Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 13 - Evidence, November 21, 2012
OTTAWA, Wednesday, November 21, 2012
The Standing Senate Committee on Transport and Communications met this day at 6:45 p.m. as part of its study on emerging issues related to the Canadian airline industry.
Senator Dennis Dawson (Chair) in the chair.
[Translation]
The Chair: Honourable senators, I declare this meeting of the Standing Committee on Transport and Communications open.
[English]
This evening, the Standing Senate Committee on Transport and Communications continues its study on the airline industry.
[Translation]
This evening, we have the pleasure of having Fabien Pelous with us, the Vice-President and Chief Executive Officer of Air France-KLM in Canada.
[English]
Later this evening, at 7:30, we will hear from David Bradley, President and Chief Executive Officer from the Canadian Trucking Alliance, who is here to discuss Divisions 5 and 12 of Bill C-45.
[Translation]
Mr. Pelous, welcome. Thank you for accepting our invitation. We will start with your comments, and we will then move on to questions from committee members.
[English]
Fabien Pelous, Vice-President and Chief Executive Officer, Air France-KLM in Canada: Good evening. First, I would like to congratulate you on this initiative. I represent two foreign airlines, and therefore I want to thank you for giving Air France and KLM Group the opportunity to speak in front of this commission.
As you can imagine, my vision will differ slightly from that presented to you so far by the Canadian airlines since Air France and KLM operate strictly international flights in Canada.
I have been in this country only 13 months, so please forgive me for not being completely familiar with certain specific aspects of the Canadian industry. Nevertheless, my 16 years of experience in international air transport in a wide range of fields, including strategy, revenue management, customer relations and call centre activities, provides me with an overall perspective of air transport challenges.
I would like to take a few minutes to provide you with a quick overview of the Air France and KLM group global operations.
We are among the leading European airline groups. We employ 100,000 employees worldwide. We have a fleet of 586 aircraft, including 39 Bombardier used by our regional subsidiaries. We carry more than 76 million passengers annually, and we fly to 230 destinations worldwide. That represents 2,200 daily flights, for a yearly revenue of about 24 billion euros.
Air France is one of the founding members of the SkyTeam alliance with 19 airlines, since we had a new Chinese airline join us today. Air France and KLM are leading airlines in sustainable development with recognition from the Dow Jones Sustainability Index. Our group is a member of a transatlantic joint venture with Delta and Alitalia, providing 250 transatlantic flights daily.
I would now like to outline some specificity of operations for Air France and KLM in Canada. Although foreign airlines, Air France and KLM have been operating in Canada since transatlantic air transportation first began. That means that Air France has been here for 62 years and KLM 63. We employ 150 direct employees in Canada, and we also do business with Canadian handling companies. We operate in four Canadian cities directly — Montreal, Toronto, Calgary and Vancouver. As you perhaps know, these four airports account for 95 per cent of total transatlantic passengers flying in and out of Canada.
Out of Ottawa, both Air France and KLM offer a daily connection by bus to Montreal's Trudeau Airport. We partner as well with WestJet to offer 21 more additional cities.
We fly 1.6 million passengers to our Paris Charles de Gaulle and Amsterdam Schiphol hubs from where we can provide connecting flights to 60 European destinations to Canadian travellers and over 200 destinations worldwide. We operate 62 flights weekly in summer and 45 in winter. To give you an example, in Montreal alone, we operate about 1,500 seats every day during the summer peak.
In Canada, we have joined forces with Air France, KLM, Delta and Alitalia in a joint venture operation with a consolidated sales team in order to provide one voice to the market. Our mission is to provide a range of products and fares to all types of travellers, combined with a comprehensive commitment to deliver excellent service.
I would like to begin my presentation now by addressing the precarious situation of airlines currently because we are, as an industry, regularly losing money. In the airline industry, profitability in the last decade has been near to zero. For 2012, IATA is forecasting losses of over $1 billion for European and African airlines while air carriers from other parts of the world are expected to post modest profits. We should remember, however, that North American airlines are coming out of a turbulent period marked by extensive restructuring either through mergers or under various laws protecting them from their creditors. Some U.S. airlines are still undergoing such a process. Air France-KLM is currently, unfortunately, among the group of money-losing airlines. In order to counter our critical financial situation, we rolled out our Transform 2015 plan with the ambition to lower our manageable costs by 20 per cent.
Surprisingly, other players in the air transport chain, such as aircraft manufacturers, rental operators, distributors and airports, are making money, and sometimes with very comfortable margins. Airlines are on the losing end because average flight ticket prices continue to fall due to competition and the arrival of low-cost carriers, while fuel prices and operating costs in general, including airport-related costs, keep rising year after year.
What applies globally applies also in Canada. Airport-related costs are particularly high in Canada, especially as they pertain to airport taxes and rent. Our airport-related costs keep increasing each year at a higher rate than inflation. This impacts expansion efforts and potentially compromises the future development of air transportation in Canada.
