Source: https://gettingthedealthrough.com/area/1/jurisdiction/7/air-transport-canada/
Timestamp: 2019-06-25 02:30:06
Document Index: 83903915

Matched Legal Cases: ['art 1', 'art 2', 'art 3', 'art 4', 'art 5', 'art 6', 'art 4', 'art 1', 'arts 71', 'art 5', 'in fine']

Canada Air Transport – Getting The Deal Through – GTDT
Under the Canadian Constitution Act 1867, aviation is a federal area of responsibility. Transport Canada is a department of the government of Canada under the federal Minister of Transport. It is responsible for the issuance of operating authorities and safety oversight. The principal legislation administered by Transport Canada is the Aeronautics Act. Under the authority of that statute, the Canadian Aviation Regulations (CARs) and more detailed standards respecting aviation have been promulgated.
The Canadian Transportation Agency (CTA), formed under the Canada Transportation Act, is an independent, quasi-judicial agency, that makes decisions concerning air, rail and marine matters and whose jurisdiction extends to economic regulation and consumer protection. With respect to aviation, the CTA issues licences and charter permits for commercial air services, has authority to disallow tariffs and imposes rules relating to the accessibility of air services.
The Carriage by Air Act implements, among other matters, the provisions of the Montreal Convention as part of domestic law in Canada. The Canadian Air Transport Security Act establishes and defines the authority and the powers of the Canadian Air Transport Security Authority, the agency responsible for aviation security in Canada.
The Transportation Safety Board (TSB) is an independent agency established under the Canadian Transportation Accident Investigation and Safety Board Act. The TSB is responsible for conducting independent investigations into aviation incidents and publicly reporting its findings, identifying safety deficiencies and making recommendations for eliminating such deficiencies.
Civil air navigation services are provided by NAV Canada, a private sector corporation established under the Civil Air Navigation Services Commercialization Act (CANSCA).
The CARs and the associated standards form a comprehensive code for the regulation of aviation safety. The standards required of commercial operators are found in Part VII of the CARs, which divides commercial air operations into the following six classes:
foreign air operations (subpart 1);
aerial operations (subpart 2);
air taxi operations (subpart 3);
commuter operations (subpart 4);
airline operations (subpart 5); and
aircraft maintenance by aircraft operators and unmanned air vehicles (subpart 6).
Airworthiness and maintenance are addressed in Part V, which also addresses associated detailed standards. General operating and flight rules are found in Part VI. Regulations respecting aerodromes and airports are in Part III and air navigation services are addressed in Part VIII. The operation of unmanned air vehicles, including commercial operations, is currently regulated under special flight operations certificates (SFOCs) issued under Part VI of the CARs.
Transport Canada is responsible for regulating aviation safety and airworthiness requirements for all civilian aircraft in Canada. Airworthiness requirements and the applicable standards are described in Part V of the CARs. The requirements include obtaining an airworthiness certificate and submission of an annual airworthiness report (except in the case of an ultralight aeroplane). Commercial operators of unmanned air vehicles are required to obtain an SFOC.
The Aeronautics Act defines ‘commercial air service’ as any use of an aircraft for hire or reward, that is in consideration of any payment or receipt of any benefit. In addition to the airworthiness requirements prescribed in Part V of the CARs, any use of an aircraft for a commercial air service is subject to the certification scheme created by the Aeronautics Act and associated regulations. For aerial work (consisting of helicopter external loads, towing or dispersal of products and involving the carriage of persons other than crew members) an operator certificate is required, subject to limited exceptions.
Private operators may not provide passenger transport using large, turbine-powered, pressurised aircraft or multi-engine aircraft unless they hold a private operator registration document and comply with the requirements of subpart 4 of Part VI of the CARs.
Financial and nationality requirements apply and there are limited exit controls. Those requirements and Canadian competition law requirements are dealt with in more detail later in the chapter; otherwise, there are no limitations on access to the domestic market. Access to the market for international air services is governed by bilateral air service agreements between Canada and various foreign states. In negotiating the terms of those bilateral air service agreements, the government of Canada follows, among other matters, the principles outlined in Canada’s international air policy, entitled ‘Blue Sky’. Those bilateral air service agreements range from liberal open skies agreements to agreements involving market access, tariff filing and capacity limitations. Under the Blue Sky Policy, Canada will generally seek to negotiate an open skies agreement if it is deemed to be in Canada’s overall interest; however, the Blue Sky Policy precludes any possibility of a foreign airline being granted the rights to carry domestic traffic in Canada.
Generally, all foreign air operators wishing to operate commercial air services to and from Canada are required to obtain a Canadian foreign air operator’s certificate under subpart 1 of Part VII of the CARs and be in receipt of applicable licences and, if applicable, charter permits issued by the CTA.
