Decision No. 10-A-2020

SUMMARY

[1] On September 13, 2019, IATA filed, with the Canadian Transportation Agency (Agency), an appeal of NAV CANADA’s increased charges for air navigation services based on its use of Space-Based Automatic Dependent Surveillance-Broadcast technology (SB ADS‑B) in its air traffic control operations (Revised Charges). IATA is appealing these Revised Charges pursuant to sections 42 and 43 of the Civil Air Navigation Services Commercialization Act, S.C., 1996, c. 20 (CANSCA).

[2] IATA filed its appeal on the grounds that the Revised Charges are contrary to paragraphs 35(1)(h) and 35(1)(i) of the CANSCA, and that NAV CANADA did not comply with the notice and disclosure requirements set out in section 36 of the CANSCA. According to IATA, the Revised Charges are not consistent with the Government of Canada’s international obligations and are not based on NAV CANADA’s reasonable and prudent financial requirements. In addition, IATA argues that NAV CANADA failed to disclose crucial information about the non-arm’s-length relationships between NAV CANADA, Aireon, and Iridium Communications Inc. (Iridium) in the Notice of Revised Service Charges (Notice), the Details and Principles Regarding Proposed Revised Service Charges (Details and Principles Document), and the Announcement of Revised Service Charges (Announcement).

[3] IATA requests that the Agency, among other things, order NAV CANADA, pursuant to section 51 of the CANSCA, to cancel the Revised Charges and to refund the users who have paid them.

[4] The Agency will address the following issues:

• Are the Revised Charges consistent with the Government of Canada’s international obligations, as required by paragraph 35(1)(h) of the CANSCA?
• Are the Revised Charges set at a level that, based on reasonable and prudent projections, would generate revenues exceeding NAV CANADA’s current and future financial requirements in relation to the provision of civil air navigation services, contrary to paragraph 35(1)(i) of the CANSCA?
• Did NAV CANADA comply with the notice and disclosure requirements set out in section 36 of the CANSCA in establishing the Revised Charges?

BACKGROUND

[5] Following the parties’ unsuccessful attempt at mediation, the Agency opened pleadings on this matter on October 25, 2019.

[6] Position statements in support of IATA’s appeal were submitted by Türk Hava Yollari Anonim Ortakligi (Turkish Airlines Inc.); Emirates; the Lufthansa Group (representing Austrian Airlines AG, Brussels Airlines N.V./S.A., Eurowings GmbH Deutsche Lufthansa Aktiengesellschaft [Lufthansa German Airlines], Lufthansa Cargo AG, and Swiss International Air Lines Ltd.); WestJet; American Airlines, Inc.; Koninklijke Luchtvaart Maatschappij, N.V. (K.L.M. Royal Dutch Airlines); and United Airlines, Inc.

[7] In addition, on December 16, 2019, the Agency issued Decision No. LET-A-100-2019, wherein, among other matters, it granted Air Canada intervener status. In light of the nature and complexity of the issues raised in the appeal, as well as the addition of Air Canada as an intervener in this matter, the Agency found that there are special circumstances involved in the determination of the appeal that warrant the Agency taking an additional 30 days to render its decision.

[8] Pleadings on this matter closed on December 27, 2019.

FINDINGS

[9] The Agency is satisfied, on a preponderance of the evidence, that NAV CANADA:

• observed the charging principle set out in paragraph 35(1)(h) of the CANSCA in establishing the Revised Charges;
• observed the charging principle set out in paragraph 35(1)(i) of the CANSCA in establishing the Revised Charges; and
• complied with the notice and disclosure requirements set out in section 36 of the CANSCA in establishing the Revised Charges.

CONCLUSION

[10] Based on the above findings, the Agency hereby dismisses IATA’s appeal.

[11] The Agency’s detailed reasons for this Decision will follow under separate cover.

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REASONS FOR DECISION NO. 10-A-2020

April 30, 2020

INTRODUCTION

[1] On September 13, 2019, the International Air Transport Association (IATA) filed, with the Canadian Transportation Agency (Agency), an appeal of NAV CANADA’s increased charges for air navigation services based on its use of Space-Based Automatic Dependent Surveillance-Broadcast (SB ADS-B) technology in its air traffic control operations (Revised Charges). IATA is appealing these Revised Charges pursuant to sections 42 and 43 of the Civil Air Navigation Services Commercialization Act,S.C., 1996, c. 20 (CANSCA), alleging that NAV CANADA failed to observe the charging principles set out in paragraphs 35(1)(h) and 35(1)(i) of the CANSCA and failed to comply with the notice and disclosure requirements set out in section 36 of the CANSCA.

[2] On December 16, 2019, the Agency issued Decision No. LET-A-100-2019, wherein it granted Air Canada intervener status.

[3] Position statements in support of IATA’s appeal were submitted by Türk Hava Yollari Anonim Ortakligi (Turkish Airlines Inc.) [Turkish Airlines]; Emirates; the Lufthansa Group (representing Austrian Airlines AG, Brussels Airlines N.V./S.A., Eurowings GmbH, Deutsche Lufthansa Aktiengesellschaft [Lufthansa German Airlines], Lufthansa Cargo AG, and Swiss International Air Lines Ltd.); WestJet; American Airlines, Inc. (American Airlines); Koninklijke Luchtvaart Maatschappij, N.V. (K.L.M. Royal Dutch Airlines) [KLM]; and United Airlines, Inc. (United Airlines).

[4] On January 23, 2020, the Agency found, in Decision No. 10-A-2020 (Decision), that it was satisfied, on a preponderance of the evidence, that NAV CANADA:

• observed the charging principle set out in paragraph 35(1)(h) of the CANSCA in establishing the Revised Charges;
• observed the charging principle set out in paragraph 35(1)(i) of the CANSCA in establishing the Revised Charges; and
• complied with the notice and disclosure requirements set out in section 36 of the CANSCA in establishing the Revised Charges.

[5] In that Decision, based on the above findings, the Agency dismissed IATA’s appeal. This document constitutes the reasons for the Decision.

BACKGROUND

[6] NAV CANADA is Canada’s Air Navigation Service Provider (ANSP) and it owns, manages and operates Canada’s civil air navigation system.

[7] NAV CANADA made a decision to implement a SB ADS-B surveillance service, which it sourced from Aireon, a joint-venture company in which NAV CANADA is the largest shareholder. Aireon manufactures, deploys and operates a surveillance system which utilizes satellite-based receivers, that receives ADS-B transmissions from aircraft and provides the surveillance information to ANSPs’ ground-based systems. ANSPs then use this information to identify aircraft positions as part of their air traffic management service.

[8] On June 4, 2019, NAV CANADA filed with the Agency a copy of its Notice of Revised Service Charges (Notice), as well as a document entitled Details and Principles Regarding Proposed Revised Service Charges (Details and Principles Document).

[9] On August 15, 2019, NAV CANADA filed with the Agency a copy of its Announcement of Revised Service Charges (Announcement).

THE REVISED CHARGES

[10] NAV CANADA announced revisions to service charges that apply to three categories of air navigation charges: Terminal, Enroute, and Oceanic. The Revised Charges for SB ADS-B surveillance were phased in over two implementation dates. Cost recovery of SB ADS-B surveillance within domestic airspace commenced on September 1, 2019, through the existing domestic Enroute airspace (domestic Enroute) service charge. Charges related to SB ADS-B surveillance within the North Atlantic oceanic airspace (NAT airspace) came into effect on January 1, 2020, and are being recovered through the existing North Atlantic Enroute service charge (NAT service charge).

[11] In its Notice, NAV CANADA stated that with the implementation of SB ADS-B surveillance, it is proposing to adjust its Enroute and NAT service charges to recover the applicable costs associated with the third-party SB ADS-B surveillance service. It further indicated that the proposed service charge increases for its fiscal year 2020 will be limited to the recovery of SB ADS-B surveillance only. NAV CANADA added that increased costs or shortfalls in revenue associated with below-expected traffic growth will be addressed through the reduction of the Rate Stabilization Account balance.

