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STANDING COMMITTEE ON TRANSPORT

LE COMITÉ PERMANENT DES TRANSPORTS

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, May 4, 2000

• 0906

[English]

The Chair (Mr. Stan Keyes (Hamilton West, Lib.)): Good morning, colleagues, guests.

I call this meeting to order pursuant to an order of reference of the House dated March 31, 2000, consideration of Bill C-26, An Act to amend the Canada Transportation Act, the Competition Act, the Competition Tribunal Act and the Air Canada Public Participation Act and to amend another Act in consequence.

We're in for a busy day. Our first witnesses are representing Canadian Airlines: the new president, Paul Brotto; the senior vice-president, corporate and government affairs, Stephen Markey; and the director of government affairs, Scott Bradley.

Gentlemen, welcome to the Standing Committee on Transport. We look forward to your presentation of between five and eight minutes so that we can follow with questions from members.

Mr. Brotto.

Mr. Paul Brotto (President, Canadian Airlines Ltd.): Thank you, Mr. Chairman, members of the committee.

I would like to thank you for the opportunity to appear before you today. I have a brief statement, after which I would be happy to answer any questions.

Let me start off by acknowledging the proud history of Canadian Airlines. Canada has a unique aviation heritage. Canadian Airlines and its marvellous employees are part of it. I am proud of, and a little awed by, the responsibility and challenge I've undertaken.

The stress that employees in this industry are experiencing today is very real. I think if I achieved nothing else today, I would want, at the very least, to contribute to your awareness of this fact. In spite of the uncertainty, the employees at Canadian Airlines continue to demonstrate their unparalleled pride of service.

Mr. Chairman, I also know from the comments made to me and from reports in the media that the current airline integration is also causing some concern in communities and with customers. I would like to achieve another thing in my brief minutes with you today, and that is to reassure you. I'd like to reassure you that Canadian Airlines continues to be focused on safety and customer service and on doing a great job in communities we serve.

We will live up to the commitments we made to communities, the travelling public, and our employees. We are, however, in the midst of enormous change—perhaps the most massive re-engineering in Canadian airline history. We acknowledge that this is a difficult time. Everyone needs to recognize that with the level of change being undertaken, there will be some bumps in the road. You also have my commitment that we will fix these problems as quickly as possible.

As anyone who has travelled recently will recognize, our airports are being served differently. Passengers are facing a different environment when they travel. In this regard, I acknowledge that service levels in some communities are changing. For the most part, these changes are for the better. However, there are routes where there was too much capacity in the market, and service has been reduced. We are sensitive to the needs of the communities; however, we cannot afford to sustain losses and must cut back on the excesses of the past.

Canadian Airlines has been in a weakened financial condition for years. This led my predecessor, Kevin Benson, for whom I have tremendous respect, to conclude that the merger of the airlines was the only possible outcome.

In 1999 Canadian lost some $220 million. In the past eight years, it has cumulatively lost $1.5 billion. We are intent on arresting this financial trend in 2000. However, in the first quarter we faced well-publicized spiralling fuel prices and a not unexpected but nonetheless disappointing drop in our traffic, all of which meant we were bleeding more than $2 million a day. Let me re-emphasize that: $2 million a day. In fact, in the first three months of 2000, we lost over $250 million, almost $150 million more than the disastrous 1999.

Drastic changes are needed. We have cut back unprofitable flying where we lose money, which means less service in some markets. We instituted a moratorium on creditor payments and the CCAA process, which allowed us to begin renegotiating supplier contracts and customer contracts, particularly where Canadian was paying more than its competitors.

• 0910

To date, Mr. Chairman, we have renegotiated over 90% of Canadian's aircraft debt and leases, saving more than $300 million over the life of those leases. We achieved over $85 million in quick wins, where we stopped unprofitable flying and reduced contract expenditures. The largest savings are resulting from the joint schedule planning with Air Canada, which reduced unprofitable flying while for the most part maintaining or improving the schedule for our customers. These schedule changes also allowed us to park old DC-10 aircraft that were expensive to maintain and unprofitable to operate.

We've made enormous progress on many fronts. As an example, our creditor discussions are going very well. They're very encouraging. I'm optimistic that we can quickly bring these discussions to a successful conclusion.

Many customer deals were priced marginally. While they may have covered variable costs, they did not cover fully allocated costs, nor provide for any profit. This, if continued, would be a recipe for disaster.

I stress these points to highlight the urgent need for change. That said, we have been, and will continue to be, prepared to work on route development with any community. I have a number of my colleagues in Canadian Airlines meeting with communities across Canada to assess their markets. The stronger we are financially, the better we are able to serve each and every community in this country.

I'd also like to explain why we have made certain commercial decisions and why I feel these commercial decisions are the right ones, notwithstanding the disappointment of some of the suppliers and companies we supply services to, some of whom have appeared before you. We cannot continue with the overly generous arrangements we entered into with them in the past.

That, Mr. Chairman, is one of the reasons why we are in the CCAA process. It is the only orderly, constructive way to permit Canadian to renegotiate non-commercial contracts. As I said, Canadian is paying too much for some goods and services and charging too little for their product.

Many of our suppliers have recognized the long-term opportunity of being commercially contracted to a large, financially stable airline, and numerous contracts have been renegotiated. Indeed, just this past week we finalized terms with Air Miles, one of our largest partners. These were not easy negotiations, but they were successful because both sides recognized that the old uneconomic contract terms could not continue.

Unfortunately, there are other suppliers who want the past to continue, even at the risk of the 16,000 jobs at Canadian, the 25,000 spinoff jobs in the economy, and the potential service disruptions to communities that would happen with the failure of Canadian. With respect to some of our competitors who have appeared before you, we're simply not prepared to provide services to them as we have in the past. Canadian must not subsidize its competition just because these competitors, who have a lower cost structure, have become accustomed to this treatment. To do so would be akin to asking McDonald's to subsidize french fries for Burger King.

We have also used the restructuring process to renegotiate or terminate certain contracts that were clearly uneconomic, including services provided by AMR Corporation, agreements with American Express, aircraft leases, and debt. In many cases these suppliers were providing services at a premium price as a result of Canadian Airlines' weak financial position. The continuation of these uneconomic deals is clearly unacceptable. Otherwise, Canadian will simply fail.

It's not fair to our employees, our customers, or the communities we serve. We must have a sound financial and commercial future if we are to avoid repeating the past. Winning requires change. Often change is unwelcome, but it is critical to preserving Canadian and putting it on a sound financial footing.

We believe the vision we are pursuing will prove to be a sound and enduring one for Canada. We ask for your patience and your understanding, but most importantly we ask for your support and confidence as we seek to build this new airline.

[Translation]

Mr. Chairman, we would like to thank you for the time you are taking today to listen to Canadian and its employees.

[English]

The Chair: Thank you very much, Mr. Brotto, for your presentation to the committee.

Colleagues, I have just one remark to make. It's going to be a busy morning. Everybody wants to get their questions in. Try to keep your speeches short and your questions numerous. I'm going to be a little more ruthless than usual today, so forgive me if I cut you off, but we have to have as many questions in as we can.

• 0915

Val Meredith.

Ms. Val Meredith (South Surrey—White Rock—Langley, Canadian Alliance): Thank you, Mr. Chair, and thank you, Mr. Brotto and Mr. Markey, for appearing before us.

I have listened to your explanations, particularly for the reasons you would cut third-party commercial agreements to your competitors, but I fail to see where a company that is in a financial position would walk away from millions of dollars a year of income by removing, say, ground handling services for a company that, for the most part, is not competing with Canadian. It may be competing with Air Canada, but it's certainly not really competing with Canadian Airlines.

So my question is, did the cut in commercial agreements come from Canadian, or are those instructions or policy changes coming from Air Canada, which is now the dominant carrier?

Mr. Paul Brotto: I'd like to respond by telling you very simply that the actions being taken by Canadian are being taken by Canadian. They are not being directed by Air Canada.

In the four months that I've been at Canadian, I have been purely focused on what the commercial realities are, where we have contracts that are not compensatory, and what changes need to be made.

With respect to your particular statement, I believe you referred to some of the ground handling contracts that Canadian used to provide to Canada 3000 and Air Transat. When I look at those contracts, they may have covered, as I said, variable costs. They were not covering all the costs necessary. If I were to reprice those contracts, they would be significantly higher, probably double what would be available to those customers.

We notified those customers. Under the terms of our agreements we gave them due notice and indicated to them that they were free to look outside. Since then, I'm happy to say that both Canada 3000 and Air Transat have found other suppliers for ground handling, and probably at rates cheaper than what Canadian, if it charged the compensatory price, would charge them.

Ms. Val Meredith: Thank you.

You indicate that you're not taking your instructions from Air Canada, that you're operating on your own and make your own decisions, and that you're responsible for the decisions you make.

I have a couple of letters here, which I won't get into because they're very detailed, but let me explain to you that there are customers out there who feel you have completely reneged on your responsibilities to serve them as they had paid you to serve them.

One letter is from somebody who booked considerably in advance, months in advance, a business trip to the Far East through your company, did it deliberately to get direct flights, to get the aircraft and the services he and his wife wanted. I'm not sure if you got this letter from Rainbo International Ltd., but it's a horror story. It's a horror story of treatment of passengers who were told planes were not flying, when they did fly. Their luggage made it to the other end in time, but they made it two days later, after great duress. They missed business meetings and missed the shows they were supposed to be competing in, serving Canadian industry in the Far East market. It was a total lack of responsibility from your company in fulfilling your obligations.

There was double-booking of seats, and they felt they had been very rudely escorted off a plane on which they had purchased a seat, were told at check-in that they had a seat on—customers were totally left in the lurch.

I have another letter from somebody who flew down to Mexico City, tried to fly back, and after great duress, after showing up at the airport and finding nobody there from your company, or, for that matter, from Air Canada to explain it to them, found out that the services to Mexico City had been cancelled. Canadian no longer flew, and they had no way of getting back on their ticket.

The Chair: You have one minute.

Ms. Val Meredith: So what we are seeing out there, from the travelling public, is that although Canadian Airlines is saying.... You're telling me that you're totally making your own decisions and you're responsible for those decisions. Then, sir, you have to be responsible for the poor treatment you are giving the Canadian travelling public right now. The travelling public seem to think it's because Air Canada has cancelled those flights to Mexico City. But you're telling me that's your decision, not Air Canada's decision.

• 0920

Mr. Paul Brotto: First of all, I'd like to say with respect to those customers, I empathize with them. We will fix the problem for them. I will make amends. I am totally focused on doing what is right for customers. That is the entire focus of Canadian Airlines and its 16,000 employees. If we have disadvantaged and inconvenienced these passengers to that extent, I will make amends, I assure you.

There are some bumps along the road. We have had problems with the computer systems talking to each other that have caused us to have some of these double bookings. We have worked day and night to fix those. They are now fixed. We will have some more bumps along the road, but we are moving as fast as possible, totally focused on the customer.

With respect to Mexico City, we are still flying to Mexico City, but the timing has changed. I apologize to that customer, but we will fix that.

The Chair: Thank you, Val.

Joe Fontana.

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

I'm sure Mr. Brotto, Mr. Markey, and Mr. Bradley, you'll hear from my colleagues with regard to the tremendous disappointment that exists out there in the customer base, your customers, as to the integration and challenges you face.

Unfortunately, I'm not sure that satisfies anyone, and I would think—and I'm sure Mr. Milton is here—that while this country is going through this sort of upheaval in our airline industry, money should not be the motivating factor, especially when the combined forces of Air Canada and Canadian are going to control 80% to 85% of the domestic market and 90% of the international market. You're going to make absolutely nothing but money in the long term, because for all intents and purposes, you have no competition.

So it would seem to me that the customer should come first, especially when they are being subjected to some of these internal problems that both you and Air Canada are having.

Let me just understand this. You are owned by a numbered company. The numbered company is owned by whom? Who's the shareholder? Is there one shareholder—Air Canada?

Mr. Paul Brotto: The numbered company is 90% owned by Paul Farrar and 10% owned by Air Canada.

Mr. Joe Fontana: Okay. When we were talking to Air Canada on their proposal, we understood that Canadian would continue to exist as a separate brand, a separate company, and while efficiencies and certain integration would be put in place, Canadian would continue to exist and operate as a wholly owned subsidiary of Air Canada. But for all intents and purposes, it would be a competitor to Air Canada, a complementary additional airline to Air Canada.

I think Val asked the question of who's really pulling the strings here, and while you say that Canadian can essentially do what it wants and plan accordingly, let's be real here. Everybody knows that Air Canada controls Canadian. Everything from scheduling to reservations, deployment of crews, deployment of aircraft, and deployment of services into the community is being called by Air Canada.

Can you simply and briefly tell us how Canadian operates today, and how it will operate tomorrow, separately and distinctly from Air Canada? If it's not, why don't you just be honest with us, with the Canadian public, and say that for all intents and purposes, it's one airline, and eventually that's what it's going to be. For the time being it's called Canadian, but let's face it, it's going to be Air Canada.

Mr. Paul Brotto: First of all, as to how business is conducted with Canadian, in every single area Canadian and Air Canada coordinate activities, whether it's scheduling, sales planning, marketing, operations, and so on. That is being done deliberately, because the intent in the long term is that Canadian will be merged with Air Canada.

For a period of time, Canadian will be run separately, but not in competition with Air Canada, in cooperation with Air Canada. Canadian is in a position where it could not survive independently. Canadian is essentially a failed firm, and the only way we can keep 16,000 employees and this company alive and keep the communities that we serve and the customer base that is loyal to us is by working jointly with Air Canada on all these fronts. So to that extent, you're right, a lot of things are being harmonized with Air Canada. But that is absolutely deliberate.

• 0925

I also agree with you that we have had some problems in the past few months, and that situation will continue for the next few months. I think this is the most massive re-engineering project we've ever had in this country, not only in the aviation industry but in almost any industry. We are under construction right now, so I apologize for the construction mess that we are all under for the next couple of months.

The Chair: You have thirty seconds.

Mr. Joe Fontana: Who controls Canadian Regional? Is it under your control?

Mr. Paul Brotto: Canadian Regional is a 100% subsidiary of Canadian.

Mr. Joe Fontana: Okay. What's happening with regard to the promised disposition of that particular airline that was supposed to occur, according to the terms of the contract between the Competition Bureau and yourselves, at least a month ago? What's happening there? I mean, are games being played with regard to the disposition of that particular airline?

Mr. Paul Brotto: Absolutely not.

Mr. Joe Fontana: So what's the hold-up?

Mr. Paul Brotto: We are trying to move as quickly as possible in that regard. The issue boils down to what is the determination of fair value for Canadian Regional. As you know, Canadian Regional is held as security against one of the secured bond issues that Canadian issued—$150 million U.S. We can't on one hand pay these bondholders $150 million U.S. because their security is Canadian Regional and on the other hand turn around and offer it up essentially for free. There has to be a fair determination of value between ourselves and the Competition Bureau.

Mr. Joe Fontana: But that could go on for years. The terms of the contract are pretty specific. Yes, the valuation is one thing, but you can make your price so high that nobody will buy it, or you can integrate your system so much that nobody will ever want to buy it because there's no value to be had. But the terms of the contract were pretty specific. This thing should have been already done by now, according to the terms that Air Canada signed with the Competition Bureau. So, as I said, we could still be here—

The Chair: Joe, wrap it up.

Mr. Joe Fontana: —years from now asking why you haven't disposed of Canadian Regional.

Mr. Paul Brotto: We would like to proceed as quickly as possible in this regard. Nothing would make everybody happier than to have some certainty. Certainly, the employees of Canadian Regional are right now under a lot of stress and strain and would like to know for certain what their future is. Frankly, the issue has been the complexity of trying to find the valuation. It is to the point now where the Competition Bureau and ourselves have agreed that a third party will decide the price and then we can get on with it.

The Chair: Mr. Guimond, please.

[Translation]

Mr. Michel Guimond (Beauport—Montmorency—Côte-de- Beaupré—Île-d'Orléans, BQ): Mr. Brotto, I would like to say at the outset that the figures you gave us for 1999 and 2000 cause me to sympathize with the workers at Canadian who, for several months now, have been under incredible stress and are facing the challenge of remaining in business.

However, I would say with all due respect that I challenge the answer you gave to Ms. Meredith's question, Mr. Brotto. You said you were the only management decision-maker. Let me explain what I mean.

If that is so, we can call your decisions into question. We could talk about the decision to stop Air Transat from providing service to Whitehorse. We could question your decision to no longer allow Canada 3000 to use Canadian's training facilities available in Canada at the moment. Canada 3000 employees have to go to the United States to get their training. And yet, that is something you could do.

Given your financial situation, I fail to see the benefit in depriving yourself of revenue, unless it was some type of disguised welfare or you did them a favour and this amounted to a disguised subsidy.

Let me give you a more specific example. For over 20 years, Air Alma had an agreement with Canadian to serve the Saguenay—Lac- Saint-Jean and Chibougamau regions. That company has now been told that the agreement will not be continued.

• 0930

It is true that the letters were signed by Canadian, but I must tell you, Mr. Brotto, that I don't believe you, and that there is someone else, at another level, who is pulling the strings.

I would like you to explain to me the specific case involving Air Alma, because I'm going to be asking Mr. Milton exactly the same question later on.

[English]

Mr. Paul Brotto: I'd like to start off by saying I'm not the only decision-maker at Canadian. To believe that would be foolhardy. There's a strong management team and we're all focused on doing the same thing; that is, how to quickly turn Canadian around.

Speed is of the essence because Canadian cannot continue to bleed $2 million a day. With respect to those contracts with Air Transat and Canada 3000 and others, Air Transat presumed we would continue to provide them with ground handling in Whitehorse. They never asked us ahead of time whether or not we would. Since then they have found replacement ground handling that is satisfactory to them. We could not continue to subsidize them.

