THE CANADIAN AIRLINE INDUSTRY
John Christopher, Joseph P. Dion
Science and Technology Division
Revised 14 November 2002
TABLE OF CONTENTS
BACKGROUND AND ANALYSIS
1. Freedom to Move
3. A New Canadian Airline Policy
of the Airline Industry
of Air Canada
3. Early Attempts at a Merger
4. “Open Skies” Negotiations
with the United States
5. Foreign Ownership
Legislation to Allow the Merger of Air Canada and Canadian Airlines
b. Policy Framework
for Airline Restructuring
d. Bill C-26 and
D. The Present
c. What is Ahead?
The Independent Transition Observer on Airline Restructuring
3. Airport Issues
4. Recent Industry
THE CANADIAN AIRLINE INDUSTRY*
The domestic airline industry in Canada has evolved from
being an Air Canada (formerly Trans-Canada Airlines) monopoly to being virtually
deregulated. This change came about for two reasons. The first was the
growing demand from air carriers during the mid-1970s for less government
regulation and more competition. The second was the deregulation of the
U.S. domestic airline industry. Since the deregulation of the Canadian
airline industry with the proclamation of the new National Transportation
Act, 1987 (1 January 1988), the industry, all over the world, has undergone
dramatic changes. In the United States, airlines have gone bankrupt and
the number of carriers has been reduced. In Europe, with the advent of
economic union, countries are re-evaluating the traditional government ownership
of airlines and lack of interest in deregulation.
In Canada, Canadian Airlines emerged in the 1990s as
a national competitor to Air Canada. Both consolidated their domestic operations
and affiliated themselves with international alliances, Air Canada
as part of Star Alliance and Canadian Airlines as part of One World.
Even so, both experienced financial difficulties, and by 1999, Canadian
Airlines was near bankruptcy. Ultimately, Air Canada took over Canadian
Airlines and emerged as the dominant – but unregulated – national airline.
Since that time, policy makers and the public have been preoccupied with
the following questions: Is there adequate competition for Air Canada in
the domestic market? Is the travelling public being adequately protected
from any potential abuses of Air Canada’s monopoly-like position in the
domestic market? If competition is inadequate, what should be done to create
conditions that would generate adequate competition?
BACKGROUND AND ANALYSIS
During the 1970s, the economic regulation of the airline
industry was progressively relaxed in favour of competition. The Air
Canada Act, 1977 was intended to remove the special advantages and burdens
accruing to the national carrier as an instrument of federal government
policy. For example, the government had reserved a significant percentage
of the domestic market for Air Canada but at the same time had imposed on
the airline the “public duty” of serving remote centres. In the words of
the Act, Air Canada now had to operate with “due regard to sound business
principles and in particular the contemplation of profit” and be regulated,
like other carriers, by the Canadian Transport Commission (CTC); it had
previously operated under special arrangements with the government.
Passage of the Air Canada Act, 1977 was followed
by the removal of various restrictions on the transcontinental services
provided by the other main carrier, CP Air. There was now head-to-head
competition between Canada’s two largest scheduled carriers in the most
important domestic markets.
In 1978, the United States deregulated its airline industry.
The effects of this were increasingly to be felt in Canada in the following
years, especially as passengers turned to U.S. carriers to take advantage
of lower fares. Canadian carriers pushed for a lessening in economic regulation
in order to compete on an equal basis with American carriers. Consumers
and consumer groups also called for some relaxation in regulatory control
so that they could enjoy the benefits of competition.
Opponents of deregulation were concerned that it might
lead to greater concentration of the industry, with the major carriers becoming
too powerful for others to be able to compete successfully. This, they
contended, would, in the long run, result in less competition and higher
air fares. In addition, some felt that safety might be compromised with
deregulation; that, in an environment where competition was to be the guiding
principle, airlines might cut corners in such areas as maintenance.
From this emerged a “go slow” approach to deregulation.
In 1982, a House of Commons Standing Committee on Transport report (Domestic
Air Carrier Policy) recommended continued regulation but with room for
greater competition. On 10 May 1984, the Minister of Transport issued a
policy statement liberalizing air transport by allowing carriers to compete
on routes anywhere in Canada, rather than being restricted to specific geographic
regions as had previously been the case. From this evolutionary process
the government moved to formalizing deregulation through legislation.
