Proceedings of the Standing Senate Committee on
National Finance

Issue 38 - Evidence - April 30, 2013

OTTAWA, Tuesday, April 30, 2013

The Standing Senate Committee on National Finance met this day at 9:32 a.m. to examine the expenditures set out in the Main Estimates for the fiscal year ending March 31, 2014.

Senator Joseph A. Day (Chair) in the chair.


The Chair: Honourable senators, this morning we are continuing our study of the 2013-2014 Main Estimates.


For our first panel this morning we are pleased to welcome officials from the Canadian Air Transport Security Authority, often referred to as CATSA. I am pleased to welcome John Stroud, Vice President, Human Resources and Corporate Affairs; and Mario Malouin, Chief Financial Officer. I understand that Mr. Stroud has some brief opening remarks and then we will get into a discussion following that.

Mr. Stroud, you have the floor, sir.

John Stroud, Vice President, Human Resources and Corporate Affairs, Canadian Air Transport Security Authority: Thank you very much, chair. Thank you for having us.


We are pleased to be here today to speak with you and answer your questions.


As the chair said, I have a few opening remarks. I will speak about some of our priorities and some of the challenges that we face.

Across the country, more than 150,000 people pass through our security checkpoints every day. CATSA's top priority is to ensure that those passengers are secure. That is the job we have been given by the government and, to get it done, we work closely with our screening contractors and with our industry partners.


We recently made three major changes so that we can continue to offer a high level of safety while at the same time improving our services to passengers.


First, there is our multi-year initiative to replace our hold baggage screening equipment at designated airports across Canada. This supports the Canada-U.S. action plan known as Beyond the Border. Through this program, we will align our system with those in the United States and the European Union. It will also ensure that we have the highest industry standards and practices in place.

Funding for this multi-year project is updated in collaboration with airport authorities annually. We have worked closely to align our approach with their capital plans and priorities. This complex and important initiative is both on time and within budget.

Second, in late 2011, we implemented new long-term, performance-based contracts for screening services. Contractors were required to find service delivery improvements in a number of areas, and I am pleased to say they are meeting those goals. We are more confident than ever that CATSA is well positioned for the future with these new contracts.

Finally, over the past few years, improving the effectiveness and efficiency of the screening process has been an important priority for CATSA. To do so, we reviewed our technologies, equipment and processes. As a result, the throughput of passengers and baggage at the checkpoint has increased by 30 per cent.


This is good news not only from the standpoint of efficiency, but also for passengers.


Our quarterly passenger surveys indicate that a large majority of passengers — 83 per cent — are satisfied overall with their experience at pre-board screening. However, we face a number of challenges. We work in an industry where technology is constantly evolving, as are the threats. As well, our business is growing. This year CATSA will screen more than 51 million passengers. Estimates show that we could be screening almost 56 million passengers by 2015-16.

With that in mind, we are firmly committed to working with our partners in the aviation industry to improve the aviation security system. We will work hard to uphold the reputation for security excellence that we have built over our first decade of operation, and we will continue to build the trust and confidence of the travelling public.


We will now be pleased to answer your questions.


The Chair: Thank you very much for those opening remarks. I have a couple of points of clarification before I go through the list of senators who have indicated an interest in participating.

I am looking ages II-32 and II-33 of the Main Estimates. Your opening remarks indicated that you have new hold baggage screening equipment planned at designated airports across Canada. Your estimates are up considerably over last year, but it would appear to be mainly for equipment purchasing. Can I assume that it is for this screening equipment?

Mr. Stroud: Yes; that is correct. That is a large part of the increase.

The Chair: You indicate designated airports across Canada. Can we assume, then, that this significant increase will be repeated over a number of years until you cover all the airports, since you are only covering a few, or designated ones at this time?

Mr. Stroud: It is a 10-year plan as part of life cycle management for this screening equipment that we have in hold baggage. It is more commonly known as the check baggage. We operate at 89 designated airports across the country. Those are designated by Transport Canada. This capital replacement plan is part of our life cycle management. We gradually need to replace equipment when it wears out, and that is the purpose of this program. Over a 10-year period we will get to those designated airports.

The Chair: It is 41 per cent higher than last year. Did you skip a year last year? That is a significant increase.

Mario Malouin, Chief Financial Officer, Canadian Air Transport Security Authority: No, we did not skip. As Mr. Stroud explained, the average life of the equipment is about 10 years. We have to have a deployment plan based on the new threat environment or changes in regulations. We do that on a 10-year cycle basis. It may happen that there are delays from year to year. It is not an increase as such, as much as one time we may push back by one year the deployment of equipment because in the industry sometimes there are delays from one year to another. Many variables impact the timing of the deployment plan.

The Chair: Thank you.

I will now go to questions of senators. We will begin with Senator Smith from Montreal, the deputy chair of the committee.

Senator L. Smith: Going back to our chair's comments about the life cycle management plan, can you tell us the strategy behind it, especially in light of terrorism and that theme? Is it just about equipment? What is the connection with equipment and threats? You said threats, but what specifically are the threats and how will you address them? Are you following the European or U.S. model?

Mr. Stroud: In terms of our role and Transport Canada's role, Transport is the regulator and CATSA is the operator. In terms of dealing with international partners, Transport Canada would have the lead on that in doing the risk assessments to figure out the highest risk levels and the emerging threats. Transport sets the overall regulatory framework and within that framework we work to acquire, deploy and operate that screening equipment. Transport sets the overall direction and then we operationalize those plans.

In terms of the equipment that we are using, some of this equipment was more than 10 years old and it was necessary for us to replace this as it is coming to the end of its useful life cycle. Of course, when we do that we are going to the next generation of technology. As we do that, we are aligning our approach with that of the Americans. That is one of the things we are doing in support of Beyond the Border.

Senator L. Smith: You mentioned that you have 89 designated airports.

Mr. Stroud: Correct.

Senator L. Smith: Going back to the chair's initial points about the budget, how many of those designated airports would have the most up-to-date equipment? What is your mix and match? You talked about the delays with the equipment. Is that more of an executional delay, or is that a delay in producing the equipment and getting it in? Of the 89 designated area airports, are they all up to the same level of equivalency?

Mr. Stroud: It is a 10-year plan. We started moving at the big airports first while also considering where investments took place 10 years ago. A variety of factors sets out the deployment plan. Year over year, we knocked more of those projects off the list and then moved to the next important one. In terms of exactly which airports, I could find that out for you.

Senator L. Smith: Will it take 10 years for you to get all the airports up to date? By then the equipment becomes obsolete. I am not trying to be smart, but how long will your implementation program take? Are you saying it will take 10 years?

Mr. Stroud: It is a 10-year plan to cover everything.

Senator L. Smith: How long is the life cycle of the equipment?

Mr. Malouin: As we said, the useful life is about 10 years, but the deployment plan must also meet regulatory requirements. There are sometimes deadlines. To move from the current technology to the new one, we have to comply with regulations as well. We have a deadline.

In terms of the ``how,'' to be more pragmatic, Mr. Stroud was explaining the process of selecting equipment based on threat and evolution of the technology. We work closely with Transport Canada because that equipment must be approved by Transport Canada as a regulator. We must measure deployment of the equipment with the ability of the airport to receive that equipment, and we have to take into account the current useful life and detection capacities of the equipment in place at the airport. All those variables impact the deployment plan that we are developing and proposing for the Main Estimates and the corporate plan.

To give you an example, as we speak now, we have developed and updated our 10-year plan. The 10-year plan covers the 89 airports. On an annual basis, we know exactly which airport will be affected. Airports, mainly class 1, have three categories, which are domestic, transborder or international, for both pre-board screening or all baggage screening. We align the deployment plan around the requirements imposed by the regulators as well.

The Chair: Next, from Prince Edward Island, Senator Callbeck.

Senator Callbeck: There are 89 airports. Are those all the airports that this screening system will be in?

Mr. Stroud: Yes, that is the list of designated airports, and there are currently 89.

Senator Callbeck: Will all airports be covered?

Mr. Stroud: Do you mean all airports in Canada?

Senator Callbeck: Yes.

Mr. Stroud: No. There would be other airports that are not designated airports. The 89 airports, I think, cover about 99 per cent of air traffic, but there would be small airports in remote locations where we currently do not offer screening.

Senator Callbeck: Okay, but wherever there is screening now, and I am thinking of Charlottetown in Prince Edward Island.

Mr. Stroud: Yes, that is a designated airport.

Senator Callbeck: Will this system be coming?

Mr. Stroud: Yes.

