Aviation Finance Update: Canada Issue 2016 – 2, December 2016
Blakes Appointed International External Counsel to the Aviation Working Group Jeffrey Wool, Secretary General of the Aviation Working Group (AWG), and Brock Gibson, Chairman of Blake, Cassels & Graydon LLP (Blakes), are pleased to announce that, effective January 1, 2017, Blakes will become international external counsel to the AWG, and Blake, Cassels & Graydon (U.S.) LLP will become host of the AWG Secretariat. The AWG is the international industry body for aviation finance and regulatory issues. Its current members include AerCap; Airbus; Aircastle; ATR; Aviation Capital Group; Avolon; AWAS; BOC Aviation; Boeing; Bombardier Commercial Aircraft, BNP Paribas; CIT Aerospace; Development Bank of Japan (DBJ); Deutsche Bank; DVB; Engine Lease Finance Corporation (ELFC); Embraer; General Electric; GECAS; Goldman, Sachs & Co.; KfW IPEX-Bank; Macquarie Airfinance; Mitsubishi Corporation; Mitsubishi Aircraft Corporation; Morgan Stanley; NBAD; Rolls-Royce; SAFRAN, S.A.; SMBC Aviation Capital; and UTC, Pratt & Whitney Division. Members of the Blakes Aviation & Aerospace group have served as chairman of the AWG Legal Advisory Panel (LAP), member of the LAP executive committee, and secondee to the AWG coordinator and secretary of the AWG Canada Contract Group. While Blakes is currently an active member of the AWG LAP, we look forward to expanding our relationship with the AWG.
Royal Canadian Air Force Makes A “Super” (Hornet) Interim Purchase Auriol Marasco Senior Associate – Aviation & Aerospace Group On November 22, 2016, the Minister of National Defence, Harjit Sajjan, announced the federal government’s plan for replacing Canada’s aging CF-18 Hornet fleet. In his announcement, the
Minister stated that the government would immediately purchase 18 Boeing Super Hornets, as an interim measure, and would hold an open and transparent competition for the permanent replacement of the CF-18. While the government did not announce any further details about the subsequent procurement process, the Minister did note that the F-35 would not be excluded from the process. Canada has been trying to decide on the most appropriate aircraft to replace the CF-18 for the better part of a decade.
Developments in Canadian Air Transportation Policies Lisha Li Associate – Aviation & Aerospace Group Emerson Report On November 3, 2016, the Honourable Marc Garneau, Minister of Transport, presented to the Chamber of Commerce of Metropolitan Montréal, the Transportation 2030 plan for the future development of the Canadian transportation system. The plan is the result of extensive public consultations on key recommendations of the Canada Transportation Act Review Report, also known as the Emerson Report. The plan is broadly grouped into five themes: the traveller, safer transportation, green and innovative transportation, waterways, coasts and the north, and trade corridors to global markets. Foreign Investment in Canadian Airlines Of particular note, the Canadian government will now allow greater foreign investment into Canadian airlines. International companies will be able to own up to 49 per cent of a Canadian airline – up from 25 per cent – but a single foreign investor, or combination of foreign investors, will be capped at a maximum of 25 per cent. Along with that announcement, the Minister also issued specific exemptions to two companies, Enerjet and Canada Jetlines, to Blake, Cassels & Graydon LLP
Aviation Finance Update: Canada
allow them to immediately pursue increased foreign investment, as the legislative amendments necessary to complete the policy change are enacted. Both airlines intend to operate in Canada as ULCCs. Air Traveller Passenger Rights Another important policy development will be the introduction of an Air Travellers Passenger Rights Regime in the coming months. The new Rights Regime will set clear minimum requirements in terms of traveller’s rights and how they will be protected if problems arise. The measures may include compensation standards for passengers denied boarding due to factors within an air carrier’s control or in case of lost or damaged baggage. The Minister assures that this will be done in a balanced way so as to not be an undue burden on the airlines. More details on each of these policies will come in the next few months.
