Canada Gazette, Part I, Volume 157, Number 19: ORDERS IN COUNCIL
May 13, 2023
DEPARTMENT OF TRANSPORT
CANADA TRANSPORTATION ACT
Order varying the Terms and Conditions governing the merged entity operating as Canadian North
P.C. 2023-358 April 20, 2023
Whereas, by Order in Council P.C. 2019-805 of June 16, 2019, the Governor in Council approved, under subsection 53.2(7) of the Canada Transportation Act, the merger of Bradley Air Services Limited (First Air) and Canadian North Inc., subject to the terms and conditions set out in the schedule to that Order;
Whereas, on October 27, 2022, Bradley Air Services Limited made an application under subsection 53.2(8) of that Act, to vary or rescind those terms and conditions;
Whereas the Minister of Transport has, in accordance with subsection 53.2(8) of that Act, consulted with the Commissioner of Competition;
And whereas the Governor in Council is satisfied that, taking into account the new measures that Bradley Air Services Limited is prepared to undertake, it is in the public interest to vary those terms and conditions as it would benefit the stability of Bradley Air Services Limited’s operations and the stability of air transportation in Canada’s northern regions;
Therefore, Her Excellency the Governor General in Council, on the recommendation of the Minister of Transport, under subsection 53.2(8) of the Canada Transportation Act, varies the terms and conditions imposed by Order in Council P.C. 2019-805 of June 16, 2019 by replacing the schedule to that Order with the attached schedule to this Order.
Terms and Conditions
The following definitions shall apply to these Terms and Conditions.
- “Allowable Annual Profit”
- means the maximum allowable annual net profit margin of the Merged Entity on its combined scheduled passenger and cargo delivery operations in each Year, which shall not exceed 10% after accounting for the Year’s Allowable Loss Recovery, calculated and verified in accordance with the Amended and Restated Implementation and Monitoring Agreement.
- “Allowable Loss Recovery”
- means the amount of $32.2 Million Canadian Dollars of past losses, recoverable over the remainder of the Term in accordance with the Amended and Restated Implementation and monitoring Agreement.
- “Amended and Restated Implementation and Monitoring Agreement”
- means an administrative agreement entered into between the Merged Entity and the Minister to implement these Terms and Conditions, as amended from time to time.
- has the meaning ascribed to that term in the Canada Business Corporations Act.
- “Average Annual Regional Cargo Fares”
- means the average annual cargo fare in any Region, calculated in accordance with the Amended and Restated Implementation and Monitoring Agreement.
- “Average Annual Regional Passenger Fares”
- means the average annual passenger fare in any Region, calculated in accordance with the terms of the Amended and Restated Implementation and Monitoring Agreement.
- “Business Day”
- means any day other than a Saturday, a Sunday, a statutory holiday in the Province of Ontario or any day on which banks are not open for business in the City of Ottawa, Ontario.
- means the any community described in Appendix “A” to these Terms and Conditions.
- “Effective Date”
- means the date upon which the Amended and Restated Implementation and Monitoring Agreement is signed by the Minister and the Merged Entity.
- “Excluded Routes”
- has the meaning ascribed to that term in subsection 4.5(a) of these Terms and Conditions.
- “Expiry Date”
- means June 30, 2026.
- “His Majesty”
- means His Majesty in Right of Canada as represented by the Minister.
- means a Community described as a hub in Appendix “A” to these Terms and Conditions.
- “Merged Entity”
- means Bradley Air Services Limited, and its wholly owned Subsidiary, Canadian North Inc., each , a company incorporated under the laws of Canada.
- means the Minister of Transport.
- means the Person appointed by the Minister pursuant to the provisions of the Amended and Restated Implementation and Monitoring Agreement (or any substitute appointed thereto), and any employees, agents or other Persons acting for or on behalf of the Monitor, to oversee and monitor the Merged Entity’s compliance with these Terms and Conditions and the Amended and Restated Implementation and Monitoring Agreement.
- “Operating Loss in the Region”
- means a Regional operating loss calculated in accordance with the terms of the Amended and Restated Implementation and Monitoring Agreement.
