STANDING COMMITTEE ON TRANSPORT AND
LE COMITÉ PERMANENT DES TRANSPORTS ET DES
[Recorded by Electronic Apparatus]
Tuesday, November 6, 2001
The Chair (Mr. Ovid Jackson (Bruce—Grey—Owen
Sound, Lib.)): Good morning, ladies and gentlemen,
members of the committee. I would like to start the
We're here to discuss Bill C-38, an act to amend the
Air Canada Public Participation Act.
This morning we're dealing with witnesses. The
first witness we have is Jacques Kavafian of Yorkton
Securities, and we also have Duff Conacher from
We'd really like to have a short presentation,
followed by lots of questions. So I'll listen to your
presentation. Thank you.
Mr. Jacques Kavafian (Vice-President and Director, Yorkton
Securities): Good morning. Bonjour. My name is Jacques Kavafian and
I am vice-president and director of Yorkton Securities. My
specialty is air transportation.
Good morning, and thank you very much for giving me
the opportunity to address the Standing Committee on
Transportation and Government Operations.
The issues facing Air Canada are very serious not only
from a public policy point of view but also for the
whole transportation system in Canada.
Bill C-38 comes at an opportune
time because the Air Canada Public Participation Act
imposes serious obstacles to the smooth functioning of
the company in an unregulated environment.
While these obstacles may not appear to be serious when
times are good, they tend to amplify the problems in
The minister's plan to eliminate the 15% single
individual shareholding limit is a step in the right
direction and will help Air Canada in its refinancing
efforts. But other restrictions that were put in place
when the company was privatized hinder its ability to
respond quickly to shifts in the economy. This is
primarily the condition of keeping its maintenance
bases in Winnipeg, Mississauga, and Dorval. Such
limitations may force the company to operate
maintenance facilities where it is less than optimal to
do so. This is especially problematic because its
competitors do not have such restrictions.
In addition to eliminating the single shareholding
limit, it would be advisable also to increase the
foreign ownership limit, which is now at 25%. If the
company were to find an attractive and economic
refinancing option, it should be able to do so with a
minimum of restrictions. Otherwise, Air Canada may
have to settle for less attractive, that is, more
expensive, capital. With a market capitalization of $360
million, the 15% limit is reached at $54 million, and
of the 25% foreign ownership limit, at $90 million.
Considering the size of its debt and capital needed,
those percentages as they stand are small.
Thank you very much.
The Chair: That was short. Okay, let's have a
question. We'll go to Mario.
Mr. Mario Laframboise (Argenteuil—Papineau—Mirabel, BQ):
Thank you, Mr. Chairman.
I am having difficulty following you, Mr. Kavafian. You say
that having maintenance centres in Dorval, Winnipeg and Mississauga
compromises the future of the company. I am having difficulty
understanding that. Could you explain what you mean?
Mr. Jacques Kavafian: Yes, of course.
With the merger of Canadian Airlines International Limited and
Air Canada, Air Canada inherited maintenance centres in Calgary and
Vancouver. Other companies do not have the same constraints as Air
Canada. They are able to rationalize their operations. If they
decide that it makes no sense to maintain maintenance facilities in
Mississauga, that it is more economical for them to set up their
maintenance centre in Vancouver, then they are free to transfer
their facilities to Vancouver. Air Canada is not allowed to do
Mr. Mario Laframboise: I still do not understand. You say that
it is harmful to the future of the company. The company must
maintain its airplanes. We are talking here of planes and these
planes must be able to fly. Whether the work is done in Montreal or
elsewhere, these planes must be maintained. Up until now, no one
had ever complained. Air Canada did not complain, but you are
complaining about this.
Mr. Jacques Kavafian: I am not complaining about it, Sir, and
I apologize if that is the impression I have given you. My sole
purpose was to underscore the fact that these are constraints that
exist within the company and that do not exist within other private
Mr. Mario Laframboise: I hope that you do not consider the
fact that Air Canada must respect the Official Languages Act as a
Mr. Jacques Kavafian: Absolutely not.
Mr. Mario Laframboise: That is a good thing.
That is all, Mr. Chairman. I have nothing further to add.
The Chair: Mr. Szabo.
Mr. Paul Szabo (Mississauga South, Lib.): One of
your statements, Mr. Kavafian, is that adjusting the
15% rule would help in the refinancing. If that
changes—Air Canada has a current capitalization of
x dollars—how much will this change in the
restriction change the capitalization of Air Canada?
Mr. Jacques Kavafian: It doesn't necessarily
change its capitalization. What it does is give
the company more opportunities to look for investors.
Some investors may be willing to take a 30% stake in
the company. Today, if this limit was there, they
would not be allowed to take a 30% stake.
Mr. Paul Szabo: The answer to the question
is the change is not going to affect the equity
Mr. Jacques Kavafian: Well, it would affect it,
but it depends on how much and where the company
decides to raise capital. Today the capital is not—
Mr. Paul Szabo: You mean if they were to issue
Mr. Jacques Kavafian: Yes.
Mr. Paul Szabo: Okay, but the change in the
ownership limit does not affect the current
Mr. Jacques Kavafian: Oh, I'm sorry. I don't
follow you when you say—
Mr. Paul Szabo: Well, there are so many shares
outstanding. They're owned by somebody today. If you
change the ownership limit, it doesn't change the
amount of share capital outstanding.
Mr. Jacques Kavafian: That's correct.
Mr. Paul Szabo: That's correct, yes. But one of
your points was that it was going to be a refinancing,
and I don't understand where you got the idea that this
was a refinancing.
Mr. Jacques Kavafian: No, what would happen is
this change—the 15% single shareholding
limit—will allow the company more flexibility in
looking for its financing.
Mr. Paul Szabo: Okay. The share price of Air
Canada has been depressed for some time. It also has a
very unhealthy balance sheet, not very attractive to
investors generally. There are existing
shareholders—many of them are institutional. What
you're suggesting is that if we increase the ownership
limit, there might be a major investor who would like
to relieve people of their existing shares and maybe
invest more in the company or make some changes in
management or strategic direction or this kind of
thing, where they have a control block interest. Is
that the idea?
Mr. Jacques Kavafian: Not necessarily. But what
could happen is if some of the investors are very
large investors and for them a $50-million investment
is not a big issue, they may be willing to buy more in
a depressed market in the hope of reaping the benefits
when the market turns around.
Mr. Paul Szabo: It's interesting. I thought the....
First of all, you're saying there are a
lot of people who want to dump the stock, and
institutional investors will get an opportunity to snap
up cheap stock, etc. If that's the thinking of the
large institutional investor, why wouldn't it be the
thinking of the ordinary investor?
Mr. Jacques Kavafian: That's not what I said.
What I meant to say is that if the company were to
recapitalize, were to issue more shares, those large
investors could be willing to buy more.
Mr. Paul Szabo: Without this bill, could Air
Canada issue more shares?
Mr. Jacques Kavafian: Yes, Air Canada could issue
Mr. Paul Szabo: Okay. Would there be a market for
Mr. Jacques Kavafian: That's a difficult question
Mr. Paul Szabo: That's the point. I'm fascinated
by all of this. I think everybody is somewhat
comfortable about lifting the ownership limit in the
event that Air Canada needs not just someone to replace
existing equity holders but someone who in fact may
come up with a strategic direction or basically a
long-term viability plan that's going to improve the
confidence in the company itself and in the industry,
and hopefully provide a little bit of security to the
My curiosity here was simply that you emphasize
refinancing, which this isn't about. It really is
about looking down the road and saying, if we had a
major shareholder.... I think in investment circles, if
you have 30% of the equity interest in a company, for
accounting purposes, you would equity account for it,
simply because it has a significant influence, and it's
deemed to be a control block. But in some companies—I
can remember in the history of a company such as
Trans-Canada PipeLines—where a 10% interest
of, at the time, Canadian Pacific in a widely held
company was enough for them to control the board. In
fact they appointed all of the board. They controlled
the board management. So the ownership levels in a
corporation could be as low as 10% and still have
I'm really curious why you didn't go further and say
that what Air Canada really needs is an opportunity for
someone to come in and really start running the
company. I don't think you've made that
Mr. Jacques Kavafian: Because that is
something I don't believe. I will tell you
what I believe.
I believe that because there's a shortage of
capital now in the airline industry, it's not that easy
to go out and raise capital for airlines.
Eventually this company will need to capitalize.
There's no question about that. That 15% single
ownership limit puts restrictions on the company and
may prevent it from going to certain investors, who may
have a strategic benefit investing in it, to get the
money, because there's no other market. There's
practically no market now for airlines.
Mr. Paul Szabo: Finally, do you think this
is going to happen in terms of strengthening the
capitalization of Air Canada without other significant
changes in the health of its balance sheet,
particularly its debt load? Have you heard on the
street, or do you think it would be perhaps an
advisable move at some point, if the market does not
recover quickly enough and cash becomes an issue, for
airlines to go under, let's say, the Companies'
Creditors Arrangement Act and clean up their balance
sheets in a coordinated way with all vested interests?
Mr. Jacques Kavafian: I think if it can work to go
into CCAA, it would be a choice of management or the
board to do so, not a necessity. The company has
enough assets, in my opinion, that it can monetize over
the next while to keep it going. But eventually it may
be advisable for them to restructure the debt. Of the
company's debt, 75% is held by foreigners, and with the
25% foreign ownership limit on the company, that
restructuring would preclude an exchange of debt to
equity with foreigners.
Mr. Paul Szabo: Good. Thank you.
The Chair: Mrs. Desjarlais.
Mrs. Bev Desjarlais (Churchill, NDP): Thank you,
[Inaudible—Editor]...concern about whether
or not would-be investors
would want to have more than 15% of shares. Presently, what
percentage of shares do the larger investors have in
Mr. Jacques Kavafian: I'm sorry, I don't have that
Mrs. Bev Desjarlais: Since you don't have that
figure, how could you make an assessment that having
more shares is going to make all the difference in the
Mr. Jacques Kavafian: When you say “more
shares”, do you mean capitalization for the company?
Mrs. Bev Desjarlais: That's right. You're here
before us saying they need to have this opportunity to
be able to increase over the 15% of the shares. Yet
you're not even aware of where that limit is right now
with the investors who are already there. So how can
you possibly make the statement that more is better?
Mr. Jacques Kavafian: I'm sorry, I didn't hear you
ask me what percentage of
the shares the major shareholders own. I thought you
meant all the institutions together—a hundred percent
of the company.
Mrs. Bev Desjarlais: No, it was the major
Mr. Jacques Kavafian: I'm sorry, but those major
shareholders are clients of our firm and I'm not at
Mrs. Bev Desjarlais: It's pretty much common
knowledge. It has been discussed in the last couple of
days publicly. I'm just surprised that you would
suggest.... It's public information.
Mr. Jacques Kavafian: I'm sorry. I'm not at
liberty to talk.
Mrs. Bev Desjarlais: All right, without saying who
the major shareholders are, what percent...?
Mr. Jacques Kavafian: Two shareholders have
between 10% and 15% of the company's ownership each.
Mrs. Bev Desjarlais: Each. To your knowledge, has
there been a demand even in the last year, prior to
September 11, to increase the number of shares as
something that's absolutely necessary to benefit this
Mr. Jacques Kavafian: No, there has not been a
demand for that.
Mrs. Bev Desjarlais: Why would that be? Why would
there have been no push to do that, no push from Air
Canada, no push from airline investors that this is an
unfair situation? Why would that have been?
Mr. Jacques Kavafian: I'm sorry, may I correct my
statement. To my knowledge, there has been no demand
Mrs. Bev Desjarlais: Okay. You have also
indicated things outside of the scope of what we're
dealing with here. All we're dealing with here in
terms of the changes within the Air Canada
participation act is nullifying the limit on the
shares. But you've also indicated other constraints on
Air Canada, such as having headquarters in
Montreal—you never mentioned the Official Languages
Act, which has come up before with other witnesses—and
constraints on maintenance services, which Mr.
Laframboise has also identified as a constraint.
Those of us who fly—certainly speaking for
myself—don't see maintenance facilities located
strategically throughout Canada as a constraint but as
a necessity to maintaining safe airline service
throughout the country. I'm finding it a bit
astonishing that someone would see maintenance centres
located strategically throughout the country so as to
provide service as needed a constraint. We're not
talking about one located in Saskatoon, one in Regina,
or one in Toronto, one in Ottawa. I'm a bit aghast
that you would consider this a constraint on a company.
Mr. Jacques Kavafian: Oh, yes, I do, because there
are too many of them and they are in locations that may
not be desirable or optimal for the company. They are
there now and the company is using them as best it can,
in my opinion.
Mrs. Bev Desjarlais: You're indicating
there are too many of them.
Again, even through the numerous meetings we had
before, I don't recall Air Canada once mentioning it
had too many maintenance facilities and this was going
to create a problem. Quite frankly, it simply embraced
the whole merger agreement and everything it was going
to do and continue to do was absolutely necessary to
providing good service throughout Canada. I'm
surprised that within a period of not even a year
somehow this would be seen as unnecessary.
Mr. Jacques Kavafian: Yes, in my opinion it is.
It's an obstacle and adds excess cost the company has
Mrs. Bev Desjarlais: You don't think it needs those
Mr. Jacques Kavafian: That's correct. Those
facilities could be rationalized in other locations
without loss of jobs by transferring them to other
locations that would make them more—
Mrs. Bev Desjarlais: Okay, but say your plane goes
down. You need to do work, major work, and it's in
Winnipeg or B.C. Where's the logic of moving
it—B.C., Winnipeg, to Mississauga or Montreal or
Mr. Jacques Kavafian: Air Canada has line
maintenance at every one of its bases, but the major
checks it does are in Winnipeg, Vancouver, and
Mrs. Bev Desjarlais: Do any of those centres have
any down time where nothing is happening?
Mr. Jacques Kavafian: No, of course not, because
now it tries to allocate the work where it is.
Mrs. Bev Desjarlais: And it also has taken on
contracts with other companies to do the
overall...enriching the income it has coming into the
Mr. Jacques Kavafian: Yes, it does that a lot at
Mrs. Bev Desjarlais: It does it in Winnipeg as
As a transport committee, we toured the facility and
it was touted as very important, as well as the fact
that it's been able to enrich company finances because
it was able to take on other jobs and keep employees
working while bringing additional money into the
company. Here again I'm surprised you would see this
as a constraint.
That's all for now, Mr. Chairman.
The Chair: Thank you very much.
We'll go to Val now, please.
Ms. Val Meredith (South Surrey—White
Rock—Langley, PC/DR): Just for clarification, I
gather you're not saying that airlines and Air Canada
don't need maintenance facilities. You're just saying
tying them down to certain locations legislatively puts
a constraint on the company that other airlines don't
Mr. Jacques Kavafian: That's correct.
Ms. Val Meredith: Okay. You're not saying
airlines don't need maintenance facilities.
Mr. Jacques Kavafian: Of course I'm not saying
Ms. Val Meredith: Okay, I thought you needed an
opportunity to get that on the record.
I want to pick your brains on investment. You've
mentioned 75% of the debt of Air Canada is held by
foreign vendors. You talk about changing this
debt into equity.
How does this happen? Does it happen by the airline
issuing more shares or giving the people who have
loaned it money shares in return for the debt?
