Notice to Industry: Applications for Exemptions from Section 59 of the Canada Transportation Act, S.C., 1996, c. 10, as amended (CTA)

1. Purpose

This notice to industry outlines the Agency’s approach to considering applications for exemptions from section 59 of the CTA.

This notice is not intended to address exemption requests related to temporary licences issued under subsection 78(2) of the CTA, where an exemption from section 59 is required in order to continue selling the service beyond the expiry date of the licence. For any questions in this regard, you may contact the Manager of Air Licensing and Charters.

2. Legislative references to the CTA

Section 59 states:

No person shall sell, cause to be sold or publicly offer for sale in Canada an air service unless, if required under this Part, a person holds a licence issued under this Part in respect of that service and that licence is not suspended.

Subsection 80(1) states:

The Agency may, by order, on such terms and conditions as it deems appropriate, exempt a person from the application of any of the provisions of this Part or of a regulation or order made under this Part where the Agency is of the opinion that

1. the person has substantially complied with the provision;
2. an action taken by the person is as effective as actual compliance with the provision; or
3. compliance with the provision by the person is unnecessary, undesirable or impractical.

3. Exemptions from section 59

Section 59 of the CTA was introduced in 1996 to protect consumers by prohibiting the sale of an air service by any person who does not hold a licence for that service. Therefore, if an air carrier is ultimately not licensed, or licensed in time, the consumer will not be left out of pocket or experience inconvenience or undue hardship because the carrier cannot operate the service. This prohibition is broad and applies to air carriers and any other persons, including Canadians and foreigners, for passenger and cargo transportation services, as well as scheduled and non-scheduled services.

However, the Agency recognizes that there are circumstances where the interests of consumers would not be adversely affected by allowing an air carrier to sell an air service before it obtains the necessary licence(s). Therefore, Canadian and foreign carriers proposing to operate publicly available air services can apply to the Agency for an exemption from section 59 of the CTA.

3.1 Criteria for granting exemption

The Agency deals with section 59 exemption requests using a risk-based approach that gives primary consideration to the consumer protection intent of the provision, taking into account the facts and circumstances of each application.  

Before granting an exemption, the Agency must be satisfied that the applicant has demonstrated a high probability of obtaining the required licence(s) prior to the commencement of a service. In the event that the applicant does not obtain the appropriate licence(s), it must provide:

1. alternative air transportation at no additional cost to the passengers; or
2. a full refund if alternative arrangements are not possible or acceptable to the passengers.

3.2 Burden of proof

An exemption to a legislative requirement is not an entitlement.

The onus is on the applicant to demonstrate that compliance with section 59 is unnecessary based on the criteria laid out in 3.1 above and to provide the Agency with the information in support of its application.

4. Agency's considerations

4.1 Considerations applicable to Canadian and foreign applicants

Does the applicant already hold a licence issued by the Agency?

The Agency’s position is that established carriers that already hold a similar licence with the Agency pose a minimal risk and are likely to obtain a licence for the proposed air service as they already meet the requirements to hold a licence, albeit for another air service.

The Agency will consider the nature of the licensing requirements already met by the carrier in the past. If the requirements to obtain the licence for the proposed air service are similar, there is less risk for passengers that the carrier will not meet the requirements.  

Does the applicant have an air operator certificate issued by Transport Canada?

In many instances, carriers that apply for section 59 exemptions do not yet hold the necessary Canadian aviation document from Transport Canada – the air operator certificate (AOC) – that is required to obtain a licence. The process of obtaining an AOC can be time consuming, in particular if a base inspection and subsequent follow-ups are required. There are no guarantees that a carrier will obtain an AOC in a timely manner.

The Agency may consider what steps the carrier has taken to obtain its AOC and the likelihood of the AOC being obtained in time for the Agency to issue a licence before the proposed start date.

Specific issues that the Agency might consider include:

• Has the applicant submitted its application to Transport Canada?
• If Transport Canada has considered that a base inspection is necessary, has it been scheduled?
• If a base inspection has been completed, what type of follow-up is necessary?
• What are the anticipated timelines for Transport Canada to conclude?
• Has Transport Canada expressed any concerns in issuing an AOC by these anticipated timelines?
• Will the issuance of the AOC within these timelines provide sufficient time for the Agency to issue the licence (provided all the other requirements are met) before the proposed start date?

In some cases, a carrier may have already received an AOC for an operation of a similar nature and is simply seeking to expand this authority. In this situation, there would be less risk of a lengthy approval process.

While the onus is on the applicant to provide evidence and assurances that the AOC will be issued in time, the Agency may validate any information with Transport Canada. If there are inconsistencies between the applicant’s submission and the information from Transport Canada, the Agency will inform the applicant and provide an opportunity to respond.

Does the applicant have liability insurance coverage?

If an applicant does not already hold a licence with the Agency, assurance must be provided that the insurance requirement will be met.

The applicant must either file a certificate of insurance or, at minimum, provide a written confirmation from its insurer that it already holds the prescribed liability insurance coverage or that it has secured such coverage.

How far in advance of the anticipated start date of the air service does the applicant intend to sell the service before receiving a licence?

