TRAN Committee Meeting

STANDING COMMITTEE ON TRANSPORT

LE COMITÉ PERMANENT DES TRANSPORTS

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, November 18, 1999

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[English]

The Chair (Mr. Stan Keyes (Hamilton West, Lib.)): Good afternoon, colleagues. Pursuant to Standing Order 108(2), we're here to discuss the future of the airline industry in Canada.

Our witness this afternoon is Mr. Peter Bleyer, executive director of the Council of Canadians.

Welcome, Mr. Bleyer, to the Standing Committee on Transport. We look forward to your presentation of between 10 and 12 minutes, after which we have some questions for you.

Thank you, sir. When you're comfortable.

Mr. Peter Bleyer (Executive Director, Council of Canadians): We really appreciate the opportunity to present our views to the standing committee on the future of the airline industry in Canada.

We're not fair-weather friends, unlike those in the galleries that have tended to empty as certain individuals have left the fray. We'll be around for the long haul. We believe this is a key public policy issue, regardless of what private sector actors are involved.

The Council of Canadians was founded in 1985. It's an independent, national public interest organization with more than 100,000 members in fifty chapters across the country.

Over the last few weeks and months, we've been very concerned that the debate and discussion on the future of Canada's airlines has tended to focus on the narrow, self-seeking agendas of a few private sector actors—to whom I just referred, in fact.

Generally, Canadians have had ringside seats at one of the most expensive and wasteful corporate grudge matches in our country's history. It appears that more than $200 million has already been spent on lobbying, legal fees, financial advice, and advertising. Hopefully, the irony of this expense during a debate where the need for additional investment in the airline industry was a key proposition will not be lost.

Worse yet, the battle between Onex/Canadian/AMR and Air Canada has left its mark on the only proposal to restructure Canada's airline industry that's currently still on the table. Air Canada's current proposal includes a more than $1 billion share buyback that cannot be justified on any sound business terms. This expenditure will hamstring a key player in our airline industry and could compromise our collective ability to ensure the long-term viability of the sector.

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We believe Canadians have heard far too much about maximizing shareholder value and short-term profits and far too little about consumer satisfaction and building a viable airline industry that can meet our country's needs over the long term.

With due respect to our Prime Minister, we actually believe the fate of the airline industry is far too important to the national interest to be left in the hands of shareholders and their very narrow definition of the bottom line.

We also believe resolving the problems in our airline industry starts with a clear sense of the core public policy objectives that need to be met. These include health and safety, quality of service, access, reasonable cost, regulation—to use that oft-ignored word—and public participation.

In order to advance these objectives, the council was one of the founding members of the Canadian Association of Airline Passengers, and supports the proposal for an airline passengers' bill of rights, as put forward by the coalition.

It is important to recall the motivation behind early Canadian airline policy. We designed a Canadian airline system for exactly the same reason we created national public railway and broadcasting systems, to establish independent Canadian institutions as instruments of economic, social, and cultural policy.

We aimed to hold off the southward pull from our giant neighbour to the south—well, if it's a southward pull, “to the south” would appear obvious—and generally, as the original mandate of the Canadian Wheat Board put it, to serve the “general advantage of the nation”.

In the case of airline policy, the specific goal was to prevent the dominance of American carriers. Consecutive governments accepted the need for involvement in the industry in order to protect the national interest. This guaranteed, among other things, service to rural and less-populated communities that the market or foreign carriers would likely have overlooked.

In the past decade, deregulation of the airline sector and the subsequent approval of the U.S.-based AMR's ownership stake in Canadian Airlines were key moments in a radical departure from previous policy.

We are now at a turning point. Decisions made today will determine whether we continue down the path set by deregulation and the AMR deal with the results we've all been witness to or whether we return to the public and national interest objectives previously established.

One of the fundamental problems with foreign ownership is that it leads inevitably to key commercial decisions being made outside Canada and often removed from democratic accountability. American carriers act strictly according to commercial considerations. Their commercial decisions will reflect continental and global corporate priorities, not the best interests of Canadians.

Foreign ownership and control has carried a huge cost, not the least of which has been the substantial outflow of capital and jobs from Canada. There are also considerable opportunity costs attached to foreign ownership. Canadian firms and industries acquired by foreign corporations are precluded from developing into the kinds of Canadian success stories on which international competitiveness and a dynamic domestic economy must be based.

