Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 11 - Evidence
OTTAWA, Wednesday, March 23, 2011
The Standing Senate Committee on Transport and Communications met this day at 6:49 p.m. to proceed with the study on emerging issues related to the Canadian airline industry.
Senator Dennis Dawson (Chair) in the chair.
[Translation]
The Chair: Honourable senators, I call the meeting of the Standing Senate Committee on Transport and Communications to order. Thank you for being here.
[English]
This evening we are continuing our study on the airline industry. Appearing before us on behalf of Global Public Affairs is Nick Mulder, Senior Associate.
Mr. Mulder, you have the floor. Following your presentation, we will proceed with questions.
Nick Mulder, Senior Associate, Global Public Affairs: Thank you for allowing me the opportunity to discuss with you issues in the air sector.
You have heard many very good witnesses, and I have read a fair number of the transcripts of your hearings and a summary of what they covered.
As you may know, for about 12 years I was an assistant deputy minister and later the deputy minister of transport, so I am familiar with many of the issues that you are dealing with, particularly the initiatives that were taken in the mid-1990s by the government to make changes in the air sector.
I am very pleased that this committee is undertaking a comprehensive review of the air sector because that has not been done since the mid-1990s. I believe that you should look at it every 10 years to see what has changed in order to make some changes.
I appreciate that the committee is doing this particularly because the government has traditionally used the air sector as a growth engine and as a tool for development. However, the sector has increasingly become a cash cow for government revenues. There are good reasons for it because the government is short of cash, but I think it has gone overboard.
Through the clerk, I have circulated my summary notes, which are very short and to the point.
You have been told by witnesses that overall, in the last 20 or 30 years, the air sector has done well, although it has had its ups and downs. Passenger and cargo traffic have grown; the airports are in better shape than they used to be; airlines come and go, but overall are doing reasonably well; and safety and security has been enhanced.
Four main issues are burdening the air sector and preventing it from growing in the way it should. Many of your witnesses have dealt with the first one, the financial burden. In summary, this fiscal year the government will probably generate $1 billion from the air sector from rent, fuel taxes, air security charges, et cetera. In addition to that, the airlines have to cover over $1 billion for the cost of running NAV CANADA. In addition to that, every time you take a flight, you have to pay airport improvement fees. The highest is in Toronto, which is $25, and others are $10 or $15. Every time you go through an airport you pay that.
On the Air Canada website you can see all the other charges that passengers have to pay: the security charge, the fuel surcharge, NAV CANADA's surcharge, an insurance charge and a number of other things.
I recently wrote an article that was published in the Vancouver Sun. I said that passengers are getting nickel-and- dimed to death. Someone commented on that, saying that they are really getting "loonie-and-toonied'' to death because the nickels and dimes are not sufficient; you need much more money. That is true.
Passengers also have to cover, in one way or another, the cost of running the airports. I am disappointed that some of the CEOs, chairpersons and board members make what I think is an inordinate amount of money. I used to be the chair of the Ottawa Hospital here, and we all served on the board without any compensation. I do not know why some members of airport boards make up to $60,000 a year just to attend 12 or 15 meetings a year.
The main issue is that the financial burden is far too large and that something should be done to reduce the costs imposed on the air sector.
The second issue is international agreements. These are the last vestiges of 18th century mercantilism. Everything is forbidden unless there are agreements allowing it. You cannot take off and land or fly from one country to another unless the governments agree, and in some cases they even prescribe the frequency, the size of aircraft, the number of seats on the plane, et cetera.
I have long been a proponent of open skies. When I was deputy minister, I worked with Minister Young on the open skies agreement with the United States. I know that the government has just signed an open skies agreement with Europe. However, more of that should be done because open skies are not really open skies; they still have a number of restrictions. For example, if Air Canada wants to fly from Toronto to Los Angeles, it cannot pick up passengers domestically in the U.S.; it cannot pass them on to go to Latin America, and so on. You have heard witnesses speak on that.
