Canada Gazette, Part I, Volume 157, Number 14: ORDERS IN COUNCIL

April 8, 2023

DEPARTMENT OF TRANSPORT

CANADA TRANSPORTATION ACT

Order Approving the Acquisition of Sunwing Airlines Ltd. by WestJet Airlines Ltd.

P.C. 2023-210 March 9, 2023

Whereas subsection 53.2(1) of the Canada Transportation Act (the Act) provides that no person shall complete a proposed transaction referred to in subsection 53.1(1) of the Act unless the transaction is approved by the Governor in Council;

Whereas WestJet Airlines Ltd. (WestJet) and Sunwing Airlines Inc. (Sunwing) (the parties) gave notice on April 8, 2022 to the Minister of Transport, in accordance with paragraph 53.1(1)(a) of the Act, of a proposed transaction in which WestJet would acquire all of the issued and outstanding shares of Sunwing;

Whereas a departmental report has been presented to the Minister on concerns regarding the proposed transaction with respect to the public interest as it relates to national transportation;

Whereas the Commissioner of Competition reported to the Minister and the parties on October 25, 2022, in accordance with subsection 53.2(2) of the Act, on concerns regarding potential prevention or lessening of competition that may occur as a result of the transaction;

Whereas, following the review of these reports, the Minister, in accordance with subsection 53.2(4) of the Act, consulted with the Commissioner and requested that the parties address the concerns referred to in subparagraphs 53.2(4)(b)(i) and (ii) of the Act;

Whereas, in accordance with subsection 53.2(5) of the Act, the parties have informed the Minister of the measures that they are prepared to undertake to address the concerns referred to in subparagraph 53.2(4)(b)(i) of the Act, and have informed the Commissioner of the measures that they are prepared to undertake to address the concerns referred to in subparagraph 53.2(4)(b)(ii) of the Act;

Whereas the Minister has, in accordance with subsection 53.2(6) of the Act, obtained the Commissioner’s assessment of the adequacy of the undertakings proposed by the parties to address the concerns that the Commissioner has regarding potential prevention or lessening of competition that may occur as a result of the transaction;

And whereas, under subsection 53.2(7) of the Act, the Governor in Council is satisfied that, taking into account the measures that the parties are prepared to undertake, it is in the public interest to approve the proposed transaction, as it would among other things, benefit the overall stability of the Canadian air sector as it recovers from the significant impacts to that sector as a result of the coronavirus disease 2019 (COVID-19);

Therefore, Her Excellency the Governor General in Council, on the recommendation of the Minister of Transport, under subsection 53.2(7) of the Canada Transportation Act, approves the proposed transaction in which WestJet would acquire all of the issued and outstanding shares of Sunwing, subject to the terms and conditions set out in the schedule.

Terms and conditions

Definitions

The following definitions shall apply to these Terms and Conditions.

