Foreign ownership: a new ident for Canadian airlines
Foreign ownership restrictions regarding airlines originate from the Chicago Convention on International Civil Aviation in 1944. Fifty-two countries agreed on the principle that the airspace of a state is the property of this state. The main reasons why states decided to restrict foreign investment for their national air carrier were for national security, economic security and aviation security and employment laws/regulations purposes.
In the 1980s, Canada shifted from a government owned and controlled system to a commercial-based market.
Almost thirty years after privatization, the government is reopening the debate over international liberalization of our aviation market by redefining what is “Canadian” under our aviation law and regulations.
Pursuant to subsection 55(1) of the Canada Transportation Act (the “CTA”), a “Canadian” natural person means:
a Canadian citizen or a permanent resident within the meaning of subsection 2(1) of the Immigration and Refugee Protection Act [basically a person who has acquired permanent resident status and has not subsequently lost that status]
The same provision defines “Canadian” corporation as:
a corporation […] that is incorporated or formed under the laws of Canada or a province, that is controlled in fact by Canadians and of which at least seventy-five per cent […] of the voting interests are owned and controlled by Canadians.
Foreign ownership is therefore limited to 25% of the voting shares of the air carrier. This rule notably applies to Canadian flight schools (CARs 406.04) and airlines performing domestic flights (section 10 of the ATRs).
Subsection 55(1) of the CTA also authorizes the cabinet to allow by regulation greater percentage of foreign ownership to Canadian air carrier.
Why did Parliament limit foreign ownership to 25%?
All this began with the economic deregulation of the domestic market for air services which began in 1986, and, of course, the privatization of Air Canada in 1988. The Mulroney government chose to follow US air transport system as a model which only allows foreigners to control 25% of US air carriers.
A political argument could also be made – such as allowing more than 25% foreign interest would be unprecedented in the North American context. Shifting from a 100% publicly owned and controlled system to full privatization is no small matter – the federal government had to put reasonable barriers.
The new commercial and operation conditions created perverse consequences. Job losses, service cuts, bankruptcies and consolidation were among the negative impacts of the system shift. However, largely inspired by US business models and the implementation of a successful hub-to-spoke networks and unbundling services, Canadian air carriers successfully restructured their profitability over the years.
The Canada Transportation Act Review
In 2015, the previous government mandated former federal minister, The Hon. David Emerson, P.C., to conduct a massive review of Canada’s transportation system.
Tabled at Parliament on February 25th, 2016 by The Hon. Marc Garneau, P.C., the Canada Transportation Act Review (the “Review”) is exposing an important issue:
"It is increasingly difficult for our air transport system to remain globally competitive, due to geography, population density, and federal policies that inhibit growth. Not much can be done about the first two, but policies that, in today’s context, no longer serve national interests should be revisited."
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