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STANDING COMMITTEE ON TRANSPORT

LE COMITÉ PERMANENT DES TRANSPORTS

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, October 26, 1999

• 1530

[English]

The Chair (Mr. Stan Keyes (Hamilton West, Lib.)): Good afternoon, ladies and gentlemen, colleagues, and members of the Standing Committee on Transport.

I have a reminder for those who have just joined us. We have now, of course, widely distributed the terms of reference of our committee: that pursuant to Standing Order 108(2), a study on the future of the airline industry in Canada, the Standing Committee on Transport is undertaking a study of restructuring in the Canadian airline industry.

The study will include: an examination of the competitive position of Canada's national, regional, and charter air carriers; airline alliances and their impact on the competitiveness of Canada's air carriers; foreign ownership rules and effective Canadian control; the impact of industry restructuring on airline employees; and the impact of industry restructuring on airline alliances and on consumers in terms of fares and service in regional, northern, remote, and high-volume corridors.

This afternoon, colleagues, we welcome our witness, the Honourable David Collenette, who is the Minister of Transport. Joining him are Margaret Bloodworth, the Deputy Minister of Transport, and Louis Ranger, the assistant deputy minister for policy in the transport department.

Welcome to the committee, Mr. Minister. When you're comfortable, could you please give us your presentation? Thank you.

Hon. David M. Collenette (Minister of Transport, Lib.): Thank you very much, Mr. Chair.

Mesdames et messieurs, it is with great anticipation and enthusiasm that I have been preparing to appear before the standing committee today.

Much has happened since August 13, when I announced jointly with my colleague, the Honourable John Manley, that the Governor in Council had issued an order pursuant to section 47 of the Canada Transportation Act, which established a special 90-day process designed to facilitate an orderly restructuring of the Canadian airline industry.

In early August we were faced with the prospect of a major disruption in a key industry, an industry that is essential to this country. The government took steps to ensure that all options could be considered and that the public interest would be protected. We took action quickly and decisively, but it was only a temporary first step.

Today I've come to speak to you about how we have prepared the groundwork for the next step, which will be a permanent one. That is why I'm tabling today a document entitled “A Policy Framework for Airline Restructuring in Canada”.

[Translation]

It is very clear that Canada's airline industry is not just another service sector and that it is, inevitably, on the verge of major change. In a country with the width and breadth of ours, air services are a vital feature of our ability to meet our personal, commercial and national objectives. For these reasons alone, it is appropriate for the government to have a say in a restructuring, even if the solution is developed in the private sector.

[English]

The government is well aware that there are implications for competition in any major restructuring. Consequently, on August 30 I wrote to the commissioner of competition, Mr. Konrad von Finckenstein, seeking his advice on how to achieve an outcome as pro-competitive as possible in the face of consolidation, regardless of how it would be achieved.

Last Friday I received the reply from the commissioner, and I want to thank him publicly for his thorough airing of concerns and for his recommendations. His reply is in the form of a letter which I am also making public today.

In examining his letter, it is important to recognize that while the advice of the commissioner covers four broad areas of concern, only one of these can be addressed by the Competition Bureau within its mandate. Using its normal merger review process, the bureau could seek remedies to address competition concerns but it could not deal with the regulatory, legislative, and policy issues identified in the commissioner's letter. For these, action by the government is required.

• 1535

As we enter the final days of the 90-day period, I am pleased to note that a total of three proposals came forward, and two of them are still on the table—one from Onex Corporation and one from Air Canada.

[Translation]

In announcing the issuance of the Order on August 13, I said that I would be reviewing with my Cabinet colleagues what further action might be required, including the possibility of introducing legislation to facilitate the implementation of an acceptable proposal and to make the necessary changes to the regulatory framework governing airlines.

In releasing this policy framework, the government is requesting input from parliamentarians on the important public policy issues identified and on the options for addressing them.

Both I am my officials have met or spoken to many of those directly affected, including carriers of all sizes, consumer groups, travel agents and airports. I personally have met with representatives of most of the unions whose members would be affected. Many will welcome the opportunity to share their views with you.

Over the past two and a half months, I have indicated publicly on a number of occasions the areas of most concern to the government. Today, I am tabling the government framework to address them and requesting your assistance in finalizing this policy.

[English]

Our vision as we enter the 21st century is that of a safe and healthy Canadian airline industry, one that is owned and controlled by Canadians, that serves all parts of Canada at fair prices, and that is capable of competing with the biggest and the best in the world.

[Translation]

Our vision, as we enter the 21st century, is a safe and healthy Canadian airline industry, one that is owned and controlled by Canadians, that serves all parts of Canada at fair prices, and that is capable of competing with the biggest and best airlines in the world.

[English]

A key fundamental underlying current and future airline policy is that there will be no compromise of Canada's existing high standards. Canadians can be proud of the safety standards of our airline industry. The government will remain vigilant to ensure that our standards remain among the most rigorous in the world.

[Translation]

Fundamental to the identity of Canada is its linguistic duality. It is a reflection of Canada's unique culture and values that Canadians be able to rely on the national air carrier for service in either official language.

The government will ensure that the Official Languages Act continues to apply in the case of Air Canada or any future dominant carrier, and that the Act is effectively implemented.

[English]

Let me now turn to some specific elements in the policy framework. The government will ensure that Canada's airline industry remains owned and controlled by Canadians. The Canadian Transportation Agency will carry out its legislated mandate to ensure compliance. There will be no reduction in Canadian ownership and control requirements. The 25% limit on foreign voting shares will not be changed. The requirement to be controlled in fact by Canadians will not be changed.

The 25% limit on voting shares held by foreigners applies to all carriers, including Air Canada. In addition to this limit on foreign investors, the Air Canada Public Participation Act prohibits any person from owning or controlling more than 10% of Air Canada's voting shares. This affects all shareholders, both Canadian and non-Canadian. Although this provision has ensured that this former crown corporation has been widely held, some have argued that this reduces shareholder influence.

The government is prepared to consider increasing the limit to a new level to be decided following input from you, parliamentarians, if such a measure contributes to achieving a healthy, Canadian-controlled airline industry.

[Translation]

Another key element of the policy framework relates to fostering competition. Both the government and the Competition Bureau have identified a number of areas where action will need to be taken to ensure as pro-competitive an environment as possible—one that will assure other carriers that they could successfully mount and sustain a competitive service.

[English]

Two particularly important issues in this regard are predatory behaviour and airport access.

• 1540

While energetic competition is to be encouraged, predatory behaviour cannot be tolerated. Small and new-entrant carriers are potentially vulnerable to excessively aggressive competitive attacks from a larger established carrier. The government will ensure that effective measures are put in place for dealing with predatory behaviour in the airline industry.

The government will also ensure that access to airport facilities will be allocated to permit competitive domestic services to be introduced. This will include actions to ensure a fair and competitive allocation of runway slots. It may also require the dominant carrier to give up some access to terminal facilities to ensure that airport access is not a barrier to entry.

The Commissioner of Competition has developed concrete proposals in these two areas, which are set out in his letter. I am seeking your advice as to the most effective way in which to address these two concerns.

The policy framework also covers a number of areas in which measures might be considered to mitigate any anti-competitive effects identified by consumers, travel agents, and potential competitors. These include frequent flyer programs, computer reservation systems behaviour, and travel agent commission overrides, as well as the needs of independent charter carriers and regional carriers that were previously affiliated with one of the major airlines.

The commissioner's letter also describes possible actions that might be taken in these areas. Your advice, based on input you will hear, will be valuable in assessing which are the most practical and effective measures to be prescribed.

[Translation]

The airline industry is changing and Canada's international air policy must change as well. The government will revise its policies for international scheduled and charter services with a view to removing unnecessary restrictions on air services. It will also reconsider its approach to the 60+ bilateral air agreements the government has negotiated with other countries, to determine the extent to which Canadian and foreign carriers should have more international route opportunities.

[English]

Canadians are concerned about the future price of air travel. So is the government. Although the best way to address pricing is to have an air services market that remains competitive as a means of disciplining pricing, it is recognized that competition may not exert sufficient control on prices in all circumstances.

Section 66 of the Canada Transportation Act of 1996 allows for complaints on unreasonable basic fares on monopoly routes. It is for consideration whether this section should be broadened to address dominance as well as monopoly on any given route and some other prices as well as the basic fare. In addition to reviewing this section, the government will require commitments on pricing from a dominant carrier during the restructuring process and will consider adding conditions to its restructuring approval.

[Translation]

The government is sensitive to the concerns that services to smaller communities may decrease or even disappear. However, we are also confident that with the appropriate competitive environment, other companies will choose to provide those services if the major carrier or its affiliate gives proper notice and withdraws.

For this reason, the government will review the sections of the Canada Transportation Act dealing with the requirements to give notice to exit a market.

In addition to reviewing these sections, the government will require commitments on service to small communities from the dominant carrier during the restructuring process and will consider adding conditions to its restructuring approval.

[English]

The unions have shared with me their concerns regarding the impacts of airline consolidation on employees. They fear substantial job losses and relocation and that layoffs will be made without the choice of staying or an attractive separation package.

• 1545

The government will encourage labour-management discussion on these matters. The government will insist that during any major restructuring of the airline industry, employees are treated fairly, and will require commitments from the dominant carrier to this effect.

The government intends to introduce legislation very soon that will give it permanent authority over the review of any merger or acquisition affecting Air Canada or Canadian Airlines that is concluded from now on. This formal review process, which is being put in place because of the importance of the airline industry to Canadians and to our economy, will involve three elements of government oversight, which are needed to fully capture the public interest. These include the Competition Bureau, which will review specific proposals with regard to competition issues; the Canadian Transportation Agency, which will review proposals to ensure air carriers remain controlled, in fact and in law, by Canadians; and the government itself, which will ensure that transportation public policy concerns are addressed.

