the border.

The Chair: Thank you, Captain.

Mr. Bailey.

Mr. Roy Bailey (Souris—Moose Mountain, Ref.): Thank you, Mr. Chairman.

Captain Oakley, I'm a member of the committee, which has sat for hours, and we have listened to very many witnesses. I want to assure you that I can understand your point as a pilot with Air Canada, but I can assure you that my disappointment rests with the bidding process after Onex.

Please don't use the term “against the law”. I want to mention to you that in the city of Moose Jaw it's against the law to walk on the street unless you keep to the right, and I suggest to you that 10% is about as old as that by-law in Moose Jaw. I don't like the term “against the law”.

The point I want to make, sir, is it's become clear to me—I'm just speaking for myself—that the problem we have in Canada is we need a dominant carrier. I'll get back to the term “monopoly” a little later on. We need a dominant carrier.

If we go to this process where we have two dominant carriers—I see we're back to this, that we're going to help Air Canada somehow—I don't think the airline industry in Canada is going to survive with any attempt to have the two dominant carriers. I see one dominant carrier emerging. It's going to be one carrier and don't worry about the competition, because people like WestJet and the rest will jump in and provide you chaps with all the competition you want.

• 1900

This committee can't just look at Air Canada and Canadian. It's a whole big thing we're looking at. It's a huge industry. It's huge. And I really don't think—I know you're a captain with Air Canada—Air Canada's concept in their bid at the present time makes any sense to me. It just doesn't make any sense that you're going to struggle along and somehow have two dominant carriers, and you haven't solved a thing. The responsibility of this committee is to say “We have jobs to look after. We have the Canadian flying public to look after.”

It seems to me somehow we have to get the two of you together to form that dominant carrier, and let the competition have it and everybody will be happy.

Captain, the first comments I got when this broke in August or July were three phone calls that said “For God's sake, I don't care what you do, but keep your hands off WestJet.” That's a new carrier. So we need a dominant carrier. I would argue even with my colleagues here—and I haven't talked about it, but it seems as though that's the way we have to go. This committee has to come up with a recommendation to the minister.

Two dominant carriers didn't work in the past, Mr. Keyes, and it's not going to work now. Thank you.

The Chair: Do you have a question there?

Mr. Roy Bailey: I just had a comment.

The Chair: All right. To be fair, sometimes this level of debate coming at you may indeed be better asked of Mr. Milton. That may be another reason why we should have Mr. Milton back.

Ms. Parrish, please.

Mrs. Carolyn Parrish (Mississauga Centre, Lib.): Thank you, Mr. Chairman.

I want to save you from answering a lot more questions on facts and figures you have difficulty with. You know the old adage, a camel is a race horse designed by a committee. You have yourself a tough task here, so I'm not going to be too rough on you for not being able to answer all those questions.

I have three questions. I'm not particularly well versed in the intricacies of how airlines work, but I think I know a reasonable amount. I was very curious when this whole controversy started about the violence and the nastiness and the condescending attitude I was getting from some letters from the Air Canada pilots. I don't want you to apologize for it. I didn't get a nasty letter from you. I understand I'm on your Internet site as a very funny response to one of your pilots, so I hope you're being all well amused.

But what happens to me when I get a response like that, which I consider to be very exaggerated to what I've done to that point, is it makes me very curious as to why everybody's reacting so violently. This usually causes me to go in the opposite direction and ask a few more intense questions, which I have made a point of doing. I'm actually not even on the committee. I'm here out of interest because I don't enjoy being laughed at—

The Chair: You'd better get on with it, Ms. Parrish, or you're going to run out of time.

Mrs. Carolyn Parrish: I will get on with it.

The United Airlines pilots were sitting here a couple of weeks ago and they told us they owned 25% of United Airlines, and that's one of your Star partners. So I assume their owning 25% of it has not done any damage to that airline. As a matter of fact, they're one of your very good partners. So, again, I would like to keep going back to the question that this committee has been asked to find out, which is if that seems to be working—a 10% rule brought in 10 years ago is pretty archaic; like walking on the wrong street in Moose Jaw. I know you're being asked the same thing over and over, but I'm quite curious as to why you're not being flexible on that.

Secondly, Mr. Bélanger said, referring to Canadian Airlines, that had they been left alone, they had the means and the will to succeed—that airline over there, Canadian—but they've been hampered by the direct intervention, interference, of American Airlines. I keep hearing about the dastardly deeds of American Airlines—and I really like hating Americans too; it's a really neat Canadian sport. But I'm curious. They were losing a lot of money before AMR came in. They didn't cause them to go bankrupt or they didn't bring them to the brink of bankruptcy. They were in serious financial trouble when AMR came in. So why is the American company being so severely vilified, besides the fact they're a great target?

Capt Joe Oakley: The Air Canada Pilots Association does not have an Internet site, so your name is not up there in neon lights.

Mrs. Carolyn Parrish: I can show you some letters that say, “This is on our site; this is on our”—

The Chair: Go ahead, Captain.

• 1905

Capt Joe Oakley: The employees of United Airlines own 51% of the airline. They did that coming to the rescue in the late 1980s and 1990s when the whole airline industry was awash in red ink. Taking that across the border to Canadian...yes, Canadian was awash in red ink. A lot of it was their own doing. In trying to provide an alternative to the dominant Air Canada at the time, they took on five airlines, the last one being Wardair. There was no secret that the market said they had terribly overpaid—

Mrs. Carolyn Parrish: Perhaps I could interrupt for a second. You're an expert on flying a plane. We're not sure you're an expert on mergers.

Capt Joe Oakley: The period when American Airlines came in was a bad period. In 10 years the airlines of the world had lost more money than they'd ever made.

Mrs. Carolyn Parrish: [Editor's Note—Inaudible]...to come in. They should have let them go down.

The Chair: Ms. Parrish, let's let the witness answer the question.

Mrs. Carolyn Parrish: Okay.

Capt Joe Oakley: They came in for, do I dare say, the measly sum of $236 million, knowing full well that the corollary to that was that they could go then and introduce the service contracts and take some of this stuff south of the border where they had some expertise. Canadian was in such need of this $236 million, they had to agree to these contracts. American Airlines wrote that $236 million investment off in the first year or two. So after that it was all gravy.

Were they the saviours? We submit that they weren't. They could see a good thing when they saw it. Their $236 million investment has been returned tenfold.

Mrs. Carolyn Parrish: Could you comment on my first question, which is the ownership of the United Airlines routes? You say they came in to save the difficult situation United Airlines was in.

Capt Joe Oakley: Yes.

Mrs. Carolyn Parrish: So you have no problem with their owning 25%, or whatever percent they own?

Capt Steve Babb: Do you mean the pilots of United owning 25% of their own company?

Mrs. Carolyn Parrish: Yes.

Capt Steve Babb: No, not at all.

Mrs. Carolyn Parrish: Not at all.

Capt Joe Oakley: But not anybody else, though.

The Chair: Thanks very much, Ms. Parrish.

Mrs. Carolyn Parrish: Thank you.

Mr. Guimond, please.

[Translation]

Mr. Michel Guimond: Mr. Chairman, Ms. Parrish seems offended by the insulting letters she received from Air Canada pilots. If she likes, I can show her the stacks of offensive letters that I've received from Canadian pilots. Furthermore, over the weekend, I received letters from all Canadian employees based in Tokyo and Hong Kong.

[English]

The Chair: Okay. We've established that we're all getting letters. Let's try to get to the meat of the issue, and that is to try to establish....

Monsieur Guimond, please.

[Translation]

Mr. Michel Guimond: Captain Oakley, you could have responded earlier when the chair mentioned to you that the government had decided on a 15 per cent ownership rule when CN was privatized. Perhaps you are unaware as well, since you spend so much time in the sky, that the government also established a 10 per cent ownership rule when Petro-Canada was privatized. It isn't difficult to see where the government is going with this.

[English]

The Chair: Not necessarily, Monsieur Guimond.

[Translation]

Mr. Michel Guimond: Now, for my question. Does ACPA still have some outstanding issues with ALPA? Are there any skeletons in the closets, so to speak? Are there any unresolved issues on the question of pension plans? Have you recovered all of your money? Has your divorce from ALPA been settled?

[English]

Capt Joe Oakley: Mr. Chairman—

[Translation]

Mr. Michel Guimond: I have another question. Maybe you should write it down, because the chair is probably going to cut me off.

My other question, and I'll conclude on this note...

[English]

The Chair: I won't cut the witness off, but you're close.

[Translation]

Mr. Michel Guimond: On a final note, Captain Oakley, earlier, you made some interesting observations when questioned about the merging of seniority lists. I do, however, have some lingering concerns. I would have to say, and I'm weighing my words carefully, that ACPA is locked in a legal battle with Air Canada's regional pilots. This has been going on for five years.

Personally, I'm concerned that if Air Canada buys out Canadian—not that I'm not confident that the transaction will proceed smoothly—a battle between the different unions could be brewing.

• 1910

I'd like some assurances from you that this isn't about to happen. Far be it for me to sound any alarms, but I read in an article that many accidents occur as a result of communications problems in the cockpit. I have seen the statistics, but I don't recall the exact figures. The public wants to continue flying in safety. It wouldn't be good for business if an argument or dispute of some sort were to erupt in the cockpit.

[English]

Capt Joe Oakley: Those are good questions.

I think the divorce was reasonably clean, reasonably swift. There are some ongoing negotiations about a sum of money that we would like back from a trust fund that belonged to all the pilots, and Air Canada pilots would have owned 60% of that trust fund. That's still before the courts, but for the most part the rest of it was neat and clean.

Merging seniority lists is a difficult thing. The one we have with our feeders is unique from, say, if we had to merge Canadian and Air Canada down the road. For the most part, the feeders started up after the Air Canada pilots were on the seniority list. Air Canada continued to grow. The feeders continued to grow, and they were very happy down there, until one day they got the idea that wouldn't it be nice if they came into the Air Canada seniority list the same day they had hired at the feeders. That went against all agreements worldwide that said when you join an airline, you go on the bottom of the list.

