TRGO Committee Meeting

STANDING COMMITTEE ON TRANSPORT AND GOVERNMENT OPERATIONS

LE COMITÉ PERMANENT DES TRANSPORTS ET DES OPÉRATIONS GOUVERNEMENTALES

EVIDENCE

[Recorded by Electronic Apparatus]

Monday, November 5, 2001

• 1902

[English]

The Chair (Mr. Ovid Jackson (Bruce—Grey—Owen Sound, Lib.)): Good evening, ladies and gentlemen. I'd like to call the meeting to order.

We're here to discuss Bill C-38, an act to amend the Air Canada Public Participation Act, and tonight with us we have the Minister of Transport, the Honourable David Collenette; Louis Ranger, Assistant Deputy Minister of Transport; Valerie Dufour, director general of policy; and Jacques Pigeon, the general counsel. Welcome.

Minister, you know the routine.

Hon. David Collenette (Minister of Transport): Does that mean I can begin, Mr. Chairman?

The Chair: Yes.

[Translation]

Mr. David Collenette: Thank you, Mr. Chairman.

I appreciate the fact that you have been able to consider Bill C-38 so quickly. For the benefit of those watching our proceedings, all parties spoke to the bill in the House just last Wednesday and following that debate, it was referred to committee.

[English]

In presenting this proposed legislation for your consideration, I'd like to go over some of the points I made in debate on October 31. Some of the factors that have affected Air Canada's performance since early 2000 include, as you know, high fuel prices, the declining economy, and the tragic events of September 11. There seems to be an emerging consensus that we need to amend the Air Canada Public Participation Act to eliminate the 15% limit on ownership of voting shares in Air Canada by any one person.

We're not going to pull the wool over anyone's eyes. This bill doesn't try to resolve all the long-term issues relating to Air Canada that were raised during debate on second reading. I hope this evening we can focus specifically on the narrow issues of the amendment to the Air Canada Public Participation Act in Bill C-38. I believe it's a bill that is in the interests of airline passengers and all those who believe our national air carrier, the world's 11th largest airline, should continue to be the great carrier it is.

Investors who wanted a say in the direction of the company have been constrained since the company was privatized by the restriction of voting shares in the legislation. No other carrier in Canada has the same restrictions. In removing the 15% limit, we're taking action that ensures that there can be an infusion of new equity into Air Canada.

• 1905

You will remember, Mr. Chair, that in the restructuring of the airlines that started in the fall of 1999, the management of Air Canada believed the 10% limit, as it was at the time, should not be changed. In that context they felt the rules should be well established in advance, and certainly, after the acquisition of Canadian Airlines, we agreed with the management of Air Canada that there should be a period of stability for a couple of years. I talked about two years to assess the affects of the merger.

We've been fully engaged since September 11 with all the major airlines to ascertain their financial health. They've been adversely affected, as have airlines around the world. Up until September 11, Mr. Chairman, the policy of the government, the policy of Parliament, as endorsed in Bill C-26.... And I see Ms. Meredith here, Ms. Desjarlais, who were part of that debate back in June of 2000; Mr. Keyes was the chair of the committee. All of them will remember that the focus of Bill C-26 was to enshrine the Air Canada takeover of Canadian in law, and also to enshrine conditions we negotiated with Air Canada for the protection of jobs. There were to be no involuntary layoffs before March of 2002 and no termination of service to small communities that Canadian Airlines and Air Canada served at that time until December 31, 2002.

Those two conditions, Mr. Chairman, I have to remind you, didn't come out of thin air. They were conditions that were the concern of the members around this committee and in the House, but more important, they were conditions that came from Air Canada itself during the contest, or disagreement, or whatever you want to call it, the battle they had with Onex. They said, should their proposal for restructuring Air Canada and the takeover of Canadian Airlines go through, they would agree to no involuntary layoffs, they would agree to retain service to small communities.

When they went ahead with the merger after Onex withdrew, to their credit, while they could have said no, no, that's it, we're walking away, they went ahead with it. We said, we want those commitments in law. There's a lot of revisionist thinking out there in some newspapers you read as to who made who do what. The government and Parliament didn't make Air Canada buy Canadian Airlines. The board of directors of Air Canada took over Canadian aa a business decision. It was in their business interest, and politically speaking, I think it was probably the best scenario at the time. It minimized disruption and it preserved jobs, especially jobs in western Canada from Canadian Airlines.

In that law there were changes to the Competition Act, which, as you know, helped to foster competition, and powers were given to the commissioner, which he had asked for, on decease and desist orders in certain circumstances, which he used, which were the subject of debate at the Competition Tribunal. And competition was developing. On September 10 Canada 3000, because of their acquisition of Royal and CanJet, had the biggest booking day in their history. WestJet has continually expanded and been profitable. Air Canada's market share fell from about 82% at the time of the merger in December 1999 to around 65% on September 10. Then September 11 happened, and it totally changed the dynamic. We're having to deal with that fallout—and when I say we, it's all of us, it's Parliament, it's the country, it's the companies concerned.

• 1910

On October 2, as a result of what happened on September 11, we announced $160 million in direct compensation to the affected airlines, and it compensated them for the closure of airspace in the six days following the September 11 tragedy. We know there are going to be continuing impacts on the viability of the airline industry due to continuing reductions in traffic, and we're acutely aware of the impact of the crisis on the air industry workers and their families. Canada's not alone. We know what's happening in the United States. We heard today of reductions at British Airways. We've seen the teetering of Swiss Air and Sabina. This is a problem that is affecting most of the world's airlines and most of the aviation industry.

The government will continue to work with the industry to deal with the challenges. As you know, we announced a whole range of security changes to help restore confidence in airline travel. Those initiatives are quite costly, and they're going to become even more costly. We are discussing ways in cabinet right now to pay for those additional expenditures. Some people are arguing that the airlines should pick up the cost. The airlines, as we know, are having an incredibly difficult time, so they say the government should pick it up. Others say there should be a user charge. At some point I'd like the ideas of the committee on this, but we're grappling with all these particular issues. But the $91 million we announced for beefing up security, including $55.7 million for the purchase of advanced explosive detection systems and related state-of-the-art electronic security capabilities, such as CAT scan, advanced technology X-rays, all of that, to deal with every conceivable threat that might be in baggage and on a person, all those expenditures are going to be very costly, and we're having to see how they can be financed.

We're spending more to deploy more inspectors across the country. We have been lucky to have former Transport Canada employees, employees from other government agencies, come out of retirement who have the technical background, know-how, and experience to help us. We hope to have additional permanent resources for the department to oversee security. We are trying to do a very quick analysis of advanced and evolving security practices and technologies for airport security operations, loosely called biometrics, with all the new kinds of scanning technology, the iris, thumb print, and that type of thing. All these initiatives have to be explored, and they all have to be paid for.

We've had the issue, of course, with the liquidity problems at Canada 3000, an airline with 41 aircraft, serving 69 destinations in Canada, offering the only full-service alternative to Air Canada in many cities, having cashflow problems as a result of September 11, and being in an invidious position, in the sense that a lot of their revenues were already prepaid, charters for the sun destinations this winter, moneys that could not be used under provincial and federal regulations to protect consumers. So they didn't have the advantage of the cashflow you would normally get in a business when people make bookings. So we agreed that there would be a loan guarantee for them for $75 million as bridge financing, in effect, and we said that would be available for the other top-tier carriers, covering 95% of the market. But it's not going to be a blank cheque. We're not doing that. The Canadian taxpayer deserves to have us be very mindful of how we spend their money, and as a result, certain conditions have been extracted from Canada 3000 and would be extracted from other carriers before they got a loan guarantee.

We hope this can bring some near-term stability, and hopefully, with Canadians starting to feel more secure about travelling, we will see an increase in revenues and a return to profitability. A lot of this depends on the overall economic state in the world, and also the success of the fight against terrorism and how long that takes. But I do think, as we've seen in the last couple of weeks, people are starting to rebook, are starting to use the planes for business travel, as well as for leisure.

• 1915

[Translation]

I would like to say a few words about the 25 per cent foreign ownership limit. For the time being, we are not considering raising the 25 per cent foreign ownership limit. We do not think that is necessary at this time.

In fact, we are being consistent with other countries around the world, including the United States, which have maintained that 25 per cent limit. Like them, we believe that an industry so fundamental to the economy, the fibre and the being of the country should not only be operated by our nationals, but also be truly controlled by Canadians.

[English]

We strongly believe the Canadian airline industry should be controlled not just technically by Canadians, but in fact by Canadians. We don't think raising that limit is required at this point in time.