CORSIA: More Than Just Hot Air! Auriol Marasco Senior Associate – Aviation & Aerospace Group In 2010, the International Civil Aviation Organization (ICAO) adopted two goals in respect of the global environment: a two per cent annual fuel efficiency improvement, and a carbon neutral growth plan from 2020 onwards. In order to achieve this latter goal, during the 39th ICAO Assembly, held in Montréal September 27 to October 7, 2016, the majority of the 191 member states voted in favour of a global-market-based measure known as CORSIA (the carbon offsetting and reduction scheme for international aviation). CORSIA is designed to be implemented in phases. The pilot phase and the first phase are voluntary and span from 2021 to 2026. As at the end of the assembly, 66 member states (which represent approximately 86.5 per cent of the global international aviation activity), including Canada, agreed to participate in the voluntary phases of CORSIA. The second phase, which spans from 2027 to 2035, is mandatory for all states with an individual share of international aviation activities above 0.5 per cent of the total or whose cumulative share equals 90 per cent of the total. Among other exemptions, member states that are small islands, least developed countries or land-locked developing countries are exempt. CORSIA operates on a “route-based” approach such that only emissions resulting from international flights between two countries, where both countries are participating in CORSIA, are included.
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Each operator monitors its annual fuel consumption from all CORSIA routes throughout the year and estimates its carbon dioxide emissions. This information is then provided by the operator to its national authority, which, in turns, provides the information to ICAO. ICAO uses this information to estimate an annual sectoral growth factor of emissions. Each operator then calculates its offset requirements based on this growth factor and its actual emissions. Each operator is required to purchase the corresponding number of emission units from the carbon market. ICAO is currently developing policies relating to (1) a monitoring, reporting and verification system, (2) criteria of emission units to be purchased by operators, and (3) registries. These policies are aimed at ensuring that offsets are purchased from high-quality and reliable sources. Once the scheme is finalized, beginning in 2022, it will be reviewed every three years. Questions of enforcement methods, if any, have not yet been addressed. However, there has been no indication that the ICAO scheme will adopt the lien-based provisions proposed in the EU scheme. As host to ICAO, Canada recognizes the value of CORSIA and the Minister of Transport. Marc Garneau has said that “[t]he Government of Canada recognizes that, through global cooperation and efforts to ensure the seamless transport of passengers and goods, new ways can be found to help ensure the air transportation system is safe, secure, efficient and environmentally sustainable.” Whether Canada will take a leadership role in this regard is left to be seen.
CHC Bankruptcy in Canada Auriol Marasco Senior Associate – Aviation & Aerospace Group The insolvency of the CHC Group and over 40 directly or indirectly owned subsidiaries (collectively, CHC) will have a large impact on Canada given the size of CHC’s operations in the country. In general, the CHC insolvency could raise a range of core Cape Town Convention/Aircraft Protocol “CTC) issues should the applicable aircraft objects be subject to CTC international interests. In Canada, however, it is our understanding that the CTC is not applicable as the relevant aircraft in Canada were financed before the CTC came into force in Canada. As such, the CTC has not been referenced in the Canadian pleadings to date. On September 30, 2016, CHC filed a petition to the Supreme Court of British Columbia ( Canadian Court) under Part IV of the Companies’ Creditors Arrangement Act (Canada) (CCAA) for an Initial Recognition Order (Foreign Main Proceeding) and a
Aviation Finance Update: Canada
Supplemental Order (Foreign Main Proceeding). These orders were granted on October 13, 2016, and, among other things, they:
• The location where pricing decisions and new business
• Recognize the U.S. Chapter 11 proceedings (commenced on
• The seat of an enterprise’s treasury management functions,
May 5, 2016) as a “foreign main proceeding”
• Recognize CHC Group Ltd. as the foreign representative of the debtors
• Recognize certain orders granted by the U.S. court in the Chapter 11 proceedings
• Stay all proceedings against the Canadian debtors and their directors and officers Prior to these orders being granted, the Canadian court had to determine whether, under the CCAA, the centre of main interest (COMI) was Texas, as a local Canadian creditor (a landlord) has opposed such a finding because of the potential advantages to such creditor under Canadian law. Under Part IV of the CCAA, which is modelled on the UNCITRAL Model Law on Cross-Border Insolvency, in the absence of proof to the contrary, a debtor company’s registered office is deemed to be the COMI. In order to make such a determination, the Canadian court considered the following principal factors:
• The location is readily ascertainable by creditors • The location is one in which the debtor’s principal assets or operations are found
• The location is where the management of the debtor takes place In addition to such principal factors, the Canadian court also referenced the following factors in conducting its COMI analysis:
• The location where corporate decisions are made • The location of employee administration, including human resource functions
• The location of the company’s marketing and communication functions
• Whether the enterprise is managed on a consolidated basis • The extent of integration of an enterprise’s international operations
• The centre of an enterprise’s corporate, banking, strategic and management functions
• The existence of shared management within entities and in
development initiatives are created including management of accounts receivable and accounts payable In granting the orders, the Canadian court found that the COMI was in Texas, though no reasons were given in the order. In general, the analysis under COMI should produce a similar result to an analysis conducted to determine the primary insolvency jurisdiction (PIJ) under the CTC. Under the CTC, the PIJ is the location “in which the centre of the debtor’s main interests is situated, which for this purpose shall be deemed to be the place of the debtor’s statutory seat, or, if there is none, the place where the debtor is incorporated or formed, unless proved otherwise.” As such, a conflict between the COMI test and the PIJ test could arise where the corporate seat is located in a different jurisdiction to where administrative decisions are made which, at least to a limited extent, as has been the case with CHC.
