HONG KONG- Air Canada (AC) has granted a significant contract to a Hong Kong-based company for extensive maintenance work on 56 of its wide-body jets. It raises concerns about potential espionage by Chinese operatives and the risk of aircraft being detained in China during a military conflict with Taiwan.
HAECO, the maintenance company, publicly announced its substantial agreement with Air Canada on February 28, 2024, replacing ST Aerospace, which had conducted the maintenance at its Texas facility from 2017 to 2022.
HAECO Agreement Amid Canada-China Tensions
The agreement with HAECO was finalized last September amid escalating political tensions between Canada and China, which has exerted significant influence over Hong Kong’s political and legal systems. The undisclosed value of the deal was not publicly announced at that time.
Phil Gurski, President of Borealis Threat and Risk Consulting and a former senior analyst at the Canadian Security Intelligence Service, expressed bewilderment over the decision, stating, “Given China’s interference in our elections and establishment of secret police stations, it would be prudent to exercise caution and refrain from further engagement with China.” Gurski suggested that hitting the pause button on such arrangements would be advisable.
Concerns Over Maintenance Deal
Margaret McCuaig-Johnston, a China Strategic Risks Institute board member, expressed concern and noted the lack of surprise regarding the secretive nature of the new maintenance deal, given the ongoing tensions between Canada and China throughout 2022 and 2023.
“I am deeply troubled by diverting business away from our closest allies to a country that has consistently acted against Canada’s interests in recent years,” stated McCuaig-Johnston, who is also a senior fellow at the University of Ottawa’s Institute for Science, Society, and Policy. “Granting unrestricted access to each of our aircraft does not seem prudent.”
“While we should exercise caution without being overly suspicious, China’s history of taking advantage of our trust cannot be ignored,” she emphasized.
Executive Remarks
Air Canada spokesperson Peter Fitzpatrick stated that the company chose HAECO after soliciting proposals from various aircraft maintenance suppliers, following standard business practices. Fitzpatrick emphasized HAECO’s certification by Transport Canada (TC), EASA, and FAA regulatory authorities, citing their proven safety and reliability track record and status as a supplier to major global airlines.
Transport Canada confirmed HAECO’s certification as a foreign maintenance organization. HAECO, in response, highlighted its adherence to international standards through regular audits and approvals by regulatory authorities, rejecting any suggestions of compromising integrity and reaffirming its commitment to safety and quality.
However, Margaret McCuaig-Johnston noted the legal obligation for companies operating in China to comply with orders from Chinese intelligence services, potentially conducting covert surveillance operations. Fitzpatrick did not address queries regarding Air Canada’s decision to engage a Hong Kong-based company amidst escalating Canada-China tensions, nor did he comment on the possibility of Chinese intelligence agents conducting eavesdropping operations in first-class seating areas frequented by Canadian business and political leaders.
Instances of French intelligence allegedly bugging Air France Concorde jets and other overseas flights in the 1990s were cited. U.S. and Canadian security agencies cautioned executives traveling in first class about potential monitoring.
Concerns were also raised about the illicit installation of video cameras, hidden microphones, and Wi-Fi-enabled devices in passenger cabins for surveillance purposes, with reports of U.S. and U.K. intelligence agencies monitoring mobile phone calls from jet cabins.
Aviation Maintenance Insights
According to a 2023 study on the aviation maintenance, repair, and overhaul (MRO) industry in Northeast Asia, aircraft maintenance technicians in China earn just over $10 per hour, significantly less than their counterparts in Japan and Australia. Chinese companies also benefit from lower costs for constructing, operating, and maintaining airplane hangars.
Meanwhile, U.S. MRO facilities are grappling with capacity issues due to shortages of aircraft maintenance technicians.
Under HAECO’s contract with Air Canada, heavy maintenance will be conducted on 38 Boeing Dreamliner 787 and 18 Airbus A330 jets over a five-year period, with an option for a five-year extension.
Despite requests for comment, HAECO did not provide a response. However, HAECO’s Chief Commercial Officer, Gerald Steinhoff, expressed confidence in the partnership with Air Canada, stating in a news release, “We are very pleased to partner with Air Canada and are confident that our expertise will ensure the highest level of service and support for their fleet.”
HAECO’s Silence Amid China-Canada Tension
HAECO’s decision not to announce Air Canada as a new client last fall may not have been surprising, given the strained relations between China and Canada at the time.
In 2023, Canadian media, lawmakers, and intelligence services uncovered China’s alleged attempts to interfere in several Canadian elections to undermine candidates critical of Beijing. This led to the expulsion of a Chinese diplomat, and a public inquiry into the interference is currently ongoing in Canada. While China denied involvement in Canadian politics, it retaliated by removing Canada from its approved Chinese tour group destinations list.
