Transport Committee on May 7th, 2019

[The Chair, Liberal, Judy Sgro]

Ms. Wiebe, would you like to go forward?

[Sara Wiebe, Director General, Air Policy, Department of Transport]

Madam Chair, we thank you for the opportunity to speak to committee members today about the security screening services commercialization act and to highlight some of the important considerations that went into its development.

Although CATSA staff works tirelessly and with great professionalism, it is our opinion that the proposed change would create a new entity with an organizational structure that will allow it to be better positioned to carry out the security screening currently provided by CATSA in airports.

As a Crown corporation, CATSA has to meet significant challenges in optimizing its ability to achieve the level of innovation and flexibility that will allow it to improve airline passengers' experience and react more effectively to fluctuations in passenger numbers and to constantly evolving needs.

The proposed legislation on the privatization of security screening services is intended to resolve those problems by permitting CATSA to sell its assets to a private, not-for-profit company that would be contracted to carry out the security screening currently provided by CATSA in airports.

The government chose that model on the basis of an in-depth analysis of the different models used around the world, consultations with the industry in 2017 and the successful sale of air navigation systems in Canada when it created NAV CANADA in 1996.

I must emphasize that the sale of CATSA assets to this private, not-for- profit company would not compromise security in any way. The Minister of Transport retains his powers over the regulations on aviation security and Transport Canada will continue to play an exclusive role in the regulation and oversight of the security screening services in Canadian airports.

The SSSCA achieves four main objectives.

First, it allows for the sale of CATSA's assets and liabilities to a private not-for-profit corporation. This corporation would be designated by the Governor in Council pursuant to the legislation. It is referred to in the legislation as the designated screening authority, or DSA.

Second, the legislation provides that the DSA will be the sole provider of the security screening at airports, unless the DSA specifically authorizes a screening contractor to provide such services. This will ensure that no other persons or entities can provide airport security screening services other than the DSA or an authorized screening contractor.

Third, the legislation also includes an economic regime to regulate the DSA's charges. As designed, the regime would help to ensure transparency and accountability with regard to the setting of charges. Similar to Nav Canada's legislation, the SSSCA requires the DSA to set charges based on a set of legislative charging principles, and provides interested parties with an opportunity to object to the charges through the Canadian Transportation Agency.

Finally, the legislation allows for the winding up of CATSA's affairs. Once CATSA's assets and liabilities have been sold, CATSA, as a Crown corporation, would be wound up.

This legislation does not create the DSA. Industry would be responsible for incorporating the corporation that would be designated as the DSA under the Canada Not-for-profit Corporations Act. Government and industry would negotiate certain key provisions that would be set out in the constating documents, that is, the articles of incorporation and bylaws of the corporation.

I would like to take a few minutes to address some of the comments made by industry when they appeared before this committee on April 30, 2019.

There was concern about unreasonable timelines. While the government took two years to resolve the discussions with industry to result in the creation of Nav Canada, I suggest to you that the commercialization of airport security screening would not take as long. The government has already been through this process with Nav Canada, and we are applying lessons learned from that initiative.

The Nav Canada asset sale transaction was complex. It involved, for example, the sale of many parcels of land and extensive assets, and also affected thousands of public servants.

I will also remind this committee that industry has repeatedly signalled the need to strengthen CATSA services as among its top priorities for a number of years.

There was concern that the government did not undertake sufficient consultations. We undertook thorough consultations with industry on different models in 2017. We briefed them immediately after the budget announcements, and we took them through the legislation immediately after the budget implementation act was introduced.

There was concern that the legislation did not include details such as the implementation dates. In the briefings that we undertook with industry, we clarified that this type of information would be part of the negotiations. The legislation enables this initiative. It does not set out the terms and conditions of the sale, as this will be the subject of extensive negotiations with industry.

The Canadian Airports Council also raised two specific comments relative to the legislation. They refer to the charging principle referred to in paragraph 26(1)(d), which provides “that charges may be used only to recover costs for security screening services”.

It is our interpretation that this provision does permit the new corporation to raise funds to support innovation as part of the rationale for the setting of service charges. They refer to subsection 24.1 that provides that the DSA may establish charges on passengers or persons other than passengers who are required to undergo security screening under the Aeronautics Act. This element of the legislation does not impose an obligation on the DSA, but is discretionary so as to give the DSA flexibility to charge for services provided to both passengers and non-passengers, if it chooses to do so.

Currently, the government has proposed that the sale of the assets take place on March 31, 2020, on which date the designated screening authority (DSA) would be tasked with providing airport security services.

