Transport Committee on April 30th, 2019

[The Chair (Hon. Judy A. Sgro (Humber River—Black Creek, Lib.)), Liberal, Judy Sgro]

I call the 139th meeting of the Standing Committee on Transport, Infrastructure and Communities to order.

Before we go on to today's agenda, I have two study budgets that I need support from the committee for adoption: $15,200 for Bill C-97; and $1,500 for a study of American-plated vehicles, which your colleague requested we look at.

All those in favour of the two study budgets that are before us?

[Some hon. members]

Agreed.

[The Chair, Liberal, Judy Sgro]

We had a subcommittee meeting prior to this, and it was agreed that the meetings of Tuesday, May 14, and Thursday, May 16, be devoted to the study of the Canadian transportation and logistics strategy.

It was also agreed that the meeting of Tuesday, May 28, be with officials from Indigenous Services on the delivery of infrastructure to indigenous communities, with an hour on the draft report for bus passenger safety.

It was also agreed that the meeting of Thursday, May 30, be on the consideration of the draft report on bus passenger safety.

It was also agreed that the meeting of Tuesday, June 4, be on the study of the national corridors fund initiative.

It was also agreed that the meeting of Thursday, June 6, be on the consideration of the draft report on the Canadian transportation and logistics strategy, Atlantic Canada and Quebec.

It was also agreed that the meetings of June 13, 18 and 20 be devoted to the study of Canada's requirements for passenger rail service.

With those revisions, that takes in everything that we currently have on our calendar. We're going to be here until at least the 20th, I gather, at the rate we're going, so we'll get our work done.

Are there any comments on that? That's the proposed work schedule that was adopted by our subcommittee this morning.

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

Will you circulate that to the members as soon as possible?

[The Chair, Liberal, Judy Sgro]

Exactly.

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

Could I also add one other comment before we hear from our witnesses?

Given that we have a vote scheduled for 11:48, and knowing that we like to give ourselves about eight minutes to get over to the chamber, that's going to take 20 minutes from this panel. Can we rebalance the panels a bit so that we're not losing 20 minutes from one panel, but perhaps come back and provide an opportunity to hear more from these witnesses before we move into the second panel?

[The Chair, Liberal, Judy Sgro]

If we needed to go to 1:15, would that be all right with everyone? This way we wouldn't lose any of the testimony.

[Some hon. members]

Agreed.

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

Thank you.

[The Chair, Liberal, Judy Sgro]

Yes, Ron.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

One of the things that concern me in studying these clauses is that we haven't scheduled any department officials to testify. Could we look at taking an hour out of one of the next two meetings where we have the pilotage clauses to study and have department officials appear before this committee to rationalize some of the numbers that I think we're going to hear from our witnesses today?

I think you're going to see, judging by some of the comments that have been made, some real concerns around costs, how costs are being allocated and transferred. I don't see any opportunity for us to ask questions of department officials on how they came up with this model.

[The Chair, Liberal, Judy Sgro]

Department officials will be here with Nav Canada on May 7 for one hour. It may not be listed, but that's what that meeting is.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

Thank you.

[The Chair, Liberal, Judy Sgro]

Unfortunately, we cannot go beyond one o'clock, because there's another committee coming in at one o'clock. We will have to do our best to get all the information we can and see how we can ensure that everybody gets their time.

I will go now to our witnesses at the table.

From Air Canada, we have Ferio Pugliese, senior vice-president, Air Canada Express and government relations. From WestJet, we have Jared Mikoch-Gerke, aviation security adviser. From Air Transat, we have Howard Liebman, senior director, government and community affairs. From the National Airlines Council of Canada, we have Massimo Bergamini, who we all know very well.

I understand, Mr. Bergamini, you would prefer to go first. The floor is yours for five minutes.

[Massimo Bergamini, President and Chief Executive Officer, National Airlines Council of Canada]

Thank you, Madam Chair and committee members.

My name is Massimo Bergamini. I'll move right into my presentation.

The National Airlines Council of Canada represents Canada's four largest airlines—Air Canada, Air Transat, WestJet and Jazz Aviation.

1 am pleased to be joined on this panel by representatives of three of the charter members of our organization, who will each speak to aspects of this legislation and the related process.

The National Airlines Council of Canada was created to do four things: facilitate industry consensus on key issues; act as a conduit with governments; develop and advocate for policies that support a safe, efficient and globally competitive aviation industry; and perhaps most important, provide a window on our industry and the ecosystem in which it operates.

