Thank you very much, Madam Chair.
Thank you for allowing me to speak to you today about the importance of modernizing the Air Canada Public Participation Act and, more specifically, about Air Canada's position on Bill .
With me today is Kevin Howlette, our senior vice president of Regional Markets and Government Affairs.
To start, I would like to say that we support this bill, especially because it is designed to allow Air Canada to be more competitive in a global context. The bill recognizes that the airline industry has undergone a dramatic transformation since Air Canada's privatization nearly three decades ago. It acknowledges that Air Canada is a fully private sector company, owned by private sector interests, operating in a highly competitive global industry.
Air Canada is a significant contributor to the Canadian economy and one of its largest employers. Last year, we flew nearly 42 million passengers to more than 200 destinations in Canada, the US and around the world. We employ close to 28,000 people—33,000 if you include our regional partners Jazz, Sky Regional and Air Georgian—and support approximately 30,000 pensioners. Salaries and benefits paid by Air Canada in Canada exceed $2.1 billion, and our total operational expenses in this country are close to $10 billion.
Let me start with a few words on the privatization of Air Canada in 1988-1989.
The company was sold to private investors over two years in two public offerings. The Government of Canada received gross proceeds of about $500 million for its shares, which would be about $2 billion in today's dollars. Air Canada derives no ongoing benefits from its prior crown corporation status that would put us in a privileged position vis–à–vis our competitors or for which the Canadian taxpayer hasn't been appropriately paid, none. We receive no subsidies, we have no protected monopoly routes, we have no privileged access to airports or facilities, we get no tax breaks, etc.
I will say a few words also on the evolution of the industry and the competitive landscape. During the first half of the 1990s, the airline industry experienced a worldwide recession, the Gulf War, 9/11, extreme fuel cost volatility, and other adverse geopolitical and economic events. A number of airlines went bankrupt, ceased operations, merged, or restructured. Air Canada went through its own court-supervised restructuring in 2003-2004, which, among other things, resulted in the sale of its heavy maintenance operations.
Low-cost carriers—virtually all of whom outsource aircraft maintenance—also emerged over the last 20 years. Canada's own WestJet launched in 1996 and today operates with about 40% market share domestically, without any restrictions or obligations whatsoever under its constating documents regarding where it performs maintenance or how many jobs it should directly or indirectly protect.
The competitive landscape intensified in other ways too. Today, we have open skies agreements with close to 50 countries, including the United States and the 28 countries of the European Union. More than 70 foreign airlines fly to Canada, competing for our customers.
Legacy carriers around the world have been forced to radically change to survive and prosper, and despite all this change, profit margins in the industry are razor-thin, ranging since 2008 from negative 5% to 4%-5% profit in a good year. Carriers have had to significantly contain costs and capital investments, including those for maintenance, repair, and overhaul.
Turning to maintenance specifically, until the 1980s, network airlines such as Air Canada generally insourced all aircraft maintenance. The maintenance, repair, and overhaul business—so-called MRO—was not the independent and competitive industry it has now become.
Maintenance typically represents 10%-15% of an airline's costs, and it's one of the largest cost buckets. Outsourcing certain activities to qualified MROs around the world, which actively compete for this work, has become a normal, healthy, and essential development in our capital-intensive, highly competitive, and low-margin business.
A report prepared for the IATA found MRO outsourcing worldwide has grown from approximately 30% in 1990 to 65% in 2013, and the trend is projected to increase. It is estimated that outsourcing could reach 80%.
When Aveos was created out of Air Canada's 2003-04 restructuring, independent institutions invested $975 million to acquire Aveos with the objective of building a platform which could attract other airlines besides Air Canada. However, Aveos repeatedly failed to diversify with other airlines. In the 2012 court filings, the company itself said it never achieved the cost efficiencies or productivity of its global competitors. Fundamentally, this is why it failed.
After this failure, Air Canada relocated its heavy maintenance work to other qualified maintenance companies in Canada and around the world. Our aircraft utilization has since improved significantly, with reduced maintenance turn-around times and lower maintenance costs.
