Airport sell-off could be quick fix

New revenue stream unlikely to irk voters

Good news seldom comes in a brown envelope but when a report by investment bank Credit Suisse on the prospect of selling off Canada’s largest airports landed on Bill Morneau’s desk, it must have been like a broke teenager finding a $100 bill in his jeans.

The federal government was obviously aware that it owned 22 airports across the country.

But they don’t appear on Ottawa’s balance sheet and until recently nobody thought too much about how much they might be worth on the open market.

We don’t know what Credit Suisse thinks, but the C. D. Howe Institute has done its own valuation, released Tuesday. Author Steven Robins estimates the eight largest airports, accounting for 90 per cent of the potential equity value, could be sold off for between $7.2-$16.6 billion.

Toronto Pearson alone could be worth up to $ 6 billion, according to the report.

The attraction for the government is that it might be able to get away with selling off the family silver without invoking the wrath of voters. Canada’s airports are ranked among the best in the world for quality of infrastructure but among the worst for cost. If the Liberals could put enough fences around the sale, to ensure private-sector owners didn’t milk travellers, they might be able to tap a new revenue stream right through to the next election.

One veteran of the airline industry called the decision a “no-brainer.”

“I don’t know anyone, anywhere who can’t make money out of managing an airport. They are cash cows,” he said.

The privatization has been in the works ever since a panel reviewing the Canada Transportation Act, chaired by former cabinet minister David Emerson, reported last summer.

The panel recommended selling off smaller federally owned airports and moving, within three years, to a share capital structure for the largest big city airports, with equity financing from big domestic and international pension funds.

In October, Bill Morneau hired investment bank Credit Suisse to examine privatization options and that report is understood to be on the finance minister’s desk. Dan Lauzon, Morneau’s communications director, confirmed the report has been received by Finance but said no decisions have been made.

It seems unlikely that any investment bank would recommend the preservation of the status quo, where the federal government retains ownership of the land but allows independent authorities to run them on a notfor-profit basis, while paying rent to Ottawa.

There is a fiscal downside — the eight largest airports would no longer send Ottawa $ 305 million a year in rent (though they would pay an estimated $110 million in federal and provincial tax).

But the government could argue that if the money is invested productively in infrastructure, the national interest will have been served.

Emerson was critical of the existing system, pointing out that Canada is unique in operating non- profit, nonshare airport authorities that charge “onerous rents and taxes that undermine competitiveness.” He was even more scathing about what he called the “lack of managerial discipline” in the authorities themselves, running what he said are “lowrisk enterprises with little in the way of accountability.”

The airport authorities don’t see it that way. Calgary, Ottawa and Vancouver airports have produced a new website — www. noairportselloff.ca — that points out what theybelieve are the risks of divestment.

“Selling Canada’s airports to private, for-profit investors would increase travel costs for passengers, remove local voices from airport boards and undermine Canada’s economic competitiveness,” the website claims, without providing any evidence that consumers will pay more.

In fact, the Emerson report suggested international examples show the benefit of increased private- sector discipline in the management of large airports.

Another argument in favour of divestment is the lease structure of many airports, most of which expire in 2070. Because airports issue 30- year or longer debt to finance infrastructure, as the end of these leases approaches, it will cost more to borrow and likely result in less investment.

The veteran air industry executive suggested Canada has successfully privatized its flagship airline and its civil air navigation service, NAV Canada, so why wouldn’t it sell off key airports, too, as long as travellers are protected by regulations covering fees.

Unless you work in the management of a big airport authority, it would appear to be a win-win for everyone.

Any sell-off process would not help the Liberals in this fiscal year but the three-year time frame laid out in the Canada Transportation Act review would see billions flowing into federal coffers in time for the next election.

For that reason alone, the odds are Justin Trudeau will do what his two immediate predecessors did and decide that “in Emerson, we trust.”