This process puts the final decision to approve a merger or acquisition with the Governor in Council, on the recommendation of the Minister of Transport. If a merger or acquisition is found to comply with the requirements to be owned and controlled by Canadians, as determined by the agency, the minister will formulate the recommendation for approval, taking into account the extent to which the carrier has made undertakings to address the remedies negotiated with the Competition Bureau and the conditions necessary to meet public policy objectives.

[Translation]

These are the cornerstones of the framework, but some work remains before this framework can be put into effect.

I am seeking the input of parliamentarians on key issues that may ultimately require commitments from a dominant carrier, government conditions to an approval, regulation and legislation.

[English]

Specifically I am asking the House Standing Committee on Transport and the Senate Standing Committee on Transport and Communications to examine the policy framework and the specific issues identified for parliamentary input. These include the issue of whether to increase the 10% limit on individual holding of voting shares in Air Canada; the most effective means to foster competition; how to address pricing; maintaining service to small communities; carrier commitments, including those related to the treatment of employees; and how to monitor the air market in which there could be a dominant carrier.

I would hope to have reports on their findings by November 26. Members will find the commissioner's letter helpful in dealing with some of these issues.

[Translation]

Let me conclude by emphasizing that a number of actions still have to play out with respect to airline restructuring. The private sector has not yet produced a conditional agreement which can be reviewed.

However, it has become very clear that government action is needed to ensure that the public interest remains paramount and is protected.

[English]

Canadians know the benefits of market-driven solutions, but in such a pivotal industry as air travel, they demand that their government protect their core interests. In so doing, it will be important to find the balance between imposing a policy and regulatory framework that meets Canadian needs and avoiding hampering the ability of any Canadian carrier to be effective and viable at home and in the global market.

I have been assured by Canadian air carriers that with a proper legislative and regulatory framework, competitive services will develop and provide real options for travellers.

I would also like to assure not only parliamentarians but all Canadians that whatever proposals are brought forward by the private sector and whatever shape federal legislation and action take, reductions to the safety of our aviation system will not be tolerated. Safety remains Transport Canada's top priority, and we will not allow Canada's enviable safety record to be compromised.

Ladies and gentlemen of the committee, I look forward to receiving your report, and I am ready to answer your questions.

[Translation]

Thank you.

[English]

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

On page 6 you said you hope to have reports on the findings by November 26. I think I speak for all my colleagues on the Standing Committee on Transport when I say we have witnesses as deep as November 24, and then we will have to go into deliberations on the draft report, followed by a final report, so I hope your date of November 26 is flexible.

Mr. David Collenette: Was that a question or a comment?

Voices: Oh, oh!

The Chair: Well, it could be a demand actually.

Voices: Oh, oh!

• 1550

Mr. David Collenette: Well, I obviously think this is not the time to debate it, Mr. Chairman, but I have to tell you that the situation we have is one that demands solutions in good time. I would hope the committee could do its work by the end of November. Certainly the committee is the master of its own destiny, but it is very important in this scenario, in whatever happens, that we have legislation introduced in the House before Christmas.

The Chair: We'll move to questions. Ms. Meredith, please.

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

Thank you, Mr. Minister, for providing us with some idea of where the government plans on going. You've been saying for months now that you were going to look to the private sector to provide the solution. What I hear and what I see on page 6 is that now you have determined that it's actually the Governor in Council and you who will make the final decisions.

That sends the message that the Air Canada shareholders meeting in a couple of weeks' time really is redundant. I would like to ask you, sir, if you could indicate to Canadians which deal before you for consideration is acceptable under your terms and which one is not.

Mr. David Collenette: Mr. Chair, I've said a number of times that it is for the private sector to decide how to order their affairs. It's not for the government to deal with all of the financial and shareholder issues. These are two private companies we're talking about. Proposals have come forward under the auspices of section 47. There are now two on the table.

But what I said a number of times is that the private sector alone will not determine the outcome. No government can leave entirely to market forces all of the very important public policy questions that must be addressed, and only Parliament and the government can address the public interest. That is why I've talked about my five principles in assessing any proposal that comes forward, and of course we've expanded on all of this today. We have the benefit of the advice from the Commissioner of Competition.

All of these issues must be taken into account, because if we are moving to a world where there is one, dominant, national carrier, there must be all manner of guarantees to protect the public interest on prices, on jobs, on services to small communities, on competition, and on Canadian control. I think we would be derelict in our duty as parliamentarians and as members of the government if we did otherwise.

Ms. Val Meredith: Then, Mr. Minister, maybe you could explain to me whether or not what you're talking about is taking the Canadian airline industry and placing it back in a regulatory framework. Deregulation has happened; it moved into the free market. Now, from comments you're making, I'm concerned that maybe you're going to take us backwards and get us back into a very regulated marketplace.

Mr. David Collenette: No, not at all. We're not going back into the earlier regulated world, but it's quite obvious that there will have to be conditions by regulation or by statute to ensure that the public interest is discharged.

Ms. Val Meredith: On page 3 you mentioned “fostering competition”. You say “action will need to be taken to ensure as pro-competitive an environment as possible”. How do you propose to do that if you're not going to place us back into a regulated marketplace?

Mr. David Collenette: On competition issues, as you will see when you read the commissioner's letter, there are a number of concerns we have addressed. Of course the very fact that the proposal must be submitted for a full merger review by the commissioner and his staff ensures that competition issues are addressed. We want to make sure that we have a highly competitive environment. Otherwise, the consumer is going to get gouged.

Ms. Val Meredith: But, Mr. Minister, if you don't regulate the industry, how do you ensure that competition is going to be there?

• 1555

Mr. David Collenette: I think, Mr. Chair, that Ms. Meredith and I are sparring on semantics. She wants me to say that we're going back to re-regulate, with all that has meant in the past. We're not. We're not set up for that in government. We believe in market forces. In fact, we've talked about a market-driven solution. But there has to be balance. There has to be balance among market forces, competition, and the public interest. The regime we are setting out in these documents for your consideration we believe provides that balance and provides protections for Canadians.

The Chair: Thank you, Ms. Meredith.

Mr. Fontana, please.

Just a reminder, colleagues: we're sticking to the five-minute rule, so try to keep your questions short if you want full answers.

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

Welcome, Mr. Minister, and thank you for putting some meat to the five principles. It should indicate what the public interest is.

Let me start with this. If in fact the consumer needs to be taken into account in terms of the equation here—and I think you've already indicated that Canadians are a little ticked at the amount they have to pay for certain airline flights—and if in fact, in order to ensure that proper pricing, to ensure that there is competition in this country...it would seem to me that Canada is going to have to be an attractive place in which to invest in the airline industry.

There are two provisions you've asked us to take a look at. So far, over the past two days, this committee has talked to a number of people, from professors to ATAC, even, to others who indicate that this 25% foreign ownership rule... In fact even the Competition Bureau, I believe, touches on the 25%, and we all know that within the Governor in Council it could move to 49%.

It seems to me that we've also heard that the U.S. and other countries are reviewing this 25% rule as being perhaps an impeding factor towards attracting the capital that airlines need in order to give service, either domestically or internationally. So I'm a little surprised—or perhaps you could tell us why—that you would not have asked us to look at moving or not moving that 25%, which could have gone to 49%, as the Competition Bureau has indicated or as the law now permits you to do.

Second is that 10% rule, which was put in place, I take it, back in 1987-88 when Air Canada was privatized. I'm just wondering whether or not that 10% rule is an impeding factor in terms of attracting proponents, proposals, to come to the table in order for us to have a healthy industry.

We keep talking about this Canadian control, Mr. Minister, and everybody asks what effective control means and what actually being a Canadian corporation means. I'm just wondering whether or not one could not design some legislative framework—either the 25% rule or the 10% rule—that in fact could ensure that Canadian ownership and Canadian control rest within the board but could allow us to move towards attracting what I believe is the capital that's going to be required in this country to have a viable airline industry, no matter how, whether it's one or two, domestic or international.

I want you to address the 25% rule with the view of enhancing it and what positive features may come from that and the 10% rule with the view of what it can also do in order to bring more players and more capital, perhaps, to the table so that we can achieve what we want, which is a healthy airline industry in this country.

Mr. David Collenette: Mr. Chair, at no time in the discussions we have had with the airline companies has there been any request to increase the 25% limit. We feel that the 25% limit helps to effectively control ownership, and I think that is what we Canadians wish—that we have a Canadian-owned and Canadian-controlled industry.

On the issue of the 10%, as I said in my speech, this is something in the legislation that privatized Air Canada—the Air Canada Public Participation Act in 1988—and I believe the rationale at the time was that this would enable the company to be widely held. Indeed, it has not been unusual to do that. Canadian National has 15%, and there are other former crown corporations with similar limits. But there is a debate as to whether or not this is really desirable and whether or not it does really impede the proper management and ability of a company to compete.

• 1600

We have two proposals on the table. One of them is within the 10% limit and one of them is outside the 10% limit. For me to come here today and ask you to support the government on this, we are really saying we want the options open for shareholders of both companies to look at both of the proposals. If we were to say the 10% rule is fixed and carved in stone, it would not really allow the private sector to decide, because we would have decided for the private sector. We would have eliminated one proposal.

There has been some question and controversy about the government considering raising the limit, and I find it a little odd that in those arguments, there's an assumption that somehow a law is a law for all time. In a rapidly evolving world where there are incredible pressures to compete and given the changing nature of the industry—we've seen the emergence of these large alliances—surely Parliament should have the opportunity to decide whether that law needs to be kept where it is or whether the limit should be increased.

This is a very important question and one that will generate considerable discussion, but before the government moves, we want the views of this committee and the Senate committee and other members of the House and Senate, because it's a very important issue to deal with.

The Chair: Thanks, Mr. Fontana.

Mr. Guimond, please.

[Translation]

Mr. Michel Guimond (Beauport—Montmorency—Côte-de- Beaupré—Île-d'Orléans, BQ): Mr. Minister, following up on the question by my colleague from London North Centre, I would like to talk about raising the 10% limit. You talk of raising that limit and you hint that the government has made up its mind and is prepared to look at raising that limit to a new level. Even though you say that it will be up to parliamentarians to decide, we know how things work. The government's mind is made up: it is determined to raise the 10% limit.

