Bill C-10 (Historical)

An Act to amend the Air Canada Public Participation Act and to provide for certain other measures

This enactment amends the Air Canada Public Participation Act to provide that Air Canada’s articles of continuance contain a requirement that it carry out aircraft maintenance activities in Ontario, Quebec and Manitoba and to provide for certain other measures related to that obligation.

[Angelo Iacono, Liberal, Alfred-Pellan, QC]

Thank you, Madam Chair.

Those who oppose the bill, unions in particular, expect massive job losses in Canada. Would that be the case if Bill C-10 passes?

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Thank you very much.

One of the overriding themes of the Bill C-10 issue to date has been a lack of consultation. Certainly I think if you speak to the workers and their families in Winnipeg, they would say that losing the right to overhaul maintenance work is a blow to the aerospace industry in Winnipeg and that they were not consulted sufficiently before moving ahead with that. It's the reason I'm proud that the NDP has tabled a motion at this committee:

That the Standing Committee on Transport, Infrastructure and Communities extend its consideration of Bill C-10 in order to hear from all interested individuals and groups, and that it hold hearings in Montreal, Mississauga and Winnipeg as part of its deliberations.

Having read the motion, I now move it, Madam Chair.

[Luc Berthold, Conservative, Mégantic—L'Érable, QC]

Thank you.

Mr. Rovinescu and Mr. Howlette, thank you for being here today.

Ms. Block just spoke about meetings between Air Canada and the government.

The fact that a bill like Bill C-10 is being put forward certainly corresponds to a request that Air Canada has had in its files for a very long time.

In the past few years, particularly since October 2015, which senior government officials have you spoken to about this situation?

[Calin Rovinescu, President and Chief Executive Officer, Air Canada]

Thank you very much, Madam Chair.

Thank you for allowing me to speak to you today about the importance of modernizing the Air Canada Public Participation Act and, more specifically, about Air Canada's position on Bill C-10.

With me today is Kevin Howlette, our senior vice president of Regional Markets and Government Affairs.

To start, I would like to say that we support this bill, especially because it is designed to allow Air Canada to be more competitive in a global context. The bill recognizes that the airline industry has undergone a dramatic transformation since Air Canada's privatization nearly three decades ago. It acknowledges that Air Canada is a fully private sector company, owned by private sector interests, operating in a highly competitive global industry.

Air Canada is a significant contributor to the Canadian economy and one of its largest employers. Last year, we flew nearly 42 million passengers to more than 200 destinations in Canada, the US and around the world. We employ close to 28,000 people—33,000 if you include our regional partners Jazz, Sky Regional and Air Georgian—and support approximately 30,000 pensioners. Salaries and benefits paid by Air Canada in Canada exceed $2.1 billion, and our total operational expenses in this country are close to $10 billion.

Let me start with a few words on the privatization of Air Canada in 1988-1989.

The company was sold to private investors over two years in two public offerings. The Government of Canada received gross proceeds of about $500 million for its shares, which would be about $2 billion in today's dollars. Air Canada derives no ongoing benefits from its prior crown corporation status that would put us in a privileged position vis–à–vis our competitors or for which the Canadian taxpayer hasn't been appropriately paid, none. We receive no subsidies, we have no protected monopoly routes, we have no privileged access to airports or facilities, we get no tax breaks, etc.

I will say a few words also on the evolution of the industry and the competitive landscape. During the first half of the 1990s, the airline industry experienced a worldwide recession, the Gulf War, 9/11, extreme fuel cost volatility, and other adverse geopolitical and economic events. A number of airlines went bankrupt, ceased operations, merged, or restructured. Air Canada went through its own court-supervised restructuring in 2003-2004, which, among other things, resulted in the sale of its heavy maintenance operations.

Low-cost carriers—virtually all of whom outsource aircraft maintenance—also emerged over the last 20 years. Canada's own WestJet launched in 1996 and today operates with about 40% market share domestically, without any restrictions or obligations whatsoever under its constating documents regarding where it performs maintenance or how many jobs it should directly or indirectly protect.

The competitive landscape intensified in other ways too. Today, we have open skies agreements with close to 50 countries, including the United States and the 28 countries of the European Union. More than 70 foreign airlines fly to Canada, competing for our customers.

Legacy carriers around the world have been forced to radically change to survive and prosper, and despite all this change, profit margins in the industry are razor-thin, ranging since 2008 from negative 5% to 4%-5% profit in a good year. Carriers have had to significantly contain costs and capital investments, including those for maintenance, repair, and overhaul.

Turning to maintenance specifically, until the 1980s, network airlines such as Air Canada generally insourced all aircraft maintenance. The maintenance, repair, and overhaul business—so-called MRO—was not the independent and competitive industry it has now become.

