Decision No. 4-A-2021

SUMMARY

[1] On September 11, 2020, WestJet filed with the Canadian Transportation Agency (Agency) an appeal of the increase, effective September 1, 2020, in NAV CANADA’s customer service charge rates (revised charges). The appeal is pursuant to subsection 42(1) of the CANSCA and alleges that NAV CANADA did not adhere to two of the charging principles set out in subsection 35(1) of the CANSCA. WestJet also alleges that there was a lack of transparency in NAV CANADA’s consultation process and its process in establishing the revised charges and that NAV CANADA is therefore in breach of its duty of procedural fairness.

[2] NAV CANADA argues that it fully complied with the charging principles and all other obligations set out in the CANSCA in establishing the revised charges and that WestJet’s appeal should be dismissed.

[3] For the reasons set out below, the Agency finds, on a preponderance of evidence, that NAV CANADA:

1. complied with the charging principle set out in paragraph 35(1)(a) of the CANSCA;
2. complied with the charging principle set out in paragraph 35(1)(i) of the CANSCA; and
3. met the requirements under section 36 of the CANSCA.

BACKGROUND

[4] NAV CANADA is a private, non-share capital corporation that owns, manages and operates Canada’s civil air navigation system.

[5] On May 21, 2020, NAV CANADA filed with the Agency a copy of its Notice of Revised Charges (Notice), as well as a document entitled Details and Principles Regarding Proposed Revised Charges (Details and Principles Document), pursuant to section 36 of the CANSCA.

[6] On August 12, 2020, NAV CANADA filed with the Agency a copy of its Announcement of Revised Charges (Announcement), pursuant to section 37 of the CANSCA.

[7] On September 11, 2020, WestJet filed an appeal of the revised charges pursuant to subsection 42(1) of the CANSCA.

[8] NAV CANADA increased its rates for the services that it provides its customers as follows:

• Terminal service charges increased by 30.8 percent;
• Enroute service charges increased by 26.4 percent;
• North Atlantic Enroute Facilities increased by 48.5 percent; and
• International Communications increased by 41.0 percent.

[9] On average, the revised charges represent an increase of 29.5 percent to NAV CANADA’s base rates.

[10] On October 15, 2020, the Agency opened pleadings on this matter. On November 25, 2020, the Agency issued Decision No. LET-A-78-2020, in which it made certain findings on procedural requests filed by the parties and extended the timeline for a decision from 60 to 90 days. On December 1, 2020, the pleadings closed.

THE LAW

[11] Pursuant to section 9 of the CANSCA, the “Corporation” shall provide civil air navigation services to all users. The “Corporation” is defined in subsection 2(1) as NAV CANADA, a corporation incorporated on May 26, 1995, under Part II of the Canada Corporations Act, RSC 1970, c C-32.

[12] 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 charging principles set out in section 35 of the CANSCA and the notice and announcement requirements for the proposed new or revised charges, as provided for in sections 36 to 41.

[13] WestJet’s appeal cites two of the nine charging principles set out in subsection 35(1) of the CANSCA, which read as follows:

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

a.  charges must be in accordance with a methodology established and published by the Corporation that is explicit and that also includes the terms and conditions affecting charges;

…

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.

[14] The financial requirements referenced in paragraph 35(1)(i) of the CANSCA include those set out in subsection 35(5) of the CANSCA.

[15] Pursuant to subsection 42(1) of the CANSCA, charges by NAV CANADA for air navigation services may be appealed to the Agency. Section 43 of the CANSCA provides that an appeal to the Agency may only be made on one or more of the grounds listed in that section, 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.

[16] Pursuant to section 50 of the CANSCA, the Agency shall allow an appeal of NAV CANADA’s failure to observe a charging principle, based on a preponderance of the evidence. If the Agency determines that one or more of the charging principles set out in section 35 of the CANSCA have not been observed, that no notice under section 36 was given or no announcement under section 37 was made in respect of a new or revised charge, it is mandated under section 51 to order NAV CANADA to cancel the new charge and refund the amount of the cancelled charge to each user who paid it or to order NAV CANADA to cancel the revised charge, re-establish the previous charge and refund each user who paid the cancelled charge the amount, if any, collected in excess of the re-established charge.

POSITIONS OF THE PARTIES

WestJet’s appeal

[17] WestJet indicates that prior to the pandemic, it was transporting more than 22 million passengers annually and operating over 700 flights per day. However, because of the global travel restrictions that were imposed to combat the pandemic, international and domestic air travel has been drastically reduced, which has had a devastating impact on the finances of air carriers worldwide, including its own finances.

[18] According to WestJet, since the onset of the pandemic, it has had to undertake cost-cutting measures, such as laying off more than 80 percent of its contract employees, implementing hiring freezes and wage reductions, discontinuing all non-essential travel and training, revisiting its aircraft leasing agreements and stopping 75 percent of its capital projects. In addition, WestJet states that it further reduced its workforce by 6,900 through early retirements, exits, and voluntary and involuntary leave.

[19] WestJet states that despite the situation that it and other air carriers face in the midst of the pandemic, NAV CANADA proposed an increase in charges. WestJet points out that the revised charges are the second substantial change to charges that NAV CANADA has made within the last year.