The third important area is foreign-ownership restrictions. The law still maintains a restriction on ownership of 25 per cent. Parliament did change that to allow up to 49 per cent foreign ownership, but that has never been enacted and has been difficult to implement. Therefore, currently airlines can have foreign ownership of 25 per cent only. That is an inhibitor to raising cash. Equity financing is an inhibitor to mergers and acquisitions. It is happening in all the other industrial sectors in Canada. Why should it not happen in the air sector?
The fourth issue is air security. You have heard many witnesses speak on that already. The Canadian Air Transport Security Authority, CATSA, now has almost 600 employees. One wonders what they all do. Their total cost this fiscal year will be in the range of $650 million.
A number of committees, including the Standing Senate Committee on National Security and Defence, have looked at that and have concluded that despite all the money, there are still big holes in the system. Recently a review was undertaken of CATSA and it was found wanting. There is too much focus on luggage and not enough on human behaviour. Much of the training is inadequate, and things should be improved in a number of areas.
More particularly, air security has become an annoyance to many travellers. I work in Asia a fair amount. Recently I went through security in Hong Kong, and at the end of the line, a lady was taking notes. As I am innately curious, I asked her what she was doing. She said that she was taking notes on the staff. I asked for what purpose, and she said that she was noting whether they were being friendly and courteous to the people who go through the security lines.
I could never imagine that happening in the U.S. or Canada. There must be a different way to process people through security systems.
In a nutshell, I think that more action should be taken in those four areas. The first area is the financial burden. I know that the government still has a deficit, but there must be a way, over three or five years, to eliminate the rent, to eliminate the fuel excise taxes that the federal government and the provinces are charging, and to pass on half the cost of the air security system to the government rather than having the passengers pay all of it.
I suggest that the government negotiate a two-for-one deal with the air sector. For every $2 the government gives the air sector, $1 goes back to the passengers. Therefore, if you reduce the rent in Toronto Pearson International Airport, which is currently about $140 million, by $140 million to no rent, for example, then $70 million should accrue back to the passengers. Instead of the fee being $25, it would be only $10 or $15. In the same way, if you limit the fuel excise tax, the fuel surcharge tax should be reduced by a two-to-one ratio. It should be a win-win for all parties. The air sector alone should not get it; the passengers should get it too.
With the second area of international agreements, as I said, there should be a push over a five-year period with like- minded countries for real open skies agreements. Airlines should be allowed to fly wherever they want with whatever aircraft they want at whatever time they want. All restrictions should be removed.
The third area is the foreign-ownership rules. Drop them all together, or make it 60 per cent or whatever. In Europe, many of the airlines are merging; KLM and Air France merged. As far as I know, it has not affected service; it probably improved service. Why do we object to Air Canada having more partnerships or joint arrangements with Cathay Pacific, for example?
The fourth area is air security. It must move toward passenger behaviour as opposed to checking 82-year-old ladies, et cetera, so those changes should be made.
In summary, I hope the committee can deal with solutions and make recommendations to the government about what should be done. Those four areas should be tackled, and there should be particularly the two-for-one deal. Reduce the costs on the airlines and then on the air sector, and pass the benefits on to the passengers.
Thank you. I am open for questions.
The Chair: You have obviously been following our meetings. We are happy to know that there is interest in the file.
Senator Housakos: Welcome, Mr. Mulder. I have a number of questions. Based on your experience and wealth of knowledge, we could have you here all night.
I will start with the core of your presentation. You feel strongly about the fact that currently the large number of aviation sector fees and taxes are placing a burden on the consumer and airlines. We have been trying as a committee to get to the bottom of that. I have asked the same question to just about every guest who has been here, and we had varying responses. If tomorrow morning you eliminated every single fee and tax, what would be the bottom-line impact to consumers? We have had answers anywhere from 10 per cent to 25 per cent to 30 per cent, as responses of cost savings to the consumer.