I would like to add my voice to other airline representatives who have appeared before you and raised the same issue. Airport rent paid to the government is only one example, I think, of the excessive taxation applied to the air industry. Please allow me to illustrate this with other examples. In certain provinces, a jet fuel tax exists as if fuel prices were not high enough for airlines. Moreover, we recently learned about another potential tax that proposes to form a new system of collecting mandatory information that we already provide in a certain format. This logic of systematically passing the cost to airlines, and by extension to air travellers, is not a virtuous one as, instead of finding an internal solution to introducing changes and developing initiatives with a controlled cost, we simply pass on the burden to consumers.
Several studies have proven the correlation between fares and consumer habits. Lower fares generate more travel and higher fares equal fewer passengers and lower growth. Today, all taxes are added and included in fares because airline margins are already so low, or even negative given the current financial situation, that we cannot absorb them. Over taxation by Canadian airports compared to other airports, especially in the U.S., has a direct impact on the development of air travel in Canada. The drop in air traffic has been palpable with cross border U.S. airports charging lower fares and therefore attracting international air travellers who should be originating from Canada. This is a well-known issue, and I will not revisit comparing taxation practices in Canadian airports versus cross-border U.S. airports such as Burlington and Plattsburgh for Montreal; Buffalo for Toronto; and Seattle for Vancouver. It is a subject that has already been presented in detail before this commission.
[Translation]
The IATA secretary general recently compared Canada and Australia, countries that have similar air transportation needs. The results were self-explanatory. Australian air transportation finished ahead across the board in terms of growth and quality. The only category in which Canadian air transportation rated higher was airport taxes.
I think it is imperative that the Canadian government see air transportation and airlines as contributors to the development of the nation's cities, regions and the country as a whole, and not just as tax sources. We open new horizons for the cities we operate in by connecting them to the world. We bring tourists and business people to Canada every day. We create local jobs.
Other countries have managed to introduce tourism or economic development policies without requiring the airlines to fund their government or regional investments in airports through higher airport taxes and other airport-related costs. It worries me sometimes when certain airports expand, and when they fail to attract new business investments, look to existing airlines to offset the cost of their overly ambitious plans.
You can appreciate why airport taxes and airport-related costs are a major concern for Air France-KLM Canada. It is an issue that can influence our development policy in the medium term.
As you might know, October 27 marked the last time our Airbus A380 flew out of Montreal. I would be lying if I told you it was because the airport rent is too high. Nevertheless, the decision to stop the Airbus A380 service was based on profitability issues, on which airport-related costs have something to do with.
We experienced major growth in western Canada with KLM, in Vancouver and Calgary where we introduced daily flights last summer. This was a first for the airline in Calgary. We want to continue growing, but if airport-related costs make this too expensive and not profitable, our development strategists will look elsewhere for growth opportunities.
We could ask the following question: will the Air France-KLM Group continue to expand in Canada or elect to focus its development solely on emerging markets in China and Brazil, where the conditions are more attractive?
When I speak about a developmental policy, I am of course referring to a more reasonable approach to taxation, but also to a more global approach to consumer service quality. For instance, Montréal-Trudeau Airport does not currently have a dedicated customs line for business travellers, while most airports have already implemented one in collaboration with Customs authorities.
Montreal still does not have a rail link directly connecting air travellers from the airport to the city's downtown, while most major international airports operate such a system.
I would like to conclude by talking about competition, which on the surface, is a good thing for consumers. Nevertheless, too much competition, or oversupply, is having a damaging effect on the financial situation of airlines. There is merit to the idea of regulating access to the Canadian market for certain airlines, airlines known for slashing fares to drive their development at all costs, even if it is financially unsound. Some airlines will offer fares and pay travel agent commissions at the detriment of profitability when entering a new market. Consumers obviously benefit in the short term, but once airlines are forced to reduce or altogether eliminate their offering, prices inevitably rise again, and these same consumers are faced with higher fares. Consumers are also faced with fewer options, as numerous destinations previously available through connecting flights are eliminated.
Finally, a pricing policy that is too aggressive and does not reflect market costs puts pressure on fares, which translates into pressure on costs and ultimately on the quality — and quantity — of jobs in Canada. Air France and KLM believe in sustainable development.
Thank you once again for this opportunity. I hope the commission's findings will foster the ongoing development of air travel in Canada, which the Air France-KLM Group and Air France-KLM Delta and Alitalia joint venture hope to be an integral part of. I am now ready for questions.
The Chair: Thank you very much. You found a clientele that is rather sympathetic to your message. We greatly appreciate your comments.
We have about 20 minutes for questions. If you have any further questions for Mr. Pelous, he will be pleased to answer you in writing.
Senator Boisvenu: Welcome, Mr. Pelous. First, congratulations on your presentation. It was very clear. The question I have asked a number of witnesses who have come to testify is this: based on your experience around the world or between America and Europe, what aviation model do you think Canada should draw inspiration from to ensure that it is productive for the government and profitable for businesses?