1. Freedom to Move
By 1985, the changes in the legislative framework since
1977 had resulted in de facto deregulation. On 15 July 1985, the
government released its position paper entitled Freedom to Move – A Framework
for Transportation Reform, which began the process of formally deregulating
the transportation industry, including the air sector, by outlining sweeping
changes to the National Transportation Act, 1967. For all modes
of transportation these changes included more competition, reduced economic
regulation and a greater reliance on market forces to achieve more competitive
prices and a wider range of services.
With regard to the air sector, the paper stated that entry
into any class of domestic commercial air service in Canada would be open
to carriers meeting a “fit, willing and able” requirement (i.e., the carrier
must have adequate liability insurance coverage, comply with the Department
of Transport’s safety regulations, and be Canadian). It would no longer
be necessary for the carrier to establish that its service was required
by “public convenience and necessity.”
2. Committee Hearings
In order to receive comments and public input on these
new policy proposals, the government, on 17 October 1985, referred Freedom
to Move for study by the House of Commons Standing Committee on Transport.
After extensive testimony, the Committee reported its findings to the House
of Commons on 18 December 1985.
While the Committee agreed with the report’s recommendations
for deregulating the airline industry, the hearings had raised concern over
a number of issues, especially: air services in the north; the role of
Air Canada in a deregulated environment; and foreign ownership in the airline
In regard to the first of these issues, it was widely believed
that the system of air services in the north was too fragile and immature
to sustain wide-open competition. The Committee therefore recommended that
northern air services continue to be regulated on the basis of the 1984
policy statement, which had drawn a line of demarcation (at roughly 50-55
degrees), north of which regulation would continue to apply.
On the role of Air Canada in a deregulated environment,
some felt the carrier should be used as an instrument of public policy to
provide adequate levels of service; others felt that the only way to achieve
fair competition in the transportation industry was to privatize Air Canada.
It was the Committee’s opinion that Air Canada required the “freedom to
manage” in order to improve organizational efficiency and meet the new competitive
challenge; to this end, it recommended that the government consider options
for privatizing Air Canada.
Freedom to Move did not consider Canadian control
of commercial air services except to say that “the acquisition of control
by foreign interests of transportation undertakings in Canada will generally
be subject to review under the Investment Canada Act.” Witnesses
pointed out that other major aviation nations severely restricted the degree
of foreign ownership of their airline systems. In the United States, for
example, 75% of the equity of a commercial air service must be owned by
The Committee decided that the best way of achieving special
treatment for the airline industry would be to extend the proposal in Freedom
to Move that would give the Governor in Council power “to disallow domestic
mergers and acquisitions of control of major federally regulated transportation
undertakings with gross assets valued at $20 million or more” to all foreign
acquisitions of Canadian air carriers, no matter what the value of their
On 18 December 1985, the Committee reported these findings
and recommendations to the House of Commons in a report entitled Freedom
to Move: Change, Choice, Challenge.
3. A New Canadian Airline
On 26 June 1986, the government introduced legislation
to establish a new National Transportation Act. The bill dealt with
all modes of transportation under federal jurisdiction and was designed
to encourage more competition, reduce economic regulation and place a greater
reliance on market forces.
The key elements of the new policy as set forth in the
legislation were as follows: safety was to be the first priority; the transportation
system exists to serve the needs of the shippers and travellers; competition
and market forces were to be the prime agents in providing transportation
services at the lowest possible cost; economic regulation would be reduced
to encourage competition; carriers should, so far as was practicable, bear
a fair share of the costs of facilities and services provided at public
expense and be compensated for publicly imposed duties; transportation was
regarded as a key to regional economic development; and carriers should
not create undue obstacles to the mobility of all, including disabled persons.
The specific sections of the bill dealing with air transportation
were consistent with the principles set forth in Freedom to Move:
less regulation; greater reliance on competition and market forces; and
an accessible and not excessively costly or time-consuming regulatory process.
The government termed this initiative “re-regulation” rather than “deregulation.”
Almost all the Standing Committee’s recommendations on
air transportation were reflected in the legislation, most notably the retention
of a modified form of regulation for the north and remote areas of Canada.
The regulation of international air services continued to be based on the
results of bilateral air agreements between Canada and other countries.