[12] With regard to the NAT service charge, NAV CANADA stated that it will be a flat-fee rate of $155.03 per flight. According to NAV CANADA, the NAT service charge applies to services provided in the Gander Oceanic Flight Information Region/Control Area, which comprises airspace delegated to Canada by the International Civil Aviation Organization (ICAO), as well as international delegations between Canada and other countries, and certain delegations between domestic and oceanic control areas managed by Canada.

PRELIMINARY MATTER

[13] United Airlines argues that the “Revised Charges permitted SB ADS-B surveillance services to be provided to domestic flights of air carriers on different and more favorable terms than they are for international flights of air carriers”, contrary to subsection 35(1)(c) of the CANSCA. WestJet also submits that the Revised Charges are inconsistent with the requirement, under subsection 35(1)(c) of the CANSCA, that charges for the same services must not differ between domestic and international flights. In addition, United Airlines submits that the Revised Charges are contrary to the charging principle set out in paragraph 35(1)(a) of the CANSCA.

[14] The Agency notes that the arguments related to paragraphs 35(1)(a) and 35(1)(c) of the CANSCA were not raised by IATA in its appeal. The Agency also notes that United Airlines and WestJet had the opportunity to appeal the Revised Charges within the appropriate timeframe, but did not. As the arguments related to paragraphs 35(1)(a) and 35(1)(c) are outside of the scope of IATA’s appeal, they will not be considered by the Agency.

THE LAW

[15] NAV CANADA is a private, non-share capital corporation, incorporated pursuant to the Canada Corporations Act as a not-for-profit entity.

[16] Pursuant to Part III of the CANSCA, NAV CANADA may establish new charges or revise existing charges for its air navigation services in accordance with the provisions of the CANSCA. As such, NAV CANADA is required to observe the charging principles set out in section 35 of the CANSCA and the notice and announcement requirements for the proposed new or revised charges, as set out in sections 36 to 41.

[17] The charging principles relevant to this appeal are set out in subsection 35(1) of the CANSCA as follows:

The Corporation shall observe the following principles when establishing a new charge for air navigation services or revising an existing charge:

…

h. charges must be consistent with the international obligations of the Government of Canada; and

i. charges must not be set at a level that, based on reasonable and prudent projections, would generate revenues exceeding the Corporation’s current and future financial requirements in relation to the provision of civil air navigation services.

[18] The financial requirements referenced in paragraph 35(1)(i) of the CANSCA are set out in subsections 35(5) and 35(6) of the CANSCA as follows:

5. For the purpose of paragraph (1)(i), the financial requirements of the Corporation in relation to the provision of civil air navigation services include, without duplication, the Corporation’s

…

b. operations and maintenance costs,

…

h. reasonable reserves for future expenditures and contingencies, and

i. other costs determined in accordance with accounting principles recommended by the Chartered Professional Accountants of Canada or its successor, to the extent that they relate to the provision of those services, less the amount determined in accordance with subsection (6).

6. The amount to be deducted for the purpose of subsection (5) is the aggregate of

…

d. all profits earned by the Corporation, other than in respect of the provision of civil air navigation services.

[19] The Agency’s powers under the CANSCA are limited and do not include reviewing NAV CANADA’s operational decisions or approving the implementation of technology. Instead, section 43 of the CANSCA allows for NAV CANADA’s charges for air navigation services to be appealed to the Agency only on specific grounds, including that one or more of the charging principles have not been observed, or that NAV CANADA has not complied with the notice or announcement requirements.

[20] Where an appeal is made on the grounds that NAV CANADA failed to observe one of the charging principles set out in section 35 of the CANSCA in establishing the charge, the Agency may decide to allow the appeal only if it is satisfied, on a preponderance of the evidence, that NAV CANADA failed to observe that charging principle. In making such a decision in respect of a revised charge, the CANSCA requires the Agency to order NAV CANADA to cancel the revised charge that is the subject of the appeal, re-establish the previous charge and refund to each user who paid the cancelled charge the amount, if any, collected in excess of the re-established charge.

[21] IATA filed its appeal as a representative organization of users within the meaning of section 44 of the CANSCA.

[22] The international obligations of the Government of Canada, as referred to in paragraph 35(1)(h) of the CANSCA, and subject to the appeal, include Canada’s obligations contained in the Convention on International Civil Aviation (Chicago Convention).

[23] Article 15 of the Chicago Convention addresses the charges for air navigation as follows:

Every airport in a contracting State which is open to public use by its national aircraft shall likewise, subject to the provisions of Article 68, be open under uniform conditions to the aircraft of all the other contracting States. The like uniform conditions shall apply to the use, by aircraft of every contracting State, of all air navigation facilities, including radio and meteorological services, which may be provided for public use for the safety and expedition of air navigation.

Any charges that may be imposed or permitted to be imposed by a contracting State for the use of such airports and air navigation facilities by the aircraft of any other contracting State shall not be higher,

1. As to aircraft not engaged in scheduled international air services, than those that would be paid by its national aircraft of the same class engaged in similar operations, and
2. As to aircraft engaged in scheduled international air services, than those that would be paid by its national aircraft engaged in similar international air services.

All such charges shall be published and communicated to the International Civil Aviation Organization, provided that, upon representation by an interested contracting State, the charges imposed for the use of airports and other facilities shall be subject to review by the Council, which shall report and make recommendations thereon for the consideration of the State or States concerned. No fees, dues or other charges shall be imposed by any contracting State in respect solely of the right of transit over or entry into or exit from its territory of any aircraft of a contracting State or persons or property thereon.

POSITIONS OF THE PARTIES

IATA

[24] IATA submits that it is the world’s leading association of international aircraft operators whose mission is to represent, lead, and serve the global airline industry. It states that it represents 290 member carriers from 120 countries, and that its members carry approximately 82 percent of the world’s air traffic, including the majority of air passenger and cargo traffic, to, from and within Canada.

[25] IATA states that currently air traffic control services are provided by either radar or procedural control. It submits that radar control is based on radar-displayed position information, whereas procedural control consists of the application of required separation minima. According to IATA, the required separation minima is based on the flight plan information provided by the aircraft, the flight plan clearance assigned to an aircraft to fly a predetermined route, and monitoring through the receipt of position information from the aircraft.

[26] IATA indicates that aircraft operating in the same airspace are separated from each other at specific distances in order to ensure that the risk for collision is maintained at an acceptable level. It adds that aircraft separation can be applied by spacing aircraft either behind each other at a specified distance (by time or mileage), by spacing aircraft side by side at a mileage distance, or by requiring aircraft to operate at different altitudes.

[27] According to IATA, improved surveillance in oceanic airspace can be achieved by two mechanisms: SB ADS-B reports or an increased rate of Automatic Dependent Surveillance-Contract (ADS-C) reports. IATA states that both methods allow ANSP traffic controllers in oceanic airspace to receive updated surveillance reports at a rate that would support the application of reduced separation minima in oceanic airspace.

[28] Regarding both technologies, IATA refers to a report published by the United States Government Accountability Office (GAO), which, after reviewing the U.S. Federal Aviation Administration’s (FAA) planned improvements to aircraft surveillance in U.S. oceanic airspace, concluded that the FAA evaluated both technologies and committed to using ADS-C in the near term, while continuing to study SB ADS-B for future use. The GAO reported that:

…. FAA also decided to continue studying the use of another enhanced surveillance technology known as [ADS-B] – to further improve surveillance in U.S. airspace. Both technologies offer increased frequency in reporting of an aircraft’s location, which enhances safety, and can support new minimum separation standards. FAA decided to proceed with enhanced ADS-C in the near term because the efficiency benefits to airspace users exceeded the costs of more frequent location reporting and air traffic control system upgrades by 2 to 1. In contrast, FAA determined that the costs of using [SB ADS-B] in U.S. oceanic airspace outweigh the efficiency benefits by 6 to 1.

[29] IATA argues that ADS-C provides air traffic control personnel with route trajectory information for route planning and conflict resolution. It contends that the SB ADS-B service offered by Aireon is a one-way technology as it does not allow for direct communication between pilots and air traffic controllers.

