Thank you, Mr. Chair.
Ladies and Gentlemen, I am pleased to speak with you today on the topic of Aveos Fleet Performance and its arrangements with Air Canada and provide some evidence to help with your deliberations.
I am joined today by my colleagues—Louise-Hélène Sénécal, Assistant General Counsel, Duncan Dee, Executive Vice-President and Chief Operating Officer and Joseph Galimberti.
As the committee is certainly very aware, on March 19 Aveos Fleet Performance Inc., a separate and independently owned and managed supplier to Air Canada, filed for insolvency protection under the Companies' Creditors Arrangement Act. Aveos management subsequently chose to permanently cease operations outright rather than accept an offer of emergency financing extended by Air Canada which would have stabilized the Aveos operations to the benefit of its customers, stakeholders and employees and allowed for an orderly restructuring. As an important customer of Aveos, we consider the manner in which the Aveos management and board closed all of Aveos' operations in Canada to have been irresponsible when other options were available. But before expanding on where we are today, a short discussion of how Aveos and Air Canada's relationship came to be is in order.
Eight years ago, in 2004 that is, as part of a court approved restructuring, Air Canada became a wholly owned subsidiary of ACE Aviation Holdings as several of the former Air Canada constituent parts were reorganized as separate business units. This reorganization, mandated by investors who financed the restructuring and approved by the more than $8 billion of creditors' claims, was supported by the affected labour groups and employees who ratified the new arrangements through a very public court process.
Certain assets and employees of the former Air Canada Technical Services Division were thus transferred to a new company, while Air Canada itself retained substantial maintenance capability and work. Today Air Canada directly employs 2,400 maintenance employees. In 2007, ACE Aviation Holdings Inc. sold ACTS to a group of investors which included some very well-known private equity firms and leading financial institutions, who committed to maintaining jobs in Canada while growing the overall scope of the business and becoming a larger, stronger entity. In 2008, the company changed its name to Aveos Fleet Performance Inc. This group of investors invested more than $975 million in Aveos.
Air Canada has a long record of support for Aveos. We had signed long-term maintenance contracts at advantageous terms to Aveos which should have provided Aveos with financial stability. We participated in the 2010 out-of-court Aveos restructuring through a $22 million term note that allowed Aveos to defer payments without interest penalty. We committed up to $50 million over three years to further assist Aveos as part of the 2010 restructuring. In 2011 alone, our payments to Aveos for work completed were $440 million.
We offered on several occasions over the last weeks financing support to permit an orderly restructuring and continuance of operations, including the $15 million in emergency funding that I referred to earlier. While the final amount of our bankruptcy claim has not yet been calculated, a high level estimate of the net amounts owing by Aveos to Air Canada to date is well in excess of $35 million. So we have certainly tried to help this company financially. More meaningfully, however, Air Canada supported Aveos by faithfully sending our maintenance business to them.
Since the beginning of 2011, Air Canada has undertaken 135 airframe checks and Aveos performed 123, or 91% of them.
In addition, Aveos performed 52 of 56, or 93%, of engine checks performed for Air Canada over that time frame. Work was sent to third parties only when Aveos was unable to perform it and in accordance with the terms of the commercial agreements between the parties and applicable collective agreements.
Despite this support from Air Canada, Aveos had repeatedly failed to attract new third-party business to its facilities and diversify its revenue stream. By their own admission in court filings, the company had never become cost-competitive and had suffered operating losses for several years. They admit to having had too high a cost structure and not being sufficiently competitive from a productivity viewpoint. Ultimately, their unfortunate decision to terminate operations is symptomatic of those failures and not the result of any action taken or not taken by Air Canada.
Aveos's unexpected closure of their facilities has forced Air Canada to act quickly and to put in place contingency arrangements to ensure that our customers, of whom there are about 100,000 per day, are not inconvenienced and that our airplanes continue with their regularly scheduled maintenance so they can continue flying. Our contingency arrangements are being driven solely by safety and regulatory compliance, and we will select maintenance, repair, and overhaul suppliers to perform scheduled maintenance on this basis. Safety will not be compromised for political or any other expediencies.
On a transitional basis, consistent with the high standards of our maintenance program, we have identified qualified and government-approved maintenance facilities in Canada and the U.S. to undertake work that was scheduled to be performed by Aveos. For example, seven aircraft scheduled for maintenance have already been sent to two Quebec-based maintenance providers currently used by other Canadian and international airlines, and there are a few other MROs—maintenance, repair, and overhaul providers—in Canada that have capacity, capability, and licences to do some of the work that we require. We will also look to suppliers outside Canada, given capacity and expertise constraints in Canada.
Finally, contrary to some irresponsible statements made by others in the media, I would like to categorically state that we have not sent and we will not send any work to Aeroman, the San Salvador-based sister company of Aveos, under any circumstance.
On a longer-term basis, Air Canada is encouraging MRO companies from across Canada and around the world to conduct due diligence and assess whether any of the former Aveos operations may be viable in Canada under new ownership. We have further publicly indicated that we have a strong preference for working with a global MRO provider or manufacturer that has an interest and an ability to provide component, repair, and overhaul services in Canada, with particular emphasis given to Montreal, Winnipeg, Vancouver, and Toronto. Air Canada knows that a pool of well-trained, qualified, and talented people exists and is available in those cities and will favour MROs or manufacturers with globally competitive cost structures that have established or will establish some portion of their operation in one or more of these cities, employing the skills of Canadian aviation technicians.
Governments can get involved through their economic development branches by encouraging these companies to set up or expand operations in Canada or assist them in setting up cutting-edge engine repair lines for new generations of engines, as an example.
Air Canada is willing and expects to work collaboratively with governments and these potential suppliers toward viable, long-term, cost-competitive, and productivity-competitive arrangements. To this end, since the Aveos filing we have been in close contact with the office of the Minister of Transport, Infrastructure and Communities, as well as with provincial and municipal officials. In fact, I met personally with Minister Lebel yesterday afternoon to review this file.
As regards specific questions relating to the Air Canada Public Participation Act, let me state clearly and unequivocally that we continue to be in full compliance with the letter and the spirit of the act, despite the demise of Aveos.
On December 1, 2010, this very committee heard from officials from the Department of Transport that in their view Air Canada was then compliant with all aspects of the law.
In May 2011, less than one year ago, Mr. Justice Newbould of the Ontario Superior Court of Justice ruled on the issue of whether we were in compliance with the maintenance facility requirements of the act following an application filed by the International Association of Machinists and Aerospace Workers, IAMAW, the union that represents these workers. The court found that Air Canada did meet the act's requirements on the basis of our own overhaul and maintenance functions.
I quote from the conclusions of the Honourable Mr. Justice Newbould:
In summary I find that Air Canada does maintain operational and overhaul centres in those cities...by itself maintaining certain overhaul functions through its line maintenance operations.
Air Canada, irrespective of Aveos, continues to employ 2,400 maintenance employees at various bases in Canada, including those in Winnipeg, Toronto, and Montreal. This, incidentally, is 35% higher than it was in 2007. We are satisfied that the current circumstances do not change the court's finding.
Air Canada, on a going-forward basis, is committed to remaining fully compliant with the act, as long as the act is in force. More importantly, we are also fully committed to encouraging Canadian aviation workers, and we look forward to working with industry players to develop solutions.
Thank you, Mr. Chairman, for the opportunity to present today. I will now take questions that committee members may have.
