Appearance at TRAN: Supplemental Mandate Letter and on the pre-entry testing requirements

NAV CANADA

PROPOSED REVIEW OF LEVEL OF SERVICE at NAV CANADA

LOCATION: NATIONAL

Issue/Source: NAV CANADA’S LEVEL OF SERVICE REVIEW AT SELECTED OPERATIONA SITES

Date: FEBRUARY 15, 2021

Suggested Responses

  • Over the last number of weeks I have had the opportunity to hear the concerns expressed by communities, their officials, as well as my provincial ministerial colleagues on the proposed level of service changes by NAV CANADA.
  • I understand those concerns and can assure you that I am fully committed to aviation safety and the need for these concerns to be properly heard.
  • As you are aware, NAV CANADA is a private, arms length corporation that is mandated to manage Canada’s air navigation services
  • The role of Transport Canada is clear in that it provides thorough safety oversight for these services.
  • We can all appreciate that the level of air navigational service required at airports can evolve based on technology, flight volumes, the type of flight operations (e.g., large commercial vs private) and the environment (e.g., changing weather patterns).
  • However, I will be clear that consultation is a requirement for studies proposing changes and that it must be completed prior to decisions being made.
  • At the conclusion of these studies, Transport Canada safety experts will review each to ensure that any reduction or termination of service proposed does not increase unnecessary risk to aviation safety.
  • I will not allow proposed changes that introduce safety risks to proceed without further correction. 
  • I can also confirm that at this time, Transport Canada officials have not received any final studies from NAV CANADA and that no decisions have been made on proposed changes.

If pressed on whether the Minister could force NAV CANADA to suspend this review:

  • NAV CANADA is a private,arms length corporation that is mandated to manage Canada’s air navigation services; while Transport Canada provides thorough safety oversight for these services.
  • Transport Canada, as the regulator, will not permit any changes that would introduce unnecessary safety risk into the system.
  • I have had the opportunity to hear the concerns expressed by communities, their officials, as well as my provincial ministerial colleagues.
  • We will continue to listen to the feedback of stakeholders on these proposed changes as part of our comprehensive review of the aeronautical studies once they are received.

BACKGROUND INFORMATION

Recent announcement on additional staffing cuts

On September 23, 2020, NAV CANADA announced additional staffing cuts. NAV CANADA is also reviewing its operations and considering level of service reductions at several sites, including closures of some sites. This comes as a result of traffic plateauing in mid-August and a deterioration in expectations for a longer term recovery. Compared to a year earlier, movements are down 62 per cent and revenues down 75 per cent. Despite cost saving measures and a rate increase on September 1, NAV CANADA has indicated it now expects to return to breakeven by 2023, a year later than previously expected.

NAV CANADA restructuring and workforce adjustments include the following:

  • Reductions in the number of permanent positions – more than 720 positions have been/will be eliminated through workforce adjustments, representing 14% of workforce and annualized cost savings of $67M;
  • Changes to management compensation; 
  • Release of most of their operational students;
  • The closure of two Flight Information Centres; and, 
  • Initiating a number of aeronautical studies to examine additional service level changes.

From CANSCA - air navigation services means:

  • aeronautical communication services ;
  • aeronautical information services ;
  • aeronautical radio navigation services ;
  • air traffic control services ;
  • aviation weather services ;
  • emergency assistance services ; and
  • flight information services

in respect of Canadian airspace or any other airspace of which Canada has responsibility for the provision of air traffic control services. NAV CANADA provides air navigation services for half of the north Atlantic international airspace.