MROs today compete globally for an airline's heavy maintenance business based on centres of excellence, not regional work. To be globally relevant, these businesses must maintain significant capital investment in areas that are non-core for airlines, such as equipment, tooling, licences, R and D, etc. Starting a new MRO business without significant third party business would not be realistic. Our own Air Canada line maintenance labour force has more than doubled over the last 10 years. Today we employ approximately 2,400 maintenance employees in Canada, plus more than 1,000 at our regional partners—Jazz, Air Georgian, and Sky Regional. This is far more than at any other airline in Canada, and we ourselves regularly perform in this fashion many specialized maintenance tasks that would previously have been performed in a heavy maintenance environment.
While we have sent some of our heavy maintenance abroad since Aveos closed, we've also significantly increased the volumes of work outsourced to companies in Canada. Premier Aviation in Trois-Rivières performs airframe maintenance for our Embraer fleet. Avianor in Mirabel undertakes aircraft conversions and other maintenance work on several fleet types. Airbase in Montreal performs cabin equipment and other interior maintenance. Hope Aero in Toronto overhauls wheels, brakes, and batteries. These latter two suppliers will soon establish activities in Winnipeg as well. Jazz maintenance for our regional fleet is performed in Halifax, Calgary, and Prince Edward Island. All this work employs thousands of Canadians and, in an open economy with a private sector employer, competition rather than statutory prescription is the way to create and sustain jobs.
Bill acknowledges the changes in the industry and provides the greater flexibility and certainty of interpretation Air Canada requires to compete globally. Air Canada will be able to determine, at its commercial discretion, the volume and type of aircraft maintenance it does globally and in Canada, including the work done in Manitoba, Quebec, and Ontario, and who performs this work, based on competitive proposals from suppliers.
No other airline in Canada—and to our knowledge no other airline in the world—is subject to maintenance restrictions such as those imposed on Air Canada by the act—not WestJet, Porter, Air Transat, Sunwing, British Airways, Air France, American, United, Cathay Pacific, Singapore Airlines, etc. These airlines make their decisions based on the competitiveness of the quality and pricing of the services contracted and their turnaround times. We expect the same flexibility to use our business judgment, because at the end of the day we compete in the same markets for the same customers.
We have concluded settlement agreements with the Government of Quebec and the Government of Manitoba, which should create more aerospace maintenance jobs in Canada. We have agreed to collaborate to help establish centres of excellence in each of these provinces, which should be capable of attracting work from other airlines if competitive. GE, among others, has created such centres of excellence around the world to bring together people with particular expertise to focus on and improve specific products or processes through research and sharing best practices.
Another very tangible result of Air Canada being internationally competitive is our LOI to purchase the Bombardier C Series aircraft. We are proud to be the first major North American carrier to order the C Series, and we believe it sent an important signal to the market that gave other airlines, notably Delta Air Lines, the confidence to purchase this next generation aircraft.
At list prices, our order is valued at $3.8 billion for the firm order alone. This is a substantial commitment to the C Series, and to Canadian aerospace which will continue to employ thousands of aerospace workers, based on orders such as ours.
The ACPPA was adopted over a quarter century ago, in the context of an air travel industry that was completely different. Hindsight is 20/20, and I mean no disrespect to its framers when I say that it should have accounted for the possibility the industry would change, even if it was not possible to anticipate all eventualities.
Madam Chair, thank you for your attention. Air Canada is committed to the aerospace industry in this country. By creating a more level playing field, Bill will allow us to remain competitive and support job creation in the aviation, tourism and aerospace industries in Canada well into the future.
Thank you very much.
Thank you for your attention.
Thank you very much, Madam Chair.
I will be sharing my time with my colleague, Mr. Berthold.
I'd also like to thank our witnesses for being here.
First I'd like to move my motion, which I submitted to the clerk on Monday evening and circulated to members yesterday afternoon. I'd like to read my motion into the record, as it does pertain to this study.
That the Committee request from Transport Canada and the Privy Council Office any briefing notes prepared for Minister of Transport Marc Garneau for his meetings with Air Canada representatives on February 15, 2016, and December 15, 2015, and for Mathieu Bouchard (Senior Advisor, Prime Minister’s Office) for his meetings with Air Canada representatives on February 3, 2016, January 27, 2016, January 8, 2016, and December 15, 2015, and that the Committee also request any briefing notes to the Minister of Transport that served as a guide for drafting Bill C-10, An Act to amend the Air Canada Public Participation Act and to provide for certain other measures.