Today I'm going to ask you to look through that window for a moment to consider the following proposition. The reason today flying is safer than walking to work, or that millions of people move across continents every day, taking off and landing with clockwork precision, is that there is no room for impatience, shortcuts or improvisation in commercial aviation.

lt's probably fair to say that to the legislators and regulators around the world who expect no less from their commercial aviation sectors, this a true proposition. They would say that.

Now let me ask you to consider whether that proposition carries any implications for your committee, for Parliament, or for the government. Because here we are, six months before a general election, discussing an aviation policy bill buried within a money bill—and we know what that means—after our industry was told that the government expects the whole process to be signed, sealed and delivered by April 1, 2020.

Let there be no mistake, any suggestion that this process mirrors the successful transfer of air traffic control functions to Nav Canada in 1996 is disingenuous at best. lt may be true that the bill that created Nav Canada was also embedded in the enabling legislation for budget 1996, but the similarities end there. The success of the Nav Canada model was the result of almost two years of tough negotiations, with almost weekly meetings where everything was on the table. Unlike the bill we have in front of us today, which is designed to expedite by government fiat the off-loading of airport security screening functions, the Nav Canada bill followed, reflected and finally enshrined in law the outcome of those negotiations.

Let me illustrate with two examples why this matters.

The Nav Canada bill of 1996 provides compensation for incremental costs stemming from ministerial directives. The bill you have before you does not. This is particularly important for us as it relates directly to one of the three key caveats we raised with the government in 2017, namely the need to recognize the impact of security shocks on the operations and funding of the new entity in order to protect the traveller's pocketbook.

We know that real and potential security threats can cause the imposition of new screening requirements resulting in additional costs. CATSA itself was created in response to such an event, as you know.

A security event in December 2009—the so called "underwear bomber"—prompted an increase in user fees the following year.

The second example relates to transition funding. Both the Nav Canada bill of 1996, and the security screening services commercialization act set a dollar amount to offset operating costs incurred before the new entity is able to secure an independent revenue stream.

The difference, and it's an important one, is that the level of transition funding provided to the fledgling Nav Canada was determined following negotiations and reflected a mutual understanding of what would be required for a successful launch.

While budget 2019 allocated $872 million for transition costs, we do not know how that quantum was arrived at, whether it includes ancillary costs such as the air marshal service or the CTA's new responsibilities, or whether it reflects current service standards or the start-up costs of the new organization.

Those are but two examples. There are others, but for now, let's dispose of the talking point that this bears any resemblance to the Nav Canada experience.

ln 2017 when Transport Canada surveyed industry stakeholders on governance and business model options for CATSA, our industry supported the transfer of its functions to a not-for-profit entity, in principle. As you will see in annexes 1 and 2 of this presentation, we did so with a number of serious questions and caveats.

Instead of engaging with our industry and other stakeholders to address them, for two years the government chose to leave those questions a dead letter. Now, as our industry is grappling with major operational challenges stemming from the grounding of the Max 8, the implementation of new flight duty times rules, and the impossible task of complying by July 1 with prescriptive new passenger rights rules, we are again confronted with a government-imposed deadline and process.

Surely no one would suggest that this way of conducting government business meets the standard of unhurried, prudent decision-making that our air carriers are expected to exemplify.

This brings me back to my original question to you: what are the implications of all this for you as parliamentarians and members of this committee?

As this is a money bill, there are limits to amendments you can introduce to improve it. That remains the prerogative of the minister, but you can use your bully pulpit to signal to the minister that you support an open, unhurried negotiation process, and that the bill must be amended to allow that process to begin.

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Bergamini.

We'll go on to Mr. Liebman.

[Howard Liebman, Senior Director, Government and Community Affairs, Air Transat]

Good morning.

Thank you, Madam Chair and members of the committee.

My name is Howard Liebman. I am the Senior Director of Government and Community Affairs, and I represent Air Transat.

By way of introduction, I want to express support for the presentation of our association, the National Airlines Council of Canada, and thank our president and chief executive officer, Massimo Bergamini, for his testimony.

Air Transat is the second largest international passenger airline service in Canada. It is based in Montreal and also has secondary bases in Toronto, Vancouver, Calgary and Quebec; it provides airline services at over 20 transit points in Canada, toward 65 popular destinations, with a fleet of 35 large commercial carriers and over 3,000 dedicated on-board staff throughout the country.