A series of questions are related to this. What would be the economic impact to the federal government if we eliminated all these taxes and fees, and to the airlines? More importantly, what would be the economic impact on the consumer? What guarantees do we have that the airlines would trickle down the savings to the consumer and not trickle down the savings to the shareholders?
Mr. Mulder: That is an excellent question. My solution to that is that you would not agree to reduce these charges unless you have an explicit commitment from them that they would pass it on to passengers.
With the Vancouver International Airport or the Toronto Pearson International Airport, you would say, "We will eliminate your rent over three years, and 50 per cent of what you save has to be passed on to the passengers.'' With the rest, they can reduce landing fees, reduce debt or whatever, and it is up to them. The passengers should get 50 per cent of the benefits. It is the same with the fuel surcharges. You say to the airlines, "We will eliminate the fuel taxes, and we want to ensure that you then reduce the fuel surcharge for five years.'' You get explicit agreement. If they do not do it, you jack it back up. You do that in a number of ways.
On the aviation security charges, as far as I know, terrorists attack countries. They just use the airlines or airports as a means to do it. I do not know why air passengers have to pay the full cost of air security. In many jurisdictions, they do not charge it. They either do not charge it at all or charge much smaller amounts. In this case, you say that the air security charges will come down. If they are currently $7 to $12, then they go down to $3.50 or whatever. You make an explicit agreement that the benefits are passed on to the passengers, the consumers. Presumably through that, the airports will have a lower cost operation.
Canada has no real low discount airline, no equivalent to AirAsia or Ryanair or Southwest Airlines in Canada, partly because the airports in Canada have a very high cost model. Their landing fees and overhead costs are too high for most of the discount airlines to operate here. If you reduce the financial burden, it might reduce the cost of running airports and thereby allow more discount airlines to fly into or within Canada.
You have an explicit agreement, senator.
Senator Housakos: What would be the impact on the federal government?
Mr. Mulder: In the short run, they would lose. Presumably the revenues might go down from $1 billion to $300 million or $400 million, but if you generate more growth in the air sector in total, you get more people to fly, fewer of them go to the U.S., and more of them fly through Canadian airports. You generate more growth, more jobs and more revenues. Therefore, in the long run, I think at least it would be an even deal, and the government might actually gain.
Toronto and Vancouver, over the next 10 years, have an excellent chance to become international hubs. However, the way in which they are now taxed, and the way in which they have a high-cost structure, many of the airlines skip over them and go to Chicago, Pittsburgh, Philadelphia or Seattle. Why not say that we will make Vancouver and Toronto compete with all the international airline hubs, reduce the cost structure and make it more attractive for both Canadian airlines and other airlines to use Vancouver and Toronto as a hub? You generate economic activity. That is what I meant at the beginning. Do not use it as a cash cow; use it as a development tool.
Senator Housakos: To follow up on that, people say that the federal government is using it as a cash cow. The other argument is that you have valuable real estate assets that are being lent to communities to serve business, tourists and various services that airports provide, but you cannot devaluate the value of these assets either. The federal government is currently supplying a service by allowing their assets to be utilized by communities to generate business and have this aviation network and system in place.
Look at the airport in Dorval, which is in my hometown, so I am familiar with it; they are paying about $30 million in fees to the federal government and $20 million in property taxes to the City of Montreal. If you know the vastness and quality of where Montreal Pierre Elliott Trudeau International Airport is located, developers will say that that is a pretty sweet deal that the airport authority in Dorval is getting in exchange for operating that airport. If you look at the value and location of the asset and the price they generate from municipal cost as taxes to the government, some will argue that from a private-sector perspective, it is a pretty sweet deal.
Mr. Mulder: That is a very good point, and that was part of the rationale when we commercialized the airports, starting with three or four of them in the 1980s, and all of them in the 1990s, when we said that we would be collecting rent. At some stage, if you are a landlord and do not put anything back in, you reduce the rent. If you are a big store in a big shopping mall and the landlord does nothing to help you out at all over 10 or 20 years, you say that maybe you are taking too much out of the system. The only purpose that the land can be used for is to run an airport. They cannot do anything else.
