Agency Rulings

Decision No. 436-A-2003

July 30, 2003

APPLICATION by MK Airlines Limited for authority and charter permits to operate cargo charter flights between Canada and Europe from July 1, 2003 to December 31, 2003 using a B747-200F aircraft.

File No. M5000/M269

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APPLICATION

On June 17, 2003, MK Airlines Limited (hereinafter MK Airlines) applied to the Canadian Transportation Agency (hereinafter the Agency) for the authority and program permits for:

1. Bradley, Connecticut/Halifax/Zaragosa, Spain/Luxembourg - flights from July 1 to December 31, 2003 on Sundays. Uplifting split load of general cargo from Bradley to Luxembourg (cargo onboard in transit Halifax only) and 60 tons net fish from Halifax to Zaragosa on behalf of Zeus Seafoods for charterer Morganair. (Flight no. MKA 1606);
2. Bradley, Connecticut/Halifax/Zaragosa, Spain/Luxembourg - flights from July 1 to December 31, 2003 on Thursdays. Uplifting split load of general cargo from Bradley to Luxembourg (cargo onboard in transit Halifax only) and 60 tons net fish from Halifax to Zaragosa on behalf of Zeus Seafoods for charterer Morganair. (Flight no. MKA 1602);
3. Luxembourg/Mirabel/Huntsville, Alabama - flights from July 1 to December 31, 2003 on Thursdays. Split load dropping up to 40 tons net cargo in Mirabel with remainder in transit Mirabel to Huntsville for charterer ASB-Air/Panalpina. (Flight no. MKA 1603);
4. Huntsville, Alabama/Mirabel/Luxembourg - flights from July 1 to December 31, 2003 on Sundays. Split load picking up to 40 tons net general cargo in Mirabel for Luxembourg with some freight destined for onward shipment via other MK Airlines services to various African destinations (Accra, Ghana; Johannesburg, South Africa, etc.) with remainder in transit Huntsville to Luxembourg, for charterer ASB-Air/Panalpina. (Flight no. MKA 1604).

Under Licence No. 020154, MK Airlines is authorized to operate a non-scheduled international service to transport goods on a charter basis between points in the Republic of Ghana and points in Canada. Condition No. 1 of MK Airlines' licence limits its operations to transport goods on a charter basis between points in Ghana and points in Canada.

Letters in support of the application were received from the Halifax International Airport Authority, Les Aéroports de Montréal, Zeus Seafoods, ABS-Air Panalpina Group, MorganAir, CRD Laurentides and the Deputy Minister for Transportation and Public Works of the Government of Nova Scotia.

On July 10, 2003, Air Canada filed with the Agency its objection to the application by MK Airlines and on July 15, 2003, MK Airlines filed its reply.

On July 18, 2003, MK Airlines submitted additional information with regard to the oversized cargo shipped from Mirabel to Luxembourg. MK Airlines advised the Agency that this information is considered confidential commercial information and requested that the information not be disclosed to the public.

By Decision No. LET-A-155-2003 dated July 21, 2003, Air Canada was provided with an abridged version of MK Airlines' July 18, 2003 submission. On July 23, 2003, Air Canada replied to the additional information submitted by MK Airlines and on July 24, 2003, MK Airlines responded to Air Canada's submission of July 23.

PRELIMINARY MATTER

By Decision No. LET-A-143-2003 dated June 20, 2003, the Agency denied MK Airlines' request with respect to the flights that were proposed to take place during the month of July 2003. The Agency found that these flights were substantially the same as a series of flights that were to have been operated by MK Airlines during the months of June and July 2003 that were originally authorized by the Agency in Decision No. 305-A-2003 dated May 29, 2003. That Decision was rescinded by the Governor in Council by Order in Council No. P.C. 2003-803, dated June 2, 2003.