As even the Business Council on National Issues now finally recognizes, foreign ownership in the Canadian economy has also contributed to limiting the development of management skills and to the southern migration of technically skilled Canadians.

The airline industry holds a very special place in this country. It is an essential element in our national infrastructure. Air transport is a basic public utility. It ties together communities often separated by long distances, provides vital transportation for goods, services and people, and is therefore a key determinant of the social and economic well-being of our communities.

In 1994, despite the clear intent of the Canada Transportation Act, approval was granted for the effective control of Canadian Airlines by AMR of Dallas, Texas. As we argued before the National Transportation Agency at the time, this decision would lead to a textbook example of the destructive impact of foreign ownership. We pointed out at the time that AMR's substantial and escalating equity and voting equity stake and their right of approval over key business decisions added up to nothing less than effective control of Canadian Airlines. Foreign control was also heightened by the transfer of numerous supplier relationships and crucial management-related services to the U.S.

Then vice-president Donald Carty attempted to allay fears regarding his company's role by arguing that AMR had little interest in Canadian Airlines itself and was only interested in market share for its computer reservation service, SABRE.

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The council argued at the time that this did not augur well for decision-making by an AMR-controlled Canadian Airlines. Unfortunately, I think we were proven to be right.

Current discussions around the future of the airline industry have raised the spectre of a series of broader threats to Canadian control.

First, the Minister of Transport followed up a statement of his commitment to Canadian control of the airlines with a proposal to change the 10% limit on ownership of Air Canada. This change would have directly threatened the few remaining limitations on foreign ownership available under the North American Free Trade Agreement.

It often appears that our federal government is not sufficiently aware of the implications of the trade agreement it so eagerly now embraces. Under NAFTA, U.S. investors receive the right to national treatment—in other words, rights equivalent to those of domestic investors.

In fact, we should add that air transportation is currently being considered at the World Trade Organization for inclusion under the General Agreement on Trade in Services at the upcoming meetings in Seattle. Inclusion there would extend national treatment to all global investors, not just Mexican and American investors.

Furthermore, NAFTA, chapter 11, provides a powerful investor-state mechanism for foreign investors to pursue compensation when they consider they have been wronged. There's a burgeoning chapter 11 industry in this country, as an increasing number of U.S. corporations line up with claims against our governments.

In the case of the airline industry, a change in the limits on domestic ownership would open the door to claims of discrimination if equivalent changes were not approved for foreign investors. Consequently, the current 25% limit on foreign ownership of Canadian air carriers included as an itemized exception would be nullified.

The suggestion put forward by the competition commissioner for a Canada-only carrier, free from all foreign ownership and control restrictions, poses yet another NAFTA-based threat to Canadian control of the industry. If we are willing to accord special dispensation to any particular foreign investor in a specific case, these rights will be applied to all foreign investors across the board. Once again, the 25% rule would be the casualty.

The competition commissioner has also proposed that the federal government pursue the unilateral enactment of what is in fact a slight modification to the traditional proposal for cabotage, which has been repeatedly rejected by most jurisdictions on national and public interest grounds.

Despite the creative use of a stopover in a U.S. hub as a fig leaf, this proposal amounts to no more and no less than cabotage.

Indeed, cabotage is the equivalent of granting American carriers a licence to cherry-pick. In the quest for quick and easy profits, they will flock to the few truly profitable routes in this country—for example, Toronto-Ottawa or Vancouver-Calgary.

Canadians depend on a regulatory framework that establishes a compact with our air carriers. They receive privileged access to high-traffic routes, allowing them to cross-subsidize other routes that are less lucrative but no less important from a public and national interest perspective. Cabotage would fatally compromise the medium- and long-term prospects for the growth and success of our own airline industry, and thus threaten access to quality service at a reasonable price, perhaps even in some cases any service at any price, for Canadians in many communities.

The crisis in the Canadian airline industry takes place against the backdrop of global restructuring. Canada is clearly, we believe, much too small a market to support two competitive international flag carriers. In fact, we said so in 1993. This reality was confirmed by a number of professional reports in 1993 commissioned for the then National Transportation Act Review Commission. Despite this now obviously prophetic advice, Canada has continued down the path of deregulation, marked by a serious of major concessions by governments and workers to attempt to maintain a second flag carrier.

