Air travel and a bid to modernize the Competition Act

  • October 13, 2017

A bill that would modernize parts of the Canada Transportation Act and relevant portions of other Acts is making its way through the House of Commons. While Bill C-49, Transportation Modernization Act, deals with planes (including passengers’ rights), trains and maritime transportation, the submission from the CBA Competition Law Section focuses on the parts dealing with airline competition.

Specifically, the Section comments on additions to the Canada Transportation Act and Competition Act to provide for a voluntary review and approval process for airline joint venture arrangements that would make Canada’s approach to these arrangements substantially similar to that of the U.S., where the Secretary of Transportation has jurisdiction to exempt airlines from the application of federal antitrust laws.

“The CBA Section welcomes the proposed amendments as an opportunity to align Canadian competition and transportation policy with the U.S., our largest trading partner and the leading destination for Canadian air travellers. This process will give greater flexibility for participants in the airline industry to collaborate, with the expectation that efficiencies and greater service offerings to Canadian travellers will be achieved. Moreover, the process specifically accounts for potential harm to competition.”

The Section notes that the federal government released Draft Guidelines for Mergers and Acquisitions involving Transportation Undertakings in 2008 which were never finalized, so they remain in draft form. The Section noted then that the guidelines lacked a definition for “transportation undertaking,” and that this remains undefined, making it unclear which transactions are subject to mandatory review and approval.

The Section also notes that while the proposed legislation would open the review process for proposed arrangements, there should also be a provision for existing arrangements. “The CBA Section is of the view that it would be beneficial to permit the Minister to assess historical agreements on a ‘public interest’ basis under the new procedure (taking into account, as would be required, any substantive competition issues).”

Other comments deal with whether the process would apply to a transaction that would not normally trigger a review – for example, an acquisition by one airline of five per cent of the shares of another airline; or how a voluntary review which is meant to determine whether a transaction can be exempt from certain provisions of the Competition Act could result in a prohibition on the arrangement. “If the parties are willing to proceed with the arrangement without that exemption, the CBA Section sees no principled reason why they should not be entitled to do so, particularly given that, absent a positive decision from the Minister, the Competition Act would remain capable of enforcement by way of legal proceedings initiated by the Commissioner or the Crown before the Competition Tribunal or the courts.”

The Section recommends adding a first-stage approval mechanism to the two-stage process, and circumscribing extensions to the review process, which can take up to 285 days. It also recommends making the Commissioner’s report of a review process public only after and only if the Minister authorizes the arrangement, and that the Minister only be allowed to reconsider an authorized arrangement “if the circumstances that led to granting the authorization have changed.”

It also notes that the sanctions for implementing an unapproved arrangement or for failing to comply with Ministerial terms and conditions, which include forfeiture of assets, prison or multi-million-dollar fines, “are significantly out of proportion to the conduct the (amendments) intend to dissuade.

“With the proposed review and approval process completely voluntary, it is unclear why parties should be subject to any sanction for failure to observe the provisions. … (I)f arrangements are implemented without Ministerial approval or if the terms and conditions attached to an authorization are not adhered to, the parties should not be entitled to the exemption associated with the process…”

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