The feeder situation at Canadian is that they have their regional carriers, and they accepted regional carriers at the bottom of the list. We went so far as to say any expansion in Air Canada would come 100% from our feeders.

So we think we went above and beyond to try to entice them to come into Air Canada, but they weren't prepared to go to the bottom of the list. This is before the Canadian Industrial Relations Board...and I don't think I would like to comment on that part of it.

Canadian itself is a product of merging five airlines. It was painful, but pilots are professionals. At the end of the day, when they sorted out where everybody sits there, they got into the cockpit together and they did their darndest to make sure it was the safest operation possible. If you go back, ideally I think they would say they wished that hadn't happened. In a merger somebody always goes to their grave feeling aggrieved in the situation because somebody has some numbers senior to him.

Is it an accident waiting to happen? No, it's not, but it's a painful and expensive transition. When you take different cultures, different standard operating procedures, and different aircraft types, and try to merge that all together, it's painfully slow. You would have to take the time and invest the money to make sure all the standards are met before you turn people loose in a merged situation.

The Chair: Thanks, Mr. Guimond.

Mr. Dromisky, please.

Mr. Stan Dromisky (Thunder Bay—Atikokan, Lib.): Thank you very much, Mr. Chairman.

First of all, I would like to support your suggestion that we bring Robert Milton back before the committee. A great deal has happened since his first appearance before this committee, and a lot more will be taking place before he reappears for a second time.

We know today he's making a presentation to all his stockholders, and I hope we find out what that's all about in the near future.

However, going back to your presentation, Captain Oakley, basically what you're saying here is, in essence, a maintenance of the status quo plus a kind of sophisticated wish list regarding Canadian Airlines and restructuring and refinancing and everything else. That's exactly what Canadian Airlines has been doing for the past 10 years. Look at the situation they're in right now. So what you're really saying is let them continue to do so, but you're also proposing minus international routes, which are very lucrative, very profitable, and help Canadian float a little longer.

If you take away the international routes for them and the rest continues as it is right now, in essence you're asking for a quicker demise of Canadian Airlines. In other words, they'll go bankrupt much faster. So we end up with a situation where we have a dominant carrier.

• 1915

I know the chief executive officer of your company has made certain promises, but let's stop and think. In your presentation you say you're concerned that increased controls could stifle the vitality and the sense of initiative you are demonstrating in the industry. We know the industry outside of the two major carriers is a very healthy one. We have had many chief executive officers and presidents of companies here from the feeder lines and the charter carriers and everything else. They are doing well. Your company and Canadian aren't doing as well as you might think. There are great debts on both sides.

We could end up in the very near future with a dominant carrier, so I'm going to ask you some questions. Who's going to protect the consumers? Who's going to protect you workers? Who's going to protect the regional carriers? Who's going to protect Canadians in general? I can go on and on with the same kinds of concerns our chairman has raised.

Keep in mind that I think in a very short period of time the chief executive officer of the dominant airline could come before the Canadian government and say “Hey, we have all these surplus workers that we can't carry forever. We have all this surplus equipment we can't get rid of. And we want to do this and this and this to maintain a viable carrier system in Canada and internationally.”

There's really no guarantee that your jobs are going to be saved. There's no guarantee whatsoever that the extra equipment can't be used to wipe out independent charter carriers and regional carriers. The only guarantee we have for all that is the Canadian government.

Could you react to that? You want no regulations. What I'm saying is we see there have to be regulations in place, contrary to what you're presenting here.

Capt Joe Oakley: We are not singing from the same song sheets there. We're saying we don't like the idea of a dominant monopoly carrier, because all the things you say as a wish list are the things you say you would now perhaps like to build some regulations around. If you leave two carriers to compete in the domestic marketplace, you guarantee competition; you guarantee as many jobs as possible.

Mr. Stan Dromisky: Captain Oakley, you miss my point.

The Chair: Be very brief, Stan. We're almost out of time.

Mr. Stan Dromisky: Your proposal will lead to the quick death, you might say, of Canadian Airlines. If the status quo is maintained, the wish list you're talking about is exactly what Canadian Airlines and American Airlines, and so forth, have been doing for the last 10 years, and they're not getting anywhere. So whether we like it or not, we'll end up with one dominant carrier.

Capt Steve Babb: Mr. Dromisky, actually what you're referring to is the plan that has been put in place today by Air Canada. We're sitting here representing the Air Canada pilots, and as we've said in our brief today, we certainly believe the opportunity for Canadian to restructure itself and be a viable alternative to Air Canada is a possibility. It is one of the possibilities on the table.

There certainly have been a lot of questions here, and there's no doubt there's a strong belief or an appearance of a belief that most of you believe there will be only one carrier at some point in time. But that isn't the position of the pilots association. I want to reiterate to you people that we truly and honestly believe that with the people they have and with the ability to restructure themselves, Canadian Airlines can be a viable alternative.

There's no doubt that all of you realize this aviation industry is very complex on a worldwide basis. If Canadian Airlines restructured itself, it wouldn't be the first airline to ever go into what's referred to as bankruptcy protection. All you have to do is turn to the U.S. in the mid-1980s and look at the example of Continental Airlines. It took them five times to get their restructuring correct. To say that because Canadian Airlines has been going down the road of restructuring themselves in different ways over the last 10 years we need to now give up and proceed with a plan of having one dominant carrier—we as a pilots' association don't agree with that.

• 1920

The Chair: Thanks, Mr. Dromisky.

Ms. Desjarlais, please.

Ms. Bev Desjarlais: Thank you.

Just for the record, there are some amongst us who don't necessarily believe we will have to end up with one dominant carrier.

Capt Steve Babb: Thank you.

Ms. Bev Desjarlais: I think in all fairness to the people of Canada we need to look at all options. We recognize that the status quo is not acceptable, but two airlines with some changes may be an option out there. So I think in all fairness we need to be open to it.

I have before me a paper, which is written by a person who I don't believe will be appearing before the committee. Committee members will have received a paper called Back from the Airline Abyss; A New Civil Air Transport Policy for Canada by Daniel R. Perley. He has some excellent suggestions and thoughts that most of us might not have thought of if we hadn't been involved in the transportation industry, which this gentleman has. I would suggest that anyone who hasn't read it should do so, because he does strongly support—

The Chair: Bev, is this a source for your question?

Ms. Bev Desjarlais: Partially. I'm emphasizing the fact that he does support the two-airline policy and that we should strongly work toward that. I want to point out as well that although the competition report came out, they were given the mandate of looking at one dominant airline, so we never got another perspective in that regard. I think we need to keep that in mind.

Although I haven't appreciated the process that has been involved, I appreciate all the witnesses coming forth and sometimes taking a lot of flack from us, because I think the process irritated a number of us. In my view, each and every group that has come before us was strictly looking out for themselves, which we can expect, but we are taxed with looking after the whole Canadian industry, and we'll do that.

I wanted to be clear that should we end up with one dominant airline, it's your position that the Air Canada Pilots Association will have no problem whatsoever incorporating pilots and other workers from Canadian at the same level as the pilots who work for Air Canada.

The Chair: This ought to be an interesting answer.

Ms. Bev Desjarlais: I caught you off guard, did I?

Capt Joe Oakley: No. I don't know how you would define “no problem”. It would be an interesting set of negotiations. I don't know if I'm going to be there, but I'd like to be a fly on the wall.

There are a number of instances and circumstances around the world where airlines have had to merge, and there are some formulas out there that worked and some that didn't. There were an awful lot of aggrieved parties that went to the courts. We're saying that if at the end of the day a merger is the solution here, let us come to you with the agreed solution. We would plead for non-interference.

Ms. Bev Desjarlais: Always bearing in mind the wisdom of Solomon and his answer to a problem.

Capt Joe Oakley: I think we could work out our differences. We're all professionals. There is no sacred turf here. We know what has to be done in order to come up with a fair and equitable solution for the most pilots possible, and we'll do that.

The Chair: Mr. Hubbard, please.

Mr. Charles Hubbard (Miramichi, Lib.): Just to sum up, if I'm hearing correctly what you're saying, first of all, you're opposed to a merger as proposed by the president of Air Canada. Is that a correct statement or a wrong statement?

Capt Steve Babb: Well—

Capt Joe Oakley: I'd like to answer that, if I could, Steve.

Mr. Charles Hubbard: Yes or no, are you in favour of it or are you opposed to it?

Capt Joe Oakley: We are opposed to a merger, nor is Air Canada suggesting a merger, sir.

Mr. Charles Hubbard: They're suggesting a takeover, unless I read my papers wrong.

Secondly, in terms of your conclusion, you talk about the marketplace that might be out there. Canadian has about 46 million shares out. Today they're worth about $1.60, with an asset value of about $75 million in terms of the shareholders who own them. Are you proposing that somewhere out there there's somebody who wants to put enough money into Canadian Airlines to make it work? Is that what you're saying today to this committee, that somebody out there is willing to bring enough money to the table to address the problems in terms of their cashflow and to make Canadian Airlines work in the future?

• 1925

Capt Joe Oakley: Mr. Chairman, is there a white knight out there? We're not sure. But what we're saying is let's have a look at the hindrances to the successful reorganization of Canadian Airlines. Who is stopping Canadian Airlines from becoming viable today? We say it's one of their partnerships. One of their partnerships might be worth $30 million, $40 million, or $50 million. We're saying $300 million a year. If they could get out of that handcuff, yes, they stand a chance of reorganizing.

Mr. Charles Hubbard: As a witness here, what approach would you wish the president of Canadian Airlines to take in order to get out of this box they're presently in? Is it going to be goodwill, that American Airlines are simply going to say, we forgive the debt? Does the Government of Canada have to intervene and say, here are so many loan guarantees or whatever to make the thing work? Where do you suggest the solution is going to come from?

Capt Steve Babb: The solution, sir, is in what Canadian Airlines brings to American Airlines in its Oneworld partnership. It brings a great many qualities, and that is where American Airlines needs to rationalize its relationship with the people of Canadian Airlines for what it brings to the table in terms of service to one of the G-7 countries and possibly losing that relationship, its feed off the west coast of North America to the Asian routes, and the landing slots it provides in Asia.