I noticed in the debate that some members suggested we should be repealing the entire Air Canada Public Participation Act. I can't say there would be any material benefit to Air Canada, but I do know there would be many adverse ramifications for others if we did that. I would throw back the question to my friends in the committee: what would repealing the act accomplish? It would remove the obligations of Air Canada under the Official Languages Act. Are we prepared, after all the struggle in this country to protect the use of the French language, especially in parts of the country where it is spoken by the minority, to wave all of that away because of the financial troubles affecting the industry? Are our principles so cheap that we would undermine a basic tenet of our country, the fundamental protection, entrenched in the Charter of Rights, of both official languages, which has always applied to Air Canada as a crown corporation? It always applied to Canadian National Railways. I don't see the cry to have Canadian National Railways not use the two official languages, and they're a company with a market capitalization of $11 billion, making a lot of money.

The act also calls for the permanent location of the head office in Montreal, with maintenance centres in other parts of the country, such as Winnipeg and Mississauga. Some can say that's a constraint, but this was a company the taxpayers built up over decades, and I think the taxpayers have a right to ensure that the public interest is safeguarded. That is why those conditions were put in, not by our government, not by a Liberal government, but by the Conservative government in 1987-88, when this was privatized.

This government, I can tell you, is not going to walk away from the obligations in that act with respect to the headquarters in Montreal or the use of the official languages, just as we will not do that for Canadian National Railways. It's too important for the country. It's too important for the fabric of our nation.

So I would hope that we could have a reasonable debate this evening. This is somewhat of a technical amendment, but it's an amendment that, really, Air Canada is not even contesting. In fact, I believe they put out a release to the effect that they welcome it. They may or may not be willing or able to come to the committee, but it does not appear that there is an issue of contention with Air Canada on this. In fact, I was at lunch today with ATAC in Toronto, and I sat with Doug Port, the senior vice-president, and we talked about the bill going through this evening, among other things. This, I believe, is a crucial bill to have amended at this stage, to give Air Canada the flexibility its competitors have in being able to raise share capital and be controlled by groups of investors, or an investor, whoever wants to buy control of the company.

Thank you, Mr. Chairman.

• 1920

The Chair: Thank you very much, Minister.

We're going to go now to James Moore, who is the official critic from the opposition, for ten minutes.

Mr. James Moore (Port Moody—Coquitlam—Port Coquitlam, Canadian Alliance): Thank you. I appreciate the minister's coming to the committee.

Given that I was the member who suggested that we should repeal the entire Air Canada Public Participation Act, I will bite at the bait of the minister. You said in your closing statement that if the Air Canada Public Participation Act were repealed, it would remove the obligations of Air Canada under the Official Languages Act. If you know the Official Languages Act, you know that's just not true. You just amend the Official Languages Act to mandate that both official languages are spoken on all Canadian carriers, and as a bilingual Canadian, I would support that.

The question I have is, why are you holding one Canadian carrier to a standard different from that applied to other Canadian carriers, given that, as you said in your speech with great vim, official languages are the foundation of the country, part of the foundation of our Canadianism? If you really believe that, why don't you take official bilingualism out of this act and put Canadian carriers into the Official Languages Act, so that all Canadians in every part of the country, no matter where they're flying, are served in both official languages?

Mr. David Collenette: The genesis of this was that Air Canada was a public corporation that served all parts of the country, and indeed, still has legal obligations to serve those communities, because of Bill C-26. Yes, it's a private company, but it is the world's eleventh largest airline and it is Canada's national flag carrier. Our government fervently believes that Air Canada must not break faith with the terms and conditions of the original privatization. When people bought shares in 1987-88, they knew they were buying shares in a company with headquarters mandated in Montreal. They knew the Official Languages Act fully applied. Now is not the time to change that.

Madam Dufour has just given me a note to the effect that the Official Languages Act applies only to federal institutions, as we know, and in this case, they are no longer a federal institution. They were grandfathered in 1988, and they were grandfathered for good cause. I can't believe anybody who has a feeling and an understanding for the country—I know Mr. Moore does, and I know he has a sensitivity to the linguistic issues—would argue at this stage that we should, in a sense, throw out the act and let Air Canada off all its obligations to serve Canadians in both official languages.

Mr. James Moore: I would say to the minister, respectfully, despite your valiant attempt to spin what I'm saying, that's entirely not true. What I'm saying is that if you wish that to be the case, that Canadians are all served, you amend the Official Languages Act to make it a reality. As a minister who has been in office for a long time, you should know that.

But there are broader reasons why I believe this legislation should be repealed. There are 15 clauses in the Air Canada Public Participation Act. Five of them are now spent, which is to say they are no longer relevant. Two clauses are discriminatory, in that they hold Air Canada to standards other Canadian carriers are not held to. Five clauses are unnecessary, in that they mirror clauses in other pieces of legislation. And four clauses are administrative, in that they only exist to make the act legally binding. This is the exact sort of legislation Canadians shake their heads at and say, with all this bureaucratic mess in Ottawa, handcuffing certain companies, not putting regulatory regimes in place for other companies, why wouldn't you just repeal this act and let Air Canada compete on a level playing field with all other carriers?

Mr. David Collenette: I just don't think we need to have the debate, whether it's on the Official Languages Act, the headquarters in Montreal, or even the other technical issues, which you may or may not have a point on with respect to. I know some of the clauses were enabling clauses for the original privatization, and it could be argued that their purpose is now null and void. But the issue at hand is to try to unfetter Air Canada in regard to raising money at this difficult time.

• 1925

I can't believe we're arguing to, in effect, let Air Canada off its obligations under the Official Languages Act in this statute, only to amend another statute, the Official Languages Act, to have the same purpose, to have it apply to Air Canada. It seems to be an inordinate waste of Parliament's time to do that.

Mr. James Moore: Not true. The principle of equality—

Mr. David Collenette: Let's not mess with what we've got here, which is that Air Canada has to respect the Official Languages Act.

Mr. James Moore: No, there's a principle of equality that should be upheld. Official bilingualism, which I believe in and practice, should be upheld on all Canadian carriers, and no one carrier should be discriminated against.

But I will ask the question about the share limit. You said in your statement you don't believe the foreign share ownership should be raised from 25% to whatever, or eliminated. That's fine. But you may as well scrap it from this act, because, as I believe you know or should know, section 55 of the Canada Transportation Act has that restriction in there anyway. So why would you come before committee saying you're opposed to lifting the 25% foreign share ownership limit in this act? You may as well scrap it. It's in another piece of legislation.

Mr. David Collenette: We amended the act in Bill C-26 to have Air Canada follow the precepts of section 55 of the Canada Transportation Act.

Mr. James Moore: Hence my case. Why, therefore, don't you scrap that provision in this piece of legislation? It's just another layer of paperwork and bureaucracy that's redundant and doesn't make sense.

Mr. David Collenette: With great respect, we have an airline industry in crisis, we have an economy in difficulty, and Mr. Moore is talking about something that I would say is esoteric at this point. The fact is, we need to raise the individual shareholder limit or eliminate it, so that Air Canada can have the freedom to raise money in the capital markets. We can come back and debate these other issues some other time. This is the urgency. Let's deal with the main issue at hand. Let's not open up other fronts, which are side issues and aren't particularly germane to the financial health of the industry at this time.

Mr. James Moore: Let me ask you this question, then, if there is such urgency and this does do good things. If you eliminate the 15% limit, we support that, because it's fine, but we frankly don't believe it really was going to do anything, because Air Canada does not obtain any money at all when shares are sold. No single shareholder currently has 15%, but wants to have more. There are none. From what I understand, the largest shareholder is the Caisse de dépôt et de placement, which I think has 8% or 9%, while the Ontario teachers pension fund has 6% or 7%. There is nobody who has 15% and wants more. If you were not likely to buy shares prior to the passage of Bill C-38, why would the passage of Bill C-38 make you want to buy more? This act is smoke and mirrors, it doesn't do anything to address the problems you're dealing with.

Mr. David Collenette: With great respect, Mr. Chairman, the reason we're changing this is to allow an investor or groups of investors to have control over the company. The way it was constituted protects existing management. Why would I put money into a company if I couldn't influence the management? The Caisse de dépôt, hats off to them, have 8% or 9% in there, and the teachers pension fund in Ontario 7% or 8%—do they have any say? Can the president of the Caisse phone up the president of the Ontario teachers pension fund and say, listen, I don't like the direction this company's going in, we should do something about it. You know if they did that, unless we pass this law, it would be illegal. They cannot, under the definition of an associate, have that kind of conversation.

