Canada: Aviation Finance Update: Canada

The Canadian EETC Trilogy

Donald Gray
Head, Aircraft Finance

The Blakes Aviation group, representing the underwriters led by Morgan Stanley and Credit Suisse, is pleased to have assisted in the closing of the third Air Canada enhanced equipment trust certificate (EETC) transaction.

In April 2013, we assisted in the structuring and closing of Air Canada EETC 2013-1 for five new Boeing 777 300ERs, which was a historic transaction, including the following features:

  • Canada's first EETC
  • World's first EETC to enjoy full Cape Town Convention benefits on an unqualified basis
  • World's first EETC issued by non-U.S. airline to receive "pure" EETC pricing and terms
  • 4.66 per cent blended rate effectively priced better than U.S. benchmarks (significant NPV savings over next best alternative)
  • Liquidity Facility — 18 months
  • Very high effective LTVs

U.S. rating agencies gave the Air Canada transaction notching upgrades equivalent to U.S. 1110 protection without the need for additional enhancements (such as Air France/Iberia/Emirates, extended Liquidity Facility and/or Repossession Facility or pricing premium such as for British Airways or Virgin Australia).

Heavy investor demand resulted in high oversubscription on all three tranches.

This transaction received both Airfinance Journal and Airline Economics "Deal of the Year" awards in 2014.

In March 2015, representing the underwriters led by Morgan Stanley and Credit Suisse, we assisted in the closing of Air Canada EETC 2015-1 for one Boeing 787-8 (previously delivered) and eight new Boeing 787-9 aircraft, including the following features:

  • Class A, Class B and Class C Certificates — same as 2013
  • 3.81 per cent blended rate
  • Liquidity Facility — 18 months

Structurally, this was a much simpler transaction and it resembled more closely a typical U.S. airline EETC (2013-1 included a separate special purpose entity as issuer, which issued the Equipment Notes and entered into a conditional sale agreement with Air Canada at delivery of each aircraft, and issued mortgages to the loan trustee — required due to certain negative covenants in then existing financing).

In 2015-1, Air Canada granted security over the aircraft through a Trust Indenture and Mortgage. Air Canada also granted security through a separate Deed of Hypothec. This was required under Quebec law as Air Canada's domicile (registered office) is in Quebec. There was no difference in the manner that the transaction was rated.

In December 2015, representing the underwriters led by Morgan Stanley, we assisted in the closing of Air Canada EETC 2015-2 for three new Boeing 787-9 and two new Boeing 777 aircraft to be delivered in April and May 2016, including the following features:

  • Liquidity Facility — 18 months
  • 4.044 per cent blended rate
  • Certificates offered: Class AA, Class A and Class B Certificates — different than 2013 and 2015-1. Only one or two U.S. airlines had issued with Class AA Certificates prior to Air Canada.

Air Canada's structure with Class AA Certificates was the first prefunded EETC with Class AA Certificates. Introduction of Class AA Certificates required certain changes to liquidity facility and deposit arrangements, but overall, substantially the same documentation as EETC 2015-1.

Cape Town in Canada: Happy 3rd Birthday!

Auriol Marasco
Associate, Aviation/Aerospace Group

While the CTC (defined below) has had the force of law in the majority of Canada since 2013, on July 1, 2016, the CTC will be in force across Canada.


After much anticipation, the Convention on International Interests in Mobile Equipment and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment (collectively, the CTC) became law in Canada on April 1, 2013. Canada is a federal state consisting of a central federal government and 13 provincial and territorial governments. Under Canada's constitution, international and interprovincial transportation, aeronautics and bankruptcy and insolvency matters fall within federal jurisdiction, while property and civil rights matters remain the responsibility of the provinces. Given that the subject matter of the CTC straddles both provincial and federal jurisdictions, it was necessary for the CTC to be implemented by the federal government and by each province and territory. Given the various levels of government involved, the implementation of the CTC in Canada took a somewhat staggered approach.

Canada deposited its ratification instruments for the CTC, including declarations incorporating all Organisation for Economic Co-operation and Development (OECD) and Aircraft Sector Understandings (ASU) qualifying declarations, with UNIDROIT in December 2012 in respect of each province and territory except Prince Edward Island, Yukon and New Brunswick. Accordingly, the CTC has become federal law in Canada and has become provincial law in Ontario, Quebec, Alberta, Saskatchewan, Nova Scotia, British Columbia, Newfoundland and Labrador, Manitoba, the Northwest Territories and Nunavut as of April 1, 2013 (except that it has had the force of law in Newfoundland and Labrador since May 3, 2013). Canada deposited supplemental declarations in respect of Yukon and Prince Edward Island on March 28, 2014, and in accordance with Article 57(2) of the CTC, it took effect on October 1, 2014. On December 23, 2015, the federal government again submitted subsequent declarations to UNIDROIT in respect of New Brunswick. These declarations will take effect on July 1, 2016. As such, appropriately, on Canada Day, 2016, the CTC will have the force of law in all jurisdictions in Canada.

(War) Risky Business in Canada

Lisha Li
Associate, Aviation/Aerospace Group

Existing Aviation War Risk Liability Program

Canadian aircraft operators are required by law to maintain certain levels of insurance. In addition to these legal minimums, financiers and lessors normally have their own prescribed coverage requirements, which include war risk liability and hull coverage. War risk coverage is now usually only available for an additional premium. Prior to 9/11, war risk insurance was readily available at commercially reasonable rates, but after 9/11, private war risk insurance was temporarily cancelled. When such insurance was reinstated, it was done so at reduced indemnity coverage and, for most airlines, became prohibitively expensive. As a result, Canada created the Aviation War Risk Liability Program (Program) in 2001 to fill this gap. The aim of the Program was to provide war risk indemnity to the Canadian air industry in an amount equal to the amount of general insurance coverage carried by the entity. The Program is required to be periodically renewed.

All Good Things Come to an End

The 2014 Undertaking by the Government of Canada to provide war risk indemnity under the Program came to an end on December 31, 2015, but was extended for another six months, by the Undertaking issued on November 16, 2015, by the Government of Canada, until June 30, 2016. Initially, it had provided coverage for "risks listed in the clause headed 'War, Hi jacking [sic] and Other Perils Exclusion Clause' in the standard aviation insurance policy, to the extent that such risks have been included in a standard write-back endorsement to a policy, and any other such risk that is not included in the standard write-back endorsement that the Minister of Transport may, from time to time, in his sole discretion, declare in writing to be subject to the Undertaking, to the limit of the amount covered for aviation liability under the insurance policy, less whatever coverage is commercially available during the subject period." Coverage was provided to "any person covered under an insurance policy held by an airline, an airport operator, NAV Canada, or any supplier of goods or services to an airport operator, an airline in Canada or NAV Canada who is insured against general liability under an insurance policy."1 This effectively meant that financiers and lessors, who are generally named as additional assureds in the insurance policy of the aircraft operator, could benefit from the government's coverage.

However, the wording of the extended 2015 Undertaking on its face appears to only indemnify aviation industry participants, which are defined by the Aviation Industry Indemnity Act (Act) as:

  1. An air carrier
  2. NAV Canada
  3. An owner or operator of an airport
  4. A supplier of goods or services that directly support the operation of aircraft from an airport, including with respect to (1) the preparation of an aircraft for departure or on its arrival, including maintenance and cleaning of the aircraft and the loading and unloading of passengers, baggage and cargo, (2) freight forwarding, (3) air navigation, or (4) airport security services, or
  5. An entity that is prescribed by regulation or a member of a class of entity that is prescribed by regulation

New Commercial Practice

This meant that financiers and lessors are not able to benefit from the Program coverage, and, therefore, that aircraft operators, in order to satisfy their insurance obligations under their respective leases and financing documents, have had to obtain war risk insurance from the commercial markets.

While the Minister of Transport issued a letter to the National Airlines Council of Canada to clarify that the scope of the extended indemnity was meant to cover the same entities as under previous undertakings, the wording of the 2015 Undertaking itself was not amended.

As a result, all the major Canadian airlines have obtained war risk coverage on the private market since the 2014 Undertaking period ended on December 31, 2015. In any event, the extension of the entire Program will terminate on June 30, 2016, unless there is a further extension, and all aircraft operators will have to obtain private war risk coverage if required to do so under their leases and/or financing documents.

Droning on in Canada

Auriol Marasco
Associate, Aviation/Aerospace Group

Operating in Canada

Transport Canada Aviation (TCA) is responsible for aeronautical safety in Canada. As such, it regulates the conduct of civil unmanned aerial vehicles (UAVs) for both commercial and private use. In Canada, UAVs must meet the equivalent levels of safety as exist for manned aircraft.

In general, Canadian aviation regulations apply to UAVs that have a total weight in excess of 35 kilograms (77.2 pounds) or to UAVs driven or launched into flight for purposes other than recreational use. In respect of UAVs meeting these criteria, unless the UAV operations qualify for another exemption, a Special Flight Operation Certificate (SFOC) must be obtained from TCA. An SFOC must be obtained for each and every flight, although a "blanket SFOC" can be obtained for certain operations, especially when a safety track record has been established with TCA. While there is no formal application for an SFOC, in general, it should contain information pertaining to the qualification and experience of the operator, detailed specifications about the UAV, including drawings where applicable, the proposed operation plan and, most importantly, the applicable safety precautions and emergency plan.

