Air Canada has awarded a Hong Kong company a major contract to perform heavy maintenance on 56 of its wide-body jets, sparking concerns about Chinese spies bugging the planes and aircraft becoming trapped in China if a military conflict erupts with Taiwan.
The maintenance company, HAECO, unveiled its major Air Canada deal with fanfare on Feb. 28, 2024, replacing ST Aerospace company, which performed the work at its Texas facility from 2017 to 2022.
The arrangement with HAECO was signed last September during a period of increasingly acrimonious political discord and military tensions between Canada and China, which has assumed a great deal of political and judicial control over Hong Kong. The deal, whose value is unknown, was not announced last fall.
“It’s a head scratcher, for sure,” said Phil Gurski, president of Borealis Threat and Risk Consulting, and a former senior analyst at the Canadian Security Intelligence Service.
“Given what China has done here in terms of interference in our elections, and running secret police stations, the prudent approach would be, for the time being, less China, not more China,” Gurski said. “I’d be hitting the pause button pretty damn quickly.”
Margaret McCuaig-Johnston, a board member at the China Strategic Risks Institute, also voiced disapproval and wasn’t surprised the new maintenance deal was kept under wraps for months as Canada and China traded barbs for most of 2022 and 2023.
“I have serious concerns about sending business away from our closest allies to a country that has treated Canada in the last six years with malign intent and has, as its first priority, Chinese interests,” said McCuaig-Johnston, also a senior fellow with the University of Ottawa’s Institute for Science, Society and Policy. “Giving complete access to each of our planes does not strike me as a secure tactic.”
“We have to be careful not to be too suspicious, but at the same time, we’ve been shown so many times that China takes advantage of our naivete,” she added.
Track record for safety and reliability
Air Canada spokesman Peter Fitzpatrick said the carrier hired HAECO after requesting proposals from different aircraft maintenance suppliers.
“Following prudent business practice, we do evaluate suppliers from time to time, and in this case we placed some of our base maintenance with HAECO following an RFP,” Fitzpatrick wrote. “We selected HAECO, which is fully certified by Transport Canada (TC), EASA and FAA regulatory authorities, because of their well-established track record for safety and reliability, and they are a supplier to major global airlines around the world.”
Transport Canada confirmed HAECO is a certified foreign maintenance organization.
For its part, HAECO says it undergoes regular audits and approvals by regulatory authorities to ensure adherence to international standards. “We reject any allegations that we would compromise our integrity, and remain committed to upholding the highest standards of safety and quality for all our customers,” wrote spokeswoman Tracey Kwong.
But McCuaig-Johnston explained companies operating in China are legally required to follow orders from Chinese intelligence services, or risk prosecution. They must keep spying operations secret.
Fitzpatrick did not respond to questions about why Air Canada picked a Hong Kong company, despite increasing Canada-China political and military tensions.
He also did not comment on Chinese intelligence agents potentially conducting eavesdropping operations in first-class seating areas where top Canadian business and political leaders tend to sit and work on long trips.
Video cameras, hidden microphones and even Wi-Fi-enabled devices can be illicitly installed in passenger cabins — unbeknownst to flight crews — to capture screens, messages or chat as executives enjoy a drink or two over dinner.
French intelligence officers allegedly bugged Air France Concorde jets and other overseas flights in the 1990s. U.S. and Canadian security agencies warned executives travelling in first class, saying they should assume conversations were monitored. U.S. and U.K intelligence agencies have also monitored mobile phone calls from jet cabins.
Why airlines outsource maintenance to China
Aircraft maintenance technicians in China earn just over $10 an hour, compared to triple that in Japan and Australia, according to a 2023 study of the aviation maintenance, repair and overhaul (MRO) industry in Northeast Asia.
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Chinese companies also enjoy lower costs to build, operate and maintain airplane hangars.
At the same time, U.S. MRO facilities are facing increasing capacity problems because of aircraft maintenance technician shortages.
HAECO’s Air Canada contract covers heavy maintenance on 38 Boeing Dreamliner 787 and 18 Airbus A330 jets for five years, with a five-year extension option.
HAECO did not respond to requests for comment. In its news release, HAECO Chief Commercial Officer Gerald Steinhoff said: “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.”
Deal kept under wraps
It was perhaps not surprising that HAECO didn’t announce Air Canada as a new client last fall, given the frictions in Sino-Canadian relations at the time.
In 2023, Canadian media organizations, lawmakers, and intelligence services exposed China’s efforts to interfere in several Canadian elections allegedly to undermine and defeat candidates critical of Beijing. A Chinese diplomat was expelled.
A Canadian public inquiry is underway into the alleged interference.
China denied interfering in Canadian politics. In an apparent retaliation for the inquiry, China removed Canada from its list of approved Chinese tour group destinations.