Mr. Moore is preoccupied with Air Canada having a level playing field and being treated fairly like all other companies. In any other company, you can buy blocks of shares, you can buy majority control. There's one shareholder who has 41% of Canada 3000, he's the controlling shareholder. What's wrong with that? It happens throughout the publicly traded companies. Not everybody buys 51%, but blocks of shareholders hold control and decide the direction of the company.

I'm not reflecting upon the direction of the company as it is. All I'm saying is, if you want to invest, you want to have a say. If you're an individual investor and you buy 10 or 20 shares for your retirement, you have the right to go to a shareholders' meeting or give proxies up to management, which is done on a normal basis. But if you are the teachers pension fund in Ontario, if you're the Caisse de dépôt, before you put any money into a company like this, you want to know you're not putting money in without having any say. That is why we are recommending that the limit be erased.

• 1930

Mr. James Moore: It's been almost two months since Air Canada has in public asked for anywhere up to $4 billion, up to six times what Canada 3000 got, which was $75 million. The $64,000 question everybody wants to know the answer to is, how much money are you considering giving Air Canada?

Mr. David Collenette: We set the rules down quite fairly and plainly a couple of weeks ago when I announced the loan guarantee to Canada 3000. Air Canada, Air Transat, Canada 3000, WestJet, and Sky Service, the five largest carriers, covering 95% of the market, would be eligible for the same kind of financial assistance, subject to certain conditions being met. Those conditions had to do with an infusion of investor equity, reduction of capacity, rationalization of routes, communities served, employees, all those issues, but first and foremost a viable business plan that would show profitability. If Air Canada needs that kind of assistance, it would certainly have the same conditions apply.

I have said in scrums, and I may have said in answer to questions, the Government of Canada, the taxpayers, are not going to be the lenders of first resort. They're the lenders of last resort. Today somebody reflected upon that, and one of the newspapers sort of trumpeted up the fact that somehow we, Parliament, were not interested in helping Air Canada. The fact of the matter is that if Air Canada gets to the position where it needs a cash infusion and where it has a business plan to go forward as a restructured company, then the same terms and conditions Canada 3000 had to meet would be applied, and obviously, there would be a loan guarantee. On Friday Air Canada stated that they had $1 billion in assets, cash actually, and I think $4 billion in unencumbered assets. They said they had $5 billion in assets, so why would they want to come to the government for cash? Canada 3000 didn't have $5 billion.

The Chair: Minister, I think we're out of time here.

We'll go to Gerry Byrne of the Liberals for 10 minutes.

Mr. Gerry Byrne (Humber—St. Barbe—Baie Verte, Lib.): Thank you very much, minister, for appearing before the committee on the Air Canada Public Participation Act. This is an issue I think Canadians from coast to coast to coast, from airport to airport to airport, are following very closely, because, of course, their own financial viability and stability could be put into question, depending on the decisions of this airline and the airline industry, and our government in this regard.

You mentioned that certain covenants have been given. Those covenants date back to 1987-88, but were rearticulated by Air Canada when they proposed the takeover of Canadian Airlines. They articulated themselves that they would keep covenants to do with retaining jobs, retaining French language services, and maintaining headquarters in Montreal. These are all covenants that guided us as a government in Bill C-26, and something I think all Canadians are expecting in a national transportation system Canadians invested heavily in and now want to see a dividend from. It appears to me that we're beginning to erode those very covenants, this particular act removing the individual ownership requirements and the association between ownership, which was one of those covenants that we held. It appears to me and to others that what we're really doing is priming Air Canada for a takeover bid once again by a company such as Onex, potentially restructuring the management.

You mentioned that those who made those covenants originally have to hold them and maintain them. If this company is taken over by new management, if there is a massive cash infusion by someone interested in maintaining a new ownership and bringing it into the 21st century, based completely on market philosophies, not necessarily wanting to be encumbered by those covenants, are we dead certain that we are not facing the thin edge of the wedge here, that those covenants will be maintained, not just from the point of view of the jobs, but also from the point of view of service to small communities? Will those covenants, Minister, be maintained post-December 31, 2002?

• 1935

Mr. David Collenette: The covenants, as you describe them, Mr. Byrne, on the jobs and service to small communities were not in the Air Canada Public Participation Act. They are in Bill C-26, and they have limitations. It's March 2002 for no involuntary layoffs, and it is the end of next year for the service to small communities. What we said after discussions with Air Canada was that we agree with their legal interpretation that the no involuntary layoffs provision applied inasmuch as it affected the takeover of Canadian Airlines, and given the events of September 11, we could not hold them to that. That's why they have been working with the unions to try to reduce the labour force ahead of time. But they have made no request, as they know we would have to repeal Bill C-26, which we don't want to do, to let them off the hook on the service to small communities. They know that.

With respect to other covenants, the covenants in the Air Canada Public Participation Act, there was the one we talked about earlier dealing with the 25%, to bring them in line with the CTA, but the ones that are most important are the single limit on shareholders, the location of the headquarters, and the application of the Official Languages Act. I can tell you that there will be no Liberal government at any time that would want to change that the covenants on the headquarters location in Montreal and the application of the Official Languages Act. I'm sure other parties would support us in that.

We have had no indication from Air Canada that they would want that to change. I can't believe the management of Air Canada would want, given the fact its headquarters are in Montreal, to say, we want to move out of this city. Why do that at this time, with all the expense? And I can't see any management of Air Canada saying they don't want the Official Languages Act to apply, when they have a bilingual workforce and it's the intent of Parliament to ensure that the original auspices under which they operated, the Official Languages Act, as a federal institution, as with Canadian National, VIARail, and other institutions, carries forward in the future, but with it as a private company. If you're saying eliminating this provision is going to lead to the elimination of the others, I think the political will would certainly not be there for that.

Your point about whether this could precipitate a takeover I sort of answered with Mr. Moore. It's not a question of a takeover, it's a question of whoever wants to buy into the company then having a say in how it's managed. There's nothing wrong with that. That's what happens with every other publicly traded corporation in the country.

Mr. Gerry Byrne: Agreed, Minister, but you said yourself that it was the current management and the current organization that embarked on these covenants, and quite frankly, nobody can say they should be now immune or exempt from them, given the fact that they actually used that as a quid pro quo in taking over Canadian and other things.

But I want to zero in specifically on the regional services. I would hope, and I feel very confident in saying, no Liberal government would want to do anything that could see smaller communities not serviced by Air Canada. And yet the evidence is stacking up against that particular notion. Tango, as far as I'm concerned, is nothing more than a clumsy two-step to try to eliminate competition. It doesn't service the province of Newfoundland and Labrador whatsoever, yet it is a major vehicle for Air Canada to go forward into the 21st century.

We have, basically, a system in place where Air Canada, as it evolves as a corporate entity, is now shedding the shackles or the fetters of its ownership. Why shouldn't this committee presume that further allowances and further concessions will be made, specifically on smaller airports, given the fact that you said yourself, Minister, one of the chief considerations for loan guarantees to airlines in the future will be rationalization of routes and financial liability? What do you have to say to the people at Deer Lake, or Stephenville, or St. Anthony, or Goose Bay?

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Mr. David Collenette: Quite simply, to change those commitments would require a debate in the House of Commons and the abolition of Bill C-26, and we have no intention of proposing that, that's not before us. Those covenants are there until December 31 of next year. We're almost at year end now, so you have another year. The Deer Lakes of this world—I know you're concerned, because it serves your home town—will be served. Under the competitive environment that has been developing since we passed Bill C-26 and before September 11, Deer Lake was receiving service from other carriers. I believe—correct me if I'm wrong—Canada 3000 did serve Deer Lake, albeit once a week.

There is an issue of frequency of service. In Bill C-26 we stipulated their service had to be maintained, but we didn't put a level of service in. Even if WestJet goes into Sault Ste. Marie, as it's going to in a few weeks, flying only to Winnipeg three times a week, the fact that they're there, or the fact that Canada 3000 was in Deer Lake once a week affects the prices Air Canada or its affiliates charge. So the Deer Lakes of this world have had the benefit of some competition in the last little while. There are a lot of other smaller communities that haven't, and there's been a problem, in your province in particular.

I think the whole merger, by and large, has gone well, except for parts of northern Ontario, parts of rural Quebec, and Newfoundland and Labrador. In western Canada, in southern Ontario, in New Brunswick, Nova Scotia, and P.E.I. there was competition, but competition doesn't have to be the competition it was before the merger of two airlines offering the same flights 20 minutes apart, basically flying half empty. That's not the kind of competition that was developing, but there was price competition. If you do an analysis over the last 18 months, you'll see that overall, there's been some good value for travellers.

The Chair: Minister, thank you.

Gerry, if the questioners and the responders would keep their questions and answers short, we might get some more time in. There are quite a few people who want to speak.

