Canada Act InterVISTAS Webinar€¦ · InterVISTAS Webinar on CTAct Review •This webinar will...

Canada Transportation Act Review

InterVISTAS Webinar26 February 2016

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InterVISTAS Webinar on CTAct Review

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• Format

Initial presentation by InterVISTASQuestions from participants

• If you have a question:Please send email with your question to [email protected]

• Page references to report provided in grey

Today’s Presenters• Dr. Mike Tretheway

Chief Economist & Chief Strategy OfficerInterVISTAS Consulting Inc.

• Solomon WongExecutive Vice President

• Debra WardExecutive Consulting

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• This webinar will focus on a high level review on selected topics

The Report runs 511 pageswith 58 primary recommendationsand with 150 sub‐recommendations

• Focus of presentation on airport governanceglobal hub & facilitation issuesairline accessair navigation & controlpassenger ferry transportmarine transport

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The Report

Vol. 1: Main ReportVol. 2: “Appendices”

Appendices have important detail and discussion

Download Reports at:www.tc.gc.ca/ctareview2014

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This is Step 1 of 3

This review is statutorily requiredMinister Raitt accelerated the review, starting in 2014motivated by issues in the grain delivery system during record grain crop year and artic vortex

• Step 1: Review by the Panel chaired by Dr. David Emerson

• Step 2: Minister Garneau will engage in stakeholder consultations“ what we are going to do is present to Canadians and about 300 important stakeholders … we will ask them what their opinion is, and we will make the decisions later on this year on how to go forward on Canada’s national transportation system”

InterVISTAS note: the previous (2001) review, Vision and Balance, was followed in 2003 by the Minister’s response, Straight Ahead

• Step 3: Legislation and Policy implementations

The Theme

Transformation in Transportation and Trade

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Transformation – 30 year perspective

• Looking back over 30 years: Canada’s transportation system has been fundamentally and successfully transformed (p. 5)

• Achievements:renewed infrastructure improved operational efficiencygreater profitsmore choicelower prices (p. 5)

• How was it done?commercialization & privatization divestiture of assetsderegulation liberalization of international trade reliance on competition and market forces Review recommends continued reliance(p. 5)

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Transportation: A Centerpiece of Long‐term Economic Policy

• What Canada Needs: “The performance of the transportation system underpins the country’s trade performance, the performance of the economy and the health and sustainability of communities.” (p. 13)

• A Supply Chain Perspective:“The transportation system is, in fact, the supply chain upon which all other supply chains depend.”(p. 14)

• Where We are TodayLagging behind our competitors (p. 21)the one exception has been air transport infrastructure

• Where we need to be in 20 to 30 years: Infrastructure that enables Canada to benefit from global trade and economic opportunities(p. 22)

• How do we do this?Shift to a performance and evidenced based Framework on Transportation and Logisticsreliance on increased private sector funding (p. 17)

Airport Governance

Recommendations from Canada Transportation Act (CTA) Review Report

Revenues vs. Investments in Air Transport

(Appendix K, p. 142)

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Airport Governance – Current Situation

The Report identifies a number of airport governance issues hindering the competitiveness of Canadian airports:

• Onerous rents and taxesThe federal government charges “onerous rents and taxes” on airports but does not provide the same level of investment in airports as competitor nations. (p. 192)• Consumers face high costs to air travel,

due in part to airport fees for carriers and consumers, hindering Canadian competitiveness.

• Airport ownership models worldwide have changed since the 1994 National Airports Policy:For‐profit corporations with equity share capital predominate the ownership and operator models.

• End‐of‐lease issues will become serious constraints on airport management and infrastructure investment. Extending lease agreements will not solve the problem, only delay the issues.

