Airports in Canada Serve Nobody Well in Current Nebulous Status

Frontier Centre for Public Policy

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.

While acknowledging the importance of a diverse workforce, Manning stressed that competence and capability, not ideology, should be the core criteria for hiring civil servants. This approach, he said, would ensure that the government is staffed by professionals who can deliver high-quality public services.

Privatization also came up as a key theme in our conversation. Manning pointed out that certain government functions could be better managed by the private sector. He said that by contracting out services that the private sector can deliver more cost-effectively, the government can reduce its size and focus on its core responsibilities. This shift would not only decrease public expenditure but also enhance the efficiency of service delivery to the public.

We also discussed the issue of federal encroachment into provincial jurisdictions and the need for it to focus on its own responsibilities, many of which are underperforming. The Trudeau government has been overstepping its constitutional boundaries in areas like healthcare, natural resources, and municipal governance. By respecting provincial jurisdictions, the federal government could reduce its role and the size of its bureaucracy while empowering those levels of government closer to the people. This decentralization would enable the provincial governments to manage their affairs more effectively, leading to a more balanced and efficient federation.

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.