With respect to Air Alma, we have had a long relationship with Air Alma and may in the future again have a long relationship with Air Alma. Right now we are still busy re-engineering the situation. Should it make sense down the road to continue a relationship with Air Alma, we will definitely pursue that.

[Translation]

Mr. Michel Guimond: If you are interested in maintaining the relationship with Air Alma, how do you explain the last letter the company received, which said that you will no longer be able to continue the contract after May 31?

If you are interested in maintaining this agreement with Air Alma, can you enter into a more long-term agreement—one or two years, for example—to give your company the time it needs to restructure and the time that regional transportation in Quebec needs to restructure as well. If you decide to end the commercial agreement that you have had with Air Alma for over 20 years, that means that some regional carriers will no longer be able to continue operations. Air Nova would then be in a monopoly position in the regions of Quebec, and that would be totally unacceptable.

InterCanadian is gone. Some regional carriers that were your affiliates in the West have died in the last few months. Is this really what we want?

So if you are really independent decision-makers, you have an opportunity, and I'm sure you will do this in the next few days, to enter into a much more long-term commercial agreement with the regional carriers that were formally affiliated with Canadian.

[English]

Mr. Paul Brotto: Our objective is to have the broadest possible network across Canada and to have as many communities feeding our hubs across the country. Some of these cities are being served differently. Yes, Air Nova has expanded significantly in the Quebec market. Part of that was to make up for the failure of InterCanadian.

There are other agreements that are going to be modified over time, but not exactly every agreement is going to continue to be maintained as it was. Obviously, alignments need to happen so that we continue to focus on how to create the best possible, strongest network providing communities all across this country with access to transportation anywhere around the world.

We are going through some alignments that will cause certain things to be done differently. And relationships will obviously have to change and evolve. But this is not a static process. This is a process that will continue to evolve. All I can tell you is that we are committed to providing the best possible service to all communities across the country, linking them, and to have as many partners as possible in that relationship.

Specifically with respect to Air Alma or some of the others, that is an evolutionary process. Certain markets that may have made sense before will need to be handled differently. The intent is never to abandon the market. We are trying to create the best possible network for Canadians across this country.

The Chair: Thank you, Michel.

• 0935

Just on a point of clarification, Mr. Brotto, given your remarks to Mr. Guimond just now, it's now patently clear that Canadian's executives negotiated low-cost contracts and subsidized other airlines with regard to baggage handling and training.

The correspondence that committee members have read, to Canada 3000, for example, from Canadian Airlines, didn't say, “Let's sit down now and renegotiate or talk about how much it's now going to cost you for baggage handling.” The correspondence just said, “Thank you very much. We're no longer providing you the service.” So you can see where committee members have a problem understanding or believing you when you say, “No one else is having any input into our decision-making”, when on the one hand you tell us you needed the money and this was best for Canada 3000, but all along the correspondence to Canada 3000 and other airlines only said, “That's it. We're not giving you the service any more, period.” It didn't say, “Let's sit down. Let's talk about how much this really costs us. Let's talk about how much the airline is now going to have to pay to use our services and baggage handling, etc., in other regional airports.”

Mr. Paul Brotto: Our decision was based purely on economics. From our perspective, we are focusing on what we need to do to make Canadian profitable. How are we going to allocate the resources at Canadian to do—

The Chair: You're avoiding the question, Mr. Brotto. The question is, why did your correspondence not first say to these other airlines, “We'd like to renegotiate the deal”, instead of saying, “Thank you very much, service is terminated”, if you're in need of money?

Mr. Paul Brotto: First of all, I'd like to state that our focus is on providing for the needs of Canadian, which means we are going to redeploy our resources, whether they're our trading resources, ground resources, or check-in resources, to handle our needs. I don't know whether or not I'm going to have excess capacity to provide resources for any other carrier because I am still focusing right now—and so is everybody on the management team—on how to change and re-engineer this company.

Six months from now I may be in a position to be able to tell any of these carriers we have some surplus resources, but the pricing will be much different. Right now I'm focused purely on how to turn Canadian around. That means redeploying assets and resources facilities.

In terms of Air Transat, Canada 3000, or anybody else's needs, they had immediate need in the next 30 or 60 days to have specific determination on whether or not they had ground handling from us. I'm not in that position right now. I'm still re-engineering the company.

The Chair: Mr. Sekora, please.

Mr. Lou Sekora (Port Moody—Coquitlam—Port Coquitlam, Lib.): Thank you very much, Mr. Chair. You've put the nail on the head exactly. The fact is, all I'm hearing is a bunch of hogwash, and I'm not one of those kinds of guys who sits and listens to this kind of stuff without getting bloody mad. Milton sent you here this morning to catch some heat so he doesn't catch too much. You're taking some of the brunt here.

The fact is you have done some crazy things. As I told you this morning, you must have had about 20 of your guys working on this system because one guy couldn't have screwed it up so badly. You cancel flights at the last minute—I'm talking about flights from Ottawa to Vancouver and other places. Someone may be on a six o'clock flight with Canadian Airlines, but guess what—and he's been booked for three weeks—you cancel the flight. Do you book him on another flight? No, you don't. He goes to the other airline and they say, “Sorry, we're booked”.

What the hell kind of treatment is that for customers? Kitimat had 600 seats on a daily basis, which was fine, maybe too much, but they've been cut down to 150. People who have cancer and other things, who need treatment, need plane flights, but they can't get them. Is that what you call service?

When Milton went on TV here a few months ago, he said, “Let's talk about any part of Canada, any city in Canada. All we have is good news.” I wonder what the bad news would be. You have staff pitted against staff.

• 0940

You now have to pay 11¢ dollars to the creditors, which is fine. If it's not revamping, what is it?

As the chairman said, the agreements have been cancelled with airlines without saying, “Let's talk.” I'll tell you why you cancelled them. I'm a business man. Maybe I'm not as shrewd, but the fact is you cancelled them so you could cut those people out of service, out of any competition. That's what you've done. It doesn't matter what it costs.

It's the taxpayers or tourists, the businessmen, the members of Parliament who talk to me from all sides, from British Columbia and other parts where they've been stranded. It's 45 people being left behind at the airport who can't get on a plane. You're buying these people off at $300 or $500 and giving them some kind of one-way ticket anywhere in the world, or whatever it is. How much money are you making if you can afford that kind of stuff? You say you're trying to cut corners.

You're trying to cut corners, but I don't think that's cutting corners; that's being plain stupid. When can I expect, as one member of Parliament—you see the frustration in here and I'm one of many—that you are going to be back to normal where we don't have to have...?

Mr. Collenette has a bill coming before the House. With the stroke of a pen he can bring other airlines in here, and I'm delighted that's in the package because we are not going to live with it too much longer. There will be a motion on this floor to get other airlines, maybe invite some other airlines in from the United States, to see what kind of service they can give us.

Canada is suffering. I know you have to restructure, but when is this going to happen? When can I expect this to happen?

The Chair: Thank you, Lou.

Mr. Brotto.

Mr. Paul Brotto: That's exactly why we have been trying to run as quickly as possible. If we had a perfect blueprint and could take two or three years to make gradual changes, we would certainly proceed that way, but we cannot. We must run as quickly as possible, and you're right, mistakes are going to be made along the way. We are doing everything we can to fix them, but when you're bleeding $2 million a day, time is not on your side. You must run as quickly as possible to fix the situation.

We have 16,000 employees in peril, 25,000 jobs, and service to 50 communities that could be drastically affected by the failure of Canadian. We must move as quickly as we can. I assure you that we are focused on trying to do whatever we can for the customer, and when we make a mistake we are going to fix it.

The Chair: Bev Desjarlais, please.

Ms. Bev Desjarlais (Churchill, NDP): Thank you, Mr. Brotto.

I'm always amazed that when the new chief executive officer of one of these companies comes in front of us, they always praise the other one that's been there. We've never seen companies in such terrible crisis, yet you're all praising each other. I never cease to be amazed by that.

You've indicated that you're in a serious financial situation, losing $2 million a day. You're still trying to restructure a company that obviously was in serious financial trouble for a long period of time, and nobody expected it to succeed. That's why this merger is supposed to be going ahead.

You've stated that Canadian will be merged with Air Canada at some point, so why aren't you proceeding with that merger right now to get the job done, give your employees some stability within their jobs—I'm talking about all the employees—and give the Canadian public some chance of having a seamless airline industry that works, rather than continually dragging your feet in the process you're doing?

Mr. Paul Brotto: Nothing would please us more than to accomplish that. If we could wave the magic wand, that's exactly what we would do. But some of the issues you have raised are very complex.

The integration of seniority lists of employees is not something the management of Canadian or the management of Air Canada has the power to impact.

Ms. Bev Desjarlais: You haven't even started the process of resolving it.

Mr. Paul Brotto: Oh yes, we have. We have been working day and night behind the scenes with all the unions to try to address that issue, but it is so complex it can only be addressed by those unions.

We have tried to work with the CAW, and have had tentative agreements with the CAW, representing the reservation and airport check-in agents at both Canadian and Air Canada, to have them on a common agreement, with common work rules and wage rates, to allow intermingling of the workforce, so we could cross-utilize to help create the seamless product, and what happened—

• 0945

Ms. Bev Desjarlais: What's the usual process when you can't get two groups to work together and you can't resolve it? What's the normal process that you would take? Would you call in, say, an outside mediator or arbitrator body to help you resolve this issue, or would you continue dragging your feet and having everybody butting heads?

Mr. Paul Brotto: The only ones who can call in this outside mediator or arbitrator are the unions, not the management. We are powerless to do that under the Canadian labour laws.

Ms. Bev Desjarlais: Would you suggest to us that as a committee we make sure there's something in this legislation to ensure that a process is put in place to make sure the merger must take place rather than dragging it on and risking the jobs of however many people?

Mr. Paul Brotto: We would welcome anything that would help fix the situation, but we have to understand that this is one that is causing significant anxiety for the employees. There's great uncertainty on how the merger lists are going to be accomplished. My reading is that time is necessary to win the employees, to get them on side. How much time? I hope it's a very short time, but we need their support. Otherwise, without the employees' willingness to make this thing work, this thing will fail.

Ms. Bev Desjarlais: On page 3 you mention that you're “sensitive” to the communities you serve. How much discussion have you had with any communities when you're changing schedules or removing aircraft? Have you had any discussion with the community leaders involved?

Mr. Paul Brotto: Significant. Significant—

Ms. Bev Desjarlais: Would you care to maybe fill us in on some of those discussions? What we hear is that there's absolutely no discussion. If you've had discussions, say, with the Mayor of Penticton, or wherever, could you fill us in on what types of discussions took place in those communities?

Mr. Paul Brotto: I'll let Steve answer that because he's been personally involved with Penticton.

Mr. Stephen Markey (Senior Vice-President, Corporate and Government Affairs, Canadian Airlines Ltd.): We've been travelling the country talking to a variety of communities wherever we could, recognizing that we have limited resources. We haven't been able to—

Ms. Bev Desjarlais: Be more specific.

Mr. Stephen Markey: I will.

Ms. Bev Desjarlais: Give me some communities and the people you've talked to—

Mr. Stephen Markey: I will.

Obviously we haven't spoken to everybody, but we've been in Penticton. We've been in Regina, in Saskatoon, and in Winnipeg, I believe. We've been in Atlantic Canada in several different communities—St. John's, Moncton, Fredericton—

Ms. Bev Desjarlais: Which community representatives did you speak to in those communities?

Mr. Stephen Markey: In Fredericton, I believe it was the mayor. In Penticton, there were the nine mayors of the regional communities, plus the MP and the MPP from the region.

Ms. Bev Desjarlais: Is this prior to changes where you—

Mr. Stephen Markey: No, this was subsequent to the initial schedule changes.

Ms. Bev Desjarlais: Let's be really clear here, then. I was asking you what discussions you had prior to making your changes. Did you have any discussions with community leaders prior to making your changes, yes or no?

Mr. Stephen Markey: I don't believe we had extensive discussions, but certainly if you take the Penticton example—

Ms. Bev Desjarlais: How does this indicate that you're “sensitive” to the communities?

Mr. Stephen Markey: Well, in the Penticton example, in that particular case, we spent six hours working with them. We made changes to the schedule—

Ms. Bev Desjarlais: After the fact, though.

Mr. Stephen Markey: Yes, but we have gone back, and we have been sensitive, and we've tried to answer their needs. There has been additional capacity put into Penticton. I've personally committed, along with some of our colleagues, to go back to Penticton in about three weeks' time to have yet another meeting to make sure we're meeting all of the demands, because they have a variety of different requirements. They have triathlons; they have a series of other things they're concerned about.

We've said we need to be watching the market—as we've said to many other municipal leaders in Canada—very carefully to make sure we are meeting that demand. If we're not.... We don't want to miss it. We want to serve these communities. We want to serve them effectively. We're doing everything we can with the limited resources we have.

The Chair: Thank you, Bev.

Joe Comuzzi, please.

Mr. Joe Comuzzi (Thunder Bay—Superior North, Lib.): Thank you, Mr. Chair.

Welcome.

Mr. Brotto, when we were talking to Mr. Benson the last time he was here.... And I don't want to go down the road of what we should have done at the time. I'm more interested in where we're going to go, forward from here.

I always thought that the natural move for Canadian Airlines to proceed in an orderly fashion, because of their financial problems, was to invoke the protections under the Creditor Relief Act. That was sometime last August or September. I was told by your predecessor that this was not an option.

• 0950

It seems today that had it been exercised we wouldn't be in this tragic condition we are in today, trying to do everything in a very short period of time. The orderly succession could have been done with the approval of the courts over several months, over 10 or 12 months, whatever the need would have been.

Subsequent to that, you have now invoked the protection of the Creditor Relief Act. I don't understand how those same protections aren't being afforded to Canadian Airlines today in order to give you more time to bring your horrific problems.... I might add that you're taking a little heat here today, but this government is not clean; we don't come to you with clean hands today.

The question is, having invoked the protection of the Creditor Relief Act, why don't we have a smoother transition than what we're experiencing?

Mr. Paul Brotto: Let me start by saying that I've been involved in several merger talks with Canadian Airlines. I was involved in the failed 1992 merger talks. One of the reasons they failed then was that there was a disagreement on whether or not Canadian's debt needed restructuring. I was involved last year in the secret talks between Air Canada and Canadian, again on a possible merger. One of the reasons it broke down then was a disagreement on whether or not Canadian was a failing firm, on whether or not it could survive a financial restructuring. It was Air Canada's view that it was not only necessary, but certainly doable.

For whatever reasons, we now find ourselves, having waited until the eleventh hour to put these two companies together, having to run at a very rapid pace. The Canadian CCAA gives us a very short window in which to do the restructuring, and while it permits us to change contracts and redo deals, it is a very finite process. When you're in a situation this bad, you must run as quickly as possible. I wish we had the luxury of time to do everything perfectly. We just don't.

Mr. Joe Comuzzi: Thank you, Mr. Chairman. Those were my questions.

The Chair: Thank you, Mr. Comuzzi.

Mr. Casey, please.

Mr. Bill Casey (Cumberland—Colchester, PC): Thank you very much, Mr. Chairman.

I'm a little confused here. My understanding of the original proposal to become a dominant airline was that Air Canada would maintain Canadian Airlines as a separate entity, Air Canada as a separate entity, the regionals, and a discount. Am I understanding today that you're saying Canadian Airlines will eventually disappear and everything will be the same? All the planes will be painted the same, the employees will be the same, the same unions, and everything...? Is that the vision?

Mr. Paul Brotto: Correct.

Mr. Bill Casey: What do you think the timeframe will be for that?

Mr. Paul Brotto: We could probably integrate operationally and make this thing very seamless in a matter of months. In terms of actually integrating the employees, of merging seniority lists and everything that goes with that, the pace for that will be decided by the unions. It could happen very quickly this year, or it could be dragged out for several years. We will have to find ways in the interim to come up with solutions that are absolutely seamless for the customer. We're not there yet.

Canadian will exist as a separate brand as long as we have that union issue unresolved. It's only when the employees are comfortable and prepared to merge seniority lists in some fashion that they're happy with.... We must keep that as a separate company—

Mr. Bill Casey: So other than the outstanding financial issues, the only thing preventing your total merger is the union seniority list. Is that accurate?

Mr. Paul Brotto: That will be the last stumbling block.

Mr. Bill Casey: What happens if you're not able to resolve your financial issues and the proposal isn't accepted?

Mr. Paul Brotto: First of all, I have to tell you that I'm supremely confident that we're going to win this. When I look at who is making the noise on the creditors' side, they represent a minority. The majority of the creditors understand that it is in their best interest and in the company's best interest to agree with the restructuring plan. I fully expect that the vote on May 26 will be overwhelmingly in favour of that plan, because the alternative.... We have a court-appointed monitor, an independent overseer who has basically indicated that failure to accept that plan would mean that creditors would get less than one cent on the dollar.

• 0955

Mr. Bill Casey: You haven't said what would happen if it does fail, though. Paint the picture for me.

Mr. Paul Brotto: In the remote circumstance that this plan would not be accepted, we would simply take the airplanes, the employees, and the customers, move them over, and start Canadian Airlines 2000 Inc. the very next day.

Mr. Bill Casey: Good answer.

Canadian Regional Airlines seem to be left out of the loop on this. There doesn't seem to be a lot of hope in the minds of the employees of Canadian Regional Airlines. Do you see a resolution for them?

Mr. Paul Brotto: I can tell you that every single employee has not only been writing to me, but I've been holding sessions and talking to them, and they all wish to remain part of the family.

Mr. Bill Casey: Do you wish them to remain part of the family? Would you rather keep Canadian Regional?

Mr. Paul Brotto: I think it's in the best interests of the country to keep them. However, we have made a commitment that we will honour. We will put Canadian Regional up for sale for that 60-day period, and if there is a buyer above fair market value, they are sold.

Mr. Bill Casey: Who's the third-party evaluator you have now?

