THE NORTHERN ROCKIES REGIONAL AIRPORT

Transcription

1 THE NORTHERN ROCKIES REGIONAL AIRPORT BUSINESS PLAN Prepared for Northern Rockies Regional Municipality Prepared by InterVISTAS Consulting Inc. 12 September 2011

2 i Executive Summary This executive summary reviews the findings and recommendations of this business plan for the Northern Rockies Regional Airport (NRRA). Findings Increasing responsibilities have made operations at regional airports more challenging. This section discusses key findings from this report and implications for the airport and the municipality. Note: the numbering has been adjusted to reflect the report sections in which these items are discussed. 2) Situational Analysis (1) Fort Nelson Area is growing as a result of exploration and development of natural gas and petroleum resources in the Horn River Basin. Growth in this region and this sector is projected to be strong in the province. (2) The NRRM population is projected to increase over the next five years to 8,000 (including temporary workers). This will require community and private investments. (3) Rapid airport growth is stressing human resources and physical infrastructure. 3) SWOTCH (Strengths, Weaknesses, Opportunities, Threats and Challenges) Analysis (1) The top challengers raised in the SWOTCH 1 analysis are i. Weakness: political environment - competing for the attention of municipal council, MPs and MLAs ii. Weakness: land ownership iii. Strength: growth in passenger traffic iv. Opportunity: economic growth v. Strength: ability to attract new business vi. Opportunity: commercial aeronautical revenue opportunities vii. Threats: competition for scarce infrastructure funding (P3). 4) Vision and Governance (1) The airport does not have a vision statement. A draft has been prepared by the staff of the NRRM but has not yet been adopted: We are Northeast BC s Premier Gateway Regional Airport that connects British Columbia and Canada to the resilient people, rich resources and abundant opportunities within the Northern Rockies Regional Municipality. (2) The NRRM owns and operates the airport. As the NRRA grows, it requires increased governance attention. It is recommended that an independent organization should be 1 SWOT analyses are a common way of developing an environmental scan for an organization. Challenges are added here because they help transition a SWOT analysis from the environmental scan to a discussion of action items.

3 ii created to govern the airport in the short- to medium-term. The benefits of an independent organization include increased oversight, independent financial and borrowing power, reduced liability, increased economic impact, and reduced time required by municipal council members. 5) Activity Forecast (1) Forecast passenger traffic at the airport is in-line with the medium growth scenario in the 2009 Long-Term Strategic Plan. (a) At this rate, passenger traffic could more than double before 2020; (b) Forecast aircraft movements are expected to grow on average by 5% annually between 2008 and As passenger traffic increases at the NRRA, scheduled flights of larger aircraft are anticipated; decreasing the number of aircraft movements in the long-term. 6) Operations and Expenses (1) Over the past five years, operating costs have increased by 35%, rising approximately to $900,000. This increase can be attributed to increased airport activity, lengthened hours of operations, volatile material cost, and age of airport infrastructure requiring increased maintenance work. (2) The increasing level of airport activity and regulatory requirements place increasing time demands on airport staff to manage and operate the airport. Changes to the airport organizational structure and additional personnel are therefore required. 7) Revenues (1) At a little over $600,000 in 2010, revenues at the NRRA are low compared to other regional airports in B.C and elsewhere in Canada. (2) Most airports transferred from Transport Canada in B.C. have modified or increased their fees since airports transfer. (3) The biggest contributor of revenues at the NRRA is landing fees, followed by general terminal fees. (4) In the past two decades, most Canadian airports have instituted per passenger fees and/or airport improvements fees (AIFs) to support capital and/or operational expenses. (5) Other regional B.C. airports and those elsewhere in Canada receive considerably more than Fort Nelson for similar aircraft and passenger movements. 8) Capital Requirements (1) The airport requires capital investments of approximately $19 million dollars to airside and groundside airport facilities according to engineering analysis. This analysis is four years old and has not been adjusted for increasing material costs, or increased infrastructure needs with recent growth.

4 iii (2) The cost per passenger at current traffic levels to cover $19 million dollars in capital investment and interest over 20 years would be approximately $30 per 2010 passenger arriving and departing. 2 9) Options and Scenario Analysis (1) The NRRA is running at a deficit and the deficit will increase annually with increased air services to and from Fort Nelson. In the status quo scenario (no significant changes to revenues or expenses) the operational deficit will increase steadily with time with no allowance for capital spending. (2) Two alternate revenue scenarios are developed and show that significant revenue increases would be required to cover both operational and capital requirements over 20 years. (3) An alternate source of funding needed capital improvements would be to obtain funding through the federal or provincial governments, or from private corporations. Recommendations Table ES-1 summarizes the recommendations from each component of the document. Within each of these, recommendations are discussed, followed by timelines, e.g. short, medium or long-term. This is a high level overview of recommendations. Many of these relate to each other and they should be considered as a whole, rather than one by one. Table ES-1: Summary of Recommendations for the Northern Rockies Regional Airport Plan Component Recommendations Timeline Vision and Governance The airport does not now have a vision statement but it is recommended that the NRRM adopt one to clarify what its intention for the airport is. A proposed statement is: We are Northeast BC s Premier Gateway Regional Airport that connects British Columbia and Canada to the resilient people, rich resources and abundant opportunities within the Northern Rockies Regional Municipality. In the case of the NRRM, it is recommended that the municipality retain control of the airport in the short-term but consider devolving it to an arm s length organization quickly as it grows Short term Operations and Expenses Addition of an Airport General Manager position An additional 1.0 FTE to maintain the terminal building and act as The need per passenger declines over time because passengers are forecast to increase.