[20] WestJet indicates that following the issuance of the Notice, various parties in the aviation industry raised concerns about the proposed revised charges by contacting the Government of Canada through the Minister of Transport. WestJet does not know if NAV CANADA responded to the industry’s submissions to the Government of Canada. WestJet also states that it raised its concerns directly with NAV CANADA prior to the implementation of the revised charges and communicated its concern that NAV CANADA was unwilling to take the sorts of measures WestJet and other air carriers adopted in response to liquidity challenges, such as employee reductions, agreement renegotiations and monetization of assets.

[21] WestJet submits that since NAV CANADA has a monopoly, its ability to unilaterally increase prices, which ultimately get passed on to passengers, can only be tempered through price regulation, an appeal to the Agency or full privatization.

[22] According to WestJet, the Agency should find that NAV CANADA did not comply with two of the nine charging principles set out in subsection 35(1) of the CANSCA and require that NAV CANADA reverse the revised charges and refund its customers. WestJet submits that “[t]his is the only way to ensure that our national aviation system runs efficiently and smoothly in the interest of all Canadians.” WestJet also argues that this finding would align with the Agency’s mandate of providing consumer protection for air passengers during a global pandemic.

CHARGING PRINCIPLES

Paragraph 35(1)(a) of the CANSCA

[23] WestJet argues that the methodology used for the introduction of the revised charges is far from explicit. According to WestJet, NAV CANADA provided no information on the analysis it used to determine the revised charges or the impacts of those increases.

Paragraph 35(1)(i) of the CANSCA

[24] WestJet asserts that NAV CANADA has provided insufficient information to demonstrate that it has exercised sound judgment in projecting its revenues or its financial requirements.

[25] In its appeal submission, WestJet argues that because NAV CANADA did not provide certain information, it is not possible for NAV CANADA’s customers or the Agency to evaluate whether the air traffic projections that are based on NAV CANADA’s new traffic forecasting approach are reasonable or prudent. According to WestJet, NAV CANADA did not provide information on, for example, the source data that it used for its traffic growth assumptions and whether those assumptions were re-examined for accuracy prior to the Announcement. WestJet also argues that there was insufficient time for NAV CANADA’s customers and board of directors to assess the assumptions in order to accept or challenge them.

[26] WestJet also states that it is not possible to accurately evaluate whether NAV CANADA’s projections are reasonable or prudent because little information was provided by NAV CANADA on the cost-cutting efforts it made to withstand the pandemic. According to WestJet, NAV CANADA provided no details prior to the implementation of the revised charges on whether it made any attempts to increase borrowing, if efforts were taken to leverage its equity stakes in any of its navigational equipment or if it considered borrowing against or selling any of its assets. In addition, WestJet states that NAV CANADA provided no information on whether it attempted to secure funding from the Government of Canada, whether it attempted to negotiate debt covenant relief or whether it had taken any other cost-cutting measures.

[27] WestJet further questions why, after the almost total collapse of international air traffic, NAV CANADA restored its operations to full services one day after it increased its charges. WestJet states that it is not asking the Agency to assess the reasonableness of NAV CANADA’s operational decisions during the pandemic but rather, to consider whether NAV CANADA used sound judgment when it introduced the revised charges during the early stages of the pandemic without disclosing any information or operational decisions impacting its financial projections.

LACK OF TRANSPARENCY IN NAV CANADA'S CONSULTATIONS AND ITS PROCESS IN ESTABLISHING THE REVISED CHARGES

[28] WestJet states that following receipt of the Notice, it submitted requests to NAV CANADA asking that the charges be either variable rather than fixed amounts or that they be reduced to less than what was proposed in the Notice. WestJet argues that NAV CANADA did not provide any reasons for why it refused to consider WestJet’s suggestions.

[29] In addition, WestJet states that NAV CANADA “apparently” consulted with other industry stakeholders but that NAV CANADA did not disclose all of the representations that were made to it during the consultation period and did not provide its responses to the representations.

[30] WestJet questions whether what it asserts was the lack of transparency in NAV CANADA’s consultation process means that the “consultation period” was a consultation “in name only,” and it suggests that if this is the case, NAV CANADA has breached its duty of procedural fairness.

NAV CANADA

[31] NAV CANADA argues that WestJet’s appeal is flawed since many of its arguments are outside of the Agency’s jurisdiction and that its interpretations of the charging principles set out in section 35 of the CANSCA are incorrect. NAV CANADA contends that the revised charges are in compliance with the charging principles and submits that it has complied with all of the obligations set out in the CANSCA regarding the Notice and Announcement.

[32] In addition, NAV CANADA asserts that WestJet’s claim that this matter is a consumer issue and that an Agency decision in WestJet’s favour would align with the Agency’s mandate are baseless and irrelevant. NAV CANADA submits that WestJet’s decision to immediately pass along the revised charges to passengers, despite the deferral it is being provided, is an operational decision of the air carrier. NAV CANADA also argues that WestJet’s appeal is simply a misplaced appeal to the Government of Canada for financial aid.

[33] NAV CANADA submits that the pandemic has caused an unprecedented decline in air traffic movement, due in large part to flight and route cancellations, fleet groundings, travel advisories and other air travel restrictions. NAV CANADA states that this decline has had a negative financial impact on it as well as on air carriers, indicating that it has suffered a significant reduction in liquidity. NAV CANADA states that despite the pandemic and the collapse in commercial air traffic, its statutory obligation to provide and operate a safe air navigation system remains. NAV CANADA asserts that in order for it to ensure the ongoing provision of safe air navigation services in the face of such severe financial challenges, it increased its charges in accordance with the CANSCA.