Senator Callbeck: I want to ask about the secure areas. A few years ago Minister Baird and Senator Kenny, I believe, got into some secure areas at Pearson airport. What changes have you brought about since that?

Mr. Stroud: As part of airport security, there are a number of layers of security, and CATSA would only be one of them. There would be responsibilities for the air carriers. Transport Canada would have overall responsibility for aviation security. Within that, there are a number of layers of security. That would include the air carriers, the airports and CATSA.

There are a couple of things in the role that we play. One is having biometric cards that are required to be used by anyone accessing the restricted area unless they are with an escort. In order to get one of these biometric cards, you have to go through a background check. This system is in place at the 29 largest airports across the country. It was the first biometric system that was introduced worldwide. It is background checks and biometric access to the restricted area. That is supplemented by a screening that takes place on a random basis. That would be similar to the screening that passengers would go through at the checkpoint, but it is done on a random basis.

I think that is the role that we have to play in securing restricted areas.

Mr. Malouin: If I can add to the answer by Mr. Stroud, in the Main Estimates document you see that we are planning to spend about $3.7 million for RAIC this year. This is what Mr. Stroud was referring to. This is to maintain the readers that we have deployed at those 99 airports. We have about 695 readers across Canada, and they have 55 million swipes per year. This is to have access to a restricted area at those 29 airports. That is what the budget is for, maintaining those readers. If people want to have access to those restricted areas, then they have to swipe the card. Last year, we had about 55 million swipes for the entire year. That is what the money is for.

The Chair: Could we have a clarification on the amount of money you have just indicated? I am looking at pages 32 and 33. Can you tell us where that is?

Mr. Malouin: I am not sure if I have the same page number, but in the Main Estimates, we have the budget by program activity, and there is a program called RAIC — restricted area identity card — and the budget is $3.7 million. This is the program that Mr. Stroud was just referring to, and I just explained how we use those readers across Canada.

The Chair: That is at page II-33, halfway down the page for the Main Estimates. Thank you.

Senator Callbeck: With respect to these cards, there are 29 airports. What about the other 70? Have there been changes there?

Mr. Stroud: Those are smaller airports. In terms of why we went to the 29, those would be by far the largest airports where most of the traffic is and where the largest communities are located. At some of the smaller airports, based on our risk assessment, we have not been required to install RAIC readers there. Those would also be smaller locations where people are more likely to know their fellow co-workers. Based on Transport Canada's risk assessment, we have not allocated resources to that risk.

Senator Callbeck: Since that incident with Minister Baird, have procedures been looked at in all the smaller airports?

Mr. Stroud: In terms of the requirements for some of the smaller airports, that would have to be a question to ask Transport Canada. I am sorry, but I am not in a position to provide you with additional information.

Senator Callbeck: All right.

You mentioned long-term contracts for contracting services that were signed in 2011. What changes have been made in those contracts?

Mr. Stroud: There have been a number of changes. Prior to that, we had a service delivery model where CATSA is responsible for a number of things, including oversight, developing standard operating procedures, acquisition and deployment of equipment and training of screening officers. The actual screening officers themselves are not CATSA employees. We have a service delivery model where we contract out those services to screening contractors.

Before 2011, we had a bit of a hodgepodge of contracts. We had 17 in total, some large ones and some small ones. With these new contracts, we consolidated them. We divided the country into four regions, and we have one contract for each of the four regions. That allowed the screening contractors to do a few things. They got economies of scale. They were able to set up their operations in a single location to look after an entire region. We also provided incentives for them and the time in order to improve their performance.

A greater proportion of their compensation was linked to meeting performance targets. We said, ``This is what we want you to achieve. Give us a proposal on how you will meet those objectives.'' We provided financial incentives against that with a term of five years. That gave the screening contractors enough time to make investments in their own teams and their own systems so that they could improve their performance. In the early years it might be a little harder for them, but over the course of a five-year contract they get to reap those benefits.

As a result, we are very satisfied with the progress that our contracts are making. Year over year they are continually getting better. We are very happy with the model that we have and the new contracts that we have in place.

Senator Callbeck: You have four regions. I assume one is the Atlantic area.

Mr. Stroud: One region is the east, that being the Atlantic and Quebec; another is Ontario; the third is central, that being the three Prairie provinces; and the fourth is British Columbia and the territories.

Senator Callbeck: Where is the main location in the Atlantic?

Mr. Stroud: The primary location would be in Montreal, but they also have a satellite office, an important office, out of Halifax.

Senator Gerstein: I have two questions. The first, Mr. Stroud, comes out of your opening comments. I believe you said that you have the highest standards for airport security. In whose view, and what are the benchmarks for that?

My second question relates to the budget. You referred to the concept of a 10-year life cycle, et cetera. In the capital expenditures you make reference to the Hold Baggage Screening program. I am surprised there is no reference whatsoever to what I would call passenger screening equipment. Why is this not apparent at all? Is there not new or replacement equipment that must be bought in that area?

Mr. Malouin: I can speak to the budget side. That is a good question. We do have a budget. From a purely financial point of view, our capital budget in the Main Estimates is divided into explosive detection systems and non-explosive detection systems. Those are the two big families of capital investment we are making. Within the EDS, explosive detection equipment, we have a plan for both pre-board screening, that is, what you see when you cross a checkpoint, and the all-baggage screening, that is, what you do not see for the baggage.

We do have life-cycle management for the PDS. Over the past few years we have replaced our capital. Investment was mainly concentrated on PBS until recently when we replaced our equipment with new technology at PBS checkpoints across Canada. As we have for HBS, we have a life cycle management approach. Once the new equipment is deployed, we manage it and ensure that it is maintained properly and is replaced at the end of its useful life.

Senator Gerstein: Does it show up anywhere in here?

Mr. Malouin: No. In the Main Estimates you have the budget by program; PBS, HBS and NPS. Within PBS we have funding for both capital and operating, but next year we will spend more on HBS than PBS on the capital side.

Senator Gerstein: Could you refresh the committee's memory? I believe that several years ago this committee approved a $500 million allocation for new equipment for passenger screening. Is that correct? I seem to recall that the President of CATSA was here and that it was a substantial upgrade. Do you recall that?

Mr. Malouin: Yes. In 2010 the federal budget allowed CATSA $1.5 billion over five years. This was to achieve different goals, one of which was to adjust our A-base funding because our funding was decreasing significantly on the operation side. That was to bring the operating funds back to the level needed by CATSA. We also received funding for capital in 2011, which allowed CATSA to implement its deployment plan that we discussed earlier. That was spread over two years.

Senator Gerstein: Does that show up here?

Mr. Malouin: Yes. The amount you see here is in line with the 2010 budget, the $1.5 billion, as well as the increase that we received in the federal budget in 2011 for our life cycle management on the capital side.

Senator Gerstein: Mr. Stroud, who gives the standards?

Mr. Stroud: That is a question that we work on with our regulator. Transport Canada is responsible for liaising with different agencies around the world. They have regular contact with the Americans, Australians and Europeans, and they set the standards that we have to follow.

Having made the investments in PBS that you asked about, we are next investing on the capital side on the hold baggage screening equipment. Making that investment will bring us in line with what the Americans and the Europeans are doing, and they are operating at high standards.

Senator Gerstein: To follow up on Senator Callbeck's question with regard to the situation with Minister Baird and Senator Kenny several years ago, what mark are you giving yourselves?

Mr. Stroud: It is tough to do benchmarking internationally on security.

Senator Gerstein: Surely there must be something that you say to yourself. Are you giving yourself triple As, a C, a passing mark?

Mr. Stroud: We do not give the grade.

Senator Gerstein: Who does?

Mr. Stroud: We work with Transport. Transport sets the overall regulatory framework and they work with our international partners to set the standards for Canada. We are making those investments to ensure that we meet those standards.

Senator Gerstein: I understand that you are making the investments. I am interested in how you are maintaining the standards that have been set for you. Who evaluates the standards?

Mr. Stroud: Transport.

Mr. Malouin: Transport Canada, as the regulator, also performs testing on the way we deliver our mandated activities. We are not informed in advance of those tests. The purpose of them is to ensure that we deliver the mandated activities required by Transport at the standards set by them. Those results are shared with us to allow us to take proper action if something we are doing does not meet the standards imposed by Transport Canada.

Senator Gerstein: I understand that. What mark do you think you are getting? The standards are set. How are you doing? Do you get an A, a B or a C?

Mr. Stroud: I would not want to speculate on that.

Senator Gerstein: Do you mean that you do not know?

Mr. Stroud: I would have to refer you to Transport in terms of their overall assessment. However, we do work very well together.