With respect to international air services, the nationality requirements are those of the Chicago Convention and the applicable bilateral air service agreements to which Canada is a party. In order to operate a domestic air service in Canada, the operator must be ‘Canadian’ as that term is defined in Part II of the Canada Transportation Act (as amended by the Transportation Modernization Act in 2018). For an individual, this means being a Canadian citizen or permanent resident. For a corporation operating a commercial air service for which a licence is required under the Canada Transportation Act, it means that at least 51 per cent of voting interests must be owned and controlled by Canadians, provided that no more than 25 per cent of voting interests may be held by foreign carriers or any single non-Canadian. In respect of all other commercial air services, no more than 25 per cent of the voting interests may be held by non-Canadians. In addition, a corporation must pass a ‘control in fact’ test. There is ministerial discretion to dispense with such requirement. It is used sparingly to authorise special operations.
Start-up operations must pass a financial solvency test. They must demonstrate the ability to cover start-up costs and operating expenses for the first 90 days of operations, without relying upon revenues from the operation.
The licensing of air operators for the provision of domestic services and scheduled and unscheduled international services is regulated by the provisions of the Canada Transportation Act and the regulations made thereunder, and is administered by the CTA. To operate an air service that is publicly available, a licence must be obtained from the CTA. The licences available are domestic (small, medium, large and all-cargo aircraft) and international. International licences are distinguished by aircraft size and use (in the case of all-cargo). International licences are issued on a scheduled and non-scheduled basis. An applicant must establish that it holds an appropriate operating certificate, has liability insurance and meets the financial fitness requirements discussed previously. Licences for international scheduled services generally are issued pursuant to bilateral air service arrangements between Canada and foreign states and are route-specific, in accordance with the commercial rights identified in these agreements. Extra-bilateral authority in the form of additional city pairs and fifth or seventh freedom rights can sometimes be obtained on application to the CTA.
The CTA, of its own motion or on complaint, may determine that a licensee ceases to meet the conditions upon which the licence was granted. In this case, the CTA will typically suspend the licence and give the licensee 90 days to show cause why the licence should not be cancelled. Applications for extra-bilateral authority, for extended wet-lease charter operations and for all-cargo seventh freedoms are still contested on occasion, but with less frequency. In case of complaint, the CTA opens pleadings by inviting the interested parties to state their cases in writing. A public hearing is possible but rare. An appeal from a decision of the CTA lies to the federal court of appeal, but only on questions of law or jurisdiction and only with leave.
In late 2006, the government of Canada announced its Blue Sky Policy, which is intended to ‘further connect Canadians to each other and the world’. The policy is an attempt to pursue more liberalised bilateral agreements with other states, contemplating fifth and sixth freedoms for passenger services and seventh freedom for all-cargo services. Since the implementation of the Blue Sky Policy, Canada has negotiated new or expanded air service agreements with over 20 states as well as with the 28 member states of the EU.
Separate from the Blue Sky Policy, the Canada-United States Open Skies Agreement was signed in 2007. This agreement reinforces the previous open regime for air services between the two countries by removing some constraints regarding air services between each other’s territory and third countries. Cabotage is still off the table.
The licensing procedures for foreign air carriers are set out in question 6. In order to be eligible for a licence to operate a scheduled international service, a foreign air carrier must obtain the appropriate Canadian aviation document, have the prescribed liability insurance coverage in place, meet the prescribed eligibility conditions and satisfy the CTA that the foreign air carrier has not contravened the provisions of the Canada Transportation Act relating to sale of air services in Canada without an appropriate licence. In order to satisfy the eligibility conditions for a scheduled international licence, a foreign air operator should be designated by a foreign government to operate an air service in terms of a bilateral air service agreement between that country and Canada and must hold a scheduled international licence issued by that foreign government.
It is important to note that in order to obtain a foreign air operator’s certificate, a foreign carrier may be required to pass a base inspection carried out by Transport Canada. In undertaking the base inspection, Transport Canada may attend at the foreign air carrier’s base to assess whether the foreign air carrier meets its requirements on maintenance, security and operational issues.
Such rules were once a mainstay of Canadian domestic regulation, but they have been repealed. A vestige of the old regime is section 64 of the Canada Transportation Act, which specifies which notices must be given when a carrier proposes to discontinue a domestic service or reduce it to less than one flight per week. If such discontinuance or reduction results in reducing the number of carriers providing weekly service to one or fewer, the carrier proposing to discontinue or reduce services must give notice and enter into discussions with local government officials. However, the carrier cannot be prevented from discontinuing or reducing service. It can only be required to suspend the planned change for a period of 30 or 120 days, depending on whether the service was in operation for at least one year before the notice was given. The same rule applies to reduction of certain services if the reduction will reduce capacity by at least 50 per cent.
