Proceedings of the Standing Senate Committee on
Transport and Communications

Issue 5 - Evidence, December 13, 2011


OTTAWA, Tuesday, December 13, 2011

The Standing Senate Committee on Transport and Communications met this day at 9:30 a.m., to continue its study on emerging issues related to the Canadian airline industry.

Senator Dennis Dawson (Chair) in the chair.

[Translation]

The Chair: Honourable senators, I call this meeting of the Standing Senate Committee on Transport and Communications to order.

[English]

This morning, we continue our study on the Canadian airline industry. Appearing before us today is John Crichton, President and Chief Executive Officer of NAV CANADA.

Mr. Crichton, you have the floor. Following your opening statement, we will move to questions from members of the committee.

John Crichton, President and CEO, NAV CANADA: Thank you, Mr. Chair and senators. Thank you for inviting me to appear before the committee as part of your study of emerging issues affecting the Canadian airline industry. I am pleased to be here to speak to NAV CANADA's role in support of the industry and our record as a privatized air navigation system.

NAV CANADA owns and operates the Canadian civil air navigation system, the second largest in the world. We are a private, non-share capital company. We purchased the system from the federal government for $1.5 billion in 1996, at which time we inherited all of the employees responsible for operating the system.

We provide air traffic control services to domestic and international flights within Canadian airspace and in delegated international airspace, including half of the North Atlantic, the busiest oceanic airspace in the world. We provide weather briefings and flight planning services, as well as airport and en route advisory services, and we maintain electronic infrastructure from coast to coast to coast, including radars, approach aids and communication facilities. We also provide comprehensive aeronautical information services.

NAV CANADA is not in business to make a profit. There are no shareholders. Profits, when they occur, are recycled to keep customer charges down, pay down debt or finance capital expenditures. We function similar to a customer cooperative, providing essential common services, making investments to improve safety and underlying efficiency, and also to enable enhanced flight efficiency on the part of our customers.

Under the Civil Air Navigation Services Commercialization Act, we can only set service charges at the level required to cover our costs, including reasonable financial reserves.

NAV CANADA is governed by a stakeholder board of directors, which includes members representing airlines, general aviation, government, unions, as well as independent members. This structure ensures an effective balance of interests among all stakeholders and has worked very well.

Today, there are approximately 4,800 NAV CANADA employees across the country working in over 100 staffed facilities. That is down from the 6,300 employees at the time the government transferred the air navigation system to us.

We are working closely with our customers on the identification and implementation of new technologies that improve the safety and efficiency of the system. We have invested over $1.7 billion in a comprehensive modernization program that has delivered world leading technology and decision support tools to our employees. There are instances where, for example, $10 invested by NAV CANADA can save customers $20 in avoided fuel burn through improved efficiencies. Because of our structure, we are able to make decisions quickly and to get those types of investments operational and delivering benefits for customers and the environment.

I think you would find that our customers see that as one of the biggest differences of privatization, the speed of response and our ability to stay ahead of the innovation curve, especially in areas that affect customers directly. We estimate that cumulative customer fuel cost savings from various procedure and technology initiatives we have implemented is in excess of $1.4 billion since 1997.

In fact, we are selling technology developed here, for our own use, to air navigation service providers around the world. Our technology will soon be in use in four continents, at airports in the U.K., Australia, Denmark, Dubai, the U.S. and Latin America. Because of our "single till" operation, revenues from those sales go toward keeping NAV CANADA service charges as low as possible.

Much has been said about the fact that our charges are based on cost recovery. We receive no government subsidies. NAV CANADA has two main sources of funds. For capital investment, we rely on the debt markets, while our operating funds are generated through service charges paid by airlines and aircraft owners using the system. Prior to privatization, the air navigation service was funded from the Air Transportation Tax, which was levied on passengers, collected by the airlines and remitted to the government. That tax was repealed in 1998.

Today, our charges are, on average, about 30 per cent lower than the Air Transportation Tax was when it was abolished. In fact, the last time our charges increased was in 2004, and we have reduced them twice since then. That is something that did not happen with the Air Transportation Tax too often, as you can imagine.

Direct comparisons with fees in the U.S. are difficult because the U.S. levies are charged on a per-passenger basis and are varied by the airfare charged, while NAV CANADA charges are based on weight and distance flown and are levied broadly across other portions of the industry, such as cargo operations. We have attempted to make a direct comparison by calculating the per-passenger charge on a hypothetical flight. I have included some slides along with my remarks that show the results of that comparison, along with comparisons with ANS charges in other jurisdictions other than the U.S.