Mr. Charles Hubbard: Just to conclude, American Airlines doesn't want to do that. It's quite evident. Who is going to force them to do it? Is it through bankruptcy and the protection of a...?

Capt Joe Oakley: Mr. Chair, we don't know that American Airlines is not prepared to cooperate and to sit down and discuss. We have no idea what the status is. In fact, you've heard Mr. Milton say he wrote a letter to the president of the AMR board asking, when can we sit down and talk? I couldn't presume to know whether they're going to bow out gracefully, negotiate themselves out, or put on a very hefty price tag. Maybe somebody is willing to pay to get them out.

The Chair: Is that it, Mr. Hubbard?

Mr. Charles Hubbard: Yes.

The Chair: Thank you.

Ms. Meredith and then Mr. Fontana, and that will be it until the next witness.

Ms. Val Meredith: Thank you, Mr. Chair.

When you talk about the restructuring of Canadian, I get the impression that what you're saying is that Canadian should be a domestic air carrier and Air Canada should be an international air carrier, but Air Canada and Canadian would compete for the domestic routes. Are you suggesting to the committee that Air Canada would back away from their domestic routes in order to allow Canadian to become a solid, competitive company in the domestic area?

Capt Joe Oakley: Mr. Chair, I think 75% of your statement is quite right. I don't see Air Canada backing away from its present domestic route structure or its transborder route structure, from which right now it's getting 46%, I think, of its profit on its North American operation. But, yes, we see Canadian as being a domestic, transborder competitor for Air Canada, a stand-alone, viable, independent competitor. I don't want to put words in the mouths of this committee, but the international carrier should be the strongest one, the financially healthy one, and the one that has the equipment that can do the job.

Ms. Val Meredith: Like my colleagues, I fail to see how that's even a realistic possibility.

But I want to move on. You said a couple of times that you're hoping people will let the employees reach their own solution to a merger rather than having government or somebody else come in and say, this is how you're going to do it. You said that you all sit in the cockpits, and you can work this thing out. Why did Air Canada pilots leave CALPA if that's the situation? If you can work things out, why did Air Canada pilots feel the need to leave the Canadian Air Line Pilots Association?

Capt Joe Oakley: Mr. Chairman, there were a number of reasons, none of which I feel very qualified to comment on. I'm one of the few Air Canada pilots who voted not to leave the Canadian Air Line Pilots Association. I didn't vote for ACPA, but the majority of pilots did. Then I got on side and said, let's get on with it.

They left for a number of reasons. One of them was the structure of the organization in Canada, where Air Canada had 60% of the members but only two out of 14 votes on a board of directors type of arrangement and was continually being outvoted by the smaller carriers, who had ambitious ideas of how they were going to work the industry.

• 1930

As to the intricacies of why and how it was sold to the Air Canada pilots, I did not listen to the argument because I was convinced that CALPA was the way to maintain a common front of pilots in this country.

Ms. Val Meredith: So do you still think it's possible for the employees, the pilots, to work it out themselves?

Capt Joe Oakley: Yes, I do.

Ms. Val Meredith: Thank you.

The Chair: Thanks, Val.

Joe Fontana.

Mr. Joe Fontana: Mr. Chairman, I think every Canadian, like Captain Oakley, would like a two-airline policy, just as we like an Eaton and The Bay, because in a perfect world competition is going to protect the consumer. Therefore I like what you had to say, except none of your reasoning makes any sense as to how to accomplish that.

Here's what you're saying. No more than 25% on foreign ownership because you can't trust foreign owners. God help what might happen to a Canadian with greater than 25% foreign ownership. Oh, by the way, don't let them fly international because there's not a big enough market, because Air Canada should make all the money on the international and just let them work domestically, where in fact you've got a whole bunch of problems. Then you turn around and say, by the way, because American has such bad service agreements, if somebody's going to come along and renegotiate this....

I'd suggest to you that your premise is perfect to have a two-airline policy, but you want to tie down this new airline by only flying domestically, depending, and not have any foreign ownership or be able to track the capital it would require.

So I'm a little suspicious. As I said to you, maybe I'm getting a little cynical in this life, but it sounds very self-serving, because you don't want to deal with the issues of seniority with the Canadian pilots coming in; you don't want to have to deal with the regional pilots of Canadian coming in and having to deal with the merger and everything.

If the consumer is the person you really care about, then let me ask you this question, because unless we can find a white knight or a government that's prepared to come in with $100 million, $200 million, $300 million, just like we were able to bail out Air Canada.... Canadian taxpayers paid $600 million worth of debt in 1988 before we privatized it, so Air Canada didn't get off scot-free.

I want to ask you this. If in this perfect world we can't have two airlines and you're so worried about a monopoly, I want to ask you, sir, are you prepared...because you will have the big control stick. You will be able to hold Air Canada and that monopoly and the consumer really to the wall. Pilots are that strong. You've demonstrated that in the past, how you think about the customers. Are you prepared to say that in new negotiations with the monopoly you won't ask for increases in your collective agreements or that the prices won't go up, that the consumers are going to be protected, that regional pilots and all those seniority issues are going to be dealt with, that you may look at competition like cabotage to protect the Canadian consumers?

I want your guarantees that if you're so worried about this monopoly and we can't achieve the two-airline pilots, I want you to be able to put down.... Captain Oakley, you sound like a very nice guy, a compassionate person. You've talked a little bit about how you feel about your counterparts. But I want you to put to the Canadian people how you're going to protect them in a monopoly situation, being that you're so worried about it, because you are going to hold an awful lot of power, sir.

The Chair: Thanks, Mr. Fontana.

Last word to you, Captain Oakley.

Capt Joe Oakley: I would hope the consumers of this country hold the final word.

Mr. Joe Fontana: Where are they going to go? There's only one airline.

Capt Joe Oakley: You're telling me there's one airline. We're asking you to consider all the options that would guarantee competition in this country, respect the consumer, respect the smaller communities, and respect the airline employees. There's a market out there, and there will always be a carrier out there that's going to price the tickets correctly to attract the market. And the big guys are going to have to price their tickets accordingly if there's going to be competition and the consumer is served properly in this country.

The Chair: That's what this committee is dealing with.

Captain Oakley and Captain Babb, thank you so much for your presentation to our committee and for answering our questions. We appreciate the time you've taken.

Colleagues, we're suspended for five minutes and then we're back with our second witness. It's five minutes only, please, colleagues.

• 1934




• 1943

The Chair: Colleagues, we'll resume. Before us are witnesses from the Airline Pilots Association. Captain Michael Lynch is president, Canada Board, Airline Pilots Association (International). Captain Bruce McConchie is chairman, Master Executive Council, Canadian Airlines. Captain Steve Linthwaite is chairman of Master Executive Council, Air Ontario; and from Canada 3000, we have chairman Gordon Andrews.

Gentlemen, welcome to the Standing Committee on Transport. We look forward to your presentation of 10 to 12 minutes, so we can pursue questioning. Thank you. Begin when you're comfortable.

Captain Michael Lynch (President, Canada Board, Airline Pilots Association (International)): Mr. Chairman, honourable members of the committee, I'd like to thank you for inviting us to appear before you this evening.

The Airline Pilots Association (International) represents 55,000 professional pilots at 51 airlines in Canada and the United States. There are 10 airlines in Canada that form the Canada Board, with a total membership in Canada of 3,400 pilots.

As a trade union that represents employees in the airline industry, including pilots in the national, regional, and charter sectors of the industry, our greatest concern is the impact the restructuring process may have upon the employees we represent. It is in this context that we have our greatest depth of experience.

In our view, an integrated airline operation without the artificial labour barriers found in the Air Canada proposal is the only long-term solution to stability for the airline industry in Canada. Only if Air Canada is willing to integrate its operations with the Canadian family of airlines can it prove that this is not an attempt to dismember those airlines on an instalment plan.

• 1945

As professional airline pilots, we find any suggestion that flight safety during a merger would be compromised as a result of the integration of employee seniority lists embarrassing and insulting.

It is in this context that we consider it appropriate to comment upon Air Canada's proposal to own and operate multiple, separate airlines, each with their own separate complement of pilots, flight attendants, machinists, etc., and each represented separately before management. Given the experience of the Canadian airline industry, it is apparent to us that the proposal is completely unworkable in labour relations terms. In fact, it's a blueprint for permanent labour relations conflict.

Various groups of employees would be doing essentially similar work for different rates of pay, on one hand, while the management of the dominant carrier would be in a position to play them off against each other, on the other hand.

Of particular concern to us in this respect is the proposed low-cost airline. We are concerned that in the absence of specific legal restrictions, industry initiatives of this sort will create a downward spiral for wages and working conditions, pitting one group of employees against the other in an invidious race to the bottom.

The change that is to take place must be well considered and orderly. It must take effect at such a pace as to provide for choice and fairness for every employee of all the affected airlines. We would expect the key word for staff reductions to be attrition and the key for the future to be job security and growth.

An ad hoc reaction from one corporation to another corporation's hostile takeover bid is hardly well considered and orderly. We ask the government to ensure that our concern for the well-being of the affected employees is as much a part of the equation as the effect on the consumer and the rights of the shareholders.

In our view, the current regulatory restrictions on ownership, developed in the context of competition between multiple major carriers, no longer serve the industry well in the economic circumstances we find ourselves in today. Especially as the events of the last several weeks have demonstrated, a 10% limit for owning of Air Canada shares no longer serves any useful public policy purpose. Indeed, as we have seen, it is merely a barrier to entry for participants into the airline industry.

Under the current circumstances, the 10% limit effectively ensures that Air Canada is the dominant carrier in Canada. The Canadian airline industry's loss in terms of creativity and innovation attendant on market competition can already be felt and should not be allowed to continue. In the context of a dominant carrier model, the 10% holding rule is an appendix that ought to be excised.

Similarly, we fail to understand why the aviation industry, which needs huge investment for start-up, re-equipping, training, and expansion remains one of the few industries in Canada still restricted by the 25% foreign ownership rule. We see no reason why the necessary investment capital should not be attracted to the industry by significantly increasing the foreign ownership limits. Nevertheless, we do not wish to see the relinquishment of Canadian control of the industry. The sacrifice of our enviable operation on safety standards would clearly be too high a price to pay.