You have not succeeded in convincing me as to the reasons. If the 10% level were raised, how would the public interest be better served? You also make a vague reference to Canadian National, where the limit is 15%. There was the example this summer of the bank mergers, when the Minister of Finance dealt with this indirectly. Mr. Minister, we do not know what your reasons are. We certainly know those of Onex, but not yours.

We know that there are two proposals at present: one that complies fully with the 10% rule and the other based on an increase in that limit. The government seems to me to be slightly biased, and I would like to hear what you have to say on that. What are the real reasons for possibly increasing the 10% limit?

Mr. David Collenette: Mr. Chairman, I think I have already answered Mr. Guimond's questions when I replied to Mr. Fontana.

When we issued the order in council pursuant to section 47, it was with a view to encouraging offers from the private sector. During this period, there have been three offers, three proposals. Two remain on the table and, as you correctly said, one of the proposals is based on the present legislation being maintained and the other on a change to the Act. I believe that it is a matter of public policy and that it is up to Parliament to decide if the limits can be increased. Your question is a legitimate one. We are simply saying today that the government is prepared to look at raising the limits, but we are seeking the advice of our colleagues in Parliament.

• 1605

Mr. Michel Guimond: We know that the government is doing what it wants with parliamentary committee reports. If you are giving us the power to decide this issue, if you are telling me that it is the parliamentary committee that will decide...

Mr. David Collenette: That is not what I am saying. Frankly, Mr. Guimond, you are being very modest, since this government is known for consulting members of Parliament and senators. We think that your opinions have weight in the debate and we need your advice before deciding if we should introduce a bill to raise the limits.

Mr. Michel Guimond: I am going to have to ask you to refer to your rules of procedure, which state that committees only have the power to make recommendations.

On a different topic, you want to introduce a bill that will give you additional powers to study any proposed merger. What powers are you talking about right now? What is there in the present legislation that does not allow you to play an informed role in studying such decisions? What are we lacking at present and why is the government looking at introducing a bill?

Mr. David Collenette: Mr. Chairman, I know that Mr. Guimond and the other members of the committee have not had an opportunity to read the brief that I have provided this afternoon, but when they do so, they will see that we are prepared to amend the Canada Transportation Act and perhaps even the Air Canada Act, as well as guarantee the conditions set out by Mr. von Finckenstein, the Competition Commissioner, as well as those in the opinion provided by the Canadian Transportation Agency on the issue of Canadian control. We will guarantee the Canadian public that there will be changes to the industry, and that the Act will ensure that all the conditions are adhered to and that the public interest is upheld. I believe that that is fair.

Mr. Michel Guimond: Mr. Minister...

[English]

The Chair: Make this your last question, Mr. Guimond.

[Translation]

Mr. Michel Guimond: Thank you. How is all this issue going to play out? We know that Air Canada will hold a shareholders' meeting on November 8th. We know that your 90-day suspension of section 47 ends on November 10th. Technically, if Air Canada and Canadian come to an agreement or if an offer is accepted on November 8th, how will things work from a technical standpoint? What role will the Competition Bureau play and what will be done about passing the bills and holding the debates that we will need in the House? How will the timing work in concrete terms?

Mr. David Collenette: Mr. Chairman, I announced this afternoon that under the policy framework we are proposing, the Competition Bureau will have the right to examine proposals for airline mergers in the same way that it looks at other proposals.

With respect to section 47, we simply suspended a few provisions of the Competition Act for a 90-day period, but after November 10th we will be back to a framework where the responsibilities of the Competition Bureau and the Canadian Transportation Agency are fully restored, but where the Canadian government and Parliament will be able to give guarantees regarding other conditions and other principles that I have indicated, in particular in the areas of service to small communities, rights of employees, competition, pricing problems, etc.

• 1610

[English]

The Chair: Thanks, Mr. Guimond.

Mr. Comuzzi, please.

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

Minister, Ms. Bloodworth, and Mr. Ranger, thank you very much, first of all. The policy framework is very good. I think it gives the committee a tremendous amount of guidance in formulating the airline policy.

What I'm interested in, Minister, is the significance that your ministry will put on the recommendations that will eventually be made by this committee. Some of us in the room sat on a committee that studied the marine transportation policy in Canada. We spent a lot of time on that policy. We travelled across this country several times, and talked to almost everyone involved.

At the end of the day we made some very substantial recommendations, one being the retention of the harbour commissions in this country as the only viable operating port authorities that existed. We strongly recommended that those harbour commissions stay intact and not be done away with.

We also made some substantial recommendations with respect to the pilotage authorities on the Great Lakes. We made recommendations as to how that legislation should be changed.

At the end of the day, Minister, those recommendations weren't followed through with. The harbour commissions in Canada were disbanded. We did nothing with the pilotage authorities.

With that kind of history, how can we be guaranteed today that with this assistance you're asking from this committee, and placing so much confidence in it, that our recommendations would be at least considered? At the least, before any recommendations this committee may make that don't follow or agree with some of your colleagues', how can we be assured that they wouldn't come back to this committee for reconsideration?

Some of us are a little gun-shy given the history of how we've gone down this road before.

The Chair: Just a few of us are gun-shy. There are others at this table, including the opposition members, who also understand that the vast majority of the recommendations that were made in that marine report were accepted, in fact.

Mr. Joe Comuzzi: I think, Mr. Chairman, I asked the minister the question.

The Chair: Do you have a response to that question?

Mr. Joe Comuzzi: I think I posed the question to the minister, Mr. Chairman.

The Chair: Do you have an answer?

I just needed to correct the record, Mr. Comuzzi.

Mr. David Collenette: If I may, Mr. Chairman, I think Mr. Comuzzi has launched a legitimate question here in terms of the role of the committee. We have said this afternoon that we want the advice of this committee on certain issues, on all manner of issues, but on some particular ones that we've outlined.

On the question of the Canada Marine Act, it was a little before my time as minister, but certainly in my time as minister we did resubmit Bill C-9. My understanding is that most of the recommendations of the committee in the previous go-round were accepted. The Canada Marine Act has been implemented extremely well across the country, with only minor problems.

So I take the point, but I certainly will take the advice we get here, and take it to my colleagues, who will consider it very closely.

Mr. Joe Comuzzi: Thank you.

I know we have time limitations, Mr. Chairman, so I don't know how to ask the next question.

The Chair: As directly as possible.

Mr. Joe Comuzzi: Well, I will, but I'm wondering if I should not table this for the information of the committee, inasmuch as I've done an analysis of the Airline Industry Revitalization Company v. Air Canada, and the decision given by Mr. Justice Blair that outlines the chronology of the events that bring us here today. I think I'll table that with the permission of the committee.

I've done a review of section 47 and some of the operative sections. I'll just ask the question, Minister, that those informative sections lead us to. I think this is the reason we're here, repositioning ourselves with the airline policy.

• 1615

Section 47 starts out by saying “extraordinary disruptions”. We're led to believe that you were advised that Canadian Airlines would imminently stop flying and that through the court case... On paragraph six of Mr. Justice Blair's decision, it's evident now that since early May a foreign carrier was at the table discussing acquisitions with officials of government, and that there were other remedies available to Canadian, with the exception of imposing section 47.

There are some procedural issues, according to sections 4 and 5 of that act, that really flew in the face of natural justice. I'm wondering now whether, in light of what you're asking us to consider—which is very good, and I have no quarrel with that or anything—we shouldn't invoke subsection 47(6). This would put us back to square one so that we can review and establish a policy with enough time.

We're pretty well assured, through Mr. Benson's press conference of September 28, that there's not going to be any disruption in the services. Why don't we get back to square one of this debate and allow the committee to function, allow the Senate committee to function, without these extra, added pressures that are coming from the mergers of the airlines and the constant pressure they're putting, I'm sure, on all of you, and on all of you people in the department?

You can do that, Minister, by invoking subsection 47(6), which terminates the imposition of section 47.

Mr. David Collenette: Mr. Chair, Mr. Comuzzi has asked a series of excellent questions. I will try not to be too long. Of course this committee is constituted to talk about section 47, and our use of it.

It became quite obvious to me, after I became minister, that Canadian Airlines would have difficulties at some time in this mandate. We began discussing this with officials at the transport department. Quite frankly, earlier this year I thought we would have more time. This is why when the chair of the committee, Mr. Bonin, came to me and said the committee's proposing to study the air industry, I thought that was a good idea. I said we would cooperate. I thought we could have a lot of the detailed policy discussion on airline restructuring before things got too difficult in terms of Canadian Airlines. But it became evident, with the financial picture last year of not only Canadian Airlines' huge loss but also the loss of Air Canada, that something really had to be done.

Then in March, as you know, Air Canada raised with us, with the officials, the use of section 47. We now know that was in connection with discussions they were having with Canadian Airlines about a merger. Canadian also mentioned it to us.

It didn't go anywhere, because those discussions collapsed before any requirement to have the protection of section 47.

Then, in I guess June, the then president of Air Canada, Mr. Durrett, and the current president, Mr. Milton, came to see me and tabled the offer that they were going to make for Canadian Airlines' routes. Then a few days later Mr. Benson said “Look, I've been talking about finding a third party investor; well, we found the investor, and the investor, Onex, wants to put the two companies together.”

It was after that series of events, realizing that the situation regarding Canadian had become more precarious, that we decided to consider the use of section 47. We did so on August 13. So the reasons were valid.

Now, on the question you raise about Mr. Benson's comments on September 28, I think you have to ask him why he made those comments at that time. The department is privy to a lot of confidential information.

• 1620

We've been taking a few knocks in this entire process, and that's understandable, because we have here a hotly contested business environment, which is not unusual in the business world, but it's unusual that the government is in the middle as the instigator of the process and also the referee.