As well you take a look at the rents, to the extent to which, through the rents, et cetera, you stop them from being really profitable and increasing traffic not only for the benefit of Montreal but for Canada in total. When we renegotiated some of the early deals in Calgary and Edmonton, we put a 10-year time limit to look at it again and change the conditions. Right now, the total cost to the system as such is that it just inhibits growth.
The Chair: Mr. Mulder, you can hear bell. The clerk is checking to see if there is a call for a vote in the Senate. We do not know when it will be. If it will be an hour bell, we can continue for another half hour.
Mr. Mulder: We will be caught by the bell.
The Chair: We will know in a minute. For now, because of the circumstances, maybe we could go to another senator. I would ask everyone to be brief in case we lose Mr. Mulder earlier than planned.
Senator Merchant: I have one question. This is not on one of your four points, but you mentioned the governance at the airport by the airport authorities. We had several people say that they are not accountable to anyone. Is there anything that can be changed there? You mentioned their salaries. When you first envisioned this, I do not know if you put down any parameters, but what can be done now that these people are operating in this manner?
Mr. Mulder: Again, that is an excellent point. I touched on it briefly, but not extensively. For the airports, the government has about a 500-page lease agreement with each of them, with all kinds of terms and conditions about what they are supposed to do. They are supposed to have open meetings and give people notice and information about fare changes. They are not supposed to get into other business, and they are supposed to consult with the airlines and all that. Whether they do it or not, I do not know. However, it is certainly a means for the government to hold them accountable based on the 35-year lease agreement that they enter into.
On the second issue, I assume that communities must have a way to give feedback through community representatives and public information. For example, I assume that the airport authority in Regina gets feedback from the business community and passengers as to whether they are running a good airport. If they do not do well, they will lose traffic. There is currently a debate between Edmonton and Calgary on who provides the best service. Maybe that is happening between Regina and Saskatoon, too. However, there is a limit to which they can go on what they can charge, how they run their airport and so on.
As I said, I used to be the chair of the Ottawa Hospital just after we merged the four or five hospitals here into one. All 25 of us who served on the board received nothing. In Vancouver, a board member receives up to $60,000. Is that the way to run an airport? It sounds like a small amount, but it is a symbol that things may have gone too far.
Senator Merchant: We travel frequently as senators, and I see frustration and anger among passengers. One negative experience is going through security. I am interested to know that some countries keep a checklist on how the staff operate. We have very good staff in Regina — I have to say that in case they are watching. It is a small airport, and everyone knows everyone, and they are good.
However, last week I went through several airports outside of Canada. The bags were at the baggage carousel before I got through immigration, and I was one of the first people through. Why is baggage in Canada always delayed? I know it happens in Regina and in Ottawa. I never check baggage when I come here because I do not want to wait 45 minutes for my baggage. Who is responsible for that, and how can it be corrected?
Mr. Mulder: I am not an expert on how to handle baggage, although I carry a fair amount of baggage with me in another sense.
I do not know how that operates. However, I do agree with you. It seems to take longer to get baggage in Ottawa than elsewhere. The airport is not responsible for handling baggage; it is the airlines. Perhaps the company that handles baggage reduces their staff late in the day, for example. I do agree with you that it is frustrating.
I do not expect it to always be a pleasure to travel, but it is becoming more and more frustrating. That is another reason why people choose not to fly at all. They just do not want the hassle.
In Canada we have the problem that it is complicated to get through airports. I think that airfares are, on balance, reasonable, but travellers must pay many taxes and fees. People either stay home, travel less or travel out of the U.S. The frustrations are the same in the U.S., but at least the costs are lower. You can fly to Mexico on Southwest Airlines for half the price that you can with any airline in Canada, and all you have to do is go to Niagara Falls, Detroit or Plattsburgh.