Also in this respect, ALPA does not support the granting of cabotage rights to foreign carriers; that is, the ability of an air carrier to transport passengers exclusively between two points within a country. Almost no other country in the world currently allows foreign carriers access to this traffic. The loss of employment that would result from allowing foreign carriers to operate between points in Canada would likely be swift and substantial.

While the concept of reciprocal cabotage rights with the United States is often considered as a possible remedy to this, we do not think it is a sufficiently likely eventuality to warrant further consideration of this issue.

While ALPA supports the tenets of the competitive marketplace, such as price comparisons, service and scheduling alternatives, we ask the committee to consider the viability of regional and charter carriers in the framework of long-term stability in Canada's airline industry. In this regard, it is apparent from our experience in the industry that the principal manner of achieving stability at the regional level is the establishment of secure relationships or co-chair agreements with a main-line carrier.

• 1950

Various proposals, most notable of which is the Competition Bureau's report, have suggested that the interests of competition would be served in the dominant carrier environment by requiring the divestiture of wholly owned regional carriers or the opening up of the interlining process to multiple carriers. As the report points out, however, the economic assumptions underlying these proposals require substantial further research to determine whether the competitive model would sustain viable carriers.

Our initial response is one of skepticism. Given that the more lucrative main line on the international market has not been able to support two principal carriers, we consider it incumbent upon the proponents of these proposals to establish that the regional markets are in fact able to support more than a single carrier.

Furthermore, the current regional carriers, flying for the most part turboprop or old technology jet equipment, are not equipped to provide meaningful competition to the dominant carrier.

We therefore urge the committee to move most cautiously in this area and to await the results of further study before initiating what is likely to be an extremely disruptive process.

In closing, I would like to thank the committee for its interest in the issues presented to you today.

Now I would like to ask Captain Bruce McConchie to make a statement on behalf of Canadian Airlines.

Captain Bruce McConchie (Chairman, Master Executive Council, Canadian Airlines; Air Line Pilots Association): Mr. Chairman, hon. members, on behalf of the more than 1,200 pilots who work for Canadian Airlines International, I sincerely thank you for your willingness to discuss the needs of the airline industry in Canada.

You have my presentation before you. I don't intend to read all of it, but I would wish to summarize the major points in it. We are pilots who have pioneered new routes within Canada and destinations in five continents, developing procedures that maintain the highest standard of safety, efficiency, and service to our passengers.

As you probably are well aware, pilots are experts at flying aircraft; we're not experts in legal or financial matters, and therefore our statements will not try to address the complicated specifics of these areas. But our concerns go beyond pilots. They involve our fellow employees, their families, our Canadian travellers, and actually indeed the industry's very future.

I'd like to make four key points.

First, the employees of Canadian must not be forgotten in any restructuring efforts. We make up part of a workforce of over 16,000 employees at Canadian Airlines, and each and every one of us has devoted our careers to ensuring passengers make it to their destinations efficiently and safely—and safety is a direct result of experience. Knowledge gained from operating on specific routes in all kinds of weather conditions allows for the careful development of proper operating procedures and techniques. International aviation organizations, foreign carriers, and our government have called upon the pilots of Canadian Airlines many times for their experience and skills to help the industry pursue the course of safety. The industry restructuring cannot afford the loss of the professional expertise developed by the pilots of Canadian over many years.

Second, any proposal that includes ownership of two main-line carriers operating in Canada must result in a merger. If one main-line carrier is allowed to own and dominate another as a subsidiary within a competitive environment, destructive labour unrest unfortunately would ensue. Management can continuously play one group off against another as it tries to further its corporate strategies.

Mr. Milton of Air Canada stated his intentions for Canadian quite clearly in his address to this very committee. His plans are to have Air Canada fly the profitable overseas routes of Canadian, resulting in a systematic dismantling of Canadian Airlines and a significant loss of jobs. Domestically there appear to be no controls in place to prevent a wholesale transfer of flying to Air Canada. The pilots of Canadian Airlines request that this committee demand the government not allow the transfer of these valuable assets from Canadian Airlines to Air Canada. Mr. Milton must honour his commitments on job security, integration, and equal contracts by merging the airlines.

Third, the concerns about job loss for pilots in a merged scenario are groundless. In our combined carriers' workforce, almost a third of the pilots will be retiring in the next five years. If you take retirements, training, and future growth into consideration, the junior pilots flying for the carriers right now probably have the greatest chance of advancement that they've ever had in the last 20 years.

Finally, we're willing to help out in the restructuring efforts.

• 1955

We understand why the pilots of Air Canada are worried. They're concerned about the unknown. We have successfully worked through five previous mergers. The pilots at Canadian have a proud history of involvement and support in our company, a sense of cooperation and common purpose despite coming from many different airline cultures.

Also, when they say that mergers don't work, have they looked at Qantas, British Airways, Delta Airlines, United, and SAS? The pilots of Canadian and Air Canada have often worked side by side in many areas of flight safety. We come from the same backgrounds, whether it be military, corporate, or bush flying.

Finally, mesdames et messieurs, we should not be revisiting problems in the airline industry every few years. Let us fix it properly this time. Your decisions will affect the lives of many workers, their families, and the communities they serve. Please make these decisions so that the dedicated employees of Canadian Airlines, Canadian Regional, and all the other carriers in Canada are treated fairly and equitably.

Thank you.

The Chair: Thanks, Captain McConchie, and thank you, Captain Lynch, for your presentations to the committee.

Colleagues, I should make one correction. I called Mr. Andrews the chair of Canada 3000. In fact it would be a promotion, I suppose. Does the MEC stand for Master Employee Committee?

Captain Gordon Andrews (Chairman, Master Executive Council, Canada 3000; Air Line Pilots Association): Master Executive Council. We're part of ALPA.

The Chair: So this is the employees group and you're the chairman.

Capt Gordon Andrews: We represent the pilots at Canada 3000.

The Chair: Thanks. Sorry about that, Mr. Andrews.

Colleagues, while I have you all sitting here before we start questioning, the chair wants to ask you if there's a consensus that we invite Mr. Kevin Benson and Mr. Robert Milton to appear before us together on the evening of Tuesday, November 23. They would be our last witnesses. Do I have a consensus on that?

Some hon. members: Agreed.

The Chair: Madam Clerk, you'll put the request to the two gentlemen.

Thank you, colleagues. We'll begin our questioning with Val Meredith.

Ms. Val Meredith: Thank you, Mr. Chair.

We've heard this evening that there is a willingness of the ACPA to look at merging. I don't know that we got any clear messages as to how that would work, but I do know from talking to some Canadian pilots that your experience in merging—and I think I'm going to ask Mr. McConchie this—five times, I understand, showed that it can work.

Some of the difficulties that were brought to me were things like merging seniority lists and that it can be done with parallel lists that over a period of time merge, but for the short term may be running in a parallel process. They talked about fences and no flush rules. Maybe you could, on behalf of the committee, explain to us what those are and what it would mean in merging two workforces together.

Capt Bruce McConchie: That's a fairly complicated question you have asked and I don't have all that much time, but I'll try to summarize it in a couple of ways.

One is the actuality where if you have a 747 that's piloted by a number of crews, you can't just ask them to walk out of the cockpit and have another group of pilots walk in the very next day. You have to adapt your standard operating procedures. You have to train those pilots. If a company threw the list wide open, wholesale, and everyone bid on it on an equal basis with the merged seniority numbers, it would be mayhem in the training.

Also, in regard to pilots who are, say, in their last five years with the company, it wouldn't be beneficial to the company for them to be retrained on other equipment because someone else came in senior to them.

So when an arbitrator looks at how the lists are built, common sense has to come in a lot of times, and they must ask whether it will be a benefit or a non-benefit to the company if the list is put together in certain ways.

But let me address it perhaps a little bit in a pilot story with regard to how those sorts of things can work. I was flying into Shanghai a number of years ago as a first officer. We were struggling through the weather, hardly understood the language, and it was a new aircraft for the captain, who had come from Pacific Western Airlines. My background was CP Air, and we had a brand-new hire sitting in the second officer's seat. We were busy working away on this approach and trying to figure out what the controller was saying to us. After we landed we all shook hands and said “Hey, we didn't even realize we're from different cultures here.” You were able to work together very well in that regard.

• 2000

That pilot just didn't walk in and train into that position; he waited for a slot that became open. So it doesn't mean there's a wholesale transfer of pilots all of a sudden. Let's say all DC-10 captains now get hold of the 747; all of a sudden they walk over next day and do that. The system just can't allow that.

Ms. Val Meredith: Thank you.

We have heard many statements, and I think the spokesperson for ACPA has said as well, that it's almost impossible to mesh the different corporate cultures and that it simply isn't going to work. He uses the figure that only one out of 25 mergers has ever worked. Is that fair? Is that comment accurate or is that a little exaggerated?

Capt Bruce McConchie: I'm always astounded where they get the information, because I'd like to see the facts that back it up. But if you look at the major successful carriers, as I alluded to earlier, Delta Airlines, Qantas, British Airways, Canadian Airlines, SAS, and United Airlines are all results of mergers.

Regarding that one in 25 figure, I'd like to see the facts to back that up.

Ms. Val Meredith: Would you say it's probably not accurate and that in your experience more mergers have worked than have not worked?

Capt Bruce McConchie: Just by looking at the very successful companies out there, I would tend to agree with more mergers working. It's a fact of life in private industry also.

Ms. Val Meredith: Thank you.

The Chair: Thank you, Val.

Mr. Lynch, did you want speak?

Capt Michael Lynch: I'd like to add that basically all mergers have worked. We're all the products of a lot of mergers, sitting at this table, probably eight or 10 of them, and they all work in the end if they're done properly and orderly.

The Chair: Thanks, Captain Lynch.

Mr. Fontana.

Mr. Joe Fontana: Thank you. Now I know why that flight to Shanghai was so interesting. Thank you, Captain, for letting me in on that.

The Chair: You got to go to Shanghai, did you, Joe?

