2015 In 37 jurisdictions worldwide In jurisdictions 37 Contributing editors John Balfour and Mark Bisset

Transport

Air Air

GETTING THE DEAL THROUGH Air Transport 2015 Air Transport 2015

Contributing editors John Balfour and Mark Bisset Clyde & Co LLP

Publisher The information provided in this publication is Gideon Roberton Law general and may not apply in a specific situation. [email protected] Business Legal advice should always be sought before taking any legal action based on the information provided. Subscriptions Research This information is not intended to create, nor does Sophie Pallier Published by receipt of it constitute, a lawyer–client relationship. [email protected] Law Business Research Ltd The publishers and authors accept no responsibility 87 Lancaster Road for any acts or omissions contained herein. Business development managers London, W11 1QQ, UK Although the information provided is accurate as of George Ingledew Tel: +44 20 7908 1188 September 2014, be advised that this is a developing [email protected] Fax: +44 20 7229 6910 area.

Alan Lee © Law Business Research Ltd 2014 [email protected] No photocopying: copyright licences do not apply. Printed and distributed by First published 2006 Encompass Print Solutions Dan White Ninth edition Tel: 0844 2480 112 [email protected] ISSN 1751-9098 CONTENTS

Global Overview 7 Hong Kong 88 John Balfour Michael Kan and Lawrence Cheng Clyde & Co LLP Brandt Chan & Partners in association with Dentons HK LLP

Afghanistan 11 Iceland 94 M Wisal Khan and Ghazi Khan Erlendur Gíslason Legal Oracles Logos Legal Services

Argentina 15 India 99 Elizabeth Mireya Freidenberg Amir Singh Pasrich and Mohana Malhotra Freidenberg, Freidenberg & Lifsic I.L.A. Pasrich & Company

Australia 21 Indonesia 109 Simon Liddy, Matthew Brooks and Richard Davis Wahyuni Bahar and Anggia Rukmasari HWL Ebsworth Lawyers Bahar & Partners

Bahamas 28 Italy 113 Arthur K Parris Laura Pierallini ParrisWhittaker Studio Pierallini

Belgium 31 Japan 119 Birgitta Van Itterbeek Shuji Yamaguchi Monard-D’Hulst Okabe & Yamaguchi

Brazil 36 Malta 123 Kenneth Basch Tonio Grech Basch & Rameh Dingli & Dingli Law Firm

Canada 41 Mexico 129 Laura M Safran QC and Prasad Taksal Javier Alegre and Carlos Campillo Davis LLP Alegre, Calderón y Márquez Abogados

Colombia 48 Netherlands 135 José Vicente Guzmán and Andrés Reyes Jeroen Timmermans and Laetitia Kunst-den Teuling Guzmán Escobar & Asociados Stek

Denmark 53 New Zealand 140 Henrik Kleis and Rune Hamborg Frank Porter, Anita Birkinshaw and Rishalat Khan Delacour Law Firm Buddle Findlay

Dominican Republic 59 Nigeria 146 Rodolfo Mesa Chavez Olawale Akoni, Kehinde Daodu and Olamide Aiyeola Mesa & Mesa Abogados Babalakin & Co

European Union 63 Norway 151 Geert Goeteyn Knut Boye, Ingar Fuglevåg and Camilla Flatum Shearman & Sterling LLP Advokatfirmaet Simonsen Vogt Wiig AS

Germany 75 Philippines 154 P Nikolai Ehlers Mia G Gentugaya, Emmar Benjoe B Panahon and Ma Luisa D Manalaysay Ehlers, Ehlers & Partner SyCip Salazar Hernandez & Gatmaitan

Greece 80 Poland 158 Betty Smyrniou and Konstantina Linardou Krystyna Marut, Edyta Michalak and Anna Burchacińska-Mańko Bahas, Gramatidis & Partners MMMLegal Legal Counsels

2 Getting the Deal Through – Air Transport 2015 CONTENTS

Portugal 164 United Arab Emirates 192 João Pedro Alves Pereira and João Marques de Almeida Donald H Bunker, Ian Veall, Christine Veall and Henock Girma APTS – Alves Pereira & Teixeira de Sousa RL Donald H Bunker and Associates

Russia 170 United Kingdom 195 Mikhail Sokolov, Anna Arkhipova and Sergey Seliverstov John Balfour Sokolov, Maslov and Partners Clyde & Co LLP

South Africa 175 United States 201 Vanil Bagwandeen, Kamiel Rajah, Sally Mashiane and Jennifer Finnigan Andrew J Harakas and Christopher Carlsen Shepstone & Wylie Attorneys Clyde & Co US LLP

Switzerland 181 Uruguay 209 Andreas Fankhauser Gonzalo Yelpo Baumgartner Mächler Yelpo & Facal Abogados

Thailand 186 Venezuela 214 Alan Polivnick and Joe Osgerby-Lacey John R Pate Watson, Farley & Williams (Thailand) Ltd De Sola Pate & Brown

