A second wave of airport privatisation is now well under way in Canada, involving Toronto's Pearson International Airport, Ottawa's Macdonald-Cartier International and Winnipeg International.
Negotiations between the Canadian Department of Transport and the airports began earlier this year and, assuming that they go well, the Federal Government is expected to transfer control to the newly created Canadian Airport Authorities at each airport by 1 April, 1996. Four airport groups were privatised in 1992 under a similar policy, and such authorities now run airports at Vancouver, Calgary, Edmonton and Montreal (where two airports, Dorval and Mirabel, are managed by a single authority).
Under the National Airports Policy unveiled in 1994, Canadian Transport Minister Douglas Young is encouraging all 26 of Canada's core airports to form authorities.
The authorities represent community interests (business, labour and local government) and are accountable to the public. Their main role is to negotiate, with the Federal Government, airport ownership on a 60-year lease and to take over responsibility for running the airports and for planning capital improvements.
The leases are expected to follow the general pattern established by the first four airports, where the Federal Government's main objective during the talks which led to these first privatisations was to extract enough money from the country's large airports to continue cross-subsidising dozens of small, unprofitable airports.
The Government is withdrawing, over a five-year period which began on 1 April, operating subsidies from all airports, which handle fewer than 200,000 passengers annually. It is planned, however, that the smaller airports will be helped out by C$30 million ($21.5 million) to C$35 million capital-assistance programme funded by the largest airports.
Much of the cross-subsidy will be funded by lease revenues, from the 26 biggest airports, which collectively account for 94% of Canada's air passenger traffic.
The 60-year lease provides authorities with enough cash flow to modernise existing airport functions such as passenger terminals and customer areas. At Vancouver, the authority is also spending C$102 million for a new parallel runway designed to increase airport capacity to 425,000 operations a year, from 275,000. These two major capital expenditures are being funded by a special tax on passengers who use the airport. It ranges from C$5 a ticket for travelers flying within British Columbia, to C$15 for those travelling overseas.
Despite the ticket tax, traffic has been booming, especially on international routes. The number of scheduled and charter passengers moving through Vancouver International in 1994 jumped by nearly 6% to 10.3 million for all traffic, with a 11% surge in international passengers.
US OPEN-SKIES DEAL
Growth should continue this year, paced by the new open-skies deal between Canada and the USA. Vancouver Airport Authority President David Emerson predicts that the addition of 23 daily trans-border flights in 1995 will result in 400,000 extra passengers by the year end. This, in turn, should add nearly C$5 million to the authority's revenues this year.
Like its sister airport authorities, Vancouver is still struggling with a key clause in its three-year old lease. Under the deal, the Government keeps 92% of the effective rent paid by businesses, which operate on airport property, such as warehouses, inter-modal services and aircraft-maintenance operations.
If the authority can attract new commercial tenants, only 75% of the rent goes to the Federal Government. "That still doesn't give anyone enough incentive to develop the property," says Emerson, who has identified nearly 200Ha (495 acres) of potential development sites on airport property.
VANCOUVER PLEA
Vancouver is trying to convince the Government to revise the lease formula and there are signs that a revision may be considered. One federal official notes, that it may be in the interests of both sides, because the more development there is, the more potential revenue there is for everyone.
Another irritant for Emerson is a clause in the lease which ensures that Vancouver spends at least C$102 million on the new runway - the Government wants to be sure that the authority is not tempted to scrimp on runway construction. The perverse effect, however, is to give the authority no incentive to be efficient.
"We can build this runway for less than C$102 million," says Emerson, "but anything we save, we have to give back to the Government. Our alternative is to gold-plate the runway."
The Vancouver authority generated an estimated C$125-130 million in 1995 revenues (final results will be known on 10 May), up by 19%. The surplus available for re-investing in the airport should be close to C$55 million, up by about 50%. The financial numbers were much better in 1994, partly because of the airport-improvement fee not being in effect during the early part of 1993.
The other privatised airports are also considering imposing Vancouver-type taxes. For example, Edmonton International is examining the possibility of building a new C$150-175 million passenger terminal building, beginning in the late 1990s. Edmonton authority president Geoff Hutchison says that the tax could be as low as C$2 for each passenger, but others think that it will be higher.
The situation at Edmonton International is complicated by the fact that the city's municipal airport still operates outside the authority - unlike the situation at Montreal. This means that it is more difficult for Edmonton to achieve economies at its airports, especially when it comes to dealing with overhead expenses. If the authority does move ahead with a new terminal, construction could be wrapped up much faster by diverting scheduled traffic to the municipal airport. There is, however, no incentive for the authority to do that if the revenues wind up in the city's coffers.
At Calgary International, major projects are under way to expand the runway apron and refurbish ground-level holding rooms, to speed up the transfer of passengers from smaller commuter aircraft to larger jets. Authority president Ernie Caron says that these construction expenses are covered under the airport's capital-spending budget of roughly C$10 million.
The Calgary authority is planning to launch a ten-year, C$110 million capital- spending programme, which will be funded through a passenger surcharge. This would effectively double the amount, which the airport devotes to modernising buildings. Caron hopes to begin in 1996 by adding three extra passenger gates, expanding the baggage areas and improving car parks. After that, projects would be considered case by case.
The Calgary authority is trying to avoid the Vancouver model when it comes to levying the surcharge. At Vancouver Airport, passengers must pay a surcharge at special booths - after they have paid for their airline ticket. Caron would prefer to have the surcharge included in the cost of the ticket itself. The airlines are resisting this approach, fearing that they would be blamed by customers for the extra tax.
PRIVATISATION BENEFITS
Perhaps the best example of the benefits of privatisation is Aeroports de Montreal, the authority now managing Dorval and Mirabel. The authority operates with 510 employees compared to 560 when the transfer from Government took place. Authority president Jacques Auger says: "The Government had lots of overhead costs piled on top of the normal overhead expenses. When you get rid of these, it's easier to make money."
Strictly speaking, the authorities do not make profits. They are compelled by the terms of the lease to plough any surplus monies back into the airport, something they are more than happy to do. Aeroports de Montreal achieved a C$26 million surplus in 1994 on revenues of slightly more than C$100 million.
Remarkably, 45% of the surplus was contributed by Mirabel, although it handles a much smaller portion of the two airports' passenger traffic. The explanation offered by Auger is that Mirabel's traffic is predominantly international, so passengers tend to arrive much earlier for their flights and spend more in the shops.
The authority's surplus is all the more extraordinary in the light of very sluggish traffic and its refusal so far to resort to airport-improvement surcharges. Aeroports de Montreal is using most of the surplus to modernise Dorval, the older of the two airports.
The authority has completed, or is working on, several projects, including:
refurbished passenger lobbies for domestic and international customers;
a more efficient customs area;
a marquee for rain protection;
the installation of electronic kiosks to expedite parking payments.
The authorities at Ottawa, Toronto and Winnipeg are waiting until negotiations with the Government are complete before outlining their own modernisation plans in detail. Toronto is anxious, however, to refurbish terminals one and two - a job which will be complicated by the Liberal Government's decision in 1993 to cancel a construction contract signed by the former Conservative administration, involving both terminals.
Winnipeg is eager to begin investing in equipment to transform it into a major cargo airport for North America, while the Ottawa Airport Authority is considering a major expansion of retail and ground services. A major priority for the Ottawa authority is to gain a customs pre-clearance area.
Source: Flight International
