Proceedings of the Standing Senate Committee on
Transport and Communications

Issue 5 - Evidence


OTTAWA, Tuesday, June 11, 1996

The Standing Senate Committee on Transport and Communications, to which was referred Bill C-20, respecting the commercialization of civil air navigation services, met this day at 3:30 p.m. to give consideration to the bill.

Senator Lise Bacon (Chair) in the Chair.

[Translation]

The Chair: The meeting will come to order. On the agenda today is Bill C-20, an Act respecting the commercialization of civil air navigation services.

Appearing today from the Department of Transport are Paul Gauvin, Senior Assistant Deputy Minister, Gord Wilson, Legislative Advisor, and Daniel Paris, Senior Negotiator, Human Resources Panel.

The witnesses will be allocated one half-hour to make their presentation and provide the necessary information. The second half-hour will be set aside for the members to ask questions.

[English]

Senator Forrestall: Madam Chair, I must leave at 4:00 today in order to attend a funeral. Perhaps I could pose just two or three questions on the areas of concern that I have, and then perhaps the deputy minister could address them in his remarks.

The Chair: Very well.

Senator Forrestall: Perhaps we could learn for the record the current status of this bill. In other words, is it deficient, and if so, for what reasons? What must we do, with it? Shall we amend it or simply send it back to the chamber?

Second, would the deputy minister address the questions raised by Mr. John Crichton, the new chairman of NAV CANADA, and the question that I raised last evening in the chamber, that while under the excise process, certain sums are raised each day to meet ongoing costs. That is not an instrument that is available to the new corporation and I would like to know how they will fill this gap. We have an organization here today suggesting that this matter may not be able to go forward, that their financing may be in some jeopardy because of some uncertainties in the act. In other words, they may have a bridging problem. I have problems with our bridging, too. I also have problems with the bridging with respect to the total amount of funds. This is a debt proposition from beginning to end.

I would say to the deputy minister, carry on with your intervention as usual, and keep those thoughts in the back of your mind for addressing at the tail-end, or at some appropriate point in your remarks.

Mr. Paul Gauvin, Senior Assistant Deputy Minister, Department of Transport Canada: We are here to present the bill for the commercialization of the Civil Air Navigation System, including the responsibility for the management of all Canadian airspace and international airspace over the North Atlantic, as delegated by the International Civil Aviation Organization, ICAO. That comprises approximately 6.8 million aircraft movements, and that was in 1994. It involves 6,400 employees in the Department of Transport at the present time. This is one of the largest air navigation systems in the world, comprising of seven area control centres, 44 towers, 86 flight service stations and a whole network of electronic navigation aids.

This exercise started with the budget of February 1994 when the federal government announced that it wished to review the potential for the commercialization of this activity. In April 1994, we had the first meeting of an advisory committee, made up of users, unions and a whole lot of other stakeholders from the aviation community, culminating in public consultations during August and September of 1994.

In February 1995, it was finally decided that it was the firm intention of the government to actually commercialize the Air Navigation System, and NAV CANADA was incorporated. We started the negotiations on the due diligence process in June of 1995, with panels formed on such matters as finance, technology, corporate, human resource and legal in July of that year. On September 8, 1995, we signed an MOU with the unions, NAV CANADA and Transport Canada to outline what benefits would be transferred. On December 8, 1995, we reached an agreement in principle on the price, and it was agreed that, upon transfer, the government would receive a cheque for $1.5 billion, net. In March of 1996, we introduced the legislation in the House of Commons.

Another key date is April 1, 1996, when we reached an agreement to transfer. After due diligence, we agreed on all of the various conditions that we would need to make this happen.

The functions to be commercialized include air traffic services, all the technical services associated with that, including maintenance and engineering, the system requirements, planning and procedures, aeronautical information, the Transport Canada Training Institute, which is located in Cornwall, and all the support services that accompany the Air Navigation System, or ANS, such as finance and personnel. Within Transport Canada, these were all part of the department, so that they must be broken out as to which portion is allocated to air navigation.

The rationale for commercialization is that commercialtization is a key element of government streamlining and resource reduction, and this came about as was part of Transport Canada's program review. It was driven by the need of users for an efficient, responsive and affordable service, and it was felt that, operating outside of a government environment, NAV CANADA would be able to adapt more quickly and efficiently to commercial, operational and technological developments. While the government will not operate the system, it will still obviously focus on standards and safety, and those activities would remain within Transport Canada itself.

After extensive consultation with industry users and other stakeholders, a number of models were considered: seven in total, and three in detail. The three considered in detail were: whether the new entity should be a Crown corporation, a mixed enterprise -- including both private and public components -- or a nonprofit corporation. After a great deal of deliberation with the users, the unions and the stakeholders, it was decided that basically this would be a not-for-profit corporation.

NAV CANADA was then formed in May of 1995. The corporation was expected to be financially self-sufficient and would operate in a similar fashion to a cost recoverable public utility, with all profits being reinvested within capital or new technology, R&D, in order to reduce debt or reduce user fees.

Dealing with the corporation NAV CANADA, the articles of incorporation and by-laws were approved by the Minister of Transport. Changes to key articles and by-laws require the Minister of Transport's consent, and some examples of that would be governance, accountability, and the structure of the board of directors. There must be mandatory consultation and transparency of information on changes in user charges, facilities and levels of services.

The nature of NAV CANADA is that of a not-for-profit entity; that is, without share capital, and basically with a wide range of perspectives represented on the board. We feel that this offers safeguards against any abuse of monopoly power. The board of directors is made up of 15 members: five are appointed by the users, two by the unions, three by the government, and four are independently chosen by the board as members at large, and the chief executive officer is also chosen by the board.

With respect to the user-appointed directors, four are to be appointed by the largest national association of air carriers. That is currently ATAC, or Air Transport Association of Canada; one director to be appointed by the largest national association of business aircraft operators, currently the Canadian Business Aircraft Association, or CBAA. National associations have members from all parts of the country, and ATAC's membership is drawn from carriers of all sizes. The by-laws of NAV CANADA require consultation with bona fide regional air carrier associations in the appointment of the four air carrier directors.