In addition, in respect of the balance of the flights from August 1, 2003 to December 31, 2003 the Agency indicated in the same letter decision that it would consider the authorization of these flights separately. Accordingly, pursuant to section 8 of the National Transportation Agency General Rules, SOR/88-23, it requested comments in abridged time frames. Comments were to be received by the Agency on or before 5:00 p.m. (EDT) Thursday, July 10, 2003, with a copy to MK Airlines who then had until 5:00 p.m. (EDT) Tuesday, July 15, 2003 to file a reply with the Agency with a copy provided to each person who has provided comments.

ISSUE

The issue to be addressed is whether to amend MK Airlines' licence and grant charter permits for the proposed flights during the period from August 1 to December 31, 2003.

ANALYSIS AND FINDINGS

In making its findings, the Agency has considered all of the evidence submitted by the parties during the pleadings.

The Agency has carefully considered the matter and has determined that the application should be considered in two parts. Firstly, the charter flights carrying seafood products from Halifax to Zaragosa (items 1 and 2 above) and secondly, the charter flights for the carriage of cargo between Montréal and Luxembourg (items 3 and 4 above).

Statutory framework

As required by section 33.1 of the Air Transportation Regulations, SOR/88-58, as amended (hereinafter the ATR), MK Airlines, a Ghanian air carrier, has applied pursuant to section 34 of the ATR for program permits to operate the series of entity charter flights described above and has also applied to the Agency pursuant to subsection 74(1) of the Canada Transportation Act, S.C., 1996, c. 10 (hereinafter the CTA) for an amendment to its licence that would allow it to undertake these flights.

In considering these applications, the Agency is required by the CTA to take into account a number of factors. Subsection 76(1) of the CTA requires the Agency to apply any policy directions relating to international service that are issued by the Minister of Transport in its consideration of this matter. Subsection 78(1) of the CTA states that any decision of the Agency in this matter shall be in accordance with any international agreement, convention or arrangement relating to civil aviation to which Canada is a party, although pursuant to subsection 78(2) of the CTA, the Agency may temporarily approve air services that are not permitted by such an agreement. Finally, subsection 43(1) of the CTA requires the Agency to carry out any applicable policy directions issued by the Governor in Council. It should be noted that there are no relevant international agreements or Governor in Council policy directions issued under section 43 of the CTA.

Section 22 of the ATR also states that the operation of the proposed charter flights must be consistent with Canada's national and international transportation policies and Canada's other policies that affect, directly or indirectly, air transportation, and must, on balance, best serve the needs of travellers, shippers and air carriers. In considering the applications, the Agency must also apply any other relevant statutory or common law that is binding on the Agency.

Effect of Order in Council No. P.C. 2003-803

As noted above, previous Agency decisions granting approval to MK Airlines to operate a similar series of flights from the beginning of April to the end of July 2003 were rescinded by Order in Council No. P.C. 2003-803 dated June 2, 2003. This Order was issued pursuant to section 40 of the CTA, which allows the Governor in Council to vary or rescind any decision, order, rule or regulation of the Agency.

A preliminary matter that must be considered by the Agency is what effect this Order in Council has on the Agency's consideration of MK Airlines' current application. Air Canada, in its arguments, appears to assume that the reasoning contained in the Order in Council is binding on the Agency. Based on this assumption, it then argued that the flights are in fact seventh-freedom, and Air Canada concluded that the Agency cannot, in the present case, apply policies issued by the Minister of Transport that only pertain to third, fourth and fifth freedom all-cargo charter flights. MK Airlines argued in its reply that interpreting these reasons as binding on the Agency in its consideration of future applications for charter permits would run counter to the scheme of the CTA and the ATR, and therefore the current all-cargo charter policy continues to apply to the flights under consideration.