Senator Gerstein: I understand that.

I am hearing that you spend the money to facilitate the standards set by Transport.

Mr. Stroud: And Transport does their assessment.

Senator Gerstein: However, you do not know how well you are doing in maintaining the standards that have been set.

Mr. Stroud: Transport does the assessment, so they would be in the best position to answer that question.

Senator De Bané: They must tell you.

The Chair: That is what we are all thinking. Surely they must tell you.

Mr. Stroud: They identify areas for us to make improvements, but it is also in terms of providing overall assessments. Some of this information is security sensitive.

Senator De Bané: My colleague asked you about the evaluation of your performance and you said that Transport knows about that. I am sure that CATSA knows about that. Would you be so kind as to send a written response, through the clerk of the committee, to that question?

Mr. Stroud: Certainly. Part of the question, though, was whether we would receive an assessment of an A, a B or a C. I do not have a letter grade that I can give you. I can say that we work on meeting the regulatory expectations that Transport Canada has established in partnership with their international counterparts. They provide very vigorous oversight of our operations to make sure that we are meeting those standards.

Senator De Bané: When my colleague said A, B or C, he was asking for Transport Canada's evaluation after examining what you have done. If you would be so kind, send their report to the clerk of the committee.

The Chair: Thank you, Senator De Bané.

I would assume, Mr. Stroud, that you do some testing, random or otherwise, of all of your contractors and the work they are performing on your behalf.

Mr. Stroud: We do, and oversight is an important part of our responsibility. Just as Transport has its tests of the system, we have our own system. Under the CATSA Act, we are required to provide a system that is effective, efficient, consistent and in the public interest. Therefore, we test for all of those things. We assess our performance and that of our screening contractors. Quarter over quarter, we look to make improvements. We drill down in areas where we were not as successful as we would like to be. We take corrective action, and we can see that, quarter over quarter, year over year, we are making the system more secure.

Senator Black: The audience in this room is composed of regular — certainly, weekly — users of your service. On the whole, I very much appreciate what you do because I understand that it is to protect us all. The consistency of the service, at least that I experience, has always puzzled me. Why is it that in some airports I take off my shoes, in others my shirt and in others my belt? Sometimes you take liquids out. Sometimes you keep iPads in. Why is that?

Mr. Stroud: You are not the first person to make this observation to me. It is the first time I have heard about the shirt, so I was going to let that one slide. The shirt requirement would be highly irregular, I have to say. Part of it is that the requirements are a little different, depending on where you are flying. When you are flying to the United States, there are different requirements in place.

Senator Black: I understand that.

Mr. Stroud: That could speak to the shoes or the jacket. Part of it could be that, for certain passengers, we have introduced the NEXUS lines. Do you have a NEXUS card and go through the NEXUS line?

Senator Black: So does everybody else.

Mr. Stroud: Go through that line?

Senator Black: Yes.

Mr. Stroud: Other people can go through that line. We do some load balancing. If there are not enough passengers to go through the Nexus line, rather than leaving those lines unutilized, we will direct passengers over there to make sure that the other lines proceed as quickly as possible.

However, to the larger point about consistency, consistent service is one of the elements in our legislative mandate. We operate at 89 airports, and at those airports there are multiple checkpoints and multiple lines. We have about 6,000 screening officers. As I said, we screened about 51 million passengers last year, so we do not always do it exactly the same each time. I can tell you that measuring our performance is an important part of our operations, and we do look for variance from airport to airport. If something sticks out, then we will take action to bring it into line with the other checkpoints. However, sometimes there is some variance. When we look at our data as a whole, across the 51 million passengers that were screened by all of those different screening officers, the amount of variance is not that great. They are fairly similar from airport to airport. We could always do better, that is for certain.

Senator Black: My next question builds on the question of a number of my colleagues. Your important mandate, of course, relates to security. That is why you are there, and we understand and appreciate that very much. Say I board a plane in Medicine Hat, Alberta. I am trying to choose a location that would not be one of your principal 89. I am guessing I have guessed Medicine Hat correctly.

Mr. Stroud: That is not one of our largest airports.

Senator Black: I board in Medicine Hat, and I have some device in the bag that I am checking that is designed to do damage. I am transferring through Calgary to who cares where. Tell me what happens with my suitcase once I get it into Medicine Hat, which should not be a challenge for me, through Calgary. What happens?

Mr. Stroud: You are going from Medicine Hat to Calgary? Are you connecting?

Senator Black: I am going, let us say, to Boise, Idaho. It just does not matter. I am getting on a plane out of Calgary.

Mr. Stroud: I would have to confirm the exact system in Calgary, but my understanding is that your bag would be screened in Medicine Hat and would go to Calgary. It has been screened. It would then move on to the flight to Boise.

Senator Black: To Senator Callbeck's question, then, my bag is screened any place that I check in in Canada?

Mr. Stroud: That is correct.

Senator Black: I did not understand that. I am sorry.

Mr. Stroud: That is part of the idea. In designing a system, how many airports do you look at? Having screening at those airports is a way to have screening at these other locations so that you do not have to repeat it at the larger airports.

Senator Black: That is exactly what I wanted to hear. I want to make sure that the linkage of security is tight. You will remember that on 9/11 the terrorists boarded in Maine for that very reason, to avoid more aggressive security detailing. I am wondering whether or not we have caught that.

Mr. Stroud: Yes, we have screening at all the airports. The way that you do it and the distribution between labour and equipment can vary. What is appropriate for Medicine Hat would not be appropriate for Calgary or Pearson airport based on the volume, but what we have to do is establish with Transport Canada the security outcome that we are trying to achieve. There are multiple ways to do it, and we pick the approach that is most appropriate for that airport.

Senator Black: Yes, we want to keep it simple. We want to keep planes in the air.

Mr. Stroud: You want to keep it simple in the small airports, exactly, but in a large airport you do not want a lot of labour doing that. That will slow things down. You want to have a more automated system, so you would make more investments in screening equipment.

Senator Black: Are you satisfied that the problem I raised is being addressed?

Mr. Stroud: Yes.

Senator Black: Are your people unionized?

Mr. Stroud: Most of them.

Senator Black: In the event of a strike, could you be designated an essential service?

Mr. Stroud: We are an essential service.

Senator Black: Designated by law?

Mr. Stroud: Without getting into too fine a point, screening is an essential service, but the question is what level of service has to be provided. That is not a question that has ever been decided by the CIRB. Does that mean that 100 per cent of the screening officers have to be there, or could it be 95 or 90 or some other different level? In the event that the screening officers were ever in a strike position, before they get there, a question that has to be resolved is the required level of service. I do not know exactly what that would be. Our position and the position of the screening contractors is that it should be 100 per cent, but a particular union could take a different view.

Senator Black: What would your view be?

Mr. Stroud: Our view would be 100 per cent.

Senator Black: You would argue for 100 per cent?

Mr. Stroud: Absolutely.

Senator Black: As you should.

Mr. Stroud: The screening contractor would actually make the application before the CIRB. We would support them.


Senator Bellemare: I have a question concerning pre-board screening. In the Main Estimates, there is a slight decrease, from $319 million to $310 million.

Is that because you anticipate a decline in air traffic and the number of people you will be screening or is it connected with a productivity increase? If so, I would like you to give me some details in that regard.

Mr. Malouin: In fact, there are several factors and some main factors. As John just explained, we have implemented new contracts with our service suppliers.

Those contracts, which have been in place since November 2011, have enabled CATSA to realize savings on two aspects. The most important aspect is the management of a security checkpoint. The way that search hours are planned means we can achieve savings on an annual basis. That is the most important factor to explain the $8 million decline in the budget, in the estimates you have in hand.

Senator Bellemare: You mean how searches are done?

Mr. Malouin: The way the work is done has changed. We have increased our efficiency with these new contracts, and this has enabled us to realize annual savings, which account for a majority of the $8 million reduction you are seeing, which is associated with the positive impact of the new contracts we implemented in November 2011.

Senator Bellemare: Is it because the contracts cost less or the checking costs less?

Mr. Malouin: For the work that has to be done, we have to comply with the transportation regulations. We cannot play with security. If you take the example of an assembly line, the way the entire process is planned is a factor. So we are talking about service delivery and hourly rates. We assessed the competitiveness of the market. The bids we received, over a five-year term, also enabled us to realize savings.

Senator Bellemare: When people see in the newspapers that there will be these new pat downs, they imagine that the process will take longer. But you are telling us that overall —

Mr. Malouin: Overall, the tendering process we conducted and the new contracts that were implemented in November 2011 are very favourable to the taxpayer, because this has generated savings. One of those savings is on the hourly rate, and the other is on how we do our planning.

