Decision No. 429-A-2013

This Decision has been varied by 39-A-2014">Decision No. 39-A-2014.

This Decision has been varied by 33-A-2014">Decision No. 33-A-2014

An erratum was issued on February 3, 2014.

November 13, 2013

APPLICATIONS, as amended by Sunwing Airlines Inc., Thomson Airways Limited, Travel Service, a.s. and Dynamic Airways, LLC pursuant to section 60 of the Canada Transportation Act, S.C., 1996, c. 10, as amended and section 8.2 of the Air Transportation Regulations, SOR/88‑58, as amended.

File No.: 
M4835/S527-D180

[1] Sunwing Airlines Inc. (Sunwing) and Thomson Airways Limited (Thomson Airways) applied for an approval for Sunwing to provide its non-scheduled international service between Ottawa, Ontario, Canada and each of Puerto Plata and Punta Cana, Dominican Republic and Freeport, Bahamas and between Quebec City, Quebec/Ottawa, Canada and Puerto Plata, Dominican Republic; and to provide its scheduled international services on licensed routes between Canada and each of Cuba, Jamaica, Mexico and the United States of America using two aircraft with flight crew provided by Thomson Airways beginning on November 18, 2013 to April 27, 2014.

[2] Sunwing and Travel Service, a.s. (Travel Service) applied for an approval for Sunwing to provide its non-scheduled international service between Montréal, Quebec, Canada and La Ceiba, Honduras and Cayo Coco, Cuba/Cancun, Mexico; and to provide its scheduled international services on licensed routes between Canada and each of Cuba, Dominican Republic, Jamaica, Mexico and the United States of America using three aircraft with flight crew provided by Travel Service beginning on December 5, 2013 to May 11, 2014.

[3] Sunwing and Dynamic Airways, LLC (Dynamic Airways) applied for an approval for Sunwing to provide its non-scheduled international service between Vancouver, British Colombia, Canada and Edmonton, Alberta, Canada and each of Liberia, Costa Rica and Punta Cana, Dominican Republic; and to provide its scheduled international services on licensed routes between Canada and Jamaica using one aircraft with flight crew provided by Dynamic Airways beginning on December 16, 2013 to April 7, 2014.

[4] Sunwing is licensed to operate the relevant non-scheduled international and scheduled international services.

[5] On the date the original applications were filed, Sunwing had a fleet of eight aircraft. In its amended applications, Sunwing indicated that this number would be increased to 12 by October 19, 2013. Sunwing also plans to dry lease 15 aircraft during the term of the six wet‑leased aircraft. This would result in Sunwing having a total of 27 Canadian-registered aircraft in operation during that period and Sunwing argues that this should be taken into account when considering the application.

[6] On August 23, 2013, the Agency gave notice of the applications to Canadian air carriers. They were provided until September 22, 2013 to file their comments and Sunwing was provided until October 2, 2013 to reply. On September 30, 2013, Sunwing amended its applications, providing details regarding its fleet inventory and the Agency, on October 1, 2013, granted an extension of time until October 4, 2013 for interested parties to comment on the new information and until October 8, 2013 for Sunwing to reply. The Air Line Pilots Association, Int’l (ALPA) and Unifor requested intervener status in order to file submissions. On September 9 and October 2, 2013, intervener status was granted. Air Canada, ALPA, Air Transat and WestJet filed interventions opposing the granting of the application. On October 7, 2013, Sunwing filed its replies.

[7] On October 8, 2013, Unifor filed its intervention is support of the applications and provided written justification for its late filing. On October 9, 2013, Sunwing advised that it hoped the Agency would accept the late filing of Unifor’s submission. The Agency accepts Unifor’s late submission.

[8] On November 6, 2013, Sunwing withdrew its application related to Dynamic Airways.

[9] By Notice to the Industry dated September 5, 2013, the Agency advised that applications before the Agency would be subject to the Wet-Lease Policy. Therefore, these applications will be governed by the Wet-Lease Policy.

