Proceedings of the Standing Senate Committee on
Transport and Communications

Issue 5 - Evidence

OTTAWA, Monday, November 8, 1999

The Standing Senate Committee on Transport and Communications, pursuant to subsection 47(5) of the Canada Transportation Act, met this day at 3:04 p.m. to consider the order in council authorizing certain major air carriers and persons to negotiate and enter into any conditional agreement.

Senator Lise Bacon (Chairman) in the Chair.


The Chairman: Our witnesses are representatives of the Office of the Commissioner of Official Languages, Ms Dyane Adam, Commissioner of Official Languages, Mr. Gérard Finn, Director General, Policy Branch, Mr. Michel Robichaud, Director General, Investigations Branch, and Mr. Richard Tardif, Senior Legal Council and Director, Legal Services.

I would like to take this opportunity to congratulate Ms Adam for her appointment as Commissioner of Official Languages.

Ms Dyane Adam, Commissioner of Official Languages: I would like to thank the Chair and the members of the standing Senate Committee on Transport and Communications for welcoming me here today in the context of its study on the future of the air industry in Canada. It was very important to me to appear before you today, largely because my mandate requires me to make every effort to ensure recognition of the equal status of our official languages and to ensure that the spirit and the letter of the law are respected.

The Official Languages Act applies not only to the daily operations of federal institutions, but also relates to the role these institutions play in promoting English and French in Canadian society. The Act's fundamental objectives are to promote the equality of status of English and French and to provide service in the language of their choice to all members of the public, wherever there is a significant demand.

While your committee's mandate relates primarily to economic issues, one cannot ignore the impact the restructuring of Canada's air transport industry will have on the values and social and linguistic interests of our fellow citizens. In fact, the decisions you make will have a major impact on them and on their sense of belonging.


Being already very concerned by the negative effects of recent government changes on maintaining and respecting linguistic rights, my office conducted a study on this matter in 1997. In 1998, a year after, a further study, this one at the request of Treasury Board, confirmed our observation, namely, that the approach adopted by federal authorities has contributed to a subtle but cumulative erosion of linguistic rights.

On October 26, 1999, the Minister of Transport, the Honourable David Collenette, tabled before this committee a policy framework for restructuring the airline industry in Canada. This policy clearly states the importance of Air Canada to our national identity, both symbolically and in concrete terms.

The policy states, in part, as follows:

Fundamental to the identity of Canada is its linguistic duality. It is a reflection of Canada's unique culture and values that Canadians be able to rely on the national air carrier for service in either official language.

The policy also stipulates that the government will ensure that the Official Languages Act will continue to apply to Air Canada or any future dominant carrier and, in addition, that the act will be enforced. We were, of course, very pleased to have this statement enunciated. We have already had discussions with the minister on this issue, and the media have also reported my views on this subject.


You will recall that in 1998, Section 10 of the Air Canada Public Participation Act also provided for the full implementation of the Official Languages Act.

At that time, the corporation believed that respecting linguistic rights went hand-in-hand with good business. Specifically, Air Canada has maintained and still maintains that its regional carriers, which of course are wholly-owned subsidiaries of Air Canada, are not subject to the Act, and moreover, do not represent it. Air Canada also maintains that regional carriers are not required to offer services to the public in both official languages.

After numerous unsuccessful attempts to amiably resolve this dispute with the corporation, we filed a request in 1997 to have the matter referred to the Federal Court. We also made applications to this same court with regard to the ground services offered by Air Canada at Toronto's International Airport and at Halifax International Airport.


I would remind you that, over the last five years, the Office of the Commissioner of Official Languages has received more than 900 complaints against Air Canada and its regional carriers. That number represents about 15 per cent of our annual number of complaints.

Those complaints bear eloquent witness to the degree of importance that the Canadian public attaches to receiving service in the official language of their choice. It is hard for average citizens to understand why, after buying an Air Canada ticket to fly from Halifax to North Bay, they have the right to use their preferred official language at the Halifax airport but not on the Air Nova flight, a wholly-owned Air Canada subsidiary, between Halifax and Montreal. At Dorval airport, they can again exercise their right to use the official language of their choice but only until they reach Toronto. When they leave Lester B. Pearson airport via Air Canada, their linguistic rights vanish into thin air. With any luck, they can be claimed again in North Bay with their luggage.

We are convinced that, after the current restructuring process, citizens may witness an even greater erosion of their linguistic rights in the airline industry. Based on the information currently available, we can only speculate on the future of the airline industry.


We recommend that the government of Canada ensure, in the context of the restructuring of the airline industry, that the Official Languages Act will continue to apply to Air Canada or to a future dominant carrier. We also recommend that the regional affiliates and other subsidiaries be subject to Part IV, which deals with communications with and services to the public, and to Part IX, which deals with the Commissioner of Official Languages, and also to part X, regarding court remedy, of this same Act.

Here for example is a draft of a new provision that could be included in the new act: The Official Languages Act applies to the new corporation, whether it be a restructured Air Canada or an entity with a new name.

Without restricting the generality of the preceding, with regard to communications with and services to the public, where there is significant demand, the provisions of parts IV, IX and X of the Official Languages Act apply to the corporation's regional carriers and other subsidiaries (such as Air Canada Vacations) as well as to carriers under contract to this corporation, both in their offices and in transit.

Specifically, that would mean that the provisions previously applying to Air Canada would remain unchanged and would be wholly assumed by any new owner.


The obligations of regional carriers affiliated with the dominant carrier would essentially involve bilingual service which would be required under the act. If an individual feels his rights have been infringed, he would be entitled to file a complaint with the Office of the Commissioner of Official Languages and potentially seek court remedy with assistance from the commissioner, if necessary. This provision would create an incentive for these carriers to do better. As stated, these carriers must serve the public in both official languages in all airports where there is a significant demand.

A great statesman once said that creating a law without enforcing it is tantamount to allowing the very thing that was supposed to be prohibited. We were very pleased to hear that the government intends to ensure the effective implementation of the Official Languages Act. We truly hope that these good intentions become reality, in particular through specific and effective accountability mechanisms which will be defined in this new legislation.


In any initiative to restructure the Canadian airline industry, one must balance considerations relating to competition and profitability with conditions intended to protect the public, whether that means services to small communities or services in both official languages.

These concepts are in fact often interrelated. In reviewing the proposals submitted, the members of this committee have the specific responsibility of ensuring continuity and promoting the fundamental aspects of Canadian identity.

Our recommendation, in our view, simply recognizes the undeniable linguistic reality that has enriched Canada for over two centuries and that will be one of its greatest assets in the next millennium.

The Chairman: To begin with, I would like you to describe what really compels Air Canada to serve Canadians in both official languages and to tell us in what way a possible merger of Air Canada with Canadian International Airlines could compromise this requirement imposed on Air Canada.

Ms Adam: In essence, my message is that when Air Canada was privatized in 1988, the federal government decided that the company would be subject to the full provisions of the Official Languages Act. However, between 1988 and 1999, many changes have taken place within federal institutions as well as within private companies such as Air Canada, which acquired a network of affiliated regional carriers which are wholly owned by the corporation.

However, Air Canada challenges today the applicability of the Official Languages Act to its affiliated carriers. Many routes in Canada involve Air Ontario and Air Nova. In some cases, services are provided in both official languages but this is done in a very inconsistent way. The Commissioner's Office challenges to this day Air Canada's interpretation as to whether its regional carriers are covered by the act.

We referred the matter to the Federal Court and the issue is still pending. We believe the time has come for parliamentarians to clarify the present ambiguity with regards to the airline industry in Canada.

We should return to the spirit that prevailed at the time of Air Canada's privatization, that there was a requirement to serve citizens in both official languages, regardless of the geographical area or the regional carrier acting for Air Canada or the new corporation.

The Chairman: Air Canada's proposal is for acquiring Canadian International and creating a new discount carrier. Should we expect, under this proposal, to face the same problems with this new carrier as with other Air Canada affiliates? On page 4 of your brief you talk about speculations, but on page 7 you talk about the act. Would it be subject to the act? Should we make this a recommendation, as a committee?

Ms Adams: Out of the 900 complaints against Air Canada filed in the last five years, about half were aimed at regional carriers. This bears witness to the importance Canadians attach to service in their language. If Air Canada acquires Canadian International, since the latter is not subject to the act at the present time, there is an even greater risk of erosion of linguistic rights or bilingual services. This is not only speculation. The past has shown this is a real concern.

Parliamentary committees of the House and the Senate on transport and communication should seize the opportunity of a new bill to clarify this aspect so as not to rely on courts to decide what is best for citizens. We would like these decisions to be made by MPs and senators rather than by the courts.

Senator Roberge: Is your position that the Official Languages Act should apply if Canadian International becomes owned by Air Canada?

Ms Adams: We want Air Canada, as well as regional affiliates, such as Air Ontario and Air Nova and all carriers under contract, to be subject to the provisions of the Official Languages Act.


Senator Forrestall: It may be your second appearance before a committee of Parliament, but it is our first visit with you. We welcome you.

I have four or five questions along the lines of the questions by the chair and my colleague. You suggest that we will require new legislation because, you say, the changes will be so significant that they should not, or cannot be dealt with by way of amendments to the existing act.

Ms Adam: Last week we did think that a new act might be forthcoming. However, I am not knowledgeable enough about whether a new act would be necessary. I do think that the Senate should report, because some decisions should be made concerning the transport industry in Canada. Some recommendations should be made so that we can resolve this ambiguity respecting the application of the Official Languages Act to this national carrier and its regional carriers. You have the opportunity to do that now.

Senator Forrestall: You are looking at it fairly broadly. Do you want a new act?

Ms Adam: I am not sure what the question is.

Senator Forrestall: I am suggesting that you want an act that will not necessarily look, sound or be different, in fact. You use the words "anomalies" and "exclusions", and you reference all of the matters that we could not have foreseen either in the drafting or the early years of the Official Languages Act that are now becoming quite clear as being impediments to a good, working Canadian act.

Have you already attached a level of importance to these anomalies that would lead you to believe that tinkering with the existing legislation would not be good enough? Should we, perhaps, draft new legislation?

Ms Adam: As a university professor, I learned that we should always leave it to the experts on legislation to decide whether a new act or an amendment to the existing act is needed. I would leave it to the experts.

Senator Forrestall: You are not an academic now.

Ms Adam: It remains a principle I would like to follow in this case. I will leave it to the experts to decide whether we need a new act on an amendment to the existing legislation. Personally, I think that the outcomes are important.

In the end, Canadians should be served in the official language of their choice on Air Canada and its regional carriers, and whoever acts on their behalf.

Senator Forrestall: Do you have comparable numbers? You suggested that about 50 per cent of the total number of complaints coming across your desk emanate from passengers on Air Canada as a result of its action or failure to act, or do they emanate from passengers on the regional subsidiaries?

Ms Adam: Half of the complaints concern Air Canada itself, and half pertain to the regional carriers.

Senator Forrestall: That is high, is it not?

Ms Adam: It is high.

Senator Forrestall: Is there anything deliberate about it, or is it just carelessness? Is there something systemic about the nature of the complaints?

Ms Adam: They vary considerably. They can vary from signage to the lack of an active offer to provide service in both languages. The complaint could be about a complete lack of services in some instances. They also relate to the law as it deals with the language of work, especially those complaints related to Air Canada.

I could provide you with tables in this regard, because we do have that information. If the committee would find it of interest, it would be a pleasure for me to provide it to you. I could quote statistics, but you might prefer having our tables.

The Chairman: Perhaps you could send them to the clerk of the committee, and that information will be distributed to the members.

Ms Adam: We will gladly do that.

Senator Forrestall: Canadian and other airlines are excluded because they are private corporations and the government believed it did not have the authority in this regard. However, I believe that, no matter what David Collenette or anyone else may suggest, Air Canada is a private organization. In any new act, or in any amendments to the existing legislation, can you be certain that the authority to deal with the private sector will be sufficiently strong to include that sector? If you were to rework the existing legislation, how do you believe it would affect Canadian Airlines International? They are a fairly good corporate citizen and they offer as much service as they possibly can in both languages -- at least, that has been my experience when I have flown on Delta Airlines. What about the rest of the Canadian world as we know it, places where there are significant Canadian industrial bases? The trains have not been privatized. Should providing service in both official languages be a condition of entry for any new entries into general aviation in Canada?

Ms Adam: Are you asking me to speculate now?

Senator Forrestall: I am just asking you whether you have an opinion.

Ms Adam: I have a view. I represent VIA. Offering services in both official languages -- that is, being bilingual -- goes hand in hand with good business. It provides a service to Canadians. If you offer services in both official languages, you are reaching out to 98 per cent of all Canadians. That is fairly good when you consider that only about 2 per cent of your population may not be served because they neither understand nor speak either language. Practising these two languages makes good business sense.

If Air Canada were to take over Canadian Airlines -- and, again, I am not here to speculate on what will happen -- or, if the two airlines were to be amalgamated, we would not be starting from scratch. Canadian offers some services in both official languages and it is subject to the regulation of ground services; that is, it offers ground services in both official languages. It would not be starting from zero.

Senator Forrestall: I wish you luck in your new work. I would assure you that you have our unqualified support. I am certain you will have to bite a couple of tough bullets.

Ms Adam: I need your support.

Senator Forrestall: You have it. I hope you also have government's support.


Senator Poulin: I add my congratulations to those of my colleagues. Your appointment made all of your fellow citizens from Ontario very proud: it was the first time that we had an Official Languages Commissioner from Ontario.

