TRAN Committee Meeting

37th PARLIAMENT, 2nd SESSION

Standing Committee on Transport

EVIDENCE

CONTENTS

Thursday, November 28, 2002

Á

1105

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

Mr. Clifford Mackay (President and CEO, Air Transport Association of Canada)

Á

1110

The Chair

Mr. Ken Epp (Elk Island, Canadian Alliance)

The Chair

Mr. Warren Everson (Vice-President, Air Transport Association of Canada)

Mr. Ken Epp

Mr. Clifford Mackay

Á

1115

Mr. Ken Epp

Mr. Clifford Mackay

Mr. Ken Epp

Mr. Clifford Mackay

Mr. Ken Epp

Mr. Clifford Mackay

Mr. Ken Epp

Mr. Clifford Mackay

Mr. Ken Epp

Mr. Clifford Mackay

Á

1120

Mr. Ken Epp

The Chair

Mr. Ken Epp

Mr. Clifford Mackay

The Chair

Mr. Ken Epp

The Chair

Á

1125

Mrs. Bev Desjarlais (Churchill, NDP)

Mr. Clifford Mackay

Mrs. Bev Desjarlais

Mr. Clifford Mackay

Mrs. Bev Desjarlais

Mr. Clifford Mackay

Mrs. Bev Desjarlais

Mr. Clifford Mackay

Mrs. Bev Desjarlais

Mr. Clifford Mackay

Mrs. Bev Desjarlais

Mr. Clifford Mackay

Mrs. Bev Desjarlais

Mr. Clifford Mackay

Mrs. Bev Desjarlais

Á

1130

Mr. Clifford Mackay

Mrs. Bev Desjarlais

Mr. Clifford Mackay

Mrs. Bev Desjarlais

Mr. Clifford Mackay

Mrs. Bev Desjarlais

Mr. Clifford Mackay

Mrs. Bev Desjarlais

Mr. Clifford Mackay

Mrs. Bev Desjarlais

Mr. Clifford Mackay

Mrs. Bev Desjarlais

Mr. Clifford Mackay

Mrs. Bev Desjarlais

Mr. Clifford Mackay

Mrs. Bev Desjarlais

Mr. Clifford Mackay

Mrs. Bev Desjarlais

Mr. Clifford Mackay

Mrs. Bev Desjarlais

Mr. Clifford Mackay

Mrs. Bev Desjarlais

Mr. Clifford Mackay

Á

1135

Mrs. Bev Desjarlais

Mr. Clifford Mackay

Mrs. Bev Desjarlais

Mr. Clifford Mackay

Mrs. Bev Desjarlais

The Chair

Mr. Mario Laframboise (Argenteuil—Papineau—Mirabel, BQ)

Á

1140

Mr. Clifford Mackay

The Chair

Mr. André Harvey (Chicoutimi—Le Fjord, Lib.)

Á

1145

Mr. Clifford Mackay

Á

1150

The Chair

Mr. Rex Barnes (Gander—Grand Falls, PC)

Á

1155

Mr. Warren Everson

Â

1200

Mr. Clifford Mackay

Mr. Rex Barnes

Mr. Clifford Mackay

Mr. Rex Barnes

Mr. Clifford Mackay

The Chair

Mr. Clifford Mackay

The Chair

Mr. Clifford Mackay

The Chair

Mr. Marcel Proulx (Hull—Aylmer, Lib.)

Mr. Clifford Mackay

Â

1205

Mr. Marcel Proulx

Mr. Clifford Mackay

Mr. Marcel Proulx

Mr. Clifford Mackay

Mr. Marcel Proulx

Mr. Warren Everson

Mr. Marcel Proulx

The Chair

Mr. Marcel Proulx

Â

1210

Mr. Clifford Mackay

Mr. Marcel Proulx

Mr. Clifford Mackay

Mr. Marcel Proulx

Mr. Clifford Mackay

Mr. Marcel Proulx

Mr. Clifford Mackay

Mr. Marcel Proulx

Mr. Clifford Mackay

Mr. Marcel Proulx

Mr. Clifford Mackay

Mr. Warren Everson

The Chair

Mr. Warren Everson

The Chair

Mr. Warren Everson

The Chair

Mr. Ken Epp

Â

1215

Mr. Clifford Mackay

Mr. Warren Everson

Mr. Clifford Mackay

The Chair

Mr. Ken Epp

The Chair

Mr. Mario Laframboise

Â

1220

Mr. Clifford Mackay

The Chair

Mrs. Bev Desjarlais

Mr. Clifford Mackay

Mrs. Bev Desjarlais

Mr. Clifford Mackay

Mrs. Bev Desjarlais

Mr. Clifford Mackay

Mrs. Bev Desjarlais

Mr. Clifford Mackay

Â

1225

Mrs. Bev Desjarlais

Mr. Clifford Mackay

Mr. Warren Everson

Mrs. Bev Desjarlais

The Chair

Mr. Clifford Mackay

The Chair

Mr. Clifford Mackay

The Chair

Mr. Clifford Mackay

Â

1230

The Chair

Mr. André Harvey

Mr. Clifford Mackay

Mr. André Harvey

Mr. Clifford Mackay

Mr. André Harvey

Mr. Clifford Mackay

The Chair

Mr. Clifford Mackay

Mr. Warren Everson

Â

1235

Mr. Marcel Proulx

Mr. Clifford Mackay

The Chair

Mrs. Bev Desjarlais

The Chair

Mrs. Bev Desjarlais

Mr. Clifford Mackay

Mr. Warren Everson

Â

1240

Mr. Clifford Mackay

Mr. Warren Everson

Mrs. Bev Desjarlais

Mr. Warren Everson

Mr. Clifford Mackay

Mrs. Bev Desjarlais

Mr. Clifford Mackay

Mrs. Bev Desjarlais

Mr. Clifford Mackay

Mrs. Bev Desjarlais

Mr. Clifford Mackay

Mrs. Bev Desjarlais

Mr. Clifford Mackay

Mrs. Bev Desjarlais

Mr. Warren Everson

The Chair

Mr. Ken Epp

The Chair

Mrs. Bev Desjarlais

The Chair

Mr. Marcel Proulx

The Chair

Mrs. Bev Desjarlais

The Chair

The Chair

Â

1245

Mr. Clifford Mackay

The Chair

Mr. Clifford Mackay

The Chair

Mrs. Bev Desjarlais

The Chair

---

CANADA

Standing Committee on Transport

---

NUMBER 003

l

2nd SESSION

l

37th PARLIAMENT

---

EVIDENCE

Thursday, November 28, 2002

[Recorded by Electronic Apparatus]

Á  (1105)  

[English]

    The Chair (Mr. Joe Comuzzi (Thunder Bay—Superior North, Lib.)): Welcome to the Standing Committee on Transport. The meeting is to consider the first item that was agreed to by the committee in the steering report on the analysis, pursuant to Standing Order 108(2), of the aviation security fees.

    Our first witnesses this morning are from the Air Transport Association of Canada: Warren Everson, vice-president, policy and strategic planning; and Cliff Mackay, who I would imagine is the overall general manager, the CEO, of the organization. Welcome.

    I think it's only fair to say at the outset that I think most of us who are interested in this subject have read your press releases. I suspect very much that's your job, to put your best foot forward. But what you failed to report, and what I want to put on the record, is that, through whatever legislation the security tax is placed on airline tickets--and that's the subject of the review--while that security tax was placed on the consumer at the airport, the fact of the matter remains that prior to that point in time, before the act was implemented, all security issues in all the airports in Canada were paid for by the airline industry. It's very important to note that at the inception of the security tax, that fee was no longer charged to the airlines in Canada. I think that's very fundamental in our discussions. I don't think we should belabour it, but the fact of the matter is that the airline industry received a grant, or whatever you want to call it, from the government or from taxpayers of Canada of approximately $80 million a year to assist the airline industry.

    I think with that background we'll listen to your report. What we're really interested in, Mr. Mackay, if you can shed some light on it--and I think it's the mandate of the committee--is to review this security tax in two areas: one, how much money has been collected to date and how much money has been spent; and two, what were we doing in security before the implementation of the tax, and what have we done since to change the security issues. I think that is the feeling of the committee, through our steering committee.

    Does anyone want to add to that before we hear the submissions? Go ahead.

    Mr. Clifford Mackay (President and CEO, Air Transport Association of Canada): Thank you, Mr. Chairman. Let me start by thanking you for the opportunity to be here today. Our statement is going to be short, because our sense is that the committee really wants to be able to question us about some of the issues you've just raised.

    Let me start by publicly congratulating you on your election to the chair. We certainly look forward to working with you in that context in the next number of months.

    Earlier this week we held a press conference to release a report entitled “A Crisis in Costs”. This report detailed a very serious issue that is fast becoming probably the most important policy issue facing our industry. The issue is the enormous number of new costs confronting airlines and their passengers that have come into play in the last 14 months in particular, and the damage these costs are now starting to do to our passengers and, by implication, communities and travel-dependent businesses.

[Translation]

    Fees and taxes are included in the cost of air tickets. These charges are not under the control of the air carrier. Most of this money disappears into the federal government's general revenue.

[English]

    Since September 2001, we have monitored literally hundreds of millions of dollars of new costs that are being borne by Canadian travellers across the country. Most of these costs, frankly, have been imposed by government, and most are for legitimate purposes. We don't question that. The problem is that they're all converging on the passenger at the same time, like a tidal wave. Increases of this magnitude can't be absorbed in such a short period of time. Consumers are not captive; they have choices, and this year we're starting to see them exercise some of those choices.

    Overall traffic is down 10% in Canada. Certain markets, such as regional services, are faring much worse. Some carriers have actually reported traffic reductions of 30%. There's only one thing that happens when traffic goes down that far: people lose their jobs, and that's happening.