Unfortunately, so-called untrammelled competition and deregulation have taken the Canadian and American airline industries down a road that we might have regretted. In the U.S., the result has been declining service. Most recently, consumer problems with pricing and service quality led to the induction in the U.S. House of Representatives of a bill of rights for airline passengers.

In contrast to its advance billing, deregulation has brought chaos and crisis to the Canadian airline industry. I don't think you would all be here today considering this matter if that wasn't the case.

In fact, the study prepared for the NTA review commission concluded that, in the Canadian case, “the expectations of substantial fare reductions as a result of deregulation have not been confirmed by experience”. More recent evidence shows clearly that the cost of flying has greatly outpaced the consumer price index over the last decade.

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Canadian consumers have not been well served by the duopoly that has largely characterized the air transportation sector under deregulation. Indeed, one would be hard-pressed to describe the reality of double tracking, which leads to excess capacity, as an example of the efficiency of competition.

Clearly, market forces alone will not solve Canada's airline puzzle. We believe it is the duty and responsibility of the federal government to create a public policy framework within which a solution can be structured. Far from precluding a public brokering role by the Minister of Transport, we believe this may very well be the prerequisite needed to provide long-term benefits to the many as opposed to short-term benefits for the few.

We believe the following elements should be included in this framework.

First, both the 10% limit on ownership built into the Air Canada Public Participation Act and the 25% foreign ownership limit must be maintained. The option of cabotage, whatever the label, must be rejected outright.

We should establish a new regulatory structure for the industry that should include a clear demonstration of political will to ensure effective regulation and reverse a decade-long trend that has seriously damaged the industry. This new structure must have clear standards and the resources necessary to track and monitor developments affecting the public interest and to implement, enforce, and follow up on its decisions. The framework should also include a legislated bill of rights.

The federal government should consider options for rendering AMR's super-majority powers in Canadian Airlines null and void.

The federal government should ensure that the necessary elimination of excess capacity in the industry does not result in involuntary job loss.

The federal government should include air transportation in its consideration of areas for investment in core infrastructure as part of its next budget. At a minimum, this would include reinvestment in regional airports, safety and air traffic control, and consideration of a public stake in a restructured airline industry.

Finally, the federal government should include this experience with the airline industry on the long and growing list of reasons for initiating a major review and reconsideration of the North American Free Trade Agreement.

Thanks for your patience.

The Chair: Thank you, Mr. Bleyer, for your presentation.

We'll go right to questions.

Ms. Meredith, please.

Ms. Val Meredith (South Surrey—White Rock—Langley, Ref.): [Inaudible—Editor]...Mr. Bleyer for showing up here.

My question is going to be pretty blunt. I'm interested in knowing if your fear of the United States and its influence carries over to the auto industry, and whether you feel, (a), the American investment in the automobile industry has created an outflow of capital and jobs from Canada and has limited the development of skills in Canada, and (b), the government should start action to make sure that 75% of the investment and the ownership and the control is in Canadian hands, thereby killing the automobile industry in Canada.

Is that your position?

Mr. Peter Bleyer: One of the elements of our submission that I didn't refer to in my presentation was that our perspective, we believe, is among the most pragmatic of anyone's participating in this debate. Obviously, then, as to whether we'd want to kill the goose that lays the golden egg in terms of the automobile industry in Canada by making demands that are impossible to meet in that sector at this point in time, no, we would not go that way.

But the state of the Canadian airline industry is very different from the state of the auto industry. There is an opportunity, we believe, to maintain a wholly Canadian-owned and -controlled industry. We believe there is plenty of capital in this country, particularly if we're able to eliminate such problems as the unnecessary share buybacks that were bidded up by Onex and Air Canada over the course of the last few months. There is enough money in Canada to have a made-in-Canada solution for the airline industry.

Certainly the auto industry is a key economic force in this country. On the other hand, the strategic importance in terms of air transportation is recognized by not only Canadians but also most other people around the world in terms of your ability to ensure transportation around the country. In the case of a country this large, having Canadian control is obviously all the more important, we believe.