We are very happy to have you here today for several reasons. First, your appearance is very relevant since an industry as important as the Canadian airline industry is undergoing a restructuration for a whole range of reasons you already know. Secondly, you take nothing for granted. Even if our country can boast about providing services in both official languages and the spirit of the legislation is being complied with more often than not -- we are glad to see you are watchful and ready to get to work. Thirdly, this gives us an opportunity to have you here sooner rather than later.

My first question is on a point of clarification and a follow-up to that of Senator Forrestall. I read in your brief that 15 per cent of complaints received relate to air transportation. But a while ago you mentioned 50 per cent. Could you clarify this discrepancy?

Ms Adam: Fifteen percent deal with air transportation but out of these 15 per cent, 50 per cent are against Air Canada and 50 per cent against regional carriers. This is a breakdown of those 15 per cent of all complaints.

Senator Poulin: Could you explain briefly the process followed by the Commissioner's Office when you receive a complaint?

Ms Adam: If I may, I would ask the expert, Mr. Robichaud, Director General of Investigations, to give a brief answer.

Mr. Michel Robichaud, Director General, Investigations Branch, Office of the Commissioner of Official Languages: A complaint can be made over the phone, in writing or over the Internet. Upon reception, we have a process whereby we determine its admissibility. If it is admissible, i.e. if it falls under the Official Languages Act, we investigate. The investigation can deal with Part IV or V of the Act, depending on the nature of the complaint, as the Commissioner mentioned. Once the investigation is complete, we submit a draft report to the subject institution for comment and a copy of this draft is sent to the complainant for his own comments. Upon receipt of these comments, we finalize the report and we follow up on the recommendations, if any, allowing time to implement the recommendations. In essence, this is the process we follow to deal with a complaint.

Senator Poulin: What happens with complaints that do not exactly come under the umbrella of the Official Languages Act? For example, you mentioned earlier that Canadian International is not a national carrier subject to the Official Languages Act. What do you do when you receive complaints regarding a national carrier such as Canadian International?

Mr. Robichaud: Very often we refer them unofficially to the interested party in order to inform them that we have received a complaint, but we cannot take action since we do not have jurisdiction.


Senator Poulin: In your presentation, are you recommending that, in our report, we extend the jurisdiction of the law?

Ms Adam: When Air Canada was privatized, under the act, all the dispositions were to be made in conformity with the Official Languages Act. The question is: If Air Canada uses other carriers to do its work, do those carriers, which are 100 per cent owned by Air Canada, also have the linguistic obligation as defined by the Official Languages Act? The commissioner's position is that they do, but Air Canada's position, as it stands now, is that they do not. This issue is before the Federal Court. We are asking: when Air Canada was privatized, what was the intent of the legislation? At the time, it was quite evident that we expected Air Canada -- whatever form or means it would decide upon for business purposes -- to serve the Canadian public in both official languages. This is what we continue to think and we hope that you will share our views on this and take this opportunity to clarify this matter now.

Senator Poulin: You mentioned earlier that the Minister of Transport, Mr. David Collenette, had already made a public commitment regarding official languages. You are correct. When he appeared before this committee, he gave us the vision of this government for the reorganization of the industry, namely, that we enter the 21st century with a safe and healthy Canadian airline industry, one that is owned and controlled by Canadians. This industry serves all parts of Canada at fair prices and is capable of competing with the biggest and best airlines in the world. He also added that the government will ensure that the Official Languages Act continues to apply in the case of Air Canada or any future dominant carrier, and that the act is effectively implemented.

Are you recommending that it continue to apply not only to the dominant carrier but also to any regional carriers?

Ms Adam: Yes. It is implicit that it applies to the dominant carrier, but it is not explicit. We want it to be explicit so that everyone understands. Perhaps Mr. Collenette included "dominant carrier", but we want to make sure.

Senator Poulin: If the dominant airline and the regional airlines are included, I take it that does not prevent certain airlines from adding a third language to public announcements, depending on the language of many of the clients who are travelling with that airline.

Ms Adam: Definitely not. The act applies to both official languages, but for business it is certainly better to have a third language.

Senator LeBreton: On page 2 of your presentation, you state that you are "...already very concerned by the negative effects of recent government changes on maintaining and respecting linguistic rights..." and so on. You then referred to a Treasury Board study and told us that the study confirmed your observations, namely, that "...the approach adopted by federal authorities has contributed to a subtle but cumulative erosion in linguistic rights." Can you give me an example of what you mean by "cumulative erosion"?

Ms Adam: I can give you a few examples. As you know, government went through a period of budget cuts. This government tried to reduce the public expense in order to balance the budget. However, through that process of trying to balance our books, the official language programs began to show signs of erosion. For example, manpower training was affected. This has been documented in our reports. As they privatized some of their services or devolved them to provincial responsibility, the government recognized that they had not necessarily provided safeguards to ensure that there was, for example, a linguistic clause provided for in the contracting to a third party to ensure that services would be provided in both official languages. Since it was neither contained in the contract nor clearly specified -- and, often some of the provinces or the third party did not have the experience of providing services in both official languages -- services that had existed when the federal government was in charge were no longer guaranteed under that specific contract.

Senator LeBreton: On the first page of your submission, you refer to the objectives of the act, one of which is to promote the equality of English and French whenever or wherever there is significant demand. In your testimony today, you spoke about Air Canada being privatized in 1998 and the protection of the Official Languages Act at that time. You are now talking about extending that beyond the dominant carrier and applying this to all the regional carriers. You specifically mentioned those that are 100 per cent owned by Air Canada. Many of the regional carriers are not 100 per cent owned by Air Canada or Canadian Airlines. I am not so sure this is doable when you are talking about a privatized industry. We all have good intentions, but we are talking about more competition and more choices for consumers. How can we possibly make this applicable to regional carriers?

Ms Adam: First, Air Canada is now a private corporation. When it was created, it was subjected to all the provisions of the Official Languages Act. Although we do receive complaints, they do a fairly good job. It is doable.

Second, the understanding is that Air Canada is subjected to the Official Languages Act. If it uses other parties, article 25 of the act states that those parties acting on behalf of an institution such as Air Canada have a responsibility to offer services in both official languages. That is already covered. We are asking that they implement what they agreed to initially, namely, to serve the Canadian public in both official languages, as defined by the Official Languages Act. If the airline uses the smaller airplanes of regional carries because it makes more sense financially, that is fine, but the provisions of the act should apply. That is my message. We now have a chance to clarify that, either with legislation or with an amendment that clearly sets this out.

Senator LeBreton: I certainly support the Official Languages Act, but I am trying to envisage a situation where there is one dominant carrier and a regional carrier that would cover east, west, north and south. Is this a reasonable assumption?

You qualified your remarks by saying "wherever there is a significant demand." In every province of this country there would be some demand for both official languages. I wonder whether this is something that is not possible.

Ms Adam: You are probably rightly concerned. There are already many carriers in Canada, and the regulations are very complex. For example, if a carrier has 20 seats or less, it is not subject to the Official Languages Act. The regulations provide for some flexibility. Also, many private carriers that are not under Air Canada are not subject to the act.

We are talking about the dominant carrier and its regional carriers. They currently fall under the Official Languages Act, but there are some exclusions. It is not as black and white as we would like it to be. I cannot tell you all the situations in which the act does not apply, but such examples do exist.

Senator Finestone: Welcome to the committee, Ms Adam. It is pleasure to see you here.

First, when did the erosion of the application of the Official Languages Act take place? We know that section 10 of the Air Canada Public Participation Act provided for the application of the Official Languages Act.

Second, what has happened since 1997 that you still have not had a ruling from the Federal Court?

Ms Adam: Certain regional carriers are not owned entirely by Air Canada. Air Nova, Air B.C. and Air Ontario are all 100 per cent owned by Air Canada. Those carriers were created in the late 1980s and the 1990s. Air Canada did not recognize that its regional carriers were subject to the Official Languages Act, and that precipitated all kinds of complaints.

Senator Finestone: Are you saying that, as a result of privatization and lack of clarity in the transfer of the article and the obligations under the article, Air Canada found an escape clause? If they were subject to it but have not respected it, despite the very strong affirmation of Minister Colette that it is a defining characteristic of Canada, why has the Federal Court not responded?

Mr. Richard Tardif, Senior Legal Counsel and Director, Legal Services, Office of the Commissioner of Official Languages: The matter is still before the Federal Court. When the commissioner filed the reference in 1997, the corporation raised some procedural objections. They challenged the commission's right to file a reference. The decision of the trial divisoin of the Federal Court of Canada was appealed, and now we are back to square one. We will be able to address the resolution of two questions before the court.

First, since Air Canada owns 100 per cent of those regional carriers, we would like to know whether they are subject to the Official Languages Act as a whole. Second, if the conclusion of the court is that they are not subject to the act, we would ask the court to determine if, under section 25, those regional carriers are acting on behalf of the corporation. The matter is still before the Federal Court at this time.

Senator Finestone: Did you take comfort from the proposal of the president of Air Canada to take over the national carrier responsibility?

Ms Adam: I would need more information on what he means by "responsibility". Are you referring to the Official Languages Act?

Senator Finestone: Yes.

Ms Adam: If he were taking over, I would like assurances that he would feel comfortable with the clause that we suggested in our presentation; that is, that all regional carriers also be subject to the act.

Senator Finestone: We will certainly ask that question of the representatives of Air Canada when they appear before us. I find it strange that they were able to escape that clause. I thought it was quite clear.

In your recommendations to the Government of Canada regarding the restructuring of the airline industry you say that the Official Languages Act should apply to the new corporation: "Without restricting the generality of the preceding, with regard to communications with and services to the public, where there is a significant demand..." Why did you not used the term, "where numbers warrant"? That term has a lot of legal history. Why did your legal department use other language?

Ms Adam: I believe that the term "significant demand" is currently in the regulations.

Senator Finestone: Can you tell me what it means?

Mr. Tardif: The expression "where numbers warrant" is used in section 23 of the Charter dealing with the right to education in the language of the minority. The expression "significant demand" is found in section 20 of the Charter dealing with service to the public. It is also found in Part IV of the Official Languages Act. In fact, section 32 of the act defines circumstances where there would be a significant demand. There is no definition of the notion in the Official Languages Act, but the Treasury Board regulations define circumstances where there will be significant demand. For example, there will be significant demand on certain routes. Also, airports that have 1 million passengers are significant-demand airports.

Senator Finestone: I have travelled via First Air to the North. That airline provides service in three languages, which certainly addresses the Canadian reality.

Senator Fairbairn: My questions are an extension of those of both Senator Finestone and Senator LeBreton. I come from a small city in Alberta, although in Alberta it is not a small city. Lethbridge is the third largest city in Alberta.

The prospect of change and mergers in the airlines is cause for anxiety in parts of this country, particularly in parts of the West and probably in the North where the distances are enormous and the communities are small. There is great anxiety with regard to what level of service will be provided in the future.

I would appreciate seeing a document that defines the term, "significant demand". I am referring not just to Air Canada but also to Canadian Airlines, and any others which may enter the competition to serve smaller centres through contracts with smaller airline companies using small planes. With regard to bilingual services within the aircraft, for example the taped announcement, some of these aircraft are so small, the co-pilot will explain aircraft procedures upon take-off.

How far does the definition of bilingual extend to smaller carriers and their capacity to provide services in small airports and in parts of the country where, as Senator Finestone said, the numbers may not warrant it? I would like to better understand the relationship between the numbers and at what point it becomes necessary to provide bilingual services.

Ms Adam: It is difficult to understand the complexity of the regulations governing the delivery of services in both official languages within the transportation sector and especially the airline industry. The Official Languages Act is only one act governing the delivery of services in both official languages in airports and in airplanes. However, there are other acts governing transportation issues, specifically the Aeronautics Act which governs the provision of safety regulations and on-board announcements. For safety reasons, there is other legislation pertaining to the provision of bilingual services for different types of aircraft.

We will send you a Treasury Board publication in which "significant demand" is defined. It may state, for example, that a minimum of 5,000 French-speaking or English-speaking people are required in a specified area before bilingual services must be provided.

Senator Fairbairn: That would be helpful. It is an important issue. Like so much else in our country which is so large, the implementation of services is always difficult. Any guidance you can give us as this mystery unfolds would be very helpful.

Senator Christensen: I am from the North where we have been served by Canadian Airlines since the early 1940s when Mr. McConachie created the company. This issue is of great concern to the people in the area I represent. If Air Canada were to purchase Canadian, as has been proposed, and set up a new low-cost airline, am I to understand that there is legislation which provides for that, although it needs to be strengthened?

Ms Adam: Are you talking about transportation services or services in both languages?

Senator Christensen: The provision of services in both languages.

Ms Adam: Our interpretation is that Air Canada, as the dominant carrier, has the obligation to offer services in both official languages.

Senator Christensen: If Air Canada sets up a low-cost airline to provide a different service, do you believe that the current legislation is appropriate?

Ms Adam: We must clarify that.


Senator Roberge: At the time of its privatization, Air Canada did not have 100 per cent ownership of the regional carriers. To what percentage of ownership should the Official Languages Act apply?

Ms Adam: I leave that to the legislators to decide. What is the purpose of the legislation? What is the spirit of the act? This strikes me as the important element. It is to give the Canadian public a service in both official languages. I know that 50 or 51 per cent ownership becomes an important issue. We should not lose sight of the fact that Canadian citizens want to be served in both official languages. The number of complaints we receive shows the great importance that Canadian travellers attach to this. This is different from a service provided at a counter. Canadians travel everywhere, which makes it even more important to ensure that the service is accessible on Canadian soil.

Senator Roberge: I fully agree with you. I asked the question because the legislation is unclear. Would you like to have something more substantive?

Ms Adam: We have discussed this in private to see if we should go beyond 50 per cent. If you think it would be useful to clarify the coverage of affiliate regional carriers, we can do so. We already mentioned third party carriers under contract. We have already started to identify or clarify the obligations of this dominant carrier.