[34] NAV CANADA asserts that the revised charges are required to mitigate the negative impact on NAV CANADA’s current and future revenue and cash flow stemming from the pandemic-related collapse in air traffic movement. According to NAV CANADA, the revised charges are needed to generate incremental revenue of $242 million in its 2021 fiscal year, which will ensure compliance with debt covenant provisions and enable it to borrow $850 million to meet its liquidity requirements. The $242 million figure represents the 29.5 percent increase in charges that is the subject of WestJet’s appeal.

[35] According to NAV CANADA, the revised charges allow it to increase borrowings that provide the liquidity needed to get through the pandemic. NAV CANADA states that without an increase in revenues, it faced being in breach of its debt covenants, both in relation to its annual certification requirements and as a precursor to raising debt. NAV CANADA explains that it required a minimum of $1,062 million to meet its debt covenant but that the traffic forecast for its 2021 fiscal year translated to projected revenues of $820 million, leaving a shortfall of $242 million. NAV CANADA states that this shortfall translates to the 29.5 percent increase that makes up the revised charges.

[36] NAV CANADA also acknowledges the difficult financial conditions that its customers are facing and offered to defer the cash flow impacts of the revised charges for NAV CANADA’s 2021 fiscal year.

CHARGING PRINCIPLES

Paragraph 35(1)(a) of the CANSCA

[37] NAV CANADA states that the nature of WestJet’s argument that NAV CANADA is in breach of paragraph 35(1)(a) of the CANSCA is unclear and indicates that the entire appeal submission includes only one paragraph on this allegation.

[38] NAV CANADA asserts that, contrary to WestJet’s claim, its cost allocation methodology for the revised charges and the applicable terms and conditions were set out in the Notice, the Details and Principles Document and the Customer Guide to Charges (Customer Guide). NAV CANADA also maintains that there is nothing under the CANSCA that requires it to provide an exhaustive analysis on its charges or on any impact of an increase.

[39] In describing its cost allocation methodology, NAV CANADA states that, on an annual basis, it determines its financial requirements for the upcoming year through a “mature and consistently applied budgeting process.” Once the budget is set, it evaluates the revenues that will be necessary based on forecasted air traffic volumes and its financial requirements. NAV CANADA indicates that, if required, it adjusts its customer service charges to ensure that the projected revenues will not exceed or fall below its current and projected financial requirements.

[40] NAV CANADA asserts that its cost allocation methodology is well established and has not changed since the Minister of Transport approved it in 1997, pursuant to subsection 39(3) of the CANSCA. NAV CANADA also indicates that in order to be approved, the Minister of Transport had to be satisfied that the charges were consistent with the CANSCA’s charging principles. NAV CANADA maintains that the basic inputs for its methodology have remained unchanged and were applied to establish the revised charges.

[41] NAV CANADA argues that the Agency should find, on a preponderance of evidence, that NAV CANADA complied with its obligations under the charging principle of paragraph 35(1)(a) of the CANSCA.

Paragraph 35(1)(i) of the CANSCA

[42] NAV CANADA submits that it developed the revised charges in accordance with the charging principle of paragraph 35(1)(i) of the CANSCA by using revenue and financial requirement projections based on “sound judgment.” NAV CANADA contends that the consideration of what is “reasonable and prudent” does not include an analysis of external circumstances in the aviation industry, as confirmed by the Agency in Decision No. 650-NC-A-2003, which states:

the phrase “reasonable and prudent”, as it is used in paragraph 35(1)(i) of the CANSCA does not include a consideration of either the financial condition of NAV CANADA’s customers or the general condition of the industry in which NAV CANADA’s customers operate, or whether NAV CANADA’s charges are set at the most efficient and cost-effective levels so as to ensure the continued competitiveness of the carriers served by NAV CANADA.

[43] NAV CANADA argues that the question of what is “reasonable and prudent” varies with each case and, in this specific matter, its traffic forecasting and its revenue and liquidity requirements demonstrate that its taken approach is reasonable and prudent.

[44] NAV CANADA submits that the worldwide decrease in air traffic demand has been unprecedented in nature, scale and impact and that the recovery process will be influenced by various factors that are difficult to predict. Because of this, NAV CANADA maintains that traditional air traffic forecasting, which relies on historical models, was not an appropriate option in the current situation.

[45] NAV CANADA states that to determine the impact of the pandemic on air traffic, it conducted a detailed analysis of historical algorithms and concluded that these algorithms alone could not produce reliable forecasting. Therefore, NAV CANADA developed the new traffic forecasting approach for the 2020 and 2021 fiscal years, by obtaining and analysing operational and public information provided by various aviation industry participants. NAV CANADA states that this new scenario-based forecasting approach is based on current and historical data that take critical uncertainties into account.

[46] In describing the new traffic forecasting approach, NAV CANADA states that it initially developed four pandemic outcome scenarios that were based on media insight and medical studies. It then used concepts such as driving forces, critical uncertainties and plausible outcomes to generate over 700 plausible sub-scenario forecast outcomes. However, since that number was too unmanageable to be used as a basis for its forecast, it distilled them into pessimistic, moderate and optimistic outcomes for each of the four scenarios.