    The impact of this is very easy to see. Across Canada, airlines are reducing capacity. We're seeing aircraft being parked again, we're seeing services being cut in a number of different ways, and we're even seeing some communities lose their air services entirely. This year we expect some communities will face the bleak prospect of subsidizing empty airports or closing them. We're seeing hundreds of workers lose their jobs. We're seeing consumers having fewer choices, not more choices, and we're seeing tourism and related industries starting to hurt.

    We have a crisis. We said on Monday--and we reinforce it here today--that we need the government to act immediately to give the consumer some break in all of this. Where the government is imposing major charges, such as the air traveller security charge and what we consider to be the absolutely indefensible airport rent system that exists in this country, it has to get its hands out of the passengers' pockets and give them a break.

    Canada's development has always depended on safe, cheap, effective, and efficient transportation. Aviation provides a critical service in the modern economy, especially in the smaller towns of this country. Today we're really fearful that this service is in danger of being choked off, and this is going to put community development at some risk. We believe it's time for parliamentarians to take the issue seriously.

    Thank you, Mr. Chairman.

Á  (1110)  

    The Chair: Thank you, Mr. Mackay, for the succinctness of your report.

    Mr. Epp.

    Mr. Ken Epp (Elk Island, Canadian Alliance): Are we not going to hear Mr. Everson?

    The Chair: Not unless he has something to add. I thought there was going to be one submission.

    Mr. Warren Everson (Vice-President, Air Transport Association of Canada): Mr. Mackay spoke for the association.

    Mr. Ken Epp: Okay. Thank you.

    I welcome you here today. Of course, as you know, the Canadian Alliance as a party has been working very hard to try to bring to the attention of the finance minister and others the fact that Canadians are all interested in security. As James Moore, our critic, has frequently pointed out, on that fateful September 11 most of the people killed were not in airplanes; they were in office buildings. So we support the idea that a much greater portion of the tax that is collected for air security should come from the general taxpayer, rather than the air traveller being specifically targeted.

    I have some questions about some of the numbers you used. First of all, in your report you said something about having monitored hundreds of millions in new costs to passengers or to carriers. Now, do you mean hundreds of millions of dollars? When you say “new costs to passengers”, what have those costs been in Canada since September 2001?

    Mr. Clifford Mackay: I'll give you a few numbers and I'll rely on my colleague, if I forget any, to supplement the question.

    By far, the biggest single one has been the new security tax. The chairman mentioned that prior to September 11 the airlines bore the cost of security in the country, and he's absolutely correct. It was in the order of $75 million to $80 million. What happened after September 11 was that this number went from that order of magnitude to something more in the order of $300 million to $400 million a year, which was what the security tax was intended to offset.

    In addition to that, from an industry point of view, we are facing a whole range of new costs. Some are outlined in a couple of the tables in the report, but when we add them all up, to date, in terms of one-time costs, we're looking at roughly another $70 million. And then in terms of ongoing costs for things like new cockpit procedures, new training for crews and flight attendants, new technology that we're putting in for transponders, there's an enormously long list. That all adds up to probably another $50 million or $60 million worth of new costs annually in addition to the one-time costs that we're facing, as we speak.

    So add another $100 million to what I already mentioned to you, and those are the kinds of numbers we're talking about.

    The risk, though, sir, is that we're not finished. We've hardly started. Every week that goes by we get another demand, either from a Canadian government agency or from another government agency somewhere in the world asking us to do yet something else. And we just don't know how big that number is going to be one, two, or three years from now.

Á  (1115)  

    Mr. Ken Epp: Surely you must be funded by the federal government for these costs instead of collecting the security tax, so if these are measures taken to increase security, they give you the grant for recovering these costs?

    Mr. Clifford Mackay: No, these costs are 100% borne by the carrier. There's no subsidization, and of course, we can get our money only from one place, unfortunately, and that's the Canadian traveller. Canadian travellers are the people who are paying for these things.

    Mr. Ken Epp: The report that you have indicates that the security charge costs in Canada are really way out of whack. In the States, it's what, seven and a half bucks or thereabouts?

    Mr. Clifford Mackay: Roughly speaking.

    Mr. Ken Epp: Is that American dollars?

    Mr. Clifford Mackay: No, those are Canadian dollars.

    Mr. Ken Epp: It's $5 U.S., which is $7.50 Canadian, roughly. And yet in Canada, they're charging $24 dollars. Why do you think the government chose such a huge number?

    Mr. Clifford Mackay: We don't know the answer to that; you'd have to ask the Department of Finance officials. Our speculation--and I underline the word “speculation” because we weren't invited to those meetings, put it that way--is that they went to get the best estimate they could get at the time of the total cost of implementing the new explosive detection systems and of ratcheting up the whole pre-screening system in the industry. And we did have some input to that, and frankly, we don't quibble with the cost side of that equation. It probably will turn out to be somewhat wrong, but we don't think it will be dramatically wrong, because they're estimates.

    Then I think they went to the transport department and asked them to give them their forecast of how many people were going to fly in the country for the next x years. They divided one number by the other, and guess what it came out to be? And then they added a whole bunch of fudge factors into that, because when we looked at the number and tried to do that math, we discovered their number was again quite a little higher. I think they added a bunch of things in on a just-in-case basis, as finance officials tend to do, and that's how they arrived at the number.

    Mr. Ken Epp: Okay.

    Air traffic in Canada is down roughly 10% from a year prior to the incident.

    Mr. Clifford Mackay: That's correct.

    Mr. Ken Epp: You claim this is due to these higher costs. Do you have any hard data for that? Have you done any customer surveys? I don't know how you would do them, because they have ceased to be your customers. Have you somehow tried to find out from people who have decided that, instead of flying from Edmonton to Calgary, they're now driving from Edmonton to Calgary whether the reason for that decision is cost or whether it's something else?

    Mr. Clifford Mackay: We do have a high degree of confidence. These are from market surveys run by our members, and also market surveys run in the U.S. and other parts of the industry around the world. By far and away, the number one or most important factor—particularly in the leisure market, or what we call the discount market, the low airfare market—in determining whether or not someone gets on an airplane is the price. There's no doubt about this, in our view. So we're pretty confident that while there are always other factors—convenience and a number of other things—price is the largest driver of the decision.

    The second thing we did was get a comparative analysis of our situation versus similar kinds of situations in the U.S., which is why we got some economic help in putting this study together from Professor Lazar. We were anxious to try to isolate some of the issues you've just raised, which is one of the things he did for us. We were trying to isolate the factors. His conclusion was that our traffic has dropped more than U.S. traffic, notwithstanding the fact that the U.S. economy has underperformed quite dramatically relative to the Canadian economy, and notwithstanding the fact that it's generally believed the impact of 9/11 on traveller attitudes in the States has been greater than it has been in Canada. So you would expect, all other things being equal, that we would be doing better than they are. Yet we're doing worse.

    So you look at what the differences are. You compare like routes, and city pairs, and this sort of stuff. You go through a price analysis, and the conclusion you come to—which is in the report—is that in Canada, on average, surcharges over and above the base price of the ticket range anywhere from 7% to 40% plus. They are particularly high in the short-haul and discount markets. But in the U.S., we couldn't find any market where the add-ons to the ticket were more than about 9% of the price of the ticket.

    So the conclusion that Mr. Lazar comes to—and we think he has some analytical basis for it—is that the surcharges are making a difference, and it's impacting negatively.

Á  (1120)  

    Mr. Ken Epp: As a mathematician, by the way, I point out that—and I did this for our critic, as well—when taxes are 50% of the total cost of the ticket, including the taxes really means the tax is 100% of the value of the ticket per se, before taxes.

    Mr. Clifford Mackay: You're absolutely right.

    Mr. Ken Epp: The feds do this to us on the gasoline tax, too. They point out that 50% of the price of gasoline is taxes. Well, actually, if you get 25¢ worth of gasoline, you pay 25¢ worth of taxes. It's a 100% tax rate. They have their percentages wrong.

    Is my time up, Mr. Chairman? I don't want to hog it.

    The Chair: You have one minute you can use, Mr. Epp.

    Mr. Ken Epp: Okay. I'll keep on going, then.

    What I would like to know is whether you feel the federal government has properly spent the money they've been taking on increased air security. I talk to people. I go to airports a lot, as all members do. I have asked some people, “Do you feel safer now than you did on September 11 a year ago?” The answer for most of them is, “No, I don't think anything has changed.”

    Now, has it actually changed? That's my question.

    Mr. Clifford Mackay: Again, we are not involved in the day-to-day running of the new security agency, but we do work closely with them. I think our conclusion would be that they are working hard to improve the system, but obviously you don't do that sort of thing overnight, sir.

    As for the things that have been done, and which are certainly pointed in the right direction, training is being standardized. We have been a big fan of that. We wanted the training ratcheted up. It is being ratcheted up, and people are being trained. The first round of training will be completed by about this Christmas, if we understand it correctly.

    They are starting to roll out new capital equipment, although it has just begun. Frankly, there's a huge job in front of them to do this. It's going to be a very difficult job, because there's a lot of competition for this equipment, and it's going to take time.

    We're still watching the agency carefully in terms of the two things we have told them. Their bedrock is “Make sure it's secure”. We don't disagree with this, but over and above it, the two things we really want from them is high performance in terms of customer service, and cost-effectiveness. It's just too early to make a judgment, but we don't have much that is critical to say about what they've done to date.

    The Chair: Thank you, Mr. Epp.

    Mr. Ken Epp: I'd like to be on the list for the second round.

    The Chair: Absolutely.

    Mr. Ken Epp: Okay, thank you.

    The Chair: As a result of that questioning, there is a very good question, Mr. Epp, on which we should perhaps ask for additional information. Your response to the question was that the airlines are being exposed to about $100 million worth of additional costs. The question that came back was, is this not covered under the security fee? I think it might be appropriate, Mr. Mackay, if you could outline in some detail to the committee, and we'll accept the report, on where that $100 million is, what you think of those expenditures that are being imposed on the airlines, and what should be covered by the new security cost. Is that fair? Would that be helpful to you?