5 iv Plan Component Recommendations Timeline an additional airport technician. Revenues Capital Requirements Contracting of professional services integrated into budget. This would include services such as engineering, legal, marketing, and environmental services. Lease review and updating. All leases must be reviewed to ensure they are up to date. Provisions related to progressive fee increases and sharing activity numbers with the airport must be incorporated into all future leases. It is recommended that the airport conduct a study to examine managing fueling at the airport. Current fuelling practices at the airport have been identified as an environmental risk, and revenue from fuel sales would benefit the airport. It is recommended that a new fee structure be accepted and come into effect on January 1, Implement a pay parking system. Choosing which system to implement should be one of the initial tasks for the new Airport General Manager. Actively seek government support for capital investment through PPP and/or Infrastructure programs. Seek speedy finalization of airport lands agreement with the province Infrastructure assessment and capital requirements review by an experienced airport civil engineering firm Begin investment in significant capital projects at airport when new fees are implemented January ongoing 2011 ongoing

6 v Table of Contents Executive Summary... i Findings... i Recommendations... iii 1. Introduction Situation Analysis Recovery from the Recession Energy Industry Expansion Community Growth Airport SWOTCH Analysis Vision and Governance Vision and Mission Governance Activity Forecast Passengers Scenario Aircraft Movements Operations and Expenses Historical Expenses Operating Expenses Staffing Revenues Historic Revenues Comparative Airport Fees Revenue Options Capital Requirements Land Tenure Financial Analysis Options and Scenario Analysis Situation Overview Alternative Approaches and Options Scenarios Including Capital Comments and Options Findings Recommendations... 42

7 vi Appendix A: SWOTCH Workshop Introduction Exercice 1: Future Vision Exercise 2: SWOTCH Analysis Challenges Identified Appendix B: Governance Options Review Appendix C: Recommended Fee Changes Appendix D: Fort McMurray Airport Case Study Appendix E: Funding Sources Federal Sources Provincial Sources Appendix F: SMS Systems SMS SMS in Canada Impacts on Airports Observations... 63

8 Northern Rockies Regional Airport Businesss Plan 1 1. Introduction In the 1990s Transport Canada transferred most airports to airport authorities or to regional ownership under the National Airports Policy (NAP). The Northern Rockies Regional Airport (NRRA) was one of the airports transferred. This transition has led to significant changes for the responsibilitiess of regional airport managers, which is shown in Figure 1-1. Under Transport Canada, only the top two roles were the responsibility of a regional airport manager. The additional roles were managed by regional headquarters or department headquarters. With the transfer of airports, these roles were all transferred to the regional airport, and increased in complexity. This is because when Transport Canada managed airports safety, security, and air navigation issues were all managed within Transport Canada. Since the transferr security responsibilitiess have been transferred to CATSA (the Canadian Air Transportation Security Agency) and air navigation responsibilities to NAVCANADA. At the same time Transport Canada has increased the responsibility and time related to airport security and safety. For these and other reasons, the complications for an airport manager have increased significantly since airport transfer. Figure 1-1: Regional Airport Responsibilities These changing responsibilities have led to a need to change the way airports are managed, ncluding expenses, revenues, and airport management. Airports also now require a clear sense of mission and role. A proposed new approach for the NRRA and the Northern Rockies Regional Municipality (NRRM) is discussed in this document. 12 September 2011 Confidential

9 2 The intent of this report is to provide a business plan that will guide future NRRA operations and development. The report is developed in the following manner: Section 2, Situation Analysis, reviews the unique socio-economic situation driving activity at the NRRA, including rapid economic and passenger growth; The Strengths, Weaknesses, Opportunities, Threats and Challenges (SWOTCH) of the airport are reviewed in Section 3; A proposed vision statement for the site is discussed in Section 4, along with airport governance options; Section 5 provides forecasts for passengers and aircraft movements; Both Operations and Expenses are discussed in Section 6, followed by revenues in Section 7; The requirements for infrastructure improvements are reviewed in Section 8; Section 9 reviews options and financial scenarios for the airport; and Finally, Section 10 offers findings followed by recommendations in Section 11.

10 3 2. Situation Analysis This section examines trends which are significantly impacting the development of the NRRA. These include the recent recession, energy industry trends, and growth in the Northern Rockies region. 2.1 Recovery from the Recession The 2008 recession had a major impact on the B.C. economy was the largest single year drop in the value of wealth and consumption generated in the economy. The same is true of employment and wage income. Job losses had the most impact in forestry and resources, manufacturing and processing, construction and the food services industries. According to the recently released BC Budget the provincial economy is forecast to grow by 2% in 2011 and by 2.6% in 2012, this following an estimated increase of 3.1% realized in The Economic Forecast Council (EFC) estimates that B.C. s economy increased in 2010 by 3.4% and should show growth of 2.7% and 3% in 2011 and 2012, respectively. The lower forecast rates set by the Province may be attributed to a steady recovery in the private sector and the likelihood of much slower growth characterized by lower consumer spending, weak investment and slow employment growth. There are risks to the potential growth forecasts set by both the Province and the EFC. The forecasts continue to be weighted down by the ongoing uncertainty surrounding global economic activity in which the most significant risks include: Continued weakness in the U.S. economy which may be characterized by weaker consumer spending, widespread deleveraging resulting in slower investment, slow job market recovery and further fiscal restraint at the state and local level. The debt crisis experienced in some European countries which continues to threaten the stability of global financial markets. Slower global growth resulting in lower demands for B.C. s exports. Increase in the value of the Canadian dollar, contributing to further pressure on Canadian exports. The price of natural gas has remained at a low level during 2010 relative to recent years despite some fluctuations experienced within the marketplace. The Plant Inlet price averaged $2.90 C/GJ during 2010, a slight decrease from the $3.00 C/GJ observed in The price of natural gas ended the year at $2.57 C/GJ in December The outlook remains positive based on the private sector forecasts, where natural gas prices are expected to strengthen. Between fiscal years 2010/11 and 2015/16, prices are projected to rise from $2.71 C/GJ to $5.49 C/GJ which will encourage an increase of exploration within the region.