With respect to the deal itself, the government will sell, lease or otherwise transfer all ANS property and assets used by Transport Canada in providing ANS services. That includes lands, buildings, electronic systems, aircraft, existing agreements including the Canadian Air Traffic Control System, or CAATS, chattels and intellectual property. NAV CANADA will assume all obligations and liabilities related to assets. All employees in support of ANS, that is the 6,400 employees I mentioned previously, will be offered employment with NAVCAN, with equivalent benefits. There will be no financial guarantees provided by the federal government. The corporation, NAV CANADA, will be totally self-sufficient and independent.

The price: The value of ANS business was originally estimated by the financial consultants Nesbitt Burns at approximately $1.3 billion in November 1994. Then after that time, there were a number of improvements in the revenues, including the Air Transportation Tax, the introduction of overflight fees, achievement of operating efficiencies, as well as a fairly intense negotiation process which increased the value to between $1.8 billion and $1.9 billion gross.

On December 8, 1995, the government signed an agreement in principle for $1.5 billion net. The difference between the gross and net amounts is because NAV CANADA will assume basically three responsibilities, one of which is that for any downsizing activity, NAV CANADA will assume all the costs of early retirement or early departure, which is the same program as the government has. On top of that, NAV CANADA will assume any grievances that are in the system at the date of transfer. All of those will be settled by NAVCAN and will become their financial responsibility after they take over. On top of that, NAVCAN has also agreed that all foreign state and military aircrafts will be exempted from fees.

In terms of the instruments of transfer, there is an Agreement to Transfer which sets out the terms and conditions. Two pieces of legislation are involved: the Aeronautics Act and this particular bill that we are discussing today, the Civil Air Navigation Services Commercialization Act. The Aeronautics Act and regulations pursuant to that act will ensure safety, which remain part of the Department of Transport, and Part VIII of the Canadian Aviation Regulations will address the provision of civil air navigation services. Regulations will be in effect prior to transfer of ANS.

Bill C-20 establishes the supremacy of the Aeronautics Act. Nothing in this bill affects the application of the Aeronautics Act. The changes in facilities and services will be subject to the Aeronautics Act and any regulations made under that act that relate to aviation safety or the safety of the public. The Aeronautics Act will also be amended to authorize the minister to make and enforce an order to maintain or increase civil air navigation services.

At this point I invite my colleague Gord Wilson to continue with the organization of the legislation itself.

Mr. Gord Wilson, Legislative Advisor, Department of Transport Canada: I will continue with a quick look at each of the ten sections of the legislation. The ten sections are set out here in the bill, beginning with the basic definitions and interpretations that go to some length, because it is very important to establish and define the obligations that we are imposing upon NAV CANADA, and the privileges that we are extending to them. That is why this document goes on at some length.

In that section, NAV CANADA is defined as the ANS Corporation. You will see ANS Corporation throughout the bill. This is the key section in which it is stated that nothing affects the application of the Aeronautics Act -- the Aeronautics Act being the key piece of legislation that governs safety in Canada. Therefore, while Bill C-20 has few explicit statements about safety, it provides key linkages to the Aeronautics Act wherein safety is governed. There is also a statement that nothing takes away from the authority of the Minister of National Defence under the National Defence Act.

There is a short section on transfer arrangements, extending the authority to the minister to sell, lease or otherwise transfer the assets. Those authorities exist currently through a number of different pieces of legislation, and this brings it all together in one place. There is a clear statement that NAV CANADA is acting on its own, and is not an agent of the Crown.

There is a lengthy section dealing with the provision of services. First, NAV CANADA is obligated on day one to take over all civil air navigation services that were previously provided by Transport Canada, and to provide them to the same extent. That is the initial obligation. Thereafter, NAV CANADA may make changes to those services if they follow a process that is set out in the legislation. That process is that whenever changes are considered by the NAV CANADA board to likely affect a significant group of users in a material way, then they are required to go through a process of public notice. Those kinds of changes include increases or decreases in services, or closure of facilities. The process itself involves extensive public notice, and a requirement to notify all associations of users, and to notify anyone else who has expressed any interest in receiving notification under this act. There is also a requirement for notification through a general means, in this case through the Internet, and in the case of changes to designated northern or remote services there is a requirement to provide notification to provincial and territorial governments.

Such changes may be implemented within 60 days of the giving of that notice, but subject to the satisfaction of the minister that safety is being maintained. Safety will be ensured through regulations made pursuant to the Aeronautics Act. Those regulations allow the minister to request an aeronautical study to show that service changes will not negatively affect safety. An aeronautical study is one in which the safety implications of a change in service are reviewed, and alternative courses of action are explored.

The minister may direct NAV CANADA to maintain an existing service. The minister may also direct NAV CANADA to increase the level of service if required in the interests of safety. This legislation includes consequential amendment to the Aeronautics Act to establish that authority.

NAV CANADA will be given a monopoly in certain services, subject to a limited number of exceptions. The key elements of the monopoly are the air traffic control services, the flight information services relating to the handling of flight plans and the provision of ground and traffic advisories, and aeronautical information services.

I mentioned that there were a limited number of exceptions, the key one of which is the exception that allows the Minister of National Defence to continue to provide air navigation services that that department is providing today. There are lesser examples. Essentially, the policy here is that where someone exists today and is operating an air navigation service, they may continue to do so thereafter. There is, for example, one single private operator of an air traffic service in Portage la Prairie, and the legislation protects the right of that individual to continue doing so.

NAV CANADA is designated to the International Civil Aviation Authority as Canada's authority for air traffic services and aeronautical information. NAV CANADA may plan and manage the use of the airspace, but are subject to the Governor in Council's right under the Aeronautics Act to make regulations in respect of the classification and use of airspace. The authority to classify the airspace rests with the Governor in Council on the recommendation of the minister, but it gives NAV CANADA, as the monopoly operator of many services and the predominant operator of other services, an opportunity that they need to coordinate the system and ensure the system's integrity.