[30] IATA maintains that the operational improvements of SB ADS-B, as alleged by NAV CANADA, would not be realized until there is a saturation of the NAT airspace, until SB ADS-B allows for data/voice communication between pilots and air traffic controllers, and until it provides other functionalities that are available by competing technologies offering similar operational benefits.

CHARGING PRINCIPLES

[31] IATA states that paragraph 35(1)(h) of the CANSCA requires that charges imposed by NAV CANADA be consistent with the international obligations of the Government of Canada, and that paragraph 35(1)(i) requires that charges be based on reasonable and prudent projections. IATA points out that the Agency, in Decision No. 650-NC-A-2003, confirmed that reasonable and prudent requirements apply to both NAV CANADA’s revenues and its future financial requirements. It also states that the Agency further interpreted “reasonable and prudent” to mean “having sound judgement”.

[32] According to IATA, the Revised Charges are inconsistent with the Government of Canada’s obligations pursuant to the Chicago Convention, which established the ICAO, and with its Annexes that define air traffic services and set out the Standards and Recommended Practices applicable to the provision of air traffic services, as indicated in the ICAO’s Policies on Charges for Airports and Air Navigation Services (ICAO Doc 9082).

[33] IATA asserts that NAV CANADA’s international obligations include not just the text of the Chicago Convention itself, but the ongoing governance regime under the ICAO and its associated implementation documents. It argues that ICAO’s website emphasizes that its core mandate is to help States achieve the highest possible degree of uniformity in civil aviation regulations, standards, procedures, and organization.

[34] IATA argues that the Revised Charges are in contravention of the charging requirements set out in section III of ICAO Doc 9082, being cost-relatedness, cost-effectiveness, non‑excessiveness, and a prohibition against dual charging. IATA’s arguments regarding each of these requirements are set out below.

Cost-relatedness

[35] IATA argues that the increased NAT service charge contravenes three of the Government of Canada’s obligations under the requirements of ICAO Doc 9082, each of which constitutes a basis for the Agency finding that the increased charge is not in compliance with the charging principles set out in paragraphs 35(1)(h) and 35(1)(i) of the CANSCA.

[36] First, IATA submits that NAV CANADA should not be proceeding with the introduction of SB ADS-B services before this technology is approved in the applicable ICAO Regional Air Navigation Plan.

[37] IATA contends that the increased NAT service charge is premature and imposes Revised Charges that contravene paragraph 35(1)(h) of the CANSCA. It further states that the premature introduction of SB ADS-B and the purchase of services offered by Aireon does not reflect sound judgment and cannot be considered to be reasonable and prudent, in contravention of paragraph 35(1)(i) of the CANSCA.

[38] Second, IATA argues that NAV CANADA’s introduction of charges associated with SB ADS-B technology is not justified at this time in either the domestic Enroute airspace or in the NAT airspace. It indicates that there is no benefit compared to ground-based surveillance technology in domestic Enroute airspace that would justify the additional cost. Regarding NAT airspace, IATA acknowledges that SB ADS-B may provide benefits at some point in the future; however, these benefits will not occur until the airspace is saturated, and the technology includes improved communication capabilities and functionalities that are available in competing technologies.

[39] IATA states that introducing SB ADS-B before it presents meaningful operational benefits and making expenditures to purchase services from Aireon is not based on sound judgment and cannot be considered reasonable and prudent. IATA submits that NAV CANADA’s alleged projections of future financial requirements for 2019-2020 are not reasonable and prudent, and that the Revised Charges will generate revenues offsetting those expenditures, which will contravene paragraph 35(1)(i) of the CANSCA.

[40] Third, IATA argues that Aireon’s pricing does not appear to be related to its costs. IATA contends that Aireon’s pricing model varies depending on where the service is provided and suggests that Aireon’s pricing appears to be a function of its power in the given airspace. It points out that the cost incurred by Aireon for domestic flights is $5.00 to $6.00 per flight hour, whereas the cost for flights in NAT airspace is approximately $52.90 per flight hour. IATA adds that the NAT airspace flights will be cross-subsidizing domestic flights.

[41] IATA submits that as NAV CANADA’s obligation is to provide service at a cost-related charge level, it should not have accepted Aireon’s non-cost-based pricing. It further submits that cross-subsidization between services contravenes the cost-relatedness principle set out in ICAO Doc 9082, which requires that the charges for each service is representative of its own costs. According to IATA, the passing through of those charges to NAT airspace users is contrary to the Government of Canada’s cost-relatedness obligations.

[42] IATA also contends that NAV CANADA’s motivations to advance Aireon’s interests over its obligations to serve the interests of its users is a conflict of interest. IATA points out that NAV CANADA has substantial financial interests in Aireon, has played a significant role in promoting the development of standards that would be compatible with SB ADS‑B, and assisted in developing the certification requirements under its safety management system. Furthermore, IATA alleges that NAV CANADA, as the ANSP for Canada, determined that it would implement SB ADS-B services without conducting a proper competitive procurement process and is now imposing charges on users by passing through Aireon’s discriminatory and non-cost-based prices. IATA argues that the passing through to users of Aireon’s SB ADS-B service pricing does not demonstrate sound judgment and that NAV CANADA’s actions cannot be considered reasonable and prudent.

Cost-effectiveness

[43] IATA submits that the cost-effectiveness principle set out in section III of ICAO Doc 9082 requires that charges imposed by NAV CANADA not generate revenues in excess of expenditures which constitute financial requirements that are necessary in providing civil air navigations services. IATA further states that section III of ICAO Doc 9082 requires that “[c]harging systems should take into account the cost of providing air navigation services and the effectiveness of the services rendered.”

[44] According to IATA, NAV CANADA contravened the cost-effectiveness principle set out in ICAO Doc 9082 and paragraphs 35(1)(h) and 35(1)(i) of the CANSCA because it failed to consider other technologies, failed to consider other SB ADS-B service providers, and entered into a long-term commitment with the technology and its supplier. IATA contends that NAV CANADA committed itself to Aireon’s SB ADS-B technology without assessing the possibility of increased use of ADS-C technology. It relies on the conclusions of the GAO’s report, which assessed the FAA’s approach to enhancing surveillance capabilities, to support its cost-effectiveness argument.

[45] In addition, IATA argues that Aireon’s service is not unique and that SB ADS-B is a technology that has been developed by other companies. It states that NAV CANADA did not assess the services offered by other suppliers, and that it did not conduct formal assessments of competing providers before engaging a high-cost supplier. In light of the Government of Canada’s international obligations, IATA argues that NAV CANADA is obligated to follow the procurement process defined by the Organisation for Economic Co-operation and Development’s (OECD) 2015 OECD Recommendation on Public Procurement.

[46] IATA also contends that the 12-year contract between NAV CANADA and Aireon is excessively long. IATA argues that SB ADS-B is a nascent technology in a dynamic market where similar or better technologies may be developed, but that the length of NAV CANADA’s agreement would not allow it to pursue other options.

Non-excessiveness

[47] IATA contends that expenditures that are not cost-related or not cost-effective may also be excessive, as indicated in section III of ICAO Doc 9082:

The costs to be taken into account should be those assessed in relation to the facilities and services, including satellite services, provided for and implemented under the ICAO Regional Air Navigation Plan(s), supplemented where necessary pursuant to recommendations made by the relevant ICAO Regional Air Navigation Meeting, as approved by the Council. Any other facilities and services, unless provided at the request of aircraft operators, should be excluded, as should the cost of facilities or services provided on contract or by the aircraft operators themselves, as well as any excessive construction, operation or maintenance expenditures.

[48] According to IATA, the Revised Charges also appear to be based on NAV CANADA seeking to recover the entirety of non-arms-length prices charged by Aireon and Iridium Communications Inc. (Iridium). IATA asserts that little is known about the contractual relationships between Iridium and Aireon, but it appears that Iridium’s highly favourable arrangements translate into “costs” for Aireon, which, in turn, translates into “costs” for NAV CANADA. IATA asserts that the end result is a 105.1 percent price increase on users. It alleges that the embedded conflicts of interest and opportunities to obtain supra‑competitive profit margins result in expenditures by NAV CANADA, which are excessive and contrary to the ICAO’s requirement. IATA also states that such expenditures do not reflect sound judgment and cannot be regarded as reasonable and prudent projections of future financial requirements for delivering air navigation services.