    Mr. Clifford Mackay: Yes, I think so.

    The Chair: Thank you.

    Ms. Desjarlais, I believe you're next.

Á  (1125)  

    Mrs. Bev Desjarlais (Churchill, NDP): You commented on additional training for crews and transponders. What specifically is that type of training?

    Mr. Clifford Mackay: I'll give you a general answer to that because, frankly, the specific answer is classified.

    The general answer is that both air crews and cabin crews are being trained in a range of new procedures with regard to how to respond to these sorts of emergencies. That training is made more complex because it now has to be integrated with the roles of the armed officers onboard program that is now being implemented as well. It gets quite complicated, frankly.

    Mrs. Bev Desjarlais: I can understand those things happen, but is there not a normal training process that goes on every year with airline crews that this would be incorporated into, and wouldn't it be a normal cost that airlines should be bearing as they train people anyway?

    Mr. Clifford Mackay: We certainly train, retrain and upgrade our employees constantly, but this is a whole new layer of training.

    Mrs. Bev Desjarlais: Exactly how many hours of additional time are involved? Bear in mind that most of us know a good number of people working for the airlines who may or may not have received this wonderful additional training, because I can tell you that we're hearing from a lot of people that there hasn't been additional training, or nothing out of the ordinary anyway. Would that be a reasonable request of the airlines, to find out exactly what their training hours are and numbers of employees and so on?

    Mr. Clifford Mackay: It certainly would be. We'll get you that data.

    I should tell you that this stuff is in process. One of the big issues we've had--it has taken a number of months and is frankly not resolved yet--is that we've been trying to work with government officials to define the new standard. It has taken quite some time to get the RCMP together with Transport Canada security, with Transport Canada civil aviation and all the other various players to define the new training standards for all of these new procedures. That's in process.

    Mrs. Bev Desjarlais: Okay, but I got the impression from you that this cost has already happened as they've been deciding these new training standards.

    Mr. Clifford Mackay: These are costs that we're in the middle of. If you look at page 24 of the report, you'll see a whole itemized list of them. The point I was trying to make more than anything else is that we're at the start of this process and these costs are going to go up, unfortunately.

    Mrs. Bev Desjarlais: You mentioned that ATAC hadn't been invited to the meetings when Finance was deciding on the fee they would charge. You said they did sort of give a call and wanted some kind of figure or whatever from you. I would like to know exactly what you were requested to give to Finance in order to come up with this fee.

    Mr. Clifford Mackay: For starters, we were requested specifically by Transport Canada officials and they specifically requested us to give them estimates of the cost of these new pieces of equipment. You'll probably recall that at the time we were operating the company that had the expertise on this sort of equipment, so we tried to give them the best estimates we could at the time, within the parameters that were given to us, as to what it would cost to buy all this stuff. That's essentially what they asked us to do.

    Mrs. Bev Desjarlais: You then responded that somewhere in there they just took the number of flights they thought there would be, divided by the number of passengers, and probably fudged some of those figures--your words, not mine. Would you be suggesting, then, that someone like me, flying from Thompson, Manitoba--I have no security at the Thompson airport, but I pay every time I leave the airport--is subsidizing someone flying from Toronto or Vancouver?

    Mr. Clifford Mackay: All I can tell you is that the fee is on a per passenger basis. The technicalities of the regulations that were developed for the fee listed a whole range of airports, and whether or not there is any security service, you are charged for it and we are required by law to collect that money.

    Mrs. Bev Desjarlais: So, in reality, there is no security at some airports, and people have been having to pay since April 1 of this year.

    Mr. Clifford Mackay: That's correct.

    Mrs. Bev Desjarlais: So it's not actually on a user basis; you just want to cover the cost.

    The airlines, at one point, or prior to this being implemented, covered the cost of the security checks, the baggage checks, as people went on. The minister has suggested that, as the new security fee is charged, the airlines should be able to reduce that cost from their ticket amount, because they are no longer paying for that. Have the airlines done this? Have they reduced that figure from the amount they're charging the passengers?

Á  (1130)  

    Mr. Clifford Mackay: I think the answer in general is yes. If you're going to ask me to show you the precise analysis--

    Mrs. Bev Desjarlais: I am.

    Mr. Clifford Mackay: --that runs it through, I'll tell you it doesn't exist.

    What I can tell you--and this is Transport Canada's numbers--is that the average cost of an airline ticket, particularly in domestic and transborder, has come down since 9/11, not gone up.

    Mrs. Bev Desjarlais: Don't give me the average costs, because by rights this was being paid on a per passenger basis. That's my understanding of how it was done.

    Mr. Clifford Mackay: No, that's not true. Let me tell you precisely how it was being paid.

    The cost of the equipment, which was roughly 7¢ per passenger, was being paid on a per passenger basis, because ATSC, the company at the time, was in fact charging that. That amounted to about $3 million or $4 million a year. The rest of the expense, which was the big number, which was all the people and all that stuff, was being paid for by the lead carrier at a particular airport, and then that lead carrier was in fact charging back, on a proportional basis, to all the other carriers that were using the service at that particular airport.

    So the reason I can't give you a direct daisy-chain is because of the accounting. The accounting just wasn't done that way. Those costs were buried in the cost of operation of various airlines.

    Mrs. Bev Desjarlais: So what was really happening was, even though the cost of the equipment, which you were saying was 7¢ per passenger--

    Mr. Clifford Mackay: That's correct. That's what we charged.

    Mrs. Bev Desjarlais: So I'm guessing that would have been the rough figure that you would have given Transport Canada when they were asking about the financing.

    The rest of the charge that was out there--

    Mr. Clifford Mackay: No.

    Mrs. Bev Desjarlais: You were giving the figure on the equipment. That's what you mentioned.

    Mr. Clifford Mackay: I don't want you comparing apples and oranges here.

    Mrs. Bev Desjarlais: I don't want to be comparing them; I'm just going by what I thought I heard.

    Mr. Clifford Mackay: The reason we were able to charge 7¢ a passenger for the equipment that we were deploying and maintaining on behalf of the airlines at the time was because we received....

    This was all equipment that had been bought by the taxpayer over the last 10 or 15 years, across Canada, and when the government decided to privatize that equipment, they set up this not-for-profit company, and they transferred the equipment for a dollar to the company. So that 7¢ does not reflect in any way the real capital cost that the taxpayer paid for that equipment over the last 10 years. So be very careful not to compare apples and oranges.

    Mrs. Bev Desjarlais: That's fair enough, but my understanding is that the government also put additional money in to purchase some new equipment and--

    Mr. Clifford Mackay: It was about $50 million, but that was after 9/11.

    Mrs. Bev Desjarlais: Right, and really, the taxpayer or the passenger is still paying for that equipment, but the airlines now haven't reduced their fees on the basis of the security charge. They were charging the other airlines a per passenger rate to offset the costs. So once again--

    Mr. Clifford Mackay: Again, I have to correct you. It wasn't always a per passenger rate. The way in which the deals were cut between the carriers on individual airports were individual transactions. Some of them were on a proportional passenger basis, and some of them were on an estimated capital cost basis. There's no way I can give you this, because there's no standardization.

    Mrs. Bev Desjarlais: So, in essence, any individual passenger could be paying numerous additional dollars for another passenger, based on some kind of a deal that the airlines had between each other?

    Mr. Clifford Mackay: The first thing you have to understand is that before 9/11, if you took the total cost of security and then divided it by the number of passengers travelling, you're down in the range of $1 or $2 per passenger. So frankly, you really are talking about very small numbers compared to what we're talking about today.

    But to try to do the kind of analysis that you're asking us to do, I must tell you I don't think it's possible, because before 9/11 these were business transactions and they were done on a number of different bases, depending on the groups of carriers in individual airports.

    Mrs. Bev Desjarlais: But aren't you doing that right now by suggesting charging an individual passenger for a security charge? Aren't you doing the same thing?

    Mr. Clifford Mackay: To be frank with you, we're doing what the law requires us to do. It wasn't us who came up with the $24.

    Mrs. Bev Desjarlais: No, I know what the law requires. But even your suggestion in your report says that you think it should be this much per passenger.

    Mr. Clifford Mackay: Well, what we've done in the report is to try to come up with something that, we hope, is fair and balanced between the passenger.... We accept the argument the government has made, that one of the beneficiaries of aviation security is our passengers and ourselves. We accept that argument. We also believe it's equally true that one of the beneficiaries is the public at large. So our argument has been, let's share the burden. Let's have us pay a share. You've decided that a per-passenger charge is the way you want to do it. We'll live with that. You're not the only country in the world who has made that decision. So let's share the burden.

Á  (1135)  

    Mrs. Bev Desjarlais: Would it then be reasonable to suggest that since the beneficiaries of the security are certainly the airlines in regards to their property and the types of things they were doing for security before, but also now the airport authorities, who have shown a tremendous profit—if I recall the last news articles I've been reading, the airport authorities have shown a tremendous profit—the additional security is therefore for the infrastructure that they now control? Although they pay a rental fee, in essence it's their property within the airport, so to speak.

    Mr. Clifford Mackay: It's the government's property now.

    Mrs. Bev Desjarlais: But they're leasing it. As a result, the airport authorities are charging a fee to the airlines, I believe, and have made a profit in running the airports.

    Would it not be reasonable to suggest that out of some of that money should come the cost of some of the security? Because people are already paying an airport improvement fee, security is there to benefit the--

    Mr. Clifford Mackay: It certainly would be reasonable. But the point you have to remember is that, no matter how you dress this up and make it look, in the end it all comes back to the passenger—

    Mrs. Bev Desjarlais: But somebody's paying. I'm just saying, why would the airport authorities be making a huge profit—

    The Chair: As a result of Mrs. Desjarlais' questions, would the committee agree that I ask our researcher to establish the methodology used, if he can, in arriving at the $24? Would this be in order? Thank you.