Once we look at figures, it becomes very complex. We cannot anticipate all situations that might arise. Maybe this new bill will have to be amended formally in order to adapt to any situation that might arise in this industry in the future. We cannot anticipate all circumstances. We have tried in this proposed section to cover most situations. We would like the spirit of the act to prevail but we are mainly concerned with the Canadian public.


Senator Forrestall: What would happen in the event of cabotage as one of the ways of solving the competition problem? Would the act require any airline practising cabotage here in Canada to provide service in both official languages?

Ms Adam: There are already some obligations respecting cabotage. In terms of ground services at airports of significant demand, and there are about 10 in Canada, those airlines already have to offer a certain level of services in both official languages and, depending on the size of the aircraft and so on, certain safety regulations apply. Thus, this already applies. Certain parts of their services must be bilingual.

Senator Forrestall: Does the current legislation cover the possibility of United Airlines picking up passengers in Toronto and dropping them off in Montreal, and then picking up passengers in Montreal and dropping them off in Chicago?

Ms Adam: Yes. However it is a complex question. The answer is "yes" to what happens on the ground, but not to what happens in the air.

Senator Forrestall: Madam, you have problems.

Ms Adam: We, as Canadians, have problems.

Senator Fairbairn: When Mr. von Finckenstein appeared before us on behalf of the Competition Bureau, he expressed some thoughts about what might happen in Canadian skies. One possible way of enhancing competition, if there were one dominant carrier, might be to have a wholly foreign-owned airline operating within Canada. If that were the case, would there be an obligation on that wholly foreign-owned airline to operate bilingually in Canada in all ways?

Ms Adam: Definitely, yes.

Senator Roberge: You are talking about on the ground.

Ms Adam: And in the air.

Senator Roberge: What about airlines such as WestJet?

Ms Adam: We were talking about a large or dominant carrier. It is important that the carrier that is recognized as dominant be subject to the act. I cannot analyze what will happen if we have other, competitive airlines. Previously, when there were two companies -- in fact, Canadian Airlines was one -- one was subject to the Official Languages Act and the other was not. History has shown that, although Canadian Airlines was not subject to the act, they did offer services in both official languages, and it was good business practice. If we have only one airline, the important question is: Would there be pressure to offer the same level of services in both languages that Canadian Airlines had when they were competing with Air Canada, which was under the act? That was a marketability issue. I am sure market pressure is forcing both carriers to meet the demands of the Canadian public in both languages. We would be returning to the existing context where we have both, one company which comes under the act, and one which does not.


The Chairman: This meeting has been most interesting. If you have any additional information, please do not hesitate to communicate with us.


Our next witnesses are from the Canadian Transportation Agency. Welcome and please proceed.

Mr. Gavin Currie, Director General, Air and Accessible Transportation Branch, Canadian Transportation Agency: I would thank the committee for the opportunity to appear before you today to discuss the work of the Canadian Transportation Agency. We would be pleased to describe our responsibilities and processes, but my understanding is that your main interest lies in the issue of Canadian ownership and control, and in how the agency determines control in fact, so I will focus on that issue after providing some brief context.

Before proceeding, I should mention that the agency is a quasi-judicial body. Consequently, I am not permitted to explain past decisions of the agency beyond what is found in the written decisions; nor can I comment on the substantive applications currently before the agency.


The legislative foundation of the agency is the Canada Transportation Act which took effect in July 1996. The Canadian Transportation Agency has seven members, including our Chair, Marian Robson.

These members are mandated to make decisions on a whole range of issues affecting transportation in Canada. They are supported by some 200 employees. In the area of air transportation, the agency protects the interests of consumers and carriers by ensuring that airlines meet certain minimal economic requirements.

The agency administers a system for licensing air carriers, international agreements and rates for international air transport services. In the area of accessibility, the Agency must ensure elimination of barriers for disabled people within the transportation network regulated by Parliament.

Regarding the administration of a licensing system, you will see on page 4 a list of the general licensing functions related to the system. I would like to give you an overview of the nature of our operations in this area. I will not go into great detail at this time but I would be pleased to elaborate if you so wish.

In order to be issued a domestic license, an applicant must meet a number of requirements. The applicant has to be Canadian or be owned and controlled by Canadians; he must have a Canadian aviation document issued by Transport Canada to certify safety; he must be adequately ensured and must not have sold tickets prior to holding a license.

In addition, applicants proposing to provide service with aircraft having more than 39 seats must satisfy financial fitness requirements. I should add that the first three requirements are ongoing and must be complied with at all times.


I will turn next to Canadian ownership and control requirements. Section 55 of the act defines "Canadian" as follows:

"Canadian" means a Canadian citizen or a permanent resident within the meaning of the Immigration Act, a government in Canada or an agent of such a government or a corporation or other entity that is incorporated or formed under the laws of Canada or a province, that is controlled in fact by Canadians and of which at least seventy-five per cent, or such lesser percentage as the Governor in Council may by regulation specify, of the voting interests are owned and controlled by Canadians.

As you can see, there are two principal elements to the ownership test. For voting interests, no more than 25 per cent of the voting shares of a corporation can be held by non-Canadians. It is a control-in-fact element. The voting interest, in terms of private corporations, is relatively easy to establish. Normally, there are a limited number of shareholders, and one can determine the nationality of each.

In the case of publicly traded corporations, it is more complicated. In fact, large air lines do have to have monitoring systems in place to ensure that at no time can more than 25 per cent of the voting shares be held by non-Canadians. Air Canada, Canadian Airlines Corporation, which is the parent of Canadian Airlines, Air Transat, and so on, all have these systems in place and they have been approved by the agency.

The control-in-fact requirement can be a more complex issue to address to determine if a company is Canadian. I should mention that the concept of "control in fact" is not unique to Canada. It is also used in other countries. Control in fact can be viewed as the ongoing power or ability to determine or decide the strategic decision-making activities of the company. It can also be due to the ability to manage and run the day-to-day operations of each enterprise. In order to determine where control in fact lies, one must examine all the operational, financial and managerial matters relating to an actual or proposed air carrier.

Every case is unique. One must examine substance rather than form, and nothing is automatically excluded from review. As part of the process, the applicant would typically be required to submit quite a lot of material, such as incorporation documents, details of capital stock issued, detailed information on all major shareholders, shareholder agreements, loan agreements, management agreements, operational service and other related agreements, and pro forma applicant financial statements.

The control in fact in process is normally triggered by an application for a licence. It is subject to the 120-day statutory time limit in the act. Since most of the information to be assessed is confidential, the ownership review is typically conducted as a file hearing, that is, by written submission. Agency members review the material submitted with the assistance of staff analysis. In complex cases it is normal to request supplementary information.

I should mention that there has been one oral hearing dealing with Canadian ownership control. It was in 1993 and involved the acquisition by AMR, the parent company of American Airlines, of an interest in Canadian Airlines. I should emphasize, however, that that was part of a broader public-interest review under the National Transportation Act of 1987. There is no similar public-interest review provision in the Canada Transportation Act currently in force. That hearing lasted five weeks and involved extensive testimony and cross-examination.

The domestic air market is largely deregulated. The main regulation relates to the licensing function, which I have already described briefly. There are one or two other domestic regulations I might mention for your information. They are shown on page 11.

With respect to fares, upon complaint regarding an unreasonable basic fare or fare increase on a monopoly route, the Canadian Transportation Agency may order corrective action if it finds that the fare or increase is unreasonable.

With respect to discontinuance of service, the act requires 60 days notice if a carrier is the last or second last carrier serving a point. If notice is not given, the agency may order the service to be continued, if indeed it is practical to make such an order.

With respect to the terms and conditions of carriage that govern the services offered by an air carrier, the act requires a carrier to publish or display a tariff, and the regulations specify the items that must be included in the tariff.

That concludes my opening remarks. Of necessity, they have been brief, but I hope there have been some items or issues of interest to the committee. My colleagues and I would be happy to add additional explanation, should you so wish.

Senator Forrestall: I will be equally as brief. I am surprised that you were able to relate as well as you did to the order in council before this committee, authorizing certain major air carriers and persons to negotiate and enter into any conditional agreement. As I say, I am surprised you were as relevant as you have been.

What you have been saying is fairly clear to most of us, who have been around long enough to know what you are talking about. However, could you relate it to the 10 per cent single ownership issue and give us a little bit of help with that?

Mr. Currie: The 10 per cent rule is a restriction in the Air Canada Public Participation Act. Basically, it states that no one share holder can hold more than 10 per cent of the voting shares of Air Canada. The agency is not responsible for administering that; that is Air Canada's responsibility. The idea behind it is to ensure that Air Canada is widely held and that no one shareholder will be able to control Air Canada. That is my understanding of the situation. Our responsibility at the agency has to do with foreign ownership and control. That is not directly related to the 10 per cent rule in the Air Canada Public Participation Act.

Senator Forrestall: Are you suggesting that, because it is Air Canada's responsibility to administer it, they could, if they chose to do so, change that number from 10 per cent to 5 per cent, or to 85 per cent or 99 per cent, or to 100 per cent?

Mr. Currie: No, I am certainly not suggesting that. This act is an act of Parliament. Parliament determined, at the time of the privatization of Air Canada, that it would not be appropriate for any person to have more than 10 per cent of the voting shares of Air Canada. It is up to Air Canada to ensure that that rule is respected. I have been told that they have a monitoring system in place to ensure that. I have not examined it in detail, but I understand that they have a system in place similar to the monitoring system that we insisted they have for the 25 per cent foreign ownership.

However, Air Canada could not change the 10 per cent rule. That would be up to Parliament to decide and Air Canada would be required to abide by any new limit, if any, that was placed in the act. That is my understanding of the situation.

Senator Forrestall: Do you see anything in the process to date that you find difficult to cope with, or to grasp, such as the merger, the offers or the withdrawal of offers? Is there anything happening from the agency's point of view about which senators may wish to concern themselves?

Mr. Currie: There has obviously been a complex situation developing over the past couple of months. The agency's role is limited to assessing whether any entity that comes out at the end of the process and wishes to be licensed is in fact Canadian owned and controlled. How the agency does that will depend on the complexity of the situation.

As the process has progressed, we have followed the various offers and have tried to find out as much as possible about them so that, if and when the agency is asked to rule on whether a new entity is Canadian owned and controlled, we will be in as good a position as possible to process an application expeditiously, having gained some background and understanding of the intent of the new structure.

Although this may no longer be relevant, we do have documentation from Onex describing their offer. It was provided to us on an informal basis simply to allow agency staff to become familiar with it so that, if the deal went through -- although it now appears that it will not -- then agency staff would be able to provide reasonably rapid analysis to help members.

We have been in touch with Air Canada on a similar basis to try to understand what kind of changes have been made there so that, if Air Canada goes ahead, again we will be in a position to deal with things on an expeditious basis.

Although the situation has been complex, and we could be under great pressure to do things rapidly, if and when a deal is finalized and a conditional agreement is brought before the minister, we have been trying to be as prepared as we can. I do not think there is anything that we can ask the Senate to help us with in making the process any easier. It will be complex and we will have to deal with things as they come forward.

Senator Forrestall: With respect to competition, the agency has an oversight interest, if not a responsibility. Does the agency have any views about the impact on the Canadian consumer of Air Canada's sitting around waiting for Canadian to go bust and then buying it for less than the value of the sum of its routes? I am being a bit facetious, but that is what it looks like to me.

Generally, in terms of competition, would you rely on the Competition Bureau to look after that side of the problem?

Mr. Currie: Our responsibilities are laid out in the act. We must act within the confines of the legislation. The basic premise behind the act is that there will be competition in Canada. As such, the act does not provide a basis for agency action to deal with anti-competitive practices. In the case of competition issues, we are very limited. How much the Competition Bureau could do, I do not know. I am sure you have already spoken to the Commissioner of Competition. He must have described his powers and how he would like them changed, if he would like them changed.

There is always some question about how quickly the Competition Bureau can act if there are anti-competitive practices. Currently, the basis for the act is that competition is there in the domestic market and it has been heavily deregulated. Frankly, once the agency has given the economic authority to a carrier to operate within Canada, how the carrier decides to operate is a commercial decision. We have no control over where the carrier operates, how frequently it operates, at what prices it operates, and so on, with the minor exception of monopoly routes where we can, on complaint, look at a fare that seems to be unreasonable or there seems to be an unreasonable fare increase.

That is very limited. Currently, there are few routes in Canada that are monopoly routes. In most cases, there is more than one player.

Senator Forrestall: Is the Canadian consumer not facing exactly that situation?

Mr. Currie: I am talking about the current situation now. In his statement, the minister stated that he intends to take steps to prevent price gouging. Presumably, the minister will make some proposals, after discussions with various parties, as to how to protect the consumer in the case of a dominant carrier.

The current legislation is not set up to deal with the dominant carrier in terms of protecting the consumer from price gouging, as the minister calls it, or from the kinds of terms and conditions that the carrier puts in place, or in terms of protecting other carriers from anti-competitive practices. These are not things in the current Canada Transportation Act. Presumably, the minister has said that he intends to deal with these issues and he will bring forward policies once these things have gone through. I cannot comment on that. That is getting too much into the policy side of things. I can only tell you about the current situation and, frankly, the act does not deal in any significant way with competition issues.

Senator Forrestall: Well, I suppose after all is said and done, the licence is issued on the basis and strength of your belief that the carrier has the capacity to become insured and has equipment that has been certified and is able to perform. However, that strikes me as being kind of loose. I am thinking, in particular, of new entrants. Do you have any concern about new entrants and some of the matters that are currently on the desk in front of us?