Mr. Laframboise.

[Translation]

Mr. Mario Laframboise (Argenteuil—Papineau—Mirabel, BQ): Thank you, Mr. Chairman.

First off, Minister, I want to state that the Bloc Québécois will be supporting Bill C-38 for the reasons you mentioned, among other things, because all of the safeguards in Bill C-26 and in other laws responsible for the creation of Air Canada as we know it today are maintained in place: these include worker rights, regional services and obviously, compliance with the Official Languages Act.

I bears mentioning, Mr. Chairman, that even before the current crisis, the airline was experiencing some problems, particularly in terms of compliance with the Official Languages Act. It should be remembered that a total of 136 complaints against Air Canada were filed with the office of the Commissioner of Official Languages. Air Canada has violated the provisions of the act on numerous occasion. Therefore, we must be increasingly mindful of the importance of safeguarding the provisions of the Official Languages Act.

As you noted earlier, Bill C-26 set out the requirement for the airline to provide regional service. However, regional municipalities have already challenged the level of service they receive. Air Canada has changed its schedules and increased fares and complaints have increased. I trust the members seated here at this table know what I'm saying. The use of the expression "small municipalities" tries my patience. What we're really referring to are regional municipalities. Canada and Quebec cover vast areas and these municipalities have just as much right to be called municipalities as urban cities.

These municipalities continue to experience problems with regional service and if possible, we must strengthen this legislation some day. I can understand some people wanting to do away with all of these safeguards. However, I believe we need to move in the other direction, that is we must maintain these safeguards and, at the opportune moment, improve them in two areas, namely official languages and regional services.

• 1945

I'm having trouble understanding one thing, though. The Americans moved quickly to provide financial assistance to the industry. They showed their true colours by injecting massive amounts of money into the airline industry. You opted instead to take a different approach, namely of making a weekly announcement. That's your choice. Your approach is justified in part by Air Canada's actions. You surely must have known that the airline had four or five million dollars in reserve and that ultimately its demands were excessive. The fact remains, however, that waiting until the damage is done won't help the industry. The pool of knowledge is tremendous. It's important that we not lose the potential that Canada's airline industry employees represent.

Job sharing programs have been instituted with the help of Air Canada's unions. Unfortunately, once again, following protracted debates, you did not reveal your position immediately or inform employees that you would help them out until things settled down. It may be too late for predictions, but I do hope that profitability is restored in the industry. In the meantime, we mustn't lose our human capital. There is a danger of that happening when the government chooses to make weekly announcements, for example by demanding that Canada 3000 streamline its operations and cut staff before it can be eligible for $75 million in assistance. Employees are told to look elsewhere for employment because the industry is in a downturn and the government can't help them. Why not move right away to announce a broad job sharing program to save jobs? Such an announcement should have been made immediately. Why wait until the airlines are in dire straits before announcing this type of aid package?

Both the United States and Switzerland have announced major investments in their airline industries. You have chosen to help the industry by parceling out some aid every week. You're waiting until the industry's problems are significant, an approach which makes matters difficult for airline industry workers across Canada. It is difficult for the Bloc Québécois to come on board on this issue. Canada's airline industry workers represent a vast pool of qualified human capital and the government did not move immediately to announce a bailout. What is needed right now is a broad job sharing program for all airlines, not just the five major ones., because there is no doubt that regional carriers will also be experiencing some problems. I suppose you plan to wait once again until regional carriers are in dire straits before helping them out.

My question then is this: Why did you not act immediately to institute a broad aid program to protect the jobs of airline industry employees?

Mr. David Collenette: I will begin with your question.

You would like the Canadian government to institute a broad financial aid program for the industry. We plan to bring in such a program. We have already awarded $160 million in compensation for the closure of air space in the days following September 11, 2001. We have also provided loan guarantees to Canada 3000. I believe our government has demonstrated its willingness to help the airlines.

As you know, many industries have been affected by the current economic crisis. However, where do we set the limits? When the government bails out one industry, others demand equal consideration. We have stated that we are prepared to help out the major Canadian carriers by providing loan guarantees because the airline industry was the first affected by the closure of air space on September 11, 2001.

• 1950

You mentioned an important point, namely protecting human capital. The layoffs at Air Canada are unfortunate. Human Resources Development has programs to address this issue and my colleague Jane Steward has met on several occasions with airline industry unions to help them set up job sharing programs. Unfortunately, it likely won't be possible to save the majority of jobs.

Last Friday, the Chairman of Air Canada announced that his company held $1 billion in liquidities and had major assets valued at $4 billion. The airline therefore has the means to restructure its operations. That's all we're asking it to do. It has the means to act and it can act now.

Your comment concerning the level of service to small communities is a valid one. It is difficult to offer more safeguards than those included in Bill C-26. Admittedly, small communities have experienced significant changes in terms of scheduling and fares. Generally speaking, in most regions of the country, the merger with Canadian Airlines has worked well, although there have been some problems in some rural communities in Quebec, Newfoundland and Northern Ontario. This was true even before the September 11 events. We hope that as a result of competition, small communities will enjoy the level of service they want.

Finally, on this subject of the Official Languages Act, you are correct. A number of complaints have been filed against Air Canada and I am not satisfied with the airline's response. However, I don't think it would help to amend the Official Languages Act. I think we need to look at ways of strengthening the act's provisions, but not at this time, given the far greater financial crisis . I will admit, nevertheless, that the Official Languages Act makes no provision for fines to be slapped on a company like Air Canada that fails to meet its obligations.

[English]

The Chair: Thank you.

We go to Mr. Keyes of the Liberals.

Mr. Stan Keyes (Hamilton West, Lib.): Thank you Mr. Chairman. Thank you, minister, for appearing before the committee.

Following this subject for more than a decade, I certainly think we've come to a crossroads. I think this issue, the troubles in the airline industry, and Air Canada in particular, is most in need of some fresh ideas, and most certainly, I think, a new found cooperation between industry, particularly the airline industry, and the federal government.

Let me follow on Gerry's concerns about smaller communities being served, I liked it when you were at the committee when we were commercializing Air Canada, when we talked about Air Canada and who was going to own Canadian Airlines. You talked a lot about competition. For the most part, I think, it's coming to fruition. But the problem with the smaller airlines serving the smaller communities to a great degree—I think it's overlooked at times—is that they fear the court actions from the big boy on the block and the predatory action that has in the past been demonstrated by them.

• 1955

Konrad von Finckenstein is a poor prognosticator at best, but good in his field of competition. We say to the Competition Bureau, if Air Canada is found to be guilty of predatory pricing against a small airline that's trying to do its job, namely, feed the majors at the major airports or provide service to small communities, then you have the authority to fine them. So now the Competition Bureau can find them guilty of predatory pricing and say, you're guilty, $250,000 fine. Now maybe Air Canada is going to let up a little on the idea of putting in these great sales and all these wonderful seat availabilities in small communities, because we know why they're doing it. It's being a little presumptuous, but let's face it, sometimes it's just pure cutthroat competition.

So maybe we should think about a fresh idea and look at the idea of giving the Competition Bureau some authority to level a fine. All they can do right now is give the airline a slap on the wrist. I remember you saying the Competition Bureau is going to use the bad press it would receive for being predatory to prevent them doing such things. But I don't think that's working, it's not being demonstrated.

There's no doubt Canada needs a national airline, I think we're all agreed on that. As much as we need direct flights to the big cities internationally, we need the flights between our major cities in Canada, but most important, we need to continue service to smaller communities. So despite the wrath in complaints MPs get in their offices about the service of Air Canada at times, Canada needs Air Canada.

I was part of the process that saw Air Canada acquire Canadian Airlines, and it ticks me off no end to hear or read in the news media that government interference has prevented Air Canada from making business decisions that would make Air Canada more commercially viable. Well, let's remind those business-related experts, with their 20-20 vision at times, that Air Canada knew the rules before they got into the game, Air Canada set some of those conditions, they outmanoeuvred Jerry Schwarz at Onex, to be quite frank, then they inked the deal. In short, Robert Milton said, in so many words, we can handle it. To be frank, a lot of my business associates in my riding say they wouldn't lose much sleep if Air Canada went under. So there we are defending Air Canada and the need for a national airline.

Minister, your recent announcement about dismantling this 15% ownership, this bill, the limit on Air Canada's voting shares, I think is a solid, albeit first, step. But isn't it time the government, to a greater degree, stopped telling business, this business, Air Canada, how to handle their business and how to run their business?

Now I'm worried, because I've got the Alliance saying, hear, hear.

Mr. James Moore: Twice, twice.

