By FRED LAZAR
Friday, May 21, 2004 - Page A19
Does Canada need Air Canada? Across the world, governments have stepped in to prop up failing national airlines, or to create new national carriers. They've done so to ensure air-travel connectivity and avoid job losses (the death of a national carrier causes job losses well beyond the airline itself).
Caving into the unions, the Italian government is currently keeping Alitalia on life support. In Belgium, the government brought together a mix of private companies and regional governments to create SN Brussels from the ashes of Sabena, in order to keep Brussels connected to the rest of the EU. After Swissair collapsed, the Swiss converted Crossair (Swissair's former regional airline subsidiary) into Swiss Airlines to save jobs and maintain Switzerland's international connections. The New Zealand government got back into the airline business in 2001 when it recapitalized Air New Zealand to keep the country connected internally and with international markets.
And the Canadian government bailed out Canadian Airlines on three occasions in the 1990s, primarily to save jobs and placate Western Canadian voters.
Now, as unions negotiate with Air Canada for our national carrier's future, the question arises: If Canada needs Air Canada, what should Ottawa do?
I'd argue that Air Canada plays an important economic role: Many airports depend on the company for their survival. A domestic presence in the air transport industry is much more important to Canadians and the economy than in other industries (e.g. steel, auto) to which Ottawa will provide financial assistance.
Like the finance, telecommunications, and energy sectors, an efficient transportation sector is essential to economic progress. It does matter how we can get from one location to another via air. Air transport is essential to economic progress. Mobility of people and goods is critical for economic growth and development at the national and regional levels.
Consider that Air Canada and Jazz serve more than 50 U.S. cities directly from Toronto. All other carriers (US and Jetsgo) serve less than 15 collectively. Without Air Canada, we will still be able to get to any destination we want -- but we may have to make an extra stop, and possibly an extra change of planes to get there. This will impose costs on all Canadian travellers and shippers, and make the country less competitive.
Still, Ottawa should not consider a bailout for Air Canada. All Air Canada needs is a level playing field; for that matter, so does the entire domestic airline industry.Yet federal policy has turned the air transport industry into a cash cow.
Consider the combined effects of the security tax (approximately $200-million), government ground-lease payments (the approximately $250-million airport authorities must pay each year to Ottawa, which retains ownership of airports and their lands) and surpluses of the non-profit airports (approximately $100-million).
Add in Nav Canada's annual interest and principal payments on the $1.5-billion debt it incurred in buying out the air navigation assets from Ottawa, and of the Greater Toronto Airports Authority on the $800-million debt it incurred for bailing out Jean Chrétien when he terminated a contract with the private developers of Terminal 3 at Toronto's Pearson International Airport ($180-$220 million). As well, add in the excise tax on jet fuel ($50-million).
These foolish government policies put additional costs of almost $800-million per year on the airlines and their customers. At least $350-million falls on Air Canada -- an amount exceeding the $200-million shortfall Air Canada is currently discussion with its unions.
Canada is big and sparsely populated, so federal air policy should focus on reducing the costs and barriers to travel rather than serving as one of the primary disincentives in the system.
Ottawa should immediately rescind the Air Canada Participation Act which forces Air Canada to maintain three maintenance facilities and subjects it to stringent official-language requirements. Ottawa should declare the airlines, the airports and Nav Canada as essential services, revoking the right to strike, and subjecting employer-employee negotiations to final-offer arbitration (with consumers' ability to pay as the key factor in arbitration decisions).
Ottawa should also change the Companies Creditors' Arrangements Act to allow presiding judges to abrogate existing labour contracts. If that had been done when Paul Martin became Prime Minister, Air Canada and its employees would not have had to endure the current labour turmoil.
As well, Ottawa should: increase the foreign ownership limits to 49 per cent; start negotiations with the Americans to create a North American Common Aviation Area; stop collecting the $250-million annually in ground rents from the country's largest airports; and subject the largest airport authorities to U.K.-style price regulation. If Canada's eight largest airport authorities had broken even last year and paid no ground rents to Ottawa, aeronautical fees for all airlines could have been reduced by at least 60 per cent.
The government also should subject Nav Canada to economic regulation and impose some discipline on the company to more effectively cut its costs. Nav Canada has just proposed its fourth price increase since January, 2002.
Air Canada doesn't need a bailout. It needs measures that create the framework for all our carriers to thrive globally and ensure that Canadians are connected directly, conveniently and efficiently to the world
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