The Civil Air Navigation Services Organisation, or CANSO, which represents air navigation service providers around the world, has undertaken an international benchmarking exercise. They have looked at performance measures focused on productivity and costs. CANSO released an updated version of their benchmarking report just last week.

Despite what one might expect from efficiency of scale perspective, we compare well with the U.S. on cost- effectiveness factors, such as the cost per IFR flight hour. The report also documents the fact that our charges are amongst the lowest 25 per cent of the 29 air navigation service providers examined.

With respect to safety, in our industry, the global benchmark for measuring safety is the rate of IFR to IFR losses of separation per 100,000 aircraft movements. Over the years, traffic has grown, but the rate of IFR to IFR losses of separation has gone down. At the end of fiscal 2011, our five-year moving average was 0.73 per 100,000 flights. This puts us solidly into the top decile or top 10 per cent of the world.

In June of this year, the International Air Transport Association awarded NAV CANADA the prestigious Eagle Award, as the world's best air navigation service provider. This was the second consecutive year we were honoured with this award and the third time in our 15-year history.

I am incredibly proud of our people and our record. The privatization of the air navigation system has been of net benefit to the taxpayer and the customer. We have delivered dividends in terms of safety, efficiency and cost- effectiveness.

On that note, I would be pleased to answer any questions.

The Chair: Thank you very much, Mr. Crichton.

Senator Greene: Thank you. We appreciate your presentation.

You say that NAV CANADA owns and operates the Canadian civil air navigation system, which is the second largest system in the world. Why is our system the second largest? I am just trying to understand the industry.

Mr. Crichton: It is measured by size of airspace controlled, number of flights and physical plants.

Senator Greene: I see. I just thought because we have a small population relative to many countries with lots of airlines, such as China and Russia, yet ours is still the second largest.

Mr. Crichton: We are the second largest, and while we may have a smaller population than other countries, the geographic location of Canada sits astride the great circle routes between North America and Europe and North America and Asia. We also have the second largest general aviation population in the world next to the U.S., where general aviation in most other countries is quite small.

Senator Greene: You say you have over 100 facilities. Are many of them mainly in airports or outside of airports?

Mr. Crichton: It is probably closer to 150 facilities. The towers are obviously at airports, of which there are 42. Flight service stations, of which there are about 60, are also at airports. The area control centres may or may not be at an airport. There are maintenance bases and so on wherein roughly two thirds are at airports.

Senator Greene: When you refer to customers, I imagine that you are referring to airlines. Is that right?

Mr. Crichton: Airlines represent the bulk of our revenue. However, a customer is anyone who owns and operates an airplane.

Senator Greene: A single person who owns a small plane is also a customer of yours?

Mr. Crichton: Yes.

Senator Greene: How much is he charged per mile or however you do it relative to an airline?

Mr. Crichton: For general aviation, for aircraft, generally what you would think of as a single-engine recreational aircraft, our charges are just a flat annual fee. It is much like renewing the license on your car; you pay once, that is it and you can go wherever you want. With a larger aircraft, it is generally a weight and distance charge, so it is a value of service charge.

Senator Greene: Your charges have been coming down relatively over the years. With respect to the cost of a ticket over the past 10 years or so, the relative amount that is comprised of the NAV CANADA portion of the cost of the ticket has been declining. Is that right?

Mr. Crichton: Yes, and I think you will find in the material where we submitted a comparison to the former Air Transportation Tax. We are about 30 per cent less than what it used to be 15 years ago and somewhere between 25 and 30 per cent less than the rate of inflation cumulatively. Our charges have been going down both in real terms and in relative terms.

Senator Greene: That is a wonderful thing.

Mr. Crichton: It is.

The Chair: Senator Cochrane on a supplementary?

Senator Cochrane: NAV CANADA is a private, non-share capital company. In other countries, do you have public companies that operate navigational systems? Not you. I am sorry. Do other companies operate public navigational systems?

Mr. Crichton: In the U.K., they have a public-private partnership with NATS, which is 49 per cent owned by the U.K. government and 51 per cent in private hands.

Senator Cochrane: Are they operating profitably like you are?

Mr. Crichton: Yes, they are.

Senator Cochrane: Is that the only one you can think of?

