CAPTAIN DAN ADAMUS
GOVERNMENT AFFAIRS CHAIRMAN
AIR LINE PILOTS ASSOCIATION, INTERNATIONAL CANADA BOARD
STANDING COMMITTEE ON FINANCE
HOUSE OF COMMONS
2002 PRE-BUDGET CONSULTATIONS
MAY 9, 2002
I am Captain Dan Adamus and I am here representing the Air Line Pilots Association, International. I am the Government Affairs Chairman on ALPA’s Canada Board. As well, I am a pilot for Air Canada Jazz.
I would like to thank you for the opportunity to speak to the Committee today.
ALPA represents more than 62,000 professional pilots who fly for 42 airlines in Canada and the United States. As a representative of employees in the airline industry, ALPA has a significant interest in the economic health and well-being of this industry. In the aftermath of the September 11, 2001 tragedies it became clearer than ever before that aviation is integral to the Canadian economy. It is the most reliable and cost-effective means of moving goods and people around our vast country. This is especially true in respect of remote northern territories. With that interest in mind, ALPA would like to draw your attention today to three particular areas of concern which we hope you will consider in fashioning the next budget:
- The Air Travellers Security Charge
- War Risk Insurance, and
- Stabilization of the Airline Industry
The Air Travellers Security Charge
As you may recall from an earlier submission that ALPA had made to this Committee, we were strongly opposed to the imposition of the Air Travellers Security Charge in the prevailing economic climate. The events since September 11th have illustrated the critical importance of the aviation system to the overall functioning of the national economy. We suggested that the surcharge was a punitive levy on the Canadian domestic airline industry, imposed at a time when it could least withstand it.
ALPA indicated to you that in its view the security charge would be a regressive levy as the $24 fee is the same no matter what distance the passenger is travelling. This means that a person flying between Ottawa and Toronto, or Edmonton and Calgary, has to pay the same as a person flying between Vancouver and Halifax. ALPA had predicted that the surcharge would be particularly crippling to short-haul domestic carriers such as Air Canada Jazz and WestJet. These carriers have worked hard to create markets in which they hoped to get people out of their cars and into airplanes. As anticipated, WestJet is already reporting that since the imposition of the $24 surcharge it has seen a sharp decline in utilization of its short-haul domestic routes, and it has therefore had to cut back on some such services.
Even in the United States, where the security tax was far lower than in Canada, analysts have predicted that it is the low-cost carriers like Southwest Airlines that will be the most negatively impacted in the airline industry.
The "user-pay" concept is entirely inapplicable in the current circumstances. It is important to recall that on September 11th the terrorists were not targeting the air transport system, but were utilizing it to turn aircraft into weapons of mass destruction against the general public and government institutions.
We understand that there will be a review of the security charge in November this year. ALPA again encourages the government to abandon this levy in its entirety. The application of the "user-pay" concept in the context of the security of Canada is both unfair and detrimental to the already ailing health of the Canadian airline industry. If the decision is ultimately made to continue with the imposition of the security charge, ALPA would encourage you to provide for a graduated fee reflective of the length of the trip, and reflective of whether the airport in question will benefit from the security enhancements. However, it remains our view that security at airports is in the broader public interest and as such should be funded through general tax revenues and not solely by the travelling public.
War Risk Insurance
In the aftermath of September 11th commercial insurance underwriters cancelled war risk coverage for airlines and reinstated it at much higher premiums for reduced coverage. On September 22, 2001, Transport Minister David Collenette announced that the government of Canada would provide some indemnity for third-party war and terrorism liabilities for essential aviation service operators in Canada for a 90-day period. The government took this action in order to ensure that aviation services would not be interrupted after the international insurers of airlines had indicated that they would no longer provide the level of war risk insurance in place at that juncture. The government undertook to support the airline industry in this respect for a limited time only in order to give the airlines and insurers time to re-assess the global insurance situation and to develop more long-term solutions. Since that time the government has extended the coverage three times, but it is due to expire on May 20, 2002.
