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Minister Collenette visits Stupid Investments R Us

By Walter Robinson
web posted March 31, 2003

Overheard recently at Stupid Investments R Us. "Hello Mr. C, how's your boss and the whole legacy thing going? Upset any major trading partners lately? And how about that megadoggle gun registry? No time for chit chat, sorry about that. I see you're itching to blow a couple hundred million dollars or so in a pointless venture.

"Sorry I don't have any Bre-X stock for you but take a look at this firm. It's in a troubled, global industry. It has a business model that makes no sense. It carries $13.9 billion in debt, has no assets to really speak of, is losing $2 million a day, has a plummeting stock value rivaling a pez dispenser, is plagued with labour issues and is due to post another quarterly loss.

"You're in for a couple hundred million! Really? Sure you don't want some Super 7 tickets or Florida swampland instead? What's that? It's not your money. Oh, it came from taxpayers, well then what do you care? Sign on the dotted line." Mr. C left his broker and the laughter emanating from the office was deafening and somebody quoted P.T. Barnum and something about suckers being born every minute.

David CollenetteIf federal Transport Minister David Collenette decides to take an equity position or offer up any other form of direct government (read: taxpayer) assistance for struggling Air Canada, this imaginary scenario could indeed become prophetic.

In Question Period in the House of Commons, Mr. Collenette has all but stated he favours a bailout of Air Canada. In so doing, he has reinforced his well deserved moniker as the undertaker for Canada's domestic aviation industry. Indeed, since his appointment as Transport Minister on June 11, 1997, Mr. Collenette has lurched from one policy blunder to another when it comes to aviation policy choices.

Under his watch over half a dozen airlines have disappeared including Canada 3000, InterCanadien, and Canadian Airlines. Under his watch, Canada's airports have been gouged to the tune of $250 million annually in unjustified and unnecessary airport rents. Under his watch the Air Travelers Security Charge – aka: the flying tax – was implemented and decimated passenger volumes and further eroded the profitability of Canada's airports and airlines.

The Canadian Taxpayers Federation (CTF) opposes any form of direct taxpayer assistance to Air Canada or other airlines. Should Minister Collenette and the Cabinet seek to pilfer the public purse in such a reckless pursuit, the CTF will marshal a national backlash not seen since it led overwhelming public opposition to the NHL subsidy scheme the feds tried to implement in January 2000. Here's why …

Fact #1: Even before September 11, 2001, the global aviation industry was in trouble. Issues of excess capacity, unrealistic business growth forecasts, fare structures that were out of whack (read: too expensive) with consumer expectations and the surge of discount regional and national carriers worldwide that were capturing market share spoke to the reality of the global aviation marketplace.

This reality in large part continues today. In such an environment, trying to bail out an airline is akin to trying to negate and circumvent the laws of gravity … it is virtually impossible not to mention – pardon the pun – an out of this world proposition.

Fact #2: Air Canada, for the most part, has sown the seeds of its own destruction which is playing itself out on a weekly basis right now.

The decision to buy Canadian Airlines three years ago – under Ottawa's stringent conditions – in hindsight, was a mistake. It would have been better to let Canadian go under – as businesses do from time to time, think Eaton's – and pick up the routes, equipment and employees in the aftermath.

Air Canada also negotiated inflexible labour contracts with its unions which runs against the grain in an industry now burgeoning with low-cast, non-unionized upstarts. While the company is in the process of seeking concessions from its various unions (CAW and CUPE), Minister Collenette's tacit assurances and broad hints at a bailout have no doubt emboldened the resolve of union leaders to remain intransigent.

Why give in to company demands when the federal Transport Minister has already revealed his hand that he wants to play saviour with taxpayer dollars for Air Canada?

Finally, Air Canada's business model in which three subsidiary low-cost carriers (Jazz, Zip and Tango) poach potential fares and cannibalize the mother carrier's profitability defies explanation. These issues are for the airline to solve, not taxpayers.

Fact #3: Federal transportation policy choices have hindered and hurt all of Canada's airlines, not just Air Canada.

By restricting the degree of foreign ownership allowed for Air Canada shares, Ottawa has effectively barred any foreign white knights from making a pitch to assist Air Canada. As well, the decision to initially charge domestic travelers $12 (now $7) on one-way flights to defray post 9/11 security improvements was, let's be blunt, an offensive tax grab concocted by Mr. Collenette and former Finance Minister Paul Martin.

This flying tax – spawned in Budget 2001 – was not subjected to any impact assessments (violating Treasury Board rules) and the feds never drew and explained the line between general public security costs that should be borne by all taxpayers and private benefits to be borne by travelers through user fees.

Compare this situation to the issue of port security. On January 22, 2003, Transport Canada announced funding of $172.5 million in new marine security measures including the cost of screening cruise ship passengers. So let's get this straight, four airplanes were hijacked on 9/11 and used as missiles to bring down the two towers of the World Trade Centre, crash into the Pentagon and disintegrate in a Pennsylvania field killing 3,000 civilians in the process and our government's response is to tax people who fly.

But when it comes to cruise ships – those potential weapons of mass destruction traveling at far less than jet speed – all taxpayers will cover security costs to ensure that Osama Bin Laden's disciples don't crash them into … icebergs.

Fact #4: Ottawa transferred ownership of most airports to local authorities during the 1990s as it realized it could not fund the significant capital improvements required. But it kept control of 26 strategic airports in major cities and negotiated long-term leases with local authorities in which rent would be paid to the federal government to reflect the historic investments made prior to the transfer of these airports.

Canada's eight largest airports pay $250 million annually in rent to Ottawa. But the Auditor General has noted this regime is unfair and confusing. And by 2010, Canada's airports will have invested almost $4 billion in expansion and equipment modernization to repair Ottawa's physical neglect of the last 20 years and prepare for the 21st century.

These rents get passed onto airport tenants including airlines which in turn pass them through to consumers.

From these facts, it becomes self-evident that most of Air Canada's wounds are self-inflected and that the only role Ottawa should play is to repair the damage caused by its own policy choices to benefit the domestic airline industry as a whole.

It should axe the flying tax, eliminate or phase out airport rents quickly and lower taxes on aviation fuel. And our friend Mr. C should avoid the temptation to make any investments on the taxpayers' dime.

Walter Robinson is the Federal Director of the Canadian Taxpayers Federation.

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