There are provisions to allow NAV CANADA's technical and operational standards in respect of navigational aids to be included by reference in the minister's regulations. Again, they may make recommendations to the minister, but the authority to set those regulations rests with the minister. They may also make recommendations to the minister in respect of the minimum amount of liability insurance that a provider of navigational aids should have, and the consequential amendment section of Bill C-20 provides the authority for the minister to do so.

A special process exists for changes to designated northern and remote services. A list will be created by the minister; in fact, it already exists. That list has been the subject of consultation with provincial and territorial governments. It establishes services that may only be reduced by NAV CANADA if they follow a certain process. If any of these reductions is likely to affect a significant group of users or residents, in this case because it is northern and remote, and there is a special importance of air transportation in those areas, NAV CANADA must provide the public with notice. They may not make the reduction if there is opposition from an affected provincial or territorial government, or unless users accounting for more than two-thirds of the revenue agree with the change. If one of those two groups does not give their approval to the reduction, then NAV CANADA may go to the Minister of Transport and request the minister's approval. Before a change can be made to a designated northern or remote service, it is necessary to get the approval of a quorum of users, the affected provincial or territorial government, or the Minister of Transport.

There is a section dealing with the establishment of level of service policies. Within a year of transfer, NAV CANADA must establish and publish level of service policies. There is a requirement for them to go through the normal public notice requirements. They are obliged to apply these policies in a consistent manner. Then, if a person requests services in excess of the level set out in the published policies, there is a requirement on NAV CANADA to provide those additional services only if there is evidence that a majority of users who will be affected in a material way by those additional services are in agreement with the proposal. There is a section that sets out who has a say, and that allows an opportunity for someone wanting additional services to obtain them.

The Governor in Council, on the recommendation of the Minister of Transport, may direct NAV CANADA to do certain things in respect of northern and remote locations; things in the interest of national security and things pursuant to an international agreement. Financial compensation would be possible in the first two cases.

The charging sections give NAV CANADA the authority to impose charges for availability or provision of services. DND aircraft would be exempt from the charges. This is an important point, because it is not an outright exemption. It is, in fact, a swapping of services between the Minister of National Defence and NAVCAN whereby NAV CANADA agrees not to charge the minister's aircraft for using NAVCAN services and, in exchange, the Minister of National Defence allows NAV CANADA to impose charges for services that the minister provides. It happens that it is a very close exchange in terms of dollars, and that the revenue that NAV CANADA is foregoing is roughly equivalent to the revenue that the Minister of National Defence is allowing NAV CANADA to generate. The arrangement has many advantages. The Department of National Defence does not want to get into the business of billing users. It also has advantage for users in that they will receive one bill, not one bill from NAV CANADA and a separate bill from the Minister of National Defence.

Foreign state aircraft would be exempt from charges unless the Governor in Council directs otherwise. Basically, that would be a case where, if a country charges Canadian state aircraft, then the Governor in Council might well allow NAV CANADA to charge aircraft of that state.

The legislation contains charging principles that provide the parameters within which NAV CANADA must establish its charges. These principles deal with transparency, safety, structure, impact, quantum and international obligations. These charging principles provide protection for users against the abuse of monopoly power, and NAVCAN is allowed to impose the same charges when they take over the operation as the Minister of Transport did prior to the transfer.

There is a requirement for public notice to all interested groups, including anyone who expressed an interest in being notified. The notice must invite representations. Having considered all representations, NAV CANADA may then announce its decision, but not less than 60 days later. Having announced the decision, then 10 days later they may introduce the charges, and as a result of consultations, they may implement a different charge than originally proposed so long as it would not generate more revenue. The idea here was to provide no disincentive for them to act upon good things they heard about during consultations.

There is an appeal process. Users may appeal new or revised charges to the National Transportation Agency. However, this will not be not the usual NTA process; it is a special process, expeditious and tightly defined, and this act takes away certain powers of the NTA in respect of these particular appeals. The appeal can only be made on the basis that the charging principles have not been observed, or that the notice requirements have not been given. The agency can order refunds if the fines and the charging principles have not been observed. The agency has 60 days to make a decision. In special circumstances, it can have another 30 days. All decisions are final and binding, and of course there is always the opportunity for judicial review.

During the first two years, NAV CANADA may seek the approval of the Minister of Transport for its charges to provide greater certainty to its revenue flows in this critical period. The minister would likewise make the decision based upon the charging principles, but not with respect to the quantum of the charge. The feeling is that, as a not-for-profit entity, this organization will not pursue any higher charges than it must. There are collection provisions regarding joint and several liability, and authority to seize an aircraft for nonpayment.

There is a human resources section that sets out how the employees will be transferred to NAV CANADA. Employees who are transferred cease to be public servants at the time of transfer. Those rejecting offers of employment cease to be public servants six months after being so designated. For a period of one year they have a priority status for reappointment to the public service, and the Workforce Adjustment Directive, the Early Departure and Retirement Incentive Programs and the Executive Employment Transition Policy do not apply to the employees so designated, and this act makes such programs inapplicable.

Collective agreements and arbitral awards are continued and remain in force until expiration. NAV CANADA will assume the role of employer in the case of any grievance, conciliation or arbitration proceeding that commenced before the transfer. For purposes of the Canada Labour Code, employment of transferred employees is deemed to be continuous for purposes of leave entitlements and things such as that. The bargaining agents are deemed to be certified under the Canada Labour Code.

Employees transferring to NAV CANADA are entitled to severance pay in respect of their government service. This is a confirmation of what exists already by way of their collective agreements, and it is made clear that when an employee becomes eligible subsequently for severance pay from NAV CANADA, the period of entitlement excludes any years of service with the government.

There is a provision that, in the event of work stoppages, NAV CANADA would be required to provide services necessary for humanitarian and emergency flights. In order to ensure this, NAV CANADA and the unions must enter into an emergency services agreement, and if such an agreement is not reached within 90 days of the expiration of a collective agreement, a mediator/arbitrator will be appointed with power to conclude such an agreement.