NAV CANADA is conducting aeronautical studies to examine level of service reductions/ changes at the sites listed below:

Potential Control Tower Closures

  • St-Jean (Full closure)
  • Fort Mc-Murray (propose to move to Aerodrome Advisory Service –AAS)
  • Prince George (propose to move to Aerodrome Advisory Service –AAS)
  • Whitehorse (propose to move to Aerodrome Advisory Service –AAS)
  • Regina (propose to move to Aerodrome Advisory Service –AAS)
  • Saul-Ste-Marie (propose to move to Aerodrome Advisory Service –AAS)
  • Windsor (propose to move to Aerodrome Advisory Service –AAS)

Potential Flight Service Stations Closures

  • High level FSS
  • Churchill FSS
  • Peace River FSS
  • Lloydminster FSS
  • Castlegar FSS

Potential Flight Service Station (FSS) overnight

  • Fort Nelson FSS
  • Brandon FSS
  • Prince Albert FSS
  • Fort St John FSS
  • Inuvik FSS
  • Norman Wells FSS
  • Sept Iles FSS
  • Port Hardy FSS
  • Red Deer FSS (initiated early September)

Elimination/Reduction of Hours – Remote Aerodrome Advisory Services (RAAS) under Consideration

  • Dawson Creek RAAS
  • Fort McMurray
  • Flin Flon RAAS
  • Dauphin RAAS
  • The Pas RAAS
  • Buffalo Narrows RAAS
  • Kuujjuarapik RAAS
  • Blanc Sablon RAAS
  • Natashquan RAAS
  • Sydney RAAS

NAV CANADA intends to have the results of these studies submitted to Transport Canada between March and May 2021.

NAV CANADA Finance:

  • In spring 2020, the substantial decline in revenues at NAV CANADA due to COVID-19 and expectations of a slow recovery led NAV CANADA to conclude that, even after cost cuts, it faced a {ATIP removed} liquidity shortfall over the coming 5 years.
  • To resolve this shortfall NAV CANADA intended to raise ~$900M in new financing.
  • However, to raise this capital NAV CANADA had to meet an “additional indebtedness covenant test” on its existing ~$1.5B of debt. The test required demonstrating that NAV CANADA would have sufficient revenues to meet certain costs including a “debt service coverage” multiple of 1.25x.
  • As NAV CANADA could not pass this test, it could not raise the capital. Given that cost cuts alone could not rectify the problem, NAV CANADA faced two options:
    • Request government support (ultimately ~$242M) as a grant which it could count as revenue, thereby allowing the test to be met.
    • Increase fees on customers to generate the required revenue.
  • The request for a grant was denied on the basis that, as an independent entity NAV CANADA should focus on cost controls, obtaining covenant waivers and minimal fee increases to raise needed capital. A grant from government would perhaps have only deferred the need for an ultimate fee increase, as the debt only covered $900M {ATIP removed}
  • Ultimately NAV CANADA decided to increase rates 29.5% to generate sufficient revenues to meet the covenant test and proceeded to issue $900M in debt at very favourable rates.
  • WestJet appealed the fee increase, pursuant to the Civil Air Navigaton Services Commercialization Act, but the Canadian Transportation Agency denied the appeal.
  • Though the rate increase took effect on September 1, 2020, cash payment from airlines is deferred by one year so as to attempt to mitigate the impact on ticket prices and airlines will have five years to repay the amounts owing.
  • Prior to the onset of COVID-19, NAV Canada had benefitted from a steady increase in air traffic for almost a decade.
  • Air traffic, as measured by Weighted Charging Units (WCUs), declined by 34.1% in FY20 versus assumed growth of 3.7% in NAV Canada’s budget.
  • FY20 revenues down 30.4% year-over-year, from $1,437M to $1,000M. Resulting net losses of $584M, with further losses of {ATIP removed} forecast for FY21.
  • While Weighted Charging Units (WCUs) are expected to decrease further in FY21 by 14.6%, the 29.5% increase in service charges will result in FY21 revenues of $1,097M being approximately 10% higher than in FY20.
  • {ATIP removed}
  • NAV Canada obtained a waiver of the rate covenants and certain provisions relating to additional indebtedness covenants under its Master Trust Indenture and General Obligation Indenture, in respect of its  2021, 2022, and 2023 fiscal years. Following that, it drew down $225M from its syndicated credit facility, and issued $850M worth of General Obligation Notes, and a further $500M in January 2021. Nav Canada plans to maintain a minimum of {ATIP removed} of liquidity at all times.
  • NAV Canada has stated that they have accessed the Canada Emergency Wage Subsidy and reduced costs to the extent feasible without reducing service and jeopardizing safety, including:
    • Reduced the fiscal 2020 capital spending program by nearly $60 million.
    • Eliminated more than 720 jobs through reductions in staffing along with early retirements (18% of workforce), resulting in the lowest staffing levels since 1996. 
    • Reduced management compensation.
    • Sought concessions from bargaining agents on deferred economic increases.
    • Reduced or eliminated all discretionary spending.