• Investment. Airports need to be cost‐competitive and have adequate levels of investment

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Airport Governance – Large Airport Recommendations

Privatization of Large Airports (p. 194)• Move within three years to a equity share‐capital structure for the larger airports (p. 194)

theme echoed in ports section

• Five potential privatization models are suggested, no particular model recommended (Appendix K, p. 151)• Some models would be dramatic changes:

E.g., dissolve airport authorities and sell assets to consortium of investors• Other models are evolutionary

E.g., convert existing airport authorities into share capital companies• Some options retain federal ownership of the land, others would sell the land

• Why privatization?• Current model achieved its objectives but this model now puts airport cost competitiveness at risk

Canada ranks 16th for airport infrastructure but 135th for airport cost (p. 192)• Airport governance models have changed since 1992, today for‐profit companies predominate (p. 193)• Governance practices vary among airport authorities (Appendix K, p. 152)• Restore Canada to its place as world leader for airport governance practices (p. 193)• Create a new source of financial capital for long run investments (Appendix K, p. 152)

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Airport Governance – Large Airport Recommendations

Privatization of Large Airports – cont. (p. 194)• Privatization will require “light touch” regulation of fees and charges (p. 194)

• Privatization should not be seen as a means to raise government revenues (Appendix K, p. 152)

• Allow foreign investment of up to 49%, as determined by Industry Canada and Competition Bureau

• Transfer of ownership from federal government would also resolve end‐of‐lease issues (Appendix K, p. 150)

• Airports can gain access to funding for capital investment through share capital (Appendix K, p. 152)

• Public protection against insolvency: airport authority assets would revert to the Crown without liability (p. 194)

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Airport Governance & Assistance: Smaller Airports

Recommendations for Smaller and Regional Airports

Divesting Smaller NAS Airports from Federal Control (p. 194)• Any NAS airport with fewer than 550,000 passengers per year (e.g., Gander or Charlottetown)

may choose to buy the airport and become a regional/local airport• Feds to provide one‐time payments for infrastructure and safety upgrades upon transfer

Expansion of Airports Capital Assistance Program (p. 194)

• Significantly increase funding of the program to assist small and regional airports• Enable smaller NAS airports to access the program to level the playing field with non‐NAS airports• Include lengthening and surfacing runways as eligible projects to support access by jet aircraft

for Northern & Remote airports

Reform PILT Assessment (p. 192)• Ensure that PILT for NAS airports are no greater than for “comparable job‐creating industries”

theme echoed in ports recommendations

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Airport Governance – Other Recommendations

Phase‐out of Airport Rents (p. 192)• Industry groups had consistently called for rents to be significantly reduced, restructured, or removed• No specific recommendations on how rents are to be phased out• Unclear whether this means reduce annual payments by airports to government

or replace annual payments with sale of airport assets or prepaid lease

Airport Improvement Fees (p. 192)• AIFs to be tied to specific projects with explicit sunset provisions• Prices and tariffs, like AIFs, to be regulated on a system based on the Australian model (Appendix K, p. 152)

• InterVISTAS note: Australia merely monitors airport charges and undertakes 5 year comprehensive reviewsBut with legislative power in place to impose price cap if monitoring reveals problemsAirlines can access arbitration to resolve fee disputes

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An Airports Act?

One of the key recommendations is the introduction of legislation covering all airports in Canada with commercial service –an Airports Act (p. 196)

Legislation would be applicable to all airports with commercial serviceand implement the following provisions: (p. 194)• Establishing a set of principals to determine airport fees – “light‐touch regulation”(Appendix K, p. 152)• Tying airport improvement fees to specific projects with explicit time horizons• Mandating “airline experience” on an airport’s board of directors

• Even if an airport is fully private, legislation would dictate some of the board’s composition

• “Meaningful and timely user consultation for major capital projects”• Already enacted in June 2015 in the Canada Aviation Regulations under ‘Aerodrome Work Consultants’

• Strengthen performance reporting and benchmarking• Give “appropriate directive powers to the Minister in the event of extraordinary circumstances”

• Potentially specific directive powers versus ad hoc orders enabled by the ‘Extraordinary Disruptions’ provisions of the current Canada Transportation Act, e.g. 2014 amendments to the Grain Act