Dual charging

[49] IATA states that section III of ICAO Doc 9082 also requires that “[c]harges should be levied in such a way that no facility or service is charged for twice with respect to the same utilization.”

[50] IATA argues that SB ADS-B services will not replace another service, but rather, the technology is being partly promoted as a contingency surveillance service in domestic airspace. It contends that SB ADS-B services are being implemented in certain domestic Enroute areas, on top of existing, efficient, ground-based ADS-B data services, and therefore, airlines travelling in that airspace are being charged twice for surveillance services that provide the same functionality. According to IATA, this is contrary to section III of ICAO Doc 9082, and is in breach of the obligations of the Government of Canada.

NOTICE AND DISCLOSURE

[51] IATA also argues that NAV CANADA did not comply with the statutory requirements of section 36 of the CANSCA, as it failed to disclose crucial information about the non-arms-length relationships between itself, Aireon and Iridium. It claims that NAV CANADA’s Details and Principles Document, which sets out the details of NAV CANADA’s Notice, as provided for under paragraph 36(1)(b) of the CANSCA, is misleading in its characterization of Aireon as a third party.

[52] IATA further states that both the Notice and the Details and Principles Document failed to disclose the actual non-arms-length pricing that Aireon is charging NAV CANADA, nor do they disclose Aireon’s projected costs and profits (which will be converted into “costs” for NAV CANADA). IATA claims that NAV CANADA also failed to disclose the contractual and financial arrangement between Aireon and Iridium, and Iridium’s projected costs and profits (to be converted into “costs” and passed through to NAV CANADA).

[53] IATA submits that NAV CANADA’s failure to comply with section 36 of the CANSCA renders the consultation process invalid and requires that the Revised Charges be rescinded.

Air Canada

[54] Air Canada states that it fully supports IATA’s position and also opposes the Revised Charges as being inconsistent with the Government of Canada’s obligations pursuant to the Chicago Convention, as elaborated in ICAO Doc 9082, particularly with respect to cost-relatedness, cost-effectiveness, non-excessiveness, and the prohibition of dual charging.

[55] Air Canada also argues that the implementation of the Revised Charges will have a negative impact on its operations and places it at a disadvantageous position in comparison to carriers operating internationally that do not require NAV CANADA’s services. With regard to domestic airspace, Air Canada contends that SB ADS-B technology provides no benefits over ground-based surveillance technology that would justify its introduction and added cost. It states that the technology is unnecessary given that other systems are available, including the systems currently in place.

[56] Air Canada states that it is concerned that the costs taken into account for the setting of the Revised Charges include the decommissioning and the replacement of three Primary Ground Radar services. Air Canada argues that it is essential to retain these services in case of failure of the SB ADS-B technology.

[57] Air Canada also argues that although SB ADS-B could provide operational benefits in the future, there are currently none to justify its use. Furthermore, Air Canada is concerned with the 12-year agreement between NAV CANADA and Aireon, stating that “NAV CANADA has locked itself for an inordinately excessive amount of time, precluding access to new emerging or more efficient systems.”

Position statements

[58] United Airlines and Emirates argue that, contrary to subsection 35(1)(h) of the CANSCA, the Revised Charges are inconsistent with the Government of Canada’s obligations pursuant to the Chicago Convention. Furthermore, American Airlines, Emirates, and WestJet argue that the Revised Charges are inconsistent with the Government of Canada’s obligations contained in ICAO Doc 9082, and they also argue that ICAO Doc 9082 elaborates standards and recommended practices that are required under the Chicago Convention. They indicate that there is insufficient justification for the Revised Charges at this time. They also contend that there is no benefit for SB ADS-B in domestic airspace, and until such time that the NAT airspace reaches a point of saturation or SB ADS-B includes improved communication and voice capabilities, there is currently no benefit to be derived from the implementation of SB ADS-B in NAT airspace. American Airlines, Emirates, KLM, the Lufthansa Group and WestJet question the relationship between NAV CANADA and Aireon. In addition, American Airlines, Emirates, KLM, Turkish Airlines and WestJet question why NAV CANADA signed a 12-year agreement and why it did not assess alternative technologies or service providers.

[59] WestJet states that it “struggles to agree with any efficiency gain suggested in the NAT, as SB ADS-B provides no material improvement over the current ADS-C relationship, with most efficiencies provided through PBN [Performance-based Navigation] and PBCS [Performance-based Communication and Surveillance]....”

[60] Turkish Airlines requests that the NAT charges be reconsidered, pointing out that, although new technologies will provide certain benefits in the NAT airspace, the “doubled cost for such unavoidable route/region causes negative effect for airlines.”

[61] KLM rejects NAV CANADA’s charging proposal and advocates for further consultation on the cost-benefit analysis of SB ADS-B and for realistic and fair charging models. It points out that the implementation of the Revised Charges over NAT airspace would represent an 80 percent increase in its air traffic control costs in that airspace.

[62] The Lufthansa Group states that it is unprecedented that airspace users are charged for services that are not yet fully implemented and only operating under trial conditions. It contends that carriers should only be charged for a service once it is fully operational and, as such, it demands that NAV CANADA “refrain from providing and charging for Space‑Based ADS-B services, irrespective of the charged amount, until the trial phase is successfully completed and until a valid business case is clearly set out and accepted.”

[63] Several carriers that filed a position statement also argue that consultations on the Revised Charges were not properly conducted by NAV CANADA prior to the Announcement. According to Turkish Airlines, NAV CANADA only asked carriers for opinions on certain options. Emirates contends that NAV CANADA should have included carriers in its contract negotiations with Aireon. The Lufthansa Group states that NAV CANADA should have offered full transparency on the cost structure and (expected) financials within Aireon leading to the Revised Charges.

[64] In addition, WestJet states that NAV CANADA provided little to no opportunity for carriers to provide insightful operational or technical feedback, and, without a comprehensive and phased trial, the carriers were not given an opportunity to raise questions in respect of the Revised Charges. Finally, KLM alleges that NAV CANADA did not engage in meaningful conversations with carriers and did not act on the information that the carriers provided.

NAV CANADA

[65] NAV CANADA submits that IATA’s appeal is without merit and should be dismissed. It contends that although IATA argues that NAV CANADA has not complied with the provisions of the CANSCA, the reality is that IATA is simply making a plea for the Revised Charges not to be imposed at this time. NAV CANADA states that it has fully complied with the legislative requirements of the CANSCA, and that IATA has failed to adduce sufficient evidence to meet its burden as the appellant in this matter. NAV CANADA contends that IATA’s appeal is also an attempt to use the Agency as a rate-setting body rather than an appeal body.

[66] NAV CANADA submits that it is uniquely structured as an economically self-regulating entity created to foster a safe, cost-effective and efficient air navigation system. It states that it has no shareholders and is therefore not motivated by profit, as any revenues (including dividends) either stay within the air navigation system or are credited to the benefit of its stakeholders. NAV CANADA states that it is governed by a 15-member board of directors, of which one third are appointed by industry users. NAV CANADA submits that this strong representation on the board ensures that there is active industry involvement in the implementation process for new and revised charges and ensures that NAV CANADA exercises effective control in respect of operating expenses and capital expenditures.

REVISED CHARGES

[67] NAV CANADA submits that the Revised Charges are being made to recover the applicable data service costs related to SB ADS-B, as a direct pass-through from Aireon to NAV CANADA. NAV CANADA adds that the recovery of the Revised Charges will not allow it to regain all of the operating costs associated with the implementation of the new technology.

[68] NAV CANADA points out that the Revised Charges are implemented in two phases, the first being revisions to base rates for the recovery of the cost of domestic space-based surveillance data services. It states that these charges took effect on September 1, 2019, and represent a 0.8 percent increase from the previous base rates. NAV CANADA states that the second phase is in respect of recovery of the cost of oceanic space-based surveillance data services, which came into effect on January 1, 2020, and has been increased on average by 3.6 percent from the base rates in effect on August 31, 2019.