POLICY FOR WET-LEASING OF AIRCRAFT

[10] Canada’s Policy for Wet-Leasing of Aircraft (Wet-Lease Policy) was announced on August 30, 2013. The Wet-Lease Policy guides the Agency in its consideration of wet-lease applications where Canadian carriers propose to enter into wet-lease arrangements of more than 30 days with foreign carriers to provide international passenger services.

[11] The Wet-Lease Policy guidelines are as follows:

  1. For wet-leases of more than 30 days, a number of aircraft equal to 20 percent of the number of Canadian-registered aircraft on the lessee’s Air Operator Certificate (AOC) at the time the wet-lease application is made may be wet-leased from foreign lessors.
  2. If Canadian air carriers cannot enjoy reciprocal opportunities to wet-lease in a foreign jurisdiction, the Agency should condition or deny an application involving a lessor from that jurisdiction.
  3. Repeated wet-lease applications may be permitted as long as the 20-percent cap is not exceeded.
  4. Applicants must provide a rationale for their applications. Applications will not be denied solely on the basis of this rationale as long as the number of wet-leases is within the above mentioned 20-percent cap.
  5. The renewal of an application for a short-term (i.e., 30 days or less) wet-lease may be contemplated provided it is not used as a means to circumvent policy guidelines applicable to long-term wet-leases.

[12] In determining whether or not Sunwing’s applications meet all of the requirements of the Wet‑Lease Policy, and specifically the 20-percent cap, the Agency must examine the total cumulative number of aircraft being wet leased by Sunwing. Therefore, the Agency is examining these applications jointly in one decision.

ISSUE

[13] Is the Agency satisfied that Sunwing’s applications meet the requirements of section 8.2 of the Air Transportation Regulations (ATR) and the criteria of the Wet-Lease Policy, specifically the 20-percent cap?

POSITIONS OF THE PARTIES

[14] In response to the Agency’s Notice of August 23, 2013, Air Canada, ALPA, Air Transat and WestJet all submit that the Wet-Lease Policy was designed to allow limited wet leasing by Canadian carriers. They note, however, that the applications exceed the 20-percent cap on the total number of aircraft that may be wet leased.

[15] Air Canada, ALPA and Air Transat contend that the 20-percent cap is meant to be cumulative on the total number of aircraft being wet leased. The interveners maintain that Sunwing is attempting to circumvent the 20-percent cap by submitting three separate that wet lease applications using three different carriers.

[16] Air Canada and ALPA question whether reciprocal opportunities exist for Canadian carriers. Air Canada points out that Thomson Airways, Travel Service and Dynamic Airways are carriers from the European Union where, in Air Canada’s view, reciprocal opportunities may not exist. Air Canada refers, in particular, to the European Union’s Regulation 1008/2008 on common rules for the operation of air services in the Community.

Air Canada

[17] In addition to the comments above, Air Canada questions Sunwing’s rationale for the proposed wet lease which, in its view, is tied to the inability of Sunwing to train crews, not its inability to obtain aircraft. Furthermore, given the duration of the wet leases, Air Canada contends that the proposed operating period is for planned seasonal flying and is not a result of unforeseen circumstances.

[18] Air Canada questions whether Sunwing advertized this wet-lease capacity and if so, whether Sunwing satisfied the public disclosure requirement under section 8.2 and subsection 8.5(5) of the ATR.

[19] Air Canada submits that the approval of Sunwing’s applications for six aircraft would result in crew and aircraft from a foreign entity being utilized, ultimately dismissing Canadian trained and certified pilots and crew from employment opportunities in Canada with a Canadian-registered air carrier. Air Canada submits that there are highly trained and qualified Canadian pilots available. Air Canada maintains that the approval of Sunwing’s application would contradict one of the Wet-Lease Policy’s main objectives by undermining the Government’s efforts to reduce the continued and excessive reliance on foreign workers and ultimately undermining the employment prospects of Canadians.