Ms. Val Meredith: I'm confused by your rationale. The automobile industry forms three of the largest corporations in Canada. It employs over 72,000 people. Its survival, its existence, is totally dependent on foreign ownership and foreign investment. What you're suggesting, then, is that you would have a different standard for different industries, that it's okay for 100% foreign investment in the automobile industry in southern Ontario, which creates such a strong economy there, but you are afraid of that kind of foreign investment to allow another industry to survive, expand, develop, grow, and create lots of jobs for Canadians.

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Mr. Peter Bleyer: I realize that your party's position is to encourage 100% foreign ownership in the Canadian economy—

Ms. Val Meredith: No, I'm asking you—

Mr. Peter Bleyer: —but that's not our organization's position.

Ms. Val Meredith: Excuse me. I am telling you that you're supporting 100% foreign ownership in one industry but want to deny the foreign capital and foreign investment in another industry. I'm asking you, why the discrepancy?

Mr. Peter Bleyer: In principle, we'd have no objection to an increasing Canadian role in the ownership of the auto industry. If the opportunity for that was here, we would not say no to it. It's as simple as that—if that's the question you're asking me. If there was an opportunity for that and if there were benefits that would accrue from that, we would obviously support that.

Ms. Val Meredith: I think he answered my question.

The Chair: I don't think you're going to get an answer, Val.

Ms. Val Meredith: Well, I think he did; it's a double standard. What's okay for the auto industry isn't okay for the airline industry. That was clear from his answer.

Mr. Peter Bleyer: I am trying to answer your question, but it's a difficult question to answer because I think you'd like to hear something that I don't think makes a heck of a lot of sense.

If you want me to say that there may be different standards for different industries, absolutely. That's what regulation is about. It's about being smart, about being being pragmatic, and about understanding the public interest, the national interest, and where we need to go. It's not about some ideological blinders that tell us, you know, “There is a god, and his name is Regulation.” Regulation for regulation's sake is not the objective here, for example. It's regulation to reach specific public policy objectives that are in the public interest.

Ms. Val Meredith: But aren't ideological blinders creating the situation where you are not willing to look at a highly intensified capitalization problem—

Mr. Peter Bleyer: We don't believe that exists in the airline industry.

Ms. Val Meredith: —and you're restricting the access to capital to a smaller marketplace?

Mr. Peter Bleyer: If you're refocusing your question there, we actually don't believe there is a huge problem in terms of capital. We believe there are lots of opportunities to generate that capital in the Canadian marketplace.

Recent reports have shown very clearly that there's a massive outflow of portfolio investment heading down to the States. A lot of Canadians are looking at Wall Street and asking why they should invest in Canada—

Ms. Val Meredith: Lower taxes.

Mr. Peter Bleyer: —when they can get 1%, 2%, or maybe 10% more; in fact, maybe they'll get 15% less in the long run than on Wall Street.

One of the elements of public policy framework could be incentives to Canadians to invest domestically. We already have incentives under the RRSP plan. We've had this huge debate around the need to invest in this country. We were talking about infrastructure. Why not provide some incentives to have Canadians invest in this country? There's lots of capital out there. The question is, what's it being used for?

The Chair: Thanks Val, for your questioning.

Mr. Bleyer, maybe it would help the committee if you could demonstrate to us why you're talking about the 10% rule. I mean, we have precedents before us—the auto industry, the ownership of CN, the recapitalization of CN, and the recapitalization of GMC. In many other countries, the precedent is there, set on how successful and strong they are, without a 10% rule and with increased foreign investment.

Can you state a precedent for us that supports your limiting the capital flow, or individual investment, to 10%?

Mr. Peter Bleyer: I have two answers. I can give you the example of Canadian Airlines.

The Chair: No, I said a successful business.

Mr. Peter Bleyer: Well, I'm saying here's an example of what happens if you allow that foreign stake to grow. If you allow...in fact, even under our current rules, you can have effective foreign control, the proof being the Canadian Airlines situation.

The Chair: But you're assuming that's the sole reason Canadian Airlines is not successful, and that's not the case.