Mr. Paul Brotto: We have our own evaluators at Canadian and Air Canada and the Competition Bureau has their own; neither can agree. There's now an independent third party being appointed who will come up with that independent appraisal, since the two appraisals right now are very different.

Mr. Bill Casey: Can you tell us what the differences are? What are the two appraisals? Can you tell us those?

Mr. Paul Brotto: I guess it comes down to what is the definition of fair market value. Fair market value, if you look in the dictionary, basically says it's the price between a willing seller and a willing buyer. Fair market value, obviously from Canadian's perspective, is the value of Canadian Regional versus not having Canadian Regional. And that's a number. It's a number of nine digits, and from our perspective that is the value.

The Competition Bureau has a different perspective. Their perspective is not what is the value in the eyes of the seller; their perspective is what is the value in the eyes of the buyer. Our view, right now, is that this is not putting Canadian Regional up for sale; this is actually more of an expropriation.

Mr. Bill Casey: What's the percentage of your value as compared to the one the Competition Bureau has—

The Chair: Thank you, Mr. Casey.

Mr. Dromisky, please.

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

I'd like to see your rating on the bill and ask you what is your general appraisal of the bill as it stands now without any amendment.

Mr. Paul Brotto: That's a tough question, I'd have to say.

From the perspective of what's in there right now, it is certainly something that I think Canadian can live with. It imposes obligations on us that we are ready, willing, and able to deliver on. I would also view it as tough legislation from a couple of perspectives.

The definition of what is anti-competitive, I think, requires some more clarity. It's not clear in my mind right now, since the regulations have been specified but more regulations could be added later on, of what is competitive versus anti-competitive. I want to make sure that I never cross the line, that my employees never cross the line, and do anything uncompetitive. We will always be good competitors with any airline, but we never want to do anything illegal. We never want to find ourselves in a position where after the fact something may be judged to be illegal. I always want to know where the rules are.

Mr. Stan Dromisky: Okay, thank you very much.

I have another question that pertains to the kinds of comments we've been receiving from many of the witnesses in the past few days. Time and time again, correspondence as well as verbal presentations reveal that management style was really up for question.

The questions I have are these. Why aren't letters being responded to? Why are e-mails being neglected? Why are telephone calls not being answered? I feel much of our time has been devoted to many problems of this kind, problems that are directly related to the fact that to a great extent there has been no communication. We have spent a lot of time on this.

• 1000

I think many of the problems we have been dealing with at this committee related to the whole aviation restructuring system and process and the act would have been eliminated if there had been some type of management process where the doors of communication between each of the parties concerned would have been wide open. Apparently, they have been shut, and shut for a long time. It's then very difficult to break through.

Mr. Paul Brotto: I would like to state that we have focused on communication. I agree with you. Frankly, more communication is needed with all parties, with customers, with suppliers, with employees, with communities, with legislators, with this committee, with everybody. More communication is needed. We have had teams at both Canadian and Air Canada totally focused on communicating, but, frankly, it's been overwhelming.

Yes, there have been a lot of questions from customers. We are working around the clock to answer those customers, to explain to them. There is confusion out there. We've had situations where people have shown up in one terminal and the flight is operating from another. Hopefully, that will all get resolved next month. We are focused on trying to make sure we communicate.

It is not our intent to be insensitive to customers or communities. We are quite sensitive. I have a lot of empathy for those in that situation. I get phone calls and e-mail from customers, and I understand their concerns. We are doing our very best to try to communicate and explain to them the situation. But we are also in an evolving process. What we thought would work, as we started to unfold some of the pieces, and the realities of what we are able to do cause us to change our paths as we go along and adjust as necessary.

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

Mr. Stan Dromisky: Thank you.

The Chair: While on the subject, Mr. Brotto, there have been suggestions made to us, representations, calling for an ombudsman to look after such things as customer complaints, etc. What is your view of an amendment to the legislation that would call for an ombudsman?

Mr. Paul Brotto: I would like to state that I think I already have 16,000 ombudsmen for the customer. Air Canada has 21,000 ombudsmen for the customer. Customer focus, delivering value for the customer, focusing on customer needs, addressing their issues and concerns, is what drives Canadian and its employees and it's what drives Air Canada and its employees.

The Chair: What do you think of the idea of an ombudsman in the legislation?

Mr. Paul Brotto: I say I think it's unnecessary.

The Chair: Thank you, Mr. Brotto.

Mr. Bailey, please.

Mr. Roy Bailey (Souris—Moose Mountain, Canadian Alliance): Mr. Chairman and gentlemen, we've focused a lot of our attention on the anger and frustration that's out there in the field, to which you have admitted, so I want to take a different approach here. I don't have an airport in my constituency, albeit I come within 32 miles of Regina to the south, but I have dealt with people problems in another industry for over a year. As a result, perhaps I'm more sensitive to the people problems within the airline industry right now.

I'm basically referring to the difference that exists between Canadian and Air Canada with hundreds of workers out there living in uncertainty, living with the fear of losing what they now own, living with the fear of losing their job, living with the fear, basically, of not having any security.

One of the problems that I see—and I will be telling this to Mr. Milton if I get the opportunity.... You have stated here, sir, that you would like to see this amalgamation take place as quickly as possible, depending upon the agreement of seniority and so on. If we're going to live under the promise of Air Canada that this could take place in two years, five years, or 10 years, all that that uncertainty is doing, not just to the customer, but indeed, to all your employees, is causing hardship, stress, and uncertainty, which we shouldn't allow in Canada.

• 1005

I guess what I want to emphasize is this: if these people cannot come together, do you see a role for the government at this time? This is a disaster. We're talking about thousands of people's jobs. Do you see the role of the government at this time to be a little heavy handed, saying, “Look, clean up your act. Put this thing together and let's get the show on the road”?

Let's not leave the passengers, the consumers, the suppliers, and everybody else with this two to five to ten years. That simply isn't good enough for this industry.

I'd like you to respond to having some movement or some big hand coming down and saying, “This is it. We've had enough.”

Mr. Paul Brotto: I would have to say no at this time. We are very sensitive to those issues. We know it is causing a lot of stress. We know in some cases it is polarizing employees who need to work together. We know it affects morale, and therefore it affects how they deal with customers.

I spend hours every day with employees focusing on how we need to work together and find a solution. My view is that imposing something on them at this time is probably going to be detrimental. We need them to come to the table. We need them to begin to trust and work together. And I believe that having them work this summer together, seeing that there is no difference between a Canadian Airlines employee and an Air Canada employee, that all of us are working for a common good, all of us are trying to create an exciting future for customers, for employees, and for communities, is the missionary mission that I think we are on and we need to focus on in the near term.

Mr. Roy Bailey: I have just one last comment.

I don't see this taking place. I think, with all due respect, sir, that particularly for the employees of Canadian, in this framework of two, five, and ten, you're not going to bring any quick resolution to it. I think it's incumbent upon you and Air Canada to say you're going to get this show on, you're going to make this possible, and help them. You can help them reach this decision and do it quickly. Otherwise, what do we have? Well, we have the same old thing going on day after day after day. There is no resolution.

Mr. Paul Brotto: All I can tell you is that we've studied the 24 airline mergers around the world that have taken place in the past 20 years, and only two have been successful. The two that have been successful are the ones where labour was engaged and people were able to come together quickly. The ones that failed were where labour was not able to see eye to eye, things were imposed, and the employees essentially refused to go along.

I look at British Airways, one of the most successful companies in terms of integration, not only from BOAC and its BEA days, but more recently in the past decade, when BA and British Caledonian came together. Most of the unions over time quickly came to the realization that they had to come together, but their flight attendants, years after the fact, still have two separate flight attendant unions because those employees couldn't see things coming together.

We need to get them to come together as quickly as possible, but forcing the issue, I think, will cause more damage right now.

The Chair: Thanks, Mr. Bailey.

Mr. Hubbard, please.

Mr. Charles Hubbard (Miramichi, Lib.): Thanks, Mr. Chairman.

Following up on employees, we were told that employees would be assured they would have employment, that there probably would be attrition in your company, and buyouts and so forth. Now in terms of what has happened, you have cut back a good deal on service in terms of the number of flights and the number of employees you might need to conduct your operations. What is actually happening? How many employees have you lost, say, in the last six months?

Secondly, are your employees working to capacity? Do you have a lot of employees on the payroll who don't have sufficient work to cover their obligations under union contracts?

Mr. Paul Brotto: I would have to say the attrition rate, certainly in Canadian in the past six months, has been higher than is normal. And part of that is the uncertainty. The attrition rate, particularly in management, has been high, and part of that has been simply that we all know once this thing is completed, there's going to be a lot of redundancy in management. So some are voluntarily leaving today as they have job opportunities elsewhere.

• 1010

But we've made a commitment to all employees that there are going to be no involuntary layoffs or involuntary relocations. If we have surpluses in some areas, we are going to be looking at retraining and moving some work around. I would have to say generally that right now, we need most of the employees. If anything, during this transition period we need a lot of employees to help with the planning. We need a lot of employees to help with the transition, and we need more employees to deal with communication and customer issues.

Mr. Charles Hubbard: So, really, when you park a lot of your planes, you don't have a lot of maintenance people with nothing to do. That's what I'm asking.

Mr. Paul Brotto: No.

Mr. Charles Hubbard: How many people have you lost, for example, in the last six months, in terms of the 16,000 or 17,000 you started with?

Mr. Paul Brotto: Several hundred.

Mr. Charles Hubbard: Only several hundred.

I have one final question.

I was reading today's Globe and Mail where they're talking about your restructuring. I guess you can shove it in your ear if you don't want to take what's being offered. When I look at your presentation this morning, you reported that in the first three months—and I know the first three months of the year is the most difficult time in terms of trying to create revenues and make a profit—you've lost about $250 million, and $80 million of this is in restructuring-related expenses and so forth. Then I read the report on Air Canada, where you came from, where you have much more experience. We are concerned, as a committee, about having a Canadian airline that's going to be successful.

From what the various people around the table have said, Air Canada has virtually had a monopoly. They've increased prices; they've cut back on flights. They've had the greatest opportunity, probably ever, in the last few months to make money, but both of you have lost money in that three-month period.

You're an experienced airline executive. Is there money to be made in Canada? Can we exist? Are we really just postponing the inevitable by trying to spend all this time looking at airlines and restructuring. We have both companies coming to us this morning saying neither of them made any money in the last quarter. What is your vision of what may happen after this thing is restructured, say, after two years? Can we have a viable airline industry in this country?

Mr. Paul Brotto: I would have to say unequivocally yes. The first quarter is always the most difficult for airlines, and it is even more so in Canada. The market is much more accentuated in terms of summer travel versus winter, compared to the U.S. industry or some other airline industries around the world. It is certainly the most difficult. We have an inclement climate, and so on.

However, if I look two years down the road, I'm confident we can have a successful scheduled airline business in Canada. Not just Air Canada, but I expect to see WestJet being quite successful across the country, and other new entrants spring up. We welcome competition. I think if anything, competition keeps us on our toes and allows us to continue to innovate and focus on how to create value for customers and keep prices down.

With respect to domestic prices, domestic prices in the first quarter haven't risen, in spite of the fact that the U.S. industry went through two fare increases because of crude oil going from $10 a barrel up to the low $30s. In Canada, fare increases so far this year have been purposely kept down because of the sensitivity around the airline integration issues.

The Chair: Thank you, Mr. Hubbard.

[Translation]

Mr. Asselin, please.

Mr. Gérard Asselin (Charlevoix, BQ): You know as well as I do that Canada is supposed to be a bilingual country in which a major carrier such as yourself must be able to serve its clients in the two official languages recognized by the government. Francophone clients who board your planes are entitled to get both general and safety services in their own language. Francophone clients pay as much for their plane ticket as anglophone clients.

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In the year 2000, you have a total of 1,258 pilots, of whom only 71, or 5.6%, are francophones. What is Canadian's policy or what was its policy in the past that would explain this low percentage? When you hire a pilot, are you concerned about whether he can speak both official languages? Don't you want flight attendants to be able to speak both official languages?

At the moment, only 71 of Canadian International's 1,258 pilots are francophones, for a percentage of 5.6%. Are you going to take steps in your management plan, your integration plan or your merger plan to ensure that francophone pilots enjoy the same treatment as anglophone pilots?

[English]

Mr. Paul Brotto: Having been at Canadian for only four months, I can't comment very much on past practices. I can tell you, though, that Canadian intends to move to the Air Canada standard and be fully compliant with the Official Languages Act. The same goes for our feeder carriers. Our intent is to be able to serve every customer in the language of their choice all the time.

[Translation]

Mr. Gérard Asselin: You are showing good will in the area of customer service. However, I would like you to know that we're not talking about the past, but rather the present. We are in the year 2000, and there are 71 of your 1,258 pilots who are francophones, which means 5.6%. I think this situation must be corrected and that there must be some equity between francophones and anglophones.

[English]

Mr. Paul Brotto: From our perspective, certainly, hiring practices going forward are going to be consistent with Air Canada, whether it's pilots or any other labour group. We're going to make sure that we always hire the best possible people with the appropriate skills to be able to deal with the customer in any language.

Mr. Stephen Markey: In fact, we have a team of people in Vancouver this week hiring flight attendants. One of the attributes we're looking for is the capability to speak both official languages.

Mr. Gérard Asselin: And with respect to pilots?

Mr. Paul Brotto: We will do—

Mr. Gérard Asselin: [Inaudible—Editor]

Mr. Stephen Markey: No, but there are many people in Vancouver—

[Translation]

Mr. Gérard Asselin: Canada goes beyond Vancouver.

[English]

Mr. Stephen Markey: But they're hiring in Vancouver. That's where the hiring is taking place this week. That's all I'm saying.

The Chair: Thank you, Mr. Asselin.

Mr. Brotto, Mr. Bradley, and Mr. Markey, thank you very much for your submission to the committee. You've answered our questions. We appreciate that. There probably will be more questions coming to you. We hope you'll avail yourselves to answer those questions.

Colleagues, in order to accommodate a change in the witness table, we'll take a five-minute recess.

Thank you, gentlemen.

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• 1030

The Chair: Colleagues, we're resuming our hearings.

The next witness before us, representing Air Canada, is Robert Milton, president and chief executive officer. He is joined by his senior vice-president, corporate affairs and government relations, Douglas Port; Lise Fournel, executive vice-president, commercial; and Rob Peterson, executive vice-president and chief financial adviser.

Mr. Milton, welcome back to the Standing Committee on Transport. We look forward to your presentation of five to eight minutes, after which we can begin our questions from the members to you, sir.

When you're comfortable.

Mr. Robert A. Milton (President and Chief Executive Officer, Air Canada): Mr. Chairman, honourable members of the committee, ladies and gentlemen,

[Translation]

Mr. Chairman, members of the committee, on behalf of Air Canada, I would like to thank you for giving me this opportunity to speak to the committee.

[English]

I am pleased to have this opportunity to provide you with an update on the integration process currently underway at Air Canada and Canadian Airlines.

As mentioned, I have with me some of the key executives of Air Canada. If we want to get into subjects in any degree of detail, these are, I think, the industry experts in Canada: Lise Fournel, our executive vice-president, commercial; Doug Port, senior vice-president, government affairs; Calin Rovinescu, executive vice-president, business development and strategy; and Rob Peterson, executive vice-president, finance, and chief financial officer.

I would like to start by telling you how proud I am of the men and women who work for Air Canada and Canadian Airlines across this country and around the world. The past four months have been extremely challenging and difficult for every employee. They've undertaken, with professionalism and determination, the enormous challenge of integrating two airlines into one carrier serving Canadians and Canadian communities.

It is not an easy process. The combination of two businesses like Air Canada and Canadian Airlines into a successful $10 billion enterprise is an immense and challenging undertaking by any corporate standard. It is certainly a process that is unprecedented in its scope for the Canadian airline industry.

All our knowledge of past airline mergers clearly shows that moving quickly in the first six months is critical to our success. Mindful of this, we have reached a number of important milestones during these first 90 days.

On the financial front, we are rapidly moving toward a resolution of the restructuring of Canadian's debts. Working with our colleagues at Canadian, we have identified numerous synergies, and we have developed an overall plan for integration. We are also making good on our commitments.

For example, I'm pleased to tell this committee that 170 new accounting jobs are being created in Winnipeg as a result of the repatriation of work from AMR Corporation in the United States.

On April 2 we successfully launched an integrated summer schedule that offers Canadian consumers 32 new routes, 12 new destinations, and over 2,000 daily departures.

The schedule is significant. It shows that Air Canada and Canadian Airlines can work together and provide enhanced service and products to Canadian communities. The early signs emanating from this schedule are especially positive for Canadian Airlines. Loads on Canadian are up. Advance bookings are up. The summer schedule is a catalyst to improve profitability at both airlines.

This augurs well for a financially viable and stable airline industry in Canada rather than the perpetual problem for the government and the potential liability for Canadian taxpayers. As committee members know, this restructuring is being completed without one penny of taxpayer money.

• 1035

The parameters for the process of integration continue to be guided by the firm commitments we have made, which we continue to respect as we build one strong airline to serve Canada.

During my previous appearance before the committee, half of the questions posed by members were related to Air Canada's commitments to employees, communities, and consumers. We are honouring all of these commitments. I hope you've noticed that Canadian consumers have continued to benefit from seat sales. In fact, in the first quarter of this year, we have introduced two system-wide seat sales.

All of these commitments, as well as the undertakings we have made to the Commissioner of Competition, are being respected and they form an integral part of our integration plan as we move forward.

At this point, Mr. Chairman, I want to say I care. I care about getting this merger right. I care about the important role of parliamentarians in this dialogue as Air Canada evolves into a new, larger carrier. I care about this because of our employees and our customers. I care about every community we serve, and I care about the enormous legacy of trust that binds Air Canada to its proud history as one of Canada's flag carriers. We are now charting a new course in this history and I want this legacy to reflect that we care.