The Standing Committee on Transport, after extensive hearings,
proposed numerous amendments to the legislation; these were accepted by
the government. One of the most significant was in the area of foreign
ownership: the government lowered the threshold for domestic or foreign
acquisitions from $20 to $10 million. The bill was given Royal Assent on
28 August 1987 and came into effect on 1 January 1988.
As noted previously, there has been de facto deregulation
in the Canadian airline industry since 1984. The National Transportation
Act, 1987 reflected this reality and placed it on a firm legislative
footing. Following that, there have been several important developments
in the Canadian airline industry.
of the Airline Industry
Consolidation and concentration within the airline industry
were of some concern during the debate on deregulation. Following deregulation,
through a series of mergers and acquisitions, Air Canada and Canadian Airlines
acquired regional and feeder airlines through which they provided extensive
route networks. They came to dominate the domestic airline market.
Canadian Airlines was developed through the merging of
a major carrier, CP Air, with regional carriers, Eastern Provincial Airways,
Nordair and Pacific Western Airways (PWA), in 1987. Later, PWA Corporation,
the holding company for Canadian Airlines, also acquired Wardair (the only
major carrier attempting to compete with Air Canada and Canadian Airlines)
at a cost of $250 million. After consideration by the Competition Bureau
and the National Transportation Agency, the acquisition was allowed. This
was the final step in consolidating the industry into two major carriers
with their affiliated companies.
of Air Canada
As was noted earlier, the Standing Committee on Transport,
in its study of the National Transportation Act, 1987, recommended
that the government explore options for privatizing Air Canada so that it
could better manage its affairs. On 12 April 1988, the government announced
its intention to issue Air Canada shares to the public. This would allow
Air Canada to compete more effectively in the new deregulated environment.
As a Crown corporation, it had been limited by the terms of the Financial
Administration Act, under which Crown corporations are required to seek
government approval for corporate and financial plans, a lengthy process
that could prevent the carrier from responding quickly in a highly competitive
environment. Privatization would also allow Air Canada direct access to
equity markets for capital to finance major fleet renewal programs and would
place all airlines in Canada on an equal footing. Following the enactment
of the Air Canada Public Participation Act on 18 August 1988, the
airline was privatized in October 1988, with 45% of its shares sold to the
public. The remainder of the shares were sold in July 1989.
3. Early Attempts at a
Already in 1989, there was concern about the financial
health of the two national airlines, Air Canada and Canadian Airlines, now
two private companies competing coast to coast. Airlines, not only in Canada
but throughout the world, were operating in a difficult economic environment
at this time. The Canadian industry was faced with a recession, high fuel
prices and high taxation levels. Added to this were a reduction in traffic
levels and the heavy debt incurred to purchase new equipment. In February,
Air Canada announced a $454-million loss for 1992 while Canadian Airlines
reported a $543-million loss for the same period. This resulted in talk
of merging the two airlines to reduce overcapacity.
In this context, the management of Canadian Airlines considered
ways in which it might work together with another carrier and in 1992 it
attempted unsuccessfully to forge an alliance, with equity participation,
with American Airlines. The Canadian company could not provide sufficient
cash guarantees for servicing its operating cash flow requirements or its
substantial long-term debt, much of which was the result of several acquisitions,
including those of CP Air and Wardair.
Air Canada had proposed a “made in Canada” solution, generally
assumed to imply a merger of the two airlines. Once its discussions with
American Airlines had broken down, Canadian had little choice but to entertain
these offers from Air Canada, although it was reluctant to do so.
Merger talks were held between Air Canada and Canadian
Airlines in 1992, but after a while they were broken off without explanation.
It was speculated at the time that there were concerns about how a merged
entity would be able to function under one holding company with two operating
subsidiaries. Another area of contention had been how to cope with a combined
debt load of $7.7 billion.
As a result of the failed merger, PWA Corporation (on behalf
of Canadian Airlines) resumed talks with American Airlines. As in previous
negotiations with American, the key to an alliance was a stronger financial
structure for Canadian Airlines. To attain this, the government was asked
for loan guarantees totalling approximately $190 million. In November 1992,
the federal government announced that it was prepared to offer a $50-million
loan. It should be noted that this loan guarantee went against the November
1992 recommendation of the Royal Commission on National Passenger Transportation,
which called for “governments to abstain from making any financial contribution
that is intended to ensure the survival of an air carrier.”
