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INFORMATION TO USERS This manuscript has been reproduœd from the microfilm master. UMI films the text directly from the original or copy submitted. Thus, some thesis and dissertation copies are in typewrüer face, while others rnay be from any type of computer printer. The quality of this reproduction is dependent upon the quality of the copy submitted. Broken or indistinct print. coIored or poor quality illustrations and photographs, print bleedthrough, substandard margins. and improper alignment can adversely affect reproduction. ln the unlikely event that the author did not send UMI a complete manuscript and there are missing pages, these will be noted. Also, if unauthorized copyright material had to be removed. a note will indicate the deletion. Oversize malerials (e.g., maps. drawings, chans) are reproduced by sectioning the original. begiming at the upper Ieft-hand corner and continuing from left to right in equal sections with small overtaps. Photographs induded in the original manuscript have been reproduced xerographically in this copy. Higher quality 6- x 9- black and 'Nhite photographie prints are available for any photographs or illustrations appearing in this copy for an additional charge. Contad UMI directly to order. Bell & Howell Infonnation and Leaming 300 North Zeeb Road. Ann Arbor, MI 48106-1346 USA 800-521-0600 • Toronto'5 Pearson Intemational Airport: Airport CommercializationlPrivatization by Stephen Lerner Barrister-and-Solicitor • A tlzesis subMitted ta the Faculty of Graduate Studies and Research in partialfulfillment of the requirements of the degree of Master of Laws (lL.M.) The Institute of Air and Space Law McGill University Montreal. Quebec. Canada May 1996 • ©Copyright Stephen D. Lemer 1996 National Library Bibliothèque nationale 1+1 of Canada du Canada Acquisitions and Acquisitions et Bibliographie Services services bibliographiques 395 Wellington Street 395. rue Wellington Ottawa ON K1 A 0N4 Ottawa ON K1 A 0N4 canada Canada The author has granted a non L'auteur a accordé une licence non exclusive licence allowing the exclusive permettant à la National Library ofCanada to Bibliothèque nationale du Canada de reproduce, loan, distribute or sell reproduire, prêter, distribuer ou copies ofthis thesis in microform, vendre des copies de cette thèse sous paper or electronic formats. la forme de microfiche/film, de reproduction sur papier ou sur format électronique. The author retains ownership ofthe L'auteur conserve la propriété du copyright in this thesis. Neither the droit d'auteur qui protège cette thèse. thesis nor substantial extracts from it Ni la thèse ni des extraits substantiels may be printed or otherwise de ceDe-ci ne doivent être imprimés reproduced without the author's ou autrement reproduits sans son penmSSlOD. autorisation. 0-612-50944-3 Canad~ • Abstract Govemmenr ownership ofairpons fs inefftcient and has Led 10 largejinancial dqicits in Canada. Terminais / and Il ar Pearson Airpon are in desperare need of redevelopmenr. The Pearson Airpon Agreements between the Federal Govemmenr and Ihe Pearson DeveLopment Corporation (-PDC-) 10 redevelop and operare Terminais / and /1 al Pearson Airpon pursuanr 10 a long lerm Lease would have ben~lIed Ihe GovemI'Mnl through Ihe receipl of Ihe proceedsfrom the sale ofthe airpons while being relieved ofthe burden ofjinœrdng airponexpansion. The cancel/arion of the Pearson Airport Agreements based on the fault}' reasoning of the truon Repon was conrrary la Ihe public imeresr. The Canadian Govemment plans 10 "commercialize -Airports which involves leasing them to Airpon AUlhoriries. The federal govemmenr has reached an agreement on lerms for trans/er ofPearson Airpon ID Ihe Greiller Toromo Airpon AUlhorilY ("GTAA "). Pearson airpon will be one of the finI QÎ'Pons 10 be Iransfe"ed 10 local control • under rhe Liberal govem,nents Canadian Airpon Authoril)' model. Commerdalizarion amounts to a trans/er of Airpons from one part ofthe public sector to anolher. /r is plagued Dy many ofthe inef!idendes lhat cIulraeterize Govemmenr operared Airports. Pearson Airpon has significant market power. Pearson Airpons market power can tffecrivel)' be diffused by separaring The airpon's airside and groundside functions. and basing airside ownership on slols. Terminais /. Il and III lvill be sold separare/y and will become the responsibiliry ofseveral airpon companies who will compete for Airlines and Passengers. Runways. taxiways and the apTon would be owned and operaled by a Corporation made up of inveSTors and third pany brokers. • • Resumé Au Canada, la propriété gou\'ernementale des aéroports 6t inefficace el fut la ctulSe de dijidrs finanders considérables. Les terminaux 1 et Il de l'aéroport Pearson nicessitenr disespirimenr