Now let me turn to some of the issues that have been raised, both by witnesses and committee members, especially concerning levels of service to consumers and to communities. Air Canada has also received comments and concerns from customers and communities about some of the things we are doing and some of the things we are not doing. We are actively addressing these problems.

While we set about creating one of the world's largest airlines, the interests of Canadians in Canada remain top of mind to us. When we introduced our new schedule, some communities complained about the lack of capacity or cuts in service. Some customers complained about service levels and frustrations with the frequent flyer programs. We're listening, and we're already making changes.

We are reallocating seats and resources to meet increased demand for frequent flyer point redemption. In Calgary, we have responded to concerns with schedule adjustments by adding capacity. In New Brunswick, we have also listened to community concerns and increased capacity.

I'm sure we'll make more changes based on ongoing customer feedback and the input you have collected during the course of your hearings. We might not get it right all the time, but we are working all the time to get this right.

Let me add here that we are devoting more time and attention to issues such as these. We know customers are experiencing some significant change as they try to adjust to the new world of Air Canada. We know some communities still want a return to the days when there was too much capacity. I also know, however, that while this is not feasible, we must continue to explain more carefully and openly exactly what is happening. We need to explain what is happening with their frequent flyer points. We need to show our customers that we are working hard at building a new airline, and while we do, we ask for their patience, understanding, and support.

As the integration progresses over the next months, we expect more hurdles. As I said, that's inevitable when you take on a challenge of this magnitude. We understand that we have a tough road ahead of us, but we will get there.

Let me turn now to the legislation. I cannot say I am entirely pleased with Bill C-26. While I understand the importance of this legislation and want to work with you in building a balanced, workable policy and framework, we think some changes would be helpful in achieving this balance.

Our concerns with Bill C-26 are not with the intent or objectives of the legislations. We are, however, concerned with new processes and regulatory mechanisms that could become a costly and unwieldy side effect of the legislation.

If the legislation moves too far in terms of reregulation and administration, it could precipitate exactly the opposite reaction desired. Reregulation could serve to diminish market competition, new products and services, and the economic growth that airport authorities, communities, and governments are expecting. Reregulation of the industry would also be a giant step backwards and out of sync with Canada's successful initiatives in market liberalization and free trade.

• 1040

At Air Canada, we see the hugely successful Canada-U.S. Open Skies Agreement as a template for creating more jobs, business opportunities, and economic benefits. We firmly believe that similar benefits to Canada and Canadians will be generated with growth in other international markets. It would be unfortunate if the opportunities inherent in this new airline were short-circuited before we had the chance to make it happen.

As we move ahead in 2000, our focus is firmly fixed on a successful, responsible, and responsive integration process. To that end, we are filing with the committee today a written record of our recommendations and proposals for changes to the proposed legislation. We welcome the opportunity to share our perspective on the integration process with you, and we also welcome the opportunity to respond to your questions and concerns.

We are fully aware of the great responsibility and opportunity that has been presented to us. We are going to act responsibly and we are not going to let Canada down. You have my commitment on that. Merci.

The Chair: Thank you, Mr. Milton, for your presentation to the standing committee.

Colleagues, I just want to remind you that we are in five-minute rounds. If we all stick to our five minutes, we'll be able to have more than one round. So the more time you eat up, the less time your colleague will have for questions.

Val Meredith, please.

Ms. Val Meredith: I want to welcome you to the committee and say I'm sorry that I only have five minutes. I'll quickly try to deal with the issues as I see them.

You have said you believe in an open market, you want to continue to have a deregulated market, and you like the successful Canada-U.S. Open Skies Agreement that is in place. Can you give me one good reason why the government should not fulfil some of the recommendations by the competition commissioner and completely open the market for competition against you by encouraging anybody, even foreign ownership rules, to increase competition?

Mr. Robert Milton: From my standpoint, at the tail end of last year, we underwent significant and difficult negotiations with the Competition Bureau to determine what an appropriate framework would be for us to operate under as we were going forward. We came to an agreement, and we are fully abiding by the agreement in terms of what the Competition Bureau determined.

Ms. Val Meredith: I guess my question is this. Can you give me one good reason why the government should not open up the industry to more foreign ownership to ensure that Canadians have competition in the air industry? Can you give me one good reason why this should not happen?

Mr. Robert Milton: As you are aware, we actually have advocated an increase in the foreign ownership of Canadian carriers, up to a level of 49%. So I am not opposed.

Ms. Val Meredith: So you can't defend the government's position not to do that?

Mr. Robert Milton: We have been very public in our position.

Ms. Val Meredith: Okay. Thank you.

I think back to when you appeared before us during the days when there were two people vying for the potential or opportunity to merge Air Canada and Canadian Airlines. I remember very clearly some of your comments about what a merger might mean to the Canadian traveller, what it might mean to the employees in the Canadian airline industry. You warned us and told us there was a bully on the block, Don Carty and American Airlines, that would certainly destroy the Canadian airline industry as we knew it if they were to be successful in the Onex proposal.

It would appear, six months or four months later, that there is a bully on the block, and that's not Don Carty and American Airlines, but Air Canada and Robert Milton. There are indications out there that you are doing whatever you can outside of legislation—because the legislation isn't in place—to limit competition, to make sure those Canadian carriers that might have established competition against Air Canada are being, if not prohibited, at least discouraged from doing so.

What you can't get through the front door, you might be trying to get through the back door with your strength of purchasing power and your dominant situation with the airport authorities. Because of your control of the marketplace, airport authorities are unwilling to accommodate competitive carriers.

• 1045

Can you explain to Canadians why you feel American Airlines and the Onex deal would have been so much worse and so much harder for the Canadian travelling public, and that they were the sharks in the ocean and you are not?

Mr. Robert Milton: Sure. To take you back to that period, a lot of what I was addressing was the fact that this was clearly a de facto evolution of the Canadian airline industry into the hands of a single American airline—that is, American Airlines. So there was that specific aspect. But additionally, as I described at the time, because the resulting network would have been aligned with American Airlines, there would have been a very significant contraction in overall activity for the Canadian airline industry and the resulting “new Air Canada”.

I think it's important to keep in perspective that the schedule we've put in place is a growth schedule that calls for 2% growth. So this is not an industry or a marketplace that has seen contraction; it is a market that has seen growth.

Ms. Val Meredith: Mr. Milton, I fly from Vancouver, and I'll tell you that from Vancouver to Ottawa there is not growth; there is contraction. I know from talking with people in communities throughout British Columbia and across Canada that they don't see growth; they do see contraction. They see cancelled air carriers. They see cancelled aircraft. They're waiting in line. They're being double-booked. They think they have a seat; they show up at the gate and find out that seat has been given out two or three times.

So Canadian travellers do not see growth; they see contraction of service, the same thing you warned us of when Don Carty and American Airlines were coming into the deal.

Mr. Robert Milton: With all due respect, it is a quantifiable fact that there is growth in the overall capacity production of Air Canada and Canadian on a combined basis. And on the specific illustration you provide, it is also incorrect in that there are three daily flights from Ottawa to Vancouver, including now a 767, which has a capacity of 191 seats, which was never present in the market previously. So there is a considerable amount of misperception in terms of what's happening.

I understand how difficult change is for everybody. This is a very profound change that has occurred after 60 years of these two airlines existing in a form in which, for at least 40 years, people talked about the need to get on with combining them.

So I think the illustrations and what we present here.... It would be very helpful to keep it to fact, and I'll be happy to do that.

Ms. Val Meredith: Well, the fact is, Mr. Milton, that there's a two-tier travelling public. I don't have a choice, when I fly direct flights from Vancouver to Ottawa, of what airline I want to take. But I find that when I want to use upgrade or when people want to use frequent flyer points, there are two tiers. If you belong to the Air Canada system and that's who you've been travelling with, you're treated completely differently from how you're treated if you come with a history of travelling with Canadian and try to use your upgrade points or whatnot.

I would suggest to you that there is a two-tier system. I don't have a choice to go with the carrier I might have preferred to go with, and I don't appreciate, and others don't appreciate, being treated like second-class travellers.

Mr. Robert Milton: I'm sorry you have that impression, but I can tell you that from a commercial standpoint, in terms of the processes in place, there is no such favouritism for either operation.

But I will state very clearly—and I'm on record in the media on this—that there are significant transitional issues we're dealing with, particularly as they relate to IT interfaces between the Air Canada computer system and the Canadian computer system, which is based on the American system, and we are working as fast as we possibly can to resolve these to get us from very manual processes to highly automated processes.

Again, I restate that I am incredibly proud of what our people have done and are doing in the face of what is a monumental effort. Over 2,000 flights a day have been transitioned. And yes, there are bad stories, and I apologize for those, but when you consider the fact that Air Canada and Canadian, on a combined basis, are carrying 32 million to maybe 35 million passengers this year, with average interfaces between customer and passenger of about five transactions per individual, on 160 million customer contacts we are going to get a few complaints. And I apologize for those in advance.

• 1050

It's also relevant to note that some of what we've been reading that's helped us stir up this great mystique on all the problems is erroneous information released, now with an apology, from the CTA, where they said complaints were up. In fact, complaints to the CTA in the first quarter of this year are down year over year.

Our people are doing an amazing job, but we know there are lines. We know there have been some denied boardings as we transition Canadian Airlines from an airline losing $2 million a day.

I would please like to throw you back to last year when you were hammering me over whether I was sincere on protecting the jobs at Canadian Airlines. Yes, I was. Canadian Airlines ran out of cash last year. Everybody around this table would be dealing with disruption of so far greater a magnitude had Canadian failed than the small issues we're trying to correct and are correcting expeditiously. That's what we'd be looking at. We have put a lot of money in. We have resuscitated these guys. They're an incredibly capable group working their hearts out, and we're going to make them win.

The Chair: Thank you, Mr. Milton.

Mr. Calder, please.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): Thank you very much, Mr. Chairman.

Mr. Milton, you have to understand it is our job here to dig out all the facts on this issue so we come up with the right solution. In my riding I have around 6,000 Air Canada and Canadian employees who are concerned too. We see that Air Canada and Canadian is going to merge, and whether that happens in two years or three years is something I would like you to tell me. One of the things we incorporated in this was the employee dislocation and/or layoffs, which has a two-year period to it. If it takes longer than two years to get this merger finished, I have a concern about what is going to happen to these employees, because I eventually see the merger happening, and you've alluded to that.

So my question is, how will you deal with this if in fact it takes longer than two years? How are you going to be dealing with the merging of the seniority lists? Is that going to be done through the unions? Is that going to be done through the Industrial Relations Board or others? Those are two questions right off the bat.

Mr. Robert Milton: From my standpoint, my vision of what we have here is a tremendous growth opportunity for not only Air Canada and Canadian and its employees, but in terms of choice for customers and for this country—the first, and I predict only, chance to have Canada truly succeed on the global stage with a relevant, powerful airline. So if we do this right this is a growth story.

As I've just mentioned, so far we do not have a contraction story. Generally, when you put two companies of any description together you look for cost cuts, people cuts, infrastructure cuts. We have grown these airlines. We are hiring pilots; we're hiring people all over the place. This is, if we don't mess it up, a great chance for victory for Canada. That's what we're trying to execute here.

In terms of what is going on vis-à-vis seniority, we have some people who are very vocal at both airlines on advocating what I believe are extreme positions. We have some people at Air Canada who believe that everybody from Canadian should simply be integrated on a tail-end basis. I don't think that's fair. We have people at Canadian who believe everything should be done on a pure date-of-hire basis. I don't think that's fair.

Ultimately this will be determined by somebody other than myself, an official body that's able to oversee such an exercise in determining what an appropriate seniority integration would be. My view is, if this is done correctly, it is not an issue of a two-year commitment to life, which is a backwards way of doing business, but a lifetime commitment to far greater employment, security, and income than they ever could have had with these two airlines beating each other over the head.

Mr. Murray Calder: When we were talking about this last year we were dealing with the issue of whether it was going to be 2,500 or 5,000 jobs that were going to disappear. Are you telling me now that this is not an issue any more, that in fact we don't have to worry about those 2,500 or 5,000 jobs being lost, that we're going to make more jobs than that? Is that what you're saying to me here?

• 1055

Mr. Robert Milton: Absolutely. We intend to proceed with the buyout packages that we proposed. But again, if people have determined at that stage in their life that they would like a buyout package to go early into retirement, that's fantastic. They win, the company is happy, and we will rejuvenate the workforce.

So what we are looking at absolutely now is a story that is quite different from what first occurred. If you remember back last year, we had United versus American. I was arguing United gave us an outcome that was far more attractive in terms of protecting jobs, growth, and stability for the airline industry in this country. What we ultimately came up with as an outcome was a relationship with not only United but American Airlines. So in terms of the growth potential, the prospects, the stability of what we have here, it's greater than I even imagined at the tail end of last year.

We also managed during all this negotiation, this high-wire act that was going on at the end of last year dealing with these massive U.S. airlines, to have the ability, if we want to, to also do a deal with Delta Airlines.

So the potential for growth is phenomenal. I'm working with the employees. I'm trying to articulate to them that the world they see today with 2% growth is not where we're going. If you compare where we are versus the U.S. industry, the U.S. industry today operates aircraft of their own to 80 markets around the world, which neither Air Canada nor Canadian do as effectively with our new schedule. If we can access those markets, even half those markets, it's probably another 5,000 or so employees.

This is a phenomenal upside story for Canada, unless we bog it down, restrict it, and reduce it to mediocrity through red tape and indifference.

Mr. Murray Calder: Am I okay for timing?

The Chair: Thirty seconds.

Mr. Murray Calder: Great.

Last night we had the travel agents appear in front of us. I'd like your comment on travel agents being able to negotiate their commissions. The other issue they brought up to us too is that their commission is separately billed right now. Basically the customer comes in and pays for his ticket and then has to issue another cheque for the travel agent's commission, which, if you're a businessman, is inconvenient, to say the least. You can have airport charges that are included on the ticket. Why can't the travel agent's commission be included on that ticket so it's just one bill?

Mr. Robert Milton: You mean in terms of a surcharge box for fees levied by travel agents?

Mr. Murray Calder: Yes.

Mr. Robert Milton: This is an IATA issue in the sense that tickets are designed and constructed in a universally consistent fashion.

Lise, can you comment on that? That's something you'd have familiarity with.

Ms. Lise Fournel (Executive Vice-President, Commercial, Air Canada): It is effectively, as Robert said, an IATA issue. There is already no place to put anything on the ticket. We are in discussions with IATA, but a solution has not been found.

Mr. Murray Calder: So you are working towards a solution to the problem?

Ms. Lise Fournel: It's not going to be a short-term solution, I can tell you.

Mr. Murray Calder: I see it as just one extra little box on the ticket where you basically put in the charges for the travel agent. It can't be that difficult.

Ms. Lise Fournel: Behind all of that there is a high level of complexity that has to be dealt with, and agreement from all of the carriers is necessary to be able to go forward. It's not only Air Canada asking; it has to be all the carriers participating, and that means a high level of complexity.

The Chair: Thanks, Mr. Calder.

Mr. Robert Milton: It would need United Nations concurrence on ticket format change.

The Chair: Thanks, Mr. Milton.

Mr. Guimond.

[Translation]

Mr. Michel Guimond: Mr. Milton, I would like to start by wishing you good luck in the enormous, not to say titanic job you have been plunged into in the last four months. I wish you good luck with the final outcome.

I'd also like to say something for your information and that of some of my colleagues around the table. For three weeks, we have heard from quite a few witnesses who have told us horror stories about the management of the airline since the merger of Air Canada and Canadian. Since I won't have enough five-minute rounds to mention all the examples, I will just highlight a few of them.

• 1100

Some of my colleagues said: “You supported Air Canada rather than the Onex bid. Live with your decision”. I want to make it clear that the reason I was opposed to the Onex bid was that I thought it was illegal. This view was confirmed by the Superior Court of Quebec. I was not necessarily opposed to Onex, but I thought its takeover bid was illegal.

We made that clarification, and now I would like to say, Mr. Milton, that my view at the moment, in light of all the horror stories we have heard, is that Air Canada is using Canadian International and Air Canada's wholly-owned subsidiaries, to do indirectly what it could not do directly. I could give you many examples to back this up. Of course, as president and chief executive officer, you cannot be aware of all the details of all the problems, but I will give you a few examples. I would also like to tell you that I am going to be tabling some amendments to the bill. I hope my colleagues around the table will support them, because the commitments you made on December 21 to the Competition Commissioner must be extended to Air Canada's subsidiaries. I can tell you that I have received some serious complaints by Air Nova. You could tell me that we met with Mr. Randell on Monday and that he made note of these, but you are the head person, and it is up to you to take the necessary corrective action. We will help you to do that by amending the bill so that your subsidiaries, including Canadian International, stop behaving in such a way that they are killing the competition.

You know that since the takeover, many western regional carriers that had agreements with Canadian are no longer operating. If nothing is done, other regional carriers in the East will have to stop operating. So the competition will be eliminated. I could give you the example of Air Alma, that has had a contract for more than 20 years with Canadian, and that was told that as of May 31 that the contract would no longer be renewed. Air Alma is Air Nova's competitor in the Saguenay—Lac-Saint-Jean region. I could also mention the example of Regionnair, that wants to offer frequent flyer points on the North Shore and Lower St. Lawrence—Gaspé routes. It was told that it would find out about this only in October, once the system is in place. Mr. Milton, Air Alma will be bankrupt before that. This is an unreasonable delay. Mr. Milton, I could also mention the example of Air Nova which used almost all the excess counter space (which formerly belonged to InterCanadian) and left only a few crumbs for Regionnair. I could mention the example of Air Transat in Whitehorse. I could mention the example of Canada 3000, which can no longer train its staff in Canada, and must send them to the United States for their training.

[English]

The Chair: Michel.

