US embassy cable - 05OTTAWA3285

UNCLAS SECTION 01 OF 02 OTTAWA 003285 
 
SIPDIS 
 
STATE FOR WHA/CAN - ALAN HOLST, EB/TRA - JOHN BYERLY, TOM 
ENGLE 
 
STATE PASS USTR FOR SAGE CHANDLER 
 
TRANSPORTATION FOR OST/IA (EDDIE CARAZO, MARY STREET, SUSAN 
MCDERMOTT) 
 
COMMERCE FOR 4320/MAC/WH/ONIA (BASTIAN, WORD) 
 
FAA FOR LEEANN HART 
 
TSA FOR SUSAN WILLIAMS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAIR, EINV, CA 
SUBJECT: Airlines confident of seeing complete Open Skies in 
Canada 
 
REF:  (A) 2005 Ottawa 1374 
 
1. Sensitive But Unclassified - For Internal USG use only 
 
2. (SBU) Summary: Conversations with the President of the 
Air Transport Association of Canada (ATAC), and separately 
with Air Canada officials reveal that the Canadian civair 
industry is confident that Canada and the United States will 
achieve a full U.S. model Open Skies civair agreement during 
next week's negotiating session.  ATAC relayed that all 
Canadian passenger carriers support the U.S. Open Skies 
model, however, some carriers will press for progress on 
slot access and customs facilitation concerns to allow the 
airlines to fully develop the opportunities that Open Skies 
will provide.  ATAC acknowledged that these will likely take 
the form of follow-on discussions with either FAA (slots) or 
DHS/CBP (customs). On the cargo side, both ATAC and Air 
Canada identified Kelowna Flightcraft (KF) as the major, 
possibly sole, opponent to cargo liberalization.  KF (doing 
business as Purolator) is Canada's biggest cargo carrier and 
its business model depends on the co-terminalization 
restrictions currently in place.  Some of our interlocutors 
believe that the GoC has taken stock of the political cost 
of alienating KF and may have determined that Open Skies 
benefits are easily worth the price the government may pay. 
End summary. 
 
3. (SBU) Cliff Mackay, President and Fred Gasper, V.P. 
Policy of the Air Transport Association of Canada (ATAC) 
told ECON Minister-Counselor on November 1st that every 
passenger carrier in Canada supports moving to the full U.S. 
Open Skies model.  Notwithstanding this support, though, 
there remain concerns that will need to be addressed to 
allow Canadian carriers such as Westjet and Air Transat to 
truly develop the opportunities a new, true, Open Skies 
agreement will present.  In particular Mackay noted that for 
new entrants into the U.S. market the lack of access to 
slots at key U.S. airports is a barrier that will prevent 
them from making a viable business case for fifth freedom 
operations.  In addition, carriers such as Westjet and Air 
Transat have identified facilitation issues, i.e. customs 
staff availability and customs clearance procedures, as 
potential barriers to viable fifth freedom operations 
through the United States (the typical scenario is that upon 
landing in the U.S. all passengers must pass through U.S. 
Customs and Immigration even if the passengers' final 
destination is a third country).  Mackay and Gasper 
acknowledged concerns such as these are not typically dealt 
with in a civil aviation agreement, but emphasized that 
these are significant issues for Canada, they will color the 
discussion, they thought that Canada will be looking for an 
expression of "political will" to address them.  The ATAC 
officials suggested that the Security and Prosperity 
Partnership (SPP) is an appropriate forum where these 
concerns could eventually be discussed and resolved. 
 
4. (SBU) With respect to Canadian cargo carriers, Mackay and 
Gasper told us that Kelowna Flightcraft (KF) Canada's 
biggest air cargo operator (doing business as Purolator 
Courier) has been steadfast for years in its opposition to 
liberalization on the cargo side and there has been no sign 
of a change of sentiment.  Indeed, KF's business model 
depends on the current cargo co-terminalization 
restrictions.  On the other hand, Mackay told us, some 
smaller cargo operators are now signaling that they see 
opportunities arising from cargo liberalization.  Until 
recently they had been cowed somewhat by KF's unyielding 
opposition to altering the cargo rules, and by rumors that 
UPS and FedEx pilots' scope clauses will force UPS and FedEx 
to fly to all co-terminal points if restrictions are lifted. 
 