Senator Bellemare: The union has not complained about subcontracting or things like that?

Mr. Malouin: In relation to the contracts we have, no. Other events have resulted in negotiations. The new contracts signed in November 2011 are not what prompted discussions between the employer, the union and the employees, who are the search officers.


Senator Buth: Thank you very much for your presentation today. I just have one question related to the estimates. ``Internal Services'' is $48.682 million. Can you explain what this funding is used for?

Mr. Malouin: Those expenses relate to what we call non-direct operation expenses. They are not directly linked to delivering screening hours at a checkpoint or HBS or NPS. It covers basically salary, travel, communication, maintenance of non-EDS equipment — all of those types of expenses.

As you see in the Main Estimates, those expenses are less than what we have seen in the past. Again, CATSA pays attention to those overhead or admin expenses year over year. That was one of the expense lines that was paid attention to as part of the expense review we were subjected to last year. As a consequence, we have reduced those expenses this year.

The Chair: How many employees are no longer there?

Mr. Malouin: We now have 458 employees across Canada. Those are employees paid by CATSA. The screeners that you see at the airports are employees of the screening providers, and we have about 5,200 screeners across Canada. They are not on the payroll of CATSA.

The Chair: Sorry, I was going from the overhead — the reduction of $10 million.

Mr. Malouin: We have reduced the overhead by 55 FTEs over last year.

The Chair: Sorry, Senator Buth, I just wanted to clarify that point.

Senator Buth: I know. You took my last question.

Senator Gerstein: You have to be fast.

The Chair: We are thinking the same. You and I have a lot in common.

Senator Buth: Thank you, Mr. Chair. I am finished my questions.

The Chair: Sorry about that. The question was just begging to be asked.

Senator McInnis: Thank you for coming. Many of my questions have been answered, as well.

I went through the exercise of getting NEXUS, and I thought this would expedite things and be tremendous. I was clean as a whistle. I had about six pictures taken of my eyes and so on for security purposes, I am sure. However, I take it that it is more for use when going into the United States, is it not? Quite frankly, we go down the separate line, and I am kind of embarrassed when they push people aside and I step in.

You really do not need it for Canada in terms of expediting or anything like that, do you; you still take your belt off and all those types of things?

Mr. Stroud: NEXUS is a CBSA program, and in order to qualify for that, you had to go through a background check.

Senator McInnis: Yes.

Mr. Stroud: When we are looking at our operations and trying to ensure that we are as efficient as possible, we want to recognize the value of that security check. When you go through the NEXUS line, it is essentially a trade-off: If you are willing to subject yourself to that background check and you get your clearance, then the win for you is that you get to go to the NEXUS line. We are able to process people through that line a little bit faster than some of our other lines. However, recognizing the security value that you have with that background check, we provide a comparable security to the other lines.

Senator McInnis: Will it work in going into the United States?

Mr. Stroud: Exactly. However, now the NEXUS lines are available not just for travel to the U.S. We have lines at domestic and international sections as well.

Senator McInnis: I do not think this next question has to do with your organization, necessarily, but one of the concerns I have is the use of electronic equipment on the plane by individuals who appear to be addicted to these pieces of equipment, as most people are these days.

Mr. Stroud: Younger people, especially.

Senator McInnis: Yes, indeed, and it concerns landing and takeoff. Who controls this? I see the flight attendants walk through, but I am not sure they check. I am not sure how big the danger is, to be candid. I worry that it is really not being checked that much.

Mr. Stroud: It is definitely not us. In terms of overall responsibility for aviation security, it is Transport Canada. However, I would imagine that this is a Transport Canada and airline issue.

Senator McInnis: That is fine. Thank you.

Senator De Bané: I am looking at the 2012 Public Accounts. You are authorized to spend $515 million. You lapsed $67 million. Why?

Mr. Malouin: As I was explaining earlier, a lot of our budget relates to capital, so investment that we are making at the airport. We do face, from year to year, delays in deploying our equipment across those airports for different reasons that we do not control. In the event that we cannot finish a project that we start in a specific year, we have to complete it the following year. The way the system works is that although the money is not being spent in year X, we work with central agencies to reprofile those funds that are being spent on projects that are being completed the following year.

I would just be careful that it is not money that we do not use, but in the machinery, we have to ask. I come from the private sector. In the private sector, you manage your funds; it is your budget. Here it is a central budget, and we have to work according to the rules set by central agencies. If we cannot complete the project, we have to work with them to ensure that we secure those funds, because they are not in the Main Estimates of the following year. That is what we call a reprofile of funds. We carry forward those funds from year X to X plus one.

Senator De Bané: We are very familiar with all those explanations you have given. I was asking you for projects that you could not implement and for which you budgeted $67 million. This year you are asking for even more money than last year. With the additional Supplementary Estimates (B) and (C) coming, there will be more. In other words, to what extent are your projections close to reality? This year you are asking for $20 million more than last year. Last year you lapsed 10 per cent.

Mr. Malouin: We can provide you detailed information. As I said, it is mainly related to postponement of capital projects for major airports across Canada. That is the reality.

Senator De Bané: It is definitely that, but first we would have liked to know what those projects are that you were not able to do. Second, you talked about 5,000 people working through the different corporations that you hire to do the screening. How many are corporations whose employees total 5,000? How many corporations you are doing business with?

Mr. Stroud: We are doing business with three corporations. There are four regions, so that means one of the companies has a contract for Ontario and the Prairies. We have three contractors, four contracts.

Senator De Bané: How many corporations bid for those contracts?

Mr. Stroud: It was an open process. In terms of the number that bid, we had a two-stage process in order to qualify for the bid. The first was a qualifying process. We set our minimum requirements. My recollection, and I would have to confirm, is that around 25 companies expressed an interest at the initial stage. I could find out the exact number that actually pursued it and made it through that first gate. Of the companies that made it through that gate — I could find the exact number, but I would estimate in the range of 12 to 15 — and these were a number of large companies, but also some large companies that bid on multiple regions. We also had smaller provincial companies that bid only for a single region. It was a couple of years ago, and I could certainly track that down for you.

Senator De Bané: It would be interesting to know if there was a real competition in each of the different regions.

About those sophisticated body scanners, how much does one of those units cost?

Mr. Malouin: There are two components of the cost. There is the unit price, and we have the installation cost at the airport. All that is based, I would say, on individual characteristics of airports because some did not have, at that time, the proper infrastructure. We can provide you an average cost across Canada for body scanners.

Senator De Bané: Do you expect to install that sophisticated machinery in every airport?

Mr. Malouin: Today we have 52 full-body scanners, 50 deployed across Canada at class one airports. We have two in our test lab to ensure that when there is a change in regulation we test those regulations to make sure we comply with any new regulation. As we speak, they are all being deployed across Canada at class 1 airports. We have those scanners at eight class 1 airports across Canada.

Senator De Bané: How does your system compare with that of the United States? Do they do a more sophisticated examination of the passengers to be sure that there is not a sophisticated chemical that the instruments that we have today cannot detect? Do they have something more sophisticated than yours?

Mr. Stroud: We are very comparable in terms of the system that we provide. In terms of the equipment that we provided, we are getting it from the same suppliers, for example. We have a very comparable system with the United States. They are set up differently. The TSA is responsible. The regulator, the operator and the screening officers are their own employees, so they have a different structure. However, when you look at what they are trying to accomplish and what we are trying to accomplish and the way that we do it, it is very similar. They are a much, much larger organization than what is in Canada.

Senator De Bané: By the way, can a well-trained dog do things that no instrument can do?

Mr. Stroud: There are pluses and minuses to dogs. Dogs can be effective, but there is inconsistency among dogs. They are not standardized like equipment. Also, the time in which dogs can be effective is not that long — maybe 20 to 30 minutes — and it is not just the dog that you have to pay for. You have to pay for the trainer to supervise that dog. Canine units can be very expensive over the course of a year, and the time during which they can deploy is pretty limited.

Senator Enverga: I have a continuation of the question. How do we compare our cost with other countries like the United States or maybe England, or any economies like ours?

Mr. Stroud: This actually relates to the last question in terms of making comparisons. It is difficult to compare cost because there are different models. In the TSA, for example, they are the regulator and they are the operator. All of the employees who do the screening at the checkpoint are their employees, so upwards of 40,000 employees. However, in Canada you would have the regulatory role associated with Transport Canada, then you would have the oversight of CATSA, and then the labour cost associated with the contracted-out screening force. We are doing the same things, but the models that we have are quite different.