- “Original Terms and Conditions”
- means the terms and conditions set out by Her Excellency the Governor General in Council, on the recommendation of the Minister of Transport, pursuant to subsection 53.2(7) of the Canada Transportation Act, approving the proposed transaction merging Bradley Air Services Limited (First Air) and Canadian North Inc., set out in PC 2019-0805, dated 2019-06-16.
- “Original Implementation and Monitoring Agreement”
- means the implementation and monitoring agreement between His Majesty, Bradley Air Services Limited and Canadian North effective as of July 9, 2019, providing for the implementation and monitoring of the Original Terms and Conditions.
- means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
- “Predetermined Threshold”
- means a passenger load factor not exceeding 85% every month for a period of 6 consecutive months, calculated in accordance with the Amended and Restated Implementation and Monitoring Agreement.
- means a region described in Appendix “A” to these Terms and Conditions.
- “Required Demand Levels”
- means a minimally acceptable level of scheduled passenger and cargo transportation service to each Community necessary to maintain the Community’s food security, essential travel and reasonable leisure travel needs, which shall be no less than one scheduled flight per week in any Community.
- has the meaning ascribed to that term in the Canada Business Corporations Act.
- means the period of time between the Effective Date and the Expiry Date.
- “Terms and Conditions”
- means these Terms and Conditions, approving the variance of the Original Terms and Conditions, pursuant to section 53.2(8) of the Act.
- means the calendar year (January 1st to December 31st).
These Terms and Conditions shall be interpreted according to the following provisions, unless the context requires a different meaning:
- (a) obligations of the Merged Entity provided for in these Terms and Conditions shall be deemed to include the obligation to cause the Merged Entity’s Subsidiaries and Affiliates to perform the obligations, as applicable;
- (b) the headings and references to them in these Terms and Conditions are for convenience of reference only, shall not constitute a part of these Terms and Conditions, and shall not be taken into consideration in the interpretation of, or affect the meaning of, these Terms and Conditions;
- (c) references to a statute shall include all regulations, by-laws, ordinances and orders made under or pursuant to the statute;
- (d) references to Persons shall include their successors and assigns. References to a public organization shall include their successors and assigns, and if a public organization ceases to exist or ceases to perform its functions without a successor or assign, references to such public organization shall be deemed to include a reference to any public organization or any organization or entity which has taken over either or both the functions and responsibilities of such public organization;
- (e) where these Terms and Conditions state that an obligation shall be performed “no later than” or “within” or “by” a stipulated date or event which is a prescribed number of days after a stipulated date or event, the latest time for performance shall be 5:00 p.m. on the last day for performance of the obligation concerned, or, if that day is not a Business Day, 5:00 p.m. on the next Business Day;
- (f) where these Terms and Conditions state that an obligation shall be performed “on” a stipulated date, the latest time for performance shall be 5:00 p.m. on that day, or, if that day is not a Business Day, 5:00 p.m. on the next Business Day;
- (g) any reference to time of day or date means the local time or date in Ontario;
- (h) any reference to a singular shall be construed as a reference to the plural if the context permits, and vice versa, unless otherwise specifically stated;
- (i) unless otherwise indicated, time periods will be strictly construed;
- (j) whenever the terms “will” or “shall” are used in these Terms and Conditions in relation to the Merged Entity they shall be construed and interpreted as synonymous and to read “the Merged Entity shall”; and
- (k) unless otherwise stated, any time a party’s approval, consent, authorization or other exercise of discretion is required, such approval, consent, authorization or discretion shall be exercised reasonably and communicated in a timely manner.
3.0 Scope, Duration, Implementation and Compliance
- (a) The Original Terms and Conditions are incorporated by reference into these Terms and Conditions.
- (b) The Merged Entity shall comply with the Original Terms and Conditions and the Original Implementation and Monitoring Agreement to and until the Effective Date, after which time they shall expire and be entirely superseded by the Terms and Conditions and the Amended and Restated Implementation and Monitoring Agreement , save and except for any outstanding unfulfilled deliverable which shall survive until its performance unless waived by the Minister.
