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Proceedings of the Standing Senate Committee on
Transport and Communications

Issue 11 - Evidence, October 16, 2012


OTTAWA, Tuesday, October 16, 2012

The Standing Senate Committee on Transport and Communications met this day at 9:30 a.m. to study emerging issues related to the airline industry (topic: focus on northern and regional issues).

Senator Stephen Greene (Deputy Chair) in the chair.

[English]

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

I would like to introduce everyone to our listening audience. Here today are Senator Mercer from Nova Scotia, Senator Eggleton from Ontario, Senator MacDonald from Nova Scotia, Senator Verner from Quebec, Senator Housakos from Quebec, Senator Unger from Alberta and Senator Doyle from the great province of Newfoundland and Labrador.

This morning we are continuing our work on the Canadian airline industry. For the coming weeks, the committee will focus its attention specifically on northern and regional issues.

Appearing before us today are John McKenna, President and Chief Executive Officer of the Air Transport Association of Canada; Les Aalders, Executive Vice President; and Wayne Gouveia, Vice President, Commercial General Aviation.

Also joining us today are Michael Pyle, President and CEO of the Exchange Income Corporation; and Adam Terwin, Chief Financial Officer.

Gentlemen, thank you very much for taking the time to be with us this morning. Mr. McKenna, the floor is yours.

John McKenna, President and Chief Executive Officer, Air Transport Association of Canada: Good morning ladies and gentlemen and members of the committee.

The Air Transport Association of Canada has represented Canada's commercial air transport industry for over 75 years. We have approximately 175 members operating in every region of Canada and providing service to a large majority of the more than 600 airports across the country.

Our 85 members fly in every region of Canada, many in the North, including Air North, Canadian North, First Air, Buffalo Airways, Calm Air, Nolinor Aviation and Air Labrador.

[Translation]

Other members of our association include Sunwing Airlines, Porter Airlines, Air Georgian, Bearskin Airlines, Harbour Air, Calm Air, Pacific Coastal Airlines, Flair Airlines, Transwest Air, Kelowna Flightcraft, London Air Services and Pascan Aviation, to name only a few.

Our membership also includes more than 50 flight-training schools across Canada with a strong international reputation, as 45 per cent of Canadian pilot licences being issued are going to foreigners receiving their flight training here. We also have in our ranks roughly 90 associate and affiliate members from all sectors of the service industry to commercial aviation.

[English]

We appreciate the opportunity to appear before you today to speak about northern and regional issues in the airline industry. We are very impressed with the report this committee released in June on the future of air travel in Canada. It clearly identified the key issues affecting our industry and, more particularly, those pertaining to airports. Unfortunately, past and present governments never recognized aviation as the socio-economic enabler that it is but considered it more as an additional revenue stream, a cash cow. Clearly, the recommendations of your report were both relevant and long awaited.

[Translation]

Today, we will focus on three aspects of air travel in the North that make it very distinct from aviation elsewhere in Canada and that explain why aviation in the North warrants special consideration.

[English]

Air transport is a gateway to the North, a lifeline to the communities, bringing them health care, foodstuff, mail, fuel and other essential perishable goods. The extremely limited road and railroad accessibility makes air transport an essential service to these communities.

We wish to highlight three themes today. The user-pay concept does not work in the North. More infrastructure is needed. We must address, first, the lack of paved runways and its consequences; second, the need for improved communications and navigation aids; and third, the need for a "support the North" policy.

The user-pay concept does not work in the North. As your report clearly indicated, aviation not only pays its own way in Canada but also assumes many infrastructure and national security costs. Infrastructure improvements, CATSA, air navigation and other costs are entirely supported by the operators and their customers. In the larger class 1 airports, user pay renders airports uncompetitive with neighbouring U.S. airports. However, the volume of passengers sustains the system.

[Translation]

The situation is very different in the Canadian North. The biggest factor is that the combined population of the Northwest Territories, Yukon and Nunavut is only just under 112,000 — roughly the size of the average Canadian city. That population is spread over 3.9 million square kilometres. In other words, 0.3 per cent of Canada's population is spread over 39.3 per cent of its total area. Also, let us not forget that air travel in the North also serves the natural resource industry, which is key to Canada's economic development and international trade. Although air travel in the North is essential to the local communities, its importance goes far beyond that of a lifeline to its citizens.

[English]

Northern communities need the support of government if their air transport is to be at par with the rest of Canada.

The North is in dire need of improved infrastructure. Governments have repeatedly promised to support the North but have yet to deliver concrete action. Projects in the North both are costlier and take more time to complete. In fact, the cost of any infrastructure project in the North is more than twice that in the rest of Canada. Equipment and materials have to be brought in by either air, ice roads or boat, conditions permitting, at a very high cost. Specialized labour must be flown in, housed and fed.

On the lack of paved runways and its consequences, commercial air service is extended to roughly 50 airports in the North, only 10 of which have paved runways. The rest have gravel strips. The lack of paved runways greatly limits the types of aircraft that can be used to service these communities. Very few large jet aircraft today can land on gravel strips. The Boeing 737 Classic is the last jet carrier that can be equipped with gravel kits, the cost of which is about $1 million per aircraft. Turbo prop planes are the only other option, but they do not have the same range, speed or capacity.

The problem of aging aircraft and potential forced early retirement of such aircraft as the Boeing 737 Classic would make servicing the North very expensive and could lead to a drop in the quality of service to many northern communities.

An example of why the North warrants special consideration is Transport Canada's intention to impose compliance with ICAO's recommendations to install runway end safety areas at most airports offering commercial air service. This involves adding a 90-metre to 120-metre extension to the airstrip that would slow down or stop an aircraft overshooting the runway. This one-size-fits-all attitude towards aviation is completely incompatible with conditions in the North and is not supported by either a safety case or a business case applicable to that territory.

On the need for improved communications and navigation aids, flying in the North is very different from flying below the sixtieth parallel. The terrain and the weather are very hostile, the area is huge, distances are long and services are limited. In addition, winter months bring long periods of darkness, limiting operational windows.

