Ladies and Gentlemen, I am pleased to speak with you today on the topic of Aveos Fleet Performance and its arrangements with Air Canada and provide some evidence to help with your deliberations.
I am joined today by my colleagues—Louise-Hélène Sénécal, Assistant General Counsel, Duncan Dee, Executive Vice-President and Chief Operating Officer and Joseph Galimberti.
As the committee is certainly very aware, on March 19 Aveos Fleet Performance Inc., a separate and independently owned and managed supplier to Air Canada, filed for insolvency protection under the Companies' Creditors Arrangement Act. Aveos management subsequently chose to permanently cease operations outright rather than accept an offer of emergency financing extended by Air Canada which would have stabilized the Aveos operations to the benefit of its customers, stakeholders and employees and allowed for an orderly restructuring. As an important customer of Aveos, we consider the manner in which the Aveos management and board closed all of Aveos' operations in Canada to have been irresponsible when other options were available. But before expanding on where we are today, a short discussion of how Aveos and Air Canada's relationship came to be is in order.
Eight years ago, in 2004 that is, as part of a court approved restructuring, Air Canada became a wholly owned subsidiary of ACE Aviation Holdings as several of the former Air Canada constituent parts were reorganized as separate business units. This reorganization, mandated by investors who financed the restructuring and approved by the more than $8 billion of creditors' claims, was supported by the affected labour groups and employees who ratified the new arrangements through a very public court process.
Certain assets and employees of the former Air Canada Technical Services Division were thus transferred to a new company, while Air Canada itself retained substantial maintenance capability and work. Today Air Canada directly employs 2,400 maintenance employees. In 2007, ACE Aviation Holdings Inc. sold ACTS to a group of investors which included some very well-known private equity firms and leading financial institutions, who committed to maintaining jobs in Canada while growing the overall scope of the business and becoming a larger, stronger entity. In 2008, the company changed its name to Aveos Fleet Performance Inc. This group of investors invested more than $975 million in Aveos.
Air Canada has a long record of support for Aveos. We had signed long-term maintenance contracts at advantageous terms to Aveos which should have provided Aveos with financial stability. We participated in the 2010 out-of-court Aveos restructuring through a $22 million term note that allowed Aveos to defer payments without interest penalty. We committed up to $50 million over three years to further assist Aveos as part of the 2010 restructuring. In 2011 alone, our payments to Aveos for work completed were $440 million.
We offered on several occasions over the last weeks financing support to permit an orderly restructuring and continuance of operations, including the $15 million in emergency funding that I referred to earlier. While the final amount of our bankruptcy claim has not yet been calculated, a high level estimate of the net amounts owing by Aveos to Air Canada to date is well in excess of $35 million. So we have certainly tried to help this company financially. More meaningfully, however, Air Canada supported Aveos by faithfully sending our maintenance business to them.
Since the beginning of 2011, Air Canada has undertaken 135 airframe checks and Aveos performed 123, or 91% of them.
In addition, Aveos performed 52 of 56, or 93%, of engine checks performed for Air Canada over that time frame. Work was sent to third parties only when Aveos was unable to perform it and in accordance with the terms of the commercial agreements between the parties and applicable collective agreements.
[English]
Despite this support from Air Canada, Aveos had repeatedly failed to attract new third-party business to its facilities and diversify its revenue stream. By their own admission in court filings, the company had never become cost-competitive and had suffered operating losses for several years. They admit to having had too high a cost structure and not being sufficiently competitive from a productivity viewpoint. Ultimately, their unfortunate decision to terminate operations is symptomatic of those failures and not the result of any action taken or not taken by Air Canada.
Aveos's unexpected closure of their facilities has forced Air Canada to act quickly and to put in place contingency arrangements to ensure that our customers, of whom there are about 100,000 per day, are not inconvenienced and that our airplanes continue with their regularly scheduled maintenance so they can continue flying. Our contingency arrangements are being driven solely by safety and regulatory compliance, and we will select maintenance, repair, and overhaul suppliers to perform scheduled maintenance on this basis. Safety will not be compromised for political or any other expediencies.
On a transitional basis, consistent with the high standards of our maintenance program, we have identified qualified and government-approved maintenance facilities in Canada and the U.S. to undertake work that was scheduled to be performed by Aveos. For example, seven aircraft scheduled for maintenance have already been sent to two Quebec-based maintenance providers currently used by other Canadian and international airlines, and there are a few other MROs—maintenance, repair, and overhaul providers—in Canada that have capacity, capability, and licences to do some of the work that we require. We will also look to suppliers outside Canada, given capacity and expertise constraints in Canada.
