Privatization of Airports The Canadian model Pierre Gagnon Vice-president, Legal Affairs and Secretary, Aéroports de Montréal.

Transcription

1 Privatization of Airports The Canadian model Pierre Gagnon Vice-president, Legal Affairs and Secretary, Aéroports de Montréal San-Diego October 16

2 Understanding the business of airports

3 A BUSINESS OR A PUBLIC SERVICE? The effects of liberalization, deregulation and increasing competition in the aviation industry have not spared airports. Airports have evolved from being simple infrastructure providers to full fledged, multi-faceted businesses. The focus of airport management has shifted from hosting airlines to accommodating passengers. Accordingly, the demands on airport management have broadened beyond operations to retail management, commercial and industrial real estate, logistics, etc. 3

4 NEW OWNERSHIP MODELS Airport ownership and governance models have also shifted and now range from public service bureaucracies to self-sufficient, autonomous, corporatized, partially privatized or listed for-profit entities. Not so long ago, government-owned and operated airports was the one and only model. Since the 80 s, the trend has been toward privatization of airports. Today, we find about 60 players active in global airport investment, including about 20 that are publicly listed, making them subject to shareholder pressures. 4

5 A GLOBAL TREND For example, Frankfurt-based Fraport has become a true multinational, operating airports in Germany, Bulgaria, India, Turkey, Egypt, Peru, Senegal and Saudi Arabia, among others. Macquarie Airports has investments in Australia, Europe and Japan. In the United Kingdom, BAA, the world s largest airport operator whose capital is now closed, is owned by an international consortium headed by a Spanish company, Ferrovial. Airports in Beijing and Shanghai are managed by companies listed on the stock exchange. In Eastern Europe, privatization is also a trend. Somewhat curiously, in the United States, a bastion of free enterprise, the big airports are still largely publicly-owned. 5

6 PRIVATIZATION VS. CORPORATIZATION Privatization focuses mainly on ownership and involves the transfer of control from the public sector to the private sector. Note that control depends not only on ownership but also on the management and strategic direction of airports. Corporatization is defined as the transformation of state assets into state-owned or state-controlled corporations in order to introduce corporate management culture and efficiency. Thus many corporatized airports such as Aéroports de Paris, Fraport and Schiphol Group are not, strictly speaking, private. 6

7 FULL PRIVATIZATION, THE EXCEPTION NOT THE RULE Among the top 30 busiest airports in the world, only 3 could be considered as privately-owned: Rome Fulmicino, Sydney and London HTR. 8 are under strict public-private partnerships. 19 are under public ownership but with some degree of private sector involvement. Only one US airport in the group can be considered a PPP: New York JFK with Terminal 4 owned and operated by Schiphol Group (although this group is controlled by the Dutch Government and the City of Amsterdam!). Generally speaking, governments hesitate to completely let go strategic assets such as airports. 7

8 The Canadian model

9 BACKGROUND Airport privatization policy established by the federal government in the late 80 s with the objective of reducing budget deficits. Vancouver, Calgary, Edmonton and Montréal were the first airports to be privatized under the Airport Transfer Act (1992). Eventually, all 26 large or nationally-significant airports in all provinces and territories were privatized. The responsibility for the operation, management and development was transferred to not-for-profit airport authorities (CAAs) such as ADM. The government retains ownership through long-term leasing to CAAs - Leases are for 60 years (option of a further 20). 9

10 AIRPORT AUTHORITY The Canadian system is the only one based on non-for-profit corporations. CAAs are non-share capital corporations incorporated under Part II Canada Corporations Act. CAAs do not pay dividends but pay rent to the Government of Canada as well as municipal taxes. All profits are reinvested. Main sources of funds are cash flow from operations, airport improvement fees (AIFs) and debt instruments Government grants for infrastructure are exceptional. 10

11 GOVERNANCE Board of Directors Members named/proposed by nominating entities specified in the lease Canada, Province, Municipal, Chamber of Commerce, Airlines, etc. Community Advisory Committee Airport Operators Committee Advisory Committee on Soundscape Strict governance and transparency rules set out in the ground lease and corporate documents: e.g. CAAs must publish an annual report and hold a public annual meeting. 11

12 GOVERNMENT OVERSIGHT Prices are not subject to any external review, approval or appeal process. Obligation to publish price changes 60 days in advance and with prior consultation in some cases. Transport Canada may at any time audit records and procedures to ensure compliance with the ground lease. CAAs subject to independent performance reviews every 5 years. Of course, CAAs must comply with all applicable laws and regulations. 12

13 RESULTS The Canadian model actually works well. Major Canadian airports rank among the best, they are efficient and infrastructures are well maintained and regularly upgraded. Most airports are 100% common-use for improved utilization. Financing is simple and expansion projects are tied to community needs, not government agenda. Community involvement is a plus. 13

14 ISSUES AND POTENTIAL FOR CHANGE One of the main issues concerns the amount of rent and taxes that Canadian airports must pay, with little or no service in exchange. Because of their heavy tax burden, major Canadian airports face stiff competition from subsidized U.S border airports, such as Burlington and Plattsburgh vs. Montréal-Trudeau No U.S. low-cost carriers care to operate in Canada. A number of studies have been conducted by the industry to raise the federal government s awareness of this problem. New voices have joined us: 14 National Travel & Tourism Coalition: Canada is losing ground as a tourist destination due to the high cost of air transportation. Hotel Association of Canada: 21% of leisure tourists flew out of a U.S. airport.

15 ISSUES AND POTENTIAL FOR CHANGE Unfortunately, there is presently no incentive for the federal government to change the model. Airports provide $300 M + per year in rent revenue, in addition to being economic engines. Leases still have 40 years + to run 15