Transport Committee on June 8th, 2010

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Thank you, Mr. Chair, and I thank the witnesses today.

I'm sure you've had an opportunity to read the Canada Post Corporation Special Examination Report--2009 from the Office of the Auditor General of Canada. On page 91, it says:

We looked at the process for the 2008 Purolator contract for domestic air delivery services and concluded that the contracting process Canada Post followed to award the contract was appropriate given the timelines and the Corporation's operational requirement to deliver the mail....

It goes on to say that:

The contract is a cost-plus contract, which is common in the air freight industry. However, we found that it has little incentive for Purolator to control costs, and it does not penalize Purolator for excessive costs. Canada Post analyzed the negative factors in the contract, and had determined that, overall, the contract was reasonable.

Do you agree with that statement from the Auditor General of Canada?

[William Henderson]

We do.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Thank you.

To Mr. Mayes, please.

[Colin Mayes, Conservative, Okanagan—Shuswap, BC]

I thank the witnesses for being here.

Most of the questioning here this morning has been around relationships and the relationship of Purolator with Canada Post and of course the Government of Canada, because the minister has some oversight with regard to Canada Post.

Another area is with Flightcraft. I actually sat on the airport authority in Kelowna, so I'm familiar with Flightcraft. I've seen a Purolator aircraft being maintained with Flightcraft. On the relationship with Flightcraft--and that is owned by Mr. Lapointe--do you go out for competitive bids to ensure that you're getting the best price for the maintenance of those aircraft?

[William Henderson]

I can respond to that.

In 2007, Purolator went to market with the largest aviation airlift bid in Canadian history for the cargo services. Barry Lapointe Holdings, Kelowna Flightcraft, did respond to that bid, as did eight other carriers in the country. The bid was awarded to Kelowna, based on a number of factors: on service, reliability performance, maintenance performance, the type of aircraft a carrier needs, as well as financial stability.

[Colin Mayes, Conservative, Okanagan—Shuswap, BC]

When I looked at Canada Post's revenue--just a little over $6 billion--their bottom line, ROI, was around $66 million. That's about a 1.25% ROI. You're saying that in your contract with Canada Post you have about a 15% ROI. Is that correct?

[William Henderson]

Yes.

[Colin Mayes, Conservative, Okanagan—Shuswap, BC]

Do you enjoy that same margin with your other customers other than Canada Post?

[William Henderson]

The margins in Purolator vary, but the margins in our industry can be greater than 15%.

[Colin Mayes, Conservative, Okanagan—Shuswap, BC]

The concern here is the relationships. As you go up the line, we have a person who's maintaining the Purolator aircraft, who sits on the board of a corporation that 91% belongs to Canada Post. Then Canada Post has a relationship with the Government of Canada, of course, and when they need to raise the cost of postage or they need capital, they're going to go to the minister. We have to be very careful that there's transparency and openness as you go down this chain.

With all of the things regarding the contract with Flightcraft—and I'm very happy that you're maintaining your aircraft in the constituency close to mine and employing people in the Okanagan Valley—you have that all documented, so it is clean and transparent, so any competitors of Flightcraft can see that in an open and transparent way. Is that correct?

[Stewart Bacon]

As Mr. Henderson said, and this was prior to my arrival at Purolator, there was a very robust RFP process in 2007 where the airlift was outsourced, essentially, to a provider, just like we would outsource ground transportation to a trucking company--

[Colin Mayes, Conservative, Okanagan—Shuswap, BC]

I just want to get on to another question, because I'm going to run out of time, but in British Columbia we have a number of remailers. Do you do work with remailers, as far as providing service to remailers goes?

[William Henderson]

The only service we provide is if Purolator has a direct sales agreement with a customer, and then we'll provide that, whether it's air transportation or ground transportation, to get that product to the end destination.

[Colin Mayes, Conservative, Okanagan—Shuswap, BC]

Those are all the questions I have.

[The Chair, Conservative, Merv Tweed]

Mr. Watson, you have two minutes.

[Jeff Watson, Conservative, Essex, ON]

Thank you, Mr. Chair.

I have a question for you here. How long did it take to assemble the RFI? How long would it have taken you, had it been a NAFTA RFP, to assemble that type of RFP for a contract of this size?

[William Henderson]

It would be more a question for Canada Post, because we don't know the grounds of the NAFTA RFP. When an RFI, whether it's by NAFTA or any other means, is issued into the marketplace for companies such as ours to tender, we will respond immediately. Our response can usually be given within a 30-day timeframe, due, of course, to being in that line of business.

[Jeff Watson, Conservative, Essex, ON]

With the expiry of Air Canada's contract to carry mail, 120 days are required for turnaround. Maybe that's a question more for Canada Post.

I have no further questions, sir.

[The Chair, Conservative, Merv Tweed]

Mr. Dhaliwal.

[Sukh Dhaliwal, Liberal, Newton—North Delta, BC]

Thank you, Mr. Chair.

Welcome to the committee.

When six out of 10 directors of the board were Canada Post executives, do you see why there was a perceived conflict of interest there?

[Stewart Bacon]

Per se, no. They represent the shareholder interest in Purolator.

[Sukh Dhaliwal, Liberal, Newton—North Delta, BC]

When we see the rating system as a guide, what could Purolator Courier do that none of the other companies could do?

[William Henderson]

I can answer that. What Purolator does have at its disposal is that we've been operating in Canada in this business for 48 years—aside from Air Canada, longer than anybody else. Over that period of time, we've invested significantly, in this case, with the airports, in facilities at those 14 airport locations, multiple ones in certain provinces such as Ontario and Quebec.

We've had that expertise with our people and the ground support equipment. We have almost 1,000 pieces in that equipment: generators, conveyor belts, loaders that lift up these great big air containers, loading and unloading the planes, computer systems that make sure the aircraft are operating safely. That's the number one priority for us. So that provides Purolator with a tremendous amount of expertise and capability to put into a proposal. We competed for that vigorously, and we're actually very pleased, very proud, to be awarded that contract based on the merits.

[Sukh Dhaliwal, Liberal, Newton—North Delta, BC]

That was part of the requirement they put into the contract. Is that true?

[William Henderson]

The requirement on the RFI was to move a certain number of pounds of mail based on schedules to certain cities across western Canada, from Ontario out to British Columbia. Based on that requirement, we responded with the best proposal we saw. That's why we provided the types of planes we did to meet those schedules and the airlift requirements.