Control and enforcement is taken through two steps: It is possible for a person to go to the superior court of a province in order to obtain a restraining or compliance order, and then there are fines -- in some cases quite hefty; up to as much as $100,000 a day for not providing the services to humanitarian or emergency flights.

The Official Languages Act applies to NAV CANADA as if it were a federal institution. There is a further requirement. Some government departments did not have the authority to provide certain continuing services to NAV CANADA, particularly during the transition, such as payroll services, and there is a section to give that authority to them.

The financial arrangements section -- and I think at this point I will expand on the question that Senator Forrestall raised -- provides the minister with the authority to enter into an agreement to provide payments during a transition period not to exceed two years. These payments are necessary during that first two-year period when NAV CANADA is putting its full complement of user charges in place. A maximum of $1.44 billion has been set aside. That amount is based upon anticipated revenues from the Air Transportation Tax during that period.

The question that was raised referred to statements that the Air Transportation Tax is used to help pay for air navigation services, meaning that it does not cover all of the costs. Up until November of 1995, the Air Transportation Tax accounted for 90-plus per cent of the revenues of the air navigation system. The only outside revenue sources were charges that Canada levied for services provided in the international airspace over the North Atlantic Ocean.

In November of 1995, Transport Canada introduced charges for aircraft overflying the country. In the first year, those charges are expected to generate about $165 million of revenue per year, and that was a large jump in the overall revenues. Right now, the revenues for air navigation services would be about $700 million from the Air Transportation Tax, and about $200 million for the combination of the overflight charges and the oceanic charges. Whether or not that will cover all of NAV CANADA's costs in the first year, particularly taking into account the debt servicing, remains to be seen, but historically the revenue sources from the ANS have not covered all of the costs that Transport Canada incurred, including capital costs, for air navigation services.

That takes me to the consequential amendments. The intent is that the Air Transportation Tax would disappear after two years. It is authorized by the Excise Tax Act, so there is a consequential amendment to strike that provision from the Excise Tax Act. There are a number of amendments to the Aeronautics Act to allow the minister to make and enforce orders to NAV CANADA to provide services and to authorize the minister to make regulations in respect of the minimum insurance requirements and to take away the authority of the Minister of Transport and of the Minister of National Defence to impose charges for civil air navigation services.

There are then two conditional amendments to recognize that parts of the act refer to acts that, at the time the bill was drafted, were the subject of separate acts not yet passed. Bill C-14, which is one of the two involved, has subsequently received Royal Assent.

Senator Forrestall: I would be interested in hearing more about the degree to which the new entity will avail itself of information from AWOS. I am very concerned that they take any at all. I think the whole thing should be scrapped.

I want to ask one question: You are suggesting future amendments, as you have delineated here, to the Aeronautics Act. Amendments have been made to the Aeronautics Act since the late 1930s. When will we scrap that act? It causes more anxiety and worry among those who must fly airplanes than any other single factor that I have run across -- not icing, not fog, not snow on the runways, not any of these things at all, but an ancient, archaic, probably useless piece of legislative. When will they draft a new one? Many of these things could be so much easier and simpler if only that would happen.

Mr. Gauvin: We do not have any plans right now to draft a new bill. If you wish to have further discussion on that, we could bring our experts on the safety side to address your committee. That is the act which supports all the safety regulations that govern the air transportation in this country, and it is the background that Transport Canada will use to ensure that all the regulations are still there after NAVCAN transfers; to ensure that all the various regulations and all the requirements under the safety purposes are made; to ensure that, while it is a private entity, that the government still ensures that safety is the most important thing at all times.

Senator Forrestall: I appreciate your response; I did not actually expect one, to tell you the truth. I think the Aeronautics Act is an ancient piece of legislation whose time has come. It has served Canada well but, as we go into the next millennium, I would like to see an aeronautics act that was written in the '90s, or somewhere around the turn of century. Jet aircraft did not exist when this act was written, and 17-hour workdays were quite commonplace.

Senator Spivak: I do not quite understand the changes in international arrangements. There is now an Air Transportation Tax which will be augmented for this period by overflight charges to foreign aircraft. There are now user charges, correct?

Mr. Wilson: Yes.

Senator Spivak: If there are now user charges then the Air Transportation Tax goes away --

Mr. Wilson: Yes.

Senator Spivak: -- because now they will just use the user charges? Is that right? Does this mean that the passenger, the consumer of services, et cetera, will be subject to increased taxation or decreased? What will happen here? Will we get more money out of consumers of service, or less money in the end after all this is done?

Mr. Gauvin: The way in which the transfer is being done is that for the first two years only, the government has agreed to give a contribution to NAVCAN basically equivalent to the Air Transportation Tax. Therefore, NAVCAN would not bring in user charges for those first two years in addition to what is already being collected. For the first two years they would get the Air Transportation Tax that the government was collecting, and those sums would go over to NAVCAN in the form of a contribution.

On top of that, they would also have access to the en route charges, including the charges for overflights, which will be about $200 million a year or so. That is $700 plus $200 or so, about $900 million and, depending on the traffic, that could rise up to $1 billion. This is approximately a billion-dollar operation.

Senator Spivak: It costs a billion dollars to operate this corporation?

Mr. Gauvin: This is approximately a billion-dollar operation, yes. If you take all of your 6,400 people, their salaries, plus all of the cost that goes with that, plus capital, and then they will also be borrowing money initially to set themselves up, and there will be interest on that money. After two years, the Air Transportation Tax will be eliminated, and NAVCAN will bring in user charges; their own user charges to cover all their expenditures in order to make this operation whole.

Senator Spivak: However, the point is: Will those user charges generate more than what is generated by the user charges that are now in place?

Mr. Gauvin: One of the reasons the users were so anxious to have this become a commercial operation is that they feel that outside of the government environment, the government with all its rules and regulations, they felt that they could operate more cheaply on the administrative side. In addition to that, they feel there are savings they could bring in through streamlining the operation that might be a little more difficult to implement within a government environment. The whole thing together, and why they support it so much, is that they feel the corporation can be operated more cheaply, and as a result, would be less costly to the carriers. That is why the carriers supported this privatization so much.

