Evidence of meeting #30 for Transport, Infrastructure and Communities in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was aveos.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Calin Rovinescu  President and Chief Executive Officer, Air Canada
Louise-Hélène Sénécal  Assistant General Counsel, Law Branch, Air Canada
Duncan Dee  Senior Vice-President, Corporate Affairs, Air Canada
Kristine Burr  Assistant Deputy Minister, Policy, Department of Transport
Pierre Legault  Assistant Deputy Minister, Business and Regulatory Law Portfolio, Department of Justice

9:20 a.m.

Conservative

Lawrence Toet Conservative Elmwood—Transcona, MB

Can you share with us at all the reaction to these initial conversations with these companies? Again, you have the facilities there, and you have the pool of talent there. You have two things that should be very attractive to these companies.

9:20 a.m.

President and Chief Executive Officer, Air Canada

Calin Rovinescu

Again, I've encouraged our maintenance people to get into these early discussions, but it really is premature at this stage. I think, as I said in my remarks, that I'd encourage provincial economic development departments to reach out to some of these companies that are expressing an interest to see what can occur.

In the case of Quebec, the economic development group in Quebec has already met with our maintenance people to try to ascertain what would be within the realm of the possible. I think many of these business units, but not necessarily the whole, are absolutely capable of being resurrected through different ownership by more powerful strategic players.

9:20 a.m.

Conservative

Lawrence Toet Conservative Elmwood—Transcona, MB

In some of these initial discussions has there also been talk of being able to attract some additional business, actually, to these facilities so that we actually potentially grow these facilities?

You talk about a complete restructuring of the airline industry throughout North America. I don't think that's come to an end yet. There are definitely possibilities with some of our friends and partners. We have a lot of partnerships with our friends in the south in the United States. Is that also going to be part of the consideration and part of, hopefully, the incentive package for these companies to move forward in moving into these facilities that are now abandoned?

9:25 a.m.

Conservative

The Chair Conservative Merv Tweed

I'm going to ask you to be very brief if you can.

9:25 a.m.

President and Chief Executive Officer, Air Canada

Calin Rovinescu

Very much so, indeed. Let me say that it is essential to do exactly as you say. For them to be competitive, they have to be able to rely on business from more than just one customer. I think the sine qua non to building a successful business is ensuring that they can actually attract third-party business from other North American carriers and potentially from carriers elsewhere in the world.

9:25 a.m.

Conservative

The Chair Conservative Merv Tweed

Thank you.

We'll go to Mr. Martin.

9:25 a.m.

NDP

Pat Martin NDP Winnipeg Centre, MB

Thank you, Mr. Chair. I will share my time with Mr. Sullivan.

9:25 a.m.

Conservative

The Chair Conservative Merv Tweed

I will advise you that at 9:30 I'll stop the proceedings.

March 29th, 2012 / 9:25 a.m.

NDP

Pat Martin NDP Winnipeg Centre, MB

Thank you, Mr. Rovinescu.

Let me just say that it is actually more in sadness than in anger that a lot of us are seeing our worst fears realized, those of us who were critical of the original privatization.

We took some comfort in the testimony of your predecessors, Claude Taylor and Pierre Jeanniot, when they sat in your place and assured people not only that maintenance meant more than line maintenance of good-to-go aircraft landing and taking off, but that maintenance meant the service overhaul work we talked about.

We also took some comfort in them saying that their maintenance shop, at least in Winnipeg, made them a net revenue profit of over $10 million a year, which in 1988 may or may not have been a lot of money, but the vertical integration of the company at the time helped them offset other costs with the money they made on maintenance.

If the Ontario Supreme Court found that you were in compliance last year, can you not agree that part of that was because you were giving 95% of your maintenance work to a Canadian company in those three locations? If you intend to farm out and contract out some of this work in the interim to the United States, you're falling out of compliance, surely, by anyone's definition. Is that not a reasonable position?

9:25 a.m.

President and Chief Executive Officer, Air Canada

Calin Rovinescu

Thank you, Mr. Martin. I'm going to do the first part first.

If the maintenance operations of Air Canada made money in 1988, obviously that was a very good thing, then, at the time. That is precisely what we had hoped the Aveos company could do, just like we hoped the same thing for Aeroplan, just like we hoped the same thing for Jazz, when these business units were sold. Again, this was not a structure designed to fail. The objective for these companies was exactly that, to make money.

9:25 a.m.

NDP

Pat Martin NDP Winnipeg Centre, MB

Some people do feel that it was a structural shell game, designed to offload your unionized, high-cost employees, and farm that out now to a non-union group like this company, Premier Aviation, etc. This is what some people suspect.

9:25 a.m.

President and Chief Executive Officer, Air Canada

Calin Rovinescu

But you have wonder, scratch your head a little bit, that somebody would invest $975 million and flush it down the toilet to be able to achieve that objective, somebody other than the so-called beneficiaries of that strategy. I don't buy that comment.

On the second point, we will look to encourage workers in these three cities. There's no question, no ifs, ands, or buts about it.