[69] NAV CANADA states that due to its financial structure, the only sustainable mechanism by which Aireon’s data surveillance charges can be funded is through recovery from customer service charges, in accordance with the charging principle set out in the CANSCA and with its cost allocation methodology.

SB ADS-B

[70] According to NAV CANADA, SB ADS-B is similar to the ground-based technology without certain limitations that some of these line-of-sight technologies encounter, such as little or no effectiveness in mountainous, remote and oceanic airspace. NAV CANADA states that the expansion to SB ADS-B will allow for non-surveilled airspaces (remote and oceanic) to gain benefits similar to continental airspace with ground-based ADS-B.

[71] NAV CANADA maintains that SB ADS-B technology will expand global air traffic coverage to 70 percent of the world’s airspace that had no previous access to air traffic services (ATS) surveillance information. NAV CANADA adds that it has been adopted as the global standard for the next generation of ATS technology, has been accepted by Canada and the United Kingdom, and is currently being implemented by Iceland and Denmark.

[72] NAV CANADA states that significant safety improvements are realized with the implementation of SD ADS-B, given its position accuracy and frequency of updates.

NAV CANADA’S INTERNATIONAL OBLIGATIONS

[73] NAV CANADA acknowledges that its charges must be consistent with the Government of Canada’s international obligations, pursuant to paragraph 35(1)(h) of the CANSCA. However, it disagrees with the arguments that those obligations include the charging principles set out in ICAO Doc 9082. According to NAV CANADA, the relevant obligations in the context of this appeal are contained in the Chicago Convention, whereas non‑binding recommendations or guidelines such as the ICAO’s guidelines or the OECD’s recommendations are not included.

[74] NAV CANADA states that article 15 of the Chicago Convention contains three requirements regarding charges for air navigation fees.

[75] First, charges imposed by a contracting State for the use of “airports and air navigation facilities” by the aircraft of any other contracting State shall not be higher than those to be paid by its national aircraft engaged in similar international air services. NAV CANADA states that the Revised Charges are consistent with this requirement as it did not introduce any differential rates between Canadian and foreign air carriers.

[76] Second, upon representation by an interested contracting State, the charges imposed for the use of “airports and other facilities” shall be subject to review by the Council of ICAO (Council), which shall report and make recommendations thereon for the consideration of the State or States concerned. According to NAV CANADA, no such representation has been made in respect of the Revised Charges.

[77] Finally, article 15 provides that “no fees, dues or other charges shall be imposed by any contracting State in respect solely of the right of transit over or entry into or exit from its territory of any aircraft of a contracting State or persons or property thereon”. NAV CANADA states that as its charges are imposed solely to meet the financial requirements of providing or making available air navigation services, the Revised Charges are consistent with this requirement.

[78] Regarding ICAO Doc 9082, NAV CANADA maintains that the policies contained therein are non-binding and form no part of the international obligations of the Government of Canada. NAV CANADA claims that the policies are general in nature and leave room for interpretation on how they can be applied. It points out that section 1 of the Foreword of ICAO Doc 9082 states:

States are encouraged to incorporate the four key charging principles of non‑discrimination, cost-relatedness, transparency and consultation with users into their national legislation, regulation of policies as well as into their future air services agreements, in order to ensure compliance by airport operators and air navigation services providers. [Emphasis added]

[79] NAV CANADA states that although it is not legally required to comply with the ICAO’s guidelines, it carefully considered them in developing its charging methodology, and that the Revised Charges are, in fact, consistent with the charging principles argued by IATA.

Cost-relatedness

[80] NAV CANADA disagrees with IATA’s argument that SB ADS-B is not included in the ICAO Regional Air Navigation Plan and must be approved by the Council. According to NAV CANADA, the Council’s approval is required in relation to Volume I of the three ICAO Volumes. It points out that only Volumes II and III contain services provided by ANSPs, but as these volumes do not require approval by the Council, approval of SB ADS-B is not required.

[81] In addition, NAV CANADA states that IATA presents an incorrect depiction of SB ADS-B infrastructure by suggesting that it is incapable of providing data on factors such as speed and heading. According to NAV CANADA, IATA incorrectly claims that ADS-C provides aircraft information that SB ADS-B cannot, when the reality is that the ATS surveillance system uses the SB ADS-B data to provide superior updates on aircraft speed and heading, and is therefore safer and more effective than what ADS-C offers. According to NAV CANADA, despite the similarities in names, ADS-B and ADS‑C are separate technologies which provide distinctly different services and may best be viewed as complementary rather than competing. However, NAV CANADA states that there are a number of functions permitted in ICAO’s procedures that are available through SB ADS‑B but not through ADS-C.

[82] Furthermore, NAV CANADA submits that IATA is incorrect in its assertion that Aireon’s charges to NAV CANADA do not reflect Aireon’s costs. NAV CANADA states that Aireon is a separate, profit-seeking entity and it is natural that Aireon’s charges will contain an element of profit. NAV CANADA states that it has over 5,000 suppliers, almost all profit-seeking, as is almost every supplier to every ANSP in the world.

[83] NAV CANADA asserts that, contrary to IATA’s arguments, ICAO Doc 9082 does permit ANSPs to generate revenues in excess of their costs in certain circumstances:

Air navigation services may produce sufficient revenues to exceed all direct and indirect operating costs and so provide for a reasonable return on assets (before tax and cost of capital) to secure efficient financing for the purpose of investing in new or enhanced air navigation services infrastructure.

[84] NAV CANADA states that ICAO Doc 9082 allows for an entity like Aireon to make a profit in creating new air navigation system technology. It contends that the financing that Aireon needs to continue to exist, both debt and equity, is only available because it has the potential to earn a profit. NAV CANADA states that Aireon would not continue to exist and would not have been formed in the first place without profit potential. NAV CANADA maintains that it charges its customers what Aireon charges to it.

[85] In addition, NAV CANADA disagrees with IATA’s characterization of Aireon’s pricing structure as a cross-subsidization between services, which would be inconsistent with the cost-relatedness provisions of ICAO Doc 9082 that require charges for each service to reflect its own costs.

[86] NAV CANADA indicates that Aireon has developed a pricing structure that reflects the value of the service to its customers, and that where the service provides more value, it is priced higher, and vice versa. According to NAV CANADA, as long as the marginal revenue of the lowest price tier (1 USD/hour in Aireon’s case) is greater than the marginal cost (essentially zero in Aireon’s case because all costs are fixed), this pricing structure cannot properly be characterized as cross-subsidization in a profit-seeking entity. NAV CANADA contends that even in areas where the revenue is marginal, it is enough to cover the associated costs in that area. It adds that accordingly, as there is no loss, there is no cross‑subsidization.

[87] NAV CANADA states that revenue earned in the lowest pricing tier is beneficial to Aireon’s profitability and mitigates the price level that would otherwise be required if Aireon’s total revenue was obtained only from nonpolar/remote or oceanic services. NAV CANADA states that instead of cross-subsidizing higher price tier customers, the lower price tier customers actually reduce the prices that higher tier customers would need to pay for Aireon to earn an appropriate return.

[88] Regarding Air Canada’s allegation that the Revised Charges place it in a disadvantageous position over international carriers that do not require NAV CANADA’s services, NAV CANADA maintains that it does not discriminate based on airlines; rather, it recognizes the difference in characteristics between the various airspaces and their relative complexities and costs. In addition, NAV CANADA states that Air Canada’s allegation of decommissioning primary ground radar services is inaccurate. It contends that it is in the process of assessing the requirement for certain “primary” radar systems, and that no decisions have yet been made. It adds that it is reviewing the need for three primary radars through the legislated Aeronautical Study process, but there is no link between these sites and SB ADS-B.

Cost-effectiveness

[89] According to NAV CANADA, SB ADS-B technology is currently only available through Aireon and, to its knowledge, there will be no comparable satellite constellation available elsewhere in the market within the foreseeable future. NAV CANADA contends that Aireon’s technology provides it with immediate certainty and access to important safety enhancements to current surveillance. NAV CANADA assures that it will continue to monitor and consider the surveillance market for any technology that could offer enhanced safety benefits or reduced pricing.