Do we, as a country, want the air sector to become a tool for development? If so, what can the airports do, what can the airlines do, and what can the government do? We need to deal with at least some of those issues.
Senator Zimmer: Thank you for appearing. I always thought a hat trick was three goals; you just made it four: fees, open skies, foreign ownership and air security.
How much do you think the government raises each year on fees? You cannot find that out. Does the money go to general revenues, to the black hole, some of it being used for improvements of airports, some of which look like Taj Mahals? The old question has always been is it necessary, or is it nice.
Where do we get that information? Who do we find out exactly how much money they are making, where it goes and how it is spent?
Mr. Mulder: There are two sorts of fees. You can find out about the fees that the government collects from the Department of Finance Canada and the Minister of Transport, Infrastructure and Communities. The amount of rent they receive from each airport, how much fuel tax they collect and so on is on the public record. There is a bit of a lag time, but you can get the data.
Transport Canada can get the amounts of the landing fees from the airports, how much they make from duty-free shops, et cetera. All their financial statements are in their annual reports, so you can get that too. It is just a question of doing the research and contacting Transport Canada or the Department of Finance Canada.
I believe that airport rent goes into the Consolidated Revenue Fund; Transport Canada does not get it. Air security charges go into the Consolidated Revenue Fund and are then allocated to the Royal Canadian Mounted Police, CATSA and others. Therefore, most of it goes into general coffers. Certainly fuel tax goes into the consolidated revenue of the government.
As to how much they put back in, the only program with which I am familiar is the Airports Capital Assistance Program, ACAP, which provides assistance for small airports and is $40 million or $50 million a year. I know of nothing else the government puts back in. I think they collect about $1 billion and give back $40 million or $50 million.
As to why some airports are Taj Mahals, I would not call them that, but Toronto is big. However, for 20 years, Pearson International was under-invested; it was falling apart. They had to fix it, and it is hard to build a parking garage with only two floors. You might as well do four floors all at once. They had to build access roads. Winnipeg also went through major changes.
Maybe it was overdone here or there, but over 20 years, they will probably get their money back.
Senator Zimmer: I flew to Orlando, Florida, last week. When I arrived, I found that my luggage had been ripped apart, and the lock was gone. I was worried that someone had stolen something, but nothing was missing. I bought new luggage and a new $40 lock. When I arrived back in Toronto, the lock was cut off and there was a note that said that all luggage had to be open so that they could go through it.
When the lock is cut, how do I relock my luggage so someone who handles the luggage does not steal?
Mr. Mulder: I have never heard that checked luggage had to be unlocked.
Senator Zimmer: It happened twice. I have the lock in my office. They cut it right off with a bolt cutter. What do I do now? How do I secure my luggage?
Senator Meighen: Do not put valuables in your luggage.
Mr. Mulder: I am not an expert on how to handle luggage. I did not know whether in the U.S. you have to have luggage unlocked. I travel to Europe and Asia; I have not been to the U.S. lately.
Senator Meredith: Thank you for your presentation.
Your second point was on pushing open skies agreements for competitiveness and bringing more airlines into our airspace. How do you suggest that the government pursue more open skies agreements? We currently have a duopoly with just two major airlines, although we now have Porter Airlines. How will that impact the Canadian traveller?
Mr. Mulder: With open skies, it has to be a level playing field. Both parties have to agree to all of it. It is not something that Canada can do on its own; we cannot let everyone fly into Canada if Air Canada and others cannot fly more extensively elsewhere.
For example, through International Air Transport Association, IATA, about 12 countries are prepared to pursue a more liberal open skies process. I understand that Transport Canada has been party to some of the discussion, extensively so.