If you look at other countries, sometimes screening is the responsibility of the airport authority and they build it into their budget. That would be at a place like Heathrow or Hong Kong. In other places, the screening is built into the police service. It does make it difficult to do apples-to-apples comparisons.

Senator Enverga: Do you have a cost per passenger?

Mr. Malouin: To answer that question and complement what Mr. Stroud was saying, benchmarking in our industry is very difficult because the reality is that each country has a different set of regulations. You do not compare apples with apples. Over the past four years, CATSA, along with Transport Canada, looked at how and where we are spending our money. CATSA was subjected to a strategic review in 2009. We also had a substantive review in 2010. We have gone last year again to a review of our spending. In each of those three reviews, we have significantly reduced our budget year over year. Why? In light of the new screening contract, each of those years we have stepped back and looked at how we do things and how we can be better at doing the same thing and spending less money.

To come back to your point, we did look at it on a regular basis, as you can see. We did three reviews in four years.

In terms of cost per passenger, we do not have statistics here. Again, the challenge we have when we look at our efficiencies is to be able to get those data because other countries do not share them. It is information that they do not want to share with us, so again, we have to do benchmarking with ourselves year over year to ensure that we are as efficient as we can be.

Senator Enverga: Do you have a rough idea how much it costs us in Canada?

Mr. Malouin: I do not have the data, but we could look for it.

The Chair: If you provide that to our clerk, we will circulate it around.

Senator Enverga: You could give us year-by-year estimates.

The Chair: I have two points, if you could answer these quickly. I found no Plans and Priorities for CATSA. Can I assume that is part of Transport Canada's Plans and Priorities?

Mr. Malouin: Yes. As we speak, we are working on our corporate plan, which will be part of the entire process when Transport Canada completes its Plans and Priorities.

The Chair: Do you receive any revenues from airport passenger fees?

Mr. Malouin: No.

The Chair: Is there a revenue stream other than the Consolidated Revenue Fund?

Mr. Malouin: No.

The Chair: Senator McInnis asked questions about electronic devices and inconsistency on the plane. You indicated that was Transport Canada. Could you follow up with Transport Canada on his question? Our public would be interested in knowing about that because they see that on a regular basis.

At page II-33, there is a notation that stating that funds were not allocated in 2013-14, but is it shown under 2011-12 in the amount of $515 million. There is nothing for 2012-13 and nothing for 2013-14. Can you tell me what that notation means?

Mr. Malouin: Up to 2011-12, our funds were not split between program activities. Since then, our funds are being split between pre-board screening, PBS; hold baggage screening, HBS; non-passenger screening, NPS; and restricted area identity card, RAIC administrative expenses. That was not the case for CATSA up to that year.

The Chair: That explains that.

Thank you very much on behalf of the Standing Senate Committee on National Finance. I hope you will take back to all of your contractors and employees that we very much appreciate the work you are doing to maintain safety in air travel for Canadians.

Mr. Stroud: Thank you very much.


The Chair: We are now going to continue our study of the 2013-14 Main Estimates for the fiscal year ending on March 31, 2014.


We welcome two Crown corporations that are accountable to Parliament through the Minister of Transport, Infrastructure and Communities.


The Jacques Cartier and Champlain Bridges Incorporated is a Crown corporation that is a subsidiary of the Federal Bridge Corporation Limited. We have with us today Claude Lachance, Senior Director, Administration, and Jean- Vincent Lacroix, Director, Communications, General Management. Next is the Crown corporation VIA Rail Canada Inc., and we have with us Robert St-Jean, Chief Financial and Administration Officer, and Gerry Kolaitis, Director, Strategic Planning.

Each Crown corporation has designated a spokesperson to make a preliminary statement. We will hear The Jacques Cartier and Champlain Bridges Incorporated first, and then Mr. St-Jean from VIA Rail and Gerry Kolaitis. We are going to start with The Jacques Cartier and Champlain Bridges Incorporated.

Claude Lachance, Senior Director, Administration, The Jacques Cartier and Champlain Bridges Incorporated: Thank you, Mr. Chair. I would first like to explain a little about the 2013-2014 Budget for The Jacques Cartier and Champlain Bridges Incorporated. This is the main estimates of $203.6 million.

I am going to explain how those expenditures are structured. First, we have two types of businesses. We are in charge of maintenance for the bridges, which is the equivalent of a public works crew in a city. It means removing snow, repairing potholes, landscaping and painting lines: everything having to do with maintaining the bridges.

Next, we have major work: rebuilding and repairing the structures. Major work includes the expenditures in our inspection and instrumentation program, expenditures relating to engineering and construction and our oversight and laboratory contracts on construction contracts. As well, that part represents about $104 million of the $203 million we have in our main estimates.

We have four main projects for which we have appropriations representing $99 million, for all four together. We have the ten-year plan that we are now in the fifth year of, for rebuilding the Champlain Bridge at a cost of $212 million. Then there is the Honoré Mercier Bridge, for which we have a $146 million project for rebuilding the federal portion. We are now in phase 2. The first phase was rebuilding the access ramps on the south shore. We are rebuilding the structure, working on the steel and also rebuilding the deck on the federal portion.

The third project involves the contaminated sites along the Bonaventure Autoroute between the Champlain Bridge and the Victoria Bridge. Those contaminated sites are part of the federal contaminated sites action plan.

The last project relates to the Nun's Island causeway. We are going to build a bypass bridge. The work should start in August or September 2013 and be completed in 2015. These four projects account for $99 million of the $203 million in the main estimates.

The Chair: Who decides that the Nun's Island causeway is under the jurisdiction of the federal government?

Mr. Lachance: That is part of the Transport Canada portfolio.

Mr. Lacroix: Historically.

The Chair: Historically?

Senator De Bané: There are criteria for bridges that are within a province. The criteria depend on the province. There are also criteria for the Canadian government to participate in the construction of a bridge.

The question the chair is asking you is what criteria determine whether the Canadian government participates in building or maintaining a bridge. In what cases does a bridge have to be the sole responsibility of the taxpayers of a province?

Jean-Vincent Lacroix, Director, Communications, General Management, The Jacques Cartier and Champlain Bridges Incorporated: Here it is based on the history of Montreal. Each of our structures is connected with the funding at the time, from the federal government.

The first bridge that was funded by the federal government was the Jacques-Cartier Bridge, in 1930. At that time, the Port of Montreal, or the Société du Havre, was the federal entity. The Port of Montreal, at the time, was a major player, and the decision was made to fund the Jacques-Cartier Bridge, which has remained under federal governance since it was constructed.

The Champlain Bridge has also been funded by the federal government since the 1960s. It should be noted that the Nun's Island Bridge is the entrance to the Champlain Bridge. For most users of that road, it is the same link. Not many people make a distinction between the two bridges. The Champlain Bridge starts in Brossard and crosses the St. Lawrence River to Nun's Island. Then, to cross from Nun's Island to Montreal, you take a second, much smaller bridge, which is really part of the same Champlain Bridge corridor. The entire corridor, up to Autoroute 15, forms one route.

So it is not just the structure of the Champlain Bridge that belongs to the federal government. At the time, the federal government funded the bridge as far as Autoroute 15. We are talking about the 1960s here.

Another section that sometimes raises questions is the Bonaventure Autoroute. When you arrive in Montreal, the Champlain Bridge splits into two routes: Autoroute 15 and the Bonaventure Autoroute, which was built for Expo 67. At the time, the federal government wanted to contribute to that event, which was going to attract thousands of people. This was the federal government's big contribution to that big event for the city of Montreal. So it funded part of the Bonaventure Autoroute, which is still under federal governance.

The Chair: Thank you for that explanation, Mr. Lacroix. We will continue with Mr. St-Jean who will talk about VIA Rail.


Robert St-Jean, Chief Financial and Administration Officer, VIA Rail Canada: Good morning, honourable senators. I am pleased to appear before the Standing Senate Committee on National Finance to have the opportunity to speak about VIA Rail Canada's financial situation, as well as our successes and challenges.

VIA Rail Canada operates a national passenger rail service on behalf of the Government of Canada. VIA is an independent Crown corporation established in 1978 and provides Canadians with safe, efficient and environmentally responsible intercity transportation.

VIA Rail serves three different markets: remote services to communities such as Churchill, Manitoba, White River, Ontario and Senneterre, Quebec; long distance overnight services such as the Canadian that travels between Toronto and Vancouver over four days and the Ocean, from Montreal to Halifax that operates overnight; and finally, the Quebec City to Windsor, Ontario corridor.