Approach aids are key safety factors and are insufficient in the North, making flying there riskier at the best of times. Flights are often long and subject to changing weather conditions on route. Current navigation aids are insufficient. More approach aids are required, including GPS approaches, wide area augmentation systems and better high-intensity lighting systems, just to name a few. The cost of developing approaches is significant, and the delays in getting them approved are long.

[Translation]

Weather information is also deficient. Many weather offices have been closed and pilots have to rely on weather reporting from people hundreds of kilometres away. On-site remote weather facilities are not available everywhere. Consequently, pilots often have to seek complementary weather information from untrained personnel on the ground. Also, most airports have limited Unicon service hours.

[English]

The lack of navigation and communication aids, including weather reporting, all contribute to lowering flight safety and limiting service.

The third point is the need for a support-the-North policy. Only a handful of carriers operate scheduled routes to about 50 destinations in the North. These are Air North, Canadian North, First Air, Calm Air and Air Inuit. They offer these services in a variety of aircrafts suited for the demanding conditions of the various destinations. Some of these routes are profitable, others much less so. The problem lies in that these carriers face stiff competition on the more profitable routes, thus soon making them a lot less profitable. In reality, the routes with the higher yield support the service to the lesser paying but nonetheless essential routes.

The mainline carriers are not interested in northern regional traffic so they do not service the remote communities. They are interested, however, in the southern feed network traffic, so much so that the mainline carriers are willing to accept marginal returns or even losses on northern gateway routes in order to protect or gain access to valuable network feed revenues of traffic going south. Therefore, we need a support-the-North policy in Canada.

This policy would be made up of two elements. The first would require carriers wanting to offer scheduled services on the gateway routes to either provide service beyond the gateway cities or enter into code share agreements with carriers servicing beyond the gateway cities. Such a policy would level the playing field and help to develop the North. The local communities would be the beneficiaries of a more sustainable service. The second element of a support-the- north policy would be a buy-North policy. Under this policy, federal agencies working in the North would adopt buy- North purchasing policies that would require that, subject to price competitiveness, their purchases should be made from northern businesses.

Federal air policy should recognize the role that northern air carriers play not only in providing service to remote communities but also in the growth and development of the northern economy. This policy should encourage mainline carriers to increase their access to northern markets through working relationships with northern air carriers and should encourage all Canadian air carriers to provide seamless passenger baggage transfers from carriers.

In conclusion, suffice it to say that it is difficult to describe air travel conditions in the North in just a few minutes. Aviation all over Canada is challenged by socio-economic and geographic conditions. The North, with its huge territory, hostile flying conditions and limited population, makes this challenge even greater. The lifeline that aviation represents in those communities warrants the full attention of government, and we commend you for including it in your study. I am happy to answer your questions.

The Deputy Chair: We will take questions at the end of both presentations.

Michael Pyle, President and CEO, Exchange Income Corporation: Thank you for the opportunity to address you today and discuss some of the issues facing the aviation marketplace in Canada's North. I have some short prepared comments, following which I would be glad to answer any questions you may have.

I thought it would be best to start with a brief description of our company, Exchange Income Corporation, and more specifically the unique segment of northern transportation in which we operate. EIC is a publicly traded company on the Toronto Stock Exchange with a market capitalization of over $500 million. It operates in two unique segments: niche manufacturing and Northern Canadian aviation. We are the sole shareholder of five unique aviation companies that operate in Manitoba, Ontario and Nunavut. Unlike most of the aviation world, where many companies suffer through financial challenges on a regular basis, our five companies have an average of 50 years in operation and bear witness to the value of the service they provide.

Four of the companies operate fixed-wing operations while the fifth operates rotary wing aircraft. All of them provide transportation for people and freight on a scheduled and charter basis, as well as medevac services into Northern communities, which are predominantly First Nation or Inuit populated. Our aviation operation has a total of approximately 1,700 employees and over 100 aircraft and generates annual revenues of approximately $300 million. The following briefly describes each of the five businesses that collectively make up our aviation operation. For the most part, each business operates in a unique market, and they combine to make up a significant geographic area and a customer base of EIC's business in the northern aviation marketplace.

Perimeter Aviation operates a fleet of 19- to 45-seat aircraft and services First Nation communities in Northern Manitoba. The vast majority of these communities can be reached by land over winter roads for only a very short time in the late winter; as such, air travel is essential to move people and supplies into and out of these communities. In addition to the scheduled and charter service, Perimeter is the largest provider of non-critical medevac services in the province of Manitoba.

Calm Air International operates a fleet of 42- to 72-seat aircraft to regional centres in Manitoba, such as Thompson, Flin Flon and Churchill, as well as into all communities in the Kivalliq region of Nunavut. Calm Air provides scheduled and charter services as well as dedicated freight business to Manitoba and Nunavut.

Keewatin Air is predominantly a medevac carrier and is the sole-source provider of medevac services in the Kivalliq and Baffin Island regions of Nunavut. Keewatin also offers charter and scheduled services in limited areas of Nunavut.

Bearskin Lake Air Service operates a fleet of 19-seat aircraft and provides scheduled services to regional centres across Manitoba and Ontario.

Custom Helicopters operates a fleet of light- and medium-category rotary wing aircraft in Manitoba and Nunavut. They provide services to all types of customers from mining, to mapping, to fire suppression, to passenger transport, as well as a variety of industries and communities in these regions.

The message I would like to bring to you today is that aviation in Canada's North is a very different business from that in southern Canada. While both are affected by common factors, such as fuel prices or exchange rates, the main drivers of the business are very different. In the South, demand varies greatly with the state of the economy and ticket pricing. In the North, air service is an essential service where demand is remarkably constant and very price inelastic. In the South, modern fuel-efficient aircraft are essential to be competitive. In the North, poor infrastructure precludes the use of the most modern aircraft. In the South, increased competition reduces prices, while in the North high fixed costs of operation and price inelasticity make lower prices from higher competition unsustainable in the long run, and particularly in smaller markets can actually increase prices. In short, applying logic and regulation that is derived from southern experience to Canada's northern aviation marketplace will usually lead to poor outcomes.

