STANDING COMMITTEE ON TRANSPORT AND GOVERNMENT OPERATIONS

LE COMITÉ PERMANENT DES TRANSPORTS ET DES OPÉRATIONS GOUVERNEMENTALES

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, November 7, 2001

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[English]

The Chair (Mr. Ovid Jackson (Bruce—Grey—Owen Sound, Lib.)): Ladies and gentlemen, I'd like to call the meeting to order. Pursuant to Standing Order 108.(2), we're here to study the safety and security of airlines in Canada.

With us today, from Aeroguard Ltd., we have David Thompson and Tony Porter. As well, we have as an individual Mel Crothers.

We'll start with Aeroguard Ltd. first, then we'll listen to Mr. Crothers, and go on to a round of questioning.

Mr. David Thompson (President and Chief Executive Officer, Aeroguard Ltd.): The Aeroguard Group comprises four companies here in Canada: Aeroguard Inc., Aeroguard Eastern Ltd., Aeroguard Company Ltd., and Aeroguard Security Ltd. We've been in operation since 1986, and our core business is passenger and carry-on baggage pre-board screening. For instance, we have the agents here at the Ottawa airport who do the pre-board screening for passengers and their carry-on bags.

We currently provide these services at 25 airports in Canada. We employ approximately 650 employees across Canada, and roughly 80% of our workforce is represented by a union or a collective agreement. We operate with a number of unions and collective agreements across the country. We are Canadian-owned and Canadian-operated.

Currently, Aeroguard's services are contracted by the airlines operating at an airport. As you are probably aware, pre-board screening is the responsibility of the airlines; accordingly, they contract it to us as a private supplier. We supply appropriately trained and qualified pre-board screening personnel. We also provide supervisors and managers at the various sites.

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We bill the airlines under contracts that range from one to five years. We bill per hour, based upon the staff made available to the airlines.

Basically, we come under the auspices of Transport Canada with respect to the regulations and the rules that we enforce. In order to become a certified pre-board screener an individual has to undertake classroom training, a written examination, practical training, and then a practical examination. They are also required to meet certain medical standards and to get a restricted area pass to ensure that they are safety-passed.

Certification for our staff is for a two-year period, at which time they have to be recertified in order to continue their certification. They're re-examined and they have to pass the exams. They also have to pass the medical examinations again.

Our operations currently range from Sydney, Nova Scotia, through to Victoria on Vancouver Island. We operate with four different unions across the country. We deal with the International Association of Machinists and Aerospace Workers. We deal with the United Steelworkers of America, hotel and restaurant workers and bartenders, and the Labourers International Union of North America.

At one time or another since 1986 we have operated at every major airport in Canada, including Toronto, Calgary, Edmonton, and the Maritimes.

Our view is that the nature of a pre-board screening agent's position is one of entry level in the workforce. The educational requirements stipulated are minimal. There is no specific education required nor any prior experience necessary.

The work itself is mandated by Transport Canada. The tasks themselves are manual and repetitive. The training course involves twenty hours of classroom and eight to forty hours of practical, at which time they are tested. If they pass the test, meet the medical requirements, and get the restricted area pass, they are certified and they are qualified pre-board screening agents.

Our annual turnover rate for staff across the country is about 25% right now. That ranges from a low in some sites of no turnover to a high of 86% in some of our smaller sites. Our largest site is Vancouver, and last year we had a staff turnover rate of roughly 15%.

As I mentioned, most of our workforce is unionized, roughly 80%. Our pay and negotiated benefits for staff generally run 30% to 60% above minimum wage in the provinces we operate in.

Our opinion, albeit biased, is that the current system for pre-board screening is working in an acceptable fashion. Our staff are providing the services required, they are meeting the standards that have been set, and they are handling concerns as they come up.

My closing comment is that pre-board screening is only one very small part of the security function provided at the airport. I think that system works fairly well.

The overall security network in the country could probably use some better coordination in terms of the parties providing security at the airport. We often have a number of different suppliers ourselves for the airlines. Often the aerodrome operator has one or two suppliers supplying some form of security as well as the RCMP or the local police and Transport Canada. Our feeling is that there probably would be some benefits if the services provided by all of those groups could be better coordinated so that each party knew what the other party was doing, what concerns there were...getting together on a more proactive basis.

Those, essentially, are my comments for today.

The Chair: Thank you.

Before we hear from Mel Crothers, I want to welcome the Canadian Association of Chiefs of Police. We have Vince Bevan and Pat Flanagan. Welcome, gentlemen.

Mel, can you give us your opening comments, please? And then we'll move to the chiefs of police.

Mr. Mel Crothers (Individual Presentation): Honourable chairman and members of the Standing Committee on Transport and Government Operations, I come before you as a member of the aviation community with over 32 years of experience in charter operations, air cargo, airport operations, and passenger sales specializing in the travel agency distribution network. While today I'll speak on numerous security issues facing the industry in these troubling times, I would be pleased to answer any questions within the broad scope of my experience, following my opening presentation.

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Complacency and the lack of any identifiable threat is probably the major cause that allowed the events of September 11 to occur. First and foremost, I do not believe we can thwart hijacking and air transport terrorism totally. However, with prudent thought, planning, and execution we could eliminate the vast majority of the risks to the travelling public and to those transportation workers who serve in the industry.

Complacency is and will be a concern going forward. Certainly when you have low-paid employees with limited opportunity for advancement watching a small monitor and screening passengers day after day, the room for error still exists. The quality of the employee hired, the value of the job, and the training of that employee is paramount to going forward.

I'd like to stress that the current preliminary security levels at major airports in Canada has improved. The fact that Transport Canada conducts regular ongoing and random audits on screening staff is an important factor in maintaining our vigilance.

In his address to you on October 4 of this year, the honourable minister cited the example of London's Heathrow as an airport that's very secure. So what's so different about Heathrow? After an intensive preliminary security check, which I might add now is similar to what we currently experience at major airports in Canada, passengers move into the secure zone. After the usual bout of duty-free shopping, etc., passengers are then told 70 minutes prior to the flight departure which gate will be used. Upon arrival at that gate, for the higher security identified flights, a second screening takes place as you enter a closed and secure boarding gate. Security staff have already checked that gate area for anything untoward left at the gate and they have made the gate area secure for the passengers' arrival.

One item that's doable for us here in Canada in this example is the issue of telling passengers and non-operational airline staff which gate is to be used 70 minutes prior to boarding. In the vast majority of hijacking incidents, in my experience, more than one person was involved, and in some cases complicit help to the hijacker came from an airport worker inside the secure zone.

If you as an individual were told that someone wanted to kidnap you, your local police force would probably tell you to change your route of travel and your time of travel. A steady routine day after day is an example of complacency.

It is foolish, in my belief, that an aircraft can be compromised if the terrorist knows that at Terminal 2 at Pearson International Airport the Toronto-Vancouver flight 123 operates out of gate 71. Don't give them that much advance warning.

Most carriers work their aircraft in groups of areas. They work commuter aircraft out of one bank of gates, belly-loaded aircraft that don't use baggage containers out of another, and containerized aircraft out at another area. It would not be an onerous task to mandate the publishing of gate assignments within a much shorter timeframe.

The second item from my Heathrow experience could be applied selectively as well. There are some isolated gates at most of our major airports, and this secondary screening should and could be used for specific high-risk flights deemed necessary by the appropriate security agency.

From the carriers' point of view, the cost of the additional security is a paramount concern. These costs should be borne by all the stakeholders, not just the carriers.

Secondly, security should not interfere with the actual handling of the flights on the ground. Both WestJet and Canada 3000 airlines pride themselves on high aircraft utilization—that is, keeping each aircraft flying in excess of 300 hours per month. If security slows down the turnaround time for a carrier such as WestJet from its current average of 20 to 25 minutes up to one hour, WestJet will lose three to four hours of aircraft utilization every day for every aircraft. That's unacceptable.

We still have a weak link that needs to be addressed, though. Our preliminary screening is good, as I've stated, and we now include crew and airport support staff who have to work within the secure area.

We currently don't screen for the goods and materials brought into the area to resupply the shops and restaurants. The whole area behind the preliminary screening location needs to be sterile, period. Nothing should be allowed into the sterile security zone that could be used to commandeer an aircraft or do harm to passengers or staff. Everything needs to be X-rayed and cleared.

Do we ask the kitchen staff to lock away kitchen knives or other sharp objects when the concession is closed? Does a telephone repair person have to register the number of dangerous tools they bring into the zone to make a repair and then register that these tools have been removed when the job is done? I don't think this happens.

Once that's done, secondary screening becomes a moot point. Friends of terrorists helping them from within the airport have been stymied by our security level. With the late notification of a specific departure gate, their ability to pre-plan is greatly hampered.

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In closing, the airlines need two things. Costs have to be borne by all stakeholders, not just the carriers. We cannot place onerous security requirements at actual departure gates that impede the speedy turnaround of aircraft for the carriers. Time is money, and good aircraft utilization is a key to financial sustainability. With good front-end security and a truly sterile holding gate, the travelling public and the carriers will regain the trust in our transportation network in Canada.

Thank you.

The Chair: Thanks, Mel.

I always thought when I went to Frankfurt and I had to watch that board and then dart for the flight that they were probably checking to see if I could run. But now I know why.

Now we'll hear from the chiefs of police.

[Translation]

Chief Vince Bevan (Vice-President, Canadian Association of Chiefs of Police): Thank you.

Mr. Chairman, members of the committee, my name is Vince Bevan and I am Chief of police of the Ottawa Police Force and Vice-President of the Canadian Association of Chiefs of Police. This afternoon, I am pleased to introduce to members of the committee Staff Sergeant Pat Flanagan of the Ottawa Police Force. He is responsible for security at Ottawa International Airport. I also have with me this afternoon Vince Westwick, co-chairman of the association's Law Amendments Committee. Mr. Westwick is seated at the back of the room.

The Canadian Association of Chiefs of Police represents 950 chiefs, assistant chiefs and executive members of police forces as well as 130 police forces throughout Canada. Our association's goal is to progressively obtain changes to legislation dealing with crime and the security of communities.

[English]

It is an honour and a pleasure to be here today before this committee. The Canadian Association of Chiefs of Police usually appears before your colleagues on the Standing Committee on Justice and Human Rights. In fact, the Canadian Association of Chiefs of Police appeared before that committee last Thursday, representing the position of the CACP on Bill C-36, the anti-terrorism bill. Also last week we had the pleasure of appearing before the Subcommittee on International Trade, Trade Disputes and Investment on issues related to Canada-U.S. border security. I believe this is our first appearance before this committee, and we are very grateful for the opportunity.

I would like to begin by reviewing some of the recent history on airport policing. Prior to the late 1960s, there really wasn't policing as we know it at our national airports. In the late 1960s, the RCMP started placing regular officers at larger airports concerning the threat of hijacking and the dramatic increase in commercial travel. This program expanded significantly in the early 1970s, and by 1973-74 the RCMP was placing at our national airports large numbers of special constables who were specially trained for this purpose.

Due to the different legal responsibilities, federally and provincially, the policing function at our larger airports is a shared responsibility. Security at airports usually involves policing at the municipal and federal level, commissionaires, airport authority security, and airline security, as we've heard from the earlier presenters. Each of these groups has their own mandate.

Prior to 1997, jurisdictional issues arose when the RCMP was solely responsible for providing policing services at what are known as class 1 airports. The RCMP had responsibility for the overall security arising from federal government ownership of the airports, but the local police service retained responsibility for the regular policing issues, for example, Criminal Code matters on airport property. This has worked reasonably well, although at the point in time when it was prevalent, normal issues arose from the fact that jurisdiction was shared.

Since 1997 the policing responsibility for airports has been transferred to the local police services. For example, in Ottawa, the Ottawa Police Service provides all the policing functions associated with airports, thereby reducing some of the issues that arise from shared responsibility.

It is important to point out, in my view, that the airport authority and the airlines have their own responsibilities in relation to security, which is usually provided by private security firms or the Canadian Corps of Commissionaires.

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You will note that I have not referred to customs and immigration, which of course are functions that take place at all international airports. This significantly broadens the discussion and raises a host of other equally important issues.

Mr. Chair, if I might, I would ask Staff Sergeant Flanagan, who is the officer in charge at the airport, to talk about the nature of the business he works in every day.

[Translation]

Staff Sergeant Pat Flanagan (Canadian Association of Chiefs of Police): Mr. Chairman,

[English]

members of the committee.

With respect to the issue of sky marshals and flight security, jurisdictional issues come to the forefront with the introduction of a sky marshal program. Presently, under the new FAA regulations, an armed uniformed officer is required at the boarding gate, in addition to the sky marshal on every flight. Will that be a local or federal officer, or indeed a service provider provided by a private security firm?

There is much debate concerning sky marshals. While on the surface there are advantages to this program, conversely there are disadvantages to having an armed person on an aircraft. There is also the issue of the storage of firearms used by persons who are employed as sky marshals, either Canadian or American, when they arrive at a destination other than their home base. There needs to be further discussion with respect to the use of options of less-than-lethal use of force, one example being a Taser. This is a program that, in our opinion, requires further study.

Since September 11, the security changes that have occurred at the airports can be summarized as follows.

Transport Canada has introduced a number of new security measures. It is the responsibility of the airlines and airport authorities to ensure that these measures are followed. However, it is also the responsibility of the police force or police service of jurisdiction and security to provide enforcement for these new measures.

Police presence at class 1 airports has increased significantly as a result of the attacks of September 11. One can appreciate the police resources necessary to secure an airport facility. Presently, police numbers at airports remain at an increased level.

Restricted area access points have been reduced in order that all persons requiring air-side access are checked manually with their pass identification. Some restricted area access points have also been disabled, preventing entry entirely. While this has some advantages, the downside of this is that it may jeopardize police and security response time and ultimately may have an impact on officer safety.

Uniformed police officers are now required to be present during operating hours at U.S. pre-boarding sites. Presently, there is a committee addressing standard operating procedures within respect to the new U.S. pre-clearance agreement between Canada and the United States. Annex II of that agreement stipulates the amount of time each police service at class 1 airports across Canada is required to spend at U.S. pre-board areas.

Due to the public's general awareness as a result of September 11, police have recently been increasingly called to respond to suspicious activity or packages. This would include numerous hazardous-material-related calls.

In addition, passengers are now required to provide photo identification prior to boarding a flight.

Chief Bevan.

[Translation]

Chief Vince Bevan: In conclusion, Mr. Chairman, I would like to make certain recommendations to the committee.

[English]

First and foremost, it is imperative that a formal communication framework be set in order that information be gathered and disseminated effectively and efficiently to policing agencies at major airports across the country. Although there is an informal sharing of information between some parties, there is a need for a central repository for the collection of information that may compromise airport security and passenger safety. That includes aviation security intelligence.

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The most critical component of aviation security should be networking. We should be involved in intelligence-led policing with regard to terrorist issues at airports. It is also necessary to take the communication issue to another level with the development of an airport police commander's group to facilitate that networking. This group would be comprised of commanders of class 1 airports across Canada and would discuss matters of national importance.

The terms of reference for the commanders group should include providing a forum for airport commanders to develop their knowledge, skills, and abilities in respect of policing in an airport environment; examining strategic policing issues; identifying best practices; advocating a corporate approach to all policing policies for all airports; facilitating joint operations; and discussing relevant training issues.

The Ottawa Police Service has taken a giant step towards the formation of a formalized communication network by hosting a Canadian airport policing conference, which occurred in Ottawa in October of this year.

A philosophy shared by many members attending the conference was that security starts on the ground level, long before a passenger is permitted access into the restricted areas. Appropriate mechanisms must be put into place to prevent weapons and certain types of passengers from entering restricted areas and ultimately the aircraft itself.

In making this submission, I am very aware of the concerns of American law enforcement concerning the security of the Canadian-U.S. border. It is critical that we take meaningful steps to improve border security, including at our airports. It is equally important that we address misconceptions, largely in the United States, about the level of Canadian border security and the security of our airports.

Our recommendation is entirely consistent with the theme of the Canadian Association of Chiefs of Police before the House of Commons Standing Committee on Justice and Human Rights in discussions related to Bill C-36. Speaking on behalf of the CACP, Director Sarrazin of Montreal said:

There is a new harmony within policing: interagency communication at the executive level that leads to cooperation at the front line. We need to reinforce and formalize our common focus and to build partnerships with those departments and agencies which share in the responsibility of keeping Canada safe. That progress began with work on organized crime and was further mobilized on September 11.

The long-term challenges of defeating terrorism demand that Canada have a model that expands, formalizes and institutionalizes the focus and collaboration we have today.

[Translation]

Mr. Chairman, thank you for giving me this opportunity to appear before the committee. I will gladly answer any questions from the members of the committee.

[English]

The Chair: Thank you, gentlemen. That was a very good presentation.

We'll begin a round of questions now, starting with Mr. James Moore, the critic for the official opposition.

Mr. James Moore (Port Moody—Coquitlam—Port Coquitlam, Canadian Alliance): Thank you.

I appreciate all the witnesses coming here. I know some of you have come a long way. Your contributions will be taken very much to heart as we look at this issue of airport security.

Mr. Thompson, you said that on average there's a 25% turnover of security staff, 15% in British Columbia. Is that annually?

Mr. David Thompson: Yes, that is our most recent annual turnover statistic.

Mr. James Moore: What are the dominant reasons for turnovers? Is it that people are doing other things, like going to university?

Mr. David Thompson: Essentially, the pre-board screeners are an entry-level position. I would expect that the turnover rate will always be relatively high compared to other industries, because the potential to ascribe to anything higher is just not there.

Mr. James Moore: This may be a totally impolitic question, but it's an important one: How much are the screeners paid?

Mr. David Thompson: At which site, or do you mean in general?

Mr. James Moore: The median.

Mr. David Thompson: It varies from place to place. Our top-end pay rate in Vancouver airport, for instance, is $10.05 an hour.

Mr. James Moore: That's top?

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Mr. David Thompson: That's the top pay rate for a pre-board screening agent. This doesn't include our supervisors and managers.

Mr. James Moore: Are there benefits?

Mr. David Thompson: They have benefits—sick leave, and some other benefits are included as well.

Mr. James Moore: There are two trains of thought regarding the financing of airport security. On the one hand, people say it injects an important market force because the air carriers—probably Air Canada—can select which security company they're going to purchase the services from.

The market force that is missing and really can't be injected is that Air Canada could then market—in a free market—the security regime they've implemented relative to what other carriers have put in place. But you can't have that here. Therefore, it is argued by some, the air carrier then goes to the lowest bidder, and that's who gets the contract.

Are air carriers chintzing the public by going with the lowest bidder?

Mr. David Thompson: The only comment I could make on that is that prior to 1992 airport pre-board screening security contracts were tendered on a regular basis. They were tendered to the general marketplace, to the security suppliers. Every three years, essentially, they would go to the market and say, “Here, submit bids. We want you to provide security, and you provide your quotes.” Since 1992 we've had very little turnover in our contracts. Decisions were made that negotiations would normally occur with the existing supplier.

As I indicated as well, the majority of our members are represented by unions, with whom we enter into free collective bargaining to bargain collective agreements. The nature of the position is that it involves a manual, repetitive task. The folks we have do their jobs very well, in my opinion—of course, I'm biased. They do a good job of the tasks they're required to do.

The pay rate I mentioned in Vancouver is the result this year of federal arbitration. That was an arbitrator's award; the $10.05 an hour is what the arbitrator awarded the employees. That's my comment.

Mr. James Moore: Would you rather see a different financing regime? Rather than the air carriers paying it out, would you rather see it built into the ticket? Would that necessarily result in a better stream of revenue?

Mr. David Thompson: I can't comment, in the sense that our relations with the airlines... Air Canada is normally the contract administrator for the contract; however, it's all the airlines who participate in the selection and the contract itself at the airport. We don't really have any problems in our dealings with Air Canada—or Canadian, for instance, when Canadian was around and was the contract administrator at many airports. In some, we have WestJet. Again, we deal with them in an open-market environment.

Mr. James Moore: Mr. Crothers, you mentioned—it's an interesting idea—the idea of screening the caterers and the tools that repair technicians and so on have. But obviously there's a concern for the carriers, with regard to turnaround times on the ground. We had a conversation, I know, about Canada 3000 being known for their fast turnaround times on the ground. It's the only way they could really stay in business—until today.

What is the response—or what has been the response, or do you know of a response—to this idea from the air carriers with respect to slower turnaround times on the ground because of the need for security and the impact it would have on the carriers themselves?

Mr. Mel Crothers: Basically, what the carriers want is for Mr. Thompson's team to do the best job they can, error-free, with everything behind that security gate—the whole area where you go for your Tim Horton's doughnut—secure. They don't want to have any worries at all. Just let them turn that airplane around in 25 minutes. Once you're in the area, it is truly a secure, sterile area. There's nothing that can jeopardize the passengers or the aircraft.