Senator Spivak: In other words, there is nothing in writing that says they cannot increase those user charges, right? I mean, they are nonprofit, they will do whatever, and common sense tells us that we almost never go down, we always go up, so that is just their hope and their feeling. In other words, there are no studies that show this result. What are the costs that they will eliminate, that the government now imposes, that will enable them to operate more cheaply?

Mr. Gauvin: There are many opportunities. If this operation had remained within government, and as we all know right now, government has downsized considerably and is reducing costs to adjust the deficit, this would have had at least a 20-per-cent reduction over the next three years through various streamlining efforts. I will give you one example: Right now, there are seven air control towers across this country. We probably no longer need seven towers. The technology has now evolved to the point where they could probably do with three.

On the administrative side, there are five regional offices across the country. There is really no reason to have regional offices as large as the ones we now have. In other words, there are opportunities for reducing expenditures and, as a result, reducing costs.

Senator Perrault: First of all, I am supportive of this proposal. It makes sense. There seems to be a certain feeling in society these days that is widespread, relating to aircraft safety. The so-called "open skies" policy in the United States has been sort of a mixed blessing. There have been tragic and traumatic events in Florida. People are asking whether or not aircraft are properly inspected and serviced.

I would like you to express your view on this. The suggestion has been made that the "open skies" policy is very much like rabbits being in charge of the lettuce patch. When the users are in charge of safety standards they will have every incentive to reduce their spending and their costs, and perhaps even their servicing. I am being the devil's advocate here because I think we are moving in the right direction. Are you concerned that there could be a reduction in the service standards because the major carriers will be playing such a key role, and they might want to reduce costs in a very competitive market?

Mr. Wilson: From the outset, we recognize that the first thing we had to take care of here was to make sure that the system remained as safe as it always has been under government operation, and while we are commercializing the operation of the system, we are really just splitting the responsibility that now rests fully with the government as a provider of service and as a regulator of service. In turn, we are keeping for the government that role as the regulator, and it is just the provision of the service that will be commercialized.

What we will have is a situation not unlike what we have today in the industry itself, where the government does not fly the airplanes; it is the commercial operators who fly them, and it is the government who sets the standards, enforces them and monitors them.

We believe that the framework that has been established with this initiative will ensure safety right from the start, with the assurance that the Aeronautics Act remains supreme through the regulations that are being put in place. What is happening in that regard, at the moment, because of the fact that the department operates the service, there is a body of internal policies, practices, procedures all laid out in the great detail that are internal documents, and they are enforced through the management of the department. What we are doing is giving legal effect to all those same policies, practices and standards and putting them into regulations, Part VIII of the Canadian Aviation Regulations.

Senator Perrault: With the cutback in costs, budget reductions and everything else, safety is number one?

Mr. Wilson: Safety is number one. Senator, I could go on with other aspects of this bill right down to the way in which charges are levied.

Senator Perrault: Have we drawn any of this proposal from U.S. experience? A few months ago, I was on a flight in the United States and it was like a cattle drive: total disorganization from the check-in to the check-out, bad food service and all of the rest. We have all heard these horror stories about Valujet where they have been ordered to establish a better servicing procedure in the United States. The company has ten days in which to comply. I think you are all aware of that. They had been farming their work out all over the world, to Turkey and to other nations, and the Federal Aviation Administration told them, "You must have this done properly, and it must be done in one shop." Are we avoiding that kind of problem in this proposal of yours?

Mr. Wilson: In our view, we have taken all of the precautions, yes.

Senator Perrault: A pilot of a light aircraft told me last evening that now he files a flight plan and it does not cost him anything, but now with this user pay service, he will stop filing a flight plan and what he will do is telephone on ahead and say, "Charlie, I will be there in an hour and a half, and if I do not land, you had better start looking for me." It is pretty basic stuff. Have you heard this concern?

Mr. Wilson: This is one of the fundamental principles of charging for a safety-related service. It is set out in guidelines from the International Civil Aviation Organization, and it is a principle that the Department of Transport has adhered to through the years, and that is that it is not the mere fact that someone pays for a service that gives them incentive to be less safe; it is the way in which they pay. For example, if you say to someone "If you ask for this weather briefing, it will cost you ten dollars" then they have the incentive not to ask for it. However, if you have a general charge, in the form of an annual fee or something, for using the system that is independent of any specific service that they want to use at a particular time, then in that way the user makes a contribution to pay for the system, but does not have the incentive to avoid using a particular safety-related service.

One of the key charging principles -- it is paragraph 35(1)(b) I believe -- says that the charges must be structured in such a way that will not provide a financial incentive for people to forego the use of safety-related services. That is one of the most fundamental principles of charging, and so it would be outside the bounds of this legislation for NAV CANADA to charge in that way.

Senator Perrault: You would find a diplomatic and acceptable way to obtain fees from pilots of the type that I have cited?

Mr. Wilson: Yes, and in fact when a representative of NAV CANADA is here, perhaps they will speak to this issue. Certain aspects of the legislation were put together to provide ways for NAV CANADA to seek a contribution from recreational and private aviation, recognizing that group's price sensitivity, in order to obtain some contribution while allowing that segment to continue thriving in Canada. A principal way is one in which there is a flat annual fee, so that while they make nominal use of the services, it is fair that they make a nominal contribution towards paying for the services.

Senator Roberge: Do you have financial projections from NAV CANADA, projections which have been presented to you, or given to you, or worked out with you?

Mr. Gauvin: We have worked with our own financial advisors and have made financial projections to ensure that, with what they must pay for this system and equipment so that they can operate after the privatization, they would be in a position of being able to recover their costs and cover their expenditures. However, we have not had access to NAVCAN's figures.

Senator Roberge: That is what worries me a little bit, and I would like to see what your projections are. For example, I heard you say that the operation of the system presently brings in revenue of probably $1 billion a year. However, if they are borrowing $1.4 billion, the servicing of that debt with only the aforementioned revenue -- how will it come down to the bottom line?

Mr. Gauvin: NAVCAN feels that there are lots of opportunities for streamlining in this operation.