In April 1994, Canadian Airlines and American Airlines
reached an agreement. American Airlines paid $246 million to acquire one
third of Canadian Airlines, thereby acquiring 25% of the Calgary-based airline’s
voting shares plus representation on its board of directors. In return,
Canadian Airlines agreed to pay AMR (the parent company of American Airlines)
US$115 million a year for 20 years in return for use of AMR’s technological
services, including accounting and reservations.
4. “Open Skies” Negotiations
with the United States
Canada-U.S. transborder air services are governed by a
series of bilateral agreements, the first of which was signed in 1949.
Since that time, there have been a number of new agreements covering both
passenger and cargo services. In April 1991, in response to pressure from
both countries for expanded, more competitive transborder air services,
Canada and the United States began negotiating a new bilateral air agreement.
One of Canada’s major priorities was to obtain a phased-in period for new
transborder services whereby our airlines would be able to operate on certain
routes between major Canadian centres (Vancouver, Toronto and Montréal)
and American points for a unspecified period before any American carrier
could serve these routes.
In February 1995, Canada and the United States signed the
“Open Skies” treaty, which liberalized air services between the two countries.
It allowed Canadian carriers unlimited route rights immediately, from any
point in Canada to any point in the United States. U.S. carriers would
gain unlimited route rights immediately, from any point in the United States
to any point in Canada except Toronto, Vancouver, and Montréal. At those
three cities, all existing route rights held by U.S. carriers would continue
uninterrupted; new passenger services would be phased in over a maximum
Since the treaty came into effect, Canadian carriers have
enjoyed a dramatic increase in airline business between the two countries.
In contrast, American airlines have not entered the Canadian market to the
degree that was first anticipated. This may be due to the fact that, as
our market is relatively small by U.S. standards, it is not worthwhile for
American carriers to participate in a significant way.
5. Foreign Ownership
The 25% foreign ownership limit for Canadian airlines
was included in the National Transportation Act, 1987 largely because
this was the U.S. limit. In this era where globalization of air services
is leading to the creation of a small number of world-class and worldwide
mega-carriers, the level of foreign ownership has become an important policy
to Allow the Merger of Air Canada and Canadian Airlines
In the latter half of the 1990s, it became increasingly
clear that Canadian Airlines was encountering problems with continuing head-to-head
competition with Air Canada. In the 1990s, Canadian Airlines lost money
in eight out of nine years. While Air Canada fared better financially,
its share price dropped from $8.00, at the time it was privatized in October
1988, to $6.50 by 12 August 1990. Clearly, as many aviation observers stated,
the status quo was not an option for these airlines. At the end
of the 1990s, attempts to merge the two airlines became a drama played out
daily on the national news.
In the summer of 1999, Canadian Airlines announced that
it did not have enough capital to keep operating for more than one year.
To deal with this situation, the Minister of Transport suspended section
47 of the Canada Transportation Act in order to allow the two major
airlines to come up with plans for restructuring the airline industry without
being subject to the confines of the Competition Act. The airlines
were given a 90-day time limit to come up with proposals for restructuring.
a. Airline Restructuring
There were two proposals. In August 1999, a Toronto-based
Canadian holding company, Onex, which had no previous involvement in the
airline industry, launched a $5.7-billion bid to acquire and merge Air Canada
and Canadian Airlines. A number of commitments were made to gain public
and political acceptance, such as headquarters in Montréal, major flight
centres in Toronto, Montréal, and Vancouver, bilingualism, a five-year
ceiling on air fares, and limits on employee reductions.
In October 1999, Air Canada proposed an $800-million
takeover of Canadian Airlines by a purchase of that airline’s shares. Air
Canada proposed to continue to operate Canadian Airlines as a distinct brand,
but to streamline both carriers’ domestic mainline and regional routes and
operations. It was hoped surplus capacity could be redirected to trans-border
and international business. The plan was to be put to a vote of Air Canada
shareholders in November 1999.
b. Policy Framework
for Airline Restructuring
While this 90-day process was in effect, the Minister of
Transport announced in October 1999 a new policy for a restructured aviation
industry. Under this “dominant carrier” policy, there would be:
no reduction in the Canadian ownership and control
requirements; the 25% limit on foreign voting shares would not be changed;
Recommendations designed to protect the public interest
C-26 and the Merger
The Onex bid to take over the two airlines was not successful.
