Order Fixing June 27, 2018 as the Day on which Certain Provisions of the Act Come into Force: SI/2018-50
Canada Gazette, Part II, Volume 152, Number 14
July 11, 2018
TRANSPORTATION MODERNIZATION ACT
Order Fixing June 27, 2018 as the Day on which Certain Provisions of the Act Come into Force
P.C. 2018-881 June 22, 2018
Her Excellency the Governor General in Council, on the recommendation of the Minister of Transport, pursuant to subsection 98(2) of the Transportation Modernization Act, chapter 10 of the Statutes of Canada, 2018, fixes June 27, 2018 as the day on which sections 15, 16, 90 and 91 of that Act come into force.
(This note is not part of the Order.)
This Order in Council (Order) fixes June 27, 2018, as the day on which sections 15, 16, 90, and 91 of the Transportation Modernization Act come into force.
The primary purpose of this Order is to bring into force section 15 of the Transportation Modernization Act, which amends the definition of Canadian in respect to the operation of an air transport service in subsection 55(1) of the Canada Transportation Act, thereby increasing the foreign ownership threshold from 25% to 49% with accompanying safeguards, for Canadian air carriers that provide passenger air and all cargo services.
Passenger and cargo air transport involves vast capital outlays in a business known to generate relatively low returns. Air carriers manage their costs by maximizing their networks, particularly by driving as much traffic as possible through their hubs. Recognizing the strategic importance of air transport for a national economy, almost all major countries with a significant air transport sector limit foreign ownership to below 50%, and also limit foreign control of their national carriers.
The Canada Transportation Act Review Report in 2015 called for an increase in foreign ownership limits to at least 49% for air carriers operating commercial passenger services, and an increase to 100% in foreign ownership for airlines operating all freight services. In determining how to move forward with this recommendation, Transport Canada examined whether Canada should encourage as much competition as possible in the Canadian air transport market, and determined that any decisions made with respect to foreign ownership should have associated safeguards to mitigate any potential risks.
Raising the limit on foreign ownership restrictions would make more funding available to air carriers, which could allow for additional services and competition in the Canadian marketplace, including the possibility of facilitating the emergence of new airlines. Access to additional capital could also result in lower financing costs for carriers.
Canadian air carriers will continue to be required to be controlled by Canadians, notwithstanding the increase in the level of foreign investment. Control in fact is not contingent on the proportion of shares owned by a given investor. The Canadian Transportation Agency is tasked with determining control in fact, and its determination depends on the realities of each situation.
Evaluations will be done on a case-by-case basis, with the burden of proof falling on the applicant to satisfy the Canadian Transportation Agency that it meets this requirement of Canadian control in fact.
For Canadian travellers, increased foreign ownership could mean more choice as more carriers potentially enter the market, lower prices as more carriers compete for travellers, and greater connectivity as new carriers move into underserved regions. As an example, research in 2015 showed a 25% average decrease in fares on routes that Porter Airlines entered into, and a 17% drop in Air Canada fares.
New air carriers that are currently unable to access sufficient capital in Canadian markets could also emerge. This has the potential of creating new jobs for Canadians, and could allow for the creation of ultra-low-cost carriers. Ultra-low-cost carriers have been observed in other jurisdictions to induce demand by way of lower costs and inspiring people to travel by air who otherwise might not have. The emergence of ultra-low-cost carriers could also place pressure on existing air carriers to lower their prices.
Raising foreign investment limits to 49% would also allow Canada to engage the European Union to move to Phase 2 of their bilateral air transport agreement. At Phase 2, Canada would gain additional fifth- and seventh-freedom rights to points beyond Europe.footnote 1
Under section 16, Specialty Air Services are excluded from this part of the Act as they are governed by the Aeronautics Act and the Canadian Aviation Regulations; however, the list of Specialty Air Services operators has been slightly expanded. Sections 90 and 91 of the Transportation Modernization Act make consequential amendments to the Air Canada Public Participation Act and the Budget Implementation Act, 2009; they are required to come into force at the same time as sections 15 and 16.
In April 2016, following the release of the Canada Transportation Act Review Report, broad consultations with industry stakeholders were undertaken, and there was widespread support for increases to foreign ownership limits for commercial passenger and cargo services to 49%.
Based on these consultations, on November 3, 2016, the Minister of Transport announced changes to the Canada Transportation Act. Since that time, the Minister, Government House members, and Transport Canada have been quite clear in speeches and official documents that foreign ownership levels for Canadian air carriers that provide passenger and cargo services, excluding Specialty Air Service operators, would increase from 25% to 49%, with safeguards.
In the Committee stage for the Transportation Modernization Act in both the House of Commons and the Senate, industry stakeholders have been supportive of the proposal to increase foreign ownership levels for Canadian commercial air carriers.
National Air Services Policy (ACEB)
Air Policy Group
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