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Startup airlines push for boost in foreign ownership limits to ensure more competition

The Canadian aviation industry is littered with failed startups, and allowing more foreign risk capital into the market could mean the difference between launching and not launching for Jetlines, CEO Jim Scott said.

Two of Canada’s aspiring no-frills carriers say a proposal to provide foreign investors a bigger stake in the country’s airlines could mean the main difference between their success and failure.

How three Canadian airline startups plan to fly inside a daunting market

Ben Nelms for National Post

For a trio of Canadian airline upstarts whose launch date is imminent, the way to avoid engaging in a price war, it seems, is finding a niche and staying with it.

Continue reading.

A sweeping review of the Canada Transportation Act, tabled in Parliament last month, included a recommendation that Ottawa increase foreign ownership limits for commercial airlines to 49 percent.

The current limit of 25 per cent provides a “barrier to entry” for brand new airlines, said David Emerson, the previous cabinet minister who authored the report.

“There is room to increase competitiveness, as evidenced by the high load factors and also the record profits of the two largest carriers, as well as the proven fact that Canada is the only major air market with no ultra-low-cost carrier,” Emerson wrote.

“In contrast to larger markets like the U.S., there might not be enough capital in Canada to invest in 75 per cent of a new national carrier.”

This is really a wall that executives have run up against at Canada Jetlines Ltd., a fledgling ultra-low-cost carrier which has yet to obtain off the ground, according to CEO Jim Scott.

“Canada isn’t known for having a lot of risk capital,” Scott said in an interview.

“We observe that whenever we enter in the United States and talk to institutions, they’re more worried about the potential upside, whereas the Canadian institutions tend to be worried about how you’re going to mitigate risk.”

The Canadian aviation market is littered with failed startups, and allowing more foreign risk capital in to the market could mean the difference between launching and not launching for Jetlines, Scott said.

“We feel that to be able to launch an ultra-low-cost carrier in Canada it takes risk capital, and there’s risk capital both in the United States and Europe which is on the sidelines right now because they don’t like the current ownership (model),” he said.

“Forty-nine percent would be a lot more palatable for them and that we feel it would increase our likelihood of getting funding.”

At Enerjet, a Calgary-based charter airline that’s evaluating the possibility of launching its own no-frills carrier, the sensation would be that the proposal is really a step in the best direction but tend to go even more. (Enerjet has renamed its potential low-cost airline FlyToo, ditching the former moniker of Jet Naked.)

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