11 4 2.2 Energy Industry Expansion The Horn River Basin is one of Canada s top areas for natural gas resources. Studies have indicated that the potential gas in place could be in the vicinity of 700 trillion cubic feet. The Oil and Gas Industry is expected to see an increase in drilling. The Petroleum Services Association of Canada (PSAC) is forecasting a new total of 12,750 wells drilled across Canada for On a provincial level, the PSAC expects B.C. to have 700 wells drilled in 2011, which represents an increase of seven per cent from the previous year. Although the cost of oil has risen dramatically in the past weeks, the industry still faces weak natural gas prices which can be attributed to oversupply in the market. The increasing supply of natural gas, despite reduced levels of drilling, is a result of shale gas production. There is expected to be a rise, not only in the number of horizontal wells being drilled, but in the length of these wells. The industry is expected to have over 5,000 horizontal wells drilled in 2011, which gives a good indication of the type of capital being spent in the basin. Some key investments as outlined by the Canadian Centre for Energy include: EnCana Corp committed an initial investment of $400M for a gas processing facility with initial capacity of 400 million cubic feet per day. Spectra Energy announced expansion of its existing facilities, to be completed in In the spring of 2011 Quicksilver Resources accelerated its plans to expand its facilities near Fort Nelson. The Provincial Government is investing $187M into regional infrastructure to provide year round access and increase traffic capacity. TransCanada Corp. has committed to invest $340M to build a pipeline from the Horn River region to the Alberta system. TransCanada has secured initial shipper commitments for 374 million cubic feet per day. The pipeline is expected to be operational by mid-2012 subject to regulatory approvals. Kitimat LNG is building a Liquid Natural Gas (LNG) plant to cool and ship natural gas for export to Asia and beyond. Completion date is targeted at The natural gas and petroleum industry also impacts employment levels. According to the province of B.C. there are over 110,000 British Columbians that have direct, indirect or induced employment in the natural gas and petroleum industry. This is displayed graphically below.

12 5 2.3 Community Growth The Northern Rockies region population is anticipated to grow in the coming years. The NRRM has projected that the population levels should increase to approximately 8,000 residents in the next 5 years. This does not include temporary workers which are forecast to add an additional 4,000 residents totalling 12,000 by There are various areas of growth planned within Fort Nelson that include light industrial/commercial, community investment, private investment and airport growth. Light Industrial A new South Industrial Subdivision was created in Fort Nelson that contains 250 acres of property that is available and zoned for light industrial and highway commercial uses. Community Investment The community has recently invested in building a new recreation centre located at the west end of town. In addition to the recreation centre many roads have been upgraded for safety and access purposes along with the upgrading of utility services. Private Investment With the anticipation of increased activities in the Horn River Basin, new retail and hotel expansions, increases in new business license applications and multi-million dollar building permit applications are telling signs that highlight the economic strength within Fort Nelson. Airport Growth The airport is a key economic driver for the NRRM. Airport traffic has been increasing over the years in particular in the charter sector where field workers arrive and depart on a weekly basis (fly in/fly out operations). The airport allows for travelers to access the region but also serves as a facilitation point to mobilize industry workers and supplies to and from the region. The growth is stressing the human and physical infrastructure

13 6 3. Airport SWOTCH Analysis Working with NRRM staff, a SWOTCH analysis for the airport was developed. A SWOTCH analysis identifies strengths, weaknesses, opportunities, threats and challenges inherent to the airport and the environment within which it operates. Strengths and weaknesses are factors that are internal to the airport and over which airport management exerts some control. Opportunities and threats are factors that are external to the airport s control and are inherent to the environment within which the airport operates. Challenges are what the airport has to do to address its strengths, weaknesses, opportunities, and threats. During the workshop, a group brainstorming session was held to identify the main strengths, weaknesses, opportunities and threats to the future success of the NRRA. The participants identified these, and then rated them by scoring each item to provide a more precise assessment of the importance of each to the future of the airport. Based on the strengths, weaknesses, opportunities and threats that were given the highest priority by workshop participants, a list of seven main challenges that the NRRA faces were identified. The letter beside each identifies it is a strength (S), weakness (W), opportunity (O), or threat (T). Challenge 1 (S): Determine the most effective way to capitalize on passenger traffic growth. Challenge 2 (S): Determine how to best service new business at the NRRA and the surrounding area. Challenge 3 (W): Having an effective impact with senior government at provincial, federal and municipal levels. High turnover at the Provincial government represents an additional challenge. Challenge 4 (W): Obtaining positive, timely land transfer of airport and surrounding lands. Challenge 5 (O): The NRRA must develop a strategy to determine how to best capitalize on economic growth. Challenge 6 (O): Capitalizing on opportunities to increase commercial and aeronautical revenues to the airport. This involves several components including: Developing/strengthening industry relationships Developing a Business Case for businesses to invest in the NRRA Marketing these opportunities Undertaking a review of fee structure at the NRRA Challenge 7 (T): Competition for scarce infrastructure funding The items with the four highest ranks identified in the SWOTCH workshop are described below. While priority one and two were clear, two items tied for third and three tied for fourth.