www.gettingthedealthrough.com 3 Davis LLP CANADA

Canada

Laura M Safran QC and Prasad Taksal Davis LLP

General CARs. The requirements include obtaining an airworthiness certificate and submission of an annual airworthiness report (except in the case of an 1 Which bodies regulate aviation in your country, under what ultralight aeroplane). Operators of unmanned air vehicles are required to basic laws? obtain a special flight operations certificate. The Aeronautics Act defines Under the Canadian Constitution Act 1867 aviation is a federal area of ‘commercial air service’ as any use of an aircraft for hire or reward, that is responsibility. Transport Canada is a department of the Government of in consideration of any payment or receipt of any benefit. In addition to the Canada under the federal Minister of Transport. It is responsible for the airworthiness requirements prescribed in Part V of the CARs, any use of an issuance of operating authorities and safety oversight. The principal leg- aircraft for a commercial air service is subject to the certification scheme islation administered by Transport Canada is the Aeronautics Act. Under created by the Aeronautics Act and associated regulations. For aerial work the authority of that statute, the Canadian Aviation Regulations (CARs) (consisting of helicopter external loads, towing or dispersal of products and more detailed standards respecting aviation have been promulgated. and involving the carriage of persons other than crew members) an opera- The Canadian Transportation Agency (CTA), formed under the Canada tor certificate is required, subject to limited exceptions. Transportation Act, is an independent, quasi-judicial agency, that makes Private operators that provide passenger transport using large decisions concerning air, rail and marine matters and whose jurisdiction or turbine-powered pressurised aircraft are governed by subpart 4 of extends to economic regulation and consumer protection. With respect Part VI of the CARs. Until March 2011, the Canadian Business Aviation to aviation, the CTA issues licences and permits, has authority to disallow Association, a non-profit association, was authorised to issue private oper- tariffs and imposes rules relating to the accessibility of air services. The ator certificates to private operators of business aircraft and monitor their Carriage by Air Act implements, among other matters, the provisions of the operations. However, subpart 4 of Part VI was suspended and, pending Montreal Convention as part of domestic law in Canada. The Canadian Air the introduction of new regulations by Transport Canada and by Interim Transport Security Act establishes and defines the authority and the pow- Order No. 10 Respecting Private Operators, the certification and oversight ers of the Canadian Air Transport Security Authority, the agency responsi- responsibilities have been transferred back to Transport Canada. In June ble for aviation security in Canada. The Transportation Safety Board (TSB) 2014, Transport Canada introduced revised regulations under subpart 4 is an independent agency established under the Canadian Transportation of Part VI of the CARs. Operators that held a Temporary Private Operator Accident Investigation and Safety Board Act. The TSB is responsible for Certificate on 28 May 2014 are automatically provided with replacement conducting independent investigations into aviation incidents and publicly documents that comply with the revised Regulations, including a Private reporting its findings, identifying safety deficiencies and making recom- Operator Registration Document and Special Authorization(s). Private mendations for eliminating such deficiencies. Civil air navigation services operators holding a Temporary Private Operator Certificate on 28 May are provided by NAV Canada, a private sector corporation established 2014 have also been given a 24-month transition period during which a under the Civil Air Navigation Services Commercialization Act (CANSCA). general exemption will be available for most requirements, subject to cer- tain conditions. Regulation of aviation operations 4 Is access to the market for the provision of air transport 2 How is air transport regulated in terms of safety? services regulated and, if so, how? The CARs and the associated standards form a comprehensive code for Financial and nationality requirements apply and there are limited exit the regulation of aviation safety. The standards required of commercial controls. Those requirements and Canadian competition law requirements operators are found in Part VII of the CARs, which divides commercial air are dealt with in more detail in the following questions; otherwise there are operations into six classes: no limitations on access to the domestic market. Access to the market for • foreign air operations, (subpart 1); international air services is governed by bilateral air service agreements • aerial operations (subpart 2); between Canada and various foreign states. In negotiating the terms of • air taxi operations (subpart 3); those bilateral air service agreements, the Government of Canada follows, • commuter operations (subpart 4); among other matters, the principles outlined in Canada’s international air • airline operations (subpart 5); and policy, entitled ‘Blue Sky’. Those bilateral air service agreements range • aircraft maintenance by aircraft operators and unmanned air vehicles from liberal open skies agreements to agreements involving market access, (subpart 6). tariff filing and capacity limitations. Under the Blue Sky Policy, Canada will generally seek to negotiate an open sky agreement if it is deemed to be in Airworthiness and maintenance are addressed in Part V, which also Canada’s overall interest; however, the Blue Sky Policy precludes any pos- addresses associated detailed standards. General operating and flight sibility of a foreign airline being granted the rights to carry domestic traffic rules are found in Part VI. Regulations respecting aerodromes and airports in Canada. are in Part III and air navigation services are addressed in Part VIII. Generally, all foreign air operators wishing to operate commercial air services to and from Canada are required to obtain a Canadian foreign 3 What safety regulation is provided for air operations that do air operator certificate under subpart 1 of Part VII of the CARs and be in not constitute public or commercial transport and how is the receipt of applicable licences or permits issued by the CTA. distinction made? Transport Canada is responsible for regulating aviation safety and air- worthiness requirements for all civilian aircraft in Canada. Airworthiness requirements and the applicable standards are described in Part V of the www.gettingthedealthrough.com 41