Mr. Pelous: At Air France-KLM, we have long been jealous of the German model, where the willingness for development between the airports and companies has always been very coordinated within a philosophy of partnership where the company and the airport are there to develop the country. I think what was done in Frankfurt and Munich are examples of both reasoned and coordinated development between the companies, which may perhaps be a model for you.
There are other models, as well. I do not know if you would want to use them as a model. In some countries, like Morocco, a real willingness for tourist development also occurs through government investments, development, to ensure that the companies will bring in tourism to help develop the country. I believe you have two different approaches for partnerships where the government is willing is to provide — and that word does not necessarily mean making them pay — airport facilities that will encourage all carriers, national and foreign, to come and develop their activities in Canada, with a development approach that is coordinated and reasonably priced.
Senator Boisvenu: So you are suggesting a greater partnership. We have often felt there is isolation between the airline carriers and airport administrators. There was a kind of split; at least I felt there was. So you, on your side, are proposing a greater partnership between the two entities: the airport operators and the aircraft operators?
Mr. Pelous: To be completely transparent, we have very good relationships with Canadian airports. In terms of relationships, they are aware that we are stakeholders in development, and they need us as much as we need them. We have very good relationships with the operators of all four airports. But they are not necessarily the ones who make decisions about all the costs that are imposed on us. I will not go back over the airport rent, but that charge that is passed along to us or certain changes in price — and it can increase from four per cent to ten per cent annually for certain charges — is a real problem for development.
We do not know how — and we do not know want to know how because we would be out of business — to increase prices today. Basically, this partnership would be with the airport, but my current understanding of the Canadian airport is that it does not have all the levers of its price policy since it must effectively have a certain number of taxes.
Senator Boisvenu: Is the return of the marvellous Airbus 380 strictly tied to financial or budgetary problems?
Mr. Pelous: The retirement of the A380 is basically linked to a profitability issue. It is a fantastic airplane, as you said, but this aircraft has a significant amount of space for business class and, these days, there is not enough demand from the market or markets that use the link between Europe and Montreal to justify that space. Air France wants to maintain a presence, a strong presence, in Canada and, therefore, to get rid of that aircraft but to keep the number of flights, because one of our assets for Montreal and the surrounding area is that flexibility to Europe and all those connections. We would rather continue to be present with a smaller aircraft. This is the choice we made today, but it is really tied to profitability and all the costs have to be taken into account. There is the issue of business class, but also this issue of the profitability of our aircraft. We cannot continue to lose money, and we need to put our aircraft where we can at least achieve a sufficient level of profitability.
[English]
Senator Mercer: Thank you for being here. We appreciate your presentations. There are a number of questions. I am looking for some statistics to back up some of your statements. I know they are there. I am not challenging you; it is trying to get you to perhaps complement what you have already said.
You said several studies have proven the correlation between fares and consumer habits. Lower fares generate more travel; higher fares equal fewer passengers and lower growth. If you cannot quote those studies specifically tonight, please, if you could, share the studies with the clerk. Those could be a very important part of our report on this subject.
Mr. Pelous: Your question is not challenging at all because my first job at Air France was to forecast the demand. I was in charge of strategic planning to try to see in four, five or ten years what the cultural demand would be and how we could project how many aircraft we need and so on.
There are several models where we can show the demand based on the GDP, or the country's rating, and there are facts linked to the air price. For sure when we play with these factors, you see the traffic of the past decade in the forecast model is totally different, depending on these kinds of factors. Modern GDP was a decrease transport need, but as well, as soon as we decrease the price, you can generate some demand.
I think the best example of this flexibility is the low-cost model. Some low-cost carriers create demand between airports where there is zero traffic, and you see that at a certain level of price you can generate infinite demand. In Europe, we create a huge amount of travellers who did not have access to air travel just because you can go somewhere for $20. That is not the real price they are paying. There are subsidies from local government and so on. However, if you price the ticket at $500 — it was $200 to go to Europe — you can see and generate plenty of demand.
I will see if I can provide references for you, but this is the kind of logic where decreasing the price definitely gives access to air transport to a higher volume of people. It is simple things like that, but it means as well that a certain price can slow down your growth. In Canada, we are more thinking about having a slower growth than in the rest of the world and with a lower price, we can perhaps generate more traffic or not having the traffic deviated to the U.S. For $50, some people decide to fly from another place.
Senator Mercer: Thank you for that. I would appreciate it if you could forward us some statistics. That would be very helpful.
The other issue that I liked in your presentation was about air transportation airlines as contributors to the development of nation cities, regions and the country as a whole and not just a tax source. I think that too often when we talk about regional development or urban development or any development at all, we do not factor in airlines and airports as a generating factor.
Regardless of the region of France that I have flown to, Provence or northern France, the size of the airports that were servicing these regions always amazed me. In North American terms, they did not seem to have the population to support the size of the airports. However, when you looked at what the airport was doing, it was the generator of so much economic activity, whether tourism, agriculture or industrial. These are important things that we have tried to emphasize.