14 7 Table 3-1: Key Challenges # Type Item 1 W 2 W Political environment competing for MPs/MLAs and Council's attention Ownership of land 3 S Growth in passenger traffic 3 O Economic growth 4 S Ability to attract new business 4 O Commercial aeronautical revenue opportunities including review of fee structure 4 T Competition for scarce infrastructure funding (P3)

15 8 4. Vision and Governance In the modern context, a critical piece of infrastructure like an airport requires a clear vision and a governance (or oversight) system to ensure that its vision is met. This section discusses those themes. 4.1 Vision and Mission The airport does not have a vision statement now. A proposed one developed by NRRM staff is: We are Northeast BC s Premier Gateway Regional Airport that connects British Columbia and Canada to the resilient people, rich resources and abundant opportunities within the Northern Rockies Regional Municipality. This vision implies the following mission: the airport s activities will be organized to support the community and the regional economy. All decisions related to the airport can be weighed against this vision, and decisions can also be prioritized. 4.2 Governance The NRRA is a municipally owned and operated airport. Not including large National Airport System (NAS) airports, 3 there are numerous governance arrangements in B.C. This sub-section briefly reviews these to lay out options for the municipality. Regional airport governance options in Canada include: Municipally owned and operated Independent Not for Profit (Society) Commission (Appointed) Head Lease to a private operator Key differences between the organizational choices include objectives, board structure, appointments, financing, and activities. Key reasons that communities have considered or set up arm s length or independent organizations for the airports include the following: Increased focus and oversight; Independent financial and borrowing power (ability to raise capital for infrastructure projects); Reduced liability; Increased economic impact; and Reduced responsibility for council members. In the case of the NRRM, it is recommended that the municipality retain control of the airport in the short-term but seriously consider devolving it to an arm s length organization as it grows over the 3 Vancouver, Victoria, Kelowna and Prince George in B.C.

16 9 next few years. The reason for this is that in the Northern Rockies, the Regional Municipality is the significant governing body overseeing all important operations, and there is a limited pool of leadership volunteers in a relatively small community to take on responsibilities such as governing the airport. However, as the airport grows it will continue to require increased governance attention to the financial and operational issues, as well as growth at the site. It is already an operation with over $1 million per year in cost, and is projected to grow steadily.

17 10 5. Activity Forecast InterVISTAS developed an aviation forecast for the NRRA at the end of The analysis used a scenario based approach to project passengers and aircraft movements. Low, medium and high growth forecasts were developed through to The forecast was developed based on the outlook of the aviation industry, local and regional socio-economic environment and the development of the Horn River Basin. Natural gas related activity in the region has grown. Increased employment of local contractors remains a priority for industry producers, supported by high levels of employment recorded by Energy Services BC s procurement offices in Other highlights of activities at the Horn River Basin include: Encana s development of the Cabin Gas Plant in late 2012; Spectra s planned Fort Nelson North Plant in mid 2012; and TransCanada s planned pipeline to serve Encana and Spectra. The developments of the Horn River Basin will continue to greatly influence air traffic levels at the NRRA. At the time of the last forecast, experts estimated that there are about 250 trillion cubic feet of Natural Gas in northeast BC of which 10-20% would be readily recoverable. Since then, the Horn River Basin has seen its estimated numbers grow from 250 to 500 trillion cubic feet of which 110 cubic feet are recoverable making it the third largest North American natural gas accumulation field (so far). The following section discusses some of the changes that have occurred since the previous InterVISTAS forecast in Passengers Scenario Since the last forecast, scheduled passenger data for 2010 has been recorded by the NRRA. Charter traffic levels for 2010 have been estimated by InterVISTAS because the number of charter passengers was not available. Similar to the estimation of charter traffic in the 2009 forecast, charter traffic for 2010 has been estimated using charter flight operations data provided by the NRRA and applying an assumed load factor. Based on this analysis, it was estimated that total charter traffic in 2010 was approximately 23,374. Therefore, total passengers at the NRRA in 2010 were estimated to be 51,374. This estimate does not include passengers travelling by helicopter and small, local flights. There are approximately 4,000 helicopter operations per year at the airport. Looking at the 2011 scheduled passenger numbers up to August 2011 and extrapolating the actual number to account for the full year shows that NRRA passenger approximately 34,000 scheduled passengers can be expected at the end of traffic is on track This accounts for an increase of scheduled passengers of about to increase 20% in 20% compared to 2010 scheduled passengers. These are probably the 2011, year over highest growth rates in B.C. now. The annual average growth rates of year. combined scheduled and charter traffic from 2010 to 2011 estimated in the 2009 forecast were 9% (medium scenario) and 11% (high scenario) and thus substantially lower.

