YYC Calgary Airport is a well managed facility, but could it benefit from privatisation? Part one
Canada has always been an outlier where the privatisation of its airports is concerned: facilities there being owned by a state organisation from which the main airports are leased to 'not for profit' stakeholder organisations, with boards consisting mainly - although not exclusively - of public sector members.
Meanwhile, airports take a hit each year off the government, which can charge up to 12% of gross revenue as a property tax.
It is both the best and worst of all possible worlds, depending on how you look at it, but the government, operators, and the public generally favour it.
In 2017 the government instigated an investigation into full privatisation, but with strong opposition - especially from the operators - it fizzled out.
With the CAPA - Centre for Aviation Americas Airline Leader Summit approaching in May-2024 and being held in Calgary, an airport which is doing just fine and was firmly against privatisation in 2017, it is time to consider if this matter should be put back on the agenda.
This is part one of a two-part report.
Summary
- Canada's unique 'not-for-profit' airport ownership and management system is more than three decades old now.
- Regarded locally as a manifestation of 'privatisation', it is more in the way of 'corporatisation'.
- Most of the main airports, the public, think tanks, and the government, appear still to be against privatisation.
- There was a move in 2017 towards full privatisation and an investigation began, with several methods coming under scrutiny, but it fell by the wayside.
- But the airport sector gets hammered by enormous crown rents (property taxes) every year, and their suspension during the COVID-19 pandemic has subsequently created a headache.
- Meanwhile, infrastructure investment has lagged accordingly - that means now is a good time to consider if it is the time to resurrect the airport privatisation study.
- The CAPA - Centre for Aviation Americas Airline Leader conference will be held in Calgary in May-2024.
Canada has a unique system for ownership and management of its airports, and one that has attracted US interest
Canada is sometimes sidelined and overlooked in the greater scheme of things globally, and especially where it's much more heavily populated and influential neighbour to the south is concerned.
But, and apart from the demands placed on its airline system (one that is required to cover the second largest country on Earth, with 6% of its landmass), the organisation of Canada's airport network also offers insights into the workings of the country.
It has even attracted the attention of some politicians in the US, who see the Canadian mechanism as a viable alternative to the US-style: city, county and state ownership of airports with occasional and uncoordinated interventions from the private sector as a sort of 'middle ground' there, although it is not really that.
Canada has an unusual 'not for profit' ethos for the (almost exclusively public sector) non-share 'stakeholder' ownership and management network of its major airports, one that dates back to the late 1980s and is not replicated anywhere else, as far as is known.
More 'corporatisation' than 'privatisation'
All airports in the National Airports System (with the exception of the three territorial capitals) are owned by Transport Canada, and since then have been made available to be leased to the local authorities operating them. Those authorities act as private companies, so it is a form of privatisation - but more accurately should be described as corporatisation.
There was initially slow take-up of this corporatisation option offer until 1992, when the National Airports Policy took effect.
What was then (and remains now) the country's busiest airport, Lester B. Pearson at Toronto, came under the control of the Greater Toronto Airports Authority (GTAA). That organisation was the first private, not-for-profit organisation to operate a Canadian airport, and one that placed emphasis on 'stakeholder values' - improving the returns to consumers, organised labour and the local business community, rather than to individuals or corporate shareholders.
GTAA became a model and a benchmark for similar arrangements in most of Canada's major cities, from the east to west coasts.
Not all airports have the not-for-profit model, and full privatisation was proposed in 2017…
Not all airports adopted the model, only the main ones and some remained under the direct auspices of Transport Canada (currently 18). There are numerous and more recent examples of partial privatisation, such as Hamilton Airport to the southwest of Toronto, the Billy Bishop airport on an island close to Toronto's downtown area, and three other coastal airports (apart from Hamilton) that are managed by Vantage Airports under contract.
The formal privatisation of the main airports has been proposed on several occasions: for example in 2017, when a consultant was hired by the government to investigate it for the eight largest airports and differing methods were put forward, including public-private-partnerships (which have since gained favour extensively in the US and across the world).
…but it was snubbed by the public and by the majority of the airport operators, who considered themselves 'privatised' already
None of this, and especially any move towards a for-profit corporate structure within the operating companies, found favour with the vast majority of the operators - with the exception of Aéroports de Montreal, which offered only limited support.
Together with the Ottawa and Vancouver international airports, Calgary Airport even created a website - www.noairportselloff.ca (since removed from the internet) - to argue against selling Canadian airports to private investors.