Mr. Crichton: It is the only one that is private in the sense that we would understand private. Most other ANSs have been put into what we would call Crown corporations, so they are 100 per cent government owned. They call them "commercialized," but they are 100 per cent government owned.

Senator Cochrane: Thank you.

The Chair: I will join in on the supplementary, if you do not mind. How much of your revenues come from outside of Canada?

Mr. Crichton: A little over half.

The Chair: Over 50 per cent of your revenues come from people flying over Canada or landing in Canada?

Mr. Crichton: Either overflying or flying between Canada and another country.

The Chair: In your airspace?

Mr. Crichton: Yes, initially. Taking off from Ottawa and going to London, for example.

Senator Mercer: I will continue on with that line of questioning because it was one of my questions.

A flight leaves somewhere else in the world, say from London to Chicago, and from London to Chicago there is a certain amount of time spent in Canadian airspace. How do you charge that airline? How do you calculate the fee and, more important, how do you collect the fee?

Mr. Crichton: In the example you gave, there would be no terminal charge because the airplane is not going to land in Canada, so it is strictly an en route charge. That is assessed on the basis of the weight of the aircraft times the distance flown in Canadian airspace. The distance is calculated by the great circle mileage between the point of entry and the point of exit, which is the shortest mileage; it gives the benefit to the airline.

How do we collect? We collect like most businesses collect their charges. In some cases, if we do not like the credit worthiness of a customer, we will ask them to post security. In extreme cases, we have the right upon application to a court to seize aircraft for unpaid fees, which has happened a couple of times in our history. I think all of these things put together means that we have a pretty high receivables collection rate that is almost a hundred per cent.

Senator Mercer: That is the way it is supposed to work in business.

You said that under the Civil Air Navigation Services Commercialization Act you can only set a service charge at the level required to cover costs including reasonable financial reserves. What is reasonable and how high are those reserves?

Mr. Crichton: The service charges were not precisely defined in the legislation. The act also refers to reserves and financial integrity necessary to maintain appropriate credit ratings.

Our reserves are a combination of certain ones required under our trust indentures. We borrow on the public debt markets. We have a capital markets platform in support of that and our credit ratings are all in the Double A category from Moody's, S & P and DVRS. We have certain reserve requirements. We have the air, as well as what we call a rate stabilization fund, which is there to absorb short-term cyclical movements in traffic so we are not running out and adjusting rates every time there is a little bit of movement in traffic.

It has not been precisely defined, but we have had some of our charges appealed a few times, and all of those appeals failed. I guess the CTA thinks whatever reserves we have are reasonable.

Senator Mercer: When you came into existence, you had 6,300 employees and you now have 4,800 employees. That is 1,500 people who are no longer employed. I was going to say lost their jobs, but I do not know how those 1,500 people were removed from the system, whether it was through attrition or not.

There are always concerns that we have the proper service, and I think we are well served by NAV CANADA, but 1,500 less employees are a lot of people. Where did those 1,500 people come from within the system?

Mr. Crichton: The bulk came fairly early on when we centralized all the administrative functions, while in government there tended to be a regionalization of the service. You had a lot of duplication across the country: seven different finance departments, seven different HR departments and so on and so forth.

We stopped that and centralized everything in one head office. The field is an operating theatre for us. A lot of the reduction came through that process.

We have also been slowly, largely through new technology, able to reduce the number of people we need to provide service, whether that is in a flight information centre, better use of the Internet for flight planning and obtaining weather information and so on.

I should point out that, while we have gone from 6,300 to 4,800, it is probably actually 4,500 because we had to hire an additional 300 air-traffic controllers. The system was short when we took over and we had to catch up. They are included in the 4,800.

Our traffic has gone up by approximately 50 per cent, and through a variety of different productivity gains we have managed to be able to handle the volume with fewer people. It is really a productivity story that is the big thing here.

Senator Eaton: What a success story! My interest is governance. Do you sit on the GTAA board? Do you sit on any airport administration?

Mr. Crichton: No, we do not.

Senator Eaton: What is your debt?

Mr. Crichton: $2.2 billion.

Senator Eaton: We are doing this report, and so we want to make sure we put in the right recommendations. Are you comfortable with that amount of debt?

Mr. Crichton: Yes.

Senator Eaton: In your report you said there are instances where, for example, $10 invested by NAV CANADA can save customers $20 in avoided fuel burn through improved efficiencies. Could you give me, as a layperson, an example of that?