Mr. Peter Bleyer: No, I'm not assuming that. But having participated in this debate for five or six years, one of the things we have tracked, and tracked in 1993 and 1994, was the situation where, as I said, and as we say in our submission, AMR said: Don't worry about American control. In fact, all we care about is the money that will be flowing south to Dallas, Texas, as a result of the SABRE contract and other service contracts.

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So you had a situation where clearly that foreign ownership and the implications of foreign ownership, which, among others, are outflow of capital and lack of reinvestment, lack of R and D and all the rest of it, were part of the problem at Canadian Airlines. They had to be part of it.

The Chair: Part of it.

Mr. Peter Bleyer: Frankly, whether management there was competent or not is not something I'm qualified to judge, and I wouldn't want to judge that.

I think it's fair to say, though, there are plenty of examples, and not just in the airline industry, of what happens when you do allow foreign control. In the Canadian economy, we see it today. We see our inability....

Frankly, when Tom d'Aquino agrees with me—for all the wrong reasons, but he agrees with me nevertheless—I have to point to that, that there is an issue here of maintaining Canadian ownership and the role that can play in a dynamic and growing economy.

The Chair: Mr. Dromisky, please.

Mr. Stan Dromisky (Thunder Bay—Atikokan, Lib.): Thank you very much, Mr. Chairman.

Thank you, Mr. Bleyer. It's evident you've certainly done your homework. You've made some very interesting points.

First of all, regarding this bill of rights and the related concept of public participation within that bill of rights, I would like a little more detail on that. Exactly what do you have in mind there?

As well, I would like to ask you about the 10% and 25% we're talking about. For the viewing public, that is already established. In other words, what you're saying is maintain the status quo there.

Surely you must have thought of some figures lower, perhaps, or some figures higher. Certainly there must be somewhere where, in your mind, there's a limit, while still maintaining the type of protection or safety factors you're talking about, that might be above 10% or above 25%, or below.

Can you expound on that, please?

Mr. Peter Bleyer: I'll answer your questions, but first apologize to the chair. You've reminded me that I haven't exactly answered one of the chair's questions, the one around the 10% and 25%.

Taking your second question first, in fact our real concern with the 10% rule is that any alteration of the 10% rule has implications for the 25% rule in terms of foreign ownership. There is a possibility, certainly, depending on your interpretation of the agreement....

It's not so much that we're amazingly keen on a widely held concept in terms of the airlines, because one could argue from the airlines' perspective that there's certain access to capital in that context, and it's more difficult when you have to limit yourself to a 10% ownership stake. But the problem, as we detail in our brief and as has been raised, I think, by others, is that any change to the limit on domestic ownership requirements would imply, potentially, increased discrimination against foreign investors.

Now, that was clearly the case when Onex was requesting a 33% stake in the new Air Canada under the Onex proposal. That 33% stake would have to have been allowed to any foreign investor as well as a domestic investor.

That's the principle of national treatment. Any rights that accrue to domestic investors must be handed over equally to foreign investors.

That is the fundamental problem with changes to the 10% rule. I know there's been debate around 15%, given the railway example and other numbers, but fundamentally, it came up in the debate when Onex said their proposal includes a 33% stake, which is higher than the 25% stake, which would have implied change.

Mr. Stan Dromisky: Okay, but let's go back a bit. If the 10% you're talking about is the limit on the percentage by an individual or company in Air Canada, what would happen if that were wiped out completely? How would you see that, keeping in mind that we still have the 25% ownership limits as far as foreign ownership is concerned? Would that change your perspective of the whole situation?

Mr. Peter Bleyer: You would not be able to maintain the 25% rule, because effectively, your treatment of a domestic investor would be that you could have 100% ownership under that model, right? National treatment implies that you have to provide the same opportunity to a foreign investor. It's as simple as that.

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I'm certainly answering your question as I understood it. I hope I understood it correctly.

Mr. Stan Dromisky: What I was saying is get rid of the 10% but still maintain the 25% for foreign ownership. So you couldn't have a foreign owner coming in—

Mr. Peter Bleyer: You'd have to have 25% for domestic ownership as well, at a minimum.

Mr. Stan Dromisky: Right.

Mr. Peter Bleyer: There are issues around...when you start finagling with these rules. Frankly, we have to look very carefully at what we got into with NAFTA. Basically, with NAFTA, and what's coming up under the WTO, we're moving into situations where we're providing a series of very powerful tools to foreign investors. Once you open up that box of tools, it's like Pandora's box.

