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 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; • ’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 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

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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)

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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 finance projects and expansions

 Better business management and greater efficiency  Sell-off proceeds in a time of federal government deficits  Removal of ground rent  Taxation on airport profits  More retail for travellers  Easier land development opportunities

22 Pros and Cons to Move from Commercialization to Full Privatization Some arguments AGAINST (OMCIAA is against)  Fail to see the upside for the industry or air travellers  Current model can be improved with minor tweaks • End of lease issue • Rent  It is not the ownership that is driving high costs; it is the user pay model  The current system has been resilient to a variety of events.  Changes would be credit negative impacting the cost of debt  Risk related to the transaction, oversight, new changes (i.e. security) impact on for-profit model  What will ownership change on who does what?  The challenge of having directors with conflicting interests (partial privatization)

23 Meanwhile in Australia

24 Meanwhile in Australia

25 Meanwhile in Great Britain

26 Meanwhile in Great Britain

27 Meanwhile in

28 Meanwhile in the U.S.

29 Meanwhile in the U.S.

30 Public Opinion

31 Other Challenges

 Legislative changes are required  Difficult to initiate without the collaboration of airport authorities  Current leases - some with right of first refusal  Board with for-profit and not-for-profit directors . Will investors allow airport Boards to be controlled by government-appointed directors? Pension funds do not want political interference at Board level  Current debt – Bondholder consent . Creditors will likely want to be made whole if ownership changes. . The government will likely have to repay the debt at a premium  The change of ownership would be credit negative according to Moody’s Credit Rating Agency  Duty to consult with First Nations if there is a land transfer  Review of all current agreements and contracts . Many are long-term  Future changes that impose additional costs (notably security and safety)  Foreign ownership restrictions?

32 The Final Remarks Belong to Sidney Valo

The non-share capital not for profit authority, with its advantage of tax-exempt revenues committed to infrastructure reinvestment represents, for Canada, a cost-effective community responsive model for the operation of this critical element of its aviation infrastructure. What is required is enhanced transparency of operation, clear principles for price setting, and a renewed commitment to maintaining a skilled, and politically independent Board of directors committed to pursuing the original vision of airports as economic engines providing community responsive, essential transportation services at a reasonable cost. In the continuing evolution of Canadian airport privatization, the Federal Government would be well served to refine, without over regulating, what to date has proven for the most part to be a unique and truly effective means of delivering public infrastructure services. This non-share capital corporate style operation of the public asset in the public interest subject to political influence but not political interference holds the greatest potential for the delivery of essential public services in a most cost effective and efficient manner. To render this model extinct without giving careful thought and sufficient effort to its continuing evolution would indeed reflect missed opportunity.

The continuing evolution in Canadian airport privatization report concluded in 2001 (Sidney Valo, former Chairman of the Board, GTAA) http://www.spoudmet.civil.upatras.gr/2001/pdf/1_2.pdf

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Selling Canadian Airports

34 www.noairportselloff.ca

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