Mr. Crichton: Certainly. About three years ago we installed technology that is called ADS-B, which means automatic dependence surveillance broadcast. This is the modern replacement for radar. We installed that in the Hudson Bay basin, and prior to that there was no surveillance.

Senator Eaton: In other words, people could fly over Hudson Bay and you would not know it?

Mr. Crichton: No, it meant we had to control them on a procedural basis, which means it is very inefficient. The longitudinal separation is close to 100 miles, whereas in radar it is 5 miles. It is a very cumbersome and rigid way of providing service, and it is very inefficient because you cannot move aircraft around in that kind of an environment. ADS-B brought radar-like separation standards to bear.

Now aircraft, when flying through that area, and a lot of aircraft goes through there, can get their optimum altitudes and trajectories. This is a huge saving in fuel.

Senator Eaton: Is NAV CANADA involved in security in the sense of overflying? Are you involved with the defence department or do you have a role to play in our airspace security?

Mr. Crichton: Yes. We have very comprehensive agreements with National Defence, depending on what the situation is.

Senator Eaton: Would you alert them if you thought there was something strange going on in the airspace?

Mr. Crichton: Absolutely.

Senator Eaton: Do you cover from the top of Canada, in other words the North, right to the U.S. border?

Mr. Crichton: Yes, we do, and halfway across the Atlantic.

Senator Eaton: And halfway across the Pacific?

Mr. Crichton: No, just a couple hundred miles off the West Coast.

The Chair: Who would cover the rest of the Pacific?

Mr. Crichton: The U.S.

Senator Merchant: You said that ours is the second largest system in the world. How modern are we? How modern is your system compared to others? If you were to dream of improving the system, who would your role models be? What part of the world has a system you aspire to have?

Mr. Crichton: I would say now, senator, we are probably, certainly of the large ANSs, the most modern. In the last 15 years we have spent a lot of money in modernizing the system. As I think about the major components in the system, I would have to think we are probably the tops going right now.

Senator Merchant: Is that more expensive for us as travellers?

Mr. Crichton: No, I think that that, in fact, is good news. We are in an industry where modern technology, properly acquired and deployed, brings safety benefits, it brings operational cost savings benefits and it brings savings for the customers and productivity gains. It is actually a very good business to be in to be able to deploy technology that can bring those kinds of savings and to bring them quite quickly.

In fact, we now make our own technology. On the ATM side, the air traffic management, which is software, we do all our own. We are the only ANS in the world that does our own. As a result, we own it, we can sell it, and there are more and more ANSs buying our technology.

Senator Merchant: That is very good news. Could I ask you a question about the North? We are very interested in making things easier for people in the North, and the North is opening up. Do you have to make certain improvements to the system? Is that an expensive thing that you are undertaking? What is the state of the infrastructure in the North?

Mr. Crichton: We have extensive facilities in the North. In fact, our areas of expansion, when I mentioned ADS-B, we have also installed ADS-B all along the Labrador coast, most of Baffin Island and southern Greenland. We have plans to extend into the High Arctic Islands. We have completely rebuilt the VHF voice communication network, including all throughout the Arctic.

The Arctic is an important area for us. We pioneered the polar routes between North America and Asia. We now have almost 1,000 aircraft a month on the polar routes, whereas 12 years ago there were zero. Again, this is all part of some of the facilities we put in to enable that to happen.

Senator Merchant: Going back to your board, you gave us the composition of your board but I do not think you mentioned whether you have anyone from the airports on your board. Is there a reason why you do not have someone from the national airports?

Mr. Crichton: Again, to understand the board composition, NAV CANADA has four members who I guess you could call surrogate shareholders. They act as shareholders in the sense that they do the normal things shareholders do. They appoint the board and they can change corporate bylaws and so on. The only thing they do not do is get dividends.

We have four members: the federal government, which appoints three directors; the commercial airlines, which appoint four; general aviation, which appoints one; and the association of our unions, which appoints two. That is a total of ten.

The board itself appoints four unrelated directors just from at large.

The CEO is the fifteenth member. The airports are not explicitly a member. However, we have had — and continue to have from time to time — a director who also may sit on an airport board. At one point we had a director who had been the president of one of the large airports. No, they are not explicitly recognized.

[Translation]

Senator Boisvenu: Thank you very much. Your brief is really interesting.

On the last page, you mentioned 0.73 losses of separation per 100,000 aircraft movements. What exactly does that mean?