Furthermore, accusations surfaced against China for operating secret police stations in Greater Toronto and Montreal and flying a high-altitude spy balloon over Canada. Additionally, two Chinese scientists in Manitoba faced accusations of mishandling dangerous virus cultures from a high-security federal government laboratory in Winnipeg.
Subsequently, these scientists were dismissed and left Canada, prompting the Royal Canadian Mounted Police (RCMP) to investigate the matter.
Tensions Rise After Naval Operations
In mid-September 2023, Canadian and U.S. naval vessels conducted a freedom of navigation operation by sailing through the Taiwan Strait between mainland China and Taiwan.
This action drew strong condemnation from Beijing, prompting China to deploy a carrier strike group into the area, including an aircraft carrier, 12 other warships, and 26 fighter jets. Despite China’s claims of historic rights over all South China Sea waterways, an international tribunal has rejected these claims.
Furthermore, tensions escalated when a Chinese fighter jet fired flares in front of a Canadian Navy helicopter patrolling the South China Sea on October 29. Defence Minister Bill Blair criticized the actions of the Chinese pilots, labeling them as reckless and endangering lives.
China maintains its stance on Taiwan, considering it a renegade province, and seeks to reunify the island with mainland China, although most Taiwanese citizens oppose this plan.
Concerns Over Air Canada’s Contract
Air Canada’s contract seems to contradict the Canadian government’s public policy of “decoupling” trade from China and other authoritarian nations while prioritizing engagement with democratic allies to mitigate supply chain risks, a strategy referred to as “friend-shoring.”
Margaret McCuaig-Johnston, from the Strategic China Risks Institute, highlighted the trend of companies moving away from China rather than investing in the country currently. The institute also views the possibility of China annexing Taiwan as a credible concern, given President Xi Jinping’s repeated emphasis on the Chinese Communist Party’s goal of “reunifying” Taiwan with the mainland.
Furthermore, there are indications that China has prepared its military to potentially invade Taiwan by 2027, according to top US intelligence officials. Canada may impose sanctions in the event of a conflict, but McCuaig-Johnston warned that China would likely retaliate against Canada and its companies using any means available.
Additionally, there’s a risk of Canadian assets in Hong Kong being seized, similar to Russia’s seizure of foreign-owned passenger jets following its illegal invasion of Ukraine in the past.
Canadian Aerospace Professionals Express Concerns
After HAECO’s announcement, Canadian aerospace experts raised concerns on LinkedIn. Scott McNab, who identified himself as a civil aviation inspector at Transport Canada, expressed worries regarding outsourcing maintenance tasks.
He stressed the significance of retaining skilled maintenance positions within Canada, particularly for a Canadian airline such as Air Canada. A different inspector from Transport Canada echoed McNab’s views, although McNab himself did not respond to contact attempts.
An Air Canada maintenance worker raised concerns about overseas maintenance quality and advocated for relocating heavy maintenance back to Canada. They cited instances of aircraft needing additional work due to substandard maintenance.
Aerospace analyst Michel Merluzeau suggested capacity shortages might have prompted Air Canada to contract HAECO for Dreamliner and A330 maintenance, acknowledging the competence of Chinese companies but stressing the need to restore maintenance capacity to North America.
Air Canada’s Maintenance History and Policy Changes
Air Canada previously ran a heavy maintenance division until 2004, when it spun off and renamed Aveos. By 2012, Aveos encountered bankruptcy amid accusations that Air Canada had not delivered aircraft for repairs and had sought lower bids from foreign competitors, violating the stipulations of its privatization law requiring all maintenance to occur in Canada.
In 2016, the Canadian government removed the requirement for exclusive Canadian maintenance. Margaret McCuaig-Johnston suggested that Canadian policymakers may need to reconsider this decision. While Air Canada allocates over $700 million annually to aircraft maintenance, the breakdown between in-house work and outsourced vendors remains undisclosed.
ST Aerospace, the Texas facility previously contracted by Air Canada for Dreamliner maintenance, did not respond to inquiries. It continues to provide base maintenance for Air Canada’s Boeing 777 aircraft.
Smaller Air Canada jets, including Boeing 737s and Airbus A320s, undergo heavy maintenance at facilities operated by U.S. aviation company AAR Corp. in Trois-Rivières, Quebec, and Windsor, Ontario, as well as at an Avianor facility near Montreal.
HAECO Hong Kong and Its Corporate Relationships
HAECO Hong Kong, an affiliate of Swire Pacific, owns a 45% stake in Cathay Pacific, along with Air China (30%) and the Hong Kong government (9%). Swire Pacific has various business interests in mainland China, including real estate, sugar, and Coca-Cola bottling operations.
In 2019, under pressure from China, Cathay Pacific reportedly dismissed 26 Hong Kong employees who participated in pro-democracy airport protests. The CEO, Rupert Hogg, was also forced to resign. Critics argue that these actions demonstrate Swire Pacific’s efforts to safeguard its business interests in China.
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