- (c) Except for subparagraph 3(a) and 3(b) which are immediately effective, the Terms and Conditions shall not have effect until the Effective Date.
- (d) The Merged Entity shall comply with the Terms and Conditions and the Amended and Restated Implementation and Monitoring Agreement between the Effective Date and the Expiry Date.
- (e) The Amended and Restated Implementation and Monitoring Agreement shall be subject to any agreement between His Majesty and the Merged Entity to vary, amend or supplement the provisions of the Amended and Restated Implementation and Monitoring Agreement, consistent with the provisions of these Terms and Conditions.
4.0 Public Interest Measures
- (a) The Merged Entity shall continue to provide scheduled air passenger and cargo service to each Community in a manner that meets the Required Demand Level.
- (b) The Merged Entity shall ensure that the passenger load factor remains under the Predetermined Threshold for each route.
4.2 Passenger Fares
The Merged Entity shall not increase Average Annual Regional Passenger Fares in excess of 25% in each Year, unless, and to the extent that such increase is required to offset an Operating Loss in the Region.
4.3 Cargo Fares
The Merged Entity shall not increase Average Annual Regional Cargo Fares in excess of 25% in each Year, unless, and to the extent that such increase is required to offset an Operating Loss in the Region.
Notwithstanding Subsections 4.2 and 4.3, the Merged Entity shall not exceed the Annual Allowable Profit.
4.5 Excluded Routes
- (a) The Merged Entity’s obligations under subsections 4.1, 4.2, and 4.3 shall not apply to new routes between any Community and a destination external to any current Region, or to the existing Edmonton-Yellowknife and Montreal-Kuujjuaq routes (collectively, the “Excluded Routes”), provided that such routes will not be accounted for or contribute towards the Required Demand Level and Predetermined Threshold being in such Communities.
- (b) The accounting for costs and revenues associated with Excluded Routes shall not be factored into the assessment of Allowable Annual Profit or an Operating Loss in a Region.
- (a) The Merged Entity shall provide the Monitor with access to its books and records and shall provide any other information required by the Monitor to provide the Minister with audited quarterly reports of the Merged Entity’s compliance with the Terms and Conditions and the Amended and Restated Implementation and Monitoring Agreement.
- (b) The Merged Entity shall provide to the Minister with all raw data required by the Minister in support of each Monitor’s reporting, or as reasonably required for the Minister’s administration of the Terms and Conditions and the Amended and Restated Implementation and Monitoring Agreement.
- (c) The Minister will be solely responsible for instructing the Monitor, and for the fees and expenses charged or incurred by the Monitor. The Merged Entity shall be solely responsible for its own expenses and resources necessary to respond to the information requests of the Monitor and the Minister.
Sanirajak (Hall Beach)
Kinngait (Cape Dorset)
Grise Fiord (Subcontracted)
(This note is not part of the Order.)
This Order in Council (Order), pursuant to subsection 53.2(8) of the Canada Transportation Act (Act), varies the Terms and Conditions set out in the annexed schedule to Order in Council 2019-0805, which authorized in 2019 the acquisition and merger of Canadian North Inc. by Bradley Air Services (doing business as First Air) to form a single merged entity, operating under the name Canadian North.
The purpose of this Order, made pursuant to subsection 53.2(8) of the Act, is to vary the Terms and Conditions approved in 2019 by Order in Council No. 2019-0805 and replace them, on the recommendation of the Minister of Transport (Minister), which will allow Canadian North to remain financially viable and sustainable, while at the same time continuing to provide required levels of service to remote communities in northern Canada. While the new Terms and Conditions will allow Canadian North to increase fares, these aim to strike a balance between ensuring the airline’s financial viability and profitability, while controlling its fare and profit increases to levels similar to what is being experienced in southern Canada (i.e., outside the Territories) as the air sector gradually recovers from the impacts of the COVID-19 pandemic and the related travel restrictions.