So I don't want to question the motives of any of the companies or any of their spokesmen for what they say, but I think you should ask him that question. However, the reasons we introduced section 47 on August 13 are as valid today as they were then—that is, we believe a disruption is eminent. Certainly we believe the process has worked, because during that period of time—we're now at about the 75th day or so—we've had three proposals come forward, and two are now on the table.

What I'm saying this afternoon is that after the 90 days expire, we are outlining, for all of the members to see, a process that will respect the jurisdiction of the Competition Bureau and the Canadian Transportation Agency and allow us, as parliamentarians, to see whether other statutes have to be modified to protect the public interest. So in answer to your question, the reasons were valid, the process has worked, and now we have to move on.

The Chair: Thank you, Mr. Comuzzi.

Ms. Desjarlais, please.

Ms. Bev Desjarlais (Churchill, NDP): Thank you for coming, Mr. Minister, and other representatives.

To slightly clarify the story, probably you remember how we ended up discussing air competitiveness somewhat differently from the way the opposition members do, and that was because the opposition members forced that issue to be brought to the table and forced the committee to meet. I think it's important that people recognize that it wasn't purely a goodwill gesture on anyone else's part.

I'm going to ask my first questions in regard to the 10% ruling. I have a couple of different questions, and I'm going to try to get them all in, just so I don't lose some of my time in an answer that doesn't necessarily respond to what I want to hear.

If you dropped or invoked section 47 with an intent to get some response, is it not reasonable to suggest that the responses you would get would fall within the legislation of the day? If you are sending out a tender for a project, you set out the guidelines for the tender and they usually indicate a lot of different things, including following the legislation that's in place. I find it hard to understand why we would be looking for offers that didn't fall by the legislation that's presently in place, because I think what happens then is that the whole process becomes questionable. I think once that question is there, it's hard for Canadians to accept that the process was fair—at least from the company side, but also for Canadians, because I think they want to ensure that there's a level playing field, and a fair playing field.

The other issue is, should the 10% rule be dropped and allowed to be, say, 30% rather than 10%, would that affect any guidelines under NAFTA right now in regards to ownership?

Mr. David Collenette: On the first point with respect to specific proposals, there are no proposals before us. In your remarks you ascribed motives to us based on the fact that there are offers before the government. There are no offers before the government.

Ms. Bev Desjarlais: You indicated there were two offers out there, so I guess—

Mr. David Collenette: But they're not before the government. They're out there in front of the shareholders of these two publicly traded companies. If one of them is accepted, then it will come to the government, and then it will be subject to the discussions of Parliament and the government to protect the public interest.

With respect to your question on the 10% rule and the whole issue of NAFTA, certainly the NAFTA reservations with regard to the 25% limitations on foreign shareholdings limit Canada's obligations to provide national treatment to such investors. So if we raise the limit after consideration, it's the considered opinion of the government that this will have no bearing on our obligations with NAFTA.

• 1625

Ms. Bev Desjarlais: Do I have time for a little bit more in there?

The Chair: Go ahead.

Ms. Bev Desjarlais: Okay.

That's interesting, because my understanding is that there is some question that if it goes above 25%, that would create some problems under NAFTA.

The other question I had was... I'm just trying to word this properly. Actually, I'll leave it for now.

The Chair: Thank you, Bev.

Mr. Jackson, please.

Mr. Ovid L. Jackson (Bruce—Grey, Lib.): Thank you very much, Mr. Chairman.

There's an old saying—you know I'm famous for my sayings, so I'm going to give you one today—that says “As you go down life's highway, may you focus on the doughnut and not upon the hole”. The question is, what is the public interest and how can we best express it? We talk a lot about Canadian and American Airlines, but we don't talk about the Star Alliance or Oneworld or SABRE or Gemini.

One of the things we've learned in our study is that the airline industry, because we've opened it up, has been beneficial to Canadians. They have more options, there's competition in the marketplace, and people are allowed to move in and out of the system. What has transpired over the last little while has given us an opportunity to have a look at what's going to happen with the future of our airlines. I think for one of the first times with these WTO arrangements, Canadians are looking at what are the major institutions, and they're looking to us for good leadership to make sure this window of opportunity, in which we're going to come in with a new framework, works for them.

My question to you is twofold. In terms of command and control, what are we doing to make sure that when we focus in on Air Canada and Canadian, we're not looking at Gemini and we're not looking at SABRE, these two that are controlling a lot of the money? You can put whatever label on top of it, but the money flows through these two systems. What command and control do we have there?

I think we're also seeing, through our travel agents in our smaller communities, that they're starting to be squeezed. Any savings should come back to Canadians in terms of pricing. We should have better service and lower prices rather than price gouging.

Those are my questions to you.

Mr. David Collenette: I think that's a very valid point. Again, the Canadian Transportation Agency has the full statutory power now to look at every aspect of the operations of one of the airlines or a merged airline to see whether or not that airline is effectively Canadian controlled.

Let us assume a proposal comes forward, whichever, and I recognize that there are two proposals out there, one associated with one alliance and other with another alliance. Whatever comes forward, the agency will have the legal right to demand to examine every single document that it requires to make its judgment, including side agreements, union contracts, every aspect of operations—you focused on computer reservations systems—all of that, to ensure that whatever proposal comes forward indeed means that the company is effectively controlled by Canadians.

Now, on page 9 of the framework document we do talk about computer reservation systems and the long-standing concern of travel agents about the CRS and how it in effect should be better regulated. We have said here that the government will examine ways to amend the computer reservation system's register and regulations to address the concerns of the travel agents, especially in a world where you could be going through one dominant carrier.

So I think there are mechanisms in place, either through the CTA or through the restructuring legislation we're proposing, that will deal with this.

The Chair: Thanks, Mr. Jackson.

Mr. Casey, please.

• 1630

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

Mr. Collenette, it may come as a surprise to you, but I take exception to the process. On August 13 you called for proposals to restructure the airline system. You gave it a 90-day window of negotiation. At my count, we're at day 74, and you're changing the rules.

Had you changed the rules on day one of the 90 days, we might have had more than two proposals on the table. But certainly changing that 10% rule or even the discussion of it has precluded a great number of perhaps interested parties.

I just wonder how you can change the parameters on a call for proposals or tenders 74 days into a 90-day process.

Mr. David Collenette: Obviously I disagree with Mr. Casey. We're not changing the rules. We're saying that the current legislation could be changed and we're open to raising the 10% limit. Does that mean to say it's going to be done? No. It means that we're open to consideration.

We want a valid discussion of this issue by this committee and by other members of Parliament before the government takes its decision. There's nothing wrong with that.

Laws are not immutable. Laws can be changed if the case is made to change them, if the environment changes.

Mr. Bill Casey: Don't you think you should have said on August 13 that maybe we will change the 10% rule and we would have attracted a lot more proposals? You know, 10% of a company is completely different from a bigger percentage of a company, as I'm sure you'll agree. One of these parties wouldn't be interested unless they could get a bigger percentage than 10%.

The law of the land on August 13 was that 10% was the maximum ownership by any single entity. Now you're proposing, 74 days into the process, to change that. How can that be?

Mr. David Collenette: We are not proposing 74 days into the process to change it. We are saying that we are open to discussion about change but we want to know the views of the members of this House.

Mr. Casey, I've been asked in media scrums for over a year now, dealing with Canadian Airlines and the financial viability of the airlines, the whole question about whether we would change legislation. I've always said that the government would consider any regulatory or legislative change if it improved the viability of the airline industry. I've said that many times. It was reported in the newspapers way before August 13.

So I think the point you make is really not a valid one. We have embarked on a process that has worked. Two proposals have come forward. We are prepared to consider changing the legislation if that results in improved viability of the industry.

I remember now, on August 13 I believe I made the same statement. Maybe I don't have it with me, but we can dig it out. We're not dropping anything on people here that really should not have been expected. We have always been open to legislative or regulatory change if the case could be made for such changes.

Mr. Bill Casey: I just make my point that there was a call for proposals and then the parameters changed.

On to another little subject, one of the five principles that you announced on September 28 was guaranteed service to regional airports. I happened to pick up the paper on Saturday: “Moncton airport cuts staff in face of mounting deficit”. I'll just read you the pertinent part here: “Last year, the airport lost about $1 million”. “Birchall said the Greater Moncton Airport Authority is laying off the firefighters...to save money”. It goes on to say: “We're in a deficit position, and we're losing money quite rapidly”.

If we have airports losing money, is the federal government prepared to put money into those regional airports in order to guarantee service to the regions, as you've committed to in your five principles—as they do in the U.S.?

Mr. David Collenette: We have been consulting with the airport authority community across the country to see how one dominant carrier regime would affect them, and certainly we will take into account any problems they may have.

• 1635

You are referring to the specifics of an airport that has been transferred in recent times. There are airport leases that we believe allow these airports to be run properly, and if there is a particular issue that should be looked at, we will look at it. I'm glad you raised that today. We'll certainly take a look at the Moncton airport issue.

Mr. Ranger has just given me the press release from August 13. On page two I state:

    The Government of Canada will also consider what further action might be required, including the possibility of introducing legislation to facilitate the implementation of an acceptable proposal and making any necessary changes to the policy and regulatory framework governing airlines.

That was clear on August 13.

The Chair: Thanks, Mr. Casey. Your time has expired.

Thank you, colleagues. We've gone through one round and we're right on schedule, so thank you for adhering to our five-minute agreement.

One quick question from the chair, if I may, a spin-off from Mr. Casey's question. For greater clarity, Minister, I like what you're proposing and I like the fact that you're asking us to look at things and you're prepared to look at anything. But we are dealing with two companies, Onex and Air Canada, and proposals going to their shareholders, not to government. They haven't come to us yet. By all news media accounts, we're dealing with two scorpions in a bottle on this issue. For greater clarity, what are you not prepared to look at?

Mr. David Collenette: Just on the point of scorpions, I've always found that the best way to deal with scorpions is to keep your distance. That's what I've been trying to do in the last 74 days.

The Chair: So we've established that you're outside the bottle. We still have two in the bottle. What are you not prepared to look at?