© Law Business Research Ltd 2014 CANADA Davis LLP

5 What requirements apply in the areas of financial fitness and 9 What requirements must a foreign air carrier satisfy in order nationality of ownership regarding control of air carriers? to operate to or from your country? With respect to international air services, the nationality requirements are The licensing procedures for foreign air carriers are set out in question 6. those of the Chicago Convention and the applicable bilateral air service In order to be eligible for a licence to operate a scheduled international ser- agreements to which Canada is a party. Subject to very limited exceptions, vice, a foreign air carrier must obtain the appropriate Canadian aviation in order to operate a domestic air service in Canada, the operator must be document, have the prescribed liability insurance coverage in place, meet ‘Canadian’ as that term is defined in Part II of the Canada Transportation the prescribed eligibility conditions and satisfy the CTA that the foreign air Act. For an individual, this means being a Canadian citizen or permanent carrier has not contravened the provisions of the Canada Transportation resident. For a corporation, it means that at least 75 per cent of voting Act relating to sale of air services in Canada without an appropriate licence. interests must be owned and controlled by Canadians. In addition, a cor- In order to satisfy the eligibility conditions, the foreign air operator should poration must pass a ‘control in fact’ test. There is ministerial discretion to be designated by a foreign government to operate an air service in terms dispense with such requirement. It is used sparingly to authorise special of a bilateral air service agreement between that country and Canada operations. In 2009, legislation was enacted that would permit up to 49 and must hold a scheduled international licence issued by that foreign per cent foreign ownership in Canadian carriers, but that has not yet come government. into force. It is important to note that in order to obtain a foreign air operator cer- Start-up operations must pass a financial solvency test. They must tificate, a foreign carrier may be required to pass a base inspection carried demonstrate the ability to cover start-up costs and operating expenses for out by Transport Canada. In undertaking the base inspection, Transport the first 90 days of operations, without relying upon revenues from the Canada may attend at the foreign air carrier’s base to assess whether the operation. foreign air carrier meets its requirements on maintenance, security and operational issues. 6 What procedures are there to obtain licences or other rights to operate particular routes? 10 Are there specific rules in place to ensure aviation services The licensing of air operators for the provision of domestic services and are offered to remote destinations when vital for the local scheduled and unscheduled international services is regulated by the pro- economy? visions of the Canada Transportation Act and the regulations made there- Such rules were once a mainstay of Canadian domestic regulation, but they under, and is administered by the CTA. To operate an air service which is have been repealed. A vestige of the old regime is section 64 of the Canada publicly available, a licence must be obtained from the CTA. The licences Transportation Act, which specifies which notices must be given when a available are domestic (small, medium, large and all-cargo aircraft) and carrier proposes to discontinue a domestic service or reduce it to less than international. International licences are distinguished by aircraft size and one flight per week. If such discontinuance or reduction results in reducing use (in the case of all-cargo). International licences are issued on a sched- the number of carriers providing weekly service to one or fewer, the carrier uled and non-scheduled basis. An applicant must establish that it holds proposing to discontinue or reduce services must give notice and enter into an appropriate operating certificate, has liability insurance and meets the discussions with local government officials. However, the carrier cannot be financial fitness requirements discussed above. Licences for international prevented from discontinuing or reducing service. It can only be required scheduled services generally are issued pursuant to bilateral air service to suspend the planned change for a period of 30 or 120 days, depending arrangements between Canada and foreign states and are route-specific, on whether the service was in operation for at least one year before the in accordance with the commercial rights identified in these agreements. notice was given. The same rule applies to reduction of certain services if Extra-bilateral authority in the form of additional city pairs and fifth or sev- the reduction will reduce capacity by at least 50 per cent. enth freedom rights can sometimes be obtained on application to the CTA. 11 Are charter services specially regulated? 7 What procedures are there for hearing or deciding contested Charter services are regulated separately. The Air Transportation applications for licences or other rights to operate particular Regulations specify a stringent set of rules that nominally apply. However, routes? the impact of these rules is largely alleviated by the provisions of Canada’s The CTA, of its own motion or on complaint, may determine that a licensee International Cargo Charter Policy and International Passenger Charter ceases to meet the conditions upon which the licence was granted. In this Policy, which were announced in May 1998 and April 2000 respectively. case, the CTA will typically suspend the licence and give the licensee 90 The CTA is in the process of amending the Air Transport Regulations to days to show cause why the licence should not be cancelled. Applications conform but, in the interim, the CTA has been authorised to grant general for extra-bilateral authority, for extended wet-lease charter operations and exemptions from the application of those provisions of the Air Transport for all-cargo seventh freedoms are still contested on occasion, but with less Regulations that conflict with the provisions of the policies. The most frequency. In case of complaint, the CTA opens pleadings by inviting the important restrictions that remain in place are those requiring a carrier to interested parties to state their cases in writing. A public hearing is possible provide financial guarantees in respect of advance payments received from but rare in fact. An appeal from a decision of the CTA lies to the Federal tour operators. Carriers are also required to price charter contracts on the Court of Appeal, but only on questions of law or jurisdiction and only with basis of tariffs in effect on the date the contract is entered into. Those tariffs leave. must be maintained by the carrier, but need not be filed with the CTA.

8 Is there a declared policy on airline access or competition and, 12 Are airfares regulated and, if so, how? if so, what is it? Airfares are subject to limited regulation in Canada. The most important In late 2006, the Government of Canada announced its Blue Sky Policy, statutory provision is section 66 of the Canada Transportation Act, which which is intended to ‘further connect Canadians to each other and the applies to lightly serviced routes. On such routes, passengers and ship- world’. The policy is an attempt to pursue more liberalised bilateral agree- pers are given the right to complain to the CTA if they are of the view that ments with other states, contemplating fifth and sixth freedoms for pas- the fare or rate offered is unreasonable or that the range of rates and fares senger services and seventh freedom for all-cargo services. Since the offered is inadequate. The CTA deals with a small number of individual implementation of the Blue Sky Policy, Canada has negotiated new or complaints each year and occasionally commissions more general studies expanded air service agreements with over 20 states as well as with the 28 of the state of competition on lightly serviced routes. In dealing with an member states of the EU. individual complaint, the CTA will consider historical data, compare fares Separate from the Blue Sky Policy, the Canada–United States Open and rates on similar services and consider competition from other modes Skies Agreement was signed in 2007. This agreement reinforces the previ- of transport. The Air Transportation Regulations stipulate that carriers are ous open regime for air services between the two countries by removing to apply the fares set out in their tariffs, and only those fares. some constraints regarding air services between each other’s territory and Sections 86.1 and 86.2 of the Canada Transportation Act grant to the third countries. Cabotage is still off the table. CTA the power to make regulations in relation to advertising of prices for air services. In exercise of this power, the CTA has amended the ATRs