“2022 Seasonal Levels”
means the total non-stop air seat capacity operated by all Canadian domiciled air carriers on a given Relevant City Pair, in the aggregate, in the Summer Season of 2022 and in the Winter Season of 2022, respectively.
“2022 Seasonal Market Levels”
means the total non-stop air seat capacity operated by all Canadian domiciled air carriers from a given Canadian Origin to all Sun Destinations, in the aggregate, in Summer Season of 2022 and in the Winter Season of 2022, respectively.
“2022 Seasonal Sunwing Levels”
means the total non-stop air seat capacity operated by Sunwing on a given Relevant City Pair, in the aggregate, in the Summer Season of 2022 and in the Winter Season of 2022, respectively.
“2022 Seasonal WestJet Levels”
means the total non-stop air seat capacity operated by WestJet and Sunwing from a given Canadian Origin to all Sun Destinations, in the aggregate, in the Summer Season of 2022 and in the Winter Season of 2022, respectively.
“Act”
means the Canada Transportation Act (Canada).
“Affiliate”
means, in respect of a Person, any other Person controlling, controlled by or under common control with such first Person, whether directly or indirectly and “control” means directly or indirectly hold securities or other interests in a Person
  • (i) to which are attached more than 50% of the votes that may be cast to elect directors or persons exercising similar functions, or
  • (ii) entitling the holder to receive more than 50% of the profits of the Person or more than 50% of its assets on dissolution.
“Applicable Law” or “Applicable Laws”
means:
  • (i) any applicable statute or proclamation or any delegated or subordinate legislation, including regulations, by-laws;
  • (ii) any applicable order, direction, directive, request for information, policy, administrative interpretation, guideline or rule of or by any Governmental Authority; and
  • (iii) any applicable judgment of a relevant court of law, board, arbitrator or administrative agency which is a binding precedent in the Province of Alberta,
in each case, in force in the Province of Alberta, or otherwise binding on WestJet or His Majesty.
“Business Day”
means any day other than a Saturday, a Sunday, a statutory holiday in the Provinces of Alberta, Ontario or Quebec or any day on which banks are not open for business in the City of Calgary, Alberta, the City of Toronto, Ontario or the City of Montreal, Quebec.
“Canadian Affiliates”
means Affiliates that are “Canadian” as defined in subsection 55(1) of the Act.
“Canadian Origin”
has the meaning ascribed thereto in Appendix A attached hereto.
“Canadian Suppliers”
means suppliers that are “Canadian” as defined in subsection 55(1) of the Act.
“Canadians”
means (a) a Canadian citizen, (b) a permanent resident within the meaning of subsection 2(1) of the Immigration and Refugee Protection Act, or (c) a person who has submitted an application to be a permanent resident within the meaning of subsection 2(1) of the Immigration and Refugee Protection Act.
“Closing”
means the closing of the Transaction.
“Commissioner”
means the Commissioner of Competition, appointed under section 7 of the Competition Act.
“Financial Data”
means, for the preceding calendar year, unaudited quarterly and annual financial statements for each of WestJet and its Subsidiaries.
“Governmental Authority”
means His Majesty and any other domestic or foreign, federal, provincial, state, territorial, regional, municipal or local governmental authority, quasi-governmental authority, court, government or self-regulatory organization, commission, board, tribunal, organization, or any regulatory, administrative or other agency, or any political or other subdivision, department, or branch of any of the foregoing, having legal jurisdiction in any way over WestJet, or any aspect of the performance of these Terms and Conditions, in each case to the extent it has or performs legislative, judicial, regulatory, administrative or other functions within its jurisdiction; provided, for greater certainty, that airport authorities and managers of airports are not Governmental Authorities.
“His Majesty”
means His Majesty in Right of Canada as represented by the Minister.
“Implementation and Monitoring Agreement”
means the implementation and monitoring agreement between His Majesty and WestJet, providing for the implementation and monitoring of these Terms and Conditions to be entered into prior to the Closing, as amended from time to time.
“Minister”
means the Minister of Transport.
“Monitor”
means the Person appointed by WestJet pursuant to the provisions of the Implementation and Monitoring Agreement (or any substitute appointed thereto), and any employees, agents or other Persons acting for or on behalf of the Monitor, to oversee and monitor WestJet’s compliance with these Terms and Conditions and the Implementation and Monitoring Agreement.
“Person”
means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
“Relevant City Pair”
has the meaning ascribed thereto in Appendix A attached hereto.
“Subsidiary”
means in respect of a Person, any other Person controlled by such first Person, whether directly or indirectly, and includes a Subsidiary of that Subsidiary, where control has the meaning ascribed thereto in the definition of “Affiliate” herein.
“Summer Season”
means the period from May 1 of a year until October 31 of the same year.
“Sun Destinations”
means all destinations outside of Canada that Canadians frequently travel to for leisure purposes in the winter season in Florida, the Caribbean, Mexico and Central America.
“Sunwing”
means Sunwing Airlines and Sunwing Vacations, collectively, and their successors and assigns.
“Sunwing Airlines”
means Sunwing Airlines Inc., doing business as Sunwing Airlines.
“Sunwing’s LEEFF loan”
means, collectively, (i) the secured non-revolving credit facility made available by Canada Enterprise Emergency Funding Corporation pursuant to the Third Amended and Restated Credit Agreement dated as of January 29, 2021, as amended, and (ii) the unsecured non-revolving credit facility made available by Canada Enterprise Emergency Funding Corporation pursuant to the Loan Agreement (Unsecured) dated as of January 29, 2021, as amended.
“Sunwing Vacations”
means Sunwing Vacations Inc., doing business as Sunwing Vacations.
“Sunwing Brand”
means the brand under which Sunwing and its Subsidiaries carried on business prior to the Closing.
“SVI Newco”
means 1000203874 ONTARIO INC., a corporation incorporated under the laws of the Province of Ontario, which will acquire the assets and liabilities of Sunwing Vacations and the shares of Sunwing Airlines prior to Closing, all the shares of which will be acquired by WestJet Exchangeco Inc. pursuant to the Transaction, and on Closing will adopt and become party to this Terms and Conditions, and its successors and assigns.
“Terms and Conditions”
means these Terms and Conditions, as specified by the Governor in Council in approving the Transaction, in accordance with section 53.2(7) of the Act, as amended from time to time, pursuant to section 53.2(8) of the Act.
“Transaction”
means the proposed acquisition by WestJet of Sunwing Airlines and Sunwing Vacations pursuant to a Share Purchase Agreement dated January 27, 2022 between certain Affiliates of WestJet, Sunwing Vacations, Sunwing Airlines and certain of their respective Affiliates, as amended from time to time.
“Vacations Business”
means package vacations business undertaken by WestJet and its Subsidiaries following the Closing, as such business may evolve and change in WestJet’s commercially reasonable discretion, including the package vacations business performed prior to the Closing by each of Sunwing Vacations and WestJet Vacations Inc.
“WestJet”
means WestJet Airlines Ltd. and its Subsidiaries, collectively.
“Winter Season”
means the period from November 1 of a year until April 30 of the following year.

