Mr. Speaker, I rise to speak to the motion before the House which calls on the existing 10% individual share ownership rule to be restored and retained. The motion reads as follows:
That this House reaffirms its desire to maintain the provisions of section 6.1(a) of the Air Canada Public Participation Act limiting ownership of the capital stock by any person or group to 10% of the voting shares.
I might mention at the outset that my constituents are greatly interested in this matter. I represent a riding in the GTA which contributes directly or indirectly greatly to the health of our airline industry. We find ourselves inundated with various viewpoints on this issue and the restructuring of the industry that is going ahead. This is of local importance to my riding and my constituents, but it is also of national importance.
On Tuesday the Minister of Transport issued a document entitled A Policy Framework for Airline Restructuring in Canada . In that document the minister announced that the government was willing to consider changing the existing 10% limit in the Air Canada Public Participation Act, if such a measure contributes to achieving a healthy Canadian controlled airline industry. That is a rather important caveat.
To determine what role reviewing the ownership restrictions on Air Canada might imply in achieving a healthy Canadian controlled airline industry, I wish to speak to the cost of this rule, particularly the cost of this rule in the marketplace.
What market distortions result from the existence of this rule? I would submit there are market distortions and the market has reacted in a variety of ways. The running of any airline is a very expensive exercise. The question always has to be in a public policy context: Are the costs of imposing certain desirable public policy goals worth the actual cost in the marketplace? The questions to my mind are: Are these restrictive provisions in place? How do they distort the cost of money? Do they achieve a proper public policy goal?
If Air Canada cannot go to the TSE on a free and open basis like other industries because of this rule then there is a cost and in some measure or another the market reacts to that cost. The question to my mind is an open question. I am glad the minister raised the issue of whether this cost is worth while.
What is the effect? The market is already mutated to some extent. Consumers directly or indirectly pay for that mutation. I draw attention to the Air Canada proposal that is on the table. That proposal raises $930 million. Interestingly enough, at the end of the day those who are actually putting in $930 million only end up with 7% of the shares. That in purely market terms is a bit of a bizarre anomaly because the market has in some respects mutated.
We must recognize that the value of an airline is not in and of itself the infrastructure of the airline. Rather it is in other things. For instance, UAL and Lufthansa have agreed to acquire a new series of perpetual convertible preferred shares in the amount of $230 million. The shares will only pay dividends if and when they are declared on the common shares. It then goes on in greater detail. I would submit that is a distortion of the market. In addition, UAL and Lufthansa will provide a 10 year credit guarantee facility to Air Canada of approximately $310 million. How much that costs I do not know.
CIBC will provide a $200 million upfront payment to Air Canada to deepen and extend its agreement. Air Canada will provide to CIBC approximately 4.4 million warrants exercisable for class A non-voting commons shares at $24 to $28 per share over five years.
None of us in this room are securities lawyers. It would probably take a great deal of effort to explain to us exactly what that means. Although the simple issue is that this is a reflection of the distortion in the marketplace, this is in itself a reflection that money has to be raised in the airline industry other than in a straightforward fashion. When money is raised in a marketplace in other than a straightforward fashion some kind of premium is paid.
The question to my mind still is whether the 10% rule the Bloc is so desirous of retaining actually distorts the marketplace and ratchets up the cost of money.
The first market distortion we see in this proposal is that the value is everywhere but in the infrastructure of the airline. The value is in the Visa card. The value is in some shares that UAL and Lufthansa want to hold, which are not voting shares.
The second distortion plays out each and every day, every time a Canadian gets on an airplane. Consumers in one way or another pay the cost because Air Canada or Canadian Airlines or any other entity does not get the cheapest possible money because the market has been distorted.
The third perverse consequence of that an airline, whatever airline, that is hobbled by unreasonable share restrictions and contradictory public policy decisions will inevitably fail or will inevitably be a weak partner. If we have learned anything in this debate, it is that whatever the future is for whatever dominant airline that comes into play it is extremely important that partner be a strong partner in the alliance. If it is not a strong partner in the alliance, it will be inevitably controlled by entities that will frustrate our public policy goals.
I congratulate the minister for putting the 10% rule on the table. It did not descend from Mount Sinai. It is not sacred. It is not the Ten Commandments. It shows a great deal of political courage on his part to put what has been an effective mechanism to achieve certain public policy goals on the table in order that they can be discussed.
If the minister asks me what is the value of this rule, my response would be that he should tell me what is the cost of the 10% rule to the airlines and therefore to their consumers. If there are other ways to achieve the same goal, either de facto control or de jure control or effective control, and we have a variety of tests for those things, then let us achieve it that way. Let us not ruin the marketplace by putting in artificial unsustainable rules.
Another reality is that whatever dominant airline emerges it will be part of an alliance. If this “new company” is hobbled by some useless public policy initiative, it will inevitably lead to difficulties with that airline. Then we will be back to this debate again and we will be back to trying to figure out how to bail out the new airline one way or another.
If this rule does not stand that litmus test, then my view is, let the rule go.
The 10% rule in essence is a share restriction, and a share restriction distorts the market. When market distortion occurs it costs money. The cost goes not only to the shareholders of the airline, it also goes to the consuming public. If that cannot be justified, then the rule should not stand.
On the basis of that I suggest that the motion should fail and that hon. members should not support the motion. In fact, the minister's positioning on this is correct, it is an area which needs to be discussed. If we can achieve public policy goals by other means, then I would be open to that idea.