Charter services are regulated separately. The Air Transportation Regulations (ATRs) specify a stringent set of rules that nominally apply. However, the impact of these rules is largely alleviated by the provisions of Canada’s International Cargo Charter Policy and International Passenger Charter Policy, which were announced in May 1998 and April 2000 respectively. The CTA is in the process of amending the ATR to conform but, in the interim, the CTA has been authorised to grant general exemptions from the application of those provisions of the ATR that conflict with the provisions of the policies. The most important restrictions that remain in place are those requiring a carrier to provide financial guarantees in respect of advance payments received from tour operators. Carriers are also required to price charter contracts on the basis of tariffs in effect on the date the contract is entered into. Those tariffs must be maintained by the carrier, but need not be filed with the CTA.
Airfares are subject to limited regulation in Canada. The most important statutory provision is section 66 of the Canada Transportation Act, which applies to lightly serviced routes. On such routes, passengers and shippers are given the right to complain to the CTA if they are of the view that the fare or rate offered is unreasonable or that the range of rates and fares offered is inadequate. The CTA deals with a small number of individual complaints each year and occasionally commissions more general studies of the state of competition on lightly serviced routes. In dealing with an individual complaint, the CTA will consider historical data, compare fares and rates on similar services and consider competition from other modes of transport. The ATRs stipulate that carriers are to apply the fares set out in their tariffs, and only those fares.
Part V.1 of the ATRs contains regulations governing advertisements in all media of airfares for all domestic air services and all international air services originating in Canada. Part V.1 requires any person who advertises the price of an air service on an interactive medium (such as a website), to include the total price of the air service payable by the consumer, inclusive of all applicable taxes, fees and charges (domestic and foreign) stated in Canadian dollars (as well as any other currency in which such price may be expressed), provide a description of all third-party taxes, fees and charges as well as disclose any restrictions applicable to the airfares being advertised. It is within the CTA’s authority to determine whether an advertiser has met the requirements under Part V.1 of the ATR and the CTA can impose fines and penalties for contravention or order necessary changes to conform to Part V.1.
Part V.1 does not apply to advertisements for air cargo services; package travel services (ie, including air services and accommodation, surface transport, entertainment, etc); and airfares that are not offered to the general public and are fixed through negotiation. Part V.1 also does not apply to a person who provides another person with a medium to advertise prices for air services.
The operation of unmanned air vehicles, including commercial operations, currently is regulated under SFOCs issued under Part VI of the CARs. An operator of unmanned air vehicles is required to obtain a special flight operations certificate, unless it is entitled to take advantage of specified exemptions on the basis of the nature of the operations or the weight of the unmanned air vehicle. Except for purely recreational use, an SFOC is currently required for use of a drone, including for research or academic purposes, subject to the said exemptions. Recreational users are subject to the provisions of the Interim Order Respecting the Use of Model Aircraft. Transport Canada has published draft regulations governing the use (commercial and recreational) of UAVs weighing between 250g and 25kg, proposed to be included in Part IX of the CARs subject to prescribed conditions. The use of UAVs weighing more than 25kg, or operations in conditions or situations not contemplated by the regulations, will continue to require an SFOC.
Any Canadian 16 years of age or older is qualified to be the registered owner of a Canadian aircraft. The definition of ‘Canadian’ is the same as that specified in question 5. Aircraft are registered as either state, commercial or private aircraft. With respect to private aircraft, the nationality requirement is relaxed. Private aircraft can be registered in the name of a corporate entity that is not ‘Canadian’ as defined in the Canada Transportation Act. However, the corporate entity must be incorporated under Canadian federal or provincial law, must meet certain record-keeping and reporting requirements and the aircraft must be operated in Canada at least 60 per cent of the time.
It should be noted that ‘ownership’ for the purposes of inclusion in the Canadian Civil Aircraft Register refers only to legal custody and control and not to property rights in the aircraft. As discussed in question 15, there is no Canadian national register for property interests in aircraft.
There is no national register of security interests in aircraft in Canada. Canada is a party to and has ratified the Convention on International Interests in Mobile Equipment and the Protocol dealing with aircraft equipment (the Cape Town Convention), and accordingly, security interests in aircraft objects may be registered at the International Registry of Mobile Assets established under the Cape Town Convention. Security interests may also be registered at the personal property registry established under the personal property security legislation of Canadian provinces and territories.
In Canada, the power to enter into treaties vests in the federal government, but the power to implement treaties is shared by the federal government and the provincial and territorial governments. Therefore, the International Interests in Mobile Equipment (Aircraft Equipment) Act was enacted at the federal government level to implement the Cape Town Convention in Canada and, thereafter, various provinces and territories have adopted legislation to implement the Cape Town Convention as part of provincial or territorial law. Section 6 of the International Interests in Mobile Equipment (Aircraft Equipment) Act provides that with the exception of certain legislation, the provisions of the Cape Town Convention prevail over any conflicting provision in any other law. Similarly, provincial and territorial legislation also provides that the Cape Town Convention will prevail in case of conflicts with provincial laws.