Canadian Aviation in the News HEADLINES
• In November 2016, WestJet Airlines announced a deal with its pilots that could allow the airline to further expand into the international market.
• In October 2016, Bombardier announced a global lay-off of 7,500 of its workforce. Bombardier is currently negotiating with the federal government for C$1-billion in funding.
• On July 31, 2016, the federal government concluded public consultation relating to the development of a new defence policy for Canada which focused on the role of the Canadian Armed Forces, (CAF) and the resources and capabilities needed to carry out the CAF mandate. These consultations will help the federal government decide on the required replacement of its existing CF-18 fleet.
• In October 2016, an N-registered B757-200 commercial aircraft was detained and seized by the St. John’s International Airport Authority for the unpaid fees owing by the operator to the airport authority. After quick payment by the operator, the aircraft was released.
an organization
• The location where cash management and accounting functions are overseen
For more information about any of the above, please contact any Blakes Aviation & Aerospace team member.
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Aviation/Aerospace Aviation/Aerospace Aviation/Aerospace Principal Contacts Principal Contacts To learn more about our practice and how we can assist, please contact a member of our group or email us at:
[email protected]
Aircraft Financing, Aviation Commercial
Aviation – Restructuring & Insolvency Insolvency
AircraftFinancing, Financing, Aviation Commercial Aircraft Aviation Commercial Aircraft Financing, Aviation Commercial and Regulatory Regulatory and and Regulatory Regulatory and
Aviation––Restructuring Restructuring & Aviation & Insolvency Aviation – Restructuring & Insolvency
Donald Gray Gray Donald Donald Gray Head, Head, Aircraft Aircraft Finance Finance Head, Aircraft Finance Co-chair, Co-chair, Aviation/ Aviation/ Co-chair, Aviation/ Aerospace Group Aerospace Group Aerospace Group Toronto Office Toronto Office Toronto Office Direct: 416-863-2750 416-863-2750 Direct: Direct: 416-863-2750
[email protected] [email protected] [email protected]
Pamela Huff Huff Pamela Pamela Huff Huff Pamela Partner Partner Partner Partner Toronto Office Toronto Office Toronto Office Toronto Office Direct: 416-863-2958 416-863-2958 Direct: Direct: 416-863-2958 Direct: 416-863-2958
[email protected] [email protected] [email protected] [email protected]
Nathan Cheifetz Cheifetz Nathan Nathan Cheifetz Cheifetz Nathan Co-chair, Co-chair, Aviation/ Aviation/ Co-chair, Aviation/ Co-chair, Aviation/ Aerospace Group Aerospace Group Aerospace Group Aerospace Group Toronto Office Office Toronto Toronto Office Toronto Office Direct: 416-863-2969 Direct: 416-863-2969 Direct: 416-863-2969 Direct: 416-863-2969
[email protected] [email protected] [email protected] [email protected]
Jason MacIntyre MacIntyre Jason Jason MacIntyre Jason MacIntyre Partner Partner Partner Partner Toronto Office Office Toronto Toronto Office Toronto Office Direct: 416-863-2507 416-863-2507 Direct: Direct: 416-863-2507 Direct: 416-863-2507
[email protected] [email protected] [email protected] [email protected]
Sébastien Vilder Vilder Sébastien Sébastien Vilder Sébastien Vilder Partner Partner Partner Partner Montréal Office Office Montréal Montréal Office Montréal Office Direct: Direct: 514-982-5080 514-982-5080 Direct: 514-982-5080 Direct: 514-982-5080