Mr. Jacques Kavafian: That 75% is of the long-term
debt the company has as of December 31, 2000. If we
include the capital leases or the lease obligations the
company has, that proportion rises substantially to
over 80% held by foreigners.
The way this would happen is, theoretically, if the
company wanted to reduce its debt, it could go to those
lenders and say that it wants to reduce its debt
because it's not able to carry it. It could offer to
exchange some part of the debt into equity and ask if
they would be willing to do this. In theory, debt
holders holding $100 million of bonds on Air Canada may
agree to exchanging them into $25 million bonds at a
certain interest rate and the other $75 million value
could be converted into equity.
Ms. Val Meredith: So this is where your suggestion
of raising the foreign limit might be helpful to Air
Canada. It would be specifically in changing this debt
into equity into the company.
Mr. Jacques Kavafian: That's correct, because at
25%—including the current foreign shareholders the
company already has—this figure could be very quickly
Ms. Val Meredith: How important is it to Air
Canada to be able to reduce this debt level?
Mr. Jacques Kavafian: It's important.
The company has no plan for reducing it because it
lacks the resources to do it for now. But they could
It's not a question of the view not looking right.
It's not death. It could continue this way, but the
debt removes flexibility—the company's ability to do
certain things—if this debt level is kept where it is,
because it's rising right now.
Ms. Val Meredith: It's not make it or break it.
The debt level it's carrying isn't a
Mr. Jacques Kavafian: That's correct.
Ms. Val Meredith: I want to ask you a few
questions about something that happened with one of the
shareholders, though you may not be in a position to
There's an article in the National Post
about Caisse de Dépôt selling short. How does that
work? How can a shareholder sell short and make a
profit on shares it has in a corporation? Is it making
money based on the fact that it's devaluing?
Mr. Jacques Kavafian: Yes.
I may speak generally, not specifically about the
Caisse de Dépôt, but some large, institutional money
management firms have many departments. Certain
departments only invest in private equity, in private
companies. Other departments invest in bonds or in
debentures, others in equities.
But they have others who do hedging strategies,
meaning they may deal with long or short stock. They're
completely unrelated to or independent from other
departments within the larger organization. Some of
the larger funds have a lot of money and allocate a
certain amount to shorten stocks. I believe that's
Ms. Val Meredith: Is there a conflict of interest
in doing this, for shareholders hoping their stock will
devalue so they can hedge their bets?
Mr. Jacques Kavafian: I'm sorry, could you please
Ms. Val Meredith: I'm struggling with how a major
shareholder—and my understanding is they're the big
one in Air Canada.... Is there not a conflict of
interest in the major shareholder of a company hoping—and one
assumes it has some input on decisions being
made—the shares will devalue to the point where it can
make money on them?
Mr. Jacques Kavafian: I'm not aware of their
internal trust indentures. I presume because they're
independent departments there is no conflict.
Ms. Val Meredith: Let's talk about the people for
whom taking away the 15% might have an effect. You talk
about large investors. Would that be pension funds or
union investors? A lot of the big unions have
considerable investment dollars.
Are these not the kinds of people—union
investors—who should be looking at this, if it's a
question of maintaining security for employees and
Mr. Jacques Kavafian: You see, in the case of
Transat, their union, FTQ, Fonds de solidarité des
travailleurs du Québec, does own approximately 10.5% of
the company. They used to own more but they sold it.
So that's a possibility.
It could also be that some of the large pension funds
or other funds in Canada may be willing to take a major
stake in the company in the case of capitalization of
an equity share.
Ms. Val Meredith: Okay.
Another thing that's come out is the possibility that
the present managers of Air Canada, the people running
the company now, might put in place what's referred to
as a “poison pill” in order to maintain the ability
to manage the company and prevent other people from
coming in. How does that work?
Mr. Jacques Kavafian: A lot of companies that are
widely held and whose boards think their shares are
undervalued put a poison pill mechanism in place. They
do this because current takeover laws provide that once
a takeover is made on a company, there are 21 days from
the date of the takeover to completion of the bid.
A lot of companies think that is not enough time to
find alternative ways to increase shareholder value, so
they put these poison pill mechanisms in place. They
call them “permitted” bids in that before someone
makes a bid for the company, they discuss it with
management and the board. The board of directors then
has 60 days. They can give themselves 60 to 90 days to
find alternative bids.
Ms. Val Meredith: So a poison pill is really only
a delay in a decision. It doesn't prevent somebody
from buying equity shares and taking over a company; it
just delays their ability to do that.
Mr. Jacques Kavafian: That's correct. It forces
you to have discussions with management before you do
Ms. Val Meredith: So it forces the people who
potentially are coming in to take over the company to
sit down and talk to the management. Does management
have control over whether or not they would accept the
Mr. Jacques Kavafian: The board of directors of
the company has a fiduciary duty to look after the
interests of the shareholders. They would determine
what was good value for their shares and present it to
shareholders for a vote.
Ms. Val Meredith: Basically, then, that's what
happened with Onex and Air Canada taking over Canadian,
where there was a battle over how much they would buy
the shares for and that type of thing.
Mr. Jacques Kavafian: Exactly. If you take the
Onex situation, the Onex group approached Canadian
Airlines. They discussed the terms of the merger. All
parties, including American Airlines, agreed on the
price, and they announced it. Then they went to Air
Canada and made a hostile bid without discussing it
with Air Canada management. They approached, and they
made a bid for the company, a hostile bid. It was not
friendly, the way it was with Canadian Airlines.
So what they did with Canadian Airlines is what a
poison pill would have allowed Air Canada to achieve.
If they'd had a poison pill at that time, the Onex
group would have had to sit down with Air Canada
management and discuss what fair valuation would be
before they made their bid public.
Ms. Val Meredith: So how is lifting the 15% going
to affect anybody who may want to be coming in? Let's
say somebody wants to invest 30% in Air Canada. Do
they have to sit down with the board and discuss terms,
or can they just take the share value of the stock
right now and pick it up?
Mr. Jacques Kavafian: In this case, if there was
no 15% single ownership limit, then in my opinion they
very quickly could agree on terms with the company in
getting that. There would not be a fight, provided
it's new equity. If someone made a hostile bid for the
company, at $2, say, then, yes, they may face a fight,
but the whole exercise is to allow.... This 15% single
ownership limit is a restriction imposed on the company
that other companies don't have, and it eliminates
flexibility. It eliminates certain market segments
that the company or its financial advisers could
approach in raising equity in the future, if they
Ms. Val Meredith: What is it Air Canada needs to
approach people? What is it they need to have in their
hand when they go out to a large investor? Is it a
business plan? Is it rationalizing their maintenance?
What is it Air Canada is going to require in order to
convince large investors they're a risk well taken?
Mr. Jacques Kavafian: Speaking as a person in the
financial industry, I would say the company would need
to have a convincing business plan, a road map back to
sustained profitability. They would have to make a
convincing argument to the major potential shareholder
that they will make money if they invest in Air Canada.
Ms. Val Meredith: I guess I'm asking my next
question because of Bill C-26, which, for very
good reasons at the time, wanted to protect small
communities from having service withdrawn if Air
Canada's monopoly determined it didn't want to provide
service. Do you feel there's a place in government
regulations for some restriction with regard to
employees, some restriction as to how the company
operates itself? Do you feel those kinds of government
restrictions—actually, I guess it's government holding
Air Canada to the promises they made during the Onex
takeover bid—would prevent Air Canada from
reaching out to get the equity they need?
Mr. Jacques Kavafian: No, I don't think so, but
the company is currently paying the price for those
Ms. Val Meredith: But you feel they can manage,
and should be able to come up with a sound business
plan, keeping in mind their obligations as well as, I
guess, changing their way of doing business.
Mr. Jacques Kavafian: Yes, especially given that
these were conditions that management agreed to when
they acquired Canadian Airlines.
Ms. Val Meredith: Finally, for an airline that is
having serious financial difficulties, or that would
appear to be, do you feel it's sound management to
start a new airline—Tango, for example?
Mr. Jacques Kavafian: I would say yes. However, I
would add a caveat because of the whole economic
environment. The whole idea behind Tango is a good
one, because that's what the market wants. The market
wants a low-fare, no-frills service. Air Canada is
providing that with Tango without depreciating its own
brand name, Air Canada. But the company's financial
condition doesn't allow it to experiment too much, and
the market is weak, so the timing may be a little
Ms. Val Meredith: Some would argue that they're
offering very high-priced no service right now.
Thank you very much.
The Chair: I want to welcome Duff Conacher of
Democracy Watch. I'll let him make his presentation,
and then you can ask the witness of your choice to
answer your questions later on.
I'll go to Duff and then I'll start with James and
rotate back and forth.
Go ahead, sir. Take a couple of minutes.
Mr. Duff Conacher (Coordinator, Democratic Watch):
Thank you very much. I apologize for being delayed
Thank you for this opportunity to testify on Bill
C-38. I am going to address not the issues and the
provisions of the bill directly, but more generally the
variety of measures and actions the federal government
has taken in the last couple of years in terms of
bailing out the airlines, to some extent, and other
measure that are helping the airlines.
These measures are not surprising given that airlines
and air travel are part of the essential infrastructure
in Canada these days for both passengers, whether
business or individuals who are travelling, and freight
and other needs.
In all of this policy-making and the measures the
government has developed to date, you have the workers
organized, with unions representing them, doing
research on the impact of various policy moves. You
have the airlines organized, of course, with their
lobbyists and researchers, and others who are trying to
influence the government to do certain things to
protect the airlines.
believe is missing in all of this is an airline
passengers' organization that would give passengers a
strong voice in airline policy making and also help
hold the airlines accountable for poor service and
other problems they may be causing for passengers.
The federal government has helped, and is helping, and I
predict in the short and long term
will help, the airlines in many ways. We believe
the best thing the government can do for passengers in
return is to require airlines to facilitate the
creation of an air passengers' group.
We have a very simple method for doing that, and that
is a method that has been used in some U.S. states to
create watchdog groups for utilities. In those states
utilities have been required to enclose a one-page
pamphlet in their billing envelopes periodically, and
that one-page pamphlet describes and invites people to
join the utility watchdog group.
For example, in Illinois, about 4% of ratepayers have
joined the Illinois Citizens Utility Board. It has
150,000 members, a $1.5 million annual budget, and, with
its advocacy, in addition to being involved in
policy-making, has saved consumers over $4 billion since
1983 by opposing rate hikes by the utilities.
To set up an air passengers' organization, we propose
that the federal government require the airlines to
distribute a one-page pamphlet to passengers
periodically when they board the plane and also
require them to enclose such a pamphlet periodically in
frequent flyer mailings. The pamphlet would describe
the group and invite passengers to join, at an annual
membership fee of $20 to $30. That level of membership fee
and the whole idea of the group is supported by a
majority of Canadians, according to a national survey
we had Environics conduct a few years ago.
The government could either lend or grant the
organization the funds needed to print and the costs of
distributing the first pamphlet. Again, that could be
a loan the group would easily be able to pay back,
and after the first pamphlet the group would pay all
the costs of the pamphlet, printing and distribution.
As a result, such an organization can be set up at
little or no cost to the government or the airlines.
We predict that the group would have hundreds of
thousands of members and a substantial budget that
would then allow passengers to have a place they
can call to help them if they have a complaint, to help
them approach the complaint tribunal that's been set
up, and they would have a representative in policy-making.
I'm not sitting here pretending to represent
passengers. I can't. And we do not believe any
other consumer group in Canada can. We do not
believe that even existing consumer groups that try to
do work in this area have the resources to do research
and to participate in policy-making in any
meaningful way. That is why we believe this is
the best thing the government can do for
passengers—create such a group that will help
customers hold airlines accountable for poor service
and ensure passengers have a strong voice in future
We have a model statute
for such a group, and we believe at little or no
cost this is something the government should do—at
least something the government should do for
passengers in return for all the government is doing to
help the airlines.
I welcome your questions.
The Chair: Okay. We'll go to James Moore of the CA.
Mr. James Moore (Port Moody—Coquitlam—Port
Coquitlam, Canadian Alliance): I don't quite know,
frankly, what your presentation has to do with Bill
C-38, unless you want us to take that within the context
of broader airline restructuring.
Mr. Duff Conacher: Well, the act is called the Air
Canada Public Participation Act. We're simply calling
for a different form of public participation in Air
Canada and the other airlines.
Mr. James Moore: Would you mandate this regulation
only against Air Canada or against all carriers?
Mr. Duff Conacher: No, against all carriers.
Mr. James Moore: I have a private member's bill
that calls for the creation of a bureau of airline
statistics, modelled on American legislation, which would
basically ask air carriers to provide the government,
Transport Canada or a branch of Statistics Canada,
the vital statistics of all the air
carriers—numbers of flights cancelled, numbers of bags
lost, average cost per route per mile across the
country—so that Canadians can see what
the cancellation rates are and if the air carriers
Is that the sort of thing that you would...rather
than giving pamphlets to individual
carriers to, totally unscientifically, at least based on
what I've heard, give them back if they happen...?
If you give pamphlets to people to gripe about
the service they have at Air Canada, it's
going to be very unscientific because people will only fill
them out if they're upset at the service.
Mr. Duff Conacher: No, it's not a pamphlet
for them to fill out if they have a complaint. It's a
pamphlet inviting them to join a group, to band together
the passengers across Canada into an organization that
can represent their interests in the marketplace and
also in policy-making processes.
I agree with the proposal
you're making in your private member's bill. Yes,
disclosure and tracking of problems is key, and in many
industries the government has not required detailed
disclosure enough to ensure that problems are tracked
and revealed so that the government can address
It's not enough alone.
Mr. James Moore: Obviously this is a
philosophical difference. I just don't think it's the
role of government to go out of its way to create
consumer advocacy groups. Are there other areas of the
economy where you think the government should go out of
its way to create consumer advocacy groups to get in
the face of business?
Mr. Duff Conacher: Yes, actually, in many areas. In
the banking area, the House of Commons finance
committee and the Senate banking committee and the
federal government's MacKay task force all agreed with
us that financial institutions should be required to
enclose such a flyer periodically in mail-outs—bank
statements, credit card bill statements—inviting
people to join a financial consumer organization.
Instead, Paul Martin created, which has just started
up in the last couple of weeks, the Financial Consumer
Agency, a regulatory agency that is coordinated by
government and will cost government a lot of money,
instead of allowing consumers to band together easily
across the country and allow the consumer organization
to hold financial institutions accountable.
We believe in many other areas...particularly in
utilities, where there is a monopoly. When we look
at the airlines, we see a near monopoly with
Air Canada, and we believe, in return for that
privilege of having essentially a monopolized market,
this is a wonderful accountability mechanism that
allows consumers to have a voice as well, in the same
way that unions organize employees and the industry has
its industry associations.
How are those industry associations financed? How are
all the lobbyists of Air Canada and the other airlines
financed? They're financed by charging customers more
and then shifting that extra revenue to their lobbying
and advertising efforts. We are simply asking for
customers to have the same easy mechanism to band
together their resources into an organization.
The Chair: Marcel Proulx of the Liberals.
Mr. Marcel Proulx (Hull—Aylmer, Lib.):
I have a quick question for Mr. Kavafian. My colleague
mentioned—and I'll do the preliminary in
sell on the part of one major shareholder.
Could you explain to me why the shareholder would make such an
allegation. What is meant by short sell? What does that mean in
this particular case?