[90] Regarding IATA’s questioning of the lack of a procurement process, NAV CANADA states that it was not required, and nevertheless, does not guarantee cost-effective solutions. NAV CANADA states that it is a private corporation and was given the right to charge for its services. It asserts that the CANSCA is clear in that NAV CANADA is a private entity and not an agent of the Crown, and therefore it cannot be said to be performing a “government mission”, nor is it subject to government procurement standards.

[91] In response to the time period of the agreement between itself and Aireon, NAV CANADA states that, while not relevant to this matter, the length of the term is not unusual and reflects the length of many agreements of this nature in the industry. According to NAV CANADA, long-term agreements are common in the airline industry given the complexity of the technology and the safety impact around their implementation. NAV CANADA states that such lengthy agreements are required in order to ensure the stability needed to effectively provide a dependable, safe air navigation system, which includes the time required for implementation, operating processes, and training.

Non-excessiveness

[92] NAV CANADA contends that because it is a not-for-profit corporation, any recovery on investment that it receives in dividends will ultimately be used to repay this investment and mitigate potential future customer service charge increases. NAV CANADA states that it is not seeking to recover any more than it is paying for the cost of the services.

[93] NAV CANADA acknowledges the principle set out in paragraph 111(3)(ii) of ICAO Doc. 9082, which states that excessive costs are not permitted for recovery by ANSPs through their customer service charges. NAV CANADA states that it wholly supports this principle, and indicates that its long history of not increasing customer service charges is evidence of that support.

[94] NAV CANADA objects to IATA’s allegations that the Revised Charges are excessive, and states that IATA offers no proof that they are. Rather, it submits that IATA’s arguments centre on the alleged non-arms-length nature of the relationship between itself and Aireon which, in IATA’s opinion, leads to Aireon earning excess profits.

[95] NAV CANADA points out that paragraph 35(1)(i) of the CANSCA requires that charges not be set at a level that (based on reasonable and prudent projections) would generate revenues in excess of NAV CANADA’s current and future financial requirements.

[96] NAV CANADA states that the general intent and purpose of this charging principle is to prevent it from generating, through the imposition of charges, more revenue than it needs to meet its mandated financial requirements. NAV CANADA states that it is required to develop charges using revenue and financial requirement projections that are based on sound judgment. NAV CANADA asserts that the Revised Charges were developed by doing just that.

[97] According to NAV CANADA, its financial structure has three main components:

1. Customer service charging principles, enshrined in the CANSCA, that are designed to enable NAV CANADA to generate sufficient revenues to meet its current and future financial requirements;
2. Access to capital markets at competitive interest rates; and
3. A rate stabilization mechanism, also known as the Rate Stabilization Account (RSA), that absorbs variances between planned and actual financial results and provides for a reasonable reserve for future expenditures and contingencies pursuant to paragraph 35(5)(h) of the CANSCA.

[98] NAV CANADA contends that its ability to meet its current and future financial requirements allows it to access capital markets at competitive rates because it is able to plan for and maintain sufficient cash flow through service charges, in order to support the debt service coverage ratios necessary to maintain its required credit rating.

[99] NAV CANADA states that its actual financial requirements will often differ from projections and that for this reason, it developed the RSA to address these differences. NAV CANADA indicates that by choosing not to increase service charges other than those made for the recovery of SB ADS-B, its revenues will be insufficient in its fiscal year 2020 (September 1, 2019, to August 31, 2020) to recover all of its operating costs. NAV CANADA states that in order to accommodate this, it will achieve a breakeven scenario by drawing down and utilizing a portion of the balance available in the RSA.

[100] NAV CANADA maintains that through the RSA, it has a mechanism where it can obtain a measure of rate stability by absorbing differences between projected and actual financial results. It adds that while borrowing is required to finance its operations, it has access to capital markets at preferred rates because of its legislated ability to recover its costs, including its debt service costs.

[101] According to NAV CANADA, it is recovering Aireon’s SB ADS-B surveillance service charges, as set out in its Notice, on the basis that a failure to do so would result in it having to negotiate additional borrowing that would disrupt its access to preferred rates, which could lead to increased costs to its customers.

Dual charging

[102] NAV CANADA contends that IATA is incorrect in alleging that the Revised Charges amount to “dual charging”. NAV CANADA states that the rate increases set out in the Announcement relate to two services: NAT airspace; and domestic Enroute service.

[103] Regarding the NAT airspace, NAV CANADA states that it did not provide aircraft surveillance over this area prior to the implementation of SB ADS-B because there was no technology available to do so. It maintains that the NAT service charge did not include any costs for aircraft surveillance because none was provided. NAV CANADA submits that the introduction of SB ADS-B in the NAT airspace is a completely new service, and the January 1, 2020, rate increase reflects the costs of that new service, not a “dual charge”.

[104] Regarding the domestic Enroute service, NAV CANADA states that it comprises three regions: Northern, Central and Southern. It states that the Northern region, like the NAT airspace, had no aircraft surveillance provided by NAV CANADA, and that because it is a new service, there is no element of a “dual charge”.

[105] NAV CANADA submits that in the Central and Southern regions of the Canadian domestic airspace, Aireon’s service will provide contingency coverage. According to NAV CANADA, the service will feed NAV CANADA’s fusion system, which incorporates surveillance information from all available sources (SB ADS-B, ground-based ADS-B, primary surveillance radar, and secondary surveillance radar), and presents the “best” information to the air traffic controller. NAV CANADA contends that the introduction of SB ADS-B in the Central and Southern regions introduces an enhanced level of surveillance, which improves upon the existing service and is not a “dual charge”.

NOTICE AND DISCLOSURE

[106] NAV CANADA maintains that it has sought to be fully transparent with its relationship with Aireon, which has been publicly known for years. It points out that its initial investment in Aireon was made in November 2012, and that both SB ADS-B and Aireon have been mentioned in NAV CANADA’s Annual Reports since that time.

[107] NAV CANADA states that its 2013 Annual Report includes comments from both its chairman and CEO on the strategic importance of SB ADS-B and Aireon. NAV CANADA also states that the Annual Report references the formation of the SB ADS-B Advisory Committee (SAAC), which was a 9-member body of key aviation stakeholders, that was chaired by IATA. NAV CANADA points out that a Memorandum of Understanding was entered into between IATA and Aireon, which gave IATA the ability to provide Aireon with recommendations on issues relevant to the SAAC.

[108] Furthermore, NAV CANADA states that it has had direct discussions, consultations, information sessions and collaborations regarding SB ADS-B with IATA and other stakeholders, including individual carriers. As part of its submission, NAV CANADA provides a non-exhaustive list of discussions between itself and IATA that have occurred since 2012.

Section 36 of the CANSCA

[109] NAV CANADA asserts that the Notice includes everything required under section 36 of the CANSCA and is not deficient in any way. NAV CANADA points out that the rationale for the Revised Charges are set out in the Details and Principles Document.

[110] According to NAV CANADA, there are no detailed requirements in respect of the form or content of a notice other than what is provided for under subsection 36(2) of the CANSCA. It further states that had the Parliament of Canada intended to mandate additional disclosure requirements, it would have expressly specified it.

[111] NAV CANADA disputes the allegation that it is in breach of the notice provisions of the CANSCA on the grounds that the Notice did not set out the relationship between itself and Aireon. NAV CANADA contends that IATA provided no support for this claim, other than relying on the phrase “details about the proposal” contained in paragraph 36(2)(b) of the CANSCA. NAV CANADA maintains that Aireon was referred to as a third party in the Notice because that is exactly what it is: it is its own, profit-seeking entity over which NAV CANADA exercises no independent control. NAV CANADA asserts that “it is trite law that a corporation is a separate legal entity, distinct from its shareholders and its directors”.

ANALYSIS AND DETERMINATIONS

Are the Revised Charges consistent with the international obligations of the Government of Canada, pursuant to paragraph 35(1)(h) of the CANSCA?

