Air Canada Competition Rules Easing After Bombardier Order

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The government will ease rules that constrain Air Canada’s ability to compete, after the country’s largest air carrier settled a dispute with Quebec and agreed to buy jets from Bombardier Inc.

Transport Minister Marc Garneau told reporters in Ottawa Wednesday the government will seek to “clarify” the Air Canada Public Participation Act to allow the airline “to respond more effectively to changing market conditions.”

Garneau announced the planned changes on the same day Air Canada unveiled its agreement to purchase 45 C Series jets from Bombardier with a list value of about $3.8 billion. The Quebec government also announced Wednesday it will drop a lawsuit against the company over the closure of a Montreal maintenance unit, which it claimed breached the Air Canada act.

“My guess is Air Canada was looking at it anyway,” said Patrick Horan, fund manager at Agilith Capital Inc. in Toronto. “There was a gap between what Air Canada wanted to buy it for and Bombardier has been resistant on discounts, so the government stepped in and said let’s close the gap by doing this.”

Air Canada has long been asking for the legislation, which was enacted in 1988 at the time of the company’s privatization, to be repealed. In a submission to government last February, it said repealing the act would level the playing field for all Canadian airlines.

The act requires the airline to keep its headquarters in Montreal, submit to the Official Languages Act and keep maintenance facilities in Winnipeg, Toronto and Montreal. It also restricts foreign ownership of the company.

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In a separate interview with Bloomberg, Garneau said changes to the act won’t affect the headquarters, language or foreign ownership requirements. Garneau declined to comment on what exactly will be changed.

“The Act was written at a time when the market for the air industry lacked a competitive environment” and the company held more than 80 percent of the domestic market, the airline wrote in its submission, which was part of the review of the Canada Transportation Act.

Since then, the competitive landscape has changed with the emergence of rivals like WestJet Airlines Ltd. and Porter Airlines, which don’t face similar restrictions. Air Canada’s domestic market share has fallen by close to 30 percent since the late 1980s, Air Canada said in its submission.

Calin Rovinescu, Air Canada chief executive, said on a conference call the airline faced no government pressure to become a C Series customer. As a result of the order, the country’s largest carrier was however able to settle its ongoing lawsuit with the Quebec government over its obligation to keep some of its heavy maintenance work in the province, he said.

“The quid pro quo is that we would agree to maintain the C Series airframe heavy maintenance in the province of Quebec,” Rovinescu said on a conference call.

The legislative changes planned for Air Canada will help the company “avoid future litigation,” Garneau said today.

(A previous version corrected the sixth paragraph to remove Vancouver from maintenance requirements.)

(Updates with analyst comment in fourth paragraph.)

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