Mr. James Moore: Yesterday in the House I recounted an incident that happened at Chicago's O'Hare Airport about ten days ago, whereby somebody got past the airport security with mace and knives. They were then caught. They got through the first security. Then when they were boarding the plane at O'Hare Airport... I'm not sure exactly how the regime works, but it's selectively; I'm not sure whether it's done on some kind of profiling basis or not. They search passengers just as they're going on the plane. When you hand over your ticket, they say “Do you mind if I take a look in your bag?” They've been given that authority. That's a level of security Canada doesn't have. How effective would it be, and is it needed?

Mr. Mel Crothers: I experienced that at Logan Airport on October 17, flying from Boston back to Calgary. There was a young Middle-Eastern-looking gentleman who was profiled by two military guys with guns and the whole bit.

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Obviously, it's a very active consideration. It goes to all kinds of things—the human rights aspect of it.

From a carrier's point of view, if everybody inside that secure area is clean and there's nothing to worry about, they're happy; that's what they want. How we get to that state has to involve Mr. Thompson's area, the local police force... It's not an easy solution.

Mr. James Moore: This question is open for the panel. I just don't know the answer to this question; if someone could enlighten me, I would appreciate it. What are the exact security checks that caterers go through before food is put on the plane?

Mr. Mel Crothers: Are you talking about catering, or are you talking about Tim Horton's?

Mr. James Moore: I mean on the plane—not the airport, but on the plane.

S/Sgt Pat Flanagan: Depending whether it comes from the air terminal building or from an actual fixed-base operator in a restricted area airside, there are measures that have been put in place by Transport Canada to ensure the vehicles are checked for what's on the specific vehicle being conveyed to an aircraft. As well, the person driving that specific vehicle is checked with respect to his identification to ensure there is a match there.

Mr. James Moore: Okay.

Mr. Thompson, I guess about a month ago it was revealed by Transport Canada's numbers that between May of 2000 and May of 2001 there was a one-in-five failure rate in getting replica guns, knives, and bombs past airport security—which is to say they managed to get them past. The response by the minister was that they try really hard to get it by, and a high success rate means they're really coming up with innovative ways to get them past security.

Tell me about the one-in-five failure rate and where blame should be assessed.

Mr. David Thompson: I don't really feel I'm competent to answer that question. Essentially, we provide the pre-board screening service to the standards legislated by Transport.

They do conduct infiltration tests. They are very tricky at times. Obviously, their intent is to try to sharpen the skills of our people and sharpen everyone's skills. But four out of five tests were passed; one out of five tests failed. I have had experience talking to operators from other airports throughout the world, and an 80% pass rate on infiltration tests is not bad, depending whether you're trying to detect bombs or guns or knives—depending what it is. I don't know of too many situations where it's 100%.

The other comment I would make—and again I'm not an expert on the subject—is the issue of security is relative to threat and risk. You can always develop a security system that will catch 99% of the potential problems that might arise out there. The question is, what's the threat and the risk? And what are you prepared to pay in terms of monetary resources? And what are you prepared to give up in the way of civil liberty and freedom—and delays on flights leaving?

Transport Canada can probably address that issue more directly, because as I understand it, that's their role in their dealings with us. They're assessing the threat and risk of something happening and setting a security level commensurate with their assessment. That's essentially what our pre-board screeners operate to—the level they've identified.

As you know, from September 11—I think immediately afterwards—no sharp objects were allowed on board an airplane, period. Up until September 11, knives with up to a 10 centimetre blade were allowed on. That was a permittable item, allowed onboard an aircraft under the regulations, and that was because of the assessment of threat and risk. Obviously it was a mistake, but it was still allowed on.

Mr. James Moore: We are still equipped with knives sufficient to pierce our chicken breasts, so everything...

The Chair: Mr. Cannis from the Liberals.

Mr. John Cannis (Scarborough Centre, Lib.): Thank you, Mr. Chairman. We'll be going to a second round, I presume, Mr. Chairman?

The Chair: Yes, if we have time.

Mr. John Cannis: Gentlemen, thank you for being here and shedding some light on this. I have so many questions I don't know if I'll get them in during this round, but I'll certainly look forward to the next round.

Mr. Thompson, you said “sharpen skills”. Now, you talked about staff being trained for 20 to 40 hours, maybe a total of approximately 60 hours. Is there ongoing training after those 60 hours?

Mr. David Thompson: Basically there is. We provide supervision and management at all of our airport sites. We have at least one full-time manager, if not more, at some of the larger sites, and we normally will have at least one supervisor on each checkpoint at all times.

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Mr. John Cannis: Yes, but how do we sharpen their skills? I'm just using your words—sharpen their skills. I'm just quoting you. We know things change. We used to do things a certain way in the 1960s, a certain way in the 1970s. New things came up in the 1980s, 1990s. So we adjust. The police always adjust in their methodology of how to address crime, for example. We adjust legislation and make amendments, etc., to reflect the times. Does your staff of 600 or so get upgraded on an ongoing basis?

Mr. David Thompson: In terms of the selection of equipment, the type of equipment, the nature of the screening—be it bomb-sniffing equipment and so on—that's outside of our jurisdiction. We have nothing to do with equipment selection or provision of equipment or maintenance of equipment. We provide the people who operate that equipment.

Mr. John Cannis: In order for people to operate that equipment they have to be trained.

Mr. David Thompson: But they are trained on it. Yes, they receive that training when new equipment comes in. For instance, we're having the bomb-sniffing equipment come in now—

Mr. John Cannis: So they do get trained.

Mr. David Thompson: —and they will be trained on it.

Mr. John Cannis: We have heard, and it's been discussed over and over again since September 11, that unfortunately it's a cost factor. It's going to take dollars, and we're hearing hundreds of millions, billions of dollars. My constituents are asking where all these figures are coming from. How are they all of a sudden able to assess and say we need an extra $200 million or $300 million? Mr. Moore just a minute ago talked about cost as well.

Your highest employee gets paid $10.05 in Vancouver. So it would be from $7 to $10, approximately. Am I correct?

Mr. David Thompson: Yes, minimum wage I think in B.C. is $8 now. So it's $8 to $10.

Mr. John Cannis: You said there are four companies. Are those four companies interrelated, or are they separate entities?

Mr. David Thompson: They're separate entities. They operate in different geographic areas and different airports.

Mr. John Cannis: But there's no relationship whatsoever?

Mr. David Thompson: There is some relationship in terms of ownership, yes.

Mr. John Cannis: Okay. So we can actually say that they're really owned—no matter how they're broken up. It's a pyramid. At the end of the day, it's one pocket.

Mr. David Thompson: It's the Aeroguard Group, yes.

Mr. John Cannis: Okay, great. You get contracted by the airlines.

Mr. David Thompson: Yes.

Mr. John Cannis: You hire people and you have to obviously earn a profit. It makes sense. So in essence you charge the company for this $10 employee maybe $14, $15, $16. Am I correct?

Mr. David Thompson: No.

Mr. John Cannis: You charge them $10.05?

Mr. David Thompson: No.

Mr. John Cannis: What do you charge them?

Mr. David Thompson: It's less than that. Our margins are very slim in this business.

Mr. John Cannis: So when you have union dues, retraining, uniforms, etc., you charge them an extra dollar above and beyond.

Mr. David Thompson: Even more than an extra dollar, but it's...

Ms. Val Meredith (South Surrey—White Rock—Langley, PC/DR): You're asking for company secrets.

Mr. David Thompson: Yes. Anyway, we mark it up.

Mr. John Cannis: You mark it up, obviously, because what I've heard from comments made from down south, he says we've turned it over to the private sector. We've obviously seen that it's not working.

We had a situation in years past where it was controlled by federal employees. We have guards here on the Hill. Why are they federal employees? Why shouldn't they be contracted out? We have RCMP guarding other facilities. Why don't we contract them out?

What I'm hearing from my constituents is if we've tried that side and it's not working, and if we raise the expenditure and let's say it goes up by $4 per person and $2 goes to the company and $2 goes to the employee, maybe a year down the road that $2 becomes ineffective as well. So we're back to square one.

Mr. David Thompson: Yes. As part of the pre-board screening industry, I asked the question: It's not working; why is it not? Where did pre-board screening fail in any of these situations? I don't see that. We're a very small part of security, as I said. The standards are set to us by Transport Canada. The airline supplies our equipment. I don't see where pre-board has failed here.

Mr. John Cannis: But Mr. Crothers said, if I may use your words, low-paid employees.

Mr. Mel Crothers: Yes.

Mr. John Cannis: That seems to be one of the problems you've identified. So how do we overcome that? If we pay these employees an extra $1, $2, $3, or $4 per hour, is that going to give us the quality of work that we're searching for or wanting or needing? Mr. Crothers, do you think that's going to solve the problem?

Mr. Mel Crothers: I've an issue that I think I can share with you. The airline may have contracted for X number of people to work a particular flight. And budgets being budgets and being broke being broke, they are obviously trying to cut their costs.

With regard to Mr. Thompson's employees and some of the other employees working for other companies, it is rote work. They're watching a small screen. The issue is, if Mr. Thompson can bring in one or two extra staff and charge the airline for that, he doesn't necessarily have to pay more, but overall his cost has gone up. It has gone up to the airline. Now he can rotate his staff off that screen every ten minutes and rotate them to different duties, so they're a little fresher and a little bit more alert.

Mr. John Cannis: That's why you use the word “complacency”. Is that how you would relate complacency? I wanted to ask that question.

Mr. Mel Crothers: Boredom.

• 1620

Mr. John Cannis: Mr. Crothers, while I'm with you, you mentioned costs taken up by the stakeholders. Are you referring to the airlines, for example? Eventually, there's only one person who's going to travel. He's going to pay the ticket.

What do you suggest? Do we put it on the ticket? I think that's what we've all been asking. Do we just blanket it? What would your suggestion be?

Mr. Mel Crothers: To be honest, I don't know. I think that's your role as legislators.

Mr. John Cannis: No, but we bring witnesses to get recommendations, and I'll refer to Mr. Bevan in a moment, and thank him for his recommendations. We're here to hear your ideas. You're the experts.

Mr. Mel Crothers: The people who rent the Tim Horton's at the Vancouver airport are going to have to pay for it. The passengers are going to have to pay for it. The airlines are going to have to pay for it. The airport authority will have to pay for it. The communities they serve will have to pay for it. It can't be just the airlines.

Mr. John Cannis: If I go to Tim Horton's, that dollar I was paying for the coffee, if the security goes up, they're going to have to jack it up to $1.20. I guess it's all of us.

Mr. Mel Crothers: At the end of the day.

Mr. John Cannis: At the end of the day. Okay.

Mr. Bevan, let me just thank you, first of all, and your associate Mr. Flanagan, because you're probably few of the people who've come before the committee who have been less uncomfortable with recommendations. I thank you for that, because we're here to hear recommendations. Some might be good, some might not be. But at least we're hearing recommendations.

I've heard from other presenters who are ambiguous in their response. You talk about communications—centralize something, sharing of information. I think that's where our biggest downfall has been—somebody in B.C. may have been doing something good while another airport is not really functioning. We haven't been sharing.

This airport police command group is a fantastic idea. The whole name of the game here is how do we protect ourselves and our societies, and our partners, our neighbours, and what have you. I thank you for that.

The misconception is one thing that really upsets us all as Canadians. Can you elaborate on that—what we're hearing from our neighbours to the south? Minister Manley made a good comment the other day: hey, the 19 people weren't living in Canada.

So how do we overcome this misconception? Do you have any ideas on that?

The Chair: John, that's your last question.

Mr. John Cannis: I'll go the next round.

Chief Vince Bevan: I'm very pleased. Thank you very much. I'm glad you raised that issue, sir, because about three weeks ago I was part of a major city chiefs' annual meeting. That major city chiefs' group is composed of 52 of the largest cities in the United States and the six largest cities in Canada.

It was made quite apparent to me that the perception south of the border is that Canada has become a haven for terrorists and our border is a weak point that permits mal-intentioned people to slip into the United States. That perception may have been there for some time, but it was brought to the fore after the Ressam issue, where Mr. Ressam slipped from British Columbia into the United States just before the millennium celebrations, with the makings of bombs to be used in the United States.

It is a perception. We've had lots of discussions with our American counterparts about the measures that are taken, but I think that south of the border they are looking for some demonstrable evidence that we in Canada are doing something about it.

During our meetings the United States announced they were tripling the number of border agents across their northern border from about 2,000 to 6,000 to deal with issues they feel are very real, about the ability of persons and items slipping across their borders.

During my discussions with my colleagues, I think they're looking for something from Canada. Last week, when I came to the committee on trade and border security, I made a submission regarding the fact that we need to work together with our American counterparts for exactly the same issue you've just raised—communication, the sharing of best practices. I think we can do a far better job jointly. We can certainly demonstrate our commitment to protecting the integrity of that border, if we do something jointly.

I'm quite worried that in their eyes the perception is going to become reality. They are going to take steps to try to do things with the border that I think would damage our economy. Certainly I think we're at risk.

Concerning the questions of airport security, we're at risk of having so many things delayed—the normal movement of commerce—to accommodate what they perceive as being a weakness in our system that permits people to slip into the United States.

The Chair: Okay. Thank you very much.

• 1625

[Translation]

Mr. Laframboise.

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

My first question is for Mr. Thompson. I want you to feel quite comfortable, Mr. Thompson. I understand very well the situation in which your company finds itself, given that it gets contracts given directly by air carriers to the lowest bidders. That is the choice that governments have made.

In 1987, governments decided to entrust security to a civilian entity, namely Transport Canada. In addition to ensuring that various entities dealing with security comply with standards, Transport Canada must also take into account financial considerations. In 1987, the federal government decided that the industry would be responsible for all security-related costs. In the end, the industry pays for everything.

As a result, you are invited to submit bids and to try to be the lowest bidders. We don't ask you to provide continuing training, Mr. Thompson. You do not provide any, and Transport Canada does not require that you do so, as my colleague from the governing party knows full well. Your company is not required to conform to ISO standards as the private sector must do. Why? Because all that, Mr. Thompson, would cost money.

I know full well that if you had to provide continuing training, comply with ISO standards with respect to safety, use state of the art equipment, someone somewhere would have to cover those costs. In fact, the entire system sets aside such principles for the very simple reason that Transport Canada, a civilian entity, is responsible for safety. And that is what worries me greatly.

I'm happy that you are appearing today, Mr. Bevan and Mr. Flanagan. Safety will surely have to be entrusted to a tactical agency. Unfortunately, I believe that a civilian agency should not be responsible for developing and implementing strategies to deal with criminal and terrorist activity. To this day, no one has managed to convince me that Transport Canada is capable of dealing with crime and terrorism. I'm sorry to say that its staff is not trained for it. That is why I believe that a tactical agency will have to oversee safety and security measures.

Let us be clear about this. This umbrella organization would not replace agencies such as yours, Mr. Thompson, or police forces who do their job very well. I believe that we need a specialized agency to oversee the fight against crime and terrorism. Eventually, government will pay the costs. The industry will absorb whatever share of the costs the market can bear and the government will have to cover the difference.

That's what we've come to, if we do not want to find ourselves facing situations such as those you have described, Mr. Bevan. Since 1999, since the Ressam affair, the Americans believe... I have questioned witnesses from the RCMP and from CSIS; even after the Ressam affair no one decided to tighten security in airports. We were told that the incident occurred at the border and had nothing to do with airports. The Americans had nonetheless warned us that there were terrorists here. Security measures should have been tightened. They weren't. Why not? Because Transport Canada is responsible for security matters. Even if CSIS had forwarded the information to Transport Canada... Transport Canada is a civilian agency not trained to deal with crime and terrorism and so it is perfectly normal that it did not feel the need to tighten security measures.

Given the situation, would what you call your co-ordination centre be able to play that role? I had suggested that the RCMP play that role. I made the suggestion but I have the impression that the RCMP is somewhat reticent because someone has to be responsible. Obviously, if something went wrong, someone would need to be responsible. In the current crisis, it was Transport Canada and yet, no one blamed it. Why? Because it is a civilian agency. So, automatically, the minister defended Transport Canada.

Mr. Thompson, you yourself said earlier that before September, standards did not ban 10-centimetre blades. The directives were changed later.

• 1630

The reality is that civilian agencies make recommendations with respect to security. I just can't get over that. We will need a specialized tactical agency to oversee the fight against crime and terrorism. If the quality of the work done by your employees must be improved, then we should give you the necessary funds. If we must improve the quality of equipment, then you should be given the funds required and if we need to put in place a more costly structure to co-ordinate efforts because we have a security problem, then the necessary funds should be provided.

I'm disappointed that Mr. Crothers did not stress this aspect because entrusting security to a civilian organization gives the results we are now faced with. The Liberal government, like the Conservative government in 1987, decided to cut costs and to stop investing in security, and we now see where that has brought us. We must reinvest and entrust safety and security to specialists.

Mr. André Harvey (Chicoutimi—Le Fjord, Lib.): Excuse me, Mr. Chairman—

[Editor's Note: Inaudible]

Mr. Mario Laframboise: What do you think, Mr. Bevan?

Chief Vince Bevan: If I understood you correctly, you think that I would like to be responsible for co-ordinating the work of officers throughout Canada and the work of all the security team actually managed by the RCMP. That's true. We would thus be able to ensure that there is a police system acting on the basis of solid intelligence and aware of all the threats to our security.

[English]

The Chair: Are you through, Mario?

Mr. Mario Laframboise: Yes.

The Chair: Thank you very much.

We'll go to Mr. Szabo.

Mr. Paul Szabo (Mississauga South, Lib.): Thank you.

Mr. Thompson, I think I understand your position. You are contractors and you have ongoing relationships.

Can you give me an idea of how many of your employees would have a second or third job?

Mr. David Thompson: I can't give you any idea, but I do know on some sites there are a number of them who have second and third jobs. That's accepted, given the pay rates in the industry.

Mr. Paul Szabo: Are people doing the screening, given that it's an entry-level job, required to work a continuous shift, a normal shift, or would it be spotty—for example, three hours here, then maybe do six?

Mr. David Thompson: The vast majority of our staff work a standard 8-hour, 10-hour, or even 12-hour shift. It makes it easier to hire. It's very hard to hire people at those pay rates with split shifts. We also have a great deal of union involvement, and the unions are looking for 40 hours a week continuous shifts—five days a week, two days off.

Mr. Paul Szabo: Okay.

You characterized the screening as a small part of airport security. What's the large part?

Mr. David Thompson: My experience has been that there isn't really a large part. There are a number of constituents that have responsibilities. For instance, at a typical airport, we will have the screening checkpoint. Our screeners are providing security. They are doing preboard screening, checking for boarding passes or restricted area passes and allowing people through. There are normally access gates, which are sometimes staffed by commissionaires, or sometimes by an aerodrome operator or security personnel. Then you have access to the secure area from the tarmac, people who provide security on the tarmac.

So there are a whole host of four, five, or six different groups, in some cases, providing various types of security.

Mr. Paul Szabo: All right.

Mr. Crothers, when I come through customs from an international destination, at Pearson or another airport, when I'm going to an international destination and I have to go through a customs clearance, or when I go to the Canada-U.S. border, drive over to New York or something like that, I'm pretty intimidated by these people. They ask questions; they look you in the eye. I think they're trying to read you and see if you match a profile or something like that. It's what I would consider to be security. It's a professional check.

• 1635

The entry-level position of screeners doesn't give me that same feeling of caution or that intimidation factor because of the position of authority the immigration people have. Would bringing that position up to the same level we would see for customs personnel have any value in terms of improving security and safety at airports?

Mr. Mel Crothers: I honestly don't believe so.

Basically, Mr. Thompson's group hires their people on a skill set that they demand they have. I think what the airlines would look for is putting more people on so you can rotate staff, so they're not bored, they're not complacent. They're not staring at the screen for half an hour; they're staring at it for only ten minutes, then they move to a different function.

It's interesting to watch security in the U.K. and in Germany. There's usually a guy there with a stopwatch, and they rotate them around, so they're not doing the same job day after day after day. Yes, they're doing parts of it, but they're all doing little bits. I think it's the boredom and the complacency.

I had a girl yesterday at Calgary who was extremely thorough, and she's probably paid $10 an hour. She wanted to know what was in my bag and she took it apart. I think it's good.

Mr. Paul Szabo: There are strategies in terms of quality assurance. The army, for instance, wouldn't look at every piece. They have standards. The U.S. army, I think, looks at maybe only 4% of stuff, and they have a confidence level that is way up there.

In terms of strategies for enhancing security and safety and the perception of the travelling public in the security and safety provisions being taken, is there any change that might be appropriate in terms of say not checking everybody, but profiling, looking at random detailed checking, or auditing on an ongoing basis, so that you change the character of the work, as opposed to everybody's being the same?

I raise that because the Globe and Mail had a feature article on Saturday, titled: “Never Mix Security and Profit”. They talked about a particular case, but they related a number of instances where if the line was getting long, the supervisor would say “Why are you turning on that computer? Let him through, the line's getting too long.”

There are conflicting interests. Is it safety and security and do your job, or is it don't upset the passengers?