[47] NAV CANADA states that in early April 2020, it selected, as the most probable scenario, the moderate outcome for the scenario that most accurately reflected the pandemic isolation and containment strategy being applied by Canada and most of the world at the time.

[48] NAV CANADA indicates that the new traffic forecasting approach is flexible. NAV CANADA also states that as the impact of the pandemic evolves and as driving forces change and critical uncertainties become known, it allows NAV CANADA to adjust accordingly in order to continue to ensure principled and sound forecasting.

[49] NAV CANADA states that when applying the new traffic forecasting approach to determine revenue, it forecast the year-over-year negative traffic growth for the 2020 fiscal year to be -35.8 percent and -10.9 percent for the 2021 fiscal year. NAV CANADA indicates that its forecasts have proved to be reliable and have tracked well against the actual results. It notes that traffic forecasts of other industry forecasters, such as the International Air Transport Association (IATA), Moody’s and the European Organisation for the Safety of Air Navigation, have changed significantly since April 2020, and have been adjusted in a manner that more closely aligns with NAV CANADA’s forecasts.

[50] NAV CANADA states that since the onset of the pandemic, it has contended with significant monthly cash outflows that, if not addressed, would make it impossible for NAV CANADA to cover its operating, maintenance and financing expenses. NAV CANADA stresses that it provides an essential service and because its mandate requires it to operate, it cannot be in a position where it is unable to pay those expenses. NAV CANADA submits that in order for it to continue to operate, it has had no choice but to seek additional liquidity.

[51] According to NAV CANADA, it considered other sources of funding but chose to raise public debt as this was the most economic and least costly approach. NAV CANADA states that it moved forward with its debt issuance and was able to leverage its strong credit rating to raise $850 million at favourable pricing. NAV CANADA states that the additional debt allowed it to support projected cash flow requirements in the 2020 and 2021 fiscal years with a strong liquidity profile. NAV CANADA indicates that the additional liquidity allowed it to provide its customers with the ability to defer payments for the revised charges while they were recovering from the pandemic.

[52] NAV CANADA states that its need for liquidity could only be satisfied through additional borrowings, for which compliance with the debt covenants of its general obligation indenture (GOI) is a precondition. NAV CANADA indicates that the GOI was established in 2006 and created a new unsecured borrowing program for NAV CANADA’s future long-term financing requirements.

[53] NAV CANADA indicates that it is required to comply with two rate covenant calculations of the GOI and, due to the pandemic, it was at risk of not being able to satisfy one of the two covenants. To address this risk, NAV CANADA states that it developed a strategy of relying on a combination of a rate increase, cost reductions and government support. However, NAV CANADA indicates that government support has not been forthcoming.

[54] NAV CANADA states that there were two options for its calculation to meet its covenant requirements. It indicates that it leveraged this flexibility to produce a lower rate increase for its customers. NAV CANADA maintains that if it had used the alternate calculation available to it, NAV CANADA’s customers would have seen a 41.8 percent increase rather than the 29.5 percent increase that is at issue.

[55] According to NAV CANADA, the covenant calculation that it selected resulted in the $242 million revenue that it expects to receive from the revised charges and allowed NAV CANADA to raise debt to satisfy its covenant requirement.

[56] In addition, NAV CANADA states that it could have raised its rates to cover all of its financial needs and effectively break even but that it chose instead to proceed with a rate calculation that allowed it to meet its debt covenants and raise new debt. NAV CANADA maintains that this option permitted it to use its borrowing capacity to replace the cash shortfall rather than doing so solely through charges to its customers.

[57] Regarding the steps that it took to obtain other assistance, NAV CANADA states that at the onset of the pandemic, it sought funding from the Government of Canada that would have allowed it to avoid a rate increase for its customers. NAV CANADA points out that, to date, no such funding has been provided. NAV CANADA adds that despite the lack of a requirement under the CANSCA, it has been open with its customers, to the extent permitted, that it has been unsuccessful in obtaining government relief.

[58] NAV CANADA submits that it also considered adding to its credit facility limit but determined that renegotiating all of the related terms entailed an unacceptable risk. Additionally, NAV CANADA consulted its external advisors to examine the possibility of altering its revenue covenants but was advised against such an approach.

[59] Furthermore, NAV CANADA states that it considered its financial options under the Large Employer Emergency Financing Facility program (LEEFF) but this would have triggered an obligation on NAV CANADA to meet the GOI covenant, leading to the need for a higher charge. It also states that LEEFF’s interest rate was higher than the interest rate it obtained through the debt market. NAV CANADA also acknowledges that it received $86 million in the 2020 fiscal year through the Canada Emergency Wage Subsidy program.

[60] Finally, NAV CANADA submits that it began implementing cost-cutting actions immediately following the announcement of the pandemic. It states that the actions it undertook included reducing its workforce by 14 percent through voluntary retirements and involuntary layoffs, implementing a hiring freeze, reducing compensation for management staff and reducing its executive management team. NAV CANADA indicates that it also adjusted its pension program, renegotiated contractual commitments, cut or reduced corporate programs, reduced its capital spending program and sold one of its three corporate aircraft in an effort to reduce costs. NAV CANADA adds that it will likely undertake further workforce adjustments in the near future.

