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.
The Chair: Honourable senators, I call this meeting of the
Standing Senate Committee on Transport and Communications to order.
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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.
Senator Boisvenu: Thank you very much. Your brief is really
On the last page, you mentioned 0.73 losses of separation per 100,000
aircraft movements. What exactly does that mean?
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.
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
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 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.
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
Mr. Crichton: No, I was a pilot.
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?
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.
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
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.
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?
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
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
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
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
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
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
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
Mr. Crichton: There are other examples also.
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
We recognize that you have reduced your fees twice since 2004. But do you
have any comments to share with us about that issue?
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.
Senator Verner: Was there any consultation with other industry
stakeholders when you set up your fee structure?
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
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.
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?
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.
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?
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.