    Mr. Laframboise.

[Translation]

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

    I was lucky enough to attend your last board meeting where the minister was in attendance and I'd like to see an effort made to explain to the committee the problems faced by your industry, because it seems to me that there is a total lack of understanding. It is due to the figures that often distort the situation. Some air companies have been profitable. Of course, when they are in the private sector, that is why they exist but the effect of all these taxes and surcharges simply means that it costs more money for an airplane to get off the ground and it has to travel greater distances to be profitable. That is made clear in your report.

    I appreciated the remark made by one of your members, which wasn't contradicted by anyone, to the effect that before September 11—correct me if I'm mistaken—an airplane could be profitable if it flew 376 miles. Following September 11 and the new taxes, this has gone up to 600 miles and we don't know how much more it will increase. This has had a direct impact on the regions because of the fixed cost of an airplane, the increased price of fuel, etc. We have to realize that the air industry has its own structure. You've done market studies and you know fairly precisely how much an air ticket should cost to be of interest to a particular community. If it is above a certain amount, it is no longer attractive to the community, which inevitably means that you will stop providing the service to the regions. Various examples have been given. There will be far more air travel between the main centres with nothing in the regions. The more the charges increase, the greater the profits for certain companies but the eventual result will be no more regional service in Canada. That is the reality and we must realize it.

    I'll be frank and say that it would have been very interesting for all members of the committee to attend the meeting of your board of directors. I can tell you that these people are not all against the Liberal Party but they all decried what is happening in the industry and went so far as to say that this will mean the end of regional transportation. They note that airplanes will have to travel greater distances to be profitable. That is the present state of affairs. Why is this so? Because before September 11, there were airport improvement taxes and so forth, and the economy was prospering but since September 11, there has been a drop in activities but your fixed costs have only been increasing. So inevitably you have been trying to make your operations profitable and there is less frequent service provided by air companies to certain centres. There are even some large centres that, because they are not far away from each other, will no longer be served by certain air companies. This phenomenon will continue until the government decides to make the people of Canada realize that if they wish to have air service, then taxpayers will have to make a certain financial contribution.

    As far as I know, the road haulage companies do not pay for security at the border. It is the department which is responsible, using taxpayers' money. In the case of aviation, the industry pays all the related costs, all the renovation charges for airports and so forth. Whether it be NAV CANADA or ADM, there is just one payer, that is the air company, that makes out a cheque.

    I learned a great deal during this meeting. I heard about air renovation in Canada and excessive costs. I can understand all of this. Things were going well, the airport authorities were making money and decided to build fine airports, although it was not necessarily the choice of the industry. I heard that some authorities would have nothing but the best, but you are the ones that end up paying. You are telling us today that we are going to have to stop somewhere, because no one will want to pay because people will no longer be willing to travel by airplane.

    I'd like my colleagues to be made aware of this. I think it is worth the trouble. Since the decision to deregulate air transport, private companies have no choice but to make profits on their different routes. The company that made its figures known is a profitable company. It noted that before September 11, each of its planes had to travel a distance of 376 or 386 miles, I believe, to be profitable whereas it is now 600 miles. If things continue this way, that means that service will no longer be provided between cities that are less than 600 miles apart. The companies are all going to have to do their calculations again and since the only concern is profitability, then the different regions of Canada will end up being disadvantaged.

    I'd be interested in hearing your comments. If I am mistaken, don't hesitate to tell me so, but that was certainly the impression I got. Thank you.

Á  (1140)  

[English]

    Mr. Clifford Mackay: You're right, sir. The bills all tend to come to our members. The only point I would add to your comments is that our members pass those bills on to their customers. In the end, when it's all said and done, it's the traveller who ends up paying for it all. You're absolutely right, my members are private businesses and are going to do what they have to do to try to satisfy their shareholders.

    Frankly, it's not a position we like being in. I can tell you honestly that people in my industry don't like pulling services out of communities. That's not why they're in business. They're in business to fly and make money. They'd rather put the services in than take them out. But if this reality continues, unfortunately, this will be the end result.

    The Chair: Thank you.

    Mr. Harvey.

[Translation]

    Mr. André Harvey (Chicoutimi—Le Fjord, Lib.): Thank you, Mr. Chairman.

    As our chairman pointed out in his introduction, the Department of Finance is perpetually re-examining the relevance of this additional tax.

    I am happy with the way in which you answered Ms. Desjarlais' question. You commented on the role of the Canadian Air Transport Security Authority, and you also spoke of the importance of cooperation between all partners in the industry in order to make further improvements in certain areas such as training and management of all questions related to security.

    I would like to have your feedback on two or three points. It is often said that it is not the additional cost of $12 or $24 that has brought about the decline in the number of air travellers, but, rather, that it stems from a psychological issue, that is to say, that fear still persists. It is often said that, nowadays, people are more afraid of travelling by airplane than they were before September 11.

    Secondly, I would like you to give me some information about local and international air transport statistics. Apparently, in the past few days, Air Canada has said that it is pleased with the new growth in transport here in Canada. I would like you to comment on these statistics.

    Lastly, I would like either Mr. Mackay or Mr. Everson to comment on the issue of regional air service development in Quebec that Mario spoke about earlier. We know that the Quebec government has signed an agreement with Air Canada regarding guarantees to buy a certain number of tickets in order to obtain certain financial benefits, in the regions, in terms of ticket price. This agreement has been subject to much criticism in Quebec. I do not wish to criticize the agreement. I simply want to hear the opinion of those involved in this sector and have their feedback on this issue.

    Mr. Leblanc's company, Jetsgo, used to guarantee service between Bagotville and Montreal, but it suspended its service because the Quebec government guaranteed a transport company called Air Canada that it would buy a minimum number of tickets. Ultimately, we are depriving ourselves of competition in regional transport.

    The issue of regional services is not clear cut. At a time when several companies were interested in entering the regional market, a government got involved. It could have been our government, but it was the Quebec government. I am not being partisan here, Mario knows full well that I never get involved in political partisanship. Ultimately, we have deprived ourselves of an additional carrier which was prepared to serve our region. I would like to hear your opinion on that.

    I would also like you to confirm whether there is a tariffing system in all fields of transport, be it rail, maritime or air transport. Over $8 billion has been invested in security measures. That is not to be sniffed at. I think that everybody agrees that the government cannot always assume all of these costs.

    Mr. Chairman, I would reiterate that this supplementary tax is being reviewed on a monthly basis by the Department of Finance and Transport Canada. We would all like to have some good news one day. Mr. Mackay, I would like to have your feedback on the two or three points that I have raised.

Á  (1145)  

[English]

    Mr. Clifford Mackay: Certainly. I'm also going to ask Mr. Everson to also comment on some of this.

    Let me start with your comment on what is usually referred to as the fear factor in the industry. There are two elements to it. One is the question of whether it is safe. But then the second element is what we refer to as the hassle factor. In other words, is it just too much of a nuisance to stand in line or to be uncertain about what I can or can't have in my briefcase--those sorts of things.

    The best research on this, frankly, has been done in the States. There's been some research in Canada, but unfortunately, most of the research is U.S. based. So I'm going to rely on some of that data to try to answer your question.

    What the market researchers have seen is that shortly after the incidents of 9/11, there was—no doubt about it—an enormous concern and, in some cases, a complete lack of confidence in the safety of the system.

    I want to commend the federal government for this. We did speak to the minister and other key officials about this after 9/11. There was a real concerted effort made to reassure the travelling public that the system was safe. It made a difference not only here but also in the States, because the trend changed. The fear factor influencing whether or not you were going to fly went down dramatically. It kicked back up a little bit in September of this year, because it was the anniversary. You saw a spike. But if you go and look at the market research, generally speaking, the fear factor, while it's there, is quite a low percentage in terms of the things that influence a decision to buy an airplane ticket. It's down in the 3%, 4%, or 5% range. We have a good relation with the ATA, our sister association in the U.S. which does a lot of this stuff

    The other piece that has to do with security is what we call the hassle factor. It has been more persistent in terms of negative things that make it difficult for people to decide. It went up after 9/11 and has more or less stayed up. It has become somewhat better as the systems have improved, and the level of uncertainty that the traveller faces when they go into an airport.... Most people now, particularly frequent flyers, are quite used to the new procedures. They know what to put in their briefcase and what not to put in their briefcase, and these sorts of things. So it has come down. But it is higher in general than the fear factor. It tends to run in the 8%, 9%, to 10% range in terms of the things influencing people's decision to buy an airplane ticket.

    So they're certainly there, sir. But, again, as I said in my opening remarks, in response to an earlier question, by far the highest thing that influences whether or not someone will buy an airline ticket is the price. The sort of factors that go into buying an airplane ticket are up in the 50% to 60% range.

    So you're quite right. It is something that does concern us, and this is why we are absolutely committed to working with governments and other agencies to improve security on an ongoing basis, because it only takes one incident and it could all come back again. So I certainly don't want to discount those sorts of issues, but they're not the issues we believe are influencing customers' decisions today. It's primarily the price and cost issue.

    Let me turn to statistics. I'm going to ask Warren to perhaps answer this question, but in general, the Canadian statistics....

    If you want to use Air Canada, it has done very well in two markets in the last year. The international market has been, to some degree, the saviour in terms of their business performance, having come back very strongly in both the Atlantic and Pacific. If you look at traffic growth in the Pacific market, they're in the double digits. It really is quite phenomenal how well that market has returned. That's a very, very high-margin market for Air Canada. It's long, long distance, so their costs are better controlled, and there's a high percentage of business travel. So it's a very good market for them. It has been by far their most profitable market.