Mr. Currie: In terms of new entrants, I should emphasize that the insurance and the safety regulation by Transport Canada must be done before a licence is issued. The carrier not only must be able to get insurance but must have insurance, and demonstrate that it has it, before we will issue a licence.

There is also another element that I mentioned briefly in my opening remarks: if a carrier wants to operate aircraft with more than 39 passenger seats, that carrier must meet certain financial requirements as well. They are designed to ensure that, at start-up, the carrier has sufficient financial resources to have a reasonable chance of success. It is not a guarantee, but you must have significant financial resources before you start.

In terms of a new entrant starting up, there are already some restrictions in the act that require new entrants to have reasonable financial backing before getting a licence, if operating medium or large aircraft.

The response of a dominant carrier to a new entrant is a different matter. That is obviously a concern. In the United States, that has been a major concern. There have been a number of occasions on which a new entrant has come into a particular route and the established carrier on that route has taken steps to push the new entrant out, perhaps, by dropping prices and flooding the route with additional capacity. These are obviously anti-competitive actions, although it can be very difficult to determine where to draw the line between an anti-competitive practice designed to harm a competitor and something that is good for the consumers on the route. That is not always an easy decision. That is another kind of concern for new entrants coming into the market.

Senator Forrestall: I am more than slightly alarmed and upset that captains have ordered that this merger shall not be discussed on the flight deck while they are in the left-hand seat. When captains take that initiative, I become concerned that there is a real fear of loss of attention, with the consequences that flow from that.

Is that an internal company matter?

Mr. Currie: Are you raising that as a safety concern?

Senator Forrestall: I am raising it very much as a safety concern, as well as a matter of public confidence.

Mr. Currie: I understand your concern and, as a private individual, I certainly share it. With regard to safety, how crews operate aircraft is dealt with by the technical authorities at Transport Canada. Obviously, the uncertainty weighs on all employees and I suppose could affect performance. I do not have an easy answer on how to deal with that. I do not know whether the technical authorities at Transport Canada would have something to offer in that regard. On safety issues, we defer to the technical authorities at Transport Canada.

The only way in which we deal with safety is to ensure that, before we issue a licence, Transport Canada has gone through its process and has declared that the carrier is safe, in a technical sense, to operate. Only after that do we issue the economic authority to proceed.

Senator Forrestall: I will let our interim report speak for my concern about safety as it relates to the flight deck. It is an enormous concern. We in this country are facing quite a dilemma in the next 15 to 20 years. Unless we do something about it today, it will be out of control within 20 years.

How do you control the anger and fear that arises out of uncertainty about whether you will have a job tomorrow, and whether you will lose your pension, your home, and everything else? A man phoned me and said that after 28 years he is going to lose his pension and his home. That will affect his life and that of his family; but no one seems to care. Because the questions are too difficult, no one is tackling them.

I thank you for coming and for being so relevant in your submission.

Senator Finestone: First of all, let me say that I believe that the pilot and the co-pilot want to land the plane safely so they can go home to their families. So I feel that they will resolve their differences when they are flying the plane. I do not think the public should be fearful in that respect.

In listening to your answers so far, my impression is, and would you not agree, that your mandate should be revised and that there should be some linkage between you, Transport Canada, and the Competition Bureau?

Mr. Currie: There could be changes to it, but there are links already.

Senator Finestone: My question was not whether there could be. My question is whether there should be.

Mr. Currie: I am not sure I can answer with regard to "should". That is a policy issue. There currently are some links. For example, there is very close cooperation between ourselves and the technical people at Transport Canada, who issue the air operative certificates, to ensure that we each do our part in the licensing process in order that both the economic and safety issues are covered.

In terms of competition, as I have already explained, the fundamental premise behind the Canada Transportation Act is that there will be competition. That is the law of the land right now. There are currently no provisions within the Canada Transportation Act to deal with anti-competitive practices or the situation of a dominant carrier. That is not the way the act was set up. The minister will have to decide how to deal with that in the future.

In the current Canada Transportation Act there is no way to deal with competition issues, apart from a very limited ability to deal with pricing on a monopoly route.

Mr. Jacques, would you care to elaborate on that?

Mr. Claude Jacques, Director, Legal Services Directorate, Canadian Transportation Agency: Actually, I think your answer was all encompassing. There is currently nothing in the act that allows us to look at anti-competitive behaviour.


Senator Poulin: The minister was here a few days ago. He explained to us the very transparent process that will be followed to ensure that the restructuring of the industry will occur in a very open way and with the support of all Canadians. Could you remind us of what your responsibilities are in this review process?

Mr. Currie: Our responsibility is to ensure that the new carrier will be owned and controlled by Canadians and that no more than 25 per cent of the voting shares will be held by foreign interests. In the area of Canadian ownership and control in fact, this will mean, as I explained at the beginning, that the agency will scrutinize all aspects of the ownership of the new carrier, if one emerges out of this process, or of Air Canada with a new mandate. Our mandate is to deal with the issue of Canadian ownership and control.


Senator Poulin: Mr. Currie, in speaking to Canadians and to each other, we have identified three key concerns. The first is safety, the second is service, and the third is affordability. How will you as an agency ensure that the new domestic national carrier is really the safest carrier to offer service to the whole country?

Mr. Currie: We do not have a direct role in safety. The safety role is determined by the technical experts at Transport Canada. At the agency, we do not have the technical expertise necessary to assess the safety of a carrier. We only get involved in that in a secondary way, in that before we issue an economic authority we ensure that Transport Canada has, in fact, issued its technical authority. It is a secondary check, if you like, on safety.

Senator Poulin: You are the second one who signs the cheque.

Mr. Currie: As far as I know, we do not sign any cheques, but we do issue a licence.

Senator Poulin: What about your responsibility regarding service and affordability?

Mr. Currie: Service to the public right now is considered to be the responsibility of the carrier. Again, taking the premise that we have competition in the domestic market, the idea is that, given that there is competition for the consumer, it is in the best interests of a carrier to ensure that they provide good service if they want to retain passengers and encourage passengers to fly that airline. Customer service issues are the responsibility of each carrier on its own. We do not have any way of controlling the level of service provided. Whether it is dealing with lost baggage or the frequency of operation or the prices to charge, those issues are determined by the carrier and controlled, it is to be hoped, by market forces.

Senator Roberge: Section 66 refers to price gouging. Can you give us a few examples of situations that have occurred that have been quickly corrected? Can you tell us what the results were?

Mr. Currie: Yes, I can. We have had very few complaints under section 66. I think there have been three. It is very tightly circumscribed in the act, in that it must be on a monopoly route. We found that two of the complaints had to be dismissed because there were competitive services. The other complaint involved a community in the north and one in the south, and it was determined by the agency that there was in fact a monopoly service. Only one carrier provided the service. The agency looked at the fares being charged on that route and at how they had varied over the past few years and determined that the fares were reasonable and that the fare increases were reasonable. It did that by looking at similar kinds of routes linking similar settlements where there was a competitive service. The basic premise of the agency was that, since competition is the underlying basis for the system, if on a route with competition the fares were at a particular level, and if they were at a similar level on a route with no competition, then they were also reasonable. That was how the agency did it.

We have never had a situation in which we found unreasonable fares and ordered a change. We have the power to do that, but we have reached the point of finding unreasonable fares and having to take corrective action.

Senator Roberge: In the situation we will be facing of a super monopoly carrier, do you feel that the recommendations on which you base your decisions to make those types of judgments are strong enough?

Mr. Currie: In the case of a monopoly or dominant carrier, the issue of how you determine a reasonable fare will be more difficult. It will be a challenge for the agency. If the legislation stays as it is currently and we have to administer it under a situation of a dominant carrier, it will be more difficult. Presumably, there will be far more routes where there is a dominant carrier, and therefore the kind of comparative approach that the agency used for dealing with the last complaint it had might not be valid in the future. It might need to find another methodology in order to determine what is reasonable and what is a reasonable increase.

I think it would be a real challenge for the agency to administer the current legislation in the situation of a dominant carrier.

Senator Roberge: Would you be prepared to make recommendations to this committee to help us to ensure that our Canadian travellers are well protected and do not face price gouging?

Mr. Currie: When it comes to recommending changes, I must defer to the minister. The minister decides what kinds of changes are appropriate. Once he has determined what the policy is, we do our best to administer the act.

Senator Roberge: Your quasi-judicial body must refer to the minister in order to strengthen regulations in your area?

Mr. Currie: In terms of changing legislation, that would be the minister's responsibility. In terms of how we administer it, that would be the agency's responsibility. If the legislation stays as it is, the agency will develop a mechanism or mechanisms for deciding what is reasonable or not reasonable in terms of fares or fare increases. If the legislation changes and perhaps defines "reasonable" or describes different conditions, then we will adapt. However, as things stand right now, in terms of changing the act, it is the minister's responsibility. In terms of administering the act, it is our responsibility. I try to make the distinction.

Senator Roberge: Let us follow your line of thought. In the administration of the act, are there any recommendations that you could bring to this committee that would help you to protect our consumers by strengthening your administration?

Mr. Currie: In terms of the administration, once the law sets it out, then we have enough discretion to be able to determine appropriate administrative measures within that framework. I do not think there is a need to change in that sense.

Senator Roberge: This committee, as well as the House committee, will make recommendations to the minister in order to ensure that our Canadian travellers are protected. I am asking you again, can you give us some help in that respect?

Mr. Currie: I do not think that I can. That is something I must leave to Transport Canada and to the minister.

The Chairman: I think, Senator Roberge, that is part of our homework.

Senator Finestone: Mr. Currie, suppose there was a recommendation by the Competition Bureau to allow a foreign carrier to operate within Canada. You have certain guidelines under the Canadian Transportation Agency. How would you handle that, if you have not had any changes to the present act that governs you?

Mr. Currie: At present, we would have to disallow it. As the act stands right now, we could not license a carrier for domestic operations if that carrier was 100 per cent owned by foreign interests. We could not license it under the current legislation.

Senator Finestone: If we were to return to the old time of cabotage, and non-Canadians were licensed, how would you respond to that?

Mr. Currie: There is a provision in the act right now for the minister to allow cabotage. The minister can permit cabotage. If the minister permits it, that essentially allows the minister to exempt an entity from the requirements to be Canadian. We then do the other licensing requirements for which we are responsible. That does happen from time to time, but not normally for an ongoing service.

As an example, there may be a situation where there is a need to allow a foreign carrier, a non-Canadian carrier, to operate between two points in Canada, perhaps to move a piece of heavy equipment, something of that nature. The minister may then exempt that foreign carrier from the requirements to be Canadian, and we can then go ahead and permit the other licensing requirements to allow the operation to go ahead. It happens reasonably frequently for one-off operations. It has happened on occasion that for perhaps a week or two it has been necessary to bring in another carrier.

Senator Finestone: Is cabotage normally assessed on a case-by-case basis?

Mr. Currie: It is judged entirely on a case-by-case basis. The power exists for the minister to do that if it the minister decides it is appropriate.

Senator Finestone: I understand that you had responsibility for some of the competition aspects until the law was changed. When was that changed?

Mr. Currie: The new act came into effect in July 1996. Prior to that, we did have the power to review mergers and acquisitions to determine whether or not they were in the public interest.

Senator Finestone: At present the responsibility lies with the Competition Bureau, do they have the right to act as you did in the old legislation?

Mr. Currie: They have the right to look at mergers and acquisitions from a competition perspective. In the National Transportation Act of 1987, we had a broader public interest, a determination that covered off, not just competition, but other concerns such as regional issues and so on.

Senator Finestone: Mr. Currie, under that public interest, would compliance with the Official Languages Act of Canada have been one of the tests of good faith, demonstrating a Canadian vision for airlines?

Mr. Currie: The Official Languages Act was not mentioned specifically in our legislation. However, the public interest had to be consistent with other acts of Parliament. Therefore, in an indirect sense, the answer could be "yes". That was in the previous legislation; that is not the current legislation.

Senator Finestone: As a supplementary to a question of one of my colleagues, I asked you before whether you felt that there were some amendments, changes or revisions that needed to be made. The reason I asked that was that it struck me, as you were outlining the aspects of safety, security and affordability, that there are so many holes that you could drive a Mack truck through that it must be extremely frustrating, for those of you with the responsibility, to try to administer the act, in that it has been significantly changed so that much of the power and authority originally vested in you is on longer there.

In regard to safety, you pointed out that Transport Canada has part of the responsibility, so you share that. In regard to service, you say you have no control on the question of service. In regard to affordability, price gouging and competition, you do not have the rules and regulations right now. Those are three of the checks that would be important; the fourth, where I asked you about one of the defining characteristics of Canada, is the Official Languages Act, and again you do not address the public interest there.

I should like to return to the questions that were posed previously by my colleagues: First, do you not feel, from your experience as a result of the changes in the legislation, that there are recommendations you should be making to the minister? Second, could you indicate to the members of this committee, either orally now or in writing at a later date, how you see the best interests of Canadians being served in order that we might recommend some changes that would be constructive?

Mr. Currie: The agency does have a responsibility to report on the operation of the act in its annual report each year. In terms of the operation of the act, we have expressed how we have found the act to work or not work. The report is not designed to allow the agency to make policy recommendations, per se, to the minister.

In the annual report, the agency has, each year, commented on certain sections of the act and their operation. Frankly, comments have been more on the rail side than on the air side. Where the agency has found that the act has not been working well or there have been problems with it, the agency has raised these issues in its annual report.

In terms of the air side, the only issues that have come up have been of a fairly minor technical nature. These have not been raised in the annual report. In the past the act has worked well in dealing with the situation where there was a competitive market.

What will happen in the future if there is a dominant carrier? That is a different situation. That will then involve changes in policy to deal with that. That is what the minister has said he intends to do in setting out a framework, and in consulting with various parties to obtain views on what should be in that new framework.