[Translation]

Mr. Michel Guimond: I don't want you to go into a great deal of detail in your answer. I will close by asking this question. Would it be possible for Air Canada and its subsidiaries as well as Canadian International to make some commitments to ensure genuine competition in the regions? You ended your presentation with this comment: “We are going to act responsibly and we are not going to let Canada down”. I hope that means that you will not let down people in remote parts of Canada and small carriers throughout the country.

[English]

Mr. Robert Milton: Thank you.

You mentioned the citing of examples, and perhaps my not being up to date on day-to-day activities.... I'd love to engage you on any example that's going on in our world, and explain what we're doing and why we're doing it. To the extent I can't, I have people who are capable of doing it.

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It almost seems as if it were another millennium where the issue was employees and Canadian Airlines and protecting them and so on, because you seem to not be giving us any credit in the case of Air Nova for the fact that.... InterCanadian failed in this process, and what issues were there? Air Canada and its subsidiaries came in, we protected the interests of the travelling public, there was no disruption of any description whatsoever, and we dealt with the problem once again, as we always do in these situations. There was the potential for a crisis. We dealt with it, just like we're dealing with the Canadian Airlines situation, which could be a crisis not by our doing but by, I would argue, the perpetual meddling on the part of government, not only in recent years but going back many years, in trying to perpetuate a duopoly that was not able to sustain itself.

So we are trying to fix problems that result from, I would argue, many years of inappropriate government intervention in the marketplace. We're dealing with them, and Air Nova and InterCanadian and how we dealt with it in Quebec is just another example.

On the issue of a number of small carriers that no longer have an affiliation with Air Canada or Canadian, yes, it's true, but in my estimation, and I would like to think you would agree, it's quite straightforward from a logical perspective when you consider that Air Canada and Canadian had relationships with two different outfits and were two distinct marketing organizations and airlines, so that when the system was integrated, obviously there was surplus capacity. So the carriers affiliated with one or the other on a non-ownership basis came to a crossroad.

Now, in these cases, I can tell you that Joe Randell went to places like Alberta Citylink and CMA, and we undertook to help employees move to eastern Canada, where more capacity was needed. We tried to deal with this as sensitively as humanly possible. Of course, we're not given any credit for that. There's no recognition for what we are doing from a sensitive standpoint in dealing with people. But again, this is our lot in life at Air Canada.

Every time there's a crisis around the world, whether it's a mudslide in Central America or an earthquake in Turkey or Japan, we're the first guy there. We volunteer the capacity. We don't get anything from the government. We send relief supplies. I think we're in a mode right now where we could do a relief flight to an earthquake zone and be ridiculed by people like those sitting around this table.

Some hon. members: Oh, oh!

Mr. Robert Milton: I think as we go forward, outfits like Régionnair for sure will be invited to come into the FFP, as we have committed to do with the Competition Bureau. But as I've said, there's an overall tremendous pressure on our IT systems. Those IT systems in terms of backlog are affecting all sorts of things. So getting a new member such as Régionnair into the frequent flyer program is a truly difficult proposition right now, but we have committed. We will get them in, and we're happy to get them in.

On airport issues, it's impossible for me as Air Canada's CEO to be responsible for decreases or increases in activity at airports throughout the country. Activity goes up and it goes down. I'm happy to be responsible for what we can possibly do to accommodate happy outcomes, but every airport in the country is, I think, an unreasonable proposition.

On your final point, in terms of a commitment on the part of not only Air Canada but also all of its subsidiaries, including Canadian Airlines, absolutely fundamentally, that is a part of what I believe we have committed to. It is the entire organization of Air Canada.

The Chair: Thank you, Mr. Milton.

Mr. Fontana, please.

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

Welcome back, Mr. Milton. As you gave your speech, I was visualizing a white knight, violins in the background, and the Canadian national anthem, and how you're not being appreciated for all of the darn good things you're doing.

I want to pick up on your speech.

The Chair: You're Joe and you're a Canadian. We have that all straightened out.

Some hon. members: Oh, oh!

• 1110

Mr. Joe Fontana: With regard to caring and commitment, Mr. Milton, when you appeared before this committee on October 27, you said you were going to “listen and think before acting”. You said “we are absolutely committed to reviving and rebuilding Canadian Airlines” and that the “Air Canada plan meets and...exceeds the five principles outlined...by the Minister” in terms of “choice”, “frequent flyer points”.... You said “Our plan guarantees regional service to all communities that are...served by either of the two major airlines” and that “Our plan fosters industry competition.” The promises go on like you wouldn't believe, even today.

Let me just ask you these things. When we began the process, you said you were going to be considerate of Canadians, especially Canadian customers. From what we've been hearing from the customers, our mayors, our communities, and the competitors, Mr. Milton, I'm sorry, but the story is not as you see it or say it. Your prices and costs are going up. Consumers are having to pay more. The costs for cargo and passenger tickets are going up.

You literally kicked a Canada 3000 plane out of your facility before proper repairs could be made. You decided to stop third-party agreements with other companies, issuing 30-day notices to suspend agreements. We have learned that after you reduced your capacity from Moncton to Toronto, lo and behold, when WestJet all of a sudden appeared, you increased capacity and lowered your costs. You didn't even serve Stephenville. I applaud that you did so before. But as soon as you had a competitor, you decided to add capacity so that a smaller competitor couldn't go on.

We've also learned that you made this great speech to most of your employees in a Vancouver hangar and pointed out your competitor's jet and promised that they will no longer be allowed in that hangar.

Mr. Milton, that doesn't sound like a caring and compassionate company with a real commitment to your customers.

You have been given a privilege that other businesses and industries in this country could only hope for, with 80% of the domestic market and 75% of the international market. For the past three or four months, as I've said before, you've made us realize what a monopoly should not do.

I want you to answer about the prices and your anti-competitive practices in the past three months, including your predatory practices of even trying to drive particular competitors out, such as charging British Airways because they no longer have a connector with Canadian and inflating or posting prices that will effectively remove them from the marketplace for some of their passengers.

Mr. Milton, you could have taken the time to listen and to care and to do this right. At the end of the day I care about the customers and our communities, who were given certain guarantees.

My question is multifaceted, but I would like you to answer every one of those issues I talked about. Then I have more, if I'm allowed to continue.

Mr. Robert Milton: I've been writing as fast as I can on all of those questions.

In terms of taking the time to do it right, again, I think it is important that we keep in perspective that even through the first quarter of this year, Canadian Airlines lost essentially $2 million a day. Is the government going to give us half a billion dollars to deal with taking time?

Mr. Joe Fontana: Mr. Milton—

The Chair: Joe, let's let the witness answer.

Mr. Robert Milton: This is a crisis that has been developing. Canadian Airlines would have stopped flying at the end of last year had we not infused considerable funding. We would have had a catastrophe from the standpoint of people no longer being employed just before Christmas and an airline out of existence.

We are taking the time. We are obviously making decisions on commercial issues such as schedules with very detailed, factual information, not anecdotal stories, not what we think or what we experience, but in terms of the perspective of a $10 billion organization dealing with over 30 million passengers a year.

You point—

Mr. Joe Fontana: Mr. Milton—

Mr. Robert Milton: I'm answering your questions.

Mr. Joe Fontana: Mr. Milton, I need specifics. I heard your speech. You're regurgitating—

Mr. Robert Milton: I'm just about to start on British Airways.

• 1115

Mr. Joe Fontana: No, I want you to table for us the prices you had on October 27, when you made all kinds of commitments about being fair to the consumer. Are you prepared to table all of your schedules and your prices to this committee so that in fact we can compare what the prices are now to what they will be on June 1? I want specifics.

Mr. Robert Milton: Absolutely. I think it's a great story in terms of us acting responsibly. As Paul Brotto said earlier, we have not increased domestic prices this year. Those are the facts. I know facts can be upsetting in certain cases, but these are the facts.

As an example of the facts, British Airways is obviously a globally powerful competitor. It's a bigger airline than Air Canada and Canadian combined. As we have evolved through the last many months, British Airways and their oneworld partners had the opportunity, had they wished, to infuse money into Canadian Airlines and keep that airline flying and retain their relationship here in Canada. They made the conscious decision that they didn't want to do that. We made the decision that we did want to invest in Canadian and build a powerful airline.

British Airways, in their existing service to Canada, has access between the key markets in Canada and the U.K. on city pairs they serve, which are Vancouver, Toronto twice a day, and Montreal. They have access to 77% of the prevailing market between the two countries.

British Airways has thrown around some ridiculous examples that are not even consistent with the way they operate; for example, highlighting an $1,100-or-so fare between Toronto and Ottawa as a connection for a passenger to get from London to Ottawa. British Airways in fact displays in the computer reservation systems a London to Ottawa routing via Montreal where you're put on a bus and sent over to Ottawa. The highest fare that exists and that is sold by Air Canada between Toronto and Ottawa is $389—unrestricted business class, highest end. If British Airways is silly enough to spend $1,100 on a ticket the highest price we charge for is $389, that's their problem.

British Airways has the ability tomorrow to dramatically increase service to Canada. They could fly twice as many flights to Canada tomorrow if they felt like it, because they are unrestricted from a bilateral standpoint and they are the biggest holder of slots at London's Heathrow Airport. So all British Airways has to do is take a few of those slots and move them over and allocate them to Canadian operations.

It's very interesting to note that Paul Brotto's predecessor at Canadian, Kevin Benson, told me that when Canadian was getting into such serious trouble at the end of last year and British Airways wanted to buy slots from Canadian at Heathrow, Canadian had to get out of Heathrow. British Airways' number one priority for those slots was to get their Sao Paulo, Brazil, flight moved from Gatwick Airport to Heathrow Airport.

They are not focused on Canada. It is beneficial to Canada that we have not relinquished slots at arguably the most difficult place in the world to get slots, London's Heathrow Airport.

You've also thrown out these 80% domestic market and 75% of international market figures. We are not 75% international. We're about half transborder and international.

As far as domestic goes, I would appreciate you please keeping in perspective that these are numbers that are revenues purchased through the travel agency community and settled through the bank settlement plan here in Canada. The overall activity of charter airlines is not included. Some of their scheduled activity sold through CRSs and the BSP are in there. But we do not have this level of domestic concentration that is being thrown around in this venue.

As far as markets like Stephenville go, no, it wasn't in our network. We now have all these Canadian airplanes. We're trying to keep jobs going, keep the economic activity going. Here's a market we don't serve in the Air Canada network. You've got all these airplanes, so you want to find things to do with them. We've committed to provide service to markets on an ongoing basis. We started in there. It turns out somebody else started in there. The two principals of the two airlines know each other, and they worked out an accommodation where the other guy, Air Labrador, is now doing routes within our system that they're happy with.

As far as the Moncton capacity ad goes and all this talk about predatory.... Given our knowledge of the scrutiny we're under, does it make any sense to anybody that we would do anything that we felt even approached predatory behaviour? The allusion is obviously to Moncton and WestJet. WestJet is a fine, nimble, profitable operation that's doing great things. If we were bent on somehow damaging them, why would we have so dramatically pulled down capacity in western Canada, which will dramatically improve their profitability?

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We have been serving the Moncton market for 60 years. We have now put two airlines together that were both flying to Moncton. Canadian accessed Moncton via Halifax, but they were still carrying people from Moncton to Halifax to Toronto every day. They had 120 seats. We have put in an F-28 as an extra flight year over year. We had a DC-9 that had 91 seats. Now there's a Canadian 737 with 100 seats. So two DC-9s became two 737s and an F-28, a grand increase of 73 seats a day, not even what WestJet has in one 737. But we've lost all the capacity that InterCanadian and Canadian had out of that market.

So we're not doing anything other than what we're doing in markets throughout the country where we're responding to capacity requirements. In fact, in New Brunswick we had city leaders in Saint John, Fredericton, and Moncton come to us specifically, in writing, as other cities around the country did, asking us to put in more capacity. We responded by putting more capacity into places like Moncton. They actually wrote us letters thanking us for putting the capacity in, just like we put capacity in on Calgary to Vancouver and Calgary to Toronto.

Originally, when we announced our schedule there was a 19% decrease in domestic capacity. We felt the appropriate reallocation to get the combined business to a stable state was to reduce capacity by 19%. As we rejigged and rejigged and we saw what demand was doing—and incidentally, it appears that we're in the midst, despite the GDP last month, of actually a very strong travel period, because our loads are up impressively.

Where was I going? It was good.

Mr. Douglas D. Port (Senior Vice-President, Corporate Affairs and Government Relations, Air Canada): You were talking mainly about the community thanking us for what we did.

Mr. Robert Milton: Oh, yes. Somebody is paying attention.

Originally, we said we'd pull 19% of the capacity and then we'd reduce it to 15% of the capacity because we needed to put more capacity in. Now we're to 11%. So we're constantly readjusting, putting capacity where the market says it's needed, and we'll continue to do that. This is a massive restructuring of an entire industry, and we're adapting; we're responding.

The Chair: Thanks, Mr. Milton.

Bev Desjarlais, please.

Ms. Bev Desjarlais: Thank you. I'll go off on another line of questioning here.

In regard to the issue of the consideration of the employees from both airlines, I was one of many who got to listen to you say to employees on both sides that nothing was going to be bad for them, everything was going to be rosy, the two companies would be able to come together, and it would be a great picture. That obviously isn't the case. And it's recognized that it's not an easy issue to resolve, especially in the area of seniority affecting so many different aspects of the job. Whether it be job opportunities, flight schedules, hiring practices, holidays, whatever, seniority comes into play. However, we all recognize that things have been resolved in the past with other mergers, so it can be done.

I think it's been indicated that the intent is at some point to combine the two companies. We're not going to always have Canadian operating; we're not going to always have Air Canada. The intent is to combine.

It's my understanding that you presently are working out deals with, say, one company's union side but not the other company's union side. So one deal is being worked out here, where another one doesn't agree, so the deal doesn't apply to them. Where there's a recognition that there's a need to extend the possibility of layoffs, it's been recognized in one of those agreements that we're going to extend the layoff period for an additional two years. This isn't going to happen to you. However, that same deal isn't applying to the other side.

I'm also aware that you're presently—and it was stated today—hiring more attendants. I heard the figure 800 to 1,000 more flight attendants. Meanwhile, we have a surplus, it is my understanding, on the Canadian Airlines side. Why are you not proceeding to merge those groups and to get on with the business, and not increase the problem by hiring more and then trying to fit the other ones in?

• 1125

Mr. Robert Milton: I think it's a great question and it illustrates the complexity of the issue, because we have these various unions with their members and we are trying to work these arrangements at the national level with the unions, with the exception of the pilot organizations, which are two distinct groups. But we are working with them, and in the example I think you're highlighting—

Ms. Bev Desjarlais: Why are you trying to deal with one side when you haven't resolved the issue? Why would you sign with one side and not the other?

Mr. Robert Milton: Are you alluding to the CAW deal, which the Canadian Airlines employees ratified but the Air Canada employees didn't?

Ms. Bev Desjarlais: Have you made that agreement, where you signed with one side and not the other?

Mr. Robert Milton: No. Essentially, that was all linked. So we go back to the drawing board and we talk to the CAW and the employees on how to make this thing work. That has been our focus. I want—

Ms. Bev Desjarlais: So there are no deals being arranged with one side and not the other? Is there a deal being arranged with one side and not the other?

Mr. Robert Milton: I can go by union. It's not a straightforward answer.

For example, the IAM—

Ms. Bev Desjarlais: Mr. Milton, how can it not be a straightforward answer? Are you arranging a deal with one side and not the other?

Mr. Robert Milton: Please let me finish.

The IAM deal that was done prior to even knowing the outcome of the situation was through 2002. So it was done before we even got into the situation.

At the same time, because we had no deal, the Air Canada IAM group, who have been very positive, influential leaders as we go forward from a labour standpoint, agreed to a contract extension taking them up to six years.

So I am answering your question very directly, but it's not straightforward. Yes, we have two different durations of agreement, but they were agreed to during different steps of the process but with the full knowledge of the national IAM group. Everything we're doing is fully in the knowledge of the national group in all cases.

I have been very clear in these deals we've been putting forth; I believe for the same work and the same seniority you should get paid the same thing. We've already agreed that we're snapping back Canadian wages up to the Air Canada level, so there's no discriminatory treatment—

Ms. Bev Desjarlais: I don't want to use up all my five minutes with a roundabout answer. My concern is that the issue is not being resolved. Separate deals, different deals, are being signed with one side and the other side. Meanwhile, you're going to try to bring this all together.

I think as a committee and as a parliament of Canada we want to see the airline industry operating smoothly and with some stability. We don't want to see these issues come back in two, three, and four years because they're not resolved now. Quite frankly, it appears what's happening now is that two different deals are being signed, with each side, and we're not going to resolve the issue. So it is a problem.

My concern as well, again, is there seems to be an implication that the seniority and the whole issue of these coming together is a union issue. It's what the unions need to resolve. It's something they have to resolve. If that is the case, if you agree that it's up to the unions to resolve the issue, are you staying out of that process? Is Air Canada or Canadian—I can see it as one and all—staying out of the process and just handing it over and saying, whatever you guys come up with, it will work, because it's up to you to decide and it's your responsibility to bring these groups together?

Mr. Robert Milton: The answer to that is no. We have union involvement, employee involvement, and the active participation of Air Canada's labour relations group, trying to facilitate whatever we can in terms of outcome.

I fully agree with you—

Ms. Bev Desjarlais: Why do you need the Air Canada person in there if you're leaving this whole issue up to the unions, that they're responsible for the seniority issue?

Mr. Robert Milton: Part of the outcome is added cost, so there has to be some input from management on whether it's even achievable.

Ms. Bev Desjarlais: Then I think what we need to be honest about here, in all these presentations, is that it's not up to the unions to bring this thing together, because they don't call the shots; Air Canada does. So if this issue is going to be resolved—

Mr. Robert Milton: Look, let's be honest. They own the seniority. I cannot mandate anything. If you want massive—

Ms. Bev Desjarlais: You can't—

The Chair: Bev, let's let the witness answer the question fully first.