9:25 a.m.

NDP

Pat Martin NDP Winnipeg Centre, MB

Do you agree that you would fall out of compliance?

9:25 a.m.

President and Chief Executive Officer, Air Canada

Calin Rovinescu

No, I do not agree.

9:25 a.m.

NDP

Pat Martin NDP Winnipeg Centre, MB

The court ruling was with the full knowledge that all of this work from Air Canada was still going to those three maintenance centres, albeit they were private companies. That's not going to be true, as of today.

If you ran the same facts before that same court today, they would find you have fallen out of compliance.

9:25 a.m.

President and Chief Executive Officer, Air Canada

Calin Rovinescu

Our view, again, is not. We have sought all kinds of legal confirmations to that effect. Our view is not.

We would look to encourage people in those three cities, in addition to, by the way, Vancouver. Because we are today compliant with the act, and we don't intend to not allow opportunities for people in Vancouver as well. In all four places, we know that there are talented employees, and we look to our MRO partners to find opportunities for them.

9:25 a.m.

Conservative

The Chair Conservative Merv Tweed

Thank you.

With that, it is 9:30.

9:25 a.m.

NDP

Mike Sullivan NDP York South—Weston, ON

No, it's not.

9:25 a.m.

Conservative

The Chair Conservative Merv Tweed

We've given notice that we're going to change the chairs.

Thank you for being here today on such short notice. I suspect that we'll have further comment on this.

We're going to take a short two-minute recess, while our new guests join us.

Thank you very much.

9:30 a.m.

Conservative

The Chair Conservative Merv Tweed

Welcome back, everyone.

We have new witnesses joining us: from the Department of Transport, Kristine Burr, assistant deputy minister, policy, and Brigita Gravitis-Beck, director general; and from the Department of Justice, Pierre Legault. Welcome.

I know there's a brief presentation, and then we'll move to questions from committee.

I understand, Ms. Burr, you're going to open the conversation. Please begin.

9:30 a.m.

Kristine Burr Assistant Deputy Minister, Policy, Department of Transport

Thank you very much, Mr. Chair.

I'd like to thank you for the invitation. We're here today to talk about the Air Canada Public Participation Act, or ACPPA, as it's commonly known.

I will not discuss in detail the history of Air Canada's privatization or the creation of Aveos as a private company. I think you already know the facts about that.

However, I want to highlight a number of points.

It's worth recalling the context for the legislation that governed the privatization of Air Canada. The late 1980s and early 1990s were a period of major change in the aviation field, as elements that had previously been part of government were privatized or their operations devolved to the private sector. This was a phenomenon that was seen elsewhere in the world and not just in Canada, but it's helpful to view ACPPA in that context.

From a policy standpoint, devolution was intended to put these companies into the private commercial sector and allow them to operate and make decisions based on market considerations, with a view to growth and financial independence. The parameters of the ACPPA legislation that were put in place at that time, and which remain in place today, flow from this philosophy and this approach.

However, certain obligations were maintained in the bill that governed Air Canada's privatization.

Air Canada was required to maintain official language obligations and it was required to include in its articles of continuance provisions requiring the corporation to maintain operational and overhaul centres in Mississauga, Montreal, and Winnipeg, and its head office in Montreal. I'll come back to the specifics of some of these obligations shortly.

For now, I would like to note that the government of the day and Parliament would seem to have sought a delicate balance between the continuing obligations imposed on Air Canada and the desire to create a private company functioning in a commercial marketplace.

The second point I want to bring to your attention was also raised by Minister Lebel when he appeared on Tuesday. Air Canada and Aveos are private companies that make their own decisions. The separation of Air Canada and Aveos took seven years, which is quite a remarkable period of time in itself, before finally becoming official in 2011.

Third, I wanted to share with you the context in which these industries operate today. Aviation is a global business, as we heard during the previous presentation. Whether we're talking about carriers or maintenance, repair, and overhaul companies, the environment in which they operate is global. Looking worldwide, we see a consistent focus on competitiveness within this industry while maintaining high standards of safety and security.

The International Air Transport Association, or IATA, recently downgraded the profit outlook for the global air carrier industry in 2012, predicting a profit margin of only 0.5%. We must assume the situation is worse for some carriers than for others.

Furthermore, passengers expect low ticket prices. The committee may be aware of the meeting just last week organized by the Canadian Airports Council on the leakage of passengers from Canada to airports in the United States.

As you are well aware, your colleagues in the Senate are currently undertaking a study on emerging issues related to the Canadian airline industry, and they have received numerous submissions from stakeholders indicating that cost-competitiveness of our aviation industry is an important concern.

In light of this context, I will now talk briefly about the question at issue, which is whether Air Canada is complying with the Air Canada Public Participation Act.

Section 6 of the ACPPA requires Air Canada to include certain provisions in its articles of continuance. Specifically, paragraph 6(1)(d) provides the articles of continuance to maintain operational and overhaul centres in Winnipeg, Montreal, and Mississauga.