In accordance with declarations made by Canada, a security interest in an aircraft object registered under the Cape Town Convention will have priority over other interests except in certain situations, such as an interest created or existing before the ratification of the Cape Town Convention by Canada, any non-consensual right or interest created under Canadian law (such as mechanic’s liens, unpaid airport fees, etc), or any legal hypothec under the laws of Quebec that is registered in the register of movable property in Quebec.
Canada has made declarations under the Cape Town Convention adopting alternative ‘A’ under article XI of the Protocol with respect to insolvency proceedings having a waiting period of 60 days; article XIII of the Protocol providing for deregistration and export request authorisation; article VIII of the Protocol relating to choice of law; and paragraphs 3, 4, and 5 of article X of the Protocol relating to modification of provisions.
For the distinction between airports that are managed by private airport authorities and those that continue to be managed by the government of Canada, see question 18.
The Airports Act gives private airport authorities the right to detain aircraft in certain circumstances. CANSCA gives the same right to NAV Canada, the entity that provides air navigation services to aircraft in Canadian airspace on a cost recovery basis. Aircraft ‘owned or operated’ by an operator that is liable to pay charges, may be detained, but only when a court order has been obtained. There is no right of sale, but the airport authority or NAV Canada is entitled to detain the aircraft until the charges owed have been paid in full. Although motions judges have wide discretion on a court motion to authorise detention, it does not appear that the judges have the discretion to sanction any arrangement that requires the service providers to accept less than full payment.
In respect of airports that continue to be operated by the federal government, similar powers are granted by the Aeronautics Act.
While the foregoing are the major rules of general application, there is a wide range of circumstances in which aircraft may be subject to detention and operators to penalties and fines. By way of example, the Canada Border Services Agency has the authority to impose fines and detain aircraft operated in contravention of Canada’s customs laws. Air carriers are subject to penalties for bringing into Canada persons who are not properly documented and, if such persons require medical treatment while in Canada, the cost of that treatment can be imposed on the carrier. Failure to pay these penalties or costs can result in detention of aircraft, as can any failure to satisfy a judgment debt.
The maintenance of aircraft is specifically regulated by the CARs, Part V, subparts 71 (aircraft maintenance requirements) and 73 (approved maintenance organisations) and by detailed standards 571 and 573. Certain chapters of the Airworthiness Manual are also relevant; in particular Chapter 566, which addresses the licensing and training standards that aircraft maintenance engineers must meet. These regulations and standards define the conditions under which different categories of work must be done, as well as documentation requirements. In the case of commercial aircraft, all work must be done in accordance with a maintenance policy manual approved by Transport Canada. A matter of significant interest in Canada is the increasing reliance on a safety management system that is intended to lighten Transport Canada’s enforcement role and increase corporate responsibility for compliance.
Because of the immense geographical area that Canada covers, Transport Canada has certified 726 airports. Nevertheless, nearly 95 per cent of Canadian passengers and cargo are handled at the 26 airports that comprise the National Airport System (NAS). The NAS airports include the main airports in the national, provincial and territorial capitals and all other airports handling 200,000 or more passengers annually. In accordance with its National Airports Policy (NAP), the government of Canada retains the role of safety and security regulator and the ownership of the NAS airports, but has divested itself of the responsibility for financing, operating, managing and developing those airports by entering into long-term leases with Canadian airport authorities (CAAs). The latter are arm’s-length, not-for-profit provincial corporations entrusted with the twin goals of providing the services required, while working toward economic self-sufficiency through earned revenue.
In addition to the 26 NAS airports, there are 71 regional and local airports, 31 small airports and eight Arctic airports. The vast majority have already been transferred to CAAs, municipalities and, in the case of the Arctic airports, to territorial governments.
The balance of the airports certified by Transport Canada are very small, privately operated facilities, many of which are simply grass landing strips.
Transport Canada is charged with certifying non-military airports in Canada under Part III of the CARs. Certification is granted following a successful inspection by Transport Canada, establishing that the applicable standards are met and the publication of the airport data (verified by the regulator) in publications available to the public, such as the Canada Flight Supplement, which details the various facilities and services available at each certified airport. There are two components to certification, namely the airport certificate itself, which evidences compliance with the required Transport Canada standards, and the airport operations manual, which details the precise specifications for airport facilities and services. Deviations from these specifications require the approval of Transport Canada, which conducts regular inspections to ensure compliance.