Mr. Jacques Kavafian: A person who is anticipating a drop in
the share price will borrow shares and sell them for $5, for
example. If the price drops to $2 a share, that person will buy
them back at the lower price, return them to the owner and pocket
the difference, in other words $3 a share. The person sells when
the price goes up. “To short” means that the person sells shares
that he or she does not own. Thus, this person is “short” in his or
her account; the account is short of money.
Mr. Marcel Proulx: The person borrows...
Mr. Jacques Kavafian: The person borrows the certificate.
Mr. Marcel Proulx: He or she purchases the certificate on
margin. Is that it?
Mr. Jacques Kavafian: No, he or she purchases the certificate.
Any brokerage firm will do this type of loan. Firms have
certificates in their accounts. They lend the certificates. The
person therefore sells shares he or she does not own and finds him
or herself in an overdraft position. When the price drops, the
investor buys the shares back at the lower price. The investor then
gives the certificate back to its owner and keeps the difference.
Mr. Marcel Proulx: Is this common practice?
Mr. Jacques Kavafian: This is done so often that two or three
weeks ago, it was impossible to borrow certificates for shares in
Mr. Marcel Proulx: You mean that there were none left because
the practice was so widespread.
What does the bill we have before us do to prevent or to
promote this type of thing?
Mr. Jacques Kavafian: The bill before you has no impact
whatsoever on that.
Mr. Marcel Proulx: The bill has no impact whatsoever on that.
Mr. Jacques Kavafian: That is the case.
Mr. Marcel Proulx: Therefore, talking about it now will change
absolutely nothing. What should be done to prevent this from
happening? Indeed, should this practice be prevented?
Mr. Jacques Kavafian: No, it is very common. This is also
often done with several other securities. It gives one the
By short selling, one does not provoke a drop in the price of
the security. All one does is overdraw one's account, based upon
the belief that the price will drop, and buy back the shares when
the price falls.
Mr. Marcel Proulx: This is part of the industry.
The Chair: Mr. Laframboise, it is now your turn.
Mr. Mario Laframboise: Thank you, Mr. Chairman. My first
question is for Mr. Kavafian.
We agree in principle with Bill C-38 that we have before us.
However, the Americans decided very quickly to help out the
industry, and they showed their colours right away by announcing
15 billion dollars worth of assistance, 5 billion in direct
assistance and 10 billion in the form of loan guarantees. Canada
for its part decided to wait and see how the industry would fare.
In order to revive investor interest in Air Canada, would it not
have been preferable for the government to immediately make known
its intention to help out the airlines?
Mr. Jacques Kavafian: This is a delicate matter. I must think
about it for a moment before responding.
There is a difference between Canada and the United States.
The American market for domestic flights as well as that of
international flights between the United States and England and the
United States and Japan all crashed. The other markets held up
quite well. In Canada, the domestic market held up quite nicely. As
an example, WestJet recorded high earnings in the course of the
month of September.
The number of international flights did not drop off as much
in Canada as it did in the United States. The impact was much
greater and much more direct for American companies than for
Canadian ones. As a matter of fact, the Canadian industry received
160 million dollars in government assistance. I believe that the
Americans reacted much more quickly because the impact was much
greater for American companies. Anyway, the Americans always react
Mr. Mario Laframboise: They react much more quickly than
Canada does. You are perfectly right: there is a great difference
between the two. This is indeed a reality. You too should have gone
into politics, because you are managing quite well.
My next question is for Mr. Conacher.
It would probably be interesting to give a voice to users, to
passengers, to give them the opportunity to do some lobbying.
However, I do not know how we will go about that under the present
government, especially given the fact that in security matters, not
even the employees themselves sit on any of the security
Every day, I am surprised to see us come through crises. For
20 years now, airlines have been changing ownership and all of the
rest, and the employees have never participated in the
establishment of security programs. There is no ongoing training
program. If the government does not even involve employees in
security matters, I fail to see how the same government would
involve passengers, users. You are however right in saying that we
should help users get involved and have their own forum for
lobbying and for defending their interests. Right now, it is
difficult for them to make themselves heard.
Transport Canada defends the interests of the airlines and
must make decisions. Over the last 15 years, decisions have been
made not with a view to increasing security but in the interest of
airline company profitability. It has rather been the case that
expenditures in the area of security have been cut back.
I wish you luck in your endeavours. You will have our support,
but my impression is that my colleagues opposite will continue to
do what they have done in the past.
Mr. Duff Conacher: I would hope that first of all
they would do what the national survey Environics
conducted says Canadians want them to do: they want
this for a number of industries, not just airlines.
They want it in many industries, namely pamphlets
distributed inviting people to join watchdog groups.
The majority of Canadians of all political stripes, 64%
across the country, support this, according to an
Environics poll of 2,000 Canadians.
Also, I would hope they would do as their
colleagues in the House finance committee recommended,
which was to create one for the banks. They saw the
sense of the idea, as did the Senate banking committee
and as did the government's own task force
examining the banking industry. This is something
Canadians want. They want to be represented in the
marketplace, to have a place to call their own,
one that's directed and funded by them. It's worked
very well in the U.S., and we would hope the government
would respond to this proposal and set up these
organizations so that consumers, in this case air
passengers, have a voice in the marketplace and in
It's simply needed. I wouldn't agree with you that
Transport Canada always acts to protect the airlines,
but the airlines are certainly organized to lobby to
have their interests protected. Passengers aren't.
That's the imbalance that currently exists both in the
marketplace and in policy-making. That's the imbalance
we feel this proposal will correct, again, at
little or no cost to the government or the airlines.
Mr. Mario Laframboise: I agree with you.
Do I still have a bit of time, Mr. Chairman?
The Chair: Yes.
Mr. Mario Laframboise: I am in agreement with you,
Mr. Conacher, but one must understand how the Liberal government
We several times over the course of the first session tried to
get Mr. Milton to appear before the committee. The members opposite
came to the defence of Mr. Milton and his refusal to appear because
they did not want to be bothered. Between election campaigns, they
are much closer to big business than to the people. They need the
people when voting time comes around, but after the election is
over, they are more interested in pleasing CEOs. Rather than
defending the interests of common folk, they devote themselves to
The Chair: We'll go to Mr. Alcock.
Mr. Reg Alcock (Winnipeg South, Lib.): Well, thank
Actually, I've often thought we could solve a lot
of this problem with Air Canada—in fact, maybe Mr.
Moore's bill is an opportunity—if I could make a
friendly amendment that simply required the board of
directors and senior management of Air Canada to fly on
those ghastly RJs and, every time they hit the Toronto
terminal, to have to go to gate U. If we could just
get them focused on those two things, we'd probably
solve a lot of these consumer complaints.
Duff, I'd be interested to see them if you could give us the
references on the American model you talked about. If
you could send that material to us, I'd like to have a
look at it.
Mr. Duff Conacher: Sure
Mr. Reg Alcock: This is for Mr. Kavafian. I'm
interested in this issue of fiduciary responsibilities
of directors of organizations. I understand that there
is a set of bylaws within organizations that may be
unique to each company, but is there not required by
the securities exchange a certain framework for the
responsibilities shareholders have?
Mr. Jacques Kavafian: Which one are you talking
Mr. Reg Alcock: I'm just intrigued by the issue
that Val and Bev raised about the actions of the
Mr. Jacques Kavafian: No, there is no global....
For fund managers, their trust indentures guide what
they have to do. Their fiduciary duty is to the
beneficiaries of their funds.
Mr. Reg Alcock: That's true. That makes sense.
The Chair: We'll go to Bev.
Mrs. Bev Desjarlais: I just have a short question
for Mr. Kavafian again, though actually it might be less a
question than a comment. As a taxpayer and as a
representative of the taxpayers of Canada, I would find
it hard to accept that a shareholder can sell off their
certificates or loan them to someone who is going to
make a profit for them at the same time the very
company they're a shareholder in is asking the
taxpayers of Canada to help offset the costs. I'd say
to that shareholder, it's your responsibility.
Mr. Jacques Kavafian: They didn't borrow it from
Mrs. Bev Desjarlais: No, they're not borrowing
from Air Canada. What I'm saying, though, is
they're utilizing their certificate based on the shares
that are over here with the intent of making money on
the shares when they go up.
Mr. Jacques Kavafian: No, it's not.... Don't be
emotional that way in the financial markets.
Mrs. Bev Desjarlais: Well, listen, I'm not giving
it from the financial market viewpoint, I'm giving it
from the viewpoint of the taxpayers of Canada. They
would get a little emotional.
Mr. Jacques Kavafian: No, it's just a function
of the financial markets.
Mrs. Bev Desjarlais: Yes, so someone will make
some extra bucks, but at the same time we're asking the
taxpayers of Canada to offset the costs of that same
company, the one they're kind of making extra bucks
from when their shares are down.
Mr. Jacques Kavafian: When the elevator goes down
from the 40th floor to the ground floor, you might as
well put some boxes in it; it's going down.
Mrs. Bev Desjarlais: Maybe the answer should
be that the Government of Canada should have
bought them all when they were really cheap and then made the
money from it instead of having to give
additional money to Air Canada. I know nobody in the
financial markets would have made any money from it, and
that will probably tear you apart emotionally, but it
might have meant less dollars coming out of taxpayers'
pockets. It's just a different perspective.
Mr. Conacher, I was really interested in the
polls you had, and I'm glad Mr. Alcock
Those of us who were
involved with the committee before knew that the
passenger bill of rights had come up and that there had been
some suggestions about it. I have to admit I don't
recall the utilizing of the pamphlet for mail-outs,
having the passengers pay for their own representation,
really. Quite frankly, I don't believe all
passengers would just get in there with the beefs and
bitches kind of thing. For myself as a passenger,
if I get really great service, I make a point of saying
so. I'll write that down on the thing just as much
as I will my beefs.
I also, quite frankly, think it might be an
opportunity for passengers to get involved when they
see security problems. Passengers more than anybody
are coming out now and saying, such-and-such didn't happen at this
airport, this security that's supposed to be happening
didn't happen, this cockpit door isn't being closed,
and so on. For the security issue, I think we
should be utilizing the passengers who are on the
airplanes throughout the nation. If they want to
spend their dollars to have a group put forth
suggestions on their behalf and also to give
representation to the government on areas where they
see a concern, well, there are far more passengers on the
planes than even employees. It's certainly
something we should look at, so I appreciate your
I know you didn't do your presentation on the 15%
share, but do you have any particular comment on whether
or not there's a need to maintain the 15% shareholder
limit, or is it a non-issue from your perspective?
Mr. Duff Conacher: I can't speak on behalf of
passengers, certainly. We're a citizen group, and I've
only read, watched, and heard everything you've
read, watched, and heard, where people say no one's
going to buy them anyway. That's why I predicted
the government will be stepping in at some time in the
future with another bailout and maybe another one after
that. And what do passengers get in return? They
should get a group to represent their interests so
all these bailouts and things that help the
airlines are held in check in the future if they're
Mrs. Bev Desjarlais: Certainly on the
security side I see a benefit. On the side of
the airlines, they also benefit by getting representation from
passengers as a whole rather than this
piecemeal kind of approach to providing service.
Mr. Duff Conacher: There's nothing wrong with the
complaint agency that was created; that's a great step.
We agree in the banking area with the creation of the
Financial Consumer Agency and the upcoming creation of
an ombudsman's office. But consumers are still on their
own when they complain, and we're just saying give
them a group to go to for that function—but also for
policy-making. There isn't any group you can call on.
The fact that I'm here is evidence that there's
no group to call on that represents air passengers.
There is no group with the necessary expertise,
research, or base, and there is certainly none that is
representative in any way of airline passengers. It
just doesn't exist in Canada, and it should—and it
would be at no
cost. Why wouldn't the government do this for
passengers, given all it has done for airlines?
Mrs. Bev Desjarlais: For sure.
Mr. Duff Conacher: There'd be no cost to the government
or to the airlines at all. Just give
passengers a way to put together their resources as
easily as the airlines can now take money, gouge
customers a little more, and shift all that to their
lobbying and advertising efforts
that influence your policy-making.
Mrs. Bev Desjarlais: Thank you.
Mr. Duff Conacher: It's not fair.
The Chair: Mr. Harvey.
Mr. André Harvey (Chicoutimi—Le Fjord, Lib.): Thank you,
Mr. Chairman. My questions are for Mr. Kavafian. I would like to
stress that my friend, Mr. Laframboise, is not always so
pessimistic. The recent municipal elections may reek of pessimism,
but that will pass.
Mr. Kavafian, do you truly believe that the elimination of the
15% ceiling and the impact this might have in the short term are
essential? Could you also establish a relationship between the
elimination of this measure and that of the 25% ceiling on foreign
investment? Is the latter a less important measure in terms of
impact, given that foreigners have not as of yet shown very much
interest in participating?
Mr. Jacques Kavafian: Both measures are very important. They
are critical in order to allow the company to refinance itself for
Mr. André Harvey: Is the most important one that of the 15%
ceiling, given that we have companies that are close to that level
Mr. Jacques Kavafian: No. If you gave me the choice, in my
view, the most important one is the 25% limit on foreign
investment, because the funds made available to the company will
probably come from outside rather than from within Canada.
Mr. André Harvey: You talked among other things about the
restrictions imposed upon Air Canada. Two examples come to mind,
and I would like to hear your comments in this regard.
First of all, there is the issue of the regional services
offered to small communities. I do not like the label "small
communities" either; let us rather talk about resource regions. In
my mind, this is not a restriction because the services offered to
resource regions are largely paid for by the people who live there.
Come to our region to catch a plane and you will see who pays for
what. It is not Air Canada that pays, but the residents of the
resource region who pay exorbitant prices. It costs more to go from
Bagotville to Montreal than to go to Paris or to other major
I would like to know your opinion on this. I would also like
to come back to the official languages question.
Mr. Jacques Kavafian: Unfortunately, the airlines do not earn
a profit with regional services. Yes, it costs a lot of money.
There is some traffic on Fridays and Sundays, but such is not the
case on Tuesdays, Wednesdays and Thursdays. There are very few
regional routes that the major companies earn a profit on. It is
true that they cost a lot, but it costs a lot more to offer the
Mr. André Harvey: Are you certain that the net result for
airlines is negative, that they are losing money?
Mr. Jacques Kavafian: Yes.
Mr. André Harvey: My impression is that the residents of the
regions cover 100% of the cost of the services they are offered.
Are you sure of what you are saying?
Mr. Jacques Kavafian: It depends on the route. You mentioned
Bagotville or Rouyn-Noranda. On these routes, especially in Quebec,
no profit has ever been made.
Mr. André Harvey: Furthermore, an example given is that of the
restrictions regarding official languages. We all know that far
from being a liability for a company such as Air Canada, this must
be considered an asset, because throughout the world, anywhere in
Europe, services are offered in two, three or four languages. How
is it that in the case of Air Canada, as we are often told here in
Ottawa, this is seen as a restriction?
Mr. Jacques Kavafian: I agree with you, and this is why I did
not mention this when I spoke about restrictions. First of all, it
is not very costly and, secondly, a good portion of the clientele
is francophone. In any event, that service would be offered.
Mr. André Harvey: I believe so. Furthermore, there are in this
country some eight million French-speaking Canadians, Mr. Chairman.
Go anywhere in the world and you will see that various airlines
offer their services in two, three or four languages. Therefore,
this is far from being a liability or a restriction. It should be
considered as a significant asset.
