Canada looking at selling off its airports to raise infrastructure money?

Ottawa looking at whether Canada’s major airports should be sold off to private investors to raise funds for infrastructure spending.

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TORSTAR NEWS SERVICE

Security screening at Terminal 3 at Pearson International Airport in Toronto, Ontario.

By: staff Torstar News Service Published on Sun Jul 03 2016

OTTAWA—Could a “For Sale” sign soon be going up at Pearson International Airport?

The federal government is looking at whether Canada’s major airports should be sold off to private/international investors as a way to raise tens of billions of dollars in new cash to fund other infrastructure projects.

Transport Canada bureaucrats are reviewing the ownership structure of Canadian airports, now operated by not-for-profit airport authorities, to assess the possibilities of transferring them to for-profit enterprises — and collect a windfall in the process.

But airport operators are nervous, fearing that federal Liberals are in a rush to cash in on the potential value of Canadian airports without properly weighing the potential impacts on travellers.

And they warn that new operators under pressure to turn a profit could transform the airports for the worse.

“If you went to this model, my experience tells me in five years you would not recognize Canadian airports,” said Craig Richmond, the chief executive officer of the Vancouver Airport Authority.

“You would see cutbacks on maintenance, cleaning, you would see them become much more crowded because (of) the pressures on the management to deliver that return,” he told Torstar News Service in an interview.

Mark Laroche, president and chief executive officer of the Ottawa International Airport Authority, said the “unintended consequence” of turning airports over to for-profit enterprises would likely be higher fees.

“The cost of flying in Canada is high enough. You cannot ask travellers to pay more,” Laroche said.

The Liberals were elected last fall on a promise to deliver big-ticket infrastructure spending. Their March budget confirmed that they are considering public pension plans and other “innovative” funding sources, such as asset recycling, to help fund that program.

Asset recycling is the process of giving the private sector a stake in existing infrastructure assets, such as ports or highways, to raise the cash needed for other investments.

An external review of Canada’s transportation sector, submitted last December, floated that very possibility for airports.

The review, led by former federal cabinet minister David Emerson, [who championed the way for Chinese investments during his portfolio] said the airport authority model has worked so far, noting that since Transport Canada turned over the operation of the major airports, authorities have invested more than $19 billion in new “badly needed” infrastructure.

But though airports are “efficiently run,” the review panel said the not-for-profit authority model is “antiquated” and puts the cost competitiveness at risk.

The report lays out a detailed recommendation to further privatize larger airports, urging Ottawa to move within three years to a share-capital structure with equity financing from institutional investors, accompanied by legislation to “enshrine the economic development mandate of airports and to protect commercial and national interests.”

Such a move would “restore Canada to its place as a world leader in the governance of airports and in the use of competition and market forces to determine optimum investment and service levels and costs,” the review panel said.

But Laroche says there is no “magic powder” and underscored the point that a private investor will need to make a return.

“It’s going to come from raising fees, investing less in capital or finding efficiencies,” he said.

That’s echoed by Richmond, who notes the high value of Vancouver’s airport, perhaps as much as $6 billion on the open market.

“Problem is, once someone pays that money, they need to get it back,” he said. “Where does that money come from? Well, it has to come out of the customer’s wallet.”

Richmond rejected the assessment of the Emerson panel that airport authorities are an “antiquated model.”

“It’s a fantastic model to have a private-company attitude running a public good,” Richmond said.

Asked about the review now underway, a Transport Canada spokesperson would only say that Transport Minister Marc Garneau is “leading an engagement process” to hear feedback on the review’s recommendations, including the “competitiveness of airports and the Canadian air sector.”

However, details of those consultations are still being worked out, the spokesperson said.

But two sources told Torstar that bureaucrats are under the gun to complete their review of options by August. There is speculation that their conclusions could help shape a potential mini-budget that could be rolled out this fall.

In addition to keeping the status quo, other possibilities are reportedly in the mix. These include retaining the not-for-profit operation but transferring the airport lands, now federally held, to private ownership; a for-profit operation under a concession or lease; and a for-profit model with the land as part of the deal.

The initiative has echoes of the attempted privatization of the terminals at Pearson International Airport in 1993. The 57-year deal to handover the terminals had been finalized during that year’s federal election, despite warnings from Liberal Leader Jean Chrétien that he wanted a review of its terms. He overturned the deal after his Liberal government took office, paving the way for the creation of the Greater Toronto Airports Authority (GTAA) that runs the airport today.

Pearson — Canada’s busiest airport with 41 million passengers a year — would rank as a plum catch for private investors. For now, its executives are considering the potential options but strike a cautious tone about changes.

“Changing the ownership structure is a complex matter that requires careful consideration by all affected stakeholders,” Howard Eng, president and CEO of the GTAA, said in a statement to Torstar.

“Together with our board of directors, we are taking the time to review and consider all of the implications a change in ownership could bring,” Eng said.

Airport operators say if concerns about the cost of air travel are driving the change, they are not to blame. Instead, they say Ottawa’s policy of forcing passengers to pay the entire cost of air travel — with no contributions from general revenues — has pushed prices skyward.

And they note that airports pay rent to Ottawa — some $5 billion since 1992 and at least another $12 billion more over the next 40 years, according to Emerson’s report.

Under the National Airports Policy in the mid-1990s, Ottawa transferred management of 26 major airports to local not-for-profit airport authorities. The authorities are on the hook for the costs of day-to-day operations and capital infrastructure. They raise funds through fees charged to passengers and airlines as well as revenue from commercial leases. Any excess revenue is reinvested in the airport. The authorities also pay annual rent to the federal government.

Q/Are we leveraging our sovereignty?