In British Columbia (Attorney General) v. Canada (Attorney General); An Act Respecting the Vancouver Island Railway (Re), [1994] 2 S.C.R. 41, the Supreme Court of Canada considered the effect of section 64 of the National Transportation Act, 1987, which later became section 40 of the CTA. Writing for the majority, Iacobucci J. states at page 119:

I generally agree with the following statement by B. S. Romaniuk and H. N. Janisch in "Competition in Telecommunications: Who Polices the Transition" (1986), 18 Ottawa L. Rev. 561, at p. 628:

... subsection 64(1) deals exclusively with the power of Cabinet to vary or rescind CRTC [and NTA] decisions. It would be inappropriate in principle to attribute substantive law-making capacity to a statutory provision which merely creates a power of appeal or review. In any event, Cabinet's competence is confined to "any order, decision, rule or regulation made within the Commission's jurisdiction, as there can be no appeal from a nullity. In other words, Cabinet is not given any new authority to deal with telecommunication matters ab initio. Cabinet's authority is restricted to matters already dealt with by the Commission, and such matters must be orders, decisions, rules or regulations, that is to say, intra-jurisdictional matters. [Emphasis added.]

This quote makes it clear that an Order in Council issued pursuant to section 40 of the CTA does not create a precedent that is binding on the Agency in its consideration of future cases.

Furthermore, the Agency is of the opinion that interpreting the reasons accompanying the Order in Council as providing policy direction to the Agency would run counter to the scheme of the CTA in these matters. In particular, section 43 of the CTA allows the Governor in Council to issue policy directions that are binding on the Agency. According to section 44 of the CTA, however, such a policy direction is required to be tabled in Parliament and can only come into effect 30 days after being tabled. The Minister of Transport may also issue binding directions to the Agency related to applications concerning all cargo charter operations pursuant to paragraph 76(1)(c) or (e) of the CTA, but subsection 76(3) requires the concurrence of the Minister of Foreign Affairs with any such policy direction. Interpreting the reasons accompanying an Order in Council issued under section 40 as providing policy direction to the Agency would have the effect of circumventing these two schemes.

International reciprocity

An important factor in the Agency's consideration of applications for international charter flights is whether the aeronautical authorities of the country of the applicant air carrier would allow similar opportunities to Canadian carriers to operate in that country. Subsection 22.2(2) of the ATR in fact requires the Agency to take into consideration international reciprocity when considering applications for international charter flights. In the present case, the Agency is therefore required to determine whether the country of Ghana would allow Canadian carriers to carry traffic between Ghana and a third country. If not, this would weigh heavily in favour of denying a similar application from MK Airlines, a Ghanian airline.

On this issue, MK Airlines pointed out that Skyservice Airlines Inc. (hereinafter Skyservice) is currently allowed by Ghanian aeronautical authorities to operate a passenger service between Ghana and the United States of America. Air Canada responded that this example is not relevant as Skyservice has wet leased an aircraft with flight crew to operate a scheduled service on behalf of Ghana Airways.

On matters of international reciprocity, the Agency's practice is that reciprocity is assumed by the authorities of the air carrier's country of origin unless evidence is brought to the contrary. The Agency is also not aware of any incident where an application by a Canadian carrier to the Ghanian aeronautical authorities that is similar to the present one has been denied, nor is there any evidence that the Ghanian aeronautical authorities would deny such an application. Therefore the Agency concludes that international reciprocity is not a concern in the present case.

Policy framework

Paragraph 22(d) of the ATR requires that the proposed flights "on balance, best serve the needs of travellers, shippers and air carriers." This balancing of interests is consistent with the guidelines contained in the Policy for International All-Cargo Charter Air Services announced by the Minister of Transport on May 29, 1998 (hereinafter the All-Cargo Policy), and the Agency is of the opinion that this policy continues to be the best guidance as to what Canada's transportation policies are in respect of all-cargo charter services such as those under consideration. The All-Cargo Policy states that in considering cases such as the present one where air cargo is to be moved directly between Canada and another country (Spain or Luxembourg) by the air carrier of a third country (Ghana), the Agency must balance the interests of shippers in such services with the interests of affected carriers of Canada and the other country. The policy goes on to clarify that an application by the air carrier of a third country should not be denied solely on the grounds that Canadian carriers can offer the services instead.