Finally, contrary to some irresponsible statements made by others in the media, I would like to categorically state that we have not sent and we will not send any work to Aeroman, the San Salvador-based sister company of Aveos, under any circumstance.
On a longer-term basis, Air Canada is encouraging MRO companies from across Canada and around the world to conduct due diligence and assess whether any of the former Aveos operations may be viable in Canada under new ownership. We have further publicly indicated that we have a strong preference for working with a global MRO provider or manufacturer that has an interest and an ability to provide component, repair, and overhaul services in Canada, with particular emphasis given to Montreal, Winnipeg, Vancouver, and Toronto. Air Canada knows that a pool of well-trained, qualified, and talented people exists and is available in those cities and will favour MROs or manufacturers with globally competitive cost structures that have established or will establish some portion of their operation in one or more of these cities, employing the skills of Canadian aviation technicians.
Governments can get involved through their economic development branches by encouraging these companies to set up or expand operations in Canada or assist them in setting up cutting-edge engine repair lines for new generations of engines, as an example.
Air Canada is willing and expects to work collaboratively with governments and these potential suppliers toward viable, long-term, cost-competitive, and productivity-competitive arrangements. To this end, since the Aveos filing we have been in close contact with the office of the Minister of Transport, Infrastructure and Communities, as well as with provincial and municipal officials. In fact, I met personally with yesterday afternoon to review this file.
[Translation]
As regards specific questions relating to the Air Canada Public Participation Act, let me state clearly and unequivocally that we continue to be in full compliance with the letter and the spirit of the act, despite the demise of Aveos.
[English]
On December 1, 2010, this very committee heard from officials from the Department of Transport that in their view Air Canada was then compliant with all aspects of the law.
In May 2011, less than one year ago, Mr. Justice Newbould of the Ontario Superior Court of Justice ruled on the issue of whether we were in compliance with the maintenance facility requirements of the act following an application filed by the International Association of Machinists and Aerospace Workers, IAMAW, the union that represents these workers. The court found that Air Canada did meet the act's requirements on the basis of our own overhaul and maintenance functions.
I quote from the conclusions of the Honourable Mr. Justice Newbould:
In summary I find that Air Canada does maintain operational and overhaul centres in those cities...by itself maintaining certain overhaul functions through its line maintenance operations.
Air Canada, irrespective of Aveos, continues to employ 2,400 maintenance employees at various bases in Canada, including those in Winnipeg, Toronto, and Montreal. This, incidentally, is 35% higher than it was in 2007. We are satisfied that the current circumstances do not change the court's finding.
Air Canada, on a going-forward basis, is committed to remaining fully compliant with the act, as long as the act is in force. More importantly, we are also fully committed to encouraging Canadian aviation workers, and we look forward to working with industry players to develop solutions.
Thank you, Mr. Chairman, for the opportunity to present today. I will now take questions that committee members may have.
:
Thank you very much, Mr. Chair.
I'd like to thank you for the invitation. We're here today to talk about the Air Canada Public Participation Act, or ACPPA, as it's commonly known.
[Translation]
I will not discuss in detail the history of Air Canada's privatization or the creation of Aveos as a private company. I think you already know the facts about that.
However, I want to highlight a number of points.
[English]
It's worth recalling the context for the legislation that governed the privatization of Air Canada. The late 1980s and early 1990s were a period of major change in the aviation field, as elements that had previously been part of government were privatized or their operations devolved to the private sector. This was a phenomenon that was seen elsewhere in the world and not just in Canada, but it's helpful to view ACPPA in that context.
From a policy standpoint, devolution was intended to put these companies into the private commercial sector and allow them to operate and make decisions based on market considerations, with a view to growth and financial independence. The parameters of the ACPPA legislation that were put in place at that time, and which remain in place today, flow from this philosophy and this approach.
[Translation]
However, certain obligations were maintained in the bill that governed Air Canada's privatization.
[English]
Air Canada was required to maintain official language obligations and it was required to include in its articles of continuance provisions requiring the corporation to maintain operational and overhaul centres in Mississauga, Montreal, and Winnipeg, and its head office in Montreal. I'll come back to the specifics of some of these obligations shortly.
For now, I would like to note that the government of the day and Parliament would seem to have sought a delicate balance between the continuing obligations imposed on Air Canada and the desire to create a private company functioning in a commercial marketplace.
[Translation]
The second point I want to bring to your attention was also raised by when he appeared on Tuesday. Air Canada and Aveos are private companies that make their own decisions. The separation of Air Canada and Aveos took seven years, which is quite a remarkable period of time in itself, before finally becoming official in 2011.