Some people argue it's okay if you set the domestic requirement for maximum ownership at 25% as long as the domestic is no higher than the foreign. Others argue that the moment you open up the NAFTA box and you have these opportunities, as, for example, under chapter 11 of NAFTA, you're already in trouble.

I don't actually have an opinion on the difference between those two scenarios, but I think it's important that this committee be seized of that and look into it carefully.

The Chair: Thanks, Mr. Dromisky.

Mr. Bleyer, is the NAFTA box not already open, then? The Americans limit 25% foreign ownership on their airlines, and they have unlimited individual ownership. Where's the reciprocity there?

Mr. Peter Bleyer: Are there Canadian airlines interested in owning more than 25% of an American airline?

The Chair: It wouldn't have to be a foreign airline wanting to own an airline in the U.S.; it could be any foreign investor who is not an American to—

Mr. Peter Bleyer: I'm sorry; you're saying they have unlimited ownership...?

The Chair: In Canada we have the 10% rule for individual ownership in institutions and 25% on foreign investment. You're saying that if we move the 10%, the 25% has to move. I disagree, but that's what your case is. You base your argument on the fact that if we do, then we have a problem with NAFTA. In the United States, an airline is only allowed to be owned by 25% foreign investment, but they have no 10% rule, and the 25% rule isn't changed.

Mr. Peter Bleyer: That's open to challenge. All of the NAFTA rules are sitting there. They don't mean anything until somebody uses them, basically. That's what we're seeing with the water case, and that's what we saw with the Ethyl case. You can have whole series of rules.

I mean, great, when Air Canada is big enough that it wants to buy up 95% of American Airlines, then they're going to be able to go in there and say they want the same rights as any domestic American investor, and it'll apply for Canada, too. But when you're an elephant and a mouse, the same set of rules don't quite cut equally. That's the problem with North American free trade.

The Chair: Michel Guimond.

[Translation]

Mr. Michel Guimond (Beauport—Montmorency—Côte-de- Beaupré—Île-d'Orléans, BQ): Thank you for your presentation, Mr. Bleyer. I would like to hear your comments on an aspect on which we will have to take a stand.

We know that Air Canada's proposal includes the setting up of a discount airline with a head office in Hamilton—but that detail is incidental—and the airline would serve about 20 Canadian cities. That is what Mr. Milton stated in response to our questions.

Do you think that that decision will have an impact on regional carriers? Could the arrival of a new discount carrier compromise some of the regional services? Is the only company that might well be affected by the decision WestJet? I'd like to hear your comments on that.

Mr. Peter Bleyer: As a member of the coalition of airline passengers, I can tell you that we have already taken a stand on the issue and agreed that it would not necessarily be the best possible solution. Unions, among others, have raised a possibility of problems with respect to the types of jobs in such a company. Would we be faced with what we call in health care a two-tier system? Will we be receiving low fares, poor quality and infrequent service in the regions?

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There's also the issue of competition which, in our opinion, should not be the ultimate objective, but a potential tool. If competition in the sector is possible, it will be positive. But if competition is not possible and no one else wants to offer regional service, it might unfortunately be the only choice available to us. It is not the best way of solving the problem. We are afraid that the consequences will most likely be negative.

Mr. Michel Guimond: Thank you.

[English]

The Chair: Thanks, Michel.

Bev.

Ms. Bev Desjarlais (Churchill, NDP): In your comments on the 10% and the 25% rule, if the 10% rule was not to go higher than the 25% rule, would that create a problem as well?

Mr. Peter Bleyer: I have to honestly admit that I believe that needs more study. I've heard both positions, and in general terms, when it comes to the trade agreements we have signed over the last number of years, it's the Council of Canadians' position that one should always be extremely cautious.

Basically, what we're talking about are agreements that are designed to provide tools for private investors to pry open the market. The moment you show some movement, they want to talk turkey.

Ms. Bev Desjarlais: Give them an inch and they take a mile.

Mr. Peter Bleyer: Absolutely. Even if it's only at that level, it's a problem, but the argument has been made that in fact the moment you start moving around any of these limits, you can open the door more specifically to trade action through NAFTA.