42 Getting the Deal Through – Air Transport 2015

© Law Business Research Ltd 2014 Davis LLP CANADA by adding Part V.1 to the ATRs, which contains regulations governing created or existing before the ratification of the Cape Town Convention by advertisements in all media of airfares for all domestic air services and Canada, any non-consensual right or interest created under Canadian law all international air services originating in Canada. Part V.1 does not apply (such as mechanic’s liens, unpaid airport fees, etc), or any legal hypothec to advertisements for (i) air cargo services; (ii) package travel services (ie, under the laws of Quebec that is registered in the register of moveable including air services and accommodation, surface transport, entertain- property in Quebec. ment, etc); and (iii) airfares that are not offered to the general public and Canada has made declarations under the Cape Town Convention are fixed through negotiation. Part V.1 also does not apply to a person who adopting (i) alternative ‘A’ under article XI of the Protocol with respect to provides another person with a medium to advertise prices for air services. insolvency proceedings having a waiting period of 60 days; (ii) article XIII Part V.1 of the ATRs requires any person who advertises the price of an of the Protocol providing for deregistration and export request authorisa- air service on an interactive medium (such as a website), to include the total tion; (iii) article VIII of the Protocol relating to choice of law; and (iv) para- price of the air service payable by the consumer, inclusive of all applicable graphs 3, 4, and 5 of article X of the Protocol relating to modification of taxes, fees and charges (domestic and foreign) stated in Canadian dollars provisions. (as well as any other currency in which such price may be expressed), pro- vide a description of all such third-party taxes, fees and charges as well as 15 What rights are there to detain aircraft, in respect of unpaid disclose any restrictions applicable to the airfares being advertised. It is airport or air navigation charges, or other unpaid debts? within the CTA’s authority to determine whether an advertiser has met the For the distinction between airports that are managed by private airport requirements under Part V.1 of the ATR and it can impose fines and penal- authorities and those that continue to be managed by the Government of ties for contravention or order necessary changes to conform to Part V.1. Canada, please see question 17. The Airports Act gives private airport authorities the right to detain Aircraft aircraft in certain circumstances. CANSCA gives the same right to NAV 13 Who is entitled to be mentioned in the aircraft register? Do Canada, the entity that provides air navigation services to aircraft in requirements or limitations apply to the ownership of an Canadian airspace on a cost recovery basis. Aircraft ‘owned or operated’ by aircraft listed on your country’s register? an operator which is liable to pay charges, may be detained, but only when a court order has been obtained. There is no right of sale, but the airport A person may not operate an aircraft (other than a hang-glider or a para- authority or NAV Canada is entitled to detain the aircraft until the charges chute) in Canada unless it is registered in Canada or in a foreign state that owed have been paid in full. Although motions judges have wide discretion is either a contracting state or has an agreement with Canada that allows on a court motion to authorise detention, it does not appear that the judges aircraft registered in that foreign state to be operated in Canada. have the discretion to sanction any arrangement that requires the service Any Canadian 16 years of age or older is qualified to be the registered providers to accept less than full payment. owner of a Canadian aircraft. The definition of ‘Canadian’ is the same as In respect of airports that continue to be operated by the federal gov- that specified in question 5. Aircraft are registered as either state, com- ernment, similar powers are granted by the Aeronautics Act. mercial or private aircraft. With respect to private aircraft, the national- While the foregoing are the major rules of general application, there ity requirement is relaxed. Private aircraft can be registered in the name is a wide range of circumstances in which aircraft may be subject to deten- of a corporate entity which is not ‘Canadian’ as defined in the Canada tion and operators to penalties and fines. By way of example, the Canada Transportation Act. However, the corporate entity must be incorporated Border Services Agency has the authority to impose fines and detain air- under Canadian federal or provincial law, must meet certain record- craft operated in contravention of Canada’s customs laws. Air carriers are keeping and reporting requirements and the aircraft must be operated in subject to penalties for bringing into Canada persons who are not prop- Canada at least 60 per cent of the time. erly documented and, if such persons require medical treatment while in It should be noted that ‘ownership’ for the purposes of inclusion in the Canada, the cost of that treatment can be imposed on the carrier. Failure Canadian Civil Aircraft Register refers only to legal custody and control to pay these penalties or costs can result in detention of aircraft, as can any and not to property rights in the aircraft. As discussed in question 14, there failure to satisfy a judgment debt. is no Canadian national registry for property interests in aircraft. 16 Do specific rules regulate the maintenance of aircraft? 14 Is there a register of aircraft mortgages or charges and, if so, how does it function? The maintenance of aircraft is specifically regulated by the CARs, Part V, subparts 71 (aircraft maintenance requirements) and 73 (approved mainte- There is no national register of security interests in aircraft in Canada. nance organisations) and by detailed standards 571 and 573. Certain chap- Canada signed the Convention on International Interests in Mobile ters of the Airworthiness Manual are also relevant; in particular Chapter Equipment and the Protocol dealing with aircraft equipment on 31 566, which addresses the licensing and training standards that aircraft March 2004. The International Interests in Mobile Equipment (Aircraft maintenance engineers must meet. These regulations and standards Equipment) Act (Canada) was enacted in February 2005 and was fully pro- define the conditions under which different categories of work must be claimed by the federal government on 1 April 2013 after Canada ratified done, as well as documentation requirements. In the case of commercial the Convention. aircraft, all work must be done in accordance with a maintenance policy In Canada, the power to enter into treaties vests in the federal gov- manual approved by Transport Canada. A matter of significant interest in ernment, but the power to implement treaties is shared by the federal Canada is the increasing reliance on a safety management system that is government and the provincial and territorial governments. Therefore, intended to lighten Transport Canada’s enforcement role and increase cor- the International Interests in Mobile Equipment (Aircraft Equipment) Act porate responsibility for compliance. was enacted at the federal government level to implement the Cape Town Convention in Canada and, thereafter, various provinces and territories Airports have adopted legislation to implement the Cape Town Convention as part of provincial or territorial law, subject to ratification by the federal govern- 17 Who owns the airports? ment. Currently, legislation implementing the Cape Town Convention has Because of the immense geographical area that Canada covers, Transport been adopted by all of the provinces and territories in Canada, with the Canada has certified 726 airports. Nevertheless, nearly 95 per cent of exception of New Brunswick. Section 6 of the International Interests in Canadian passengers and cargo are handled at the 26 airports that com- Mobile Equipment (Aircraft Equipment) Act provides that with the excep- prise the National Airport System (NAS). The NAS airports include the tion of certain legislation, the provisions of the Cape Town Convention main airports in the national, provincial and territorial capitals and all prevail over any conflicting provision in any other law. Similarly, provincial other airports handling 200,000 or more passengers annually. In accord- and territorial legislation also provides that the Cape Town Convention ance with its National Airports Policy (NAP), the Government of Canada will prevail in case of conflicts with provincial laws. retains the role of safety and security regulator and the ownership of In accordance with declarations made by Canada, a security interest the NAS airports, but has divested itself of the responsibility for financ- in an aircraft object registered under the Cape Town Convention will have ing, operating, managing and developing those airports by entering into priority over other interests except in certain situations, such as an interest long-term leases with Canadian airport authorities (CAAs). The latter are

