Anonymised, illustrative composite. A group buying a regional Canadian air carrier built a cap table that cleared the headline 51% Canadian-ownership rule with room to spare. The Canada Transportation Act's definition of “Canadian” has three cumulative conditions, not one, and the deal only checked the first.
At a glance
A buyout group was assembling the capital to acquire a regional Canadian air carrier running charter and cargo routes under a domestic licence. The deal needed the licensee to remain, after closing, a “Canadian” within the meaning of the Canada Transportation Act — that status is a condition of holding the licence at all. The deal team's cap-table model checked one number: the aggregate percentage of voting interests held by Canadian investors. At 60% Canadian against a 51% threshold they understood to be the rule, the raise looked comfortably compliant.
The 51% aggregate figure is real, but it is only the second of three cumulative conditions in the statutory definition, and the deal's American anchor investor — a single private-equity fund providing the largest single cheque in the raise — was sized to hold roughly 27% of total voting interests once the round closed. The aggregate Canadian-ownership test passed. A separate cap on any single non-Canadian holder, which the deal team had never modelled, did not.
Total voting interests post-closing: 60% Canadian in aggregate (multiple Canadian investors), 40% non-Canadian, of which the single American fund held approximately 27 percentage points and the balance was spread across smaller non-Canadian participants. 27% is above the statutory 25% single-holder limit; 60% Canadian in aggregate is well above the 51% aggregate floor. Both are true at once, and only one of them was checked before the term sheet was signed.
Canada Transportation Act s.55(1) defines Canadian to include a corporation “incorporated or formed under the laws of Canada or a province, that is controlled in fact by Canadians and of which at least 51% of the voting interests are owned and controlled by Canadians and where (i) no more than 25% of the voting interests are owned directly or indirectly by any single non-Canadian, either individually or in affiliation with another person, and (ii) no more than 25% of the voting interests are owned directly or indirectly by one or more non-Canadians authorized to provide an air service in any jurisdiction, either individually or in affiliation with another person”. That is not one test; it is at least three, and all of them have to hold: control in fact by Canadians, the 51% aggregate floor, and the 25% single-holder ceiling in subparagraph (i) — with a separate 25% ceiling on non-Canadian airline holders in subparagraph (ii) that did not apply here, since no foreign airline was involved.
The American fund's 27% failed subparagraph (i) on its own, regardless of the aggregate number. A cap table can pass the 51% floor by a wide margin and still fail if any one non-Canadian holder, alone or with affiliates, sits above 25% — the aggregate and single-holder tests are independent conditions in the same definition, not one test expressed two ways.
And Canadian status is not incidental to the licence — it is the condition for holding one. Section 61 provides that “on application to the Agency and on payment of the specified fee, the Agency shall issue a licence to operate a domestic service to the applicant if (a) the applicant establishes in the application to the satisfaction of the Agency that the applicant (i) is a Canadian…”. A change of ownership that leaves the licensee failing s.55(1)'s definition is not a paperwork issue for the Agency to wave through; it is the applicant no longer meeting the threshold condition the section is built around.
The fix was structural rather than a price renegotiation. A portion of the American fund's investment was restructured into non-voting preferred shares, reducing its voting interest to just under 25% while preserving its overall economic participation in the deal — the statute tests voting interests, not economic interests, so a security-level change was enough to cure the defect without asking the fund to invest less. The Canadian aggregate percentage moved as a consequence of the same restructuring, staying comfortably above 51%.
Closing on the original cap table would not have produced a fine or a retroactive penalty — it would have produced a licensee that did not meet s.61(a)(i)'s condition for holding a domestic licence at all. An air carrier that cannot establish it is a “Canadian” within the statutory definition is not a carrier with a compliance problem; on this test, it is not eligible for the licence the business depends on.
The deal memo described the raise as “60/40 Canadian”, which is true and was also the whole of the compliance analysis the memo contained. Nobody had asked how that 40% was distributed among the non-Canadian participants until outside counsel asked for the cap table broken out investor by investor rather than by nationality bucket.
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