In traditional marketplaces where additional competition is introduced, competition differences should benefit the consumer given that the additional competitive players bring more supply. That should have the effect of reducing price to the customer. In the northern aviation marketplace, the opposite is often true. The North uses airline transportation for individuals and freight and is an essential service. Given the high cost of operation in the North in this environment and the limited customers populating the area, the extra supply does not necessarily generate extra demand and drive down the cost of the service.

For example, when two airlines service a small northern community that is capable of filling a 20-seat aircraft, having both airlines compete for passengers in that market can lead to two airlines flying with a half-full aircraft. Given that the cost of operation of the aircraft is not affected significantly by whether there are 10 or 20 passengers on the plane, the increased competition will actually serve to drive up the average cost of each seat in the marketplace.

Imposing competition through bid processes that allocate government-paid services where the market is too small to be split often does not work as one would expect. Having multiple airlines dividing up a relatively fixed base of passengers and freight normally leads to two alternative outcomes: First, the airline may have to accept flying with empty seats on their aircraft and try to recoup the costs of that flight half full to the limited number of customers; and second, alternatively, the airline will try to minimize its costs by matching the smaller customer level with a smaller gauge aircraft. This often results in a less comfortable, less modern and, in some cases, less safe aircraft for the customer.

Our Perimeter business has been able to increase market share under free competition in the Manitoba marketplace. The First Nations communities that it services have been able to experience a lower cost per mile and the use of larger aircraft. The higher load factors that Perimeter has experienced, with its increased market share, has led it to increase the frequency of service to these communities and the quality of service to its customers at a lower price. Without the increased market share, Perimeter would not have been able to provide these benefits at a lower cost, and the inherent increase in safety with a newer, larger, more modern aircraft. It would have been hard to justify if there was reduced traffic volume.

Therefore it is imperative that implementing strategies, whether legislative or government procurement policies for competition in the northern marketplace, do not lead to decreased safety or an increased cost to customers. Our experience can actually be the opposite, given the characteristics of northern customers being served by the northern airlines. Free competition or government allocation by whole individual locations, versus splitting individual locations between airlines, may work better in the northern marketplace. As well, the use of smaller, less modern aircraft tends to be a less enjoyable flight experience and a less reliable means of moving customers.

With respect to inferior facilities, operating aircraft in the North with the existing airports' infrastructure produces higher costs for its customers and increased safety concerns. The majority of the runways used by our airlines utilize gravel airstrips that at a minimum result in higher maintenance costs for aircraft, as gravel and debris abuse the aircraft on takeoffs and landings. The gravel runways also put limitations on the type of aircraft and the guidance technology that are available to service the northern communities and developments therein. As a result, airlines operating in these regions are forced to use older aircraft that were built at a time when gravel runways were more predominant. However, the use of these older aircraft in today's market leads to increased operational costs and enhanced safety concerns.

The fuel burn rate of older aircraft is naturally less efficient as technologies in modern aircraft have improved. As well, the cost for airlines to continue to find replacement parts for older aircraft grows, as manufacturers stop producing them as frequently or in some cases altogether. There have been situations in the past for our airlines where a parts manufacturer has announced ceasing production of a certain part; as a result, our airlines have purchased the entire inventory that producer may have. There is a chance that another parts production supplier may not produce more of these parts in the future and we will need them in order to avoid parking the aircraft.

As mentioned previously, many of the safety features of modern aircraft are not available in older craft, except at very significant costs. As a result, there are increased safety concerns as the risks associated with flying older equipment are not mitigated by the enhanced safety equipment.

Also tied to safety, there is a tendency by northern airlines to fly smaller aircraft to fit onto the gravel runways, and that can also lead to the use of single-engine aircraft. Our airlines have made a policy to try and minimize the use of single- engine aircraft because of the risk of having an engine event in the terrain and environment in which we operate. It is a risk that we are unwilling to take for our customers, our employees and our shareholders. Only in certain circumstances will we use a single-engine aircraft, due to the conditions and the length of the landing strip precluding any other. Examples of these would be Grise Fiord and Kimmirut, which do not allow for any other pressurized twin-engine aircraft.

These issues arise in our Keewatin Air medevac business that services the Eastern Arctic region, including Baffin Island. The contract Keewatin Air has with the Nunavut government requires the use of a Learjet for medevac flights that fly the long distance between Ottawa and Iqaluit. In most Nunavut communities, twin-engine turboprop aircraft, such as a King Air, are first used to transport the patient from his or her community to Iqaluit. Unfortunately, a Pilatus single-engine aircraft must be used to bring the patient from Grise Fiord to Kimmirut to Iqaluit, and then change aircraft to the modern Learjet to Ottawa. Critical time is lost for these patients as a result of having to use the single-engine aircraft and having to stop to change aircraft to make their way to Ottawa for medical treatment. This situation generates additional costs that are pushed down to the customer because of the requirement to have dual aircraft. It also means increased staffing for Keewatin Air, as we need to operate three aircraft types and incur capital costs of owning three aircraft.

A solution would be to implement minimum runway standards that would allow airlines to utilize faster and possibly larger twin-engine aircraft, which would increase safety standards by eliminating the risks associated with single-engine aircraft and would reduce the costs for customers where airlines could reduce the types of aircraft they are required to operate in the North.

Finally, southern policies are best kept in the South. Northern aviation marketplaces are commonly impacted in a unilateral fashion as a result of certain southern-based aviation regulations being forced on them with a broad brush, even though the differences between the markets do not allow for the same regulation. As a result, certain safety-based regulations that are designed for the South with good intent, and are considered to be effective in helping increase safety for operations in the southern marketplaces, can actually have negative implications for northern aviation companies and can lead to a decrease in the safety of operations in the northern aviation marketplace.

Given the lower volume of traffic and available capacity in the northern aviation marketplace, the increased costs to airlines operating in the North will force them into a situation where they need to find cost savings, as described previously. This often leads to the use of smaller, less modern aircraft. As a result, the application of the same southern- based aviation regulations to the northern marketplace can lead to a decrease in safety and therefore actually goes against the common purpose of regulation.