As stated above, the majority of airports in Canada are private, but the most significant facilities continue to be owned by the federal government, although leased to and managed and operated by independent CAAs. The goal is to ensure the viability and self-sufficiency of those airports.
As an integral component of the NAP, the federal government established the Airports Capital Assistance (ACA) programme in 1995. Eligible airport operators may apply for financial assistance for capital projects relating to safety, asset protection and operating cost reductions. The assistance ranges from ‘first priority projects’, which include safety-related airside projects, such as rehabilitation of runways, to ‘third priority projects’, including safety-related air terminal building and groundside projects, such as sprinkler systems, asbestos removal and barrier-free access. Airport authorities are often required to fund a portion of ACA projects.
A material issue in Canada is the cost of airport operations and, in particular, the rents that the federal government charges to the airport authorities. Those are passed on to air carriers and, in turn, to passengers.
Domestic carriers have a prima facie right to serve any airport in Canada, so long as they are licensed to operate by the CTA. Foreign carriers have the same requirement of licensing but, as part of the licensing process, they must be able to demonstrate that they have the requisite bilateral authority to serve a particular destination. In a technical sense, access is governed by wide-ranging regulations covering, for example, departure and arrival procedures, traffic circuits, noise abatement and aircraft separation. These are summarised in the Transport Canada Aeronautical Information Manual.
Slots are allocated by individual airport authorities and there is no uniform slot allotment policy or system applicable to all airports in Canada. Some Canadian airports have airport adviser status with IATA and participate in biannual IATA schedules conferences, at which carriers, airports, coordinators and industry experts discuss schedule adjustments. Upon negotiating, trading or transferring slot times at the IATA schedules conferences, carriers will then apply to the applicable airport for a slot. The airport will ascertain the availability of the time as well as the logistical ability to provide that time. If that time is not available or feasible, the airport will offer another time and the carrier and the airport will engage in a scheduling negotiation. Slot allocation at the Canadian airports using a slot clearance request and reply system is regulated by the IATA scheduling guidelines.
There are no laws specifically relating to ground handling at airports and ground handling operators are not required to obtain or maintain a licence or consent from any governmental authority (save and except local business licences). However, a ground handling services provider is subject to applicable statutes and regulations that govern airport operations. All competent operators are free to apply to an airport authority and any restrictions on their ability to offer ground-handling services are determined by space and capacity considerations. Competition issues are addressed by legislation of general application and, in particular, the Competition Act.
The government of Canada transferred responsibility for all of the country’s air navigation services network to NAV Canada, a private, non-share capital corporation. NAV Canada is statutorily obliged to provide navigational services on a cost recovery basis in Canadian airspace. Service charges are levied on air carriers and aircraft operators to recover costs incurred by NAV Canada in providing the air navigation services. CANSCA provides for a right to appeal NAV Canada charges to the CTA.
There were no special rules with respect to death or injury to passengers and loss or damage to baggage or cargo for domestic carriage. These claims were (and largely still are) resolved in accordance with principles of the common law of contract and negligence, as interpreted by the courts of each province. The courts of Quebec apply civil law principles and concepts, but the end result for an aviation claim in that province is not likely to substantially differ from a similar case in a common law province. Over the past couple of years, the CTA has intervened in a number of cases to require air carriers to apply international liability rules prescribed under the Montreal Convention. As of now, such intervention is limited to cases in which the claim is for damage to, loss of, or delay in the transport of baggage.
Under the Criminal Code, dangerous or negligent operation of an aircraft or knowingly sending an aircraft that is not airworthy on flight are criminal offences. Therefore, incidents that result in injury or death may result in criminal investigation and possible criminal charges if the circumstances so warrant.
Although there are no specific rules governing the liability of aircraft operators for surface damage, the Airport Traffic Regulations, which were enacted under the Government Property Traffic Act, prescribe rules for the operation of motor vehicles, pedestrians and mobile equipment at airports, which may be of some interest to ground handlers. In addition, Part IV of the Airport Traffic Regulations addresses requirements specific to the control of aircraft on aprons.
The TSB has statutory authority under the Canadian Transportation Accident Investigation and Safety Board Act to investigate civil aviation incidents and accidents.
The powers of TSB investigators are extremely broad. They may search and seize, sometimes without warrant, and may compel sworn statements. Any person thought to have relevant information may be required to attend.
Operators and others with an interest in the investigation may seek observer status. Disposition of such requests is in the discretion of the investigator in charge.
The TSB has established criteria to determine the extent of any particular investigation. In the case of a significant accident or incident, a public inquiry is possible. Ultimately the TSB will issue a report to identify contributing factors and safety deficiencies. The TSB is barred from assigning blame and its role is limited to identifying deficiencies resulting in the incident or the accident. The TSB findings are also not binding on any party in any legal proceedings and there are statutory protections for statements given in the course of an investigation, but in most cases the ultimate use made of any confidential information obtained in the course of an investigation will lie within the discretion of a judge in civil proceedings.