If we find like-minded countries, and over a period — maybe it will take five, ten, fifteen years — we work onit. The so-called open skies agreement with the U.S — it really is not — took 8 years and 13 rounds of negotiations. Only in the thirteenth round were we successful with an agreement with which both countries were happy. If you have a long- term plan and have like-minded countries, perhaps the Europeans, the Chinese or the Japanese — some of them might be problematic. However, you sit down and work toward an agreement. If you did it with Europe, Air Canada could fly wherever they wanted to in Europe and the Europeans could fly wherever they wanted to in Canada. There would not be bilateral agreements.
If Air France KLM want to go to Montreal and fly on to Vancouver, they could pick up Canadians in Montreal and fly on to Vancouver. In the same way, Air Canada could pick up people in London and fly them on to Frankfurt. Currently they cannot. You would have many more of those freedoms.
I do not know what is special about it. We go to Walmart to buy our clothes; we buy Toyotas to drive in, so why can we not fly in Canada on foreign airlines, or Germans fly in Air Canada seats?
Senator Meredith: My next question is about security. We live in an age of security, and we know the incidents of 9/ 11 and other incidents around the globe that have seriously affected passengers and the airline industry as a whole.
You said that we need to look at how we are checking in our passengers and the screening process. Others have appeared before this committee and talked about the fact that we do have a clean process of getting our customers through security in an easy transition. However, you seem to say that we need to look at how we are processing these customers rather than the stringent security checks that we are doing. How do you propose that we do this differently?
Mr. Mulder: Over the last two years the government has reviewed a number of procedures and is slowly making changes. Recently, there was another review of CATSA and more recommendations were made. For example, currently if you go to through security in the Ottawa airport, you step on a pad. It does not matter whether you look like a terrorist or actually are one or you are an 85-year-old lady, if you happen to step on a pad and the light goes off you go through a full body scan. I have seen 85-year-old ladies in Vancouver going through this process of being checked. When you go through it, even though you clear the whole thing, they can still set you aside and check you off; they write down your boarding card number.
You wonder whether they are doing this for anyone based on some random system. Can they not do more on behaviour patterns so that people like me who may look like a terrorist actually receive more attention than some 85- year-old lady? I have seen people with baby carriages being checked.
I suggest more common sense, better use of equipment and maybe lower intensity security at smaller airports; maybe people who are frequent passengers should have pre-screening done so that they have less to do, less body checking, less removal of shoes and all this kind of stuff.
The Israelis base their security more on passenger behaviour. However, I was told several weeks ago that in Tel Aviv, only four flights take off and land per day. Therefore, it might be a problem to do it in Toronto. However, at least identify more. It is human beings that cause the problem, not their luggage. You do not check bags and shoes; you check the human beings. It is passenger behaviour patterns.
That is hard to do when you are processing 30 million passengers through Toronto. However, at least you move toward that and have a bit more common sense to it.
Senator Mercer: It is easy for older white guys to talk about changing the screening to be more selective. You and I, Mr. Mulder, are not on the list because we are old white guys.
Mr. Mulder: I was not referring to you, senator.
Senator Mercer: Many people are on the list because they look a little different from us, and that is one of the things we want to avoid.
We talked about the program to help small airports, and you did not talk about it much. I am curious because we had been told all along that this was restricted to the airports outside the program, the smaller airports only qualify. However, last week it was announced that a great deal of money is going into the airport in Quebec City. I do not mean anything disparaging to the chair — it is probably the quality of the representation by Senator Dawson — but if they are all to be equal, then they should all be equal. Why is Saskatoon not getting the money, when Quebec City is?
Mr. Mulder: Maybe it is to accommodate all the future hockey players that will go through that.
More seriously, I noticed that and have no idea. The governments have assisted certain communities if there is a major international event. Is Quebec City hosting a major international event?
The Chair: In 2008, there was the 400th anniversary of Quebec.
Mr. Mulder: When Moncton had the francophone summit, the Moncton airport received money to improve. When I read that, I said that perhaps there is some major international conference taking place.
Senator Mercer: I find it curious.