Air Canada’s offer to purchase Canadian Airlines did find acceptance among
shareholders. Following certain undertakings made to the Commissioner of
Competition, the Air Canada merger proposal was also supported by the government.
The Minister of Transport announced in December 1999 that he was prepared
to approve the transaction.
Some legislative action was necessary to allow the merger
of Air Canada and Canadian Airlines. This was done by Bill C-26, An Act
to amend the Canada Transportation Act, the Competition Act, the Competition
Tribunal Act and the Air Canada Public Participation Act and to amend another
Act in consequence.
Many of the recommendations contained in the Committee’s
report of December 1999 found legislative expression in Bill
C-26. However, the legislation did not address reciprocal cabotage,
Canada-only carriers, modified sixth freedom rights, international air charter
policy, and financially vulnerable airports. Some of these changes could
be implemented with legislative change (for example, some changes
to international air charter policy); but on certain questions, such
as reciprocal cabotage, the government was not prepared to change the policy.
The official date of the purchase of Canadian Airlines
shares by Air Canada was 21 December 1999, and the airlines were merged
as of that date. Of particular importance are the undertakings made by
Air Canada. These undertakings, which the airline made in letters to the
Minister of Transport and the Commissioner of Competition, were incorporated
by reference in Bill C-26 and are binding and enforceable.
A key undertaking was to maintain service to communities
currently served for a period of three years from 21 December 1999. This
meant that Air Canada would be free to make the business decision to discontinue
previously protected service to communities as of 21 December 2002.
The only requirement would be for Air Canada to give appropriate notice,
in most cases 120 days.
While Air Canada emerged successful from the restructuring
battles, it did so at a cost. Air Canada’s debt is in the range of $11
A year after Bill C-26 had come into force, the House
of Commons Standing Committee on Transport and Government Operations examined
the situation again. It was felt that although other carriers – such as
WestJet – had an increasing presence in the market, unanswered questions
remained: Is competition being fostered within the airline industry? Is
the public being protected?
The Committee undertook to answer these questions by
holding public hearings. The Committee’s report, Canada’s Airline Industry:
After the Acquisition, was submitted in May 2001.
Opinions differed about the extent to which competition
exists within the Canadian airline industry. Some argued that only limited
competition had developed in the last year or two, and that this had occurred
largely on routes serving major urban centres and primarily for leisure
travel or the time-flexible sector of the business market. People with
this perspective argued for additional regulatory and legislative changes
to promote competition.
Others indicated that the industry is dynamic, and cited
the emergence and expansion of air carriers. They stated that there is
a competitive option on all routes that together carry at least 75% of all
passenger travel in Canada. One opinion was that the future will see the
emergence of carriers who will operate on selected routes offering lower-cost
and more modest service, where they can be competitive without excessive
On the key issues of reciprocal cabotage, Canada-only
carriers and modified sixth freedom rights, most witnesses before the Committee
overwhelmingly opposed the introduction of these measures to enhance competition.
Witnesses noted the lack of a long-term policy for Canadian
air services and the need for active public oversight and direction, given
the importance of air transport to Canada’s economic and social well-being.
The Committee heard of complaints about: quality of
service; schedule changes; prices; lost, damaged and delayed luggage; reservations;
restrictions on bereavement fares; non-refundability of tickets; and refusal
to carry passengers due to their behaviour.
Some appearing before the Committee argued for an expansion
of the powers of government agencies, such as the office of the Air Travel
Complaints Commissioner, to review fares and issue orders and impose fines.
Several also mentioned the idea of a Passenger Bill of Rights.
Many commented on airports in Canada, highlighting the
urgent need for an airports policy that is coherent and consistent with
the Canada Transportation Act. There is concern that these large
public assets, with their power and influence, are being operated by private
management without significant public scrutiny or accountability.
The Committee remained convinced that fostering competition
is the best means of protecting the public interest. During and since the
Committee’s review, both the Air Travel Complaints Commissioner and the
Independent Transition Observer on Airline Restructuring have made several
reports to the Minister, bringing many of these issues to his attention.
c. What is Ahead?