Thank you, Mr. Chairman.
The Chair: I agree. Thank you very much.
Now we'll go to Val.
Ms. Val Meredith: I want to get back to this 15%
and foreign ownership, to raising the levels. Last
night, when we had the minister before us, he was very
reluctant to raise the foreign ownership levels.
One of his arguments for not doing so was that he felt
it would affect the bilateral agreements we
have with other countries.
Do you share his
concern, or do you feel there are controls that
could be put in place that determine whether or not the
foreign ownership component overtakes the Canadian
ownership component to the point where it would affect
the bilateral agreement?
Mr. Jacques Kavafian: He's the Minister of
Transport. He ought to know.
Ms. Val Meredith: Not necessarily all issues.
Mr. Jacques Kavafian: I think that is true. This
amendment eliminates the 15% single ownership limit;
however, we're not talking about eliminating the full
ownership limit but raising it to 49%.
Ms. Val Meredith: So you feel that 49% is a
comfort zone for any bilateral agreement; that if the
limit is 49%, there can't be an argument that the
control is not in Canadian hands.
Mr. Jacques Kavafian: That's correct.
Ms. Val Meredith: Thank you.
I want to get a sense from you as to whether you feel
there's any benefit to leaving the foreign
ownership component out of this debate, that by getting
rid of the 15%, we will accomplish the end gain, as
opposed to doing both of them at the same time?
Mr. Jacques Kavafian: No, they both must go at the
same time. Eliminating the 15% single
shareholder ownership is, frankly, an impediment that
practically no other company has. It's just that 99.9%
of Canadian companies don't have that, so we're getting
Air Canada to where a normal company would be.
The critical part is the foreign ownership limit,
which is 25%, and in my opinion it's too low. It
should be raised to 49%.
Ms. Val Meredith: So you would suggest that we
need to deal with both of them at the same time
to maximize Air Canada's potential of getting new
equity into their company.
Mr. Jacques Kavafian: That's correct.
Ms. Val Meredith: Thank you, Mr. Chair.
The Chair: Just one quick point. The
minister said that could be done by an order in
council. That's the mechanism that's already there for
Mr. Paul Szabo: Thank you, Mr. Chair.
Mr. Kavafian, we've established that eliminating the
15% restriction really isn't going to do anything in
itself as far as the capitalization is concerned, but
it is a move that would make other things possible and
I'd be interested in your comment, but I've often
heard Air Canada referred to as “our national
airline”. I think it's a throwback from when the
government owned the shares, and it's where a lot of these
restrictions have their genesis. A national airline
was viewed as the way to ensure that there was
connectivity across the country, even to unprofitable
routes. That makes a lot of sense, but we changed
My question for you is, do we need to have a
national airline in Canada?
Mr. Jacques Kavafian: Yes, we do. The reason is
this. Assume we did not have a national flag carrier in
Canada, that in a hypothetical case Air Canada goes
bankrupt and there are no major airlines to take its
part; foreign airlines come in and go into various
markets, but Canadian customers would never be their
core product, their core market. If that were to
happen, and if American Airlines were to give you bad
service between Vancouver and Tokyo, go and complain,
complain to your heart's content; they don't care
because their market is the U.S.
But in the case of Air Canada, as the national flag
carrier, this is their core market. They would care
more about you. They would care more about giving the
service. People may not like the service they get on
Air Canada—I happen to like it—but at least we would
be the core market for them and they would take better
care of us than foreign owners.
Mr. Paul Szabo: Okay, let's carry this a little
further. If we said what we really want to do is help
the airline industry, do you think it would be possible
for any airline to be financially viable and be able to
offer reasonable returns to their shareholders with any
restrictions on their business decisions?
Mr. Jacques Kavafian: As I said
in my opening remarks, in good times, restrictions don't
matter. If things are good, it gets lost in the mix,
but it's in bad times that....
Mr. Paul Szabo: If I were running an airline, I
would want to choose the routes that I thought I could
make some money on, and I certainly would ignore the
ones where I knew I couldn't make money—which is one
of the reasons why you want a national carrier, the
I certainly wouldn't want any restrictions on who
could own my shares. I'd want to be like any other
public company. I certainly wouldn't want any
restrictions on foreign ownership. I certainly
wouldn't want to have the Competition Bureau say I
can't gobble up as much of the market as I can earn.
A lot of things happen. The point
I'm coming to is, do you think we are asking Air Canada
right now to emulate a national carrier, and the quid
pro quo is that we will give you a statement—which I
think the minister made yesterday—that we will help
Air Canada only if we've seen that they've exhausted
every other opportunity, but we won't let it go
down? It appears we have made that commitment. Is
that saying we still want to pretend we have a national
airline without in fact having one?
Ms. Jacques Kavafian: Here's the dilemma. You
have Air Canada with all these restrictions imposed on
the company, and gradually you have new competitors
that don't have any restrictions on them. They're
cherry-picking the markets where they want to go. They
don't have 60 years of unionized history, and so forth.
Those competitors are growing now. At last count,
there were 85 aircraft in the fleet of the competitors
combined. You reach a point where it's time to start
freeing up those restrictions on Air Canada.
Mr. Paul Szabo: Okay. Institutional investors
generally do not get involved in the management of the
company per se; they're there to make a return for
their holders, the mutual fund holders, the pension
fund, or whoever else they might represent. But there
are often players with other control-block owners in
terms of providing the leverage they need to work
Do you think it's possible that lifting this 15% limit
could in fact allow the significant market players to
depress the price of Air Canada shares even further,
therefore setting up an institutional investor to buy
even lower than today's market value, with the
understanding that there is going to be somebody coming
in who wants to buy the control block to run the
company, and they'll guarantee a return to the
institutional investor who has all the cash, provided
they take the first step? Is that something that could
Mr. Jacques Kavafian: If I understand you
correctly, you're saying an institutional investor
would buy the stock cheap and then make a deal with the
company to buy the—
Mr. Paul Szabo: Either in partnership or in fact
a full transfer of shares.
Mr. Jacques Kavafian: Some funds are in that
business. They're vulture funds. They buy when the
company is on its knees, hoping that someone will come
and bail them out at a higher price. Some people do
that, but not—
Mr. Paul Szabo: Is anybody going to be interested
in buying a control block in Air Canada, given its
union problems, its balance sheet, the competitive
environment you talked about, and so on? Is
anybody really going to want to buy that package, or
are they really setting themselves up—and this 15%
restriction would facilitate this—to allow the thing
to bottom out basically to book value and then wait
until the government comes out with some sort of
a bailout or a restructuring that actually
forces the clean-up, and then they take a look. It's
“wait until it really hits rock bottom
before you strike”, and then all of a sudden I can buy a
control block. Could it happen?
Mr. Jacques Kavafian: First of all, book value is
negative today, so the stocks aren't allowed
to go below zero.
Mr. Paul Szabo: Fire sale prices...it's always
worth something to somebody.
Mr. Jacques Kavafian: The other thing is I've been
in this business for 17 years, and it's not long
enough, I realize. I've learned that you never know
where a potential buyer comes from. I might think that
no one would be interested in buying it today and then
I'll be embarrassed on Monday with someone coming and
saying, well, we have a different agenda and
we are interested.
Mr. Paul Szabo: Perhaps you can amplify on the last
point. Do you think there
is an investor out there who wants to be the
controlling shareholder of Air Canada that's going to
have any restrictions on it at all with regard to
operating its business and making a return on its investment?
Mr. Jacques Kavafian: Any such potential investor
knows the layout of the landscape. They know what the
restrictions are, and they would go into it knowing what
those restrictions are. They would price the stock accordingly.
The Chair: Mr. Laframboise.
Mr. Mario Laframboise: Mr. Kavafian, in answer to my colleague
earlier, you stated that there was no money to be made in the area
of regional service. There are buyers interested in purchasing all
of Air Canada's regional carriers, without restrictions. There are
people who believe that Air Canada's regional performance, before
September 11, all things considered, was better than that of Air
Canada as a whole. Do you believe that these investors have a good
reading of the situation?
Mr. Jacques Kavafian: I would like to meet them. Air Canada
Regional makes a profit on several routes, for example between
London, in Ontario, and Toronto. There are certain routes that are
profitable. Personally, I do not believe that the company itself,
Air Canada Regional, is profitable.
Mr. Mario Laframboise: You are therefore telling my
businessmen that it would be a bad investment for them.
Mr. Jacques Kavafian: I do not have any numbers in front of
me, because the company does not divulge them. I am basing myself
on observation and knowledge. Overall, in my view, Air Canada
Regional is not profitable. However, it is probably not losing as
much money as the parent company. It is perhaps getting away with
having neither gains nor losses.
Mr. Mario Laframboise: Now, we are starting to understand
I would like to come back to the issue of government
assistance. I maintain that Canada should have clearly announced
its intention of helping out the airlines and that would have
helped the market. We are now asking Air Canada to use up its
liquid assets. Mr. Milton stated that he would be able to continue
for a time, that he had a billion dollar reserve fund and that he
could borrow three or four billion dollars, but what will happen
afterwards? I fail to see how washing out a company, even if we
amend Bill C-38, will help us to reach our goals.
Why not have stated clearly, which would have reassured
investors, that as a government we were prepared to help out the
airlines, as the Americans did? I sense that you do not wish to
It nevertheless seems to me that what we are going to do is
let Air Canada use up all of its liquid assets. It is possible that
afterwards, once it has nothing left, it may be easier to help it
out, but I do not believe that strategically speaking... I believe
that the government should, though this is not what it did,
announce that it will help Air Canada, so as to reassure investors.
Do you agree with me?
Mr. Jacques Kavafian: I believe that it is not the
government's role to reassure investors. You say that Air Canada
will be a washout. Why? A company always has the choice of cutting
its losses or of reducing them through restructuring.
I am in complete agreement with the minister offering loan
guarantees to Canada 3000 on the condition that the company reduce
or rationalize its operations. There were four conditions. I would
be in agreement if the government applied the same type of funding
to Air Canada, on the condition that the company reduce or
rationalize its operations and reduce its losses.
Mr. Mario Laframboise: But Air Canada has already made
requests. You are saying, in the final analysis, that now is not
the right time, that we must let things run on and that we will
look at the situation later on. Is that what you are saying?
No loan guarantees have as of yet been offered. Air Canada has
made requests for assistance. It is all fine and dandy to play with
words, but requests have come from Air Canada. You are however
telling us that you support the minister and, therefore, that you
are in agreement to let Air Canada go and to wait and see what will
happen. Is that the case?
Mr. Jacques Kavafian: No. Air Canada has other possibilities.
It has the possibility of reducing its losses by abandoning certain
routes, by laying off staff, by leaving aircraft on the ground.
These are things that it is doing at the present time.
Mr. Mario Laframboise: You are therefore saying that it is too
early to help it out and that we should wait and see. Is that it?
Mr. Jacques Kavafian: If the company loses 700 million dollars
a year and you inject a billion dollars into it, all that you are
doing, in truth, is buying a year and a half or a year and a
third's grace time. This is what must be done: put an end to the
losses, make cuts, streamline. We must at least be assured that the
company, without necessarily becoming profitable, at least reaches
a break-even point in the present economic context. This is what it
Therefore, if I understood correctly, the minister stated that
it seemed there were other things to do, but...
Mr. Mario Laframboise: And you are in agreement with that.
That is what you are saying; that you are in agreement.
Mr. Jacques Kavafian: Yes.
The Chair: Mr. Byrne, from the Liberals.
Mr. Gerry Byrne (Humber—St. Barbe—Baie Verte,
Lib.): I want to pick up, Duff, on a couple of
You were a strong supporter, if I understand you
correctly, of the formation of the
ombudsman's office. You were a strong supporter of referring
complaints to the Competition Bureau. I think what
you're getting at is these are regulatory bodies in
some respects. There's no one to help organize
consumers to file these complaints because it is a very
complicated process. To be able to collect mass data
or class action sorts of complaints, you need an
You said there is no organization currently
in Canada that is capable of doing that. In
fact, even some of the other consumer organizations
that are trying to do it are not very effective at it
and probably should not be involved.
I'm aware of one organization that is in existence
that's called the Canadian Association of Airline
Passengers. This committee received testimony from
them earlier. Do you have any comments about the
effectiveness of that organization or its mandate?
Are you aware of it? Would you be able to provide
Mr. Duff Conacher: Sure. It has very few members.
Mr. Gerry Byrne: That's its fatal flaw, is it?
Mr. Duff Conacher: Yes. It's not actually an
association. It's a coalition of groups, but—
Mr. Gerry Byrne: Who are those groups?
Mr. Duff Conacher: —none of those groups works
on or focuses on airline issues.
I'm here in the same
capacity, and I have the same capacity as they do. There
isn't a full-time staff person at the Canadian
Association of Airline Passengers.
Mr. Gerry Byrne: One of the obvious
questions that would flow from this is the following. If you're
saying the majority of Canadians would support
such an organization, and it's backed up by survey data
from Environics, why doesn't it exist?
We have freedom of association in Canada. We have
very sophisticated marketing capabilities. If
this type of organization had a cause, had a purpose,
and had a market, why doesn't it exist on its own? Why
do we need legislation to actually embody and enact
this organization to exist?
Mr. Duff Conacher: There are several
barriers to organizing citizens across the country.
You'd have to reach them all. Will Air Canada give you
a passenger list so you can mail something directly to
people who fly? No. So you would be mailing to a
whole bunch of people who may not fly, so they wouldn't
be interested in joining...wasting all of that money to
reach the 10 million annual airline passengers in
Canada. It would cost you about $8 million to do a mailing.
And why is legislation needed?
Well, because you're doing all sorts of things to help
the airlines, and the airlines can easily, as you know,
hire lobbyists. They can come up with the money for advertising
campaigns, with everything to make you believe, as a
policy-maker that everything is hunky-dory, and all these
passenger complaints are just irrelevant
anecdotes and statistically insignificant. They can very easily
do that by just adding a couple of dollars to every
airline ticket and raising that money. All we're saying
is balance the marketplace and give the airline customers
as easy a way to band together.
Why should they have to overcome all of those barriers
of organizing when the airlines don't? The airlines
can just gouge customers a little more and shift all that
money to lobbying and donations to political parties
and all sorts of other means of influencing the policy-making.
Mr. Gerry Byrne: You've said it's very
expensive to do it and therefore you've come to the
conclusion that it's impossible to do without
regulating it, without putting in the
form of a statute.
Mr. Duff Conacher: The only other way to do it
would be if government gave a huge development grant to
allow a group the resources to be able to approach
enough Canadians directly, inviting them to join. Why
do that, when the airlines already have a point of mass
contact with passengers when you board a plane and
just have them distribute the pamphlet at no cost to
the airline and no cost to the government?
Mr. Gerry Byrne: Have you tested the hypothesis of
impossibility by actually trying it yet, without
government support? Has there been an attempt to
actually organize people without government assistance?
Has there been any effort to
simply get a website going and see if people want to
actually join up with such an organization?
Mr. Duff Conacher: Sure. Transport 2000 is the example.
Mr. Gerry Byrne: And it's just not working.
Mr. Duff Conacher: It's a very small organization.
Mr. Gerry Byrne: So what you're saying is
Transport 2000 is not working as a consumer.