[20] Air Canada asks that the applications be denied.

ALPA and Air Transat

[21] ALPA and Air Transat request that the applications be approved on a limited basis to ensure conformity with the 20‑percent cap.

UNIFOR

[22] Unifor submits that while it supports the efforts of the Canadian Government to safeguard the employment of Canadian pilots, denying the proposed wet leases will have a significant negative impact on not only Unifor’s members, but Sunwing’s other Canadian employees. Unifor maintains that the new policy should not have retroactive effect as fleet plans are arranged several months in advance of operations. With respect to fleet size, Unifor believes that the 20‑percent cap should be a requirement to be maintained during the period when wet-lease services are being operated and not at the time of application. Unifor submits that in order to meet the legislated 45-day filing requirement and because Sunwing increases its fleet by dry leasing aircraft to meet the increased winter flying demand, it is difficult for Sunwing to meet the 20-percent limit at the time it is required to file its application.

[23] Unifor points out that over the past year, Sunwing has been able to increase its pilot membership from 150 to 210 permanent pilots and this has been as a direct result of its reciprocal wet-lease operations during the peak European summer flying season. Unifor maintains that should these proposed wet lease operations not be permitted, it would jeopardize Sunwing’s opportunities to operate in Europe during the busy summer season.

[24] Unifor points out that Sunwing is currently hiring and training an additional 40 seasonal pilots for the upcoming winter season and that its own internal review has concluded that Sunwing does not have the technical and operational capacity to hire any additional Canadian pilots for the upcoming winter season.

[25] Unifor requests that the applications be approved.

WestJet

[26] WestJet requests that the applications be denied.

Sunwing

[27] Sunwing states that it filed three applications separately because there were three separate wet lease transactions, not to circumvent the requirements of the Wet-Lease Policy. Sunwing contends that this would fall within the 20-percent cap of the Wet-Lease Policy as it will have 27 aircraft on its AOC throughout the term of the six wet-leased aircraft. Sunwing maintains that the principles of rounding up as found in the Canadian Aviation Regulations (CAR) 203.07(1) should apply. That is, the total number of aircraft which may be wet leased under the 20‑percent cap would be 5.4 or 6 when rounded up.

[28] Sunwing submits that given the requirement to file an application with the Agency 45 days in advance and the inability to add an aircraft to the AOC in advance of receiving it, it was not possible to have the appropriate number of aircraft on the AOC at the time of application.

[29] Sunwing points out that the Agency’s Notice to Industry on the Wet-Lease Policy states that an application would not be denied solely on the basis of the rationale as long as the 20‑percent cap is not exceeded.

[30] In response to Air Canada’s comments on reciprocity, Sunwing refers to the Agreement between Canada and the European Union and notes that it does provide for reciprocity between Canada and the European Union in respect of wet leases, and Canadian operators have successfully wet leased aircraft into member states of the European Union.

[31] Sunwing states that it will at all times comply with the public disclosure requirements set out in the ATR.

ANALYSIS AND FINDINGS

[32] Section 60 of the CTA requires that a licensee obtain, where prescribed, an approval from the Agency prior to using aircraft and flight crew provided by another person.

[33] Section 8.2 of the ATR sets out the information to be included in an application and the requirements to be met for an approval pursuant to section 60 of the CTA.

[34] Pursuant to the Wet-Lease Policy, for wet leases of more than 30 days, a number of aircraft equal to 20 percent of the number of Canadian-registered aircraft on the lessee’s AOC at the time the wet-lease application is made may be wet leased from foreign lessors. The Agency notes that at the time of the amended applications, Sunwing had 12 aircraft on its AOC. Therefore, Sunwing’s request exceeds the 20-percent cap.

[35] Sunwing states that during the time the wet-leased aircraft will be operated, Sunwing will have a total of 27 aircraft listed on its AOC (12 current and 15 additional dry-leased aircraft for which there are lease agreement commitments). Sunwing states that if the rounding formula it suggests is applied, it will not exceed the 20-percent cap.

