2016-17 Federal Budget Consultation Submission Presented to The Parliamentary Standing Committee on Finance By Dr. Brock Friesen, President & CEO, First Air JANUARY 2016
Executive Summary First Air is Canada s primary provider of lifeline goods and medical transport services to Canada s northern and Aboriginal peoples, operating on a near-exclusive basis for more than 65 years. Canada s northern and Aboriginal peoples depend on this critical air transport service for access to the necessities of life and to support their essential economic activities. First Air s ATR42-300 turboprop aircraft, which are uniquely equipped to serve Canada s remote northern communities, are beyond their economic life: service disruptions occur regularly, service reductions have been commenced, and replacements are required on an immediate and critical basis. The average age of the 300-series fleet is 26 years. There are no viable alternative service providers: First Air has a unique set of capabilities, including landing gear and expertise on northern gravel and ice, expert personnel, and infrastructure. Northern and Aboriginal communities have high levels of poverty, and funding the project through significant price increases is not an option. These communities will suffer greatly from any loss of services. Urgent and essential fleet replacement gross costs are $101M over two years, of which First Air is seeking one-half. First Air is asking that the Government of Canada provide the Minister of Transport with $42M over two years to enable these critical air transport infrastsructure investments. Consequence of not funding: Without funding support for urgent and critical fleet replacement imperatives, First Air will need to drastically reduce the volume and frequency of flights and eliminate services to a number of our northern communities that depend on this service for the necessities of life. Dr. Brock Friesen, President & CEO, First Air First Air 2016-17 Federal Budget Submission P a g e 1
About First Air Is a Canadian air transportation services company with headquarters in Kanata, Ontario, Is a wholly owned subsidiary of Makivik Corporation, a Québec-based company located in Kuujjuaq, Nunavik, Québec, which acquired First Air in 1990 as part of its responsibility for administering the land claim settlement of the Inuit of Northern Québec, Has been the primary provider of medical travel and transportation of lifeline goods to Canada s northern and Aboriginal persons on a near-exclusive basis since 1946, Is one of Canada s leading employers of northern and Aboriginal peoples, employing 892 FTEs, of which 50% are northern and 20% are Aboriginal peoples, Carries 225,000 passengers and 22 million kilograms of supplies each year and is the primary provider of lifeline goods, including food, medical, industrial and consumer products, Canada Post mail service and medical travel service for Canada s north, Connects 34 northern and Aboriginal communities within Nunavut, Nunavik and the Northwest Territories to Edmonton, Winnipeg, Ottawa, and Montréal, Transports business people, service providers, public servants and Members of Parliament between the National Capital and other Canadian commercial hubs and the North, Did you know First Air has been the primary transportation provider to Canada s northern and aboriginal communities for more than 65 years, carrying 22M kilograms of lifeline supplies and 225,000 passengers, including service providers and our Members of Parliament from the National Capital and other urban hubs to Canada s North. Without urgent critical fleet replacement funding support, First Air will need to drastically reduce flights and eliminate services to a number of communities. Operates a fleet of 18 aircraft, including the nine turboprop ATR42-300 planes that must be replaced, plus three turboprop ATR42-500 (not yet in service), and six Boeing jet planes, Provides passenger and cargo services on both a scheduled and charter basis, and Is expected to expand its freight and passenger services to meet growing demands and expectations for projected development in Canada s arctic regions. First Air 2016-17 Federal Budget Submission P a g e 2
Issue Canada s northern and Aboriginal peoples depend on air transport for access to the necessities of life and to support their essential economic activities. First Air, which has been operating this air transport service for more than 65 years on a near-exclusive basis, must execute and fund a fleet replacement project to maintain these life-sustaining and vital economic development services for Canada s northern and Aboriginal peoples. Fleet replacement costs cannot be funded by First Air which is a small business, alone. Northern and Aboriginal communities have high levels of poverty. Funding fleet replacement costs through significant price increases is not an option. Given federal constitutional authority over both air transportation and northern and Aboriginal peoples, these communities should expect some contribution from the Government of Canada toward ensuring that the vital air transport service on which northern life depends is in place, There are no viable alternative service providers that have the facilities, expertise, staff or infrastructure to deliver these services. Without funding through Canada s vital business support programs, First Air will need to drastically reduce the volume and frequency of flights or eliminate services to a number of communities. Now, First Air must execute and fund a fleet replacement project to maintain these life-sustaining services for Canada s northern and Aboriginal peoples. Affordable air services in the North are essential to fulfill the objectives of Arctic presence and ensuring essential services to indigenous Canadians living in remote locations. Government policy based solely on user-pay for air services to the north is no longer sustainable: immediate support for First Air's urgent recapitalization costs and a policy review are required. First Air 2016-17 Federal Budget Submission P a g e 3