Senator Roberge: I have heard that before, and the question is if it does not happen, what does it create?

Mr. Gauvin: If it does not happen, basically the only other option would be to increase their fees to cover their expenditures, because this is a nonprofit corporation; there are no shares.

Senator Roberge: That comes back to Senator Spivak's point, and I would like to see the projection that the ministry has made, plus I would like to see the projection that NAVCAN has made so that we can see and ascertain for ourselves what sort of financing there is.

Mr. Gauvin: What makes this transaction unique is that the carriers themselves were so supportive of this initiative.

Senator Roberge: Carriers can make mistakes, too.

Mr. Gauvin: There are carriers are on the board of directors, however, and they will be a big part of this whole operation.

Senator Roberge: It would be fitting if the members of the committee could have access to that type of financial information, so that we could have a look at it.

The Chair: Do you have that type of information that has been requested by Senator Roberge, or is that something which is confidential? Is there, perhaps, supplementary information you can supply to us?

Mr. Gauvin: I am hesitating because there were negotiations on both sides, and in arriving at a price for the system, we had our figures and they had their figures, and we have signed a confidentiality agreement with NAVCAN that we would not release this information until the transaction is completed. I must go back and review the situation with our own legal experts.

The Chair: We will have the NAVCAN people here so that you can ask questions of them.

Senator Roberge: They sent two different sets of figures, so it would be interesting to see the difference.

The Chair: Perhaps you could find out whether there is any possibility of furnishing the committee members with that type of information?

Mr. Gauvin: I will review that with our legal people and I will get back to you, yes.

Senator Spivak: I want to know the number of people whom you have employed in enforcing the Aeronautics Act, and whether that number is part of the group of 45,000 civil servants who will be laid off. I would also like to know whether the 6,400 public service employees who, as you have told us, will now be working for NAVCAN are part of that overall number of 45,000 civil servants who are slated to be laid off. That would give me a clue as to why this is happening. Are they included or excluded in that number, or are they in addition to the 45,000?

Mr. Gauvin: They would be included, I suppose, in the 45,000 reduction because those 6,400 people will cease to be public servants. NAVCAN will become a private employer, totally outside of the government. I do not know for sure, since the figures you are quoting are Treasury Board figures, but I would assume that these movements of employees are shown as a reduction in the government structure.

Senator Spivak: That strikes me as being a very good motive for the government making this transition because, of course, it shifts 6,400 employees off the public payroll, even though the users of the service will still be paying for that service by way of whatever user charges they will pay.

Mr. Gauvin: We have about 2,000 people in the department who are responsible for the enforcement across the country of the Aeuronotics Act, and none of those people are part of this downsizing. That number of employees will not be reduced. As a matter of fact, it will probably be increased.

Senator Spivak: Is that a matter of government policy, and are there any documents or anything that we could look at as evidence of the government's firm intention not to reduce the enforcement force? Obviously if you have, as you said, the rabbits tending the lettuce patch, you also must see that Farmer MacDonald has enough people to ensure that the rabbits do not eat the lettuce.

Mr. Gauvin: I can assure you that safety is the number one issue.

Senator Spivak: I am sure it is. When we sat through the Freedom to Move session and the one on transportation policy, they told us that safety was the most important issue and that this privatization would help matters. By the same token, however, we have not seen implementation of all of the remedies that were proposed in the Air Ontario Inquiry, and all of those things that were deemed to be wrong with the Department of Transport have not yet been corrected. In addition to that, we are hearing about trucks travelling on our highways that, in my opinion, are compromising safety a great deal of the time safety. The statement is always made that safety is number one, because that is how you sell a very difficult bill. The question is where is the evidence? Where is the documentation to that effect? What can you offer in terms of bona fides to prove that, indeed, the government does not intend to lay off or reduce any numbers from those 2,000 people; that, in fact, they are looking to increase that number. Where is the evidence?

Mr. Gauvin: I must go back and see what we can dig out for you, but after all of our transactions are completed, the new Department of Transport will basically consist of 3,500 employees, of whom about 2,000 are involved in a safety role.

Senator Spivak: The new Department of Transport is a mere shadow of its former self.

Mr. Gauvin: That is because many of the operations which they previously ran are now being commercialized. However, that does not mean that safety is not still the most important issue.

Senator Spivak: I do not impute any motives to you at all. I just want to see it in black and white, and that would be very helpful to me.

Mr. Gauvin: We will see what we can get for you.

Senator Roberge: I did not quite get your answer to the problem raised by Mr. Crichton on clauses 11 and 13 which should come into force on the transfer. It says here that:

We have discussed these issues with the Department of Transport and while they are of the opinion that there may be an alternative, they reluctantly agree with the proposed amendment.

Mr. Gauvin: That is a very technical issue, obviously, and it had gone through a lot of people, and this was discovered at the very end.

Senator Roberge: The thing is that if there is an alternative, then we should know about it and understand it; if not, we will make some proposed amendments.

Mr. Gauvin: Basically, what NAV CANADA is looking for is an amendment under clause 100 of this bill, which comes into force on the transfer date rather than at Royal Assent. When this bill gets Royal Assent the whole bill comes into force.

Senator Roberge: Even the financial implications?

Mr. Gauvin: Yes. Under clause 100, which deals with a consequential amendment to the Aeronautics Act, and states that:

No order or regulation may be made under this Part that has the effect of imposing charges for civil air navigation services.

The intent of that clause is that the Minister of Transport would relinquish his authority to charge for the services being transferred to NAVCAN. This was something that NAVCAN had requested. They wanted to make sure that it was inserted in this bill. There was concern because of the large amount of money that NAV CANADA must borrow. Also, because NAVCAN does not have any shareholders, it was felt that lenders might regard any residual charging authority for the minister as a threat to NAVCAN's exclusive right to charge. They wanted to make sure that once they take over this operation -- and rightly so, because they have no shareholders -- that the government would not charge for any of these services.

The problem relates to the effective date. Bill C-20 does not contain a specific coming into force section, meaning that all sections become effective upon Royal Assent. The result is that the minister's authority under the Aeronautics Act to impose overflight and oceanic charges would cease upon Royal Assent. There could be a gap.

