Regulations Amending the Canadian Aviation Regulations (Part I — Definition of Canadian): SOR/2018-143-1

Canada Gazette, Part II, Volume 152, Number 14

Registration

June 25, 2018

AERONAUTICS ACT

P.C. 2018-876 June 22, 2018

Her Excellency the Governor General in Council, on the recommendation of the Minister of Transport, pursuant to section 4.9 ^footnotea of the Aeronautics Act ^footnoteb, makes the annexed Regulations Amending the Canadian Aviation Regulations (Part I — Definition of Canadian).

Regulations Amending the Canadian Aviation Regulations (Part I — Definition of Canadian)

Amendment

1 The definition Canadian in subsection 101.01(1) of the Canadian Aviation Regulations ^footnote1 is replaced by the following:

Canadian

• (a) with respect to the operation of a commercial air service for which a licence to operate a domestic service is required under the Canada Transportation Act, has the same meaning as in subsection 55(1) of the Canada Transportation Act, and
• (b) with respect to the operation of any other commercial air service, means
  • (i) a Canadian citizen or a permanent resident as defined in subsection 2(1) of the Immigration and Refugee Protection Act,
  • (ii) a government in Canada or an agent or mandatary of such a government, or
  • (iii) a corporation or entity 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 75% of the voting interests are owned and controlled by Canadians; (Canadien)

Coming into Force

2 These Regulations come into force on June 27, 2018.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues

The Transportation Modernization Act, which received royal assent on May 23, 2018, amended the Canada Transportation Act (CTA) to, among other things, amend the definition of “Canadian” in Part II of the CTA (subsection 55(1)). The new definition of “Canadian” raises the threshold of voting interest owned and controlled by non-Canadians in an air carrier providing passenger and all cargo services from 25% to 49% with associated safeguards.

The Canadian Aviation Regulations (CARs) reference the definition of “Canadian” in Part II of the CTA, and apply this threshold to both (1) Canadian carriers providing air transport services of people and goods; and (2) Canadian carriers providing aerial work or “specialty air services” ^footnote2 (SAS), which are otherwise exempted from the provisions of the CTA. In order to maintain the status quo for the foreign ownership threshold of 25% for SAS consistent with commitments by the Minister of Transport to the House of Commons, amendments to the CARs are required.

Background

The Canada Transportation Act sets out Canada’s National Transportation Policy, which aims to provide a competitive, economic and efficient national transportation system that meets the highest possible safety and security standards while contributing to a sustainable environment, and to advance the well-being of Canadians and enable competitiveness and economic growth in both urban and rural areas throughout Canada.

Part II of the CTA sets out the parameters of who is eligible to apply for a licence, which is required to conduct a commercial passenger and/or cargo air service in Canada. Among these parameters, the service must be “Canadian” — the threshold of voting interest in an air carrier owned and controlled by non-Canadians may be no more than 25% and, after the coming into force of the relevant provisions of the Transportation Modernization Act, 49%.

Under the CARs, a number of provisions are also conditional on meeting the definition of “Canadian.” For example, it is used to issue an air operator certificate for either commercial air services (transport of passengers and goods), or aerial work (specialty air services). As well, it is also used to register aircraft in Canada. The definition of “Canadian,” in the CARs, directly references the definition of “Canadian” in the CTA, to ensure consistent foreign ownership thresholds for passenger and cargo air services under the CTA and CARs. However, because of the way the definition of “Canadian” is currently drafted in the CARs, without the proposed amendment to the CARs, the new definition of “Canadian” in the CTA would apply to SAS which is not the policy intent of the Transportation Modernization Act. Therefore, in order to maintain the status quo of the foreign ownership threshold of 25% for SAS, consistent with commitments by the Minister of Transport to the House of Commons, amendments to the CARs are required.

In 2015, the Canada Transportation Act review’s report entitled Pathways: Connecting Canada’s Transportation System to the World was released. Out of this report came several recommendations to amend the CTA with respect to foreign ownership levels. Two of the primary recommendations included an increase in foreign ownership thresholds to at least 49% for air carriers operating commercial passenger services; and an increase to 100% in foreign ownership for carriers operating all freight or those operators performing SAS.

The Government of Canada is supportive of the recommendation to raise the foreign ownership thresholds of Canada’s commercial air passenger and cargo carriers. As a result, the Transportation Modernization Act amended the CTA to change the definition of “Canadian” in order to raise the threshold of voting interests that may be owned and controlled by non-Canadians in a commercial passenger and cargo air carrier, from 25% to 49%, while also establishing specific safeguards related to such interests. The safeguards ensure that a single foreign investor would not be able to hold more than 25% of the voting interests of a Canadian air carrier, and that no combination of foreign air carriers could own more than 25% of a Canadian carrier.

With respect to SAS operators, the Government of Canada has decided to maintain the status quo of the foreign ownership threshold of 25%, in alignment with the corresponding foreign ownership threshold in the United States, in the absence of any stakeholder advocacy for or interest in an increased SAS foreign ownership threshold.

Objectives

The objective of the Regulations Amending the Canadian Aviation regulations (Part I — Definition of Canadian) [the amendments] is to maintain the status quo at 25% of the foreign ownership threshold for SAS, while allowing increases in foreign ownership thresholds for passenger and cargo air transportation, from 25% to 49%.

Description

The amendments set out the following definition of “Canadian” in the CARs:

1. For passenger and cargo air transportation, by reference to section 55 of the CTA, the foreign ownership threshold is increased to 49%, with the following safeguards:
   • A single foreign investor would not be able to hold more than 25% of the voting interests of a Canadian air carrier;
   • No combination of foreign air carriers could own more than 25% of a Canadian air carrier; and
2. For any other air services such as specialty air services, the current 25% foreign ownership threshold is maintained.

“One-for-One” Rule

The “One-for-One” Rule does not apply to the Regulations, as there is no change in administrative costs for business.

Small business lens

The small business lens does not apply to this proposal, as there are no costs imposed on small business.

Consultation

Broad consultations were undertaken with the industry in April 2016 following the issuance of the CTA review report. Since the Minister’s announcement on November 3, 2016, regarding upcoming changes to the CTA, stakeholders have argued for maintaining the current foreign ownership threshold for SAS. No stakeholders have made any representation with respect to increasing the foreign ownership threshold, and no support for increasing the SAS foreign ownership threshold was expressed during consideration of the Transportation Modernization Act by Parliament.

Rationale

The amendments maintain the status quo of the foreign ownership threshold for SAS, under the CARs, with no anticipated impact on stakeholders, consistent with the foreign ownership threshold in place in the United States, and commitments by the Minister of Transport before Parliament. Transport Canada will continue to monitor the industry segment to determine whether the foreign ownership threshold for SAS should be increased, in the future, to match those of commercial passenger and cargo carriers.

Contact

Chief
Regulatory Affairs
Policy and Regulatory Services (AARBH)
Civil Aviation, Safety and Security Group
Transport Canada
Place de Ville, Tower C
330 Sparks Street
Ottawa, Ontario
K1A 0N5

General inquiries
Telephone: 613-993-7284 or 1-800-305-2059
Fax: 613-990-1198
Email: carrac@tc.gc.ca
Website: http://www.tc.gc.ca