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The Following Presentation, to Profitize Or Not, Airport Privatisation The following presentation, To Profitize or Not, Airport Privatisation – Is it Worth the Risk?, was delivered to the CILTNA on May 10th, 2017 by Mark Laroche, President and CEO of the Ottawa International Airport Authority. Highlights of the discussion included: • YOW is well and transparently governed with its local, community-based Board of Directors; • The National Airport Systems airports generate aeronautical and non-aeronautical revenues, manage all expenses prudently, and reinvest all surplus revenues back into airport operations; • Canada’s airports are considered world-class, and have won extensive awards around the world for customer service, accessibility, sustainability and innovation; • The airports’ monopolistic environment, 100% user paid, predictable revenue streams, and unfettered ability to raise rates make them prized assets for private investors; • There are various government agencies, airlines, retailers and concessionaires operating at the airport that would not be impacted if the ownership structure changed; • OMCIAA’s position which supports maintaining the current airport governance model, and the arguments in support of our position; and • With some minor fixes such as reducing airport rent and end of lease issues, Canada’s airports could be even more successful and more competitive. The presentation also contains: • Key recommendations and statements from the Emerson Report; • Supporting positions from stakeholders and other partners who agree that privatization would raise costs and lower service levels; and • Privatization experiences from around the world. More information, media coverage, studies and polling information can be found at www.noairportselloff.ca. The public is encouraged to visit the site, and to have their voices heard by using the online tool to correspond with their respective Member of Parliament in support the current model which has served our community very well. To Profitize or Not Airport Privatization – Is it Worth the Risk? CILTNA – May 10th, 2017 Mark Laroche President & Chief Executive Officer 2 About Us 3 Ottawa Macdonald-Cartier International Airport Authority Vision: To be the world class gateway for Canada’s Capital Region and an economic engine that drives prosperity for our community. Mission: The Authority is a leader in providing quality, safe, secure, sustainable and affordable air transportation services to the airport’s customers and communities and be a driver of economic growth within Canada’s Capital Region. 4 Selecting Bodies Number of Directors Governance Nominated Minister of 2 A Board-driven, private, Transport (Gov’t of non-share, not-for-profit, Canada) capital corporation Gov’t of Ontario 1 Not a government agency City of Ottawa 2 Does not receive City of Gatineau 1 government funding Ottawa Chamber 1 of Commerce Ottawa Tourism 1 Chambre de 1 commerce de Gatineau Invest Ottawa 1 Members at Large 4 Total 14 5 YOW – before Transfer YOW – after Transfer 6 YOW – before Transfer YOW – after Transfer 7 Canada’s National Airports 26 airports in the National Airports System From less than $50 million in 1992 to over $21 billion in capital investments in 2015. Air travellers have invested heavily in improving airport facilities. $305 million in annual rent in 2014 and over $5 billion in rent since 1992 $35 billion contribution to Canada’s GDP Federal taxation of more than $7 billion 126 million passengers in 2014 141,000 direct jobs supported 8 Current Governance Tier 1 Airports started being transferred to airport authorities in 1992. Authorities are operated by private, non-share, not-for-profit corporations. Independent Boards. Directors’ fiduciary duties are to the airport, not to their nominators. 60 to 80 year leases – The Crown retains the legal title to the land. The leases are very prescriptive. Articles of Continuance (Letters Patent when incorporated) • To judge us with a for-profit business lens would be against our Articles of Continuance approved by Transport Canada 9 YOW Incorporating Document Statement of purpose of the corporation The objects of the Authority are: (a) To manage, operate and develop the Ottawa Macdonald-Cartier International Airport, the premises of which will be leased to the Authority by Transport Canada, and any other airport in the National Capital Region (the "Region") for which it is or in the future becomes responsible (the "Airports") in a safe, secure, efficient, cost effective and financially viable manner with reasonable airport user charges and equitable access to all carriers; (b) To undertake and promote the development of Airport lands for which it is responsible for uses compatible with air transportation activities; and (c) To expand transportation facilities and generate economic activity in ways which are compatible with air transportation activities. In executing its objects, the Authority shall confer regularly with governments and community entities on matters affecting the operation and development of the Airports for which it is responsible and shall engage only in those activities that are consistent with its objects. 