un diveloppemem. Les ententes signées entre le gouvernement fédéral et la Pearson Development Corporation (PDC), pemr.ellant le développement el l'opération des terminaux 1 et II de l'airopon P~rson suivant un bail à long terme, auraient été bénéfiques pour le gouvernement. Ces ententes DUraienr permis des reveTUIS de la vente d6 aéropons tour en soulageant le gouvernement du fardeau financier de l'expansion des airopons. L'annuliJlion d6 entent6 touchant l'aéroport Pearson, suite au raisonnement fautifdu rapport Nixon, fut contraireà l'intéritpublic. Le goullemement canadien entend, par leur location aux autorités aéroportuaires, ·commercialiser-Ies aéroports. Le gouvernement fédéral a d'ailleurs conclu une entente contactuelle pour le transfert de l'aéroport Pearson au "GreaterToronro Airport Authorir)''' (GTAAJ. L'aéroport Pearson sera un des premiers airoports, sous le modèle • canadien d'autorité aéroportuaire du gouvernement libéral, a it~e transféré à une autorité locale. La commercialisation équivaUT au transfen de l'aéroport d'un secteur public à un autre. Les inefficadtés caractéristiques des aéropons sous contrôle gouvernemental seront donc transmises lors de la commercialisation. L'aéropon Pearson possède une pan importante de marché. L'impact sur le marchi que possède / 'aéroport Pearson peur étre efficacement diffusée en séparant les fonctions -airside-er "groundside-de l'aéroport, et en accordant lapropriétédesfonctions "airside"selon des "Sl01S". Les terminaux 1, /1 et III seront vendus séparément et deviendront la responsabilité de plusieurs compagnies airoponuaires, qui se feront concurrence pour les compagnies aériennes el les passagers. Les pistes d'atterrissage,les chemins riservéspour le taxi enrre le terminal et la piSTe d'atterissage eT les "stationnements - pour avions seraient opirés par une corporation formie d'invesTisseurs el de courtiers. • • Acknowledgements 1gratefully acknowledge the constant encouragement and inlellectual stimulation with whieh Professor Richard landa provided me during the writing of this thesis. The support given by Professor Janda as my thesis supervisor and as Professor of Govemment Regulation of Air Transport at the Institute of Air and Space Law was most appreciated. • 1 had the 0pp0rlunity to interview many experts in the Airpon industry. In this regard 1 would like to lhank David Emerson. President and C.E.O. of the Vancouver International Airport Autbority: Louis Turpen. President and C.E.O. of the Greater Toronto Airpon Aulhonty: Gordon R. Baker. Q.C.• Counsel for Manhews Investments and the Paxport Group: Victor W. Barht:au. Assistant Deputy Minister of Transport - Airporls: and David Carr of Toronto's Consumer Polie)" Institute. Mr. Carro in panicular provided me with marerial and infonnation which was indispensable. ln addition. 1 greatly appreciated the assistance of Senator Finlay MacDonald, Chairman ofIh~ Sp~dQl S~nare Commirree on the Pearson Airpon Agreemenrs. Senator MacDonald provided many unique insights into the events leading up to the cancellation of the Pearson Airporr A.gr~~m~nJs. • Thank you all! e· Contents Absrract Resumè Acknowledgements Contents Introduction 1 1 Airport Monopoly 6 Govemment Ownership 6 Natural Monopoly 7 • Risks of an Unregulated Private Monopolist 8 The role of govemment - To regulate or not Il Pearson Airport 14 2 OUawa's Traditional Approach to Airport Operations 16 3 Airport Capital Investments 19 Runway Shortages 19 The need for Financing airport expansion at Pearson 21 4 Airports Policy in Canada as it Evolves 23 Mazankowski Task Force 23 1987 Airport Transfer Policy 24 TerminaIs 1 and Il - Pearson Airport 26 Private Sector Redevelopment of Terminais 1 & II 30 5 The Pearson Airport Agreements 33 The Request for Proposais 33 Selecting A Proposai 37 • Negotiating The Agreements 40 • Pearson Airpon Commerc;alizat;onIPrivatizot;on 6 The Cancellation 44 The Nixon Report 44 Reviewing the Decision to Cancel the Pearson Airport Agreements 50 The Special Senate Committee oll/he Pearson Airpon Agreements 50 7 The National Airpol1s Policy 56 Canadian Airport Authorities 56 Greater Toronto Airport Authority 57 8 Constitutional Considerations 60 • 9 Airports in Other J urisdictions 69 British Airport Authority pIc 69 United States 73 Australia 75 Austria 75 France 76 New Zealand 76 Germany 77 10 A Critical Assessment of Airport Policy in Canada 79 General 79 Taxing Authority of Airport Authorities 80 Incentive to Overbuilc! 83 Financial Performance of Airport Authorities 84 Il Airport Fees and Siots 86 Aeronautical Charges 86 Peak charges 91 Airport Siots 92 U.S. Siot Controlled Airports 94 • Canadian Landing Slots 96 • Pearson Airpon Commercialization/Privarization 12 Recommendation for Air'Side Ownership 99 The Recommendation - Eliminating the