As for whether it's possible to go to 20% or 24%, certainly you'd be sending the wrong message, because clearly they could say, well, look, the only reason you've gone to this level is the foreign ownership limit. So, you know, bad faith bargaining; who knows where we're going?

The point is, these are tools, and the moment you start moving in that direction, you're asking for trouble.

Ms. Bev Desjarlais: Do you know offhand—and this is only because you've had experience in dealing with this—if there are any state limitations within the U.S., or are they strictly U.S. limitations? Do you know if any states have any particular limitations?

Mr. Peter Bleyer: I don't actually know that.

Ms. Bev Desjarlais: Okay. Because that was something that surprised me in the MMT case, the fact that the U.S. itself could say “Don't use this”, but some states could allow MMT. As a result, they could argue the fact that they should be able to access Canada. I found that quite strange.

Mr. Peter Bleyer: There's a parallel situation—

Ms. Bev Desjarlais: Actually, I said that wrong. The States could ban MMT, but Canada couldn't, and yet there were some states that could ban MMT.

Mr. Peter Bleyer: Right. We're facing the diametrically opposite situation with the water case right now, where, obviously, in terms of international trade, decisions of Canadian provinces have no applicability unless there is federal-level legislation. So there are all these dynamics of the different systems we operate under that, unfortunately, I'm not a renowned expert on.

Ms. Bev Desjarlais: No, I know, and your point is taken. As each one came up, nobody really knew what the rules were, because the rules seemed to be getting decided along the way and nobody could state clearly where they thought things were.

Thank you.

The Acting Chair (Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.)): Peter, I have just a couple of questions here. One of the things we've been looking at through this whole exercise is basically what the vision of the airline industry is going to be after this, and then how you put policy around to be able to bring that vision forward. You've already talked about the 10% and the 25%, and I see right now that the general direction we're going is to one carrier, unless something changes and somebody else jumps into the game.

I'd like your comments on how the policy should deal with regional carriers; the issue of employment and retirement by attrition or whatever other means; airport slot policy; charter policy; reciprocal cabotage; and maybe even the issue of frequent flyer points.

Mr. Peter Bleyer: You're giving me my homework here.

The Acting Chair (Mr. Murray Calder): Yes.

Mr. Peter Bleyer: I'm going to go backwards because I think I lost the first couple. In fact, I might cherry-pick. Although I wouldn't like American Airlines to be able to do that in Canada, I might cherry-pick from your list nevertheless.

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You mentioned cabotage. I'll start with that, because it seems to me it's currently being seriously recommended by the competition commissioner. I think that's important to recognize, particularly in the context of a question around what kind of regulation we should have when we're going to one carrier.

The fact is, since the early nineties we've transformed the regulatory framework around the airline sector to really focus on, because of our commitment to so-called untrammelled competition, and to really be limited to, competition policy.

I don't know if your committee has heard from them yet, but I know the representatives of the CTA presenting to the Senate were very clear that there's been a transformation in their mandate. Their ability to discuss and look at public policy objectives and ensure that they're met has been limited over the last period of time.

On the other hand, you have the Competition Bureau, which may not have the powers to enforce but is given a lot of credit in terms of looking at issues and so forth. It has a mandate to look only at competition.

Now, cabotage from the perspective of competition may very well be an option. The problem is, it's a disastrous option if we actually want to nurture a Canadian airline industry and made-in-Canada competition, for example, over the long term.

I think the proposal around cabotage that's been made has been indirect cabotage, or quasi-cabotage—the modified sixth freedom, I think it's being called—whereby we basically see service going through an American hub and then coming back to Canada, but the airlines have the ability to actually market and price that as one trip.

You know, if it looks like cabotage and smells like cabotage, then basically it is cabotage, and cabotage means American carriers pummelling Canadian carriers on the very few profitable routes in this country.

That's a problem in terms of the survival of Canadian carriers in the short term, but let's look also at the long-term implications. It basically means we're foreclosing on our ability to have viable competition in the longer term. You're not going to have Canadian start-ups if you have big American carriers on the Canadian scene with the ability to deal only with those profitable routes.

So the regulatory answer on cabotage—quasi-cabotage, pseudo-cabotage, or the modified sixth freedom—is to just say no. That's a simple one, but it's a critically important one.