Air Transportation in Canada’s North and Canadian North
Air transportation is a lifeline for northern communities and enables economic development in Canada’s Arctic, as other northern transportation infrastructure is limited. Northern residents rely on air travel for essential services, such as medical travel, all-season resupply (including food, medicine and mail), tourism, and economic development. However, the unique geography of the North poses certain challenges to the transportation of passengers and cargo, making it difficult, time-consuming, and expensive to move passengers and goods in and out of remote northern communities. The northern air system has scheduled air carriers that provide mainline service between southern Canada and four northern gateways – Whitehorse, Yellowknife, Rankin Inlet, and Iqaluit – supported by an extensive network of connecting or feeder services.
The current Canadian North, which came about as a result of the 2019 merger between First Air and the old Canadian North, is owned entirely by the Makivik Corporation (72%) and the Inuvialuit Development Group (28%), organizations that promote the economic and social development of Inuit people in northern Quebec and the Northwest Territories, respectively. Canadian North is by far the largest carrier providing service to/from and within the North and is the only scheduled service provider in much of Nunavut and large parts of the Northwest Territories. If it were to exit the market, this would have huge ramifications for northerners in terms of essential air services to deliver critical food and medical supplies and for medical travel purposes.
Background for approving the merger
By Order in Council No. 2019-0805, dated June 16, 2019, the Governor in Council (GiC) authorized the acquisition and merger of Canadian North Inc. by Bradley Air Services (doing business as First Air) to form a single merged entity, renamed Canadian North.
Previously, by letter dated April 9, 2019, the Commissioner of Competition (Commissioner) had assessed that the proposed measures put forward by the Parties to address the public interest competition concerns did not adequately address his competition concerns and fell outside of the scope of the type of remedies that the Commissioner would typically deem acceptable in remedying a merger that is likely to result in a monopoly situation. Several competition and public interest concerns were raised that the merger could:
- Give rise to a monopoly air carrier serving Nunavut and Northwest Territories with the associated excessive market power;
- Increase prices for passenger and cargo air services;
- Lead to output reductions translating into less passenger travel and fewer commodities shipped;
- Increase barriers to market entry for potential new entrants;
- Remove bargaining power from current large customers of First Air and Canadian North;
- Cause an overall increase in the cost of living in parts of northern Canada;
- Result in job losses in some northern communities; and
- Further isolate some northern communities.
Despite the concerns of the Commissioner, the Minister felt that the merger would be in the public interest as it was expected to create a more efficient and financially sustainable northern air carrier, which would be able to take advantage of the operating and network efficiencies afforded by the merger and pass them on to travellers, noting that it appeared to be challenging to maintain two separate, financially viable carriers in this market. However, to mitigate the competition and public interest concerns, GiC approval of the merger was subject to several Terms and Conditions. Specific Terms and Conditions were applicable for either a period of five years or seven years. For example, the Terms and Conditions established around scheduling and pricing were to be in place for seven years, expiring at the end of June 2026.
The Terms and Conditions set out in 2019 required:
- That fares cannot be increased above a rise in operational costs in the previous year;
- That the merged entity’s schedule aligns with their pre-merger operational schedule;
- That communities receive the same number of flights per week as before the merger;
- That the merged entity would only reduce employment in the North primarily by attrition;
- That the merged entity grants access to its facilities, pursuant to commercially reasonable terms and conditions, to any other airline; and
- That an Advisory Board, including governmental, Indigenous and private stakeholders, responsible for reporting non-compliance with the Terms and Conditions or anti-competitive behavior be created no later than three months after the Closing Date.
It was anticipated that the Terms and Conditions would allow the Minister to maintain oversight over the airline, while leaving enough room for the airline to achieve operational efficiencies. The Terms and Conditions were administered by a Confidential Implementation and Monitoring Agreement (Agreement), which set out how compliance with the Terms and Conditions would be demonstrated and allowed the Minister to measure and monitor Canadian North’s compliance. This Agreement was necessary because the standard adopted by each Term and Condition included commercially confidential and sensitive technical information, the publication of which would be detrimental to the merged entity should it be revealed to its competitors or in the marketplace. The Agreement included a force majeure clause, which would allow the Minister to exempt Canadian North from certain Terms and Conditions on a temporary basis if/when unforeseen and unavoidable events prevent the merged entity from meeting the Terms and Conditions.