The corridor accounts for 90 per cent of VIA's passengers and 75 per cent of our revenue. The busiest segments are obviously between Montreal, Ottawa and Toronto, which account for 50 per cent of VIA Rail's total revenue. The corridor offers passengers frequent, fast, convenient, accessible and affordable service where almost half of Canada's population lives.

VIA Rail is a responsible manager of the public funds entrusted to the Crown corporation. We have done a remarkable job of cost containment while carrying 4 million passengers a year; operating about 500 trains weekly on 12,500 kilometres of track, mostly over freight rail lines, while serving 450 communities across the country. I am proud to say we consistently rank as one of the most respected companies in Canada.


VIA Rail's total revenue amounts to $300 million per year, with operating expenses of about $500 million, excluding pension costs and annual capital spending needs. The shortfall for operating the network therefore comes to about $200 million.

Since 2009, VIA Rail has been able to reduce its operating deficit by $38.5 million, excluding pension costs, which is a 16 percent improvement. In three years, revenue has risen by $12 million and spending has declined by $26.5 million. As well, that $26.5 million reduction is on top of inflation, which is estimated at nearly $35 million for the last three years. It is therefore appropriate to say that VIA Rail has improved productivity by nearly 12 percent in three years. That production has been made possible by investing in technology, which made possible a workforce reduction corresponding to over 15 percent of its employees.

The capital investments have also enabled us to reduce our fuel consumption by nearly 25 percent. VIA Rail has received $983 million from the federal government since 2007 for capital investments, including funds from Canada's Economic Action Plan. This represents the largest investment in VIA Rail's history. Those investments were used to improve safety, modernize trains, build and renovate stations, introduce new technologies, increase revenue and reduce operating expenses.

VIA Rail's basic funding was established in the late 1990s and has not been modified since then. In 2013, the basic funding for operations is about $150 million. This is a major challenge for our corporation because of the recession of 2008, which had a strong impact on revenue and on the solvency of our pension plans.

Revenue fell substantially in 2009 and has not yet completely recovered, while pension liabilities have risen significantly, as is the case for a majority of businesses today. VIA Rail manages the pension plans carefully and tries to cut costs wherever possible. In 2010, for example, VIA Rail made administrative changes to its two plans, and as a result was able to reduce the solvency deficit by $192 million and reduce management costs by $4 million per year. The employer/employee division of contributions is consistent with the guidelines provided by the federal government.

VIA Rail is also adjusting the services it offers to match demand in certain markets. Changes to frequencies on the Ocean route between Montreal and Halifax and the Canadian route between Toronto and Vancouver have helped to raise their occupancy rates. The lower frequencies on routes in southwestern Ontario that have very low occupancy rates have contributed to better use of the fleet. Between Montreal, Ottawa and Toronto, more than $400 million has been invested in tracks. This upgrading has reduced travel time and frequency has been increased.


VIA Rail has done a great job of controlling its expenses, growing revenues in a tough environment, and is wisely spending the $983 million of capital funds provided by the Government of Canada to obtain the most value for Canadian taxpayers' money. At the same time, we provide a world class passenger rail service at relatively modest cost, carrying 4 million Canadians, visitors and tourists across this country.

Thank you for your attention. I am pleased to answer your questions.


The Chair: Thank you, Mr. St-Jean. Several senators would like to ask some questions. I will allow five minutes for questions and answers for each senator. We will begin with Senator De Bané from Quebec.

Senator De Bané: Mr. Lachance, in the public accounts for 2012, you were authorized to spend $153 million. To use the English word, you let $53 million, or one third, ``lapse.'' How do you explain this?

Mr. Lachance: For each of the projects we have, we let some money lapse. When you talk about lapsed, are you talking about ``reprofiled,'' or increased?

Senator De Bané: Out of the $153 million authorized, you spent $97 million. That left $56 million that was carried forward to 2012.

Mr. Lachance: For the Honoré-Mercier Bridge, we did not spend the amount we were allocated for 2012-13 for the good and simple reason that part 1 of the contract had ended. That was the access ramps. We have contract B, in partnership with the MTQ, to rebuild the structure, add steel, reinforce the steel and rebuild the deck of the bridge.

You will also recall that there were emergency closings on the Honoré-Mercier Bridge in the MTQ's portion, which delayed the start of work, in addition to the negotiations with the Aboriginal authorities, which were difficult.

In March, the MTQ withdrew from Contract B. So we had to go back to our drawing board and redo the tendering process and the work that is under the federal portion. We moved a lot of money for the Honoré-Mercier Bridge contract.

For the Technoparc, we had to go to tenders for the western part, for the construction of an underground water retaining wall and a treatment plant. We are working in partnership with Environnement Québec in this case. We had to redo certain toxicological studies and wait for contractual agreements with the provincial government before going ahead.

Senator De Bané: I understand. But when you do your predictions and you forecast an increase in your expenditures, do you think it is realistic for the coming year?

Mr. Lachance: Absolutely, yes.

Senator De Bané: I have another more sensitive question. In light of what is happening at the Charbonneau Commission, where we are seeing disturbing signs of collusion among certain contractors, what is the corporation doing to make sure the prices it gets are prices that represent genuine competition?

With everything we are hearing at the Charbonneau Commission, it is somewhat disturbing. How do you go about doing things to make sure your specifications take into account this problem, which is of concern to us?

Mr. Lachance: For choosing construction contractors and for the tendering process, we have added the Public Works and Government Services Canada code of conduct for procurement to our specifications. We have also added clauses relating to Bill 1, which relates directly to the Régie du Bâtiment.

A supplier who is on that list is totally excluded from our tendering processes. As well, the RENA, the registry of businesses that are not eligible to participate in public tender processes, is now part of our contractual clauses and construction specifications. We have also revised the directives relating to approval powers for issuing invitations to tender and awarding contracts.

Regarding changes to contracts, we have tightened up the internal guidelines. Something like how it is done at Public Works and Government Services Canada, we now have a fairness monitor who sits on the evaluation committee, who is the chair of the committee, and who makes sure there is transparency and openness in the various procurement processes.


Senator Buth: I have a couple of questions for VIA Rail Canada. Your revenues in 2012 were down compared to 2010 and 2011. Can you talk about the factors that impacted revenues in 2012?

Mr. St-Jean: The main factor in 2012 was the economy, which was difficult, the competition that we had and the variation in the price of oil. Diesel plays a role. At the end of the year, as you know in 2012, we changed some frequencies and reduced some frequencies. That also has an impact.

Senator Buth: Competition from what?

Mr. St-Jean: Our prime competition is cars. When the oil price changes, that is where we have most of our competition.

Obviously, the airlines and the bus are also competition. They are also partners, but the main competition is the car.

Senator Buth: Is it related more toward the differential between gasoline and diesel? Why does a person decide that they will drive versus take the train? Have your rates gone up?

Mr. St-Jean: For many reasons; often for bad reasons. They would choose their car for the convenience of picking the time and having the comfort of a car, but there are probably more reasons. If we compare ourselves to Europe, the car is entrenched in the habit in North America more than elsewhere.

Senator Buth: What type of things are you doing to overcome that?

Mr. St-Jean: The thing that we have been doing in the past few years that works very well is intermodality. We are in intercity passenger rail and we work closely with commuters like GO and AMT. We also work with the airlines to try to make full travel as easy as possible. In fact, if you go on our website you can actually buy a ticket at VIA but at the same time you can buy a ticket for GO. From the point you take the train, you can go almost everywhere around Toronto. You can do it all in one transaction through our website. This is something that is very important and that we think we are pretty successful at.

Senator Buth: My other question is related to the pension costs. I do not know if it was the interpretation or if you were speaking in English, but what I heard is that you reduced your operating costs through excluding pension costs. Clearly there is still a pension liability. Where did those pension costs go if you excluded them?

Mr. St-Jean: They remain there. When I said we exclude, this is really something that is more under management control. We obviously have to work toward reducing the pension. We have a defined benefit so it is a very costly plan. It is something that you can work on, but with the union and with everyone else around, as we know the pension issue is not something that is easy to change. We are looking at our efficiency before but obviously we are looking at it after. In the past years the growth for us of the pension costs was so significant that we have to talk before and after.

Senator Buth: If you are not including pension costs in your operating, where are they being included in your figures?

Mr. St-Jean: They are included in our operating totals. You see it in all our statements. When we look at the efficiency of our corporation, we look at it at two levels: before and after. It is there.