Quite simply, Madam Chair, the Minister of Transport was asked on three separate occasions on Monday whether he would provide any briefing materials from his department that informed his decision. The first time I asked, I didn't receive an answer. The other two times we received the following two responses.
The first was “I think the recommendations that came from the department have made their way into the act as it is proposed and which you are studying at this committee at the moment.”
The second was “If you would give us the dates that you mentioned formally”.
According to the minister's testimony on Monday, he or a member of his staff remarked that Air Canada was negotiating a settlement with the Government of Quebec and the Government of Manitoba and decided that this was the right time to introduce and pass legislation that would protect Air Canada from future litigation. To say that this legislation came as a surprise to all the maintenance workers present here today would be an understatement.
My intent in introducing this motion is to find out whether the minister received a single briefing note from his department recommending this option. I'd like to find out whether Transport Canada did a financial analysis of the impact of this bill before it was introduced in Parliament, because when asked by the Liberal member from Central Nova on Monday to quantify the benefits Air Canada will gain from this legislation, again the minister responded by saying, “It's a good question. It's one I would have to get back to you on. I think it's a big, serious question and I don't have the answer at my fingertips, but we'll look into that.”
The minister's lack of response to such a basic question makes me wonder whether his own department has provided him with any advice or recommendations on this matter. This motion aims to get the necessary background to Parliament as we review this bill. I hope that all members of this committee will vote in support of this motion.
Once again, if I can have that formalized, I would appreciate it, through correspondence or whatever way you want to formalize that. If I can have something that states that, I would appreciate it.
The second point, Madam Chair, is with respect to tenders. I'm going to drill a bit deeper on the questions that were asked about what will keep jobs in Canada. I do really appreciate the answers we're getting back with respect to different types of aircraft, etc., but let's get to the business side of it, which is that you obviously have an asset management plan. That asset management plan identifies the life cycle on your assets. Your maintenance plan's attached to that, and obviously, down the road, there is replacement after a certain period of time.
I think what we're looking for ultimately, gentlemen, is in the tendering processes you've gone through in the last year or two. It's whether, within your asset management plan, we can in fact get a net difference in terms of the costs that were attributed to that plan in Canada compared to the costs for being outsourced. It doesn't have to be specific to aircraft and it doesn't have to be specific to parts. It's just your overall asset management plan for the assets you have for your fleet.
Once again, it doesn't have to be specific. It's just a total, a total with the tenders that you released, and obviously, as you mentioned earlier, you sourced globally.
What's the bottom line, gentlemen? What's the bottom line in terms of what you sourced globally within your asset management plan? What was actually kept here in Canada, what was outsourced, and what was the difference in that cost?
Madam Chair and members of the committee, thank you for inviting us to appear before you today on behalf of the 2,600 Canadian workers and their families who were affected by the illegal closure of Air Canada’s overhaul centres in March 2012.
My name is Jean Poirier. I am the official spokesperson for the association. My purpose here today is to convince you not to approve Bill , which would confer the stamp of legality upon what is currently an illegal act. In addition, I am here especially to make you understand the vital need to retain a cutting-edge economic sector that is the envy of many countries throughout the world: our aircraft overhaul industry.
In the past four years, 355 of Air Canada’s aircraft have been illegally repaired in foreign countries. Air Canada’s overhaul centres were profit-makers before the company was sold to Aveos in 2007 and before former Nortel Networks managers and the American investment funds KKR and Sageview Capital got hold of it.
The workers who were put out on the street in 2012 are the same workers who were generating profits in 2007. The only things that changed during the Aveos years are: the new management and shareholders demonstrated that they had no knowledge of the industry, and Air Canada proved that it was willing to outsource this work to other countries. They destroyed Canada’s leadership in this sector. The workers stayed the same: workers with acknowledged expertise, a positive attitude and, especially, a passion for aviation work. It is important to understand that people who choose to become aviation technicians are looking for more than just a job: they want the opportunity to work in a field they love. Ask any of the students and they will tell you they are there because they are passionate about aircraft. And if you ask them why they are dropping out, they will undoubtedly tell you it is because of the government’s willingness to outsource those jobs. You are sending quite a message to our young people.