Most of the operators seemed to take the view that they already were a private company, just that they didn't have shareholders and pay dividends, which meant that any money that they made got reinvested in the airport.
That is a fair argument, but it fails to accept the value of truly privatised organisations, that are not subject (or at least not wholly) to government remit, nor subject to undue local influence, and which can more easily attract and utilise private capital, imaginatively.
Ultimately, that did not matter, though, because the privatisation proposal was also not supported by the general public, and it was consequently put on the back burner - where it has remained ever since, despite occasional attempts to resurrect it.
Infrastructure construction has flagged in recent years
Fast forward to Oct-2022 and a CAPA - Centre for Aviation report on growing media criticism of the Canadian government for falling behind on the infrastructure improvements that the government itself had said "should reflect our modern ambitions".
Such infrastructure investment decay was, of course, exacerbated by the COVID-19 pandemic, which closed down Canada as much as any country on Earth, with severe lockdowns and very strict travel mandates in force.
The consensus was that major capital improvements to Canada's airports were long overdue, and that a big part of the reason was that the federal government and the Canada Infrastructure Fund had earmarked billions of dollars over the next decade to help municipalities and transit authorities make the net-zero transition, but without much in the way of projects in the aviation sector.
And those concerns are borne out now, sixteen months later, by data from the CAPA - Centre for Aviation Airport Construction Database, which reveals known and current infrastructure projects at only nine airports in Canada, at a total cost of USD6.9 billion, out of 86 projects in North America as a whole, costing USD55 billion.
Canadian airports and their infrastructure investment (existing airports)
The position with regard to new airports is even worse.
According to the CAPA - Centre for Aviation Airport Construction Database, there are no new airport projects at all in Canada (although there are only three in the whole of North America).
Crown rents applied to the stakeholding organisations can be crippling
One of the reasons for this lack of activity is the inordinately high 'Crown rents' - or property taxes - that airports pay to the federal government, which came to CAD420 million in 2019, before COVID-19.
In 2017, when the privatisation proposal was made, and when the government had already collected CAD5 billion in these ground rents, IATA (which, in general, is against airport privatisation) asked the Canadian authorities to prioritise the elimination of ground rents in lieu of such privatisation in order to stimulate airport infrastructure investment, or at the very least to take the tax and then invest some of it back into airport projects.
Needless to say - it did not.
Some small relief during the COVID-19 pandemic for small airports, but the big ones left on the hook for huge arrears
The government did, however, relieve rent payments during the pandemic for the aforementioned national system (smaller) airports, but only deferred it for the country's four largest facilities: Toronto Pearson, Montréal-Trudeau, Calgary and Vancouver. That left them 'on the hook' for over CAD2 billion in deferred rents and future rents over the next decade, which will not leave them much for infrastructure investment.
All are 'not-for-profit' establishments, but were treated like fully privatised ones.
It could be said that 10 years of ground rent leveraged into infrastructure would upgrade Canada's airports system for decades to come, generating tax dollars, business spending and tourism.
There are consistent calls each year - and notably from GTAA, the largest operator - to allow Canadian airports simply to reinvest the rent they owe into infrastructure, to "bring about an aviation system that is globally competitive and on the leading edge of passenger service, benefitting not only travellers[,] but all Canadians[,] by virtue of the strong economic contribution that airports make to their communities, provinces and country".
But is there any government, anywhere, that would sacrifice such an established fiscal source of revenue that it could deploy in countless other ways?
Just as it is very hard to find one, anywhere, that directs aviation tax revenues into airport improvement projects, even those that are environmentally oriented.
Time (again) to reappraise the privatisation option
The question that needs to be asked is: would it not be better to remove the middle man altogether, with the caveat that an airport operating licence is granted only on condition of a commitment to reinvest an agreed amount of the profits? (Which, incidentally, is how many private sector concession, lease and BOT agreements work.)
The CAPA - Centre for Aviation view, then and now, is that it is high time that privatisation scenarios were revisited in Canada, including public-private partnerships, which seem to be doing the job very well elsewhere. They were never properly concluded in 2017.
As this year's CAPA - Centre for Aviation Americas Airline Leader Summit is taking place in Calgary, Canada's fourth largest city and the fourth busiest airport in 2023, with 18. 5 million passengers, part two of this report will consider what implications the current ownership impasse may have for it?
CAPA - Centre for Aviation Americas Airline Leader Summit will be held in Calgary, 9-10 May 2024, and commits to providing unparalleled insight into the strategic landscape of the region.