[The Chair, Liberal, Judy Sgro]

I'm sorry, you'll have to complete your deposition afterwards.

Mr. Liepert.

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

My apologies, I was told there were—

[The Chair, Liberal, Judy Sgro]

Okay, Mr. Liepert. Let me give you—

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

I was told there were five presentations.

[The Chair, Liberal, Judy Sgro]

Yes, there are. I'm just trying to make sure we give everybody some time here.

We'll go on to Ms. Fitchett. I'm just watching the clock.

Please take no more than five minutes.

[Nancy Fitchett, Vice-President and Chief Financial Officer, Canadian Air Transport Security Authority]

I will be quick, thank you.

Good afternoon, ladies and gentlemen.

My name is Nancy Fichett, Acting Vice-President of Corporate Affairs and Chief Financial Officer at the Canadian Air Transport Security Authority, also known as CATSA. I'm pleased to be here with my colleague Lisa Hamilton, Vice-President of Corporate Services, general counsel and corporate secretary.

CATSA is an agent Crown corporation funded by parliamentary appropriations and accountable to Parliament through the Minister of Transport. As Canada's designated national security screening authority, CATSA is mandated by the Government of Canada to protect the public by securing critical elements of the air transportation system.

CATSA is supportive of the security screening services commercialization act contained in Bill C-97. We will continue to support Transport Canada in the transition to a not-for-profit designated screening authority while maintaining seamless operations and focus on communication with our employees.

Ms. Hamilton and I would be pleased to answer any questions you may have that fall within our purview.

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

We'll go on to Mr. Wilson for Nav Canada.

[Neil Wilson, President and Chief Executive Officer, NAV CANADA]

Thank you, Madam Chair.

Good afternoon to everyone.

Thank you for the invitation to share elements of what I view as a success story at Nav Canada in moving a critical functional operation out of government—a model for what is before you in clauses 270 through 279 of this bill.

As someone who was involved since the beginning at Nav Canada, I'm happy to share this experience with the committee to provide context to the model and its possibilities, but I note, importantly for the record, that Nav Canada does not hold a position related to CATSA's commercialization.

On November 1, 1996, Nav Canada became the owner and operator of the Canadian civil air navigation system, or ANS, purchasing the system from the government of the day for $1.5 billion. Today, Nav Canada remains one of the only fully private companies in charge of air traffic control-related services typical of such a provider. The Nav Canada model serves as the organizational and corporate basis for safely and efficiently managing what is the world's second-largest ANS in terms of air traffic movements. Of course, within that model, we continuously seek to improve our relations with all those affected by our operations.

For today's purposes, looking back, the question is, what was behind this model? Simply put, by the 1980s Canada's air navigation system was not working as well as it needed to. While there were areas of excellence such as its operational people, the infrastructure needed renewal and major system projects were falling behind under escalating costs. System delays were increasing, and efficiency was decreasing. All of the stakeholders, including airlines, employees, and indeed the government itself, were unhappy and change was needed.

An analysis of the issues found a government department with highly skilled and motivated people operating under traditional government rules and constraints while attempting to deliver an essential service in real time to a vital and hyper-competitive sector of the economy. Quite simply, it could not keep up—nor, in fairness, was government designed to allow that at that time. Further, in a world of competing government budgetary priorities, the ANS became chronically underfunded over time, and the result was an inability to manage a system that lived up to its requirement.

The stakeholders in the air navigation system came up with the following conclusions. First, band-aid solutions would not work and a paradigm shift was needed. Second, the ANS was in fact a service provider to customers and should be operated and guided by commercial principles. Third, there was no reason that the air navigation system could not operate safely in accordance with independent safety regulation by government, just as airlines did and do. Indeed, by separating the operator of the system from the regulator, an inherent conflict of interest between those separate functions could be eliminated. Finally, the ANS needed to have certainty of adequate funding and the ability to control its costs.

All stakeholders came to these conclusions, as there truly was a consensus that change needed to happen. This included not only commercial carriers and business aviation and general aviation, but also air traffic controllers, airline pilots, bargaining agents of other ANS employees, and of course the government itself representing the public interest.

Ultimately, these groups together made fundamental decisions that formed the cornerstones of the process: first, that the ANS should be commercialized; second, that key stakeholders had to ensure that aviation issues were understood by the new operational entity; and finally, that each group had to work together for the common goal and respect the others' legitimate but sometimes differing interests at all times. This is ultimately the foundation of our corporate governance structure at Nav Canada.