Senator Roberge: I understood that. What I was trying to find out is the alternative to what is proposed.

Mr. Gauvin: The alternative would be for NAV CANADA to impose its own oceanic and overflight fees on its first day as the operator of the ANS.

Senator Roberge: As of Royal Assent?

Mr. Gauvin: No, on the transfer date. That means that there would be a gap of approximately 11 days. The company would need one day to impose the charges, although it would need to do a great deal of consulting before it imposes them. Therefore, it could impose them within 11 days: one day to impose them, and it would need ten days to give public notice. That means, therefore, that for its first 11 days of operation, the company would not be able to collect these revenues, but they could make up those revenues in the future. That was the alternative.

Senator Roberge: It is not so much a revenue loss as it is the power to borrow.

Mr. Gauvin: The contention of NAVCAN is that it would affect their power to borrow. Because there are no shareholders, they must borrow all of these sums, so they have asked for this amendment.

Senator Roberge: I understand. I think it is a good amendment but I thought you had an alternative.

Mr. Gauvin: That was the alternative. It is a risk. The risk is: Can they or can they not borrow? Our feeling is that they could still borrow without this sort of amendment, but they would rather have the situation really clean, and they are sure that the amendment would cover that.

Senator Roberge: With respect to the strike mandate, there is no provision for emergency service, for example, once we are into this new organization. If there is a strike, what about emergency service? You say in here somewhere that you feel that this item should be dealt with, if at all, in the review of the Canada Labour Code, and not by way of Bill C-20. However, that review may be far down the road, and we might end up with a strike before it occurs, so why not deal with it now?

Mr. Daniel Paris, Senior Negotiator, Human Resources Panel, Department of Transport Canada: The legislation includes specific ways in which emergency services and humanitarian flights must be serviced during a strike, and the whole process is in place to provide for that, so your question as it relates to any major emergency, or a medical flight, or with respect to flights in or to northern or remote areas, those services must be maintained, and the legislation lays out the process by which parties would agree on what those services would be and how they would be delivered by the employees.

Senator Roberge: That is fine. I am not worried about this requirement because I think it is properly covered. However, a big portion of the structure of the economy of the country could go to pot because a massive strike occurs, and no more flights can leave, or what have you. I am talking about flights other than humanitarian or emergency flights. I should like to know what will happen in a situation such as that.

Mr. Paris: The Minister of Labour has indicated that there is a review of the Canada Labour Code, and it was felt at Transport Canada that we would not introduce a piecemeal restriction to the right to strike in the legislation, which does not exist under the Canada Labour Code because it would create a special regime for air navigation as opposed to rail, or other federally-regulated services where there are no restrictions to strike.

It was felt that a regime where the emergency flights or humanitarian flights would be covered would be acceptable, and that the fundamental right to strike would not be addressed in this legislation but through a review of the whole labour regime. If it were to be done through this legislation, then we could end up with various regimes. Also, the right to strike is quite fundamental in the Canada Labour Code, and in all legislation so dealing with it. Why, then, restrict it in the air navigation system, and not deal with it in the train or other federally-regulated services?

Senator Roberge: Why is it now? What I mean is that they do not presently have the right to strike.

Mr. Paris: They have the right to strike, but they are all designated, which means that, in practice, their right to strike is severely limited within the federal sector and according to the rules under which they work today. However, under the Canada Labour Code, those provisions do not exist.

Senator Roberge: If they have successor rights going into the new company, maybe those successor rights should apply to the same things.

Mr. Paris: As the legislation is written now, it has provided a bridge that would not normally exist; previously there was no bridge to allow an automatic transfer from a government operation to a private sector operation, so we had to create that bridge. However, importing the designation process of the public service under the Canada Labour Code may not be the most appropriate way to handle restriction if there were to be a restriction on the right to strike because, after all, a strike normally hurts economic objectives, and yes, this is possible.

Senator Roberge: Let me try it another way if I may: Right now, there is a bridge for two years on the financial situation which is "subventionnée" by the government. Would the same two-year successor rights apply to that situation in order for the Canadian Labour Code to be amended or changed?

Mr. Paris: There is no framework under the Canada Labour Code to accommodate such a proposal and, again, we were very reluctant to touch the right to strike on a piecemeal basis, meaning that it would be there for the air but not for the others. There was this desire to provide for the essential part, which is the humanitarian and emergency flights, and of course there is the economic part, which I agree is there, but it is the same for all federally-regulated employers.

Senator Roberge: When you were talking earlier, I heard you say that there is a minimum liability insurance which may be made or imposed by the government. Has the amount been defined?

Mr. Gauvin: There would be an agreement with the Department of Transport as part of this transaction, and there would be a minimum requirement of a billion dollars, and NAVCAN accepted that.

The Chair: Coming back to the amendments proposed by NAVCAN, I am a bit surprised that they write in their letter that the Department of Transport reluctantly agreed with the proposed amendment. Was there an oversight when drafting the legislation, or is it something that NAVCAN really needs and if they do not get it they will lose millions of dollars? Because this means an amendment proposed by the committee that must be adopted by both houses. Did you not see that amendment in the Department of Transport before you drafted the legislation?

Mr. Gauvin: It was missed by a lot of people. While we reluctantly agreed to another amendment, we feel that basically it would be cleaner for NAVCAN to start with its financing in order, and be able to impose the user charges immediately. Therefore, it really was missed.

The Chair: This matter was discussed between you, the department and NAVCAN?

Mr. Gauvin: Yes, there was a lot of discussion.

Senator Perrault: It happens in all different types of legislation.

The Chair: That is what the Senate is there for, I guess. Although those in the other house do not like the Senate too much, we are here to make corrections or amendments and to have the proper bills adopted, and save money for people.

Mr. Gauvin: As I mentioned, basically without this amendment we still feel that the transaction could go on, but we feel it would be a lot cleaner if the amendment was made.

The Chair: What would happen if we could not send the bill back to the house because they were away on vacation for a while and we had to wait until September? Would that mean a cost to NAVCAN?