In 2018, we transported more than four and a half million passengers, and our commitment to service excellence was recognized when we were chosen as the recipient of the Skytrax award for best leisure airline in the world.

We are currently transitioning to an all-Airbus fleet, with the imminent arrival of our first, and North America's first, fuel-efficient Airbus A321neo long range.

This commitment to serving and providing the best possible experience to our passengers has been part of our collective DNA since we first flew in November 1987.

Airport security screening is a vital component of the overall aviation ecosystem. There is no alternative for all stakeholders—for travellers, air carriers, airports and government—but to get this right.

We take note of the comments you just heard from the airlines council that omnibus budget Bill C-97 has raised crucial questions in such areas as funding and governance and that, consequently, it is imperative that this process not be rushed.

Air Transat stands ready to marshal our three decades of expertise to engage constructively on this, and we underline that this process merits the full attention of this honourable committee, to ensure that Canada maintains a safe, efficient and productive airport security screening system. We're instructed by the precedent of the commercialization of air navigation services in Canada, and are mindful of the roughly two-year timeline in establishing Nav Canada.

I will close my opening statement by taking a step back to share with you some important context. As our industry engages in this process with the necessary expertise and resources, it is imperative that this committee appreciate the breadth and magnitude of concurrent regulatory initiatives targeting the airline industry. They include air passenger protection regulations, new pilot flight duty time regulations, clean fuel standards and related environmental initiatives, accessibility regulations, consultation on equal remuneration for federally regulated contract workers in the air transport sector, and more.

I wish to underline that this is in no way a critique of any of these important initiatives. On the contrary, the industry is deeply engaged on each one. The point here—and it's a crucial one—is that all of these significant regulatory changes are happening in parallel. In addition to the overriding imperative of safety and security, which must never be compromised, there is a capacity issue to ensure all stakeholders get this right.

Let us not lose sight of the fact that the airline industry is an economic locomotive for the Canadian tourism industry and, indeed, for the entire Canadian economy. The individual and cumulative costs of these regulatory initiatives—borne by users, by the industry, but let's face it, ultimately by travellers—must be fully considered.

Thank you very much, Madam Chair.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Liebman.

We go on to Mr. Pugliese.

[Ferio Pugliese, Senior Vice-President, Air Canada Express and Government Relations, Air Canada]

Good morning, honourable Chair and members of the committee.

Good morning everyone.

My name is Ferio Pugliese. I am the senior vice-president of Air Canada Express and government relations.

First I want to thank you for giving us the opportunity to appear before you today.

I'm here before you today to discuss what we believe, if done right, to be one of the single most important changes to air transportation in Canada since the devolution of airports.

The proposal to create a new designated screening authority, DSA, to replace CATSA in Bill C-97, comes after years of industry and public requests to improve the system, based on thoughtful examination by airlines, airports and the travelling public. Transport Canada has been supportive of our work in this area, and we're pleased to see significant movement in this regard.

Before I dig deeper into the topic of the new screening authority, I'd like to share with you a bit of context about Air Canada.

Just over 10 years ago, coming off the verge of bankruptcy, Air Canada embarked on a vision to transform itself into a Canadian global champion. Last year, we served over 51 million passengers, a 65% increase since 2009. We now serve 220 destinations across six continents, having added 120 new routes in the last five years alone. Based on our growth, our three main Canadian hubs now rank in the world's top 50 most connected international cities. Aside from Canada, only the United States and China, the two largest markets for air service, have three or more cities in this select ranking. Air Canada remains committed to advancing this vision.

Recent economic impact studies by KPMG and InterVISTAS have identified our total economic output to be $47 billion, including a net impact of $21 billion to the GDP of Canada and over $1.9 billion in direct tax revenues to governments.

Our 36,000-member team, 6,000 of whom were hired only in the last three years, support this growth, and without these dedicated individuals we could not deliver our product to our customers. In total, our operations support 190,000 jobs across our country. Our commitment to serve communities and customers underscores our vested interest in ensuring that CATSA reform meets the needs of the industry, and most importantly the travelling public.

A new model is necessary to improve efficiencies and reduce wait times, delayed departures and missed connections for travellers. Current inefficiencies have resulted in lost economic opportunities and contributed to a worsening perception and inferior travel experience for customers travelling through and within Canada.