Global Hub Strategy:Facilitation Issues


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Global Hub Strategy

Looking Ahead: Trade will be the economic driver for Canada(p. 41)• 60% of Canadian GDP linked to trade

Global hub strategy (p. 199‐200)• Higher volumes of travellers/freight lower costs and create opportunities in other sectors• Transit traffic can increase airline volumes by 25‐50%• Our goal…is to bring Canada in line with other jurisdictions whose policies and programs enable

fast and secure connections through their global air hubs

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Facilitation – Recommendation Highlights

Ensure strategic alignment between priority markets for: (Chapter 9, Recommendation 7)

1. Tourism promotion2. Immigration and border facilitation measures3. International trade4. Air services negotiations

Develop global hubs by: (Chapter 9, Recommendation 6)

• Increasing Transit Without Visa at all airports except for citizens from “high‐risk countries”

• Harmonizing immigration and expand trusted traveller programs with partner jurisdictions

• Expanding eligibility of trusted traveller programs and automated border clearance systems

• Reduce visas, expand Electronic Travel Authorization (eTA)

Image Source: eTA from Immigration, Refugees & Citizenship Canada

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Security & Regulatory – Recommendation Highlights

Overhaul security screening regulatory, financing and delivery: (Chapter 9, Recommendation 8)

• Replacing CATSA with the creation of a single aviation security agency: regulatory oversight and operations

• Legislating a customer service mandate and regulated performance standards

• Ensuring a steady and stable financing of aviation security from both the ATSC and general revenues

• Implementing intelligence‐driven, risk based passenger screening

Strengthen Canada’s leadership in regulation certification by:(Chapter 9, Recommendation 10)

• Ensuring regulatory frameworks address needs and risks in each aviation segment and are appropriately resourced

• Developing protocols and technologies to strengthen public safety, security and privacy

Reforms of Canada’s aviation security system would position us to become a world leader in security, service, and value for money, in support of the overall long‐term competitiveness of air transport.

The sector also requires a nimble regulator that can facilitate innovation

Airline Access


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Airline Policy

A package of policy changes to increase air access for Canadians and visitors and to enhance hubs

Basic premise driving long term recommendations on airline policy (p. 190)• “… the world is changing and moving inevitably towards a liberal open market for air services. It is time to

reconsider policies that may have served us well when the Canadian airline industry needed protection to flourish, but that now impair competitiveness. Of course, such protectionism comes at a cost that is largely borne by Canadian consumers, who pay relatively high airfares, and by the Canadian travel and tourism sector that, also due to higher costs, has been losing market share for over a decade (see Global Hub Strategy section, below).

Three major components of competitiveness:• Cost (largely focused on airports and ATSC )• Access• User Experience (facilitation issues, and also consumer protection)

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Airline Policy: Ownership

Increase foreign ownership limit (p. 195ff)• Increase limit on passenger carriers from 25% to 49%

This is becoming the norm outside of North America

• Allow 100% foreign ownership of all‐cargo airlinesand specialty carriers

• Have issues of large foreign ownership of a Canadian Airline addressed by Industry Canada and the Competition Bureau(Investment Canada Act has provisions for dealing with Canada’s strategic interests re foreign ownershipand Competition Bureau has considerable experience assessing ownership and control issues)

• Review approach used by CTAgency when determining control of domestic airline

• Review, clarify and improve financial fitness tests

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Airline Policy: Closer to Open Skies

Current Approach has outlived its usefulness (p. 197)• Motivation: (p. 195ff)

“There is a concern that, by opening up quickly to the largest global hub carriers, Canada risks becoming a feeder at the end of a spoke, rather than a competitive hub itself.

However, while Canada’s restrictive international air access regime has generally benefited Canadian carriers, they have failed to prevent fast‐growing international carriers from indirectly accessing several Canadian markets through nearby U.S. airports …

By this work‐around, U.S. airports are benefiting from restrictive Canadian air access policies by attracting Canadian origin or destined air travellers, to the detriment of Canadian airports.”