The issue of frequent flyers along with a couple of the other issues you raised go to the point of how we protect consumers. We, of course, support the bill of rights being proposed by the Canadian Association of Airline Passengers. We believe it should be legislated.

In the United States there was a proposal for a bill of rights, and at the last minute, with heavy-duty corporate lobbying and expenditure, the corporations, the airlines, argued, well, don't worry, we will get voluntary compliance with this stuff, and you don't need to legislate.

We strongly believe there needs to be a bill of rights that covers off a number of these issues, and it should be legislated.

I'm looking at my list here of the points you raised, including the airport policy. The downloading of responsibility for regional airports without an accompanying downloading of resources—and that basically is what downloading is all about in the 1990s—whether it's to municipalities from provincial governments or from the federal government to municipalities around airports is unconscionable. What's particularly unconscionable is that we have disasters waiting to happen.

This is a clear place where there are two alternatives. Ideally, that downloading should be reversed, but regardless of whether or not that downloading is reversed, the necessary resources have to be re-implemented. As well, we need national standards around safety, air safety and airport safety. We need clarification on whose responsibility it is to maintain those standards. We need to make sure that whoever has that responsibility has the resources.

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There are all sorts of long-term issues here, and a bunch of short-term issues. Amongst those short-term issues that are so critical is the disaster that's waiting to happen at one of our regional airports. Very few air passengers actually know how little resources, in some cases, may be available on the ground in the case of an emergency at those airports.

We made the point in our submission that there's a perfect opportunity here for reinvestment. There's a way to put a nice, positive fig leaf on what is, unfortunately, a sad tale, the sad tale of the withdrawal of that support and the downloading. But we could put that behind us with reinvestment in regional airports, among other things, in the upcoming federal budget, because we view that as a key part of the national infrastructure.

The Chair: Okay, Murray?

Mr. Murray Calder: Yes, that's fine.

The Chair: Thanks very much, Mr. Calder.

Do you have another one, Bev?

Ms. Bev Desjarlais: Yes, I do.

In your last comments you mentioned that at a minimum there should be a public stake in the restructuring of the industry. What type of a public stake were you looking at? Are you talking about a share equity position? Are you talking about just the reinvestment in certain aspects of the industry? How are you perceiving the public stake?

Mr. Peter Bleyer: I guess we're trying to send a message. That message is that if we're going to restructure, in a positive way, the airline industry, it makes sense, and it's probably a prerequisite, that there be a public role at the table. If that means an equity stake, a minor equity stake, so be it—whatever it takes to make sure there's a public voice.

Frankly, we think that public voice should come from two directions. Through our involvement in the consumers' coalition, we think there's a need to create some regulatory framework for Canadians at large to participate, but we also think it's relevant for the federal government on behalf of Canadians to have a stake in the process.

We would love to have seen over the last few months not behind-the-scenes handshakes between various corporate leaders and transport ministers but a full-frontal public process, where the Minister of Transport plays his rightful role in brokering an agreement where the federal government could bring money to the table and challenge other Canadian institutions, a variety of corporate institutions and others, to bring money to the table and deal with this supposed lack of capital in that way.

Regulation is fine. It's a prerequisite. On the other hand, actually having a place at the table where there are voices looking out for the public interest, for the national interest, in the long term, for the long-term benefits of the industry, would be helpful as well.

One of the reasons we thought about the importance of a public stake was that in watching the debate over the last couple of months, we were struck by the fact that it appeared that even those who lead these private sector entities seem to be more concerned with short-term shareholder return—and perhaps not by their own fault, if they've been driven by the marketplace and the design of the marketplace—and more concerned about paying off their shareholders than about the long-term viability of their own corporations.

Well, if that's the case, we figure, we can't do any worse by having a federal government stake, which could be an equity stake, to lead to a voice at the table in the restructuring of the industry.

Ms. Bev Desjarlais: Thank you.

That's it.

The Chair: Thanks, Ms. Desjarlais.

Mr. Bleyer, thank you very much for your presentation to the committee. It was a solid presentation, and we appreciate both your input and your answering our questions.

Colleagues, that'll do it for this afternoon.

This committee's adjourned until Monday at 6 p.m.