The provisions of the Canadian Transportation Accident Investigation Safety Board Act reflect the provisions of ICAO Annex 13, which states that the sole objective of an accident investigation shall be to prevent accidents and incidents and not the apportioning of blame. Accordingly, cockpit voice recorders and transcripts of TSB investigation are not to be made available in legal proceedings unless a court determines that disclosure outweighs the adverse effect on future accident investigations.
In cases of suspected criminal activity, the local police and the Royal Canadian Mounted Police will be involved in the investigation and where there have been fatalities, the coroner’s office will also be involved.
The TSB regulations require reporting of aviation accidents and incidents. Where a reportable incident occurs, an obligation to preserve evidence is triggered.
The Transportation of Dangerous Goods Act imposes reporting requirements in certain cases of release of, or improper transport of, dangerous or hazardous goods.
In addition, safety management systems referred to in Part V of the CARs impose requirements on approved maintenance organisations to report to Transport Canada certain service difficulties encountered in the course of maintaining an aircraft.
General competition rules apply but there are also sector-specific rules. The Competition Act is the law of general application. In response to the merger of Air Canada and Canadian Airlines in 1999, the government of Canada passed the Regulations Respecting Anti-Competitive Acts of Persons Operating a Domestic Service to define specific anticompetitive acts that would be subject to the abuse of dominance provisions of the act. It is generally conceded that these are no longer necessary because of changes in the industry.
There are also special provisions in the Canada Transportation Act that deal with mergers in the aviation sector. Recent amendments to the Canada Transportation Act include the introduction of an antitrust immunity regime for transactions involving transportation undertakings
The general regulator for competition matters in Canada is the Competition Bureau (the Bureau), headed by the commissioner of competition. Except as mentioned below, this is the source of competition regulation of the aviation industry. Certain proposed mergers and acquisitions must be notified to the commissioner under section 114(1) of the Competition Act. All such transactions must be simultaneously notified to the Minister of Transport and the CTA under section 53.1 of the Canada Transportation Act. The Minister is required to make a determination as to whether the proposed transaction raises issues with respect to the public interest as it relates to national transport. If such determination is made, the Minister may direct the CTA to examine those issues and submit a report. A proposed transaction may not be completed unless it is approved by the Governor-in-Council on the recommendation of the Minister and the CTA determines that the transaction would result in an undertaking that is Canadian. The CTA is responsible for ensuring that the transaction does not result in the contravention of the nationality status required by the aeronautical legislation. The Minister is also required to inform the commissioner of competition of any national transport concerns that should be addressed. The parties to the transaction may be asked to give undertakings to address any concerns identified.
Transport Canada has issued Guidelines for mergers and acquisitions involving transportation undertakings, which describes the information required to be provided to the Minister, together with the notification under section 53.1, as well as the decision-making process and the factors to be taken into consideration when making the decision as to whether the proposed transaction triggers public interest issues.
Definition of the relevant market is a key consideration because of the importance of the concept of ‘market power’ when assessing competitive impact. The general issue relates to identification of the most limited air transport market in which a significant and non-transitory price increase may be imposed by carriers. In passenger transport, origin-destination city pairs have often been accepted as defining the relevant geographical market. However, in certain contexts it may be possible to define markets more broadly.
The Bureau has issued Merger Enforcement Guidelines that are available on the Bureau’s website and contain guidance on the application of the Competition Act. Part 5 of the guidelines deals with market shares and concentration thresholds. The basic question for the Bureau is whether a merger is likely to ‘prevent or lessen competition substantially’. The thresholds that the Bureau uses to distinguish between those mergers that are unlikely to have anticompetitive consequences and those that must be examined more closely are set out in section 5.9. Generally, if the post-merger market share would be less than 35 per cent, the Bureau will not challenge on the basis that the merged firm would be likely not to exercise market power unilaterally. Furthermore, it will usually not challenge on the basis of potential coordinated exercise of market power if two conditions are met: the largest four firms in the post-merger market would have a market share of less than 65 per cent and the merged firm itself has a market share of less than 10 per cent.
The Bureau’s examination of competitive effects is not limited to an analysis of market share. Where the thresholds set out above are exceeded, the Bureau will undertake a further assessment of the probable unilateral and coordinated effects of the merger. It will consider whether competitors in the market are likely to be able to maintain competition and will consider existing pricing strategies, distribution methods and service offerings. An important factor in the analysis will be whether the merger is likely to facilitate coordination of behaviour among remaining competitors. In that regard, the existence of barriers to entry would be a significant factor that could lead to a finding of anticompetitive effects.