[36] The Agency recognizes that the Wet-Lease Policy stipulates that the 20-percent cap is based on the number of Canadian-registered aircraft on the air carrier’s AOC at the time the application is made. The Agency has considered the arguments and finds that for practical reasons, dry-leased aircraft for which there are contracts in place cannot always be reflected in the AOC of the carrier at the time of filing of an application to the Agency 45 days before the first flight, as required under subsection 8.2(2) of the ATR. If the Agency were to require Sunwing to adhere to the 20-percent cap only at the time of application, this would lead to a series of applications filed on short notice resulting in an unnecessary administrative burden. However, the Agency may impose conditions to ensure that the 20‑percent cap is respected at all times during the period of a wet-lease approval.

[37] The Notice to Industry clearly establishes that the Agency will strictly apply the 20‑percent cap. The Agency must be satisfied that if the application is approved, the number of aircraft wet leased (including any other aircraft wet leased by the lessee which are subject to the cap) will not exceed the cap at any time.

[38] Sunwing has confirmed in the amended applications that it will ensure that the 20-percent cap will be respected at all times during the operation of the five wet-leased aircraft.

[39] The Agency has considered Sunwing’s argument with respect to the principles of rounding up, and notes that the Wet-Lease Policy does not explicitly provide guidance with respect to the calculation of the 20-percent cap, or make a direct reference to CAR 203.07(1). In making a determination of ensuring compliance with the Wet-Lease Policy, the Agency must determine how to calculate the 20‑percent cap. As aircraft are not divisible, and the number of aircraft, not some measure such as number of seats was chosen in the Policy, either the rule must be interpreted on a strict integer basis or a rounding approach must be selected for fleets other than multiples of 5. The intermediate cases are affected by this approach.

[40] The rounding approach suggested by Sunwing would permit a carrier to equal or exceed the 20‑percent cap in all cases. A carrier would be entitled to one additional aircraft as soon as the Canadian-registered fleet on its AOC exceeded multiples of five or 10 aircraft. The additional aircraft after each multiple would result in effectively allowing a 27-percent cap and all intermediate values would exceed 20 percent. No rationale was provided for this approach except that it is specified in a somewhat related Regulation. This Regulation is distinct from the current case and the considerations are not identical or it would not have been necessary to draft a specific policy. The Agency further notes that Transport Canada did not specify or suggest in its Policy that this rounding approach should be applied to wet leasing.

[41] On the opposite end of the spectrum, not rounding up at all would ensure a carrier’s wet-leased aircraft would never exceed the 20‑percent cap. A carrier would only be entitled to operate one additional aircraft once its fleet on the AOC reached a multiple of five or 10 aircraft. The Agency finds this approach unduly rigid in the intermediate cases.

[42] The Agency finds that neither of these rounding approaches respect the spirit of the Wet-Lease Policy. Therefore, to ensure a balanced approach in calculating the number of wet-leased aircraft permitted under the 20-percent cap, the Agency will use basic mathematical rounding principles (up from .5) in all cases. This ensures that the intermediate values fall equally above and below 20 percent.

[43] In this case, based on the commitment of Sunwing to have a total of 27 Canadian-registered aircraft on its AOC during the period of the proposed services, and given the rounding up principles the Agency has chosen to apply, five is the maximum number of wet-leased aircraft for which approval may be granted.

[44] With respect to the comments raised during pleadings regarding the rationale for the purpose of the wet lease which Sunwing provided, it is important to note that the Wet-Lease Policy states that applications will not be denied solely on the basis of the rationale if the number of wet‑leased aircraft meet the 20‑percent cap.

[45] On matters of international reciprocity, the Agency’s general practice is that reciprocity by the authorities of the air carrier’s country of origin is assumed unless evidence is brought to the contrary. The Agency is not aware of any similar application by a Canadian carrier to the aeronautical authorities of the European Union that has been denied. Therefore, the Agency concludes that international reciprocity is not a concern in the present case.