[112] Paragraph 35(1)(h) of the CANSCA requires that the Revised Charges imposed by NAV CANADA be consistent with the international obligations of the Government of Canada. IATA and others argue that those obligations include the charging principles set out in section III of ICAO Doc 9082.

[113] In Decision No. 650-NC-A-2003, the Agency determined that the “international obligations of the Government of Canada” referred to in paragraph 35(1)(h) of the CANSCA are Canada’s obligations contained in the Chicago Convention and in the charging clauses of the various air transport agreements to which Canada is a party. The Agency confirms the position taken in this Decision.

[114] In respect of the current matter, IATA and certain carriers argue that the Government of Canada’s international obligations pursuant to the Chicago Convention include ICAO Doc 9082. However, the Agency cannot find this to be so. ICAO Doc 9082 is a collection of policies, which, as stated in the document’s Forward, are intended for the guidance of Contracting States. The Forward also encourages, but does not require, member States to incorporate the charging principles into their national legislation, regulation or policies, or future international air service agreements; however, the principles set out in ICAO Doc 9082 have not been incorporated into Canadian law. Furthermore, the Agency notes that, although ICAO Doc 9082 is referenced in Annex 15 of the Chicago Convention, it is clearly a recommendation rather than an obligation. As such, the Agency finds that ICAO Doc 9082 does not form part of the Government of Canada’s international obligations under paragraph 35(1)(h) of the CANSCA.

[115] In respect of the Government of Canada’s international obligations under the Chicago Convention, the Agency reviewed the Notice, the Details and Principles Document, and the Announcement and found no evidence of differential or preferential charges being imposed on Canadian carriers over foreign carriers, as set out in Articles 15(a) and 15(b) of the Chicago Convention. The Agency also notes that NAV CANADA’s compliance with the requirements of Articles 15(a) and 15(b) was not disputed by IATA or any of the carriers that filed a position statement.

[116] In addition, the evidence is clear that the Revised Charges are not being imposed solely for an aircraft’s right of transit over, entry into, or exit from Canada, as precluded under the Chicago Convention, but they are being implemented for the provision of air navigation. Specifically, the Revised Charges are being implemented in respect of NAV CANADA’s air navigation services based on its use of SB ADS-B technology.

[117] Regarding the Government of Canada’s international obligations in respect of air transport agreements, the Agency will not consider this issue, as no allegation was made by either the applicant, the intervener or the interested parties that the Revised Charges are not in compliance with air transport agreements.

[118] In summary, the Agency finds that the charging principles set out in ICAO Doc 9082 do not form part of the Government of Canada’s international obligations, and that there is no evidence that NAV CANADA has contravened its international obligations as specified in the Chicago Convention.

[119] In light of the foregoing, the Agency found, in the Decision, on a preponderance of the evidence, that NAV CANADA observed the charging principle set out in paragraph 35(1)(h) of the CANSCA in establishing the Revised Charges.

Are the Revised Charges in compliance with paragraph 35(1)(i) of the CANSCA?

[120] Having dismissed IATA’s arguments that the Revised Charges are inconsistent with the international obligations of the Government of Canada, pursuant to paragraph 35(1)(h) of the CANSCA, the Agency will now consider IATA’s arguments in respect of the charging requirements set out in ICAO Doc 9082 in the context of paragraph 35(1)(i) of the CANSCA, and address the following matters:

1. Determine the meaning and purpose of the charging principle set out in paragraph 35(1)(i) of the CANSCA;
2. Determine whether NAV CANADA’s projections in setting the revised charges were “reasonable and prudent” within the meaning of paragraph 35(1)(i) of the CANSCA; and
3. Determine whether those revised charges would generate revenues exceeding NAV CANADA’s current and future financial requirements in relation to the provision of civil air navigation services.

[121] In light of the arguments raised in this appeal regarding paragraph 35(1)(i) of the CANSCA, the Agency finds that it is appropriate to apply the same approach.

      1. DETERMINE THE MEANING AND PURPOSE OF THE CHARGING PRINCIPLE SET OUT IN PARAGRAPH 35(1)(i) OF THE CANSCA

[122] Paragraph 35(1)(i) of the CANSCA must be interpreted in accordance with the principles of statutory interpretation, which have recently been reiterated in Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65:

A court interpreting a statutory provision does so by applying the “modern principle” of statutory interpretation, that is, that the words of a statute must be read “in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament”: Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27, at para. 21, and Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42, [2002] 2 S.C.R. 559, at para. 26, both quoting E. Driedger, Construction of Statutes (2nd ed. 1983), at p. 87. Parliament and the provincial legislatures have also provided guidance by way of statutory rules that explicitly govern the interpretation of statutes and regulations: see, e.g., Interpretation Act, R.S.C. 1985, c. I-21.

[123] As indicated in Decision No. 650-NC-A-2003, the charging principles set out in subsection 35(1) of the CANSCA are very broad and are designed to provide NAV CANADA with the necessary scope and flexibility to develop its own commercial structure and schedule of charges. The charging principles also establish specific boundaries for NAV CANADA’s charges in order to protect users from the imposition of undue or inequitable charges. These principles recognize that NAV CANADA is a not‑for‑profit, self-regulating, private corporation that cannot raise revenues to an excessive level in relation to its costs.

[124] In addition, the broad representation on NAV CANADA’s Board of Directors and the notice and disclosure requirements that the CANSCA imposes on NAV CANADA ensure that NAV CANADA is kept informed of the views of the airline industry on an ongoing basis, and that the airline industry is kept informed of NAV CANADA’s plans to establish new charges or revise existing charges, and is given the opportunity to comment on any such proposals. Nevertheless, as any private corporation, NAV CANADA is required to act in its own best interests and not in the interests of any particular stakeholder in making its business decisions.

[125] As also noted, Parliament did not intend that all of NAV CANADA’s decisions be free from regulatory oversight. Pursuant to subsection 42(1) of the CANSCA, persons directly affected by NAV CANADA’s decisions to establish new charges or revise existing charges may challenge those decisions by filing an appeal with the Agency. However, the basis for an appeal is strictly limited to the four grounds specified in section 43 of the CANSCA.

[126] On the basis of the foregoing analysis of the overall purpose, object and scheme of the CANSCA, the Agency is of the opinion that the CANSCA is designed to provide NAV CANADA with the commercial freedom that it needs to develop and maintain a safe, efficient, financially viable and cost-effective air navigation system while, at the same time, taking the interests of the users of that system into consideration by imposing certain operating conditions on NAV CANADA, and establishing a regulatory framework to provide oversight to ensure that it meets those conditions.

[127] With respect to the matter at hand, many of the arguments raised in this appeal revolve around the phrase “reasonable and prudent”, as it is used in the charging principle set out in paragraph 35(1)(i) of the CANSCA. The Agency found in Decision No. 650‑NC‑A‑2003 that:

… there cannot be one specific definition of the word “reasonable”, and the similar word “prudent”, which will apply in all cases--the words can only be defined in the context within which they are used. The Agency finds that in light of the overall object, purpose and scheme of the CANSCA detailed above, the phrase “reasonable and prudent”, as it is used in paragraph 35(1)(i) of the CANSCA, is best defined as “having sound judgment”.

What does the phrase “reasonable and prudent” in paragraph 35(1)(i) of the CANSCA modify?

The Agency notes that the phrase “reasonable and prudent” comes immediately before the word “projections” in the parenthetical phrase, “based on reasonable and prudent projections” in the English version of paragraph 35(1)(i) of the CANSCA and that the word “raisonnables” immediately follows the word “calculs” in the parenthetical phrase, “d’après des calculs raisonnables”, in the French version of that provision. Accordingly, the Agency is of the opinion that the phrase “reasonable and prudent” is used in paragraph 35(1)(i) of the CANSCA to modify the word “projections”.

…. The Agency, therefore, finds that for the purposes of paragraph 35(1)(i) of the CANSCA, NAV CANADA’s projections with respect to both its revenues and its financial requirements, not just its traffic projections, must be “reasonable and prudent”.

