Canada should boost foreign ownership of airlines, eliminate grain revenue cap, review says

Foreigners ought to be permitted to own a greater portion of Canada’s airlines along with a revenue cap on railways’ grain shipments should be eliminated, according to a sweeping overview of Canada’s transportation industry tabled in Parliament Thursday.

Led by David Emerson, a floor-crossing minister who served both in Paul Martin’s and Stephen Harper’s governments, the 283-page review proposes a comprehensive reform from the Canada Transportation Act, which governs the nation’s railways, roads, airlines and marine transport.

The most notable recommendations address concerns which have been raised by private transportation companies and, if adopted, could affect Canadian travellers, shippers and farmers.

Transport Minister Marc Garneau said he “will carefully consider” the report’s findings and will begin consultations with stakeholders in the coming weeks.

In the airline sector, the review recommends that Ottawa increase foreign ownership limits for commercial airlines to 49 percent from their current degree of 25 per cent to assist foster more competition.

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“Small, privately held carriers, prospective start-ups, industry analysts, yet others are convinced that the 25-per-cent foreign ownership limit is a barrier to entry: in contrast to larger markets such as the U.S., there may ‘t be enough capital in Canada to invest in 75 percent of the new national carrier,” the report says.

WestJet Airlines Ltd. said inside a statement that the current 25 per cent limit is “adequate” and any increase should be met with a corresponding increase south from the border.

“Make it reciprocal, because if a U.S. carrier has the chance to buy as much as 49 percent of a Canadian airline, we’d like the opportunity to buy 49 percent of a U.S. airline,” WestJet CEO Gregg Saretsky told the Financial Post in a recent editorial board meeting.

Air Canada declined to comment.



Emerson’s review also addresses the movement of grain by rail, a topic which has generated significant controversy recently. An archive harvest in 2013, combined with an awful winter, led to a huge backlog of grain as the railways struggled to keep up. This led to government-mandated minimum quotas and fines against Canadian Pacific Railway Ltd. and Canadian National Railway Co.

The railways also have argued that the existing grain revenue cap, which determines the most they are able to earn every year from hauling grain regardless of how big the harvest, discourages capital investment.

Emerson proposes phasing the grain revenue cap – known as the maximum revenue entitlement program – within seven years, and “modernizing” it meanwhile.

Created in 2000, the cap “was assumed to become short-term,” the review says.

“However, the utmost revenue entitlement program remains in place today – this even though the grain sector has changed considerably since its introduction along with a number of issues, both technical and policy-related, have arisen since.”

The Western Canadian Wheat Growers Association said the recommendation raises “red flags,” and argued “some form of rate regulation – will probably still be necessary in seven years, because of the insufficient competition among railways and the lack of alternative market channels for large segments of the Prairie farm economy.”

CP and CN both declined to comment until they’d finished reviewing the report.

Here are the other key recommendations in the Canada Transportation Act review:

Allow web hosting investment in larger airports by moving within three years to some share-capital structure with equity-based financing from large institutional investorsMake airline passenger fees more competitive by linking them to the provision of services and infrastructure and by lowering the Air Travellers Security ChargeMake passenger screening more effective by replacing the present “one size fits all” approach with an intelligence-driven, risk-based screening processEncourage private investment in Canada’s marine ports by soliciting proposals from institutional and private-equity investorsDevelop a regulatory framework for self-driving cars that’s harmonized with U.S. legislationExpand rules for transporting dangerous goods by rail to want shippers of goods like chlorine and ammonia to pay for levies and carry extra insuranceSeparate freight and passenger rail networks through collaboration with provincial and municipal governmentsDevelop a long-term transportation infrastructure plan having a continuously updated listing of high-priority infrastructure needs within the next 20 to 30 years