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An Air Canada aircraft is de-iced on the tarmac at the airport in Halifax on Wednesday, Feb. 9, 2011.

Andrew Vaughan/The Canadian Press/Andrew Vaughan/The Canadian Press

Air Canada Air Canada has fired back at the Competition Bureau in the fight over its partnership with a U.S. airline, arguing the deal is crucial to Canadian aviation and that the agency's attempt to block it is "misconceived."

The Montreal-based carrier wants to forge a close alliance with Chicago's United Continental Holdings Inc., United Continental the world's largest airline, on 19 cross-border routes between Canada and the U.S. The carriers would share data about sales and fares and co-ordinate schedules with the aim of reducing costs.

But in late June, the federal watchdog moved to stop the partnership, arguing that it was "effectively a merger" of cross-border operations that would deter rivals, reduce customer choice and jack up prices. On several routes – including Toronto-San Francisco, Calgary-Houston and Ottawa-Washington, D.C. – the combined Air Canada-United Continental alliance would be the only option for fliers.

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In documents filed with the federal Competition Tribunal, which will hear the case, Air Canada argues that the bureau's opposition to its plans is "wholly inconsistent" with federal government policy to deregulate air travel and with Canada's aviation agreements with the U.S.

The airline also asserts that it tried to "engage with the bureau" to deal with any concerns it had about the United deal, but instead of doing so, Competition Commissioner Melanie Aitken decided to pursue legal avenues.

The case, which will likely be heard next year, will be a significant test for the Competition Bureau, which has been combative in its role to protect consumers during Ms. Aitken's tenure with a number of high-profile applications. The bureau has scrapped with the real estate industry's control over home sales listings, and is also taking on the credit card industry over the fees its charges to merchants that accept plastic.

The Air Canada case is particularly significant, said James Musgrove, a competition lawyer with McMillan LLP in Toronto, because it is the first use of the new powers granted to the bureau in recent reforms that give the commissioner the power to block agreements between competitors that fall shy of price-fixing or other criminal offences.

"This will be the test case for it," Mr. Musgrove said.

Competition lawyers will watch the case closely for signs of how the bureau will police such deals between competitors, and what the new ground rules will be, Mr. Musgrove added.

If Air Canada does not get its way, the airline argued that the entire domestic airline business, from carriers to airports, would become "marginalized" in the international air transportation arena, according to Air Canada's filing to the tribunal.

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Stopping the deal "would significantly impede Air Canada's ability to compete [and]would have significant adverse effects on Canadian consumers," the airline said in its 55-page filing, which was made public on the tribunal website Tuesday.

Air Canada has long been a member of the Star Alliance system with United and other airlines. But this deal would be a significant expansion of previous partnerships because of the amount of information they would share on schedules, sales and pricing on cross-border routes.

In late June, when the Competition Bureau filed its case with the tribunal, the airlines shelved their deal. At the time, the airlines argued its plan would be supported by "the findings of regulatory agencies around the world, and supported by leading international economists."

Given that "alliances" among competitors are common in the airline business – and endorsed by governments – the nuances of this case will be of interest for all industries.

"All of these alliances [between airlines]are agreements amongst competitors," said Mr. Musgrove said. "And there's nothing wrong with that, on its face. Some of them are pretty efficient."

The Competition Bureau has 14 days to respond to the airlines' filings.

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United Continental was formed last year when United took over Houston-based Continental. The company is still operating under two names until it receives a final expected federal approval by the end of this year.

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About the Authors
National correspondent, Vancouver bureau

David Ebner is a national correspondent based in Vancouver. He joined The Globe and Mail in 2000 and worked in Toronto and Calgary before moving to Vancouver in 2008. He has reported on a wide range of stories – business, politics, arts, crime – and has covered sports since 2012. More

Toronto City Hall Reporter

Jeff Gray is The Globe and Mail’s Toronto City Hall reporter. He has worked at The Globe since 1998. From 2010 to 2016, he was the law reporter in Report on Business, covering Bay Street law firms and white-collar crime. He won an honourable mention at the National Magazine Awards for investigative journalism in 2010. More

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