[English]

Mr. Crichton: In our business — depending on the air space — there are separation standards. Typically in a non-route environment there will be 1,000 feet vertically and five miles laterally or horizontally. You can imagine that as a bubble around an airplane. If that is infringed in any way it is considered a loss of separation, even if there is no risk.

[Translation]

Senator Boisvenu: So really, it is when the airspace around an aircraft is entered. Now I understand better.

I would have liked to hear you talk about personnel management. My image of air traffic control involves stress, staff turnover, hiring difficulties, professional burnout. It is very stressful and demanding work.

Is personnel management still difficult; is it a challenge for your organization?

[English]

Mr. Crichton: The only part I would say is challenging is in the training of air traffic controllers. Not everyone is cut out to be an air traffic controller. You need certain innate talents that you either have or do not have. A lot of them have to do with spatial perception and being able to think in three or four dimensions. That is not something everyone has, and unfortunately it takes a while in a training process to figure out whether or not that person will have it at the end of the day.

We spend a lot of money on training and unfortunately the failure rate is higher than you would like to see it. That is also true everywhere else in the world.

The stress issue with air traffic control is probably overrated. Once a controller has gained some experience, they are very good at what they do. I do not think very many of them find it that stressful once they have achieved a certain level of competence.

The new technology we are implementing today automates so many of the things controllers used to have to do manually. This is quite a revolution for them. It is also a safer and more efficient system. Young people take to the automation systems very quickly. We are finding that quite helpful.

[Translation]

Senator Boisvenu: Were you ever an air traffic controller? You look like a very calm person; you seem the perfect type to be an air traffic controller.

[English]

Mr. Crichton: No, I was a pilot.

[Translation]

Senator Boisvenu: Okay. According to your brief, most of the revenue from your charges comes from the airlines. Has the fact that a number of companies had to seek protection under the Bankruptcy Act in the last ten years caused you any financial problems?

[English]

Mr. Crichton: There was one bankruptcy of a well-known airline here in Canada several years back that caused a few problems, but not since then because we have tightened up our credit policies. Most of the large airlines pay us in advance.

[Translation]

Senator Boisvenu: In your brief to our committee, you did not propose any solutions that would alert us to the measures that we should take, or propose to the government, in order to make the airline industry more competitive. Your brief seems to be more factual; it describes how the work is done and what NAV CANADA's situation is.

But if you had proposals for making the airline industry more competitive in the future in relation to competing countries, what would those proposals be?

[English]

Mr. Crichton: We probably deliberately did not do that. We see ourselves as a neutral party in the highly competitive airline business. Our role is to facilitate everybody's operation and not to try and inject ourselves into policy areas that are not relative to what we do ourselves.

Senator Boisvenu: You are like a referee on the ice?

Mr. Crichton: We are in a tough spot. They are all our customers and we know they compete with each other. We do not want to be seen as favouring someone over another, even though we do not have a role to play in that. We have to deal with everybody all the time, but officially NAV CANADA does not get involved in those kinds of discussions.

[Translation]

Senator Boisvenu: Did the almost excessive concern for airport security in 2002-03 affect NAV CANADA's work? Were your operations affected because everything at every level was all about security?

[English]

Mr. Crichton: Definitely, 9/11 and the aftermath was quite traumatic for us. Traffic fell off dramatically and stayed down for years. Our revenues took a nose dive. It was a difficult time for NAV CANADA. Our revenue is totally dependent on the number of airplanes flying and there was quite a dramatic decrease as a result of that. Whenever there is another scare we can see it, whether it is a volcano or pandemic, all of these things will affect us. That is also why we have such a strong financial structure and we have the reserves. We are a critical piece of infrastructure, we have to be there and reliable. We pay attention to our credit ratings, make sure we are financially strong and can weather the storms and cycles that will always occur in this business.

Senator Merchant: This takes me back to the year 2000. You might recall there was a big scare as the century turned over about all the computers. How did you manage then? Can you tell us a bit about that, which is a moment in time when you have to be prepared?

Mr. Crichton: Yes, as a company we had a project team that had been working on that for a couple of years prior to the event. We were pretty confident that our systems were okay. As you may recall at the time everyone was afraid of the unknown. Maybe mine is okay, but his is not so it could affect mine and so on. We did everything we could to make sure we were okay; and as it turned out, it was a non-event.

Senator Merchant: Was that expensive for you? Did you dispense funds that you would not otherwise have?

Mr. Crichton: Yes, we certainly spent money. We do $100 million a month in sales, so it was not that traumatic.