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© Law Business Research Ltd 2014 CANADA Davis LLP arm’s-length, not-for-profit provincial corporations entrusted with the negotiation. Slot allocation at the Canadian airports using a slot clearance twin goals of providing the services required, while working toward eco- request/reply system is regulated by the IATA Scheduling Guidelines. nomic self-sufficiency through earned revenue. In addition to the 26 NAS airports, there are 71 regional and local air- 22 Are there any laws or rules specifically relating to ground ports, 31 small airports and eight Arctic airports. The vast majority have handling? already been transferred to CAAs, municipalities and, in the case of the There are no laws specifically relating to ground handling at airports. All Arctic airports, to territorial governments. competent operators are free to apply to an airport authority and any restric- The balance of the airports certified by Transport Canada are very tions on their ability to offer ground-handling services are determined by small, privately operated facilities, many of which are simply grass land- space and capacity considerations. Competition issues are addressed by ing strips. legislation of general application and, in particular, the Competition Act.

18 What system is there for the licensing of airports? 23 Who provides air traffic control services? And how are they Transport Canada is charged with certifying non-military airports in regulated? Canada under Part III of the CARs. Certification is granted following a The Government of Canada transferred responsibility for all of the coun- successful inspection by Transport Canada, establishing that the applica- try’s air navigation services (ANS) network to NAV Canada, a private, non- ble standards are met and the publication of the airport data (verified by share capital corporation. NAV Canada is statutorily obligated to provide the regulator) in publications available to the public, such as the Canada navigational services on a cost recovery basis in Canadian airspace. Service Flight Supplement, which details the various facilities and services avail- charges are levied on air carriers and aircraft operators to recover costs able at each certified airport. There are two components to certification, incurred by NAV Canada in providing the air navigation services. CANSCA namely the airport certificate itself, which evidences compliance with the provides for a right to appeal NAV Canada charges to the CTA. required Transport Canada standards, and the airport operations manual, which details the precise specifications for airport facilities and services. Liability and accidents Deviations from these specifications require the approval of Transport Canada, which conducts regular inspections to ensure compliance. 24 Are there any special rules in respect of death of, or injury to, passengers or loss or damage to baggage or cargo in respect of 19 Is there a system of economic regulation of airports and, if so, domestic carriage? how does it function? Until very recently, there were no special rules with respect to death or As stated above, the majority of airports in Canada are private, but the injury to passengers and loss or damage to baggage or cargo for domestic most significant facilities continue to be owned by the federal government, carriage. These claims were (and largely still are) resolved in accordance although leased to and managed and operated by independent CAAs. The with principles of the common law of contract and negligence, as inter- goal is to ensure the viability and self-sufficiency of those airports. preted by the courts of each province. The courts of Quebec apply civil As an integral component of the NAP, the federal government estab- law principles and concepts, but the end result for an aviation claim in that lished the Airports Capital Assistance (ACA) programme in 1995. Eligible province is not likely to substantially differ from a similar case in a common airport operators may apply for financial assistance for capital projects law province. Over the past couple of years, the CTA has intervened in a relating to safety, asset protection and operating cost reductions. The number of cases to require air carriers to apply international liability rules. assistance ranges from ‘first priority projects’, which include safety-related As of now, such intervention is limited to cases in which the claim is for airside projects, such as rehabilitation of runways, to ‘third priority pro- damage to, loss of, or delay in the transport of baggage. jects’, including safety-related air terminal building and groundside pro- Under the Criminal Code, dangerous or negligent operation of an jects, such as sprinkler systems, asbestos removal and barrier-free access. aircraft or knowingly sending an aircraft that is not airworthy on flight are Airport authorities are often required to fund a portion of ACA projects. criminal offences. Therefore, incidents that result in injury or death may A material issue in Canada is the cost of airport operations and, in result in criminal investigation and possible criminal charges if there the particular, the rents that the federal government charges to the airport circumstances so warrant. authorities. These are passed on to air carriers. Toronto and Vancouver are often cited as expensive airports within which to operate and a number of 25 Are there any special rules about the liability of aircraft economic studies have suggested that significant traffic has been diverted operators for surface damage? from those cities to Buffalo, New York and Bellingham, Washington in the Although there are no specific rules governing the liability of aircraft US. operators for surface damage, the Airport Traffic Regulations, which were enacted under the Government Property Traffic Act, prescribe rules for the 20 Are there laws or rules restricting or qualifying access to operation of motor vehicles, pedestrians and mobile equipment at airports, airports? which may be of some interest to ground handlers. In addition, Part IV of Domestic carriers have a prima facie right to serve any airport in Canada, the Airport Traffic Regulations addresses requirements specific to the con- so long as they are licensed to operate by the CTA. Foreign carriers have trol of aircraft on aprons. the same requirement of licensing but, as part of the licensing process, they must be able to demonstrate that they have the requisite bilateral authority 26 What system and procedures are in place for the investigation to serve a particular destination. In a technical sense, access is governed by of air accidents? wide-ranging regulations covering, for example, departure and arrival pro- The TSB has statutory authority under the Canadian Transportation cedures, traffic circuits, noise abatement and aircraft separation. These are Accident Investigation and Safety Board Act to investigate civil aviation summarised in the Transport Canada Aeronautical Information Manual. incidents and accidents. The powers of TSB investigators are extremely broad. They may 21 How are slots allocated at congested airports? search and seize, sometimes without warrant, and may compel sworn Slots are allocated by individual airport authorities and there is no uniform statements. Any person thought to have relevant information may be slot allotment policy or system applicable to all airports in Canada. Some required to attend. Canadian airports have airport adviser status with IATA and participate in Operators and others with an interest in the investigation may seek biannual IATA schedules conferences, at which carriers, airports, coordi- observer status. Disposition of such requests is in the discretion of the nators and industry experts discuss schedule adjustments. Upon negotiat- investigator in charge. ing, trading or transferring slot times at the IATA schedules conferences, The TSB has established criteria to determine the extent of any par- carriers will then apply to the applicable airport for a slot. The airport will ticular investigation. In the case of a significant accident or incident, a ascertain the availability of the time as well as the logistical ability to pro- public inquiry is possible. Ultimately the TSB will issue a report to identify vide that time. If that time is not available or feasible, the airport will offer contributing factors and safety deficiencies. The TSB is barred from assign- another time and the carrier and the airport will engage in a scheduling ing blame and its role is limited to identifying deficiencies resulting in the