Mr. Mel Crothers: If there's too long a line and they're bypassing security, that's crazy. It serves nobody's purpose. The carriers have to staff up. Mr. Thompson's group has to provide adequate staff so passengers can move through security smoothly and effortlessly, but be checked and vetted as they're going through, without a doubt.

Mr. Paul Szabo: I asked Mr. Thompson about his comment that they're a small part of airport security, and he said he didn't think there was a big part. Do you think there is a big part, or should there be?

Mr. Mel Crothers: We had some conversation prior to coming into the meeting, and I think probably what needs to happen... Mr. Bevan alluded to this, and you're alluding to it in terms of it being an inter-police across the country, which is important. But even at the airports themselves, when you have three or four different security organizations, there's no coordinated head of security for the Calgary airport. There's no coordinated head of security for the Vancouver airport. It defaults to a couple of people.

It needs to be organized and flow a little better. I think Mr. Thompson could probably speak to that better than I.

• 1640

Mr. Paul Szabo: Okay.

Finally, I'd like to ask Mr. Bevan or Mr. Flanagan, since you raised the issue of the coordination, there is a multiplicity of security responsibilities, whether it is airport authority, catering, cargo, or customs. Airlines have some opportunities, whether it's at ticket reservations or sales at boarding. Then there is the pre-screening, which is under the control of the dominant carrier, etc.

You start piling all these up, and even the pre-screeners don't have the authority to stop anybody if they walk through and buzz the thing off. They don't have any right to stop people or detain them. They have to get authorized police, or whoever.

I guess the question to you, Mr. Bevan or Mr. Flanagan, is given that we have this broad range of security pulses in an airport-airline environment, could any improvements in productivity or performance be obtained if there were a central command, as it were, to oversee the integration of all of it, in a way that would not take away the responsibilities of competing jurisdictions? They still have to do things, but is there some way?

You might have heard that the Ottawa airport authority, and I think the Greater Toronto Airport Authority have both suggested that putting all the security at their airports under the airport authority would improve it.

Chief Vince Bevan: That's an interesting question, sir.

I think I need to start from the standpoint that we have absolutely no interest in expanding our responsibilities, as far as security at airports. We don't want to be involved directly in the prescreening or any of the aspects, beyond what our mandate dictates we are responsible for, at present.

To answer your question directly, I need to draw back into my experience, because we quite often work with partners who have various responsibilities. I can think of a number of the joint forces operations where we have Canada Customs and Revenue, Citizenship and Immigration, and all sorts of partners with different responsibilities and mandates. By taking a joint management approach and working on that coordination aspect we spoke about a few minutes ago, we can make those work very well.

I'm not so sure that with all the competing interests and roles, I would be able to present to you a model that would satisfy your single point of control or coordination that would look after all of the issues that present themselves in this question.

The Chair: Bev.

Mrs. Bev Desjarlais (Churchill, NDP): Thanks very much for coming this evening. We know everybody has sort of been called on short notice to appear before us. We appreciate people making the opportunity to come.

Mr. Thompson, I'm going to run something by you, and as I go through this I want you pick out what's correct and what's not correct. Feel free to tell me.

You receive an application for employment and go through the training process, if they meet your criteria. If they pass the training process you apply for security clearance on their behalf. They fill out a form and apply for a security clearance, giving background information. During that period of time when they're waiting for the security clearance, they get a temporary pass to possibly work at the airport under the supervision of somebody else.

How long does it take to get the permanent pass, security clearance—one week, two weeks, one month, four months?

Mr. David Thompson: I'll defer to Tony, if I can. Tony is our operations—

Mrs. Bev Desjarlais: I gave you the opportunity. See, you finally get a chance to talk. Go for it.

Mr. David Thompson: I think I know the answer, but I know he knows for sure.

Mr. Tony Porter (Operations Manager, Ottawa Region and Maritimes, Aeroguard Ltd.): Basically, while they're going through the training process they work with a temporary pass under the close supervision of another qualified person with a permanent pass. They go through the same process as...

• 1645

Mr. David Thompson: Under the current situation, though, agents are not allowed to work on the points with a temporary pass unless supervised.

Mr. Tony Porter: Exactly.

Mrs. Bev Desjarlais: Okay, but everything else that I said was pretty accurate on what happens.

About how long does it take to get a permanent pass—a week, a month, four months?

Mr. Tony Porter: Right now we're probably looking at close to three weeks to a month, on average. I think at some airports it's a bit longer. We're in Ottawa so we're a bit closer to where the clearances get processed. We're a little faster maybe than some airports. It used to take about three months to six months.

Mrs. Bev Desjarlais: Do you ever get notified if someone has some criminal past, whether it be minimal criminal past or not so minimal criminal past? Do you get notified if Transport Canada approves their certification, but they still might have something on the record?

Mr. Tony Porter: Generally, no. We just receive the clearance. They don't get into too much of their personal information, for obvious reasons. They either get the clearance or they don't. Transport Canada has criteria, going through CSIS and things, where they check for certain things. There are certain things that are looked at as being more severe that would hamper a clearance, as opposed to other things.

Mrs. Bev Desjarlais: Do you know what those things are?

Mr. Tony Porter: Not really. I don't know much about the clearance process and what would reject a clearance and what would actually be a good clearance. I don't know whether shoplifting, for example, as opposed to something else would make a difference.

Mrs. Bev Desjarlais: Out of curiosity, do you know what the clearance process is?

S/Sgt Pat Flanagan: Transport Canada have their own parameters, with respect to what they consider a threat to civil aviation, and whether or not they would qualify or be disqualified from obtaining a permanent pass.

Mrs. Bev Desjarlais: You don't know what that category is—that's Transport Canada's purview.

S/Sgt Pat Flanagan: I would much prefer that Transport Canada speak on that behalf.

Mrs. Bev Desjarlais: Okay. Just out of curiosity, would you find it strange if someone who had a record of shoplifting or a minor theft—break and enter—got a security clearance to go through passengers' bags?

S/Sgt Pat Flanagan: Let me take that back one more step. Before September 11, the process to obtain a pass could take up to six months. There is a process, with respect to Transport Canada, and I believe CSIS is part of that process, as well. During that time, the person receives a temporary pass. Although they are supposedly escorted by a permanent pass employee, there's still the issue of a person working in a restricted area who hasn't been given proper clearance to work in that area.

Mrs. Bev Desjarlais: They're not escorted to the bathroom. They're not escorted to Tim Horton's. They're not escorted. They only have someone with them while they're doing their job.

S/Sgt Pat Flanagan: I can qualify it as a—

Mrs. Bev Desjarlais: Pretty flexible pass.

S/Sgt Pat Flanagan: —major bone of contention with respect to policing, why it's done in that respect.

Mrs. Bev Desjarlais: On the issue of the profit—and I'm not asking you about profit margin—I'm just curious exactly how the contracts are made. Is there an overall contract bid to provide all security services at this airport for—and I'm not even coming close to the amount—let's just say $10,000? Do you then charge the airline per hour per employee? Is that how it works?

Mr. David Thompson: We charge per hour per employee, excluding some management staff. Staff management is included in the contract, so we cost out our contracts based on anticipated pay rates, number of hours, and those sorts of things.

Mrs. Bev Desjarlais: What would be the hourly rate that the airline pays?

Mr. David Thompson: The hourly rate the airline pays varies from airport to airport, but it ranges from a low of $10 an hour for agents—not supervisors—which are the bulk of the staff, to a high of $14 an hour. I don't think we have any that are as high as $15 an hour.

Mrs. Bev Desjarlais: So the lowest the airline pays would be $10.

Mr. David Thompson: About that.

Mrs. Bev Desjarlais: Where would the majority of your employees fall within the pay scale? Would they be at the $10-an-hour level, or would they be at the $6.50 to $7 level?

Mr. David Thompson: The majority of our employees are at the top end of the pay scale.

Take Vancouver, which has a 15% turnover rate. I think 70% of the employees are at the top, and 15% to 20% are in the next couple of categories. Our average pay rate in most airports runs about 95% of the maximum. We don't get much turnover. Unlike the American experience, our turnover rates are quite low.

• 1650

Mrs. Bev Desjarlais: Okay. You indicated it was about 25%, but it could run from zero to 80%, depending on the smaller airlines.

Someone mentioned or asked about the vehicles, and I just wanted to verify whether someone knows exactly what happens to any vehicle that comes into a secure area, even if it is the Cara food truck. Who ensures that it's secure?

S/Sgt Pat Flanagan: It's the airport authority's responsibility to ensure that whatever parameters are set within the restricted-access area of an airport, those vehicles entering that restricted-access area are properly checked with respect to the measures that were introduced by Transport Canada after September 11.

Mrs. Bev Desjarlais: As the police force on site, you wouldn't know exactly who's making sure that truck is secure?

S/Sgt Pat Flanagan: Yes, we would. Initially it was the police, for about a week and a half after September 11. The job was then just passed to... It's a question of costing, as well; you can appreciate what it costs to batten down the hatches of an airport facility. Then it's the responsibility of the airport authority to utilize the Corps of Commissionaires to perform that specific job function; they use a combination of players, including a contracted airport security company, that have relations with the Ottawa airport.

Mrs. Bev Desjarlais: I have one more short question. Mr. Thompson and Mr. Porter, do you have a security background? Do you have some kind of security training yourselves?

Mr. David Thompson: I don't have security training. I'm a chartered accountant by trade, and I've been in the security business for 12 years now.

Mr. Tony Porter: Actually, I don't have any professional training, but I've worked pretty much all my working career in security fields, particularly management. But no, I don't have a degree, a certificate, or anything like that.

Mrs. Bev Desjarlais: So you have no experience through corrections, security, or anything like that.

Who sets the standards? Who does the training of your staff within your operation?

Mr. David Thompson: We utilize our own in-house trainers. A number of years ago Transport Canada provided a train-the-trainer program. It used to be held in Cornwall on a regular basis. We would send our trainers to Cornwall to learn to train. It was a Transport Canada-approved course. That program was done away with in 1996 or 1997—somewhere in that vintage.

We provide our own training, which is based on the Transport Canada training program and the standards they set. It's a video-based, instructor-based program. For instance, in our organization most of our trainers are Cornwall-trained. We still have a large contingent of Cornwall-trained trainers left. We have very few non-Cornwall-trained trainers who are training our people. They provide the training. The examinations and the certification are still done under the auspices of Transport Canada. The graduating class still has to meet the standards that have been set by Transport Canada, who test on a regular basis.

Mrs. Bev Desjarlais: Can I sneak in one more small request? I'm curious about the training manual you use. Is it possible for us to get a copy of it?

Mr. Tony Porter: That would be a Transport Canada issue. It's their—

Mrs. Bev Desjarlais: But they haven't been doing it since 1996, I think you said. Would we get the current one you would be using?

Mr. Tony Porter: They provide the manual. It's a Transport Canada manual used across—

Mrs. Bev Desjarlais: It's still a Transport Canada manual?

Mr. Tony Porter: Correct. They just don't provide the train-the-trainer course.

Mrs. Bev Desjarlais: We'll get it from Transport Canada, then.

Thank you.

The Chair: Val, you're on deck.

Ms. Val Meredith: Thank you very much, Mr. Chair.

Thank you, gentlemen, for appearing before the committee.

I understand from all the questions and your answers that there are a number of different groups that provide different levels of security. My concern is the communication of what you're doing. You're an on-site police force, and you're doing the security of virtually the whole airport. You're doing the pre-boarding screening.

What happens if the commissionaire at the curb sees something that causes him some concern, where something just doesn't seem right? Who does he report that to? Do you pick up on his concern and keep an eye on the individual coming through the airport, and do you let the screeners know about it for pre-boarding screening? Where does this information flow go when you're dealing with a potential problem?

• 1655

S/Sgt Pat Flanagan: I can answer that with respect to the Ottawa airport, obviously. Something unique with the Ottawa airport is that when you're dealing with communications and calls for surveillance, the Corps of Commissionaires is basically our central dispatch. Commissionaires are provided with police radios, although these are only equipped with one or two frequencies. If and when there's a potential problem and they see fit for the police to become involved, they radio to what they call the security operations centre. We hear that radio call, and at that time police are dispatched to the security operations centre. It does work well within the Ottawa airport environment.

Ms. Val Meredith: So if a flight attendant has a concern... And I have actually been on a plane when it has happened. It couldn't have been the Ottawa airport, because it was the RCMP who came on the plane to deal with the issue. So everybody's kind of connected to this communications system. Would the pre-boarding screeners be connected as well?

S/Sgt Pat Flanagan: If it were something that would affect the pre-boarding screeners, they would be made aware of it. But for the example you've given of an in-flight emergency, be it an unruly passenger or otherwise, the communication link would go from the aircraft to the tower to our security operations centre, and the police would be dispatched. It's a system that does work well in Ottawa.

Ms. Val Meredith: So for somebody who has caused concern on the curb when getting out of a vehicle or coming out of the parking lot, you would deal with that before it got to the pre-boarding screening.

S/Sgt Pat Flanagan: Yes, we would. The screeners wouldn't be involved in anything before the pre-boarding screening, obviously.

Ms. Val Meredith: From listening to other witnesses, I seem to detect a concern that maybe there's a lack of sharing of intelligence. If there are people out there in the community who are going to be coming into the airport and who others might be concerned about, is there a transfer or sharing of intelligence so everybody works together with all the information they require? Do you have that now, where there's a sharing of intelligence?

Chief Vince Bevan: That is certainly in place at the local level here. I can't speak for all of Canada, but because of the working relationship we have with the RCMP and with the Ontario Provincial Police, we work so closely on a daily basis that certainly since September 11 we have seen it work remarkably well. Prior to September 11 it was working adequately, but I think we've all seen the need to improve those kinds of systems, to improve the coordination so we all work...believing that the coordination occurs. I think it has worked remarkably well since September 11, so here we have a model that could be transferred elsewhere as an example of how to do it.

Ms. Val Meredith: Thank you.

I want to ask this just for my own clarification. I got the impression from your comments, Mr. Flanagan, that you would have a problem with air marshals, that you don't feel it is a necessary response to the threat. Would it be fair to say that this was your assessment?

S/Sgt Pat Flanagan: When the question has been explored in its entirety and we've reviewed other options, I'll be in a better position to give you a more educated response.

Ms. Val Meredith: And yes, you can run in the next election.

This has been an issue, particularly with the official opposition, who are promoting air marshals. It's also an issue at Ronald Reagan Airport, where air marshals will be required if Canada is to continue to be allowed access.

I just want to understand your point of view. As to whether air marshals should be brought on the scene, your concern seemed to be their training—

S/Sgt Pat Flanagan: Very much so.

Ms. Val Meredith: —and what approach they would take in responding to an incident. You mentioned something else like Tasers, which would—I'm not sure how you worded it—be a non—

S/Sgt Pat Flanagan: It would be a non-lethal use.

Ms. Val Meredith: —lethal use of a firearm. Is it the training and who they would be that raise your concern, or is it actually having somebody on an aircraft with firearms?

• 1700

S/Sgt Pat Flanagan: If the program is put in place where it's representative, so that the persons who are involved, be it the sky marshals themselves, but also other stakeholders who are part of that whole procedure, flight attendants, pilots... It's not just a sky marshal educating and training program; I think we have to bring everybody on board so that everybody knows the dos and don'ts of what sky marshals can and can't do.

Ms. Val Meredith: Then it's a question of where's the reporting mechanism—who do these sky marshals work for? Who supervises them, under what guidance, what restriction? If we get into that kind of situation, who do you think should be responsible for the air marshal program, the major security at airports, coordinating all of these training programs that are necessary? Who do you think should be responsible for that?

S/Sgt Pat Flanagan: I think you've addressed two specific issues. One, for the sky marshals program, because it crosses a number of boundaries and territories, I think the representation should come from the RCMP.

On the second question, dealing with airport security issues, on a national basis police forces of local jurisdictions interact with one another, so the system does work. We have so many different ways of doing business, but we also have so many different mindsets that say let's put our heads together as these different local police forces and jurisdictions and talk about best practices. I think this is where we have the airport commanders group that's come into the fold. We recognize that it's something it's necessary for us to deal with. It's a missing link. It's a necessary component for us to do our business.

If I could expand on that commanders program, I'd note that training is an essential part of it. As it stands now, since police forces of jurisdiction have come into the fold with respect to class 1 airports, it is left up to the police forces of jurisdiction and the airport authorities to develop their own training programs. There is not a standardized training program across Canada for police services within airports.

Ms. Val Meredith: Would it be fair to say that the use of sky marshals, or upgrading security and all of that, really is a response to risk assessment, that you almost have to assess whether there is a risk to a potential flight to warrant putting somebody on board?

You both represent the Ottawa-Carleton police force. Would it be fair to say that if there's a high risk on a particular flight, the local police authorities could be asked to provide that service for that one particular flight where there might be a high risk? Or is it something that should be a more ongoing program where you have these trained marshals in place on more routine flights? How do you see the program potentially working if it were to be brought in?

Chief Vince Bevan: Certainly, from my perspective, I think it should be somebody who is trained and expert in that area.

If I might add to what Staff Sergeant Flanagan said earlier, I have flown domestically in an armed capacity doing other duties. Before I approached the aircraft I did not really understand the issues surrounding the carrying of a weapon, and if that weapon was discharged on the aircraft, what could potentially happen. I think those training issues need to be at the fore and people need to be qualified, I would suggest certified, to do that kind of work.

I don't think the solution is to find somebody potentially on an as-available basis to do this when it would be required by the nature of a threat. I would think there should be some pool of certified people who would be available to provide that service if it was deemed to be the way we should go in the future.

Ms. Val Meredith: I have a final question. Let's use the Ottawa airport as an example. You have good security and it's well managed, everything is fine from the Ottawa perspective, but how many planes fly from other airports that may not have this degree of security? Then how vulnerable is the Ottawa airport to having somebody coming from outside, from a less secure area? How do you manage that kind of risk that comes from outside of your controlled space?

• 1705

Chief Vince Bevan: It's only as strong as the best defence or security system that was in place when those passengers had the hand baggage, and everything else they brought with them, and passed through security at their point of origin. If someone arrives at the Ottawa airport and remains in the passengers' area from another airport, and they weren't properly screened, we have a problem.

Ms. Val Meredith: We have many smaller airports around our country that may or may not be under airport authorities or municipal jurisdictions, or however they've managed to keep that airport current, and that may not have the resources, either the equipment or the manpower, for the number of flights coming in. How do you accommodate that? Should the federal government get into the security business of providing security in order to maintain the security of the whole system? Do we have to look at stepping in and providing security because of the weakest link?

S/Sgt Pat Flanagan: No question, you raise an interesting point with respect to screening people prior to entering an aircraft, and properly screening people. If it's not done properly in the first instance when they arrive at an airport such as Ottawa, we're vulnerable to that. September 11 has shown us how vulnerable we can really be. It's an issue that has to be addressed, most certainly.

Mr. David Thompson: I would like to make a comment on that one.

We screen a number of airports that don't require pre-board screening in Canada. They are screened at those airports because the passengers are deplaned into a sterile area at another airport. Vancouver is a good example. We screen Comox, we screen other areas.

It is my understanding that it is the airline's responsibility. You cannot deplane what they call dirty passengers into the sterile area. You have to have alternate accommodations. In Winnipeg we have accommodations to deplane them into the general boarding area, and then they have to go back through and have to be rescreened.

So my understanding is there are procedures currently in place. You either screen them at the point of origin and pay the costs, which the airlines do in a number of cases, or you ensure that they're deplaned into a general area and then have to go back through and be screened when they go back up to the sterile area.

Ms. Val Meredith: So would you be confident in saying that happens in all or most cases?

Mr. David Thompson: My understanding is that is a requirement, and Transport Canada watches it very closely. You can't deplane unscreened passengers into the sterile area.

Ms. Val Meredith: Thank you.

The Chair: We have time for a couple of quick questions, because I know we have witnesses who you may want to ask questions. So if you're going to ask questions, keep it short, and maybe keep the answers short, maybe for another five to ten minutes.

Mr. Cannis.

Mr. John Cannis: We're always looking for suggestions or models that we can maybe look at and recommend or implement. Can you tell us if you know, or whoever would know, what types of systems other countries are using for their security? Heathrow was mentioned earlier. El AL has been mentioned by other presenters in the past. What do they do? Are their security activities controlled by one central focal point? Is it contracted out? Is it airport authority? Does anyone know?

S/Sgt Pat Flanagan: I can provide some insight with respect to Gatwick airport, which is policed by the Sussex police. They have a national aviation security committee. It's a group chaired by the department of the environment, transport, and the regions, and is comprised of representatives from airlines, airports, police, government departments, trade unions, immigration services, and various other bodies and aviation-related organizations. The purpose of this committee is to discuss aviation-related matters of national and international importance.

From that committee there are a number of subcommittees, such as a terrorism and allied matters subcommittee, and a ports police subcommittee. They have a police commanders group type of committee, something we have suggested we would like to put into place in Canada. Those are the types of committees that are respective of that area.

