Transport Canada approves First Air-Canadian North merger

The federal government has formally approved a planned merger between northern airlines First Air and Canadian North.

The decision comes despite an earlier federal competition bureau finding that such a merger was “likely to [produce] the ability and incentive to materially raise prices and lower the quality of service” on all routes except Edmonton-Yellowknife.

While the competition bureau found a merger would be significantly detrimental to residents, the federal government said it had taken precautions – in allowing the merger – to guard against that outcome.

In a news release on Wednesday, Transport Canada said the merger could go ahead “subject to a series of strict terms and conditions” regarding issues like pricing and frequency of service.

In full: The terms and conditions under which the merger must happen

Those conditions will last for a period of seven years following the deal’s completion.

The merged airline won’t be allowed to increase beneficiary fares, or change beneficiaries’ free baggage allowances, in that time.

For other prices, the full rules state: “On an annual basis, for each [route] operated or published … on April 1, 2019, passenger fares shall not increase, on average, by more than the increase in the merged entity’s operating cost on that [route].

“Should the merged entity’s operating cost decrease on [a route], passenger fares shall, on average, decrease by the same degree.”

Charlie Watt Sr, president of First Air owner Makivik, said in a statement: “This is good news. In 1990 we bought a troubled airline, First Air, and made it sustainable. At the time we promised to create an airline owned by all of the Inuit of Canada, and we are now much closer to making that a reality.”

The airlines, in a joint statement, said they were “committed to ensuring that the merger creates a sustainable airline which provides exceptional customer experience at the best possible prices.”

Transparency, accountability

The two airlines have been working on a merger since last summer. They will become one, Ottawa-headquartered service known as Canadian North but bearing First Air’s livery and Inukshuk logo.

No provisional schedule for the merger’s completion has been announced.

Makivik and Canadian North owner the Inuvialuit Development Corporation had initially hoped to complete the deal by the end of 2018.

“The world is changing and we need to adapt to new realities,” said Watt Sr last year. “This is one way to assert our sovereignty across the Arctic.”

The two airlines had dismissed the competition bureau’s findings as “of limited value and suggest a superficial understanding.”

“The bureau abandoned its usual practice of considering efficiencies associated with a merger of this nature,” the corporations said in a joint statement in February.

“By neglecting to consider the overwhelming financial and non-financial benefits to northerners that will be generated, the bureau’s assessment fails to recognize that a merger is necessary to sustain air travel to the North and relieve the substantial financial burden currently shouldered by Inuit Land Claim Organization owners.”

On Wednesday, Transport Canada said it had taken into account the federal competition bureau’s concerns by imposing a series of conditions on the merger.

Those include, in Transport Canada’s words:

• no price increases for both passenger travel and cargo delivery beyond those related to operating costs;
• no reductions to the weekly schedule options on all routes of the airlines’ combined network;
• access to northern infrastructure (facilities and equipment) for new airlines entering the market;
• a commitment to increasing Inuit representation across the merged entity’s operations; and
• several transparency and accountability measures, such as providing quarterly financial updates and yearly financial statements to the minister.

“The terms and conditions also ensure that items such as nutritious food and essential medical supplies are prioritized for cargo transportation in the North,” the department said.

In prepared remarks, federal transport minister Marc Garneau said: “We carefully examined the public interest, financial, and competition aspects of the proposed merger.

“A strong, financially stable northern air carrier, taking advantage of operating and network efficiencies of a merger, will best serve the North by leading to greater reliability of service as well as environmental sustainability.

“The strict terms and conditions will keep costs low and ensure northern and remote communities have the access they deserve, while at the same time protecting northern jobs.”

“We are following through on our commitment to act in the best interest of all Northerners,” said Duane Smith, chair and chief executive of the Inuvialuit Regional Corporation.

“By optimizing the northern air transportation corridor, we are making significant progress in empowering Inuit to become meaningful participants in both the northern and national economies.”