Dialogue with Government of Canada to Date First Air brought forward these issues to the Government of Canada very early in 2015, meeting with various funding agencies and department officials, including the Office of Prime Minister Stephen Harper, Transport Minister Lisa Raitt, and Finance Minister Joe Oliver. First Air was advised by funding agencies that fleet replacement costs could not be covered by their program mandates. Departments, including Aboriginal Affairs and Transport, reported that the Government of Canada could not move forward with any new spending initiatives that were not included in Budget 2015-16. Further, given a pending election, this urgent matter would have to wait until after the election and a new Minister was in place. Given the food security and health safety issues posed by the critical fleet replacement requirement, First Air reached out to Privy Council and Treasury Board. Officials advised First Air to bring the matter forward though the 2016-17 Budget Consultation and to continue dialogue with Transport officials, which First Air has done. During the 2015 federal election, Canadians opted for spending on vital infrastructure investments and for more compassionate treatment of our aboriginal peoples. First Air is asking that Budget 2016-17 provide the Minister of Transport with funding to assist First Air to invest in this vital air transport infrastructure on which northern and aboriginal life depends. First Air has applied to BDC, having to pay $50,000 to BDC to have its loan application assessed and, if approved, which has not been the case as yet, would need to take on additional interest bearing debt. The potential loan would cover the cost to put only one aircraft into service. Rather, First Air is seeking a federal contribution within a model where First Air, as a small business, cannot maintain vital jobs for Aboriginal people, affordable transport services to Canada s north, and large capital infrastructure costs that exceed operating outcomes. First Air 2016-17 Federal Budget Submission P a g e 4
A sampling of the programs to which First Air has applied or had significant dialogue but been advised that the program mandates do not extend to fleet replacement costs includes: Aboriginal Affairs & Northern Development Canada Community Economic Development (AANDC - CED) Government of Canada Economic Development organization for Northern Ontario (FedNor) Canada Economic Agency for the North (CanNor) Canada Economic Development for Quebec Regions (CEDQR) FedDev Investing in Business Growth & Productivity (FedDev) Canada Strategic Aerospace & Defence Initiative (SADI) Ontario Aboriginal Business & Community Fund Required Funding First Air is seeking a financial contribution of $42M over two federal fiscal years, Budget 2016/17 and 2017/18, being 50% of net fleet replacement costs of $84M CDN. Fleet replacement costs are comprised of $75M to acquire the nine turboprop aircraft plus $26M to customize for the northern environment, including steep slope approach and landing capabilities on gravel, for gross costs of $101M, less $17M planned recovery from the sale of the outgoing 300 series aircraft, for net cost of $84M, subject to US currency exchange rate fluctuations. The funds will be wholly allocated to acquiring and customizing nine turboprop ATR42-500 series aircraft to replace the nine outgoing ATR42-300 series aircraft which now have an average age of 26 years and must be replaced. These aircraft transport 225,000 passengers per year. First Air 2016-17 Federal Budget Submission P a g e 5
Job Creation and Avoidance of Job Loss First Air is one of Canada s leading employers of northern and Aboriginal peoples, employing 892 FTEs, of which 50% are northern and 20% are Aboriginal peoples. In addition to replacing the fleet, as is urgently required, this federal funding will provide job stability for these workers and result in some net new full-time jobs to carry out the custom modifications to the new aircraft an emerging area of global expertise within First Air. Benefits to Canadians of providing this funding Provides an increase of nearly 30% of cargo space, with custom configuration in the newer 500 series aircraft, Expands the availability of flights by seven extra days per year, due to shorter maintenance requirements, Reduces the backlog of cargo warehoused in Iqaluit, thereby providing better service and fresher food to the communities, Provisions supply lines for necessities of life for Canada s Aboriginal and northern peoples, Enables jobs and economic activities in Canada s north and regional operating hubs, Ensures air transport equipment, infrastructure and service capabilities are consistent with regulations and expectations, Provides faster deliveries and additional contracts and routes, Results in safer more reliable aircraft, Enables First Air to promote unique Canadian expertise to international operators with commercial benefits for Canada, Generates important commercial, regional, economic and cultural benefits to northern and Aboriginal peoples, and to workers in First Air operating centres in Ontario and Quebec, Ensures Canada has a viable air transportation service to address the life sustaining needs of its northern and Aboriginal peoples and emergency and humanitarian services, Provides industrial benefits to Canada s regional air transportation services industry, First Air 2016-17 Federal Budget Submission P a g e 6
Allows for Arctic development and northern tourism thereby promoting local communities and selfsustainability, and Enables fulfillment of the Canada Post 7+ year cargo contract and serve new western routes under this contract. Outcomes of not providing this funding Demise of this over 65-year vital service to Canada s north, Need for Canada to source an expensive alternative and a prolonged period without required services would be inevitable, and Drastic reductions and terminations of services to a number of communities First Air serves. First Air s Important Partners First Air works in partnership with the following organizations to deliver its valued service to Canada s northern and Aboriginal communities: Air Transport Association of Canada Arctic Hope Canadian Parks and Wilderness Society Center for the North Global Vision Northern Program Northern Air Transport Association Niqinik Nuatsivik Nunavut Food Bank Nunavut Starts Hockey Camp Project North Qikiqtaaluk Corporation Iqaluit Humane Society First Air 2016-17 Federal Budget Submission P a g e 7
Contact First Air (Bradley Air Services Limited, carrying on business as First Air) 20 Cope Drive Kanata, Ontario, Canada K2M 2V8 Tel: 613-254-6200 ATTENTION Dr. Brock Friesen, President & CEO. bfriesen@firstair.ca (613) 254-6424 Alexandra Pontbriand, CPA, CA, Vice President Finance apontbriand@firstair.ca (613) 254-6241 First Air 2016-17 Federal Budget Submission P a g e 8