18 11 However, it should be noted that forecast growth rates are based on combined scheduled and charter traffic. The mix of aircraft is also changing. In 2010, 86 B737 flights used the airport. Currently, NRRA serves at least five weekly B737 operations and starting in October 2011 possibly six flights weekly. Assuming 110 seats and a load factor of 75% and further assuming year-around B737 service, in 2012 the airport can expect about 21,000 B737 passengers. In comparison, in 2010 B737 passengers were estimated to be NRRA B737 passengers are expected to triple within two years. approximately 7,100 passengers. Thus, B737 passengers alone are expected to triple within two years at NRRA. As an update to the last forecast, Figure 5-1 comparing the 2010 data with the forecast completed, passenger traffic at Fort Nelson Airport is absolutely in-line with the medium growth forecast. The 2010 data is only slightly below the medium growth forecast. Much of the future growth, will of course depend on future activities that support the development of the Horn River Basin. As of April 2010, many companies are at different stages of well development in the Horn River Basin; some operators including Imperial Oil/Exxon Mobil Canada, Quicksilver, Pengrowth and ConocoPhillips are in the exploratory stages and plan to drill test wells; while EnCana, Apache, Nexen, Devon, EOG and Stone Mountain are planning multi-well drilling programs. The progress of these activities, will ultimately determine the level of activity the NRRA will experience over the next few years; resulting in increased employment opportunities and enhanced municipal and provincial revenues. Increased employment is still expected to drive increased demand for air travel to and from Fort Nelson Airport.

19 12 Figure 5-1: Forecast Total E/D Passengers at the NRRA, Actual Low Medium High Annual Total Passengers (Thousands) Source: InterVISTAS Forecast, 2009 and actuals based on NRRA data 5.2 Aircraft Movements Since the last forecast, aircraft movements in the medium growth scenario were forecast to grow on average by 5% annually between 2008 and 2028; reaching 47,100 movements by Figure 5-2 below represents forecast of total aircraft movements and actual aircraft movements recorded for 2010 at the NRRA. The dip in aircraft movements can be explained by the significant increase in the average aircraft size over the last two years. As passenger traffic grows, it is anticipated that larger aircraft will be used increasing terminal and apron congestion. In 2008, the NRRA received one B737 scheduled flight, while 86 B737 scheduled flights were recorded in This increase in the frequency of larger air carriers deployed at the NRRA correlates with the slight dip in aircraft movements illustrated below, and the steady rise in passenger traffic shown in Figure 5-1 above.

20 13 Figure 5-2: Forecast Total Movements at the NRRA, and Actuals, Actual Low Medium High Annual Total Aircraft Movements (Thousands) Source: InterVISTAS Forecast, 2009 and actuals based on Statistics Canada Aircraft Movement Statistics TP577

21 14 6. Operations and Expenses Section Six to the end of the report discusses the operations of the airport, and makes recommendations on expenses, revenues, capital and related issues. 6.1 Historical Expenses Total expenses at the NRRA are categorized as operating, fiscal and maintenance & capital expenses. Figure 6-1 shows that overall expenses over the last three years were mainly operating expenses which accounted for 69% of total expenses in This shows how the expenses are represented in municipal reports. Total expenses decreased over the last five years from $2.1 million in 2006 to $1.3 million in Higher than average capital costs in 2006 relate to terminal expansion. Operating, fiscal and maintenance & capital expenses are discussed in further detail in the following sub-sections. Note that capital spending is discussed further in Section 7. Figure 6-1: Historical Total Expenses at the NRRA, $2,500 Total Operating Expenses $2,000 $ 2,120 $ 2,037 Total Maintenance & Capital Expenses Total Fiscal Expenses $667 Total Expenses ($ Thousands) $1,500 $1,000 $ 1,557 $662 $1,315 $725 $279 $ 1,384 $ 1,369 $832 $835 $ 1,302 $895 $500 $0 $762 $1,032 $257 $382 $257 $295 $133 $137 $152 $ Source: NRRA data

22 Operating Expenses Not including maintenance/small capital projects, operating expenses at the NRRA are almost $900,000 per year, and have been increasing steadily in recent years from approximately $650,000 annually in 2005 to almost $900,000 in 2010, a 35% increase in five years. Reasons for the increased expenses include growing traffic numbers, longer hours of operation, and increased work required to maintain aging infrastructure. As can be seen in Figure 6-2 staffing expenses contribute almost half of total operating expenses, accounting for 49% in 2010 followed by utilities which accounted for approximately 12% in Main operating expenses at the NRRA consist of: Staff accounting for 49% of total operational expenses. (For the sake of this analysis, it has been assumed that all ATCO Frontec management contract costs go towards staffing); Utilities such as BC Hydro and BC Gas (12%); Materials and supplies such as electrical, plumbing, shop supplies etc. (8%); Fuel, oil and lubricants; expenses are directly related to weather conditions, fuel cost, and cost of operations and increases with traffic (6%); Runway friction material which increased significantly in 2010 since price for chemicals increased (5%); Mobile and fixed equipment (5%); Insurance cost such as insurance for vehicles (currently the NRRA operates between vehicles) and property as well as aviation insurance (5%); Janitorial; includes labor costs for janitorial services but also shoveling snow etc. (5%); Deicing which only includes aircraft deicing and specifically contract labour for deicing (3%). Issues which have led to increased operational costs in recent years include increased activity at the airport; lengthened hours of operations to support the increased activity; fluctuations in the cost of materials; and the need for significant levels of maintenance on the site because of aging infrastructure. It should also be noted that because of higher shipping costs and the area s remoteness, the NRRA has to pay higher prices than other comparable airports further south for many items.