Mr. David Collenette: I don't think I should answer a question that way. I think we have outlined today a framework that is very comprehensive.

The Chair: All right, maybe a more direct question to you: Are you prepared to look at cabotage?

Mr. David Collenette: Cabotage is something we have a great reluctance in accepting. I'll tell you the reason. We believe that cabotage works in many parts of the world—the European Community, for example. But Canada is a country of 30 million people, our population is widely dispersed, and we're up against the largest economy of the world, with a population nearly ten times greater than ours. If cabotage were permitted in this environment, we believe that any new carrier that may come of this process wouldn't stand a chance.

The Chair: Do you have an upper limit on the 10%? You want us to look at 10%. CN is 15%. Do you have an upper limit on the 10% rule? You say we want to look at the 10% rule, but CN has 15%. Do you have an upper limit, a ceiling?

Mr. David Collenette: We want to hear from members what they believe is an appropriate limit, if it should be changed.

The Chair: Maybe my colleagues have some other suggestions in their questions.

Colleagues, we'll start our second round with Mr. Dromisky, please.

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

I'll throw a couple of easy ones in the direction of the minister. This whole process began on an assumption that Canadian Airlines was going to soon be involved in a crash landing. We find ourselves here today involved with another assumption. The other assumption is that through this deliberation we're involved in, eventually we will end up with an acceptance of one of the proposals.

Mr. Minister, whether it be two or three or four proposals that come before this committee and before you, what if, because of the studies and analysis that is done by all the partners, all the agencies—the Canadian Transportation Agency, the Competition Bureau, this committee, and others—all the proposals are rejected? Do you have any kind of contingency plan there? And keep in mind that Canadian Airlines is ready to crash-land.

• 1640

Mr. David Collenette: Mr. Dromisky, I beg to differ. There is no Canadian airline company that is going to crash-land, because we have a very safe regime and they respect our safety regulations.

Voices: Hear, hear!

Mr. David Collenette: I really mean that. In fact, one of the concerns I've had in this whole process is the trying effect on employees of both Air Canada and Canadian. Knowing that many of them are concerned about their future, I want to say how well they are handling their duties. We shouldn't talk about anything of that nature because we have probably one of the best—if not the best—safety regimes in the world.

I don't want to be too coy here or too cute, but you're really asking me a hypothetical question—

Mr. Stan Dromisky: That's right.

Mr. David Collenette: —and I don't really believe I should go down that road. There are two proposals that are now apparently going to be considered by shareholders of these companies. Let's see what happens. Let's see if one of them is accepted.

Mr. Stan Dromisky: My second question is a simple one. I'll bring it down to the basics, to where the consumers live. Many of our documents we have in our offices from companies—and annual reports and hundreds of documents from government—are supersaturated with statements and concepts of assurances being given for whatever the heck it might be. But so often those assurances don't materialize and don't mean a thing in the long run.

You're giving us a lot of assurances and you're hoping that through this process the consumer is going to be assured that price gouging will not take place. However, if it so happens that a company is successful in getting to provide the service to the consumers of Canada and we find that predatory practices and price gouging are taking place even though that company guaranteed us there would be no price gouging, do we have any mechanism, any strategies whatsoever, to prevent them from carrying on with that practice?

Mr. David Collenette: Any conditions that we impose are going to be enshrined in law. If a carrier failed to discharge those commitments, the carrier would be breaking the law. When you break the law, there are penalties.

Mr. Stan Dromisky: That's quite clear: you're making it into a law. Thank you.

The Chair: Thanks, Mr. Dromisky.

Mr. Bailey, please.

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

Mr. Minister, I believe some terminology you used in your address to us is pointing our way to something that is reality, yet you're not saying it directly. We know there are two proposals out there. We know at this time that they are Onex and Air Canada, and we know that Canadian will be part of one or the other.

In your address, as I read it, you use the same word as was used this morning with the Canadian Transportation Agency, the word “dominant”. If you look at page 5 of your address, sir, you say, “In addition to reviewing this section, the government will require commitments on pricing from a dominant carrier...”. This morning we learned from the agency—and I'm assuming you have the same meaning—that means the one carrier that emerges out of this merger. Would I be correct in that?

Mr. David Collenette: Yes.

Mr. Roy Bailey: Having said that, the dominant carrier means the one major carrier and you're assuming that the existing short-line operators and so on in the aircraft industry are still there.

I'm interested in your next paragraph in which you say “service to small communities”. The reason I wanted to zero in on that, sir, is this: you say that the government is sensitive to the concern that services to smaller communities “may decrease or even disappear”. Now, for whoever takes over, Onex or Air Canada, my assumption is that everything they currently have will remain intact for a long period of time. I think there's a bit of a fear for those people who live in the regions of Canada and who have limited service now if you make a statement that services may decrease or even disappear.

Do you really mean that in the fullest context: decrease from the dominant carrier, no longer providing a service?

• 1645

Mr. David Collenette: What we're saying here is that we're sensitive to the concern that services to smaller communities may decrease or even disappear. We're sensitive to the concerns, and that is why, in the next paragraphs, we talk about reviewing sections of the Canada Transportation Act to improve requirements in dealing with exit provisions for these particular markets, to ensure that if carriers propose to exit a particular market, there are other carriers that come in behind them.

Mr. Roy Bailey: Yes. We went through that this morning, Mr. Minister. What I'm getting at, for instance, is this. Let's say as an example that Air Canada's merger wins. They have a route from Regina to Edmonton and they want to pull off that route because they figured that was a non-paying route for them from the very beginning. My understanding is that these routes stay in place with the merger until a period of time. Is that right?

Mr. David Collenette: The understanding is that these companies have committed to that in any restructuring.

Mr. Roy Bailey: And the 60 days applies to that?

Mr. David Collenette: Exactly.

Mr. Roy Bailey: Even though there would only be one carrier there now? If there are two carriers—

Mr. David Collenette: It would be the dominant carrier.

Mr. Roy Bailey: I think, Mr. Minister, without trying to give suggestions to you as a minister—I'm quite sure you're capable—there is a general fear out there that all of a sudden somebody who has limited service now would end up with nil, and I don't think that has been clarified for the public. That's my comment.

Thank you, Mr. Minister.

Mr. David Collenette: Perhaps either the deputy or Mr. Ranger would like to address this too. This is a rather detailed regulatory issue.

The Chair: Ms. Bloodworth.

Ms. Margaret Bloodworth (Deputy Minister of Transport, Transport Canada): Right now the exit provisions apply to the last carrier that leaves the market. What's being suggested is that this committee might want to look and see whether that is sufficient in a dominant carrier arrangement. For example, on Regina-Edmonton you might have the dominant carrier, assuming you have one, and maybe one small carrier that flies once in a while, so you may want to consider whether the exit provisions are sufficient.

I would venture to say that on Regina-Edmonton it's hard for me to imagine there not being a service, but on some of the smaller routes that may be more of a concern.

The Chair: Mr. St-Julien, please.

[Translation]

Mr. Guy St-Julien (Abitibi—Baie-James—Nunavik, Lib.): I am not surprised by Mr. Bailey's question and I would like to reassure him with respect to services to small communities in Canada's north. In Nunavik, in my riding, there are 36 airports. I am also not surprised, Mr. Minister, that you included services to small communities in your remarks.

I must admit, however, that the Onex proposal is a source of concern to the people at First Air, the third largest carrier in Canada, whose president is Bob Davis, as well as at the Makivik Corporation, an Inuit holding company whose president is Mr. Pita Aatami. He says that under the James Bay and Northern Quebec Agreement the federal government is legally and morally responsible for protecting the interests of Inuit that might be affected by a reorganization of the airline industry in Canada. I would like to hear your opinion on how the James Bay Agreement applies. I believe that we currently have very good service. First Air has served the North for 53 years. At the present time, it flies into some 26 airports and offers regular, scheduled flights. In order to implement the provisions of the James Bay Agreement, the government of Canada has invested millions of dollars, while First Air, Air Inuit and the Makivik Corporation are themselves investing some $36 million a year on aviation.

Mr. David Collenette: I won't make any comments on the James Bay Agreement. However, I would point out that on page 9 of the policy framework, we do deal with regional carriers.

• 1650

Mr. Ranger can add to my response.

Mr. Louis Ranger (Assistant Deputy Minister, Policy, Transport Canada): Here is what we are proposing. If a dominant carrier should emerge, we would obtain commitments from that carrier, at least in the middle term, and those commitments would then be included in an agreement that the carrier would promise to comply with.

As for your specific question, in the current system, carriers are free to enter or leave markets and do not have a role to play in the application of the James Bay Agreement, which you referred to. However, the communities in that region are served by a carrier that is already owned by the Inuit and they have control over it. They themselves decide what level of service they are going to provide to these small communities.

Mr. Guy St-Julien: I would like to make a comment on the gentleman's remarks. A letter from First Air that mentions Mr. Pita Aatami, president of the board of First Air and president of the Makivik Corporation, says the following:

    According to Mr. Aatami, this requirement stems from the federal government's signature of the James Bay and Northern Quebec Agreement, which enjoys additional guarantees under the terms of section 35 of the Constitution Act. In conclusion, Mr. Aatami makes it clear that the Makivik Corporation does not want heritage funding invested in the aviation industry to be threatened because it was decided that the southern market cannot support two carriers.

In the final analysis, they are protected. Mr. Collenette, I'm very pleased that you mentioned the small communities. I'm also pleased with the work that you have done on the Kuujjuaq airport for the Inuit, but despite those efforts they are worried because here you mention sections 64 and 65. You mention the last section and the second last. They have been there for 53 years, and they do not want to leave. They want to stay.

Mr. David Collenette: You've raised a good point, Mr. St-Julien, but we will not look at all the details, particularly the proposed services to remote communities, for example communities in your own riding, until we have received a conditional agreement. It is difficult for me to provide a detailed response at this time, because we do not have an agreement yet.

Mr. Guy St-Julien: I have passed on the message to you.

Mr. David Collenette: I accept it.