After Aveos closed in 2012, two companies set up shop in the Montreal area and picked up the pieces of some of Aveos’ divisions. Both companies are now turning a profit and have hired Aveos’ former employees despite the fact that they are not receiving any contracts from Air Canada. These companies knew how to draw upon the expertise of our workers to develop a profitable business model with foreign contracts.
Today, 2,600 workers are paying for its illegal action with the disruption of their lives, of the well-being of their families and of their financial security. In addition, the federal and provincial governments have been deprived of tax revenue from those workers. If the federal government considered it important to keep specialized jobs in Canada in 1988, why isn’t that no longer the case today, in light of the fact that economic growth continues to slow in both Canada and Quebec? Air Canada was built on taxpayer money. The income tax collected from Canadian workers contributes to our collective wealth, and today Bill C-10 is giving all of those taxpayers the brush-off. And who will gain from all this? Air Canada shareholders, who lined their pockets when this company was dismantled and who now, despite two firm court decisions, will be absolved of all wrongdoing.
Despite our fight to make ourselves heard, we can acknowledge that we have listened to your arguments. What you say is this: the aeronautics sector is a key part of our economic growth in Canada; we must absolutely find a way to provide complete overhaul services to Air Canada at competitive prices; and Air Canada has no wish to go back to being a maintenance service provider. You now have before you a brief with a job creation plan that meets those three criteria. The solution is in your hands.
Today, members of the committee, we are appearing before you as people who want, more than anything else, to find a win-win relationship for everyone. We want to have our jobs back, we want Air Canada to be competitive, and we want the economy in Canada and Quebec to regain traction in the aeronautics sector, where we have always been world leaders. I would like to see you go back to the basics of your political commitment, that is, to serve the nation and to serve Canadians—not to serve the interests of shareholders for whom our country’s economic development is an afterthought. Their primary interest is making money, while your primary concern should be the well-being and growth of your community.
Imagine a public corporation paid for by tax payers being privatized so it could grow and expand, only to drop 2,600 jobs illegally, with your assistance. Imagine that that corporation was in your riding, and that it was people you knew who lost their jobs: your friends, your family, your volunteers, your neighbours. Now imagine that this is a bad dream, and that a solution is within reach and that this solution will only be achieved if we all work together to ensure it succeeds.
To conclude, I will leave you with a few words by Franklin D. Roosevelt who said that “democracy is not safe if the people tolerated the growth of private power to a point where it becomes stronger than the democratic state itself.”
Madam Chair, members of the committee, thank you.
Thank you, Madam Chair.
My name is Serge Cadieux and I am the General Secretary of the Fédération des travailleurs et travailleuses du Québec.
The FTQ is a union with 600,000 members in Quebec, more than 20,000 of whom are aerospace employees. They manufacture and maintain aircraft and aircraft components, work as cabin crew members or pilots, or are employed in airports.
The FTQ recently intervened in this area by filing a motion with the Quebec Superior Court against Air Canada regarding the maintenance and overhaul of its aircraft. Our motion requesting an injunction was the only possible way to force Air Canada to comply with its legal obligations and to respect the unanimous decision by the Quebec Court of Appeal.
Now, unexpectedly, the federal government has tabled Bill . That is why we are here before you today. We are here to ask you to choose the jobs and health of the aerospace industry as a whole over this bad Bill C-10.
All of Quebec understands today why Boeing is supported by the U.S. federal government and Airbus by the European governments. The people understand that Bombardier cannot be an international player without strong government support. They understand that aerospace is not an industry like any other. It is strategic. An industrial sector may be strategic for many valid reasons, such as national security, the impact on the economy, or jobs. Canada got it right by supporting its automobile industry.