    The other market they've done very well in—and I think Mr. Milton pointed this out when they issued their last statements—is Tango, which has been a success for them. The low-fare, point-to-point type of service they've been trying to do with Tango has garnered a fair amount of traffic, in fact. So that's been the good news.

Á  (1150)  

    The bad news is that the transporter market is very bad. The regional market, which is primarily Air Canada Jazz, in some parts of the country is very bad, to the point where they've laid off one-third of their flight attendants. That's a very dramatic thing to do if you're an airline. So it's very much a mixed bag, sir.

    Warren, you may want to comment on a few pieces.

    The Chair: Would you take that third question, Mr. Everson, and reply to it in the second round?

    Rex.

    Mr. Rex Barnes (Gander—Grand Falls, PC): I've been listening with great interest. I come from the east rather than the west. The farthest point, of course, is Newfoundland and Labrador.

    Every time we turn around, Air Canada seems to be doing what they want in pricing airline tickets. Every time you look around, of course, you see all kinds of games they're playing with the market. Just recently I've been aware that Air Canada is playing the same game on discounts. They've given discounts to St. John's, which is the big centre, and Deer Lake and region, but they haven't given discounts to the central portion of the province, which is Gander. People drive away from the Gander airport to go to where the tickets are cheapest.

    Even the security taxes cause a big problem, because they're just mounted on top of the higher costs in the region I am involved in. For some reason or other, it just seems that Air Canada wants to cut the legs out from under of the Gander airport and the airport authority. It's increasingly difficult to provide a service people can use because they're going to St. John's or Deer Lake, and not using Gander.

    Of course, this security tax has been nothing but a farce, as far as I'm concerned, in Newfoundland and Labrador. It's like my counterpart said, we receive no security. There's been no change in the security in Newfoundland and Labrador. Yes, there's a piece of extra equipment and people have been trained on it, but what has really been done? There doesn't seem to be more personnel. We're being gouged to death, consumers are being gouged, and nothing is being done.

    It goes back to the fuel tax. Do all carriers pay fuel tax, or is it just Air Canada charging the fuel tax? The whole situation is a bit crazy, when you look at it. Profits are being made in Air Canada and in the airline industry; however, they're not passing it on to the areas that need the extra help. In business you have to make a profit, but there has to be an obligation to the country and to consumers.

    It's more of a statement I'm making to you. You might not have any answers. I just know the airline tax is killing consumers. People are not going to fly when the tax is high. They're not going to fly when the ticket price is high. To compound it, Air Canada has been providing cheaper air fares in other areas, so people flock to those areas because of the price. I don't know if you want to say anything about that, but that's what's happening.

Á  (1155)  

    Mr. Warren Everson: We always have an answer.

    The first thing that needs to be observed is that the minister had a transitional observer. Debra Ward did a report over the last year or so following the takeover of Canadian. One of the things she noted, something I thought was very striking, was that the number of discount seats in the Canadian market overall has grown at an absolutely fantastic rate. That's partly from what Air Canada is doing in putting out Tango, ZIP, and so forth, but mostly it's the growth of the competitors. The cure for the problems you're talking about is vigorous competition from other carriers.

    One of the things that are happening now is that because costs are rising on the operators, it makes it particularly difficult for people to grow their businesses if they're small. A fuel tax is a good example. Air Canada, God bless them, can fuel in a lot of jurisdictions because they have a great, big, huge network. Whenever they can, they fuel in a cheaper jurisdiction, either a cheap Canadian province or in the United States. If you're flying Deer Lake to St. John's, you don't have the option. You have to pay the entire shot.

    In this last six months or so WestJet, which is one of the most profitable airlines in the world, has started to restructure its network to get away from markets where they can't make any money. They ought to be going, they ought to be growing, into those markets. Their whole business plan is to go into markets that are underserved and turn them around. You've seen them do that in town after town. Take Hamilton, where they've gone from almost no passengers to half a million passengers in about a year. With Thunder Bay I think they practically doubled traffic there.

    So what is WestJet doing cancelling flights? They've cancelled 14 or 15 flights. They pulled out of a town recently, as Ms. Desjarlais knows very well, and when we talked to them, they said, as M. Laframboise was mentioning, we're going to have to go to the longer-haul routes; we can't crack these small markets anymore because the tire trade--automobile traffic--is too serious a competitor for us now as so much new cost has arrived.

    We didn't total it up and I don't want to bore the committee, but we have had $800 million of new costs to the sector in a single year, and this is an industry that makes, what, about $13 billion or $14 billion in total in a year. I'm not asking you to feel sorry for the carriers--I don't think we deserve anybody's sympathy--but that's going to the passenger. There isn't $800 million of new passenger demand in our market today. In fact, the whole trend--and you've seen it all over the country--is to try to get cheap. People are trying to respond to that by putting cheap fares in the market.

  (1200)  

    Mr. Clifford Mackay: I'd only add one point. Yes, Air Canada and WestJet made money in the third quarter, but if you look at the profit performance of this industry in the last 10 years, my heavens, you'd have been better off buying Canada Savings Bonds as an investment. It's not where it needs to be for us to have a viable, sustainable industry in the country. It's not good for anybody, small towns like Gander or anywhere else, to have an industry that's always teetering on the verge of a financial crisis. That's a real problem, and this whole issue isn't helping it.

    Mr. Rex Barnes: I think what Air Canada or the airline industry has to realize is that they're in the business to make money, but at some time there has to be an approach taken to assist and to provide service wherever possible for the travelling public at costs that are feasible for people in rural areas.

    Mr. Clifford Mackay: We'd love to do that, sir, but it gets really hard when people impose the kinds of costs we're talking about today. I'm not just talking about Air Canada. Go talk to Air Labrador and go talk to Eastern Provincial Airways. They're having the same problems.

    Mr. Rex Barnes: There's no doubt, and if we do nothing, something is going to happen where these individuals are not going to be able to function and carry out a service.

    Mr. Clifford Mackay: That's exactly the concern we're raising: people are going to get in their cars, and once they get used to that, we'll never get them back.

    The Chair: Thank you, Mr. Barnes.

    I'm going to the second round, Mr. Proulx.

    But just on that point, if you analyze the airlines in North America, starting in Canada with Wardair, Canadian, and the recent Air Canada thing, you can't blame the consumer for the decisions made by the management of these companies in assuming huge debt obligations. I'm sure that when you look at the operations of these airlines, the servicing of the debt may be the largest single factor. Is that...?

    Mr. Clifford Mackay: If you look at the mainline carriers, Mr. Chairman, you're right, their debt servicing costs are enormous, and I would never put that on the back of the consumer.

    The Chair: But the consumer ends up paying it. We're talking about trying to analyze a security cost, Mr. Mackay, and we're trying to bring it down. I think that's our concern, but what restriction do we have on these guys who go out and assume these huge debts and then think they're going to get it back off the back of the consumer? We're talking about something happening in the corporate world today that is unconscionable.

    Mr. Clifford Mackay: Well, in general, Mr. Chairman, when companies do that and get themselves in that trouble, there's usually a market response and it's usually pretty definitive. They go broke and they disappear, and that's exactly what happened to Canada 3000.

    The Chair: I'm sorry to have interjected that.

    Mr. Proulx.

    Mr. Marcel Proulx (Hull—Aylmer, Lib.): Thank you, Mr. Chair.

    The first part of my questions I will do in English because I want to quote from one of your documents, if you don't mind. On the first page of your backgrounder you state that the government is taking more money from the airline sector every year, and you say “Most of this money goes to general revenues and does nothing to support aviation or the people and businesses that depend on it.”

    Granted that we've changed the rules, that we've changed the airports, that we've changed NavCan, and that we've changed a lot of these different services to the aviation industry, what are, briefly, all the services the federal government, out of these taxes or out of other taxes, is offering your members? There are still services being offered.

    Mr. Clifford Mackay: Let me say that the federal government is offering services to our members in essentially two general areas. The first is security--and we've talked about that today--and the service being offered is primarily through the Canadian Air Transport Security Authority. That service is being paid for, frankly, by our customers. I don't know if you'd call that a government service or not, but it is a government crown corporation and they are doing it, so you'd have to say yes to that.

    The second service they offer us is through the Civil Aviation organization, which is part of Transport Canada. There's a relatively large organization staff; I'd have to check my numbers, but it's probably in the order of 400 people. What they exist to do is to regulate us. They're our regulator, our safety regulator and to some degree our security regulator. In general, we pay a number of administrative fees to that organization to the tune of about $20 million a year. The fees are not directly for safety regulation but for a whole range of other administrative things that are around safety regulation: registering airplanes, getting an operating certificate, moving an airplane from one place to another, bringing an airplane into the country, certifying an engine, making a change to our administrative or operational manuals, and so forth.

    Those are the two things they do for us in general. They no longer provide us with any air navigation services; that's a private company and we pay for that. They no longer provide us with any airport services of any shape or description at all. Excuse me, there are three very small airports, two on the west coast one, I know...I'd have to go check, but it's frankly minimal. Those are essentially the services we get from the Government of Canada.

    Now, we're regulated by other people too: customs, immigration, food, etc. There is a whole range of people who love to regulate us, but essentially those are the basic services, sir.

  (1205)  

    Mr. Marcel Proulx: And what you're saying is that the services you're getting from the civil administration, for example, are pay-as-you-go services in the sense that if you want to register a plane, they don't say to you, okay, we collected taxes from the Canadian taxpayer for six months so we're going to give it to you free. No, what they're saying to you is, hey, you're registering a plane and here's the bill.

    Mr. Clifford Mackay: And some of these bills are big. To get an aircraft certified--well, go talk to Bombardier. You're talking about hundreds of thousands of dollars to get, for example, pilots checked out. Sometimes you're talking $10,000 or $15,000 to get an airplane imported into the country. Some of them are small charges, $50, $60, or $100, but some of them are substantial charges, especially for small companies.

