Decision No. 423-A-2012
An erratum was issued on November 7, 2012
Inquiry into whether Sunwing Airlines Inc. continues to be controlled in fact by Canadians.
 The Canada Transportation Act, S.C., 1996, c.10, as amended (CTA), requires that air carriers holding domestic and certain international licences issued by the Canadian Transportation Agency (Agency) must be Canadian, as defined in subsection 55(1) of the CTA. This is an important requirement that must be complied with at all times.
 Sunwing Airlines Inc. (Sunwing) holds various licences issued under Part II of the CTA for the operation of domestic, scheduled international and non-scheduled international air services using large aircraft.
 Following allegations from the public and industry that Sunwing may no longer be Canadian, the Agency has undertaken an inquiry pursuant to section 81 of the CTA to determine whether Sunwing continues to be controlled in fact by Canadians.
 On January 13, 2010, the Agency, by way of Decision No. 10-A-2010 (Canadian Ownership Decision), determined that Sunwing would continue to be owned and controlled by Canadians following the proposed acquisition by TUI Canada Holdings Inc. (TUI), a non-Canadian company, of a 49 percent economic interest and a 25 percent voting interest in Sunwing’s parent company, Sunwing Travel Group Inc. (STGI).
 On January 14, 2010, STGI and TUI entered into the proposed transaction on terms consistent with those previously filed with the Agency.
 On May 17, 2012, an individual filed a submission with the Agency stating that Sunwing, in their view, no longer meets the definition of “Canadian” under the CTA. The individual alleged that TUI was exercising control in fact over Sunwing.
 On June 5, 2012, Transat A.T. Inc. (Transat) filed a submission with the Agency, along with information that it believed demonstrated that Sunwing is no longer controlled in fact by Canadians, and requested that the Agency investigate this matter.
 On June 22, 2012, the Agency’s Chair and Chief Executive Officer (CEO) issued letters to the individual and Transat, advising them that the Agency would pursue the matter directly with Sunwing. On July 3, 2012, the CEO provided Sunwing with a copy of the two submissions and advised that the Agency would commence an inquiry under section 81 of the CTA to determine whether Sunwing was controlled in fact by Canadians.
 In Decision No. LET-A-119-2012 dated August 2, 2012, the Agency denied Transat’s request for participatory rights in the Agency’s process either as a party or as an intervener.
 In Decision No. LET-A-120-2012 dated August 2, 2012, the Agency informed Sunwing that it had appointed an Inquiry Officer to undertake an inquiry into the Canadian status of Sunwing and to report findings of facts to the Agency.
 On August 2 and 10, 2012, the Inquiry Officer sent letters to Sunwing requesting certain documentation and information.
 On August 17, 2012, Sunwing responded by confidential letter and provided all of the requested documentation and information.
 On October 23, 2012, the Inquiry Officer submitted the confidential report of findings to the Agency Panel. On the basis of this report, the Agency Panel makes the following determination.
CANADIAN OWNERSHIP AND CONTROL REQUIREMENT
 Pursuant to subsection 55(1) of the CTA, a Canadian “means a Canadian citizen or a permanent resident within the meaning of subsection 2(1) of the Immigration and Refugee Protection Act, a government in Canada or an agent of such a government or a corporation or other entity that is incorporated or formed under the laws of Canada or a province, that is controlled in fact by Canadians and of which at least seventy-five percent, or such lesser percentage as the Governor in Council may by regulation specify, of the voting interests are owned and controlled by Canadians.”
 In order to be Canadian, as defined under subsection 55(1) of the CTA, Sunwing must, first, be incorporated under the laws of Canada or a province. Second, at least 75 percent of its voting interests must be owned and controlled by Canadians. Third, it must be controlled in fact by Canadians.
 As Sunwing is wholly owned by STGI, STGI must also meet the above three requirements for Sunwing to be Canadian.
