Selling an air charter operator in Canada

An owner who has decided to sell a charter operator has some steps to check that a sale of other businesses may not involve. The licence is not transferable, the Act’s Canadian definition applies to the licensee, and some transactions must be notified to the Minister and the Agency as well as to the Commissioner of Competition. Pilots and clients may react to news of a sale. This guide sets out steps for an owner to raise with a lawyer. It is general information only. Your lawyer decides how it applies to your company and your buyer.

Decide what the buyer can actually acquire

Section 58 of the Canada Transportation Act says a licence issued under Part II for the operation of an air service is not transferable. That shapes the offer a buyer can make. The licence cannot be assigned to a buyer, so a buyer that wants to keep operating under the existing licence would have to acquire the company that holds it, rather than selected assets; a buyer could instead apply for a licence of its own under section 61. Your lawyer can explain the difference between a share sale and an asset sale for your situation. For background on how licences move in a share purchase, see does a share purchase avoid transferring a company’s licences.

Test the buyer against the Canadian-ownership rule

Section 61 requires an applicant for a domestic licence to be a Canadian, unless the Minister grants an exemption under section 62, and under section 63 the Agency must suspend or cancel the licence where the Agency determines that the licensee ceases to meet that requirement. The Act defines a corporation as Canadian only if it is incorporated or formed under the laws of Canada or a province, is controlled in fact by Canadians and satisfies limits on the voting interests held by non-Canadians. Before you spend months negotiating, ask a prospective buyer to show its ownership chain. A buyer that cannot clear the test may need a different structure, or may not be able to proceed.

Find out whether the deal needs a transportation review

Section 53.1 applies to a person who must notify the Commissioner of Competition of a proposed transaction that involves a transportation undertaking. That person must also give notice to the Minister and, for an air transportation undertaking, to the Canadian Transportation Agency. Under section 53.2 the transaction cannot be completed unless the Governor in Council approves it and, for an air transportation undertaking, the Agency determines that the resulting undertaking is Canadian. Subsection 53.1(4) is an exception: if the Minister gives notice that the transaction does not raise public-interest issues for national transportation, sections 53.2 and 53.3 do not apply to it. The Competition Bureau notes that Part IX of the Competition Act requires notice of certain transactions that are of a specified type, exceed certain thresholds and are not subject to any exemptions. Ask your lawyer early whether yours is one, because a review affects the closing timeline.

Prepare the records a buyer will ask for

BDC advises owners to document standard operating procedures so that the company’s operations are easier to transfer to a new owner. For a charter operator, add the records a buyer may request: the licence and aviation document, insurance certificates, maintenance records for each aircraft, crew qualification files, client contracts, and hangar or base agreements. Close any gaps in these records before a buyer asks for them. Ask your accountant also to prepare recast earnings that separate any flying you do personally from the management you do.

Protect confidentiality and the flight crew

BDC notes that, depending on a listing site’s confidentiality procedures, word could get out to employees, customers or suppliers that you are selling. In a charter business, ask which of the pilots’ credentials belong to the pilots themselves, since their continuing with the company may not follow from the sale. Decide who is told, when, and under what written confidentiality terms. Ask prospective buyers to sign a confidentiality agreement before they see crew files, client names or maintenance records. Ask your lawyer how to keep key staff, and see what happens if a key employee quits before closing for how that risk is handled.

Plan what happens to the licence after closing

In a share sale the company keeps its licence, subject to the Act’s requirements. Section 63 makes suspension or cancellation mandatory where the Agency determines that the licensee no longer meets the Canadian, aviation document or insurance conditions. Agree with your buyer, in the purchase agreement, who is responsible for each of those conditions on the closing date and for the weeks after it. Ask your lawyer whether the insurance policy and the aviation document need to be updated for the new ownership, and who will arrange that. A written handover plan leaves a record of who was responsible if a problem appears just after closing. Keep a dated record of who was told what, and when.

• Confirm with counsel whether the buyer will take shares or assets, and what that means for the licence.
• Ask each prospective buyer to demonstrate that it meets the Canadian-ownership definition before detailed talks.
• Check whether the deal is notifiable and, if so, plan the review time into the closing date.
• Assemble the licence, insurance, maintenance, crew and client records in one place.
• Decide in writing who is told about the sale and when.