LACK OF TRANSPARENCY IN NAV CANADA'S CONSULTATIONS AND ITS PROCESS IN ESTABLISHING THE REVISED CHARGES 

[61] NAV CANADA argues that WestJet seeks to expand the limits of section 36 of the CANSCA to include a statutory requirement of transparency and an obligation to conduct a consultation process and that this is inconsistent with the statutory language. NAV CANADA submits that it is not required to consult with the public or its customers prior to finalizing a rate increase and that there is no proper appeal ground under section 36 that relates to NAV CANADA’s engagement with stakeholders.

[62] NAV CANADA contends that, notwithstanding the lack of any such requirement, it made significant efforts to engage its stakeholders when establishing the revised charges. NAV CANADA observes that WestJet took advantage of numerous opportunities to participate in NAV CANADA’s process related to the revised charges and chose not to participate in others.

[63] According to NAV CANADA, it used various methods to gain insight from stakeholders, including telephone conferences, virtual presentations, and written representations and responses received following the issuance of the Notice. NAV CANADA states that while the CANSCA does not stipulate the nature of the review and response process to be undertaken when establishing charges, its approach was informed by the factors impacting the aviation industry and was focused on minimizing the impact on its customers.

[64] Regarding WestJet’s arguments on procedural fairness, NAV CANADA states that it is incorrect to suggest that a standalone duty of procedural fairness at common law is owed in the establishment of the revised charges. NAV CANADA states that its corporate structure demonstrates that it is not a public authority, and the provisions of the CANSCA confirm that it is an entity distinct from the government. It also submits that in Decision No. 650-NC-A-2003, the Agency stressed that, like 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.”

[65] NAV CANADA further argues that the nature of its power to establish the revised charges is not an exercise of state decision-making. According to NAV CANADA, section 37 of the CANSCA does not give it the authority to make a “decision,” it only gives NAV CANADA the authority to “announce” a new or revised charge. NAV CANADA acknowledges that, while it is, at times, guided by the overarching imperative that the civil air navigation system in Canada meet international standards of safety, its power to set charges clearly does not engage the rule of law or the limits of an administrative decision.

WestJet’s reply

[66] In its reply to NAV CANADA’s answer, WestJet argues that there are three main issues that underlie what it describes as the inadequate and inaccurate financial submissions that NAV CANADA provided to the Agency.

[67] First, WestJet submits that the alternative approach that NAV CANADA indicated could have been used to determine the revised charges is flawed. According to WestJet, use of the alternative methodology based on the aggregate of projected “financial requirement” costs recoverable under subsection 35(5) of the CANSCA (raw aggregate methodology) results in projected figures that are inflated and misleading and that this approach should not be considered as a viable alternative to the approach that was actually applied.

[68] WestJet argues that the use of the raw aggregate methodology over NAV CANADA’s traditional GOI methodology provides for “an element of uncertainty” in the financial calculations. WestJet argues that since there are no specific definitions for the financial requirements set out under subsection 35(5) of the CANSCA, NAV CANADA could improperly include costs that are not permitted under applicable accounting rules.

[69] WestJet also questions why NAV CANADA combined certain expenses in its raw aggregate methodology into “Other Operating Expenses” rather than separately itemizing its operating and maintenance expenses. WestJet states that if these expenses had been itemized, they could be verified against what is permitted under subsection 35(5) of the CANSCA.

[70] WestJet also points out that NAV CANADA’s audited financial statements for the 2020 fiscal year and its management discussion and analysis (MDA) for the 2020 fiscal year demonstrate that NAV CANADA’s actual revenue stabilization account (RSA) in the 2020 fiscal year was $255 million, and not $325.30 million, as provided in its answer. WestJet questions why the corrected figure was not disclosed in NAV CANADA’s answer, which was filed on October 21, 2020, but was made publicly available only one day later, on October 22, 2020.

[71] WestJet argues that once the corrected figures are adjusted with the $255 million RSA deficit for the 2020 fiscal year, the raw aggregate methodology is calculated to be $474.7 million, and not $846.5 million. WestJet states that the significant difference in these amounts demonstrates the failure of the raw aggregate methodology and supports the argument that it should not be used. Furthermore, WestJet asserts that the adoption of the raw aggregate methodology will result in cash liquidity that is far above what NAV CANADA requires to maintain its operations and, therefore, outside of the goal of the CANSCA. WestJet points out however, that ultimately, NAV CANADA has proposed that the GOI be utilized.

[72] Second, WestJet submits that NAV CANADA made incorrect assumptions regarding its debt covenant obligations under its GOI. WestJet contends that the financial covenant ratio relied on by NAV CANADA to justify the increase in charges is found at section 5.03 of the GOI. According to WestJet, there are two separate covenants within the GOI, where section 5.03(a) is for maintenance of the debt covenant (rate covenant) and section 5.03(b) is in respect of NAV CANADA’s annual reporting requirements (reporting covenant).

[73] WestJet submits that the debt calculation for the rate covenant is different than the calculation for the reporting covenant, which appears, at face value, to indicate that two separate covenants are owed under section 5.03 of the GOI. According to WestJet, NAV CANADA only adopted the calculation of the reporting covenant, which is more stringent than the rate covenant and is not a reliable or reasonable financial representation in support of the rate increases of the revised charges.

[74] WestJet further claims that although section 5.03 of the GOI appears to include two separate financial covenants, this was not the intention of the drafters of the document. WestJet submits that the reporting covenant is only intended to confirm that NAV CANADA has been in compliance with the rate covenant and that it anticipates on remaining in compliance for the remainder of the year. WestJet also points to other inconsistencies that demonstrate that the drafters had not intended to create a distinct and separate covenant.