44 Getting the Deal Through – Air Transport 2015

© Law Business Research Ltd 2014 Davis LLP CANADA incident or the accident. The TSB findings are also not binding on any party to be taken into consideration when making the decision as to whether the in any legal proceedings and there are statutory protections for statements proposed transaction triggers public interest issues. given in the course of an investigation, but in most cases the ultimate use made of any confidential information obtained in the course of an investi- 30 How is the relevant market for the purposes of a competition gation will lie within the discretion of a judge in civil proceedings. assessment in the aviation sector defined by the competition The provisions of the Canadian Transportation Accident Investigation authorities? Safety Board Act reflect the provisions of ICAO Annex 13, which states that Definition of the relevant market is a key consideration because of the the sole objective of an accident investigation shall be to prevent accidents importance of the concept of ‘market power’ when assessing competitive and incidents and not the apportioning of blame. Accordingly, CVRs and impact. The general issue relates to identification of the most limited air transcripts of TSB investigation are not to be made available in legal pro- transport market in which a significant and non-transitory price increase ceedings unless a court determines that disclosure outweighs the adverse may be imposed by carriers. In passenger transport, origin–destination effect on future accident investigations. city pairs have often been accepted as defining the relevant geographical In cases of suspected criminal activity, the local police and the Royal market. However, in certain contexts it may be possible to define markets Canadian Mounted Police will be involved in the investigation and where more broadly. there have been fatalities, the coroner’s office will also be involved. 31 What are the main standards for assessing the competitive 27 Is there a mandatory accident and incident reporting system effect of a transaction? and, if so, how does it operate? The Bureau issued revised Merger Enforcement Guidelines in October The Transportation Safety Board Regulations require reporting of aviation 2011. This document is easily accessible on the internet and provides the accidents and incidents. Where a reportable incident occurs, an obligation interested reader with the up-to-date thinking on the subject. Part 5 of the to preserve evidence is triggered. guidelines deals with market shares and concentration thresholds. The The Transportation of Dangerous Goods Act imposes reporting basic question for the Bureau is whether a merger is likely to ‘prevent or requirements in certain cases of release of, or improper transport of, dan- lessen competition substantially’. The thresholds that the Bureau uses to gerous or hazardous goods. distinguish between those mergers which are unlikely to have anti-com- In addition, safety management systems referred to in Part V of the petitive consequences and those which must be examined more closely are CARs impose requirements on approved maintenance organisations to set out in section 5.9. Generally, if the post-merger market share would be report to Transport Canada certain service difficulties encountered in the less than 35 per cent, the Bureau will not challenge on the basis that the course of maintaining an aircraft. merged firm would be likely not to exercise market power unilaterally. Furthermore, it will usually not challenge on the basis of potential coordi- Competition law nated exercise of market power if two conditions are met: the largest four 28 Do sector-specific competition rules apply to aviation? If not, firms in the post-merger market would have a market share of less than 65 do the general competition law rules apply? per cent and the merged firm itself has a market share of less than 10 per cent. General competition rules apply but there are also sector-specific rules. The Bureau’s examination of competitive effects is not limited to an The Competition Act is the law of general application. In response to the analysis of market share. Where the thresholds set out above are exceeded, merger of Air Canada and Canadian Airlines in 1999, the Government the Bureau will undertake a further assessment of the probable unilateral of Canada passed the Regulations Respecting Anti-Competitive Acts of and coordinated effects of the merger. It will consider whether competitors Persons Operating a Domestic Service to define specific anti-competitive in the market are likely to be able to maintain competition and will con- acts which would be subject to the abuse of dominance provisions of the sider existing pricing strategies, distribution methods and service offer- act. It is generally conceded that these are no longer necessary because of ings. An important factor in the analysis will be whether the merger is likely changes in the industry. to facilitate coordination of behaviour among remaining competitors. In There are also special provisions in the Canada Transportation Act that regard, the existence of barriers to entry would be a significant factor that deal with mergers in the aviation sector. that could lead to a finding of anti-competitive effects. 29 Is there a sector-specific regulator or are competition rules 32 What types of remedies have been imposed to remedy applied by the general competition authority? concerns identified by the competition authorities? The general regulator for competition matters in Canada is the Competition In August 2011 the Bureau released a summary of a merger remedies study Bureau (the Bureau), headed by the commissioner of competition. Except (the full study is confidential) that reviews the effectiveness of the remedies as mentioned below, this is the source of competition regulation of the avi- imposed in the period from 1995 to 2005. The intention of the Bureau is to ation industry. Certain proposed mergers and acquisitions must be notified use the terms of the study to update the 2006 Remedies Bulletin, which to the commissioner under section 114(1) of the Competition Act. All such is a comprehensive statement of the Bureau’s policy of merger remedies. transactions must be simultaneously notified to the Minister of Transport The Bureau is empowered to apply to the Competition Tribunal to and the CTA under section 53.1 of the Canada Transportation Act. The challenge a merger under section 92 of the Competition Act or negotiate minister is required to make a determination as to whether the proposed remedies with the merging parties. The majority of cases result in consent transaction raises issues with respect to the public interest as it relates to orders defining agreed remedies. national transport. If such determination is made, the Minister may direct The Bureau’s classification of remedies is as follows: structural rem- the CTA to examine those issues and submit a report. A proposed trans- edies, quasi-structural remedies, combination remedies and stand-alone action may not be completed unless it is approved by the Governor-in- behavioural remedies. Its preference is for structural remedies which gen- Council on the recommendation of the minister and the CTA determines erally involve divestiture of assets although, in the extreme case, it may that the transaction would result in an undertaking that is Canadian. The require the prohibition of a merger of the dissolution of a merged entity. CTA is responsible for ensuring that the transaction does not result in the Quasi-structural remedies include steps intended to reduce barriers to contravention of the nationality status required by the aeronautical legis- entry and to provide competitors with access to infrastructure or technol- lation. The Minister is also required to inform the commissioner of com- ogy (ie, allowing a competitor access to a customer loyalty programme). petition of any national transport concerns that should be addressed. The Combination remedies involve both structural divesture and measures parties to the transaction may be asked to give undertakings to address any aimed at controlling behaviour. Behavioural remedies include such mat- concerns identified. ters as waiver of restrictive contract terms by the merged entity and codes Transport Canada has issued Guidelines for Mergers and Acquisitions of conduct that can be enforced by third parties. Stand-alone behavioural Involving Transportation Undertakings, which describes the informa- remedies are seldom acceptable to the Bureau. tion required to be provided to the Minister, together with the notification When Air Canada acquired Canadian Airlines in 1999 it was under section 53.1, as well as the decision-making process and the factors required, as a condition of approval of the transaction, to give a number of