Mr. Gauvin: We still have a lot of work to do to make this transaction happen, in terms of declining assets and all of those things. It would probably postpone the transfer by about a month.

The Chair: I would like to file as an exhibit that letter we have been discussing, and have that recorded in the minutes of the committee meeting:

Exhibit No. 59000 T1-2.35/C-20, 1, "1" -- Letter to the Chair from NAV CANADA, dated June 11, 1996, signed by Mr. John Crichton, Chairman.

Senator Spivak: I notice that on the provision of services for designated northern and remote services -- let me see if I have this straight -- if all of the affected provinces, territories and other users, accounting for more than two-thirds of associated revenues, do not agree with the termination or reduction of services then they may seek the approval of the minister. Is that correct?

Mr. Wilson: That is correct.

Senator Spivak: The minister could override the affected provinces, all the affected provinces and territories and all the users, accounting for more than two-thirds of associated revenues. I would say there is a high likelihood that the minister in Ottawa, the provinces, the territories and the consumer may not have the same views. It happens all the time.

Do you not think that this particular provision is a recipe for confrontation and litigation? Why was it worded that way -- either/or? It could have been all of them, or none of them. I do not understand that.

Mr. Wilson: It was an attempt to strike a balance between the public interest of northern and remote communities and the commercial interests of NAVCAN.

Senator Spivak: I quite understand that.

Mr. Wilson: That balance was to give the provinces and territories an opportunity to comment on it, give the users who will pay the bill a chance to comment on it, and in most situations a reasonable decision will be reached. However, there is an opportunity for users to appeal a charging decision of NAV CANADA, and there is an opportunity for appeal for NAV CANADA if they feel that decision is inappropriate.

Senator Spivak: What we see happening in Canada today is a move away from transportation as a public utility and towards commercial service. This move is supported not only by those commercial people involved but also by the government, so who is standing up for the public interest? Transportation is absolutely essential to the economy of Canada, and certainly to the north, and they are standing up for it as well as the users. Soon we will have the government and the people who are running the service saying, "No, no, it is for our commercial interest. We cannot do this, that or the other." That is happening throughout the transportation system and, generally speaking, at least as far as railways are concerned, there is more of a balance in terms of the appeal process than what looks to be the case here. I suppose after this process is exhausted, they can then appeal to the courts, is that it?

Mr. Wilson: No.

Senator Spivak: They cannot?

Mr. Wilson: No.

Senator Spivak: Then it is worse than I thought. This is reminds me of the Pearson deal. They cannot appeal to the courts? That strikes me as being a very odd provision.

Mr. Wilson: It provides several opportunities for some kind of accommodation to be reached.

Senator Spivak: Was there much comment on this aspect in the House of Commons and elsewhere?

Mr. Wilson: No, and in fact we had a high level of satisfaction fed back to us from the provincial and territorial governments with whom we consulted.

Senator Spivak: Then who am I to question that?

Mr. Gauvin: Perhaps, I could just add one further comment to that: This is a very special section that was added in there for the north, so that NAVCAN could not reduce service up there without the agreement of the province or the territories. If they did not agree, it would be very unusual for the minister to go against them.

Senator Spivak: There is one other thing I must ask you -- and I suppose this is really up to NAVCAN -- I notice that there is only one woman on the board among all of the board members, which strikes me as being a bit odd.

Senator Roberge: Especially after Mr. Chrétien's comments that it should be 25 per cent.

Senator Spivak: Right. They must use both official languages but they do not need to appoint any women to the board. That is just a comment.

Senator Landry: Who will appoint the members to the board of directors?

Mr. Gauvin: The board of directors is appointed by a number of people. The board consists of 15 members, and five are appointed by the users through ATAC.

Senator Landry: By "the users," you mean the airlines?

Mr. Gauvin: The air carriers. Two are appointed by the unions which will form part of this company, and three are appointed by the government. Then after that, those members who have already been appointed get together and appoint four more. In other words, that group appoints four more directors at large. Added to that, the chief executive officer is also a member of the board of directors. That makes up the 15.

Senator Landry: What would the salary of the CEO be?

Mr. Gauvin: The salary of the CEO would be set by the board of directors.

Senator Perrault: These are outside directors, are they? Are they appointed from other industries? Outside directors serve on companies, not involved with the company itself?

Mr. Gauvin: That is right. These people do not have full-time jobs with the company; they serve on the board and that is it.

Senator Perrault: They protect the public interest?

Mr. Gauvin: That is right.

Senator Landry: There are some directors from the government?

Mr. Gauvin: Three are appointed by the government.

Senator Perrault: The unlimited liability for the directors, will they be subject to limited liability or what, exactly?

Mr. Gauvin: That would be a question that could be addressed to NAVCAN when they are here, but our understanding is that they have taken insurance for liability for the directors' responsibilities. They are fully protected, I am sure.

Senator Adams: What role does the NTA play in this situation, now that this bill is before Parliament? I mean, it has passed the House of Commons, but is there still some sort of hearing process before the NTA? some of the small airlines in the north make applications from time to time for new routes to fly to other communities, for example. How will this bill affect that process? I mean, what happens now at the NTA? Will there no longer be hearings when carriers apply for licences to fly to other communities?

Mr. Gauvin: This bill in no way affects the status of the NTA, or National Transportation Agency. They still have their responsibilities totally separate from this bill. NAVCAN will have nothing to say in terms of routes or anything like that.

Senator Adams: Then NAVCAN will act just like Transport Canada does today, running the system for the airlines, and looking after all the weather forecasts and all the other stuff such as landings and take-offs?

Mr. Gauvin: The National Transportation Agency will still be there to rule on our routes and all that sort of thing. NAVCAN will be buying its service, for example its weather service, from Environment Canada, and they will be paying for it as part of their fees.

The Chair: I want to tell the members that tomorrow, Wednesday, we will be sitting at 3:30, and again next Tuesday and next Wednesday at 3:30. We will hear NAV CANADA, the bargaining agents association, and for next Tuesday we will send you a list of the people who will be here so that you can prepare.

The committee adjourned.