The issue of war-risk insurance is not unique to Canada. Governments in the United States and Europe are also providing war-risk insurance to airlines in their respective countries as to date there has been no resolution of this issue as between governments, insurers and airlines. This type of insurance continues to be essentially unavailable commercially at a price that may be borne solely by the airlines.
There are presently discussions going on in the United States and in Europe to create regional mutual insurance schemes in order to attempt to mitigate the gap that has been left by international insurers. However, at this time it is difficult to see how such a solution could work in Canada, which has very few airlines, most of which are very small.
It is therefore imperative that the government of Canada continue to work with the Canadian airline industry to mitigate the impact of the events of September 11th and to provide war-risk insurance until a longer-term commercial solution can be reached. In the Canadian context it appears that a strictly market-based product is not going to be viable. ALPA therefore calls on the government to provide long-term support for the provision of this critical insurance coverage, without which Canadian airlines would be unable to continue operations.
Stabilization of the Airline Industry
In July 2000, when Bill C-26 was passed to ensure the orderly restructuring of Canada’s airline industry, one of the basic tenets of the Bill was to foster competition and to maintain Canadian ownership and control of the domestic airline industry. The government has made a commitment to having a "Made in Canada" airline industry on the sound bases that we have a relatively small population and a very large land mass, and therefore cannot rely on foreign carriers to serve Canada adequately. However, ALPA is concerned that if the government does not have a plan and policy in place soon to sustain and support the domestic Canadian airline industry, we may be faced with an industry on the brink of disaster.
You will recall that at this time last year Canada 3000 was a thriving airline. However, in the aftermath of September 11th and the ensuing economic downturn in the airline industry, Canada 3000 lost momentum very quickly and ultimately went bankrupt, putting out of work almost 5,000 employees, and leaving thousands of travellers stranded around the world or with worthless tickets.
The federal government had announced in the Fall of 2001 that it would provide financial aid to airlines affected by the events of September 11th. However, when Canada 3000 was obviously in financially dire straits, the government could not move quickly enough to provide much-needed assistance. The demise of Canada 3000 has further enhanced the dominance of Air Canada, now the single major player in the airline industry in Canada. The effect of the reduced competition has been felt by passengers and businesses as the level of service has declined, ticket prices have gone up, and there are fewer flights available.
Airlines operate on a slim margin in the best of economic conditions. In order to smooth out the cycles in the industry, and in order to sustain a vibrant Canadian airline industry, it is necessary for the government to put in place a stabilization fund that may be drawn upon by Canadian airlines in emergency or exigent circumstances.
In order to access this fund there would need to be clearly articulated eligibility guidelines, which themselves cannot be so onerous that the fund is in fact inaccessible. In particular, performance conditions attached to the receipt of financial assistance cannot require that the applicant airline’s employees bear the bulk of the economic burden through wage and benefit concessions. It would be simply unfair for workers to be forced to pay the price for their employer’s survival and growth.
Further, when an application for monies from the fund is made, there would need to be a quick government response mechanism. The very nature of an emergency or exigent circumstance is that there is a great urgency to the need. If it takes the government weeks or months to respond, a precarious situation can spiral out of control and go beyond redemption before any meaningful measures can be taken. The Canada 3000 example is a case in point.
We suggest that in order for the Canadian airline industry to be more stable, and to ensure that there is airline competition, it is necessary that there to be some level of government stabilization assistance available. Without such assistance we can envisage further losses of consumer choice in air travel, and the growing dominance of just one airline in this country. We therefore recommend that the government set up an on-going airline industry stabilization fund.
The airline industry has made significant efforts to address the current downturn in air traffic and in the economy. Workers have suffered, as in the case of Canada 3000, or have rallied to assist their airline employers in meeting the present challenges. We are here today asking that the federal government commit itself to getting the airline industry back on its feet and to ensure that there is fair competition in this vital segment of the Canadian economy.
The events of the last few months have illustrated the critical importance of the aviation system to the overall functioning of the national economy. Support of this industry, especially at this time, is clearly in the broader public interest and the government should not abandon its responsibility over a critical part of Canada’s infrastructure.
ALPA thanks you again for the opportunity to appear before you today to make our views known to the Committee. I would be pleased to respond to any questions you may have.