Canada Govt To Cut Airport Rent, Sees C$8B Relief From Move
9 May 2005

OTTAWA (Dow Jones)--The Canadian government will reduce rents at federally owned airports by more than 60%, a measure that is expected to provide airport authorities with about C$8 billion in relief over the course of their existing leases, Transport Minister Jean Lapierre said Monday.

He said that major airports will see a "substantial reduction in long-term costs, which should greatly benefit airlines and the traveling public."

"By lowering airport rents by over 60%, the Government of Canada is radically changing the financial outlook of the air transport sector in Canada," Lapierre said in a statement.

Airports that are paying rent will realize C$350 million of savings during the transition period to the new rent formula, which will be fully implemented in January 2010, the statement said.

Airports that aren't as yet paying rent will use the new formula as soon as they come on-stream.

Nine out of the 21 airports covered by the rent policy review now pay rent.

Web site: http://www.tc.gc.ca

What the airports pay
Editorial
11 May 2005
The Globe and Mail

Like some of the other multi-billion-dollar financial pledges made in recent weeks by the Martin government, the new deal for Canada's airports sounds better in the headlines than in reality. It will do nothing to reduce high landing fees at the country's busiest airports. It will not help consumers faced with more expensive tickets to cover those costs. And it will come nowhere close to “radically changing the financial outlook of the air transport sector in Canada,” which was how Transport Minister Jean Lapierre characterized the plan to reform the country's airport rent structure.

Based on the spin, Canadians could be forgiven for thinking that the country's airports are about to reap combined windfall savings of $7.8-billion thanks to lower rents on their federal ground leases. Mr. Lapierre said this should translate into smaller fees for airlines, which would in turn be able to lower ticket prices. But all the government is really doing is cutting enormous scheduled increases in already high rents that have needlessly hurt competitiveness and endangered the health of a vital service.

Under the new plan, Ottawa will lower its planned take to $5.1-billion over the next 47 years, instead of a scheduled $12.9-billion. This, coupled with a simpler rent regime tied to revenues that will take effect in 2010, will eventually produce financial benefits for the various airport operating authorities — some sooner than others, depending on the political clout of their representatives in cabinet.

The non-profit authorities that took over the financial and operational reins of 26 federal airports in the early 1990s, when the airports were privatized, have had no choice but to pass on their rent costs directly to airlines. The rent system is really a tax designed to recoup a portion of the billions invested by the public in the construction and operation of the country's network of airports. But each airport's levy has been determined by its own separate agreement with Ottawa, leading to a patchwork quilt of payments that have little economic basis.

Although the airport operators had sought immediate relief, they are happy with the reform, because their rents will stop increasing by levels well in excess of inflation. The lower rates and their link to revenue will provide a useful financial cushion if business declines. But Toronto's Pearson International, which handles a third of all Canada's passenger traffic, will actually see its rates rise in the near term, along with its share of the total tax contribution. The Greater Toronto Airports Authority, which operates Pearson, accounts for about 43 per cent of Canada's airport ground rents today. This will jump to 50 per cent when the new plan takes effect, and 66 per cent by 2020.

Yet Pearson already has the second-highest landing fees in the world, outranked only by Tokyo. And it must compete with nearby U.S. airports that pay no such rents. Already, international carriers are warning that they will reduce service to Canada's biggest market if landing fees remain uncompetitive. And Air Canada, which uses Pearson as its hub, is placed at a distinct disadvantage.

None of this will be fixed by the government's new policy, whatever high-flying claims Mr. Lapierre and his colleagues may make for it.

Airport policy dooms city gem
5 May 2009
Winnipeg Free Press

The creation of the Canadian Airport Authorities by the Chrétien government transferred the management of the major airports from Transport Canada to local community representatives, like the Winnipeg Airports Authority. The impetus to transfer management of the airports to local authorities was both financial and philosophical.

At the time, the federal government was running huge budget deficits and the infrastructure of the national airport system had been neglected for years. Massive capital expenditures were needed to rebuild runways and upgrade passenger terminals at a time when the federal government was cutting costs. The transfer of airport responsibilities to local groups, with the right to impose user fees, seemed like a good solution.

The logic of was made stronger by the experience of the local airport authorities that were created at Vancouver, Edmonton and Calgary under the prior Mulroney government. Under local management, these airports raised funds to modernize their facilities and employed entrepreneurial innovations to make their airports more economic.

Prior to the airport authorities, decision-making was extremely slow. Any airport manager that wanted to try something new would have to take the case to Ottawa where it would be examined in terms of application to the entire national system. Needless to say, the airports were bland and operated as business enclaves that were isolated from the local economy. The new policy was seen as a means of harnessing the entrepreneurial spirits of the business community to staff the boards of directors, and as a means of creating economic synergies with local businesses.

With 31 airports in the national airports system, there are 31 stories of success and disappointment. Universal dissatisfaction stems from the lease arrangements with the federal government. The ground lease involves rent payments to Transport Canada. Unlike a normal landlord arrangement, Transport Canada does not maintain any of its assets. In the case of Winnipeg, the Winnipeg Airport Authority pays about $5 million annually to Transport Canada for an airport facility that is being maintained and rebuilt entirely by user fees. Moreover, airport rents keep rising as the actual value of the assets used by the Canadian Airports Authorities decline in value.

The airport rent collected by Transport Canada is excessive, but a much greater policy flaw exists. According to the Public Accounts of Canada 2008, the rents paid by the airports do not return to national treasury. They are collected as "respendable revenues" by Transport Canada. The rents were justified initially as support that Transport Canada would make available to the small airports under the Airports Capital Assistance Program. However, last year, Transport Canada took in $298 million, and paid out only $38 million under ACAP. This is not unusual. Only 13 per cent of rents have been paid out since 1992.

Where has the rest of the money gone? It is spent by Transport Canada to pay for its normal operations. Here lies the question. How can a federal department administer sound transportation policy for all Canadians, when it forces every air traveller to pay excessive airport improvement fees, higher parking charges and other gouges, so it can keep its lights burning in Ottawa?

Clearly, the airport rent collection policy puts Transport Canada in a conflict of interest between maximizing the efficiency of the airport system and choosing to fund executive retreats for its senior bureaucrats.

The failure of the policy is crystallized in the uncertain future of the current James Richardson Airport terminal. According to the WAA, they effectively own the current terminal under the long-term lease of Transport Canada because the federal department accepts no responsibility for maintaining this property. Airport rent is of course no excuse for the WAA to demolish a building of significant architectural and historical merit. Tearing down this building will not change the $5 million paid each year by the WAA to Transport Canada.

It seems ironic that when such heroic efforts are made to preserve the 18th century gates of the Upper Fort Garry, Winnipeg's most important gateway for the late 20th century can be razed because no private sector proposal has come forward to reuse it.

Nothing is stopping the WAA from renovating and finding new uses for this space; so much for the "entrepreneurial" benefit of the policy. Instead of acting like a community-minded custodian of the heritage put in its trust, the WAA is indistinguishable from an absentee landlord.

The policy is far from perfect, but Transport Canada's abdication of responsibility to maintain public assets from the airport rent collected is a policy failure. If only half the annual airport rent that is paid to Transport Canada were returned for renovation of the Richardson International Airport terminal, this showcase of early modern architecture would become a must-see stop on any tour of Winnipeg and a valued asset for generations to come.

Barry Prentice is a professor of supply-chain management at the University of Manitoba.