[English]
Third, I wanted to share with you the context in which these industries operate today. Aviation is a global business, as we heard during the previous presentation. Whether we're talking about carriers or maintenance, repair, and overhaul companies, the environment in which they operate is global. Looking worldwide, we see a consistent focus on competitiveness within this industry while maintaining high standards of safety and security.
The International Air Transport Association, or IATA, recently downgraded the profit outlook for the global air carrier industry in 2012, predicting a profit margin of only 0.5%. We must assume the situation is worse for some carriers than for others.
Furthermore, passengers expect low ticket prices. The committee may be aware of the meeting just last week organized by the Canadian Airports Council on the leakage of passengers from Canada to airports in the United States.
As you are well aware, your colleagues in the Senate are currently undertaking a study on emerging issues related to the Canadian airline industry, and they have received numerous submissions from stakeholders indicating that cost-competitiveness of our aviation industry is an important concern.
[Translation]
In light of this context, I will now talk briefly about the question at issue, which is whether Air Canada is complying with the Air Canada Public Participation Act.
[English]
Section 6 of the ACPPA requires Air Canada to include certain provisions in its articles of continuance. Specifically, paragraph 6(1)(d) provides the articles of continuance to maintain operational and overhaul centres in Winnipeg, Montreal, and Mississauga.
In addition, section 7 of the ACPPA prohibits Air Canada from making any articles or bylaws that are inconsistent with its articles of continuance, and therefore paragraph 6(1)(d).
Articles of incorporation or continuance are documents filed with a provincial or territorial government, or the federal government, that set out a number of corporate governance rules applicable to the corporation. These articles usually set out the company's activities: its ownership structure, usually referred as classes of shares; how the board of directors is established; and its powers.
In simple terms, articles of continuance set the rules within which the companies must operate.
Since Aveos's announcement that it would cease operations, much attention has been directed to the question of whether Air Canada is in compliance with the ACPPA.
Air Canada's articles of continuance on file with Corporations Canada include a clause stating that it will maintain operational and overhaul centres for its aircraft or their components in the cities of Montreal, Mississauga, and Winnipeg. There is no indication that Air Canada's articles do not comply with the requirements set out under the ACPPA.
[Translation]
There is no indication that Air Canada's articles of continuance do not comply with the requirements set out in the Air Canada Public Participation Act.
[English]
Quite apart from the question of whether Air Canada is complying with ACPPA, there is a question as to whether the company is in compliance with its own articles. Prior to the current unfortunate situation at Aveos, Transport Canada had consistently been of the view that Air Canada was in compliance with its articles.
We have re-examined this very question in light of the recent changes in circumstance. At the minister's request, we have sought legal advice to assist us, and this legal advice has now been shared with you today.
I would like to emphasize that compliance with articles of continuance is not driven by ACPPA. It is a requirement that applies to all corporations. For federally incorporated companies such as Air Canada, the Canada Business Corporations Act, or CBCA, is the relevant legislation.
Although questions of corporate governance and compliance with articles are normally better suited for shareholders or directors of particular companies, other parties can seek court remedies. This is what the International Association of Machinists and Aerospace Workers, the IAMAW, did in 2011, when they filed an application in the Ontario Superior Court.
As we've heard today, the Ontario Superior Court decision addressed the very question of whether Air Canada, quite apart from the work carried out by Aveos at these three locations, continues through its own maintenance and overhaul activities to comply with the provision of its articles. In that case, the judge gave strong indication that quite apart from the work done by Aveos, Air Canada would likely continue to be in compliance with its articles by maintaining certain overhaul functions through its line maintenance operations in Montreal, Mississauga, and Winnipeg.
In the absence of Aveos, it will be incumbent on Air Canada to ensure it continues to satisfy the requirements of its articles of continuance going forward, as well as its other obligations under the ACPPA and of course core safety and security requirements that apply to the industry at large.
Despite recent events, we have no reason to believe that Air Canada does not meet its obligations.
I will summarize with our conclusions.
In our view, Air Canada is in compliance with the provisions of the Air Canada Public Participation Act by virtue of the fact that it includes in its articles of continuance provisions to maintain operational and overhaul centres in Winnipeg, Mississauga, and Montreal.
Based on the opinion we received, it would appear to us that Air Canada continues to comply with its own articles of continuance despite the fact that Aveos is no longer providing the services to Air Canada. As indicated earlier, this is not a question of compliance with ACPPA but a question of conformity with the CBCA.
Thank you for taking the time to listen to me today. We would be very pleased to answer any questions you may have with regard to this matter.