Mr. Stan Keyes: When I say one of the things we should be doing, aside from fresh ideas, is finding a new cooperation between government and the airline industry, I go back to your statements on the 25% limit on foreign ownership. I was also the chair when we privatized CN. There was nothing in the CN bill that said there had to be foreign ownership restrictions, and yet CN is a very successful company. I don't think there are too many people around this table who could tell me who owns CN and what percentage of CN is owned here in Canada. Does it really matter, because CN is a very successful company, and it has the name Canadian National on the side of its engines and everything else they own?

• 2000

All right, you don't want to go to 49%, you stated that, but what about a new-found cooperation with the industry, sitting down and saying, why, instead of going to 49%, don't we just go to 35%? Do you think that would work for you, Air Canada? Would it help it with your balance sheet? Would it draw in investment? These are the kinds of negotiations I think have to start taking place between government and industry. No longer can we sit back and for the sake of Liberal philosophy, Liberal party politics, or whatever you want to call it, say, we're going to do this because it's just....

Who's going to argue against you on the bilingualism stuff? That's a whole different area. Of course we want bilingual messages on Air Canada flights. We're a bilingual nation, it has to be there. I don't think the airline would even mind doing that. They don't mind doing that, so they will do that. If they're bad, we'll correct them.

Safety is a primary interest, with regulation there's no question, language no question. I don't think the airlines have any concern whatsoever about any of that. But when it comes to running an airline business, and if Air Canada has some suggestions.... I sat at that table where the chairman is today. I'm prepared to say maybe we went too far, maybe we should be talking to the airline again and coming up with a conciliatory stance on how Air Canada runs its business.

The Chair: Mr. Minister.

Mr. David Collenette: First, we don't tell Air Canada how to run a business. My good friend Mr. Keyes argued very eloquently for greater powers for the Competition Bureau in the first part of his speech, which, to me, is the very government interference the president of Air Canada was arguing about on Friday. So I would say, with great respect, my colleague is arguing against himself. The fact of the matter is that there's a myth here about the government telling Air Canada what to do. We don't tell them what to do. It was Parliament that set certain rules for the merger with Canadian Airlines, rules they agreed to, rules they have to live with.

In Bill C-26 there were cease and desist powers given to the commissioner. In fact, many people agree with the way Mr. Keyes was going at the beginning, where he was saying, do these powers go far enough to foster competition? The fact is that the rules were well known. The government doesn't interfere with this. We have a deregulated environment. We don't tell Air Canada what size of aircraft to put on what route, how many flights a day, and what prices to charge. That's the way it used to be in the days of regulation. That's when government told them what to do. We don't tell them what to do. It was this Parliament. Some members of this committee—and Mr. Keyes was chairman of the committee—agreed in Bill C-26 to say, these are the terms and conditions under which you can have Canadian Airlines. Air Canada agreed to that. They've been operating under that.

On this issue of foreign ownership, all I'm saying is, I think that's an extraneous issue at this time. With the market cap of Air Canada right now, if we move to 49%, it would give them about another $25 million. They're probably bleeding that every month. That's not the answer to their problems at this point. If it's something we want to address in the future, we can do that, because we can, by Order in Council, increase the limit up to 49%. That is not really, I think, the issue for today.

There is also an issue, though, for those who are proponents of greater foreign investment in Air Canada. At a certain point in time the world community would regard Air Canada as not a Canadian airline. That would invalidate all of the.... We have 60 bilaterals around the world. Then we have a real dog's breakfast, because we have a carrier that can't, in effect, be protected by access to certain markets around the world. So it's not quite as simple as just changing the limit and having the fusion of foreign equity. I think that's an issue for another day, Mr. Chairman. Today, it's really the issue of the shareholder limit. It seems, from what I've heard so far, that people by and large agree with that, but they do have other legitimate concerns about the way the industry's been developing.

The Chair: Okay, Minister.

We move to Bev Desjarlais from the NDP.

Mrs. Bev Desjarlais (Churchill, NDP): Thank you, Mr. Chair, and thank you for coming, Mr. Minister.

I don't know if anybody picked up on all the problems we're having—the common factor seems to be Stan Keyes.

Some hon. members: Oh, oh.

• 2005

Mrs. Bev Desjarlais: In regard to the 15% ownership, I can't help but wonder where Air Canada would be today if we had larger ownership of shares with one body or a couple of bodies. What would have happened if there had been that great a loss to someone who, say, had 50% shares in Air Canada? I'm just curious, Mr. Minister, as to whether you think that would have been the saving grace, greater ownership in Air Canada on September 11. Is that how you think things would have played out?

Mr. David Collenette: The fact is that the way the situation has evolved, Air Canada needs to be more attractive to investors. This is one way we think they can be more attractive to investors.

Mrs. Bev Desjarlais: Where do you think the industry would have been if there had been a larger investor prior to September 11? Where would we be today?

Mr. David Collenette: In politics we don't speculate about the hypothetical. Who knows? That was an issue that was being put on the table back in the fall of 1999. It was one where the individual and the company that wanted majority control withdrew after a protracted battle, and we have gone down another route.

I am not going to speculate, but it now appears a gradual consensus has emerged that from the point of view of ownership in the company and exercising authority under that ownership, there should be some equality of treatment for Air Canada with other publicly traded corporations. Air Canada agrees with that and the government agrees with that. It appears the members agree with that, except the NDP.

Mrs. Bev Desjarlais: Some of the members would agree, but I would argue that probably the minute saving of grace for Air Canada was that they didn't have some larger shareholders on September 11. As a result, their losses weren't as great, and so we aren't even in the situation those airlines are in, Swiss Air and Air New Zealand. It hasn't been quite as devastating.

There's no question there's a problem out there, but within the other national airlines, so to speak, is there a shareholder limit that you're aware of?

Mr. David Collenette: No, they're all publicly traded corporations.

But I'm surprised at what you said, because, coming from the NDP, it's a bit cavalier to say the losses of the small shareholders across the country are less significant than if you had a major shareholder that had gone down the tube.

Mrs. Bev Desjarlais: No.

Mr. David Collenette: That's what I read into what you were saying.

Mrs. Bev Desjarlais: My point is, it would be less of a loss for them, so they wouldn't be pulling out even more quickly.

Mr. David Collenette: Tell that to the shareholders who lost their shirt with a share that has gone from $20 down to whatever, $2.

Mrs. Bev Desjarlais: No, the point I'm making is, if you had a larger shareholder, there would be less chance that they're going to be still investing in Air Canada today. Okay? That's the point I'm making.

Quite frankly, since the shares went up form 10% to 15%, I believe from July of 2000, there hasn't been that increase, there wasn't the quick buying into the 15%, so the interest wasn't there. I'm not convinced this is going to be the saving grace for Air Canada right now. Ultimately, as I've said, I think probably one of the saving graces was that there was a lower shareholder limit at this point.

However, I do believe there are other things that need to take place. We've heard comments about greater powers for the competition commissioner, and that may be the answer. But I'm wondering whether there isn't some room there to maybe have some regulation within domestic capacity. International capacity was regulated. We had a strong industry. Is there not some need to regulate domestic capacity? Would we not avoid the situations with the anti-competitive behaviour? Would we not avoid all these fears people have about Tango coming on and now competing with West Jet? Aren't we going to be in the same kind of “let's beat each other to the ground” between WestJet and Tango as we had between Canadian and Air Canada? Aren't we going to be in the same situation?

• 2010

Mr. David Collenette: I guess what you're arguing for, Madam Desjarlais, is really a return to the regulated environment prior to 1987-1988, where service was designated, capacity was designated, and prices were set. That's not where society has been for the last 12 to 13 years. You never know, maybe it will come to that. I will be surprised. Certainly, the experience of the last 12 or 13 years, even though we've had these ups and downs, with all these companies coming and going, is that the consumer has had a better deal. There are more people flying and there are better bargains today than there ever have been before. If you look back at the number of people who travelled in the late eighties and the kinds of prices they had, the deals are much better, by and large.

Some small communities—Mr. Byrne was talking about Newfoundland—weren't so lucky. That's a problem in a country like Canada. Maybe there's an argument to say that you really have to go back to public ownership. I don't think many of my colleagues would agree with that in the cabinet, but some in the caucus might. The way things are going, you can't rule anything out in life. Only that way can you ensure that there is service to small communities and that prices are restricted or managed. But what happens is that the general taxpayer, in effect, subsidizes air service to certain communities. That's what we did in the old days. Do people want to go back that way? I haven't seen the will to do that so far.

Mrs. Bev Desjarlais: No, and I wasn't for a moment suggesting we go back to the regulation that was there before. But as I stated, total deregulation is no better than under-regulation. There is a balance there whereby to promote service to the communities and still have an industry that is stable. I think there is room to do that.