You represent two major airlines, Air France and KLM. There must be some specific examples where you could talk about the establishment of KLM or Air France services that have had a significant economic impact on the region from a development point of view.
Mr. Pelous: I remember one speech from my colleague when we were opening a new region to a new route to a new airport. It was something impressive. There was the local government, municipality and so on, and it was the first flight. He said, "I will just give you today the nationality of the passengers that arrive on this flight. Two of them are coming from Stockholm. Three are coming from Madrid. Five are coming from Shanghai." This was in Spain.
When we link one of your airports to Paris or elsewhere, we are not speaking about some French or Dutch people. We are linking one of your countries to the rest of the world. Due to the strength of our network — 200 destinations worldwide — we really connect your cities to the rest of the world.
To give you an example of a flight where half of the passengers were going neither to Paris nor to Amsterdam, but to another destination, that is a good highlight of the power an airline can have to help the development on the tourist side and the business side. Some of them are coming for business; some of them are coming for tourism.
Senator Eggleton: You have noted that there is a new system for collecting mandatory information that the government is about to require and will charge again for that. You end up passing that on to the passenger, as well. You say you already have this information but it is in a different format. Can you not make the formats compatible?
Mr. Pelous: We can. The Canadian body has decided to implement. For us, we are sending a certain format, but they want a more efficient system, and any normal company would say, "Oh, I need to improve my efficiency, so I need to do projects that have a certain amount of investment that tells me to save this amount, crunch people and so on." It is just that the logic is instead of seeing the problem from the person who collects the data, they say, "Oh, it will cost more, so we just had to tax to them."
Today it is not the same. We have to adapt the format. For us, it is a limited cost, but they want to pass on it.
Senator Eggleton: It is their cost, is it?
Mr. Pelous: It is their cost is what I was saying. It is the same principle. I have costs to air transport. Who will pay? It is the airport or the airline, then the airport, the airline, and then to the customer. It is just a change of format, but it is because of this new system that there is a project of new taxation because the new system has a cost. Somebody has to pay for it.
Senator Eggleton: Are you talking with Transport Canada or the Canada Border Services Agency about that?
Mr. Pelous: I do not know because the European Commission is the official body on behalf of all airlines. There are negotiations because it looks a bit odd to have this kind of system. All the airlines go through the European Commission.
Senator Eggleton: You talk about the unprofitability and the financial struggles that not only you are going through but other airlines are losing money as well. Let us look ahead. Where is this all going to end? Are there going to be more consolidations? More bankruptcies? Is there a light at the end of the tunnel?
Mr. Pelous: If I can really answer this question with 100 per cent certainty, I would win millions because I would be on the stock market. I will do my best to try to highlight.
First, I think the dynamic of the market has changed, especially in the European market. The low-cost impact has been huge for all of these low-cost airlines that challenged the business model of the existing airlines because we are no more ready to pay the price we are making them pay for service when the low-cost airlines were offering point-to-point, easier to use service. Therefore, most of the European airline losses came from European operations, when we were making money on the long haul. The long haul situation has changed slightly.
First, we need, as is the case with all European airlines, to find a business model because we did low-cost for the long haul major connections, so we created out of value. We need to find a business model and a way of pricing that is more in line with customer expectation in the new context. One part of the equation for sure is changing our business model.
Second, it is true there are too many players in air transport for various reasons, because it is kind of an attraction. Anyone with billions can launch an airline or every government thinks they need an airline because of national thinking. It is not necessarily rational because we do not really need them. When you are oversupplied, you have competition that drags the price down, goes under profitability and one guy goes bankrupt. It happens in every airline sector.
Low-cost airlines create pop-ups, which disappear. Even low-cost airlines consolidate. Ryanair bought plenty of them, they consolidated and now we have two or three main players. We see consolidation as well in the U.S., not yet for American Airlines but Delta and Northwest, plenty of them have already consolidated.
Yes, our sector will consolidate, but when it is possible — between America and Europe, there are rules for this kind of approach. The second major dynamic is an alliance, so we group through a joint venture an alliance model and a partnership to be better and stronger for the customer.
We are going through consolidation for these two mechanisms that are major, bankruptcy, which is not viable, and a stronger alliance model worldwide. That is the way I see the future of air transport. Again, that is my modest view.
Senator MacDonald: You mentioned airport-related costs impacting expansion efforts. On the East Coast of Canada, of course, if you want to fly to Paris, you almost always have to fly through Toronto or Montreal to get there. Air Canada flies regularly to London, six days a week, out of Halifax.
When you mentioned impacting extension efforts negatively, did you mean out of the airport you presently fly out of? Or does it prevent you from considering, for example, a direct flight out of Halifax to Paris?
Mr. Pelous: First, you cannot compromise existing airports because we have double and triple frequency at some airports. If the costs continue to rise, at one point we will decrease our operations so we might not have double daily KLM flights during December in Toronto or triple daily Air France flights out of Montreal. As well, it compromises the development on other airports. We develop with KLM in Calgary, but if it is a success story and the costs allow, we can have flights there and we can link to Paris.