[75] WestJet argues that if NAV CANADA had adopted the correct GOI methodology and calculations under the rate covenant, rather than under the reporting covenant, it would have completely removed the $242 million shortfall that is the subject of the rate increase of the revised charges. WestJet asserts that the rate increase now provides revenue in excess of NAV CANADA’s operating needs and is therefore in violation of paragraph 35(5)(i) of the CANSCA.

[76] Third, WestJet argues that NAV CANADA has not been transparent in its cost reduction efforts. WestJet claims that the timing of the NAV CANADA’s efforts, as identified in its answer, is unclear given that they were never disclosed prior to the implementation of the revised charges. WestJet also contends that since NAV CANADA did not identify any clear dates for when its cost-cutting measures were undertaken or did not indicate whether those efforts aligned with the timing of the revised charges, it is difficult to analyze the revised charges’ increase. It further suggests that NAV CANADA only appeared to start cutting costs after WestJet’s appeal was filed with the Agency.

[77] Furthermore, WestJet argues that NAV CANADA’s audited financial statements for the 2020 fiscal year and its MDA for the 2020 fiscal year do not support NAV CANADA’s argument that substantial cost-saving measures have been achieved since the start of the pandemic.

[78] Regarding its allegations of a lack of transparency in NAV CANADA’s consultations, WestJet argues that NAV CANADA’s answer only identifies IATA and the National Airlines Council of Canada, along with WestJet, as stakeholders that provided representations and suggestions to NAV CANADA. WestJet states that NAV CANADA also withheld information on how it considered or implemented any comments that were received.

[79] WestJet maintains that although NAV CANADA is a not-for-profit corporation, it has exercised a statutory power of authority, which is subject to appeal. According to WestJet, NAV CANADA’s public mandate to impose charges for the provision of civil air navigation services is defined in Part III of the CANSCA; therefore, NAV CANADA “cannot act like a private corporation whose behaviour is only guided by the best interests of the corporation.” Rather, NAV CANADA must adhere to legislation and comply with the obligation to provide notice to every user of the new or revised charges, following consultation.

[80] WestJet states that NAV CANADA must demonstrate that it responded to proposals made by WestJet and other air carriers and stakeholders, who are entitled to receive justification and transparency in NAV CANADA’s decision-making process. WestJet argues that if NAV CANADA cannot demonstrate that it took these submissions into account, it is in breach of its common law duty of procedural fairness.

[81] WestJet also contends that NAV CANADA’s revised charges should not constitute an undue obstacle to the movement of traffic within Canada, as that would be inconsistent with the National Transportation Policy contained in section 5 of the Canada Transportation Act, SC 1996, c 10 (CTA).

ANALYSIS AND DETERMINATIONS

Are the revised charges in compliance with paragraph 35(1)(a) of the CANSCA?

[82] Paragraph 35(1)(a) of the CANSCA requires that the charges levied by NAV CANADA be established and updated in accordance with a methodology established and published by NAV CANADA that is explicit and that also includes the terms and conditions affecting the charges.

[83] The Agency has reviewed the submissions from the parties and notes that WestJet did not provide sufficient arguments or evidence to demonstrate that NAV CANADA is in breach of paragraph 35(1)(a) of the CANSCA. Aside from a statement that NAV CANADA’s methodology is far from explicit and that no analysis had been provided by NAV CANADA, WestJet does not elaborate on how, in its view, paragraph 35(1)(a) has been contravened.

[84] In contrast, NAV CANADA provided evidence in support of its assertion that the revised charges comply with paragraph 35(1)(a) of the CANSCA.

[85] Regarding whether the methodology was established, as required under paragraph 35(1)(i) of the CANSCA, the Agency is satisfied that NAV CANADA has proved that it continues to use the same cost allocation methodology that has been in place since it was approved by the Minister of Transport in 1997. In addition, as NAV CANADA pointed out, WestJet did not provide any evidence to demonstrate that NAV CANADA failed to follow its methodology. In addition, it is clear that NAV CANADA’s cost allocation methodology was published, as required, in the Notice, in the Details and Principles Document and in the Customer Guide. The methodology is explicit, it is clear and easy to understand, and it provides sufficient detail to allow interested parties to understand how NAV CANADA calculated the revised charges. Finally, the required modifications to the terms and conditions affecting the revised charges were clearly identified in section 3 of the Notice and the Announcement.

[86] In light of the foregoing, the Agency finds, on a preponderance of the evidence, that the methodology established and published by NAV CANADA is explicit and includes the terms and conditions affecting the revised charges. Therefore, the Agency finds that NAV CANADA observed the charging principle set out in paragraph 35(1)(a) of the CANSCA in establishing the revised charges.

Are the revised charges in compliance with paragraph 35(1)(i) of the CANSCA?

[87] Paragraph 35(1)(i) of the CANSCA 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.

[88] In determining whether NAV CANADA complied with the charging principle reflected in paragraph 35(1)(i) of the CANSCA, the Agency will apply the three-step approach that it established in Decision No. 650-NC-A-2003 and followed in Decision No. 10-A-2020. Under this approach, the Agency determines:

1. the meaning and purpose of the charging principle set out in paragraph 35(1)(i) of the CANSCA;
2. 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. 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.

