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ATAC has tabled a formal submission in response to the Public Interest Consultation launched by Transport Canada on the request for exemption on foreign ownership recently submitted by Flair.
ATAC opposes this request for exemption on the basis that no carrier should be allowed to operate outside the law and that granting this request would grant this carrier an unacceptable competitive advantage.
Formal Submission by ATAC to Transport Canada National Air Policy on the Request for an Exemption filed by Flair Airlines
Context
On March 3, 2022, the Canadian Transportation Agency (Agency) issued a preliminary determination that Flair Airlines (Flair) may not be controlled-in-fact by Canadians and may, therefore, not be “Canadian”, as defined in the Canada Transportation Act, SC 1996, c 10.
Flair holds licenses authorizing domestic, scheduled international, and non-scheduled international air services. Pursuant to the Act, Flair must be Canadian to provide these air services. Three requirements must be met for an air carrier to be considered Canadian: (1) the incorporation or formation requirement, (2) the voting interest requirement, and (3) the control-in-fact requirement.
The Canada Transportation Act (Act) requires air carriers to be majority owned and controlled-in-fact by Canadians to maintain a licence to provide both domestic and international air services. The CTA’s concern is focused on the involvement of an American based investor in Flair, namely 777. The increased presence in Flair of that foreign investor with additional injection of funds and reported majority of board seats since the beginning of the pandemic led to the preliminary determination.
The Agency has given Flair 60 days from the date of issuance to respond to their concerns, which relate to corporate governance and corporate finance.
Flair submits that it will require more than 60 days to implement the changes required to address certain of the Agency’s concerns. As such, Flair submitted the request, pursuant to sections 6.7(1) and 62(1) of the Act, for an exemption to the Act, to temporarily exempt Flair from the requirement to be Canadian under sections 61(a)(i), 69(1)(a)(i), and 73(1)(a)(i) of the Act.
Flair has indicated that it cannot meet the May 3rd deadline and is requesting an 18-month exemption while the company revises its corporate governance and financing structure to ensure it continues to meet the Canadian ownership and control requirements of its domestic and international licences.
As provided in section 6.7 (1), it is the Minister's responsibility to determine whether or not an exemption granted would be in the public interest. ATAC respectfully submits that in this situation, extending the deadline for Flair to comply with the requirements of the Canada Transportation Act is clearly against the public interest for the following reasons:
1- Enforcement vs Policy
A key mandate of the regulator is to ensure that the airline industry in Canada is working on a level playing field and complying with the Canadian ownership regulations. It would be totally reprehensible if a ministerial exemption were to grant any one carrier a competitive advantage, especially a carrier that one would presume has knowingly operated outside of the law.
The Canada Transportation Act is very clear on foreign ownership of air carriers, and all are bound to abide by it. The Government should not grant piece-meal exemptions that compromise the level playing field and give a competitive advantage to those who choose to operate outside the law.
2- Knowingly Non-Compliant
We have no indication that Flair was working towards compliance with the law before the March 3 notification by the CTA of the preliminary determination. It seems unreasonable to think that the company had not known for some time that it did not meet the requirements of the Act for the maintenance of its license.
Flair states that it “is confident that it will be able to implement steps to resolve the CTA's concern set forth in the Preliminary Determination in a timely manner.” If this is the case, then why would they still need 18 months to work on becoming compliant with the law. There should have been immediate actions taken when 777 increased its investment, putting Flair in breach of the law.
The company claims that a foreign influx of funds was its only option. Flair states:
“The COVID-19 pandemic had devastating impacts on Flair's operations, as it did for the rest of the airline industry. Throughout the pandemic, 777 continued to provide Flair with support to ensure that Flair's business continued to create extensive and affordable air travel options for all Canadians while employing thousands of Canadians. Due to the lingering nature of the pandemic, 777 was required to provide significantly more financing than was initially contemplated or required. There were no other sources of capital available to Flair to support its operations during this timeframe. Most Canadian airlines have also required financial support over the past two years, but whereas most of Flair's competitors benefited from Federal Government programs, Flair could not. Without 777’s support, Flair would not have been able to extend the opportunity of air travel to the vastly underserved populations across Canada, and in particular, communities that other carriers could not, or would not, serve.”
We consider that this claim is wrong and misrepresents reality as the majority of airlines in Canada, including a few emerging low-cost-carriers, also did not meet the threshold for government support. The rest of the Canadian airline industry opted not to resort to the option of obtaining foreign capital to help overcome the pandemic slowdown as this would have put them in breach of the law.
Flair’s claim of its impact on the Canadian market is overstated and misrepresents its importance to the smaller, less serviced, communities. Air service across Canada as a whole was disrupted during the pandemic but the level of service offered by air carriers to smaller communities is once again ramping up as our industry recovers from the ravages of COVID-19.
The wildly exaggerated claim of the importance of a carrier’s services to any particular community certainly does not justify knowingly working outside of the law.
3- Appearance of Dumping
The foreign investor providing Flair with otherwise parked US aircraft at below market rates could be construed as dumping and result in flooding the Canadian market with excess aircraft. This would likely be very destructive to the Canadian industry and would have misleading and damaging market impacts leading to unsustainable passenger expectations. This situation is definitely not in the Canadian public interest.
4- Consumer Protection
Flair’s argument is to allow them to continue to serve the Canadian traveler while it works “to address these corporate finance arrangements”. Under no circumstances should an extension be granted as this situation has already endured for some time. Furthermore, measures should be put in place to protect consumers in case the CTA’s decision to cancel Flair’s licences is rendered before passengers have had a chance to use their tickets.
Conclusion
The Air Transport Association of Canada (ATAC) has carefully read the submission by Flair and, based on the considerations explained above, formally opposes the granting of an exemption beyond the current 60-day deadline set by the CTA to require Flair to comply fully with the Act.
April 14, 2022
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