As debts mount, prospects look grim
Newly expanded YYC owes $2.9B, among highest rates in country
The $2.6-billion expansion of the Calgary International Airport that was completed in 2016 was built with future growth in mind, creating capacity for new routes and new airlines to operate out of YYC for decades to come.
However, the project also made YYC one of the most debt-laden airports in Canada. And while that might not have been a problem before the COVID-19 pandemic, a near-total collapse in air travel coming so soon after the completion of the most ambitious capital project in the airport’s history has left YYC in an unsustainable financial situation.
According to its own financial statements, as of the end of 2019 the airport owed $2.9 billion in debt. A Postmedia analysis of the financial statements of Canada’s 10 largest airports reveals that figure is higher than any other airport in Canada, except for Toronto-pearson International, which owed $6.4 billion at the end of 2019.
However, Toronto-pearson is significantly larger than YYC. On a debt-per-passenger level, Calgary’s debt level actually tops Toronto’s (with a debt level per emplaned passenger of $329.28, versus Toronto-pearson’s $254). An analysis by Western Aviation News found that of Canada’s 21 largest airports, Calgary’s debt-per-passenger load was the second-highest, topped only by Quebec City’s Jean Lesage International Airport.
The vast majority of YYC’S debt is directly the result of the construction of the new international terminal and runway, airport spokesman Reid Fiest confirmed in an email. All of YYC’S $2.9 billion in debt is owed to the government of Alberta, which is why the airport authority publicly issued a plea earlier this week for the province to work with them on both interest deferrals and debt restructuring.
During an annual general meeting held via webcast, airport authority president and CEO Bob Sartor said YYC suffered a 95 per cent year-over-year decline in passenger volumes in April and May, during the height of Covid-related travel restrictions and lockdowns. He said the airport is facing a $67-million deficit this year alone due to the pandemic, and said it may take three to five years for passenger volumes to recover to 2019 levels.
Sartor said YYC is also seeking interest-free financial assistance from the federal government.
“To survive this period of time, to get to a place where we will be profitable and be able to sustain our debt level, really, we’ll probably have to borrow somewhere around a quarter of a billion dollars to do that,” Sartor told reporters Tuesday.
YYC’S new international terminal, which involved 15 years of planning and five years of construction, was one of the biggest capital projects in recent Canadian airport history. At nearly two million square feet, the equivalent of 34 football fields, the new international terminal instantly doubled the footprint of the existing terminal space.
The project was viewed as necessary because YYC — the fourth busiest airport in Canada — has seen consistent passenger growth over the past two decades, with passenger volumes nearly doubling between 2000 and 2015. The expansion was also seen as a bet on the future, paving the way for future expansion and growth by homegrown Westjet Airlines as well as other carriers.
And Calgary is not the only airport that’s been on a building spree in recent years. Barry Prentice, a transportation expert and professor at the University of Manitoba, said the debt levels of Canadian airports have been rising for years
They have expanded perhaps a little less prudently than they should have. BARRY PRENTICE
as airport authorities — non-profit organizations that pay rent to the federal government for their facilities and earn their revenues from airport improvement fees charged to travellers, as well as landing and terminal fees charged to airlines — have taken on bigger and bigger capital projects.
Long-term debt owed by Winnipeg’s International Airport, for example, nearly tripled over the past decade to pay for a new terminal there that opened in 2011. The Vancouver International Airport broke ground in 2018 on a $9.1-billion airport upgrade project.
“I’m not saying all of these projects were frivolous or unneeded. In some cases, these airports hadn’t had that expansion for decades,” Prentice said. “And nobody could have envisioned something like this (COVID) that would shut down the economy so completely. But I do think the airport authorities deserve a certain amount of criticism, in that they have expanded perhaps a little less prudently than they should have.”
While there are a small number of Canadian airports — including the Victoria International Airport — that are debt-free, most are heavily leveraged, Prentice said.
“All their revenues are variable based on passengers, and all their costs are fixed based on infrastructure. So you can only last so long with that model,” Prentice said. “Some airports, like Calgary, are in particularly bad situations. For Calgary, the timing (of COVID -19) has been particularly tough.”
Daniel-robert Gooch, president of the Canadian Airports Council, said it only makes sense that Canadian airports have turned into construction zones in recent years given that they have seen a 54 per cent increase in passenger volumes over the past decade.
“We’ve gone from 105 million passengers to 160 million passengers. That’s like adding an airport bigger than Toronto-pearson in the last 10 years alone,” Gooch said. “And airports are highly capital-intensive. It’s more than just a building and a parking lot — runways, aprons and taxiways need to be maintained to very exacting standards. There’s always work to be done.”
Canada’s airports are facing revenue losses due to COVID-19 of more than $2 billion this year, Gooch said, so no matter where a particular airport was in terms of its pre-pandemic debt, it’s going to have to take on debt now just to keep the lights on.
That’s why airports are looking to government not only for help with liquidity, but also for rent relief. The federal government has already waived ground lease rents for Canadian airport authorities until the end of the year, but Gooch said airports would like to see that extended to a five-year period. (The $44 million the Calgary Airport Authority paid to the federal government in rent in 2019 was the single biggest line item on the non-profit organization’s profit and loss statement, Sartor said Tuesday).
If airports don’t receive additional government assistance, Gooch said, the consequences could be significant. The Calgary International Airport has already suggested it may be necessary to hike the fees charged to passengers and airlines, which will make air travel more expensive and could ultimately result in fewer routes and transportation options for communities in the future.
Bankruptcies are also not out of the question, Gooch said.
“We could see airports driven to either closing or insolvency,” he said. “The biggest concern would be with some of the smaller ones ... but certainly things could get quite difficult for larger airports, too.”