China also was accused of operating secret police stations in greater Toronto and Montreal; it was caught flying a high-altitude spy balloon over Canada; and two Chinese scientists in Manitoba allegedly misappropriated dangerous virus cultures from a high security federal government laboratory in Winnipeg. The scientists were fired and left Canada. RCMP are investigating.
Military tensions
In mid-September 2023, Canadian and U.S. naval ships sailed through the Taiwan Strait between mainland China and Taiwan as part of a freedom of navigation operation.
The Canadian support infuriated Beijing. China responded by sending a carrier strike group into the area that included an aircraft carrier,12 other warships and 26 fighter jets.
China claims historic rights to all South China Sea waterways. An international tribunal rejected its claim.
A Chinese fighter jet also fired flares in front of a Canadian Navy helicopter patrolling the South China Sea on Oct. 29.
Defence Minister Bill Blair accused the Chinese pilots of being reckless and endangering lives.
China considers Taiwan a renegade province and aims to “reunify” the island with communist China. Most Taiwan citizens reject that plan.
At odds with 'friend-shoring'
Air Canada’s contract appears to be at odds with the Canadian government’s public policy of “decoupling” trade with China and other authoritarian nations, while engaging in “friend-shoring” or shifting trade to friendlier democratic foreign partners to cut supply chain risks.
“That’s why so many companies are getting out of China, not going in there right now,” McCuaig-Johnston said.
Her Strategic China Risks Institute thinks China annex Taiwan is “not a remote possibility.”
“President Xi Jinping has repeatedly reiterated the Chinese Communist Party’s desire to ‘reunify’ the island with the mainland and refuses to rule out the use of force to do so. Top US intelligence officials claim that Xi has ordered the Chinese military to have the capabilities ready to invade Taiwan by 2027,” the institute said in a report.
If a conflict erupts, Canada may impose sanctions. However, China has shown it will retaliate against Canada and its companies “with anything it can,” McCuaig-Johnston said.
Canadian jets and other assets in Hong Kong risk being seized. After Russia illegally invaded Ukraine and faced sanctions, Russia seized 400 foreign-owned passenger jets.
Canadian aerospace workers react
After HAECO announced its deal, Canadian aerospace workers reacted coolly on the LinkedIn professional networking platform.
Scott McNab, who identified himself as a civil aviation inspector at Transport Canada, stated:“Work that should be done in Canada. This is a Canadian Carrier and the skilled maintenance jobs should be in Canada where Canadians pay to fly on Air Canada.” Another Transport Canada inspector agreed. McNab did not respond to a phone message.
A third man who identified himself as an Air Canada aircraft maintenance worker questioned the economics and quality of work done by overseas heavy maintenance companies.
“Bring back our own heavy maintenance,” the worker said. “The poor work done by these third-party companies costs twice as much when the aircraft return from a check and require days of additional work to be done to fix all the problems caused by sub-par work at these companies.”
Aerospace analyst Michel Merluzeau suggested Air Canada perhaps had “little choice” but to hire HAECO for Dreamliner and A330 heavy maintenance due to capacity shortages.
“You have to compromise where you go and get it. There’s a lot of demand and we’ll need to bring back (MRO) capacity to North America at some point. For now, the companies in China are really good companies and they do a good job.”
Air Canada’s Aveos chapter
Air Canada had a heavy maintenance operation until 2004, when it was spun off and renamed Aveos.
By 2012, Aveos went bankrupt. It was liquidated amid allegations that Air Canada did not deliver jets for repairs and solicited undercut bids from offshore rivals, breaching requirements in its privatization law that all its aircraft maintenance be performed in Canada.
By 2016, Ottawa removed the only-in-Canada maintenance requirement.
McCuaig-Johnston said Canadian lawmakers may want to revisit the issue.
Air Canada spends more than $700 million annually on aircraft maintenance but does not disclose how much is by its own workers versus outside vendors.
ST Aerospace, the Texas operation where Air Canada previously sent its Dreamliners, did not respond to messages. ST Aerospace still does “base maintenance” on Air Canada’s Boeing 777 airplanes.
Smaller Air Canada Boeing 737 and Airbus A 320 jets undergo heavy maintenance in Canada at U.S. aviation giant AAR Corp. facilities in Trois-Rivières, Quebec, and Windsor, Ontario, and an Avianor facility near Montreal.
Who is HAECO?
HAECO Hong Kong is an affiliate of Swire Pacific, a publicly-traded Asian conglomerate that owns a 45% stake in the Hong Kong airline Cathay Pacific, which it co-owns with government-owned Air China (30 per cent), and Beijing controlled Hong Kong government (9 per cent). Swire also has substantial real estate, sugar, Coca-Cola bottling operations, and other business interests across mainland China.
Under pressure from China in 2019, Cathay Pacific allegedly buckled and fired 26 of its Hong Kong employees who marched in pro-democracy airport protests against Beijing. Cathay Pacific CEO Rupert Hogg also was forced out.
Critics suggested those moves highlights how Swire Pacific acts to preserve its long-standing business interests in China.
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