In regard to the official languages, comments have been brought up, there is feeling out there that Air Canada hasn't held up their end of the bargain. But as my colleague Mr. Keyes has said, generally, I don't think that's an issue. People expect that if there's a national carrier, it's going to be bilingual. I think we have to make sure we continue to support that. I certainly don't want to see that brought up as the issue here, otherwise I don't think we'll be passing this with any great speed. So I would hope it doesn't become a major point of contention in this bill.

Mr. David Collenette: I don't think the concerns are really valid that have been raised by Monsieur Laframboise and others about the Official Languages Act and its application to Air Canada. Air Canada has to understand that they have obligations that go back a long way and they have an obligation to serve this country in both official languages.

The Chair: I'll go now to Val Meredith of the PC/DR.

Ms. Val Meredith (South Surrey—White Rock—Langley, PC/DR): Thank you, Mr. Chair, and thank you, Minister, for appearing on Bill C-38.

I'm going to play back some of your words. You were referring to this particular legislation and said this may be the answer to the problem today. Your reference was to management, allowing major shareholders to manage the company and be concerned about the management of the company. Would you not say that was the answer 18 months ago, and this decision now to remove the control of domestic shareholders is something that should have been done 18 months ago? Was it not the 10% limit in place at the time that scuttled the Onex deal through a court case in Montreal?

Mr. David Collenette: Mr. Chairman, Ms. Meredith is right, that is what scuttled the Onex deal. As to whether or not that was the right solution back in the fall of 1999, I'll let others be the judge of that.

The problem we had was that the Onex proposal was contingent on the law's being changed. The government felt very uncomfortable, from the point of view of fairness and equity, in even saying it might change the law—and I think that's what I said at the time—given the fact that Air Canada made the argument that the law is there, the rules are there, so if there is to be, in effect, a takeover attempt, it should be done with the rules well known. Far be it from me to speak for the Air Canada management, but I think their view was that in absolute terms, they were not opposed to the raising of the limit—I don't know whether they thought about its removal—but they just felt it should be done in an orderly, structured way to give everybody the benefit of knowing what the rules were, so people could then go in and determine to take over the company.

• 2015

Ms. Val Meredith: But didn't you know, prior to the Onex bid hitting the table, that Canadian Airlines was in difficulty and that there were going to be bids coming in for restructuring or merging? Was it not at that time, in the summer, probably August or September, of 1999, that this particular thing should have been put on the table?

Mr. David Collenette: It's all hindsight, but the fact is that back in early 1999 the president of Air Canada and the president of Canadian Airlines came to me and wanted to merge. My department tried to encourage that. They couldn't come to terms. At a certain point in discussions, Air Canada raised in meetings with my officials the use of section 47 of the Canadian Transportation Act to set aside the Competition Act for a period of time to facilitate a restructuring. Then Canadian Airlines came to us independently and not only advocated it privately, but sent us a letter, which became public, asking for that. We felt this might be the way to have the restructuring. The fact is that Canadian Airlines told us they were going to be out of business by February of 2000 and they might not even make it through the Christmas period. That's why we did what we did. It was kind of messy, and it was difficult to explain to a lot of people, especially in the business community, why you were setting aside the competition rules to facilitate a restructuring.

In hindsight, I suppose we could have handled that a little better, but that is all water under the bridge. Canadian was a failing company, we wanted something done, we had the option of a bailout, a bankruptcy, or a merger. Taxpayers didn't want a bailout, and a bankruptcy would have been very disruptive, especially in western Canada. Air Canada, in response to Onex, to their credit, came forward with an alternative plan. Even when Onex withdrew, they agreed to proceed with that plan. I think they should be given credit for that.

Ms. Val Meredith: But with all fairness, I don't know that Onex withdrew, rather than being kicked out of the bidding process because of the particular rule.

What I'd like to address is the fact that the argument for this particular piece of legislation is that it allows investors to hold a greater number of shares and to have some control over how the company is operated. We heard witnesses at the time saying part of the problem with the bidding process and with what was on the table was the fact that the people who manage and run Air Canada hold less than 2% of the company's shares, so I believe. So your argument for why you would take it off now, I would argue, was on the table at the time. It was quite clear to people listening to witnesses that the management of Air Canada was an issue then, and it is still now.

We don't have a problem with removing the 15%, we just feel the timing of it is not good enough. I would use the same argument with regard to Mr. Keyes' argument about upping the rate of foreign ownership. You say now is not the time to do that; you feel that getting rid of this 15% is going to open up the market. What if it doesn't? What if it does take broadening the base, allowing other investors from somewhere else, Britain, Virgin Air, American, whoever? What if it takes a combination of the two? By not offering both opportunities, you may just be one more time putting Air Canada into a position where it's not quite enough not quite at the right time. I would urge you not to look just at the 15%, but also to look at the foreign ownership component, raising it, negotiating how much to raise it, but allowing the combination of those two investment opportunities to play a part. It may be too late 18 months down the road to do the next step.

Mr. David Collenette: First, Mr. Chair, as I said before, we could do it tomorrow, if that were required, by Order in Council. We don't need to go through the parliamentary process. I don't have the exact percentage, but I'm led to believe that at this point in time the foreign equity in Air Canada is somewhere around 5% to 10%, maybe closer to 5% than 10%.

• 2020

Mr. Louis Ranger (Assistant Deputy Minister, Transport Canada): I think it's a little over 10%.

Mr. David Collenette: A little over 10%. So if you're saying, put it up to 49%, well, it's not even up to the maximum limit of 25%. And I would remind you that when American Airlines came in and put the cash into Canadian, they took 33%, but only 25% voting shares. The CTA ruled that effectively, that was still Canadian control. So the precedent has been set.

You have the actual 10% or thereabouts owned by foreigners today. The law will allow you to go up another 15% on the controlling side for shares, but you could go up to another 8% for equity. So it seems to me that's not really the problem today. There's not one foreign interest that has written to me and said they want to invest in Air Canada. I would say, go ahead, be our guest.

The other point is that the Air Canada shares are so low now, why do we need foreign money? There must be a hell of a lot of Canadian money, at this market cap, that could come in and make the investment.

At least we want to set the table. Is it going to happen? I don't know, I can't predict. Nobody could have predicted September 11. But at least we are setting the table, we're taking away the constraints, and we're allowing other investors to come in.

Ms. Val Meredith: But would it be fair to say that September 11 is not the cause of Air Canada's problems, that the $100 million they received pretty much covered their direct costs as a result of September 11?

Mr. David Collenette: Confidence in air travel has been shaken since the eleventh, and it's hurt everyone.

Ms. Val Meredith: But what is the percentage of downturn in the travelling public? Do we have any numbers? What kind of percentage drop is there?

Mr. David Collenette: Right afterwards it was pretty rapid, but now I would say domestic travel is probably down 20% and international about 15% to 20%, about the same, transborder 40%—that's where the real hit is and that's what is affecting Air Canada.

Ms. Val Meredith: If the real hit is transborder and Air Canada is facing subsidization of American carriers on transborder routes, are you looking at that as a justification for any kind of subsidization or support?

Mr. David Collenette: This word subsidization.... We're talking about loan guarantees here.

Ms. Val Meredith: Call it what you want. Is that part of the measure that—

Mr. David Collenette: I don't know how much has been paid out in the States so far. There's been a real debate on the terms and conditions of these loan guarantees. I can't sit here tonight—I don't know if my officials can—and tell you that United Airlines and American Airlines have actually received any money under the loan guarantee program. They have under the $5-billion cash infusion, as our carriers have. Our point is, if you have a company sitting on a billion dollars of cash, which is what the president of Air Canada said Friday, with $4 billion of unencumbered assets, why should the taxpayer ante up a pro-rated amount? It would be $2 billion, based on what Canada 3000 gets.

So this is the problem we have. We're just not here sitting as a banker, peeling out bills to people who want to come along. There has to be some justification. The notion that there's a subsidy right now on transborder routes is one I haven't seen borne out by the facts. I have not seen any data that say 60% of Air Canada's transborder market share has been diminished since September 11. Everybody's been nailed, everybody's been hit. In fact, in the immediate days after these events the opposite occurred. Many U.S. citizens travelled on Air Canada precisely because they felt that they were safer than U.S. carriers. So let's get the facts before we talk about subsidies. It's a whole other issue.

The Chair: Okay. We have quite a few people who want to ask questions, so I'll go to the five-minute rounds now.

I go to Mr. Proulx, who is going to split his time, he said, with Mr. Fontana.

Mr. Marcel Proulx (Hull—Aylmer, Lib.): Mr. Chair, we're going to run out of time, so I'll definitely share my time.