This issue is being raised because we believe it to be a significant concern. Having the application of consistent, aviation-based standard regulations in all parts of the Canadian airspace should not be done in a broad brush manner. Consideration needs to be given to regulating separately and taking into account the differences between the various regions.

I will give an example that we are currently living with today. One of our airlines is looking to invest approximately half a million dollars into each of our 19-seat aircraft to install a glass cockpit, which will enable these aircraft to utilize some of the most modern guidance and weather equipment. This equipment gives the aircraft the ability to land safely in inclement weather situations, which are more common in the North than in the South. This is a material upgrade to the decades-old technology that is in most of these aircraft today. This $0.5 million upgrade is particularly significant when one considers that the value of these aircraft is between $1 million and $2 million each. Our company is willing to incur these significant expenditures to improve safety and make our operations more efficient.

Unfortunately, in this situation, Perimeter is now reconsidering this investment after spending significant time and money funding the development of a prototype for this type of aircraft because of certain Transport Canada mandatory standards that are being considered for implementation on expanding the runway end safety areas or RESAs. In a lot of northern airports the runways are located in areas where it is simply impossible to make these RESAs available because of the topography or the cost of expansion. As a result, we cannot use the technology.

As the runways are shortened to take into account the RESAs, the size of aircraft that can use them also decreases. In many of these northern airports this would result in the use of single-engine aircraft. Therefore, Perimeter is not willing to make this type of investment if the southern-based regulation takes away its ability to fly these aircraft in the North. As a result, the standard, the intent of which was to increase safety, actually does the opposite.

In addition to our concern for the safety aspect of operating this type of aircraft, single-engine aircraft are less modern and will result in higher costs being pushed down to our customers in the North.

Overall, the message I am bringing to the Senate today on behalf of EIC is that the northern aviation marketplace is unique and cannot be treated the same as the southern marketplace.

This concludes my formal comments. I want to thank you for the time to speak to you today and I would be pleased to answer any of your questions.

The Deputy Chair: Thank you very much. That was very interesting. We will begin questions with Senator Mercer, followed by Senator Doyle.

Senator Mercer: First, thank you gentlemen for being here. As the chair said, it has been very informative. For those of us who have recently travelled to the North, you have not surprised us with anything. A cookie cutter approach to airport regulations does not work in the North, and I think we learned that pretty quickly when we were up there.

You talked about the infrastructure improvements and the cost of CATSA and air navigation. Someone will have to go on to define the North because, after what I say, everybody will want to be part of it. Are you suggesting that Transport Canada take over the cost of CATSA and air navigation and contribute in a more meaningful way to infrastructure improvements in the North?

Mr. McKenna: Well, I do not think that I would delegate that to Transport Canada. They have their hands full already and are having a hard time coping with what they have to do right now. I do think that the federal government should play a larger role in financing this infrastructure.

Senator Mercer: I guess that I used Transport Canada only because it was convenient. It could be some other government agency.

One of the issues that we discovered when we were in the North is a regulation that says that any city waste disposal site has to be at least four kilometres away from the airport. In some of the communities that we visited, four kilometres away puts you in the middle of the ocean. There is no road that goes four kilometres beyond the airport, so it is difficult. You have not addressed that issue, which does come down to a safety issue, although, in the more northerly parts, birds are not really a problem because they are not that present up there.

You have not talked about that particularly. Mr. Pyle, you have not mentioned it because you are flying a lot smaller aircraft in some very remote communities. Has this been an issue that you have heard?

Mr. Pyle: In our Nunavut operations, we have very few issues with flying wildlife.

In Manitoba, it is a regular concern. In some of the First Nations communities, the regulations requiring dumps to be that distance away are not always followed, and birds are a significant safety factor for us with turboprop aircraft.

Senator Mercer: Okay. Mr. Pyle, Exchange Income Corporation, as you described it to us, operates two segments — niche manufacturing and Northern Canadian aviation. Is there a linkage between your Northern Canadian aviation and your niche manufacturing?

Mr. Pyle: No. The company actually started as an income trust in 2004. The idea was to provide a diversified income stream, and so we have two unique, separate business units within Exchange Income Corporation.

Senator Mercer: It just seemed unusual to see them on the same line. I thought maybe there was a connection that we had not seen.

As well, Mr. McKenna, I could not pass up asking this question because you did mention the fact that, in part of your membership, there are 50 flight training schools across the country, and a large number of those schools are training foreign students. Forty-five per cent of the Canadian pilots' licences being issued are going to foreigners getting their flight training.

Since 9/11, have the rules changed as to how these flight schools operate and how the licences are issued to pilots who are not Canadians?

Mr. McKenna: I will defer this to Wayne Gouveia. He is our flight school specialist.

Wayne Gouveia, Vice President, Commercial General Aviation, Air Transport Association of Canada: Thank you, Mr. McKenna. Citizenship and Immigration Canada is going through a process right now in reviewing the process for foreign student pilot permits in Canada. We are trying to make sure that we create a level playing field internationally for Canadian companies because we are currently in a situation where Citizenship and immigration Canada, working with the Department of Foreign Affairs and Industry Canada are in the development of a process. As a result, students are caught in the middle of that until they define what the requirements are going to be.

We are finding, quite frankly, a concern that students who would normally come here to train are being turned away from Canada and being accepted through U.S. FAA or TSA requirements. Have things changed? Yes, they have. Have we figured out the way forward in terms of how to keep this important part of our business active? As you said, it is 45 per cent now of all the business that we have in flight training in Canada, and it is an economic enabler for this aspect of the business. It helps to create revenues for the purchase of new aircraft, new simulators and new technology, which is something that we have not seen, at this level, in 30 years in that sector. It is a very important question.

Senator Mercer: It seems to me that, 10 years plus on from 9/11, we are still in the development of the process. One would have thought that someone — and it has gone over two governments, so this is not a political comment — would be a little more concerned about this. It is something for future study, Mr. Chair.

The Deputy Chair: Perhaps it is.