[46] The Agency has considered the application and the material filed in support and is satisfied that it meets the requirements of section 8.2 of the ATR. The Agency is also satisfied, subject to the commitment by Sunwing to at all times not exceed the 20-percent cap, that the application satisfies the criteria of the Wet-Lease Policy.

[47] Accordingly the Agency, pursuant to paragraph 60(1)(b) of the CTA approves the use by Sunwing of two aircraft with flight crew provided by Thomson Airways, and the provision by Thomson Airways of such aircraft and flight crew to Sunwing, to provide its non-scheduled international service between Ottawa, Ontario, Canada and each of Puerto Plata and Punta Cana, Dominican Republic and Freeport, Bahamas and between Quebec City, Quebec/Ottawa, Canada and Puerto Plata, Dominican Republic; and to provide its scheduled international services on licensed routes between Canada and each of Cuba, Jamaica, Mexico and the United States of America beginning on November 18, 2013 to April 27, 2014 subject to the following conditions:

  1. Sunwing shall continue to hold the valid licence authorities.
  2. Commercial control of the flights shall be maintained by Sunwing. Thomson Airways shall maintain operational control of the flights and shall receive payment based on the rental of aircraft and crew and not on the basis of the volume of traffic carried or other revenue-sharing formula.
  3. Sunwing and Thomson Airways shall continue to comply with the insurance requirements set out in subsections 8.2(4), 8.2(5) and 8.2(6) of the ATR.
  4. Sunwing shall continue to comply with the public disclosure requirements set out in section 8.5 of the ATR.
  5. Sunwing and Thomson Airways shall advise the Agency without delay, of any changes to the information provided in support of the application, including any change to the fleet composition, including aircraft owned, dry-leased or wet-leased.
  6. Sunwing shall at all times comply with the 20‑percent cap in the manner specified by the Agency. If Sunwing exceeds the cap, this Decision is automatically no longer in effect.

[48] The Agency also approves the use by Sunwing of three aircraft with flight crew provided by Travel Service, and the provision by Travel Service of such aircraft and flight crew to Sunwing, to provide its non-scheduled international service between Montréal, Quebec, Canada and La Ceiba, Honduras and Cayo Coco, Cuba/Cancun, Mexico; and to provide its scheduled international services on licensed routes between Canada and each of Cuba, Dominican Republic, Jamaica, Mexico and the United States of America beginning on December 5, 2013 to May 11, 2014 subject to the following conditions:

  1. Sunwing shall continue to hold the valid licence authorities.
  2. Commercial control of the flights shall be maintained by Sunwing. Travel Service shall maintain operational control of the flights and shall receive payment based on the rental of aircraft and crew and not on the basis of the volume of traffic carried or other revenue‑sharing formula.
  3. Sunwing and Travel Service shall continue to comply with the insurance requirements set out in subsections 8.2(4), 8.2(5) and 8.2(6) of the ATR.
  4. Sunwing shall continue to comply with the public disclosure requirements set out in section 8.5 of the ATR.
  5. Sunwing and Travel Service shall advise the Agency without delay, of any changes to the information provided in support of the application, including any change to the fleet composition, including aircraft owned, dry-leased or wet-leased.
  6. Sunwing shall at all times comply with the 20‑percent cap in the manner specified by the Agency. If Sunwing exceeds the cap, this Decision is automatically no longer in effect.

[49] Pursuant to paragraph 28(1)(b) of the CTA, the Agency may in any order direct that the order or a portion of it shall come into force on the happening of any contingency, event or condition specified in the order.

[50] The Agency, pursuant to paragraph 28(1)(b) of the CTA, directs that the approval of each aircraft granted in this Decision, shall only come into force provided that the number of aircraft being used do not exceed the 20-percent cap in a manner specified by the Agency.

Member(s)

Geoffrey C. Hare
Raymon J. Kaduck
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