While this reform is welcomed, Air Canada cautions that in order to get it right, it must be done in a thoughtful, well-planned and fiscally responsible manner. We encourage the committee to take the time required to coordinate and have thoughtful consultation from all parties.

We're concerned by the provision that allows for the sale of CATSA assets to the new DSA and the impact it will have on the cost to travellers. We do not support having the balance sheet of a new entity that is burdened with long-term debt in the transfer of assets. It is suggested that these assets will be transferred at a negotiated value, of which the new entity will need to use operating revenues derived from rates, fees and charges to not only cover operating expenses but to also service its newly acquired significant debt.

The consequences are simple: increased cost of travel and reduced funding for necessary investments in technology, processes and practices. We have one opportunity to do this right, and the closest proxy we have to this is the government transfer of the air navigation system to NavCan back in 1996, which was done with adequate time and consultation. We suggest a similar approach with CATSA reform.

Finally, I wish to highlight and remind the committee that air transport is also undergoing the most active, dynamic period of regulatory reform since the early 1990s. Among other reforms, industry is currently working with government to finalize the air passenger protection regulations, APPR.

Government's timelines on this policy are simply not realistic, and quite frankly are irresponsible, for the following reasons: rushed implementation without consideration of operational realities leading to unintended consequences; policy based on flawed and inaccurate regulatory impact analysis statements; and, air travel, again, that will get more expensive and less accessible for Canadians.

Finally, our airline, along with others, is facing one of the most significant challenges the industry has faced since 9/11: the grounding of the Boeing 737 Max. As a result, resources are fully dedicated to managing schedules, preserving service and managing route suspensions. While our team has done an excellent job in recovering our operations, the strain on resources is significant, leaving little capacity to deal with other issues.

As well, a significant level of resources is needed as the airline prepares customers and operations for the eventual re-entry of service.

To top that, the industry is now being asked to embark on a significant CATSA reform at an expedited pace. To suggest that complex negotiations begin in short order is undermining not only to the industry, but to the travelling public, and will lead to inferior outcomes.

Before we embark on the next stages of CATSA reform, we implore you to consider the following recommendations: First, allow this industry to get past the Max grounding. Second, delay the implementation of the APPR to provide for more and much-needed consultation. Third, in the coming months, allow airports and carriers enough time to consider how to create an industry-leading screening authority that begins with the transfer of assets at a nominal value.

Air Canada supports this CATSA reform, done right, which means that consultation and careful consideration of legislation must take place. This cannot be done with the introduction of provisions in the budget omnibus bill where we have virtually no ability to make changes.

[The Chair, Liberal, Judy Sgro]

Thank you.

We'll move on to WestJet and Mr. Mikoch-Gerke, but before we start, the vote has been called. Do we have permission to continue to the eight-minute mark?

Thank you all very much.

Mr. Mikoch-Gerke.

[Jared Mikoch-Gerke, Advisor, Aviation Security, WestJet Airlines Ltd.]

Thank you, Madam Chair and members of the committee, for the invitation to speak with you today.

My name is Jared Mikoch-Gerke, and I'm an aviation security adviser for WestJet. In my capacity, I serve as a subject matter expert on all legislation and regulatory policy surrounding aviation security across our global network, and I'm the primary liaison with CATSA in its current form.

I represent WestJet on several Transport Canada-led working groups and committees related to the reform and development of aviation security policy. I also serve as the chair of the security and facilitation committee of the National Airlines Council of Canada.

WestJet is in the midst of a significant evolution, from the carrier that launched in 1996 with only three aircraft and served five destinations in western Canada, to today, when we operate over 700 flights a day. We have a fleet of 180 aircraft that carry nearly 80,000 guests daily throughout our growing international network.

We are the second-largest air carrier in Canada, and the safety and security of our guests is at the absolute core of what we do. For this reason, we are passionate about the subject at hand.

In 2017, when Transport Canada first announced that it would examine new business and governance models for CATSA, I represented WestJet and NACC on the Transport Canada-led security screening working group with our airport colleagues.

Throughout 2017, we reviewed and assessed four different options, one of which was transitioning CATSA back to a non-profit, non-share capital corporation and establishing it in a similar framework to Nav Canada. Our analysis of the different models was based on seven principles, which can be broken down further to three main elements:

First, security must never be compromised. Screening must be effective and responsive to new threats while capable of delivering internationally competitive screening standards with 95% of all passengers screened in 10 minutes or less and none waiting longer than 20 minutes.