Senator Doyle: For the companies who serve the North, how difficult is it to be financially viable? I look at the comment you made here: "Unfortunately, past and present governments never recognized aviation as the socio- economic enabler that it is but considered it more as an additional revenue stream, a cash cow."

Would that be the case in the North as well for government? Would it be a revenue generator for government in the North, or would it be a cost to government to operate these airports in the North or for you to operate them on government subsidy? I do not imagine that government would really be making any money on the Northern industries.

Mr. McKenna: As far as the carriers are concerned, the rule applies to everyone across Canada. Infrastructure belongs to the communities up North. Many of them have access to certain federal money for certain aspects of their infrastructure but not for all, of course, and not for many of the things that we have raised. That would be the main distinction between the North and the South.

Senator Doyle: You said that the regulations could become quite burdensome, and we have heard it here before as well. Obviously, you have problems with some of the regulations that government imposes on the small airports. Could you give me some examples of that?

Mr. McKenna: Who are you addressing the question to?

Senator Doyle: Anyone at all. I think that you mentioned that the regulations are quite burdensome?

Mr. Pyle: It is not so much that the regulations are burdensome. It is the uniform way in which we try to apply regulation. The kind of equipment that is required when our aircraft land in Winnipeg at the end of a flight from the North is one thing. It is another to apply the regulation that is required there to Whale Cove, where there are 400 people and a gravel strip in the middle of nowhere. If you apply a high enough standard to what we have to do to utilize the modern equipment in Whale Cove, the airline says that we cannot use it. Then, we use the same stuff that we were flying with in the 1980s in those marketplaces. That means that we have more flights that cannot get in because of weather because we cannot take advantage of the modern equipment. This, in turn, pushes up prices.

It means that our pilots have more difficult landing situations. One of the biggest things that I wanted to accomplish in coming here was to get across the fact that we need to look at how to make it safer to fly into those airports, not how to make it safer to fly into Winnipeg. Even within the North, there are huge differences.

The equipment available in Iqaluit, Rankin Inlet or Yellowknife is quite modern and sophisticated. That is not the issue. Big jets fly into those markets. It is Arviat, Chesterfield Inlet or Whale Cove. In Manitoba, it is Shamattawa or St. Theresa Point where there is virtually no equipment, and we are flying smaller aircraft into those. We need to tailor the regulatory environment to improve the safety and control in those locations, not try to make those locations look like Winnipeg, because then you end up making it cost-prohibitive.

We are prepared to increase the value of those aircraft. On an aircraft worth $1 million to $2 million, we are prepared to put in a half-million-dollar glass cockpit to improve the safety profile of that aircraft. A change in regulation, as mentioned, may well preclude that after we have built the prototype. It is so ironic that an investment we are trying to make in safety is being precluded by a regulation that does not fit those marketplaces. We need to change the legislative environment to say that the North is different. Smaller aircraft are different. Short runways are different. Let us set safety regulations that make those areas safe and not try to make them Winnipeg or Toronto or Ottawa or whatever.

Senator Doyle: Government would be applying these regulations with a broad brush, is what you are saying.

Mr. Pyle: Exactly, as opposed to specializing.

Senator Doyle: What applies up there should not necessarily be what applies down here.

Mr. Pyle: Correct.

Senator Doyle: How involved is government, provincial and federal? Are they taking steps to ensure the future of transportation in the North? Is it sufficient? What should they be doing specifically to ensure the future of remote transportation? Obviously you are saying it is not enough right now. They should be putting in more money in terms of infrastructure, is one thing, besides the regulations.

Mr. Pyle: I have talked a fair bit about the regulation part. The other thing, quite simply, is that if we can improve the ground infrastructure, it increases the number of types of aircraft we can operate. One of the longer-run problems we face is that planes were regularly manufactured with gravel capability in the 1980s and 1990s. Today, there are not jets manufactured, and even turbo props are limited today, the modern ones, in terms of what gravel kits we can put on and how expensive it is. There will always be certain communities that are too small to support a paved runway, but to the extent we can look at technologies that allow the gravel to be more compacted, do less damage and have the manufacturer view it as a hard surface, it would be valuable in terms of operating. From our point of view, infrastructure and regulation are the two main issues.

Senator Doyle: You do get fuel subsidies and that kind of thing, I would imagine, do you?

Mr. Pyle: No. We buy our fuel in Nunavut from the Government of Nunavut, largely, and in Manitoba we cache our fuel ourselves. We have built fuel farms all across the province because fuel is not otherwise available. We have built our own infrastructure.

Senator Doyle: You have no subsidies in that regard?

Mr. Pyle: No, not that I am aware of.

Senator Doyle: That is amazing.

[Translation]

Senator Verner: Senator Doyle asked part of my question. I want to begin by thanking you for being here. Your comments on the factual and significant differences between aviation in the north and the south of the country were very eloquent, they could not have been any better.

My question is about the fact that most regional airports belong to provincial and territorial governments, when local communities are not involved. I would like to hear what you think about the needs.

Since the beginning of our study, we have been hearing many requests made to the federal government for investments, and for the modernization of airports, their infrastructure and their security.

What do you think about the current role played by the provinces and territories, and how much more involved should provincial governments be?

Mr. McKenna: Yes, airports in northern Quebec, for instance, all belong to the Government of Quebec. However, they were in large part funded by the federal government with an agreement to transfer ownership to the provincial government. Therefore, the provincial government is responsible for management, but we must not forget that all aviation norms and standards are imposed by the federal government. The federal government imposes those conditions and then may or may not negotiate with the provincial government whether they are to participate in the required infrastructure improvements.

In Quebec, all the runways are made from gravel — except for a few paved ones in the North, which are very rare. That is a major problem, as we pointed out in our presentations. The required research must be conducted to find other aggregates that are less volatile than gravel and cheaper than pavement for covering the soil. However, paving is itself a problem. Paving equipment has to be shipped to the regions, and that costs a fortune. Are there any other ways to do that? Are there any other aggregates that can be used to cover the soil?

However, I am not answering your question. Your question was the following: What kind of co-operation should exist between the two governments? There are agreements concerning the North between the governments; we are simply asking that airport infrastructure be covered in an agreement between those two levels of government.