5. (SBU) At a meeting on November 2nd, Alain Boudreau, Air 
Canada's Director for International Regulatory Affairs and 
Joe Galimberti, Director Government Relations for ACE 
Aviation, confirmed to ECON Minister Counselor the ATAC 
claim that Kelowna Flightcraft is the biggest opponent of 
air cargo liberalization.  But Boudreau noted that the GoC 
has recently received a consultant's report that 
demonstrates that Open Skies liberalization would have no 
negative impact on cargo operators, whereas KF has 
apparently never provided objective data to support its 
assertion that lifting co-terminalization restrictions would 
be detrimental.  Further detracting from the credibility of 
KF is the fact that representatives from that company did 
not attend the Canadian delegation pre-meeting or send 
written comments even though the carrier is one of three 
cargo airlines represented on the delegation.  According to 
Boudreau, the final nail in the coffin of those opposed to 
cargo liberalization is the fact that ALPA President Duane 
Woerth, at an Air and Space Law conference in Montreal in 
September, dismissed any connection between co- 
terminalization and scope clause requirements to fly to all 
co-terminal points.  Boudreau and Galimberti believe that 
the GoC no longer views Kelowna Flightcraft opposition as a 
showstopper to achieving full Open Skies - and that the 
mandate to Canada's negotiator, John McNab, is to agree to 
full U.S. Open Skies. 
 
6. (SBU) Air Canada is of course a strong proponent of 
further civair liberalization; and Boudreau noted that 
despite having advocated for an "Open Skies plus" model in 
the recent past (involving home country cabotage) Air Canada 
has backed away from that forward leaning posture and now 
would be satisfied with the canonical U.S. Open Skies 
agreement.  The key objective for Air Canada during this 
negotiation is to achieve full Antitrust Immunity to allow 
Air Canada and United Airlines (similar to what UA enjoys 
with Lufthansa) to more fully develop their partnership in 
the marketplace beyond North America.  Boudreau mentioned 
also that with respect to cargo operations that Air Canada 
would like 7th freedoms, but the company is not focused on 
achieving that. 
 
7. (SBU) Boudreau noted that Air Canada does not share the 
concerns of Westjet and Air Transat regarding slot 
availability in the United States.  Air Canada does, 
however, share some other airlines' concerns about 
availability of U.S. Customs and Border Protection staff, 
although its concern is focused on CBP staff at Canadian 
preclearance airports, especially Toronto, rather than at 
U.S. receiving airports.  Like ATAC, Air Canada does not 
expect these issues to be addressed in the Agreement but 
expect the concerns to be raised by the GoC for appropriate 
follow-on. 
 
8. (SBU) Comment: Despite some parliamentary misgivings (Ref 
A) and opposition by the dominant cargo airline, our 
interlocutors at both ATAC and Air Canada seem to think that 
achieving a full Open Skies Agreement is entirely possible 
during next week's negotiations.  Our interlocutors did not 
believe that the current bilateral tensions over softwood 
lumber will have any impact on the talks.  We share their 
optimism.  We expect also that the GoC negotiator will 
express Canada's concern that facilitation issues be 
accorded serious consideration and follow through in order 
to allow smaller Canadian operators to fully utilize Open 
Skies.  Even though these issues will have to be dealt with 
in a forum other than the civair negotiations, we think that 
the US delegation should be willing to acknowledge to the 
GoC delegation that the USG takes these Canadian concerns 
seriously and will endeavor to see that they are 
appropriately addressed.  Indeed, the USG delegation may 
wish to raise an ancillary issue of our own, the very high 
fees at Toronto's Pearson International airport.  The ATAC 
representatives claimed that recent statistics show that 
Pearson's fees are now the highest in the world, surpassing 
those at Tokyo's Narita Airport. End comment. 
 
Dickson