Implementation of the Merger Terms and Conditions and COVID-19
The merger closed in July 2019 and the new Canadian North started operating as a unified entity in November 2019.
However, in March 2020, the COVID-19 pandemic seriously altered air travel across the globe. In Canada, travel restrictions were implemented, with particular implications for travel in the Territories, limiting Canadian North’s ability to turn a profit. Because of the existing obligations under the Terms and Conditions of their 2019 merger, Canadian North was obligated to continue honoring its schedule while not having the same level of demand. In light of the impacts of the COVID-19 pandemic on Canadian North, the Minister agreed to exempt the application of certain Terms and Conditions on a temporary basis in accordance with the force majeure provision of the Agreement. These exemptions provided to Canadian North allowed the air carrier to adapt its schedule to meet demand and reduce capacity accordingly.
During the pandemic, several Governmental programs were put in place that provided support to regional air carriers, including Canadian North. Between the first quarter of 2020 and the second quarter of 2022, Canadian North received financial support through various programs – the Northern Carrier Aid, the Remote Air Services Program (RASP), and the Canada Emergency Wage Subsidy (CEWS). Despite the exemptions from certain Terms and Conditions and the aforementioned financial support, Canadian North continued posting yearly net losses during that period.
Since the end of the RASP in the first quarter of 2022, Canadian North has continued to have issues with its financial stability caused in part by a lagging travel recovery and higher fuel prices.
Canadian North’s Request for Termination of the Terms and Conditions
On October 27, 2022, Canadian North submitted a request to the Minister of Transport for permanent exemptions and relief from the Terms and Conditions of their 2019 merger approval. Citing continued losses in specific regions, this request called for the full release from all the current Terms and Conditions, or at least the alteration of the existing Terms and Conditions, or a long-term subsidy to support the airline’s viability.
In February 2023, and while discussions were ongoing between Canadian North and Transport Canada regarding their initial request, Canadian North’s ownership reiterated their request for full relief from the Terms and Conditions, while making it clear that the airline could not continue to maintain service in the face of ongoing losses, and that a full cessation of services was likely to occur in the immediate future. Transport Canada then initiated targeted consultations with Canadian North to find a compromise that would ensure the airline’s continued viability while maintaining some conditions that would be in the public interest.
In March 2023, the Minister of Transport reached an agreement with the airline on measures the airline would be prepared to undertake, which could form the basis of new Terms and Conditions to be effective for the final three years of the Agreement.
New Terms and Conditions Agreed to by Canadian North and supported by the Minister
The new Terms and Conditions agreed to by the Minister and Canadian North are intended to allow Canadian North to be viable for the remaining years of the Agreement, which is set to expire at the end of June 2026, while also responding to concerns expressed by northern stakeholders during the merger consultation process regarding service levels and fare increases. These new measures would also put Canadian North in a better position to be more resilient and invest in new equipment to better serve the North. In addition, the Minister would maintain oversight to ensure that the public interest is sustained.
The new Terms and Conditions set out, at a high-level, the mitigating measures agreed to by Canadian North to address the public interest concerns related to the merger, while also taking into account the impacts of the COVID-19 pandemic on Canadian North and air travel more broadly. These Terms and Conditions are underpinned by an amended and restated confidential Implementation and Monitoring Agreement. This Agreement is necessary because the standard adopted by each Term and Condition includes commercially confidential and sensitive technical information, the publication of which would be detrimental to the merged entity should it be revealed to its competitors or in the marketplace. As part of the proposed Terms and Conditions, it is necessary for Canadian North and the Minister to enter into this Agreement to allow the implementation of these new measures.
Economic and Social
The new Terms and Conditions allow Canadian North to continue to be viable and reinvest in its operations to better serve the North. These measures would also provide some safeguards to northerners in terms of minimum capacity commitments around scheduling and limits on fare increases.
If the current Terms and Conditions were not amended, Canadian North could be forced to cease operations. In such a scenario, northerners would lose a major, and in many cases their only network air service provider of passenger traffic and cargo delivery. Essential food and medical supply deliveries, as well as critical medical travel, would be seriously affected. Were the airline to close down operations, the federal, Nunavut and Northwest Territories governments, as well as food cooperatives, would be forced to rapidly seek contracts with alternative service providers for essential services, which could result in increased costs as well as unpredictable, unreliable services.