Regulatory Quick Fix

In late 2014, TCA issued a staff instruction (SI) in respect of UAV operations in Canada. A staff instruction does not have the force of law but does provide TCA officials with guidance as to how to implement the law. In addition, TCA issued an advisory circular (AC) also in respect of UAV operations in Canada. Similar to the SI, an advisory circular does not have the force of law. Instead, an advisory circular serves to provide general guidance and explanatory information to the general public.

The goal of the SI and AC was to ensure that the SFOC process was more in line with the changing technology of UAVs and the type of operations being conducted with UAVs. The SI eliminates the need for SFOCs in respect of small UAVs in certain circumstances. The exemptions for UAV operations are in respect of UAVs with (1) a maximum take-off weight not exceeding two kilograms (4.6 pounds) (Light Exemption) or (2) a maximum take-off weight exceeding two kilograms (4.6 pounds) but not exceeding 25 kilograms (55.1 pounds) (Heavy Exemption).

Keeping Up with Technology

While the exemptions created under the SI and AC have assisted in processing the backlog of SFOC applications, the current regulatory regime is incompatible with the rapidly evolving UAV industry. Fortunately, the government agrees. In 2015, the Canadian Aviation Regulations Advisory Council issued a notice of proposed amendment (NPA) in respect of UAVs. The NPA announced that TCA intended to revise the regulatory regime as it relates to UAVs 25 kilograms or less that are operated within visual line-of-sight. There are two main changes: (1) the requirement for such UAVs to be marked and registered with TCA and (2) the requirement for UAV pilots to obtain a pilot permit from TCA. This is consistent with the SI which notes that, while TCA does not currently issue air operator certificates for UAV operations, such certificates will likely be the subject of future regulatory developments.

While these proposed changes do not address all of the regulatory issues in operating UAVs in Canada, they are a step in the right direction.

Canadian Aviation in the News


  • In February 2016, Bombardier and Air Canada entered into a letter of intent for the purchase of 45 CS300 aircraft with options for an additional 30 CS300 aircraft, including conversion rights to CS100 aircraft.
  • In October 2015, the Quebec government pledged C$1.3-billion to aid Bombardier's C-Series line. The pension fund, Caisse de dépôt et placement du Québec, purchased 30 per cent of Bombardier's train business, though it will be used to help the C-Series line, for US$1.5-billion. Bombardier requested further aid from the federal government in the amount of US$1-billion.
  • In February 2016, WestJet began talks with Boeing and Airbus regarding replacements for its fleet of Boeing 767-300ER aircraft.
  • The federal government confirmed that it will likely be renewing its payment this spring to remain part of the F-35 consortium of countries, notwithstanding its election promise not to purchase the F-35 Joint Strike Fighter. The federal government has promised to hold a new RFP process for the replacement of its existing CF-18 fleet, but it is not clear whether the F-35 will continue to be a candidate.
  • The 27th Annual Canadian Airline Investment Forum 2016 will be held June 14–15, 2016, in Toronto ( President and CEO of Air Canada, Calin Rovinescu, will be the key note speaker.



  • Bombardier delivered 275 aircraft and received 27 orders net of Cancellations
  • Air Canada accepted delivery of the first of 29 firm Boeing 787-9 Aircraft
  • WestJet Airlines Ltd. accepted delivery of the first of four Boeing 767-300ER aircraft
  • WestJet Encore placed a firm order for six additional Bombardier Q400 aircraft


  • Air Canada entered into a letter of intent to purchase 45 firm CS300 aircraft and options for 30 more CS300 aircraft


1 Undertaking with respect to Aviation War Risk Liability (2014-01-01)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
27 Oct 2016, Seminar, Toronto, Canada

Please join members of the Blakes Commercial Real Estate group as they discuss five key provisions of a commercial real estate purchase agreement that are often the subject of much negotiation but are sometimes misunderstood.

1 Nov 2016, Seminar, Toronto, Canada

What is the emotional culture of your organization?

Every organization and workplace has an emotional culture that can have an impact on everything from employee performance to customer or client satisfaction.

3 Nov 2016, Seminar, Toronto, Canada

Join leading lawyers from the Blakes Pensions, Benefits & Executive Compensation group as they discuss recent updates and legal developments in pension and employee benefits law as well as strategies to identify and minimize common risks.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.