It would be very difficult, within the current act, to meet the minister's commitments. There will be some changes necessary. What those are is a policy decision which the minister will take.

Senator Finestone: What is your role pursuant to the international air agreement?

Mr. Currie: Our responsibility is primarilily to administer agreements once they are in place. For example, licensing function, allowing changes for carriers operating to and from the country, approving code sharing -- that sort of thing. We are involved in the negotiation process. The negotiating team from Canada normally has three parties: Foreign Affairs, Transport Canada, and the Canadian Transportation Agency.

The agency's role tends to be in the technical end and researching business articles. Transport Canada decides what the policy will be in terms of negotiating air agreements. We do have a role, but it is not the primary role in terms of determining the policy.

Senator LeBreton: I should like to follow up on the issue of cabotage. You say the minister has the ability to rule on that issue. If we get into the situation where there is just one airline, do you foresee the issue of cabotage becoming uppermost in the minds of owners of various carriers wishing to come in and provide a service to Canadians so that we would see an increase in competition? Do you see that happening?

Mr. Currie: It is certainly possible. There tends to be a reluctance to allow cabotage in one country without getting reciprocal rights in other countries. It would be more likely that cabotage would occur within Canada if Canada had similar rights in other countries, the foremost among other countries being the United States.

In the past 25 years, the subject of cabotage has been raised in negotiations between the two countries. The subject has never gone very far. That is partly become there is considerable reluctance in the United States to allow cabotage. That could always change. I do not think that is primarily because of Canadian carriers suddenly rushing into the U.S. market and taking over the U.S. market. It is probably more of a concern that, if cabotage is allowed in Canada, it would be difficult not to allow it for carriers from Europe or from Asia, and they could have a much bigger impact on the market. To date, it has been unusual for one country to allow cabotage without getting reciprocal rights.

Senator Fairbairn: Earlier, Mr. Currie, you indicated that, in this hugely complicated exercise we are currently watching and trying to understand, the role of your agency will begin at a point where you will be asked to assess if any entity that comes out of this in the end meets the qualifications with regard to Canadian ownership and Canadian control. You then went on to say that you had received a package of material from Onex and that that was helpful at the time when their offer appeared to be in play. Then you said you had received something from Air Canada as well.

In light of the current developments in recent days, do you have an extensive outline of the Air Canada proposal, either in terms of what has been made public, or perhaps in more detail?

I ask the question because I noticed in the media today a comment that Canadian Airlines was in a difficult position in trying to assess where it might stand in the new order, if this is the one that is agreed on, because they do not have a proposal in front of them.

I wonder to what extent you have, at the transportation agency, such a proposal?

Mr. Currie: I may have been misunderstood. We do have material from Onex, but, while we have been in touch with Air Canada, so far we do not have material from them, although they have indicated that they are planning to send it to us. That would include information about their proposed offer for Canadian Airlines. However, as things stand just now, we do not have that material.

I should stress that this is all on an informal basis, designed to allow the agency staff to try, if you will, to get up to speed, so that, if and when we have to deal with a formal application, we will be able to do so as expeditiously as possible. Right now, we do not have information from Air Canada.

Senator Fairbairn: Given all the factors, time will be an important issue by the time any application gets to you. At the moment, though, you do not have any information from Air Canada to do any sort of advance study, other than what is in the public domain?

Mr. Currie: That is correct, yes.

Senator Forrestall: Has the agency had occasion to do some pro forma balance sheets, profit and loss studies, on the merger of Air Canada and Canadian Airlines, or the outright purchase, whenever it will be?

Mr. Currie: Not beyond the material we have seen in the press, no, not so far.

Senator Forrestall: Why would you not have done that?

Mr. Currie: The primary role of the agency is in determining ownership and control, so our primary interest in analyzing the material we got from Onex was basically in trying to understand the nature of the various agreements, the shareholders' agreements, the loan agreements, and so on, to try to understand the relationships between the various parties. However, in terms of looking at the overall financial situation of the carrier, we have not done that in any detail, as I understand it.

I would ask Ms Gravelle if she has anything to add with respect to the analysis we have done.

Ms Mary-Jane Gravelle, Senior Analyst, Licensing and Charters Directorate, Canadian Transportation Agency: That is exactly correct. We have not received detailed documents from Air Canada yet. Those documents may include pro forma financial statements. If and when we receive them, we will obviously examine them. We would not have enough information right now from the public domain to try to put together those pro forma financial statements. The exact relationship with Canadian Airlines is not known.

Senator Forrestall: Would any other government agency be undertaking such work? It is very important for us to understand what it is we are discussing.

Mr. Currie: I am not sure. Transport Canada obviously has a policy responsibility here, and they may well have more information. If they do, it has not been, and I would not expect it to be, shared with us. You could certainly ask Transport Canada, but it is my expectation that any information they have would have been obtained on a confidential basis.

Senator Roberge: What about the deal that was struck between Lufthansa, United Airlines and Air Canada? Would you have been made aware of that in detail?

Mr. Currie: That is one of the pieces of information we have requested from Air Canada. We have not yet received it, but we would expect to look at it.

Senator Finestone: With respect to Air Canada's proposed low-cost service out of Hamilton, have they included that in their package to you, including information on how that may have an impact on competition with existing airlines?

Mr. Currie: We have no information on that as yet. It is definitely the kind of information we would expect to get. If there is to be a new low-cost carrier and it is to be licensed by us, we would certainly require information on that carrier before the licensing process was finished. As of yet, we have no information on that, over and above what has been in the public domain.

The Chairman: I thank the witnesses for appearing.

Our next witnesses are from the Canadian Auto Workers. Welcome and please proceed.

Mr. Buzz Hargrove, President, Canadian Auto Workers: I should like to thank the committee for the opportunity to be here today to express the views of our union. However, I must start out with the disclaimer that what I am expressing may not be a consensus point of view in our union. As you may know, there is a bit of controversy in our union over this issue.

Senator Roberge: It may be the same here.

Mr. Hargrove: It is a bit like Parliament most days.

Senator Fairbairn: You look pretty chipper, considering.

Mr. Hargrove: I would like to take a few minutes to give you a brief history, following which I will outline our perspective, as we look ahead. Unlike many people who are involved in the debate on the airline industry, we did not just drop into this debate -- and I am not talking about the people here in the Senate. I have a great deal of respect for the political structures of our country, including the Senate.

Senator Finestone: Music to our ears.

Mr. Hargrove: I said that, in some instances, I would be in a minority.

I was quite disgusted when I read an article that described the Minister of Transport as the stupidest minister of the century. These people have not added any quality to the discussion during the past decade, since the privatization of Air Canada. The industry has been in constant turmoil during that period.

We have made many presentations to the government -- and you will find several presentations to Senate committees as well during this period. In those presentations, we talked about how the industry has been deregulated, how we have tried to act like the Americans -- all of this in a country whose population is small and spread over a geography much different than the U.S. -- and how deregulation, in its purest form, could not be anything but a disaster, which it has proven to be.

We highlighted that mostly in 1986, when, for the third time, Canadian Airlines, this time under its new CEO, Kevin Benson, came to us and said that he wanted the workers to take a pay cut. He said that they had a solution, a four-year plan, which included a 10 per cent pay cut. He told us that they did not want the union to be involved, that Canadian just wanted us to know what they were doing. They thought that if they threatened to close down the airline our members would agree to a 10 per cent pay cut.

We did not think that made much sense. We challenged them on the idea that, if concessions were the solution to that company, we would have had a solution in place before 1996.

We called in the government. The Minister of Transport at that time was Minister Anderson. We did not get a sympathetic ear. I talked to Paul Martin, the Minister of Finance. We talked to the Prime Minister's chief aide. We talked to everyone that we could talk to in Ottawa. I talked to people Herb Gray and others whom I have known for a number years. We told them that this would not solve the problem, that we were, in fact, delaying one more time the restructuring of the airline industry in Canada.

At the end of the day, the government saw fit to go to Parliament to require a vote amongst our members in spite of the fact that we had an agreement in place that was just ratified months earlier and was not about to expire for another two and a half years,

I was portrayed as being undemocratic in 1996. It is interesting how the worm turns. I opposed letting the members vote, in view of the fact that their jobs were being threatened, as opposed to voting whether they wanted to contribute more of their paycheque to Canadian airlines. The government said that I was acting in an undemocratic fashion, and they ordered a vote. My members and the members of other unions were saying that, not only was I undemocratic, but that my plot was to destroy Canadian Airlines so that Air Canada would be the only carrier left in Canada. Today, it is the reverse: People are saying that my desire is to protect the Canadian Airlines workers at the expense of Air Canada.

I am only trying to do what I have tried to do since the government privatized Air Canada in 1989. The industry has developed in probably the most unbusiness-like way of any industry in the country. I would ask honourable senators to think about any other industry where the competition has been between two companies that have lost money. Both airlines have lost money over the full 10-year span -- Canadian Airlines, more than $ 1 billion, and Air Canada has finally just about broke even, after 10 years. The competition was based on how much could be taken out of the workers' pockets. At the same time, they kept flying planes with seats that had nobody in them and for fares that would not pay for the price of putting the plane in the air. That was how we ran the industry for 10 years and then we wonder why we have a problem.

That brings me to this year. We never bought the four-year logic of Mr. Benson and the management of Canadian Airlines. We said that it will not work, cannot work, and that it was another delay of the inevitable period of restructuring that has to come.

This spring we called a press conference in Toronto. We had had a meeting with David Collenette wherein we presented our case about what we considered the problem in the industry. We called for the government to get involved and restructure the industry. We called for an end to destructive competition. We called for the government to take a minority equity position in Canadian Airlines, a position that would have avoided the whole fiasco we find ourselves in today. If the government were a minority owner in the company, it could work with the management of Canadian and Air Canada. The government would then have an inside window on the industry and would be in a position to do something about the destructive competition that we had experienced for almost a decade.

Because 16,000 jobs were at stake, for the first time in my life I called for a lifting of the 25 per cent on foreign investment -- this from a Canadian nationalist. It was my opinion that we should open it up, to give Canadian Airlines the maximum opportunity to become a real player in the industry.

My idea was not well received by the government. There was recognition, however, that there was a crisis in the industry. To Mr. Collenette's credit, he introduced section 47 of the Transportation Act. Ten days later, Onex presented a proposal to buy both companies and their regional carriers. That started an upward spiral for shareholders and share value, all of which heightened the debate in the country about whether the Onex proposal would be in the best interest of the country.

What is not in the best interests of the country is two airlines, both of them struggling to survive, one of them losing a bundle of money. In my experience, there are not many businesses around the world that have been in business for 10 years, like Canadian Airlines, and have lost money in every year of those 10 years. Over that 10 years, accumulated losses for Canadian Airlines have been in the order of $1 billion. The reality for Air Canada shareholders is that the value of their stock was less on the day that Mr. Collenette introduced section 47 than it was on the day that the government privatized Air Canada in 1989.

I stress to honourable senators that it is not my goal to represent investors. My goal is to represent working people. In this instance, there are 10,000 workers involved -- 6,000 at Air Canada and its regional carriers and 4,000 at Canadian Airlines and its regional carriers. We have nine or ten collective agreements in place. Each regional carrier has its own collective agreement, as do Air Canada and Canadian Airlines.

I set out to bargain with both investment groups to defend the interests of our members. We made a simple proposal, following the announcement by Mr. Schwartz. We asked for a commitment in writing that, during the restructuring process, no one would be laid off, that no one would involuntarily be moved or relocated across the country, that none of our work would be moved to the United States or offshore. Our workers are very susceptible because reservations can be made as easily from Toronto as they can from Montreal. Our workers are susceptible to being transferred, as was the case when American Airlines became involved with Canadian Airlines and several of our jobs were transferred to Dallas, Texas. In addition, we wanted a guarantee that, although there would be one company, there would be two seniority lists. That is to say, the airlines could be run as one in terms of getting rid of capacity and providing service to communities and customers, but in terms of the workers we wanted two seniority lists so that lives would not be disrupted. In the airline industry, unlike any other, everything is based on seniority -- your vacation schedule, whether you get prime time, your shift schedule, whether you work at the airport or in downtown Toronto or Montreal at the reservation offices. Airline workers guard those things jealously, and well they should. We needed a commitment on that.

We recognized that there are too many people working in the airline industry. Someone said, "My goodness, a trade union leader who recognizes that there are too many people working in an enterprise!" Our union is involved in the automobile industry, which is the most productive, low-cost, high-quality industry in the world today. We have always said that we do not want a feather bed. We want a quality product in whatever we do, and we want to ensure that costs are as low as they can be.

We asked: How do you take people out? We looked at the numbers. If you take our membership of 10,000, as many as 2,000 leave per annum. They either retire, are discharged or quit, or request a leave of absence. Onex asked for 5,000 people. Based on the fact that 2,000 people per annum leave, we suggested that, if they were sincere about their commitment not to disrupt lives, within a two and a half year period they would reach their target of reducing their numbers by 5,000. I suggested that positive synergies would come their way. In addition, they could make it attractive for people to retire early. Of course, enhanced benefits cost money.

We designed a complex program of enhanced retirement benefits so that, instead of having a big cost up front for the investor, it would be spread over as much as a six-year period. As an example, a worker could be encouraged to retire early if he or she received an enhanced benefit for so doing, say at 58 or 60. By offering encouragement to retire early, the company's downsizing objectives could be met. At the same time, opportunities for preferred jobs would open up to other members of the union. We set a new standard and we asked Mr. Milton to meet it. However, he would not do so. They wanted a six-year agreement. They were not prepared to bargain on pensions, on severance, or on moving work out of the country.