Mr. Joe Fontana: Thank you very much for your presentation. Right from the start I want to thank you, because I think it's pragmatic in its approach, not because some of what you said agrees with my point of view as it relates to the 10% rule that essentially protects management and not shareholders and not consumers. We heard from an academic who studied both Air Canada and Canadian, where in fact the management mentality was to beat up on each other for eight or 10 years and not look at the factors affecting consumers, such as capacity, such as profitability, to the point that now we're left with one very badly struggling company and one that seems to think they're healthy but didn't make any money for seven out of 10 years, and when they did make it the one year, it was because they sold Continental Air.

So it's not as if everything is hunky-dory with Air Canada. That's why I agree with you totally that we have to get it right this time, because we may not have another opportunity.

I agree with your 10%. I also agree with your 25% rule, because I've never for the life of me understood, as long as you could have control but you could have foreign investment—and that was a way of attracting capital for Canadian, for Air Canada, or for anybody else in this business who wants to get into it—why they shouldn't have the opportunity in the global way of attracting the tremendous amount of capital you need to run these airlines. So I would agree that while the 25% rule is something we haven't been mandated to consider by the minister, I'd like to think we're also going to look at it in terms of making some recommendations in some way, shape, or form.

There are a couple of things I want to explore with you. In the whole scheme of things, if I go to page 2 of your brief, which says “without the artificial labour barriers found in the Air Canada proposal, is the only long-term solution to stability”, do I understand you correctly on this whole notion? If you have 16,500 employees, as an example, in Canadian, and if you bring these two groups together, the 2,500 jobs that are going to be saved, or the 2,500 jobs that are only going to be lost, according to Mr. Milton, is that a realistic figure or is somebody trying to sell us a pig in a poke here?

Capt Michael Lynch: I think the answer to that question is not something we're really equipped to detail. We don't have any business plans; I don't know that anybody has seen Mr. Milton's business plan. He may have made a comment to the effect that there would be no jobs lost at Air Canada; there would be some at Canadian.

• 2005

I really can't respond to that in those terms, but what we are saying on page 2 is that we don't want to see any whipsawing in employee groups, between one and the other group. There could be up to three or four bargaining units within the pilot group and the same within the mechanics or within the flight attendants. We don't want to see whipsawing.

Mr. Joe Fontana: The other thing I was interested in in your proposal is—

The Chair: Joe, just before you leave that, though, Captain Lynch could answer in all likelihood from past experience how many employees are lost through attrition, and so on.

Capt Michael Lynch: Thank you, Mr. Chairman.

It's our experience that probably 5% of employees are lost overall in the airline industry each year. Certainly that's normal attrition. Within the pilot group, Captain McConchie has already spoken quite clearly that we're going to lose about one-third of our pilots over the next five years through attrition, which brings us to think that possibly the whole thing could be put together without any loss of jobs through involuntary separation.

The Chair: Sorry to interrupt, Joe.

Mr. Joe Fontana: That's hopeful, and then of course you're left with whether or not you can come up with a labour...because you will have, assuming a merged Air Canada, regional carriers that they're having their problems with already in terms of those labour agreements, and perhaps a new discount airline, which you are very concerned about, and a new, downsized domestic Canadian Airlines and their regional carriers—having to put all of those things together in terms of labour relations. Do you think that is going to be very problematic?

Capt Michael Lynch: It doesn't have to be problematic. It can be done very orderly and very well considered, but that's why we're suggesting—

Mr. Joe Fontana: The support of the Air Canada pilots obviously would go a long way to help you solve that problem, wouldn't it?

Capt Michael Lynch: It would be a help. I believe I did hear them say they were prepared to look at a proper merged seniority list. If that's the case, then that would—

Mr. Joe Fontana: That was very positive on their part, and hopefully that would transpire.

I want to talk to you a little bit about your misgivings about reciprocal cabotage, because at the end of the day I want to think about the Canadian consumer. Obviously no one would ever recommend that we try to do cabotage ourselves. That would be absolutely ridiculous. But in regard to reciprocal cabotage, you say you're skeptical and one should tread very cautiously. I wonder if you could expand on that. I would ask you what your misgivings are.

I like what the Competition Bureau has to say, and of course tomorrow we may very well be talking to some people who want to merge the regionals. I'm a little concerned about making sure there is competition, that there is service to those communities in a one dominant carrier system. The Competition Bureau talked about the divestiture of those regional carriers to serve those communities and not have them be part of this one dominant carrier to ensure competition. I wonder why you're skeptical about that.

Capt Michael Lynch: Cabotage is something around which, as a labour union, we've always been accused of saying we're worried about jobs. We're also worried about the consumer.

In a cabotage situation, whether we open it up to European carriers or to United States carriers, we will very quickly find that those carriers will only fly the major routes. They will only fly Toronto to Vancouver, Calgary, and Montreal, and they won't fly anywhere else, which then diminishes the opportunity for the smaller carriers, the regional carriers, to be competitive, because they can't compete; they have no basis. The major dominant carrier will be struggling against foreign carriers within Canada, and to that end, not only will the jobs be lost, but the protection for the consumer will not be there.

The Chair: Yes, Mr. Linthwaite.

Captain Steve Linthwaite (Chairman, Master Executive Council, Air Ontario; Air Line Pilots Association): Mr. Fontana also mentioned the divestiture of the regional carriers. Speaking on behalf of the Air Canada regionals, as their spokesman, I would like to comment now, if that's possible.

The Chair: Go right ahead.

Capt Steve Linthwaite: I read the Competition Bureau report, and I think what we have to realize is that even in there it has statements like “We have not had the opportunity to examine this option in detail.” It also has the statement “On the assumption that divestiture of the regional carriers is feasible”.

I ask you to exercise extreme caution in that regard, because I think we've already heard in the last few weeks I've been here that everybody realizes that for a dominant carrier, the regional feed is critical for them to be competitive in the international market.

• 2010

So I'd be cautious about trying to tie the dominant carrier's hands behind its back domestically, in terms of forcing it to sell its regional feed. That's the first part.

Secondly, a lot of hurdles are pointed out by the Competition Bureau in divesting of the regionals, in terms of the slots, financing, and all those sorts of things. So I ask you to exercise extreme caution if that's considered. Even the Competition Bureau really hasn't investigated it, and it's a very uncertain future for my members to know we'd be sort of tossed out as an experiment to try to give competition.

The Chair: Thank you, Captain.

Mr. Guimond, please.

[Translation]

Mr. Michel Guimond: My first questions are for Mr. McConchie. First of all, despite the many offensive letters that I have received from Canadian employees, primarily from those based in Western Canada, I recognize that Canadian employees have worked hard over the past 10 years to save their jobs and their company. They have accepted pay cuts and changes in their working conditions. Even though in certain respects, my view of the situation differs from yours, I'm very much aware of the efforts made by Canadian employees.

My first question, Captain McConchie, is not about the routes that Canadian has lost since American Airlines has begun to exercise some clout. I put the same question to Mr. Carty, although I don't believe he quite answered it. His answer bordered on insulting.

Let me reprise the question. As you know, for the past six months, American Airlines has been operating flights from Chicago to Tokyo. As you also know, for the past several years, Canadian has been operating flights from Toronto to Tokyo. As of October or November, service on this route was slated to be abandoned, if this hasn't already happened. In your view, why has Canadian Airlines decided to abandon service on this route?

Mr. Carty, the President of American Airlines, cited the Asian crisis as the reason for this decision. However, the Asian crisis began two years ago and is now easing. If Canadian felt it had to cut its operations, it would have done so two years ago, not today, not now when the market is starting to rebound.

Is this one example of a predatory airline? Is there a connection between the new American Airlines Chicago-Tokyo route and Canadian's decision to abandon its Toronto-Tokyo route?

[English]

Capt Bruce McConchie: Mr. Chairman, I can answer that quite easily.

We have not abandoned that route. We're in the process of changing from DC-10 aircraft to 767 aircraft. The route currently goes from Toronto. It stops in Vancouver and then goes on to Tokyo. It does that because the 767 is not equipped with the proper crew rest facilities, which we feel is a very strong safety issue for that long a duty period. We normally have only two pilots who operate, but over a certain amount of hours we have to add another pilot. If you add the other pilot, you must have the proper rest facilities designated. That also applies to our flight attendants.

They turned down the route directly from Toronto to Tokyo because there were no rest facilities on board that aircraft. So we're in the process of changing our fleet. It has nothing to do with American Airlines operating out of Chicago to Tokyo. So we are indeed doing that route; it just has to stop in Vancouver.

We also have flights from Vancouver to Tokyo that originate in Vancouver. If you look at where Air Canada's passengers now go, I believe they go via United through an American hub overseas. As a result, Canadian carriers combined carry only about 34% of the total volume of passengers travelling internationally.

• 2015

So to answer your question, no, we did not stop it because of American Airlines.

[Translation]

Mr. Michel Guimond: I have another question for you, Mr. McConchie. Of all the possible solutions being considered to break the impasse or resolve Canadian's current tenuous financial situation, do you think the Government of Canada should invest taxpayers' dollars in this venture, as it has already done on two occasions? Is this something the government should be contemplating doing once again?

While we're on the subject, can you tell me whether or not you think your President, Mr. Benson, is acting responsibly when he says: “We have enough money to continue operating for a few more weeks, or perhaps a few more months”. Is this responsible, when you consider customers may want to reserve their tickets for next March or April and may be wondering if Canadian will still be in operation then? Are you proud of your President when he makes this kind of statement?

[English]

Capt Bruce McConchie: You had a number of questions there.

I'm very proud of Mr. Benson. He's worked very hard for our company. He is bringing to light the seriousness of the situation at Canadian Airlines. I believe a passenger who wants to buy a ticket for travel next March will have no problem doing that, from what I understand. However, it goes back to the very crux of why you're here.

Over the past 10 years, Canadian Airlines' and Air Canada's cups have been running slowly empty. Air Canada started with a fuller cup, but both cups are indeed emptying. For the government to put money into Canadian Airlines does not solve the problem. You have to address the industry's problems in themselves.

We stress that it can come from the private sector. There's already been an offer from the private sector to help solve it. So no, we're not turning to the government to pump more money into it. It just won't fix the industry's woes.