Level of Service Changes:

  • “An aeronautical study” - means a study designed to identify the risks to aviation safety attendant upon a particular course of action and to determine how to eliminate or reduce those risks.
  • NAV CANADA’s Level of Service Policy describes the requirements for the provision of air navigation services in Canada and in international airspace assigned to Canadian control. Periodic internal reviews examine operational and safety issues and customer needs to determine whether a formal change proposal is required. Every person who provides a civil air navigation service shall, where the person proposes to terminate the service or to reduce the level of service that is provided, notify the Minister (CAR 806.2 (1). An Aeronautical Study is initiated when an internal review indicates that a change in the level of service may be appropriate.
  • Aeronautical Studies evaluate changes to the Air Navigation System (ANS) including the following: changes air navigation services, changes to airspace classification and design, and the introduction or termination of a service.  Aeronautical Studies consider all relevant factors.
  • Formal consultation with stakeholders is central to all Aeronautical Studies. The aim is to have a dialogue with stakeholders and ensure safety concerns are appropriately addressed.
  • In accordance with the Civil Air Navigation Services Commercialization Act (CANSCA), but subject to provisions of the Aeronautics Act, NAV CANADA may propose modifying the levels of the air navigation services it provides. The Minister of Transport has the authority to reject a proposal if the reduction or termination of services could unacceptably increase the risk to aviation safety. TC’s role is to verify that NAV CANADA complies with regulations and standards for the provision of safe air navigation services.

NAV CANADA Level of Service reductions in Spring 2020

  • On 7 April 2020, NAV CANADA presented a proposal to Transport Canada (TC) soliciting its support to implement a temporary level of service change for a period of 120 days at select locations during quiet hours (from 22h00 until 06h00). This initial proposal included 62 air traffic facilities and was presented as a solution to provide NAV CANADA with greater depth and back-up capability in order to ensure the provision of air navigation services during busy periods (daytime) throughout the COVID-19 global pandemic.
  • TC reviewed the Safety Management Plan and Hazard Identification Risk Analysis on the concept of operations provided by NAV CANADA. This initial review removed some of the proposed sites and a second analysis was generated around the importance and availability of regular weather observations and its potential impact on air operations (medevac flights, Extended-range Twin-engine Operational Performance Standards (ETOPS) aerodromes, Northern hubs, etc.).
  • The final list of affected facilities proposed by NAV CANADA included a total of 24 locations (Annex A).
  • Ultimately, NAV CANADA proceeded with changes at 18 select sites (down from the 21 that were accepted by TC) as three locations are able to receive service from an alternate site.

Annex A

NAV CANADA’s final proposal to Transport Canada included 24 sites below.

  • Three facilities not accepted by the Director General of Civil Aviation following review have been highlighted in grey.
  • Ultimately, 21 of the 24 sites proposed, were found acceptable to Transport Canada.
  • A further three were eliminated from the list as service is provided from alternate locations (highlighted in turquoise)
  • Fort Nelson, BC
  • Port Hardy, BC
  • Prince Albert, SK
  • Cranbrook, BC
  • Penticton, BC
  • Terrace, BC
  • Red Deer, AB
  • Fort St-John, BC
  • Kamloops, BC
  • Deer Lake, NL
  • Charlottetown, PE
  • St-John, NB
  • St-Anthony, NL
  • Sandspit, BC
  • Sydney, NS
  • Val D’Or, QC
  • London, ON
  • St-Hubert, QC
  • Kelowna, BC
  • Victoria, BC
  • Abbotsford, BC
  • Rouyn-Noranda, QC
  • Sudbury, ON
  • Regina, SK

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