I'll just note that in addition to the witnesses before you, we have invited our colleague, the director general of civil aviation, to be here, and if there are questions on safety, we would ask that he be asked to address the members, Mr. Chair.
:
With respect, I'm going to have to disagree.
The other public policy issue here is that it has been stated on many occasions, and the judge did say this, that ACPPA was somewhat vague. When a law is somewhat vague, as you know, as a lawyer, when something is not clear on its face, one goes to the statements made around it. One uses the history of the creation.
It was abundantly clear in 1988 and subsequently that the intent of Parliament was to ensure that some work remained with regard to overhauling of aircraft and their parts in Winnipeg, Montreal, and Toronto. That overhaul work is now completely gone. There is no more overhaul work for Air Canada airframes or engines being done anywhere in Canada, let alone Winnipeg, Montreal, and Toronto.
We now have a situation in which the clear intent of Parliament has been violated. A judge having said that these words are somewhat vague leads one to the next step: that is, okay, if they are vague, what did Parliament really mean? What we're getting, both from the minister and now from you, is that Parliament meant they could do whatever the heck they wanted. Therefore, they could probably stop offering services in both official languages, because Parliament didn't really spell that out as clearly as it could have. That's clearly not the case.
What's going on here is a clear attempt to union-bust. That's really what's happening. Air Canada has gone to great lengths to carve out this expensive maintenance. They've said it. You have said it: there's a competitive edge that must be had here, and that competitive edge is gone. But that's not why Parliament insisted on something. Parliament insisted on something in the ACPPA in order to ensure that work remained in Canada. We now have the single largest disappearance—laying off—of talent in the aircraft and aerospace industry since a previous Conservative government cancelled the Avro Arrow. It's huge.
Air Canada is saying “Maybe they will get a job in Winnipeg, or maybe they will get a job in Vancouver, Toronto, Windsor, or Trois-Rivières.” Yes, at half the rates. They are not going to take the jobs at half the rates with no benefits and no pension. That's what this is really all about. It's lowering Air Canada's costs. That's not what Parliament said they could do.
With respect, Mr. Legault and Ms. Burr, I don't believe that this decision actually provides us with enough guidance to say whether or not Air Canada today actually does what Parliament intended. That's just not in that decision. For you to now rely on it, and then to say in your opinion that if the government were to now interfere and suggest that they have to would be in violation of NAFTA....
It beggars belief that we are now bringing NAFTA into this equation. Parliament made a decision in 1988 that said we are going to maintain operational maintenance and repair centres in three big places. Now, if we try to do that, we're going to raise NAFTA? Can you explain why NAFTA comes into this thing?
Mr. Chair, what I'd like to do is to try, as much as possible, to simplify the issue.
I'm not a lawyer myself. I do believe in the rule of law. I do believe that whether an individual or a corporation breaks the law, there should be some justice that comes out of it.
There's a sense of frustration. The workers of Aveos, who were formerly Air Canada employees, feel that there has not been any justice, that their government has let them down.
Let's look at what the law actually says. This is paragraph 6(1)(d): “...provisions requiring the Corporation to maintain operational and overhaul centres in the City of Winnipeg, the Montreal Urban Community and the City of Mississauga”.
Now, for the average worker, including myself as someone who is concerned about the worker, we read that and interpret it as meaning that Air Canada is obligated to maintain those overhaul centres. Then Air Canada kind of privatizes and pushes that responsibility over to Aveos. A court then makes a decision that because Aveos is now there, Air Canada is indirectly keeping those jobs.
Many of the workers were not pleased with that court ruling, but they could at least understand the ruling. Aveos now is disappearing. The law saying that those jobs are supposed to be there is still in place. How else can the employees interpret the fact that, on the surface, it would appear there is a violation of the law?
If we go back to the time when the law was put into order, this was what was actually said on April 12, 1988, by Minister Don Mazankowski, the Conservative government's Deputy Prime Minister and former transportation minister, who introduced the bill in question. There are five quick points I will quote:
1. Maintenance and Overhaul Centres in Montreal, Winnipeg and Toronto are fundamental to the success of Air Canada;
2. None of these Centres will lose its importance;
3. The Centres will continue to expand;
4. The company fleet maintenance will continue to be done at those locations;
5. The Act would have to be amended if there were going to be any modification concerning the transfer of Air Canada's Overhaul Centres to another location.
Now, if I am an employee and I look at that, that sounds pretty much sealed. I realize that you can get a legal opinion on anything, on different opinions. It really seems to confuse things.
You represent the federal government. Is your recommendation to the federal government that Air Canada is in compliance with the intent and the law itself?