Foreigners should be allowed to own a greater part of Canada’s airlines and a revenue cap on railways’ grain shipments should be eliminated, based on a sweeping review of Canada’s transportation industry tabled in Parliament Thursday.
Led by David Emerson, a floor-crossing minister who served both in Paul Martin’s and Stephen Harper’s governments, the 283-page review proposes an extensive reform from the Canada Transportation Act, which governs the country’s railways, roads, airlines and marine transport.
The noticably recommendations address concerns that have been raised by private transportation companies and, if adopted, may 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 using their current degree of 25 % to help foster more competition.
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“Small, privately owned carriers, prospective start-ups, industry analysts, and others are convinced that the 25-per-cent foreign ownership limit is a barrier to entry: in contrast to larger markets such as the U.S., there might ‘t be enough capital in Canada to invest in 75 per cent of a new national carrier,” the report says.
WestJet Airlines Ltd. said in a statement the current 25 % limit is “adequate” and then any increase ought to be met with a corresponding increase south from the border.
“Make it reciprocal, because if a U.S. carrier has got the chance to buy up to 49 per cent of the Canadian airline, we’d like the opportunity to buy 49 per cent of the 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 recently. A record harvest in 2013, combined with an awful winter, resulted in a huge backlog of grain as the railways struggled to maintain. This resulted in government-mandated minimum quotas and fines against Canadian Pacific Railway Ltd. and Canadian National Railway Co.
The railways also have argued that the existing grain revenue cap, which determines the most they are able to earn each year from hauling grain regardless of how big the harvest, discourages capital investment.
Emerson proposes phasing the grain revenue cap – referred to as maximum revenue entitlement program – within seven years, and “modernizing” it meanwhile.
Created in 2000, the cap “was assumed to become short-term,” the review says.
“However, the utmost revenue entitlement program remains in position today – this even though 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 recommendations raises “red flags,” and argued “some form of rate regulation – will probably be necessary in seven years, given the insufficient competition among railways and also the insufficient alternative market channels for large segments from the Prairie farm economy.”
CP and CN both declined to comment until they’d finished reviewing the report.
Here are the other key recommendations within the Canada Transportation Act review:
Allow for private investment in larger airports by moving within 3 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 lowering the Air Travellers Security ChargeMake passenger screening more effective by replacing the current “one size fits all” approach with an intelligence-driven, risk-based screening processEncourage private purchase of 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 want 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 within the next 20 to 30 years
