Cabotage rules in Canada require special attention

 - September 20, 2006, 11:00 AM

For hundreds and maybe thousands of years, countries have sought to protect the transport trade within their borders from what they perceive as unfair competition from foreign carriers. They call this competition cabotage, and most countries have passed laws to prohibit it.

In regards to aviation, cabotage rules typically deny a foreign carrier the right to pick up paying passengers in the host country and transport them from point to point within that country. “In general,” said Bill Stine, staff liaison for NBAA’s international operators committee, “cabotage is to prevent you from competing with local people who are doing the same thing for hire. If you’re doing that, then you’re probably in violation of cabotage [rules].”

It is no different in Canada, and, despite close economic ties with its neighbor to the south, Canada is alert to violations of its cabotage regulations.

Earlier this year, Bombardier Flexjet announced the launch of Flexjet Canada, noting that the new service would allow the fractional ownership operator to offer for the first time “travel between locations within Canada for [Flexjet share] owners based there [as well as] a more efficient service for existing owners traveling between Canada and the United States.”

Flexjet had previously used aircraft from its U.S.-registered fleet to serve its Canadian share owners in Canada. In doing so, the company was required to meet Canadian cabotage rules, which restricted point-to-point travel within Canada.

Flexjet v-p Sylvain Levesque emphasized in a recent interview that the move “is not so much a response to cabotage as it is a response to our owners and our ability to provide these additional trips within all current laws and regulations.”

On the other hand, the service provides a neat solution, one available to a company whose parent–Bombardier Aerospace–is Canadian and one that is not available to non-Canadian operators.

Levesque explained that Flexjet Canada is not a fractional ownership program. Rather, it consists, for the time being, of three Canadian-registered aircraft–two Learjet 45s and a Challenger 604–from Bombardier’s own fleet, along with 10 Montreal-based pilots holding Canadian pilot licenses. It is, in essence, a source of supplemental lift for Canadian members of the Flexjet fractional ownership program.

With the new Flexjet Canada service, said Levesque, “owners may utilize their fractional hours seamlessly to fly on these Canadian-registered aircraft.”

As for other corporate operators of U.S.- registered aircraft flying in Canada, cabotage may be a concern and violations may carry penalties. Fines (which Revenue Canada refers to as “permit fees”) may equal 10 percent of the hull value of the aircraft, and authorities may impound the airplane pending a satisfactory resolution of the situation.

A relatively recent Canadian Business Aviation Association (CBAA) membership bulletin offered some clarification of Canadian cabotage rules in the form of a “reminder” to Canadian customs officials of “the permitted uses of foreign non-tax-paid [read, non-Canadian registered] corporate aircraft when imported temporarily by non-residents of Canada.”

Not for Commercial Transport of Goods or Passengers

Such aircraft are considered to be for the personal use of non-resident owners, company personnel and foreign clients, and are not used for the commercial transport of goods or passengers.

According to the tariff regulations, there are no restrictions on the itinerary of such aircraft, provided the purpose of the flight and each leg of the flight is to accommodate an eligible non-resident user or users. “As such,” said the bulletin, “cabotage does not apply if the aircraft transports them from point to point in Canada.” It offered a number of eligible aircraft uses, among them:

• carrying the traveler into Canada for dropoff;

• carrying the traveler into Canada for stops at multiple Canadian destinations;

• leaving Canada empty while the traveler remains in Canada;

• picking up the traveler in Canada for furtherance to another Canadian destination; and

• entering Canada empty to pick up the traveler for the return trip.

Further explanation of cabotage as it relates to business aircraft can be found in Canada Border Services Agency Memorandum D3-2-1 (www.cbsa-asfc.gc.ca/).

A foreign non-tax-paid private or company-owned aircraft is restricted to international flights from a point abroad to a point or points in Canada and return, says the memorandum. And the carriage of Canadian residents to and their arrival from foreign destinations is permitted, provided the flight is limited to international service. But these aircraft cannot operate point-to-point domestic service within Canada.

Engaged in international service, the aircraft may stop at more than one Canadian location and disembark or re-embark passengers, provided the passengers are the same ones who originated outside Canada. In the same manner, on the outward-bound leg, the aircraft may stop at one or more locations in Canada and may disembark and re-embark passengers who are ultimately taken out of Canada as part of the same service.

Canadian Customs has traditionally allowed the uplift of Canadian passengers when their carriage was incidental to the intended or declared purpose of the flight. The key is that the carriage must be incidental to a flight that is being made, whether or not the Canadian passengers are enplaned. For example, a U.S.-based aircraft carrying company personnel from a location in the U.S. to a branch meeting or conference in a Canadian city may, while en route to the meeting or conference, stop at any other Canadian city and pick up additional people who will also be attending the same event. And the same Canadian passengers may be returned to the Canadian city where they embarked as part of the return portion of the flight to a U.S. destination.

On its Web site, the NBAA offered its own example, in response to a Part 91 operator who asked, “Is it [violating] cabotage if while flying a company official from the U.S. to Montreal for a meeting, I stop in Toronto and pick up a Canadian citizen who will take part in the business meeting?” The answer is “no, it doesn’t violate cabotage” and the key is that the carriage is “incidental to the intended or declared purpose of the flight.”

Canadian Customs generally considers all corporate aircraft to be engaged in non-commercial operations “unless specifically engaged in a commercial charter or other operation for hire or remuneration.” The NBAA memorandum cautions corporate operators to consult with the Canadian Transportation Agency (CTA) regarding possible restrictions on carriage of passengers between points in Canada.

In the CBAA memorandum, the association specifically addresses fractional ownership. The fact that these corporate or executive aircraft are fractionally owned and may be substituted from time to time does not diminish their eligibility to be classified as non-tax-paid corporate aircraft being temporarily imported by non-Canadians, said the memo.

Nonetheless, says NBAA’s Stine, “Canada hasn’t yet defined clearly where fractional in regulations ownership falls, and these operations have in some cases been defined by customs as commercial for-hire service.”

Stine points out that Canadian Customs is charged with enforcing cabotage, but its definition of fractional ownership is not necessarily the same as that in Canadian aviation regulations.

With the new Flexjet Canada service, “owners may utilize their fractional hours to fly on these Canadian-registered aircraft.” Corporate travelers concerned with the Canadian rules of cabotage might want to consult the Canadian Transportation Agency, or contact Dick Choquette, senior policy advisor at the CBAA, (613) 952-5343.

Stine is another source of information on cabotage, in Canada or elsewhere. He can be contacted at (202) 783-9000, or e-mail bstine@nbaa.org.