23 16 Figure 6-2: Historical Operating Expenses at the NRRA, $1,000 $900 $800 Operating Maintenance M&S: Deicing Insurance M&S: Runway Friction Material Other Materials&Supply Staff Other Janitorial M&S: Mobile & Fixed Equipment Fuel, Oil & Lubricants Total Utilities $ 832 $ 835 $ 895 Operating Expenses ($ Thousands) $700 $600 $500 $400 $300 $ 662 $ 667 $44 $39 $24 $22 $43 $44 $59 $55 $99 $100 $ 725 $43 $21 $37 $55 $84 $38 $45 $25 $23 $60 $47 $58 $67 $117 $104 $45 $49 $52 $73 $103 $200 $304 $313 $365 $407 $419 $435 $100 $ Source: NRRA data 6.3 Staffing Figure 6-3 highlights the current airport organization chart. Airport operations and staff at the airport are provided via contract by ATCO Frontec. The airport has one Airport Manager (1FTE), two Airport Technicians (2FTEs), seasonal employees and one administration staff member, for a total of approximately 4.7 FTEs. The Airport Manager is responsible for managing all day to day operations at the site. The Operations Manager also has to deal with items pertaining to environmental issues, SMS (Safety Management System) and liaising with Government and private organizations such as Nav Canada, Transport Canada and Local, Provincial and Federal Government. The airport manager also repairs vehicles and airport infrastructure, drives snow clearing equipment and other vehicles, and is the contact for air carriers. The airport manager reports to the municipal CAO.

24 17 Figure 6-3: Current Organization Chart for the NRRM Airport For the sake of comparison Figure 6-4 shows the relationship of annual passengers to Full-Time Equivalent (FTE s) at select regional and international airports in Canada. While Yellowknife has the lowest ratio, both the Northwest Regional and Whitehorse International Airports have similar ratios to the NRRM Airport. Figure 6-4: Annual Passengers Per Full-Time Equivalent Staff at Various Canadian Airports Airport Total FTEs Annual Passengers per FTE Yellowknife Airport 60 5,072 Fort McMurray Airport 50 14,293 Comox Valley Airport 21 13,808 Erik Nielsen Whitehorse International Airport 20 11,435 Kamloops Airport 7 30,481 Northwest Regional Airport (Terrace/Kitimat) 11 11,161 Canadian Rockies International Airport (Cranbrook) 7 15,966 Northern Rockies Regional Airport ,048 Average 14,654 Source: Statistics Canada and Individual Airport Statistics As a result of traffic growth at the airport in recent years, infrastructure problems requiring ongoing attention, and increased regulatory requirements (such as SMS), the current airport manager already has a higher than desirable level of responsibility, tasks and work. (This analysis has not reviewed whether some of these existing skills could be pushed down to other workers.) As airport traffic increases, and given the need for infrastructure improvements and related projects, the airport organizational structure will require change and additional personnel are required. The addition of an Airport Manager to whom an Airport Operations Manager would report would create a position responsible for management of the site. The current managerial role is taken up largely with day-to-day

25 18 management of the site rather than medium- and long-term management of key issues such as planning for capital improvements and obtaining funding for them. The Airport Manager will be able to strictly focus on management and growth at the airport. Items that require increased attention that this role could oversee include air carrier relations, lease management, infrastructure project planning, interactions with regulators, apron management, and environmental review. The increased staff would also ensure that safety and security matters could receive a high level of ongoing care and attention. As well, an additional FTE to maintain the terminal building and act as an additional airport technician should be considered. The janitorial contract is now approaching the level where the airport should consider replacing this contract with a multi-use employee. Adding two FTE s would bring the NRRM Airport more in line with airports such as the Northwest and Yellowknife Airports at approximately 7,725 annual passengers per FTE. Figure 6-5 highlights the proposed changes to the airport organization chart which includes the addition of an Airport Manager and Terminal Technician as shown by the dashed boxes. Figure 6-5: Proposed Organization Chart for NRRM Airport Another alternative would be to increase contracting for professional services such as marketing and environmental review. Given the need for increased staffing at the airport and for specialized expertise, some combination of increased contracting and additional staff may be required.

26 Maintenance & Capital Expenses Maintenance and capital expenses fluctuated over the last five years as demonstrated in Figure 6-6, while total capital expenses were high in 2006 ($1.2 million) as a result of airport terminal building improvements. In 2010 capital expenses dropped to $13,000. Maintenance expenses, instead, increased over the last two years. In 2010, water system upgrades took place while in 2009 the garage roof needed maintenance, both accounting for a great part of total maintenance expenses. These are interim measures, and the need for major infrastructure investment remains to be met. Figure 6-6: Historical Maintenance & Capital Expenses at the NRRA, $1,400 $ 1,315 Total Capital Expenses Total Maintenance Expenses $1,200 Capital & Maintenance Expenses ($ Thousands) $1,000 $800 $600 $400 $ 762 $350 $1,211 $ 382 $16 $200 $412 $ 279 $246 $ 257 $238 $366 $ 257 $244 $13 $0 $104 $33 $ Source: NRRA data

