STANDING COMMITTEE ON TRANSPORT AND
LE COMITÉ PERMANENT DES TRANSPORTS ET DES
[Recorded by Electronic Apparatus]
Wednesday, November 7, 2001
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
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
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.
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
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
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.
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.
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
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
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
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
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
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
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.
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.
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.
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
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
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
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
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.
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
Staff Sergeant Pat Flanagan (Canadian Association of Chiefs
of Police): Mr. Chairman,
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
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
In addition, passengers are now required to provide
photo identification prior to boarding a flight.
Chief Vince Bevan: In conclusion, Mr. Chairman, I would like
to make certain recommendations to the committee.
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.
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
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
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.
The Chair: Thank you, gentlemen. That was a very
We'll begin a round of questions now, starting with
Mr. James Moore, the critic for the official
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
Mr. Thompson, you said that on average there's a 25%
turnover of security staff, 15% in British Columbia. Is
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
Mr. David Thompson: At which site, or do you mean
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?
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
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
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
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
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.
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
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
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
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.
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
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
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
Mr. John Cannis: But there's no relationship
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
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
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
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.
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
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
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.
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
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
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
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,
[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.
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
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
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
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
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
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
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
Mr. Mel Crothers: If there's too long a line and
they're bypassing security, that's crazy. It serves
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
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
It needs to be organized and flow a little better. I
think Mr. Thompson could probably speak to that better
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,
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
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,
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
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
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
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
Mrs. Bev Desjarlais: Do you know what those things
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
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
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
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.
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
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
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
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
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
Mr. Tony Porter: Correct. They just don't provide
the train-the-trainer course.
Mrs. Bev Desjarlais: We'll get it from Transport
The Chair: Val, you're on deck.
Ms. Val Meredith: Thank you very much, Mr. Chair.
Thank you, gentlemen, for appearing before the
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
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?
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
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
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
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?
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?
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
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
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
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
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. 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
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
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
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
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
Mrs. Bev Desjarlais: The U.S. hasn't had one
Mr. David Thompson: They have sky marshals.
Mrs. Bev Desjarlais: But it hasn't been an ongoing
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.
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
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
Chief Vince Bevan: I am unable to comment on that, sir.
Mr. André Harvey: Thank you, Mr. Chairman.
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.
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.
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
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.
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.
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
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
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
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.
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
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
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
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
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.
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
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
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.
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.
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
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
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
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.
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
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.
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
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.
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
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
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.
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
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
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
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
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
Mr. Mario Laframboise: Thank you.
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
Mr. Stanley Hartt: No, in 1988.
Mr. Mario Laframboise: —in 1988, you participated in the
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
Mr. Mario Laframboise: You were involved with that decision.
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
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.
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
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.
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.
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
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
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...
The Chair: If you wouldn't mind, could you just
wrap it up?
Mr. Stanley Hartt: It seems to me that we should do the same
for Air Canada.
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.
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
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
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
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
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
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
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
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
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
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
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
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
Mr. Moore, please.
Mr. James Moore: Thank you.
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
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
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
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
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.
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
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. Gerry Byrne: Joe, you wanted to say something.
Mr. Joe Fontana (London North Centre, Lib.): Thank
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
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.
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
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
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
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
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.
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
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
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
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.
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
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
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.
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
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
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.
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
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.
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
I want to ask a question. Is the discount airline
that you've launched going to be headquartered
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
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
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
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
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
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
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
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
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
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
The Chair: Thanks, Paul.
You only had half a minute left, so I'll come back to
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.
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
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
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
Mrs. Bev Desjarlais: You laugh, Paul, but if you
think we get anguish over a route being closed, just
talk about Aeroplan going.
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
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
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
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
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
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.
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
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
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
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
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
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
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
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
Mrs. Bev Desjarlais: The pretzels will taste
Mr. Calin Rovinescu: The pretzels may taste
different, and we might even get the occasional
The Chair: Thanks, Val.
I'll go to Mario now.
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
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
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 11th 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
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.
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—
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
Mr. Gerry Byrne: So as a private sector—
Mr. Calin Rovinescu: It's not a novel development,
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,
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
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
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
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
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
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?
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
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.
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. 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
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.
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.