Maintenance typically represents 10%-15% of an airline's costs, and it's one of the largest cost buckets. Outsourcing certain activities to qualified MROs around the world, which actively compete for this work, has become a normal, healthy, and essential development in our capital-intensive, highly competitive, and low-margin business.

A report prepared for the IATA found MRO outsourcing worldwide has grown from approximately 30% in 1990 to 65% in 2013, and the trend is projected to increase. It is estimated that outsourcing could reach 80%.

When Aveos was created out of Air Canada's 2003-04 restructuring, independent institutions invested $975 million to acquire Aveos with the objective of building a platform which could attract other airlines besides Air Canada. However, Aveos repeatedly failed to diversify with other airlines. In the 2012 court filings, the company itself said it never achieved the cost efficiencies or productivity of its global competitors. Fundamentally, this is why it failed.

After this failure, Air Canada relocated its heavy maintenance work to other qualified maintenance companies in Canada and around the world. Our aircraft utilization has since improved significantly, with reduced maintenance turn-around times and lower maintenance costs.

MROs today compete globally for an airline's heavy maintenance business based on centres of excellence, not regional work. To be globally relevant, these businesses must maintain significant capital investment in areas that are non-core for airlines, such as equipment, tooling, licences, R and D, etc. Starting a new MRO business without significant third party business would not be realistic. Our own Air Canada line maintenance labour force has more than doubled over the last 10 years. Today we employ approximately 2,400 maintenance employees in Canada, plus more than 1,000 at our regional partners—Jazz, Air Georgian, and Sky Regional. This is far more than at any other airline in Canada, and we ourselves regularly perform in this fashion many specialized maintenance tasks that would previously have been performed in a heavy maintenance environment.

While we have sent some of our heavy maintenance abroad since Aveos closed, we've also significantly increased the volumes of work outsourced to companies in Canada. Premier Aviation in Trois-Rivières performs airframe maintenance for our Embraer fleet. Avianor in Mirabel undertakes aircraft conversions and other maintenance work on several fleet types. Airbase in Montreal performs cabin equipment and other interior maintenance. Hope Aero in Toronto overhauls wheels, brakes, and batteries. These latter two suppliers will soon establish activities in Winnipeg as well. Jazz maintenance for our regional fleet is performed in Halifax, Calgary, and Prince Edward Island. All this work employs thousands of Canadians and, in an open economy with a private sector employer, competition rather than statutory prescription is the way to create and sustain jobs.

Bill C-10 acknowledges the changes in the industry and provides the greater flexibility and certainty of interpretation Air Canada requires to compete globally. Air Canada will be able to determine, at its commercial discretion, the volume and type of aircraft maintenance it does globally and in Canada, including the work done in Manitoba, Quebec, and Ontario, and who performs this work, based on competitive proposals from suppliers.

No other airline in Canada—and to our knowledge no other airline in the world—is subject to maintenance restrictions such as those imposed on Air Canada by the act—not WestJet, Porter, Air Transat, Sunwing, British Airways, Air France, American, United, Cathay Pacific, Singapore Airlines, etc. These airlines make their decisions based on the competitiveness of the quality and pricing of the services contracted and their turnaround times. We expect the same flexibility to use our business judgment, because at the end of the day we compete in the same markets for the same customers.

We have concluded settlement agreements with the Government of Quebec and the Government of Manitoba, which should create more aerospace maintenance jobs in Canada. We have agreed to collaborate to help establish centres of excellence in each of these provinces, which should be capable of attracting work from other airlines if competitive. GE, among others, has created such centres of excellence around the world to bring together people with particular expertise to focus on and improve specific products or processes through research and sharing best practices.

Another very tangible result of Air Canada being internationally competitive is our LOI to purchase the Bombardier C Series aircraft. We are proud to be the first major North American carrier to order the C Series, and we believe it sent an important signal to the market that gave other airlines, notably Delta Air Lines, the confidence to purchase this next generation aircraft.

At list prices, our order is valued at $3.8 billion for the firm order alone. This is a substantial commitment to the C Series, and to Canadian aerospace which will continue to employ thousands of aerospace workers, based on orders such as ours.

The ACPPA was adopted over a quarter century ago, in the context of an air travel industry that was completely different. Hindsight is 20/20, and I mean no disrespect to its framers when I say that it should have accounted for the possibility the industry would change, even if it was not possible to anticipate all eventualities.

Madam Chair, thank you for your attention. Air Canada is committed to the aerospace industry in this country. By creating a more level playing field, Bill C-10 will allow us to remain competitive and support job creation in the aviation, tourism and aerospace industries in Canada well into the future.

Thank you very much.

Thank you for your attention.