Mr. Guy St-Julien: I am very pleased with the work you have done regarding the small communities. Thank you very much.

[English]

The Chair: Thanks, Mr. St-Julien.

Mr. Asselin, please.

[Translation]

Mr. Gérard Asselin (Charlevoix, BQ): Mr. Collenette, you said in your conclusion, and I quote:

    ... whatever shape federal legislation and action takes, reduction to the safety of our aviation system will not be tolerated. Safety remains Transport's Canada's top priority and we will not allow Canada's enviable safety record to be compromised.

Mr. Collenette, in Québécois we would say that that is de la bouillie pour les chats, that's nonsense. The French would say that a minister has to have a lot of nerve to say such a thing. Mr. Collenette, I am referring to the plane crashes that have occurred regional airports in the past year. You know that the regional airports that you are getting ready to transfer to the regional municipalities or to private companies are already running deficits, even though NAV CAN has dusted off the facilities a bit and done away with the air traffic controllers and the fire fighters. NAV CAN has managed to become somewhat profitable, but the passengers are the ones who have lost out.

Mr. Collenette, how can you have such trust in your department? I wonder. Is the Transportation Safety Board telling you what's going on? Are you asking NAV CAN questions? Are you asking your own officials questions? Do you know what's going on in the regions? Do you realize that an Air Satellite plane crashed on December 7th last year? People drowned because the emergency personnel took too long to get there. It was a six-year-old girl who found the plane in the water. In Sept-Îles, a Nordair plane crashed upon landing. A woman and a child had to walk at least one kilometre through the woods to get help on the highway because no one was able to reach the airline. In Gaspé, a plane owned by Myrand crashed not so long ago. So three planes have crashed on the North Shore in the Gaspé region. A six-year-old girl found the Air Satellite plane, a woman and a child had to walk for kilometres in the middle of the woods to get help, and a plane owned by the Myrand company crashed in the Gaspé region.

• 1655

Your remarks worry me, because you say that safety will never be compromised and that it is your first and only concern.

Mr. Collenette, how can you explain these accidents that have occurred in the regions in the past year?

Mr. David Collenette: Mr. Chairman, the member has raised a good point. It's not exactly the issue that we are supposed to be considering this afternoon, but I must say that our aviation system is one of the safest in the world. When an accident occurs, the Transportation Safety Board conducts an investigation. We accept all the recommendations, because we are the ones who are responsible for safety. If there are problems we try to solve them.

I must point out that in the past few years, there have been a great deal more flights than there were in the past, particularly small aircraft flying to remote communities. The changes we have made to our safety system are not the cause of the accidents. If the Board identifies a problem, we will change the procedures or the regulations.

[English]

The Chair: Thank you, Mr. Asselin.

Mr. Sekora, please.

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

One thing was mentioned across the way there that I want to comment on. Someone said it was the opposition that brought back the subject of the airlines to be discussed in this committee. I'm sorry; it was the whole committee that voted on five different items, and of the three top items, one was the airlines. It was a majority vote. So I'd like to put the record straight.

I'd like to ask the minister one thing, and I don't know whether he can answer this or not. We have Canadian Airlines in financial difficulty, but I hear Air Canada would be also if they had not sold all their assets some years ago to make themselves financially viable.

Do you know anything about that, Mr. Minister?

Mr. David Collenette: It's not for me to comment on these airlines and their financial statements. I believe their officials will be coming here, and you can ask them questions.

It's true that in general the aviation sector, in particular the two principal companies in the country, haven't matched the kinds of financial results we have seen in other jurisdictions. People know about Canadian Airlines, but if one looks at the performance of Air Canada over the last ten years, as I said in my statement in August, there are issues that have to be dealt with in that performance.

It's with this in mind that we have embarked upon this process, but on the specifics, you should address those questions to the presidents of those organizations.

Mr. Lou Sekora: Also, you hear about 5,000 job losses with one, 2,500 with the other. All of this is just wallpaper to me. When you take a look, the fact is that each airline, or at least one of them, will have at least 80 pilots retiring on a yearly basis. If it happens with both of them, it doesn't take much of a genius to come up with 2,500 or 5,000, with the attendants and everybody else, by the attrition alone, never mind anything else. Do you have any comments on that?

Mr. David Collenette: You're leading me into dangerous ground to comment on proposals that aren't before us. When a proposal comes, we'll look at these issues.

Mr. Lou Sekora: Thank you, Mr. Chair.

The Chair: Thanks, Mr. Sekora.

Ms. Desjarlais, please.

• 1700

Ms. Bev Desjarlais: Actually, to have me follow Mr. Sekora is just like leaving a wonderful plate of turkey there.

In regard to the regulations on the 10% ownership, right now, because it falls under the Air Canada Public Participation Act, any changes to that must take place through Parliament. Is that correct?

Mr. David Collenette: The Air Canada Public Participation Act is a law of Canada, and to change it you would have to vote one way or the other.

Ms. Bev Desjarlais: That's right, to change the 10% rule. However, the 25% foreign ownership rule can be changed without going to Parliament, is that not correct?

Mr. David Collenette: Yes, the current law allows us to go up to 49%. It's now at 25%, and the cabinet can do this with an Order in Council. But I am saying this afternoon that we have no intention of doing that.

Ms. Bev Desjarlais: But really, in all essence, the only way we could truly assure Canadians that we won't end up with, say, 49% foreign ownership is to ensure that we maintain a 10% ownership within the Air Canada act.

Mr. David Collenette: Again, I'm not going to get into the intricacies of this debate, but—

Ms. Bev Desjarlais: No, I am just asking: right now, is that the only thing that assures Canadians that it won't go up to 49%?

Mr. David Collenette: No. The 25% is the one that ensures, from a financial point of view, the control. Also—

Ms. Bev Desjarlais: But it can be changed at the will of cabinet.

Mr. David Collenette: I'll let the deputy answer this one. It'll give me a break.

Ms. Margaret Bloodworth: Yes, the 25% can be changed, Ms. Desjarlais, but not the legislative requirement that Canadian carriers must be Canadian. In fact it is a legislative requirement. Even if the cabinet were to change it to 49%, for example, the agency would still have to decide, if something was owned 49% by foreigners, whether it was controlled in fact by Canadians. And it might indeed not meet that test, because the legislative test would prevail.

Mr. David Collenette: This is particularly germane to the questioning right now regarding American Airlines and Canadian, where 25% of the voting shares are held by American Airlines, but 33% of the equity. If more capital were to be put in by American Airlines—this is hypothetical—then the agency would have to be assured that this did not make Canadian Airlines, as presently constituted, not controlled in fact by Canadians.

Ms. Bev Desjarlais: Okay. Should the 10% ownership also get changed and allow a Canadian to have 30% or 31% ownership, you indicated that that wouldn't leave us open under NAFTA. But is it not true that when Canada signed NAFTA there was sort of a bound reservation signed indicating that should Canada change the rules, if they made them more liberal and allowed more foreign ownership, that would be okay, but they could not restrict foreign ownership to less than what Canadians would own?

Mr. David Collenette: The opinion we have is that if this were raised, it would not have any impact on our NAFTA obligations.

Ms. Margaret Bloodworth: The 25% is also a reservation under NAFTA. Maybe that helps.

Ms. Bev Desjarlais: I recognize that, but I am just saying it was in place at that time, and should there be changes on the 10% that would allow a Canadian to have, say, 30% or 31%, it also opens the door to foreign investors.

The Chair: Ms. Bloodworth.

Ms. Margaret Bloodworth: That's not in accord with what we have been advised by the trade experts.

The Chair: Thank you, Ms. Desjarlais.

Monsieur Drouin, please.

[Translation]

Mr. Claude Drouin (Beauce, Lib.): Thank you, Mr. Chairman. Mr. Collenette, Ms. Bloodworth, Mr. Ranger, I must tell you that I am very grateful for this opportunity to hear about your policy framework for restructuring the airline industry in Canada and to see that safety is still one of your priorities. As someone was saying earlier, unfortunately a number of accidents have occurred. An accident involving loss of life is always one accident too many, but you always make sure that an investigation is conducted and that safety remains a priority. I was also reassured when you said that you would maintain service in the regions as well as service in both official languages, exercise control over prices and ensure Canadian ownership and control. I'm very pleased to hear that.

• 1705

I am wondering what the employees' fate will be. You have met with the union representatives, who told you of their fears regarding the possibility of a merger. You said that the government would insist that the employees be treated fairly. Could you explain what mechanisms or tools we have to ensure that the employees are protected in the event of some kind of merger or takeover.

Thank you, Mr. Chairman.

Mr. David Collenette: In the policy framework, we deal with the issue of the employees' rights. I have already indicated that we were willing to ask for commitments from the companies before accepting their proposal. As you know, there are no absolute guarantees. I am focussing more on ensuring that the employees are treated fairly and with dignity. As the regime we announced today stipulates, it is possible to ask for commitments from the companies during the transition period.

Mr. Claude Drouin: Major layoffs could threaten safety, which you have said is your priority. I believe that this concern for safety would justify an intervention on your part. That's a very important element that also reassures us, Mr. Collenette.

Thank you, Mr. Chairman.

Mr. Louis Ranger: I believe that goes without saying. When the Minister says that safety will not be compromised, that means that the staff levels needed to ensure safety will have to be there.

[English]

The Chair: Thank you, Monsieur Drouin.

Mr. Casey, please.

Mr. Bill Casey: Thank you.

The Air Canada proposal has a statement in it that says that Air Canada is poised to proceed with their proposal “if the Government of Canada has determined it will abandon its dual airline policy”. Does the Government of Canada have a dual airline policy?

Mr. David Collenette: Mr. Chair, in the last ten years there has generally been an acceptance that Canada has had two national carriers, and government policy and regulations have supported that regime. It's quite obvious from what we have been discussing in the last couple of months that we are moving now to a dominant carrier. That means there is not a two airline policy in the context of national dominant carriers. But every time I talk about this we get phone calls or reminders from Royal, Air Transat, Canada 3000, Skyservice, and all the other smaller carriers that they are doing fine and that there are more than two carriers in the country.