• The world is moving towards an open market for air services.

• Canada’s largest carriers are now among the fastest‐growing and most profitable in the world. By the carriers’ own representations to the Review, their sound finances, renewed fleets, and aggressive strategies position them well for global competition.

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Starting Point for Policy Change (p. 198)Bilaterals• A minimum of 7 weekly frequencies for each carrier in a market

(applies to safe and secure partners)

• Automatic, planned increases in capacity to allow for stimulation of the market

• Established timeline for moving to open skies

• Fair trade and competition clause in bilateralsReport notes that air transport is not included in WTO, hence its anti‐competitive dispute resolution mechanism is not available to air access disputes, thus must be covered in bilateral(InterVISTAS note: nothing specific regarding issues of G3 and Norwegian, but does discuss some of the issues in Appendix) (Appendix K, p. 159ff)

• Greater weight to trade policy objectives when developing negotiating strategiese.g., tourism, Study in Canada, Global Markets Action Plan

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Goal for Policy Change (p. 198)Open Skies Bilaterals• A target of achieving open skies in no more than 10 years• Open access is a key success factor for a global hub (Appendix K, p. 161)

Multilaterals?• “Assuming bilateral agreements continue to form the basis of Canada’s international air transport regime …”

(p. 196)

• Discussion of WTO inapplicability to air transport (p. 198)

• No recommendation regarding pursuing multilateral agreements

Joint Ventures• Report is silent on issue of airline joint ventures• InterVISTAS note: In many cases, these enable traffic on thin routes,

although there can be competition issues to be addressed

Air Navigation & Control


NAV CANADA

• The review notes that NAV CANADA has been successful (and self‐sufficient) with capital investments towards both renewal and development of new infrastructure.

• In their submissions, stakeholders noted that the legislation, board governance and fee structures of NAV CANADA provide “stronger checks on monopoly power…”

• Stakeholders were noted as citing NAV CANADA as “a model for natural monopolies and public utilities…”

See: ‐ Volume 1, p. 186‐ Volume 2, pp. 146‐147

Northern Issues


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Northern Air Transport

• Reform the user‐pay policy for air transport and improve its cost competitiveness Draw on general government revenues, in addition to user fees, to advance a secure,

accessible system that serves northern and remote regions

• Work with the provinces to further improve cost competitiveness Re‐invest fuel tax revenues in safety, security, and reliability improvements at smaller

regional, remote, and northern airports

• Strengthen the viability, accountability, and competitiveness of the National Airports System Airports Capital Assistance Program

Significantly increasing funding to support regional and local airports, and include lengthening and surfacing runways for modern jet service in northern and remote airports, and investing in more advanced navigation, weather, and landing systems.

• Strengthening reputation as a world leader in aviation regulation and certification Invest in resources and expertise needed to properly assess risks and impacts when

formulating new regulations and standards that reflect an understanding of the differences of small northern and remote operators

Chapter 9: Air Transport (p. 192, 194 & 205)

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Maintain & Improve Access to Air Transportation

• Strengthen cooperation between southern‐ and northern‐based airlines to ensure that customers are able to access global networks by paying a single fare Could also include improved cooperation on schedules, baggage handling, and access to

frequent flyer programs

• Adjust policies for federal public service procurement of northern air transportation: Use the federal government’s purchasing power to give northern carriers equal

opportunities to compete for government travel

• Ensure that its regulations are reasonable for northern circumstances and should compensate the territories for mandated safety and security measures

Chapter 4: The North (p. 68)

Passenger Ferry Transport


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Report is Silent on Ferry Issues

• “It should be noted that Transport Canada has recently undertaken a separate review of federally regulated ferries and ferry services. The report was not finalized in time to inform the CTA Review.” (p. 225)

Marine Transport


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Motivation

• 60% of Canada’s GDP tied to international trade

• Canada’s geographic advantage for shipping cargo faster into the North American heartland from the Pacific and Atlantic Oceans will not be enough in and of itself to draw traffic to Prince Rupert and Vancouver on the West Coast, and Halifax and Montréal on the East Coast.