    Mr. Marcel Proulx: Except you're not saying that these services should not be pay-as-you-go. Whether they charge $100 or $100,000 to Bombardier, that's part of the business of Bombardier.

    Mr. Clifford Mackay: Yes, the only thing we ask is that the fee bear some resemblance to the cost. It doesn't always, and that's a concern.

    Mr. Marcel Proulx: That's why the committee is looking at the question of how much that fee should be.

    Mr. Warren Everson: I think most people believe that the Canadian government subsidizes aviation. We get that quite frequently. I don't think it's understood either in Ottawa or generally in the country that the Canadian government is profiting from aviation to the tune of some hundreds of millions of dollars, and it's quite startling to people when they find that out. We resent higher costs in our air tickets, but I don't think it's understood that a substantial amount of the money is going to the Crown and is not coming back into aviation or even into transportation. It's going off into general revenues.

    Mr. Marcel Proulx: Do I still have time, or do I go on the list?

    The Chair: I'd like for you to ask this question. Tell us where we're getting this money, through you, Mr. Proulx.

    Mr. Marcel Proulx: No, I want to ask him something else.

[Translation]

    The members of your association are Canadian airlines. Do you play a role in rate-setting? I know that my question leads us to an issue more delicate than that of tax tariffication; this brings us on to the issue of competition. Let me give you an example.

    In western Quebec, in Gatineau, there is an outstanding airport. The airport was built several years ago by the Société d'aménagement de l'Outaouais, which was a provincial government agency. Following that, the SAO handed over the airport to the old City of Gatineau, and now the airport belongs to the new City of Gatineau. For the past 25 years, it has proven difficult to find a carrier who makes enough of a profit to be interested in staying. I believe that, to date, there have been five or six different carriers at the airport. The principal route served has always been Gatineau-Quebec, Quebec-Gatineau.

    The Quebec government asks its employees to travel in Quebec and not in other provinces. If the Quebec government were to send public servants to western Quebec, it would ask them to travel within Quebec. They would need special permission to land in Ottawa, because it is in Ontario.

    Why is it that your association has allowed Air Canada to adopt questionable competition practices for so many years? As soon as a company, be it PenAir or another, started to provide a Gatineau-Quebec service using 8 to 10-seater planes, Air Canada, as if by chance, launched a seat sale on its Ottawa-Quebec, Quebec-Ottawa routes. Why is it that your association has never taken steps to ensure that competition amongst its members—these carriers are all members of your association—be healthy and fair?

  (1210)  

[English]

    Mr. Clifford Mackay: To start with, I should say that we're a trade association. We're financed by our members. We're not for profit. Our mandate is to represent the interests of the industry and to try to improve the level of service collectively as an industry. So in that context, for us to play the kind of role you define would be difficult. But I think there's a more--

    Mr. Marcel Proulx: Excuse me. Therefore, you're acting as lobbyists--

    Mr. Clifford Mackay: To some degree, yes.

    Mr. Marcel Proulx: --period.

    Mr. Clifford Mackay: Well, let me just--

    Mr. Marcel Proulx: Do you have a code of ethics for your members?

    Mr. Clifford Mackay: We have a code of ethics.

    But let me go on to say that it would be even more difficult to do what you suggest because, frankly, I think our lawyers would tell us that it would be against the law. For me to convene a meeting and get my members in a room to sit around and talk about their pricing practices collectively is against the law. We simply cannot do that. It's called collusion.

    Mr. Marcel Proulx: I'm not talking about price-fixing. I'm just talking about everybody playing on a level field.

    Mr. Clifford Mackay: It's a competitive industry, and people price to beat their competition. That's what they do. I don't know how we can--

    Mr. Marcel Proulx: Meanwhile, back at the ranch we have no air service from western Quebec to anywhere else.

    Mr. Clifford Mackay: I agree, but there are other issues there, and I think we've been talking about some of them this morning.

    Mr. Warren Everson: You were talking about calling in some other members of the industry. I was talking to John earlier on. If you have an opportunity to see WestJet or any of the other smaller operators, such as Jetsgo, I think it would be very meritorious for the committee to ask, what's the best way to help you guys grow? Of course, our line this week has been very aggressively that the worst way to help them grow is to pile gigantic new costs on the short-haul discount traffic where the new cost has such a big impact on traffic demand. We have a serious problem. As a nation we're making a decision to squeeze the very part of the industry that is supposed to offer the most vigorous competition.

    The Chair: Thank you.

    We're on the second round now. We'll go to Mr. Epp, then we'll come back to André's third point.

    We'll ask for your reply on that, Mr. Everson.

    Mr. Warren Everson: I do want to know at some point where the Crown draws its revenues from the aviation sector.

    The Chair: Perhaps you could include that in your response.

    Mr. Warren Everson: We'd be anxious to get that in there somewhere.

    The Chair: Thank you.

    Mr. Epp.

    Mr. Ken Epp: I would like to ask another follow-up question on whether you and your industry have ever done a study and issued a report on the total amount of money you take from passengers and send to the government.

    I'm aware of a number of them. There is, or was, an air transport tax. There are airport leases you have to pay for. There are some other airport fees. There are Nav Canada fees. There are air safety fees. I think, in some instances, people going over our continent have to pay over-flight fees, and that's either to Nav Canada or to the government, or both. There are fuel taxes.

    I understand that if, after all of that, you actually make a profit, you'll end up paying income tax. If we were to even go a little step further--I know this is perhaps a little unfair--of all of your employees, I would say most of them send between 30% and 50% of the money you give them to Ottawa. My view is that you, like many other sectors in the Canadian economy, including individuals, are being taxed to bloody death. My mother told me not to use that adjective, but it's the strongest one we could use here on the public record.

    Have you ever done such a study?

  (1215)  

    Mr. Clifford Mackay: The report we issued on Monday goes a long way to answering those questions. I'm not sure if it does it entirely. We don't talk about the amount of taxes we generate from our employees.

    In terms of the direct costs, the cheques that we cut or that the airport authorities cut on our behalf directly, that's laid out quite clearly in the report. The big ones are the security tax, the rent, and the fuel tax. The fuel tax is roughly $100 million a year. The rent last year was just shy of $250 million, and it's going up again on January 1.

    Warren, what was the latest estimate on the security tax?

    Mr. Warren Everson: On the security tax, we're supposed to throw $430 million off this year. I think we're going to fall substantially short of that. I'm guessing it would be about $370 million.

    Mr. Mackay is also ignoring the fact that we pay a giant amount of GST, PST, HST, QST for our operations even if we're not profitable. That arrives on our passengers. We get a GST credit. We get most of our GST back, but our passengers don't, of course.

    Mr. Clifford Mackay: The really simple stuff to track is somewhere in the order of $600 million on an industry whose total revenues are $14 billion and whose profit, I hope, this year will be somewhere in the order of $300 million in total. That's WestJet, mainly.

    The Chair: I don't think that was an unfair question. Tell your mom it was not an unfair question.

    Mr. Ken Epp: It wasn't the question; it was the adjective I used. She said, it doesn't suit you well to use the word “bloody”.

    The Chair: At the end of the day, the final question is obviously going to be this. If this committee can come up with some savings, what assurances is your industry going to give us that it just isn't the savings that will find its way back into the price of the ticket?

    Mr. Laframboise.

[Translation]

    Mr. Mario Laframboise: Before asking my question, I would like to make a preliminary remark. Personally, I am convinced that those who lose out the most with this tax system are the regions, which largely stems from the fact that the air industry has to bear all of its own security costs. As you said earlier, it is the international and major routes that are profitable, not the regional routes.

    There are probably three major carriers who sit on the board of directors; the others are regional and inter-regional companies. We are aware of their plights and we know that things are not going well in their industry. They do not want to say so and they carry on, but it is inevitable, because their airplanes would have to cover greater distances in order for these airlines to be profitable. There will be a move towards road and rail travel. In the rail and car sectors, people do not have to contribute to the cost of dealing with security issues. Yet transport security is increasingly threatened, be it on waterways, railways or highways. The Americans accuse us of having security problems virtually everywhere. All security is paid for by the State, except in the case of the air industry, where it is the industry itself who bears the costs.

    The problem is that regions need air services to develop and flourish. I was listening to my friend André earlier. I am all for private business, but what do we do when it is not profitable? The Quebec government made a choice. Was it the right choice? We can question their decision. But the regions were crying out for help. They were saying that there was a problem with regional transport, and the Quebec government signed an agreement with an airline. It could have been a different one. The problem is that there was a cry for help and people saw that regional air transport was dying.

    It's the same problem in the Atlantic region, as our colleague pointed out. There is a problem because airplanes have to cover increasingly large distances in order to be profitable. All these costs mean that one day there will be no more service. What we should we do? It's a problem.

    Marcel was speaking about Gatineau. In the days when it was regulated, we were able to give good routes to companies and tell them that they also had to provide the Gatineau-Quebec service. Today, it is all about the free market, private enterprise. If the federal government goes down that road, there will be problems. It will be the law of the jungle, and it will be the regions, and not big cities, who will lose out. We have to bear in mind that there are 30 million Canadians in a country that is bigger than the United States, yet there are 300 million Americans. Their airplanes, however, cost the same amount. I don't think that they are any less expensive when they are bought in Canada. All that costs money. And it is understandable that the industry has to charge fairly high prices.

    At this point in time, do market studies suggest that there will be short-term development in the regions? Do you think it will be possible to make these routes profitable, or do you think that, once again, we are going to do away with regional services?

  (1220)  

[English]

    Mr. Clifford Mackay: I wish I could give you a very optimistic answer, but I don't think I can. Unless we address this problem of cost...and it's easy to point to one thing or another thing, but it's the accumulation of these costs that's killing the market. Unless we address that problem, I'm quite pessimistic about the ability to provide even the level of air service we now have in smaller regions, and if you want to try to improve it, boy, that's tough.