So this was perhaps a misnomer of a situation that developed in the last ten years. I don't think we should really dwell on the so-called two national airline policy. The fact is that the number two carrier is experiencing some difficulties, which is helping to precipitate this process.

Mr. Bill Casey: So we are trending toward a one dominant airline policy for Canada?

Mr. David Collenette: That's what this whole exercise is about, Mr. Chair, and this whole document is to say to Canadians, if that's the direction we're going in—and it looks very much as if we are—then we had better make sure there's competition, that there's protection on prices, protection on service to communities, that the Canadian control issue is dealt with, that the public interest is looked after.

In Mr. von Finckenstein's report, he talks about ways that we can encourage competition and other airlines to develop. I mentioned four of the larger charter carriers, which perhaps will be willing to step into the fray and expand and provide additional service, so that we won't have just one national carrier everywhere, so that there will be competition. There's WestJet. I forgot about WestJet; it's very important. I'm sorry about that. I was thinking of the charter carriers, whereas WestJet has been very successful, as we know, in the last year in developing a low-cost carrier network in western Canada that is profitable.

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Mr. Bill Casey: Do you have a policy on regional airlines? Both programs, as far as I can tell, include consuming all of the regional airlines into this one dominant carrier. Does the government have a policy on regional airlines? Would you rather see them divested? I think you mentioned that at one point. Is it a problem that they are included in the entire dominant airline consortium?

Mr. David Collenette: We'll have to see what kind of agreement comes forward, and we'll have to see what the Bureau of Competition feels on an issue and what makes sense from a public policy point of view. We do address this on page 8 of the document.

Mr. Bill Casey: On regional airports, we had a representative from the Air Transport Association of Canada here last week, and he indicated that he felt the number one issue facing aviation was the unviability of regional airports, as I mentioned on Moncton. He said there are probably 10 or 15 airports in Canada that are not viable. In discussions with the Onex group, they indicated that revenues to airports would decrease under any merger, either theirs or the other proposal.

Again I come back to that regional airport issue, which is really important. The FAA in the U.S. has ways of subsidizing airports, either directly to the airport or to the carrier. To ensure your principle of regional airport service, you have to have airports. Is the government absolutely committed to those regional airports, no matter what?

Mr. David Collenette: We have a national airports policy that's doing quite well. The divestiture of most of these airports, their transfer to local authorities, is proceeding.

More specifically, on page 4 we talk about airport authorities and Nav Canada. It's recognized in our conversations with the big airports and the smaller ones across the country and with Nav Canada that in the short term there would be a reduction of revenues, but they believe a healthier dominant carrier would provide more services and more opportunities, certainly on the international front.

Quite frankly, if there is a rationalization and we go to one dominant carrier giving greater flexibility, I think there are going to be incredible opportunities on the international scene, but also within Canada. The airport authorities believe this should be the case, and therefore those revenue shortfalls would be quickly made up.

The Chair: Thank you, Mr. Casey.

Mr. Calder, please.

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

Thank you for coming, Minister. This has been very interesting.

I have two questions. Basically I have just pulled them out of your backgrounder here. You asked the committee to consider increasing the 10%. Obviously there must be some sort of benefit or advantage to doing that. I wonder if you could expand on just exactly what that is. Or why would you even make that request?

Mr. David Collenette: We feel that to be fair in this process, we should do all we can to encourage an environment wherein proposals come forward. The specific question you asked is one you need to ask yourselves after hearing various witnesses. Should we raise the limit? Is it in the public interest? And if we do raise the limit, by how much?

Mr. Murray Calder: I'm curious. I could be wrong—I've been wrong before—but it appears to me that one of the bids for this merger seems to be dependent on whether or not that 10% is there.

Mr. David Collenette: Yes, that's true; we admit that. But the point is if we were to come here today and say we were not prepared to consider raising the 10%, we would be implicating ourselves in the market decision we said we wouldn't implicate ourselves in. We would say only one proposal could go forward to Air Canada shareholders.

What we're saying in fairness is that to allow shareholders to decide, they have to know that both proposals should be there to be voted on without any encumbrances. That is the reason we're saying we are prepared to consider raising the limit. The question is, by how much?

• 1715

Mr. Murray Calder: Okay. I'll switch gears here then.

I hate talking hypothetically, but a question that's been asked to me many times is about the cost of flying if in fact we do come out with one major carrier, which seems to be the way we're going. In that situation, within the Competition Act, we'd make sure that if the airlines were going to increase the price of a ticket unreasonably, something was in place that would stop that.

But say, for instance, it was done this way. Say instead of increasing fares, you went the other way and decreased discount fares. As I see it, you could do that in one of two ways. You would be in the position to either buy out the discount carriers or control the time slots at the airport.

Pearson is a beautiful example of this, because their slots are already full. That could even be the reason Air Canada in their proposal has said they would be considering a regional out of the Mount Hope airport.

What would we do as a government to stop that scenario? Would section 66 address it?

Mr. David Collenette: My belief is that section 66 addresses the first part of your question, and I'll ask the deputy to talk about that.

On the issue of slots, you're absolutely right. We have to make sure slots are available for new entrants. Toronto is the only one where we have a slot-coordinating regime in place, because it is so full, but we could have similar problems in the peak periods at Dorval and in Vancouver, and we have to make sure those slots are available for new entrants. It's no good for WestJet, for example, or Canada 3000, if they want to give more scheduled trips, to fly at off-peak times. They want the prime rush-hour times in the big airports, from 6 to 8 o'clock in the morning and from 4 to 6 o'clock at night. So we have to make sure those slots are available.

In the same way, we have to deal with slot issues where it is congested abroad, such as London Heathrow or Chicago.

Perhaps the deputy would like to say something.

Ms. Margaret Bloodworth: On the slots, I know there's more in the commissioner's report as well. It clearly is a competitive issue, and he is certainly recommending that something be done on that. It could involve conditions on a transfer or a merger, or it could involve continuing regulation of the slot access. But clearly that's an issue of competition.

On the prices issue, right now section 66 of the Canada Transportation Act only allows the Canadian Transportation Agency to control basic fares on monopoly routes upon complaint. So the question is whether that is sufficient in a regime of a dominant carrier. That's one of the issues that's been put in this document before this committee, because clearly that is a question to consider in a dominant-carrier regime.

Mr. Murray Calder: Thank you.

The Chair: Thanks, Mr. Calder.

Ms. Meredith, please.

Ms. Val Meredith: Thank you, Mr. Chair. I'd like to make a statement, and then I'm going to move on to the competitiveness.

If the government is intent on moving through the marketplace... Perhaps one could justify a 10% control of shares of stock in the transition from a government airline to a privately owned airline, but if you're into a market system, it's very hard to defend the government controlling the ownership of an airline, other than foreign ownership.

In a competitive environment... We heard this morning from the agency that it's very hard for them to identify pricing as predatory, other than where there is a monopoly route, meaning there's only one airline going on the route. You mentioned in your submission that you might expand that to where it's not a monopoly route. To me, that isn't going to control predatory pricing.

You haven't explained here. You've said “some measures” or “some effective measures”, and you haven't given me any indication of what those measures will be, who is going to enforce them, or what the penalty would be to a company—any company—that didn't follow the regulations.

• 1720

My concern is with companies such as WestJet, which are showing they are able to manage in the market as it is now. If there is predatory pricing, and if the dominant carrier decided to put them out of business, they could do so, perhaps without anybody stopping it.

Could you try to address that issue for me?

Mr. David Collenette: Well, I'll have a go at it.

You've outlined a very important concern. I know the commissioner of competition feels he needs more legislative authority to deal with predatory pricing. We may be able to address that through this process. So you're absolutely right.

The deputy may have a word on this.

Ms. Margaret Bloodworth: There are two issues, really—you've identified them quite correctly—on the issue of pricing where you have a dominant carrier. There is the question of prices being too high because the dominant carrier, if it has the only service, doesn't have much competition so can raise the prices. That's what section 66 addresses.

There's also the question of predatory pricing, which is prices being temporarily too low, being used to drive somebody out of the market. The commissioner of competition clearly identified that issue and made some specific recommendations. There has been no decision as to specifically the measures, so you may want to look at what the commissioner of competition has suggested and whether others may have some suggestions as well.

But there's no question in our minds: there will have to be some measures to deter predatory pricing.

Ms. Val Meredith: Thank you.

The Chair: Thank you, Ms. Meredith.

Colleagues, the minister can stay with us for only about another 15 minutes, because he also has to appear before the Senate committee on transport and communications.

Now, that's still gives us time, but we have four people on the list. If we can help each other out by being succinct, it would be helpful.

Mr. Comuzzi, please.

Mr. Joe Comuzzi: When we last spoke, Minister, we were talking about how we got here, and section 47. My position was that perhaps Canadian or Onex provided improper information on which you based a decision. If that is the case, then perhaps that section should be revoked and we should go back to...

I think it's common knowledge that if you are given improper information, anything that happens as a result of that information is null and void.

I'm just reading—

Mr. David Collenette: Mr. Chairman, we have no reason to believe the information we had, and have, was invalid. Therefore, we have no reason to believe the decision we made was not the right decision back on August 13. So I would challenge Mr. Comuzzi's assertion up front.

Mr. Joe Comuzzi: I don't blame you, but maybe you are privy to information that we don't have, Mr. Minister. We can only go with the information we have.

Mr. David Collenette: When the airlines come here, Mr. Comuzzi, I hope they will be forthcoming and give you the kind of information that will give you the assurances you need.

Mr. Joe Comuzzi: But I can only go from the information that comes out of the court records. As you know, both sides issue and the judge finally determines, as the finder of fact.

I'll read you just a couple of points that cause me concern:

    Canadian Airlines has apparently been in discussions with Onex since early this year about the possibility of...making an investment in Canadian. ... In May, however, Canadian and Onex began considering a basis upon which a merger of Canadian and Air Canada might be accomplished. Because of the significant interest of American Airlines in Canadian...it, too, became involved. Air Canada was not apprised of the discussions.