There is not enough potential to operate a flight from Halifax today, but there is cargo potential there. With growing demand and not increasing costs, it will not be there in the near future. In the meantime, Halifax has already been investigated; I think we had cargo operations in Halifax over the summer.
Yes, for sure, we are looking to Canada as a developing market where we can perhaps grow. It is a question of profitability. We know we can lose a bit of money starting operations, but given a choice between that and China where the costs are lower and the demand is higher, then our strategists would decide to put the aircraft elsewhere.
When we look at starting an operation, we make a business model of the demands and the costs that would make sense. I know that Halifax is on the radar, not in the short term, but we did a survey on potential development there.
Senator Runciman: You talked about operating out of four airports in Canada, and then you mentioned certain provinces and jet fuel tax, et cetera. Are you having cost containment challenges in all of the areas you fly out of, or are there certain jurisdictions that are creating more headaches for you than others?
Mr. Pelous: I think the Montreal airport is starting to have a manageable cost increase growth and more regulations. We know what is coming because we are as much as possible in a partnership. I will not increase costs, but I know at least what is coming for the next year.
When in Toronto, I am always afraid that suddenly things will increase. In Calgary, when I see all the development they are doing and I see that Lufthansa is stopping their activity this winter, who will be paying for this huge investment? At one point, if I am the only one operating, such as Air Canada, someone will have to pay in the logic of the current system. I do not know exactly the evolution of costs in Vancouver.
For me, the global vision is cost. For me, the airport is a wall, and sometimes we can find savings. For instance, next year's budget had an increase of airport costs for all Canadian airports, more than inflation. This logic is not compatible with the decrease of air traffic price.
Senator Runciman: I am substituting in this committee, so I am not familiar with the earlier testimony, but all airline companies who are competing with you to Paris and Charles de Gaulle and Schiphol, I am wondering about comparing internal costs. Are you a unionized environment?
Mr. Pelous: In Canada?
Senator Runciman: No, your company.
Mr. Pelous: Yes, highly.
Senator Runciman: I am wondering how much of a factor that plays with respect to continuing to be competitive with other airlines.
Mr. Pelous: It is not a default to be unionized. We need to decrease our costs by 20 per cent to be back on the market and to be able to grow again. How we will do that is our pilots have signed an agreement with our management to say, "Yes, we will decrease costs by 20 per cent if you put a voluntary plan in place" and so on. That is what we talked about yesterday.
With a union, we can find a way to build the future together. We have 100,000 employees; they all want to be secure. The union is our reasonable partner to find a way forward, and we do the same with the staff in the airports. I think we will achieve this plan of minus 20 per cent manageable costs with the union. We are doing our job internally, and the union is not necessarily a problem if you manage them properly.
[Translation]
The Chair: Thank you very much.
Mr. Pelous: Thank you once again.
The Chair: I greatly appreciated your presentation. Please allow me to ask you a question, and you can respond in writing. How come Air France is in Seattle but not in Vancouver? It is a trick question. I will let you prepare a little something in writing.
I would ask the committee members to take a short, two-minute break so that we can change the panel. We will resume at 7:22 p.m.
[English]
Honourable senators, we will go into the second round of our meeting tonight. I wish to welcome Mr. David Bradley, President and Chief Executive Officer of the Canadian Trucking Alliance, who is here to discuss Divisions 5 and 12 of Bill C-45.
Mr. Bradley, the floor is yours.
David Bradley, President and Chief Executive Officer, Canadian Trucking Alliance: Thank you very much, senators, for the invitation to be here this evening to talk to you about what are two important clauses for the trucking industry in Bill C-45.
First, a little bit about the organization that I represent. The Canadian Trucking Alliance is a federation of the provincial trucking associations in Canada, and we represent over 4,500 Canadian trucking companies in Canada. The trucking industry, as you know, is the predominant mode of freight transportation in the country. About 90 per cent of all consumer products and foodstuffs are touched by the trucking industry at some point in the supply chain and, as well, about two thirds of Canada's trade by value with the United States moves by truck, which I think is a good segue into the two items that you wanted me to discuss tonight.
Division 5 under the bill is the proposed bridge to strengthen trade act. I have been representing the trucking industry for over 28 years. In at least 20 of those years I have spent time in Ottawa; in Lansing, Michigan; and at Queen's Park advocating for a second crossing at North America's, if not the world's, largest single gateway for land trade, and that is at Windsor-Detroit, where we continue to rely upon a 19th century piece of infrastructure to lead us into the 21st century, and that is not sustainable. I was there at least 10 years ago when the Prime Minister and the Premier of Ontario of the day said that this was Canada's most important infrastructure project and we were going to move expeditiously as a country to build that second bridge.