• Canada’s port infrastructure slipped from 14th to 21st place

Constraints on Canada Port Authorities ability to invest• Debt limited by Minister of Transport• Cannot develop port lands for non‐transport uses

• These factors constrain the larger Port Authorities’ ability to invest to meet the demands of growing ship sizes and higher tonnage throughput.

Chapter 10: Marine Transport (p. 215ff)

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Ports Governance and Capitalization

• Access to For‐Profit Equity CapitalExamine the feasibility and viability of adopting a equity share‐capital structure for Canada Port Authorities, including receiving proposals from institutional investors or private equity investors• Even less discussion of options than was the case for airports

• Amalgamate regional portsEncourage regional amalgamation of Port Authorities guided by common‐user and other principles embodied in the Canada Marine Act

• RegulationIntroduce light‐touch regulation covering fees, charges, common use of the facilities, and unfair competition by the port against its tenants to protect users

• CTAgency Confer on the Canadian Transportation Agency oversight and enforcement of the measures on regulation covering fees, charges, common use of the facilities, and unfair competition by the port

Chapter 10: Marine Transport (p. 228)

Services and Costs

• User PayMaintain a user‐pay approach to ensure continued financing for infrastructure and operational needs Establish a uniform and timely process for

publicly filing rate and charge increases for all federally‐mandated services (pilotage, towing, dredging, port charges, etc.)

Authorize the Canadian Transportation Agency to review all marine fees on a regular basis

• Limit PILTWork with the provinces to further improve cost competitiveness by ensuring that payments in lieu of municipal taxes required of individual port authorities are no greater than for comparable industries


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Promote Short Sea Shipping

• Promote short sea shipping as a mechanism to alleviate congestion in urban areas and reduce Canada’s growing greenhouse gas and air pollutant emission levels, especially through ports along the Great Lakes‐St. Lawrence Seaway System

• Modernize recruiting and training of Canadian seafarers, and improving processes for attracting and certifying foreigner workers with needed skill sets

• Phase‐out the operating restrictions on the basis of reciprocity in the Coasting Trade Act, beginning immediately with container services; eliminating restrictions altogether within a transition period of no more than 7 years

• Phase‐out all remaining duties on imported vessels within a transition period of no more than seven years to respect Canadian ship‐owners’ recent investments in specialized vessels

• Aligning regulations governing Canadian‐flagged ship operators to put them on a competitive basis with international operators who would be gaining access to Canada’s domestic trades


Modernization of Pilotage

• Immediately integrate the four pilotage authorities within one National Pilotage Board

• Complete a full assessment of the governance framework for marine navigation services within 3 years

• Formally review compulsory pilotage areas, circumstances, and processes every 3 ‐ 5 years minimum


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The Canadian Coast Guard

• Situate the Canadian Coast Guard to the portfolio with which it is most closely aligned, such as the Minister of Transport, with service agency status

• Augment and clarify its mandate Give clear oversight and enforcement responsibilities

for safety, security, and environmental protection in Canadian waters Focus on key activities (search and rescue, pilotage), allowing industry to provide and be

responsible for ancillary services (vessel traffic services) Conduct a review of the roles of the Canadian Coast Guard in the Arctic

• Increase funding for the Canadian Coast Guard Provide a clear plan for accelerated fleet renewal and services,

and provision of associated operating costs Provide flexibility in the application of the National Shipbuilding and Procurement Strategy Ensure it has the resources to meet an enhanced mandate,

and to satisfy current and future needs in respect of crisis response, fleet operations, increased traffic in all regions, interoperability with our maritime neighbours, and technology‐based solutions.

Chapter 10: Marine Transport (p. 231‐232)

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