Privatization of airports in Canada awaits green light
Government would likely need investors’ consent before changing ownership
Never mind voters or airport executives. The constituency Canada needs to get on board for any privatization of the country’s airports is its bondholders.
Investors who hold debt in the country’s biggest airports are protected by rules and contracts that would likely require the government to get their consent — and offer compensation — before it could change the ownership or capital structure of an airport, according to Jose Saracut, managing director fixed income at Manulife Asset Management.
That’s important because privatization is likely to result in credit downgrades, according to Moody’s Investors Service. This would drive up borrowing costs for future debt issuance and have a knock-on effect on travellers.
“The credit metrics will deteriorate, the costs after privatization will increase, so someone will have to pay for more expensive flight tickets,” Saracut said.
Prime Minister Justin Trudeau’s government is weighing options for the sale of all or part of Canada’s airports after an advisory panel last year suggested it as one way to provide funding for infrastructure. A sale of slightly less than half of Toronto Pearson International Airport — valued at about $5 billion — is said to be the easiest option, according to those with knowledge of the matter.
Canada could raise between $7 billion and $17 billion by selling equity stakes in the country’s eight major airports, according to a C.D. Howe Institute report.
But critics such as the International Air Transport Association say that airport privatization is undesirable because it tends to lead to higher costs for airlines and travellers alike.
“The costs after privatization will increase, so someone will have to pay for more expensive flight tickets.” JOSE SARACUT MANAGING DIRECTOR, MANULIFE ASSET MANAGEMENT
The airports are operated by non-profit authorities that have long-term land leases with the federal government and the freedom to set rates in order to cover their obligations, including debt payments. If Canada were to move toward private ownership, key issues for the bondholders would include treatment of the land leases, rate policies and the expectation that new private equity owners would require a dividend payment.