Mr. John Cannis: You mentioned Heathrow, but does that blanket Great Britain, for example?

S/Sgt Pat Flanagan: Gatwick.

Mr. John Cannis: You said Gatwick. Does that blanket all of Great Britain?

S/Sgt Pat Flanagan: It brings together all commanders in that specific area, and representation from London, Heathrow, as well as Stansted, are a part of that commanders group that participates.

• 1710

Mr. John Cannis: So they communicate, then.

S/Sgt Pat Flanagan: Very much so.

Mr. John Cannis: Thank you, Mr. Chair.

The Chair: Bev.

Mrs. Bev Desjarlais: I believe that at present if a police officer is escorting a prisoner on a flight and is carrying a weapon, they're given a special paper to show to security.

With regard to a sky marshal scenario, my thoughts are that they probably don't plan on identifying who the sky marshal is to the crew because there's a concern over who the crew might be and that a crew member may be involved. I don't know if they would intend to let airport security know. How on earth would someone on a flight deal with someone pulling out a gun when you don't know for sure if they are a sky marshal?

S/Sgt Pat Flanagan: That's exactly our point. You hit the nail on the head. We have concerns about people in plain clothes walking through airports with guns concealed on their hips. It's an issue. Until we have a full understanding of how this system may work, we have questions, definitely.

Mrs. Bev Desjarlais: Many of the terrorists have pilot uniforms and that kind of thing, so how would we ever pick and choose as far as the terrorists go?

Mr. David Thompson: There's one comment I would make on that. Recently, I've read a number of articles on it, because it has been topical. There are successful sky marshal programs in the world. My understanding is that El-Al has at least one sky marshal on every flight and has had so for decades. The U.S. has a sky marshal program, and it is extremely rigorous. I've read the material on it and the training—

Mrs. Bev Desjarlais: The U.S. hasn't had one ongoing.

Mr. David Thompson: They have sky marshals.

Mrs. Bev Desjarlais: But it hasn't been an ongoing program.

Mr. David Thompson: No.

Mrs. Bev Desjarlais: With regard to the El Al, my understanding is that it is obvious that person is a security person. I could be wrong

Mr. David Thompson: No, they're in plain clothes.

Mrs. Bev Desjarlais: That's it. Thanks.

The Chair: James.

Mr. James Moore: The United States has had an air marshal program sporadically on international flights since 1968, and it has been a success.

Relative to Bev's concern about air marshals on planes, I would ask Mr. Thompson and Mr. Flanagan if it's common for police officers to stand up in public places with their guns drawn.

Chief Vince Bevan: In Canada it is not common.

[Translation]

The Chair: Mr. Harvey, you have the floor.

Mr. André Harvey: Thank you, Mr. Chairman. I think we should always avoid excess. That is also true for security even if we do tend to try to achieve perfection.

International agencies told us, before September 11, that Canada was a country where safety standards were unparalleled. Do you think that assessment is exaggerated or that the safety standards implemented in our airports are just about perfect?

Chief Vince Bevan: In my opinion, the safety procedures and standards implemented at Ottawa International Airport were sufficient to meet the needs of passengers and the general public, before September 11. Since then, I've been having doubts on the procedures and standards of the private companies responsible for the security service.

Mr. André Harvey: In your opinion, is the co-ordination done by Transport Canada satisfactory? Does its way of implementing standards and procedures promote good working relations between the various actors, the RCMP, the carriers, the agents, etc.? In your opinion, is the security system co-ordinated by Transport Canada effective?

• 1715

Chief Vince Bevan: I'm not convinced that the standards put in place by Transport Canada in the last few years will now be sufficient to meet the expectations and standards of the Americans.

Mr. André Harvey: According to the International Civil Aviation Organization, Canada has very tight safety and security standards in its airports. Do you think that that assessment is correct?

Chief Vince Bevan: I am unable to comment on that, sir.

Mr. André Harvey: Thank you, Mr. Chairman.

[English]

The Chair: Thank you very much, gentlemen. We appreciate your input, and I'm sure that your interventions will help with our work.

We'll break for a couple of minutes to allow Mr. Hartt to come to the table.

• 1716

• 1718

The Chair: I'd like to call this next session to order.

We're dealing now with Bill C-38, an act to amend the Air Canada Public Participation Act.

Our witness is Stanley Hartt. Welcome, Mr. Hartt.

Mr. Stanley Hartt (Individual Presentation): Thank you Mr. Chairman.

Mr. Chairman, honourable members, I'm very pleased to have been asked to be here.

I have three relevant claims to having some insights to offer. The first is that I was a member of the government that first decided to privatize Air Canada. I was the Deputy Minister of Finance when the original discussions were held about selling the first piece of Air Canada to the public, which I think was 43%, and I was chief of staff to the Prime Minister when the last 57% was sold to the public.

I think we did a lot of wrong things in order to do the right thing. That is to say that I think what happened at the time was that in order to persuade people that we ought to be permitted to part with this crown jewel and sell it to the private sector, we had to constrain it in various ways about its future conduct and activity. This may or may not have been the correct thing to do considering that it was to be a private company that was to compete with other companies that didn't suffer from the same constraints.

• 1720

My second reason for being here is that I had the onerous task of being CEO of one of Canada's largest bankruptcies, a company called Campeau Corporation, which you may have heard of. They engaged in the misadventure of investing in the United States and buying every department store in sight, paying for it with borrowed money, and building up more debt than they could manage. When they fired the founder and chairman I was asked to come and clean up the mess. I restructured and reorganized Campeau Corporation and turned the $15 billion U.S. of debt into a variety of other things. I sold a lot of assets and saved the company. The company exists to this day, and I'm still its chairman, although I'm a non-executive chairman. And it has the high honour of being the landlord of the Department of Transport in this city. So companies that are indebted can be saved.

The third claim to expertise is that my full-time job now is chairman of Soloman Smith Barney in Canada. As such, I deal in capital markets and raise money for companies. And I know what it takes to persuade investors to part with their equity.

So to come to the point of the bill before you, which proposes to eliminate the 15% ownership restriction on shareholdings in Air Canada, speaking with my capital markets hat on, I am very much in favour of this measure. You should approve it and send it forward to the House for full adoption, because this measure is overdue and it is wise and should be given effect to.

I am sorry to tell you that I don't think it may, by itself, do the job. If the job is to persuade investors to invest in Air Canada, and, as presented in the minister's introduction of the measure in the House, persuade them that if you now can own more than 15% of the company—indeed, a Canadian can control the company—that might give people the encouragement to put serious money into the company. It might help it deal with the financial constraints it is facing.

I think there is a problem with that. In my experience, before equity investors part with new money, even if they are going to be able to have a significant say in the company and appoint its board of directors, they want certain other things cleared up first. Generally speaking, they want the regulatory regime clearly known, put in place, in advance. They want a clear understanding that this regulatory regime is not going to change in a serendipitous way as events bring about reaction on the part of government to regulate, re-regulate, or do other things that impose burdens on this company they are putting private sector capital into. Indeed, I remember being counselled by advisers to the government at the time that Air Canada was being considered for privatization.

The Brits have this right. The first thing you do is set the regulatory regime, announce it publicly, and implicitly promise that it won't be changed casually. The problem is that the government should go further. They should in fact make it clear what the regulatory regime will be and what Air Canada will be expected to do by way of implementing public policy.

I think the rule should be hands off Air Canada except for laws and regulations of general application. We have rules and regulations of general application. We have the Competition Act; we have the Canada Transportation Act. Those rules and regulations govern all companies Air Canada competes with, and that would be the first thing an equity investor would look at. He would ask whether he is in an unfavourable position vis-à-vis companies he competes with.

One thing the government might wish to consider doing is to repeal the Air Canada Public Participation Act in its entirety. With that would go certain other burdens that were imposed on Air Canada in an attempt to persuade the public that it was a good thing to have the government out of the business of running an airline. Those burdens are now meaningful. They don't apply to the competitors of Air Canada and they shouldn't apply to Air Canada.

• 1725

Finally, I would suggest, with all respect, that there might be some consideration given to raising the barrier in the Canada Transportation Act to foreign ownership. I would think that 49% might be a number that would solve the problem of wanting to know that your carrier was indeed a domestic flag carrier when it was subject to the agreements with which it is permitted to fly to other countries in exchange for their carriers flying to our country. It would mean that 51% of the company would be in Canadian hands. Whether at 25% or 49%, a single foreign shareholder would have significant influence. On the other hand, this would be a significant source of capital for the company, which, in my opinion, it needs.

So there are several things the government might consider doing to go beyond merely relieving the company from the 15% cap as it stands now.

Mr. James Moore: Thank you, Mr. Hartt, for coming here today. Quite frankly, I agree wholeheartedly with your statements and your proposition. In fact, I argued the idea in the House that the Air Canada Public Participation Act should be repealed.

If you look at the act itself, there are fifteen full sections. Five of them are now spent. The minister no longer has shares. The airline has been continued. The board has long since resigned—i.e., the crown corporation board. The act was repealed and Air Canada has been incorporated.

Two clauses are discriminatory, in that they put regulatory regimes against Air Canada but they don't apply to other companies. One is the 25% share limit. The 25% share limit is in the Air Canada Public Participation Act. As you also mentioned, it's in section 55 of the Canada Transportation Act.

I find it interesting that when I proposed to the minister the idea of eliminating the 25% cap altogether on foreign limits in the Air Canada Public Participation Act he opposed it on the grounds that it should only be raised to 49% and so on, somehow not realizing that this restriction is in the alternative act.

Five sections of the Air Canada Public Participation Act are unnecessary, in that they replicate other legislation. Four sections are administrative.

The Air Canada Public Participation Act, for lack of a better word, is a complete boondoggle. What message does it send to investors? In other words, how does this hurt Air Canada, relative to people who might invest in other Canadian carriers...that is unfair? How would lifting and scrapping the Air Canada Public Participation Act by putting them on a level playing field benefit Air Canada?

Mr. Stanley Hartt: I'm not going to get into whether it's worth opening a statute for amendment because certain sections are spent. That's a neatness question, which I leave to parliamentarians.

Speaking from the point of view of someone who from time to time raises capital for companies, whenever you impose an obligation that seems in itself natural and well-founded, it translates into a cost. There were times when it might have been okay to ask Air Canada to bear that cost. It isn't now.

If you look at how, for example, the application of the Official Languages Act works... I'm a passionate defender of the Official Languages Act. I think it's a great piece of legislation. I'm not in any way suggesting that we shouldn't be preoccupied with how our official languages are dealt with in this country. I am preoccupied with imposing a multi-million-dollar obligation on a single company that competes with other companies that don't have to adhere to this statute. It is a question of a level playing field.

Air Canada has very elaborate agreements with its unions. One of my other connections with Air Canada was in my misspent youth. I actually settled five Air Canada strikes as a government mediator—a pilot strike, a flight attendant strike, and three passenger agent strikes. I knew those agreements at the time. They contained elaborate bumping clauses.

• 1730

If you are going to lay off even a small number of workers, the people who are in the service or occupations being laid off have the right to use their seniority to get into other positions, using their bumping rights and their seniority. So when you are finished the multiple repercussions and waves of replacement, management's adherence to things like the Official Languages Act, where they thought they had jobs and positions covered in the places they ought to be covered, is now all out of kilter; all those people have moved elsewhere. They've been bumped and displaced or they're in other jobs that don't require bilingual skills, and people who don't have them are in the jobs that do require them. So there's a training cost, and it's continuous. It isn't just that you get it right once, and then after that the company operates itself.

Similarly, I'm a Montrealer by birth and a Quebecker until I came here to work for the government, and I think maintaining the economy of Montreal is a first and important obligation of the government. But saying to the airline that thou shalt have thy head office here and thy maintenance bases here, here, and here translates to a cost question. If there were some way to equalize those burdens between Air Canada and the airlines it competes with...

Remember, in some of its traffic, it competes not just with the small Canadian airlines that fly domestically and compete with it here, but on transborder flights it competes with airlines that come from other countries. So to impose that cost on it as a private sector company...

The point I was trying to make is that if you're saying you're now launched as a private sector company, and individual shareholders are asked to invest in your stock or not, depending on your capacity to produce good service, which produces revenue, which produces earnings if you're cost-efficient, when that equation is interfered with by costs imposed for public policy purposes on a vehicle that shouldn't be required to carry out public policy purposes that are not of general application, to me it seems unfair.

For those reasons, I would particularly suggest that to put Air Canada on a level playing field financially, the act could well be repealed. You would keep the Canada Transportation Act restriction on foreign ownership, and you would keep all the Canadian Transportation Agency and the Competition Bureau rules, regulations, and authority. I'm not asking for Air Canada to become an anarchy unto itself, but the rule would be simply stated: Laws and regulations of general application apply to it and nothing else that is special for it, if it is truly a private sector company.

Mr. James Moore: And that would have a reciprocal political benefit on the government itself, in that if Air Canada did continue to have financial trouble, Air Canada would not then therefore have the political capital to say, ah, it's the government's fault. It makes entire sense for this government.

You don't have to reply to that, but it makes every sense in the world for the Liberal government to favour the repealing of the Air Canada Public Participation Act, not only for sound economics but to put the company on a level playing field so that if they do have financial trouble, they can't blame the government. I'm surprised that the minister doesn't see it that way.

Specifically, though, I want to ask you about the maintenance facilities that are mandated in Mississauga, Montreal, and Winnipeg. Given that, as I understand, their largest maintenance facility is actually in Vancouver, you commented on it, but in a financial reality, how much does that hurt Air Canada, and how much does that hurt their capacity to make changes on the labour side, on the structuring side, given that they need to have maintenance facilities close to hubs where they want to have their largest aircraft? Tell me about the financial strain that puts on Air Canada that is unfair relative to other carriers.

Mr. Stanley Hartt: I'm not able to quantify how many dollars it actually costs them every year doing things they wouldn't otherwise do. You should ask them that question. I'll bet they can tell you. But it clearly is something. Any company that covers a big nation like this would want to have maintenance facilities in more than one place, but I don't believe mandating that they be kept in three places—which happen to be where they were at the time the company was privatized—was anything more than a political attempt to reassure the people who live and work there that those jobs wouldn't disappear in very short order.

• 1735

I must tell you that the biggest impact of this would be that as other governments, federal and provincial, contemplate privatization of other crown corporations, the best lesson from repealing the Air Canada Public Participation Act would be that when you launch a company into the private sector that you philosophically believe ought to be in the private sector, you don't have to impose public policy burdens.

This is still going on to this very day when provincial governments look at assets that they have and hesitate to privatize them without imposing on them all kinds of burdens that will not make them good investments.

Also, you alluded to something that I thought was very important, that when the government intervenes to the extent that it does in the fate of any private corporation, it creates a kind of moral hazard for what happens if it goes wrong. It may not be just a trade-off of you costing me this many dollars, therefore you owe me that many dollars; I think it's a psychological thing. To whom do you look when a private sector company has problems?

When my real estate company was having problems, there was no question that we would ask the government for anything, even though you could argue that there were five government departments in our building that would either be homeless or would have landlords whose identity would change from day to day, depending on how the creditors sorted out the ownership of the building. It never occurred to us to ask the government for any help.

You create a psychology where the unions... In a situation like Air Canada has today, the unions ought to be asked to make concessions to some of those agreements. In private sector cases, they are typically asked to make concessions to keep their jobs.

Just recently, the Toronto Symphony musicians agreed to make a vast concession in an attempt to keep their jobs. But when the government plays Daddy to a corporation, the unions say “Why should I make a concession? The government will take care of it; the government will do something. It will come along and pay for this. It won't let them fail; they're too big to fail.”

The psychology of being too big to fail and that you're not really in the private sector so we will look after you is probably more important than the dollar figure you were trying to get me to calculate.

Mr. James Moore: This is my last question.

When I made my presentation in the House, I was actually attacked by some of my colleagues who said I was anti-Quebec and anti-francophone for daring to suggest that Air Canada shouldn't be held to a different standard from that of other carriers, and that in the provision of official languages, if we want carriers, out of national interest, to provide their services in both official languages, that should be put under the Official Languages Act.

The intergovernmental affairs minister doesn't have a lot on his plate right now, and it is entirely conceivable that this could be done between now and November 19, when this passes third reading. The transport minister, to obviously a much lesser degree, when he came before the committee was leaning that way and was shaking his head at the idea that I would actually dare touch the concept of mandating official languages to one company and not another.

Tell me about the suitability of injecting that sort of nationalism into this debate when all one is talking about is a level playing field.

Mr. Stanley Hartt: I have no expertise on those kinds of issues, except to say that if you said to me that when somebody is on an aircraft, does he or she have the right to understand what's being said to the passengers, especially where safety is involved, if announcements are made about safety or, God forbid, we're talking about an actual incident and the flight attendants are trying to instruct passengers what to do, I would hate to think some of our fellow citizens whose first language is French and who don't have fluency in a second language would be at a disadvantage in a crisis because the Official Languages Act didn't oblige Canada 3000 or WestJet, or some of the other companies that still compete with Air Canada, to do that.

So if you asked me, is there a public policy rationale for ensuring that all travellers are informed about safety, sure, it's no different from informing people about the ingredients in the food they eat by labelling requirements. But it's the level playing field that is the important thing.

The cost doesn't seem to be a lot until you take into account the effects of bumping procedures under the collective agreements, which constantly displace those people who have been trained, who are bilingual, who were in the right spots to serve the public, and now they're not. I'm not here to attack bumping rights because I have spent a lot of my life dealing in labour matters and I have great respect for the concept of seniority. But there's a cost, and it's not fair to impose it on one competitor and not on others. That's really my point.

• 1740

Mr. James Moore: Thank you.

The Chair: Thank you, James.

Mr. Szabo, please.

Mr. Paul Szabo: Thank you.

Mr. Hartt, does Canada need a national airline?

Mr. Stanley Hartt: I happen to not think so. I believe we like to think of Air Canada as our flag carrier. The only practical function of having it as our flag carrier, in a most unofficial sense now, is that when we enter into reciprocal agreements with other countries to let their aircraft fly from their country to our country, we want to have someone who's capable of accepting the same route in the opposite direction.

You certainly need a large substantial airline. Most countries in the world have one big, strong airline and then several local and regional ones. Some don't even have that. So I think I would distinguish between a national airline and a large, strong airline to represent the country, flying to other countries.

Mr. Paul Szabo: Do I take it that when you made the decision to privatize it there was no major concern about servicing uneconomic routes in Canada?

Mr. Stanley Hartt: No. On the contrary, there was concern about that.

The concern was that the crown owns this company and a lot of people think of it as a national symbol, if not a crown jewel. What would persuade the people to endorse the government parting with this asset? But the cruelty of real-world commerce is that you can't go on forever doing something that loses money. We went through the same thing in the rail industry. At first, the rail industry was obliged to service certain places they didn't make money on and cross-subsidize them with routes they did make money on. Then they were permitted to start abandoning lines. They got into abandonment. They got into selling short lines to companies that specialized in short lines. Some of them made a lot of money.

Mr. Paul Szabo: There are a couple of other areas I want to get to.

The capitalization of Air Canada and its balance sheet when it was privatized put it at an exceptional advantage over Canadian, and we know what happened.

This issue of rationalization of the airline industry is obviously what's happening. With your position in the financial advisory and money business, Air Canada doesn't seem to have either the balance sheet, the labour relations, or the flexibilities currently that would make it very attractive to any control-block investor. Is that true?

Mr. Stanley Hartt: I agree with that.

Mr. Paul Szabo: I agree this seems to be quite a piecemeal piece of legislation. If 75% of the debt of Air Canada is foreign owned, there's a suggestion that one of the solutions to cleaning up the balance sheet may very well be to have some of that debt converted to equity.

But these kinds of things, when you want to clean up the balance sheet, the labour difficulties, and all other things, really don't occur without actually going under some formal or informal bankruptcy proceedings. True?

Mr. Stanley Hartt: If you added the word “informal”, I would agree with you. You don't get people to convert debt to equity piecemeal. You don't get them to say they'll do it regardless of what others do.

• 1745

Mr. Paul Szabo: They'll take the Companies' Creditors Arrangement Act.

Mr. Stanley Hartt: I have some experience with that act, having used it—

Mr. Paul Szabo: So do I.

Mr. Stanley Hartt: —to fix Campeau Corporation. But you don't need to use an act like that.

I must tell you that in Air Canada's case—they haven't asked me for my advice, so I'll offer it to you—I don't think they are susceptible to using any formal piece of legislation like that. Under the Companies' Creditors Arrangement Act, creditors get to vote on management's plan, based on classes of creditors that are established either by agreement or in default by the court.

The problem is that because so many of Air Canada's planes are leased, if they tried to create a plan it would result in lessors of aircraft saying, “Well, look, I'm in a class by myself because my lease has provisions in it that nobody else's does. So, My Lord, would you be kind enough please to extract me? I intend to vote no, so why don't you just let me take my plane away?”

