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.