We all know and witnessed what happened in the intervening 10 years, where the project got tied up in immeasurable political wrangling and nay saying, most occurring in the state of Michigan. We are now at a point where Michigan and the Government of Canada signed an agreement last May to move forward. The opponents of the bridge, who seem to have a limitless supply of money to lobby against the project, were able to get a question on the ballot in the November elections in the United States, which, had it passed, would have delayed the bridge, if not killed it outright. In a great show that democracy is still the best way to approach things, the people of Michigan in their wisdom declined to vote in favour of that question, which eliminates another huge roadblock.
The purpose of Division 5 is to expedite the construction of the bridge. To do that, it proposes to exempt this particular project from some of the laws that require certain environmental permits and authorizations from the minister.
Our understanding of this bill is it is not motivated to try to get around the required environmental assessments. In fact, the project has already been through and passed an extensive bi-national environmental assessment process.
As well, the folks involved in the construction, anyone involved in this, will have to meet the requirements of the environmental laws that are in place. All that will be different, as we understand it, is they will not require the permits that would normally be required. The reason for that I think, and how it has been explained to me, is that we are dealing with some very deep pockets in terms of the opponents of this bridge who have shown a propensity to try to tie this up in court as much as possible. Part of the motivation of the bill, I think, is to reduce some of that risk, reduce some of that opportunity for them to challenge the permits and the authorizations in court so that we can move on with this extremely important project.
Thirty per cent of Canada's trade moves across that one single gateway. This not only includes Ontario, but there is a sizable portion — I think about 20 per cent — of Quebec's trade that moves across that single gateway. We do not have a highway-to-highway connection on the bridge. The problem is on the Windsor side. On the American side at the Ambassador Bridge today you can get to the I-75. At the new bridge, you will be able to get to the I-75. The problem we face in Windsor today is you can take a truck from Toronto to Miami and go through 17 stoplights, 16 of them in Windsor on the current approach to the Ambassador Bridge. Without totally reconfiguring the city of Windsor, which will not happen, we need to have this second crossing in order to create that highway link. The Province of Ontario is already building that link to be ready for when the bridge is constructed.
The other part of the reason why we need to take this action is that this bridge will be a public-private partnership. The money is not available for the Government of Canada or for any government to build this alone. They will have to seek a partnership for it. Those deals are difficult to put together. You are dealing with profit-making entities that like to take uncertainty out of the equation so that they can get a return on their investment. The prospect of having the project tied up in court for an incalculable amount of time only adds to the uncertainty. Therefore, it makes it more difficult to put these kinds of things together. We are at an important juncture in terms of this project. If the country was faced with a real crisis, how would we be able to move forward? This is a good example of how we can still protect the integrity of the environmental laws while allowing an important project to move forward.
In my view, the folks who will challenge this or would want to challenge this project are not concerned about the environment. By their words and by their actions they are concerned about self-interest only. By taking this action, perhaps we can set some of that to the side or at least decrease the opportunity. It is a good thing, so we welcome this initiative.
The other item that you have asked me to speak about is Division 12, which deals with the Customs Act, in particular the requirement for carriers — trucking companies that haul freight across the border, or railways or airlines or anybody else — to have a specific carrier code. That, as well, is something that we support. We support a border that is secure, obviously, and one that is also efficient. In order for a border to be efficient in this day and age, it has to be automated. We cannot continue to rely on paper-based systems and expect the trucks to move. A truck that is at rest is at risk. We want to keep them moving.
As of November 1, 2012, Canada implemented an automated customs initiative. The key piece is the creation of an electronic manifest. All of the data relating to the cargo, the conveyance and the driver are now transmitted electronically before the truck even reaches the border. This allows the risk assessment to be done at that time, and the truck will either get a green light or will be asked to go to secondary for further information. This is a good thing.
The Americans have moved to a similar program, which they implemented over the last five years. While there are always growing pains with new programs, it has worked extremely well and has helped to facilitate moving the freight across the border. It is now Canada's turn. However, you cannot have that kind of system unless you have some way of monitoring and identifying the trucking company responsible for moving that freight.
The CBSA has always had the authority to require and to issue carrier codes. Until the last couple of years, there were lots of carrier codes. However, that was a problem because a company could have a multitude of codes and move them around and back and forth. Companies that were of lesser repute, say, could easily grab somebody else's carrier code, cross with that one today and a different one tomorrow. We really did not know who was doing what. In this day and age of the post-9/11 environment, that does not wash. CBSA gave the industry at least two years' notice that this was coming. For some of the larger companies that had a multitude of carrier codes because they have a multitude of divisions or different companies that they own, it was a bit of a challenge for them to adapt. However, two years gave them the time they needed and they were able to do it. As far as I know from talking to the industry every day, as I do, we are ready to go. This is another one that from an industry perspective is a rather minor thing because we have been doing it. We are ready to go. It is part of the automated border environment that we want to move to; and we support it as well.
That is a very short explanation, keeping it simple, of what is happening on both of these measures. I would be delighted to answer any questions that you might have.
Senator Mercer: Mr. Bradley, I will spend some time on the bridge at Windsor. I have had the privilege of being on this committee longer than my colleagues. I remember other bills that dealt with the bridge crossings at Windsor. I have also visited Windsor several times to specifically look at this issue. While I was there for other reasons, I spent time physically looking at the problems.