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

[89] Paragraph 35(1)(i) of the CANSCA must be interpreted in accordance with the principles of statutory interpretation, as articulated in the Supreme Court of Canada’s decision in Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 SCR 27, citing Elmer A. Driedger in Construction of Statutes (2nd ed 1983):

Today there is only one principle or approach, namely, the words of an Act are to 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.

[90] This principle has been cited by the Supreme Court in several of its decisions, including very recently in Canada (Minister of Citizenship and Immigration) v Vavilov, 2019 SCC 65.

[91] As stated in Decision No. 650-NC-A-2003 and Decision No. 10-A-2020, the charging principles set out in subsection 35(1) of the CANSCA are broad and are designed to provide NAV CANADA with the scope and flexibility it needs to develop its own commercial structure and schedule of charges. At the same time, the charging principles establish specific limits 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 has been given a monopoly in the area of civil air navigation services and should not be permitted to raise revenues beyond the levels required to meet present and future costs and to deliver those services.

[92] In addition, the broad representation on NAV CANADA’s governance structure 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 stakeholders on an ongoing basis. It also ensures that the stakeholders are kept informed of NAV CANADA’s plans to establish new charges or revise existing charges, along with the opportunity to comment on any such proposals.

[93] Parliament did not intend that all of NAV CANADA’s decisions be free from 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 limited to the four grounds specified in section 43 of the CANSCA.

[94] 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 taking the interests of the users of that system into consideration by imposing certain operating conditions on NAV CANADA, and establishing a dispute mechanism to provide oversight to ensure that it meets those conditions.

[95] With respect to the matter at hand, the Agency relies on 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.

2. 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

[96] Historically, NAV CANADA forecasted air travel by using air carriers’ schedules, passenger and aircraft movement forecasts, macroeconomic indicators, and time series analysis. However, in response to the collapse of air travel caused by the pandemic, NAV CANADA developed its scenario-based, new traffic forecasting approach by using current and historical data.

[97] This approach considered four pandemic outcome scenarios, developed sub-scenarios around each, and then considered factors such as the public’s willingness to travel by air, global travel restrictions, economic impact scenarios of past events (9/11, SARS and the 2008 financial crisis), plausible minimum traffic levels and potential “new normal” situations. According to NAV CANADA, it ultimately decided that the most reasonable scenario on which to base revised charges was one that anticipated a “moderate outcome” in which every country simultaneously contains the pandemic using current social distancing techniques and forms of isolation.

[98] The Agency has considered the development of the new traffic forecasting approach and is of the opinion that NAV CANADA acted reasonably in deviating from its typical historical forecasting methods in order to attempt to model the impact of the pandemic on future air travel. The global pandemic brought about significant uncertainty in the air travel industry at the time of the determination of the charges. It would be extremely difficult to project traffic levels with any reliable degree of certainty in light of multiple unpredictable factors, such as passenger confidence in air travel; the effects of mitigation measures imposed by various countries; and the development, approval, participation in a vaccination program and success of such a program. Much is yet unknown, and in these highly unusual circumstances, NAV CANADA’s approach is reasonable.

[99] Although WestJet argued in its appeal submission that little information was provided by NAV CANADA in respect of its air traffic projections and in its reply, that NAV CANADA did not sufficiently justify its use of the scenario-based approach, the Agency notes that the air carrier did not contest NAV CANADA’s actual projections, offer any projections to contradict those of NAV CANADA or provide any evidence to support its challenge of either NAV CANADA’s projections or its overall approach.

[100] Therefore, the Agency is of the opinion that NAV CANADA acted in a reasonable and prudent fashion when it developed the new traffic forecasting approach by using a number of sources of information, including media, medical studies, and various air industry operators and stakeholders; developing and weighing a range of carefully considered scenarios based on this information; and selecting a scenario, for the purposes of setting the charge, that reflected reasonable assumptions in an exceptionally uncertain and fluid set of circumstances.

[101] The reasonableness of NAV CANADA’s initial forecast for the 2020 fiscal year—and by extension, its general approach—is confirmed by a comparison with actual developments. NAV CANADA projected that traffic would decrease by 35.8 percent year over year in the 2020 fiscal year. The Agency compared the 2020 fiscal year forecast and results, and found that actual traffic declined by 34.1 percent in the 2020 fiscal year, when compared to the previous fiscal year—an outcome very close to NAV CANADA’s predicted fall of 35.8 percent. As we are in the 2021 fiscal year, it is too early to assess the reasonableness of NAV CANADA’s 2021 fiscal year forecast.

[102] Turning to revenue and future financial requirements, the Agency notes that NAV CANADA increased the charges in order to recover additional revenue of $242 million. This amount is what NAV CANADA requires in order to meet the conditions of its debt covenant and, in so doing, qualify for additional credit that it intends to use to cover the remainder of its shortfall.

[103] WestJet claims that NAV CANADA made inaccurate assumptions on the application of the rate covenant, as found in section 5.03 of the GOI, by incorrectly relying on section 5.03(b) of the covenant rather than the calculation established in section 5.03(a). This argument is not supported by the plain wording of the GOI, which makes it clear that prior to taking out additional debt, NAV CANADA must demonstrate that it will have revenues in excess of its operating and maintenance expenses and debt service obligations for the current fiscal year and the following one. This obligation was reflected in NAV CANADA’s approach to setting the revised charges.