Senator Buth: You look at it including pensions and excluding your pension costs in terms of the analysis?

Mr. St-Jean: Exactly, yes.

Senator Buth: You then made a comment that you saved $192 million in pension costs due to management and administration. Where did those savings come from? What did you do?

Mr. St-Jean: This comes from the fact that there was a practice where people could take early retirement and get full benefits. It was not really in the pension agreement; it was more an administration process that was being done. By changing this, then you change the actuarial evaluation and the impact in the cost of the pension. That was not an easy initiative that we did a few years ago.

The Chair: Did I understand you to say that you cancelled early retirement?

Mr. St-Jean: No, we changed the terms. We did not cancel it. Is that right?

Gerry Kolaitis, Director, Strategic Planning, Finance and Administration, VIA Rail Canada: Yes, that is specifically where people could leave and take their full pension benefits with them. They got consent to leave and take whatever monies were in the pension plan, automatically. We went to a new approach, which is allowed, that if you leave you do not get your full benefits.

The Chair: Is that the approach you adopted?

Mr. Kolaitis: That is the approach, because it has an actuarial multiplier impact. It has a huge impact on the liabilities and the cost of the pension each year.

Senator Black: I have a couple of questions in respect of the Federal Bridge Corporation Limited. Do I understand correctly that the only bridges in your portfolio are bridges in Quebec?

Mr. Lachance: Exactly.

Senator Black: Is there any other bridge corporation in Canada involving other bridges? Would there be a British Columbia bridge corporation or a Saskatchewan bridge corporation?

Mr. Lachance: I do not know the answer to that. I know we have the Federal Bridge Corporation Limited.


The Federal Bridge Corporation owns a number of international bridges. Is it the same in the other provinces?

Mr. Lacroix: We are part of the Federal Bridge Corporation, which is our parent corporation, and it manages various bridges. There are a lot of toll bridges that have corporations that are self-managing, with the toll system. There are also some corporations across Canada that are more toll-based and that will be more dependent.


Senator Black: Could there be others?


Mr. Lachance: Yes.


Senator Black: Could you provide to the committee a list of bridge corporations in Canada with the bridges for which they are responsible? We would then have some context as to where you fit, basically. Thanks very much.

In respect of VIA, I have before me the 2012 third quarter report, and your president and chief executive officer, Mr. Laliberté, made the following statement in his comments, and I will ask you to comment on them. He says:

But the challenges we have faced this year show that the status quo is not a viable option.

I read that to say tinkering is not going to get this done. Cutting a route here or there and limiting seats on various transcontinental seats will not get it done. What is the answer to this problem? Could the answer be the elimination of VIA Rail?

Mr. St-Jean: We obviously have an opinion, but honestly this is something that has to be decided and discussed at Transport Canada and within the different ministries and government. We are saying that year after year, right now, even if we operate in the most efficient way we can within our mandate, we will always have to come back and ask for more money if no decision is taken, whatever it is.

Senator Black: You are doing a wonderful job of that.

What is your view?

Mr. St-Jean: I prefer not to mention anything here. It is my first time. Maybe if I am invited again we will see.

Senator Black: Thank you very much, and I respect that.


Senator Hervieux-Payette: My first question is for VIA Rail and again relates to the question of the billion dollar figure. What portion of that figure has been spent since 2007, between rolling stock, tracks and stations?

Mr. St-Jean: Without having the exact figures, let us say there has been about $250 million on renovating rail cars, over $400 million on infrastructure and $200 million on locomotives, stations, computer systems and the like.


Equipment, infrastructure and the other ones are between —


— stations, computer systems and things like that.

Senator Hervieux-Payette: One of the things that has always amazed us is to see that we have two companies, called CN and CP, that travel on your tracks. Do CN and CP share those rails across the country?

Mr. St-Jean: Almost all of the tracks belong to CN and CP. So we pay a fee to travel on the tracks. We have a short distance of track, but it is really not significant. I would say that 95 percent or more of the time we are using CN and CP tracks.

Senator Hervieux-Payette: How much do you have to pay per year?

Mr. St-Jean: In total, it is about $50 million. A little more than 10 percent of our costs are accounted for by the costs of using the tracks.

Senator Hervieux-Payette: That is often cited to justify why we cannot have high-speed trains, because the tracks would not allow for that kind of train. Are you discussing that with the private companies?

Mr. St-Jean: The discussions we have are in response to requests that we receive from the Department of Transport and other sources. We get a lot of requests in that regard. Studies have been published, and we are sometimes invited to participate in all that.

Senator Hervieux-Payette: I want to tell my colleagues that the people from Montreal are probably better customers than the people who live in Alberta, because we can take the train morning and evening if we want to go to Montreal and the service is excellent. Obviously, we would like the trains to go a bit faster, but apart from that, we are very satisfied and very glad to have this service.

My colleagues and I would like to see more people using these services. I know efforts have been made to sell cross- Canada vacation packages to seniors, for example. Do you think you have the budgets you need, from a marketing standpoint, to compete with the airlines or other modes of transportation?

Mr. St-Jean: From the standpoint of the chief financial officer, the marketing person is obviously going to say the funds are not sufficient. That said, with the budget we have, and if you look at the proportion of the money allocated to marketing that is spent in other companies, like airline companies, we fall well below that.

That being said, we use the funds we are able to allocate to that more efficiently. Obviously, we have to direct the money mainly to where the greatest potential is, which is obviously eastern Canada, the Quebec City-Windsor corridor. However, we have a sales team that handles cross-Canada travel. Those people even go to Europe and China to sell the product, which is in fact still doing very well.

Senator Hervieux-Payette: I have another brief question for the representatives of The Jacques Cartier and Champlain Bridges Incorporated. Who manages and looks after the bridge we are going to have — the bridge I would suggest should be a floating one? Will that be you?

Mr. Lachance: No, that will be Transport Canada.

Senator Hervieux-Payette: So you have nothing to do with it?

Mr. Lacroix: We are responsible for the existing bridge.

Senator Hervieux-Payette: There are five years left on the Champlain Bridge rehabilitation project — before it falls into the water. From what I have seen of the schedule for building the new bridge, I do not think it is going to meet the timetable. Will the portion that is on Nun's Island be an alternative?

How will it work, in terms of the timetable for building the new facilities?

Mr. Lacroix: The current strategy includes a ten-year program that started in 2009. We are doing major maintenance work on the priority components, and that means we are also installing fibre optics, a system similar to the one installed on the Eiffel Tower, to monitor the bridge closely. The sensors calculate the vibration of the girders — because the girders of a bridge have to vibrate with the roadway — and if they oscillate too much, that is how we know they have to be reinforced.

So the strategy is that over the next five years we will monitor the bridge closely so that we will have fine-tuned our knowledge, and we will then be able to really invest strategically in the places where it is needed, on a horizon of about three or four years, while waiting for the new bridge.

It is very important to do it this way because the objective behind it all is so we do not necessarily invest, knowing there will eventually be a new bridge. We have to make strategic investments, and to do that we have to have very good knowledge of our structure. The sensors provide us with that knowledge of the bridge, along with annual inspections.

So that is why, even though a new bridge has been announced, our objective is to stay on course with maintenance of the existing bridge, because it will have to be in place until the new bridge is operational. At present, we are talking about 2021. That is why we will be paying careful attention to maintaining the bridge for the next few years, as witness the budgets.


Senator McInnis: Mr. Lachance, when I drive home through Sheet Harbour, there is a huge arch bridge that most people just shudder as they go across. I was wondering how we could come under your umbrella. Are you taking on additional projects?

When I read about this subsidiary that is in place, I thought it was marvelous. I thought — and I think my colleague from P.E.I. would agree — that the Confederation Bridge would have been a natural. However, it was done through the three Ps, public-private partnership. As a consequence, we pay a high toll every time we go across it. I was intrigued to see the multiplicity of bridges in here. Are you taking on any additional projects?

The Chair: There is a bridge in Saint John that you might consider as well.

Senator McInnis: It is extremely interesting. Although the government of the day obviously did not want to spend the billion dollars required for the Confederation Bridge, although they aptly named it the Confederation Bridge, I would have thought it would have been one.

Are there new projects, or will you just be the status quo in maintaining what is there?

Mr. Lachance: Our actual mandate is to maintain the structure that we already have in our portfolio.

Senator McInnis: You are not adding in?

Mr. Lachance: Not for the time being, not that I know of.

Senator McInnis: To VIA Rail, I too agree that you do a great job, but you are an independent Crown corporation and you are there to try, to the extent possible — although it may be impossible — to make a profit. I read your raison d'être, which says:

VIA Rail also provides passenger rail transportation to regional and remote communities, some without alternative year-round transportation access.