Interpretation

These Terms and Conditions shall be interpreted according to the following provisions, unless the context requires a different meaning:

Public Interest & Competition Measures

1. Seasonal Seat Capacity

For each Winter Season and Summer Season, beginning with the 2023/2024 Winter Season and ending with the 2026 Summer Season, inclusive, WestJet shall provide air service on each of the Relevant City Pairs, with seasonal seat capacity exceeding 90% of 2022 Seasonal Levels; provided, however, that in respect of each such Relevant City Pair, this requirement shall not apply in a given season if:

Public Interest Measures

2. Leasing of Foreign Aircraft and Employment

As soon as reasonably possible and in any event prior to the Summer Season of 2026, subject to Applicable Law, WestJet shall:

following such orderly end described in section 2(b), and until the date that is the fifth anniversary of Closing, WestJet shall utilize Canadian unionized pilots and cabin crews for flights that service travellers who purchase Sunwing Vacations tour packages.

3. Canadian Suppliers

Notwithstanding section 2, for a minimum of three years following Closing, in the event that WestJet determines that it has a requirement for any seasonal lease of an aircraft, including on a wet-lease or dry-lease basis, WestJet shall provide Canadian Suppliers with full and fair opportunity to bid on the supply of that aircraft; provided however, that this undertaking shall be subject to the terms of WestJet’s contractual obligations including, without limitation, (i) any collective bargaining agreement which WestJet or any of its Canadian Affiliates is party to, including any such agreement not presently in force; and (ii) any contractual right of first refusal existing at the time of Closing.

4. New Sunwing Routes

As soon as reasonably possible and in any event within two years of Closing, WestJet shall offer Sunwing Brand package vacations on direct or one-stop air service from five Canadian points of origin not served by Sunwing in Winter 2022-2023 to Sun Destinations on at least 52 days of the year, for a period of at least two years. For greater certainty, if during that period of time WestJet ceases to operate at any of one of those five Canadian points of origin, WestJet may provide the same level of service from another Canadian point of origin not served by Sunwing in Winter 2022-2023, for a period of at least two years.

5. Repayment of LEEFF Loan

Upon Closing, WestJet shall cause Sunwing’s LEEFF loan to be fully repaid, including all interest and fees.

6. Head Offices, Communities and New Opportunities

WestJet shall:

7. Sunwing Brand

For a minimum of five years following Closing, WestJet shall cause its Vacations Business to maintain the Sunwing Brand.

8. Safety

Subject to Applicable Law, as soon as reasonably possible, and in any event within one year of Closing, WestJet shall (i) in collaboration with Transport Canada, ensure alignment between the Air Operator Certificate Safety Management Systems of WestJet and Sunwing, and (ii) provide all operational personnel of Sunwing Airlines with substantially the same safety training pursuant to the aligned Safety Management System as is provided to WestJet personnel, for a period of at least three years.

9. Reliability

As soon as reasonably possible and in any event within three years following Closing, WestJet shall dedicate at least $1,000,000 towards projects, in addition to projects to integrate WestJet and Sunwing technologies, that (i) use technology to improve Sunwing’s passenger communications and coordination capacity; and (ii) improve the technological capacity of Sunwing’s workforce.

10. Advancing Consumer Interests

As soon as reasonably practicable and in any event commencing within one year following Closing and for at least three years following Closing, WestJet shall:

11. Scope and Duration

These Terms and Conditions shall come into force at and subject to Closing. The duration of each of these Terms and Conditions is set out in the relevant section hereof, subject to and in accordance with the provisions of the Implementation and Monitoring Agreement.

12. Reporting

13. Implementation of these Terms and Conditions

Appendix A Relevant city pairs

The Relevant City Pairs are:
  Canadian Origin Sun Destination
1. Victoria San José del Cabo
2. Vancouver Huatulco
3. Vancouver Mazatlan
4. Kelowna Cancun
5. Calgary Huatulco
6. Calgary Montego Bay
7. Calgary Punta Cana
8. Calgary Varadero
9. Calgary Ixtapa/Zihuatanejo
10. Regina Cancun
11. Regina Puerto Vallarta
12. Saskatoon Cancun
13. Saskatoon Puerto Vallarta
14. Winnipeg Montego Bay
15. Ottawa Montego Bay

GOODMANS\7346621

EXPLANATORY NOTE

(This note is not part of the Order.)

Proposal

This Order in Council (“Order”), made pursuant to subsection 53.2(7) of the Canada Transportation Act (“Act”), approves the proposed acquisition (Acquisition) of Sunwing Airlines and Sunwing Vacations Inc. (together as “Sunwing”) by WestJet Airlines Ltd. (“WestJet”) (both together as “Parties”) subject to the Terms and Conditions (“T&Cs”) set out in the annexed schedule.

