It’s time to sell Canada’s airports

There aren’t many things that can’t be bought for $21 billion. But Australia’s Sydney Airport is one. In August, the board of directors of the privately-operated, stock exchange-listed airport rejected such an offer from an international investment consortium. It was the group’s second failed bid.

In the wake of the worst year in the history of air travel, and with Australia imposing a ban on international travel until next year, you might think the market for Sydney’s airport would be in a nosedive with warning bells screaming. Yet its owners sniffed at a deal at the very high end of PRECOVID airport valuations. Earlier this year, Brazil sold 22 regional airports in a heated auction that earned substantially more than the government had been expecting.

Airports, it turns out, are still much in demand by global institutional investors with a hankering for owning transportation infrastructure. But if Sydney’s airport is worth more than $21 billion, what might Canada’s airports be worth? And why, in the midst of an election focused on spending money we don’t have, is no one talking about selling them?

Airports may be missing in action from the 2021 federal election, but it was another election nearly three decades ago that set in motion Canada’s current, disastrous airport policy. During the 1993 election campaign Prime Minister Kim Campbell announced she was handing control of Terminals 1 and 2 at Toronto’s Pearson International Airport to investors in what would have been a landmark privatization. Liberal leader Jean Chrétien promptly declared the deal “indecent” and vowed to tear it up.

Victorious in the election but stung by complaints he’d reneged on other campaign promises to scrap NAFTA and the GST, Chrétien dug in his heels on airports, declaring them off-limits to investors forever. They were instead handed to local, non-profit airport authorities on 60-year leases in exchange for hefty annual lease payments to Ottawa.

Chrétien’s intransigence is the reason Canada has missed out on one of the biggest developments in global air travel of the past several decades: the ascendant and beneficial role of private-sector investors. In the PRECOVID era, three-quarters of all air travellers in Europe flew through privately-run airports. In South America, 66 per cent did; in Asia, 47 per cent. In Canada and the U.S., however, a mere one per cent of air travellers transit through a private-sector airport. (In the U.S., airlines hold a veto over airport ownership changes.)

Canada’s airport ownership model is unique in the world. And we suffer for it. Burdened by federal lease obligations and high debt and managed by independent bureaucracies with little interest in keeping expenses down or satisfying customers, Canadian airport authorities are notorious for charging high fees to airlines and travellers alike. And because they’re forbidden from raising equity, Canada’s airports have had to rely on government bailouts and additional debt during the current crisis. Privately-owned airports responded to the COVID-19 disaster by reducing dividends or issuing more equity. In 2020 the Sydney airport raised nearly $2 billion through a new share offering.

Ironically, while federal policy prevents private-sector participation in Canadian airports, Ottawa eagerly promotes the concept in other countries. The Us$400-million L.F. Wade International Airport in Bermuda, which opened this past December, was designed, built and is being operated by Canadian firms in a deal brokered by the Canadian Commercial Corporation, a federal Crown corporation. At the end of the 30-year lease, the airport will be handed back to the Bermuda government. The island is essentially getting a new airport for free, courtesy the private sector.

Creating similar interest in Canadian airports — either through outright ownership or long-term lease deals — may require little more than changing our antiquated airport ownership policy. “If investors are willing to put their money in airports in Peru, Chile, Colombia, India and elsewhere, they would clearly welcome an opportunity to invest in similar long-term assets in a highly-developed country such as Canada,” says Bob Poole, director of transportation policy at the Washington D.c.-based Reason Foundation. “Canada and the U.S. are really the last two untapped markets (for airport privatization) in the world,” he says.

How much could our airports be worth? According to the Frontier Centre for Public Policy, Toronto’s Pearson International Airport could bring in up to $15 billion, depending on the metrics used. Vancouver’s International Airport is valued at between $8 billion and $10 billion. Even heavily indebted Calgary International is estimated at $1 billion to $2 billion. But solve the underlying problems of lease payments, muddled ownership and debt and those values could rise to Sydney-like heights. In the U.S., Poole recently estimated that 31 large and medium-sized American airports could be sold, via long-term leases, for US$131 billion.

With the federal parties slow-rolling plans to balance the budget, and with taxpayers coming to the end of their capacity to pay for subsidies, giveaways and new national mandates, airports represent a vast, untapped source of much-needed cash. Who wants to make a deal?