This morning I flew through O'Hare International Airport in Chicago on my way back to Ottawa. You notice two things if you are flying there. Obviously, I connected through Toronto and landed in Ottawa. I did a comparison of the three airports. There are two significant differences between O'Hare, Pearson and Macdonald-Cartier. One is at the security level. More people are present at O'Hare to check you. It is much more intrusive for everyone, including shoe removal, which we do not do here at all times. I receive a pat-down every time because I have artificial knees, so I am used to that, but the pat-down is much more intrusive there.
You talk about some of the money not going to the airports. Senator Zimmer talked about building Taj Mahals. I do not agree with that. The second major difference between O'Hare, Pearson and Macdonald-Cartier, is that Pearson and Macdonald-Cartier are clean and modern, places in which you can feel comfortable. I know O'Hare is the busiest airport in the world, but still, it is not clean. It is not a place you want to spend much time. If we are taking money, should money not be spent on infrastructure that provides clean, safe, healthy environments for passengers and employees of the airports?
Mr. Mulder: Senator, I agree with the spirit of the comments. However, I am pleased to hear at least from your experience that Canadian airports are doing better. First, the security is less intrusive, and second, the airports are cleaner. I certainly think that the Toronto, Ottawa and Vancouver airports are very clean. I always notice these things because I used to be deputy minister of the department.
When I was deputy minister, I used to go to the Toronto airport to see how often washrooms get cleaned. The kids have a habit, when they go to a restaurant, of checking the washrooms first to see if the kitchen will be clean. It is the same way in the airports. At the Toronto airport, they have someone who goes through it every 30 minutes to check on the cleanliness.
I assume that Lloyd McCoomb and others who have been running the airports make sure that the airports are well managed, efficient and cheap. I do not fault them for that. I think on balance they do a pretty good job.
Senator Mercer: I am concerned that we continue to talk about the large airports and then the small airports, and little attention is paid to the airports in the middle, such as the well-run Halifax airport, or Winnipeg or Calgary airports, which are mid-sized.
Mr. Mulder: I know you are from that neck of the woods, senator, but I think the Halifax airport is a good example of a well-run airport. They have made significant improvements. It has become the hub for Atlantic Canada.
They have a number of increased international flights, and it is well managed overall. I think they pay rent somewhere to the tune of $5 million or $6 million a year. It is not an inordinate amount, but perhaps the case could be made to eliminate it too. I think they are all part of an important network.
Senator Meighen: What degree of control, if any, do the airports and airlines have over CATSA's operations within the airports?
Mr. Mulder: In broad governance terms, I am not aware that they have any. It is a Crown corporation, and Treasury Board, the Department of Finance Canada, Transport Canada and the RCMP are all over them, but not the airlines and airports.
When it comes to management, the airports have to make facilities available to them and the space to operate. I assume, if there are delays and procedural problems, the airport manager gets involved with the local CATSA people, and the contractors who do the security work on behalf of CATSA.
At the level of local airport, they must have a lot of communication and coordination to ensure that the system works as well as it should.
Senator Meighen: I would hope so. I hope they consult with a view to trying to make it faster and easier for passengers.
The length of time it often takes to go through security can be irritating for passengers. One reason it takes a great deal of time is because we have to be politically correct. To be politically correct, a female officer cannot use the wand on me or pat me down. I have to wait for a male. If there happens to be five or six male passengers going through, you wait, and the female officer sits there twiddling her thumbs. This is perhaps because of my age, but I really do not care. Does anyone know whether this incredible political correctness is pushed to that limit elsewhere?
Senator Mercer: Yes, in the U.S.
Senator Meighen: It is certainly a factor for the delay.
Mr. Mulder: Yes, it is a frustration.
Senator Fox: I missed your opening statement, for which I apologize; I am trying play catch-up. I have one question, in case it is at all in your area of knowledge or expertise.
I am interested in the setting up of industrial, tax-free zones near airports. Amsterdam and other countries have great logistic centres. To my knowledge, Canada has none of these set up. Have you any comments on that, or am I asking the wrong person? I hope I am asking the right person.