    The really good news is that what has emerged in our industry in the last five to six years is a different business model, the low-cost carrier. Whether it's CanJet or Jetsgo or WestJet, they're out there and they're prepared to serve these markets, but not at any price. And we really do need to get collectively together and get costs down so you make some room for these people to compete, because they're competing against the automobile. I'll be quite frank with you. Most of these companies don't really care what Air Canada is doing. Most of them don't even track what Air Canada is doing. They track what the bus prices are and what's the cost of gas, and how far can they get people from automobiles, and they worry about things like VIA Rail being subsidized. That's what they worry about. And every time we put more cost into the market, these are the guys who can't come and play, and they're the guys who are going to make a real difference in the future in the markets we're talking about. It isn't the carrier whose fixated on flying to Tokyo.

    So that's the reason we have to get the cost down, because if there's a hope, the hope is with these sorts of operators.

    The Chair: Thank you, Mr. Laframboise.

    Mrs. Desjarlais.

    Mrs. Bev Desjarlais: This is a quick question to follow up on what Mr. Barnes was asking when he mentioned the fuel tax. My understanding is that some airlines also charge a fuel surcharge on their ticket price. It's my understanding that not all airlines do this, but Air Canada does, at a time when, say, WestJet doesn't--

    Mr. Clifford Mackay: Let me address that question because, frankly, it's something we cleaned up. We had a press conference during our annual general meeting in Calgary a week or so ago and this was an issue that--coming back to the question--we did address as an industry.

    Debra Ward observed on it. Travel agents observed on it. We were getting complaints directly from travellers who were saying to us, “We're fed up. This is confusing. One guy has an insurance charge, another guy has a fuel charge--”

    Mrs. Bev Desjarlais: Could you quickly tell me why, because I want to get another question in. Sorry.

    Mr. Clifford Mackay: No, that's fine. What we basically did was say anything that is legitimately our cost--fuel, insurance, air navigation services, all that stuff--has to be in the price that's advertised, period. Everybody's agreed to that and that's where we're headed.

    Now, I can't tell you that today, if you call up, you're going to get that, because it'll probably take a month or two since we have to refile tariffs and do a bunch of legal and technical stuff. But that's where we're all going; we're committed. So hopefully that problem will go away.

    Mrs. Bev Desjarlais: Okay. When you say “the federal government profiting”, are you using the figures the federal government takes out or gets from the airlines or whoever, or are you considering the cost of operating those government departments, the administrative fee of having a Department of Transport, a civil aviation department, of having the minister, quite frankly, because I think that's an administrative cost that would go along the lines of a cost of running the air transportation--

    Mr. Clifford Mackay: What we try to do is net out all the costs where we get direct services, but I'm--

    Mrs. Bev Desjarlais: So you don't take that and then subtract the cost of--

    Mr. Clifford Mackay: No, no. I'm confident the minister would say this as well, if he were here. They do not charge and they will not charge for safety regulation. That's a public good and that's primarily what we get from the department. For the administrative services, they charge us for them all. But the public good of air safety, they don't charge us and, frankly, we very much agree with that principle. We think that if you charge for public safety, that's the wrong--

  (1225)  

    Mrs. Bev Desjarlais: And quite frankly, I would think the government ensuring that an aircraft is registered, that pilots go through a program--all those things are part of public safety, so they're not unreasonable costs that--

    Mr. Clifford Mackay: I didn't say they were unreasonable. I said they are real costs.

    Mr. Warren Everson: To the issue, and I think your point is well taken, there's a department over there, a lot of people. When the airport devolution process was going on and they were negotiating with Winnipeg, and Winnipeg said it didn't want to pay this enormous amount of rent they have in mind, the Crown said, “Well, we don't want to lose out on the revenue stream”. I remember Fred Fletcher and others coming back and saying, “You had 5,000 people managing the airport system and you're going to almost zero and you're not concluding any savings; you're not concluding that as part of your net at all”. So they ended up with a system where they're now extracting a quarter of a billion dollars from airports, and every passenger going through an airport pays some part of that, and they haven't taken in any of their administrative savings.

    Mrs. Bev Desjarlais: Since the security charge is not charged in other transportation fields right now, would it not be reasonable to suggest there shouldn't be a security charge? Should those dollars not be coming from general tax revenue, since we all benefit from the security? Should the airport authorities not pay a portion of the security because they are benefiting for their infrastructure they have there, as well as the airlines going back to paying a portion for what they are receiving for the part they are doing? Then the real security issue--which is what I think we all want to see--the real security side, could be dealt with through the Solicitor General, through a security force that is really doing the job of improving security. That way, we don't have to worry about tracking whether the airlines are giving somebody a break. We get rid of that security fee and we go back to doing certain things a certain way,and we benefit everybody.

    I also believe there would be greater control over the airport authorities into that costing, because they have representatives from those communities and those regions that are directly affected and there would be greater onus on them to ensure cost savings to their region.

    The Chair: Thank you.

    As you can appreciate, Mr. Mackay, the tone of much of the questioning is based on a continuing service to the regional areas of the country. By way of background, I can remember Mr. Milton, who I think is the largest contributor in your organization, pleading with this committee not to ever look at taking away the regional carrier services from Air Canada because that was the lifeblood of Air Canada.

    I'm sitting here listening to this evidence today--

    Mrs. Bev Desjarlais: It brought us to tears.

    The Chair: Yes, it brought us to tears. You were there, Bev.

    How can you change in 12 months, 18 months? He was pleading with us that Air Canada would not exist if it didn't have its regional carriers.

    Mr. Clifford Mackay: Let me start off with a couple of the basics. I think if you asked Air Canada today, they'd say the same thing as they did say to you then, that they need the regional feed. If you put it in business terms, they're looking for passengers to be fed out of the regional markets into their major centres, particularly Vancouver and Toronto but others as well, so that they can then amalgamate all that traffic, put them on the international flights, the transborder flights, the sun flights for the winter, this sort of stuff. That's still a very critical part of their business strategy; don't ever misunderstand that.

    But the issue quite simply is, particularly for Jazz, they're facing a crisis. The costs have gotten to the point where they simply are saying they just can't afford to keep servicing it. They're looking at all kinds of things. They're out there trying to do deals with what we call tier-three carriers to provide--

    The Chair: Mr. Mackay, I understand what you're saying, the major carriers rely on the feeders, but the plea was, please let us handle it, let us continue to own, let us offer the service to the Canadian people on these feeder lines.

    Mr. Clifford Mackay: That's their business strategy. You'll have to ask them what's changed. I can tell you one thing--

    The Chair: We will, I will, yes.

    Mr. Clifford Mackay: I can tell you one thing that has changed. They have changed their business relationship between Jazz and the main line. That has changed in the sense that Jazz has much more flexibility than they used to have to make their own decisions.

  (1230)  

    The Chair: Thank you.

    Mr. Harvey, your third question. Then on to Mr. Everson.

[Translation]

    Mr. André Harvey: Jetsgo, through Mr. Michel Leblanc, who is most certainly a member of your association, has criticized the fact that, every year, the Quebec government guarantees that it will buy $13 million to $14 million worth of tickets for its public servants. It goes without saying that Mr. Leblanc's company is strongly opposed to this practice, and they are not alone in opposing it.

    What do you think would happen if all provincial governments signed similar quasi-exclusive agreements with one particular carrier? Do you think that the regional transport cause would be helped by short-circuiting initiatives undertaken by other regional carriers?

    What would WestJet say if, for example, the Alberta government signed such an agreement with Air Canada? Would they be happy about the situation? What is your position regarding your members who believe that the State should not make strategic choices, in terms of buying tickets, which undermine other carriers?

[English]

    Mr. Clifford Mackay: The first thing I would say is that it is not unusual for airlines to go and try to do deals with very large users, be they either governments or individual companies. In its heyday, for example, Nortel had a separate arrangement with Air Canada, and usually that's done for business reasons. They'll say, we're a big volume player and we want a price discount. Those sorts of things happen. So I don't know enough about the details of the Quebec deal to know whether or not that was part of it, but it's certainly not an usual commercial practice for companies to do those sorts of things with airlines.

    Would we feel comfortable if every province in the country decided to pick their favourite airline? I think in general our members would have some concern about that. Frankly, it has happened in other jurisdictions. The Yukon did it recently. But I--

[Translation]

    Mr. André Harvey: Mr. Mackay, that is not quite correct. As far as I know, although I could be wrong, the Quebec government did not choose Air Canada as a result of a process of competitive tendering, that would have allowed different companies to make submissions and for the best to be given the contract. This, on the contrary, is an exclusive agreement with Air Canada which allows for a package of tickets to be bought for its public servants at a privileged rate; this deal is worth between $11.5 million and $14 million guaranteed each year.

[English]

    Mr. Clifford Mackay: I don't know what it is.

[Translation]

    Mr. André Harvey: In my opinion, Jetsgo and several other stakeholders have every right to complain about an agreement which, as well as being exclusive, was concluded confidentially. If the Quebec government had requested submissions from Jetsgo, WestJet, Air Canada Jazz and so on, it would be a different story; but, at the moment, we have an agreement which favours one specific major carrier and allows it to get the share of the market belonging to other regional carriers which, in turn, allows it to fill up its flights towards destinations which are a little bit more exotic than Bagotville and Gatineau.

[English]

    Mr. Clifford Mackay: All I can say is I don't know the details of the transaction and I don't know how I would know.

    The Chair: You can leave your question on the details of the transaction. Our clerk is going to work with Mr. Harvey, and once those details are received we will give them to the members of the committee. And you're a member of the committee today, Mr. Mackay and Mr. Everson.

    Mr. Clifford Mackay: Thank you, Mr. Chair.

    Do you have a point to make, Warren?