Furthermore, given the lack of interest among new entrants to service the North, the Government of Canada would ultimately be responsible for ensuring continuation of the provision of essential air travel services until a long-term solution could be established. The main takeaway from the 2019 consultations was that there is limited interest for new entrants to provide the same level of network air services in the North as Canadian North. As such, any other long-term solution would be costly to the Government as financial support would be required to entice new entrants to operate in the region to provide the level of essential services northerners require.
The Minister of Transport, having taken into account public interest considerations and the proposed measures, is of a view that the new Terms and Conditions strike a reasonable balance between the public interest concerns of ensuring minimum scheduling commitments and limiting price increases and company profits on the one hand, and the need to ensure that Canadian North can remain financially sustainable, as well as make a profit as a private business, so as to not exit the market and cease operations. The Minister has therefore recommended the new Terms and Conditions to the Governor in Council.
The new Terms and Conditions touch on three key areas of concern regarding the public interest while maintaining an accountability and transparency measure.
- 1. Scheduling:
According to the Terms and Conditions, Canadian North may:
- Modify and reduce the frequency of its schedules to be reflective of current demand;
- Modify and reduce capacity to be reflective of the new schedules and actual demand levels; and
- Be exempted from the delivery timelines set out in the Agreement, to be reflective of the new schedules.
However, the company will commit to ensuring that all communities it currently serves continue to receive a level of service that will ensure that living essentials (e.g., food, medicines) are delivered in a way that does not create disruptions or shortages; northern residents can attend their medical appointments as required; and travellers are able to travel to a hub (Iqaluit or Yellowknife) and return to their community within a reasonable time period.
Furthermore, should the passenger load factors exceed 85% on any given route for a period of six consecutive months, Canadian North will be expected to adjust its capacity/schedules to be reflective of the increased demand.
- 2. Fares (including cargo rates):
Increases in fares on the scheduled network will be limited to 25% on average within a one-year period (measured on a calendar year basis) in any given region, unless it can be demonstrated to the Minister that this limit would result in operational losses to the company on the scheduled network in that region. The 25% threshold was established so as to maintain limits on Canadian North’s ability to leverage its monopoly position, while allowing the airline to increase its prices in a similar way to other Canadian airlines operating in southern Canada during the last few years to cope with rising input costs and inflationary pressures.
The initial baseline fares against which these increases are measured and applied shall be those in place as of December 31, 2022.
- 3. Profits:
Canadian North will not earn profits of more than 10% yearly on the scheduled network on average across all regions. The threshold was established to allow Canadian North, a privately owned company, to make a certain amount of profit on its scheduled operations so as to use the windfall to reinvest in its operations. Moreover, this profit margin would allow Canadian North to first recoup a portion of past losses and then could earn profits of up to 10% yearly.
- 4. Accountability, Compliance and Reporting:
Canadian North will be audited quarterly by an independent Monitor, which submits its reports directly to Transport Canada. Transport Canada will pay the costs of this auditing. Canadian North must also submit the same raw data shared with the Monitor directly to Transport Canada.
Conditions related to employment, access to facilities and operation of an Advisory Board consisting of local stakeholders were set to expire in June 2024 based on the Agreement established during merger authorization in 2019.These conditions have been removed from the new Terms and Conditions, although Transport Canada will continue to engage with stakeholders previously involved with the advisory board regarding the impacts of the merger.
Both the territorial governments of Nunavut and the Northwest Territories were formally consulted, and both provided input regarding the proposed changes. While both identified concerns with Canadian North’s proposed modifications, the new Terms and Conditions, along with existing market conditions, will alleviate some of the concerns. Their concerns over the possible loss in connectivity will be met through the continued scheduling obligations the airline will have, ensuring that all communities (currently served by Canadian North) remain adequately served and preventing further reductions. Concerns over affordability for northern Canadian travellers will be met through pricing monitoring by the Monitor to ensure the airline does not exceed its 25% threshold and the 10% profit cap on its scheduled network.