On the Michigan side of the border, if I recall, it was the single largest expenditure on highway construction in the history of the State of Michigan to correct and bring all interstates to a conclusion at that side of Detroit facing the Canadian border. Indeed, the culmination seemed to be almost aimed at the Ambassador Bridge. The people who own the Ambassador Bridge may have been their own worst enemies in that they have created some issues, problems and challenges for some people. I should preface this by saying that I find it rather difficult for me as a left-wing Liberal to defend private enterprise, but I have found myself doing that on this issue.
I find it curious that on the American side they have done this and on the Canadian side we have not done this. The prime minister of the day and Ontario's premier of the day announced the connection between Highway 401 and the Ambassador Bridge, but we have not fixed our problem and we continue to blame the people on the other side of the bridge.
You talked about the reconfiguration of the city of Windsor. We are talking about reconfiguring one major street next to the University of Windsor. It used to be next to a residential area that is empty now because the people who own the Ambassador Bridge bought the community. It is a ghost town.
I have difficulty figuring out why we are in this situation that should have been solved years ago when we had an agreement to connect the 401 to the Ambassador Bridge.
Mr. Bradley: It is not my recollection that we had an agreement to link the 401 to the Ambassador Bridge. We had an agreement to link the 401 to a crossing at Windsor-Detroit. The bi-national study looked at several options, including the option for the Ambassador Bridge. The one that all four governments — Michigan, Ontario, the U.S. federal government and the Canadian federal government — agreed on was the current proposal.
The Ambassador Bridge is still going to perform an important role and those linkages to the I-75 are still going to be important. A lot of trade emanates from within Windsor to Detroit; and that will continue. Commuter traffic will continue. In terms of the trade, we need to get off a residential road in Windsor onto a freeway. Also, in particular since 9/11, there are two things: First, we need to be able to accommodate modern customs plazas on both sides of the border, which is difficult to do at the current location; and second, we need to create redundancy. If that bridge goes down for whatever reason — and I am not saying a terrorist attack — they might need to re-deck it, where will the traffic go? We do not have another outlet at Windsor-Detroit. The second most important crossing in North America is at Laredo, Texas, and Nuevo Laredo, Mexico.
I am going from memory in terms of numbers, but the latest count, I believe, was 6 bridges and 14 lanes for commercial traffic. There is more traffic crossing at Windsor-Detroit than anywhere else, and we are relying on one bridge with four lanes. Do we think we will compete for those manufacturing jobs? It is difficult to do.
Senator Mercer: Fair enough, the agreement did not specify connecting the 401 with the Ambassador Bridge. I will concede that.
However, you talked about the four governments being involved, the Government of Ontario, the Government of Michigan, the Government of the United States and the Government of Canada. I would guess the Government of Michigan made their decision when they created this highway project that ended and was aimed specifically at the area of the Ambassador Bridge crossing.
When we had the previous bill before us on the Ambassador Bridge — and I have not spoken to these people in many years — but, if I recall, the owners of the Ambassador Bridge were prepared, at their cost, to build a second span adjacent to the one that they have, creating the redundancy that you want. This would be at little or no cost to the taxpayers of the United States, Ontario, Michigan or Canada.
Mr. Bradley: That is what the commercials say. Here is my take on that: First, it does not solve the problem because you still have Huron Church Road in Windsor that you are dealing with; second, I question whether the end game would ever be a second span there because the cost to bring the current Ambassador Bridge up to standard would be so exorbitant I think there is a possibility that all you would get is the new span at the end of the day; third, they keep saying, "We will build this bridge and we will pay for it ourselves," and charge very handsome tolls, by the way, to do that. Let us not forget that.
The fact of the matter is they have absolutely no environmental approvals whatsoever, have never gone through the process. If they were to go through the process, my view is go ahead, the more spans the better. I am happy. However, all they have done so far is talk about it. They have not taken one real concrete step to go through the legitimate process in order to get permits to build. It is talk; that is all it is.
Senator Mercer: I do not know whether it is talk on the part of the citizens of the state of Michigan with the single largest highway project in the history of the state bringing everything to one point. I fail to see that.
Mr. Bradley: I have spent a lot of time in Lansing and a lot of time in Detroit over the last 10 years. That has never come up as an issue from the opponents of this bridge, not once. The money is there. The U.S. federal government will pay for highway linkages to the I-75. That is not the issue that has come up in terms of why those people are opposed.
Again, the people of Michigan voted against the proposition a couple of weeks ago. They have said they want this second bridge not only for the long term, but for the tens of thousands of jobs it will create in the short term to construct the thing.
[Translation]
Senator Boisvenu: Thank you for your presentation, as well as your patience, your faith and your significant involvement in this project. Canadians like you are the ones who make things move forward, even though the progress is slow. So, congratulations!
Do your trucker members have a ferry service there or is the bridge their only way to get across?