Objective

The objective of this Order is to approve, on the recommendation of the Minister of Transport (“Minister”), the Acquisition, subject to certain T&Cs as it is in the public interest. Approving the merger with enforceable T&Cs will mitigate some of the public interest concerns raised by the merger as it relates to the national transportation system, and ensure stability for Sunwing, who is facing imminent financial threat due to a heavy debt burden incurred to recover from the effects of the COVID-19 pandemic, and large financial implications sustained from disruptions during the winter 2022/2023 holiday travel season. The T&Cs establish measures, which were proposed by the Parties and later negotiated, in the form of undertakings, under subsection 53.2(5) of the Act. These undertakings were finalized by the Parties following consultation with the Minister and the Commissioner of Competition (“Commissioner”).

Background

Mergers and Acquisition Review Process under the Canada Transportation Act

Under sections 53.1 and 53.2 of the Act, when a merger or acquisition involving a transportation undertaking raises public interest issues regarding national transportation, that transaction becomes subject to approval by the Governor in Council (GiC), upon the recommendation of the Minister of Transport (Minister). The Act requires the Commissioner of Competition (Commissioner) to first report to the Minister and the Parties on any concerns regarding the potential prevention or lessening of competition that may result from the transaction. The Commissioner is also required to assess the adequacy of the measures proposed by the Parties to address competition concerns. While the Minister must consider the Commissioner’s findings regarding the impacts on competition, the Minister, in making his recommendation to the GiC, is also required to consider the impact of the Acquisition on the public interest.

The Proposed Acquisition

On January 27, 2022, Sunwing and WestJet Entered into a share purchase agreement. On March 2, 2022, the Parties announced that a definitive agreement had been reached that would see WestJet acquire Sunwing.

On April 8, 2022, the Parties filed a formal merger notification with the Commissioner pursuant to s.114(1) of the Competition Act. On the same day, the Parties also filed a formal notification of the Acquisition with the Minister of Transport, pursuant to s.53.1(1) of the Act. This notification triggered a 42-day initial review period at the end of which, on May 19, 2022, the Minister determined that the Acquisition raised public interest concerns relating to national transportation and triggered a 150-day formal public interest review, as required by the Act. The Commissioner would also be required to report to the Minister and the Parties within 150 days after the first notification of the Acquisition on any concerns regarding the potential prevention or lessening of competition. Given the complexity of the Acquisition, the Minister granted a 50-day extension to both the Commissioner and the Department, exercising his authority pursuant to subsection 53.2(2).

On October 25, 2022, the Minister received the report of the Commissioner setting out the Commissioner’s concerns regarding the potential prevention or lessening of competition that may occur as a result of the Acquisition. On the same date, as per subsection 53.2(3) of the Act, the Commissioner’s report was made public.

On October 21, 2022, the Canadian Transportation Agency determined that, upon the completion of the Acquisition, the resulting entity would be Canadian under 53.2(1) and 53.3 of the Act.

On December 5, 2022, the Minister received from Transport Canada a report of its assessment of Public Interest as it relates to national transportation (The Departmental Report) referred to in subsection 53.1(6) of the Act. Pursuant to subsection 53.2(4) of the Act, the Minister consulted with the Commissioner regarding any overlapping concerns between the Departmental Report and the Commissioner’s Report.

On December 15, 2022, Transport Canada officials met with the Parties to discuss public interest concerns raised in the Departmental Report , including those regarding the potential lessening of competition. Following negotiations with Transport Canada, the Parties proposed remedies/measures that they would be willing to undertake to address competition and public interest concerns, pursuant to subsection 53.2(5) of the Act. The Minister also proposed some additional measures which were agreed to by the Parties. These detailed undertakings were then finalized by the Parties following consultation with the Minister and the Commissioner.

Upon approval by the GiC, the undertakings form the T&Cs, that would be enforceable under the Act and implemented and monitored pursuant to a Confidential Implementation and Monitoring Agreement (“Agreement”). The Agreement is administrative in nature and provides guidance to the Parties in complying with the T&Cs and serves as a mechanism for the Minister to monitor compliance with the assistance of an independent monitor. The T&Cs require that the Parties enter into the Agreement prior to the Closingfootnote 1 of the Acquisition.

The Financial Situation of the Parties

Before the pandemic, Sunwing’s financial position was stable, with a serviceable debt burden and a positive cash balance. However, the impact of the pandemic forced Sunwing to rely on more debt and lease liabilities, as was the case for several other carriers. Sunwing’s outstanding federal loans include loans of $216.5 million (M) to maintain viability in the face of COVID-19 and Travel Credit Facility drawings of $100.4M, both under the Large Employer Emergency Financing Facility (LEEFF) program. Sunwing faced further financial hardships as a result of operational challenges during the 2022 winter holiday travel season, leading to high costs to repatriate stranded passengers. Sunwing was also required to compensate travellers for disruptions in accordance with the Air Passenger Protection Regulations (APPR).

In the absence of the Acquisition, Sunwing’s ongoing viability in the market would be in jeopardy.

Implications

In making his recommendation to the GiC, the Minister considered:

Economic Implications

(a) Commissioner’s Report

The Commissioner’s report identified competition concerns on 31 routes from Canada to sun destinations, 16 of which would become merger-to-monopoly routes operated by only the merged entity. Most routes of concern originate from Western Canada where WestJet and Sunwing combined account for 72% of non-stop flight capacity to sun destinations. The Commissioner concluded that the Acquisition would result in substantial competitive effects, such as increased prices, reduced choice, decreased services, and a significant reduction in travel by eliminating rivalry between Sunwing and WestJet in overlapping vacation package markets. The Commissioner arrived at his conclusions based on:

(b) The Departmental Report

Transport Canada conducted a report of its assessment of Public Interest as it relates to national transportation with the support of an external expert, Oxera, who was retained to perform both economic and financial analysis of the Acquisition. The Departmental Report concludes that potential impacts of the Acquisition include price increases on the Parties’ overlapping network due to reduced competition, and less choice for Canadian travellers. The Departmental Report also took the Commissioner’s conclusions into consideration and expressed similar concerns on competition and price on overlapping routes originating from Western Canada.

On the other hand, the Departmental Report determined that the Acquisition is expected to generate operating and network efficiencies for the merged entity that would result in some benefits for travellers which would materialize gradually, such as:

Ending Sunwing’s leasing practices – both in the winter when aircraft and in some instances pilots and crew are brought over from Europe and in the summer when the opposite occurs – should result in economic benefits, such as more secure full-time year-round employment in Canada, as foreign pilots and cabin crew personnel would no longer be working as Temporary Foreign Workers on leased Sunwing aircrafts during the busy winter season. Modest environmental benefits are expected through the early retirement of older aircraft in exchange for more fuel-efficient ones. Ultimately, acquisition of newer aircrafts and by virtue of Sunwing aircraft no longer being leased to European carriers in the summer months will result in employment opportunities for Canadian pilots, crew and maintenance staff to continue serving Sunwing’s southern routes as well as more domestic/transborder operations in the summer.

Overall, after weighing public interest benefits and costs, the Departmental Report concluded that the impact of the Acquisition on consumers is expected to be net neutral, and most benefits would accrue to WestJet and its shareholders. Undertakings by the Parties are therefore required to redistribute the company’s gains from operating and network efficiencies to passengers to bolster benefits for travellers, and address and mitigate concerns of both the Minister and the Commissioner.

Financial Implications

Transport Canada also assessed the Parties’ financial stability, as Canadian air carriers continue to recover from the unprecedented impacts of COVID-19 pandemic, which saw their revenues fall drastically. The financial analysis performed by Oxera prior to the conclusion of the Departmental Report on December 5, 2022, showed that, while both WestJet and Sunwing were financially viable, Sunwing presented more significant risk, especially if there were further disruptions and delays to the ongoing recovery of the air sector. The travel disruptions of the 2022 winter holiday season, due to unique and extreme weather events caused significant disruptions to Sunwing’s operations leading to major unforeseen financial losses and reductions in services, which put the airline’s future viability at further risk.

As a result, it can no longer be assumed that Sunwing, as an independent entity, would be able to continue to offer the same level of connectivity and competition across Canada as it could before the COVID-19 pandemic. In fact, Sunwing has already significantly reduced its service offering, cancelling a number of flights, notably from Prairie and Atlantic provinces.

Thus, rejecting the Acquisition would not necessarily serve to mitigate the loss of competition identified in the Departmental Report and in the Commissioner’s report, as services are already being reduced by Sunwing and the airline’s economic footprint in Canada has been reduced. In fact, allowing the merger could help in maintaining connectivity in Western Canadian cities recently left without southern service. Approving the Acquisition reinforces a more stable future for Sunwing and Canada’s air transport sector more generally and would also yield benefits in terms of network and operating efficiencies, as well as employment. It would also ensure that Sunwing’s loans from the federal government would be repaid, the lion’s share upon Closing and the Travel Credit Facility by its 2028 maturity date.

On the other hand, the Acquisition could allow a stronger WestJet to apply competitive pressures on other market participants, both existing ones and potential new entrants, which could have the effect of further reducing competition in the Canadian air sector.

Importance of Maintaining Sunwing Brand

Sunwing remains the fourth largest Canadian air carrier and is an important component of the Canadian air sector. Sunwing operates a business model that differs in many significant ways from the larger airlines such as Air Canada and WestJet. Sunwing’s business is almost entirely focused on travel packages to sun destinations in which they have an approximate market share of 30%. Additionally, Sunwing is a well-known brand among Canadians for providing affordable holiday package deals to sun destinations. Therefore, losing Sunwing would negatively impact more price conscious leisure travellers seeking more affordable travel options. Additionally, a Sunwing exit would temporarily remove approximately 2200 jobs from the Canadian economy (though some current Sunwing employees, such as pilots, will likely be hired elsewhere given industry shortages).

International Affairs

Sunwing is owned by the Hunter family (51%) and TUI AG (49%), a German tourism company. TUI AG is 34% owned by Alexei Alexandrovich Mordashov, a Russian oligarch subject to international sanctions in response to Russia’s invasion of Ukraine. Mordashov is designated under Canadian, European Union (EU), and the United States (US) sanctions.

If the merger were to go through, Sunwing’s former shareholders, such as TUI AG, would be entitled to an approximately 6% non-voting economic interest in the merged company. However, under EU sanctions, Mordashov’s entire holding in TUI is frozen, meaning he cannot sell his shares, collect dividends, vote at board meetings, or profit from the stake in any other way, for as long as he remains listed under EU sanctions.

On February 23, 2023, the Government of Canada also designated Alexei Alexandrovich Mordashov, as well as his wife and three children, under the Special Economic Measures (Russia) Regulations (the Russia Regulations). As a result of the dealings ban under the Russia Regulations, it is prohibited for Canadians and persons in Canada to deal in the property of designated persons. This means that Mordashov, his wife, and children cannot profit from any business dealings and investments in Canadian corporations. However, because neither Sunwing nor TUI AG are themselves designated under Canadian sanctions, the proposed acquisition does not violate the Russia Regulations.

Consultations

As part of Transport Canada’s Departmental Report, consultations were undertaken with the general public, consumer advocacy groups, industry representatives, and other relevant stakeholders. The consultation process included the following channels for input:

Canadian airports and Government entities have broadly expressed support for the Acquisition, which they expect would accelerate recovery from the impacts of COVID-19 pandemic in the air sector. However, there has been some concern raised about potential loss of connectivity on smaller routes. For example, the merger could result in some regional traffic being moved to more indirect service through network hubs. In addition, some concerns were raised about the likely competitive impact the merged entity could place on Air Transat’s operations. Other Canadian airlines and consumer advocacy groups are generally not in favor of the Acquisition, due to its potential impacts on competition, fares and connectivity. Labour unions and travel agencies presented mixed views on the merger due to its implications for other carriers and uncertainties around employment.

In February 2023, prior to making a recommendation to the GiC, the Minister met with several stakeholders, including competing carriers, public interest advocacy groups, labour unions and airports, to solicit their views on the Acquisition and potential remedies stakeholders deemed could help mitigate public interest and competition concerns.

Terms and Conditions

The Parties have proposed measures in the form of undertakings, under subsection 53.2(5) of the Act, to address the competition concerns of the Commissioner and the public interest concerns of the Minister related to the national transportation system arising from the Acquisition.

The measures, which are outlined in the T&Cs, attached as a Schedule to the Order, include:

In addition, the Minister proposed the following conditions to ensure that some merger benefits also accrue to travellers and these were agreed to by the Parties:

Some public interest benefits may also arise from WestJet’s commitment to upgrade Sunwing’s safety standards to WestJet’s industry leading standards, maintaining Sunwing’s Vacation brand, and extending Sunwing Vacation packages to five new cities. Additionally, WestJet will be required to provide information on airfares, allowing the federal government to monitor and inform Canadians of pricing of vacation packages for a period of three years.

The Act requires that the Commissioner of Competition provide views on competition concerns as he is the expert on those matters. In a letter dated March 2, 2023, the Commissioner provided the Minister with his assessment of the adequacy of the proposed measures put forward by the Parties to address the competition concerns. The proposed measures, in the Commissioner’s view, are inadequate; they do not conform to the principles of merger remedy design; and they are unlikely to result in effective entry for new competitors. Based on his experience and expertise, the Commissioner’s view is that there are significant deficiencies in the undertakings proposed by the Parties, such that they do not address the competition concerns likely to result from the merger.

Ultimately, according to the Act, it is the responsibility of the Minister to make the final recommendation to the GiC, having considered, on balance, the Commissioner’s views as well as the public interest as it relates to national transportation.

The Minister assessed a wide range of public interest factors, such as connectivity, wider social and economic implications, the financial health of the air transportation sector, and competition considerations, in his assessment of the Acquisition. The Minister must weigh these factors against all costs and determine whether, on balance, the Acquisition is in the public interest.

Having considered all the various public interest factors and subject to the following T&Cs, which will have the effect of ensuring public interest benefits for travellers, the Minister is of the opinion that the acquisition should be approved as it is in the public interest to ensure financial stability of Sunwing, who was hard hit by the effects of COVID-19, and prompted them to take on large federal loans. A summary of the T&Cs follow:

Remedies to Address Competition and Connectivity Concerns:

1. Minimum Capacity Commitment

For a period of three years following Closing, WestJet will maintain a minimum level of air service capacity on 15 city pairs, which were identified as merger-enabled monopolies by the Commissioner. These routes originate from cities in Western Canada, a region identified by both the Commissioner’s Report and in the PIA where the merged entity would hold dominant market share.

This undertaking is expected to help ensure connectivity from Canadian origins, including Saskatoon and Regina, where reductions to services were recently experienced, while safeguarding flexibility for new entrants to enter and expand from Western Canada to sun destinations.

While this undertaking is positive in ensuring that connectivity is maintained, it does not address all competition concerns, as the merged entity would still enjoy a monopoly on these 15 routes. Having said that, this would be somewhat mitigated by the substitutability of sun destination routes, whereby leisure travellers can choose to substitute travel to another market if airfares increase.

2. Extend Vacation Packages to New Canadian Cities​

Within two years, WestJet will make Sunwing Vacation packages available from five Canadian points of origin not served by Sunwing in winter 2022-2023, on at least 52 days of the year, for a period of at least two years, utilizing direct or one-stop air service.

Remedies to Address Public Interest Concerns:

1. End Sunwing’s leasing practices​

WestJet is expected to end graduallyfootnote 2 the Sunwing Airlines’ practice of seasonally leasing aircraft from and to non-Canadian air carriers. Per the initial claims made by the parties in their notification to the Minister, this undertaking could result in the acquisition of new aircrafts that could extend environmental benefits, support greater connectivity, and improve employment in the air sector.

While ending Sunwing’s leasing practice will generate significant benefits, this undertaking formalizes previous commitments by the Parties that were claimed when the initial merger notification was filed to the Minister, and therefore, taken into account in the PIA.

2. Employment

The Parties have committed to a 20% increase in net new employment positions from 2022 levels in the Vacations segment at the merged entity’s Toronto office within three years.

3. Repayment of loan​

By way of the LEEFF, including loans to ensure refunds for passengers whose travel was cancelled due to COVID, Sunwing has received $316.9M in federal financing. Given Sunwing’s precarious situation following the cancellation of much travel and the need to repatriate passengers during the winter 2022 holidays, there is now a significant risk that the company would not be able to repay the loans.

WestJet will be obligated to repay the bulk of Sunwing’s outstanding federal loans promptly upon Closing, with the remaining Travel Credit Facility loan repaid at its maturity in 2028. This undertaking formalizes and binds previous commitments by the Parties that were claimed in the initial notification to the Minister and considered in the PIA. In addition, the Parties have a contractual obligation to repay these loans, which are now ensured to be returned to the government.

4. Safety standards

WestJet will make commercially reasonable efforts to apply all of its well-recognized safety standards to the air operations of Sunwing.

WestJet exceeds safety standards in Canada and is one of the first Canadian airlines to use Required Navigation Performance (RNP) technology, ensuring more precise and efficient approaches. Safety experts at Transport Canada note that WestJet is a global leader in the use of Safety Management System (SMS) and RNP technology. WestJet is International Air Transport Association (IATA) Operational Safety Audit (IOSA) certified and a participating carrier in Line Operations Safety Audit (LOSA) collaborative, allowing the airline to identify and mitigate any safety weaknesses and implement the necessary mitigations. Adopting these standards to Sunwing’s operations is expected to result in safety benefits for Sunwing and its passengers; however, these benefits cannot be quantified.

5. Technological investments

Within three years, WestJet will invest at least $1M towards projects that use technology to improve Sunwing’s passenger communications and coordination capacity, and the technological capacity of Sunwing’s workforce. This is expected to help address and prevent many of the challenges that were made evident during the 2022 winter holidays, in terms of customer service.

6. Sunwing Vacations brand​

For a minimum of five years, WestJet will maintain the Sunwing Vacations brand within the company’s vacation business. In addition to WestJet maintaining its head office in Calgary area, the merged entity will maintain a Vacations business head office in Toronto area and a regional office of the vacations business in the Montreal area.

This undertaking formalizes previous commitments by the Parties claimed during the initial merger notification sent to the Minister, and were considered in the PIA.

7. Price monitoring

For a period of three years, WestJet will supply InFarefootnote 3 data on the prices of packaged vacations on all routes from Canada to sun destinations and quarterly unaudited financial results. This will permit the Government of Canada a means of monitoring pricing post-acquisition. In consultation with WestJet, the Minister may disclose or publish a synopsis of the findings of such reports.

8. Canvass Canadian operators in priority for any aircraft leasing​

For a period of three years, subject to the terms of WestJet’s contractual obligationsfootnote 4 when WestJet has a requirement for seasonal lease of an aircraft, WestJet will make reasonable efforts to provide opportunity for Canadian suppliers of aircrafts, which could result in sub-leasing from smaller Canadian carriers.