Balancing of interests - Mirabel/Luxembourg flights

Air Canada, in its answer to MK Airlines' application, provided the same comments concerning the balancing of the interests of Canadian shippers and carriers in respect of both the Mirabel/Luxembourg flights and the Halifax/Zaragosa, Spain flights. Air Canada argued that the extensive series of flights proposed by MK Airlines and the fact that they are not in response to an actual need indicate that MK Airlines is proposing to offer a de facto scheduled service and not a charter service. Air Canada also stated that the proposed flights would have a direct negative financial impact on its transatlantic operations and that Air Canada can adequately serve Canadian shippers through its vast network to Europe.

In its reply, MK Airlines claimed that the Mirabel/Luxembourg flights serve an important and unmet need. The cargo carried is usually general cargo, but frequently includes oversized pieces or dangerous or fragile cargo that require the use of wide-body aircraft and nose-loading capability. In response to Air Canada's arguments, MK Airlines stated that the proposed flights are in fact charter flights as they will be operated pursuant to a contract with a charterer who assumes the commercial risk of the flights. Furthermore, unlike scheduled flights, the proposed flights can be cancelled by the charterer if there is insufficient demand. MK Airlines also stated that Air Canada did not provide any evidence to support its assertion that it would be negatively impacted by the proposed flights, and that any possible negative impact on Air Canada by approval of the MK Airlines' proposed flights would be minimal, especially compared to the potential for significant gains to be made by the Atlantic fishing industry and the exporting community of Montréal. Furthermore, Air Canada cannot provide an adequate alternative because it cannot ship the oversized cargo that MK Airlines is proposing to carry.

Further to an Agency request, MK Airlines also provided a table that showed what cargo requiring an aircraft with main deck cargo capacity was carried into and out of Mirabel airport during the operation of similar Mirabel/Luxembourg flights by MK Airlines during the months of April and May 2003. In response to this information, Air Canada noted that it operates daily non-stop flights between Montréal and Frankfurt as well as between Toronto and Frankfurt and Toronto and London, United Kingdom, using a Boeing 747-400 Combi aircraft. These flights provide a weekly available cargo capacity of 560 tonnes to Frankfurt and 160 tonnes to London. MK Airlines responded that these Air Canada flights do not respond to shippers needs as they do not go directly to Luxembourg, they operate in accordance with schedules that best accommodate passenger services and not shippers' needs and they would be unable to carry pieces that are too large for a Boeing 747-400 Combi aircraft.

The Agency accepts MK Airlines' assertion that there is currently a need that is not met in the Montréal area business community for the ability to ship oversized cargo directly between Montréal and Europe, as indicated by the interventions in support of the flights. Currently, such cargo is often transported from Montréal to the United States where it can be loaded onto an all-cargo aircraft destined for Europe.

In its consideration of this application, however, the Agency is concerned that there is not enough need in the Montréal marketplace to warrant the pre-approval of a series of twice weekly flights into and out of Mirabel airport, which was why details were requested concerning the loads carried by MK Airlines during the operation of its April and May flights. This data indicated that the maximum weight of oversized or other cargo requiring a main deck aircraft cargo carried on any one flight operated by MK Airlines during this period was 10 tonnes, whereas MK Airlines is applying for permission to carry up to 40 tonnes of cargo per flight. With respect to the present application for flights into and out of Mirabel airport, MK Airlines failed to demonstrate a specific need that can not be adequately provided for by existing services.

The Agency is therefore of the opinion that the applicant has not shown that there is adequate need to justify approving the entirety of the proposed series of twice weekly flights to and from Mirabel airport. In particular, the Agency is concerned that approval of these flights would result in cargo, particularly general cargo, that could be carried by Canadian carriers being diverted to the proposed MK Airlines flights thereby having a direct negative financial impact on the viability of Canadian carriers' European routes. For these reasons, the Agency hereby denies MK Airlines' application to operate the proposed series of weekly flights into and out of Mirabel airport. This denial does not preclude MK Airlines from filing future applications with the Agency for permission to operate all-cargo entity charter flights into and out of Mirabel airport during the period from August 1 to December 31, 2003. The Agency will then consider any such future applications on a case-by-case basis.