In any formal proposition under that act, they would find that lessors would pull their planes. But they could have informal discussions with creditors, leading to what is commonly called a pre-cooked plan. In other words, by the time you present your plan to the public and the court, everyone has agreed with it.

But—and this is what I was alluding to in my opening remarks—the first question people will ask is, what's the regulatory regime? After they agree to take a haircut—because in the mind of debt holders converting to equity is not a gift, it's a reduction in their claim, rank, and status among the creditors—and make a concession, what is going to happen after that? The first thing they will want to know is whether the regulatory regime is known, not that it is absent or zero but just that it is known, and nobody will play with it.

The second thing is that as you go up the rank of creditors, each one will want to know that the one below it is taking more pain. So if the purpose of this amendment is to get equity into the company, always remember that before an equity holder will invest he will say, “Yes, but when they come to what you're suggesting could happen or may need to happen, they will ask me for further concessions. Well, why did I make an investment and then expose myself, in the course of restructuring, to be asked for further concessions, the simplest of which is mere dilution by other people being converted into my class of security, but on terms that diluted me relatively more than him?”

Mr. Paul Szabo: My last question has to do with looking forward. The marketplace has contracted about 17%—that's the figure I heard. I don't know what it is lately. A lot of that business may very well never come back, and some will be delayed. I think a lot depends on the level of anxiety of the travelling public. I know it has some ripple effect in many industries.

This may very well result in a scenario where the marketplace shrinks to a point where the current scenario cannot allow Air Canada to sustain in the long term without having haircuts offered.

In terms of major investor possibilities, do you think it would be somewhat unlikely that anybody would come forward until they were absolutely convinced that the scenario had hit rock bottom? They would then look for the opportunity to pick up the assets of a shell to relieve themselves of the encumbrances and start up a truly private company that could compete aggressively, with all the assets and facilities they'd need. I'm not sure about the availability of routes.

• 1750

Strategically, as a financial investment—and you're an adviser—would you ever advise anybody to get in before this thing had played itself out?

Mr. Stanley Hartt: You're putting it on a temporal basis, and I don't see it as something that has yet to play out until it hits rock bottom. That would be an unfortunate message to send to the investment community, because you're right that in those circumstances they tend to wait.

Properly capitalized, Air Canada can make money. The condition is, how do you get it to be properly capitalized? I think the answer is restructuring through discussions with creditors. The way in which the debt and other obligations will continue can be initiated by management now. They don't have to wait until things deteriorate.

There is certainly room in this country for an airline that can make money. The problem is that it has to be properly capitalized. You alluded earlier to the fate of Canadian Airlines, and you suggested that maybe it was because Air Canada was given such an advantage, in the terms of its privatization, that Canadian was disadvantaged.

I actually agree with that proposition, but Canadian was partly the author of its own misfortune. It went around buying every airline in sight and incurring vast debts in order to do so. By the time Air Canada was privatized, Canadian was well on its way to working itself up to the status of financial cripple.

So I think private sector companies need to worry about their capitalization and their balance sheets. They should be allowed to do it and they should do it. I don't think you need to wait for the situation to deteriorate to do that.

The Chair: Thank you.

Val.

Ms. Val Meredith: Thank you, Mr. Chair, and thank you, Mr. Hartt, for appearing.

I'm going to follow up on this because we've just seen another potential casualty in Canada 3000, with this business of capitalization. I listened with interest to your feeling that perhaps now is the time to take off all the statutory obligations for Air Canada and put it on an equal playing field with other airlines.

The potential need to raise the issue of foreign ownership has been raised before. We made some changes 18 months ago, but we didn't take off the domestic ownership cap or raise the foreign ownership component.

I've argued in this debate that to do one without the other really doesn't make sense any more. Perhaps if we had done this 18 months ago, we wouldn't be in the situation we are in now.

I understand your position on the Air Canada Public Participation Act and some of its provisions. We've heard from other witnesses that the obligations of maintenance facilities and those sorts of things are burdens. Do you feel we should be dealing with the foreign ownership component in conjunction with this piece of legislation? Should the government be advised that they need to up the foreign ownership component to 49%?

Mr. Stanley Hartt: Yes, I did say that in my remarks. To be perfectly clear, in case it wasn't fully understood, I absolutely think that. I would be loath to remove the foreign ownership altogether, because in my answer to Mr. Szabo I made it clear that Canada may not need a national airline, in the sense of a flag carrier, but it does need a large, strong Canadian-operated airline to represent us in international air agreements.

Until that regime changes, and it may change, I think we're going to see difficulties for airlines in other countries. We've already seen Swissair get into great difficulty. If there were no Swissair, who would fly to Switzerland? The answer is airlines from other countries, but we'd have to think through the regime that says you only do this on a reciprocal basis.

• 1755

I would be happy to see the foreign ownership limit raised to 49% for now, and I wouldn't say it would be inappropriate to put on the international negotiation table this whole concept of whether you merely exchange reciprocal routes for national carriers for two countries.

We did engage in an open skies exercise in this country some time ago, and I think it's produced nothing but good for Canadian travellers, Canadian consumers. It's given them a lot of choice in cross-border traffic that one would wish they would have on a regular basis. And you know the great bugbear is cabotage, the right of a foreign airline to fly into say Toronto, pick up passengers, and fly them to Montreal. We don't at the moment let them do that, and the main reason is that they don't let us do it. I would think that's a matter for international agreements.

But the simple answer to your question is yes, I would raise the ownership limit to foreigners to 49%.

Ms. Val Meredith: In regard to the capitalization of Air Canada, you talked about the need to restructure the debt and said it could be done now without Air Canada having to go into any kind of voluntary or involuntary bankruptcy. There is on the table the concern—and you raised it yourself earlier—that taking away the ownership restrictions may not be enough in and of itself. What's also on the table is the government helping financially—securing or guaranteeing loans, cash outlays.

How do you feel? Do you feel that's what's needed to get this company back on track? Is it even the place of government to do that?

Mr. Stanley Hartt: I think we should not lose sight of an important distinction. I think you're perfectly right. It is not the place of government in the ordinary, general course to help private sector companies that happen to be in trouble, even if they provide what I consider to be an essential public service. In the current international regime, if Air Canada were not there, Canada would be significantly hampered in its efforts to do business inside and outside of Canada by the absence of the ability to get from place to place.

But as I understand it, Air Canada's request for assistance from the government is not based on its generally weak balance sheet and its general need because of recession or other economic environmental circumstances to prop itself up. It's based on the simple proposition that following the September 11 disaster, the civil aviation system in North America was shut down. It was unforeseen, it had massive implications, and its effects are with us still.

The United States of America, where no airlines were ever crown or government corporations, has immediately seen the wisdom of helping its airlines, which also have balance sheet problems and have trouble financing themselves in the markets in which I work. The U.S. has seen fit to give them relatively massive injections of assistance of various kinds, amounting to some U.S. $15 billion, to help them through the consequences of September 11, which is not the same as accepting the moral hazard and the burden of saying whenever a company gets into trouble, provided it has enough of a profile and constituents complain to parliamentarians about it, we will bail them out.

I would be against the latter, but I am for the former. I am for some more generous assistance to the airlines in Canada in general that would be related not just to the number of hours they were shut down when planes were not permitted to fly in North American air space, but also on the clear and observable economic consequences.

I have colleagues who still refuse to fly, people who fly for a living. This is all they do. They go from place to place, they see companies and propose ways of financing to them. They are saying “I'll do it by teleconference. I'll do it by phone. And maybe after a few months I'll get used to it, chin myself to it and go back and fly.”

So I think we should distinguish between assuming obligations that are purely private and dealing with a circumstance that was part of our North American security reaction to a terrible event.

• 1800

Ms. Val Meredith: Following up on that, you have a situation in the U.S., as I understand it, where there is in the neighbourhood of $10 billion for loan guarantees so the airlines can get the capital they need to continue operating.

The minister told us last week, I believe, that those loan guarantees hadn't, to this time, actually been put in place. The minister, in giving a loan guarantee to Canada 3000, put a number of stipulations on it. Do you consider this statutory interference or government interference again, or do you feel it's justified for the government to say that given certain circumstances, they will give them a loan guarantee, but these are the things they expect in order to do that. Do you feel that is a fair way of dealing with it?

Mr. Stanley Hartt: Again, I think one has to ask what the motivation is. I'm not sure the motivation for the assistance to Canada 3000 is related to September 11 and the aftermath—a one-off, hopefully never to be repeated, a recognition by government that if you say to the private sector, this, too, is your burden, you could bankrupt a number of companies and, in the case of the Americans, deprive them of a number of their competitors. In our case, it could deprive us of one of our few competitors.

Propping up Canada 3000 for any other reason would seem to me to be inappropriate, even if the purpose was to maintain competition.

Canada has a long history of companies that were brave enough, despite the very high cost of entry into this industry, to come into the industry and try to compete with Air Canada. Many of them ended up being bought by Canadian Airlines at one point in time; some others just floundered and failed. We have had in the past 20 to 25 years in this country literally several dozen airlines in and out of the business. I don't think it's the government's business to dictate who stays in the business and who doesn't. I think the minister may have been driven in that circumstance by the desire to preserve what little competition we still have.

I know when I was deputy minister of finance the government I was involved with made a $50-million loan to Canadian Airlines, and I was sent to sit on the board of Canadian Airlines and observe what they did. I didn't have a vote and I wasn't a member of the board, but I observed their proceedings to make sure they were handling themselves correctly, because there was $50 million that the government wanted back. We also bought some planes from them at the time in order to inject cash.

I must say, I think in the end that doesn't work. It's wrong, because you can't succeed. You can't make something profitable that isn't otherwise profitable.

The Chair: This will be your last question.

The only reason I'm rushing you is Air Canada cannot stay for longer than the appropriate time, so if you take a lot of time now, you are going to miss out with them.

Ms. Val Meredith: How can you differentiate between something that is justified and something that isn't, then? If Air Canada is asking the government to give them money because of the downturn in the travelling public when the motive might be something other, how does the government determine when to be gracious and when not to?

Mr. Stanley Hartt: I probably couldn't answer your question in the general case, but in this case it's easy.

The American government, which doesn't make a practice of propping up private sector companies, has determined that given the state and condition of the industry—which might have been rationalized through mergers and acquisitions activity had September 11 not happened—because of September 11, there does need to be assistance. Whether it is fully in place now or to be in place, whether it is loan guarantees or actual grants, or whether it is assistance with airport security, air marshalls, and insurance, the Americans—who are committed to private sector disciplines—have chosen this as an occasion in which to help their airlines. Remember, to a very important extent, their airlines compete with our airlines in the transborder traffic, so this one would be easy for me.

Ms. Val Meredith: Thank you. That's it.

The Chair: Mr. Laframboise, my apologies, you are on.

[Translation]

Mr. Mario Laframboise: Thank you.

• 1805

You were deputy minister when Air Canada was privatized. Can you remind us when that was?

Mr. Stanley Hartt: Yes. I was deputy minister at Finance from September 1, 1985 to May 1, 1988. I was deputy minister when the privatization of Air Canada was discussed but I was no longer there when the act was passed.

Mr. Mario Laframboise: When Air Canada was privatized, in 1987—

Mr. Stanley Hartt: No, in 1988.

Mr. Mario Laframboise: —in 1988, you participated in the discussions.

Mr. Stanley Hartt: Yes.

Mr. Mario Laframboise: There were conditions to be met. There were conditions with regards to the employees when the decision to privatize was made. Can you tell me what they were?

Mr. Stanley Hartt: I don't think that the conditions dealt as such with the number of employees but rather with the location of the company's head office and of its maintenance shops which were to remain in the three cities where they were at the time, namely Montreal, Winnipeg and Mississauga. That is how the employees were protected.

Mr. Mario Laframboise: You were involved with that decision. You were—

Mr. Stanley Hartt: Yes.

Mr. Mario Laframboise: You do not agree today, but at that time, you were involved in the decision. Did you lack courage or... Can you try to explain it to me?

Mr. Stanley Hartt: I believe that you are right, that it was a lack of courage on my part. The very idea of passing an act allowing public ownership of shares in Air Canada is almost incomprehensible to me today. It implied that widows and orphans should buy shares in the company. Why does it seem incomprehensible to me? Because it was a very large company and the public was asked to invest in a cyclical industry fraught with great risks, I believe, then and even more so now.

We believed that, for political reasons, we had to convince the public to support the privatization of this company. In order to do so, we defended the idea that if voters had till then been owners of the company because they were citizens, they could continue to be owners as shareholders. I believe it was a meaningless protection. We don't protect people well by convincing them to do something that makes no sense.

Mr. Mario Laframboise: Mr. Hartt, with all due respect, I do not think it was a meaningless protection. The idea was simply not politically saleable. It was not politically saleable in 1988 and it's still isn't today. Trying to take advantage of the events of September 11 to settle matters that should have been settled in 1988, when you were with the government, seems to me... I prefer to pull my punches.

Taking advantage of the events of September 11 to call into question the Official Languages Act shows a total lack of courage. I will come back to my colleague later. If you were to suggest today that we pass legislation to force the other air carriers to provide service in French, I would support you and the Bloc Québécois would support you, if you wanted to ensure fairer competition between Air Canada and the other air carriers in the way. If my colleague tabled a bill to force the other air carriers in Canada to respect the Official Languages Act, I would support him. It is not a good idea to try to do away with all the conditions, including those aimed at protecting the status of French in the air transport industry. As of this very moment, 136 complaints have been filed with the Commissioner of Official Languages.

You tell us, on the other hand, that you would want widows and orphans to have the means to purchase shares and play the stock market. Those who invested in Air Canada knew full well what they were doing. It was all over the media at the time, just as it is today. No one is compelled to buy shares knowing that a company is in difficult straits.

By the way, time will tell, but I would be greatly surprised to learn that the cost of maintaining the headquarters in Montreal and of complying with the Official Languages Act are that significant as a percentage of sales. You would reopen the question of the head office, but you can't do without one in any case.

• 1810

You seem to be saying that having the head office in Montreal is excessively costly. Shops are needed to do maintenance on the planes. To the best of my knowledge, those planes fly. Whether the maintenance is done in Montreal or elsewhere, it still has to be done.

I find it very difficult to agree with such a position. Now, let's talk about the employees. At the time, that gave rise to quite a debate. As far as I'm concerned, the employees are protected under the legislation. If operations are to be rationalized, it can be done in co-operation with the unions. They proposed solutions, job sharing, among others.

You make no mention of September 11th in your opening statement. You don't seem to understand. In your opinion, all the air carriers would likely have had financial problems with or without the events of September 11th. They were unavoidable.

[English]

Mr. James Moore: I have a point of order. Given the amount of time we have, and since Air Canada was scheduled to start their presentation 15 minutes ago, can we go to a question or have some kind of speeding up on this rather than giving a speech?

The Chair: He has ten minutes and he can use it up in whichever way he desires.

[Translation]

Mr. Mario Laframboise: Thank you, Mr. Chairman, for calling my colleague to order.

Mr. Hartt, I only want you to be consistent. I believe that the events of September 11th have had a great negative impact on the financial well-being of businesses throughout Canada. Consequently, we should provide appropriate assistance, as did the Americans. We certainly shouldn't take advantage of the situation to settle accounts, especially yourself, who could have settled them in 1988. You would have had plenty of time, back then. Thank you.

Mr. Stanley Hartt: I would like to respond to several points. If you reread the answer I gave to the question put by one of your colleagues, you will see that we are saying the same thing. Air Canada should not be the only carrier made to carry the weight of the Official Languages Act. In principle, a passenger has the right to be informed about safety measures in his mother tongue, especially in the case of unusual occurrences. I would readily agree that the act should apply to all air carriers. I did not say that we should only allow Air Canada to disregard the act; I stated that all the competitors had to be subject to the same rules.

I would also like to speak of my supposed lack of courage. When I was deputy minister at Finance, I did not unilaterally make decisions on behalf of the government. I must however admit that I was at the time in favour of all these restrictions. So my answer to your question is this: if one is unable to learn and to draw lessons from one's mistakes, then one must suffer from a shortcoming which I hope is not one of mine. I am quite willing to admit that, at that time, I believed that certain restrictions were necessary for political reasons, whereas I now think that, for commercial reasons, they were unfortunate.

Let's turn now to the head office and maintenance shops. Of course it is necessary to have a head office but if you look at the way Air Canada operates, you will see that over the years, Toronto has become its operations centre. It is now somewhat redundant to have a head office in Montreal and a large administrative centre in Toronto. The same redundancy exists with respect to maintenance shops.

• 1815

Let's speak about September 11th. I admitted that American air carriers were, before that date, in a situation almost identical to that of Air Canada. They were carrying too much debt and were in financial straits. There are so many carriers in the United States that it might be appropriate to merge a few. Some of them may have been tempted to make the most of the events of September 11th to solve pre-existing problems. If the United States had not awarded those air carriers such a generous financial package, I would also believe that it is only a pretext, but given that Air Canada's competitors that fly to the same Canadian cities from the United States have received so many subsidies, guarantees of assistance in various forms, it seems to me...

[English]

The Chair: If you wouldn't mind, could you just wrap it up?

[Translation]

Mr. Stanley Hartt: It seems to me that we should do the same for Air Canada.

[English]

The Chair: Thank you very much, Mr. Hart. We appreciate your input. It's certainly thinking outside of the box. We appreciate you coming here this evening. Thank you very much for coming.

I'll ask our two witnesses, Mr. Rovinescu and Mr. Markey, to take their seats.

Whenever you're ready, Mr. Rovinescu.

[Translation]

Mr. Calin Rovinescu (Executive Vice-President, Corporate Development and Strategy, Air Canada): Mr. Chairman, honourable members of the committee, ladies and gentlemen, on behalf of Air Canada I wish to thank the committee for inviting me to appear this evening.

[English]

Let me first express our gratitude to the committee for accommodating our time constraints this evening. As undoubtedly the members of the committee know, the challenges for the airline are many these days.

We know you have had to interrupt other important work to deal with this legislation on an urgent basis, and we appreciate your willingness to do so.

This bill, Bill C-38, is important not only because of its contents but because it demonstrates what can be accomplished when government asks the basic question of how we can ease the regulatory burden on industry to increase competitiveness. We encourage you to seize this spirit in your future deliberations.

From the outset we want to convey our support for this legislation: both the principle and the content are sound.

• 1820

However before I go into the specifics of the bill, I feel it's important to give you a broader sense of the situation we, and indeed the entire industry, find ourselves in at the moment.

The events of September 11 are of course the most dramatic and tragic that anyone has witnessed—arguably the most damaging events for any industry at any time ever: aircraft used as weapons of mass destruction on North American soil within several hundred miles of our own border.

Within hours Air Canada was working with Transport Canada to assist in the orderly and unprecedented shutdown of Canadian airspace. We assisted with the numerous operational challenges that presented themselves from having dozens of foreign airlines landing unscheduled into airports that did not have the capacity to receive them. That day everyone came together to solve the human crisis at hand. But while the tragedy has now passed, the after-effects linger.

Let there be no mistake, Mr. Chairman, our industry is indeed in crisis. To those who say that airlines around the world, including Air Canada, had problems prior to September 11, let me be clear, they are right, we did have problems—which have now only become worse. At Air Canada we were battling high fuel prices, a near recessionary environment, as well as ongoing labour challenges resulting from our integration of Canadian Airlines. Today we, along with airlines worldwide, are battling those same forces while coping with declining passenger loads at unprecedented levels.

The stark reality created by this confluence of circumstances was recognized immediately by the American government, which, within 72 hours of the attack, began preparing a comprehensive airline stabilization package. While much has been said, debated, and written about the applicability or usefulness of such a package in Canada, one point is beyond debate: this is a global crisis that all airlines are facing. But in fact it's worse in North America and in fact it affects those who fly to the U.S. more than those who do not. The layoff numbers have been dramatic—100,000 people laid off in the United States since September 11. Swissair, Sabena, Ansett, and Air New Zealand are all in some form of bankruptcy. Several U.S. carriers are on the brink. Even the venerable British Airways and Virgin—two very strong U.K. carriers—are reported to have several months of liquidity.

Air Canada is not immune. Since the attacks, we've had to deal with many factors, which have had a direct impact on our bottom line: the lowering of our credit ratings, the reduction in value of our assets, the heightened security and insurance costs, radical changes to capacity and to our schedule, and the list goes on.

As soon as the ripple effect began to be felt in our industry, Air Canada moved to shore up its position. Almost immediately we announced a 20% cut in our transborder capacity. Similarly we announced a series of measures designed to reduce our labour costs by 20%.

However, that of course is not the topic for this evening. The government has made a specific proposal in the context of Bill C-38 that it believes will assist in our financing and recapitalization efforts, and that issue is before us tonight.

We commend the government for recognizing that one important element in securing additional liquidity and potential equity is to relieve some of the ownership constraints that prevent a more dynamic capitalization of the company.

In proposing to eliminate the individual share ownership and transfer restrictions, the government is recognizing that Air Canada needs to be able to access any and hopefully all necessary resources that may be available in the equity and capital markets, unencumbered by artificial barriers.