 The Agency notes that no allegations were made with respect to the incorporation and voting interest requirements and that the inquiry was specifically focussed on the third requirement, whether Sunwing continues to be controlled in fact by Canadians.
CONTROL IN FACT REQUIREMENT
 The Agency views control in fact as the ongoing power/ability, exercised or not, to determine or decide the strategic decision-making activities of an enterprise and the ability to manage and run its day-to-day operations. Minority owners and their designated representatives normally have the ability to influence a company, as do others, such as financial institutions and employees. The influence, which can be exercised either positively (i.e., the requirement for a positive approval to be given for a decision to be made) or negatively (i.e., ability to veto a Decision), needs to be dominant or determining, however, for it to be considered control in fact.
 When determining where control in fact lies, the Agency examines all actual and proposed business and other relationships between the various shareholders, and between the shareholders and the company whose ownership is under review. All actual and proposed operational, managerial and financial relationships are considered. The intent and ability of individual shareholders to influence and control are also considered. Agreements, such as shareholder agreements and commercial contracts between the shareholders and the company are of special importance.
 The Agency notes that the Inquiry Officer’s request for documentation and information to Sunwing addressed all the elements that the Agency considers necessary to make a control in fact determination. It included, among other items, the following:
- The names of all shareholders, directors, and officers, along with their citizenship,
- The minutes of all shareholders’ and board of directors’ meetings and of all resolutions passed by the shareholders and board of directors,
- A description of any investment that TUI or any of its related companies made in STGI, Sunwing, or any other affiliated company,
- All agreements entered into between Sunwing, STGI, and its related companies and TUI and its related companies, including for the supply of aircraft, the supply of pilots, financing, or any other arrangement,
- Agreements that TUI or its related companies have entered into on behalf or for the benefit of Sunwing, STGI or its related companies,
- Any changes that might have been made to the Unanimous Shareholders Agreement between STGI and its shareholders or to any other agreements or corporate documents since such were filed with the Agency at the closing of the transaction,
- Sunwing’s detailed response to Transat’s and the individual’s submission, and
- The audited financial statements of Sunwing and STGI.
 The Inquiry Officer’s request for documentation and information was with respect to transactions subsequent to the closing of the transaction referred to in the Canadian Ownership Decision and was with respect to both Sunwing and STGI.
 Sunwing provided a timely and detailed response to the Inquiry Officer’s request for information. The following is a public summary of the key findings of the Inquiry Officer, together with the Agency’s conclusions.
Changes since the Canadian Ownership Decision
 Since the Canadian Ownership Decision, there have been no changes to the corporate structure or the ownership interest in Sunwing or STGI, no additional investment by TUI or any of its related companies in Sunwing, STGI, or any affiliated company, nor any changes to the Unanimous Shareholders’ Agreement to which the above are a party to.
Leasing of aircraft
 Sunwing operates in a highly seasonal market wherein the winter months are much busier than the summer months. The seasonality of the Canadian market is opposite to the European market, which is counter cyclical (i.e., summer market as opposed to the Canadian winter market).
 Sunwing’s business model has addressed the seasonality of the market by developing a year round core fleet of aircraft, which it supplements through the leasing of aircraft from European carriers to serve Sunwing’s winter and shoulder seasons.
 The concern has been raised that the leasing of aircraft from TUI is indicative of TUI exercising control in fact over Sunwing. The Agency notes:
- The TUI-related aircraft lease agreements contain terms and conditions consistent with arm’s length transactions and place no obligation on Sunwing to either lease any of its aircraft, or to exclusively lease its aircraft through TUI, nor do they appear to provide favourable terms to either of the parties;
- Sunwing has, since its inception in 2005, consistently leased seasonal aircraft to address the seasonality of its business;
- Since the Canadian Ownership Decision, while Sunwing has increased its seasonal aircraft capacity, it has continued to lease approximately 50 percent of its additional seasonal aircraft from non-TUI related European air carriers; and
- Sunwing contends that all of its seasonal leased aircraft were source driven by Sunwing to meet its own seasonal requirements, including a strong seasonal load factor.