This governance structure works in concert with two other elements. First is legislation. The Canadian Civil Air Navigation Services Commercialization Act, or CANSCA, was brought into force at the same time. It facilitated the transfer of the system and established our service and rate-charging mechanisms. The bill before you today is markedly similar to CANSCA. The final essential element complementing corporate governance in the legislative framework is the regulatory framework—a framework focused on performance and results, and not on prescription of how the system and the business must be run.

If we fast-forward to today, Nav Canada remains unique and is admired for its structure around the world. We are a private, non-share capital corporation whose governance reflects the needs of the stakeholders we serve. We are driven by our focus on safety and providing value to all our stakeholders, and our standard of safety is regulated appropriately on a performance basis by Transport Canada. Our secure, stable financial model gives us the agility to mobilize funds and seize opportunities in real time. We sell our technology and data, we invest in game-changing initiatives like space-based ADS-B, and we continuously invest to maintain Canada's ANS infrastructure at the cutting edge. We have a reputation as a global leader in safety and technology.

We are also recognized as one of Canada's top employers. The structure we built gives us purpose, focus, and a system of checks and balances that enable success. However, I cannot overstate that at the end of the day it's our people, and their performance within this structure, who have delivered these results.

Thank you, Madam Chair. I'd be happy to take any questions from the committee.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Wilson.

On to Mr. McKenna.

[John McKenna, President and Chief Executive Officer, Air Transport Association of Canada]

Good afternoon.

My name is John McKenna. I'm President of the Air Transport Association of Canada.

ATAC has represented Canada's commercial air transport industry since 1934. We have approximately 180 members engaged in all levels of commercial aviation operating in every region of Canada.

We welcome the opportunity to present our comments on Bill C-97, as the privatization of passenger screening in Canada is a key aspect of the passenger experience.

Let me state from the outset that we support the transformation of CATSA, or in this case the creation of a new DSA, if it is to be granted the necessary tools both to maximize efficiencies both in the short term and to be able to keep pace with the growth of our industry. We wholeheartedly endorse the comments made before this committee by the National Airlines Council of Canada on April 30.

Two years ago Transport Canada invited us to comment on the governance and funding models it was considering for what was then referred to as CATSA 2.0. The consultation identified four models, ranging from an enhanced and modernized current model wherein CATSA would remain a Crown corporation with a dedicated air carrier security charge; a non-appropriated Crown corporation wherein CATSA would remain a Crown corporation but would gain new responsibilities to set and collect fees to directly fund its operations and where fees could potentially be differentiated among airports; and an industry-led entity, the Nav Canada model, which would transition CATSA to an independent non-share and not-for-profit entity that would set its own fees and business plans. In the latter model, the government would continue to set security standards and regulations and would inspect operations. Finally, there was a designated delivery by airports model wherein airport authorities would become responsible for security screening and recovery of the costs from airport users to fund operations at their respective individual airports.

It was obvious from the very first meeting with Transport Canada and Finance Canada officials that the NAV CANADA model was going to be preferred. It was so obvious that, shortly afterwards, CATSA retained the services of John Crichton, who led the NAV CANADA negotiating team throughout that 18-month transaction process.

Today we are faced with a reversal of the successful Nav Canada process. While the bill establishing Nav Canada was drafted at the end of the negotiation process and reflected the collected stakeholder recommendations, the process we are faced with now is quite the opposite. A simple construction analogy would be that the roof and walls are being put up before the foundation is set.

Given the short time at my disposal, I will only comment on the financial impact on passengers and our industry. A price tag of $500 million is being shamefully attached to this privatization in an effort by the government to cash in on CATSA's book value. Again, to use a construction analogy, we could say that the government wants to sell back to passengers the house they have already paid for twice. Twice because CATSA has generated well over $500 million in surpluses over the CATSA budget allocations even in the past five years.

Transport Canada tells us that the book value price is non-negotiable. We believe that anything other than a nominal price of one dollar is not acceptable and could very well compromise the process. A solid precedent was set when the government divested itself of hundreds of airports across Canada under a previous Liberal government.

Another concern is that to pay this shameful price tag, the new DSA will have to include the debt payment when settling the new passenger screening charge. Need I remind the members of this committee that Canada already has one of the highest, if not the highest, aviation security charge in the world?

Finally, when asked, the government did not deny that it would probably seek compensation for the loss of the hundreds of millions generated by the ATSC surpluses. This is probably why Bill C-97 doesn't abolish the ATSC currently being collected. If not through the current ATSC, added to the new fees charged by the DSA, how would the loss of this general revenue be compensated if not by additional fees and charges to our passengers and carriers?

