Charting the Course for Canada’s Airports
Charting the Course for Canada’s Airports
Written by Gregory Smith, May 17, 2018
Airports play a vital role in Canada’s transportation infrastructure network and the connectivity of our communities.
OUR AIRPORTS LINK CANADA to global destinations and markets, facilitate trade and commerce, and contribute significantly to the local economy. A 2013 study by the Conference Board of Canada estimated that the air transportation industry in Canada has an overall economic impact of nearly $35 billion in gross domestic product, making it strategically important to our national prosperity.
Twenty-five years ago, Canada was a leader in the modernization of aviation infrastructure, with the shift from government ownership to a self-funded non-profit airport authority model. Under this model, which is unique globally, federal governments retain ownership of the airports, leasing them to local authorities who maintain operations, management and governance. Each authority is governed by a board of directors that includes both government appointees and private sector participants: they must finance the renewal of their infrastructure and cover all operating costs on their own.
The air transportation industry in Canada has an overall economic impact of nearly $35 billion in gross domestic product.
This made-in-Canada solution strengthened the quality of our airport infrastructure by opening the door to private sector expertise and removing the capital burden from taxpayers. The poor condition of many airports in the United States, where funding is largely provided by the federal government and is declining in real terms, stands in stark contrast to what we have achieved in Canada.
The times, however, are changing, defined by challenges arising from urbanization, environmental pressures and profound technological change. To finance capital investments, Canadian airports are able to access debt finance but not equity markets, and can charge travelers airport improvement fees — leading to fewer financing options for necessary modernization and improvements. With air travel and associated passenger volumes expected to double over the next 30 years, significant new capital will be required for our airports to adapt, grow and modernize.
At the same time, the financing, building, maintenance and enhancement of critical infrastructure, which includes airports, has evolved significantly. Globally, private investment is on the rise as governments grapple with massive infrastructure deficits and competing investment priorities. Just as Uber shook up the transportation industry, and Airbnb redefined the hospitality industry, it is impossible to ignore the fact that our airports and their approach to investing in the future must change if they are to accommodate continuing growth and meet 21st century challenges.
Canada’s airports are our calling card to the world and a proven gateway to economic growth, which makes investing in their continuing success a strategic priority.
In April 2018, the Canadian federal government announced that it will no longer be pursuing airport privatization to support infrastructure re-investment, a study it initiated nearly two years ago. With this decision, the boards of directors of Canada’s airport authorities along with local municipalities must now take charge of assessing and determining the best approach to engaging the private sector to finance and deliver necessary aviation infrastructure. There is a significant role for the private sector to play in helping Canada’s airports to innovate and soar to new heights.
In many ways, the government’s decision creates a broader opportunity for each airport authority to choose the approach and partnerships that work best for its location, investment needs and stakeholders. There is no one-size-fits-all approach to private sector collaboration with many examples to draw upon both internationally and here at home. Airports can enter into a long-term concession with the private sector for some elements of operations such as a passenger terminal, which is a model proven to be successful at the award-winning Billy Bishop Toronto City Airport. This airport also completed its pedestrian tunnel through a public-private partnership (P3), a project that has dramatically reduced traffic congestion in the surrounding community. Similarly, the improvement of the Iqaluit International Airport was financed through a P3, with the private sector bearing the risk of financing, construction, operations and maintenance. South of the border, LaGuardia Airport and Los Angeles International Airport have likewise adopted P3 models to expand and modernize their infrastructure.
Globally, 40 of the biggest 100 airports are fully or partially privately owned or operated, which suggests that private sector capital and specialized aviation expertise is widely regarded as valuable.
In North America, private airport investors and operators have historically demonstrated leadership and innovation, integrating themselves into the surrounding area while supporting modern needs. In 1924, Henry Ford opened an airport in Dearborn, Michigan, featuring the first paved runway, first airport hotel and first modern terminal facility. In Canada, Billy Bishop Toronto City Airport is the successful product of a unique public-private collaboration, operating as Canada’s ninth largest airport and recognized globally for excellence in passenger service and experience.
Building, renewing and innovating Canada’s airports for the 21st century is a task that will eventually require a re-examination of how we design, operate and finance aviation infrastructure. While privatization is off the table, at least for now, examining the issue has stimulated a national dialogue around public and private sector cooperation, and how we can create the right conditions for potentially transformational infrastructure projects and ensure new investment where it is needed most.
This kind of conversation is vital to ensure our infrastructure remains at the leading edge. Canada’s airports are our calling card to the world and a proven gateway to economic growth, which makes investing in their continuing success a strategic priority.
InstarAGF Asset Management Inc.
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