Ms. Bev Desjarlais: I get five minutes only.

Mr. Robert Milton: If you want massive disruption, then we can take the approach you want, which is to go cavalierly charging in and tell everybody this is what's going to happen. What I want, because I believe this is a great victory for the stakeholders, is for everybody to work together to understand the upside and to get on with it collaboratively. But I agree with you; I don't want disruption two years down the road either. So I'm working in the best way I think we can to achieve a winning outcome for everybody, and we're working on it hard.

• 1130

When you talk about the two sets of negotiations, I don't know if you're talking about the pilot groups, but if you are, obviously those aren't two sets, because it's two different unions.

Ms. Bev Desjarlais: Mr. Milton, my concern is that nothing is being resolved here. Everything is being left for a couple of years down the road, and then we're going to be dealing with all these issues again.

I am quite concerned, because although you say the seniority is the ownership of the unions, you yourself have made the point that you're not going to go by date of hire. So how does that leave the ownership of the seniority to the unions when you have said outright—

Mr. Robert Milton: No, that's not what I said. I said I can't mandate. I gave two extremes that I don't think are fair, and I said, without a doubt, in my mind, the outcome will be some type of arbitration, some determination as to what happens here, in which I won't have direct say. So you're—

Ms. Bev Desjarlais: Are you willing to proceed with that process, then, and allow an outside arbitrator or group to come into the discussion?

Mr. Robert Milton: It's evolving. We have dialogue going on with every union we deal with. So we are supportive. My focus is that every employee wins, and that's what I'm working on.

The Chair: Thank you, Bev.

Lou Sekora, please.

Mr. Lou Sekora: Thank you very much.

I walked down the street and I could only find a hundred yards of crying towel, so I knew it wouldn't be enough for you today.

Anyway, I have one question. A few months ago you were on TV and you mentioned that you were very proud. If you had accomplished that, I would have been proud for you too. The fact is, you said if you talk about any city in Canada or any place in Canada, there will be nothing but good things happening. Do you call cutbacks and a few other things, and doing what you did to a few cities, taking the aircraft out of there, violating your own agreements with the Government of Canada, a good thing? What were the bad things that really happened?

Here's a quote from FCM, the Federation of Canadian Municipalities:

    FCM does not feel that it can place full confidence in the guarantees made by Air Canada.

That's all the municipalities across Canada. That must make you feel really good.

As Val Meredith mentioned, about the cutbacks in air services from Ottawa to Vancouver, Vancouver to Ottawa, yes, you have cut. You used to have a six o'clock flight and a six-thirty flight, both full. You've cut out the six o'clock flight.

Mr. Robert Milton: Yes, but you now have a five and a seven.

Mr. Lou Sekora: You've cut out the flight.

As for upgrades from one airline to the other, you don't accept them, because I tried last week myself and it wasn't any good.

You people, Air Canada and United Airlines, were the ones who took the travel agents, the poor travel agents trying to make a living, and cut them back from 10% to 5% commission, and that 5% has a ceiling, $50. You yourself couldn't print those tickets for $50; it would be $150 to $200. Yet you expect somebody else to fill your shoes for you...or the problems you may have.

Those are the things that really bother me to no end.

In Penticton, you took off all the airline service except Beaver. I got a call from an MLA in Penticton, and I went to work and called Mr. Collenette, and we found out that you had violated....

But, see, that's what happens. You slash and burn everything in your way, Mr. Milton, and, oops, if we violated something, that's too bad; we're the bosses and we're going to continue to do it.

I notice that you have a lot of amendments to Bill C-26. I'll tell you something. I looked at some of them, and it's frightening what you want. I don't know whether you want more power to do more slashing and burning and destroying everybody in the field. You have staff pitted against staff, and you seem to condone that. I'm saying to myself, what kind of human being is this person?

The fact is, I had calls from your shareholders saying, Lou, you're against Air Canada. I'm not against Air Canada. They say, we want to make a profit on our shares. Of course you do. I'm a businessman. I wouldn't expect anything else. But at what price and at what expense to Canadian travellers?

Yes, Bill C-26 is there. It's not tight enough. You're looking for a lot of legislation. You're not going to get any. If anything, we're going to tighten up on you.

I'll tell you, I'm willing to live with it for another few months, but as far as the service across Canada, cutbacks, and the 45 people who were left behind the other day in Vancouver Airport, you can say computers or whatever you want. I don't care about computers. It's your problem, not mine. But you're leaving people stranded all over the place.

• 1135

You went to Penticton, but as I said, you didn't talk to the mayor and council. The previous speaker told me you went to talk to the mayor and council. After I got on your case you went to see the mayor in Penticton. Have you seen anybody in Kitimat? No, you have not. Now you'll go running to Kitimat.

Those are the things.... You know, with everything you do you just hurt, hurt, hurt and destroy, destroy, destroy. Mr. Milton, this must come to a stop. I'll tell you, I'm willing to sit here for the next few months on this committee, and if I see for one minute that we're not moving ahead, that we're going backwards, destroying cities and communities, the businessmen, the travellers, the tourist bureau, I'll be delighted to make a motion on this floor that we open up the skies in Canada. I'll be the first one to do it, my friend.

The Chair: Mr. Milton.

Mr. Robert Milton: Obviously, I appreciate your view. Perhaps Calin can respond to that. I'm feeling a little hungry right now, so I'm not sure if I'm up to answering those questions.

Mr. Calin Rovinescu (Executive Vice-President, Corporate Development and Strategy, Air Canada): Thank you.

After listening to that series of comments, without restating many of the points Mr. Milton has made this morning, I'd like to first of all talk about the notion of what Mr. Milton himself has said, and the promises and the level of personalization, which I frankly find, being a first-time rookie at this process, somewhat difficult to understand. The decisions Air Canada makes are taken with a certain amount of thought under the circumstances, and this is not a Robert Milton show alone.

Second is a point that seems to be constantly lost in the weeds, perhaps because of the amount of information and the speed of the integration. Perhaps it was Mr. Fontana who asked, “Are you one of the creditors there? Are you propping them up?” Clearly, Canadian Airlines ran out of money at the end of last year, as has been heard, and Air Canada has invested $250 million to acquire and then prop up Canadian Airlines since the beginning of the year.

That $250 million is what has been spent so far in the first quarter, if you like. In fact, if Canadian Airlines were to be propped up for longer and longer periods of time, that amount would increase. That's why Mr. Milton said, “If we take our time and do the integration in a significantly more gentle fashion, who will support the cost of that integration to keep the employees of Canadian Airlines there and keep the airline flying while the integration takes place?”

Virtually all of the issues that have been raised so far have been discussed at the highest levels in the organization, because each one of them is a bump along the road, as was said by the earlier speaker. I worked very closely with Air Canada during the Onex bid last year, and for many previous years since privatization, but only joined the company 30 days ago. I can tell you that the one issue that is constantly raised is the question of customer service.

We've often said we didn't start the process last year. Our shareholders may or may not have been happy, but certainly the customer never asked for it. We recognize that the customer never asked for the Onex bid to start, the subsequent failure of Canadian Airlines, and the subsequent combination of the two. So the customer service component is at the top of the Air Canada senior management priority list. Each one of the issues raised by Mr. Sekora is being examined, and I think they're in the course of being addressed.

The Chair: Thank you.

Mr. Casey, please.

Mr. Bill Casey: Thank you very much.

Mr. Milton, I can only imagine what you're going through with this issue. I think part of the problem here—although I can't speak on behalf of everybody—is that we think Air Canada has to have a component of public interest in their decisions now that they've been successful in obtaining a virtual monopoly.

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I think you have to describe a philosophy for Air Canada that balances the interests of the shareholders with the public interests—we think that; I certainly do—or else you'll continue to be perpetually bothered by people like us meddling in your business. Certainly if you're given this monopoly, you will have an obligation to put a public interest component into all of your decisions.

When Mr. Brotto testified, he said all the decisions are driven purely by economics. If you decide to do that, I believe you will be haunted by this committee and subsequent committees for as long as that happens.

Your points are contradictory to some of the points we've had from other proponents. You've been accused of predatory pricing, and I would like to nail those two issues down, just to know. There is the BA argument that the price on the connector flight went from $389 to $1,143. Did that actually happen? Just answer nice and clear, yes or no.

On the WestJet issue, we were told that as soon as WestJet initiated service from Moncton to Hamilton, Air Canada dropped their price dramatically on that flight only—not from Moncton to Montreal or from Halifax to Toronto. He said that was not an example of predatory pricing; it was the definition of predatory pricing.

I'd just like you to respond to those two specifics and perhaps give your philosophy. Is there going to be a component of public interest in all your decisions?

Mr. Robert Milton: There's no doubt in my mind what we have to do, going forward, must include Canada. I am always clear, when I talk about our stakeholders, that I talk about the shareholders, the customers, the employees, and Canada. I am clearly on side in terms of understanding not only the opportunity but the obligations.

The obligations, the undertakings we've made to the country, have included the commitments on employees, the commitments on service to communities. But again, we're talking about millions of moving parts—365 aircraft and 40,000 employees—so the magnitude of complexity is intense, and we're all of 120 days into the process.

I appreciate your understanding at the outset on how difficult it is, but it is truly difficult and we're working through it. I am absolutely obsessed with the fact that it must be good for the country, because it is totally illogical to me for Air Canada to behave inappropriately toward any of our stakeholders and succeed. It doesn't make any sense. So in terms of how we deal with any shareholder or customer, or national or employee issue, it must be based on fairness.

If I look at some of these issues you've raised on this definition of predatory, I wouldn't agree. I could perhaps get Calin to give you our definition of predatory, and I think it would be consistent with world norms, but I think it is a strange notion that we not be able to compete, dollar for dollar, with a competitor.

WestJet is a successful airline, and they have said they will go to 60 or 100 aircraft flying coast to coast. That's great. We've been legislated to fly to basically every community in this country for three years, so how in the world are WestJet going to expand by 60 or 100 aircraft without competing with us all over the place? I think the problem they need to get their heads around—as do a lot of people—is as they and other new carriers like CanJet, or whatever, expand and they start to compete with Air Canada, Royal, Air Transat, Canada 3000, and U.S. carriers, it is not going to be like the good old fun days of kicking Canadian Airlines around; it's a different ball game. WestJet will now have to compete, but we will not behave in a predatory fashion, full stop.

As far as the BA fare example goes, yes, it did jump up like that, but it was always there. The number of people who could be affected by a ticket price like that is minuscule. But it was always there. It's just like, if we do the same type of ticketing with British Airways or others.... We've had long-standing agreements in place whereby a formula stipulates, generally on a straight rate proration, how the fare is broken down.

• 1145

So there's nothing unique about it; it's just a really great example. If you're in a mode where you're flailing around...probably trying to come to an outcome where they want to expropriate, from Canada and Air Canada, London Heathrow slots.

The Chair: Very quick question.

Mr. Bill Casey: I want to go back to that Moncton one and ask how you can justify a price from Halifax to Toronto staying high, and charging consumers a high price for that, when just because WestJet comes into Moncton you lower the price for that flight.

Are you subsidizing that reduction from your high price from Halifax to Toronto and Moncton to Montreal? Are you subsidizing your cheap flight to prevent WestJet from prospering?

Before I finish, I just want to say, because my time's almost up—

The Chair: No, it is up.

Mr. Bill Casey: —that when I do get complaints, your company addresses them very quickly, and I appreciate that. I asked for complaints and I got them. I just want to say that when I call and I relay those complaints, they're addressed really well.

Anyway, back to Moncton. Why do you do that?

Mr. Robert Milton: Thank you for your final comment.

All of us at Air Canada and Canadian, in the last hour and a half of discussion....

Calin, perhaps you can address this issue on the predatory.

Mr. Calin Rovinescu: On the predatory notion, I think there is some confusion, with lots of words being thrown around. Meeting a competitor's price in a market in and of itself is not predatory, obviously. People can throw the word around and say, well, you meet my price in the market, and therefore, by definition, it's predatory. But even meeting his price and having it lower than that is not predatory, because there's the whole notion of what the cost is of providing that. It's a notion of variable fixed costs. What are the costs that go into providing that service?

It's great to use words, and it's great to throw them around, but meeting a competitor's price is not predatory. As Robert said before, with the number of commitments that exist now to the various communities, in each of those various communities where there is competition there is going to be price competition. That's part of the reality of carrying on the business.

The Chair: Thank you, Bill.

But Mr. Rovinescu, on the heels of Mr. Milton's remarks, when he said, look, we have Canadian, which we're working with now, and we're trying to save jobs, so therefore the Moncton situation is the Moncton situation, when did Air Canada decide it was time to serve the good people of Moncton?

Mr. Robert Milton: If I can answer that, obviously that's a competitive response, just as gas stations across the street from each other respond on price, and Wal-Mart does to K Mart. That's the way the world works.

The Chair: Here's why I ask the question, Mr. Milton. I've heard the quotes—“I care about the communities we serve”; “It's got to be good for the country”; “We're protecting the interests of the travelling public.” But you know, I finally heard the admission in your last answer, when you said that as WestJet or domestic airlines expand and start to compete, it's not going to be like the good old days of kicking Canadian around. That is great news to hear from you, because quite frankly it answers my question.

Mr. Rovinescu, it's not just about price with WestJet out of Moncton. You're not giving us a complete answer. The fact of the matter is, last February you reduced your capacity between Toronto and Moncton by 10%. Then, on February 28, when WestJet decided to fly between Hamilton and Moncton, you decided to increase your capacity, as outlined by Mr. Milton, which comes to an increase of approximately 51%.

So let's just leave the matching of fares aside. And given Mr. Milton's remarks that they're not going to have Canadian to kick around any more, well, quite frankly, they're not going to have Air Canada to kick around any more either, because Canadian is going to become Air Canada. Why are we holding back on this issue? Canadian and Air Canada are going to be one. They're going to be a monopoly carrier.

They see WestJet, a domestic competitor, coming into Moncton and they, at the board of directors table, decide, well, we can't allow that; we'd better show them they haven't got us to kick around any more.

• 1150

So let's put aside the fall in price from some $605 to $129 and just deal with capacity, where Air Canada says, well, we're going to increase the size to two 737s and throw in a Falcon. Is that really caring about the community? Is that really being good for the country? No. That's being anti-competitive.

What you're doing is forcing WestJet or any other domestic carrier that wants to do business in an honest and upright fashion.... They're prepared to say nothing about your prices. You want to fly and match our prices? Go right ahead. But don't all of a sudden reduce your capacity in February and then, at the end of the month, increase by 51% your capacity with the obvious—highly obvious—reason to do nothing else but ensure that you have all of those passengers coming onto Air Canada, and geez, too bad, WestJet.

Mr. Robert Milton: Might I respond on a variety of issues, please?

The Chair: Absolutely.

Mr. Robert Milton: First of all, on the capacity, for years Air Canada has had a Toronto-Moncton flight that leaves around 2 p.m. and another one late in the evening. These two DC-9s have been going for a long, long time.

As I said, we've been re-calibrating schedules as we get into the first part of the year. The integrated schedule actually came online April 2, with further modification when we consolidate terminals in Toronto on June 3.

So we've had a very consistent product offering. We had, as I said, 19%, then 15%, and then 11% capacity pull out of the domestic market. We were constantly rejigging six flights a week by WestJet into Moncton, a market where only about 45% of our traffic is even going between Moncton and Toronto.

It's network. We're a global player. It's not just a Moncton-Toronto.... You know, we have this preoccupation, and it's just not what's going on.

I also note that Bill Lamberton, the vice-president of marketing at WestJet, a few weeks ago was saying, yes, well, these guys have always matched us on prices. It's no big deal. We're successful. We compete profitably.

So I'd ask you to look at that as well. You know, we'd be glad to submit to you the letters we got from these communities that say, look, take another look at these schedules you're putting in here and modify them. We've in fact modified them in cases throughout the country—I mentioned a few earlier—and we'll continue to do that.

As well, on the price match, it is definitely a rejigging of fares.

Lise, perhaps you can comment on that. The $129 fare they have at the bottom is not different from the round trip that....

Ms. Lise Fournel: As you know, pricing is dependent on a variety of factors. We offer a variety of fares to the public to respond to different needs. We still have, on Toronto-Moncton, as a matter of fact, a fare at $259 return, with some conditions attached to it. It starts from $259 and goes to—

The Chair: But I've already acknowledged the fact, and you have too, that WestJet doesn't talk about that. We're not talking about the cost of the ticket. They're prepared to go head-on with you.

And I'm not talking about rejigging schedules, Mr. Milton. We're talking about rejigging capacity, and capacity is predatory. That's what you've done at Moncton, and you've done it in a blatant fashion. You're going to have to defend your predatory action with the commissioner anyway, so....

Mr. Robert Milton: As I say, we have the letters. I'd be pleased if we were to discuss the situation in far greater detail, because, again, Canadian's presence is being completely eliminated from this equation on capacity. Canadian had capacity through InterCanadian; Moncton, which evaporated, we've moved that capacity, flowing it via Toronto.

So it sounds like a great story, but there's nothing there. We'd be glad to later talk to you, or to any member who would like to, in far greater detail about what happened.

The Chair: Mr. Comuzzi, please.

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

Mr. Milton, have you aged since the last time you were before this committee?

Voices: Oh, oh!

Mr. Robert Milton: Nice guy.

Mr. Joe Comuzzi: You know, we have to look at this with a little bit of background. For a number of years, to pick up on what Mr. Rovinescu stated earlier, you were in an economic war with Canadian. Obviously Canadian was losing that particular economic war, and for whatever reason our government intervened.

In August I don't think you were a willing participant in what had to be done because of that intervention, but at the end of the day you were successful. Well, I don't know if you were successful; I think it cost you $1.2 billion to win that area, with the buyout of your stockholders and so on.

