Canada Should Boost Foreign Investment in Airlines, Panel Says

Canada should increase foreign-ownership limits on airlines and allow private investment in airports to enhance competition in the country’s transportation industry, according to a government-funded study.

Institutional and private-equity investors should also be allowed to buy stakes in the country’s marine ports, according to the Canada Transportation Act Review presented to Parliament Thursday in Ottawa. The broadest study of the law in more than a decade also called for harmonizing driver-less-car rules with the U.S., letting railways charge a premium to guarantee grain shipments and using tax credits to help short-line railways with track rehabilitation.

The report, commissioned by the previous Conservative Party government, seeks to address a lack of competition in country’s transportation sector, a problem made worse by vast distances and sparse population. Loosening ownership rules for passenger airlines and freight and specialty air services would align the country with other large aviation markets, it argues.

Boosting foreign ownership limits for carriers to at least 49 percent, from 25 percent now, may foster competition in a nation “dominated” by WestJet Airlines Ltd. and Air Canada, the report said. Increased private and foreign ownership of Canada’s transportation assets would require changes to protect their role in the economic development and other “national interests.”

“We heard that it may be impossible for a new competitor to enter the market, since there are simply not enough investors within Canada to provide 75 percent of the capital required to launch a commercial air carrier,” said the report of the six-person panel chaired by David Emerson, a former trade and industry minister.

The government will “carefully consider the findings and any actions required to further strengthen the safety, efficiency, and competitiveness of Canada’s transportation system,” Transport Minister, Marc Garneau said in a statement.

Industry Reaction

Air Canada shares rose 1.5 percent in trading Thursday, closing at C$7.26 ($5.36). WestJet fell 0.7 percent to C$16.19.

Canadian airlines are divided on the notion. WestJet said it looked forward to studying the report but expressed caution against raising foreign ownership limits.

"WestJet believes that the current 25 percent threshold on foreign ownership is adequate and consistent with practice in the United States. If the limit were to ultimately be increased to 49 percent, it must be on a reciprocal basis only," spokeswoman Lauren Stewart said in an e-mail.

Privately-held Porter Airlines said it supported raising foreign ownership limits to 49 percent, spokesman Brad Cicero said. 

Air Canada, the country’s largest carrier, declined to take a position on the recommendation. “It is premature for us to comment as we are now reviewing the report, but we will be providing feedback during the upcoming stakeholder consultations on the review panel’s recommendations,” spokesman Peter Fitzpatrick said in an e-mail.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE