Monette Pasher: Canada’s airports are already private — selling them to for-profit owners will just mean higher fees

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It’s a common story that government should be run like a business: Find efficiencies, avoid unnecessary costs and fees, consider the customer, privatize where appropriate. Thirty years ago, this was the theory behind the divestiture of Canada’s airports from federal control. Transferring these facilities to private, non-share airport authorities was an elegant balancing act designed to make them run like businesses while acknowledging that air travel remains a public good in a country as large as ours.

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Yes, Canada’s airport authorities are already private, non-share-capital corporations and have been for 30 years, although they do still sit on leased federal land. That comes as a surprise to some people, who think the government still actively operates the aviation system. But it’s old news to some others who recognize the growth investment opportunity in airport infrastructure but blur the lines by using the term “privatization” as a shorthand for “privatization plus profit,” which would come at a cost of higher user fees for passengers.

In this spring’s budget, former Bank of Canada governor Stephen Poloz was charged with identifying opportunities for pension funds to invest domestically, with airports among the assets for consideration. Airport authorities want the largest number of possible financing options (including institutional investors) for infrastructure projects, but there is a line; a forced sale of these vital transportation assets to the giant pension funds would almost certainly bring fee increases that Canadian passengers would find unpalatable.

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Why would it lead to fee increases? Because institutional investors need to generate profits and returns for stakeholders, and the Canadian airport business does not currently do that. Boosters of the for-profit model will tell you that the returns will come from the “efficiencies” of privatization, but Canada’s airports have already been privatized. So the circle will inevitably be squared with higher revenues — a.k.a. higher fees.

That’s great if you’re a fund manager, but less so if you’re a passenger.

Canadian travellers and airlines already find fault with Canadian airport improvement fees (AIFs), noting that they’re higher than those charged in the United States — where airports are typically owned by municipal or state governments and are subsidized by billions of dollars a year in federal infrastructure spending.

Canadian airports, by contrast, contribute money to the public purse, having paid $7.3-billion in land lease payments since divestiture, 12 per cent of revenue. That’s more than most for-profit privatized airports pay in taxes, yet Canada’s AIFs are still much lower than what passengers pay at many for-profit airports abroad.

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Look at London Heathrow, which was fully privatized in the late 1980s, not long before Canada’s airports. It’s now owned by a for-profit consortium dominated by sovereign wealth and pension funds, including the Caisse de dépôt et placement du Québec. Heathrow’s AIF is the equivalent of $54, and Britain’s regulator recently had to intervene to prevent it from being raised to about $75. For context, that would be about $40 more than the AIF at Toronto Pearson, Heathrow’s international hub competitor.

Or look at Australia’s for-profit privatized airports, which are burdened by dividend payments to shareholders that range between 20 per cent and 30 per cent of revenues. There’s nothing less efficient than skimming that much revenue directly into someone else’s pocket.

Should the federal government be making it easier for airports to finance infrastructure improvements? Yes, absolutely. Canada’s airports have self-financed more than $30-billion in infrastructure improvements since divestiture. And a couple of the largest, Montreal-Trudeau and Toronto Pearson, have announced major capital improvement plans just this year. These airports will continue to get bigger and better, and more flexible financial investment is always beneficial.

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But Ottawa shouldn’t be abandoning the current airport model to benefit private equity at passengers’ expense, selling off its best airport lands or forcing the disposal of airport authority assets.

That’s not to say that pension funds can’t be part of the solution. Airports can and should use pension fund investments in projects that are beneficial to passengers and growth. Here are four starting points for Ottawa’s consideration that would be in keeping with the original balancing that went into the privatization of Canada’s airports, while accounting for the current landscape and including institutional investors:

• Finalize the government’s announced intention to identify and clarify ways for airport authorities to secure capital from pension funds;
• Extend federal leases by 50 years to help airport authorities attract lower-cost financing;
• Recapitalize the Airport Capital Assistance Program to $95 million to help small airports meet their infrastructure needs;
• Create a $400-million federal fund targeting airport infrastructure capital investments.

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Our airports are already run like businesses. They’re private corporations without the sky-high fees typically seen at airports with for-profit ownership. The Canadian model has been an infrastructure success story and as we look to the future, we need to evolve the right way so air travel remains accessible and affordable for Canadians.

Monette Pasher is president of the Canadian Airports Council 

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