Furthermore, both Nunavut and Northwest Territories have contracts in place with the airline that maintain fares related to essential services, ensuring that prices for essential travel will remain stable. While prices for non-essential travel will rise, the Terms and Conditions ensure that the prices will not go up by over 25% yearly in each region, unless it can be proven to the Minister that the airline is still incurring losses. It should be noted Canadian North’s baseline prices only grew by 7% between 2019 and 2022, while in southern Canada airfares have gone up much more than this. By allowing the airline to increase its prices to remain financially healthy, the Terms and Conditions will help to ensure ensures that northerners do not lose the only airline that serves all their communities.
The Quebec government was not consulted as Canadian North only serves one community in the province, Kuujjuaq, which is currently also served by another carrier, Air Inuit. The presence of Air Inuit, another airline owned by the Makivik corporation, ensures that the community will remain served and connected beyond Canadian North’s presence. In 2022, 95% of Canadian North’s Quebec traffic was on the Kuujjuaq to Montreal route, which is not part of the undertakings and is also served by Air Inuit.
Under the Act, prior to making a recommendation to the GiC, the Minister is required to consult with the Commissioner of Competition (Commissioner) if the changes to the Terms and Conditions affect competition. Departmental officials reached out to Competition Bureau officials to inform them of Canadian North’s financial situation and request for new Terms and Conditions. While consulted regarding the final new Terms and Conditions, the Commissioner indicated that he did not have any comments.
In the 2019 consultations, Transport Canada heard from close to 70 stakeholders. The overwhelming majority of those consulted acknowledged that the unique and small northern market cannot reasonably sustain two major air carriers, and there was a fear of reduction of service in the market. In this context, the majority supported the merger, as long as there were terms and conditions allowing for competition and new carriers to enter the northern market, preventing the merged air carrier from engaging in monopolistic practices, and ensuring that northern communities are not further subjected to higher air fares and cargo rates.
In the context of the current negotiations, Transport Canada consulted with a range of key stakeholders, such as:
- The Governments of Nunavut and Northwest Territories;
- Other federal government departments with an interest and mandate related to the merger, such as Crown-Indigenous Relations and Northern Affairs Canada and Indigenous Services Canada; and
- Inuit Tapiriit Kanatami, and Nunavut Tunngavik Incorporated, the latter being an Inuit association representing the three regions of Nunavut.
While most stakeholders feared a reduction of service in the market, as well as a steep increase in fares, all acknowledged the need to change the Terms and Conditions to ensure Canadian North can continue its operations. In this context, the new Terms and Conditions will respond to both the 2019 and current consultations by ensuring that a carrier remains viable in the North and is limited in how much it can raise fares and cut services to the detriment of northerners.
As previously noted, Canadian North’s compliance with the Terms and Conditions will be monitored and managed in accordance with an amended and restated Implementation and Monitoring Agreement that will be effective until June 30, 2026.
If there is a disagreement over the interpretation of any of the Terms and Conditions that cannot be resolved via the dispute resolution mechanisms contained in the Implementation and Monitoring Agreement, subsection 53.6(2) of the Act could apply if any of the Terms and Conditions of the Order are violated: “Every person who contravenes subsection 53.2(1) or (10) is guilty of an indictable offence and is liable to imprisonment for a term not exceeding five years or to a fine not exceeding $10,000,000, or to both.” As well, under subsection 53.4(1) a superior court may, on application by the Minister, order the cessation of a contravention of the Terms and Conditions, or any other order it deems appropriate, including the divestiture of assets. Similarly, subsection 53.4(2) allows the Commissioner to make an application to a superior court if there is a contravention with respect to a term or condition that relates to potential prevention or lessening of competition.
Further to the Minister’s recommendation, having taken into account all relevant factors, the public interest issues relating to national transportation, the new measures negotiated and agreed to by Canadian North and the Minister to address any concerns, and current threat of the financial instability and cessation of operations of Canadian North, the Governor in Council has approved the varying of the current Terms and Conditions.
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