 After having reviewed the facts as presented by the Inquiry Officer, the Agency concludes that Sunwing’s leasing of aircraft from TUI is not indicative, or a result of, TUI exercising, or having the ability to exercise, control in fact over Sunwing.
Seconding of pilots
 The seasonality of the market which drives the requirement to operate additional aircraft during the busier times of the year also drives the corresponding requirement for additional pilots during that same time period. Sunwing has addressed this requirement, in part, by seconding seasonal pilots from European air carriers, including from TUI.
 The concern has been raised that seconding pilots from TUI is indicative of TUI exercising control in fact over Sunwing. The Agency notes:
- The TUI related secondment agreements contain terms and conditions consistent with an arm’s length transaction and place no obligation on Sunwing to either second its seasonal pilots from or exclusively through TUI, or to provide its pilots to TUI;
- Sunwing has stated that the secondment of pilots is source-driven by Sunwing to meet its winter season demands, and is not dictated by TUI. Sunwing continues to second additional seasonal pilots from other non-TUI related air carriers to meet that demand;
- Since its inception in 2005, Sunwing has, each year, except for one winter season, seconded seasonal pilots from European air carriers; and
- Since the Canadian Ownership Decision, while Sunwing has increased its secondment of seasonal pilots, it has continued to second 50 percent or more of its seasonal pilots from non-TUI related air carriers.
 After having reviewed the facts as presented by the Inquiry Officer, the Agency concludes that Sunwing’s seconding of pilots from TUI is not indicative, or a result of, TUI exercising, or having the ability to exercise, control in fact over Sunwing.
Other agreements and information
 The Agency notes that the Inquiry Officer requested and reviewed every identified Sunwing and STGI shareholder and director resolution that was passed subsequent to the Canadian Ownership Decision. The Agency found that all of the resolutions where TUI or its nominated Board of Directors’ approval was required were consistent with the revised Unanimous Shareholders’ Agreement that was filed with the Agency in connection with the Canadian Ownership Decision. The Agency does not consider any of the resolutions to be indicative of TUI exercising control in fact of Sunwing.
 Sunwing entered into a number of agreements related to its operations that involve TUI and/or its related companies. The Agency examined these agreements and did not find that their nature or their terms and conditions indicate that TUI is exercising control in fact over Sunwing.
 The Agency views control in fact as the ongoing power/ability, exercised or not, to determine or decide the strategic decision-making activities of an enterprise and the ability to manage and run its day-to-day operations. The influence which can be exercised needs to be dominant or determining for it to be considered control in fact.
 For control in fact to exist, one of the parties must be able to exert its influence in a determinative manner over the other. The Agency finds that, with respect to TUI, this has not been evident based on the facts reviewed nor has it been evident in any of the agreements between the parties.
 The Agency notes that TUI has made a significant investment in Sunwing and finds it reasonable to expect that it would undoubtedly like to see it succeed financially. The ability or desire to enter into agreements that are mutually beneficial is to be expected. However, it is not, on its own, indicative of TUI being in a controlling position over Sunwing. For TUI to exercise control in fact, it would have to be in a position to, among other things, direct Sunwing to enter into the proposed agreements. After reviewing the resolutions and agreements, no evidence has been detected of any such authority, exercised or not. The Agency has reviewed the facts contained in the report and concludes that nothing indicates that TUI is able to exert control over the affairs of STGI and Sunwing.
 The Agency finds that the facts present a situation in which the agreements that have been entered into have been to Sunwing’s benefit and are consistent with business decisions geared towards increasing the profitability of the company and the interest of the Canadian majority shareholder. Accordingly, the Agency determines that Sunwing continues to be controlled in fact by Canadians and, therefore, that Sunwing continues to be Canadian, as defined in the CTA.