27 20 7. Revenues 7.1 Historic Revenues Revenues at the NRRA consist of both operating revenues, raised at the site, fiscal and transfer revenues, transferred from the municipality or another level of government. Historically, operating revenues have been fluctuating over the last six years reaching a total of $603,000 in 2010 (an increase of 19% compared to the previous year 2009) as can be seen in Figure 7-1. The lowest operating revenues over the last six years occurred in 2008, $423,000. For an airport of Ft. Nelson s scale, these are low revenues. It should be noted that most other regional airports in B.C. have modified and increased their fees since airport transfer. Figure 7-1: Historical Operating Revenues at the NRRA, Operating Revenues ($ Thousands) $700 $600 $500 $400 $300 $200 Other Power Deicing Building/Warehouse Rentals & Leases Car Rentals Land Rentals & Leases General Terminal Fees Landing Fees $ 528 $133 $42 $34 $57 $26 $31 $22 $66 $57 $ 441 $54 $28 $20 $57 $65 $ 471 $61 $22 $3 $94 $ 423 $48 $30 $12 $36 $30 $67 $57 $48 $ 509 $61 $35 $19 $42 $44 $62 $68 $ 603 $51 $22 $30 $35 $41 $71 $107 $100 $175 $181 $153 $152 $179 $246 $ Source: NRRA data Landing fees contributed the most to total operating revenues at the NRRA, 41% in In 2005, landing fees accounted for 33% of total operating revenues. The second largest contributor to revenues is general terminal fees (18%), followed by land rentals/leases (12%). (These haven t change since 2002). Other categories contributing to operating revenues at the NRRA in 2010 included: Rental car concession (7%) (by comparison Fort McMurray rental car revenues account for 11% of total revenue even with much higher aviation fees);

28 21 Power, paid by tenants (4%); Building and warehouse rentals/leases (6%); De-icing; revenues from charged out labor and truck equipment (5%); and Other (8%), which includes rental offices (office rents refer to rents paid by the air carriers for office and other space at the terminal, advertisement (in terminal building etc.), car parking (for electrical stall reservations etc.), aviation gasoline piston, vending machines, taxi licenses, and misc. In 2005, operating revenues and expenses were relatively similar. Since then operating expenses have grown faster than revenue because expenses have increased with traffic, but the revenue structure does not allow for revenue to match traffic growth because it is primarily tied to aircraft operations rather than passengers. In 2005, the operating deficit was approximately $35, 000, but in 2010 it was $300,000. Fiscal and transfer revenues have been important to the airport, but are primarily transfers from senior government or the municipality to the airport to cover capital projects. Whereas in 2006, total fiscal and transfer revenues reached $1.1 million and consisted of interest income, federal and provincial conditional transfers and transfers from own airport reserves. The history of these transfers since 2005 is shown in Figure 7-2. Figure 7-2: Historical Fiscal and Transfer Revenues at the NRRA, The NRRA fee structure does not grow revenues as quickly as traffic is growing. $1,400 $1,200 $ 1,205 Transfer from own Reserves Federal Govt Conditional Transfers Prov Govt Conditional Transfers Interest Income $ 1,092 Fiscal & Transfer Revenues ($ Thousands) $1,000 $800 $600 $400 $473 $702 $513 $327 $ 254 $200 $160 $ 150 $195 $ 149 $ 83 $36 $150 $149 $94 $30 $57 $8 $39 $ Source: NRRA data

29 Comparative Airport Fees At the time when ownership of airports was transferred from the federal government to individual municipalities, the fee structures implemented at each site were similar. Over time each airport transferred under the National Airports Policy revised and changed their airport fees structure to meet their operational, maintenance and development needs. For example, most airports in B.C. and Canada implemented per passenger fees or Airport Improvement Fees (AIFs). AIFs are collected per passengers to pay specifically for airport (capital) improvements. These fees are typically charged directly to air carriers, are included in the ticket price, and are invisible to passengers. Figure 7-5 (below) shows a list of AIFs collected at select airports in Canada as well as two examples of AIFs implemented to support development at Fort McMurray and Prince George Airports. The major air carriers have a process to develop, approve and charge AIFs. Figure 7-5: Airport Improvement Fee Examples Airport AIF Bathurst, NB (ZBF) $40 Fort McMurray (YMM) $30 Mont Tremblant. (YTM) $20 Prince George (YXS) $18 Smithers (YYD) $15 Fort St. John (YXJ) $12 Nanaimo (YCD) $10 Comox (YQQ) $5 Source: Comparator: Fort McMurray Airport AIFs are levied for each departing passenger using the terminal building at Fort McMurray airport; and these AIFs make up the largest component of the airport s source of revenue (37%). For 2010, the total amount of AIFs collected for Fort McMurray amount to $6.2 million. Other fees collected at the airport include Airside revenue from airlines (30%), Parking (13%), Car Rental Agencies (11%), Land Leases (3%), Building Lease (3%) and Other (3%) fees. Fort McMurray Airport utilizes AIFs to fund the development of their new airport terminal building and interest. Effective July 2011, YMM An AIF is levied on each passenger departing Fort McMurray Airport, and these fees are the largest source of airport revenue. has increased its AIF for departing passengers from $20 to $30 to help fund capital improvements and the rehabilitation of its infrastructure.