10 OMCIAA – Who Does What (Non-Government) Airport Authority Overall strategic direction & operation of the airport, including building and airfield operations and maintenance, and commercial development Airlines Check-in, boarding, baggage handling (above wing and below wing) De-icing consortium Private Vendors Retail shops, restaurants, car rental agents, hotels and other airport services when not operated directly by the airport NAV CANADA Air traffic control 11 OMCIAA – Who Does What (Government) Canadian Air Transport Security screening of passengers and their bags, Security Authority screening of airport workers (CATSA) Canada Border Services Customs and Border Services, Canada Agency (CBSA) U.S. Customs and Border U.S. Pre-Clearance Protection Police and Security Policing and security response Services (OMCIAA contracted) 12 Revenues Tier 1 13 Expenses Tier 1 14 15 Current Debt Financing 16 Emerson Report CTA Review 2015 Pathways – Chapter 9 3. The Government of Canada strengthen the viability, accountability, and competitiveness of the National Airports System by: b. Moving within three years to a share-capital structure for the larger airports, with equity-based financing from large institutional investors, accompanied by legislation to enshrine the economic development mandate of airports and to protect commercial and national interests (including provisions that are currently spelled out in the airports’ leases) 17 Emerson Report cont’d CTA Review 2001 Vision and Balance – Chapter 9 In the Panel’s view, the differences are not sufficient to rule out the for-profit model for some forms of air and marine infrastructure. A for-profit organization is a potentially attractive alternative at airports and ports that are financially viable — in other words, at most NAS airports and Canada Port Authorities. Two broad factors need careful consideration: First, there is a need to ensure that, under a for-profit structure, significant public policy objectives would continue to be addressed; Second, there is a need to address concerns about the potential market power of for-profit infrastructure providers. 18 Emerson Report cont’d “Presently, Canada’s air transport may be in the best shape that it ever has been.” “The recommended measures have been crafted to work together to advance the ultimate objectives of reduced cost, increased connectivity, and improved service for Canadian travellers and shippers.” “Taxpayers have already received a significant return on their investment in the airports … revenues in excess of the value of the airport assets… have already been collected in airport rent.” “Whatever model of privatization is chosen, any revenue for the government from the sale/concession price for privatizing the airports increases airport costs, and would ultimately be passed on to Canadian travellers in the form of higher airfares and fees.” “Use of privatization to extract the maximum revenue for government undermines the objective of a more competitive air transport sector.” 19 Tier 1 Airports on Ownership Tier 1 Airports: Tier 1 Airports provided comments to Transport Canada Where Tier 1 Airports stand (based on submissions) • Privately opposed, publicly opposed, publicly in favour under certain conditions (equity reinvested in airports) Other stakeholders’ positions • Unions • Air carriers and IATA • Public • Local and provincial governments Tier 2 (14 airports - joint submission) • Retain current not-for-profit model and address end-of-lease issues 20 Drive to Privatize Canadian Airports Federal Motivation Infrastructure ($180 billion over 12 years) Asset recycling – selling of public-type assets to investors in order to finance other infrastructure projects Valuation of airports that will fund the Canadian Infrastructure Bank (from $7.2 billion to $16.6 billion (according to C.D. Howe (Robbins) for the eight biggest airports) (GTAA from $2 billion to $6 billion) Wide range of valuations due to debt resolution and uncertainty of regulatory framework Forms of privatization Selling the land Concession Full and partial ownership Valuation of airports Depends (utility-like rent regulation) Regulating a natural monopoly 21 Pros and Cons of Moving from Commercialization to Full Privatization Some arguments IN FAVOUR Allows for the issuance of equity to generate financing. • Currently, we must rely on debt markets and operating surplus to
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