Decision No. 597-A-2007

November 27, 2007

File No. M4212/M22-3-1

---

APPLICATION

Martinair Holland N.V. (hereinafter Martinair) has applied to the Canadian Transportation Agency (hereinafter the Agency) for the authority set out in the title. The application was received on October 15, 2007.

BACKGROUND

Under Licence No. 975115, Martinair is authorized to operate a scheduled international service between the Netherlands and Canada in accordance with the Agreement between the Government of Canada and the Government of the Kingdom of the Netherlands relating to Air Transport signed on June 2, 1989 (hereinafter the Agreement).

Condition No. 1 of Licence No. 975115 states:

The Licensee is authorized to operate the route(s) set out in the Agreement.

Condition No. 2 of Licence No. 975115 states:

The operation of the scheduled international service authorized herein shall be conducted subject to the provisions of the Agreement and to any applicable arrangements as may be agreed to between Canada and the Kingdom of the Netherlands.

Route 1 of the Agreement provides for the operation of services beyond Montréal, but not beyond Toronto, on the route Netherlands - Montréal - New York, New York - points in the United States of America to be named by the Netherlands - Mexico City and vice versa. Further, the Agreement provides for the exercise of fifth freedom rights on Route 1 between Montréal and Houston and between Montréal and Orlando. Route 2 provides for the operation of services between the Netherlands and Montréal and/or Toronto and/or Halifax and/or Ottawa and vice versa but does not provide for services beyond Toronto.

The Agreement does not authorize an airline designated by the Government of the Kingdom of the Netherlands to provide a scheduled international all-cargo air service to Toronto in combination with points in third countries. In addition, the carriage of fifth freedom traffic beyond Toronto to points in the United States of America is not permitted under the Agreement.

Due to the extra-bilateral nature of Martinair's requested authority, the Agency gave notice of the application to Air Canada and Air Transat A.T. Inc. carrying on business as Air Transat (hereinafter Air Transat), the Canadian air carriers designated to serve the Netherlands. Air Canada and Air Transat filed interventions in respect of the application.

POSITIONS OF THE PARTIES

Air Transat indicates that it does not object to the application, provided that fifth freedom rights are not extended to the Bogota/San Juan operations.

Air Canada acknowledges that for several years, Martinair has requested and been granted extra-bilateral rights to operate cargo flights beyond Toronto to points in the United States of America, without fifth freedom rights. In this application, however, Martinair proposes to add valuable fifth freedom rights on the Toronto - Los Angeles sector in addition to operating to an additional point beyond Toronto, namely Bogota.

Air Canada points out that in the past Martinair has requested and received approval for date specific flights utilizing fifth freedom traffic rights. These particular applications and approvals were based on specific requirements for unique shipments that, according to Martinair, could not be accommodated by other carriers.

Air Canada further states that as the Toronto - Los Angeles market is a large one that has competition from many air carriers, in addition to intermodal services, the granting of this unreciprocated, extra-bilateral request would provide Martinair with a traffic right of significant value.

Air Canada expresses its opinion that these rights should be negotiated under the Air Transport Agreement between Canada and the Netherlands. It also notes that Canada and the European Union are about to embark on negotiations and that matters involving new rights should be negotiated during these talks.

Martinair submits that the request to operate services beyond Toronto to points in the United States of America using fifth freedom traffic rights is due to a recurring unserved demand which should not be characterized as stated by Air Canada as traffic rights of a significant value.

In response to Air Canada's observations, Martinair also submits that, due to the fact that this market is highly competitive and underserved, it should be dealt with on an extra-bilateral basis and not during the upcoming negotiations between Canada and the European Union which will focus on the liberalization between Canada and European states. By granting the authority requested, Canada could use this as an example at the negotiating table as proof of the requirement to liberalize.

ANALYSIS AND FINDINGS

The Agency has reviewed and considered the application and the material filed in support thereof.

The Agency notes that there is no provision in the Agreement that would permit the operation of the service proposed by Martinair. However, the Agency may grant temporary authority pursuant to subsection 78(2) of the CTA for a service that is not permitted in a bilateral air transport agreement.

The Agency notes that previous requests by Martinair for extra-bilateral authority to use fifth freedom rights beyond Toronto to points in the United States of America have been dealt with on a case by case basis and not as a broad expansion of extra-bilateral fifth freedom traffic rights for a significant period of time. The Agency notes that extra-bilateral services are exceptional and, as such, approvals of such rights should be considered on an ad hoc basis.

In its consideration of requests for extra-bilateral authority, the Agency must balance the interests of consumers, the travelling public, the shippers and the air carriers, in light of Canadian government policies and bilateral relations. In this matter, the Agency notes that Canada and the European Union will embark this fall on negotiations regarding a comprehensive air transport agreement to expand services between Canada and the European Union Member States. Consequently, the Agency finds it would not be appropriate to grant broad additional traffic rights not supported by specific demand.

The Agency notes that in the case of traffic carried beyond Toronto to the United States of America and third countries, the demand is for transportation between the Netherlands and those third countries. Therefore, the shippers and air carriers most affected are those of the European Union. In such circumstances, it would be appropriate to allow Martinair to continue to provide cargo services beyond Toronto. Furthermore, to allow for flexibility in its operations, Martinair should be permitted to operate beyond Toronto to points in the United States of America or Bogota and San Juan.

CONCLUSION

Accordingly, the Agency, pursuant to subsection 78(2) of the CTA, hereby varies Condition Nos. 1 and 2 of Licence No. 975115 to the extent necessary to allow Martinair to operate up to two all-cargo flights per week on the routing Amsterdam to Toronto and beyond Toronto to points in the United States of America, without fifth freedom traffic rights beyond Toronto, and return to Amsterdam, or on the routing Amsterdam to Toronto and beyond Toronto to Bogota and San Juan without fifth freedom traffic rights beyond Toronto, and return to Amsterdam via Stanstead, from October 28, 2007 to March 29, 2008.

In all other respects, the service(s) shall be operated in accordance with the Agreement.

The authority granted herein does not exempt Martinair from the requirements of other legislative acts or regulations, including those of Transport Canada.

This Decision shall form part of Licence No. 975115 and shall remain affixed thereto as long as this Decision is in force.

This Decision takes effect on October 26, 2007, the date on which its content was verbally communicated to Martinair.

Members

• J. Mark MacKeigan
• Raymon J. Kaduck