Senator Verner: Should not provincial governments have a bigger role to play, or are you just talking about co- operation between the two levels of government?

Mr. McKenna: Yes, as far as management costs and similar things go. As far as infrastructure goes, we would have to go back to those airports' original construction agreements. I do not know those agreements off the top of my head, but I am sure that the infrastructure costs could be shared in some way or another.

Senator Boisvenu: Mr. McKenna, my question is for you. I am from northern Quebec. There is a huge problem in terms of costs when it comes to the current equipment for runway construction. Is there a research centre or a research team at your association or elsewhere in Canada that focuses specifically on northern issues, be it when it comes to the maintenance, construction or management of airports.

Is any research being conducted? This problem cannot be solved without research.

[English]

Les Aalders, Executive Vice President, Air Transport Association of Canada: We would consider the National Research Council of Canada as the prime candidate to be involved in such research, working hand in hand with Transport Canada and the industry. I am not aware of a specific project at this time, but I will definitely follow up with them after this meeting, because it is an excellent idea.

Senator Housakos: Welcome, and we appreciate your presentation. I guess the theme has been infrastructure, so I will stay on that issue. You mentioned that there are huge requirements right now in the northern airports and regional airports and rural airports in terms of re-vamping the runways and communications and navigation equipment and proper lighting and that it would require a significant amount of resources. Needless to say, here in government, our main preoccupation is obviously looking at various needs all the time, and those needs are always accompanied by resource requirements. Of course, when those decisions are made, we also try to evaluate the impacts when those resources are allocated.

Let us just assume for a minute, and this is a big assumption, that all of a sudden all of the resource requirements become available, be it from the federal government or local governments. It is not important where the resources come from. However, let us assume they are all there and we can make all these upgrades, that we can go from gravel runways to paved runways, have all the navigation equipment and all the lighting.

In your estimation, what would be the short-term impact in terms of traffic, in terms of the impact it would have on investment in the North, in terms of the improvement of cost-effectiveness of access for passengers to travel to the North? What would be the impact on tourism?

It is a general question and, as I said, I am basing the question on a big assumption. However, let us assume that is the case. What would be the short-term impact on the area and the industry?

Mr. Pyle: If we had that kind of investment and we waved a magic wand and it was all in place, the first and most dramatic impact would be improved aircraft flying into the North, because there would be more options and airlines could choose among the best technology as opposed to the technology that works into those airports today. That, in turn, would drive down costs. It is true that you can fly to Hawaii for far less than you can fly to the Canadian North, and that is because the costs of flying to Hawaii are less. We would see a decline in the cost.

It would increase the ability for mineral exploration. It is very expensive to develop mines. While there are some things going on in Nunavut, you would see a great acceleration in that process. You would see a significant improvement in the safety profile of transport. I am not suggesting that aircraft are unsafe today, but we could take advantage of new technologies. We could do things that enable people to fly in poor weather conditions. One of the great challenges of the North is that alternative airports are so far apart. When you fly up and weather does not allow you to land, it is not like going from Regina to Saskatoon to find an alternate airport. You may be flying 500 to 700 miles to find an alternate airport. If we improve the technology, we can either land in those facilities or have closer airports to fly to, again driving down costs.

I do not think it will have a tremendous impact on the amount of travel within those communities, because travel in and out is an essential service today, so people are going regardless of the cost. From our experience, it is relatively price inelastic, but you will see benefit on the development and economic development sides and on the safety side of the equation.

Mr. McKenna: Absolutely. You would also be able to better plan your trips. When you travel in the North now, you know when you are going but you never know when you are coming back. You may have experienced that yourselves.

The Deputy Chair: We have had a lot of very good testimony about the need to look at the North differently, but are we talking about tweaking the application of regulations that already exist or having slightly different regulations, or are we talking about something completely new and separate from the airline policy of the South?

Mr. McKenna: The airline policy has to have a north-of-60 component. We have to consider the fact that north of 60 conditions are not the same and that certain things just cannot be done, and rather than having parallel regulations, the regulations should contain considerations, exceptions or amendments taking that into account.

Mr. Pyle: I concur with that, except I would say that it may be an even bigger issue than north of 60 because certain parts of the provinces that are south of 60 have many of the same attributes as the Far North in terms of what infrastructure is available.

We need amendments or exceptions to the policies that say that in airports that offer certain safety considerations, for example, one thing applies rather than another. You need to be able to tailor a safety policy that is designed for an international airport in order to apply it to a 3,200-foot gravel strip on an island in northern Manitoba.

The Deputy Chair: When you talk to officials at the Department of Transport about these ideas, as I am sure you do from time to time, what is their reaction?

Mr. McKenna: We could talk to you about RESAs. That is a big issue in the North, and we are trying to make them understand that you cannot apply the same rule there as is applied here.

Mr. Aalders: The runway end safety allowance provides protection for an aircraft to overrun the end of a runway in bad weather or other bad circumstances and get into soft material that will slow the airplane down so that it does not go into a ravine. Many northern airports just do not have the space in which to install such a very expensive requirement. Smaller aircraft could be used that do not have that requirement, as was addressed earlier, but that is a step backward in time. We are not recommending that.

Transport Canada's development of the regulations over the last 10 years has resulted in them becoming performance based. That is the intent. Our industry very much supports that, as opposed to prescriptive regulations. When they are performance-based and they are allowed to be used in such a way, that will allow alternative methods to be used. That is an area that would very much help our operators, working with Transport Canada, to find alternative methods rather than only black and white answers.

Mr. McKenna: There is a lot of openness in general at Transport Canada recognizing that there is a difference, but translating that into applied regulations is a big problem. On the RESA example, if you just cannot add the strip, then shorten it and put in a RESA. Transport Canada asks whether that is not defeating the purpose. That is something they have to overcome, as a rule. They understand the differences in the North; they just do not know how to translate them into regulations.