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© Law Business Research Ltd 2014 CANADA Davis LLP undertakings, including divestiture of certain regional carriers, surrender Miscellaneous of slots at the slot-controlled Pearson International Airport at Toronto and 39 Is there any aviation-specific passenger protection limitation on its ability to offer discount operations in eastern Canada. legislation? Financial support and state aid Legislation of the ‘passenger bill of rights’ sort was proposed in Canada but died in committee. No such legislation has yet been enacted. In response 33 Are there sector-specific rules regulating direct or indirect to the public interest in the issue, a number of air carriers have filed spe- financial support to companies by the government or cial ‘passenger rights’ provisions in their tariffs. The Air Transportation government-controlled agencies or companies (state aid) in Regulations require that charter carriers take steps to protect advance pay- the aviation sector? If not, do general state aid rules apply? ments and provincial legislation in several provinces regulates the way in Financing support is provided in the aviation sector through Export which travel wholesalers and agents carry on business with the objective Development Canada (EDC), a crown corporation created by the Export of protecting passengers in the case of carrier insolvency. The Canadian Development Act. EDC uses two separate accounts to support export Computer Reservation Systems Regulations, passed pursuant to the transactions, commercial accounts and the Canada Account. The latter Aeronautics Act, seek to ensure the fair and neutral presentation of avail- is authorised by section 23 of the Act and is used for transactions which able air services. EDC will not support in the discharge of its normal mandate, but which There are provisions in the Canada Transportation Act and the Air the Government of Canada deems to be in the national interest. The Transportation Regulations that permit the CTA to reject a term or con- Government of Canada assumes the risk of transactions on the Canada dition of carriage filed by a carrier if the CTA finds the term or condition Account. In the past 10 years there have been 17 transactions supported by to be unreasonable or unduly discriminatory. Furthermore, the CTA can the Canada Account, four of which supported sales by Bombardier Inc, the determine whether a carrier is applying its filed tariff terms and condi- Canadian aerospace manufacturer. EDC also provided Air Canada with tions. The CTA has limited jurisdiction to award monetary compensation C$150 million toward a C$600 million credit facility in 2009. but can require the carrier to apply its tariff-based terms and conditions. In Aid is also granted on an ad hoc basis occasionally. For example, dur- June 2012, the CTA released five separate decisions on the reasonableness ing the 2004 restructuring of Air Canada, the federal government provided of domestic and international tariff provisions of three major air carriers a financial guarantee in favour of Air Canada for the purchase of 45 regional in Canada relating to overbooking, cancellation, delay and rerouting of jets from Bombardier. Another example is the Canadian government’s flights. The CTA directed the carriers to amend their respective tariffs to decision to pay C$160 million to air carriers post-11 September 2001. The comply with enhanced passenger rights. Government of Canada also provided liability insurance support to carriers The CTA has introduced new baggage rules for international interline in the wake of the 11 September 2001 terrorist attacks. carriage to and from Canada. The new rules apply to itineraries involving In addition, the Government of Canada created the Strategic carriage by multiple carriers purchased on a single ticket, and provide that Aerospace and Defence Initiative (SADI) in 2007 to assist in aerospace (i) a single set of baggage rules must apply to the entire itinerary; and (ii) product research and development. The programme is administered by the applicable rules must be disclosed to the passengers on the itinerary Industry Canada. Most government contributions under SADI take the receipt or the electronic ticket. The CTA also requires that carriers partic- form of ‘repayable loans’. ipating in interline traffic to and from Canada file interline baggage rules with the CTA and clearly state in their respective tariffs their policies con- 34 What are the main principles of the state aid rules applicable cerning interline baggage. The CTA has also issued a ‘Reservation’ against to the aviation sector? IATA Resolution 302, modifying its application to travel to and from EDC is a crown corporation that operates at arm’s length from the govern- Canada. The new rules were introduced after extensive public and indus- ment. Its mandate is to support exporters without cost to the Canadian try consultation and are applicable to tickets issued on or after 1 October taxpayer. It is required to be economically self-sufficient and to operate on 2014. commercial principles, subject to the special considerations that apply to Part V of the Canada Transportation Act addresses the issue of acces- transactions on the Canada Account, as noted above. Canada is a member sible transport for persons with disabilities. The CTA is very active in prom- of the Organisation for Economic Cooperation and Development (OECD) ulgating standards and adjudicating disputes in that area. and support provided by EDC is supposed to be structured in accordance with OECD guidelines. 