Senator Cochrane: Mr. Crichton, do you have a large turnover of staff? I would like to see — and if I do not know if there are — a number of young people applying for air navigation and things of that nature within your company. Is that advertised within universities and places like that?

Mr. Crichton: Actually, we have a very low staff turnover. I think it is in the range of 2 to 3 per cent. Yes, we make a concerted effort to recruit young people all over the country. You can find us in all the social media, of which I am not an expert, but you can find us on Facebook and Twitter.

Senator Cochrane: If you are on Twitter, you are up to date.

You mentioned your two main sources of funds. Would you elaborate on that for us, the two main sources you mentioned for capital investment? You rely on debt markets and service charges paid by airlines.

Mr. Crichton: Yes. As I indicated, we do not have any shareholders, so we do not have any equity. We capitalize ourselves in the public debt markets. Right now, as I sit here today, we have about $2.2 billion in bonds of various denominations and maturities that are trading in the market.

We are a public issuer, the same as a stock company, so we are treated the same way by the Ontario Securities Commission. You can go on SEDAR and get all our documents. We are subject to all the same disclosure rules as a publicly traded company, and so on. From time to time, we will do a bond issue. It may be just to replace a maturing one or it might be a whole new one, and we go through the usual prospectus issuance.

There is a very good appetite for our debt. Our issues are usually oversubscribed. We are seen as probably the premier infrastructure credit in Canada right now.

That is for capitalizing longer-term requirements. However, we do about $1.2 billion a year in sales, and that is what we use to pay our operating costs, interest, depreciation, and so on.

Senator Cochrane: You also mentioned that you are delivering all the benefits to customers and the environment. Could you continue on that a little bit? Safety, I know, is one of the key things, but are there any other ways that you have not mentioned in terms of benefits for customers? As you know, if you have to fly anywhere, it costs a fortune.

Mr. Crichton: Generally speaking, we consider our customers to effectively be our shareholders, in the sense that it is their money we are playing with, whether it is the fees they pay us. We have a monopoly in the provision of air traffic control. I would argue that air traffic control is one of the few natural monopolies you will find anywhere, and there is nothing wrong with that. However, as a monopoly, and with the right to set our charges in accordance with our costs, the airlines are therefore legally obligated to pay those costs. That is one of the fundamental strengths of our credit and our ability to borrow money.

If you look at all that in a holistic way, you have to say that in order to run the business properly, we have to treat our customers with respect. We are here for them, so we have to produce value for them, much the same way a company will try to produce value for its shareholders. For us, value is in three words: safety, service and cost-efficiency. We have a whole set of different measurements that we use to measure how management is doing and to benchmark ourselves against other people in our business around the world, how we are doing in safety, service and cost-efficiency, and what we are producing to the customers to bring them value in those areas.

That is what we do. We publish that information on a regular basis. You can find it on our website. Recently, I think the customers have agreed we are the best, because they keep giving us awards saying we are the best.

Senator MacDonald: Mr. Crichton, good morning. I am intrigued by the approach NAV CANADA took when it came to raising money for itself from its fees.

You took over in 1996. How long did it take you to change your fee structure from the passenger tax to the overall charges on both cargo and passenger travel?

Mr. Crichton: It was about two years. It was contemplated in advance that the charges would be phased in, and so it was phased in over about a two-year period. The tax was reduced by roughly half during that first phase-in and then disappeared.

Senator MacDonald: This appears to be a model that works well. Why was it not in place before you took over? Why would this not be obvious to those who came before?

Mr. Crichton: We started discussions with the government in 1994 on possibly doing this, and it took two years to actually get it done. I think the reason why things had not happened before is that it was just an idea whose time had not yet come. There was not an example anywhere else in the world where this had been done, where it had been privatized.

We had an opening. At that time, in the mid-1990s, the government was faced with an enormous budgetary problem and they were determined to do something about it. People were given free rein to try new things. Doug Young, who was Minister of Transport at the time, said, "Okay. I am going to look at this. Maybe it will work."

Senator MacDonald: Why would the Americans not move to a system like this?

Mr. Crichton: I cannot answer that question.

Senator MacDonald: You must have an idea, though.

Mr. Crichton: I think the U.S. political system does not lend itself to the kind of decisive action that was taken here in Canada.

Senator MacDonald: Is there something inherent in the Canadian aviation system that makes this approach more workable and more useful in terms of raising the appropriate amount of revenue by keeping charges relatively level?