Where did we end up? As has been widely publicized, we did not endorse Onex as an investment group to buy a company to make money for shareholders. We endorsed what we had bargained as the best agreement in the best interests of our members.

What did it mean? It meant that at least $500 million in enhanced retirement and severance benefits would go into the pockets of workers. In the Milton proposal -- and he is a clear victor today -- $1.1 billion goes into the pockets of the shareholders. Not one additional penny goes into the pockets of the workers who work for either airline, Air Canada or Canadian, or the regionals. That is a much different proposal that we face today.

The government started out late; nevertheless, I compliment the minister for recognizing the problem before Canadian went bankrupt, as it almost did in 1996, by introducing section 47.

Where are we now? Onex is out of the game. I watched with interest the debate in Parliament. People were going after Onex for a whole lot of reasons. I watched with amazement. No one stepped back and asked, "What happens when Mr. Schwartz and Onex are out of the game?" You now have a clear monopoly. The only player setting the rules is Mr. Milton and a board of directors appointed by Mr. Mulroney in 1989. Some of you may have confidence in that. I do not have a statement either way. However, that is how they got their positions.

We are now faced with not only a monopoly but also an owner who will have four different structures in the airline industry. We will have a first-class carrier up here, namely, Air Canada, which pays people a certain way and has these benefits for this group. In the same company, we will have Canadian Airlines, and we will pay them much less. That will be a different carrier. Under them are the regional carriers, who will be paid even less. We will then start a no-frills airline, one where the pilots and flight attendants handle the baggage, take tickets, and fly airplanes. They want a labour cost advantage of 25 to 35 per cent over what they are paying others in the company.

You now have a monopoly at every level. If the government allows them to have an entry level, a second level, a third level, and a top level, the question becomes: Where will the new players and the competition come from?

The government and the Senate can play a big role here. First, the government should ensure that the standards that we established in free collective bargaining with Mr. Schwartz and Onex should be the minimum standards they must meet. They should not be allowed to have a four-layered group. The government has just settled a longstanding argument about how women in government have been paid over the years. Workers who are doing the same job for the same company should get the same rate of pay.

If the struggle is about eliminating capacity in the industry, surely we will not allow the monopoly to introduce more capacity by flying planes out of Hamilton, a city just outside of Toronto. In a perfect world, the industry would be regulated by government to ensure that workers are protected, that consumers are not ripped off, and that the communities across this country receive service. You invite competition in at the entry level, where people can come in, start an airline with little capital investment to begin with. Over time -- as WestJet has done -- if it is done properly, the company can grow and provide competition to the main carriers. In the meantime, it is the role of government to govern how the monopoly operates.

A lot of parliamentarians say, "Open it up to cabotage." That means that American companies can come in and fly between Toronto, Montreal, Ottawa, Edmonton, Calgary, and Vancouver. The United States would never allow that. No country in the world allows a carrier from outside its border to enter and carry passengers between domestic cities within that country. The Americans would not allow it -- not in 100 years. They would not allow us to fly into Chicago, en route to Denver, pick up passengers and move them to Denver. Having said that, if you open it up to cabotage, where will they concentrate their operation? It will be on the main routes, where there is money to be made -- namely, Toronto, Ottawa, and Montreal, in the East, and Edmonton, Calgary and Vancouver, in the West. They will destroy any opportunity for us to develop an industry that will grow out of a monopoly if it is given proper lead time and proper support by government.

To sum up, there are two elements involved here. There is a real opportunity to do something good for the country, for the workers, and for the industry itself, as well as the consumers and communities across the country. The other is a kind of blind faith in the market or in a simplistic solution such as allowing the Americans or the Europeans to fly passengers between Canadian cities. That will be an absolute disaster. There have been too many mistakes made in this industry before today, but that is behind us. We should take a good look at the industry and listen to people who know the industry and not just people who want to make money off it.

I said at the outset that Mr. Milton and Mr. Schwartz will come out of this fine. Neither of them will have to line up at the food bank, regardless of what happens here, but many workers will be disadvantaged. Where we had job guarantees, we now have none; where we had guarantees respecting relocation, we now have none. We had guarantees that no work would be moved out of the country, and now we have none. Where we had enhanced pensions and enhanced severance pay, we now have nothing. We had a commitment that there would be at least one airline, which would be overseen by the government, with new entrants allowed to come in at the entry level, and now we have a monopoly that wants to control all levels of the travelling public.

In conclusion, I submit to the committee that the basic minimum standard that we bargained for with Mr. Schwartz should be the minimum standard accepted by the government for workers if it is truly interested in protecting workers, as I believe it is. The government should ensure that this monopoly starts out with one company, with an opportunity for others to come in to satisfy the entry-level market, rather than having layering so that no one can survive at any level, other than the monopoly.

Thank you very much. I would be happy to answer your questions.

Senator LeBreton: I was very interested in the presentation of Mr. Hargrove. He has acquitted himself very well on behalf of his workers throughout this process.

On a point of order, I wish to correct the record. In my previous job, I was in charge of appointments for the Prime Minister's Office. Therefore, I can state that Mr. Mulroney did not appoint the board of directors in 1989. Those were not order-in-council appointments. The board was appointed by the privatized Air Canada company.

Mr. Hargrove: Thank you for that correction. However, I think you would agree that Mr. Mulroney had some influence.

Senator LeBreton: I do not think so.

Senator Forrestall: How do we protect the Canadian consumer? Where do we go? What do we do?

Mr. Hargrove: First, we must ensure that we do not have a four-tiered airline industry that precludes anyone entering and building for the future. Second, prices must be controlled by government so that the consumer will not be ripped-off.

New entrants must have the capacity to provide competition at the low level and to build financial strength to gradually move up and offer more competition across the country.

Senator Forrestall: It would take a lot of money to sustain an operation for 10 to 20 years until it gets to that stage. That is a tall order.

You are very forceful in your suggestions. Are you talking about going back to regulations that would have the effect of preventing gouging, of allowing smaller locales to be served, of ensuring that routes are not abandoned simply because there is not enough return in the dollar invested in that route, or in that seat?

Is there room for the government to manoeuvre in this respect? How far can it go in terms of regulation, if that is what it will take? In the absence of competition, it will take some form of regulations. I am a capitalist, one of those people who you do not like.

Mr. Hargrove: It has nothing to do with liking or disliking. I do not support the system as I see today, but that has nothing to do with individuals.

I differentiate between a system of capitalism and some capitalists. Some capitalists are good friends of mine. I am saying exactly what you are saying. I am saying, in addition, that you must not get caught in the argument that allowing Americans to fly the key routes in this country will undermine the ability of even the monopoly airline to make a buck. That will surely guarantee that no one else will be able to enter and develop a base for the future.

Some industries must be regulated. With the population base and the geography of Canada, there is no way that we can support a deregulated industry without some form of regulation. We put together a paper for the government in 1996. Through our bargaining with the PMO, we were granted a meeting of all the industry players in December 1997. All the top players and the government attended. We made a presentation. No one challenged it other than Kevin Benson, who said, "We will be fine. Just leave us alone and let the market work its wonder." Air Canada said the same thing. The market now has us back in another crisis situation. We must start by recognizing that and by working out how to prepare this industry for the future.

Senator Forrestall: You certainly must be a key player in that. I would not want to see you far from the action in determining what will happen in this country in the next six to ten months and, beyond that, in the five to ten years that it will take to get some stability back. The industry is unstable; there is no question about that.

Is this situation likely to lead to a rift in your membership?

Mr. Hargrove: It is fair to say that it already has. There is a lot of insecurity. There are many very worried people. For decades, the Air Canada people have been told "restraint, restraint, restraint". Finally, Air Canada began to take advantage of the other company's weakness. Everyone here can attest to how a lack of funds has led to a decline in the product of Canadian Airlines in the last few years. Air Canada has improved its product because it had money coming in and it invested for the future.

Our members are no different from anyone else. They have a great loyalty to their company. The argument that workers are not loyal to their company is nonsense. In every collective bargaining situation, you start from the premise that the workers are loyal to the company. I spent 11 years in the Chrysler plant. I have never bought anything but a Chrysler product. That is loyalty to the company. I know people who have been fulltime union representatives at General Motors all their lives. They have the same loyalty.

The Air Canada workers feel that they have won and are asking why they should be put through this turmoil. They feel that Canadian Airlines should be allowed to go bankrupt.

The workers are not arguing against a monopoly or any of those issues. They are saying, "Leave our jobs alone. Do not interfere with the only stability we have had in a decade. We see it being even better if Canadian Airlines goes under." That is unfortunate. Some of our leadership has bought into that, and that is fair because they represent just Air Canada. I represent the 10,000 workers of both airlines. As union president, my role is to challenge that kind of thinking and to get them thinking about the broader good, not just about themselves but about the other workers at the other airline.

Contrary to the media reports that I was undemocratic, the agreement that I had with Onex only took place if Mr. Schwartz was winner, which he obviously was not, and only after the bargaining committee and the members had a chance to vote on it. If they did not like it, they could rip it up and throw it away. All 10 groups under 10 collective agreements had that opportunity.

We have a rift. I represent people; Mr. Milton uses people. I represent my members; he used my members to further his aims as he went about restructuring this industry and trying to get the upper hand for Air Canada and its investors as opposed to Onex and its investors. Mr. Schwartz says Mr. Milton will be his CEO, too. He is there no matter what. I could not get people to focus on the fact that it does not matter who owns us. What is of concern is this: What are the guarantees? We had over $500 million in enhanced pension and severance payments that went to the workers under the Onex bid, and now there is not one penny proposed by Mr. Milton in this deal. The shareholders do wonderfully, and I congratulate them for it. However, they do it at the expense of workers.

Senator Forrestall: What about that segment of your membership who are substantial shareholders of Canadian stock? What are you saying to government and to Canadian? What are you saying to those people? Have you a plan to attack this major problem?

Mr. Hargrove: The problem is that they own stock that is worthless today. Most of them would give up their stock for job security.

Senator Forrestall: In one sense, perhaps they are worthless. However, relative to the book value of the company, Canadian's stock is worth a lot more than Air Canada's, using another side-by-side parallel way of measuring it.

Mr. Hargrove: We make that point in our presentation, senator. The workers are worried about their jobs. They gave up wages when they were assigned a certain amount of stock, which was then valued at $15 or $16. It is now $2, or whatever it is today. They are not worried about the stock. They are worried about their jobs.

Any restructuring of the industry should ensure that the Canadian Airline workers have the same security as those at Air Canada. The only thing I recommend is that we not disrupt peoples' lives at either airline and that we keep two separate seniority lists. It can be done. It takes a little work and a little commitment to people. Mr. Schwartz is not a stupid man. He has made a billion or two in his life. His own personal worth, according to the magazines, exceeds $500 million. He would not have bought into something that would have tied his hands, but he was willing to commit to equality of pay for everyone who worked in the airline and to guarantee their jobs. That is what should be required of whoever takes over this industry, not some idea that a subsidiary sits over here and faces the threat of bankruptcy unless the creditors take a haircut of $0.5 billion. That is not looking after the interests of workers.


Senator Poulin: You represent in the transportation industry 10,000 workers and you take their interests very much at heart. So do we and for several reasons.


We have heard from Canadians coast to coast to coast that the three things that Canadians care the most about are safety, service, and affordability. Your workers have a huge role to play in that meeting those concerns. If we are to have safe airlines all over the country, every worker who has any responsibility related to safety must be focused on his or her job. It is the same thing with service. It is more than simply travelling from A to B. It is to ensure that those workers make every flight as comfortable as possible for the passengers. Your members have a huge responsibility regarding affordability in that union agreements must reflect new ways of doing business.

As the representative of 10,000 workers, when you are asked how we prepare this industry for the future, based on the vision that the minister shared with us when he was here as a witness, what are your key recommendations to us as committee members?

Mr. Hargrove: First, let me comment, senator, on our collective agreements. The Canadian airline industry, if you adjust for the population base, is much more competitive in terms of its work practices than that in the U.S., whether it is measured on a passenger/mile cost, or whatever way you measure it. Our product is world-renowned. Air Canada just won a major award, and until the last three or four years when it had no money to keep its product up Canadian Airlines has won awards. In spite of that, it still won some awards, but it did not meet its potential.

Whether it is pilots or flight attendants or mechanics or air agents, the workers are committed to the product, but we need a stable environment in which to work. If I could plead for anything, it would be a stable environment. All the workers understand that there will be less workers in the future, but you can take the workers out through the top, through retirement incentives and severances, as opposed to throwing people on the street. In the best-case scenario, this industry has lost $1 billion in the last 10 years and has kept all these people working. Surely to do the downsizing over a two- or three-year period, when you will start making money as you take people out, is not too much to ask of any investment group. Give us equality of wages and opportunity. Give us an opportunity to put the best product in the air around the world, and our members will do it.

Ms Peggy Nash, Assistant to the President, Canadian Auto Workers: On the issue of affordability, there is this notion that the consumers have benefited over the last decade in the airline industry. Our research shows, and it is in the document you have, that the cost of air travel has risen faster than any other product that statistics can track. Consumers have not done well in the last decade.

The previous questioner also mentioned the notion about regulation. Clearly there will be regulation in the airline industry. The question is whether regulation and public policy will be set in a corporate boardroom or whether the government will play a role in regulating the industry. In our view, it is the role of the government to act on behalf of consumers, the public in general, and the workers in the industry.

Senator LeBreton: Mr. Hargrove, what is your view on the 10 per cent ownership issue?

Mr. Hargrove: Again, my position on that is simple. The government set out to restructure the industry. Today, we have narrowed the field through the 10 per cent rule. There is only one group of investors. If you want to give it any kind of fair shot, it seems to me that you cannot do it under the current rules.