Second, the entity must practise the highest standards of corporate governance and public accountability, ensuring the availability of services is not a barrier to investment, operations or growth.

Third, consistent funding is required over a multi-year period to support capital investment innovation in a consistent national standard, along with a fully funded transition period to ensure there are no sharp cost increases on passengers or industry.

At the outset, we supported the development of a new non-profit corporation similar to Nav Canada, with some important caveats. While we continue to support this in an ideological sense, we have several concerns that we believe are important for this committee to consider and understand.

Upon review of this bill, and when relating it to the enacting legislation for Nav Canada, there are several differences that need to be acknowledged. As we know, CATSA was created in the aftermath of September 11, an event that drastically changed air travel as we know it. Additionally, there were other events that also drove significant changes to aviation security screening.

We had the underwear bomber plot, which resulted in the liquids and gels screening we have today, the shoe bomber plot, which resulted in the requirement to remove shoes for screening, and others, which have changed security screening over the years.

These events resulted in almost immediate changes to screening requirements to ensure the safety of passengers while instilling public confidence. They often come with significant costs. It is critically important for the entity to be agile and responsive to new threats; however, to do so also requires financial guarantees.

We understand the requirement for the entity to implement any directions issued, or to provide screening at aerodromes designated by order of the minister. However, we firmly believe that, like Nav Canada, there should be financial protections in place from the government should the changes result in a financial loss to the entity, either by means of financial compensation or the establishment of a contingency fund.

As we know, aviation security is incredibly susceptible to significant external shocks and we must ensure that the entity is financially stable to sustain such events. There are also several other elements that we do not have any insight into, but are crucial to the success of this new entity.

With respect to the assets and equipment currently owned by CATSA, we maintain the firm belief that these assets should be transferred at a nominal value since they have been paid for by Canadians through the air travellers security charge, or ATSC. By transferring the assets at book value, the costs are going to be passed on to consumers, who will pay for them again.

With respect to the ATSC, we believe this tax should be repealed once charges are established by this entity, but there is no clarity on what will occur with it. Maintaining the ATSC alongside the new charges will only drive up the cost of air travel for our guests who must pay for these services.

The legislation also does not provide any detail on how the transfer of current employees is to be carried out. There is nothing specifying how to deal with current collective agreements, bargaining agents or obligations to provide services in the event of a work stoppage. There are no commitments on pension liabilities or severance pay. For this entity to be successful, we believe these elements need to be carefully considered and evaluated.

In conclusion, we want to acknowledge that CATSA has served its role as best it could. However, the point of failure has been that all funds generated by the ATSC have flowed into general revenue without proper appropriations back to CATSA—while generating a windfall of nearly $650 million to the government between 2010 and 2017.

While we are encouraged by the capability of the entity to set its own charges for multiple years, we are concerned about some unknowns that exist, which will determine the true cost for this transfer to the industry and the travelling public. These elements need detailed consideration that must not be rushed, as is proposed. Rather, we must work with our industry colleagues and government to ensure that the negotiation of this transition is approached in a methodical and calculated manner. This will guarantee that the result is an entity best established to serve the industry and travelling public with internationally competitive costs and service delivery levels.

Thank you for your time.

[The Chair, Liberal, Judy Sgro]

Ms. Block, you have five minutes for questioning.

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

Thank you very much, Madam Chair.

I want to thank all of our witnesses for joining us today. Your testimony is deeply alarming, when you consider a brief mention in a budget and then the fact that this is included in the budget implementation act.

Mr. Bergamini, in your remarks you touched on several headwinds the Canadian airline industry is facing. I'm wondering if you would add the federal carbon tax to that list of government-made challenges.

[Massimo Bergamini]

The answer is yes, again because of the uncertainty that we're facing. We really do not know at this point what the next three or four years will look like with respect to carbon pricing for our industry, so it is a collection of challenges that are coming at us at this critical juncture in our history, and it's problematic.

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

Regarding this legislation and the new security screening entity, you described a very rushed process, as have the other witnesses who are before us today. Are there any other examples of the government rushing either legislation or regulations through, which impact this industry without consideration of the practicality of the airline industry's ability to implement them? I'm thinking you might want to touch on the air passenger protection regulations because my understanding is that the deadline is looming very close. I guess I'd ask you to answer “Why the rush?” from your perspective.

Anyone can answer.