[email protected] [email protected] [email protected] [email protected]
Warren Nishimura Nishimura Warren Warren Nishimura Warren Partner Nishimura Partner Partner Partner Calgary Office Calgary Office Calgary Office Calgary Office Direct: 403-260-9664 403-260-9664 Direct: Direct: 403-260-9664 403-260-9664 Direct:
[email protected] [email protected] [email protected] [email protected]
Auriol Marasco Marasco Auriol Auriol Marasco Associate Associate Auriol Marasco Associate Toronto Office TorontoAssociate Office Senior Toronto Office Direct: 416-863-2788 Direct: 416-863-2788 Toronto Office Direct: 416-863-2788
[email protected] [email protected] Direct: 416-863-2788
[email protected] [email protected]
Jennifer Morgan Morgan Jennifer Jennifer Morgan Jennifer Law Law Clerk ClerkMorgan Law Clerk Law Clerk Toronto Office Toronto Office Toronto Office Toronto Office Direct: 416-863-2182 416-863-2182 Direct: Direct: 416-863-2182 Direct: 416-863-2182
[email protected] [email protected] [email protected] [email protected]
Lisha Lisha Li Li Lisha Li Associate Associate Lisha Li Associate Toronto Office Office Toronto Associate Toronto Office Direct: 416-863-4189 416-863-4189 Direct: Toronto Office Direct: 416-863-4189
[email protected] [email protected] Direct: 416-863-4189
[email protected] [email protected]
Julie Marino Marino Julie Julie Marino Julie Marino Law Clerk Clerk Law Law ClerkOffice Montréal Montréal Office Office Montréal Montréal Office Direct: 514-982-5075 514-982-5075 Direct: Direct: 514-982-5075 Direct: 514-982-5075
[email protected] [email protected] [email protected]
Fabien Lanteri-Massa Lanteri-Massa Fabien Fabien Lanteri-Massa Associate Associate Associate Montréal Office Office Montréal Montréal Office Direct: 514-982-4034 514-982-4034 Direct: Direct: 514-982-4034 fabien.lanterimassa@blakes. fabien.lanterimassa@blakes.
[email protected] fabien.lanterimassa@blakes. com com com
Chris Burr Burr Chris Chris Burr Chris Burr Associate Associate Associate Associate Toronto Office Office Toronto Toronto Office Toronto Office Direct: 416-863-3261 416-863-3261 Direct: Direct: 416-863-3261 Direct: 416-863-3261
[email protected] [email protected] [email protected] [email protected]
Aviation – Tax
TORONTO
CALGARY
VANCOUVER
MONTRÉAL
MONTRÉAL OTTAWA TORONTO CALGARY MONTRÉAL OTTAWA TORONTO CALGARY MONTRÉAL TORONTO CALGARY *Associated Office Office OTTAWA *Associated *Associated Office
OTTAWA
NEW YORK
LONDON
Aviation––Tax Tax Aviation Aviation – Tax
Allan Gelkopf Gelkopf Allan Allan Gelkopf Allan PartnerGelkopf Partner Partner Partner Toronto Toronto Office Office Toronto Office Toronto Office Direct: 416-863-2634 416-863-2634 Direct: Direct: 416-863-2634 416-863-2634 Direct:
[email protected] [email protected] [email protected] [email protected]
Robert Robert Kreklewich Kreklewich Robert Kreklewich Robert Partner Kreklewich Partner Partner Partner Toronto Office Office Toronto Toronto Office Toronto Office Direct: Direct: 416-863-3278 416-863-3278 Direct: 416-863-3278 Direct: 416-863-3278
[email protected] [email protected] [email protected] [email protected]
Chris Van Loan Chris Van Van Loan Loan Chris Partner Partner Partner Toronto Office Office Toronto Toronto Office Direct: 416-863-2687 Direct: 416-863-2687 Direct: 416-863-2687
[email protected] [email protected] [email protected]
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