The Chair: Thanks, Captain McConchie. To be fair to you, Mr. McConchie, the minister has already said he has no intention of pumping any taxpayers' dollars into this situation for Canadian Airlines.

Mr. Dromisky, please.

Mr. Stan Dromisky: Thank you very much, Mr. Chairman.

First of all, I'd like to thank the group that has appeared before us today. I have to agree with you as far as safety and training are concerned. I have learned a great deal from the pilots. I have flown in cockpits and I have discussed these problems with pilots. I'm extremely impressed with the training programs the pilots have in North America, especially in Canada.

However, I know the number of mechanical faults, mechanical reasons for crashes, no matter what size the plane is, has decreased dramatically. It's so low that you practically can't see it on the chart. Human error, though, has increased dramatically.

I'm going to relate that to the regional carriers in this country. Let's stop talking about amalgamation and so forth. We have very little information before this committee regarding the regional carriers. I want to know, from your perspective, what could this committee recommend to the government, what rules or regulations can we change, to enhance this whole area of safety as far as the regional carriers are concerned? Is there a need to do anything? Do you have any concerns at this moment that you would like to share with us regarding safety and regional servicing?

Capt Steve Linthwaite: In terms of safety of the regional airlines in Canada, it's different from a lot of the press you've been getting in the States. It's the old two-tier safety system in the States. In Canada we don't have that. We operate the same standards in a Dash-8 at Air Ontario as in a DC-10 at Canadian Airlines. There is no difference. We both are trained at the same standard and are limited by the same regulations.

So no, I don't have any recommendations in that regard, because we are on a level playing field. We're just as professional at the regional airlines as they are at the major airlines.

Mr. Stan Dromisky: That's what the public wants to hear. Now can you explain what you mean by the two-tier safety?

The Chair: Is there somehow a link here, Mr. Dromisky, to the—

Mr. Stan Dromisky: Yes.

The Chair: Can you get to the link?

Mr. Stan Dromisky: This committee has to look into where we could possibly go in the future. There are all kinds of modifications and adaptations of American codes, American values, American systems, and so forth. That's what I'm concerned about.

The two-tier system you're talking about is significant here. I don't know whether we want to introduce it in Canada. That's why I'm asking this question.

Capt Michael Lynch: Mr. Dromisky, may I respond?

• 2020

The Chair: I'll leave it to Captain Lynch, but anybody who flies out of this country has to meet our safety standards. There is no linkage between the American safety standards and any other safety standards around the world, Mr. Dromisky. It's all Canadian.

Go ahead, Captain Lynch.

Capt Michael Lynch: I'm very proud of our safety standards, as we all are, as Captain Linthwaite and Captain McConchie have both demonstrated already. The public has nothing to fear. That's one of the reasons we want to maintain control of our operational standards and control of our airlines within Canada. We don't mind who owns them, as long as control remains here to maintain the superb standards we do have and that the Canadian public enjoys with all the Canadian airlines.

Mr. Stan Dromisky: Thank you very much. That's exactly what I wanted to hear, because here in this country, time and time again, we're hearing from the business community that we have to do what the Americans are doing in order to be competitive. That's why I raised this question. Thank you very much for your response.

The Chair: Thanks, Mr. Dromisky.

Ms. Desjarlais, please.

You're next, Mr. Calder.

Ms. Bev Desjarlais: When you talked about the job losses, were you specifically talking about pilot job losses, not the overall industry?

Capt Michael Lynch: No, actually I was speaking about the attrition for the overall industry.

Ms. Bev Desjarlais: That's 5%?

Capt Michael Lynch: Yes, that's an average. The quotation from Captain McConchie about the number of pilots who would retire over the next five years is quite accurate. We're very aware of our figures, and we assume Air Canada's are very close in the total amount of pilots who are retiring.

Ms. Bev Desjarlais: Okay. I know you're coming from the pilots' perspective concerning the combining of the agreements or how things would work out. Do you think the rest of the employees within the system would be so easily integrated? Do you think the job loss would be greater amongst the other employees if the two airlines were merged?

Capt Michael Lynch: The job losses could be a lot worse if there were several different groups of bargaining units. That's why we want to see the labour relations side come together. We're not suggesting how the management should run the airline or how the dominant carrier should be run. All we're suggesting is that the labour groups be put together under a common seniority list so that they're all working off the same list, and that the rates of pay be standardized so that there's no difference and we're not whipsawing one group against the other.

That's one of the disadvantages of the low-cost carrier. They're able to generally get the cost down. Low-cost carriers are generally also low-wage carriers, and that's not just for pilots; that's for everybody. That's why we're against it. If there's going to be a low-cost carrier, let somebody else start one up outside of the Air Canada or the dominant carrier issue, and let them take it on.

Ms. Bev Desjarlais: Okay. Do you think Canadian Airlines, whether it be international, regional, or otherwise, can survive in the system we're in, or do we have to have a merger of the two airlines?

Capt Bruce McConchie: Actually I can answer that very easily. In my second point I said a merger must occur, and I cited the reasons. Mr. Milton's proposal by Air Canada is in essence the demise of Canadian Airlines. It's like a spider picking the wings off, chewing the body, and leaving the carcass out on the street.

Ms. Bev Desjarlais: So that's your view, whether it be Mr. Milton or anyone else for that matter? There has to be some kind of...?

Capt Bruce McConchie: It's been evidenced that to simply run another company as a subsidiary and leave yourself the dominant carrier, besides the questions of monopoly—

Ms. Bev Desjarlais: Apart from just that, do you see the only answer for Canadian Airlines as tying in with another airline, whether it be merged with Air Canada or with another airline? Or is it possible for Canadian to somehow come out of this without a merger?

Capt Bruce McConchie: I'd like to see that proposal. I can only comment on what I've seen before us. Under the proposal that's before us—the only one that's before us—in analysing it, we need a merger.

Ms. Bev Desjarlais: I want us to go beyond what's before us. Do you see any other option out there?

The Chair: I think maybe Ms. Desjarlais is referring to the bankruptcy option.

Ms. Bev Desjarlais: Or any other. I have different ones in front of me.

The Chair: Or a new investor option.

Ms. Bev Desjarlais: So I'm asking, can you see anything out there that has Canadian surviving without a merger? If you haven't, that's fine.

Capt Bruce McConchie: I have not seen a proposal that would properly address that, nor have I seen one that would, once again, address the industry's problems of a head-to-head, destructive competition that's been going on for the last 10 years. I have yet to see a proposal out there that would alleviate those concerns.

Ms. Bev Desjarlais: Is it the same view from the regionals as well?

• 2025

Capt Steve Linthwaite: I don't attest to being an aviation expert. I think you have other witnesses for that. I'm here talking for my members and aviation safety.

Ms. Bev Desjarlais: Okay.

Capt Michael Lynch: Mr. Chairman.

The Chair: Yes, Capt Lynch.

Capt Michael Lynch: In our previous testimony at this committee last May we did say that as an association we would look at any and all opportunities for it. I think, based on that testimony, as Capt McConchie says, there's only one out there at the present time, and we can't look into the future, but certainly we would be flexible should that opportunity arise.

The Chair: Thanks, Captain Lynch.

Mr. Calder, please.

Mr. Murray Calder: Thank you very much, Mr. Chairman.

I want to follow along on what Bev's talking about here because I see one other issue. We can just look at what the merger is going to be here, if there is a merger in Canada, but there's another issue. There's another competition battle that's going on on the international stage, and that's between Star Alliance and Oneworld.

Let's say, for instance, there was a merger here. I'd like your comments on how we're going to take that and do it. You've got two different companies, two different union contracts, a whole bunch of things, the issue of the seniority ladder—all of these things are going to have to be worked out because Air Canada is here and Canadian is here. I know the answer is somewhere in between, and how do we get to that point?

Do you think American Airlines would sit idly back and allow a merger, given the fact that if that merger happens Canadian will be pulled out of Oneworld and go into Star Alliance, which even gives Star Alliance that much more of an edge over Oneworld than it already has?

Capt Michael Lynch: I'd like to just ask Captain McConchie...but first I'd like to address one point there, and it was made earlier, that there didn't seem to be any indication of an interchange of fees and money between the two carriers. These global alliances are immensely profitable and there's certainly a good interchange of funds between Canada and its partners, American and Canadian.

I'd like to ask Captain McConchie to comment on that as well, if he would.

Capt Bruce McConchie: Mr. Chairman, the question you asked, I think, would more properly be directed to Donald Carty of American Airlines—how he feels about leaving Oneworld.

Mr. Murray Calder: I already asked him.

Capt Bruce McConchie: Okay. We've enjoyed being in the Oneworld alliance, but perhaps whatever alliance serves the needs of the Canadian public best would be the one.... We fly the airplanes we're given to fly and we're told by upper management, basically, which alliances to work for.

Mr. Murray Calder: This might pull in the investor that Mr. Fontana talks about every once in a while, because you do have some very lucrative international routes in the Asian rim that Air Canada would probably just love to have, if there was a merger.

One other thing I'm kind of curious about too is the Competition Board's recommendations. They stated that regional airlines owned by Air Canada and Canadian should be divested. I thought maybe Mr. Linthwaite would want to comment on that, as to what happens with this supposedly new merged airline and its regionals.

Capt Steve Linthwaite: In terms of the divestiture of the regionals?

Mr. Murray Calder: Yes.

Capt Steve Linthwaite: We have a number of concerns about it. The first concern, as I said earlier, is the fact that you're basically tying the hand behind the back of the dominant carrier that's left. The airline business in this world now is very much from the small community of Thompson all the way across to some place in the middle of Asia that we've never heard about. It's very integrated now. It's part of a big family.

If you were to take the regional feed, the feeds from the Thompsons, the Sudburys, and the Kelownas out of the dominant carrier's field, I think you'd be really hurting that dominant carrier in terms of being competitive in the international market. I think what we're looking at here is for the last solution from deregulation. We're hoping once we've finished here we don't have to come back again. I don't think selling off the regional carriers is really a step toward that, personally. I think it's handicapping the dominant carrier that's left.