Balancing of interests - Halifax/Zaragosa flights

With respect to the twice-weekly flights from Halifax to Zaragosa, Spain, Air Canada offered the same general comments as described above. MK Airlines' responses to those general comments described above also apply in respect of the Halifax flights. In addition, MK Airlines emphasized the importance of these proposed flights to the Atlantic fishing industry. The direct flights would result in a minimum of 24-36 hours less transportation time than current services, as fish exporters must now truck their product to Montréal or Boston, fly it to various European destinations, and then truck it to Zaragosa for processing. As a result of this reduction in travel time, MK Airlines' proposed flights would allow Canadian fish exporters to receive a better price for fish that is currently being exported to Europe and also allow the development of European markets for products that are too delicate to survive the current journey, such as live eels, live lobster and mackerel.

The Agency accepts that the proposed Halifax flights are very important to the Atlantic fishing industry as well as the economy of the Maritimes. In particular, the Agency is of the opinion that it is important that the development of new markets for Canadian seafood products be encouraged. The Agency also notes that no Canadian carrier offers a comparable service that would provide the same benefits to the Maritimes as the proposed flights. Furthermore, Air Canada did not provide any evidence with respect to the financial impact of the proposed flights on the air carrier. For these reasons, the Agency is of the opinion that the balancing of the interests of shippers and affected Canadian carriers weighs heavily in favour of approving the proposed Halifax flights.

In addition, unlike the Mirabel flights, the Agency is convinced that there is an adequate need for these flights from Canadian seafood producers to justify pre-approving a series of flights. The Agency is concerned, however, that the five-month series of flights proposed by MK Airlines is a long period of time for what is essentially a new service. There are strong reasons for approving these flights, but the Agency is of the opinion that it would be appropriate to limit the period of approval so that the Agency has the opportunity to gather information in respect of the actual operation of the flights. For these reasons, the Agency is only prepared at this time to approve flights for a period of three months. Therefore, the Agency hereby approves the Halifax/Zaragosa, Spain flights from August 1, 2003 to October 31, 2003. MK Airlines may file an application in the future with the Agency for approval to operate the flights proposed for the months of November and December 2003.

CONCLUSION

Based on the above findings, the Agency hereby denies MK Airlines' application in respect of the Luxembourg/Mirabel/Huntsville flights (Flight No. MKA 1603) and the Huntsville/Mirabel/Luxembourg flights (Flight No. MKA 1604) proposed to take place between August 1, 2003 and December 31, 2003. The Agency also hereby approves MK Airlines' application in respect of the twice-weekly Bradley, Connecticut/Halifax/Zaragosa, Spain/Luxembourg flights (Flight Nos. MKA 1606 and 1602) proposed to take place between August 1, 2003 and October 31, 2003. In addition, the Agency deems it appropriate to add a condition to MK Airlines' non-scheduled international Licence No. 020154 allowing it to operate the approved flights. Accordingly, the Agency, pursuant to subsection 74(1) of the CTA, hereby amends this licence by adding the condition set out below and hereby grants the program permits set out below:

The Licensee is authorized to operate the following fifth freedom entity cargo charter flights:

1. MKA 1606 - Bradley, CT / Halifax/Zaragosa, Spain/Luxembourg - 13 flights from August 3 to October 26, 2003 for Morganair on behalf of Zeus Seafoods (Program Permit No. CECF-27EU).
2. MKA 1602 - Bradley, CT / Halifax/Zaragosa, Spain/Luxembourg - 13 flights from August 7 to October 30, 2003 for Morganair on behalf of Zeus Seafoods (Program Permit No. CECF-28EU).

MK Airlines is also reminded to contact Transport Canada or the local airport authority regarding permission either to operate at specific times or to use any airport facility and for compliance with the security requirements of Transport Canada. Regarding the availability of clearance services, MK Airlines is reminded to contact the Canada Customs and Revenue Agency. This authority must be carried on board the aircraft.

It should be noted that the authority granted in this decision is based on the merits of the present application and should not be relied upon as justification for similar applications in the future as the Agency assesses each application on a case-by-case basis.

This Decision takes effect on July 25, 2003, the date on which its content was communicated verbally to the parties of record.