[Translation]

Mr. Minister, ladies and gentlemen, thank you for coming tonight. I'm certain you had other plans for the evening, so we appreciate your making yourselves available.

Mr. Minister, mention was made earlier of Air Canada's obligations, such as the obligation to maintain its head offices in Montreal. Does the government require other companies or corporations to maintain their head offices in a specific city, or is Air Canada the only one in this situation?

• 2025

Mr. David Collenette: Canadian National and Air Canada are two Crown corporations required to maintain their head offices in Montreal.

Mr. Marcel Proulx: Are any other corporations under a similar obligation?

Mr. David Collenette: I don't know, but it's important for Montreal to have these two corporations. Mr. Tellier, the Chairman of Canadian National, isn't asking the government for permission to move CN's head offices elsewhere or to relieve the company of its obligations under the Official Languages Act. CN isn't unhappy with the current situation.

Mr. Marcel Proulx: I see. Are you aware of any private sector interests wanting to invest in Air Canada? Are you aware of any investors willing to invest over and above the current limit?

Mr. David Collenette: We are presently working with financial advisors who inform us that in their opinion, as a result of this change, the company will be more attractive to investors.

Mr. Marcel Proulx: In short, Mr. Minister, the government is faced with two choices: maintaining the status quo, or amending the legislation.

What would happen to Air Canada if the 15 per cent limit on ownership of voting shares was maintained, along with the ban on association between persons holding voting shares in the company?

Mr. David Collenette: It would mean the status quo, and consequently, the company would be less attractive to Canadian as well as to foreign investors.

Mr. Marcel Proulx: Thank you.

[English]

The Chair: Three minutes, Mr. Fontana.

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

Mr. Minister, if the purpose of this bill is in part to try to save Air Canada, I suppose it's a good first move. The committee a year and a half ago suggested a number of steps, and to tell you the truth, I would agree with those who would suggest that if you remove the limit on single ownership here without at the same time—and cabinet could do this—increasing foreign ownership again, it's tying one hand behind the back. Assuming that there might be someone who has 30% and happens to be American, what's the matter with that? They might even have some airline expertise, which I think is sorely lacking in Air Canada—I'll get to that in a minute. That restricts, obviously, a number of options. So I think this is a first step, but if we're out to try to save Air Canada, there are number of second steps and third steps that are available.

Second, Minister, I suggest that Mr. Milton—and I think this committee probed him pretty hard—sold you a bill of goods, the Canadian people a bill of goods, and the committee a bill of goods. Yes, it sounded good at the time, but he made all kinds of promises. I know you don't want to get into the business of running Air Canada, and I know you don't want to get into the business of running airlines in this country, but when the CEO of a company that has 80% of the domestic market and 100% of the international market can't make a go of it and then sticks his hand out and says, please, taxpayers of Canada, give me a dollar, I'd tell him to go to hell.

In fact, part of the agreement, if the government does decide on a loan agreement, should be that Mr. Milton goes, and I'll tell you why. Here he is trying to restructure a troubled airline, and yet he's launching new airlines—Tango, this other one, he's thinking of other things. He's ruining the regionals—I'm sorry, Mr. Minister—even in southwestern Ontario. London has been hit hard. He's taken some very good regional air carriers and demarketed those particular regional airlines, hence the communities that are not getting the service at all.

• 2030

So, Minister, I have a problem. So far I think you've taken the right track with regard to Air Canada, and I think the marketplace and the private sector will, in fact, come and resurrect this great airline or put a whole bunch of pieces together that will make sure we've got an actual air carrier, or a number of them, that will service our communities. But I have a little difficulty when.... What if the president of Nortel were to come and say they laid off 20,000 people, why don't you give every one of those shareholders a break, or all of those customers of Nortel? Where is it going to stop?

So, minister, I would suggest that there are a number of factors involved in trying to save Air Canada, and this is one of them. Yes, maybe loan guarantees are important, but I'll tell you that there are some structural problems with that company that I think the board of directors ought to hold the CEO personally responsible for before the Canadian public gives one more dime to a corporation I think has been badly run for the past two and a half years.

Mr. Gerry Byrne: You're the man, Joe, you're the man.

Mr. David Collenette: I don't really wish to debate Mr. Fontana's analysis. That stands on its own merit or lack thereof. That's another debate.

I think he's made some interesting points that we have to address. The issue of Tango is one where Canada 3000 has applied for the bureau to use the cease and desist powers.

There is a point about a foreign airline coming in. I can't believe any U.S. carrier or anybody, with their troubles, would have any extra cash to invest in Air Canada. I don't know what the structure of Air Canada's deal was with United at the time of the merger, but I suspect there were some bonds held by United or some cash that could be converted into shares. Certainly, there's a lot of room within the existing limit without going to the 49%.

I don't think Mr. Fontana was here when I talked about this problem. At a certain point in time, if the ownership limits are raised, there may be a contest as to whether or not Air Canada is, in effect, a Canadian airline, so that countries would seek to abrogate bilateral deals, which would put Air Canada in a very difficult position in respect of revenues. A country could come along and say, this is really a United Airlines substitute, or an adjunct of United Airlines, and so we're going to abrogate our bilateral treaty with Canada, because Air Canada is no longer a Canadian airline in fact, controlled by Canadians.

The Chair: Mr. Fontana, you're out of time.

We'll go to James Moore.

Mr. Joe Fontana: On a point of order, the minister has said this on three occasions—

The Chair: This is a point of debate, I'm sorry.

Mr. Joe Fontana: No it isn't. I wanted clarification on the bilaterals, as to whether—

The Chair: You're out of time, Mr. Fontana. The past point of debate is not a point of order.

Mr. David Collenette: Let the record show I'd love to answer him, but I'll respect the chair.

Mr. James Moore: Thank you. Thank you, Judge Judy.

It is a pretty simple question, in the sense that Bill C-38 is a pretty simple piece of legislation. It eliminates the 15% domestic share ownership, and as Mr. Byrne has mentioned, ostensibly. all this does is what you've outlined, allow Canadians, a domestic group of share buyers, to take a controlling portion of the company and change its management. As Gerry said quite clearly, this is a direct attempt to change the management of Air Canada through legislation. So my simple question is, given that you said this type of legislation was coming anyway prior to September 11, what's your problem with Robert Milton and the management of Air Canada?

• 2035

Mr. David Collenette: Mr. Chairman, I'm not going to get into debating that kind of an issue. The fact of the matter is that Air Canada cooperates with the Department of Transport every day and we have very good relations. The point is that Air Canada's board of directors and the management have come to the same conclusion the government has, that the limit, as placed by the original law, and even the change in 2000, doesn't allow the airline the latitude to get investment from other sources.

One of the problems—and it was raised in the whole Onex-Air Canada debate—is, why invest in an institution if you cannot control it? It's one thing to be an individual shareholder, where your retirement portfolio has a couple of hundred shares, but if you are running a pension fund or if you're running an investment company and you want to take a piece of the company you invest in, people want to know that they can influence the direction of the company, so that their investment is maximized. All this does is say to people who might want to invest under the normal circumstances of most publicly traded corporations, there won't be any limit. If Mr. Moore has the ability to come in with x hundreds of millions of dollars, take 51%, and be the controlling shareholder, good for him. If it's the Caisse de dépôt or the Ontario teachers pension fund or whoever the foreigners are who have up to 10% of the company, they can then sit down in a room and say, look, we want to influence the direction of management, so that we can maximize the returns for our investors. This is normal. I never understood the logic in 1998 as to why the cap was put on, and it really only came to the fore back in the Onex debate in the fall of 1999.

Mr. James Moore: I only have about 30 seconds left, so I want to ask you one last question regarding what the transport committee is doing. We're meeting tomorrow from 9 to 1. We're talking about airport security, and have been for some time. Right now in the United States there's a fierce debate going on about the issue of airport security, whether or not it should be nationalized. And it's actually not a right-left debate. The Senate and the House of Representatives have a real division on the issue. The one side believes the best form of accountability is to make people public servants, so that you would have short lines of accountability and you would know who to blame if things went wrong. On the other hand, people believe it should still be privatized, so that if errors and mistakes are made, you have the capacity to terminate contracts and terminate individuals. That debate hasn't happened in Canada yet. The committee is discussing that and I want to know, as you are the minister responsible, where do you come down in that debate? Should it be nationalized, and what do you think is the best way to get short lines of accountability for airport security?