Mr. Duff Conacher: No, because it doesn't have a
representative base, and no other group does. When they appear
before you or send
things in or appear before the media, some of them may
try to say, we are representative, but
their memberships are all less than one thousand, or a couple
of thousand at most, and they're simply not a
representative organization. Their boards are not
This is what we're proposing
for this group. And they're not in touch with enough
passengers on a regular basis to really know what is
the top-of-mind concern for passengers, what they want
addressed, what are problems.
Among all of the other reasons I've given,
that's why we think this is the best way to do it—again,
at no cost to the
government, at no cost to the airlines; just give people
the opportunity to band together.
The model we propose and the model that's been
used in the U.S. is that if Canadians do not want it,
if a certain percentage do not join after the flyer's
pamphlet has been distributed, then it would disband.
If Canadians don't want the group, then it won't exist.
Give them as easy an opportunity as the industry
has to band together their resources to be involved in
policy-making and to protect themselves in the
marketplace. Who pays for all of the airlines' lawyers
when they're sued? Customers. Who pays for the
lobbyists? Customers. Who pays for their ads?
Customers. Who pays for their donations to political
parties? Customers. Customers should be given
something back—and this, again, at no cost to the
government and the airlines. It just gives them the
opportunity to band together.
Then you have someone to call on besides me. I'm
sure some of you are sick of seeing me because we
appear on a lot of issues. I wouldn't be here; someone
else would be here who'd be an expert on the airlines,
who would analyze the big question I think in this
whole policy-making exercise with regard to Bill C-38
and the airlines generally, which is whose fault is it
that Air Canada has lost all this money? Is it the
market? Is it September 11 events? Or is it Air
Canada itself? Have they just blown it? We don't know.
I don't think you know. I don't think anyone knows.
You certainly don't have a passengers' group
analyzing whether that is actually the answer: that
Air Canada doesn't deserve any more favours, they've
had enough, that it's their own fault they're in
the position they're in, and taxpayers shouldn't bail
them out; no one should bail them out. But you
don't have that passengers' group to call on. You're
hearing from the securities industry and the airline
industry, but you don't have a group that can do the
research to really, from the passengers' perspective,
answer the question, whose fault is it that Air
Canada is in the position it's in?
Mr. Gerry Byrne: Thanks very much, Duff. I
want to move to Jacques for a second.
You're basically here, Jacques, providing testimony as
a representative overview of the institutional
investors, the institutional investment community. I
think that's a fair statement to make, wouldn't it be,
that Yorkton Securities is a representative sample?
Mr. Jacques Kavafian: No, I'm speaking for myself,
on my own knowledge. I'm not speaking for anyone else.
Mr. Gerry Byrne: In Yorkton Securities
then you would basically take the position that you
agree with the national airline; you agree with the
philosophy of a national airline. You also see that it
has business merit to have to maintain Air Canada as a
national airline. You've indicated that domestic
travel is the core competency of this company, and in
essence it should not retreat from its core
competency. It wouldn't make a good business case or
business sense to do so.
But you've also argued in regard to the impediments
you face, as you would phrase them, as a national
airline, the restrictions. It would be your position,
as an institutional investor, that this security, this
equity floating, would be more attractive if those
restrictions were not in place, and those restrictions
include bilingual services, a requirement for
operational headquarters in Montreal, service centres
in three locations in the country, plus a
requirement for regional services to smaller airports.
Would that be correct?
Mr. Jacques Kavafian: No, I'm sorry, it is not. I
did not mention official languages as an impediment,
nor did I mention the headquarters location as an
impediment or restriction, because these are fairly
low cost. It's not material in the financial dealings
of the company.
If Air Canada wants in the future to look for
alternative financing methods that may not be available
in Canada, that may be available in the U.K. or in Germany
or in the U.S., it is imperative that the foreign
ownership limit be raised from the current 25% to maybe
49%. I'm simply mentioning 49% because I think the
minister can do it very quickly with an order in
council without changing the law.
It's also a level at which Canada's bilateral
agreements remain intact. Above 50%, I believe
those bilateral agreements with other countries come
in question. The single-ownership limit of 15% is
too low and it's unnecessary.
I'm saying it's imperative that
the single ownership of 15%
be eliminated and the foreign ownership limit be raised
to 49% in order to allow Air Canada to refinance its
activities at the lowest cost possible.
Mr. Gerry Byrne: So basically those are the tenets
within Bill C-38, the ownership, bilingual services,
and the headquarters question. Would Yorkton
Securities, yourselves, provide further input
to change? You say you don't really have an issue with
bilingual services or the headquarters. But I think I'm
reading you correctly and you really do have an issue in
terms of the issue with the business case surrounding
the hub service centres and the requirements
for regional service. That's outside of the scope of
Bill C-38, but certainly it's a restrictive covenant
put on Air Canada as a national carrier.
Would you, as an analyst and as a market watcher, be
providing a lobbying effort to remove those
restrictions from Air Canada to make the security more
palatable to institutional investors?
Mr. Jacques Kavafian: No, I would not.
If I may make a correction—Ms. Meredith corrected
this earlier for me—the maintenance bases Air Canada
has, I want to repeat, are required for maintenance. My
issue is forcing the company to have them in a certain
location that may not make optimal economic sense.
Mr. Gerry Byrne: To conclude, would it be a fair
statement to make that you acknowledge it promotes a
strong business case for Air Canada to have
restrictions placed on it requiring it to provide
service to smaller centres because it plays into the
notion of a Canadian, a national, airline?
You've just corrected me. You have no problem with
requirements for setting parameters, limits,
requirements, for Air Canada to have regionally based
service centre hubs. You may have some difference of
opinion as to where exactly those hubs are, but,
fundamentally, you agree that's not a bad thing to
So will you make a clear statement that it's in Air
Canada's best business interest, the economic case, the
business case, that this airline should be required in
future to maintain its services to small and regional
airports in fulfilment of its capacity as a national
airline? You said it is important, it is a business
case, that we have a national airline.
Mr. Jacques Kavafian: It is not, in my opinion, in
Air Canada's shareholders' interest to have any sort of
restrictions imposed on the company.
Mr. Gerry Byrne: Now you are contradicting
yourself, because you just said you have no
problem with these restrictions. You've said that you
feel as though it is important to have a national
airline, but now you're saying you don't agree with
any restrictions because it's not in the business case.
Mr. Jacques Kavafian: That's correct.
Mr. Gerry Byrne: Can you give a clear message to
this committee? Where should this airline be going?
Mr. Jacques Kavafian: Yes. I will give you a very
In my opinion, for shareholders of Air Canada it
doesn't make any business sense, any economic
sense, to have any restrictions on the operations of
the company whatsoever. If management decide that
certain operations are not profitable, they should be
allowed to close or relocate. Putting any kind of
restriction on that is a competitive disadvantage that
other competitors don't have.
However, in some of those restrictions it's
immaterial. For example, whether it's official
bilingualism or having their headquarters in Montreal
or services to small communities, it's immaterial. I
believe they lose money on those routes, but it's small.
It's not a big deal. These are things that are
impediments that are not as serious as a 25% foreign
ownership limit is.
Mr. Gerry Byrne: So if we were to impose further
restrictions, force or require greater services to
small centres, because the financial cost is
inconsequential, Air Canada should not have any problem
It really, in the grand scheme of things, would be
very minimal, marginal, to the bottom line;
therefore, it would not be the basis of an argument.
Air Canada would not be able to come back and say,
you're really hurting our ability to float this new
equity, because it would be a red herring issue for Air
Canada to do so.
Mr. Jacques Kavafian: One thing I believe
would be very difficult for you to implement is to
force Air Canada to buy aircraft in order to serve
those communities. They may reallocate, but I think
forcing them to serve more communities.... If they're
serving 15 communities and they're losing a little bit
of money, that's one thing. If you force them to serve
50 communities, then they start losing big money and
that's a serious issue.
Mr. Gerry Byrne: So just maintaining the existing
services as they were before the restructuring of 2000
would not be a problem.
Mr. Jacques Kavafian: In an ideal world I would
like to see Air Canada not be restricted and if they
lose money in Bagotville, or wherever they go, to
be allowed to pull out. But under this current system,
I think it's relatively small and I think we can live
Mr. Gerry Byrne: Mr. Chair, that's where I'll
close, and I'd have the record stand that basically
according to this institutional investor the problems of
service to small regional centres are not really a big
issue. However, that seems to be where the major
cutbacks in Air Canada have occurred in the last little
The Chair: Thank you, Mr. Byrne.
Ms. Val Meredith: I want to jump into this
conversation. Really it's a good segue, because when
you talk about small communities being served by the
big mega company, it doesn't necessarily mean they're
getting good service.
There's one example in British Columbia where Air
Canada was flying into Terrace, B.C., and it was high-priced.
A small company out of Terrace, B.C., bought an
airplane and started two-way service, two trips in and
out of Vancouver a day. They've just bought a second
airplane and now they're offering services to Smithers,
B.C. These are small communities that previously
didn't get good service from a major carrier.
When you expect the big carrier to provide inefficient
service where they're losing money, are they not
keeping small potential airlines out of the business?
Where do small potential airlines, like Hawk Air,
get the funding so that they can provide good service
for small communities, which the large mega airline
cannot possibly do?
Mr. Jacques Kavafian: If you're forcing Air Canada
to go into a community reluctantly as a public policy,
or a service to the public, it crowds out other
potential investors or people who may be living in
those communities and they may find it attractive to
fly smaller airplanes than what Air Canada may be
flying in its regional aircraft fleet.
That's a possibility. But I talk to a lot of
people and many people are not willing to take a chance
on having Air Canada abandon the service and then
waiting until someone else jumps in. I think if there's money
to be made, someone will come in and provide that
service, like the examples you mentioned.
Ms. Val Meredith: My concern is because regional
carriers have really come from the small aircraft, the
small airlines, that ended up getting bought out and
then there was this competition between Canadian
Regional and Air Canada regional airlines for
market share to feed their big-line carriers. What's
happened with the monopoly is that you don't have this
competition in the regional carriers any more. You
have one regional carrier.
I think for your smaller people, your smaller
airlines, their concern is that you still have this mega
airline that wants to control the market and wants to
keep out any potential competitor, either from a
regional aspect or from a national aspect. Yet if we
were to stop supporting your larger regional
carriers.... Assuming they're the only ones that can provide
the service, you're keeping the smaller carriers out
of the marketplace. You're not allowing them to come into
the marketplace and to grow, and it's they who would give better
service to your small regional airports.
You take Elsie Wayne. She has to catch a plane in
Saint John and fly into Fredericton, and then she has to
fly to Halifax and then back to Ottawa. It's
ludicrous. By our protectionist attitude toward Air
Canada and regional service, we're preventing somebody
from providing a service from Saint John to Halifax, or
from Saint John to Ottawa.
Mr. Gerry Byrne: You had better check the federal
Competition Bureau records, Val, because that's exactly what
Air Canada did. As soon as a small airline like
Provincial Airlines came in—
Ms. Val Meredith: They forced them out.
Mr. Gerry Byrne: The federal
Competition Bureau ruled them out of order. What's the
purpose of Tango?
Ms. Val Meredith: The concern I have is when
you start propping up the national carrier as the only
one that can provide service into small communities,
you're propping up that situation we're faced with.
I know the witness believes Tango
is a good idea, but I think you'll probably find
that around this table we're all very concerned that
Air Canada is once again using resources, perhaps that
they got from the taxpayer, to put in an airline to go
into stiff competition with Canada 3000.
Anyway, my question to you is, where do these
small airlines get the money? Where does a Hawk Air
go for funding to grow their business?
Mr. Jacques Kavafian: I have seen only one
occasion, in my experience. It was very local, from
their local community.
Some wealthy individuals get together and started an
airline. It doesn't cost too much to start a small
airline like that.
Ms. Val Meredith: Thank you.
Mr. Duff Conacher: Just to answer that, in part,
we'll soon know a lot more about where all industries
get their funding from, because Statistics Canada and
Industry Canada have initiated one of the proposals
we made in the banking area, which is that there
should be much more detailed tracking of what all
financiers do, what they fund, what they turn away,
what they reject in terms of applications. In their
first wave of surveys, they've surveyed all suppliers
of credit of all sorts, debt and equity. They've
also surveyed all 25,000 small and medium-sized
businesses in terms of the demand side and what's
missing and what the gaps are. Their first wave is
slated to come out in the next couple of months, and
then it will become only more detailed in terms of its
industry and geographical breakdown.
That's not related directly to Bill C-38 at all, but
just to let you know that there will be much
more information coming out as to where all industries
get their money and which industries in which areas of
Canada are essentially shut out by those who provide
capital. That will hopefully provide direction to the
Business Development Bank of Canada in terms of
the gaps that are actually there and the gaps that the
government's business banks should be filling.
Ms. Val Meredith: Thank you.
The Chair: Bev, did you have another question?
Okay, then Mario will be the last intervener.
We're close to 11 o'clock. I want you to keep
your questions and answers within the 11 o'clock range
so that we can start with the other witnesses on time.
Mr. Mario Laframboise: Mr. Kavafian, I come back once again to
the help that was quickly announced by the United States in support
of the air industry, and that Canada did not offer. Let us be
clear. The industry was offered 160 million dollars. You are a
specialist in this field and you maintain that the government
should not move too quickly and that help... I am having difficulty
Everyone is in the process of restructuring, Mr. Kavafian. No
one wants to give money to companies for them to continue to live
beyond their means, except that the Americans intervened quickly.
Do you not believe that this is a solution that Canada should have
put in place? Do you not believe that Canada should have intervened
in a timely fashion? The problem is that we are waiting. For
example, Canada 3000 has cash problems and we offer the company
loan guarantees. Are we going to wait for Air Canada to run out of
cash? That is what you seemed to be saying earlier. You seem to be
saying that we will see what we are able to do once Air Canada has
run out of money.
It is fine to be upset with the company and to let market
forces play themselves out, but no one invented September 11. It is
true that the industry already had a problem and we are trying to
punish it for that, but one day, we will have to understand that
the 11th of September happened, that there is a crisis in the air
industry and that we will have to intervene. That is not what I am
sensing. You seem to be marching along hand in hand with the
minister, saying that we will wait until the cash runs out. Are we
going to wait until Air Canada runs out of money before helping it
Mr. Jacques Kavafian: I will give you as clear an answer as
possible. As an individual, philosophically, I have problems when
the government intervenes in any given industry, whether we are
talking about Air Canada or any other company. This is money that
taxpayers have contributed for certain things. To give money to
companies is not to me an efficient way of managing public funds,
but it is true...
Mr. Mario Laframboise: But for the rest...
Mr. Jacques Kavafian: I am trying to be a little more
realistic. It is not because the Americans reacted quickly that we
must do the same. Air Canada has other avenues that it is presently
pursuing. There are other industries and other companies that are
facing problems. Clearly, the government should only involve itself
as a last resort. It should not intervene in order to prevent
problems. If there are problems, we shall see, but there are no
Mr. Mario Laframboise: Are you saying that we should wait
until the company runs our of cash?
Mr. Jacques Kavafian: It should not run out of cash. The
company should manage its affairs so as to not run out of cash.
Mr. Mario Laframboise: In the meantime, people are being laid
off. They are getting rid of human resources and employees are
being told to go and look for work elsewhere. We are letting the
industry down. We will wait and see what is left and then we will
look at how to prop it up.
Mr. Jacques Kavafian: It is unfortunate, but such is the case.