In August 2011 the Bureau released a summary of a merger remedies study (the full study is confidential) that reviews the effectiveness of the remedies imposed in the period from 1995 to 2005. The intention of the Bureau is to use the terms of the study to update the 2006 Remedies Bulletin, which is a comprehensive statement of the Bureau’s policy of merger remedies.
The Bureau is empowered to apply to the Competition Tribunal to challenge a merger under section 92 of the Competition Act or negotiate remedies with the merging parties. The majority of cases result in consent orders defining agreed remedies.
The Bureau’s classification of remedies is as follows: structural remedies, quasi-structural remedies, combination remedies and stand-alone behavioural remedies. Its preference is for structural remedies that generally involve divestiture of assets; although, in extreme cases, it may require the prohibition of a merger of the dissolution of a merged entity. Quasi-structural remedies include steps intended to reduce barriers to entry and to provide competitors with access to infrastructure or technology (ie, allowing a competitor access to a customer loyalty programme). Combination remedies involve both structural divestiture and measures aimed at controlling behaviour. Behavioural remedies include such matters as waiver of restrictive contract terms by the merged entity and codes of conduct that can be enforced by third parties. Stand-alone behavioural remedies are seldom acceptable to the Bureau.
When Air Canada acquired Canadian Airlines in 1999 it was required, as a condition of approval of the transaction, to give a number of undertakings, including divestiture of certain regional carriers, surrender of slots at the slot-controlled Pearson International Airport at Toronto and limitation on its ability to offer discount operations in eastern Canada.
Financing support is provided in the aviation sector through Export Development Canada (EDC), a crown corporation created by the Export Development Act. EDC uses two separate accounts to support export transactions, commercial accounts and the Canada Account. The latter is authorised by section 23 of the Act and is used for transactions that EDC will not support in the discharge of its normal mandate, but that the government of Canada deems to be in the national interest. The government of Canada assumes the risk of transactions on the Canada Account. Since 2001, there have been 24 transactions supported by the Canada Account, four of which supported sales by Bombardier, the Canadian aerospace manufacturer. EDC also provided Air Canada with C$150 million toward a C$600 million credit facility in 2009.
Aid is also occasionally granted on an ad hoc basis. For example, during the 2004 restructuring of Air Canada, the federal government provided a financial guarantee in favour of Air Canada for the purchase of 45 regional jets from Bombardier. Another example is the Canadian government’s decision to pay C$160 million to air carriers post-9/11. The government of Canada also provided liability insurance support to carriers in the wake of the terrorist attacks. In February 2017, the government of Canada provided a C$372.5 million repayable facility to Bombardier to fund research and development.
In addition, the government of Canada created the Strategic Aerospace and Defence Initiative (SADI) in 2007 to assist in aerospace product research and development. The programme is administered by Industry Canada. Most government contributions under SADI take the form of ‘repayable loans’.
EDC is a crown corporation that operates at arm’s length from the government. Its mandate is to support exporters without cost to the Canadian taxpayer. It is required to be economically self-sufficient and to operate on commercial principles, subject to the special considerations that apply to transactions on the Canada Account, as previously noted. Canada is a member of the Organisation for Economic Cooperation and Development (OECD) and support provided by EDC is supposed to be structured in accordance with OECD guidelines.
SADI’s goals are to assist with research and development in aerospace initiatives in order to foster Canadian competitiveness. Support through SADI loan transactions is generally limited to 30 per cent of the qualifying project cost.
Canada is a participant in the new Aircraft Sector Understanding, which took effect in February 2011 and was revised in September 2011.
The only applicable exemptions are as described above in respect of transactions on the Canada Account.
Clearance from the Competition Bureau is not required.
Recovery of state aid unlawfully granted is governed by the international agreements to which Canada is a party, in particular the OECD Arrangement on Officially Supported Export Credits, the World Trade Organization Agreement on Subsidies and Countervailing Measures and the 2011 OECD Aircraft Sector Understanding.
In response to the public interest in the issue of passenger rights, a number of air carriers have filed special ‘passenger rights’ provisions in their tariffs. Recent amendments to the Canada Transportation Act have granted the CTA the authority to make regulations governing airlines’ minimum obligations to passengers with respect to communication of passengers’ rights and recourse actions, denied boarding, flight delays and cancellations, tarmac delays, lost or damaged baggage, seating of children, carriage of musical instruments and any other air carrier obligations as determined by the Minister. The CTA is currently in the process of public consultations, before drafting the new air passenger protection regulations.
The ATRs require that charter carriers take steps to protect advance payments and provincial legislation in several provinces regulates the way in which travel wholesalers and agents carry on business with the objective of protecting passengers in the case of carrier insolvency. The Canadian Computer Reservation Systems Regulations, passed pursuant to the Aeronautics Act, seek to ensure the fair and neutral presentation of available air services.