The government makes the rules, and we live by them. I have no problem with that. We will debate the issues with you here. However, you must ask yourselves whether the goals of the government, which recognizes that we are in a crisis, are best served today. Onex is gone, regardless of what happens. Now that they are out of the picture, the issue is one of whether this rule will allow the government to restructure this industry in the best possible way for the future.

If you look at how it has worked so far, it has not been helpful. The question is: Is there something else that would be helpful if the rules were changed? I do not know that. No investor has come to me and said, "If that 10 per cent rule limit were increased, we would be in tomorrow with a wonderful proposal." All I know is that there is now in front of us only one proposal, one group of investors, one group of executives, and that is not in the best interests of Canada or consumers or communities or workers. What do we do to ensure some fairness in the system? That is the obligation of government. I do not have that control.

Senator LeBreton: I must say I agree with you there. The 10 per cent rule was brought in at the time of privatization so that the shares would be widely distributed; however, as I said in questioning an earlier witness, I think that that gives the board of directors what almost amounts to lifetime membership, and it is not very shareholder-friendly.

In his testimony, Mr. Benson said that Canadian Airlines had not received a formal offer from Air Canada -- and have not, unless something happened today while we were in here. We all have our suspicions as to why that is so.

What do you make of that? Throughout this entire process, even with the suspension of section 47, Air Canada has not made a formal offer to Canadian Airlines. I hate to be suspicious, but that really strikes me as very strange at this point in the process.

Mr. Hargrove: If you have all the marbles, you can dictate what happens with the game.

Senator Forrestall: How true!

Mr. Hargrove: If you have the bat and ball and it is on your property, you can determine the rules. That is where they sit today.

Senator LeBreton: That is most unfortunate.

Senator Fairbairn: Yes, it is most unfortunate. The whole event that has been playing itself out has unfortunate elements in it at this time. It may be difficult, because we do not know all the details, to see where the sun is shining.

I should simply like to say one thing. We as parliamentarians have to be very concerned about a consumer interest, on the part of the travelling public, in the airline issue. However, as one who travels almost every week from here to Calgary, to Lethbridge, and so on, I must say I have never seen a degree of professionalism such as that which has existed among the workers in these airlines. Despite the difficulty over the last few years, I would say that the fortitude, the cheerfulness, and, again, the professionalism, of those who work for Canadian Airlines has been, at times, almost unbelievable. When you, as a leader, are going to bat for these folks, I say good on you.

It is confusing for those of us outside the union movement to witness the disruptions and the divisions that took place when you, as you said, did not make any agreement with Onex but instead basically negotiated a labour commitment with Onex, a commitment that would preserve advantages in the system for them as this thing unfolded. That did not work.

Since last Friday, have you had any overtures or discussions of any sort with Air Canada? Have the employees put any pressure on you to put some kind of reverse pressure on Air Canada, since it, as you said, is the only game in town, to give the same kind of commitments that were made through your discussions with Mr. Schwartz and Onex? Is there some pressure on you in that regard or is there some sort of notion that the better way to go is to let Canadian Airlines die? If that is so, many good people would go down the drain, and I would personally hate to see that happen.

Mr. Hargrove: I would hate to see that as well. First, I should like to say that you are right in what you say about the Canadian Airlines employees, but the same is true about Air Canada employees. Air Canada is world-renowned. We had a guest speaker from California at our council meeting a month ago. She flew on United Airlines from her home in Los Angeles to Vancouver, and then flew Air Canada across the country. In her first comments to our council, she was raving about the difference in service between Air Canada and United -- and she is an American.

With respect to your question, Mr. Milton has not returned my calls for quite some time now. The pressure you mention was not something I looked for. We bargained throughout the weekend before last with Mr. Schwartz and Onex, even all night long, through a great deal of tough bargaining, to come to an agreement that we finally signed at about three o'clock, and we met with the media at 3:30 in the morning. When I called Mr. Milton's office at eight o'clock that morning, he refused to take my call. He referred me to their labour representative, and so I called him. He called me back a few hours later, and I went through the Onex agreement with him on the phone. I said, "We will be doing this in the best interests of our members. If you want to be part of it, get something to us in writing." We met with him 10 days ago and outlined exactly what we wanted from Air Canada. We got a letter that was full of mush. It had nowhere near the commitment that we had bargained from Onex on that.

Every indication is that Air Canada will not meet that commitment. It appears that Mr. Milton's vision of Air Canada's future contains a four-tiered wage structure, and for this new monopoly to be able to capture the market at the high end, at the low end, and in between. Whether it is the regionals feeding the main lines, they have control at every level, if you look at their proposed structure. There is no interest for them at all in meeting with us and putting in place a new retirement program. You should remember that Mr. Milton said that no employees at Air Canada would lose their jobs, that the only job losses would take place at Canadian Airlines. Over 2,500 people would lose their jobs at Canadian, and he said he would attempt to do that by attrition.

There is a very strong debate across the country about this. It is not only the CAW that are divided; the flight attendants and the pilots are divided. The Air Canada pilots are saying, "To hell with the other group, let them go under, and we can protect our jobs. They lost, we won." That is kind of the mood that is out there today. Do I like it? No. However, I know one thing, and that is that Mr. Milton has catered to it and built upon it. The only way that we will get a fair response from Mr. Milton and the new Air Canada is through the government overseeing this restructuring, as Mr. Collenette has said they will do. They say that they will protect the consumers and workers in the country. Perhaps another player will come in who will play by the rules as they stand. Perhaps the government, in its wisdom, will decide to change the rules and another player will come in. At present, there is only one player who can dictate, not only to our union but to the other unions and to the government, because he is the only player in town. There is no one else knocking at my door saying, "Gee, Buzz, we think this is a great opportunity for investment."

Senator Fairbairn: You are a senior Canadian labour leader who has had an enormous amount of experience in very difficult situations. It is difficult for some of us to understand the elements of the particular proposal that is on the table, when the whole purpose has been to somehow streamline the air transport system in Canada so that it is more profitable and so that it is rationalized in a way that will give good service, will cut down on duplications, and will provide workers with an opportunity to get a fair deal. As you said yourself, there are probably too many workers in the industry now. There are options of dealing with that.

How can the notion of buying Canadian Airlines and running it as whatever it would be run as -- and none of us knows that -- play into the whole notion of a more effective, efficient, restructured situation in this country? From your position, do you believe that the direction in which this is now going will see the bankruptcy rather than the submersion of good parts of Canadian Airlines? Do you think this will result in a bankruptcy, which in that sense will leave workers at a tragic disadvantage?

Mr. Hargrove: Again, senator, I do not have a crystal ball.

Senator Fairbairn: You have an instinct.

Mr. Hargrove: I would say that the structure that Mr. Milton has in place -- that is, four tiers, one company, an he owns the whole industry -- can only work in his best interests to make money for the future. If he forces the debtors of Canadian Airlines to hold the debt, to take a major cut in the debt -- and he is saying $400 or $500 million out of $900 million must be accepted by the debtors. He has said that if they do not, then Canadian Airlines will go bankrupt. Those are his words, not mine.

I do not know if the creditors will take another haircut at Canadian Airlines. All I know is that under the other proposal they were not required to take a haircut. They were talking about integrating the company, for the purposes of running the business, making it work and making money. They were going to integrate the company.

That was not offensive at all to us. For me as a leader, it was, in fact, more than acceptable. Our members still have not accepted the logic that you can do this and run two separate seniority lists so that people are not disadvantaged.

Mr. Milton has used people and has convinced them that somehow they will lose something if another investment group takes over. It does not matter that we have all of these written guarantees from this group.

Whose money is behind Milton? Is it Lufthansa, United Airlines? We do not know. Who is behind Mr. Schwartz -- American Airlines and who knows?

As workers and consumers, the issue for us is not who the investment firms were. That is what I tried to say time and time again to our members. The issue is: What kind of protection do we have for our workers and our members? What can we offer consumers? Are we putting in place a solid airline industry in this country? Will there be an opportunity for others to come in, to be competitive? You cannot do that with a monopoly that is designed to guarantee you that you cannot start.

If Mr. Milton starts a low-frills service in the East, obviously he will expand that to the West. Why would he not? People may choose to fly domestically on the low-frills service to pick up their international carrier, where they have a much different class of travel. He know he feeds his main line through all of this. He thereby effectively ensures that no group can get started in this industry. I do not believe that that is in the best interests of our membership and certainly not in the best interests of consumers or the country.

Senator Fairbairn: Your opinion is very important because you have worked so closely with what have been two extraordinarily good servants of the country. I hope we will end up with a better solution than either you or I may think.

Senator Roberge: There is no question that I believe also that the synergies of a merger are economically much more viable than running a separate entity.

Do you think that a merger is completely out of the question now, given the culture of the employees of both airlines?

Mr. Hargrove: Not at all, if it is in the best interests of the country and is handled properly with respect to workers' rights, so that you do not force a coming together of the two groups. The seniority lists do not have to be merged; you do not have to disturb the working conditions of the workers from that perspective. If Canadian Airlines continues to run, instead of running 30 flights a day from Toronto to Ottawa, it could drop down to 20 flights a day. Air Canada, instead of running 70 reduces to 60 or whatever the proportional amount would be based on their market share. You take out people at the top level by offering them incentives. You tell others that they keep their service. For example, a flight attendant with Air Canada can fly with Air Canada; a flight attendant with Canadian can fly with Canadian.

These things are possible. There is no major challenge here. We must get over the thinking that somehow people are threatened if the two are merged. When Mr. Schwartz first presented his idea, it was to buy the companies, merge them, and get it over. It was only after meetings and representation from our union that his team agreed that it was not necessary to merge the seniority lists. Mr. Schwartz thought about having one uniform. What is wrong with having two uniforms in one company? If you go to a Chevrolet dealer, you get a different product than a Buick dealer with the same company. What is wrong with offering a different package within the same airline? He came a long way with his thinking. Mr. Schwartz is open to listening and bargaining; Mr. Milton has not been.

Senator Finestone: Mr. Hargrove, it will be difficult for the union structure should Air Canada win the day. I have the hope it is not over yet. You represent a certain percentage of the workers; you do not represent the entire workforce that works for Air Canada and Canadian. How many other unions are there? Are other unions in agreement with the deal for workers' rights that you negotiated with Mr. Schwartz?

Mr. Hargrove: I try to rotate between the two airlines because I have members in both. Today I flew Canadian. In the airport and on the flight, personnel were wearing buttons that said, "I'm for fairness. Thanks, Buzz." I am not a welcome traveller on Air Canada, but that will shift.

The machinists bargained with Onex, following us. I do not know if we have a copy of that document with us. We will forward it to you, if you like. It is almost identical word for word with what we bargained with Onex. The machinists have the same commitment.

However, Mr. Schwartz is not stupid. He said that part of making the commitment was that he wanted public acknowledgement that he did so. He wanted them to say publicly that he had committed to such and such. He respected the role of the union. We had no hesitation in doing so. The only other union that I know for certain bargained with him was the machinists. However, they did not sign because they did not want to come out publicly. They did not want the backlash that I am receiving from our Air Canada members.

Senator Finestone: Mr. Hargrove, we are all familiar with your fine negotiating techniques. There is no question about that. You have done extremely well in the car industry. I like what you did for the car business and the car workers. I hope you will someday be able to do the same thing for the airline workers, including child care and education benefits and all the other things.

You still need the collaboration and the partnership of the other sectors of the airline industry. It is not just a matter of Mr. Milton and his concern for the workers in Air Canada. It is also a concern for the workers in the other unions. Is there is a potential that all the other unions are with you, or are they also playing the game of Air Canada versus Onex?

Mr. Hargrove: You asked a question earlier, which I have not answered yet. I think there are seven unions in the airline industry. There are two pilots' unions: Canadian Airlines' pilots and the regionals' pilots belong to the American Pilots' Union, and the Air Canada Pilots' Union represents Air Canada. There are also the dispatchers' union, the flight attendants' union, the machinists' union and the autoworkers' union.

Senator Finestone: Is there a ground workers' union?

Mr. Hargrove: No, they are in the machinists' union. Perhaps there are only six unions. The issues do not break out on union lines, though, except when we came out in public and said that, in exchange for these guarantees in a legal document to be written only if Onex wins, we would come out publicly in support. That is the only thing that separates us. We have support amongst the Canadian Airlines workers and the regional airlines at Canadian Airlines, but the Air Canada members are opposed to what we are doing.

That would break down the same in the other unions. The Air Canada people are supporting Mr. Milton and his investors. The Canadian Airlines people and their regionals are supporting anyone who gives them a guarantee. They do not care what the name is on the paycheque, so long as they have their jobs and fairness.

To give you a sense of how bad the situation can get, in 1996, while I was challenging the government about whether it made sense to force the workers to give another set of concessions, the pilots posted what they thought was my address on the Internet. They invited people to, "Tell Buzz how you feel." The address was that of my former wife. We had divorced about five years before that, but for some reason the telephone listing was still in my name. People went there and threatened to blow up the house. Some cut the car tires of my daughter and of my former wife in the driveway in broad daylight. Some threatened to bomb the house. The Durham police were there daily and nightly protecting people. The pilots and others felt that I was destroying Canadian Airlines to support Air Canada.

The pilots today want to hug me because I am fighting for equality for everyone, which is what I was doing in 1996 but they did not see it that way then. The Air Canada people today see me exactly as the Canadian people saw me in 1996 -- as trying to destroy their airline to benefit the other. Emotions are incredibly high. The only people who can deal with this problem from a position of authority are the people in this room and others in Parliament. The people who make the decisions can get past all of this. Once the decisions are made, there will be a period of high emotion for a time, but that will pass if we have the legislative framework within which we can work.