Mr. Pyle: We want your committee to understand how absurd that concept is. With a 3,500-foot runway that has a lake on each end there is no practical way to put a RESA in at either end. If that policy is imposed, that runway will become less than 3,500 feet and we will put these catch-alls at the end of it. Therefore, to make the runway safer we will make it shorter and less safe. It is an oxymoron. We need the people at Transport to understand that that does not make sense, that that does not apply here, that it cannot be done here.

This directly affects my business because we fly into many of those RESA kind of airports. We have flown twin turbo props into those airport for decades, and now we are going to have to gear down to a non-pressurized aircraft? Can you imagine being told that we are going to shorten your airstrip to make it safer?

Senator Doyle: It does not make sense.

Mr. Pyle: It is incredibly frustrating for us. I understand the concept of putting a RESA in where it is possible. If there is room to build one, we can use bigger and more efficient airplanes. However, if it is impossible, it is impossible.

Mr. McKenna: We have also asked the government to give us numbers specific to the North building a safety case and a business case supporting that. They do not make a distinction between the North and the South on their business and safety case.

Senator Mercer: None of us at this table are from the North; we are all southerners. When we went to Iqaluit, I walked down to the grocery store when I had a few moments. To put things into perspective for Canadians who are watching this, butter costs $8 a pound, a 12-can case of soft drinks costs $14.99. That same case sold in Yellowknife, where there is a less expensive and better transportation system, for $10.99, and I can buy it in Halifax for $4.99.

If we were to take Senator Housakos' scenario and things were to improve, would the cost of some of these products in the North go down because of the ability of the airlines to get more material up there more quickly?

Mr. McKenna: Clearly, the price could go down, but there will always be a price differentiation. If you are trucking tonnes of butter into a city or flying a few hundred pounds of butter to a city hundreds of kilometres away, there will always be a price difference. Whether the government decides to support that is something else. I can give you an example: The Quebec government has a policy such that one pound of butter will cost the same in the Magdalene Islands as it costs in Montreal. That government policy immensely subsidizes the cost of transporting it there. If you start doing that in the North, you will be serving 112,000 people spread out over dozens of municipalities, making it outrageously expensive.

Senator Mercer: We also need to recognize the cost of doing any construction in the North. When we were there, we talked about the fact that they might be able to do some work on a particular runway that week because there happened to be an asphalt machine in the community. In the next month, there might not be an asphalt machine there. I believe it was the mayor of Iqaluit who told us that to pave half a kilometre of road costs $1 million. At that cost, you will not get much work done.

Mr. McKenna: That is the cost of a road; and airports have very different standards.

Senator Mercer: I understand, but roads are an integral part of the airport system in larger communities in the North, but obviously not in the smaller communities.

Mr. Pyle: That is the one thing I would point out. You mentioned the cost of food in the North, and the senator asked about doing this all at once. It would have an impact on pricing of commodities, although perhaps not a dramatic one. We have made a significant change over the past couple of years to how the Food Mail Program is administered. It used to be done through Canada Post but is now done through direct subsidies with the retailers. That was a step in the right direction. As much as that pound of butter was $8, the retailers up there are remarkably sophisticated in pushing down the cost of transport if someone services them. It is a difficult business to meet Arctic Co-operatives Limited's requirements on a profitable basis.

There would be improvement in the pricing, not so much in Iqaluit, per se, because it already has a good runway, but rather in Whale Cove and Chesterfield Inlet. There, we can improve the size and gauge of the aircraft that fly in so they can carry bigger loads at one time, as opposed to taking smaller loads on the back of passenger aircraft.

Senator Mercer: Senator Boisvenu mentioned his area of Northern Quebec; Mr. McKenna talked about north of 60; and Mr. Pyle talked about moving south of 60. How will we make this definition? There is no magic line. We all recognize that in Northern Quebec, Northern Manitoba and Saskatchewan some communities are just as isolated as communities might be in Nunavut or the Northwest Territories. How will the government, not necessarily this committee, define the North that is inclusive enough, if they were to change policy, to have the kind of effect on people that it will need to have?

Mr. Pyle: I would suggest one thing, although I am not sure I have the answer to this. Creating the common attributes of Northern Quebec, Northern Manitoba and Nunavut is the fact that they are inaccessible by land. The definition could be something like "north of 60 plus any facilities that cannot be reached on a regular basis by ground transportation." It is the lack of ground transportation that creates the anomalies.

Senator Mercer: It could be an isolation definition.

Mr. Pyle: Absolutely correct, yes.

[Translation]

Senator Boisvenu: Thank you very much for these helpful information. I want to apologize to my colleagues and our witnesses for being late; I had a scheduling conflict.

This committee should make recommendations specifically with northern issues in mind, and if we want to make realistic recommendations, we need to take time into account.

You described the situation as very problematic — I would even say dangerous. I have two questions regarding your perception of things. If nothing or very little is done, could northern airports disappear? If nothing is done, how long do you think it could take for those airports to cease operations?

Mr. McKenna: You are asking for a very hypothetical answer. I think that service would continue to be below the demand. Given the aging aircraft, fewer and fewer services would be available in those regions.

Currently, very few aircrafts can fly, and fleet modernization does not take into account the use of such runways. Therefore, airplanes accessible to those markets are becoming increasingly rare. So yes, in the long term, some communities could lose their services.

[English]

Mr. Pyle: I would agree with Mr. McKenna's answer. I would add one thing: In a number of these communities that we are servicing, in particular First Nations communities, various levels of government are responsible for the vast majority of the cost of travel, whether directly or indirectly. Therefore, if we were to fail to invest in those runways, ultimately we would drive up the price of a ticket because we would not stop bringing food into those communities or bringing people down for medical appointments or the other things they need to do. As the number of available aircraft reduces and the cost of operating those aircraft grows, the only thing we can do as a private business is pass that cost along through the price of the ticket. Ultimately, we would have a trade-off of capital cost versus operating cost and enhanced safety, given that those communities have no other way to get out. I do not think the government would ever have the desire to close communities, so the alternative is to pay what it costs to travel, which I think would grow fairly dramatically as those aircraft age.

[Translation]

Senator Boisvenu: So, if I have understood correctly, the closing of airports is not necessarily a threat, but a drop in the quality of air services is?