Mr. Crichton: No. I think this can be done by anyone. You can see examples in other parts of the world. I mentioned that apart from the U.K., all the other ANSs are in what we call Crown corporations. I could give the example of Australia and New Zealand. They are both Crown corporations, although they are very much trying to produce value for their customers, much in the same way we do. I think their record of modernization and cost control has been pretty darn good over the years, so you can do it.

Senator MacDonald: Australia and New Zealand graph very similar to Canada.

Mr. Crichton: There are other examples also.

[Translation]

Senator Verner: First, my congratulations on the prestigious award you won last June. I am sure you must be very proud.

Members of this committee have heard a number of witnesses testifying that the taxes and fees imposed by the government, including the NAV CANADA service charges, are too high, that they adversely affect the industry's competitiveness and that they encourage Canadians to use American airports. As a senator from Quebec, I can tell you that thousands of travellers are choosing to fly to their destinations out of Plattsburgh rather than leaving from Montreal.

We recognize that you have reduced your fees twice since 2004. But do you have any comments to share with us about that issue?

[English]

Mr. Crichton: Yes, thank you. NAV CANADA's charges are not the problem, and I think, in the package we gave you, we have actually done comparisons with the U.S. You can see that the air traffic control component in Canada is less than it is in the U.S. If people find it cheaper to fly from Plattsburgh to Florida than from Trudeau to Florida, it is not because of the air traffic control cost component. It would have to be other kinds of charges that are causing it. We are not the problem, and in fact, we actually charge less than they do in the U.S.

[Translation]

Senator Verner: Was there any consultation with other industry stakeholders when you set up your fee structure?

[English]

Mr. Crichton: Our charges are determined, in large measure, by the provisions of the act, which set out the charging principles and the structure that we have to follow. The rest of it really becomes a matter of applying the current financial situation of the company and our projections to those formulas. When we are going to change charges, we give public notice of that fact. That notice goes to anybody who wants it, and anyone has a right to comment on those charges.

Having said that, unless someone can point out that what we are proposing to do is contrary to one of the provisions in the act or to the charging principles, it may not be that helpful to us. When we are looking at — and we do from time to time — revisiting the structure of the charges or trying to deal with an issue that may have arisen, we will go through a more extensive consultation with people and look at different approaches to accomplish something or to solve a problem. We spend a lot of time consulting with our customers on everything from operations to financial issues and so on. There is a lot of consultation that goes on.

Senator Greene: Do you have to justify your increases in charges or decreases to anybody other than your board?

Mr. Crichton: In effect, our board is the economic regulator, if you will. However, there is an appeal provision in the act. The appellate body is the CTA. However, the grounds for appeal are quite narrow. It is either that we breached one of the charging provisions in the act —

Senator Greene: Can you describe what one of those is?

Mr. Crichton: They are largely that our charges should not generate more money than what our costs are. You are not there to make a profit, you are there to cover your costs. You cannot set costs that are discriminatory. If you are going to charge a Boeing 767 this rate, then all Boeings 767 have to pay this rate, whether they have passengers or cargo on them or are an Air Canada or Air France airplane. Those are repetitions of things we have already agreed through ICAO — that we are not going to discriminate, and so on.

There are two grounds: either we have violated one of charging principles or did not follow the notice requirements in the act about giving people notice of the change in the charges.

Senator Zimmer: Six months before 9/11, I had the good fortune of going inside Cheyenne Mountain in the United States. As you probably know, that is where they track all the satellites that leave the earth's atmosphere and come back in. Many of the routes go right over the North pole. Have you ever been asked to provide any backup services or navigation systems to the United States in Cheyenne Mountain? I asked the general the same question, and he said that, in the interests of national security, he could not answer. Have you ever provided services when they have run into trouble and have needed your support?

Mr. Crichton: Well, Cheyenne Mountain is the headquarters of NORAD. We have a number of protocols with NORAD, with the Canadian military and, through them, with NORAD. We have a number of processes to follow in the event of emergencies or unusual things that are dealt with by NORAD. We are a link in that chain, so to speak, depending on what is going on.

Senator Zimmer: Do you provide any information they need?

Mr. Crichton: We provide them with information and cooperate with them.

Senator Zimmer: Thank you.

Senator Mercer: You did say earlier that you thought that the stress levels for air traffic controllers were overstated. You said you were a pilot, and that is a stressful job in itself. Historically, air traffic controlling has been considered a very stressful job indeed, and people in it usually retire relatively young.