In addition, section 7 of the ACPPA prohibits Air Canada from making any articles or bylaws that are inconsistent with its articles of continuance, and therefore paragraph 6(1)(d).

Articles of incorporation or continuance are documents filed with a provincial or territorial government, or the federal government, that set out a number of corporate governance rules applicable to the corporation. These articles usually set out the company's activities: its ownership structure, usually referred as classes of shares; how the board of directors is established; and its powers.

In simple terms, articles of continuance set the rules within which the companies must operate.

Since Aveos's announcement that it would cease operations, much attention has been directed to the question of whether Air Canada is in compliance with the ACPPA.

Air Canada's articles of continuance on file with Corporations Canada include a clause stating that it will maintain operational and overhaul centres for its aircraft or their components in the cities of Montreal, Mississauga, and Winnipeg. There is no indication that Air Canada's articles do not comply with the requirements set out under the ACPPA.

There is no indication that Air Canada's articles of continuance do not comply with the requirements set out in the Air Canada Public Participation Act.

Quite apart from the question of whether Air Canada is complying with ACPPA, there is a question as to whether the company is in compliance with its own articles. Prior to the current unfortunate situation at Aveos, Transport Canada had consistently been of the view that Air Canada was in compliance with its articles.

We have re-examined this very question in light of the recent changes in circumstance. At the minister's request, we have sought legal advice to assist us, and this legal advice has now been shared with you today.

I would like to emphasize that compliance with articles of continuance is not driven by ACPPA. It is a requirement that applies to all corporations. For federally incorporated companies such as Air Canada, the Canada Business Corporations Act, or CBCA, is the relevant legislation.

Although questions of corporate governance and compliance with articles are normally better suited for shareholders or directors of particular companies, other parties can seek court remedies. This is what the International Association of Machinists and Aerospace Workers, the IAMAW, did in 2011, when they filed an application in the Ontario Superior Court.

As we've heard today, the Ontario Superior Court decision addressed the very question of whether Air Canada, quite apart from the work carried out by Aveos at these three locations, continues through its own maintenance and overhaul activities to comply with the provision of its articles. In that case, the judge gave strong indication that quite apart from the work done by Aveos, Air Canada would likely continue to be in compliance with its articles by maintaining certain overhaul functions through its line maintenance operations in Montreal, Mississauga, and Winnipeg.

In the absence of Aveos, it will be incumbent on Air Canada to ensure it continues to satisfy the requirements of its articles of continuance going forward, as well as its other obligations under the ACPPA and of course core safety and security requirements that apply to the industry at large.

Despite recent events, we have no reason to believe that Air Canada does not meet its obligations.

I will summarize with our conclusions.

In our view, Air Canada is in compliance with the provisions of the Air Canada Public Participation Act by virtue of the fact that it includes in its articles of continuance provisions to maintain operational and overhaul centres in Winnipeg, Mississauga, and Montreal.

Based on the opinion we received, it would appear to us that Air Canada continues to comply with its own articles of continuance despite the fact that Aveos is no longer providing the services to Air Canada. As indicated earlier, this is not a question of compliance with ACPPA but a question of conformity with the CBCA.

Thank you for taking the time to listen to me today. We would be very pleased to answer any questions you may have with regard to this matter.

I'll just note that in addition to the witnesses before you, we have invited our colleague, the director general of civil aviation, to be here, and if there are questions on safety, we would ask that he be asked to address the members, Mr. Chair.

9:40 a.m.

Conservative

The Chair Conservative Merv Tweed

Thank you very much.

Mr. Sullivan, you have seven minutes.

9:40 a.m.

NDP

Mike Sullivan NDP York South—Weston, ON

Your statement that the judge concluded that their line maintenance would in fact be sufficient is not actually true. The judge said, and I quote:

In summary I find that Air Canada does maintain operational and overhaul centres in those cities by maintaining overhaul operations under its contracts with Aveos and by itself maintaining certain overhaul functions through its line maintenance operations.

It said “and”, not “or.” It did not say “either/or”. It did not say it could drop one, and therefore be in compliance. It must do both.

I wonder if someone can explain to me how you've now come to the conclusion that the judge did not say “by maintaining...contracts with Aveos”.

9:40 a.m.

Assistant Deputy Minister, Policy, Department of Transport

Kristine Burr

Thank you very much for the question.

Given the legal elements involved, I'm going to ask my colleague, Maitre Pierre Legault, from the Department of Justice, to respond.

9:45 a.m.

Pierre Legault Assistant Deputy Minister, Business and Regulatory Law Portfolio, Department of Justice

Thank you.

The judge also said that the mechanics association had not proved that Air Canada was not in compliance with its obligations. The judge also said that it was possible for Air Canada to indeed operate maintenance and overhaul generally speaking through its own operations, and that there was no obligation to do it in a certain form.

So if you take different elements of the decision, you do come to the conclusion that in fact Air Canada can operate without Aveos. They have the obligation to maintain and overhaul in Canada, but not necessarily through a specific form.