Additionally, we have a lot of concerns at the regional end in terms of the uncertainty that will bring my members. I'm sure we can find financing somewhere. There's always somebody there, and I think there's somebody tomorrow, with the financing, but there are a lot of other issues.

• 2030

It's very hard. It has been proved over and over. It's very hard to start up an airline from scratch. There are a lot of issues there. And that is basically what you'd be doing for us, because our whole reason to be right now is to be the regional end of the feed to Air Canada. If you take that away we're basically a new airline doing something totally different that we've never done before.

We used to be a very self-sufficient airline, but we've been gutted out of that capacity in terms of marketing, scheduling, all those things. So we'd become a brand-new carrier all of a sudden, and that's very scary for our members. That's why I just stress that if we can please read the Competition Bureau's report very carefully, it says “We have not had the opportunity to examine this option in detail.” So I just want to stress the caution in that if that is considered by this committee.

The Chair: You have one more question.

Mr. Murray Calder: I want to go back to the issue of union contracts. We already know that on a per plane basis, Air Canada right now has about 120 people per plane and Canadian is working with around 87 per plane. Do you think within Canadian right now there is going to be the will amongst the employees to sit down at the bargaining table and find that middle ground that I'm talking about if in fact there is a merger?

Capt Bruce McConchie: Yes. Mr. Chairman, maybe just to clarify the question, I'm not sure about the figures there. I think Canadian's per plane number is higher than Air Canada's. You need to look at one major factor to start with, that all jet flying within Air Canada is done by the Air Canada pilots. They have what they call the “scope of work” that covers the fact that they have to do all jet flying. So if you take that across the board, if it were one equitable ground with Canadian—add 30 more F-28s, for example—and then all of a sudden your employees per aircraft would be almost on par with Air Canada's.

Do you understand what I'm saying there?

Mr. Murray Calder: You're saying the small aircraft takes more people?

Capt Bruce McConchie: No, no, just add in all jet flying.

Mr. Murray Calder: Oh, okay.

Capt Bruce McConchie: Air Canada's contract requires them to fly all jets, for example. With Canadian airlines, they can fly jets 70 seats or under. Our regional carrier carries 30. So if you put it on equitable ground and equitable contracts, in essence the employee ratio would be fairly close to the same.

The Chair: Thanks, Mr. Calder.

Mr. Bailey, please.

Mr. Roy Bailey: Thank you, gentlemen. It seems to me we're heading down the same road here with a merger as, if you like, the fellow who said if I had known the in-laws I wouldn't have married this gal. Admittedly this is going to be a big, big thing if a merger does take place, because we're not just talking about the pilots' association. We're talking about the various ground crews. Some are trained with certain engines, and so on.

Oh, by the way, Captain, I want to just clear up a point in my mind. Where Air Ontario flies, say the other regional carrier, Canadian regional, doesn't fly the same routes, does it—the same places?

Capt Steve Linthwaite: Yes. Canadian Regional or one of their sister companies in Ontario. We used to have more Canadian Regional as competition. They've restructured a bit, so now we're against Ontario Regional Airlines. They were a witness here a few weeks ago.

Yes, we basically have competition on all of our routes. There are a few exceptions in the Canadian family.

Mr. Roy Bailey: All right. It seems to me the word that comes up here is “arbitrator”. We're looking ahead. First of all, it won't be one arbitrator. It seems as if you'd have to have an army of arbitrators out there to look after each one of these, with maybe one senior to look after them. These people are going to have to not be members of this committee. These people are going to have to be—well, maybe some of them, but not me, because I am not trained in ground crew maintenance for whatever engine; I am not trained like you gentlemen are in your profession.

So this thing would take a lot of different people serving as arbitrators to finally put a package together through a merger that would take some time. I don't see this, Mr. Chairman, just happening overnight. This is going to be a long process, and I believe you people are professional and I believe it can happen. In my business, what I worked at previously, I've been through some pretty tough negotiations, merging and putting people together. It may not have been quite as complicated. You already have your own system with the pilots' association.

• 2035

Roughly how many bargaining units do you have? There are the ground crews and the pilots. Would we have 50 different bargaining units out there with a merger? Does anybody have any idea?

Capt Michael Lynch: We have a number of bargaining units. I think each of the airlines involved has about five or six different bargaining units.

Mr. Roy Bailey: Oh, there aren't as many as I thought.

Capt Michael Lynch: Most of them are all the same basic union. ALPA represents a good number of the pilots in Canada, with the exception of the Air Canada Pilots Association. I think a lot of the other groups have been in front of your committee—the Canadian Union of Public Employees for the flight attendants and the Canadian Auto Workers for the ground crews. They all have different units of their bargaining units within the same association at both airlines and also at the regional families. I don't know how many different bargaining units there are altogether in Air Canada, but I know there are about 10 altogether at Canadian.

Mr. Roy Bailey: Thank you.

You mentioned what takes place every five years, with the turnover in pilots, and you referred to the ground crews as well. With any merger you're going to see a reduction in the number of flights in Canada. If you reduce the number of flights by 30%, won't the number of air crew needed also be reduced by 30%?

Capt Michael Lynch: Not necessarily. It would depend on which flights were reduced and where they were reduced.

I just want to make a correction. The turnover isn't every five years. A huge hiring spree took place in the sixties. I wouldn't put it down to baby boomers, but certainly that was when there was a great hiring spree. There have been others about every 10 or 12 years, and there are bubbles of retirements. Between 2003 and 2005, there will be another bubble of retirements, which is where we get that 500—

Mr. Roy Bailey: More to the point, Mr. Chairman, keep those bubbles open because I have two grandsons who are in pilot training right now. It's cost me a lot of money, so you'd better make a bubble.

Capt Michael Lynch: I'll tell you what. They can have my portion of the bubble because I'm out of here next year.

Mr. Roy Bailey: Thank you.

The Chair: Thanks, Mr. Bailey.

Mr. McConchie.

Capt Bruce McConchie: I would just like to add to what Capt Lynch said about taking capacity out. There is a problem now when you have two flights departing from the same destination at 9 a.m. If you can take one of those flights out, you will have an opportunity to use that aircraft to do a transborder or take it to another destination. Rather than a passenger having to go from Vancouver to Calgary to Regina, maybe they will be able to just go from Vancouver to Regina, with that amalgamation.

Mr. Roy Bailey: What about Ottawa to Regina?

The Chair: Or Hamilton to Ottawa?

Thanks. Lou.

Mr. Lou Sekora: Thank you very much, Mr. Chair. I'm delighted to see there is more than just one airline here tonight. Before it was like one airline company. I'm not certain what happened. I thought it was like Mr. Calder—who is the chicken rancher—leaving town or leaving Colonel Sanders to look after his ranch. That's the kind of feeling I had.

On the second page on the fifth line, it states “without the artificial labour barriers found in the Air Canada proposal”.

Capt Michael Lynch: I'm sorry, my pages aren't numbered the same as yours.

Mr. Lou Sekora: I quite often need glasses too.

The Chair: Usually he has somebody read it for him.

Mr. Lou Sekora: That would be great. It says “In our view, an integrated airline operation, without the artificial labour barriers found in the Air Canada proposal”. It's the fifth line down.

Capt Michael Lynch: I've found it.

Mr. Lou Sekora: What do you mean by that?

Capt Michael Lynch: Artificial labour barriers are basically what we've been discussing, Mr. Sekora.

Mr. Lou Sekora: It's Lou.

Capt Michael Lynch: Lou, sorry. They are bargaining units that are kept apart, seniority lists that are kept apart—a low-cost carrier with different contracts. It's keeping all the bargaining units against each other with different contracts at different levels. That in itself would be a very complicated process to try to sort out in the long run. That's what we mean by the artificial barriers. The barriers are there. They need to be put together. We need to do away with the artificial barriers.

• 2040

Mr. Lou Sekora: I'm down to the eleventh line up from the bottom, which says:

    Given the experience of the Canadian airline industry, it is apparent to us that the proposal is completely unworkable in a labour relations terms.

Capt Michael Lynch: The reason is the very same: the difficulty of trying to manage different employee groups under different contracts working for the same boss.

Mr. Lou Sekora: On the basis of what Mr. Bailey brought up—the fact of job losses and a few other things.... We had Mr. Milton and Mr. Schwartz before us. Mr. Milton kept saying that in his proposal there would be 2,500 job losses and in Onex's there would be in excess of 5,000.

The fact is that Air Canada has 24,000 employees, and Mr. Milton said the rate of retirement now is around 3%. Would you agree it would be around 3% of 24,720 jobs a year? If Canadian Airlines has 16,000 jobs and its rate of retirement is also at 3%, that's over 400 jobs. So that's 1,260 jobs a year. Over five years, natural retirement or attrition would be close to 7,000 jobs. To me, what one is saying and what the other one is saying don't add up.

The fact is that in Air Canada, Canadian, and all regional airlines there are around 47,000 jobs. So would the same kinds of techniques apply, as far as attrition, retirements, and everything else at 3% a year throughout the 47,000?

Capt Michael Lynch: It's very reasonable to assume that. It will take a year or two to put an airline such as this together—maybe longer. In that period of time we'll become a growth industry, and that's good all around. That will add to the economy and the morale. That's something we could look forward to. We've actually been overlooking the potential for growth in an industry if there's a good stable industry and a good viable industry in Canada.

Mr. Lou Sekora: People mentioned that if they took all the foreign flights and international routes and everything else and Canadian Airlines flew the local Canadian routes, it would be great. What if we reversed that and Air Canada flew the domestic flights across Canada and we gave you all the international routes? Would that be fairly easy to take?

Capt Michael Lynch: I'll let Bruce answer that one.

Mr. Joe Fontana: You just found the solution, Lou. Everything will become viable again.

Capt Bruce McConchie: Would you like to be the CEO of Air Canada?

I just want to answer your question on job losses. I believe Mr. Milton's proposal included plans to immediately take 10 Boeing 737s from Canadian's fleet and send them to the Hamilton-based carrier. As soon as you take 10 aircraft out of a fleet, that immediately creates surplus jobs. So it would be very difficult for attrition to take over those particular effects.

The Chair: Thanks, Mr. Sekora.

Mr. Guimond, please.