Senator Finestone: Judging from the phone calls that I have received, there is much sentiment that this is a private sector industry and so the private sector should resolve it without taking into account that, in order to work, this industry requires competent, skilled and contented workers.

Your view is that the government must come in with some sort of re-regulation. I do not think that that idea washes very well with the public. Did you discuss that with Mr. Schwartz? I understand you cannot speak with Mr. Milton.

Mr. Hargrove: Even the investment community today is accepting that there must be re-regulation. Everyone with whom I have spoken and every writer I have read has said that things cannot continue as they are in the market, and that the private sector cannot solve it. Obviously, there will be a monopoly of one sort or another and the government must regulate it. The only debate in the investment or business community is over the form of re-regulation. People are accepting that logic after a decade of deregulation.

Just ask any businessman if he would run a business for ten years continually losing money. Most would have folded their tents a long while ago. That would create a monopoly. If Canadian Airlines had gone bankrupt ten years ago or three years ago, we would have a monopoly. If the government lets the market solve the problem, the monopoly will rip off consumers and do all those "good" things that monopolies do. Most people say that that should not be allowed to happen, that there must be re-regulation and that the only question is what form it should take. I subscribe to that.

Senator Finestone: There are two things that I suggest. First, we have heard a great deal about what was negotiated with Onex. I wonder if it would be possible to deposit the response you received from Air Canada with the committee? That might help the committee in its evaluations.

Last but far from least, many people have read a great deal about Mr. Schwartz. We have listened to his confidence, his professional and knowledgeable presentations. It was expected that, if and when the deal got to be too expensive, he would walk away because he is a very smart businessman. Has it become too expensive, even for Air Canada or for the Canadian government?

Mr. Hargrove: No, I do not think it has become too expensive at all. Other people in the room are probably better at this than I am, but we can look at the analysts' review of the proposals. The last proposal from Air Canada, in spite of the rhetoric and the big numbers discussed publicly, was worth about $5.50 per share. The Onex final proposal came in between $6.40 and $6.70 per share. They are offering about $17, but they will only buy back a certain number of shares. The shareholder would receive yet another share on top of that, which, it is argued, in the long term would be of more value. I believe that is true, if the industry is restructured and the company makes more money. No, it has not become too expensive.

Senator Finestone: Even with that debt level, you do not think it is too expensive?

Mr. Hargrove: Not at all. We used to have 50 per cent of international travellers leaving Canada, flying somewhere else in the world, on either Air Canada or on Canadian Pacific, later Canadian Airlines. Because of the inability to come to grips with the problems and because of a lack of money to take advantage of the opportunities, Cathay Pacific and others have picked up much of the international travel market.

We are now down to 35 per cent of Canadians who travel abroad on a Canadian carrier. If we could pick up another 5 or 6 per cent -- never mind getting back to 50 per cent -- it would mean hundreds of millions of dollars.

If the destructive competition is gone and attention is paid to marketing and building the airline, a significant amount of money can be made in this industry. Other players can come in at the entry level. WestJet should be a lesson to everyone. WestJet has about 4 per cent of the market. Most of that is concentrated in the western triangle of Calgary, Edmonton and Vancouver.

Huge overheads and infrastructure are needed to run a huge, world-class international flagship carrier like Air Canada or Canadian Airlines. If a player starts with very little and contracts out for maintenance and other services, it can gradually build capital and make money.

Our small Canadian marketplace is spread over a huge geography. The trouble starts when you add huge capital investments, as Canadian Airlines did when it bought Ward Air and Eastern Provincial Airlines. Remember that it was Pacific Western Airlines that bought CP Air. This whole spiral started because the government deregulated the industry. It thought there was room for two air carriers when there was not. There is now a real potential here to make money and to develop a long-term industry that will be good for the country -- that is, if it has the framework by government which ensures that we do not allow the monopoly to retain that monopoly forever and a day.

Senator Finestone: In your view, from your overall perspective, if you were in a position to, and had the right to, make the decision, would you see one national airline or a series of airlines? I understood clearly what you said about the four points that were a problem, but can you see this one national airline being viable?

Mr. Hargrove: We had an ad that ran a week ago Saturday in the major newspapers across the country. It outlined our vision for the industry. and we spent a lot of time on this. It was not just Buzz Hargrove, but a lot of people, like Peggy Nash, my assistant who works directly with the airlines, and Gary Fane, and others around the union, including the local union leadership of Air Canada and Canadian. We had this debated and approved by over 100 of our Air Canada leadership and over 70 of our Canadian Airlines leadership. The ad said: "One company with two business units." Much like General Motors has Pontiac and Buick, here you would have a red and a blue. You would run them accordingly, by ensuring that you eliminate this idea that you both leave Toronto for Windsor, Ontario, at the same time with a plane that has only 10 or 15 passengers; or with a full plane where most of the seats are filled by seat sales. You would then eliminate the excess capacity. The government must play an overseeing role here to ensure that when you take out the capacity, you do not say to the consumers, "Now, we've got you. We will charge you double to get to Windsor." That is as opposed to what has been happening, namely, you get to Windsor cheaper than what it costs to fly the plane to Windsor. Remember that you have one company, not the Milton vision of four.

Senator Finestone: Is that not a duopoly?

Mr. Hargrove: It is a duopoly or a monopoly, or whatever you want to call it. In Milton's world, you have the same thing, but you have four layers, which ensures that you will never have competition. We are saying that for the next few years we should go about restructuring the industry to give it a chance to nurture and grow. It is like a plant: you have to prune it and water it. Here, you give it a chance to grow and you give new entrants an opportunity to come in and provide the entry-level competition that will permit it to grow, by making money and building up so that you can slowly develop a competition base that the country's consumer base will support.

Senator Fairbairn: I wish to return to the subject of the workers and your comments about how you worked out the ad that you ran across the country. I know that Air Canada workers are terrific assets to their company and that they have the same loyalty to their company as the other workers have to theirs. There is a fear that by partnering you do not get as much as you otherwise might have in terms of protection guarantees, but you are saying that that fear is unnecessary or groundless. Is there not some mechanism whereby the workers of Air Canada could join you in this?

Mr. Hargrove: Yes. I am hopeful of that. Our national data board is meeting in Toronto as we speak. I made a presentation to them this morning that represents all sections of our union. We are the major union in 14 sectors of the economy. Our board comes together for a debate on these issues every four months. I told them that we have to get past the emotion and the loyalty problem. When the Air Canada people step back and say, "We have won," someone will ask, "What did we win?" And all they will be able to say is, "We have a letter from Milton." However, that is not a legal document. It is not signed with the union. He can say, "I made that commitment and I can break it anytime I want."

In other words, we do not have any guarantees that our work will not move to the United States or that United will not take the reservation work to the United States or that the machinists or mechanic work will not be done in the United States. All of the support systems that are done in Montreal, for example, could be moved to the United States. Our head office could be moved and a significant amount of those functions could be moved. They will also look at the fact that, instead of retiring now, they will have to wait six more years before they can retire. However, they could have retired today, not only with no reduction but also with an enhanced pension benefit. That was contained in the Schwartz proposal, but there is nothing similar in the proposal from Air Canada. Once people step back and start looking at it objectively, in their own self-interest -- and that will occur -- they will start to question Mr. Milton and what their loyalty means.

I have said this publicly and I will say it again: I do not think he is on good ground to say to people, "We won." What does that mean for the shareholders? They pick up over $1 billion. What does that mean for the workers? It means nothing, except that Milton won. I do not think that is long lasting.

Senator Fairbairn: I hope the workers find a way to consider all the elements and use their strength to win.

Mr. Gary Fane, Transportation Director, Canadian Auto Workers: The package that we had negotiated as a national union lasted three or four days. It was shared by all the other unions. For example, the Air Canada pilots said "No. We do not want to talk about it." However, the Canadian pilots said, "We are endorsing it." The machinists' union said, "This is a very good package. We will take it and see if we can negotiate with Air Canada." We said, "That is fine. Maybe you can get Air Canada to negotiate with you, because they are not returning our phone calls."

We did not mind that. We had negotiated a package where all the workers and all the unions would be accessible in either company. We wanted to ensure that. We met with the flight attendants and shared the package with them before it was announced. We also knew that we were the only union that would come out and take a position. Mr. Schwartz was wise enough not to put money into something like that to take care of people unless he had a union leader say, "We think this is good."

We wanted to get it in both places, but Air Canada refused to bargain with us. Consequently, we were left with one corporation to deal with, but I wanted you to know that it was for everyone.

Senator Finestone: Thank you for that clarification. We sat with the Canadian Transportation Agency earlier today. Hopefully, the Competition Bureau is monitoring this -- if they are not, I will be surprised -- and Transport Canada, or who ever else. Mr. Hargrove, should we call in Justice Estey and Arthur Kruger? Is that the next step?

Senator Forrestall: I wanted to ask about the machinists and some numbers. Is the machinist group the only group that took the major thrust of your package back to Air Canada?

Mr. Hargrove: Yes. I heard that the only other group that received a letter was a flight attendants' group with Canadian Airline. We have a copy of the letter that Mr. Schwartz gave to the machinists. The machinists gave it us. It is almost identical to our letter.

The Chairman: Can you table that document?

Mr. Hargrove: Yes. We will send an information package to the clerk of the committee.

Senator Forrestall: Thank you. Also, could we receive information about the status of the other unions? What is the worst case scenario now? How many jobs are involved, given this fiasco in which we are involved? How many men and women will lose their jobs?

Mr. Hargrove: That is completely in the hands of Mr. Milton and the board of directors at Air Canada. As things stand today, they are the only players and they have committed that no Air Canada worker will lose his or her job. That means a massive downsizing at Canadian Airlines and a lot of people there will lose their jobs. I hope that does not happen.

Senator Forrestall: Right across the board?

Mr. Hargrove: That is their public statement. In Mr. Milton's last letter to us, he said that at Canadian Airlines there would be no lay-offs.

However, that was never signed, because he would not bargain on the other issues and, since he has won, he is not saying that at all. He is saying only that there will be no lay-offs at Air Canada.

Senator Forrestall: Do you have any idea of how many workers may have been eligible for a package before the collapse of the negotiations?

Mr. Hargrove: We broke it into three categories. About 5,000 would have been eligible to take a package over the next two years. We based that on Mr. Schwartz's statement that 5,000 was the worst-case scenario for them. Mr. Milton said that 2,500 was his worst-worst case scenario. That would have changed if they got the airline in shape within a few months. I believe that they will very quickly move to take a lot of international travel away from others who have an inferior product. If they have the opportunity to take advantage of those routes, there will be a lot of new jobs created. No matter who the owner is, if it is done properly a lot of new work can be picked up with the international routes. We have the best product, but we have not been able to put the equipment on the routes.

Senator Forrestall: I should like to turn to the subject of seniority lists. Do you have any hope that the two unions can find a basis of agreement with respect to seniority?

Mr. Hargrove: There are at least six unions and we all have the same problem. I do not think any of the unions can acquiesce to the idea of merging the lists. There is too much water under the bridge to do that now. However, this industry can be restructured to become an excellent industry and still keep the rights of workers intact under their seniority lists.

Senator Forrestall: Is restructuring still a possibility?

Mr. Hargrove: Absolutely. If it is done properly, it will be restructured. Today the only players in town are Mr. Milton and the Air Canada board. A major restructuring will take place. We need only think about in whose interest that takes place.

Senator Forrestall: Many good studies have been done on the relationship between management and the amount of personal investment they have in that which they are managing. Without question, if management owns a big chunk of shares, the corporation will be better run. It will make more money, it will expand, and it will work. If management has no money invested in the institution, due diligence will not be done.

Senator LeBreton: With regard to your membership, I fear an East-West issue developing between the people who support Air Canada and those who support Canadian Airlines. You have obviously faced this yourself with your membership. Do you have the same fears? How do you propose to deal with it? This is very damaging to the country as a whole.

Mr. Hargrove: With respect, I cannot endorse that. In 1996, that was the case. Emotions were very high. It was the West against the East. There was a wonderful airline in the West that people did not want to lose.

When Mr. Schwartz tabled his proposal to restructure the industry and merge the two companies, he announced in Calgary that he would close the Canadian Airlines headquarters in Calgary and move it to Montreal. There was no hue and cry in Calgary. People respected the fact that Canadian Airlines had had a good run at it and had not made it, so something had to happen. They did not buy into the logic of some that this was an East-West fight.

I found it fascinating that the government of Quebec, as well as our members, opposed this proposal despite the fact that Mr. Schwartz was moving work from the West to Montreal.

Again, it is more about emotion than it is about logic. Air Canada convinced people that, if a new investment group took over, they would lose something. It did not matter that the losers would be head office people. Seventy of our members who are crew schedulers would have lost their jobs in Calgary, although they would have had an opportunity to go to Montreal or to do something else. We recognized in our agreement that the closing of that centre would cause the loss of jobs for a small number of people. However, there would be more jobs in Montreal.

It is fascinating that the Quebec government and the unions in Quebec did not support this. An illogical, emotional loyalty has overtaken everyone. I have not heard one argument in our union about an East-West split. Canadian Airlines people are saying, "Do what you can to save our jobs and ensure that we don't have to go through this again." You must remember that they have been through three sets of concessions in the last decade. They have faced bankruptcy for the third time.

They have remained totally loyal and done their jobs. Everyone promised them that this time they would have it right; yet here we are back again. They are asking us, as their union, and you, as their parliamentarians, to please do it right this time. They are not worried if they are owned out of Montreal or Toronto; they want their jobs.

Senator LeBreton: It is encouraging to know that it has not developed into an East versus West matter.

The Chairman: Thank you Mr. Hargrove, Ms Nash, and Mr. Fane.

The committee adjourned.