Mr. McKenna: Exactly. Given the huge distances in the North, aircraft capable of covering those long distances are needed. Fewer and fewer aircraft can do that, and that may result in an inability to provide those communities with services. Or, as Mr. Pyle said, the service will continue but at a very high cost.

[English]

Senator Unger: Your presentations have been extremely interesting. I have a curiosity question. You mentioned weather conditions and the lack of proper runways. Do pilots need specialized training to fly into these remote areas?

Mr. Pyle: Our pilots are trained into the communities that we service. We have specialized training that fits the communities. I am not aware of a specialized northern training program.

One of the ironies of aviation as a whole is that when pilots start flying, they fly small, charter, single-engine aircraft and gradually move up in gauge. When they first become commercial pilots, they tend to fly into communities with difficult conditions and limited resources. As they become more experienced pilots, they graduate to international airlines and fly into bigger, better equipped airports. One of the great ironies of the business is that the younger pilots tend to fly into remote communities.

Ensuring that you have internal training policies and methodologies to deal with the conditions and standards is integral. I would suggest that virtually all of the northern airlines, whether ours or our competitors, do that in terms of setting up their own policies and training standards to make sure they are met.

For example, when flying into Winnipeg and the wind is from one direction, there are multiple runways to choose from to make sure you are landing into the wind. When flying into St. Theresa Point, there is one gravel runway at an angle. There are two options: You must determine whether it is safe to land, and if it is not you do not land; or, when it is safe to land, you must have the skills to land with crosswinds. The training programs are unique to where you are flying. I am not sure that is a transport-driven thing so much as it is an internal airline issue.

Mr. Gouveia: Pilots who fly in the North are typically flying under instrument flying conditions. They need to know how to do instrument approaches, which are prevalent when flying in bad weather conditions, and deal with the long hours of darkness in the North in the winter months.

Our northern operators have strict operating procedures, particularly for those pilots flying visual approaches where they require contact through runway light intensity. That is why it is important that northern runways, which may not have fully functional navigational aids like the southern runways, have basic elements like high-intensity runway edge lighting and VASI for the instrument approach to make sure they are on the glide slope. These are all visual clues that help assist with an approach, whether it is an instrument or a visual approach. Pilots are highly trained in these requirements, particularly because they do it day in and day out. Senior captains who work in the North pass that level of experience on to the junior first officers.

With respect to landing on runways in the North, we feel very confident that the standard operating procedures are scalable and relative to the type of operations we undertake and the length of the runways. That is why the previous discussion about RESA was so important. If we reduce the runway length, we will limit the available space for the particular types of aircraft flying in these conditions.

Mr. McKenna: There are no separate government regulations regarding the North, but the companies flying up there invest a lot in training their people in approaching the various airports and flying in those conditions.

Senator Unger: One other question concerns the runways. That seems to be a fairly critical issue in finding some materials that will enable more runways suitable for the North to be built.

There are other countries that have remote northern airports. Is there any research showing what materials they are using? Is it the same gravel that is being used in our North?

We also learned that there is a German mining company — I think it was German — that has been approved to develop an iron ore mine in Nunavut. They will be building their own airport and runway as well, I believe. What material will they be using? Will it be gravel or something different?

Mr. McKenna: I suspect they will be paying for the building of the airport. I suspect they will not be building it themselves.

I do not know what the conditions are in Northern Russia, for example, for flying conditions. North of that there is a lot of ice, so they probably land on ice strips.

There is a serious lack of research done in that area, as I indicated to Senator Boisvenu. We are certainly not aware of any such research, but we certainly encourage it. Canada has its own safety standards and we have some of the highest safety standards in the world. We certainly want to adhere to those standards and not rely on countries that do not meet such standards as far as their technology is concerned.

Senator Mercer: You say there is a lack of research, but is there proper training? I happen to have an advantage here. Yesterday, I spent some time with the Standing Senate Committee on National Security and Defence. While visiting Canadian Forces Base Shearwater we were in a flight simulator for helicopters that land on the back of Canadian warships. Specialized training and programming are required for operating the simulator.

Is there a specialized program for flight simulators to train pilots for the unique situations they will encounter in northern airports? I am not referring to Iqaluit or Whitehorse, but to the more remote airports we have been discussing.

Mr. Gouveia: That is the beauty of simulation. It allows us to dial into all kinds of conditions, all types of weather and all types of runway surfaces. Simulation is becoming more cost-effective for our industry. As a result, more and more companies have access to simulation more than ever before.

In fact, that is a very good point you brought up, and it is one of the things we, as an association working with Transport Canada, are trying to achieve right now. We recognize the importance of simulation and wish to bring in the simulation component as a greater amount of time that is required to hold licences and ratings. Yes, simulation technology has become cheaper and it has allowed us to simulate all types of weather conditions, lighting, runway surfaces, et cetera. This is a huge advantage to our industry.

Mr. Pyle: That is a growing part of the business, actually. The cost of flying real training flights with the price of fuel today is very high. There are certain things you do not get to practise in a real flight. You do not want to practise an engine shutdown. You only get one try at engine shutdown, so you want to do such things on the simulators.

As an airline, we have invested in building simulators for the specific types of aircraft we fly. We are the biggest flyer of an aircraft called the Metroliner. It is a 19-seat aircraft, and we would have 40 or 50 of those aircraft. We actually took the time, as Mr. Gouveia said, to build a simulator specific to that and then mapped some of the northern airports we fly into so our pilots can actually practise with that.

Over time, we need to work with Transport Canada on allowing more and more simulator time to count as part of a pilot's training, as opposed to real aircraft time. In some ways it is actually more intense and better training than on a real aircraft.

Senator Mercer: Thank you.

The Deputy Chair: Thank you very much. Are there any other questions from senators?

I would like to thank you all very much for your interesting testimony. In a couple of month's time I think you will find your views reflected in our report.

Mr. McKenna: If your first report was an indication of the thoroughness and the courageousness of your recommendations, I certainly look forward to reading your second report.

The Deputy Chair: Thank you very much.

(The committee adjourned.)