I have only raised some of the serious industry financial concerns in this matter, but that is not to say that we don't have operational and governance concerns that need to be addressed. Containing the costs to the public levied by the DSA is critical to maintaining Canada's competitiveness in the North American economy and to address the leakage to the U.S. market of travellers seeking cheaper fares. lt is government's responsibility to ensure that its policies support rather than hinder the competitiveness of the air transport services in Canada, much in the same way it continues to do so for passenger rail travel.

Once set, the new DSA will be in place for the next 10 to 20 years. Canadians deserve that this process not be governed by an electoral agenda and that all concerned take the time required to develop a strong, efficient, autonomous, transparent and well-governed model. We are not satisfied at this point that this is the case.

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you, Mr. McKenna.

We'll now move to Mr. Liepert for five minutes.

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

Thank you, Madam Chair. You scared me initially. I apologize for all the things that were flying around here.

Ms. Wiebe, I'm not here to defend Canada's airlines, but they certainly raised a number of issues last week that Mr. McKenna has added to today. I know you tried to start to refute some of those.

However, I must say that with Transport Canada's track record recently with some of its actions, you have things like the passenger bill of rights, the imposition of a carbon tax—whether that's your doing or not—and the grounding of the MAX 8s, how can the airlines, quite frankly, trust Transport Canada to do this right in such a short period of time? What's the big rush to be herding it through the budget bill rather than an appropriate way where there could be discussion on an appropriate basis?

At the end of the day, it's middle class Canadians that this government always seems to hold up as the one group they're trying to make life better for, yet all this is going to do is add extra costs to middle-class Canadians.

How can airlines and Canadians trust Transport Canada at this stage with the track record you have?

[Sara Wiebe]

There are so many facets to the question that you ask. I'm not sure where to start.

Let me start first by elaborating a little bit on the comments I made.

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

I'd ask you to make it very tight because I've got a number of other questions to ask.

[Sara Wiebe]

As I said in my opening remarks, I believe that given the time frame we took with the creation of Nav Canada, it should not be remarkable how much time it could or should take for the discussions with the industry, both the airports and the airlines.

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

The question is, how can airlines trust Transport Canada, once the bill is passed, to be in a position to listen to their concerns?

[Sara Wiebe]

As I stated in my opening remarks, this is enabling legislation. It does not create the designated screening authority. It is through the negotiations that most of the details the airlines are raising as concerns would be discussed. That includes the sale price. That includes the transfer of staff. That includes the implementation date.

We are reacting to comments made to us repeatedly by industry over the years that they want this situation. They want the issue of CATSA services to be addressed as a priority. We are treating it as a priority.

We have timelines that we have communicated to industry. As for planning purposes, I state to you that obviously if the negotiations require longer timelines, then we will have to adjust those timelines. But in the interim, we are working towards a timeline that we have indicated to industry to try to get the DSA established by April 1, 2020. We think it's doable.

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

I'm going to stop you there.

I want to ask you about this transfer of assets. Again, it seems to me that middle class, travelling Canadians are going to be paying for these assets twice. Why is the government.... I'm assuming the dollars that are going to result from the sale to the non-profit are going to go back into general revenues.

Why would this not be a transfer, as was suggested, for one dollar because these assets have already been paid for?

[Sara Wiebe]

Respectfully, the issue of the sale price is going to be part of the negotiations. I can't speak to that specifically, but I can tell you that no decision will be made until we enter into negotiations with industry on that issue and the other issues that I mentioned. That will be part of the negotiations.

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

If that's a commitment to the airlines, then I think it's probably something they'd be happy to hear.

I wanted to ask Mr. Wilson something quickly.

My understanding is that you were involved quite extensively prior to the Nav Canada move. Do you see this as similar to Nav Canada? Certainly there was a lot longer period of negotiations with Nav Canada than is being proposed here today. Give me your impressions on whether this is a comparison that can be made or not.

[Neil Wilson]

In terms of the bill that's before you, it is very similar if not identical to the key features of the legislation that enabled the transfer of the assets out to Nav Canada. There are a few small differences around the charging principles and those sorts of things, but by and large it's very much the same.

Some of the concerns that I think existed at the time of the privatization of Nav Canada—the inadequacy of funding, the ability to respond on an agile basis to the needs of those who require the services, in this case, security screening or in another case the navigation services—certainly are the same and resonate at that level, yes.

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

If I could ask—

[The Chair, Liberal, Judy Sgro]

I'm sorry, Mr. Liepert, but your time is over.

We'll go to Mr. Iacono.