There are provisions in the Canada Transportation Act and the ATRs that permit the CTA to reject a term or condition of carriage filed by a carrier if the CTA finds the term or condition to be unreasonable or unduly discriminatory. Furthermore, the CTA can determine whether a carrier is applying its filed tariff terms and conditions. The CTA has limited jurisdiction to award monetary compensation but can require the carrier to apply its tariff-based terms and conditions.
The CTA has promulgated baggage rules for international interline carriage to and from Canada that apply to itineraries involving carriage by multiple carriers purchased on a single ticket, and provide that a single set of baggage rules must apply to the entire itinerary; and the applicable rules must be disclosed to the passengers on the itinerary receipt or the electronic ticket. The CTA also requires that carriers participating in interline traffic to and from Canada file interline baggage rules with the CTA and clearly state in their respective tariffs their policies concerning interline baggage. The CTA has also issued a ‘reservation’ against IATA Resolution 302, modifying its application to travel to and from Canada. The new rules were introduced after extensive public and industry consultation and are applicable to tickets issued on or after 1 October 2014.
Part V of the Canada Transportation Act addresses the issue of accessible transport for persons with disabilities. The CTA is very active in promulgating standards and adjudicating disputes in that area.
In order to provide domestic or international services, air carriers are mandatorily required to carry liability insurance. Section 7 of the ATRs specifies minimum liability insurance requirements for commercial operators. These are C$300,000 per seat for passenger liability. In respect of public liability, the mandatory coverage is a minimum of C$1 million for aircraft with maximum certified take-off weight of less than 7,500lbs, and a minimum of C$2 million for aircraft with maximum certified take-off weight of more than 7,500lbs. In case of aircraft with maximum certified take-off weight in excess of 18,000lbs, the minimum amount of insurance is C$2 million, plus an amount equal to C$150 for every pound over 18,000lbs. There are restrictions on insurance exclusions.
Private operators of aircraft with a maximum certified take-off weight of over 5,000lbs are required, subject to limited exceptions, to have passenger liability insurance of C$300,000 per seat. All private operators are required to carry public liability insurance, which is related to aircraft weight and the nature of the operations undertaken.
The Canadian Aviation Security Regulations, issued under the authority of the Aeronautics Act, provide the framework for legal requirements imposed upon air carriers in respect of security. These regulations deal with screening of persons and things, controlled goods, carriage of persons in custody, identification and control of restricted areas and the response to threats and are supplemented by confidential memoranda distributed to carriers on a periodic basis to deal with particular procedures of a security nature. As in many jurisdictions, what is required of the carrier by way of collection and distribution of information is in a state of flux, with numerous authorities making separate and sometimes conflicting demands.
Overall responsibility for implementing security measures, such as the screening of passengers and bags, rests with the Canadian Air Transport Security Authority.
The Public Safety Act allows the collection and use of passenger information for the purpose of security. It also provides the Minister of Transport with the authority to issue interim orders in emergency situations.
Section 7 of the Criminal Code creates a territorial extension of the jurisdiction of Canadian courts in respect of certain acts committed on an aircraft in flight. The principal serious crimes specifically related to aeronautics are found in sections 76, 77 and 78 of the Criminal Code. Hijacking is an indictable offence and is punishable by life imprisonment. Various acts of violence on board aircraft or in an airport that are likely to endanger the safety of the aircraft or airport are also punishable by life imprisonment. Carrying an offensive weapon or explosive on board without the consent of the operator of the aircraft is an indictable offence punishable by a term of imprisonment not exceeding 14 years.
In July 2017, two Air Transat flights from Brussels and Rome were diverted to Ottawa MacDonald-Cartier International Airport together with 18 other commercial aircraft because of inclement weather. The diverted flights experienced lengthy tarmac delays of five hours and 51 minutes and four hours and 47 minutes. During the period of delay, the passengers were not given an opportunity to disembark, and were only provided with limited food and water. Pursuant to an investigation conducted by the CTA, the CTA determined that Air Transat had failed to apply provisions of its tariff in relation to the tarmac delay and ordered Air Transat to compensate passengers for expenses incurred by them. The CTA also imposed an administrative monetary penalty on Air Transat of C$295,000.
Pursuant to an interim order issued by the Minister in June 2018 the possession of hand-held lasers over 1mW in power is illegal in the greater Montreal, Toronto and Vancouver areas or within a 10km radius of any Canadian airport or certified heliport, except for legitimate purposes provided prior notification of such use is given. Local law enforcement agencies have been given the authority to enforce the new provisions, and any breach may result in a fine of up to C$5,000 for individuals and up to C$25,000 for corporations. The aiming of a laser at an aircraft is now designated as a criminal offence resulting in fines up to C$100,000, imprisonment of up to five years, or both.
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