[104] WestJet also argues that NAV CANADA’s proposed use of the Raw Aggregate Methodology is flawed. However, given that this approach was not adopted by NAV CANADA, the merits of WestJet’s claim are irrelevant. In fact, WestJet acknowledges that the GOI methodology used by NAV CANADA may be an appropriate option.

[105] Regarding WestJet’s arguments on NAV CANADA’s cost-saving measures, the Agency notes that its consideration of NAV CANADA’s projections in establishing the revised charges is limited to whether they are “reasonable and prudent.” The Agency does not have the authority to review how NAV CANADA conducts its business in a general sense, nor to determine what specific combination of measures would be the most appropriate under these circumstances. That said, the Agency notes that NAV CANADA has, in fact, demonstrated that it has undertaken mitigation efforts to reduce its costs in the face of the impacts of the pandemic.

[106] 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. 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 

[107] Both parties acknowledge that NAV CANADA could seek to recover incremental revenues greater than the $242 million through the revised charges. NAV CANADA’s full 2020 fiscal year RSA deficit and budgeted the 2021 fiscal year’s net expenses amount to $846.5 million in total.

[108] The revised charges, however, have only been set at the level needed to meet its debt covenant revenue and to take on additional debt to maintain operations. There is no suggestion that there is any risk that the revised charges will result in NAV CANADA obtaining revenues that would retire its debt and make it a profitable undertaking at any time in the foreseeable future.

[109] Based on the foregoing, 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.

[110] Accordingly, the Agency finds, on a preponderance of the evidence, that NAV CANADA complied with the charging principle set out in paragraph 35(1)(i) of the CANSCA in establishing the revised charges.

Did NAV CANADA comply with its obligations under section 36 of the CANSCA, and does the Agency have the authority to consider WestJet’s allegations of NAV CANADA’s lack of transparency?

[111] In addition to a challenge that one or more of the charging principles set out in subsection 35(1) have not been observed, an appeal can be made on the grounds that NAV CANADA did not comply with the notice requirements of section 36 of the CANSCA.

[112] Section 36 of the CANSCA requires that when NAV CANADA proposes to establish a new or revised charge for air navigation services, it must do so in accordance with a set of criteria listed in that section. That list is exhaustive and does not impose requirements on NAV CANADA to consult its customers in establishing the revised charges.

[113] Paragraph 36(2)(a) of the CANSCA requires that a notice set out the particulars of the proposal. Sections 1 to 3 of the Notice provide those particulars. The Notice includes information on the then proposed revised charges, including breakdowns of movement-based charges, daily charges, annual charges and annual minimum charges. The Notice also includes information on the implementation of the revised charges and modifications to their terms and conditions. In addition, the term “particulars” found at paragraph 36(2)(a) is not defined in the CANSCA, and this provision does not identify any further details on what must be set out in the proposal. The Notice sets out sufficient detail such that those affected by the charges can understand with sufficient detail what is being proposed.

[114] In addition, section 4 of the Notice specifies 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.

[115] There is no allegation that NAV CANADA did not comply with subsection 36(3) of the CANSCA in terms of how the Notice was provided.

[116] Notwithstanding the limited requirements under section 36 of the CANSCA, NAV CANADA has provided evidence demonstrating that it did, in fact, engage WestJet and other stakeholders prior to and after the publication of the Notice. The Agency notes that NAV CANADA submitted information on the efforts it took, which included telephone conferences, virtual presentations, and responses to representations that were made to it.

[117] In light of the above, the Agency finds, 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.

[118] Finally, WestJet argues that NAV CANADA is in breach of an alleged common law duty of procedural fairness. NAV CANADA disagrees.

[119] The principle of whether the duty of procedural fairness applies can be found in Cardinal v Director of Kent Institution, [1985] 2 SCR 643, where the Supreme Court of Canada determined that “[a]t common law, a duty of procedural fairness lies on every public authority making an administrative decision which is not of a legislative nature and which affects the rights, privileges or interests of an individual.” This principle has been reiterated subsequently, including in Baker v Canada (Minister of Citizenship and Immigration), [1999] 2 SCR 817 (Baker), which WestJet cited to support its argument.

[120] Baker specified that the duty of procedural fairness varies in light of “the context of the particular statute and the rights affected.” Nonetheless, the Supreme Court of Canada did not deviate from the principle that procedural fairness is owed by a public authority making an administrative decision. Therefore, in order to examine the issue of whether NAV CANADA owes a duty of procedural fairness, one must first consider whether NAV CANADA is a public authority and, if so, whether its decision to increase its customer service charges is an administrative decision.

[121] When a matter is brought before the Agency on appeal, the parties in the appeal proceedings are entitled to procedural fairness. However, there is no jurisdiction for the Agency to decide if NAV CANADA, in setting the charges, owes a duty of procedural fairness to WestJet or any other party affected by its decision or whether that duty has been met by NAV CANADA. The Agency is a creature of statute and can only exercise the jurisdiction granted to it by Parliament. In that regard, section 43 of the CANSCA allows for NAV CANADA’s charges for air navigation services to be appealed to the Agency only on specific enumerated grounds. Allegations of a breach of a common law duty of procedural fairness and non-compliance with provisions of the CTA are not listed under section 43 of the CANSCA, and therefore the Agency finds that it is without jurisdiction to consider these issues on an appeal under that section.

CONCLUSION

[122] Based on the above findings, the Agency dismisses WestJet’s appeal.