We view this as a positive development as the corporation continues to implement measures to strengthen its financial and operating performance in the post-September 11 environment. Likewise, we would support an increase in foreign ownership to 49% from the current level of 25%. This is important to attract foreign private equity. While it is unlikely a foreign carrier today would have much interest in making a large financial commitment to carriers in other countries, it would of course not preclude the possibility to develop further relations with foreign carriers.

• 1825

Beyond these specific measures, some members of this committee, as well as other witnesses, have asked the question, why stop there? They have suggested that perhaps it's time to repeal the entire act and unshackle Air Canada from all measure of regulatory burden imposed upon it by the Air Canada Public Participation Act.

Air Canada would support that initiative and commends the spirit behind that perspective. Rest assured that with everything we're dealing with these days, no one at Air Canada is spending any time planning for a headquarters move, relocating maintenance bases, or musing about what it would be like to not have to provide service in both official languages. Quite the contrary, we feel that Montreal is an excellent home for Air Canada; Winnipeg and Montreal are good places for our maintenance bases; and, similarly, the provision of both official languages is something we are proud of.

If the law were gone tomorrow, we would still provide bilingual service. Why? Because Canadians want it. We would be foolish to walk away from the competitive strength that the language abilities of our front-line employees provide us as a carrier. Anyone who has been on board one of our international flights would notice the flag pins worn by our in-flight crew indicating the various languages of service available to our customers. So let's be clear. Language skills are an advantage, not a burden at Air Canada.

That being said, it's entirely appropriate in these very difficult times to ask the question, why is there one set of standards for one private sector company and a different set of rules for another private sector company? In justifying the need to remove the 15% ownership limit, the minister stated, as a rationale, that “no other carrier has the same restrictions”. We couldn't agree more. The time has come to apply more equitable regulatory framework for the entire industry.

If air travel should be bilingual at airports and in the air, throughout the country, then perhaps all carriers should be required to comply, be they regional, charter, low-fare, specialty, etc. If it makes sense for the industry, it makes sense for the industry. If it does not make sense for the industry, it does not make sense for the industry. I think the notion of making that artificial distinction has passed.

It is true that Air Canada has a proud tradition reflecting the values of this country. To suggest, however, that the legislative framework that was in place at the time of privatization over 11 years ago should never change is of course not realistic.

As everyone around this table is keenly aware, much has changed in the last 11 years, not only politically but also in our industry. The changes have been particularly pronounced over the last two to three years, and indeed even more so since September 11. While policy and regulatory frameworks of many industries are continuously updated to reflect current realities, the Air Canada Public Participation Act has not undergone a thorough examination in some time.

We should not be ruled by policy that perhaps is now in the grave, long after it's appropriate for that policy to apply, especially now when the industry faces the biggest risks to its liability that it has ever faced.

Finally, we have a number of housekeeping changes to the legislation on the assumption that it is not repealed, which I would ask our people to submit to the appropriate persons at the right time, because I think everything, including the very name of the statute, would suggest public participation. There are lots of indirect aspects to the act that, regardless of what decisions are made by the committee, should be considered.

Mr. Chairman, you and your colleagues have important work to do as you deliberate the regulatory framework of our industry, and clearly we want to cooperate. We want to be available for discussion. We appreciate that we've not perhaps been as available as some members on the committee would have liked. As you would imagine, these are very challenging times for us. We can continue to keep closely in touch as to timetable, as to when we might come back before you.

Our view is that now more than ever is the time for fresh, dynamic thinking. Let's try to find a way to allow this crisis to make our industry stronger and safer than ever before.

The Chair: Thank you very much, Mr. Rovinescu. We really appreciate the advice given here in that short turnaround time.

Mr. Moore, please.

Mr. James Moore: Thank you.

• 1830

I appreciate the representatives from Air Canada coming before the committee. They should know that I will be moving amendments later on this evening to do exactly what has been called for by yourselves and previous witnesses, to scrap the Air Canada Public Participation Act, largely for the same reasons you outlined and then some, in the sense that it's redundant, it creates an unlevel playing field, and it doesn't allow Air Canada to compete evenly with other Canadian carriers.

I have a semi-rhetorical question. I understand that the largest maintenance facility for Air Canada, or one of them, is actually in Vancouver. That's where a lot of your big planes, 747-400s are all maintained. The fact that this has been done and you created a maintenance facility there, in spite of the fact that maintenance facilities are mandated in other parts of the act, frankly speaks to the irrelevance of that section of the act.

The transport minister, in the House of Commons, when we had debates on this, suggested that the reason why the provision that maintenance facilities should be maintained in Mississauga, Winnipeg, and Montreal was because when this act passed the deal was that the jobs of the people who worked there would be protected by the Government of Canada and that it would be largely un-Canadian to change that. Respond.

Mr. Calin Rovinescu: Absolutely. We have a very important maintenance base in Vancouver. Indeed, what we are now looking at in terms of measuring success is on a business unit basis. So we're looking at our entire technical operations unit to measure profitability, to measure where it is it makes sense to have certain aircraft serviced, where they developed lines of expertise, etc.

At this time there's no reason that we'd suggest shutting down any of the maintenance bases in Montreal, Toronto, Winnipeg, or Vancouver. We've moved things around. For example, in Calgary we had an important regional base. That may or may not, at some other point in time, become a mainline base.

There are lots of possibilities to move things around. The notion is that decisions on that point ought to be made on the business-case model as opposed to something that's written in anywhere.

Mr. James Moore: And business decisions should be made by the board of directors of the company and not the board of directors of the country mandating it on Air Canada and not anybody else.

One thing too is the issue of the Official Languages Act. I'm pleased that you touched on it. Mr. Hartt, who was here before you, spoke on that issue as well, in the sense that if we do believe in the principle of equality and fairness, and we do believe in the principle of official languages, then that should be put in the Official Languages Act and you just list air service as being in the national interest.

The intergovernmental affairs minister doesn't have a lot on his plate right now. He can certainly do that by the time November 19 rolls around, which is when this comes for third reading. There's no reason why that shouldn't be in there.

In fact if you fly WestJet and Canada 3000—and I do fly those carriers, certainly from western Canada, when I make short hops within British Columbia and within the west—on a number of those flights they do provide bilingual service, not in person but often it's taped, because, as you mentioned, it's a market force. The market has pushed for bilingual services because more people are flying now than ever before. It doesn't need to be mandated necessarily by government, but if it is going to be mandated, it should be done on a level playing field.

I was attacked for suggesting that this should be in the Official Languages Act, not just mandated against Air Canada, and I was actually considered to be anti-francophone, anti-Quebec, and even anti-Canadian for suggesting that.

Is it useful to be injecting national unity into this discussion?

Mr. Calin Rovinescu: No. I think at this moment the industry itself has enough issues to deal with, and it has affected enough businesses and enough individuals in this country that it does not necessarily have to become the lightening rod for any other debates.

That said, there is no question that if it is the collective wisdom of Parliament that air travel is something that should benefit from bilingualism on the ground and in the air, throughout the country, then so be it. Then everyone should apply it and everyone should have training programs in place.

We have had enormous challenges in integrating Canadian Airlines and Canadian Regional, who had less bilingual capability, and of course we saw what it means to try to start, in some cases, from a standing start in terms of building up that capability.

So if this is something that, in the wisdom of Parliament, we believe makes sense to apply to the industry, then we ought to do it to the industry, not selectively to one company, one private sector company.

Mr. James Moore: And it should also be noted that the headquarters of Air Canada is in Montreal. It's been there for well over a decade. It's been entrenched there. You have people who work there and it's part of the community.

It should be noted too that the transport minister said in the House—and it was funny, though it's not in Hansard, quite unfortunately for his constituents in Toronto—that it is in the best interests of national unity to have it in Montreal. I asked why, and he heckled back, “Because it's a Canadian thing to have head offices in Montreal.” I said if only that were in Hansard to pass on to his constituents. It should be noted that if the Onex deal had gone through the head office wouldn't be there, yet it's mandated by the government. So it's rather ridiculous.

• 1835

I would offer my remaining time to you if you have any other comments you'd like to make to the rest of the committee.

I'm in favour of repealing the act as a whole. I'm pushing for it because I believe in a level playing field. I believe in free markets. I believe companies should be able to compete with one another, that governments should get out of the faces of businesses, and I think this act should be repealed.

If there are any other final comments you have to add, I would extend my time to you.

Mr. Calin Rovinescu: Thank you very much.

I would concur with the private sector approach. There is the fact that we have looked at many models of privatization throughout the world, and the ones that have been less successful than others have been the ones where effectively policy continues to rule the company from the grave. That is the issue where you have a policy that makes sense at the time and eleven years later perhaps circumstances have changed, perhaps there has been a complete change in the industry, perhaps there has been a crisis of the proportion of September 11, perhaps there has been a recession, or perhaps the market has segmented itself differently.

Without being critical, I heard some of the members of the committee questioning Mr. Hartt as to his participation in some of the decisions at the time and asking whether, with the benefit of eleven years of hindsight, he would have done things differently. The fact is you look back and you say it was a good idea at the time and it made sense at the time, and eleven years later it may make less sense.

So I would concur with that.

The Chair: Thank you.

Mr. Byrne.

Mr. Gerry Byrne: Joe, you wanted to say something.

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

Welcome, Stephen and Calin. Two years ago this very committee, under Bill C-26, was looking at ways of restructuring the airlines in this country, specifically Air Canada, and a number of commitments were made on behalf of the government as well as Air Canada. A lot of hard work was done by this committee on Bill C-26. In fact I'd like to think had the government listened to the committee... We were suggesting higher limits than the 15% at the time, and also the 49%, because some of us understood and believed that in the airline industry you need a lot of capital in order to function. In fact there was an awful lot in the report that I thought would have gone a long way to helping and assisting Air Canada more.

Perhaps one will have to revisit those kinds of things, because I know we have a piece of legislation before us, and obviously it's supportable because given the needs of Air Canada and other participants this kind of legislation is troublesome. On the 49% I think the minister had indicated that it is a cabinet decision that could be made, and hopefully they'll move it to 49%. It's another tool obviously to help you achieve...

But there were a number of commitments made, Mr. Rovinescu, to the Canadian people and to the Canadian government in order to do a number of things in Bill C-26, and hence we're revisiting this particular issue. I understand what you just said in terms of the problems in the airline industry throughout the world, and specifically with Air Canada and other air carriers. But I must tell you, 80% of the domestic market...and yes, there are some bad times, but there is no doubt that the good times are going to come back once people feel secure that flying is safe again. I understand our domestic levels are getting back to normal, and international levels are starting to move up, even though transborder is a real problem.

I must ask you, though, about those commitments that were made to the Canadian government. And while I hear you talking about private sector solutions, why come to the government asking for money? What should the government expect when any company comes to the government and the taxpayers—not your customers but the taxpayers—have to come to Air Canada's aid and Canada 3000's and who knows who else? When you're asking the public for money, the public expects and should expect to have certain conditions.

I go back to the commitments you made, and I'm very concerned that the regions of this country were not serviced to your commitments, and are not being serviced now. We've heard this across the country, even in my own community. That's the heart and soul.

• 1840

Regional carriers around the world are growing. Regional services in the United States are growing, even though the mainline carriers are probably having some problems.

But perhaps you can start by telling me what the vision of the regionals in this country should be and what the communities could expect.

Why can't they get a jet service? Why can't we fly RJs? You've just parked 29 or 30 of your jets and slashed services to our communities. That's 25%, in terms of jobs. We have to understand where you're coming from as Air Canada, not only in terms of this legislation.

And you'll have to explain to me, I'm sorry—and to Canadians—how you can talk about creating two discount carriers when you're having problems with the main carrier—or where you already have a low-cost carrier called your regions.

People are trying to understand where Air Canada is going with all of this. You're having problems, yet you're launching Tango, and you're launching someone else. You're cutting the regions; you're cutting the regional airlines; you're cutting communities; and you're parking jets for the regionals and won't let them fly because your Air Canada pilots—sometimes some people think—are running the show.

I know that's an awful lot of questions, but I need you to answer these in order to instill some confidence back into Canadians that Air Canada deserves to be not only supported by customers but supported by the Canadian government and the people.

Mr. Calin Rovinescu: Okay.

Indeed you've touched on many questions, and I want to ensure that the rest of the members have an opportunity to nibble away at some of those as well. So I will just provide a little appetizer at this moment.

The first thing you asked about was commitments, so let's deal with that. First of all, as the minister himself has acknowledged on numerous occasions, there is not a scintilla of doubt that Air Canada has lived up to each and every one of its commitments made at the time of the acquisition of Canadian Airlines.

Let's review the commitments briefly. There was a commitment to making no layoffs as a result of the acquisition of Canadian Airlines. Despite the fact that there was a lot of surplus formed at that moment in time, Air Canada swallowed hard. They had a voluntary separation program and dealt with those people—the first 3,500. Subsequently, there was a near recessionary environment that came at the beginning of last year, and despite the near recessionary environment, again Air Canada swallowed hard and was going to take these people.

It was only post-September 11, when it became clear the impact of this unprecedented horror was resulting in hundreds of thousands of layoffs around the world, that it became clear to the minister and to us that the legislation did not apply to a circumstance like this, and we announced our layoffs. So as far as the layoff situation is concerned, there has been a 100% respect for the commitment.

The second thing dealt with in the legislation concerns service to communities. Servicing those communities previously serviced by Canadian Regional had to be continued, and of course all of those communities continued to receive service. Whether the service was as frequent as before, whether it was going to be on the same aircraft as before was, first of all, not considered in the legislation; nor was Air Canada prevented from managing its assets in a way that would make the most sense in relation to that commitment.

So, again, the service-to-communities commitment was respected.

Now, this is not to say the company is intended to be a public service corporation. If somebody were to ask me that question, the answer would be no, the company is not a public service, but a private sector corporation. At the time of the bringing together of the two carriers, there was absolutely no funding from government.

In fact, many people characterized Air Canada's acquisition of Canadian as Air Canada bailing out the Government of Canada, in a sense, by not requiring the government to have to provide any funding for Canadian Airlines. Air Canada has not had its hand out to government ever before September 11. Post-September 11 we'll deal with in a moment.

So commitments have been entirely respected.

As far as regionals generally are concerned, that is an excellent question: what type of regional service can this country expect? What type of regional operation can we have? Can we not improve the service? Can we not add jets to the service? These are very good questions, very pertinent.

• 1845

The structure of the airline is such that we have two pilots' unions. We have the Air Canada Pilots Association at the main line, and we have ALPA, the Air Line Pilots Association, at the regional.

These two union groups each have separate collective agreements. They have separate so-called “scope” clauses. There was a very tough battle fought, you may recall, in July 2000, when we nearly had a strike at the main line on many issues, including the issue of how we could find a way to get jets to the regional carriers.

Just so we're crystal clear, the corporate position of Air Canada is that we would like to see jets in the regional carriers. There are no—

Mr. Joe Fontana: You had jets in the regional carriers.

Mr. Calin Rovinescu: Unfortunately, the jets we have are old and they are being grounded as part of this post-September 11 environment. Over the passage of time, the F28s and the BAE146s at the regional level will be grounded. For the foreseeable future, Air Canada Regional will be operating as a turbo-prop operation.

There are indeed very difficult questions dealing with these collective agreements. In some cases we have obtained concessions, and in other cases we haven't been able to. We have the ability—at the right time, on the right terms—to return jet service to the regionals, but these would involve cooperation and collaboration from both pilot unions, depending how many jets we want to bring in.

As far as asking for money is concerned, I walked in late on the previous witness, Mr. Hartt, but the question was asked whether it was reasonable or appropriate to have tried to match the U.S. stabilization package.

The U.S. showed the industry what it was to say “We will stand behind this industry.” We have effectively two choices: stand behind the entire industry, or selectively pick and choose. I think whether we operate by standing behind the entire industry, which was suggested by our CEO following the U.S. package...

We believe if the U.S. airline industry is subsidized to the tune of U.S. $15 billion—or Canadian $23 billion—before taking into account the extra money for security they're providing their industry, it is very difficult to envision a situation, since nearly 50% of our business is transborder international, where we compete with those same U.S. carriers. We are now competing with an industry where each and every seat is subsidized by the U.S. government, to the tune of U.S. $15 billion.

So the question is whether it's an appropriate request. Yes, it's an appropriate request, in our view. The government chooses not to do it. That's fine too. But if the government chooses not to do it, it ought not to prop up other carriers artificially. So our position is: you do it for the industry, if you want to support the industry; or if not, you should let the private sector forces play out.

You asked about the discount carriers. I'll say a word about them and then I'll go on, as I'm sure this question will come up again.

The best way I can characterize this question is to say, suppose you told one of the major banks in the country that tomorrow morning they will not be able to offer an automated teller any longer, because that reduces their cost. Therefore, if you want to deal with the CIBC, you must under all circumstances go not only into the branch office but into the private bank on the fifth floor. You say “Yes, but I don't really want to go into the private bank on the fifth floor; I just want to use a teller.” “Sorry, you've got to go to the private bank on the fifth floor”—and if it costs them more, then that's too bad.

Another example I can give you involves the gas stations that operate on the corner of the street. If they have a self-service component and the gas station on the other side of the street is required to give only a full-service alternative, I would say the character who only gives you the full-service alternative is somewhat at a disadvantage.

Mr. Joe Fontana: I know where you're going—

The Chair: Mr. Fontana, you're out of time. I've allowed him to answer your question, but you're way over time. You'll have to wait for the next round. Are you finished?

• 1850

Mr. Calin Rovinescu: I'm almost done.

My thought is that these are opportunities for us if the marketplace is demanding a lower-cost product. We're saying, Mr. Fontana, that the marketplace is in fact demanding a lower-cost product.

We are currently in this fixed-cost situation. When we ground 84 aircraft, as we've done in this past round, that doesn't mean the costs related to those 84 aircraft, the so-called ownership costs, are eliminated. So we still have the same fixed-cost component; we have the same employee-cost component where we haven't been able to do layoffs. The issue is this. How do you redeploy the capacity you have in the system more in line with what it is the public is looking for? That's why we're going to continue looking at ways to redeploy our capacity to meet market demand.

The Chair: We'll go to Mario.

[Translation]

Mr. Mario Laframboise: Thank you, Mr. Chairman.

To begin with, I would like to return to a comment you made earlier about certain remarks made about the previous witness's lack of courage. You were the one who made the remark.

Let me remind you how things were. All we can say about Mr. Hartt is that, when he was close to the seat of power, when he was deputy minister, he could have had the political courage to decide not to leave the head office in Montreal. But that is not the choice he made. Saying when one is no longer in politics that that was a mistake shows, to my mind, a lack of courage. It is not because the Bloc Québécois will not defend your position or because of its position with respect to the bill we are discussing today. We have no trouble admitting that changes are sometimes necessary and, when the time comes, we are always willing to do what is necessary. But, certain conditions were imposed on Air Canada, conditions thanks to which Canada still exists today. If we want a national carrier, there is a price to pay.

I agree with you that a private company should not be the only one to bear the burden. Obviously, once the conditions are set with respect to official languages, telling us that all carriers... I agree. It is not politically desirable to tell Air Canada today that it will no longer be subject to the legislation when 136 complaints have already been lodged.

However, if my colleague were to table a bill tomorrow forcing other air carriers to comply with the Official Languages Act, I would gladly give him my support. I agree with a level playing field for all carriers. That is why we have always stated that, although we are tabling legislation at your request, the fact remains that your industry is a competitive one and receives help from the government. The Americans have already announced the kind of help they will give, whereas you are still waiting to know what the Canadian government will do to help you.

What is even more worrying to my mind is that the minister came and told the committee that the government had given Canada 3000 loan guarantees to help it through its cashflow crunch in exchange for a promise to restructure its operations. It intends to make the same offer to other carriers. It will, thus, wait for all other carriers to have cashflow problems. Since we were told that you had a billion dollars of ready cash and three additional billion dollars—

But today we want to promote investment. If we clean you out, if we wipe out all of your cash assets, I do not see how that will encourage investors to turn to Air Canada, regardless of the amendments made. Even if we eliminate the ceiling on foreign capital, I do not see how investors could be more interested in Air Canada if the government continues to expect you to operate with virtually no cash flow. It is not like being on the verge of bankruptcy, but the situation requires some rather quick action.

So it is all there. You need government support, and I do not think that the request you made at the beginning... It was perhaps ill-perceived by the general public because the amount was so high. However, you are absolutely right. The Americans reacted quickly. Many stakeholders, including Mr. Hartt earlier on, told us that your industry did not need help, that the government did not need to set aside money for the industry because it was already struggling.

As for me, I think that given what occurred September 11, it is high time to ask the real question: What are we doing with our airline industry? Other countries are doing it. Switzerland is going to do it for Swissair. They have decided to invest in Crossair. They are going to decide to inject major amounts of capital and acquire Swissair through Crossair; it is just a question of time. So some governments have made these societal choices, whereas you are required to manage on a week-by-week basis and to liquidate your assets. I think that the government is making the wrong choice. So I support your approach, as we are supporting you here today with respect to Bill C-38.