Mr. Mulder: I am a part-time consultant and a part-time controversialist, but I am not an expert on free-trade zones. If the Montreal Pierre Elliott Trudeau International Airport, for example, wanted to open up some of their lands for industrial purposes that are linked in with the airport, they are allowed to do that. However, for them to make it a tax- free zone, as the senator knows from his experience in government, they have to deal with the Department of Finance Canada and the trade departments to get that done. That has always been an uphill battle.
Certainly nothing is stopping the airport, on its own lands, to the extent that they are not used for airport purposes, and on lands associated with it, to get much more into commercial relations with companies that depend a great deal on air transportation. Nothing in the lease stops them from doing it, if they want to do it, as long as it is commercially viable. They are not allowed to cross-subsidize airport operations with the commercial development of the lands. They must be separate entities.
Senator Fox: I am told, because I have been involved with this issue for a number of years, that the framework legislation is in place and people are just not using it. The fact that people are not using it probably means that it is so complicated that you cannot, for all practical purposes, actually get into it. I am not sure if you have any comment on that.
Mr. Mulder: It could be. I think there were two attempts made to have airport legislation, and both died on the Order Paper. I am familiar with one.
There is no broad legislation that deals with the governance of airports. It is all done through the lease agreements. For a variety of purposes, the lease agreements are very complex. If Montreal, Vancouver, Halifax or Regina want to do commercial development, as long as they use land that is not needed for air on their own boundaries, or people outside of it, and do not cross-subsidize, they are allowed to do it. They have to go through steps, however. They cannot just do it willy-nilly.
Senator Johnson: Can you comment further on the open skies agreements? Canada has negotiated a number of them, mostly with the EU and United States. What should be done to expand these to allow for cabotage, or should they? Have they been effective?
Mr. Mulder: Thank you, senator. As I said earlier, open skies is a bit of a misnomer. It is like being in a halfway house: You are neither in jail nor free. There are certain things you can do at certain hours of the day or for certain airlines or airports.
They certainly have been a step in right direction. Open skies agreements exist with the U.S and the EU, and we have some with some smaller countries as well.
Senator Johnson: We should have them in Asia?
Mr. Mulder: Yes, I realize the Chinese may not be keen on having Canadian airlines flying within their domestic territory. However, certainly we should have agreements with Europe, some Latin America countries and maybe over time with the U.S. as well.
I know they use security and ownership as reasons why other people should be kept out, but it happens in all the other sectors. I realize it may be a long-term exercise for both cargo and passengers to do that. However, at least you can get like-minded countries to get together and, over a period of five or ten years, work it out and make it happen.
There are international automobile companies and international insurance companies. Why can there not be international airlines that merge, for example, Cathay Pacific Airways and Air Canada?
Senator Johnson: You have had a great deal of experience. How would you improve the governance of Canada's airports?
Mr. Mulder: First, I would have the two-for-one deal. I hope you think that is politically attractive. There must be elements in there that benefit passengers, airports, airlines and the government.
With this two-for-one deal, I am saying that if you work it out over a period of five or six years, everyone wins, as long as you negotiate it properly. If they do not live up to it, you just say that the deal is off and that the rent is back on. You work toward it, and you use the airports and the airlines as a development tool. We have huge potential here to make that happen. We have good airlines and airports overall, so why not use them, as opposed to using them as a cash cow?
Senator Johnson: We have to cut some of the rent.
Mr. Mulder: Then we must deal with foreign ownership, open skies and security. However, the first step is to reduce the financial burden on everyone.
The Chair: Mr. Mulder, thank you for your contribution to our study. You will probably see some of your comments incorporated into our report.
Before closing, I would like to remind members that there will be a meeting next Tuesday at 9:30 a.m. to hear from Air Canada representatives.
Senator Johnson: There might be an election.
The Chair: Since my clerk wrote it, I read it. The meeting is adjourned.
(The committee adjourned.)