• 1155

Given that piece of background, and the reason I guess we're here today.... You made a statement, Mr. Milton, and I agree with you, but I think I agree with you for different reasons. You're not pleased with Bill C-26. I'm not pleased with Bill C-26 from a different perspective. It has nice, cushy words, but the reason I'm not pleased with it is that it builds a blanket or a cushion between the corporation of Air Canada and the consumer, with some government protections built into it. My cause for concern is that those protections are not accessible.

I come from Thunder Bay. I can't see anybody in Thunder Bay having access to the Competition Bureau, nor can I see anybody in Thunder Bay having access to the National Transportation Agency. First off, if you're a very successful airline operator, you're going to have a bank of lawyers who are going to question every move that's made. That's your job. I don't think the average person has that ability or the economic power to challenge and go down that road. So for that reason, I don't see that this legislation is going to offer the protection to your customer that some of us sitting around this table think it will.

We haven't spent any time today on alternatives. Are we too late, as we were too late with the Canadian thing? Is there an alternative to what we're doing here today? Is there an alternative to building a...? It's a mecca for bureaucrats—that's the word I used—but it's a nightmare for Air Canada. I could see tremendous problems going down the road over the next four or five years. Have we exhausted any or all other ways before we get into this type of legislation in order to offer the consumer some protection?

I have to tell you something that worked pretty well. There are many countries that operate under memorandums of understanding. Air Canada is a very reputable company. Our minister is a very reputable minister. Is there a possibility that we could come to something else besides this type of legislation that would try to define predatory pricing and protect the employees, protect the service to communities? That's an understanding between Air Canada and the people they serve. I think if we can come to that type of conclusion....

I'm not saying this because you're here. I think Air Canada is on the edge of becoming one of the great airlines in the world, if we can just put this together and start looking after the 92% of the people who live in the back of the airplane, because I think they're pretty important.

That's my question, Mr. Chairman.

Mr. Robert Milton: Thank you for the comments and the question. From my standpoint, obviously I would like to move, to run, to manoeuvre, to get this thing to succeed. I have to say that I'm open to new ideas. One that was thrown out earlier today to Paul Brotto was the ombudsman idea. From the standpoint of having an ombudsman reporting to me and looking out for these constituents, I think that's worthy of discussion with members of this committee, perhaps after this.

For sure I am open to ways that provide those safeguards that we really want. Again, rooted in everything we are doing, despite skepticism, is an intent to deal positively with all our stakeholders, including the country.

The Chair: Thanks, Mr. Comuzzi.

Mr. Bailey, please.

Mr. Roy Bailey: Thank you, Mr. Chairman.

• 1200

Mr. Milton, I want to throw a couple of quick questions at you in a slightly different vein. As you know, we have many different groups come before this committee, and they're all very persuasive, as you are. We also recognize as a committee that our responsibility is to look beyond our immediate constituency or immediate province, because this is a national issue.

Along with Mr. Comuzzi, I too believe that as your airline is becoming one of the great airlines of the world, surely you as the president of this organization would like to leave a legacy that is as untarnished as possible. That may be difficult under the present circumstances.

I want to take two accusations that have come before this committee. They were good accusations and believable accusations. I'll give them to you quickly and let you respond.

First is the accusation that you were leaving or somehow delaying the union or the final merging of Air Canada and Canadian for reasons to your own advantage. Let me state what these reasons are.

As you know, CUPE represents two different groups in Air Canada and Canadian. They are at the present time unable to solve their differences on their own. They are getting nowhere, as I understand it. Because there is no clear-cut definition as to when this merger is to take place, we have heard them and others who come in here repeat to us that it's going to be two, five, or ten years. I believe that to be totally unacceptable.

The accusation is that you have the power to make the delay in order to break down the opposition and the difficulties, or destroy the difficulties, that are present there before thousands of people. I'll let you comment on that, but I'll just leave the one other accusation with you as well.

We also had a group before us, Mr. Milton, that stated very clearly that it was not possible for a major dominant airline like Air Canada, with full service, to also operate the low fare rates, i.e. WestJet. They cited examples around the world. I'd like you to comment on that, because their examples were quite formidable, quite positive.

I'd like to hear from you on those two things, sir.

Mr. Robert Milton: From the standpoint of the union situation, again I remain focused on a terrific outcome for all the employees. I believe it will take time. It will take active dialogue. Without doubt, it will take participation by the unions, the employees, and the company to support whatever the outcome is.

I think we tend to hear from very vocal people, as is generally true in life, who are often in the minority. I don't want to rush headlong into minority objectives over a victory for the masses. Again, please accept that we're 120 days into this. I believe there's a victory on the table for everybody, but we need time to work through issues, to talk to people, and not to simply bang heads together.

On the other issue of the low fare airline example, I don't agree with that at all. There's been a proliferation of these airlines. They are structured differently in terms of having higher seat density, often dealing with secondary markets, and generally having different work rule contracts with their employees. They're still great places to work. Key examples of ones that have worked would include United Shuttle and Delta Express in the United States. These are modelled exactly after Southwest Airlines in terms of all Y-class seating in the case of Delta Express, high frequency operations, and very innovative ways to operate.

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They're successfully growing. United Shuttle has over 50 aircraft now. Delta Express has over 30 aircraft.

You can go to countries as far afield as Japan, where All Nippon Airways or Japan Airlines has JAZ. KLM has buzz. They are all over the place. So there's nothing unique about them, but they're focusing on different clientele. Our clientele generally wants to be able to go to the airport every hour, to choose to go J class, to get frequent flyer points, and so on. This other type of traffic would be going on the road. You stimulate, through very low prices, the development of traffic off the road, and that's happening in divisions of major airlines around the world.

Thanks.

The Chair: Thanks, Roy.

Charles Hubbard, please.

Mr. Charles Hubbard: Thanks, Mr. Chairman.

First of all, Mr. Milton, in your speech about Air Canada being appreciated.... You know, around the table there are about 15 of us, and we all have different backgrounds, some in business, others in social-type activities and so forth. We probably represent about a million Canadians, just around this table, and we hear from all of them directly or indirectly.

I think you should probably review the transcript about what you said about our committee when you gave your speech, about not being appreciated. What I heard wasn't very complimentary.

In any case, I want to say, in terms of what Mr. Casey has already said, that in Atlantic Canada we have found Air Canada, Air Nova, to be quite responsive. We've heard complaints, I think, but overall the work's been done and the fact that you are working under very difficult circumstances, with the decline and stoppage of InterCanadian, has made it a difficult situation for everyone in Atlantic Canada.

I think, Mr. Chairman, as a committee we have to remember that we're talking about philosophy in terms of what Air Canada is and what the air industry in this country represents. I know that groups came before us. I was quite taken aback with British Airways. In fact, I tried to get some answers from them in terms of the presentation they made. But I think we have to recognize that there are companies that are taking away some of the most lucrative routes you might have and wanting support from you to participate in the spokes that often are quite expensive to Air Canada. With that, of course, in terms of economic development, in terms of the development of communities, we have to rely upon Air Canada and its subsidiaries to provide to all those people in the smaller areas of this country a satisfactory air service.

We really appreciate the fact.... I'm from the Miramichi in northeastern New Brunswick. You recently announced coming into Charlo and Miramichi. For us, I know, it's a very important part of our economy to be able to offer to people wanting to visit, and the people who have business there, access to the great cities of this country.

I think, Mr. Chairman, in terms of profitable routes and the hubs of this country, a great number of different companies can fly those routes at reduced fares and give you a great deal of competition. For those of us who have had a little bit of business background, we recognize that when someone competes with you, you have to compete with them. If you go to Wal-Mart and there's a shelf with a certain product on it and another company makes the same product, you've got to be competitive. The best way to be competitive is with price and, secondly, with service.

I want to assure you, in terms of what you have offered here in regard to your reservations about Bill C-26 in terms of regulation, that we would want to look at that. But if you read the little page I put in the original report, you will find that as a person from a rural area I strongly support the fact that a company that becomes a monopoly has to have certain regulatory aspects in terms of price and in terms of service, in terms of what it does in those communities.

So I'd hope, Mr. Milton, that you and your executive group that is here this morning will appreciate the fact that some of us around the table do appreciate Air Canada. We know there are many criticisms, and we know those criticisms for the most part are probably quite true. But I hope that as a company you can realize that as parliamentarians we have to represent a great number of people. We expect that the companies we bless, shall we say, through our acts of Parliament are going to act in the best interests of Canadians. We as legislators must ensure, in terms of the bills we approve in the House, that those bills reflect the concerns they have.

So thank you for coming. I hope you took note of what I said.

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Mr. Robert Milton: Thank you.

The Chair: Well said. Thanks, Charles.

Michel Guimond.

[Translation]

Mr. Michel Guimond: I am rereading the last sentence of your presentation once again, Mr. Milton: “We are going to act responsibly and we are not going to let Canada down”. I am sure we might also read that you are not going to let Canada's francophones down.

In this regard, Mr. Milton, I would like to quote something said by one of your predecessors at Air Canada, Mr. Pierre Jeanniot:

    In order to be a truly Canadian airline, we believe Air Canada's employees from the two official language groups must reflect the community, the province and the country, in both numbers and their representativity within Air Canada.

I know you are an American, Mr. Milton. Sometimes Americans are very sensitive toward other cultures within Canada. Since Canada is an officially bilingual country, you are trying to learn French. I also know that we need a firm commitment from you about increasing the percentage of francophones at Air Canada.

Mr. Milton, francophones make up 24.6% of the population of Canada. We should therefore expect that 24.6% of your staff would be francophone.

Mr. Milton, I don't want you to tell me that announcements for flights from Vancouver to Hong Kong are made in Chinese, Japanese and Mandarin. I have approve of that, because that is the language spoken by some of your passengers. But we live in Canada, an officially bilingual country, a country where francophones and anglophones can live together.

In 1967, the theme of Canada's centennial was Canada: Stand Together, Understand Together. If there is room for everyone, I would like you to tell me why all the francophones at Air Canada, at all levels, make up only 17% of your total staff. Now that you own Canadian International, I would like to point out that only 5.6% of Canadian International's pilots are francophones.

Finally, I'm going to mention the example of complaints against VIA Rail made under the Official Languages Act. VIA Rail is a national transportation company that moves people from Halifax to Vancouver. In 1998, there were three complaints against VIA Rail regarding breaches of the Official Languages Act, whereas there were 251 such complaints against Air Canada. Why? What does this mean?

I would like to tell you, for your information, that 39.9% of VIA Rail employees are francophones.

[English]

I have a second question.

[Translation]

To move to a completely different field, WestJet told us that it was having trouble getting into the Montreal airports and that ADM was offering it the possibility of going to Mirabel. Was that decision the sole responsibility of ADM, or did Air Canada have something to do with it? I would like to hear what you have to say about WestJet's current difficulty in offering service out of Dorval. Ms. Pageau-Goyette told us that domestic flights should now all be out of Dorval. I don't know why WestJet is being offered a move to Mirabel.

[English]

The Chair: Thanks, Michel.

Mr. Milton.

• 1215

Mr. Robert Milton: On the latter question, I have no knowledge whatsoever of the issue. That would be something you could address to ADM.

But in terms of domestic scheduled operations by other airlines beyond Air Canada, you've got Royal, Air Transat, and Canada 3000 operating regularly. In fact, Royal is up to six flights a day between Montreal and Toronto now. So I know of no reason, frankly, that WestJet couldn't operate to Dorval if they wanted to.

As far as the VIA Rail comparison to Air Canada, I really can't comment because I just don't know how they got to where they are.

I can state categorically our commitment to fully abide by the Official Languages Act. We've got a renewed and, I'd say, a positive dialogue commenced with the commissioner of languages on how to go forward.

Again, on the number of letters received, that is based, as I said earlier, on perhaps 160 million customer contacts. Again, I would like to get that number to zero. But there are issues in terms of.... Even the example you've given or the issue you've raised on percentages of employees. We've got 1,000 employees in Europe. We've got almost that number in the United States. We've got employees in Asia. So the numbers are somewhat skewed. But my commitment is that we will consistently provide service in both languages and our hiring practices will appropriately reflect the best talent available, full stop.

The Chair: Thanks, Michel.

Stan Dromisky.

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

Mr. Milton, I've been sitting here listening to you, and this whole scene reminds me of many experiences I've had in the past with my family. I'm thinking of my grandchildren and my children, who would be extremely anxious prior to a visit to the dentist. I used to tell them, “Do not think about what's going to happen to you while you're in the dentist's chair. Concentrate only on that wonderful feeling you're going to have after you get out of the dentist's chair.” That's my analogy of what you're going through at the present time.

Now, to make sure you're not super saturated with negative concepts and negative feelings after you leave this room, I want to tell you that I have been flying for 51 years, first with TCA and then for many years with Air Canada, up to the present time. As a frequent flyer, I have to tell you that when you make statements like “I care, I care, I care”, those are meaningless statements unless they are manifested in the behaviour and the degree and quality of service that your employees provide for all the passengers that board those planes. And I can tell you, you've got a super A-one staff in Thunder Bay. My colleague, Joe Comuzzi, will reaffirm and support that statement. You've got some fantastic, caring people working for your company in my community. Isn't that right?

Mr. Joe Comuzzi: Stan, I wish I'd said that.

Mr. Stan Dromisky: I know in your agreement with the Competition Bureau there was no mention made of co-chairing. Looking at co-chairing, some people have been saying you're a little bit worried about that because of the competition factor. But I look at Bearskin Airlines and I see how this type of partnership, co-chairing with your firm, is a very positive, enhancing, productive, enriching experience for northwestern Ontario. So can you give me your perception about co-chairing with regional carriers in the future, as far as your company is concerned?

Mr. Robert Milton: Sure. First of all, though, thank you for your comments on our people, because they are amazing. This is a difficult time. When we actually got this deal done at the beginning of the year, it was with great joy that Canadian Airlines received the Official Airline Guide best airline award, because, interestingly, Air Canada had won it the year before. This is a survey done by the most frequent travellers around the world. Despite some of the harsh criticism, we have two airlines in Air Canada and Canadian that are recognized as two of the best-service airlines that exist on the planet. So thank you.

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On the code-sharing discussion that occurred with the Competition Bureau, there are really a variety of issues that we got into. It's very complicated. Who constitutes a legitimate code sharer in Canada?

Secondly, because operational standards are such a serious issue.... I take great pride in our people, because, again, our operational standards are renowned the world over. From a technical, operational, and customer service standard standpoint, we're known as good as exists. We are not in a position to simply hand out our code—our two-letter designation of credibility in terms of safety standards, customer service standards, and really, all facets of existence—to just anybody. Really, that's where it came down—AC is us. So giving out that code has to be based on a lot of considerations, including standards. That's really where we left it.

Mr. Stan Dromisky: Thank you.

The Chair: Thank you, Stan.

Bev Desjarlais.

Ms. Bev Desjarlais: Okay, this first question is to Mr. Milton. It's not an essay question; it's multiple-choice: choose one of the following answers.

How long will it take to integrate employees and resolve the seniority issues—two, four, or six years?

Mr. Robert Milton: When I started—

Ms. Bev Desjarlais: No, no, multiple choice, Mr. Milton. Two, four, or six years?

Mr. Robert Milton: When I started university—

The Chair: Bev, you might not like the answer, but witnesses have the ability to answer the question the best way they can, okay?

Ms. Bev Desjarlais: I have only five minutes.

The Chair: Let's let the witness answer your question.

Mr. Robert Milton: When I first started university, I had a great science professor who blew me away, after coming out of high school in Asia. He gave a multiple choice test that was: answer A; answer B; C—“don't know”; and D—“don't care”.

I don't know what the answer is, but I am working on a great outcome for the employees and I need some time.

Ms. Bev Desjarlais: Mr. Milton, you're being given the responsibility of operating a monopoly in Canada, and you cannot give me some idea between two, four, and six years of how long it's going to take to integrate the employees?

Mr. Robert Milton: I don't know. But I believe it will be shorter rather than longer, and my preference is shorter. Two years would be fabulous; fewer would be better but with our employees saying, “This is great”.

Ms. Bev Desjarlais: You could have given me that two-year answer without the long drawn-out part.

Madame Fournel, regarding the fee being added on to the ticket, you indicated it's an IATA issue. Can you tell me if IATA had a problem adding on the NAV CAN fee to the ticket?

Ms. Lise Fournel: Yes, it was a very difficult situation. We're talking here about the fact that there's a perception that the prices are higher. We have not increased the price. There's always this reluctance among carriers to include additional fees, because then it's associated with the price of the carrier.

Ms. Bev Desjarlais: That's part of the issue. So it's not just a matter of not being able to put it on the ticket; it's the indication that it might look like the airline cost is higher.

Ms. Lise Fournel: As well, there are also NAV CAN, the airport charges, the travel agencies—

Mr. Robert Milton: That's not just our issue; it's an industry issue.

Ms. Lise Fournel: It's an industry issue.

Ms. Bev Desjarlais: [Inaudible—Editor]...be clarified that it's not a matter that it can't be done; it's just the perception that is often out there.

Mr. Robert Milton: [Inaudible—Editor]...if you wanted to, but we can't get—

Ms. Lise Fournel: There are also CRS issues—the computer reservation system.

Ms. Bev Desjarlais: Okay. Thank you.

My next question is in regard to the concerns that are being raised throughout the country about decreased flights, decreased services. My colleague from Saskatoon—Rosetown—Biggar was here earlier and had hoped to get some clarification. You indicated you could give the facts on particular cases.

In Saskatoon, Saskatchewan, the mayor of the community and the business people are all greatly concerned. They have a lot of conventions and things going on, and the flights per week are being cut from 157 to 118, with a loss of 2,000 capacity. They're greatly concerned because they're already hearing of problems from their hotels and convention people that they can't get enough people in.

Can you tell me if that is happening? Is there that drastic a cut in Saskatoon?