Mr. Lou Sekora: I wasn't finished.

The Chair: You are now.

[Translation]

Mr. Michel Guimond: Mr. Chairman, I've two series of questions, the first for Captain Lynch, and the second for Captain Linthwaite.

Captain Lynch, if a pilot flying for a regional carrier, or Canadian feeder, wants to join Canadian, what seniority number will he have? For example, if that pilot has 10 or 12 years' experience as a pilot with Canadian Regional, where would that put him on the seniority list?

Capt Michael Lynch: Again, Mr. Guimond, that's an important question, one that I would prefer to answer in English.

[English]

I'd really like to pass it over to Capt McConchie to answer because he can give you a direct answer on that one.

• 2045

Capt Bruce McConchie: At Canadian Airlines, we actually have an arrangement with Canadian Regional pilots at the present time, what is called a flow-through arrangement, where at Canadian Airlines, if they are going to hire, for example, four pilots, three of those pilots will be from Canadian Regional Airlines and the fourth can be from any area.

Previously, about two years ago, there was negotiated a flow-through arrangement where these pilots would come in with a specific seniority number because they were giving up very good jobs at Regional, with nice seniority, to come and start right again at the bottom at Canadian Airlines. They received a lower salary, with worse working conditions and all that, for the chance to come to Canadian Airlines.

So we have a very good agreement with Regional right now that satisfies both parties.

[Translation]

Mr. Michel Guimond: Before you go, Captain Linthwaite, do you have some idea of the number of ALPA pilots now with Canadian or of the number of ALPA pilots now flying for Air Canada's regional carriers? In any event, once the merger goes through, a union affiliation vote will be taken. Pilots will be asked to choose the union that will represent them. I suggest you take note of this question, in order to supply an answer, if possible.

My question then is for Captain Linthwaite. Earlier you heard the testimony of ACPA. As a rule, witnesses don't normally listen to the testimony given by previous witnesses. However, in this case you did, even though Mr. Carty didn't hear Mr. Dutta's testimony and vice-versa. Mr. Benson didn't listen to previous testimony either, at least not directly.

What is your take on the legal battle that ACPA is waging with Air Canada's regional pilots? In your opinion, why has this issue been dragged out before the Canada Labour Relations Board for the past four or five years? A ruling was expected recently, when all of sudden, the arbitrator announced another three-month delay. I hope there hasn't been any political interference in this case. Unfortunately, I can't say for certain. A ruling should normally have been handed down, but another three-month delay was announced.

Why is it taking the Board so long to rule on this matter?

[English]

Capt Steve Linthwaite: I think a lot of the reason for the delay is twofold, actually. The first part of it is that there was a very long process internally. Normally a union tries to deal with its dirty laundry internally first. When we were all in CALPA we had a long process. Actually it started back in 1986, and I guess it went all the way up to 1995 when the Air Canada pilots left CALPA.

Basically, we were trying to exhaust it internally. I think most members would prefer if we try to get rid of our dirty laundry ourselves. We went to the then CLRB with a common employer application. There were, I think, difficulties in that process that were addressed in the new bill. I think it was Bill C-66 that brought us the CIRB.

So that's the reason for the delay. I don't think the delay is the problem for us now. I understand the new CIRB is busy with a lot of cases and that was the reason for the extra 90-day delay. I don't have any reason to doubt that, so from our point of view we're anxiously waiting for the decision because we think it will provide a certain clarity to the Air Canada regional pilots.

We have a lot of uncertainty right now, and not only due to the restructuring of the industry. We do not know where we really stand in the one proposal we have right now, the Air Canada proposal.

We think that would provide a certain clarity for our employees. In fact, we're going through a consolidation process inside the Air Canada regionals right now, where they've put that on hold because of all the problems.

So for us it is a difficult issue. We're hoping we're in the final steps of it, and we're hoping it will be in the days they've alluded to so that we can get some clarity on our future.

• 2050

The Chair: Thanks, Mr. Guimond.

Finally, Mr. Fontana, who says he has a short question.

Mr. Joe Fontana: Yes, I will make it short.

Capt Michael Lynch: Can I answer Mr. Guimond's other question?

The Chair: Yes, Captain, certainly.

[Translation]

Capt Michael Lynch: To answer your first question, Mr. Guimond, ALPA represents 2,700 airline pilots.

[English]

The Chair: Thanks, Captain Lynch.

Mr. Joe Fontana: Mr. Chairman, I want to follow up on what Captain McConchie said, that in terms of serving the customer it's no longer a point sometimes merely in Canada, but it's, say, from London, Ontario, to go to Osaka or Tokyo or whatever. There are an awful lot of things, such as alliances, happening there and the customer who really wants a seamless integrated system might use Air Canada or Canadian for part of the voyage. That's the way it's going.

They used to say that in an open skies agreement Canada would probably get wiped out, that we had everything to fear. Yet we've shown with the Americans that we've been able to do rather well, in fact better than they have in open skies. The Americans have 38, 40, or 50 open skies agreements around the world. We don't have very many, and in fact we have to look at that.

I want to get back to this issue of reciprocal cabotage, because you talked about it. Yes, I would agree that if you don't be careful the American airlines would come in and take, obviously, the best routes that we have in Canada. But we demonstrated in open skies that we can compete. Air Ontario is a perfect example, as is Air BC and some of the regionals. Our transborder stuff has gone really well.

What makes you think that within that big marketplace of 270 million people we couldn't do equally well under reciprocal cabotage? Therefore, if we're thinking about the customer and we're worried about the dominant air carrier and we're talking about making sure there's competition, not only at the local community area level, the regional, but the domestic and the international, obviously, we wouldn't get into something...? We waited. We were patient with open skies. We worked out an agreement that has really worked out and has created an awful lot of jobs in a lot of communities for an awful lot of airlines.

I don't know that a good agreement, either open skies bilaterally with other countries, or certain reciprocal cabotage agreements, wouldn't serve the customer better at the end of the day, because I'm still worried with one dominant carrier that the price isn't coming down. And believe me, the number one concern of the people I talk to is that the prices in this country to fly from point A to point B in Canada are very high, in fact even higher than sometimes it takes to go from here to Europe or any place else. I'm wondering whether or not thinking about the customer, and because you represent all those pilots—

The Chair: Joe, your short question is two minutes and 30 seconds so far.

Mr. Joe Fontana: That's pretty good.

The Chair: Captain McConchie.

Capt Bruce McConchie: Mr. Chairman, actually, Captain Andrews, with Canada 3000, is sitting here quietly—

The Chair: Great. I haven't heard from him all night.

Capt Bruce McConchie: He also represents the other part that is waiting to come into the market in a situation like that.

The Chair: Terrific. Captain Andrews.

Capt Gordon Andrews: Mr. Chairman, it's very true that the charter carriers are not spoken of very much in this formula at all. Our pilots are always amazed on the flight deck that this argument and this discussion go on without regard to our segment of the industry, what we do. We compete internationally, we compete domestically, and we compete within open skies as a scheduled airline. I think it bears mentioning that our industry is healthy, and has been in the case of Canada 3000, for 10 years.

Why is that? I think there is room for competition. The competition is there. If our segment of the industry were allowed to expand in a more unfettered manner, I think we could provide competition to any dominant carrier. That's the view of our pilots. We're all very proud of our product. We operate new equipment. We operate on many routes that major carriers operate on, major carriers in the international field as well as here in Canada, and we do believe we provide a component for this competitive industry. We don't want to be forgotten, and we don't want to see the charter industry, per se, boxed into the term “charter” when in fact, under open skies, 90% of our transborder operations to the United States is scheduled service. We operate in the the charter realm, if you will, on international routes simply because of bilateral agreements. We are not part of that. We have restrictions that are in place within Canada that possibly could bear some looking at that might help us to compete more effectively.

• 2055

The Chair: Thanks, Captain Andrews. We have had Air Transat, Royal, and Canada 3000 before us already, and they too summarize it in a word: slots. If they have the slots, they can compete.

But to get back to Mr. Fontana's question again, if you had the opportunity to compete between U.S. cities, because of a reciprocal deal between Canada and the U.S. that provided you with the spots you needed in the U.S. to compete in U.S. cities, have you ever thought of the implications of seeing a United, Delta, whatever airline, come to Canada and compete between Canadian cities? If that was the so-called level playing field that Mr. Fontana speaks of, could that be detrimental to you or enhance your business? Could you compete if that opportunity was presented to you, or is it just too big a question to answer at this time?

Capt Gordon Andrews: It probably is too big a question. You talk about a level playing field. How do you get a level playing field with a 250 million population giant to the south who is not interested one iota in having cabotage? We'll go to the door and present cabotage to them as a solution to our problems. I'm sure they'd love that, but will they reciprocate? I don't know.

Mr. Joe Fontana: They didn't want the free trade agreement either.

The Chair: No, they didn't want open skies either until I think it was Mr. Young went down and negotiated—

Mr. Roy Bailey: Who?

The Chair: —and we got an open skies deal.

The question remains. Some of my colleagues were talking about cabotage, but I have to wonder if Canada 3000, for example.... You're with the employees union, so you can't really speak for the company, I suppose, but you are aware of what's going on. If you could fly between New York and L.A., could you make as much money for yourselves there and have the competition of, say, United flying between Toronto and Vancouver, against you? Could you still survive?

Capt Gordon Andrews: I firmly believe in the competitiveness of our company in any market. That's a short, pat answer, but I do believe that whatever market we're allowed to compete in, we'll compete effectively. However, it's kind of pie-in-the-sky really.

The Chair: Yes.

Capt Gordon Andrews: We don't know. Obviously, there are a great more choices of city pairs to fly in the United States than there are in Canada. That goes for everybody. But it will be up to the politicians to do the groundwork for that if it ever happens.

The Chair: I have seen no indication that we are going down there to negotiate cabotage, Captain Andrews. We have enough problems up here.

Anyway, gentlemen, thank you very much for your presentation to the Standing Committee on Transport. We appreciate you being here with us this evening. Thank you very much.

Colleagues, we'll see you tomorrow morning, across the hall, at 9 a.m. Thank you.

This meeting is adjourned.