[128] The Agency adopts and relies on its interpretation in Decision No. 650-NC-A-2003, which states that the general intent and purpose of the charging principle set out in paragraph 35(1)(i) of the CANSCA is to prevent NAV CANADA from generating, through the imposition of its charges, any more revenue than it needs to meet its financial requirements under subsections 35(5) and 35(6) of the CANSCA. More particularly, paragraph 35(1)(i) of the CANSCA requires that NAV CANADA’s charges be developed using revenue and financial requirements projections that are based on sound judgment.

      2. DETERMINE WHETHER NAV CANADA’S PROJECTIONS IN SETTING THE REVISED CHARGES WERE “REASONABLE AND PRUDENT” WITHIN THE MEANING OF PARAGRAPH 35(1)(i) OF THE CANSCA

[129] IATA argues that NAV CANADA’s actions do not reflect sound judgment and cannot be considered reasonable or prudent, as required under paragraph 35(1)(i) of the CANSCA. The Agency reviewed the evidence put forward by IATA and notes that it is primarily focussed on the merits of SB ADS-B and its utility in the current air navigation context. However, the Agency’s authority under the CANSCA does not extend to weighing this evidence with a view to reaching a conclusion on the appropriateness, or timing, of a decision to implement new technology to manage air navigation services. Instead, the intent and purpose of the charging principle set out in paragraph 35(1)(i) of the CANSCA is to prevent NAV CANADA from generating, through the imposition of its charges, any more revenue than it needs to meet its financial requirements. This requires that “charges must not be set at a level that, based on reasonable and prudent projections, would generate revenues exceeding the Corporation’s current and future financial requirements in relation to the provision of civil air navigation services”. In other words, the appeal right under the CANSCA is an appeal of the charges and the methodology behind the charges, but not an appeal of the reasonableness of NAV CANADA’s operational decisions.

[130] Likewise, arguments put forward by IATA that SB ADS-B services were introduced prior to their approval in the applicable ICAO Regional Air Navigation Plan, without any meaningful operational benefits to carriers, without assessments of either similar technologies or competing service providers, and in the context of what IATA characterizes as an “excessively long” 12-year contract, do not constitute a failure to observe the charging principles set out in paragraph 35(1)(i) of the CANSCA, or subsections 35(5) and 35(6) of the CANSCA, which go on to define the elements included in financial requirements in greater detail.

[131] Having found that the CANSCA does not allow for an appeal of the reasonableness of NAV CANADA’s operational decisions, the Agency must consider whether NAV CANADA’s charges were developed using revenue and financial requirements projections that are based on sound judgment, as required under paragraph 35(1)(i) of the CANSCA.

[132] Turning to revenue requirements, the Agency reviewed the revenue projections used by NAV CANADA in setting the Revised Charges. NAV CANADA estimates its 2020 fiscal revenue using 2020 forecasted traffic volumes at existing fiscal 2019 base rates. As indicated in its Details and Principles Document, NAV CANADA forecasts an increase in traffic of 2.4 percent in 2019, and 3.5 percent in 2020. The forecast methodology that is explained by NAV CANADA in its Details and Principles Document, which was developed using actual traffic results, airline schedules, time series analysis and various industry forecasts on passenger and aircraft movement, is not unreasonable. Furthermore, IATA does not dispute the methodology used by NAV CANADA, nor does it dispute the results of the forecast or provide evidence to contradict it. IATA has not demonstrated that NAV CANADA’s projected revenues are unreasonable. As such, the Agency finds NAV CANADA’s revenue projections to be reasonable.

[133] In respect of projections for future financial requirements, IATA does not challenge NAV CANADA’s use of the RSA to absorb variances between planned and actual financial results and to provide for a reasonable reserve for future expenditures and contingencies pursuant to paragraph 35(5)(h) of the CANSCA. According to NAV CANADA, it is recovering Aireon’s SB ADS-B surveillance service charges on the basis that a failure to do so would result in it having to negotiate additional borrowing that would disrupt its access to preferred rates, thereby potentially leading to increased customer costs. The Agency finds NAV CANADA’s use of the RSA to be reasonable.

[134] In light of the above, the Agency finds that the projections used by NAV CANADA in setting the Revised Charges are “reasonable and prudent” within the meaning of paragraph 35(1)(i) of the CANSCA.

    3. DETERMINE WHETHER THOSE REVISED CHARGES WOULD GENERATE REVENUES EXCEEDING NAV CANADA’S CURRENT AND FUTURE FINANCIAL REQUIREMENTS IN RELATION TO THE PROVISION OF CIVIL AIR NAVIGATION SERVICES

[135] The Agency notes that NAV CANADA is not making a profit from the NAT service charges, but is passing on the charges of Aireon and Iridium.

[136] According to the Details and Principles Document, NAV CANADA states that the Revised Charges are set to recover its expenses net of other revenues determined in accordance with International Financial Reporting Standards and the costs of complying with certain financial requirements, as described in detail in subsection 35(5) of the CANSCA. It indicates that, for its fiscal year 2020, NAV CANADA has decided that it will not recover increases in costs unrelated to SB ADS-B surveillance costs through service fees. This will result in a decline in the RSA balance from the 2019 fiscal year‑end forecast balance of $100.4 million to approximately $66.9 million forecasted for the end of the 2020 fiscal year.

[137] By reducing its RSA balance to absorb any increases in costs not related to SB ADS-B surveillance costs, it is evident that the Revised Charges do not generate enough revenue to cover NAV CANADA’s current and future financial requirements in relation to the provision of civil air navigation services.

[138] In light of this, the Agency is satisfied that the Revised Charges are set at a level that, based on reasonable and prudent projections, would not generate revenues exceeding NAV CANADA’s current and future financial requirements in relation to the provision of civil air navigation services.

[139] Accordingly, the Agency found, in the Decision, on a preponderance of the evidence, that NAV CANADA observed the charging principle set out in paragraph 35(1)(i) of the CANSCA in establishing the Revised Charges.

HAS NAV CANADA COMPLIED WITH SECTION 36 OF THE CANSCA?

[140] The Agency finds that the requirements set out in section 36 of the CANSCA have been met with respect to the Notice, the Details and Principles Document and the Announcement. Specifically, NAV CANADA set out the particulars of its proposal to revise its charges in sections 1 to 3 of the Notice, as required under paragraph 36(2)(a) of the CANSCA. Section 4 of the Notice also specified that a document containing more details about the proposal can be obtained on request and that persons interested in making representations in writing may do so by writing to the appropriate address, as is required under paragraphs 36(2)(b) and 36(2)(c) of the CANSCA.

[141] In respect of the allegation that NAV CANADA failed to disclose crucial information about the relationships between itself, Aireon and Iridium, the Agency finds that section 36 of the CANSCA does not specify that any such information is required in the Notice.

[142] In addition, the Agency finds that IATA’s claim that NAV CANADA mischaracterized its relationship with Aireon in the Notice is unfounded. NAV CANADA has provided sufficient evidence that it has been transparent with its stakeholders, and with the public in general, about its relationship with Aireon. In fact, both IATA and NAV CANADA have provided evidence that demonstrate that NAV CANADA’s investment in Aireon has been publicly communicated for years. For example, NAV CANADA’s Annual Reports, going back to 2012, have included statements regarding its investments in Aireon and the strategic importance of SB ADS-B. Although IATA claims that NAV CANADA also failed to disclose crucial information about its relationship with Iridium in the Notice and the Details and Principles Document, it did not provide any arguments to support its claim.

[143] Finally, given the corporate structure and the significant proportion of industry stakeholders that form NAV CANADA’s Board of Directors, the Agency accepts that NAV CANADA is kept informed of the views of the airline industry, and that the airline industry, in turn, remains informed of NAV CANADA’s business plans and is actively involved in its decision-making processes.

[144] In light of the above, the Agency found, in the Decision, on a preponderance of the evidence, that NAV CANADA complied with the notice and disclosure requirements set out in section 36 of the CANSCA in establishing the Revised Charges.

CONCLUSION

[145] Based on the above findings, the Agency dismissed IATA’s appeal.