Dissatisfaction with the current state of Canada’s airports is palpable among the public, airlines, and the federal government. Landing fees, shop and restaurant rental fees, and ‘airport improvement fees’ seem high and uncompetitive versus U.S. airports. This collective discontent underscores the urgent need for change.
Monette Pasher, a spokesperson for the Canadian Airports Council, representing about one hundred airports across the country, was unconvincing in her recent defence of the unsatisfactory status quo. Ms. Pasher, representing about one hundred airports across the country, claims that the sale of airports to investors would, axiomatically, increase costs: “Boosters of the for-profit model ..[say] …that the returns will come from… “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.”
There are several problems with her argument. First, financial viability is crucial for survival of an enterprise. Taxpayers and citizens have no obligation to use their products or services, or to finance their losses if their offerings are unattractive to customers. That is one of the main reasons to sell off public sector enterprises: to remove risk to the government.
The second problem is that these large airports are not truly ‘privatized’. They occupy a strange, limbo-like role that serves nobody well. With no shareholders, they operate with low accountability, which is a cause for concern. Their non-profit status further diminishes financial discipline, allowing them to hike landing fees and embark on projects that may not generate revenue but ‘look good’. Empire-building may be a motivation in some cases.
Ms. Pasher complains was about the substantial land-use fees that airports pay to Ottawa. This is a major problem, amounting to hundreds of millions of dollars, annually. However, by transferring the land outright to the airports, and then prepping them for sale as stand-alone publicly traded infrastructure companies this problem could be solved. Proceeds from the sale of airports could be divided between the newly public companies and Ottawa, with the cash retained by the airports either used for their projects, if necessary, or to pay down unserviceable debts.
The sale of airports to pension funds alone is not pre-ordained. Rigorous preparation for initial public offerings, ‘IPO’s’, including developing credible plans for debt reduction and possible radical restructuring will make airports more valuable and attractive. It could be that pension or private equity funds will not be the highest bidders for airports.
After operational and financial restructuring, a proper auction process could proceed, open to a wide variety of interested bidders (with the real possibility, even probability, of the IPO ‘threat’ prodding the participants to pay what the market will bear). Generating the maximum proceeds should be the goal, for Ottawa and the airports.
As of 2019, Canada’s six largest airports had combined gross assets of $17.6 billion, Canada’s six largest airports had combined gross assets of $17.6 billion before the Covid shutdown distortions. Proceeds for Ottawa would likely be less, as they would have to swallow substantial debt, recapitalize the airports before sale – and give them full land ownership. The payoff could nonetheless be massive, for airports, air passengers, taxpayers, cargo customers, and airlines – and for economic growth and market dynamism. Dithering, timidity and short-sightedness are not a strategy.
Ian Madsen is Senior Policy Analyst at the Frontier Centre for Public Policy.