Mr. Robert Milton: Doug Port has visited Saskatoon to talk to local leaders, but I will say, from my standpoint, that yes, there is a reduction in seats. But if you look at the departure times, there was so much overlap that in terms of the real capacity that's available and what it means, it is a good schedule. There's also a transition to far greater jet operation, rather than turboprops. So there are some benefits.

• 1225

But I will say, before Doug even speaks, I'm not satisfied with our Saskatchewan schedule, and I predict with confidence that Lise will be making modifications to it, because I don't like it.

Mr. Douglas Port: If I may, I just responded to Mr. Gruending by letter that I met with Minister Sonntag in Saskatchewan last week on the Saskatoon product. Frankly, for the first weeks of April, we've monitored it very carefully. The average load factors are between 57% and 69% on all markets out of Saskatoon, apart from the Toronto marketplace, which has a range up to 83%.

And to Mr. Milton's point, he's starting then to say this may not be enough capacity.

The commitment we made in the New Brunswick market and Calgary is exactly the same as the one we're making to Saskatchewan. If we don't have it right the first time, we're going to make it right.

Ms. Bev Desjarlais: It's good to hear that you responded to the letter, because I had another letter to give you. I guess the MPs are now acting as the ombudsmen. That seems to be the only way people are able to get any answers, and quite frankly, that's not the job I want to be doing.

This was going to be another letter, since the first letter was sent April 6 and there had been no response to the issue. So it's good to hear that you've now—

Mr. Douglas Port: It arrived last week.

By the way, Mr. Gruending wrote to us as a shareholder.

Ms. Bev Desjarlais: Okay, fair enough. Maybe he thought the shareholders would get more action. So you wouldn't have responded yet if it was just April 6—

The Chair: Thank you very much, Bev.

Joe Fontana, please.

Mr. Joe Fontana: Thank you, Mr. Chairman. I want to go back to a couple of points. I too am very proud of your regional carriers, which I think do an absolutely fantastic job, especially the Air Ontario group and Joe Randell.

Perhaps you can answer this, even though it's not my most important question. Why have they been relegated to reporting to a VP, commercial, of Air Canada, as opposed to the CEO of your regional carriers reporting directly to you, Mr. Milton, if in fact you believe the regional network is important to you and very important to smaller communities?

I'll leave that with you.

Second, with regard to customers—and I would hope that's where we're at—I want to share a letter with you. The Canada 2001 games being held in London, Ontario, is an example. Usually they have their air agreements in place 18 months before. No one, including Air Canada, has bothered to offer flights to these 3,000 young Canadians who want to compete in Canada's greatest games.

I'll share that letter with you, because it's awfully upsetting. You should have done it a month ago. There are no other takers. I don't know what's happening with this airline industry, but there's a customer base, and more importantly, there are young people who need to get to their games who don't even have a response from any of our carriers, including yours.

I want to talk about pricing, and I believe Ms. Fournel indicated she's prepared to furnish this committee with all the pricing material we want from prior to October or something like that. I'd like to review it, because one of your comments with regard to our bill is that you don't want us to give regulatory powers to the Canadian Transportation Agency to review pricing and all of those other matters, that you don't think we could go back to the old reregulation days.

So, Mr. Milton, if you don't want us to provide that protection for the consumer in our bill—because we're the only ones who can protect the public interest—what are you prepared to tell your customers as of today with regard to pricing? Are you prepared to say—and I know fuel prices are going up and everything else—that you're prepared to freeze prices for the next year or two? Are you prepared to give them a guarantee that they're not going to go up over and above the CPI?

You don't want the government to check whether or not you're going to increase prices, and believe me, we don't have the time. Prices change 12,000 times every week or two weeks, and we don't know your business. But you obviously don't want a watchdog doing it. So what are you prepared to say to the customers of Air Canada and to Canadians in terms of what your commitments are with regard to pricing?

Lastly—because I'm a little confused about when Mr. Brotto was talking about your commitments as to what Canadian is all about—do you intend, as you committed, that Canadian is going to be a separate company, a separate brand, and that you in turn are going to grow that particular company? Those are the commitments that were made to us, to the Canadian people, that Canadian will exist separate and distinct from Air Canada. But you recognize that there's one company and there are all kinds of efficiencies to be gained.

• 1230

Is that what the line still is today, or in fact are you moving to create one airline, one brand, and therefore deal with it? That's entirely different from what I heard before.

My last question, which I think is important, has to do with Canadian Regional. Mr. Milton, you signed an agreement with the Competition Bureau that says Canadian Regional should have been divested by now. We heard that, yes, evaluations are a problem. Now we're into the third person who will try to evaluate it. I heard Mr. Brotto say it's probably worth in the nine-digit figures. You bought Canadian in the eight-digit figures. Sure, you got commitments and you're continuing to fund it, and I hope you continue to do that, but at the end of the day, just tell us straight up, will you divest Canadian Regional? Or in fact do you want to integrate it into your whole system, and you reluctantly need to do it because the Competition Bureau asked you to do it?

Let's be straight up with Canadians. Let's get on with building a good airline, building and making sure the customers have choices and fairness in the marketplace. Let's not play these games that you value this thing at $130 million and somebody's valuing it at $20 million and are we ever going to divest Canadian Regional. I'll leave those questions.

The Chair: Thank you, Joe.

Mr. Milton.

Mr. Robert Milton: The reporting relationship of the regional network to our executive vice-president, commercial, is extremely consistent with what other leading airlines do, and given that I think this person with me here, Lise Fournel, is as capable an executive as we have in our organization, I'm extremely comfortable with it reporting to her.

In terms of a response on the games, obviously we're moving too slowly. We need to get an answer, and I'll make sure that happens.

From the standpoint of the pricing protection, one of the views of the Competition Bureau was if you start to push prices too much you're going to get competition, so that's great. The market is a natural protector on pricing as far as I'm concerned.

We're looking for high degrees of integration to get the synergy benefits, but until we can figure out the employee piece, we are perfectly comfortable, and I've said this repeatedly, keeping these as two distinct operational units, two distinct brands. But I see them coming together, and I see them coming together as quickly as I can, with the employees on side saying this is great, but I have my work to do.

As far as the Canadian Regional divestiture goes, I've said repeatedly I didn't want to agree to that. We agreed to do it, but I don't want to divest Canadian Regional. I think it's an important part of our network globally. But we agreed to do it and we agreed to a process and the process is still underway. We're having a difficult time agreeing to a price, but the dialogue continues with the Competition Bureau. We have a mechanism whereby a third party is introduced to help us figure out what the value is. When we say nine digits, as Paul Brotto did, we're not pulling this number out of the air. It's based on the evaluations done on Canadian Regional by the bond holders who are secured by Canadian Regional. This is what this thing has been appraised for and that's what we want to get for it if it's going to be sold. But we will do what we committed to do here as everywhere else.

The Chair: Mr. Casey, please.

Mr. Bill Casey: Earlier I mentioned that if I do bring a complaint to Air Canada, I feel it gets addressed very quickly. The problem is consumers don't have access to the system. You've heard the word “ombudsman” a few times, and I actually think you might have mentioned it here earlier. In fact you did. It sounded like you might have had a change of heart, because about a week ago you wrote me, and I think you're saying in this letter that you don't agree with the idea of an ombudsman. Would you agree now, based on things that have happened here, that Air Canada would maybe work with this committee to establish the rules for an ombudsman?

Mr. Robert Milton: That's what I said. Based on what I've been listening to today and some of the feeling, I definitely am game for us to dialogue over whether the company ought to have an ombudsman.

Mr. Bill Casey: You're proposing a company-funded and -managed ombudsman answerable to....

Mr. Robert Milton: I think this is part of the dialogue. We should talk about it and see what's there.

Mr. Bill Casey: In principle, we'll talk. That sounds really good.

What's the status of your discount airline?

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Mr. Robert Milton: We still very much want to proceed, and intend to proceed. As you're aware from the Competition Bureau, we were constrained from commencing that. Again, there's a demonstration of how we want to offer low fares with this different type of product offering all over the place, but we've agreed to certain things, and hopefully, by the end of the year, that airline will be up and running in various corners of the country, but perhaps not east of Manitoba, domestically.

Mr. Bill Casey: If you start the discount, it will be Manitoba and west?

Mr. Robert Milton: And into the U.S.

Mr. Bill Casey: A little while ago I asked a question of Mr. Brotto about the price differential between your asking price for the Canadian Regional Airlines and the Competition Bureau's price, and I don't expect you to give me the numbers, but what percentage of price you would like to have is the Competition Bureau's price? Is it half?

Mr. Robert Milton: I'm not willing to get into the discussion of price, but maybe, Rob, you can discuss some of the aspects of this.

Mr. Rob Peterson (Executive Vice-President, Chief Financial Adviser, Air Canada): As Mr. Brotto said this morning, there is a difference in what the definition of fair market value is as between us and our advisers and the Competition Bureau and their advisers, and of course that leads to substantially different valuations for the company because the definition is different. So the process we agreed to last December called for this third-party arbitrator to come in and in effect cut a deal that both sides would adhere to, and that's the process that is currently underway. So there is a big gap, but it's caused by a definition issue as opposed to an evaluation issue. Canadian Regional itself is a profitable airline. It has value.

Mr. Bill Casey: Has the third-party evaluator or negotiator been identified?

Mr. Rob Peterson: It's in the process of being selected as we speak.

Mr. Bill Casey: Thank you very much. I know Mr. Milton's hungry and I don't want to hold him up.

The Chair: Murray Calder, please.

Mr. Murray Calder: I don't want to keep anybody away from their lunch for too long a period of time, so I just have a short couple of questions to follow up on what Ms. Desjarlais was talking about.

We know these two companies are eventually going to merge. I guess the question is, can you merge the two airlines without merging the seniority list, or do you have to wait until you get the seniority list merged before you can merge the two companies? Which is the horse and which is the cart?

Mr. Robert Milton: To me, the most important aspect of synergy that exists between the two is the coordinated schedules of the airlines. We are, today, running coordinated schedules as of April 2 this year. We are running two airlines on one schedule, so it has already happened.

Mr. Murray Calder: So you can go ahead and merge them any time at all—

Mr. Robert Milton: When the employees are fired up, saying this is great, this is going places, this is a win for me, that's what I want. I want them to see what I see, which is this tremendous, global success story and seniority issues within a year or...they're just non-issues because their careers have accelerated so far beyond their expectations, because this thing is a global success story, not this company constrained by who gets what routes and so on that we've been dealing with for the last who knows how many years. This is a great opportunity for the employees.

Mr. Murray Calder: I guess, Mr. Chairman, that's a good note to end on.

The Chair: Thank you, Mr. Calder.

Val Meredith, please.

Ms. Val Meredith: Thank you, Mr. Chair. I have two concerns. One is that you made a statement in talking about service to eastern Canada and putting on more planes. You said, why do you think we so drastically pulled down capacity in western Canada and put it in the eastern market? I don't know if you realize the historical significance of what's happened in this country, but westerners went to Canadian Airlines for a specific reason, and it was because we felt that Air Canada, and the service and the recognition it gave to western Canada, was not adequate.

The first thing that happens is all the capacity is pulled out of western Canada, particularly in regional carriers but also in the Canadian carriers, and that reduction of service is noticeable in western Canada. The increase, that capacity, was moved to eastern Canada, once again. I leave you with that issue to address, which fundamentally is why western Canadians went to Canadian Airlines as the server because of an attitude of preferential treatment to eastern Canada.

• 1240

The other thing I want to raise is some comments you made regarding free market and no government regulations. You feel the bill we are dealing with presents a number of regulatory features that you feel are unnecessary. You like open-air agreements with the United States.

My question to you is, should the Air Canada Public Participation Act still be on the books in today's marketplace? Do you support raising the foreign ownership component from 25% to 49%? How do you feel about allowing foreign-owned, Canadian-only airlines into the marketplace, taking away government regulation and government interference and opening it up to a free marketplace? Let the consumers and competition decide how it would be handled.

Mr. Robert Milton: First of all, on this western Canada to eastern Canada capacity shift, clearly, the sort of hotbed of competitive pressure and losses being incurred by the airlines is in western Canada, where there is this tremendous overcapacity situation. We've maintained on key routes and routes that you could mention very attractive product offerings, such as hourly service, half-hourly service on key shuttle routes, and so on. But we've moved capacity into the U.S. and other international markets as well.

So if you look at capacity shifts, you'll see a lot that still involves western Canada. It's transcontinental capacity that has changed. You'll see a lot of capacity in the east as we've built Toronto up further. We want a massive, powerful hub to compete with Detroit, Cleveland, and Chicago, so that Canada, once and for all, has a truly competitive hub. So we've added a ton of new routes into the U.S. from Toronto, and also internationally. That's another reason for the capacity shift.

Please don't get the wrong impression. This is not as if capacity has gone out of domestic western Canada markets into eastern markets and is being served domestically. It involves international points. There's no place that has benefited from an increase in capacity more than Vancouver. But again, it also is part of diminished western Canada capacity. We've taken, for example, an A-319 that was flying around in western Canada and put it on a route such as Vancouver to Mexico City, which starts on June 5. We've added new routes into Asia and all over the place. So it is a positive story in terms of international access for western Canada and the whole country.

As far as the foreign ownership goes, I commented that I would welcome the move to 49%. I really think that on some of the other questions you've asked in terms of foreign-owned Canadian domestic operators and other opportunities for U.S. carriers, as an example, to exist here, the question comes back to a lot of what we were discussing back in the fall: do we want an industry in Canada? For sure we will have airline service in Canada. I would argue that if the U.S. airlines are the guys controlling it, you'll see plenty of service on all the key routes, but for secondary cities and smaller communities, forget it. It won't be sustainable unless it's sustained by the government through tax dollars.

So do we want an independent Canadian industry, which is what we have now, that is on the verge of being this big, international, relevant airline, or do we want the U.S. guys controlling it? That really is at the heart of my answer to your question. Right now I would say that if the U.S. guys want to do things, it should be on a fully reciprocal basis, and only on that basis do I think it's fair that Canada proceed. It has to be reciprocal.

Ms. Val Meredith: What about the Air Canada Public Participation Act, which is government regulating and interfering in the business dealings of not only your company but also the airline industry of Canada?

Mr. Robert Milton: In terms of the 10% going to 15%, again that comes to the question of do we want the industry to be domiciled in Canada.

Given that Calin helped write the act, perhaps he can comment.

Ms. Val Meredith: This is about Canadian ownership in a company; it's not about foreign ownership.

Mr. Calin Rovinescu: Sorry, your question is about Canadian ownership of....

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Ms. Val Meredith: It's about the Air Canada Public Participation Act, which deals with Canadian ownership in a Canadian company, not the foreign ownership component. That's dealt with in a different—

Mr. Calin Rovinescu: You're talking about the individual maximum ownership.

Ms. Val Meredith: I'm talking about whether or not there should be an act called the Air Canada Public Participation Act that interferes in a company doing business. It's regulatory, and my impression from Mr. Milton was that you didn't want regulatory provisions. You wanted the government out of the marketplace.

Mr. Calin Rovinescu: Assuming you pick the model of no regulation and say this is truly an industry that is deregulated, then I believe your point is correct. It stands to reason that if you're out of regulation, then you're out of regulation. You don't need the protectionism of a maximum 10% ownership restriction, you don't need the protectionism of saying that the maintenance bases are going to be in Montreal and Winnipeg, and you don't need the protectionism of the Official Languages Act. But the issue is that it's a bit of a mixed bag. Some of those things are quite good and some of them promote the....

As you know, the Air Canada Public Participation Act has much more in it than simply the maximum ownership constraint. If you were looking at it on a spectrum, you'd say that at one end of the spectrum is total regulation, the way it was years ago when prices were regulated, it was crown owned, and it reported to Parliament through the Minister of Finance, etc., and at the other end is no regulation. I think the Air Canada model is more toward the end of the spectrum of no regulation, recognizing that there are some political trade-offs, some of which are already in that piece of legislation.

Ms. Val Meredith: Wouldn't you suggest that this piece of legislation is also one of those political trade-offs, that this piece of legislation is also on that continuum of one extreme to the other, that maybe there's some public interest as to why this legislation is written like it is and is being placed on the books, and that it may be just as relevant as the Air Canada Public Participation Act is, as you mentioned?

Mr. Calin Rovinescu: The question is, which regulatory environment is counterintuitive to a private corporation? I would submit that it is more difficult to manage a privately owned corporation such as Air Canada, as opposed to a publicly traded one, and to run it on the basis of regulatory constraints on pricing and intervention at that level. Those constraints are more difficult to manage than an ownership constraint, a maintenance base constraint, or an official languages constraint. So it's a matter of degree only.

Ms. Val Meredith: But wouldn't you suggest that in protecting the public interest it's more relevant for a government to be more concerned about pricing and service to outlying regions of our country and those kinds of issues than it is to how many shares a Canadian can own in a Canadian company and where a headquarters and maintenance facility should be located? I would suggest that those regulatory features, which are not necessarily done for the public good but more for political reasons, interfere more in the operations of a company than fares, service, and those sorts of things. I would argue, as I am, that this piece of legislation is on that same continuum of governments feeling they have to enter a type of regulatory situation in some instances that may not seem to be encouraging open and free access in a market-driven economy.

The Chair: Thank you, Val. In a perfect world, as they say.

Mr. Milton, Mr. Rovinescu, Mr. Port, Ms. Fournel, and Mr. Peterson, I want to thank you for your submissions to this committee and for answering all of our questions. You have to understand that we too are wrestling with those important issues of ensuring that the public is protected, that the employees are protected, that there is service to the regions, etc. We're all trying to do the same thing. We do appreciate your availability to deal with any questions that may come up as we enter clause-by-clause consideration of the bill next week. Thank you very much for your submissions and for answering our questions.

Colleagues, we're adjourned until Monday at 3:30 p.m.