Based on what the Committee heard, concerns remain about
the merged Air Canada. Parliamentary interest in issues of competition
and protection of the public is likely to continue, and could focus on whether:
reciprocal cabotage, Canada-only carriers and
modified sixth freedom rights should be pursued;
The expiration in December 2002 of the requirement that
Air Canada must retain service on former Canadian Airlines routes may well
lead to a diminution of service that will heighten concerns for protection
of the public interest.
The Independent Transition Observer on Airline Restructuring
Interest could be given a sharper focus as a result
of recommendations made in the final report of the Independent Transition
Observer on Airline Restructuring, released in September 2002. The Independent
Transition Observer recommended some form of foreign carrier participation
in the Canadian air travel market, and called on the government to “fully
liberalize the competitive marketplace for air service to and within Canada.”
A similar recommendation had been made a year earlier by the Canada Transportation
Act Review Panel in its final report, Vision and Balance, released
in July 2001. The panel had called on the government “to create a
North American Common Aviation Area in which carriers from Canada, the U.S.
and Mexico would compete freely.”
The Minister of Transport explicitly rejected this course
of action on both occasions. Both reports proposed second-best solutions:
Vision and Balance recommended the government negotiate for reciprocal
sixth freedom rights, and the establishment of foreign-owned domestic carriers.
The Independent Transition Observer recommended that the liberalization
of air services go ahead in the absence of reciprocal agreements if it is
to Canadians’ advantage.
3. Airport Issues
Another focus of attention will likely be the status
and financial health of commercialized airports, and their implications
for the airline industry and the travelling public. In recent year, several
new fees have been imposed on air passengers, including charges for increased
air transport security in the aftermath of the September 2001 terrorist
attacks on the United States, and airport improvement fees. Proposed airports
legislation is intended to strengthen accountability for the imposition
of airport fees.
4. Recent Industry
Developments in the Canadian airline industry since
2000 have been largely a matter of two processes. The first is the start-up
(and, in many cases, the demise) of small, often regional competitors of
the dominant Air Canada. The second is Air Canada’s re-invention of itself
in response to domestic and international market pressure.
Worldwide, there has been a trend away from travel with
traditional, expensive, full-service airlines. The lowering of demand was
in evidence before September 2001, but was exacerbated by the terrorist
attacks and the subsequent economic slowdown in the United States. Every
U.S. airline, other than the low-cost Southwest airline, lost money in the
year following those attacks, despite a significant government post-September
In Canada, small airlines – Canada 3000, Canjet and
Royal – that were hoped to provide Air Canada with competition all went
out of business in the two years following the Air Canada-Canadian Airlines
merger. On the other hand, WestJet, which many say is modelled on Southwest,
Air Canada has been restructuring itself into smaller
units, with varying degrees of independence, that focus on markets that
are specific in terms of geographical region, level of service, or potential
for revenue generation. These have included Tango, Jazz, Jetz, Zip and
the planned Elite. The carrier hopes that some units will be able to raise
their own financing, thereby reducing Air Canada’s $11-billion debt.
In December 2001 Parliament passed Bill C-38, An Act
to Amend the Air Canada Public Participation Act, which removed the 15%
limit on individual ownership of shares in Air Canada. The 25% limit on
foreign ownership, which applies to all carriers, did not change.
Until the National Transportation Act, 1987 (NTA)
came into force, the airline industry had been closely regulated by the
federal government. Some progress had been made towards a more competitive
environment during the 1970s with the passage of the Air Canada Act,
1977 and the government’s removal of route restrictions from CP Air
in 1979. With the passage of the NTA, the government reduced economic regulation
and put greater reliance on market forces to enhance competition and provide
more efficient and cost-effective transportation services to shippers and
The Air Canada Public Participation Act passed
on 18 August 1988 authorized the sale of shares of the airline to the public.
The government initially sold 45% of the airline’s shares in October 1988,
and the remainder in July 1989.
The Canada Transportation Act (CTA) came into
force on 1 July 1996 to update and replace the National Transportation
Act, 1987. The CTA removed remaining economic regulation of
air transport in northern Canada.
The merger of the two national airlines took place in
2000 when An Act to amend the Canada Transportation Act, the Competition
Act, the Competition Tribunal Act and the Air Canada Public Participation
Act and to Amend another act in consequence (Bill C-26)came into force
on 5 July.
