Decision No. 439-A-2013

November 22, 2013

APPLICATION, as amended by I.M.P Group Limited carrying on business as, among others, CanJet Airlines, a Division of I.M.P. Group Limited and TUIfly GmbH 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/I97-T389

APPLICATION

[1] I.M.P Group Limited carrying on business as, among others, CanJet Airlines, a Division of I.M.P. Group Limited (CanJet) and TUIfly GmbH (TUIfly), have applied to the Canadian Transportation Agency (Agency) for an approval for CanJet to provide its non-scheduled international service between Toronto, Ontario, Canada and each of: Roatan, Honduras; Cartagena, Colombia; Saint George’s, Grenada; Panama City, Panama; San Salvador, Bahamas; Fort-de-France, Martinique; Pointe à Pitre, Guadeloupe; San Salvador, El Salvador and Cancun and Puerto Vallarta, Mexico; and to provide its scheduled international services on licensed routes between Canada and each of: St. Lucia, Cuba, Jamaica, Antigua and Barbuda, the United States of America and the Dominican Republic using two aircraft with flight crew provided by TUIfly beginning on December 18, 2013 to April 30, 2014.

[2] CanJet is licensed to operate the relevant non-scheduled international and scheduled international services.

[3] On the date the application was filed, CanJet had a fleet of five aircraft. CanJet also plans to dry lease six more aircraft during the term of the two wet-leased aircraft. CanJet would have 11 Canadian-registered aircraft during the period of the wet-lease operation and it argues that this should be taken into account when considering the application.

[4] On August 19, 2013, the Agency gave notice of the application to Canadian air carriers. They were provided until September 18, 2013 to file their comments and CanJet was provided until September 28, 2013 to reply. Pleadings were extended to October 1, 2013 due to an amendment made on September 19, 2013. CanJet amended its application to reduce the number of proposed wet-leased aircraft. Air Canada and the Air Canada Pilots Association (ACPA) filed interventions opposing the granting of the application. On September 30, 2013, CanJet filed its reply.

[5] By Notice to the Industry dated September 5, 2013, the Agency advised that applications before the Agency would be subject to the Canada’s Policy for West-Leasing of Aircraft (Wet-Lease Policy). Therefore, these applications will be governed by the Wet-Lease Policy.

POLICY FOR WET-LEASING OF AIRCRAFT

[6] The 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.

[7] 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.

ISSUE

[8] Is the Agency satisfied that CanJet’s application meets 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

Air Canada

[9] Air Canada notes that TUIfly is a carrier from the European Union and Air Canada questions whether reciprocal opportunities exist for Canadian carriers in that market. 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.

[10] Air Canada questions CanJet’s rationale for the proposed wet lease which, in its view, is tied to the inability of CanJet 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 operations and is not due to unforeseen circumstances.

[11] Air Canada points out that CanJet currently has a fleet of five aircraft and argues that approval of the two proposed wet-leased aircraft would result in the 20-percent cap being exceeded.

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

[13] Air Canada submits that the approval of CanJet’s application for two 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 CanJet’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.

[14] Air Canada asks that the application be denied.

ACPA

[15] ACPA points out that the year-round fleet size of CanJet consists of five aircraft and as a result, the approval of the request would result in the 20-percent cap being exceeded.

[16] ACPA contends that carriers use wet-leased aircraft as a way around the Temporary Foreign Workers Program (TFWP).

[17] ACPA asserts that wet leasing should be viewed as an exception to normal business practices and not as an alternative manner of operating aircraft for business purposes. ACPA finds CanJet’s claim that the requirement to wet-lease additional aircraft arises from the inability of CanJet to train a sufficient number of additional flight crew invalid, given the number of years CanJet has been a major charter carrier in Canada.

[18] ACPA asks that the application be rejected.

CanJet

[19] On September 30, 2013, CanJet responded to both ACPA and Air Canada’s comments.

[20] In response, CanJet confirms that it is seeking approval for two wet-leased aircraft. CanJet contends that this would fall within the 20-percent cap of the Wet-Lease Policy as it will have 11 aircraft on its AOC throughout the term of the two wet-leased aircraft. CanJet 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.

[21] CanJet 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.

[22] In response to Air Canada’s comments on reciprocity, CanJet 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.

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

[24] With respect to ACPA’s comment about tightening the criteria under the TFWP, CanJet points out that the TFWP is irrelevant when considering an application for the wet leasing of aircraft under the Wet-Lease Policy and the Agency’s Notice to Industry.

ANALYSIS AND FINDINGS

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

[26] 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.