I would nevertheless like to hear your opinion on the assistance your company and others require and on the acceptable timeframes for acting. Should we wait for you to run short of cash, which would, I my opinion, be a disaster? I think that the outcome would be the complete opposite of what we are seeking to do here today. I would like you to clarify that for me.

• 1855

Mr. Calin Rovinescu: Thank you very much, Mr. Laframboise. I think you have hit on several issues that we have been discussing with the government for several weeks.

The first thing I would like to say, however, is that the minister has nevertheless done a lot for us and for the industry. We are very grateful to him for that. We faced huge challenges with respect to insurance costs and security. To be able to land in Washington, we needed sky marshals. That was a very difficult period and we received a lot of support from the minister. I do not want to leave the committee with the impression that the minister has done nothing to help us. He has helped us quite significantly.

There was however a policy issue, if you will, as to whether the Government of Canada was going to adopt a position similar to that of the United States. From the beginning, was it going to create infrastructure designed to shore up the industry and send a message to the financial markets that the government was going to support the industry because it considered it to be an important economic driver, or was the government going to adopt the other position, like many countries, namely in Europe, that did not want to provide specific assistance to one industry over several others? I think that was the choice the Government of Canada had to make.

We continue to explain that our position was in fact very different from that of other airline companies, which did not have major cross-border operations or major international operations. So we wondered how it would be possible to envisage or imagine a situation where we could compete with airline companies that have access to the equivalent of $23 billion Canadian in subsidies, loans or capital, etc.

That being said, given the fact that, as I already explained, we have always believed that the best non-interventionist solution would be to have access to our own capital and to solve our problems ourselves, nonetheless, we did what we had to do to survive. We borrowed again. But each time we borrow, the company becomes less attractive for investors.

So, in fact, as you say, this creates a problem for us. We are carrying on with very constructive discussions with the government. The only thing I can say, is that given the fact that we had access to the billion dollars you mentioned and that we have more than another billion dollars in assets that we could use, this leaves us in a fairly solid position for the future.

Mr. Mario Laframboise: Let me ask one last brief question.

You said earlier that British Airways might have a seven-month supply of cash. In your case, how much time would these amounts cover?

Mr. Calin Rovinescu: We have not made any forecasts for the financial market for the time being. This depends on our ability to convert... If we convert our assets into cash, the supply will obviously last for a very long time. But we have not announced our forecasts to financial markets.

Mr. Mario Laframboise: This is perhaps why the minister is not so worried. He does not seem to be worried when he speaks.

Mr. Calin Rovinescu: But, as you so clearly noted, we are borrowing to fund operational losses, and this is not a good way to run a company.

Mr. Mario Laframboise: Thank you.

[English]

The Chair: Now we'll go to Mr. Byrne, who is going to split his time with Mr. Szabo.

Mr. Gerry Byrne (Humber—St. Barbe—Baie Verte, Lib.): Thanks very much, gentlemen, for appearing before us. I know the hour is late, and it's much appreciated by us all.

You basically indicated that you would favour repealing this act completely, but voluntarily you still strongly believe in bilingual services, you maintain your headquarters in Montreal, and you feel that your maintenance facilities are appropriately put.

I want to ask a question. Is the discount airline that you've launched going to be headquartered in Montreal?

• 1900

Mr. Calin Rovinescu: First of all, the discount airline distinction should be made, which Mr. Fontana pointed out. There's been so much hoopla about that discount airline, including where we had hired Steve Smith, who was formerly at WestJet.

Our discount airline has not yet been launched.

Mr. Gerry Byrne: Your future airline then, Tango, will that be headquartered in Montreal?

Mr. Calin Rovinescu: Tango is not that airline. That's what I'm saying. There are two separate operations. One is Tango and the other is this low-cost airline. The low-cost airline will be launched in the west. Tango is a product within Air Canada. Tango is a redeployment of some aircraft with a different brand, a different paint job, and a different service offered in the aircraft to reduce the seat cost. You have situations where you have more seats on the aircraft, fewer amenities, fewer staff, to drive the seat cost down to reduce the operating losses. So it's a situation where instead of having ten aircraft within the main-line fleet, you have those ten aircraft come out of the main-line fleet, painted, rebranded—a different offering.

Mr. Gerry Byrne: Okay, we'll get to that later. I appreciate your expounding on the detail, but I want to cut to the chase and get to the detail. Your discount airline will not be located and headquartered in Montreal.

Mr. Calin Rovinescu: Correct.

Mr. Gerry Byrne: You won't have any job provision requirements under your discount airline, and obviously it won't affect Tango either. You won't have any service level requirements, because I understand Tango will not be servicing one province of Canada called Newfoundland and Labrador. I don't know if your discount airline will be travelling to each and every province and three territories of the country either. In fact, you've already repealed Bill C-26, haven't you, because you're not fulfilling...

You know when you dance the tango, you have to move very lightly on your feet, but it's a very bold dance. That's exactly what you've done here, isn't it? You've repealed the legislation de facto by preparing to start a discount airline, preparing to reorganize the aircraft in the form of Tango.

Quite frankly, you agreed to the actual requirements we placed on you as a government. In fact, you came to Parliament and you came to this committee telling us, impose these requirements because we're accepting them voluntarily. Now in your moves, which occurred prior to September 11, you've basically undone them in so many ways.

I think that's what Canadians really want to hear from you. Do you intend to become a national carrier? Are you living on a principle that you are a national carrier, that you're eliciting support as a national carrier? Are you going to the people of Canada looking for financial aid and assistance as a national carrier, but then you never acted as a national carrier once you arrived at that successful conclusion?

Do you have any comments?

Mr. Calin Rovinescu: First of all, as I said in an earlier question to Mr. Fontana, there's no question Air Canada has respected each of its commitments on service, and there's no doubt about that. The Minister of Transport himself has confirmed that on numerous occasions, so I don't accept for a second what you're saying.

Mr. Gerry Byrne: The Minister of Transport is on record as saying that the level of service... The integration of Canadian Airlines and Air Canada has not been successful in Newfoundland and Labrador. It has not been successful in certain parts of Quebec and northern Ontario.

In fact, how many times has Air Canada tried to make changes but has been rebuffed either by the federal Competition Bureau or the Canada Industrial Relations Board?

Mr. Calin Rovinescu: That's a separate question.

Let's deal with the first question first. Number one is the fact that all of the service commitments have been maintained. You may not have liked, as I said, the frequencies, the type of aircraft, but frankly other than not liking it as far as the commitment under the statute is concerned, it has been 100% respected. With the greatest of respect, we have not done our last tango in St. John's, to tell you the truth. This has not affected the service whatsoever.

You're confusing the fact that you have a company called Air Canada and you have a company called Air Canada Regional, and a lot of the service that was maintained was service that was maintained by Air Canada Regional. Will it be maintained forever and ever until death do us part? It will if it makes sense.

• 1905

We either have a private sector company or we have a public service corporation. If it's a private sector company, we will do whatever it is we've agreed to do. Beyond that, once that period expires, we will do what it makes sense to be done. It's quite possible that the regional carriers may someday find themselves under separate ownership. It's entirely possible.

Mr. Joe Fontana: Hear, hear. The sooner the better.

Mr. Calin Rovinescu: Look, to be quite frank, I have... There's no magic to ownership.

Mr. Gerry Byrne: Well, no. I appreciate that. You're quite right. You haven't done the tango in St. John's, and that's part of my concern.

I'd like a national airline, one that requests support from taxpayers from St. John's for Corner Brook or Deer Lake, to act as a national airline and to provide those services.

You've made representation that you're looking for financial assistance from the people of Canada on the basis that you are a national airline and that it's in the national interest to have that service. Will you commit to maintaining national service at the same levels that are in place now, if not improved, beyond December 31, 2002?

Mr. Calin Rovinescu: No. As I've said before, it is quite possible that we will at some stage in the future not even own the Air Canada regional system. I think the decisions that have to be made in terms of any financial package have to be viewed in function of what it is people consider to be the core operation of this and what the impact would be of not doing it.

We've seen the impact of those types of commitments. We've seen what it's meant to respect, as I've said several times, each and every one of our commitments. Think of the huge cost to the company of the no-layoff clause and of service to small communities. I think the time has come to start focusing. That's why there's this debate tonight; the legislation here is the thing that triggers it. Let's start focusing on what it means to be a private sector company that has to start behaving like a private sector company, not necessarily being ruled by policy dictated from every corner of the country.

Mr. Gerry Byrne: That'll be a good take-note for future deliberations. We'll stick within the confines of Bill C-38 for the time being.

Gentlemen, I will be voting for Bill C-38. I like the provisions and the fact that you haven't mocked bilingual services. You haven't mocked the fact that there is an advantage to spreading regional economic benefits throughout the country. You certainly have not made any representations that you feel constrained by having requirements on maintenance services or on your headquarters.

I find it very strange, given the fact that we've heard expert testimony that your regional services are probably your lowest concern in terms of your financial bottom line, that this is where most of the cuts have been made.

I'm a frequent traveller, as you can probably well imagine. I've had numerous incidents where, from a customer service point of view, east of Montreal you just don't get a look-in. I really wish you'd have a... I've made complaints to which I can't even get a response. I feel the frustration of travellers when I and others have to go to the ombudsman just to get a basic explanation as to why an aircraft was delayed six hours or why I had to spend 24 hours in a city away from my home. Quite frankly, this company is very lax in that regard.

That's why, if I were to give you one piece of advice—and I'll conclude on that—it would be that you could do a much better job of selling your company domestically. If you're going to sell it as a national treasure, then actually treat it as something of national importance.

The Chair: Thanks, Paul.

You only had half a minute left, so I'll come back to you.

Bev.

Mrs. Bev Desjarlais: I don't think I can top that last statement, but gosh, I'll have to make sure I get a copy of the minutes. I'll definitely get a transcript. I'm speechless, Gerry. You just shocked the heck out of me. That was really good.

Mr. James Moore: Ask them about Tango.

Mrs. Bev Desjarlais: No, I'm not going to ask about Tango because I don't want Tango to go into Thompson now. WestJet's finally coming, so I'd like Tango to stay out until WestJet has been there for a bit. I believe we should regulate capacity until we do that. Keep Tango out, and just let WestJet come in and do its thing. No, I'm kidding.

• 1910

In regard to the 15% of shares, we've heard a lot of discussion about it. Numerous people have sung the praises of how it's going to save Air Canada. I think the bottom line is that this 15% isn't going to make a world of difference right now. There'll be a lot of other things that happen that will make a difference for Air Canada.

Quite frankly, I believe that had someone had more shares in Air Canada at the time of September 11, you'd be in worse shape right now. The 15%-and-less shareholder rule was probably to your benefit as of September 11. I'm surprised other people don't realize that if someone had had 49% of the shares as an individual shareholder, they would be feeling the pinch a whole lot harder today. But I won't get into that argument because I know how everybody thinks, and I am obviously not going to agree with it.

What I will ask you about is in regard to the scope clauses. I have never liked the scope clauses from the transportation side. I'm surprised they're allowed because I believe they do make it impossible for the smaller regions of Canada to have the same benefits as the larger ones. I don't agree with them. I don't think they should be allowed the way they're written into your contracts.

Again, it was an issue nobody wanted to touch on. I'm sure there are those who are shocked to hear that coming from me, someone who's from a remote, northern area. I recognize that a lot of smaller communities in Ontario and the rest of Canada are feeling the pinch of those scope clauses because those communities don't get the same type of service as the big centres. I don't agree with them, and I'm wondering whether you would be up front as to whether or not the reason you're coming up with some of these new airlines is just to get around the scope clauses.

Mr. Calin Rovinescu: First of all, be careful. Tango, as I said, is not a separate airline, not a separate company. The low-lost carrier they are forming in the west was effectively the result of long, arduous, painful negotiations for that very reason, absolutely. It is covered by the Air Canada Pilots Association scope. We ultimately negotiated a reduction in wages as well as a relaxation of some of the work rules to be able to lower the costs of it. Otherwise, you'd be changing four quarters for a dollar. You're 100% right. It is categorically a result of the scope clauses.

But the organization of Tango is just, as I said, a question of deploying existing aircraft that are already in main-line service, not of bringing new aircraft in to run these regional routes. In any event, the Tango routes that are being run are not regional routes. They're the main-line trunk routes: Toronto to Vancouver, etc.

But you touch on a very good point. There's no question that this is a difficult issue. People might think we can simply eliminate scope clauses at the stroke of a pen, but of course that is not possible. They are often negotiated in very difficult and very acrimonious circumstances.

We've seen the same kind of problem when we've looked at issues in the United States. We have analyzed why it is that several of the U.S. carriers have modified their relationship with their own regional operations, effectively freeing them up so they can get jet service. That is why we've looked at that, and we're open-minded to it under the right circumstances.

Mrs. Bev Desjarlais: I've always believed that you shouldn't circumvent a problem if there's a really serious issue. You deal with the problem and get on with it, which saves a whole lot of anguish for a lot of other people. I believe American Airlines had a scope clause in place, and scope clauses were something that was seen as detrimental to the whole Onex deal as well.

You may not want to answer this, but someone actually mentioned this today, and because you're appearing tonight I thought, what the heck, I'll check.

There are rumours that you're going to get rid of Aeroplan.

Mr. Calin Rovinescu: No.

Mrs. Bev Desjarlais: Somebody asked me today. I hadn't heard it before.

Mr. Calin Rovinescu: We talk about our crown jewels, and I believe Aeroplan is certainly one of the crown jewels we have in this thing. The time for us to do anything with Aeroplan would certainly not be in this environment, where all our assets are at historical lows.

Mrs. Bev Desjarlais: You laugh, Paul, but if you think we get anguish over a route being closed, just talk about Aeroplan going.

• 1915

The other thing that has come up over the whole issue of Air Canada asking for assistance from the government was that just a short while back Air Canada employees got bonuses but Canadian Airlines employees who had gone to Air Canada didn't get the same bonuses. Is that true?

Mr. Calin Rovinescu: What happened was that Canadian Airlines employees, who had lower wage scales as a result of the Canadian Airlines restructuring that had gone on previously, were bumped up. Their wages were adjusted up to the Air Canada level, and Air Canada employees who belonged to unions that had signed long-term labour agreements got bonuses. Those who weren't did not get bonuses, while those who were part of a labour union that had agreed to a long-term labour contract got bonuses.

Mrs. Bev Desjarlais: That was strictly for Air Canada employees?

Mr. Calin Rovinescu: Strictly Air Canada.

Mrs. Bev Desjarlais: Thank you.

The Chair: Paul.

Mr. Paul Szabo: I'll be brief. I know the time is limited.

First of all, gentlemen, thank you for coming.

You're here, and you're representing a public company. These are very challenging times, to say the least. Obviously, anything you say could affect the reporting on the condition of your company.

This may be an opportunity for you to field a little oddball question about how bad the situation might be if we didn't take certain steps. You have labour difficulties. You have a balance sheet that has some pressure on it that could be crushing. Canadian had that problem.

The last time around the Competition Bureau was saying the only way to really promote competition was to get someone's market share down to 50% when at the time they were between 60% and 70% or more. I began to wonder, how can you burden a national airline with conditions and still expect it to survive? Then there was September 11, and not only was your market share contracting, the market itself shrunk. If ordinary Canadians would take a look, they'd realize it was already tight pre-September 11 and now the pie is smaller. Even if your share stays the same, it's the same share of a smaller pie.

It puts even more pressure on, so we're asking Air Canada—I think Canadians are asking Air Canada—to be all things to all people at all times in all marketplaces. Make sure those uneconomic routes are covered, make sure we don't disturb other airlines who have niche markets, etc. Are we being unrealistic to expect Air Canada to not only survive but to be all things to all people at all times?

Mr. Calin Rovinescu: It's a very complex but obviously very pertinent question. Let me just try to deal with it in a couple of ways.

First, you've characterized what is effectively the perfect storm for our industry. What has been going on? Here's a synopsis. We had the consolidation following Canadian Airlines' collapse, which everybody knows was painful. There were a lot of labour issues in terms of how to integrate the two workforces: the cost of integrating the two workforces and the cost of keeping surplus staff. Everybody sees that at many airports there are just too many people around providing too little service. That's what we hear, too many people are providing too little service. So we have a high-cost structure that has to be reduced. We had that difficulty following the integration, which was a painful process for us.

Then we had historically high fuel prices, followed by a bursting of the technology bubble, followed by a near recessionary environment, followed by September 11. There, aircraft were used as weapons of mass destruction, and over and over and over people saw these aircraft smashing into the World Trade Centre towers and bringing them down. That is the perfect storm.

We cannot get our costs down overnight. We had started a cost reduction program ahead of the entire North American industry and ahead of many of the worldwide carriers, announcing in December of last year something that was unpopular: we were going to start reducing our workforce by 3,500 people. While that was unpopular, we started to get the costs out then.

• 1920

Following September 11, as I said, we'll take 84 aircraft out of the fleet, but taking 84 aircraft out of the fleet does not take out the cost of the 84 aircraft that are in the fleet, whether it's the ownership costs or the employee costs.

So we are working in an unprecedented fashion to take costs out of the system quickly. We need help from labour. We have had discussions and we have made more progress with some labour unions than with others. In some cases, we have gone before the CIRB. Somebody asked the question as to how many times we have had CIRB hearings and were rebuffed. We seem to be before the CIRB every second day.

Costs have to come out. Whether it is pretty or not, they need to come out. Unless we get the costs out, we won't have an adequate operational plan. Without an adequate operational plan, we won't be able to attract investment, whether or not the 15% rule is lifted.

So part of it is, as I said to the press the other day, that the solution here is a puzzle, and we still need to have a few more pieces of the puzzle in place before I have the kind of confidence that I would like to communicate to the financial markets that this thing is now in a way that I would like to see it. The first step is getting a plan that makes sense and getting the labour costs under control.

Mr. Paul Szabo: I like the tone.

Thank you, Mr. Chairman.

The Chair: Thank you very much.

We'll go to Val.

Ms. Val Meredith: Thank you very much, Mr. Chair, and thank you, gentlemen, for coming out.

I'm perhaps not going to be quite so kind. Air Canada has a reputation, and has gained it over the years quite honestly I think, of being a shark in the airline industry. I am probably one of the few around this table who is sympathetic with your competitive need with your transcontinental routes into the United States, where they are being subsidized and you are not. You have my sympathy in that argument and I think you have some justification for it, but what you don't have justification for is telling this committee that you're planning a low-cost carrier in western Canada to compete with WestJet, but at the same time you have no problem using money you might get from the taxpayer to do so.

I think one has to consider whether or not we are in the business of funding somebody to put another airline out of business or simply to respect the fact that you are competing with American airlines that are subsidized for transcontinental routes.

I'm going back to testimony we heard a couple of years ago, where somebody said if the airlines could just agree that this is their market and stay here, and that is the other guy's market and they stay there, and do both well, we would be well served in this country.

So I'm a little concerned that you are mixing the issues here. Rather than saying 50% of your business is transcontinental, that that's where you need our help, that that is where your success is, and that that's where you are going to put your energies, that's not what I'm hearing from you. I'm hearing you say you're quite content to be competing with Canada 3000 and trying to run them out of business; you're content to be going after WestJet in the near future and running them out of business; and you don't have any problem with being a monopoly because you have run everybody else out of business, but you still want us to help you to do that through cash infusions, by getting rid of the domestic ownership rights by raising the foreign ownership components. So is this just another case where you are earning the reputation of being sharks in the industry?

Mr. Calin Rovinescu: Sharps or sharks?

Ms. Val Meredith: Sharks, as in big teeth.

Mr. Calin Rovinescu: Thank you for that. I gather that earlier today Mr. Beddoe was serving “whine” with his peanuts—w-h-i-n-e. I guess that is what has been reported back from the industry committee.

Let me just say the following. When we have a high-cost product, as we currently have in western Canada, we should choose to reduce the cost of it to be able to make that route more profitable, more attractive to what we have. Take the simple example of—just picking a number out of the air—making the assumption that we are losing $1 million on a route in western Canada and that route is a feeder for our network. We say, you know what, by having a pilot who flies that same aircraft—say, a 737—at 10% less, or who does more turns with that aircraft, has work rules that are more sensible with that, we ought to be able to reduce our seat costs, and maybe we ought to be able to match the price. This is the question.

• 1925

Nowhere else in the world that I have heard of has a suggestion been made that matching a competitor's price is viewed as predatory, as horrific, as shark-like behaviour, if in fact that is what we should choose to do. So we have a situation where we say we currently have a western product, and the monopoly in western Canada, I would challenge...

I would find it very difficult for you to suggest, particularly if you look at the western triangle, that Air Canada is dominant in the western triangle.

Ms. Val Meredith: It's not.

Mr. Calin Rovinescu: Okay. So here you have a company that is not dominant in the western triangle, that says, I currently have a product, and I am losing my shirt in that western triangle, so my choice is to exit the western triangle—and if I exit the western triangle, what does that do to the network contribution?—or reduce my costs in that western triangle.