40 Are there mandatory insurance requirements for the SADI’s goals are to assist with research and development in aerospace operators of aircraft? initiatives in order to foster Canadian competitiveness. Support through In order to provide domestic or international services, air carriers are SADI loan transactions is generally limited to 30 per cent of the qualifying mandatorily required to carry liability insurance. Section 7 of the Air project cost. Transportation Regulations specifies minimum liability insurance require- Canada is a participant in the new Aircraft Sector Understanding, ments for commercial operators. These are C$300,000 per seat for pas- which took effect in February 2011 and was revised in September 2011. senger liability. In respect of public liability, the mandatory coverage is a minimum of C$1 million for aircraft with maximum certified take-off 35 Are there exemptions from the state aid rules or situations in weight of less than 7,500lbs, and minimum of C$2 million for aircraft with which they do not apply? maximum certified take-off weight of more than 7,500lbs. In case of air- The only applicable exemptions are as described above in respect of trans- craft with maximum certified take-off weight in excess of 18,000lbs, the actions on the Canada Account. minimum amount of insurance is C$2 million, plus an amount equal to C$150 multiplied by the number of pounds that the weight of the aircraft 36 Must clearance from the competition authorities be obtained exceeds 18,000lbs. There are restrictions on insurance exclusions. before state aid may be granted? Private operators of aircraft with a maximum certified take-off weight of over 5,000lbs are required, subject to limited exceptions, to have pas- Clearance from the Competition Bureau is not required. senger liability insurance of C$300,000 per seat. All private operators are required to carry public liability insurance, which is related to aircraft 37 If so, what are the main procedural steps to obtain clearance? weight and the nature of the operations undertaken. Not applicable. 41 What legal requirements are there with regard to aviation 38 If no clearance is obtained, what procedures apply to recover security? unlawfully granted state aid? The Canadian Aviation Security Regulations, issued under the author- Recovery of state aid unlawfully granted is governed by the interna- ity of the Aeronautics Act, provide the framework for legal requirements tional agreements to which Canada is a party, in particular the OECD imposed upon air carriers in respect of security. These regulations deal Arrangement on Officially Supported Export Credits, the World Trade with screening of persons and things, controlled goods, carriage of persons Organization Agreement on Subsidies and Countervailing Measures and in custody, identification and control of restricted areas and the response the 2011 OECD Aircraft Sector Understanding. to threats and are supplemented by confidential memoranda distributed to carriers on a periodic basis to deal with particular procedures of a security

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© Law Business Research Ltd 2014 Davis LLP CANADA nature. As in many jurisdictions, what is required of the carrier by way of 42 What serious crimes exist with regard to aviation? collection and distribution of information is in a state of flux, with numer- Section 7 of the Criminal Code creates a territorial extension of the jurisdic- ous authorities making separate and sometimes conflicting demands. tion of Canadian courts in respect of certain acts committed on an aircraft Overall responsibility for implementing security measures, such as the in flight. The principal serious crimes specifically related to aeronautics screening of passengers and bags, rests with the Canadian Air Transport are found in sections 76, 77 and 78 of the Criminal Code. Hijacking is an Security Authority. indictable offence and is punishable by life imprisonment. Various acts of The Public Safety Act received royal assent in May 2004. This legisla- violence on board aircraft or in an airport that are likely to endanger the tion allows the collection and use of passenger information for the purpose safety of the aircraft or airport are also punishable by life imprisonment. of security. It also provides the minister of transport with the authority to Carrying an offensive weapon or explosive on board, without the consent issue interim orders in emergency situations. of the operator of the aircraft, is an indictable offence punishable by a term of imprisonment not exceeding 14 years.

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