[27] 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 application, CanJet had five aircraft on its AOC. Therefore, CanJet’s request exceeds the 20-percent cap.

[28] CanJet states that during the time the wet-leased aircraft will be operated, CanJet will have a total of 11 aircraft listed on its AOC (five current and six additional dry-leased aircraft for which there are lease agreement commitments). CanJet submits that it will therefore not exceed the 20‑percent cap.

[29] The Agency interprets the Wet-Lease Policy guidance regarding the number of aircraft “at the time the wet-lease application is made” as a means to assist the Agency in determining in an administratively efficient and objective manner the inventory of AOC-registered aircraft for the purpose of calculating the 20-percent cap.

[30] Given that the Wet-Lease Policy has been provided to the Agency as guidance in its consideration of wet-lease applications, not as a Ministerial direction, the Agency has the discretion to  determine how best to administer  the application of the Wet-Lease Policy to meet its objectives.

[31] The Wet-Lease Policy specifies 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 or newly acquired aircraft 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. Applying the 20-percent cap at the time of application without accounting for aircraft the carrier plans to add to its AOC during the period of approval would lead to a series of applications filed on short notice resulting in an unnecessary administrative burden to all parties involved. It would also undermine the timely filing of the information by applicants, reducing market transparency and adversely affecting competition.

[32] Furthermore, the Agency will make any approval subject to the condition that the carrier must comply with the 20-percent cap at all times during the period of the wet-lease approval. In this way, the Agency recognizes that the focus of compliance with the Wet-Lease Policy is most importantly on compliance during the period of the wet-lease approval, not the air carrier’s planned number of aircraft.

[33] As set out in the Agency’s Notice to Industry, for all applications the Agency will impose conditions on the air carrier to ensure that the 20-percent cap is respected at all times during the period of a wet-lease approval. The Agency will also implement measures to ensure that it is notified of any changes in the carrier’s AOC-registered aircraft inventory so that it can verify that the carrier continues to be in compliance with the 20-percent cap at all times during the period of the wet-lease approval.

[34] CanJet has confirmed in the amended application that it will ensure that the 20-percent cap will be respected at all times during the operation of the two wet-leased aircraft.

[35] In Decision No. 429-A-2013, the Agency determined that 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.

[36] In this case, based on the commitment of CanJet to have a total of 11 aircraft listed on its AOC during the period of the proposed services, and given the rounding up principles the Agency has chosen to apply, two is the maximum number of wet-leased aircraft for which approval may be granted.

[37] With respect to the comments raised during pleadings regarding the rationale for the purpose of the wet lease which CanJet 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 meets the 20-percent cap.

[38] 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.

[39] 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 CanJet to at all times not exceed the 20-percent cap, that the application satisfies the criteria of the Wet-Lease Policy.

[40] Accordingly the Agency, pursuant to paragraph 60(1)(b) of the CTA, approves the use by CanJet of two aircraft with flight crew provided by TUIfly, and the provision by TUIfly of such aircraft and flight crew to CanJet, to provide its non-scheduled international service from Toronto, Ontario, Canada to: Roatan, Honduras; Cartagena, Colombia; Saint George’s, Grenada; Panama City, Panama; San Salvador, Bahamas; Fort-de-France, Martinique; Pointe à Pitre, Guadeloupe; San Salvador, El Salvador and Cancun and Puerto Vallarta, Mexico; and to provide its scheduled international services on licensed routes between Canada and each of: St. Lucia, Cuba, Jamaica, Antigua and Barbuda, the United States of America and the Dominican Republic, beginning on December 18, 2013 to April 30, 2014.

[41] This approval is subject to the following conditions:

  1. CanJet shall continue to hold the valid licence authorities.
  2. Commercial control of the flights shall be maintained by CanJet. TUIfly 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. CanJet and TUIfly 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. CanJet shall continue to comply with the public disclosure requirements set out in section 8.5 of the ATR.
  5. CanJet and TUIfly 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 of CanJet including aircraft owned, dry-leased or wet-leased.
  6. CanJet shall at all times comply with the 20 percent-cap in the manner specified by the Agency. If CanJet exceeds the cap, this Decision is automatically no longer in effect.

[42] 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.

[43] The Agency, pursuant to paragraph 28(1)(b) of the CTA, directs that the approval of each aircraft granted in this Decision shall come into force upon CanJet obtaining a minimum number of aircraft on its AOC that results in it not exceeding the 20-percent cap in a manner specified by the Agency.

Member(s)

Geoffrey C. Hare
Raymon J. Kaduck
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