Similarly, it must be understood that the gradual disappearance of Canadian expertise in heavy maintenance of aircraft is a step backward for a strategic industry, a step backward that will have a negative impact on thousands of workers, whose jobs will be either exported or made precarious. In fact, that is what the real issue is with Bill C-10. By proposing an amendment to sections 1 and 6 of the Air Canada Public Participation Act and repealing the provision requiring Air Canada to maintain operational and overhaul centres in Montreal, Winnipeg and Mississauga, the government is siding with Air Canada, which has already outsourced the 2,600 heavy maintenance jobs at Aveos.
Worse still, by doing so, it is endangering another 2,500 Canadian jobs in the field of aerospace maintenance. To do their job properly, MPs should ask Air Canada where the 2,600 jobs at Aveos went, why they were exported, and if the expertise needed to maintain its fleet of aircraft is available in Canada. The answers to these questions will reveal that the jobs did not go to China or Honduras, but to the United States and Israel, that they were exported to create added value for Air Canada’s shareholders, and that all the expertise needed is available right here in Canada. This Parliament, which is invested with the mission of defending Canada’s public and national interests, can choose either to create and maintain employment for thousands of workers, thereby benefiting the workers, their families and their communities, or to ratify the plans made by Air Canada’s shareholders for their own interests. The public must also know that aircraft maintenance and overhaul operations help maintain an important pool of expertise for the development of the aerospace industry.
Aircraft development and maintenance are related. No one could imagine building cars without having garages to repair them in. The aerospace sector is as important for Quebec as the automobile industry is for Ontario. Montreal is the third largest world aerospace centre after Toulouse and Seattle. More than 41,000 jobs in 235 companies create 2% of Quebec's GDP. The concentration of expertise, the availability of capital and the existence of complementary companies support an exceptional industry cluster that must be protected by public authorities. By allowing the exportation of maintenance jobs, Bill C-10 is weakening one of the links in the industrial chain. We find this government negligence difficult to understand.
In closing, today, we are urging you to give jobs a chance. We believe that we have what it takes to get Canada's aircraft heavy maintenance jobs back. We have the necessary expertise. The aerospace industry needs to keep that expertise, and we can be as competitive as any other country.
There is therefore no need to change the current legislation. This industrial sector provides a safeguard against the exportation of quality jobs. It is also a deliberate choice made by Canadian legislators to protect jobs rather than to kowtow to shareholders. We cannot fault senior management at Air Canada for doing what they need to do to perform as demanded by their shareholders, but we can certainly reproach the government and Parliament for failing to safeguard the interests of the majority.
The will to keep Air Canada's maintenance and overhaul centres in designated cities meets national geopolitical imperatives and safeguards the Canadianness of the company by firmly anchoring it in certain regions of the country.
By enacting Bill C-10, Parliament will be sending the message that growth and wealth, even at the expense of jobs, are more important than jobs and the national geopolitical imperatives and Canadianness mentioned in the original text.
The FTQ thanks the committee for allowing us to appear today.
It is important to know that over the last ten years, Air Canada has already asked its employees twice to make sacrifices. It has sought protection under the Companies' Creditors Arrangement Act. The workers made sacrifices when the pension plans were reopened. Air Canada's subsidiaries negotiated dual wage scales. The wages being paid now to new employees at Air Canada, Air Canada rouge and Jazz Air are much lower than the former employees' wages.
What is at stake now, and what you need to know, is that we have lost 2,600 jobs in Canada because Air Canada decided, as I said earlier, to send jobs offshore, not to China, but to the United States. The American workers are not paid less than Canadian workers. Labour is not less expensive.
Earlier, the Air Canada representative refused to answer questions you asked him, including the question of whether the company was prepared to guarantee that the 2,400 maintenance jobs located here are going to stay here. The answer is not yes, because if the bill is passed, there will be no more maintenance jobs at Air Canada in two years. An Air Canada employee will just have to check the tires in order for the requirements in Bill C-10 to be considered to have been met.
You need to be aware of this. You are elected by Canadians so they can continue to support their families, but you are agreeing to export well-paid jobs abroad. In fact, they are not all that well paid. We have to look at things in context.
Why, in 1988, when Air Canada was privatized, did parliamentarians ask for guarantees that jobs would be preserved in Canada? Things have not changed. The other global carriers subsidize their aerospace industries. They are partners, because they want the good jobs to stay in the country.
Why is Canada not doing the same thing?