GAME CHANGER Canada says airlines can be 49 percent foreign owned
Posted on 11/04/2016 | About Canada
The Government has been trying to sell investors on the idea of Canada as a great investment destination and this week they loosened the rules about foreign takeovers of domestic companies and foreign investment levels in airlines sending a signal that the country is more open to international money.
First, big news for airlines
On Thursday, Transport Minister Marc Garneau announced that international companies will soon be able to own 49 percent of an airline in Canada - a jump from the current 25 percent - once the government makes the necessary legislative amendments.
In the meantime, Garneau granted exemptions to allow aspiring discount airlines Canada Jetlines and Enerjet to land more international investors, giving the airlines something they have long requested.
Enerjet is ready
In response to the announcement Enerjet, reaffirmed its plan to establish a nation-wide ultra-low-cost carrier (ULCC) offering low priced commercial air service benefiting all Canadians.
Enerjet also announced its intentions to partner up with Indigo Partners LLC of Phoenix, Arizona, to fast-track development of this new class of air service for Canadians.
Together with Indigo, Enerjet said, it “will develop a Canadian ULCC with a strong financial foundation and broad international experience - implementing a model that has met with success around the globe.”
The customers and shareholders of this new ULCC, says Enerjet, “will benefit from the capital, talent, best-practices, and strong industry presence introduced through this partnership with Indigo.”
Enerjet President, Tim Morgan, said, “We are excited to develop a new airline which offers widely-available low-cost fares and convenient air travel for Canadians. We intend to make travel for Canadians more affordable, and to provide a much needed economic stimulus to Canada and to every Canadian community we serve.
“We also expect the airline will create several thousand Canadian jobs in the next few years.
“Canada is very fortunate to be serviced by two of the safest and most successful airlines in the world, yet remains one of but a few developed nations not to benefit from a discount airline.”
Indigo Partners LLC Managing Partner, Bill Franke, said, “We would like to thank the Minister and his dedicated team for taking up the challenge of making much-needed and difficult changes to the transportation investment environment. We look forward to the benefits that all Canadians will enjoy from this leadership.”
Indigo is a former owner of Sprint, and currently includes Frontier and Hungarian low cost carrier Whizz in its portfolio.
Further announcements regarding the details of the launch of the ULCC, including the company structure, flight schedule, launch dates and locations will be made in appropriate time after all government and regulatory changes are approved.
A focus on investment
Finance Minister Bill Morneau didn't detail what further regulatory changes could be coming, though he hinted there would be more, or what protected industries - telecommunications and cultural companies, for example - the government may open to foreign investors.
Morneau said, “these things demonstrate that we want investments in Canada. They demonstrate that we know that investors in Canada like the ones that have come in this year - GM, GE, Microsoft, Thomson Reuters - can create good, long-term paying jobs for Canadians.
“That's what we're trying to achieve. We're going to remain focused on that.”
Morneau said that whatever rules the government lays down on foreign investment will protect Canadians and national interests, while giving investors clarity so they can consider making investments here.
“If we're able to do things that create excellent jobs for Canadians, those are things we should be doing,” Morneau said in an interview with The Canadian Press.
The federal foreign investment law gives the government enormous powers to review takeovers or mergers involving domestic and foreign companies and block those that don't provide a net benefit to the country.
Cabinet can also block deals that may raise national security issues, but the act doesn't clearly define national security.
The rules for reviews of foreign investment in the fall economic update, raise the threshold for review to $1 billion from $600 million and does so more than two years sooner than previously planned. The government also promised to publish guidelines by the end of the year to explain which investments would be subject to national security reviews.
A review of the Canadian Transportation Act earlier this year had recommended boosting foreign ownership limits to 49 percent for commercial passenger carriers and 100 percent for freight and specialty airlines and to ultimately remove foreign ownership restrictions entirely, justifying the recommendation by citing the, “low level of competition and our relatively high airfares.”
Line ups, fees and charges
Garneau noted the long line-ups at airport security, though how this would be improved by adding low cost carriers remains to be seen.
The minister acknowledged that Canada falls short of international standards airports for example London Heathrow, where passengers can clear through security in 10 minutes or less.
“Too many Canadians are waiting too long . . . we need to do better,” Garneau said.
“We will work to set internationally competitive targets, allowing Canadian airports to keep up with hubs in other countries,” he said.
To do that, Garneau said he’d be looking at everything, from new equipment and technology to how CATSA is run and funded.
Garneau noted another common complaint among passengers: “frustration at the cost of air travel within Canada and the litany of fees and charges.”
Garneau said that Ottawa would be introducing the “air travellers’ passenger rights regime” to ensure the rights of fliers are protected by “fair and clear” rules.
The new rules will set out “clear” minimum requirements so that travellers will know when they are eligible for compensation, Garneau said.
That will include compensation for when passengers are denied boarding or baggage is lost or damaged.
“We will work to set internationally competitive targets, allowing Canadian airports to keep up with hubs in other countries,” he said suggesting that the government would be reviewing everything from new equipment and technology to how CATSA is run and funded.
A 49 percent foreign ownership of airlines certainly opens the door to a myriad of possibilities that could well cause some turbulence in Canadian boardrooms.
And while Air Canada and WestJet may be less than thrilled at this decision –where does it leave NewLeaf?