Having said that, it should be noted that Sunwing has a valid contract that provides TUI the first opportunity regarding the leasing of aircrafts from May 2023 to April 2030. If TUI were to reject leasing their aircrafts, Sunwing would canvass Canadian carriers.

Additional Remedies to Enhance Public Interest Benefits:

The Parties have suggested that the merger could enhance regional connectivity and improve the passenger experience; however, the Parties did not initially make commitments on these matters through specific undertakings. As commitments on these aspects are important to ensure that, in the public interest, some of the private benefits accrued by WestJet flow to travellers, the Minister proposed the inclusion of the following conditions which the Parties agreed to:

1. Enhance Regional Connectivity

For a period of at least three years, the Parties will commit to making commercially reasonable efforts to deploy some or all of the additional capacity made available from acquiring Sunwing’s aircraft as a result of the merger to offer increased regional connectivity in Canada, consistent with WestJet’s strategic objectives. This commitment will ensure that gains from operational efficiencies stemming from the merger are used to enhance connectivity from smaller Canadian communities.

2. Enhance Baggage Handling

For a period of at least three years, the Parties will commit to making commercially reasonable efforts to improve baggage handling. This commitment will help ensure public interest benefits by enhancing the passenger experience.

Overall Assessment

Transport Canada’s assessment of the public interest, which took into account competition concerns raised by the Commissioner, concluded that neither the overall costs nor the benefits of the Acquisition were substantial and furthermore they essentially balanced each other out.

The agreed upon T&Cs, including those proposed by the Minister, are expected to mitigate the impact of some competition concerns and provide some public interest benefits for travellers, such as improved passenger experience, better on-time performance for Sunwing passengers, as well as commitments to improve regional connectivity and baggage handling. Nevertheless, a major consideration in the Minister’s recommendation is that the Acquisition would prevent the imminent threat to Sunwing’s financial viability and possible exit from the market. Approval of the merger will restore stability for Sunwing, which is viewed as a significant public interest benefit, whereby the fourth largest Canadian carrier continues offering vacation packages to Canadians, and provides better on time performance due to being backed by a financially stronger WestJet. In addition, the merger will help avoid job losses for Sunwing employees, as well as a potential reduction in affordable vacation travel offerings, for Canadian travellers. Transport Canada expects that, by helping to ensure the ongoing viability of Sunwing, Canada’s fourth largest air carrier, the Acquisition will help to ensure stability and predictability within the air sector in Canada for operators and consumers.

The Acquisition will also ensure that the Government loans to Sunwing are duly repaid. Should the merger not proceed, Sunwing’s financial challenges would pose a significant public interest concern in the form of non-payment of $316.9 in federal loans. In a worst-case scenario, if Sunwing were to exit the market, there could be implications for workers and suppliers, including travel agents, who might be left with outstanding debts; and impacts on passengers, some of whom could be stranded abroad and/or lose the value of travel they have paid for, or not receive compensation they are due under the APPR.

Implementation

The T&Cs will require the Parties to enter into an Implementation and Monitoring Agreement before Closing. This Agreement is administrative in nature and would ensure that the merged entity is complying with the T&Cs and allowing the Minister to oversee its compliance.

If there is a disagreement over the interpretation of any of these T&Cs that cannot be resolved via the dispute resolution mechanisms contained in the Implementation and Monitoring Agreement, subsection 53.6(2) of the Act could apply if any of the T&Cs of the Order are violated: “Every person who contravenes subsection 53.2(1) or (10) is guilty of an indictable offence and is liable to imprisonment for a term not exceeding five years or to a fine not exceeding $10,000,000, or to both.” As well, under subsection 53.4(1) a superior court may, on application by the Minister, order the cessation of a contravention of the T&Cs, or any other order it deems appropriate, including the divestiture of assets. Similarly, subsection 53.4(2) allows the Commissioner to make an application to a superior court if there is a contravention with respect to a term or condition that relates to potential prevention or lessening of competition.

Conclusion

Further to the Minister’s recommendation, having taken into account all relevant factors, including the Commissioner’s assessment of competition issues, the public interest issues relating to national transportation, the measures proposed by the Parties to address any concerns raised as part of the process, as well as the additional measures included by the Minister, and current threat of financial instability for Sunwing, the Governor in Council has approved the Acquisition subject to the T&Cs.

Contact

For additional information, please contact:

Director, National Air Services Policy (ACEB)
Air Policy Group
Transport Canada
Place de Ville, Tower C
330 Sparks Street
Ottawa, Ontario K1A 0N5
General inquiries:
Toll-free: 1‑866‑995‑9737
Telephone: 613‑990‑2309
TTY: 1‑888‑675‑6863
Facsimile: 613‑954‑4731
Email: questions@tc.gc.ca