Canada to Increase Limits on Airline Foreign Ownership
(Bloomberg) -- Canada will nearly double its limit on foreign ownership of airlines as part of an overhaul of transportation rules, raising it to 49 percent from 25 percent while retaining other restrictions.
Transport Minister Marc Garneau announced the changes in Montreal on Thursday, saying the government would immediately increase the ownership threshold to 49 percent for Canada Jetlines Ltd. and Enerjet Ltd. even before enabling legislation to permanently raise the limit. No time-line was given for the legislation.
The airline ownership rules are being changed “in order to increase competition and create more options for Canadians,” Garneau said in a Montreal speech Thursday morning.
The changes come with caveats. A single international investor will not be able to hold more than 25 percent of voting interests, and no combination of international carriers could own more than 25 percent of a Canadian competitor. Canada will also retain the current 25 percent foreign ownership limit for specialty air services.
“The biggest impact from the new rules will be from the potential start-up of one or two new ultra-low-cost carriers in Canada,” Cam Doerksen, a National Bank Financial analyst in Montreal, said in a note to clients. Two more such carriers could create overlap and pricing pressure for WestJet Airlines Ltd. and Air Canada. Air Canada shares fell 2.5 percent to C$11.88 at 2:44 p.m. in Toronto and WestJet was down 1.2 percent to C$21.15.
More Capital
The exemption announced by Garneau will allow “access necessary capital in order to begin operations,” according to a statement from Canada Jetlines on Thursday. Once it starts operating, the airline plans to buy new aircraft, Chief Executive Officer Jim Scott said in the statement.
As for Enerjet, the Calgary-based charter operator said Thursday it plans to team up with Indigo Partners LLC, a Phoenix, Arizona based private equity firm, to “fast-track” development of an ultra-low-cost carrier. Details will be released at a later date.
A government panel released a report earlier this year recommending the increase to “at least 49 percent” to align with other large aviation markets. Garneau also announced Canada would reform the Canadian Air Transport Security Authority to speed up processing of air travelers.
Railway Safety
The Canadian government will also accelerate its review of the Railway Safety Act, while adding requirements for trains to use voice and video recorders to aid investigations in event of a crash.
The Railway Safety Act review will now be conducted in 2017, rather than 2018 as previously scheduled. In a speech Thursday morning, Garneau said Canada has more rail cars than ever on its tracks and that infrastructure is out of date, with some supply routes unable to handle capacity.
“We need our railways to be efficient and competitive,” he said. “We need goods to get where they're going, be it here in Canada, across the border to the United States or to a port for shipment overseas.”
--With assistance from Frederic Tomesco To contact the reporter on this story: Josh Wingrove in Ottawa at jwingrove4@bloomberg.net. To contact the editors responsible for this story: Theophilos Argitis at targitis@bloomberg.net, Jacqueline Thorpe
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