And note 1 below says: “The interest is held by AMR Corporation...a Delaware corporation which is the parent of American Airlines, a major U.S. airline”, and quite significant in its financial holdings.

Paragraph 8 says:

    The materials indicate that at some point... On August 11, Onex's management advised its Board of Directors of the following, under the heading “Regulatory Considerations”:

      Prior to launching the bid, Onex will seek assurances from Ottawa that...would be acceptable to the Canadian government and regulators. Specifically, we will seek assurances that the government will support the combination...by invoking section 47 of the Canada Transportation Act.

• 1725

This really flies in the face of the evidence we've been given that our government has stayed away from the...

What did Mr. Keyes call it—two lizards fighting in a bottle?

The Chair: Two scorpions in a bottle.

Mr. Joe Comuzzi: Yes, scorpions.

To continue:

    Such an order, which must be issued by cabinet on the recommendation of the Minister of Transport and Minister of Industry, would provide that the merger...could proceed without a merger review from the Competition Bureau in Canada and would be based solely on approval of the two existing airlines...based on national policy considerations.

The Chair: Two minutes left, Joe.

Mr. Joe Comuzzi: Yes.

    ...Onex would require clear indications of support from the government prior to proceeding with the transaction.

This is all happening on August 11. On August 13, we approved section 47.

I still am in some doubt as to whether you were misled, but I'll ask the airlines about that fact.

Mr. David Collenette: Well, I think you should ask not only the airlines but also Onex these questions. I can tell you, Mr. Comuzzi, the first contact my department had with Onex was the day before Mr. Schwartz made his proposal public, when officials came in and gave us notice, out of courtesy, of the pending proposal. However, it is true that Canadian Airlines first indicated an interest on the part of Onex on June 25. I alluded to that earlier.

In terms of any of the discussions with Onex, the first contact was made the day before the proposal was made by Mr. Schwartz. That was a matter of courtesy, the same way the airlines do it.

Certainly, Mr. Comuzzi, no commitments were sought for from Onex or given by the government on this measure. I really think you should address your questions to Onex when they come before the committee.

The Chair: Thanks, Mr. Comuzzi.

Mr. Guimond, please.

[Translation]

Mr. Michel Guimond: Mr. Collenette, I would like to begin by making a comment on the role of a parliamentary committee, and then I will ask a question about the 10% rule.

Mr. Collenette, with all due respect, everyone knows that you have been a member of Parliament since 1973. You have seen many committees in your day, both when you were in power and when you were in opposition. A few moments ago, there were 13 Liberal members at the table and seven opposition members. You are not the David Copperfield of Canadian politics and even though you and he share the same first name, you mustn't try to pull the wool over our eyes. Don't even suggest that the committee will decide. We know how it works. When the time comes to vote on the 10% rule, the Liberal members of the committee will vote for the course of action that has been suggested to them. That's my comment. You mustn't think that the people are so...

According to the terms of its current offer, Onex would have 31% of Air Canada's stock. If Air Canada shareholders were to accept the offer on November 8, and if the Transportation Committee recommended that these holdings be kept down to 10%, what would happen to the Onex offer? Would it be withdrawn? Would it be illegal? Would we go back to square one? What would happen?

Mr. David Collenette: Your last question is hypothetical at this point, Mr. Guimond. That is a decision for Air Canada shareholders to make on November 8. Once that decision is made, we will respond. However, we will respond only after receiving this committee's advice; the committee's role is to advise us. I never said that this committee would determine the policy. A committee's role is to examine opinions and perspectives, hold discussions, and formulate recommendations. You are becoming a little plaintive here. I apologize if there are only five opposition members, but that does reflect the results of the last elections. That is the will of the Canadian people.

Mr. Michel Guimond: We are not all here.

Some Hon. Members: Oh, oh!

[English]

The Chair: Mr. Guimond, you have another couple of minutes—or are you finished?

Just for the record, Mr. Guimond might be down on the process, but according to my records he hasn't skipped a single meeting this committee has had on this issue.

Thank you for being here and for all the work you are putting in.

Mr. Hubbard.

• 1730

Mr. Charles Hubbard (Miramichi, Lib.): Thanks, Mr. Chairman. It's hard to follow Mr. Guimond.

Mr. Minister, it's certainly reassuring here on page 5, where you speak about the need to maintain an air industry across Canada, because we have a big country, and in certain airports and certain areas it's a very important part of their economy to have the service. With that, we have to have some reassurance that we are going to be looked after in the future.

I want to just mention, in terms of my own travel to Ottawa over the last six years, that the price of my ticket has almost doubled in six years. We've seen over the past period of time an increase in passenger traffic. If we look at the numbers of people travelling across Canada in the last couple of years, it's increased since the early 1990s.

Now, we look at two major carriers. One is almost, using an old boxing terminology, on the ropes, and the other is travelling around the ring pretty fast trying not to be knocked down. I just wonder, in terms of our air industry, in terms of the service they're providing, and looking at the fact that transportation in most countries is subsidized quite heavily, is there money in this enterprise for any one company to be able to survive, providing the kind of service that we have in Canada today? Has that been a concern of the department, that really we're looking at an impossibility?

We might say that the two companies are too competitive, that they have not the best managements, that they've made poor planning decisions. A lot of those factors probably are part of the process of why they're not making money. But the question we have to ask as Canadians and as members of Parliament is whether there is money in the industry to be made with the type of service we're trying to render to Canadians, or is there a need in the long run to look at other ways of providing this service to our regions and to our areas of Canada?

Your comments, Mr. Minister.

Mr. David Collenette: On the last point, Mr. Chair, companies like WestJet already make money. We've had examples in the past of where airlines make money. FirstAir, in northern Quebec, does a very good job. It's owned by the first nations. They make money. Yes, money can be made. I assume that you'll be exploring this with the representatives of the airline companies.

On the issue of fares, I feel the same way, but as MPs we travel generally on full fare between our respective constituencies because we need the flexibility and we pay for the flexibility. The business traveller has to pay for the flexibility, but 90% of all travellers in Canada fly on discounted fares. While it is a bit stiff to think that you might have to pay $500 or $600 or whatever it costs you to get home every week, for people who have the ability to vary their times and to seek the best fares, they can have advanced bookings and get fares considerably cheaper.

Again, this is an issue you might want to address to the air carriers and to Onex when they come as to how they see the whole issue of fares in any new world. We have dealt with the fare issue in earlier responses. The deputy minister has dealt with it.

On the service to rural communities, on page 5 we do talk about requiring commitments to service small communities from the dominant carrier in any restructuring deal that is approved. Of course that would have the sanction of law, so we will have a means to enforce that kind of commitment.

Mr. Charles Hubbard: Allow me, Mr. Chairman, to make one final comment.

The word “restructuring” is in terms of the companies, but in terms of the corporations in this country that have restructured, there are about five ways in which they restructure. Most of them have great dangers in terms of what happens to the people who are using that service or buying that service. I hope, Mr. Minister, that when we restructure here, it won't hurt some of those five groups that are often affected by the word “restructuring”.

Thank you, Mr. Chairman.

The Chair: Thank you, Mr. Hubbard. You make a very good point.

Minister, you've talked about fairness in the process and you've talked about creating an environment to move forward. This is all noble, and we're working together to try to make that happen. I'm not an economist and I'm not an expert on these matters, but the thing that frightens me about everything is if, for example, today at the stage where we're trying to build something, and we have the private sector out there coming forward with their proposals to the shareholders, and for example you've already got, as we read in the paper today, Air Canada's position of refusing to divulge any details on the side agreements it strikes with Cara Foods or with Star Alliance, etc., there's already that mentality out there that says we've got to win because we've got to make money at the end of the day, and that's the way it is.

• 1735

So to ensure that we're doing the right thing here, so that mentality doesn't carry over one year or a year and a half from now, where they say that's a handy-dandy regional service to that particular community, but quite frankly we can't afford it any more... You can't draw blood out of a stone, so we're pulling out of that—exit policy or no exit policy, we're out of there. Are you prepared to regulate and legislate to make sure that type of thing doesn't happen?

Mr. David Collenette: We talk about this, Mr. Keyes, in the document: requiring commitments on a number of fronts from any dominant carrier in a new regime and ensuring that those commitments are met through statute. So the short answer is yes, we intend to enforce these commitments that are being made. Frankly, the new carrier, whatever it is or however it's constituted or owned, is going to have to go into this with eyes wide open and sharpen their pencils once the proposition gets to the government's desks, because we'll be asking tough questions and we'll be trying to protect the public interest in the ways we've outlined in the document.

The Chair: And in protecting the public interest, whatever it is you do, regulate, legislate, etc., will this cost the Canadian taxpayer a single dollar at the end of the day?

Mr. David Collenette: How do you mean? Do you mean by staff resources and—

The Chair: For example, we're going to regulate or legislate to make sure that particular airline is making commitments to go to that particular remote community, and they can't afford to go any more but we're going to insist they do. Are we going to back that up with a commitment to that particular airline, or are we just going to force them to fly there somehow? I'm not clear.

Mr. David Collenette: You're talking about us getting into the world of subsidies, and we're not going to do that.

The Chair: That's all I needed to hear.

Mr. David Collenette: We don't want to bail out any of these companies. We don't want to subsidize them. We want to create the right environment so they can make money and discharge their service obligations within the public interest.

The Chair: Thank you, Minister.

Thank you, Mr. Ranger and Ms. Bloodworth, for appearing before our committee with your presentations.

Colleagues, thank you very much.

Colleagues, just a word of note: tomorrow our meeting is at 3:30 until 5 o'clock with the Competition Bureau. We moved them up to appear before the airlines do so that we have a clear picture of where they're coming from. Then at 5 o'clock, immediately following the Competition Bureau, until 7 o'clock, Air Canada will appear before us. Both are right in this room, 253-D.

Colleagues, thank you very much. We're adjourned until tomorrow.