An Act to Amend the Air Canada Public Participation
Act was passed on 18 December 2001; it removed the 15% limit
on individual ownership of shares in Air Canada.
Since autumn 2001, two pieces of proposed transportation
legislation relevant to the Canadian airline industry have been expected.
One is to provide a legislative basis for commercialized airports; the other
is to respond to the recommendations of the Canada Transportation Act Review
10 April 1937 – Trans‑Canada Airlines (TCA) was created
by Act of Parliament on a common‑stock basis, with the CNR as the
1942 – CP Air was formed by the CPR’s amalgamation of 10
local air carriers (mainly bush pilot services).
27 March 1967 – CP Air was to be allowed gradually to increase
its transcontinental services until it was providing 25% of the total transcontinental
capacity by 1970.
19 September 1967 – The Canadian Transport Commission (CTC)
was created under the National Transportation Act, with an Air Transport
Committee to regulate the airline industry.
November 1977 – Parliament passed the Air Canada Act,
which had as its core the financial restructuring of the airline to make
it more responsive to the competitive marketplace.
March 1979 – The government removed route restrictions
from CP Air and allowed it to compete with Air Canada.
15 July 1985 – The government released its position paper,
Freedom to Move. This set out policies for transportation deregulation
based on increased competition, reduced economic regulation, and greater
reliance on market forces.
18 December 1985 – The Standing Committee on Transport
tabled in the House of Commons Freedom to Move: Change, Choice, Challenge,
which made recommendations for inclusion in the new legislation but basically
agreed to the thrust of the Freedom to Move policies.
26 June 1986 – The government introduced Bill C‑18,
legislation to establish a new National Transportation Act, 1987.
1 January 1988 – The National Transportation Act, 1987
came into effect.
18 August 1988 – The Air Canada Public Participation
Act was passed, authorizing the sale of shares to the public.
October 1988 – Air Canada was privatized by the government.
19 October 1989 – The Royal Commission on National Passenger
Transportation was established to enquire into the needs of passengers into
the 21st century.
April 1991 – Canada-U.S. bilateral air negotiations began.
3 November 1992 – Air Canada withdrew its offer to merge
with Canadian Airlines.
19 November 1992 – The Royal Commission on National Passenger
Transportation tabled its final report, calling for a user-pay policy for
24 November 1992 – Ottawa offered PWA a $50-million loan
29 December 1992 – Canadian Airlines signed a conditional
deal to form an alliance with American Airlines.
28 April 1993 – Air Canada bought $235 million of Continental
Airlines’ votes and shares for a 25% voting interest in the airline.
27 April 1994 – American Airlines paid $246 million to
acquire one third of Canadian Airlines, and Canadian Airlines agreed to
pay AMR $115 million a year for 20 years for use of AMR’s technological
February 1995 – Canada and the United States signed a
new agreement on Transborder Air Services.
1 July 1996 – The Canada Transportation Act
came into effect, removing the remaining economic regulation of air
transport in northern Canada.
Summer 1999 – Canadian Airlines announced that it had
enough money to operate for only one more year. The Minister of Transport
suspended sections of the Competition Act to allow various parties
to discuss restructuring of the airline industry.
August 1999 – Onex Corporation made a bid to acquire
both national airlines with a goal of merging them.
October 1999 – Air Canada proposed to take over Canadian
to December 1999 – House and Senate transport committees examined
the issues involved in airline restructuring.
October 1999 – The Minister of Transport announced
a new policy framework for restructuring the airline industry. The policy
focused on the concept of a “dominant” airline.
February 2000 – The Minister of Transport tabled legislation
to allow Air Canada’s takeover of Canadian Airlines – An Act to amend
the Canada Transportation Act, the Competition Act, the Competition Tribunal
Act and the Air Canada Public Participation Act and to amend another Act
in consequence (Bill C-26).
May 2001 – The House of Commons Standing Committee
on Transport examines the state of the airlines industry a year after Bill
C-26 came into force and issues a report, Canada’s Airline Industry:
After the Acquisition.
July 2001 – The Canada Transportation Act Review Panel
issues its report, Vision and Balance.
18 December 2001 – An Act to Amend the Air Canada
Participation Act (Bill C-38) is passed, removing the 15% limit on individual
ownership of shares in Air Canada.
September 2002 – The Independent Transition Observer
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