Transport Committee on May 2nd, 2016

[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.

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

Mr. Garneau, it was Mr. Trudeau who flagged the danger posed by the quality of maintenance. It was not me.

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

I can only say that that is regulated. It is one of the primordial responsibilities of Transport Canada.

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

Minister, you mentioned a few times that the reason for the introduction of this amendment to ACPPA was to ensure that we would avoid litigation in the future. I'm wondering if you could tell us if you've thought about what may be required, perhaps future amendments, to ensure that stakeholders could take legal action should Air Canada not fulfill its commitments concerning the promised centres of excellence. What recourse will stakeholders have if commitments made in terms of a centre of excellence aren't met?

[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.

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

I want to point out that my colleague asked about meetings with Air Canada. If you go to the lobbying registry it's all registered there, who meets with whom and so that would be where we understood there were meetings between you and Air Canada or lobbyists from Air Canada and other members of your staff.

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

I'm very much aware of that, Mrs. Block. We meet with Air Canada all the time. We meet with the whole transport sector all the time.

It doesn't necessarily reflect what we're there to meet. There is a whole bunch of issues. You're asking for specifics related to this, so allow us to get back.

I will turn it over to my ADM on the ministry side.

[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]

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you.

[The Chair, Liberal, Judy Sgro]

I call the meeting back to order. Would members take their seats, please?

We have with us now Mike Tretheway, chief economist and chief strategy officer, InterVISTAS Consulting Group, by video conference from Vancouver.

Also, Peter Wallis, president and chief executive officer, Van Horne Institute, Calgary.

Welcome, gentlemen, to both of you.

Mr. Tretheway, would you like to commence?

[Mike Tretheway, Chief Economist and Chief Strategy Officer, InterVISTAS Consulting Group, As an Individual]

My name is Mike Tretheway and I'm the chief economist and chief strategy officer of InterVISTAS Consulting. We're a Canadian-founded aviation, transportation, and tourism firm. We now have offices in Canada, the United States, Europe, and Latin America. We employ about 90 people. We're an important services export for Canada. I have a Ph.D. in economics. I taught for 14 years in the transportation faculty at the University of British Columbia and I continue to have an adjunct position there.

I'd like to disclose any clients I have where there may be a conflict that might be perceived. I don't think I have a conflict. Air Canada is a past client, but so are WestJet and Air Transat and Porter Airlines and almost every airport authority in Canada, the Competition Bureau, Transport Canada, and the Canadian Transportation Agency. We've worked broadly throughout the sector and I think I bring a balanced perspective.

I only have a few opening remarks and I'm happy to address any questions. I was asked to appear. I did not solicit an appearance.

First, I note that there have been 30 years since the legislation was introduced and for me that's interesting, because in that period of time not only did I—or my wife, more technically—have a child, but I also have grandchildren now. So we're actually two generations past this legislation.

I make that point because the world in aviation is really different. We no longer see government-owned airlines in any meaningful way as we did 30 years ago, and this is especially important in the maintenance industry. This industry today is very unlike the maintenance industry of 30 years ago. This industry has evolved into huge economies of scale and specialization.

To give you an example, Air Canada's currently re-equipping with 787s. They're wonderful aircraft. They have 29 on order and I think they already have 17 delivered. When you project ahead when they're going to have heavy maintenance that will have to be done to repair and overhaul these aircraft, there's going to be an intensive period of about three years replicating the current flow-in of aircraft into that fleet right now. So going out 10 to 20 years you've going to have these waves of three years where there's going to be intensive maintenance that will need dedicated 787 specialists in parts and so forth. Then there will be years where there will be nothing to do.

What's happened throughout the world is that maintenance is now specialized. You get a range of specialists in 787s maintenance so they can even the flow out. They'll do Air Canada 10 years from now and that'll be followed by Delta Airlines or somebody else.

I view this legislation as perplexing in some ways. I'm not sure why we continue to take a carrier that two generations ago happened to have been owned by the government and it has different restrictions on it than airlines that emerged in that period of time.

I think this is a win-win situation in that this legislation will allow Air Canada to have greater competition and choices for its maintenance. If you're concerned about safety, then focus on safety regulations and don't do it by forcing a buying solution on one particular carrier. The other win is in Canada where this legislation will create incentives to build and expand Canadian-based maintenance.

I'm particularly enthused about the recent Air Canada order for the CS-300 aircraft. I personally believe this is a game-changing aircraft. It just hit the market at the wrong time and we have seen in the last few weeks two major orders being placed, one of which is Air Canada, but the largest order is Delta, which is the third largest airline in the world. They're going to be shopping maintenance on that and I think this legislation will create the incentives for building a Bombardier aircraft-type maintenance operation in Canada. I don't see a downside from this legislation. If anything, it perhaps doesn't go far enough in levelling the playing field between carriers in Canada.

I'll stop my remarks here and I'll be happy to answer any question you have after Peter's comments.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Tretheway.

Mr. Wallis.

[Peter Wallis, President and Chief Executive Officer, Van Horne Institute, As an Individual]

My name is Peter Wallis. I'm the president of the Van Horne Institute, which is a transportation institute based at the University of Calgary. The institute works very closely with industry, governments, and other stakeholders to develop programs at the post-secondary and the secondary school levels in transportation supply chain and logistics. We also do a large degree of public policy research in these fields, and it could include anything from high-speed, high-frequency rail, to aviation policy, to the movement of western Canadian bitumen by rail from Fort McMurray to Valdez via a combination of both rail and pipeline.