If an applicant intends to sell an air service long before the proposed start date (and before receiving a licence), it may pose an increased risk to consumers as more tickets may be sold before the carrier is licensed.

However, if an applicant provides strong assurances that the licensing requirements will be met well in advance of the proposed start date, a long period of advance sales would likely pose less concern.

For a scheduled international air service, is there an agreement in place between Canada and the foreign country?

If there is an agreement between Canada and a foreign country, it indicates a national policy objective to encourage expanded air services between Canada and that country. As a result, there is less risk that a licence will not be issued.

What measures does the carrier have (or will have) in place to accommodate passengers if the licence is not issued (or not issued in time)?

If the carrier is likely to obtain the required licence before the proposed start of operations, the risk to consumers is negligible and compliance with section 59 is not necessary.

While the Agency will seek assurances that this is the case, the Agency also recognizes that it is not possible to get absolute assurance. The Agency will also consider what measures the carrier has (or will) put in place to accommodate passengers if the licence is not obtained. This could include offering timely alterative transportation with another carrier or reimbursement. 

4.2 Additional considerations for Canadian applicants

Has the applicant met the Canadian status requirement?

Before issuing a licence, the Agency is responsible for determining whether an applicant is Canadian.

This process must be completed before a section 59 exemption application can be approved, as it will have a direct impact on if and when the licence requirements are met.

If a Canadian applicant already holds an Agency licence, this determination has already been made and is not a consideration.  

Has the applicant met all financial requirements (if applicable)?

Under certain circumstances, an applicant must meet financial requirements when applying for a licence that authorizes the operation of an air service using medium or large aircraft.

The purpose of this requirement is essentially the same as section 59 – to ensure that air passengers are not being left out of pocket (in this case, as a result of an air carrier not being financially solvent in the critical first months of operation).

If an applicant has to meet financial requirements, this part of the process must be completed before a section 59 exemption application can be approved, as it will have a direct impact on if and when the licence requirements are met.

For an international air service, has the applicant been designated by the Government of Canada to operate the service?

In its application, the applicant must provide evidence that it is designated by the Minister of Transport, Infrastructure and Communities as eligible to hold a scheduled international licence.

Non-designated carriers cannot obtain a scheduled international licence.

4.3 Additional considerations for foreign applicants

For a scheduled international air service, has the applicant been designated by the government of its home country to operate the service?

A foreign applicant for a scheduled international licence must be designated by the government of its state, or an agent of that government, to operate an air service under the terms of an agreement or arrangement.

This designation is part of the basic requirements for a licence – a scheduled international licence will not be issued unless the carrier is designated.

Does the applicant hold the equivalent licence issued by its home country?

When applying for a licence, foreign carriers must provide the Agency with a copy of the equivalent licence issued by their home country.

This is another basic licence requirement which will be taken into account when reviewing section 59 exemption applications.

4.4 Increased risks associated with non-scheduled international services

Carriers that are designated and authorized in accordance with the terms of an Agreement are typically established in the air transportation industry and have demonstrated, to the satisfaction of their government, the capacity to operate the scheduled international air service. These carriers would likely have the means to reimburse passengers or coordinate alternative travel arrangements if a licence was not issued. 

However, if a carrier proposes to offer only non-scheduled international air services, there is a greater chance the carrier may not be as well established in the industry. It is also likely that the carrier has not been subjected to the same level of scrutiny by its government, compared to a carrier proposing to obtain a designation for scheduled international services. Therefore, in the event a licence is not issued (or not issued in time), there are fewer assurances that the carrier could offer a refund or alternative arrangements.

This added risk factor needs to be addressed in the application and will be taken into consideration by the Agency when assessing the applicant’s submission.

5. Conditions normally attached to section 59 exemptions

When granting section 59 exemptions, the Agency has the power under subsection 80(1) to impose conditions.

The Agency will normally subject the carrier to the following conditions:

• All advertising in any media, whether written, electronic or telecommunications, shall include a statement that the air service is subject to government approval, unless and until the section 59 exemption expires following the issuance of a licence. All prospective passengers shall be made aware, before a reservation is made or a ticket issued, that the air service is subject to government approval;
• The applicant shall apply its published tariffs, on file with the Agency and in effect, to sales of transportation for each scheduled point;
• The exemption does not relieve the applicant from the requirement to hold a licence in respect of the service to be provided and, accordingly, no flights shall be operated until the appropriate licence authority has been granted;
• Should the licence not be issued or not issue by the time an air service sold to a passenger is to be used, the applicant shall arrange to provide alternative air transportation by an appropriately licensed air carrier, at no additional cost for all passengers who have made reservations with the applicant. If such arrangements are not possible or acceptable to the passenger, the applicant shall arrange to provide a full refund of all monies paid by the passenger.

The Agency could also, at its own discretion, attach other conditions that it deems appropriate in the circumstances.

6. Exercise of discretion

While guided by the above general principles, the Agency will retain full discretion to address the facts and circumstances of each application as it sees appropriate.

The Agency reserves the rights to remove an exemption when a carrier does not comply with the conditions of the exemption, or when the Agency deems it otherwise necessary.