Foreigners should be allowed to own a greater portion of Canada’s airlines and a revenue cap on railways’ grain shipments should be eliminated, according to a sweeping review of Canada’s transportation industry tabled in Parliament Thursday.
Led by David Emerson, a floor-crossing minister who served in both Paul Martin’s and Stephen Harper’s governments, the 283-page review proposes a comprehensive reform of the Canada Transportation Act, which governs the country’s railways, roads, airlines and marine transport.
The most notable recommendations address concerns that have been raised by private transportation companies and, if adopted, could affect Canadian travellers, shippers and farmers.
Transport Minister Marc Garneau said he “will carefully consider” the report’s findings and will begin consultations with stakeholders in the coming weeks.
In the airline sector, the review recommends that Ottawa increase foreign ownership limits for commercial airlines to 49 per cent from their current level of 25 per cent to help foster more competition.
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“Small, privately held carriers, prospective start-ups, industry analysts, and others report that the 25-per-cent foreign ownership limit is a barrier to entry: in contrast to larger markets like the U.S., there may not be enough capital in Canada to finance 75 per cent of a new national carrier,” the report says.
WestJet Airlines Ltd. said in a statement that the current 25 per cent limit is “adequate” and any increase should be met with a corresponding increase south of the border.
“Make it reciprocal, because if a U.S. carrier has the opportunity to buy up to 49 per cent of a Canadian airline, we’d like the opportunity to buy 49 per cent of a U.S. airline,” WestJet CEO Gregg Saretsky told the Financial Post in a recent editorial board meeting.
Air Canada declined to comment.
Emerson’s review also addresses the movement of grain by rail, a topic that has generated significant controversy in recent years. A record harvest in 2013, combined with a nasty winter, resulted in a huge backlog of grain as the railways struggled to keep up. This led to government-mandated minimum quotas and fines against Canadian Pacific Railway Ltd. and Canadian National Railway Co.
The railways have also argued that the existing grain revenue cap, which determines the maximum amount they can earn each year from hauling grain no matter how big the harvest, discourages capital investment.
Emerson proposes phasing out the grain revenue cap — known as the maximum revenue entitlement program — within seven years, and “modernizing” it in the meantime.
Created in 2000, the cap “was assumed to be short-term,” the review says.
“However, the maximum revenue entitlement program remains in place today — this despite the fact that the grain sector has changed considerably since its introduction and a number of issues, both technical and policy-related, have arisen since.”
The Western Canadian Wheat Growers Association said the recommendation raises “red flags,” and argued “some form of rate regulation … will likely still be necessary in seven years, given the lack of competition among railways and the lack of alternative market channels for large segments of the Prairie farm economy.”
CP and CN both declined to comment until they had finished reviewing the report.
Here are some of the other key recommendations in the Canada Transportation Act review:
Allow for private investment in larger airports by moving within three years to a share-capital structure with equity-based financing from large institutional investorsMake airline passenger fees more competitive by linking them to the provision of services and infrastructure and by reducing the Air Travellers Security ChargeMake passenger screening more efficient by replacing the current “one size fits all” approach with an intelligence-driven, risk-based screening processEncourage private investment in Canada’s marine ports by soliciting proposals from institutional and private-equity investorsDevelop a regulatory framework for self-driving cars that’s harmonized with U.S. legislationExpand rules for transporting dangerous goods by rail to require shippers of goods like chlorine and ammonia to pay levies and carry extra insuranceSeparate freight and passenger rail networks through collaboration with provincial and municipal governmentsDevelop a long-term transportation infrastructure plan with a continuously updated list of high-priority infrastructure needs over the next 20 to 30 years