There is a certain one in New Brunswick, for example, that is always under the cloud.

You said the government provided close to a billion dollars over the last number of years to enable you to do certain things along the corridor between Quebec City and Windsor, probably predicated on making as much revenue as possible. However, what role do you see VIA playing in maintaining or assisting to maintain the core communities in rural Canada? It is becoming a plight that when a rail line closes down, there is no bus service and people have to get to urban centres for medical care and so on. Surely it cannot all be connected with the bottom line. Is there not some social component here? You do not hear about it much, and I think it is extremely important as we suffer throughout Canada. You cannot go to every community, I realize that, but those where you have them, it is becoming a battle to maintain the economies of those regions. Could you comment on that?

Mr. St-Jean: We have a dual role. At VIA, we are working towards trying to make it an efficient and good service. When it comes to service to communities, that is really something not within our power to change. It is up to Transport Canada and the government. The last time we made adjustments, we adjusted frequencies. We did not cut any service to the communities; we reduced frequency. That is why you probably hear more about it when you have VIA Rail talking about efficiency. We are not the ones to decide which remote communities to serve.

Does that answer your question?

Senator McInnis: Yes.


Senator Chaput: Thank you; I have got the answers to my questions. And we have no bridges in Manitoba that I could complain about.

The Chair: You have rivers.

Senator Chaput: Prairies.


Senator Callbeck: My questions were about VIA Rail, and most of them have been answered. You now have about 4 million passengers. What was that figure five years ago? What are your projections five years down the road?

Mr. St-Jean: The number of passengers has been quite stable in the past years. Some years there are a bit less, others a bit more. We are currently seeing a growth in passenger numbers. We hope and we are planning for growth that is higher than what we have experienced because with the money that we received, we were able to invest, and not just in the corridor. We made improvements, for example, on locomotives, which run all over the country and save fuel everywhere. We also invested in sleepers and things like that, which covers other areas aside from the corridor.

Does that answer your question?

Senator Callbeck: Yes. In other words, the numbers have been pretty stable and you are hoping for an increase.

Mr. St-Jean: Yes. As a result of the investments we have made, in some cases, we are faster and our product is better because we have refreshed it. We have automated many things, and we have brought things up to par with other modes of transportation, such as with e-ticketing. We feel passenger numbers will grow as a result, as they have in the recent months and throughout the years.

Senator Callbeck: I have to agree that you have a good product. I recently travelled from Ottawa to Toronto and back, and I was extremely pleased with the service.

In order to obtain this anticipated increase, do you have any other major plans for things that you will still incorporate to improve that service?

Mr. St-Jean: Again, we always manage within the money we receive, and one of the things we feel will bring an increase is intermodality. It does not look like much, but we think that if we push it, we can get more people on board. There are a lot of other things, but again, we have increased our productivity and we are trying to spend money better.

Another thing I would like to mention, which I have not yet spoken about, is the way we manage. We call it revenue management. We had some money, again within this $1 billion, and we now have a system like the airlines where we can better manage the price of certain seats when it is busy and when it is not busy. We can in turn maximize our revenue for passengers.

These are all things that were done or are being finalized now which we think will give benefits in the future for growth at VIA.

Senator Callbeck: Promoting, advertising has been brought up, and you say your advertising percentage of revenue is a lot lower than airlines. Can you give us rough figures there?

Mr. St-Jean: Honestly, I do not have the figures. We can provide the last benchmark that we would have.

Senator Callbeck: Okay. That would be interesting. You say you are hoping for an increase, but when I look at your budget, you have taken a tremendous cut. How will you be able to provide the same service?

Mr. St-Jean: These cuts, again, are twofold. The first is that the $983 million is coming to an end. Most of this capital money has been spent. The other portion is part of the budget cost reduction of 2012 where we have efficiency and are improving the productivity. These are the two main reasons why the total request is lower, but it is mainly the capital portion that is coming to an end.

Senator Callbeck: How much was that capital portion and how much was from savings?

Mr. St-Jean: I would say 75 per cent, if not 80 per cent, comes from the capital ending.

The Chair: As a supplementary question, because of the recent terrorist threats, do you anticipate increased operating costs to look after security issues, and should we anticipate further demands for funds from VIA Rail in Supplementary Estimates (A, (B) or (C)?

Mr. St-Jean: As you understand, it is very early, but today we can say that we are not anticipating higher costs. That being said, we are addressing and improving things that we are doing on the security side, but it is really part of our total operation and we do not see anything major.

The Chair: Thank you.

Senator Enverga: Thank you for asking my questions, too. Our chair is doing great today.

I have another question. It was mentioned that we are cost sharing the maintenance of railways with other companies like CN or CP Rail. How do we share with them? Do you have a breakdown on how much we have to pay for using their rails?

Mr. St-Jean: It is about $50 million. On $500 million, roughly 10 per cent of our budget would go to the infrastructure owners, which are CN, CP and third-party owners.

Senator Enverga: Have we tried talking to them again and considered decreasing our cost for this?

Mr. St-Jean: These are long-term agreements. We are negotiating the agreements with them and if we feel it is not reasonable, we have access to —

Mr. Kolaitis: The Canadian Transportation Agency.

Mr. St-Jean: We have a way to go and have a third party evaluate, but up to this point we do not have a problem. We have reasonable costs.

Senator Enverga: You think it is reasonable in spite of the higher costs of maintaining the trains and the tracks?

Mr. St-Jean: The tracks, yes.

Senator Enverga: Considering that we are decreasing our revenues, have we tried to renegotiate now? Do we have to wait for the end? Can we still negotiate? Have we tried that or considered negotiating with those other parties?

Mr. St-Jean: To your questions, recently in fall in the different regions we had fewer frequencies. The contract was automatically adjusted to fewer frequencies and fewer usage, so we are paying less than we were because we are using them less.

Senator Enverga: Okay, so it is adjusted.


Senator L. Smith: I have a short question to ask, which is for Mr. St-Jean. Can you tell us what VIA Rail's three major priorities are for the next few years?

I also have a question for Mr. Lachance. There has been a lot of criticism about the funds spent for the Champlain Bridge and the fact that the bridge is going to fall into the water, and so on. How much money has been invested in the last five years to ensure that bridge is viable?

Mr. St-Jean: The first priority will continue to be safety, be it the safety of passengers or of employees. That has always been the first rule of conduct that our president and the entire team follows, and that will continue.

The second priority is undoubtedly to reduce appropriations to the extent possible, and thus reduce the deficit and improve the corporation, while maintaining the level of services that is described in our mandate, across Canada.

The third objective will be to maximize the investments we have recently made, that come out of the $983 million from the government.

Senator L. Smith: I have a short supplementary question about that. Mr. St-Jean, you talked about increasing revenue in relation to intermodality. That is an essential platform. Where does it fall in your list of priorities? I am trying to understand the order of your priorities; which one comes first?

Mr. St-Jean: For the second priority, the efficiency of the corporation, we have to take a lot of things into consideration. Obviously, a lot of emphasis is put on revenue.


There is so much you can do on expenses, and this continues to be a priority in getting more efficient. You have to get more people on board, and intermodality fits within this second objective.


The Chair: Mr. Lachance, for the last five years, do you have an answer or would you prefer to send it to us through our clerk?

Mr. Lachance: I have the answer. It is for the last four years, in fact, because 2013-14 will be the fifth year. It is $92 million since 2009-10. That figure comes from the ten-year plan of $212 million, and we have used $92 million since 2009-10 to maintain the Champlain Bridge.


The Chair: We are almost out of time. We have three senators who have asked to pose quick second questions. I will take all senators' questions, and if you cannot answer without a long answer, you could send it to us in writing as senators have other obligations, and I am sure you do as well.

Senator Black: My question has been answered.

The Chair: Thank you.

Senator Buth: What is the taxpayer cost per passenger on VIA?

Mr. St-Jean: We can supply this information. It is public, so we can send it to the committee.

Senator Buth: That would be great, thank you.

Senator De Bané: How does your budget for safety compare with the industry? What is the percentage that you devote to that item compared to what Amtrak or other passenger rail companies do? You said for advertising and marketing you can send the figures, the benchmark. I would like to know what you do.

Mr. St-Jean: I do not have it here. I will supply the information.

Senator De Bané: Thank you very much.

The Chair: On behalf of the Standing Senate Committee on National Finance, I would like to thank you for being here and for the work you are doing for Canada.

(The committee adjourned.)