Mr. Mario Laframboise: Thank you.
The Chair: Thank you, Mario.
Thank you, witnesses, for being here. I'm sure
the committee is a little more enlightened by your
interventions. We appreciate you coming here.
I'll suspend for a couple of minutes while we get the
other witnesses in place.
The Chair: I'd like to reconvene the meeting and
welcome our witnesses.
We have, from the Canadian Labour Congress, Hassan
Yussuff, the executive vice-president,
and Kevin Hayes, the
senior economist, social and economic policy. From the
International Association of Machinists and Aerospace
Workers in Canada we have Louis Erlichman. From the
Canadian Union of Public Employees we have Richard
Balnis. And from the CAW Canada we have Serge
Portelance. Welcome, gentlemen.
Usually we start with presentations. I don't know
how you have yourselves organized, but just a small
statement from each of you...and then we'll have
questions. This is a
Mr. Hassan Yussuff (Executive Vice-President,
Canadian Labour Congress): Thanks, Mr. Chair.
On behalf of my colleagues, I want to say we're pleased
to have the opportunity to present before the committee
on a very important matter that concerns a large
portion of our membership in this particular industry.
We do have a formal brief from the Canadian Labour
Congress, and my colleagues also have comments and a
presentation they're going to make to add to what I'm
saying in regard to our joint presentation.
On behalf of our 2.5 million members, we want to thank
the House of Commons transport committee for the
opportunity to outline our views on Bill C-38. This
bill, which removes the 15% limit on common shares that
can be owned by one shareholder, is a significant
When we were before the committee two years
ago we said that ownership by a single shareholder
should be limited to 10% of shares.
At that time, we said we were also concerned about
both foreign ownership of airlines and allowing
foreign carriers to operate within Canada. No country
allows foreign carriers to compete with its domestic
carriers for domestic travel within its own borders.
We said we didn't want our domestic market opened
up to foreign airlines whose only interests will be
picking up the most lucrative routes, with no obligation
to serve small centres and remote communities. We said
that foreign ownership should not exceed 25%. Who
has effective control of Air Canada does matter.
Our position on Air Canada ownership, however, is part
of an air transport policy where domestic transport is
regulated in the public interest, similar to the way we
regulate international and transborder traffic.
Every community in Canada should have access to quality
airline service. Airline safety must be to the highest
standard and enforced.
Air Canada's most recent problem was certainly made
worse by the recession we are in and the events of
September 11, but its problems are deeply rooted in
airline deregulation and destructive competition.
The airlines have not been helped with the contracting
out of security screening to the lowest bidder, paying
the lowest wage.
Competition policies where the only
outcomes so far are higher prices, lower service, the
wholesale destruction of the national airline, and
the permanent insecurity of airline employees can only be
described as destructive.
Another outcome of more than
a decade of destructive competition is Air Canada's
mountain of debt, which this bill anticipates dealing
with by removing the ownership limits.
Without reregulating air transport, we are
well aware that the limits of share ownership by itself
will do little to stop the airline ticket prices from
skyrocketing and continue the decline of quality of airline
service to smaller centres in this vast country.
The protection of the public interest, consumers,
communities, and workers is the job of government. That
means reregulating and managed competition in our
domestic market. To restore the public confidence in
flying, a comprehensive air transport policy is needed
now, even more than before September 11 and the current
economic downturn. A complete range of regulatory,
fiscal, and other policy instruments must be used to
create a stable and viable air transport industry to
serve all Canadians.
This bill will remove uncertainty
in the turbulence of the airline industry.
Air Canada and the airline industry is much more than
aircraft, managers, and stockholders. The airline
industry has 90,000 workers involved in every aspect of
ensuring that Canadians have an effective, safe airline
We believe the government must ensure that issues
related to the stabilization of the workforce form the
concept of all discussion and proposals for the overall
stabilization of the airline industry. It is critical
that any package of financial assistance provided by
government to Air Canada and other airlines address the
needs of workers facing job loss, displacement, and
career impacts. The impact of failed air transport
policy, the current recession, and the events of September
11 on Air Canada employees is enormous.
There are many issues to be addressed as part of a
workforce stabilization program: demographics of the
workforce in different sectors of the airline; the
identified current and future shortage of skilled
tradespersons; the need for increased bilingual air and
cabin crews; and keeping young people in the industry
to ensure a trained workforce for future growth.
The workforce stabilization program that we have
proposed to the government is based on the approach of
enabling the senior members of the workforce to leave
without seriously reduced pensions and eliminating as
much as possible the need for permanent layoff for
junior and younger employees. It makes sense prior
to layoff notices being issued by the
company, thereby triggering the seniority bumping and
relocation provisions of the collective agreement. A
package should be offered to all senior employees to
encourage them to permanently leave the industry. Once
the process is complete, it would be much easier to
develop programs to mitigate the need for future
The only aspect of the union proposal that requires
new money from the government is the early retirement
package. This, however, is partly offset by reduced
employment insurance or social assistance payments.
The program to address the mitigation of layoffs for
junior employees, work-sharing, adjustment committees,
and training programs will be financed from the EI program,
which has been paid for by employees in the industry
already. It does not require any new money from the
general revenue of government.
Unions and their members strongly support stabilization
of the industry because it is in the interest of
Canadians, of Canada itself, local communities,
the workforce, families, and the shareholders who
invest in these companies. What must be done to have
national carriers for all Canadians must go beyond the
narrow interests of shareholders and investors.
We believe that an effective and safe airline is
possible, but it will only be achieved if the workers,
through their unions, are full partners in all aspects
of the restructuring. The government must ensure that the
broad public interest is served.
This document is respectfully submitted on behalf of the
Canadian Labour Congress.
I invite my colleagues to make their respective
presentations and comments, and then maybe we can get
into the questions.
Mr. Louis Erlichman (Canadian Research Director,
International Association of Machinists and Aerospace
Workers in Canada): I'd like to thank the committee
for giving us the opportunity to appear before you on
behalf of the International Association of Machinists
and Aerospace Workers.
The IAM is the largest union in air transport,
representing approximately 18,500 Canadian members
working at Air Canada and other carriers as well as a
number of airline service companies.
We've appeared before
this standing committee many time over the years, and
we've put forward a consistent view of this industry.
Contrary to the conventional wisdom, which has guided
government policy over many years, air transport is an
industry that moves, in the absence of government
direction, towards greater concentration and monopoly.
The evidence of history continues to support our view.
The Canadian air transport industry, like the industry
worldwide, is currently in crisis. Air carriers
everywhere have been affected by the economic slowdown,
with the market slowdown exacerbated by the events of
September 11. In addition, Air Canada is still
dealing with the restructuring arising from its merger
with Canadian Airlines.
The government's response to this grave situation has
been tentative and weak. The provision of some cash to
offset direct losses from September 11, some possible
loan guarantees, and Bill C-38 don't add up to an
adequate response to the industry's current
problems; neither do they provide a basis for the
future health of this sector.
That being said, the response is consistent with the
government's long-standing passive approach to this
sector: waiting for crises to occur and then responding
by doing the minimum possible and hoping the
magic of the market will somehow make the problems go
away. This passive approach has helped to bring the
industry to its current state and will certainly not
help to turn things around.
When Air Canada was privatized in 1988-89, ownership
restrictions were included in the legislation as a
recognition of the carrier's central role in this
essential public service. It was felt that no single
entity should have control of this cornerstone of
Since that time, Air Canada's dominance in the market
has increased. If anything, the argument for ownership
limits is stronger now than ever. With our current
passive public policy, it would seem that the risk of
having a single controlling shareholder for our
dominant air carrier, with its essential public duties
and responsibilities, is greater than ever. It is
therefore difficult to understand why the government
has introduced Bill C-38 at this time.
Even looking simply at the short term, it's hard to
understand how Bill C-38 will do much to deal with Air
Canada's problems. The air transport market is going
to be weak for some time. It's unlikely that there's much
interest in injecting enough new equity
capital into the industry at this point to make a
significant difference in Air Canada's finances.
While we're not overly impressed with current Air
Canada management, putting Air Canada's ownership into
play at this time is most likely to be a costly
distraction at a time when the airline has not yet
recovered from the heavy cost of the last takeover
The air transport industry needs stability, not more
disruption at this time. Instead of fiddling with Air
Canada ownership legislation, the government needs to
be stepping in to provide a clear policy direction for
this sector. We need a regulatory framework that
lays out service requirements, provides for equitable
fare-setting, and provides assistance to workers in
We also want to reiterate to this committee the
importance of resisting proposals for expanded foreign
control of Canadian air carriers or cabotage rights
for foreign carriers, which would simply undermine our
weakened domestic carriers without providing improved
service to Canadian communities.
We are concerned about the government's failure to
respond to the needs of the workers in this sector. We
have jointly put forward a proposal
for government assistance to mitigate the impact of
structural change in this sector, including early
retirement inducements to older workers,
a work-sharing adjustment, and training assistance for
younger workers. The government has not yet come
forward to help the affected workers in this sector.
Finally, we call on this committee to urge the
government to admit the failure of its passive policy
on air transport. The market will not solve the
problems of this industry and meet the needs of
Canadians, Canadian communities, and Canadian
The government must take an active role to give a
positive direction to this essential industry. Thank
Mr. Richard Balnis (Research Officer, Airline and
Federal Jurisdiction, Canadian Union of Public Employees):
CUPE and its airline
division represents about 11,500 flight attendants
across Canada on a good day. We represent them at
carriers such as Air Canada, Air Transat, Canada
3000—including Royal and CanJet—First Air, Calm Air,
and Cathay Pacific in Vancouver.
I represent CUPE today. I do not have anything in
writing, but I do pass on the regrets from Francis
Bellemare and Rob Limongelli
of our airline division, who cannot be
with you today. In fact they are at the Canadian
Industrial Relations Board today with several hundred
of our members who are trying to save their jobs
because Canada 3000 has made an emergency application
to the CIRB to de-merge itself from Royal and then to
terminate Royal flight attendants and pilots only. So
Francis and Rob are there with our members. It
appears that those members have become the price of
federal government financial support.
I also pass on the regrets from our Air Canada
leadership, who are meeting today with Air Canada
management in Toronto to mitigate about 700 remaining
layoffs. I am substituting for them today because they
are not able to be here.
support the CLC position and that of the machinists.
What is being proposed today is not a long-term
solution for the industry. It may be of benefit
temporarily to Air Canada to convert debt to equity and
try to rebalance its balance sheet, but without any
individual share ownership restrictions, in our view,
Air Canada will then be a plaything in the hands of
future corporate manipulators.
We are also concerned that the policy vacuum
continues. The government believes it can continue to
rely on private sector solutions. We had one of those
solutions in 1992, another one in 1996, another one
in 1999, and we are here today looking
towards another one in 2001. Our members have been
victims too often of such private sector solutions. We
also have a concern when the other shoe drops: increased
All of these issues have been the topic of many
submissions to you over the years, and I've brought them
here. Regrettably they've been ignored.
I look forward to any questions you may have on my
representations this morning.
The Chair: Thank you very much, Richard.
Is there one more intervener?
Mr. Serge Portelance (national representative, Automobile,
Aerospace, Transportation and General Workers' Union of Canada):
Good morning. My name is Serge Portelance. I will be making my
comments in French.
I am the representative of the National Automobile, Aerospace,
Transportation and General Workers' Union of Canada, CAW-Canada. I
am replacing Gary Fane, who was to be here this morning, but who
was unfortunately unable to come because he is held up in
As far as the airline sector is concerned, we represent close
to 10 000 employees of Air Canada and 1 000 to 1 200 employees in
the regional carrier service.
Since 1985, the CAW has actively participated in the ongoing
debate over Canada's air transport policy, and it has done so in
all kinds of forums. It has taken position on privatization and on
the Open Skies policy, to name but a few examples. Several briefs
have also been tabled in the area of concern to us here.
Since then, one thing has clearly come to the fore: all of
these policies put in place over that period had little to do with
the promotion and development of air transport in this country. I
would even say that it is the opposite that happened. Tremendous
damage has been done to the sector. For evidence of this, one need
only look at the wave of mergers or company streamlining that has
The tragic events of September 11 grant us the opportunity to
review these policies that apply to the airline sector. It is clear
to us that the removal of the 15% ceiling on individual ownership
of shares is not the solution. But we are not opposed to it. We
neither agree nor disagree with it. We are not against the 15%
limit nor are we against its elimination, but in our view, that is
not the solution.
If ever there were talks about abolishing the other rule, that
of the 25% limit on foreign ownership, that would have to be
discussed in cooperation with the unions and all of the union
players. In that regard, I support my colleagues from the AIMTA,
the machinists and CUPE, in their position, as well as that put
forward by the CLC in its presentation.
I might add that in our view, the voluntary or forced
acquisition of Canadian Airlines International, also called CAIL,
was a serious mistake, both on the part of Air Canada and on that
of the government. It was carried out in conditions that are to us
obscure, because we were not involved.
I believe that we must ask the government to take this
opportunity to involve itself, both financially and
administratively, in Air Canada's internal workings so as to
control what takes place within this company and ensure that it
remains a Canadian company, for the benefit of the public and for
that of workers.
Thank you very much.
The Chair: Thank you very much, Serge.
Since there are so many witnesses, when we ask our
questions, perhaps the person asking the question could
direct...or if it's a general question, each one of you in
turn, by sector, may answer. But try to keep your
answers short so that we can have as many questions and
answers as possible.
Mr. James Moore: Mr. Yussuff, you said in your
this committee that you didn't believe the cap
should be 15% and in fact it should be 10%. I'm curious,
do you think that 10% or 15% cap should apply to all
carriers, and in fact Mr. Beddoe
should be stripped of his share ownership?
Mr. Hassan Yussuff: I think the argument, in
terms of lifting the limits right now, is what is that
likely to do to put Air Canada in a more viable
Mr. James Moore: That's not the question, though.
Mr. Hassan Yussuff: I understand that's not the
question, but I'm still the one in charge of giving you
I think it is important to recognize that the
limit in terms of one sharehold in this country,
especially in Air Canada specifically, we believe has
some consequences for how this airline could become
more viable. While we recognize that the
government's strategy is to try to figure out how to get
more cash into Air Canada, we don't see this as a
In terms of other airlines...it's hard to
say what is the appropriate policy mechanism for other
airlines at this point in time; we're not discussing
them. If this was before the committee in terms
of a debate, then our position would be different. But
this was a once public airline now privatized, and of
course the reality since they've been privatized is
have been a lot of difficulties. We have
made presentations to this committee in the past about
what we believe is the solution, and of course
that has not been listened to. We're here again today
arguing some of the same points. We believe
we'll be back here again within a year or six
months or two years from now still dealing with the
same question: how to make Air Canada a viable carrier
in the context or absence of regulation in this
Mr. James Moore: Mr. Erlichman, you mentioned that
the panel and yourself—not that you presume
to speak for everybody on the
panel, but you said you weren't happy with Air
Canada's management, that they hadn't done an adequate
job and that you do call for more regulation, but
specifically you criticized Air Canada's management.
Without lifting the 15% cap, how do you propose Air
Canada's management be changed?
Mr. Louis Erlichman: We're not sure that
lifting the 15% cap changes Air Canada's management,
frankly. The real constraint
obviously makes it more difficult for a single person
to take the carrier over, though I'm not sure whether
Bill C-38 affects things like the poison pill, which
might affect whether anybody could take over Air Canada
Frankly, while we're not enthused about Air Canada's
management, which I already said, that's not the key
problem. We can sit down...and I guess we
heard a previous witness say, well, is it the fault of Air
Canada's management, is it this, is it everything else.
