Buying an air charter operator in Canada

Before asking what a charter company earns, someone buying an air charter operator should start with a different question: can I lawfully own it? Canadian law ties the right to hold an air service licence to who controls the company. A buyer who cannot meet that test, or who needs a review it has not planned for, may lose months on a deal that was never available to it. This guide covers what you personally must qualify for, what a sound operator looks like from the buyer’s side, and what to ask a seller about. Treat it as a starting list for your lawyer.

Check that you qualify to own the company

Section 61 of the Canada Transportation Act sets the conditions for a domestic licence. The applicant must be a Canadian, hold a Canadian aviation document for the service, carry the prescribed liability insurance and meet prescribed financial requirements, and the Agency must be satisfied that the applicant has not contravened section 59 in respect of a domestic service within the preceding twelve months. The Act’s definition of Canadian for a corporation requires incorporation or formation under the laws of Canada or a province and control in fact by Canadians, and sets limits on voting interests held by non-Canadians. A buyer’s holding company, investors and lenders can all bear on that definition. Show the ownership chain to counsel before you sign a letter of intent.

If you are not Canadian, expect more than one gate

Under section 62 the Minister may, by order, exempt a person who is not a Canadian from the Canadian requirement for a domestic licence, on the terms and conditions specified in the order and for its duration, where the Minister considers it necessary or advisable in the public interest. Separately, the Investment Canada Act provides for review of significant investments in Canada by non-Canadians and, under Part IV.1, for national security review. Innovation, Science and Economic Development Canada says the national security provisions let the government review foreign investments of any size. A non-Canadian buyer should obtain advice on both regimes before making an offer.

What a good operator looks like from the buyer’s chair

Look for a company whose licence, aviation document and insurance are all current, whose aircraft come with complete maintenance records, and whose revenue does not depend on one client or on the owner flying. Section 63 requires the Agency to suspend or cancel a domestic licence where it determines that the licensee stops meeting the Canadian, aviation document or insurance requirements, so a buyer is really buying the continuing ability to meet them. Ask what has changed in the company’s regulatory file in recent years, and who at the company handles it day to day.

Questions to put to the seller

Ask whether a key pilot is close to retirement, whether a client contract is tied to the owner personally, and whether an aircraft is operated under an arrangement with another person. Section 60 of the Act limits how a licensee may use an aircraft with a flight crew provided by someone else, so ask for every such agreement. Ask also which aircraft are owned, which are leased, and whether any lender holds a claim over them. Put these questions in writing and expect written answers. Keep the replies in your deal file, so that any later difference between what was said and what was found can be traced.

Pilots are the part you cannot buy

Ask which credentials each pilot holds and whether they stay with the pilot. If the pilots are the reason clients stay, a buyer needs a plan to keep them. How to keep key employees after you buy a business sets out general approaches. Employees of an air operator may fall under the Canada Labour Code, because that Act includes aircraft and a line of air transportation in its definition of a federal work, undertaking or business. Confirm with counsel which labour regime applies and whether a union is certified.

Work out how your funding affects the ownership test

Money can change who controls a company. If an investor or lender takes voting shares, or rights that give it a say in running the business, the Act’s definition of Canadian looks at control in fact as well as at voting interests. Before you line up funding, show counsel every proposed investor, every shareholder agreement and every lender covenant that touches control. A source of funds that looks harmless commercially can still put the company outside the definition, and section 63 then requires the Agency to suspend or cancel the licence where it determines that the licensee is no longer a Canadian. Settle the funding structure with counsel before you make the offer.

• Your own status under the Canadian definition, tested with your investors and lenders included.
• Whether Investment Canada Act review applies, if any party is a non-Canadian.
• Whether the licence, aviation document and insurance are current, and who maintains them.
• Each aircraft’s ownership and any agreement under which another person supplies an aircraft and crew.
• Which pilots would stay, and on what terms, before you commit.