30 23 Figure 7-6 compares the sources of revenue at Fort McMurray Airport with those at NRRA. The NRRA has no comparable fee. Airside fees such as landing fees account for 30% of revenue at Fort McMurray, but almost 60% of fees at the NRRA. Parking is significant at Fort McMurray, but not at Fort Nelson. Car rental related revenue is 11% of Fort McMurrary revenue, and 7% at Fort Nelson. A significant amount of revenue at NRRA (34%) comes from leases and a variety of fees, such as those for power and deicing. The revenue structure at Fort McMurrary is more typical of regional airports in Canada. Figure 7-6: Fort McMurray versus NRRA Revenue Shares Compared Fort McMurray Airport Car Rental, 11% Leases and Other, 9% Parking, 13% AIF, 37% Airside Revenue, 30% Leases and Other, 34% NRRA Car Rental, 7% Source: Ft. McMurray Airport Authority and the NRRM. Airside Revenue, 59%

31 Comparator: Prince George Airport Similar to Fort McMurray, an AIF is collected at Prince George Airport to fund capital programs. The air carriers charge approximately 7% of the fee value as a handling fee. For 2010, the Prince George Airport received approximately $3.1 million in AIFs and this made up the largest component of its revenue (39%). Other fees collected at the airport included Landing Fees (21%of revenue), Parking (14%), General Terminal Charges (13%), Rentals/Leases (4%), Concession (3%), and Other (4%) Regional Airport Comparisons To provide background to fees at B.C. regional airports and Fort McMurray, the following tables explain fees at different airports. The comparative fees in Figure 7-7 (below) are for the NRRA, Fort McMurray, Fort. St. John, Smithers, and Terrace-Kitimat (Northwest Regional). All five airports have continued with a modified version of the fee structure of Transport Canada, including landing fees, and aircraft parking. The significant difference between the five airports is that all have a per passenger fee except for the NRRA. These fees provide airports with a significant revenue stream.

32 25 Figure 7-7: Fees at Select Airports Minimum Charge for Jet/Turbo Prop (Domestic) NRRA Fort McMurray Fort. St. John Smithers Terrace- Kitimat $16.00 $25.00 $16.96 $16.81 $11.50 General Terminal Charges (Seats) 0-9 $16 $14.69 $3.20 $14.91 $ $28 $29.34 $3.20 $29.82 $ $40 $45.20 $3.20 $45.91 $ $75 $79.23 $3.20 $80.5 $ $125 $ $3.20 $ $ $190 $ $3.20 $ $ $275 $ $3.20 $ $ $3.20 $ $ Aircraft Weight Charges (/1000kg) <21,000 kg. $5 21,000 kg. to 45,000 kg. $6.50 >45,000 kg $8 80,000 to 125,000 Per Passenger Fee $4.63 / 0 to 10,000 kg $5.85 / 10,001 to 45,000 kg $6.93 / 45,001 to 79,000 kg $7.20 / 80,000 to 125,000 kg $4.83 / 0 to 9999 kg $5.46 / 10,000 to 18,999 kg $6.92 / 19,000 to 44,999 kg $0 AIF $30 (D) $12 (D) $4.80 $5.25 $6.04 $6.61 $7.54 $7.27 $7.87 AIF $15 (E&D) $11 (E&D) Source: Transport Canada, Pacific Region, and Fort McMurray Airport Authority Notes: Fort. St. John charges a general terminal charge per passenger fee for enplaning and deplaning passenger. Most airports charge a flat fee based on seats on the aircraft. Fort.McMurray and Ft St. John charges aircraft weight charges differently than the other three sites. Per passenger fees are generally charged on departing passengers only. Smithers and Terrace-Kitimat charge them on enplaning and deplaning passengers. E = passengers enplaning, or getting on an aircraft. D = passengers deplaning or departing the aircraft.

33 26 To show how the charges are applied at different airports, the charges at different sites have been applied to specific aircraft in scenarios below. All three scenarios show fees for a specific airport assuming that the aircraft arrives and departs with the same number of passengers. This is done because some airports charge fees for both arriving and departing passengers. Figure 7-8 below shows the comparative fees for a Beech 1900 with 15 passengers arriving and departing at each of the airports. The final row shows how much greater the fees at each site are comparing the NRRA to the other airports. The differences in total fees are significant and competitor airports all receive more fees per comparable flight. Figure 7-8: Fees per Beech 1900 with 15 Passengers, Arriving and Departing NRRA Fort McMurray Fort. St. John Smithers Terrace- Kitimat General Terminal Charges (Seats) $28 $45 $96* $30 $24 Aircraft Weight Charges (fee/ 1,000kg * weight) $37 $34 $35 $35 $38 Per Passenger Fee $0 $450 $180 $450 $330** TOTAL $65 $529 $311 $515 $392 % of Fort Nelson 820% 483% 798% 608% Notes: Estimated weight of Beech 1900 is 7,300kg with 19 seats. *Fort. St. John charges a General Terminal Charge per passenger enplaning and deplaning. ** Smithers and Terrace-Kitimat charge a per passenger fee for each passenger enplaning and deplaning Figure 7-9 shows the comparative fees charged for a Dash with 32 passengers. Again the differences are significant. Figure 7-9: Fees per Dash Departing with 32 Passengers NRRA Fort McMurray Fort St. John Smithers Terrace- Kitimat General Terminal Charges (Seats) $75 $79 $205* $81 $65 Aircraft Weight Charges $107 $76 $90 $99 $109 Per Passenger Fee $0 $960 $384 $960** $704** TOTAL $182 $1,115 $703 $1,140 $878 % of Fort Nelson 1729% 1090% 1767% 1361% Notes: Estimated weight of Dash is 16,465kg with 37 seats. *Ft. St. John charges a general terminal charge per passengers enplaning and deplaning. ** Smithers and Terrace-Kitimat charge a per passenger fee enplaning and deplaning.