    Mr. Warren Everson: This kind of thing will happen more and more as the market starts to fail in the regions. Today, the Minister of Transport is in receipt of a number of requests from airports that have lost commercial service. Of course, people from the towns say, “You've got to support our airport and keep it alive until we can get the traffic back”. Now the issue of fairness becomes extremely serious. If Alma gets a subsidy to keep its airport in business, Mont Jolie will complain, and the like. This kind of thing will spread across the country.

    The only solution that is really cost-efficient is to get the cost to consumers down and stimulate the market. Then carriers, whether it's Air Canada and its children or some other carrier, will make that market go. I think everybody on the committee knows that smaller airports don't care how many passengers go through, because they get their money from the airplanes. The best way to support those airplanes is to have one more flight a day. That makes an enormous difference in the budget of a small airport. That's what's drying up now. Even if carriers are maintaining service to a town, they're pulling back on frequency, and that's $10,000 or whatever a month less landing fees. That's what's going to cripple the small airports.

  (1235)  

[Translation]

    Mr. Marcel Proulx: I understand your position on tax reduction. But do you believe that the Canadian government should introduce other security measures—we are not talking about costs here, but security measures—or do you believe that, on the contrary, the government has fulfilled its role and has accurately targeted the measures which ought to be imposed, if you will allow me to use such a term?

[English]

    Mr. Clifford Mackay: I think the government is doing a reasonably good job, but we absolutely think there is more to be done.

    Let me focus on a couple of areas. Bill C-17 is before the House now. We need to get clarity on the legal framework we're operating under as companies, so we know who we can and can't legally give information to. At the moment we're in a bit of legal limbo, and that's not good for the system. It really needs to be clarified. We're giving information to the U.S. government that should be given to some Canadian agencies, and at the moment we're not able to do so because the legal structure is not in place. So I urge the committee, and the government generally, to get that house in order.

    Secondly, we believe very strongly that we need to focus more energy and effort on technological solutions to some of these problems. Simply hiring more people and putting more people out there isn't going to result in better security over time. We need to deploy better technology.

    A good example is cockpit doors. We have cockpit doors coming into the system right now that are much better than we had in the past, but they're probably not good enough to allow us to reduce the number of armed officers on board aircraft. They're on the airplane to protect the cockpit. But there is technology out there, and if we could get it deployed, we could perhaps reduce the number of RCMP officers we have sitting on airplanes, instead of doing other good security work. That's the kind of thing we need to get after.

    The other one that is very high on our priority list is to make a major improvement in our ability to properly identify people, with smart cards, biometric cards. They would be not only for the people who work in the industry--and that's where we need to start--but also for our passengers. The idea that everybody is absolutely the same in every lineup in every airport in the country is just not sensible, because they're not. We need to find better ways of differentiating the threat.

    I don't even want to think about what we would be dealing with if we had the passenger volumes that were going through North American airports in the 1999-2000 period. The U.S. system was going into gridlock, and that was without the security. We will come back to that some day, so we need to move to get a lot smarter in our security systems over time. The only real answer at the end of the day is the judicious use of good technology to supplement our system and make it better and more efficient.

    So thanks for that question. I appreciate that.

    The Chair: Thank you, Mr. Proulx.

    Do you have a second round?

    Mrs. Bev Desjarlais: I have another question, or comments.

    The Chair: Please feel free to go out of turn and do whatever you want to.

    Mrs. Bev Desjarlais: Actually, there were two comments that you had made. One was about information that can be given to the U.S. but can't be given to Canadians. I'd specifically like to know what information and what Canadian organizations it can't be given to that you think it needs to be given to.

    Also, regarding your comment about smart cards for employees, my understanding is that there's this fantastic security check that's put in place by the airports right now on all their employees. We heard about this great system of checking, where they go through CSIS and the RCMP. So I just can't imagine that your employees would be any kind of a security issue whatsoever.

    Mr. Clifford Mackay: Do you want to do the first one, first?

    Mr. Warren Everson: I'll do the second one first. Okay?

  (1240)  

    Mr. Clifford Mackay: Okay, go right ahead.

    Mr. Warren Everson: I'm coming back. Don't worry.

    CATCA was recently given a new duty, in addition to the duties they were given in the budget, to screen all the employees and service personnel at Canadian airports. It's interesting that they didn't get any more money for this.

    This is the cleaners, the people who work at the Tim Hortons, Harvey's, the bookstores, all those kinds of people. They have to go in and out of secure areas at least once a day, and maybe several times a day. Then there's all the air-side access for the delivery vans and every manner of thing. There's a huge issue there. We send people around the country servicing aircraft at a station that is not their home base. They all have to be escorted now. So that's a great big field.

    What Cliff is referring to is that you can't afford to do long-term security clearances into the financial history, and all the rest, of the people over and over again. We need to use--and there are some airports in the world experimenting with it now--biometric recognition systems, and so forth. Every time you enter, they know for sure that's who you are, and they can match your security clearance up with who you are. That's one of the forms of technology that we're rather desperate to see come on stream, because right now we're paying some extra millions of dollars just to post security guards around airports in the access areas where people come in to fix machines.

    A voice: Just following people around.

    Mrs. Bev Desjarlais: So if CATCA has now been given this job, who's doing the security check? Is it not still the RCMP and CSIS?

    Mr. Warren Everson: As far as I know it is, yes.

    Mr. Clifford Mackay: The answer is yes, but one of the problems we have--

    Mrs. Bev Desjarlais: Then how does it become an additional cost to CATCA?

    Mr. Clifford Mackay: Well, it's an additional cost for CATCA because CATCA's now going to have to administer this process. But without getting into that--

    Mrs. Bev Desjarlais: Who was administering it before?

    Mr. Clifford Mackay: It was the Department of Transport. That system broke down.

    But an example is that you have a flight crew that's based in Vancouver that needs access to air-side.

    Mrs. Bev Desjarlais: No, I understand all this.

    Mr. Clifford Mackay: You understand the problem?

    Mrs. Bev Desjarlais: Yes, I understand.

    Mr. Clifford Mackay: Well, that's the issue, but that system needs to be improved. Some people say it's perfect. Frankly, we don't accept that.

    Mrs. Bev Desjarlais: There was one more answer.

    Mr. Warren Everson: Just very briefly, on immigration and customs obligations, starting last winter the United States, and now Canada, has required us to make electronic files on every passenger who moves across the border--in and, in the case of the United States, also out. They want to access the database that the airline has on each passenger. So in addition to information you might normally have, such as your passport information--gender, age, and so forth--information that you've told your travel agent about your request for the trip and this kind of stuff, which is called the “passenger name record”, our privacy laws being such as they are in Canada right now, we're not entitled to turn all that information over to the various Canadian authorities. Last year, you'll recall, in some haste you passed Bill C-42 and Bill C-44, allowing us to give the information to foreign jurisdictions, so we are turning this information over to the Americans. We do have to turn it over to Canadian Customs and Immigration, but we can't give it to the RCMP. There are some odd circumstances there. Our privacy laws are not yet in conjunction with our security push, and we're a little bit caught in the middle. So we'd like to get out of danger there.

    The Chair: Thank you.

    There are two points, housekeeping issues. One is that at the last meeting we were advised that the Australian government had their security or transportation committee, and we were to arrange a meeting with this committee, with their people. Subsequent to that, we find that they're only going to be here a day, and today is the day. They have extended an invitation to the vice-chairs and me to meet with them in about ten minutes at their embassy. The vice-chairs cannot go, so I would like a representative from your party, Mr. Epp, or someone from the table here, and someone from over here to attend with me.

    Is that in order, Mr. Clerk?

    Mr. Ken Epp: It would be in order, but I can't go.

    The Chair: Can anyone else go?

    Mrs. Bev Desjarlais: Could you bring back a wonderful report that is totally unbiased?

    The Chair: Why would you even ask that question?

    Mr. Marcel Proulx: I've already said that I couldn't attend. But I'm sure you're going to do a fantastic job.

    An hon. member: We have all kinds of trust in you.

    The Chair: Thanks a lot.

    I'm going to take Mr. Christopher and our clerk with me.

    Mrs. Bev Desjarlais: I feel much better knowing that the clerk is going.

    The Chair: For objectivity purposes, I'm going to take the clerk with me. Does that meet with everyone's approval?

    Some hon. members: Agreed.

    The Chair: There is one other issue that I think is absolutely critical to what you folks are doing. I have on my desk the bill that was signed by the President of the United States on Monday, called the Homeland Security Act, which is 1,000 pages long. It's a huge act. It creates the second largest agency in the United States government, other than Defense. It has an annual budget that's half of Canada's. Between 75 and 95 pages deal with security in air transportation. I think they're dead serious about implementing it, right from guns in the cockpits all the way through. We have to have some input from you folks and other agencies with regard to how our regime will interact with theirs. Are you looking at that?

  (1245)  

    Mr. Clifford Mackay: The answer is yes, we're looking at that act now. Some things have already jumped off the page. Guns in cockpits is a good example. We have a very strong view on that, and that is that we don't want to see it in Canada. But there's a whole bunch of other stuff buried in there. For example, the federal government in the States is now proposing to subsidize the rates for hull insurance for their airlines. That's a real zinger if you want to look at the commercial balance between us and the Americans in terms of competition. So we're digging through that act as we speak.

    The Chair: You mean the third-party section where they go into at great length....

    Mr. Clifford Mackay: Exactly. So we're going through that as we speak, Mr. Chairman. We'd be happy to come back to the committee at some point on this stuff, at your leisure.

    The Chair: I think it's something we have to do fairly quickly. We'll talk about that on another day.

    It's very important to us, too, Marcel.

    Mrs. Bev Desjarlais: Could you direct the clerk to get us copies of the airline section so that we will be able to--

    The Chair: Done. That's a very good idea.

    Thank you to the witnesses. Thank you very much, colleagues.

    The meeting is adjourned.