I want you to comment on the longevity of someone coming into the industry as an air traffic controller. You come in as a young person, but you usually do not stay. You do not have people who are 60 or 65 in those roles, or at least you never used to. The second thing I will link in is that, over the past year, we have heard of a couple of incidents in the United States where air traffic controllers have — How can I put it politely? — not performed at their peak, particularly throughout the early morning hours. Learning from others' mistakes, have you built in some safety rules for our system so we will not see incidents where air traffic controllers are alone for long hours at night without contact with someone, things to relieve the boredom factor and to ensure they are at their post doing what we expect them to do?

Mr. Crichton: There are a couple of parts to that, senator. Do not misinterpret what I said, when I discount the stress level. I am trying to get you away from that Hollywood image because it just is not like that. Good air traffic controllers who have been around for a while and gotten skilled at what they do would kind of laugh with that Hollywood image because it is not correct. It is probably time that people understood that.

However, while I say that, it is a difficult job. I have a lot of admiration and respect for air controllers because, believe me, not everyone can do what they can do. It is quite impressive, but they are not sweating bullets doing it because they have become quite good at what they do.

I think you were referring to the fatigue issue. We addressed this about a dozen years ago. We went through a long consultation with our controllers' union. We had the safety regulator, Transport Canada, involved. We set up a study group, we identified all the different issues and we agreed on a course of action. We even published a booklet on it, and we have been following that ever since. In our facilities, you do not have someone alone on the midnight shift. It has not been an issue for us. We took action early on to try to head off those kinds of issues, and it certainly looks like it has been working quite well.

Senator Cochrane: Do you have any female air traffic controllers?

Mr. Crichton: Yes, many. I am not sure what the percentage is. Somewhere north of 20 per cent are female, maybe even 30 per cent.

Senator Cochrane: That is good.

Mr. Crichton: They are very cool, and they do not get flustered.

[Translation]

Senator Boisvenu: You described a debt of as much as $2.2 billion. Could you tell me about the way your debt is structured? Is it linked to your bonds — because you said you had issued bonds — or is it because of assets like your capital holdings?

[English]

Mr. Crichton: Our long-term debt is in the form of bonds. They are varying maturities. I believe we have one $500 million issue that was on a 30-year issuance when we did it back in 1997, I think. We have others that could be as short as two or three years and on floating rates. We will look at whatever the market is doing at the time and try to match our assets and liabilities so we do not get caught with varying interest rates. We will try to match our long-term assets and liabilities, and we have a treasury department that does that. We usually try to space out the maturities so that we do not have too much coming all together at once.

It is a pretty normal large corporation treasury function to manage that.

[Translation]

Senator Boisvenu: We have been watching the public service pension fund problem for three or four years; the burden on the employer is very high compared to the burden on the unionized workers. With your air traffic controllers, are you facing the same challenges for the future, meaning the need to re-establish a balance in the way your pension fund is managed?

[English]

Mr. Crichton: That is a very good question. When we took over from the government, we inherited the government pension plan, which is very rich, very gold plated, no question about it. The danger is that because of the rules surrounding how you have to fund pension funds under the OSFI rules and so on, you can get yourself into a situation where things in the marketplace that you cannot control, such as interest rates, equity values and so on, could, in the event of some black swan events like we had in 2007-08, literally swamp a company.

NAV CANADA has taken certain steps that we could on our own to address that, but the bigger issue is trying to convince our bargaining agents that it is in everyone's best interests to try to find a solution to this. We have had for the last year and a half very constructive discussions with all of our unions. We have not reached the end of those discussions yet, but I can say that they have been very constructive and professional, and I think people understand that there is an issue here.

What we are trying to do is to solve it ourselves. We are working with our unions to try to solve that so that if that perfect storm ever comes along, we will be okay, and everyone associated with NAV CANADA will be okay, but we are not quite there yet.

The Chair: Thank you, Mr. Crichton. I wish to remind the audience and honourable senators that this is our last meeting before the holiday break. I think, Mr. Crichton, you made a very favourable impression. You have a big mandate in two weeks. You have to assure yourselves that Santa Claus, when he has to deliver for the audience, the staff and their senators for their Christmas gifts that they all richly deserve, NAV CANADA will have the responsibility of efficiency because he has a big job, and we hope you will be doing it for him in a cost-effective way.

On that, I thank you once again and wish everyone a merry Christmas, even though it is not politically correct.

(The committee adjourned.)