Liberals’ drive to privatize Canadian airports lifts off

Airports, including Pearson, are now run by not-for-profit airport authorities. But airlines, airport operators and some municipalities are warning any sell-off will drive up costs, and those will get passed on.

Thestar.com
March 6, 2017
By Bruce Campion-Smith

Canada’s major airports could soon be on the auction block as the upcoming federal budget is expected to raise the possibility of their potential sale to private investors.

For months now, the federal Liberals have been reviewing the ownership structure of Canadian big airports, now run by not-for-profit airport authorities.

The budget is expected to signal the government’s interest in finding a way to tap the value of airports with a process, perhaps led by Transport Minister Marc Garneau, to more formally explore selling them off, the Star has learned.

“We are more convinced than ever that this issue is very much in play,” said one industry source familiar with the file.

“There will be language with respect to this,” the source said of the coming budget.

The potential benefit for Ottawa is huge. One study done by the Vancouver airport authority estimated that the federal government could reap between $8.7 billion and $40.1 billion by selling off the country’s eight largest airports, including Toronto’s Pearson International Airport.

Yet the privatization scheme is ringing alarm bells among airlines, airport operators and some municipalities who warn that handing over Canada’s airports to owners with a profit motive sets the stage for rising fees that will force travellers to pay more.

Still, for a government eager to find billions of dollars in new revenue to pump into infrastructure, that sort of windfall is hard to ignore. The idea is equally appealing for private sector investors such as pension fund managers keen to invest in secure assets that promise a steady rate of return.

With rates of return “incredibly low” in other investments, the timing of an airport sell-off now would work in Ottawa’s favour, said Craig Alexander, senior vice-president and chief economist at the Conference Board of Canada.

“The economic rationale is actually quite sound and the timing, given where interest rates are today, could be very good in terms of eliciting the highest price for those assets,” Alexander said in an interview.

“There’s a big opportunity for the government there to leverage the fact that the private sector would be attracted to it,” he said.

Opinions are divided in the aviation sector. Some organizations, like the Greater Toronto Airports Authority, which operates Pearson airport, have taken a wait-and-see attitude while cautioning that any change to ownership requires careful consideration.

But others aren’t sold on the idea. Vancouver airport has teamed with those in Ottawa and Calgary on a public information campaign to oppose privatization.

“We think it’s a bad idea,” Craig Richmond, the chief executive officer of the Vancouver Airport Authority, told the Star.

“This idea of a one-time payment, that’s like selling the family jewels and then regretting it forever,” he said in an interview.

The Vancouver authority laid out its objections to Transport Canada, including the submission of a detailed 52-page analysis of privatization and its impact on costs.

It estimates that the federal government would reap between $2.9 billion and $6.2 billion from the sale of Vancouver airport alone.

But the authority concludes that privatization would add “hundreds of millions of extra costs” that would have to be recovered through cost-cutting, increased fees and reduced investment in airport infrastructure.

“It would be too costly for a for-profit buyer to acquire an airport such as YVR without reducing services and passing these costs on to airport users through higher fees and charges,” the report states.

Richmond said that analysis has been circulated within government. “No one has disputed our math. The math is there. I think it all comes down to a political decision,” he said. “I think it would be a mistake.”

For his part, Alexander downplays the concern about rising fees for airlines and passengers if airports are privatized and said the existing charges and revenue are “more than enough” to provide a good return on investment.

“I think there are constraints in the marketplace as to how much you can actually charge,” Alexander said.

Still, Richmond defends the current arrangement of having non-profit authorities manage the airports, calling it a “brilliant model” that is applauded around the world.

“People say to us ‘you have hit on a perfect model for how to be a private business ... running a public good,” Richmond said, noting that Vancouver’s authority has made more than $3 billion in investments in the airport with no subsidy from Ottawa.

He said Ottawa should instead focus on fostering Canadian’s commercial aviation sector to take advantage of geography that puts Canada at the crossroads between Europe and Asia and North America

“If the government would just take advantage of these amazing assets and grow the air sector by their policies. . . that would bring into the treasury a lot of money,” Richmond said.

The federal Liberals have so far said little about the work underway behind-the-scenes in both the transport and finance departments on the issue. That’s prompted complaints from several in the aviation sector that Ottawa has done little consultation on the impact of any privatization push.

The National Airlines Council, representing airlines such as Air Canada and WestJet, wrote Finance Minister Bill Morneau and Garneau last month urging that these policy deliberations be done “transparently, in consultation with all stakeholders and with a clear policy goal of the best possible air transport system for Canadians.”

“This review appears to be conducted in isolation of any formal consideration of the cascading impact of government policies ... on the cost and operating environment of Canadian carriers and by extension on the pocketbook of Canadian air travelers,” council president Massimo Bergamini said in the letter.