'Antiquated’ system clips the wings of Canadian airports

[Lakelad]

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'Antiquated’ system clips the wings of Canadian airports and makes passengers pay

Thu Apr 14, 2016 - Financial Post
Kristine Owram

Montreal’s airport authority badly needed money in 2012 to fund an expansion at its increasingly busy airport, so it did what large Canadian airports always do in such cases: try to issue a long-term bond, in this case a 40-year one. Usually, investment bankers are all too accommodating. This time, however, the authority was sent packing.

The problem was not that Aéroports de Montréal had a poor credit rating or was over-leveraged, but rather something it had no control over: the government-issued lease on its land and assets was set to expire in less than 40 years, at which point it has to give the Trudeau and Mirabel airports, fully operational and debt-free, back to Ottawa.

“I got the government’s attention and I said to them, ‘Do you realize I can no longer sign leases with lessors? Do you realize that the market is refusing me a 40-year bond because I don’t have 40 years to the end of my lease?'” said Jim Cherry, chief executive of Aéroports de Montréal.

Cherry was able to secure a 20-year extension to his lease, to 2072, but it came too late to secure the financing and, under existing federal rules, he will not be able to extend it again. “We kicked the can down the road, but we’re going to run into the same thing in 2032,” he said.

Similar problems are looming at big airports across the country because of Canada’s “antiquated” non-profit model.

The solution, according to a recent review of the Canada Transportation Act, is to move towards a fully privatized, for-profit system. Such a move opens up more funding avenues for the airports, but there’s just one little problem: Montreal is the only airport in the country that actually supports the idea.

The big airports support many of the recommendations made by the sweeping review led by former federal minister David Emerson, such as a much-needed overhaul of security screening protocols.

But the proposal that they move “within three years to a share-capital structure … with equity-based financing from large institutional investors” is proving to be unexpectedly controversial.

'We need to get world-class infrastructure at the price the rest of the world is paying for it'

“Until recently, several large airports were in favour of full privatization. However, during the review’s consultations, only one provided a submission that was favourable to this option,” said Emerson’s report, released in February.

That was Aéroports de Montréal.

“Do I think it’s the perfect model for Montreal? I’m not 100 per cent convinced of that, but I am 100 per cent convinced that I have to look at it,” Cherry said. “I think we’d be doing ourselves, the airports community and, frankly, Canada a disservice if we didn’t look at the full range of possibilities.”

Canada’s six largest pension funds declined to comment on whether they’d be interested in investing in the country’s airports if they became private, but several, including the Canada Pension Plan Investment Board, Ontario Municipal Employees Retirement System (OMERS) and Ontario Teachers’ Pension Plan, already invest in airports around the world through their infrastructure portfolios.

“As a not-for-profit, we have plowed everything we’ve made back into the airport and we’ve built up this beautiful asset,”

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[Guest]

Their asset looks beautiful but does it do anything to improve the basic airport function?  What if, instead of spending $$$$$$$ on fancy and instead they reduced their AIF which was originally brought in as a temporary program to improve the basic terminal infrastructure.

[Kasey]

2 hours ago, Malcolm said:

What if, instead of spending $$$$$$$ on fancy and instead they reduced their AIF which was originally brought in as a temporary program to improve the basic terminal infrastructure.

Just like income tax, right................ Might be a long wait on that one ;-(

[Boney]

If there"s a terrorist incident affecting aviation, who suffers? Is it only the flying public or all of Canada? 

My answer is all of Canada as aviation is not just public transportation but also affects our economy. Therefore, when it comes to security, all of Canada should be paying the bill. Just look at the US. 

Therefore, privatization of airports is going in the wrong direction as profits will trump security. IMHO. This whole deal needs revamping from the current system. The government seem hell bent on holding on to the assets, therefore the government should be running this whole show. Before you all jump on me about pre deregulation, back then they didn't have to deal with security as its today, yet security on both the airside and the terminal is of paramount importance today. 

The current tax, fees etc are increasing where many head across the border to the US. Privatization will only increase these fees as its no longer a "not for profit" operation. 

My 2 cents worth.

Cheers.