Ms. Val Meredith: Okay, but I would argue that your costs are related to your unions. It goes back to Mr. Fontana's comment that the rumour out there is that your pilots are actually running the company, and to your comments about needing to reduce the cost of your pilots by 10% in order to be competitive. Your problem seems to be that your unions don't seem to be willing to help the company resolve some of these issues of high cost.

In short, maybe the government shouldn't help you out. Maybe it should force the company to its knees to force the unions, when their own jobs are at threat, to start being reasonable in trying to help Air Canada come to grips with some of the financial reality.

Mr. Calin Rovinescu: There's no question that this is a company that does not have the same employee flexibility that a non-unionized company has. There's no doubt about that. That is the definition, the nature of the beast. When you're dealing with a unionized environment, you do not have the same flexibility as a non-unionized shop.

If somebody were to say, go out there and negotiate a deal with the unions that would end up having Air Canada have the same salary costs as WestJet, I would say, fantastic, I'd hire you tomorrow morning to go and do that. Do I think it's achievable in the union environment? No.

Are we going to do away with our unions? No. Are we going to be able to take our unions and bring them to the WestJet cost level overnight? No. But the union costs and the component, when you look at a seat cost...

What does it take to deliver a seat cost? How can I reduce my seat cost? I can reduce my seat cost by putting more seats on the aircraft. That reduces the seat cost dramatically—frankly, more than the cost of the flight attendant when you compare it to the WestJet flight attendant.

How do I reduce my seat costs? Put more seats on the aircraft. Find a way to make that aircraft more productive. Turn it more frequently. Find a way to perhaps change the product mix. What type of food do you offer? What type of infrastructure do you have with your conveyers of product? Gradually you end up reducing the delivery of that seat.

So we will continue to find ways to reduce the seat costs of the Air Canada operation and at the same time give consumers what they want, which is what we're calling a Wal-Mart type of product in this environment.

Ms. Val Meredith: My final question, then, is if you're providing this low-cost no-frill airline, how are you going to differentiate that airline from the mainstay Air Canada airline? Is the service going to be increased so the people who are paying, I would say, relatively high rates are going to get a better service, more room on the airplanes, better food? How are you going to differentiate your low-cost carrier that you're starting in western Canada with the kind of service we're getting right now?

Mr. Calin Rovinescu: I detect the sarcasm in “the service we're getting right now”, which I will take, because I'm sure the service is not always what it should be. But that aside, you are absolutely correct, the product offering is different; the brand is different. The idea is to create a different culture. That's why we've taken Steve Smith, who has seen the low-cost culture, to run that low-cost operation. The product will look different, taste different, smell different—the product will be different.

• 1930

Mrs. Bev Desjarlais: The pretzels will taste different.

Mr. Calin Rovinescu: The pretzels may taste different, and we might even get the occasional “wine”.

The Chair: Thanks, Val.

I'll go to Mario now.

[Translation]

Mr. Mario Laframboise: Thank you, Mr. Chairman.

I am rather upset by what I heard today. The privatization of Air Canada was risky and now you are obviously being criticized for siding with private enterprise. Once you have privatized, you cannot then... So I agree with you in saying that you met the legal requirements, as spelled out in the law, with respect to regional service. I may not be pleased with this, but I have to admit that you acted within the law, and you are being criticized for that today.

I find it is unfortunate that we are not taking advantage of the opportunity offered by the crisis in the industry to explain this to the population, which is dissatisfied, and probably rightly so. I have noted that in Quebec and in the regions people are not satisfied with the service. You kept the services but you reduced or changed the schedules, which was your legal right. If the government did not want this, it only had to introduce a restriction in the act. The crisis would then have taken place sooner and the problem would have been solved. But you went by the letter of the law.

Besides, the more I become aware of this situation, the more I think that you are not all that badly managed. In fact, you have billions of dollars in cash. If we compare this to British Airways... You said earlier that if you converted, you might be in better shape than British Airways. So, you were fairly well managed.

Now this raises the following question. Should we let you die? In fact this is what we are wondering about. Val told us earlier that the Canadian government did it for Canada 3000 when it told it to reduce its personnel, to carry out broad restructuring and that it would wait for them to be short of cash before intervening.

I think that the crisis will be much worse if we adopt that option. We must react now. The unions told us that they would need $117 or $113 million to buy back the voluntary departures after reaching an agreement with the companies, etc. Is it your role to take charge of this? It is not your role. If the government wants to help the airline industry, it should allow the companies to reach agreements with their employees to buy back voluntary departures, and very quickly implement work sharing so as to conserve the human capital, so that when things pick up again, we still have this personnel.

What I find most unfortunate is that it looks like you are being asked to pay for a bevy of things we are frustrated about. And I wonder how long you will be made to pay before you are told that restructuring is necessary, not only for Air Canada, but for the entire airline industry. True, you are the biggest carrier. It is not your fault if you occupy that position, and no doubt, you are proud of being on the board of such a company. Nonetheless, the industry still has a problem.

However, once again, it is being attacked while we forget even during our debate, that September 11^th took place and that the industry is going through a crisis. They are trying to punish it for some strange reason. In any case, I am anxious to get to the real problems. I would like to hear what you have to say about them.

Mr. Calin Rovinescu: Mr. Laframboise, you have just touched on the most fundamental question. Would the best way for the government to react have been to stabilize the industry from the start? That was our position and, as you saw, our president was criticized for suggesting that. Some of the consequences of that are perhaps visible today.

What you are describing is, after all, very important because it was confirmed to us that... we do not want to go through the same situation here in Canada as in Switzerland, where it is nothing short of a complete disaster. It is a total disaster because the government reacted too late. This is why we are in constant touch with the minister so that the same situation does not occur here.

In fact, I agree on an in-depth restructuring of the industry. As I said several times, we respected all our commitments regarding the merger with Canadian. At this time, we are in a situation where we have a company that has paid several times for its merger with Canadian. The debt was absorbed, all those persons were employed during that time, all those destinations were kept, etc.

• 1935

Now we must react quickly. For the time being, we must proceed from the point of view that the solution must come solely from the private sector. In fact, we have no way of knowing whether the government will do anything for us. Thus, we continue our discussions with it, but, we are also trying all kinds of other things to manage the company well during these difficult times.

Mr. Mario Laframboise: Obviously, this obliges you to make business decisions that could be difficult because of competition or because of destinations. That is the danger in letting things go. You have no choice because, well—

All right. Thank you—

[English]

The Chair: Okay, I have Mr. Cannis, Mr. Byrne, and Joe Fontana for some quick questions, and then we'll—

Mr. John Cannis: I gave up my question.

The Chair: Thanks, John. We'll go to Mr. Byrne then.

Mr. Gerry Byrne: I'm going to try to stick with Bill C-38, but I sometimes get sidetracked.

The future discount airline, just as a matter of record, won't be in Montreal. It won't have any maintenance facilities. You're going to change the ownership structure. You don't have any job requirements. The service levels, of course, won't be inherited by the discount airline. Please tell me that all runs on the discount service will be bilingual.

Mr. Calin Rovinescu: The Official Languages Act applies to the company and its subsidiaries. So to the extent that this is a subsidiary of Air Canada, it will. To the extent it stops being a subsidiary of Air Canada—some of these assets may be sold at some point in time—then presumably it would stop.

Mr. Gerry Byrne: Because you'd agree that as a public service that's important, correct?

Mr. Calin Rovinescu: No, I do not. We are not in the public service business. That's the point I made several times. This company is not in the public service business. This company is in the private sector business.

Mr. Gerry Byrne: So as a private sector—

Mr. Calin Rovinescu: It's not a novel development, is it?

Mr. Reg Alcock (Winnipeg South, Lib.): No, but it does allow us to change a bunch of things then. I didn't realize that. I thought you were a branded airline and you got government-supported landing rights in other countries as the flag carrier for Canada. So you're not in that business. I didn't realize that. Thank you.

The Chair: Thanks, Mr. Alcock, but I think it's Gerry who still has the floor.

Mr. Gerry Byrne: You've come to the government seeking assistance, taxpayer relief basically, because of the circumstances you're under, which in many respects are through no fault of your own, but some, it could arguably be stated, are based on management decisions—and we won't get into an argument about that. As a private sector entity, would you hold firm the notion that if Air Canada gets some assistance, every other private sector entity that was equally affected by September 11 and the aftermath should also get assistance, whether they be travel agents, bus companies, or hotels?

Of course, if you have a private sector philosophy and you're not appealing as a public service entity—you're appealing on a private sector basis—you would hold firm to the notion that if one dime goes to either WestJet or Air Canada, the Government of Canada should not be so hypocritical as not to give money to travel agents, bus companies, hotels, tour companies, whomever.

Mr. Calin Rovinescu: That's a very legitimate question. What I'd suggest to you is that—

Mrs. Bev Desjarlais: And farmers.

Mr. Calin Rovinescu: And farmers.

What I'd suggest to you is that the Government of Canada, in its evaluation of that, decides whether or not this industry—whether it involves private sector companies or not—is so much of an engine for the rest of the economy that it needs to support the industry.

That was fundamentally the decision the U.S. government made. They said this industry, as opposed to one company in the industry, is fundamental to the economy; it moves goods, etc. The fixed-cost nature of the industry is such that you can't shut five floors, as you could, for example, if you were in the hotel business—you have ten floors but you don't have enough people, so you shut five floors. You can't do that. When we bring down planes, as I said, the cost of those aircraft continue.

• 1940

I'm not suggesting that the government fund or not fund or support or not support other industries. All I've suggested is that the question is, is this an engine for the rest of the economy? If so, it makes a decision. If it decides that it's not, then it's not. I'm not here to advocate anything for the other industries.

Mr. Gerry Byrne: It seems like a bit of a tap dance—

Mr. Calin Rovinescu: Maybe a tango.

Mr. Gerry Byrne: —between the private sector initiative versus the public sector good.

Mr. Calin Rovinescu: As I said earlier, the United States of America has operated under much more capitalist tendencies than Canada has for a long period of time, and it makes the decision within a couple of weeks that industry in that country, which is populated by private sector companies—which, with respect, are a little bit more powerful than the private sector airlines in this country—ought to have support to compete on some of these routes. So I'm not so sure it's so much of a tap dance as a lack of understanding.

Mr. Gerry Byrne: How many American airlines have declared chapter 11 bankruptcy in their history?

Mr. Calin Rovinescu: I don't keep the statistics, but there have been many.

The Chair: Thank you, Gerry.

I'll go to Mr. Fontana, and Reg also has some questions.

Mr. Joe Fontana: I'm beginning to understand this new term “tango”. It has nothing to do with airlines. It has something to do with a dance. And you're doing it very well, I must admit.

Mr. Calin Rovinescu: Thank you.

Mr. Joe Fontana: I'll tell you why. It's because now you're starting to blame the government for all your problems. I heard you start to say that the reason we're into this problem is because the Government of Canada didn't react as quickly as the United States did.

Nobody ever forced you to buy Canadian. Did we hold a gun to your head and say buy Canadian? I was here when Mr. Milton appeared before us and we were talking about this very thing. Nobody said you had to buy Canadian. You made that corporate decision yourself. Another player wanted to buy you out and Canadian. But nobody forced you to do that, just as we didn't force Canada 3000 to buy Royal. So this dance you're talking about is that you want to be a private company, and you are, and you don't want to be in the public service business, but you want public money.

Now you're looking for ways of creating discount carriers, and I will tell you that you have one. Two years ago some of us around this table said, how are you going to manage this thing? You have Air Canada here, Canadian here, your regionals here, and your discount carriers here. Now what you want to do is create another tier. I can understand your problems. They really are structural.

That's why I come back to my very question. The regionals can be, and are, for an awful lot of main-line carriers... When Swissair went under, what was resurrected? Crossair became the salvation. It's a regional carrier. And it's starting to happen all over.

So my point is that you have a national network. It's called your regional carriers. Their cost structures must be less than that of Air Canada.

You have a grandfather clause that says you can use 39 jet aircraft. You're not. You've just parked all the rest of them. Maybe they're old. So why don't you buy the RJs? Why don't you give the communities the service and equality they need? Your pilots are flying for a lot less than Air Canada pilots, but your Air Canada pilots don't like that. Somebody has to start making decisions as to who runs this corporation.

I'm telling you it's the same with the banks. All monopolies have this same mindset. We give you 80% of the marketplace. Two years ago we could have talked about foreign airlines coming into this country, Canadian-only airlines, and cabotage. The minister and Air Canada said, you can't do that.

So we did an awful lot for you, sir. We may not have given you an awful lot of money now, but I remember 11 years ago when we privatized you the Canadian public paid big time. In the past we've given you cash for your planes and we've done this and that.

You'll have to explain to me and the Canadian people what the heck you want to be. Tell us straight out, what do you want to be? If you don't want to service the rest of the country and you just want to do all the main-line stuff, then be honest with us. Say that's all you want to be and let other carriers come in and service the communities so that everybody in this country has some service. Just be up front. You can't play this tango any more. Just tell us what it is.

Mr. Calin Rovinescu: What is the question?

• 1945

Mr. Joe Fontana: Explain to us and Canadians what Air Canada wants to do and wants to be. And I gave you an idea. Why don't you use your regionals to their full capacity? Why don't you grow them? Why don't you give them the jets? Why don't you do something?

Mr. James Moore: I have a point of order. This is within the purview of the chair, but I believe we're here tonight to talk about Bill C-38. You've gone way off topic. The witnesses have come here to talk about Bill C-38. We haven't talked about it in over an hour.

Mr. Joe Fontana: It's all related.

Mr. James Moore: Hardly.

Mr. Joe Fontana: They're asking for capitalization. I'd like to know...to move a Canadian public policy, and that's what this is. Two years ago Mr. Milton said not to raise it. I think it's proper and in order to say to witnesses that in return for this I want to know what this corporation—

Mr. James Moore: What we're talking about is lifting the 15%—

The Chair: Okay, gentlemen. I'll allow him to answer the question, and then we're going to move to clause-by-clause consideration.

Mr. Calin Rovinescu: As I said earlier, it's quite interesting to throw around issues such as a commitment to provide service to small communities, the regionals, etc. I've told you several times that the commitments to the regional communities have been and continue to be respected. That's number one.

Number two, as far as the regional carrier is concerned, we're looking at whether or not ownership of the regionals long term in this environment is needed, and it may not be. Once it's not, then you look at whatever that structure might be.

This market moves. The chance that we will be in a stagnant state two years, three years, or five years from now is highly unlikely. The world has changed. It changed before September 11, and obviously it has changed dramatically since September 11.

Mr. Joe Fontana: Why are you going to continue to ask for public money when you say you don't want to be in the public service business?

Mr. Calin Rovinescu: I just answered before—

Mr. Joe Fontana: Val and Bev have asked essentially the same thing. What will you use the money for? Is it to pay off debt you already have? Is it to launch two more airlines? Is it to establish some sort of equality between what you think the United States government is doing for its airlines and your transcontinental service? You're sending out so many mixed messages—

Mr. Calin Rovinescu: With respect, I'm not sure—

Mr. Joe Fontana: No wonder your shareholders, your board, and Canadians are wondering what in tarnation is going on.

Mr. Calin Rovinescu: I'm not sure if it's Canadians generally or you specifically, but let's assume it's more than you specifically.

Mr. Joe Fontana: Do you want to conduct a poll?

Mr. Calin Rovinescu: What I would suggest is that maybe the U.S. government got it wrong when it stabilized that industry. It's possible, I'll grant you that. Maybe they got it wrong. Maybe several companies will go bankrupt. Maybe the fact that we've seen the failure of Swissair, Sabena, Ansett, and Air New Zealand and that there are a couple of others that are a bit wobbly is all just a coincidence. Maybe the fact that Air Canada managed to organize its liquidity in such a manner as to be stronger than many of the other companies in the Canadian industry and in the other worldwide industries is a coincidence.

It's up to the government to decide whether or not it wants to stabilize the industry. It does and it doesn't. The issue is as simple as that. To the extent that there is any stabilization and Air Canada has access to it and takes advantage of it, the use of that money will be whatever our board of directors decides, frankly.

The Chair: Thank you very much, gentlemen, for appearing tonight.

The chair allowed some of this discussion, because I know a lot of the MPs want to ask you questions, and that's why we asked you here. We appreciate your frank answers and your participation.

Mr. Calin Rovinescu: Thanks very much.

The Chair: We'll move to clause-by-clause consideration. We'll allow James to present his amendments in a couple of minutes.

• 1949

• 1955

The Chair: I'd like to reconvene the meeting.

We're here to deal with Bill C-38, an act to amend the Air Canada Public Participation Act.

Mr. James Moore: This amendment essentially maintains fidelity with Bill C-38 as currently written, which is to strike the 15% shareholder limit. But it also eliminates the clauses in the current Air Canada Public Participation Act that mandate, by the government, that Air Canada have maintenance facilities in Winnipeg, Mississauga, and Montreal. It also strikes the government mandate that Air Canada must have their headquarters in Montreal.

This is simply because Air Canada, as they said this evening, have no plans to move any of those four facilities. You can believe them or not. I choose to believe them because they've been entrenched in those communities for a long time. Winnipeg is the only one that one may have questions about, as Reg just mentioned. But the Winnipeg facility is one of their biggest money-makers, in that they repair airplanes there for other companies.

Quite frankly, as a government that says it doesn't believe that government should be in the business of telling businesses how to run their businesses, it's none of the government's business to tell Air Canada where to put their headquarters and their maintenance facilities. It's none of the government's business to tell them where to have their headquarters.

The 25% limit is in this provision as well. I'm striking the 25% limit on foreign ownership completely from the legislation, because the 25% cap is already in the Canada Transportation Act. If we are going to have a meaningful debate about whether or not to have the 25% limit raised to 49%, as the Canada Transportation Act review, Ms. Meredith, and some government members have called for, then we should take it out of the Air Canada Public Participation Act. Then it will only be in the Canada Transportation Act and will apply equally to all companies. So if we have that debate, we will have to amend fewer pieces of legislation.

That's my amendment.

The Chair: Okay, discussion.

Mr. Alcock.

Mr. Reg Alcock: Thank you.

I don't want to take much of the committee's time on a detailed debate of this. I want to challenge one thing you said, Jim. It's this issue of the government having no business. I agree with you that excessive government regulation can cause problems, but we are talking about monopolies here. We're not talking about normal competitive forces when you're talking about a national flag carrier. So I think it is legitimate for the government to have expectations about that.

How far it goes, how stringent they are, how deep they go into the management of the company are worthy questions, but to suggest that the government has no business in the regulation and management of these big monopolies—there is telecommunications and the whole area where you have natural monopolies. The government must be there or you'll have huge abuses, as we've witnessed in a lot of areas.

We didn't get into a discussion because I have no goddamn time for this. The group that came before us, AirNav, is a natural monopoly. It has no competition. There's no competitive pressure on costs there. They pay their chairman $450,000, even though they say they're not-for-profit. These are abuses. So who provides the counter-balance in areas where competitive forces don't work, where there are market failures? That's the real question.

Mr. James Moore: That's a legitimate comment, but I circumscribed my comments and said specifically that the government has no business telling them where they have to maintain maintenance facilities. Does the government have a business in regulating them? You bet. Of course they do, but specifically on where they have their maintenance facilities?

Their largest maintenance facility is in Vancouver. It's not in the Air Canada Public Participation Act. Why? Market forces have pushed it to Vancouver. Shouldn't it be the decision of the board of directors to decide where they have and don't have their maintenance facilities? Yes. That is not for us to decide.

We are not aeronautics experts. It's up to Air Canada to decide that and their board of directors. It's not up to government, and they shouldn't have regulations against them that other companies don't.

The Chair: Quite a discussion.

Mr. Reg Alcock: We'll talk about it outside. I just think it's an interesting point of debate, and I would challenge that assertion.

• 2000

The Chair: All those in favour of the amendment?

(Amendment negatived—See Minutes of Proceedings)

Mr. James Moore: I have a second amendment.

The second amendment takes out the 25% provision and just deals specifically with the two issues of the headquarters of Air Canada and the maintenance facilities of Air Canada.

In case anybody has concerns about the 25%, the same arguments hold. It's interesting that the act itself says that the Montreal headquarters of Air Canada have to be in the “Montreal Urban Community”. That legally ceases to exist on January 1, 2002, leaving the act kind of redundant and archaic. But I put that on the table as an amendment, because again, as my previous argument holds, it's none of our business telling Air Canada how to run theirs.

(Amendment negatived—See Minutes of Proceedings)

(Clauses 1 to 3 inclusive agreed to)

The Chair: Shall the title pass?

Some hon. members: Agreed.

The Chair: Shall the bill carry?

Some hon. members: Agreed.

The Chair: Shall I report the bill without amendment to the House?

Some hon. members: Agreed.

The Chair: Thanks, ladies and gentlemen.

We are adjourned until tomorrow.