[The Chair (Hon. Judy A. Sgro (Humber River—Black Creek, Lib.)), Liberal, Judy Sgro]

Good afternoon, everyone. I'm calling to order the Standing Committee on Transport, Infrastructure and Communities, 42nd Parliament, for meeting number 11.

Pursuant to the order of reference of Wednesday, April 20, we are dealing with Bill C-10, An Act to amend the Air Canada Public Participation Act and to provide for certain other measures. We have with us from Air Canada Calin Rovinescu, president and chief executive officer; and Kevin Howlette, senior vice-president, regional market and government affairs.

Gentlemen, as you know, there has been a vote called for later on, so we don't have a lot of time. I'd ask that you make your most critical points so that the committee has a chance to also get some questions out there.

I will turn it over to whoever would like to go first.

Please, the floor is yours.

[Sean Fraser, Liberal, Central Nova, NS]

That's great. I'll give you a chance to take a crack at this one first because I put it to Mr. Tretheway in the previous round.

He mentioned Bill C-10 may not go far enough, and he mentioned the foreign ownership restrictions in his answer.

Do you see any opportunities that are not covered by Bill C-10 that we could take advantage of to make Air Canada more competitive?

[Angelo Iacono, Liberal, Alfred-Pellan, QC]

Gentlemen, in your view was privatizing Air Canada the right thing to do? How does Bill C-10 fit into this logically? Might this encourage Air Canada to do more maintenance outside of Quebec, Manitoba, Ontario?

[Kelly Block, Conservative, Carlton Trail—Eagle Creek, SK]

Thank you very much.

I do want to follow up on another comment that was made by you, Mr. Wallis, in regard to the Emerson report. You talked about the numerous recommendations that are in the Emerson report. I think there are 66 recommendations for the air sector. I would make the observation that this measure of amending the act was not recommended by Air Canada or any other carrier for that matter. You also suggested that this act, Bill C-10, doesn't go far enough in levelling the playing field for air carriers in Canada in general.

I would like you to have an opportunity to comment on the fact that Air Canada didn't make this recommendation as something that would help them become more competitive, and on what you meant by this amendment not going far enough.

[The Chair, Liberal, Judy Sgro]

I'm sorry, the time is up.

Thank you very much for meeting with us today and enlightening the committee on a variety of the challenges facing C-10. Minister Garneau and your officials, we appreciate very much your being here today.

We will suspend for two minutes until we get hooked up for our teleconference.

[Marc Garneau, Liberal, Notre-Dame-de-Grâce—Westmount, QC]

The new law is clearer than the previous one because there was some difference of opinion between the parties that went to court. What we really wanted to do was to make it much clearer. I believe it is clearer now. With respect to the new content of the law, I'm quite confident that there will not be any misinterpretation of what that says. I think it is clear.

Previously, some of the disagreement with respect to what was intended by it had to do with the definition of “maintenance”. I think we've made that clearer in this new version of Bill C-10.

[Marc Garneau, Liberal, Notre-Dame-de-Grâce—Westmount, QC]

The situation is clear to me. There is no confusion between our position and the steps we will be taking with regard to Bill C-10. I think that Ms. Anglade will shed light on these matters. You will see that we are both on the same wavelength.

I would like to go back to the quality of maintenance, which you mentioned in the beginning. As you know, this is regulated in our country. It is a part of our responsibilities.

[Vance Badawey, Liberal, Niagara Centre, ON]

Thank you, Minister.

I have a second question, if I may, Madam Chair.

Minister, in your view, the Mulroney government, back a few decades ago, privatized Air Canada. Was it the right thing to do, and how does this bill, Bill C-10, fit into this logically?

[Marc Garneau, Liberal, Notre-Dame-de-Grâce—Westmount, QC]

There's no question that the airline world is extremely competitive and Air Canada has to compete out there with everybody else. It's a big picture and with Air Canada the maintenance activities are a significant portion of its financial obligations.

It obviously has to maintain the airplanes so that they remain safe and continue to provide all the flights that it advertises. How they do the maintenance and where they do the maintenance is a factor that all airlines consider. Certainly in Canada at the moment Air Canada is the only one that has the constraints of Bill C-10.

[Marc Garneau, Liberal, Notre-Dame-de-Grâce—Westmount, QC]

We observed the discussions that took place between Air Canada and the two provinces. As I already said, our department has for some time wanted to clarify provisions in Bill C-10 in order to minimize the possibility of legal action. The right time came up after decisions were taken regarding the intentions of Quebec and Manitoba.

[Luc Berthold, Conservative, Mégantic—L'Érable, QC]

My question is all the more pertinent.

You said in your presentation that the idea had been raised before you took over the department. Who brought back the idea of passing Bill C-10? Who suggested that it be passed so quickly?