There is a whole number of reasons why the air transport
business is a mess. At a certain level you're
starting off with the fact that this industry was
deregulated back in 1984. We expected the market to
sort things out and the market hasn't sorted things
So simply changing Air Canada management, while
it might provide some people some pleasure to replace
current management, is not an answer either. On
its own, that it's just a matter that there are
lousy managers at Air Canada, that's not the key
problem, the fundamental problem, in the air
As I say, I think we've
said that this is on the margins. This is not really a
solution. It's kind of a marginal question in terms of
the ownership limits in the short run and certainly in
the longer run. It's not going to make a heck of a lot
of difference in terms of the way Air Canada or the air
transport industry work.
Mr. James Moore: I agree. I made that
presentation in a different direction last night to the
I do want to ask one question of Mr.
Yussuff. You made the very broad statement that the
free market is not an answer to the air industry
problems and that solutions will not be found in the
free market. Can you de-rationalize therefore then the
reality of WestJet?
Mr. Hassan Yussuff: WestJet doesn't have all the
requirements Air Canada has as a national carrier.
It has lucrative routes that it has chosen to fly into.
It doesn't have to deal with the whole question of
connections in regard to getting from other cities,
because that's not a major concern. Another reason is
that a non-unionized carrier doesn't pay
the same wages and benefits. There are some
requirements of Air Canada to service small
communities, which we think are essential.
In that requirement you have to deal with an
airline to meet these needs. In that regard, if
you are required to service small communities, which I
think is important, you're required to provide bilingual
services as a national
carrier. In addition to that, running a
national carrier, making connections with people
getting from one place to the other—there are
some inherent problems as to how that needs to be taken
care of. Without the regulatory regime we're not going
to see this airline bottom line improve in the short
term and the long term.
To go back to your question, the
response from the government since we've been dealing
with this crisis, whether it's today or in the past,
has been, let the marketplace take care of it. We've
been watching and waiting and we're still continuing
to deal with a crisis. Unless somebody has some magic
solution here that we can be wholly accountable for, we
don't believe this current proposal is going to
solve the crisis in the airline industry. It is not
going to provide some stability to the communities and
to the workers who are suffering enormously
every time we go through one of these restructurings.
Mr. Louis Erlichman: Could I just say something
about WestJet? WestJet is the one carrier that
has copied the Southwest Airlines formula in the U.S. So
far, WestJet has not gone through a market downturn,
right? There are a number of carriers that have been
relatively successful in the post-deregulation period
for a year, two years, a few years.
Leaving aside the question and the fact that they're not an
international carrier, they do the Southwest model
point to point.
Frankly, the Southwest model is not
non-union. Some 85% of the Southwest workforce is unionized;
we have about 12,000 members at Southwest. So in
fact there is no requirement for it to be non-union
to be a successful, low-fare carrier.
Something happens to airlines. They keep having to
grow. Then their market turns down and they get
into trouble. So far, WestJet seems to have survived
reasonably well. Come back five years from
now when we've gone through a market downturn.
It's the same way that
Southwest Airlines in the U.S. is the
one post-regulation success story.
Even though they were
there before deregulation in the U.S., they were
the exception that proved the rule. Everybody else
Southwest is very successful
and they are still the fifth or sixth
biggest carrier in the U.S. They are still a
relatively small marginal player, as WestJet is here.
They are important.
I think you are going to have to wait. Before you say
that WestJet is the miracle answer, wait another five
years and see where they are then.
Mr. James Moore: I didn't say that.
You list the
regulations Air Canada has to comply with because
it's a national carrier, and then you say
it's failing, but you want more regulations. Then you
have WestJet, which doesn't have the regulations and
it's succeeding. It's an awfully interesting argument
for greater regulation.
Mr. Louis Erlichman: We're not arguing that Air
Canada is failing because it has too much regulation.
We never suggested that. We certainly took the
position that they should never have been privatized.
Mr. James Moore: That's the alternative x factor
that Air Canada has that WestJet doesn't.
Among them, that is a principal one.
Mr. Louis Erlichman: I rarely agree with Mr.
Kavafian, but I think he is probably right in the
sense that, for the most part,
the regulatory requirements
on Air Canada are not what are causing its problem today.
Mr. James Moore: In the Air Canada Public Participation
Act, of course, it is mandated that no more than
25% of Air Canada shares can be owned by foreigners.
I'm just curious here.
Given that the same prohibition is in section 55 of
the Canada Transportation Act, would it not
make sense, therefore, just for the clear sense of
eliminating legal duplication, to eliminate that limit
in the Air Canada Public Participation Act, and even
perhaps to go so far as to eliminate it in the Canada
Given the Convention on International Civil Aviation,
the reality is that if a foreigner were
ever to come in and buy
more than 50% of the shares in Air Canada, if it broke
up the company, it would kill the goose that laid the
In that sense, the
whole value of Air Canada is its domestic routes and
the bilateral agreements that have given it its
transborder international routes. The whole argument
for having a cap on foreign limitations is totally
redundant because every single market force that would
make one want to buy Air Canada kills the argument for
having a cap.
Mr. Louis Erlichman: Then why take it out if it's
not a problem?
Mr. James Moore: It has not been in.
Mr. Louis Erlichman: Why change it if
you're making the case that market forces wouldn't increase
foreign ownership over that 25% level, in any case?
Mr. James Moore: It's quite the opposite. They would.
Why do you have to restrict it? They wouldn't sell off
Mr. Louis Erlichman: The issue is foreign control
of the dominant Canadian carrier. The carrier has
two-thirds or perhaps more of the Canadian market at
this point. And the risk that involves is the issue.
The Chair: Mr. Laframboise, from the Bloc Québécois.
Mr. Mario Laframboise: Thank you, Mr. Chairman.
I will begin by going back to something that was mentioned by
the previous witness. You heard and listened to Mr. Erlichman.
There is at present a whole lobby surrounding the minister of
Transport, saying that we should let the forces of the free market
prevail. In Bill C-38, the purpose of which is to make overtures to
investors, there is a feeling that the free market will be left to
its own devices. That is not what is necessarily worrisome. What is
worrisome is all of the talk we are hearing today about Bill C-38,
as well as the talk we heard yesterday from the minister.
The previous witness stated that we should not be looking just
at that, but also at abolishing the limit on foreign ownership and
removing restrictions, namely those relating to maintenance. It
seems that Air Canada has a milestone round its neck with its
requirement to do maintenance in three cities, namely Dorval,
Winnipeg and Mississauga.
Obviously, in the end, he told us very candidly that the
government should not come to the aid of airline companies, whoever
they may be, that the situation must be handled the way it was in
the case of Canada 3000, in other words that we must wait until the
company runs out of funds before intervening. The minister stated
yesterday, in his speech, that he had sensed there were cash flow
problems. Here is what he stated:
I immediately announced that a loan guarantee would be granted to
Canada 3000 under certain conditions, such as the injection of
capital by shareholders, capacity and manpower reductions...
Thus, the aim was to reduce staff. The previous witness stated
that that was, indeed, the price to pay. All of those who work in
the airline industry must resign themselves to this fact, because
as of today, a good many of them will lose their jobs. That is what
he said. This is one of the conditions that the minister set out
for Canada 3000. That is what he did. Earlier, we were told quite
candidly that we were to expect that Air Canada would run out of
funds and that it would have to carry out a major restructuring
before it would get any help and that, most of all, it would have
to have cut its staff. Despite the fact that there are provisions,
in Bill C-26 and in the Act of 1987 or 1988, protecting jobs, we
are awaiting an unprecedented attack on the rights of workers in
the airline industry. The entire system is being attacked and
people are bragging about it. My colleagues opposite are bragging
in the House of Commons, saying that we have one of the highest
performing airline industries in the world, but we are destroying
more of it every day.
It is the whole context surrounding this that worries me. It
is not the fact that Bill C-38 has been tabled. We can accept the
idea of free-flowing capital and of shareholders wishing to
exercise some control over the board of directors. You are
perfectly right. We will change the director, and it will be all
for the best if that can orient things, but there is a reality: the
Americans invest and support the airline industry, whereas Canada
This is a social choice we are making, and we are doing so to
the detriment of workers. I believe that the human capital of the
airline sector should be protected. The government has a duty to
bring forward not only Bill C-38, but also assistance measures. The
minister and all of those present here are telling us... In the
case of the previous witness, it is very clear: we must wait until
each one of the airline companies runs out of funds, is on the
brink of bankruptcy and, most importantly, has restructured its
personnel before intervening.
There is therefore nothing good in this for us, who represent
workers. There is nothing good coming from those who are advising
the government and who appear before you here. I believe we will
soon witness unprecedented difficulties and destructurings
throughout the Canadian airline industry if something is not done
quickly and if you do not all speak out loud and clear with one
voice. Forgive me, but they are taking you for a ride. What are
Mr. Hassan Yussuff: Again, dealing specifically with some
of the issues in regard to workers, all of my colleagues
have made the same arguments to the minister.
We reiterate in our brief that there are workers in
this industry who would leave and vacate their jobs if
there's a package that would allow them to
retire, to leave early. That would provide some
stability for the carrier, in terms of Air
Canada, as they continue to deal with the
downturn in traffic under-capacity, but it would also retain
young workers who have the skills
necessary to service the industry in the short
and long term. That requires some
We see from the United
States' involvement in dealing with their carriers that
the U.S. government is prepared to put some resources
So, yes, of course, we recognize what we're going
through, but we're not going to simply abandon it. And
I think these arguments need to be made. We believe the
government does have some obligations to deal with what's
happening right now in the airline crisis as a result
of September 11, because all the carriers are being
affected, to a large degree. We believe this
would provide some ability for the airline to have some
stability in terms of its capacity, but more
importantly, it will also position the airline for the
future. As traffic and the economy
improve, workers will be better there to serve the country.
Again, the government can be a passive player.
Throughout the world the entire airline industry is
going through some challenges and other governments are
grasping to figure out how to solve this crisis.
As a large country, we're unique in this
category. We want to ensure all our communities are
serviced across this country, and we're not going to
continue to have that unless we have a national carrier
like Air Canada that is prepared to provide that kind
of service, unless we know of some other way for this
With regard to the issue of maintenance, what do you
need to have, three or four centres? These are of
course important in terms of recognizing that we live
in a very diverse country and in very diverse provinces.
The maintaining of centres across this country is a small
cost for Air Canada with regard to dealing with their
financial problems. So I think it's false to suggest
that if you get rid of all these maintenance centres,
somehow Air Canada will become a viable carrier
overnight. That's completely ridiculous and it's silly
to be making those arguments.
The fact is workers are going to be harmed by this
restructuring, and we believe the government has a
responsibility to address this. Without doing
so, we're going to be back here before this committee,
in the short term, making some of the same arguments
and asking what your policy position is then to
deal with the next crisis that's coming.
Mr. Mario Laframboise: Allow me...
Mr. Richard Balnis: I was wondering if I could
just add a comment, because you raised the very important question
of the role of government in relationship to
At two of the carriers where we represent members,
Canada 3000 and Air Transat, when they were forced to
announce layoffs, we went to them and said there was an
opportunity under the employment insurance work-sharing
legislation to share work. We did that with Air
Canada. It took them a little time to get around to
that, and we weren't able to mitigate all the layoffs.
The clear sense we had from Air Transat, and
in particular Canada 3000, was that the federal
government was looking for body bags, in other words,
workers to suffer before they would provide
So just as Hassan was saying, the government was
actively looking to sacrifice workers rather than
With some reasonable assistance at Air
Canada, we can provide packages for senior flight
attendants to leave...we would retain the juniors,
the bilingual element, the route language
capability. And at
other carriers we can work out other schemes.
It looks like those management people
are saying, well, we can
get more money if we sacrifice you.
And that, sir,
with respect, is reprehensible.
I was here last night watching the minister talk about
his concern over protecting workers and Bill C-26.
Then in the hall, while you were in camera, he spoke to
the media. When a reporter confronted him
and asked him whether he knew what was happening at Canada
3000, at Royal Airlines, whether he knew
that the flight attendants and pilots
were going to be fired, he said, that's the price
I think that is not a very positive attitude on behalf
of government, because we have solutions in dealing with
it and we could humanely deal with this crisis and
restructure the industry in the way the minister wants
without all this untold suffering. I don't understand
why the government seems to have targeted us on this
I just wanted to intervene because Canada 3000, in
particular...that is a young workforce that we could
find solutions for, and the management there is almost
coming in and saying, we have the dollars but we have to
sacrifice you. I cannot understand why a government
would do that.
The Chair: You have ten minutes. Do you have one
Mr. Mario Laframboise: What is difficult to accept for an
industry that was flourishing is that the government is not coming
forward with an assistance program, if only to restructure
employability. You are even being forced to beg for your work-share
programs, and help only comes in dribs and drabs. I cannot get over
The message we should give investors is that there is going to
be restructuring and that we are going to support part of this
restructuring. That would get investment going again. If that had
been done, we perhaps would not even need C-38. We must immediately
let investors know that we are going to support restructuring in
the industry, but that is not what is going to happen. Everything
is done in dribs and drabs and especially, as you yourself said, on
the backs of employees. It is the minister who said that one of the
conditions is staff reduction. I simply cannot get over that.
Mr. Portelance, would you care to comment?
Mr. Serge Portelance: I believe that Mr. Laframboise has
really hit on the important points. It is true that it is the
workers who are going to get fleeced. I believe that that is what
we are witnessing. All the unions are doing is trying to find
government programs that will soften the blow, that will alleviate
the present crisis.
In all of this, we are forgetting about the quality of jobs.
We are forgetting about the type of work these people have been
doing for years throughout the country. We have good quality jobs
there and we need people with good potential to fill these jobs. We
seem to be forgetting that.
We also seem to be forgetting the fact that the policies of
the past have always been short-term policies. That has not
changed. We always look to the short term and do not try to sit
down with the main stakeholders, who are the unions, to try to set
up long-term policies in order to resolve the crisis once and for
all, so that we are not faced with having to redo the same thing
three, four or five years down the road, as my colleagues were
saying. I believe that the unions have set their hand to the plough
to attempt to resolve this crisis in a way that is satisfactory for
their members, but not satisfactory for shareholders or for some
company that might want to stake a claim in this.
I believe that the government should jump on this opportunity
to regain some control over the situation and to put airline
companies back on the right track.
Mr. Mario Laframboise: Thank you.
The Chair: Bev Desjarlais, NDP.
Mrs. Bev Desjarlais: First, thanks very much
for appearing. We know it was on fairly short
notice that you all got your presentations together and
came before us. We had some concern that there was
going to be a bit of an attempt, after the opposition
parties agreeing not to hold things up in the House to
get this bill before committee, not to have any
witnesses appear, so we are truly pleased that you are
able to come on such short notice.
Mr. Balnis, on your comment of overhearing the
minister last night, I guess that's one of the bad
things about in camera: we miss what
happens outside. Your comments that the minister took
that approach is no surprise. I am disappointed that
he's quite so blatant. Those statements have been made
in the House as well, that in order to get
funding there has to be restructuring and a lowering of
the workforce. Quite frankly, I guess we see different
ways of going about doing that.