[English]
Mr. Bradley: There is a ferry service at Windsor-Detroit because the current owners of the Ambassador Bridge do not allow what are called "dangerous goods" to use their bridge. Unless you want to go to Port Huron, to The Blue Water Bridge, if you want to cross at Windsor-Detroit, you take the ferry across.
Senator Boisvenu: Is it less dangerous by boat than by road?
Mr. Bradley: "Dangerous goods" is a loaded expression. Soap is a dangerous good, things like that. Every load of dangerous goods is not explosives.
[Translation]
Senator Boisvenu: You spoke about this almost systematic opposition for the past decade to building a road that, in itself, is so very essential. So where does the opposition come from? Is it from environmentalists, people who would operate the actual bridge or professional killjoys?
[English]
Mr. Bradley: The opposition principally comes from the owner of the Ambassador Bridge who, like any good businessman, is trying to protect his monopoly and trying to protect it for as long as he can, obviously. That is principally where the opposition comes from.
Senator Runciman: I have heard from Mr. Bradley on this issue for a long time: at least 20 years, I think. Do you remember a fellow by the name of Remo Mancini? I am sure Senator Eggleton remembers. I think he was the vice- president of the Ambassador at the time. They have been lobbying for a long time with respect to this issue.
I want to commend you. I know you have been an articulate and passionate spokesperson for the industry on this issue, and there is finally light at the end of the bridge.
I am curious about the public-private partnership because of the players involved here. How does that work with the State of Michigan? I am not really familiar with this. I have read where the Canadian government's contribution to this will be recovered through tolls. How does that all work with respect to the public-private partnership?
Mr. Bradley: Again, I am not privy to all of the details. I know some things. In a nutshell, how that will work will be much like the construction of Highway 407 in Ontario, where the Government of Canada will basically grant the authority to a private consortium, I assume.
Senator Runciman: The Government of Canada?
Mr. Bradley: The Government of Canada, because the bridge construction is a federal issue in Canada. It is a state issue in Michigan, but Canada is paying the costs. I am sure there will be some sort of an agreement with Michigan to ensure that jobs are shared and that sort of thing. Ultimately, a private organization will put money — if not all, most — up, I would assume, and that will be recouped through tolls.
Senator Runciman: A percentage of that will go to the Canadian government to repay the investment?
Mr. Bradley: Yes.
Senator Runciman: At the end of the day, the private operator will retain all revenues and maintenance will be looked after by them?
Mr. Bradley: I do not know how that will work. It could go different ways. It could revert back to the government at that point. It depends on the deal that is struck. I am not privy to any of those details.
Senator Runciman: I was curious about the Customs Act changes and the carrier code. I was not quite clear what a carrier code is. Is a biometric identifier part of this process?
Mr. Bradley: It is not biometric. It is quite simple. It is just a four-digit code. It could be that "ABCD" would be your code if you were a carrier, and that has to appear on any of the documentation, the electronic transmission of information to the border agents.
Senator Runciman: There is no holding up a card as you go through customs or anything like that?
Mr. Bradley: In theory there is not. There is always the opportunity for further questioning and a peek in the window. No, the idea is to take as much of the paper out of the system so you are not having to stop at a booth and add the time of trading paper back and forth.
Senator Runciman: You referenced custom facilities on both sides of the border.
I was under the impression that for a number of years we have been talking about shared facilities. Has that gone by the boards now? Is there no consideration of shared facilities?
Mr. Bradley: There is consideration. It was discussed again in the most recent perimeter security agreement to conduct a pilot at an as yet unnamed place to look at the shared border. I keep hearing that at some small crossings, there is some form of shared oversight, but in terms of the major crossings, it is not there yet, and it seems that this is difficult to put together. There are constitutional issues on both sides of the border. People used to think, well, it was because the border officers in Canada do not carry firearms. Well, they do now, so that is not the issue.
Senator Runciman: There are privacy issues as well.
Mr. Bradley: Privacy issues, all of those sorts of things which are difficult to bring about.
The fact of the matter is that I never saw that as a panacea. It would potentially work at certain locations, for example, the Peace Bridge, at Buffalo-Fort Erie, where the folks a number of years ago were championing the kind of approach because they did not have the space on the New York side to put a proper new U.S. customs facility. If they could move it to Canada, it would help to move things. However, with the delay, I think they have more or less gotten on with life, so I am not sure where that stands right now.
Senator Runciman: Thank you.
The Chair: Mr. Bradley, thank you very much. We are happy that we arrived at a mutually agreeable time table to be able to meet with you. We appreciate your presentation. I know you have a flight to catch, so I will free you from the committee.
Mr. Bradley: Thank you very much.
The Chair: Thank you very much.
I will remind the audience and honourable senators that next week the committee will hear exclusively from witnesses on Divisions 5, 12 and 20 of Part 5 of Bill C-45. We will also meet in camera to discuss the draft report on those parts of the bill. Thank you very much and good night.
(The committee adjourned.)