Mr. David Collenette: The word nationalize is wrong, Mr. Chairman. The fact is that Transport Canada has the authority, always has had the authority, for security and safety in the aviation system. The question is, how are the safety measures and the security measures discharged? They have been discharged by airlines or their agents for the past 30 years. Screening started in the early seventies after the hijackings in the late sixties. There are many people who believe the airlines have a conflict of interest and should not be responsible for screening. The Canadian Airports Council wants the airports individually to take over responsibility. The airlines don't like that. I was at ATAC today in Toronto, and that was obviously the message we were getting from ATAC.

We are looking right now at ways we can organize this so that the safety concerns are enhanced. The point I've made since September 11 is that we've chosen to focus on the rules themselves and the enforcement of the rules rather than the cost of changes and who actually discharges the service. But certainly, it's an important issue that must be resolved, and must be resolved soon, and we are discussing that in cabinet.

The Chair: Thank you, Minister.

We'll go now to Mr. Shepherd for five minutes, and then we'll come to Mr. Laframboise.

Mr. Alex Shepherd (Durham, Lib.): We've been throwing around the words ownership and control almost as if they were interchangeable, but the reality is that with removing this 15% cap, presumably, people can control somewhere around 20% or 25%. In other words, it would be technically possible for foreigners to control Air Canada with a 20% or 25% interest in the corporation. I know you don't think that's very realistic, but I do recall when American Airlines had a big interest in Canadian Airlines, they did exercise a degree of control over that company.

• 2040

Some of the issues seem to go a lot further than simply the airlines themselves, with the great alliances, Star Alliance versus oneworld. That would seem to have been the issue in the last debate, and it seems to me that if you were American Airlines and you wanted to put a hole in the Star Alliance, a 20% interest in Air Canada would do it for you. Is that something that concerns you?

Mr. David Collenette: Under the Canada Transportation Act the CTA does have the legal authority to determine whether or not control is in fact by Canadians. As we saw with American Airlines' investment in Canadian, they had 33% equity and 25% of the voting shares, but upon examination, the CTA determined that this did not constitute control. That's the quasi-judicial agency that makes that determination.

Mr. Alex Shepherd: It was interesting that the brother of the chief executive officer of American Airlines was also the chief executive officer of Canadian Airlines. It sort of sent a message to me.

Mr. David Collenette: The executive vice-president of finance was Douglas Carty, and Don Carty is the president of American Airlines, but one should not accuse people of nefarious association by virtue of being siblings.

Mr. Alex Shepherd: Okay.

Mr. David Collenette: I'm told they weren't there at the same time, not at the time of the acquisition.

Mr. Alex Shepherd: Mr. Carty was certainly here arguing that they were trying to repatriate a lot of their money out of Canadian Airlines and Onex was the way to do it. They did have an influence.

Anyway, getting back to the 15% rule, a number of people have touched on it, but I don't know if it really drove the issue home. Essentially, what we're saying is the reason we've got to remove it is that the way it is now, we have an inefficient management system. In other words, people can't control and direct the directors of Air Canada. By definition, therefore, the efficacy of this board of directors is out of anyone's control. It's a reverse analysis: we have to control because currently they're out of control. So aren't we saying, by taking this action, by passing this legislation, we believe the board of directors of Air Canada is out of control?

Mr. David Collenette: I don't like to use the term out of control. It is a fact that because of the single shareholder limit, because of the widely disseminated shares, the directors of Air Canada are not subject to the normal constraints and accountability you would get in a publicly traded corporation. If we pass this bill and restrict the limits, then it's possible for existing shareholders—and we talked about the pension funds, one in Ontario and one in Quebec that between them probably have around 20% of the shares—to determine whether or not your assertion about the board is correct.

The point is that there should be accountability, and that will be the by-product of this. It would allow people to invest knowing that they can have influence, and thus have the management accountable directly to the majority of investors, which is what happens in most companies.

The Chair: Mario, you have the last question.

[Translation]

Mr. Mario Laframboise: Thank you, Mr. Chairman. I have two very brief questions.

Mr. Minister, you stated that you are not prepared to help other regional carriers. Do you maintain this position?

Mr. David Collenette: We provided financial assistance to air carriers and to aviation schools in Canada further to the closure of air space in the wake of September 11. A $160 million compensation program was announced and I've been informed that already, $100 million has been paid out.

On the subject of loan guarantees, we intend to restrict the program to the five major carriers that account for 95 per cent of the market.

Mr. Mario Laframboise: You claim not to know how the United States has gone about awarding money under this program to airlines. I'm having a hard time with that. The US has announced $15 billion in aid, that is $5 billion in direct assistance and $10 billion in loan guarantees. You say you don't know how the money has been allocated. I'm having some difficulty believing that your department is not aware of how this program is being administered in the United States, the home of our main competitors.

• 2045

Mr. David Collenette: Mr. Ranger will answer that question because he has all of the details.

Mr. Louis Ranger: On the contrary, we plan to monitor the situation very closely because we're very curious to see how they are going to administer everything.

A $5 billion compensation package was announced following the closure of air space. Half of this amount has already been paid out to several carriers. What we still don't know is how the $10 billion loan guarantee program will be administered. A total of 19 pages of regulations have been issued. To date, not one single carrier has met all of the loan guarantee requirements.

[English]

The Chair: Thank you.

I forgot that Larry Bagnell had his name on file, so Larry, you've got the last word.

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

I'm curious, after the debate tonight, what the other Alliance members think about making all the airlines in Canada bilingual. Mr. Moore said that, and yet we've had an Alliance member in the House of Commons say we should get rid of bilingualism completely. So I'll be interested to see what the others think.

Mr. Minister, I agree with the steps you've taken with Air Canada so far, including this one, and the fact that you've not just written a blank cheque for the billions of dollars requested. After we provided the money for the six days, I had a number of constituents call about that. They brought up the points people brought up tonight. What about other companies? What about Tango, if you subsidize Air Canada, and then they start up another airline to put the competition out of business?

I just want to ask questions about two problems that my constituents raise. One is about the monopoly on our route, whatever airline has it, when they say they have to charge more on that route to make up for what they lose in competitive routes. In that line, I'm delighted that you provided the money to Canada 3000, because I think competition is the answer, as opposed to regulation, which would increase prices—a public consumer group recently suggested that route.

The second problem—and it's been mentioned before—is the service attitude, basically coming from management, I think. I don't agree that foreign ownership has to be increased to solve that, because there are a lot of other industries related to the airline industry, service industries, that may go south if we have too much foreign ownership. I guess I'm spoiled coming from the west, with great airlines like Wardair and Canadian and Alcan and Air North, but I assume that with this package, there could be people with fresh ideas and new service mentality taking over the management of the company.

Mr. David Collenette: It's not been easy in the last 18 months for anybody, whether it's in government or whether it's running an airline, Air Canada or any other airline—it's not an easy job. So to me, it's not an issue of who runs an airline, it's an issue of whether or not they have the means to operate within a certain policy, so that they can do their best for their shareholders. It appears that for whatever reason, Parliament constrained Air Canada, from the point of view of investors in the company, some years ago, and there's a consensus that be changed.

It may very well be that new investors come in, assess the situation, and make suggestions on changes or want to change individuals or strategies. That's what is normally done in business, but that's nothing the government has a view on. The government has a view on enabling Air Canada as an institution, great institution that it is, to have all the means possible to raise equity as other companies can, also forcing a degree of accountability on management that doesn't exist by virtue of the existing legislation. That will be a healthy thing for the existing management or new management. But that's an issue really not for the government, but for investors.

• 2050

Mr. Larry Bagnell: I have one last, short question. A number of times the American package has been raised tonight. I don't imagine these American carriers over the years have received as much subsidy in proportion as Air Canada has from the Canadian taxpayers. Would you or your officials be able to confirm that the situation is not really analogous, because over the lifetime of their company they haven't received the amount of subsidies that we've provided to Air Canada?

Mr. David Collenette: It's pretty tough to total all that up, it's going to take a lot of work. Air Canada would argue that when the shares were floated in 1988, the crown was repaid for its investment. I remember at the time they had just paid for 35 A-320s that had come on, which were a pretty penny. I don't know whether or not what the government received covered the cost of that. But then there was all the other investment over the past. Air Canada still has 15 DC-9s that were paid for by the taxpayer through the crown corporation. I think there are a number of 767s still in service that were bought in the early eighties or late seventies, paid for by taxpayers. But they would argue that the crown was repaid handsomely by the floating of the shares back in 1988.

The Chair: Okay. Thank you very much to you, Minister, and your officials for being here this evening. Canadians looking in would like to know that we're looking after their airport safety, security, and restructuring. I hope some of the questions you have had here will be reflected in your budget, so that we can see there is some action. Thanks for coming.

I want to suspend for a couple of minutes.

[Proceedings continue in camera]