Certainly, your comments overhearing the minister I
think will be reflected outside of here as well.
I do want to make a comment, Mr. Portelance.
You made that famous statement that quite frankly I
have to admit even I'm annoyed when I hear it, that Air
Canada was forced to take over Canadian. There was no
forcing of Air Canada to take over Canadian. On
numerous occasions I listened to Mr. Milton talk
about how wonderful it was going to be—how he was
going to do all these wonderful things. Air Canada did
not have to take over Canadian. They made that choice
because they saw an excellent market opportunity. They
saw the opportunity to totally control the industry.
Quite frankly, there are many of us who believe he just
blew it, that he didn't do things properly, and that
his efforts to go gung-ho and take over literally
everything have blown up in his face. We need to look
at a different way of approaching it.
From the perspective of reregulating, there's always
that concern of going back to total regulation, and the
New Democratic Party and the groups representing labour
are often on the same side on that. The others around
the table aren't usually, and we recognize that.
But I think in our positions that we take
ideologically, we sometimes lose sight of not
recognizing that we need to have a balance. Total
deregulation hasn't worked any more than probably
over-reregulation would work. We need to have that
balance, and we shouldn't fear the fact that we need to
have some regulation. I mean, laws are regulation.
Laws related to criminal activity are regulations. We
recognize we need those things to have society move
I would hope that my colleagues in the House will
recognize that there needs to be some reregulation or
we will continually be back here. In my short time as
a member of Parliament, I'm already amazed at how many
times we've rehashed this and the hours we've
spent with those arguing that the market is the only
answer, that it's going to do the trick. I recognize
that hasn't been the case, because if you're in
some of the smaller communities in Canada, it takes a
long time, if ever, before you get the benefit of lower
cost and more service or even continuing service of
limited degree. I think we need to recognize that we
have to get beyond the fear of the word “regulation”.
From my perspective, the one area we need to look at
as far as regulation goes is regulating domestic
capacity. By doing so, we wouldn't have those
situations that I think we're going to have with Tango
and WestJet. I think we're going to see the
same story play out with Tango and WestJet as we did
with Canadian and Air Canada. We're going to see that
dog-eat-dog kind of approach there, and Tango is going
to try to put WestJet out of business and WestJet is
going to try to survive. They're a smaller company
and, as has been indicated, they haven't necessarily
seen a market downturn.
But I will say that even Mr. Beddoe has commented
that they're foreseeing a bit of a downturn with
WestJet in the upcoming months. They're foreseeing
they may have some problems. Right now, they are the
only profitable airline, from what we can tell.
I would just ask for your comments. Is there one particular
change you would like to see that may make a
difference, if we couldn't go back to the total
regulation of service to all the communities? I should
comment that this ends as of the end of December 2002.
There will not be that maintained service to all those
areas in Canada. We're going to leave it up to the
market to fall into place by the end of December next
year, and then we'll see whether or not service is
maintained. If there was one particular area that you
would like to see changed that might make a difference,
what would it be?
Mr. Hassan Yussuff: In response to your comments
and specifically your question, there's no question
that in the context of the Canadian airline industry,
as we have seen over the last decade, we've gone from
one crisis to the other. As to where some of the
origins of this are, I think you can trace it back to
the beginning of leaving it to the market to determine.
In answer to your question, it is important to
address the question of service to small communities.
This is a vast country. We can't simply say to some
communities, just as the luck of the draw, you're not
going to have the right to have service.
I think that's simply unacceptable. Members of
Parliament who are here representing those communities
would not accept it if we said, sorry, your community
is not going to have representatives any more because
it's costly and it's ridiculous anyway. Not too
many people would accept that.
So in a country that is so vast, where people rely on
some form of transportation to get from one place to
the other, I think it's critical for us to recognize
that it's not a question of simply saying this is
not an element. This is part of what Canada is, and I
think we have to bear that in mind. If we really want
to be a national country, then we have to ask, are we
going to provide service to those small communities, and
how is that going to happen without some form of
Going back to the points you make, certainly in
terms of domestic competition among the airlines, they
certainly have had a devastating effect. We have seen
it with Canadian and Air Canada. Now we're seeing it
with WestJet and Air Canada. We'll see it with Tango
and WestJet. Who knows what else is coming on
The reality is, as we were discussing this morning,
what's the difference between predatory competition and
hard competition? Somebody ought to define what that
exactly is. The ability of your competitor to put you
out of business is maybe a very fine definition, and I
think nobody knows what the answer is, including the
Competition Board. No one is able to define what this
is right now.
At the end of the day there is going to have to be
some form of regulation in terms of how much domestic
competition we're going to have in the airline industry
in this country. It is important to put it in a
broader debate. What kind of an airline industry are
we going to have if we simply allow the marketplace to
determine who will survive and who will ultimately be
the champion of air travel in this country? What we
have seen so far are workers and communities continue
to be at the scrap heap of this debate, and I think
that's an unacceptable form of public policy.
The government ought to be very clear and consistent
about how they see us getting out of this mess in the
short and long term by following some strict
guidelines. That is to say, we have some solutions. We
recognize it's not going to yield a result overnight,
but if we stick to it in the long term, it will yield
In this area it's critical for us to address service,
of course, in terms of small communities, and of course
more importantly to ensure that as a result of
September 11 we have learned something from this
devastation. Even the most conservative
government in office in the United States recognizes that
you have to have some degree of regulation back in air
traffic, airport security, and most airline industries.
I think we can learn something from this.
Hopefully you and your colleagues, in your
deliberations and in your final report to Parliament,
can reflect that we need to go farther and that this
bill is not going to solve the crisis for workers and
communities across this country.
Mr. Richard Balnis: If I could, I would just like
to add that I detect a contradiction in the members of
the governing party, particularly when they're from
small regions. On the one hand, as the minister said
last night, there are certain regions of this country
that have suffered and have seen reduced or poor
We made a submission to this committee on May 1,
2000, where we talked about Bill C-26 and
about the fears of permanently reduced or no
air service in the Yukon, the interior of B.C.,
Saskatchewan, northern Ontario, the north shore of
Quebec, and the Maritimes. We suggested at that point
that there is a long-term need for an essential air services
legislation based on the U.S. model.
There's a contradiction here. I was listening to Mr.
Fontana last night, and even the great city of London
seems to have deteriorated air service. Regrettably,
he's not here, because I would love to chat with him
about that. I think his answer is more
market—let the shareholders decide not to fly to
your city. This is a contradiction that a number of
representatives from those regions of the country that
are suffering are wrestling with. How do you get over
that? We did make a proposal May 1, 2000. I don't
think it even made your final report.
So there are ideas out there, particularly on the
issue of small communities and the destructive
capacity. That's the way the airline industry is—you
do go to war; you do try to waste capacity. Regrettably
that is the problem with the industry, given their
pricing. If you have 110 seats and the 111th is empty,
what's the cost of filling that seat—$20? Then sell
the fare for $21 and you're laughing. You're $1
For another carrier that's predatory pricing. But
that's the nature of the airlines business, when you
have high capital investment and a low marginal cost to
fill that extra seat. You're not coming to grips
with it, and you will see it. We've gone from, what, a
ground carrier to two carriers that went to war, to a
monopoly, now to two carriers, now perhaps Canada 3000
in dire straits? Where is it going to end? We keep
coming back every two years, unfortunately.
The Chair: Are there any more questions from the
Mr. Gerry Byrne: Richard, you're familiar with
this enabling legislation, the essential services
legislation, in the U.S.; I'm not. Would you be able to
forward to the committee any information you have
about that particular piece of legislation and any
Mr. Richard Balnis: I can do that. I'm sure your
research staff can access it. I have a feeling we'll
both go on the website trying to find it, because it's
I am familiar with it; it uses an awful word,
“subsidizing” a carrier to provide service to those
communities that would lack it under certain criteria.
The “r” word is bad. Sometimes
the “s” word, “subsidies”, is a bad word, but that's
how you do it in the U.S., the home of the free market.
You don't want to cut certain communities off the
national network, because they just die, particularly
if there is no bus or train.
I can endeavour to find that, but I suspect I'll be
finding stuff off the website. I can do that and then
provide it to the clerk, as you wish. I don't know if
your research staff might be quicker than I would be.
Mr. Gerry Byrne: The only thing would be if you
could provide, in addition to the actual straight fact
of the legislation itself, some analysis as to how it
should or could be applied in Canada. Of course, our
research staff are not practitioners in the field
itself, but you are.
Mr. Richard Balnis: I will endeavour to do that. I
think I know a good source that can actually model the
impact. A particular professor in the United States
whom I've spoken to has made recommendations there. I
think I can give him a call and perhaps he'll be able
to provide you with the U.S. experience.
In a certain sense, regarding the complaints I've
heard before the committee of certain parts of this
country, Québec, northern Ontario, Newfoundland, and
other parts—Saskatchewan losing direct non-stop
service—that's the way deregulation works. You hub
and spoke it. If you don't have the traffic, too bad,
so sad, we're not going to fly there. What's the
answer to that? I don't think it's more market.
Mr. Gerry Byrne: Thank you.
The Chair: Mr. Laframboise.
Mr. Mario Laframboise: Thank you, Mr. Chairman.
I am very pleased to have you before us discussing Bill C-38
and all sorts of interesting things. That is reality. Yesterday,
the minister, speaking about Bill C-38, described to us all sorts
of positions he has taken with regard to the airline industry. He
is therefore the one who, upon discussing Bill C-38, opened up a
much broader debate than the simple issue of share ownership
What we must help our colleagues from the government side,
from the federal Liberal Party, understand, is that the situation
was already becoming intolerable before September 11 and that those
events aggravated the situation. I am having difficulty
understanding why the government did not take advantage of the
opportunity, as did other governments in the world, to draw out for
the public the airline industry's problem. For example, it could
have used the opportunity to create early retirement and work-share
programs. Such programs would have been well received by the
workers and especially by the general population in these
catastrophic times. No one in Canada knows that the airline
industry is in serious difficulty.
My problem is that the minister is trying to have us say that
the September 11 events are one element among many, whereas it is
these events that triggered the catastrophic situation we know.
Have you done an analysis of what early retirement, job
sharing or other programs might have cost? Has there been an
evaluation of what it might have cost the government to quickly set
up a program? Have you been able to evaluate this situation or is
it still too early?
Mr. Hassan Yussuff: Actually, I'm glad you asked.
We have background information here that we
presented to the various departments. We were
discussing the package at that time. We believe it would
cost $117 million to help workers who are seeking
retirement and adjustment, and a number of other things
that would basically eliminate the kind of crisis that
workers and their families are dealing with at the
We saw it as a minimal cost. We figured it out and
put it on paper. We'll give you a copy again of
this document, because it has already been presented to
the various departments with regard to the restructuring
and the layoffs and the imposition of layoffs
that airline companies are
seeking from our membership across the country.
Mr. Mario Laframboise: I would appreciate your tabling that
with the committee. Would that be possible? Yes, and you are going
to get a copy to us.
Does that include the work share program? My hope is that the
situation in the transportation industry will only be a temporary
one. In the meantime, you are discussing, and all of the companies
should in my view be discussing, a work share program that would
allow you to get through these difficult times. I am hoping that
this will not last longer than a year. Have you done an estimate of
how much the work share program might cost overall for the
industry? Is that included in these numbers? Or is it separate?
Mr. Hassan Yussuff: Yes, all that is in
here right now.
Similarly, Air Canada, which is one of the major
employers, also had the capacity to look at these
numbers with regard to what it would provide for them in
terms of changes.
Mr. Richard Balnis: I would just like to add
that in terms of the work share, credit needs to
be given where it is due. Minister Jane Stewart and
her staff have expedited the work with our union in
trying to do work at Air Canada, Canada 3000, and Air
Transat to develop work-share programs.
The way the work-share programs work, you have to go
in with a joint application. In other words, the union
has to deal with the employer, and in certain cases the
employer was unwilling to bring forward the plan, so
her staff could not give us access to the work-share.
But I'll tell you, a number of staff
worked many weekends for all these unions to make
sure we got the work-share programs in place. For
that we are grateful, and for that the minister needs to
be commended, because her DM and ADMs did a lot of work
to expedite the processing.
Unfortunately, as I mentioned, at Canada 3000, the
carriers would not talk to us about any mitigation
programs unless you took a pay cut; if you don't
want to talk about a pay cut, and take a 5% or 10% pay
cut, we're not going to mitigate your layoffs. We said
no, we want to mitigate the layoffs. It's no cost.
It's EI; it actually saves everyone money. No, you have
to take a pay cut.
After that discussion, they filed the emergency
application to the Canada Industrial Relations Board
saying, Royal is no longer merged; we're firing
So on the specifics of the work-share program, it can
be made to work when all the parties are willing, and
I'll tell you, Minister Stewart has been willing to
make the program work, and credit has to go to her.
Our national president and other ranking officers met
with her and she was no-nonsense, straight to the
point: here's what I can do for you and here's what I
cannot do for you. But what she could do, she did very
Mr. Mario Laframboise: Faced with this situation, are you
suggesting outright that there should be some legislative process
forcing employers to accept work share? If it does not cost any
more and if it makes things easier for everyone until the industry
rebounds, I believe that the government should somehow make known
the reluctance of employers and force them to participate in work
share programs, as is the case with employment insurance, which is
a compulsory program. If a union asks for such a program, then it
should be mandatory.
The government has a responsibility. Instead of giving us
Bill C-38, it could force employers, through legislation, to
participate in work share programs. What are your views on this?
Mr. Hassan Yussuff: We would also link loan
guarantees to employers actually sitting down with the
union and working out the work-share program, because
again, we have recognized that should the industry pick
up, workers are going to need to be back in the
industry. You don't want to lay people off permanently
and then have to deal with skill shortages and all the
things that are going to be necessary. So if a company
is going to get loan guarantees from the government,
there ought to be some strings attached in terms of
dealing with the workers' concerns in this capacity.
Once they get the money, as we've seen with Canada
3000, they're saying, wait a minute, we don't
necessarily have to conform to any
requirements because there's nothing requiring us to
do that. So it's either out of goodwill or political
pressure, through the negotiations of the union, that
they do it, but there's no requirement to do it.
There should be some requirement or strings attached
to loan guarantees to companies that if you're going to
get money from the government, you have to sit down
with the union and work out some resolution. We have gone
down this road regarding concessions and we're not
doing it any more. We've done it with Canadian, and I
think people have learned that all you're going
to do is have people come back to the table and ask for
more and more. That's not going to solve the crisis of
the airline industry.
Mr. Mario Laframboise: You are perfectly right. In his speech,
instead of demanding workforce cuts, the minister could have
demanded work share programs where applicable. That would have been
simple and it would have forced the companies to negotiate with the
unions. It may not have required any legislative changes. If the
government, before helping out Canada 3000, had forced the company
to sit down and look at a work share program, I believe that it
would have made things easier for everyone.
I do hope that my colleagues are taking notes and that they
will be reporting to the minister what should be reported to him,
The Chair: Thank you, Mario. I think you've just
rounded it off by making that statement.
Are there any further questions of our witnesses?
I would like to thank the witnesses for being here
today. Your input is important to the work of the
committee, and we appreciate it. Thanks for coming.
I'll suspend for two minutes. We'll have a quick talk
about our work plan, and then maybe we can get to the
House a little earlier. The meeting is ajourned.