I'll give you a bit of information about me. I have studied aviation law for a number of years, have a degree from the University of London in aviation law. I've worked for the Canadian Transport Commission as a legal counsel in all modes of transport. I was seconded as chief of staff to two federal ministers of Transport. I worked for Pacific Western Airlines, which subsequently became Canadian Airlines, which in turn acquired CP Air and Wardair to form the major airline Canadian Airlines. My responsibilities included government relations, regulatory affairs, public affairs, and security. Government affairs included working with the Government of Canada on international aviation bilaterals. I've had the honour to serve on the board of the Calgary Airport Authority, five years as chair, and I'm now currently on the board of CATSA.

With respect to this legislation, I'm delighted to have the opportunity to be here with you. I was asked to appear. As Mike has, I should indicate that as members of the Van Horne Institute, we have Air Canada, WestJet, a number of other transportation carriers, airport authorities. The opportunity to give you some views on this legislation is a positive one. As I read this legislation, it is one step in releasing Air Canada from being bound to being able to participate unfettered in the world economy, as other carriers can.

When you look at the Emerson report, which I'm sure will be before this committee shortly, Emerson was very clear that our international airlines must have the freedom to create supply chains in and out of Canada that allow it to compete with the biggest and the best in the world, and to do so they have to be able to control their costs. Costs are one of the main components that any airline has that must be addressed. Indeed, costs are very much tied up in maintenance. Maintenance costs are around 10% to 15% of any airline's cost structure.

When I look at this legislation, I'm looking very carefully to see the degree of fettering—if that's the correct word—the degree of holding Air Canada back from being a truly competitive air carrier on the world stage, which I think we should all be searching for.

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Wallis.

We will start now with the committee's questions, with six minutes for Ms. Block.

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

Thank you very much, Madam Chair. Thank you as well for joining us today.

I want to start off with a question that was asked of one of Minister Garneau's department staff. It was about the residual benefits, if any, that Air Canada may have from its legacy status. I'm wondering, Mr. Tretheway, if you might be able to comment on that. Do they continue to have any residual benefits from their legacy status?

[Peter Wallis]

Perhaps I could take a quick run at that one.

I think that at the outset there were significant legacy benefits. They were identified by one of the honourable members. These benefits included unfettered aircraft balance sheets, completely free of debt, and indeed some of the proceeds coming from the offering to Canadians of those shares. I think all of that is behind us now, and I don't see any residual benefits that might be identified from that particular venture many years back—I think it was in the Mulroney government.

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

Okay. Perhaps we could drill down a little bit and talk about the weekly slots that Air Canada has at a number of major airports. Do you not see that as a residual benefit?

[Peter Wallis]

When I worked with Canadian Airlines we actually worked with Air Canada, at the recommendation of the Honourable John Crosbie, to sit down and try to determine, on behalf of the country, which carrier would be the best operator of services into different countries in the world. We were able to do that, so the slots basically continued from that particular initiative.

So I'm not entirely sure I would say that there is any real residual, other than what was agreed upon at that time.

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

Okay. Thank you.

Mr. Tretheway.

[Mike Tretheway]

First of all, slots are complicated. Often if you have a major carrier at an airport, their adding a flight actually creates more connectivity than a totally new carrier. That's why at most airports the slot rules are: for any new slots, half the slots go to the incumbent because of the benefits there, and then half go to new entrants into the market to create competitive access.

We have to remember that Air Canada did go through bankruptcy and in that process they reduced service at Toronto, which opened a lot of slots. In fact, that was the time when WestJet made its major move from Hamilton. They still have a presence in Hamilton, but they developed a major operation at Pearson Airport because they utilized freed-up slots.

On the slots issue, also, there are other aspects. If we look at Toronto Island, for example, Porter Airlines there has the overwhelming majority of slots. With any new slots that become available, Air Canada would presumably get access to half, but an agreement between the federal government, the city, and the port authority has strictly limited the number of operations at the island. Porter got those slots originally. I can't speak for Air Canada but my understanding is that they would actually like to get in there.

If I can just make one last comment about the previous question, as an economist I always think in terms of things like depreciation rates, and so forth. I'd suggest that after 30 years if there were any benefits to Air Canada they have probably fully depreciated. In terms of any benefits to their shareholders from the aircraft or whatever, as has already been observed, those aircraft are long gone and Air Canada went through bankruptcy so the original shareholders frittered away their benefits, shall we say. They're long gone and I think we have to look at the way the world is today.

[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.

[Peter Wallis]

I think what I was saying is that this particular amendment, given a wide reading, would allow Air Canada to enter into that wider competitive environment that it's going to find itself in when it comes to having to seek out the best possible price—which Mike talked about—for the maintenance of its airframes, and the maintenance of the very intricate and delicate avionics that come with all of the new generation equipment, including the Bombardier series of airplanes. That's really to what I was referring.

You're going to have to hear from Air Canada on this as to how they plan to work within the clauses—it's been revised and added to—to ensure that it can remain competitive, but at the same time deal with the specific provisions that one might say could be construed as an encumbrance.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Wallis.

Mr. Badawey, you have six minutes.

[Vance Badawey, Liberal, Niagara Centre, ON]

Thank you, Madam Chair, and thank you, gentlemen, for being with us this afternoon.

Gentlemen, how do most airlines handle their maintenance? Is it done in-house or are there centres of excellence where they'll work on one type of aircraft?