Toronto's Pearson Internationai Airport: Airport Commerci~Ationlrivatization
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Toronto's Pearson Internationai Airport: Airport Commerci~ationlRivatiZation Stephen Lerner barris fer-and-solici for A tlresis subr~ir~ed10 the Faculty of Graduate Sfudies and Research in partialjùlfillmenr of the requirernenrs of the degree of Masfer of Lows (U.M.) The Institute of Air and Space Law McGill Universis, 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 3!35 Weiiingîon Street 395. rue Wellington Otrawa ON K1A ûN4 O(rawaON K1AW Canada CaMda The author has granted a non- L'auteur a accorde une Licence non exclusive licence allowing the exclusive permettant à la National Library of Canada to Bibliothèque nationale du Canada de reproduce, loan, distribute or seU reproduire, prêter, distribuer ou copies of this thesis in microfom., 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 of the L'auteur conserve la propriété du copyright in ths thesis. Neither the droit d'auteur qui protège cette thèse. thesis nor substantial extracts fiom it Ni la thèse ni des extraits substantiels may be printed or otherwise de celle-ci ne doivent êeimprimés reproduced without the author's ou autrement reproduits sans son permission. autorisation. Abstract Govemmenr ownership of airporrs is inefficienr adhas led ro largefinancial deciîs in Wa.Teminah I und II at Pearson Airpon are in desperare need of redevelopment. nte Pearson Airpon Agreernenrs berween the Federal Govemmenr and rhe Pearson Developmenr Corporoiion ('PDC") IO redevelop and operote Termïnals I and II ar Pearson Airpon pursuani to a long rem lease wouid have bencftreà fhe Govemmnr through rhe receipr of rhe proceeds /rom rhe sale of the airporrs while being rclieved of the burden of financing airpon expansion. The concellarion of rhe Pearson Airporf Agreements based on rhe faulr). remoning of the Nton Repon was con~rary IO the public inzeresr. The Canadian Governmenr plans to "comercialize"Airportswhich involves leasing them io Airporr Avrhonties. The fedeml governeru har reached an agreement on remfor rrOHSfer of Pearson Aiqwn ro rhc Grmer Toronru Airporr Authon'fy ("GTAA "1. Pearson aivon will be one of the fim aiporrs to be tramfeved ro ka1control under the Liberal govenimenrs Canadian Airporr Aurhority del. Commercialization amounrs ro a rr(ULSfer of Airpons from one part of the public secror ro anorhcr. Ir is pfagued by many of the in@ciencies rhar charaaerize Governrnenr operated Aiporrs. Pearson Airpon has signifcanr marker power. Pearson Airpons market power can #ecrively be dimsed &y separaring the airporr 's airside and groundside funcriom, and basing airside ownership on slots. Teminois I. II and III will be sold separatelj and will become the responsibilin, of several airpon companies who will compete for Airlines and Passengers. Runwqs. taxiwqs and rhe apron would be owned adoperami &y a Corpurazion made up of investors and third paq brokers. Au Canada, la propriété gouvernementale des aéroports est inefficace et fitr la cause de déjicits fiMncien considérables. Les teminaux I er II de l'aéropon Pearson nécessitent dlsespérément un divcloppemenf. Lcr enrenres signées en f re le gouvernemenr fédéral et la Pearson Development Corporation (PDC), permettant le dél*eloppemenr er l'opération des reminaux I er II de l'aéropon Pcarson suivaru un bail d long terme. auraient éré bénéfiques pour le gouvememenf . Ces enrenres auraient pemi des revenus de Ia vewe des aéroports tout en soulageanr le gouvernemenr du fardeau financier de 1 'expansionda aéroports. L 'annulorion des ententes rouchanr 1 'aeropon Pearson. suire au raisonnemenr fautif du rappon Nhn.fit conrraire a 1 'inriritpublic. Le gouvernement canadien enrend, par leur location aux auronlrés aéroponuaires. 'commercialiser' les aéroports. Le goullernernenr fédéral a d'ailleurs conclu une enrente contactuelfe pour le transfkn de 1 'airopon Pearson au *G.wrerToronto Aipon Aurhoriq " (GTAA). L'aéroport Pearson sera un des premiers aéroporïs ,sous le modèle canadien d'auroriré oéroponuaire du gouvernemenr libéral, a être trweré a une autorité locale. Lu commercialisarion équivaur au transfert de l'aéropon d'un secteur public à un cwtre. Lcs in@cacitis coracrénsriques des aéropons sous contrôle gouvernemental seront donc tramwuses lon de la commercialisation. L'aeropon Pearson possède une pan irnporfanre de marché. L'impact sur le marché que possède I'aéropon Pearson peur êrre efficacement di;f/icséeen séparanr les fonctions "ainide" et "groundside"de 1 'aéropon. a en accordanr la propriéré des fun crions "airside Won des "slors". Les tennrnnrnuux1, II et 111 seront vendu séparémeni er deviendronr la responsabiliré de plusieurs compagnies aéroportuaires. qui se feront concumnce pour les compagnies ae~enneser les passagers. Les pisres d'atternssage,Iw chemxCmrmrise~ispour le taxi entre le renrunru~l er la pisre d'atrerissage er les "srarionnernenrs"pour avions seraienf opiris par une corporation formée d 'invesrisseursef de courriers. 1 gratefully acknowledge the constant encouragement and intellecrual stimulation with which Professor Richard Janda provided me during the writing of this thesis. The suppon given by Professor Janda as my thesis supewisor and as Professor of Govemrnent Regulation of Air Transport at the ïnstinite of Air and Space Law was most appreciated. 1 had the opponunity to interview many experts in the Airpon industry. in this regard 1 would Iike to thank David Emerson. President and C.E.0. of the Vancouver international Airpon Authority; buis Turpen. President and C.E.O. of the Greater Toronto Airpon Authority: Gordon R. Baker. Q.C., Counsel for Matthews Investments and the Paxpon Group: Victor W. Barkau. Assistant Deputy Minister of Transport - Airpons: and David Carr of Toronto's Consumer Policy Instimte. Mr. Cam, in particular provided me with materiai and information which was indispensable. In addition, 1 greatly appreciated the assistance of Senator Fialay MacDonald, Chairman of the Speciol Seme Co~mirreeon rhe Pearson Aiport Agreemenrs. Senator MacDonald provided many unique insights into the events leading up to the cancellation of the Pearson Airpon Agreements. ïhank you dl! Contents Abstracr Resumè Acknorvledgements Contents Introduction Airport Monopoly Govemment Ownership Naturd Monopoly Risks of an Unregulated Private Monopolist The role of govemment - To regulate or not Pearson Airport Ottawa's Traditional Approach to Airport Operations Airport Capital Investments Runway Shortages The need for Financing airport expansion at Pearson Airports Policy in Canada as it Evolves Mazan kowski Task Force 1987 Airport Transfer Policy Terminals 1 and iI - Pearson Airport Private Sector Redevelopment of Terminals 1 & II The Pearson Airport Agreements The Request for Proposais Selecting A Proposal Negotiating The Agreements Pearson Airpou Cornmercializarion/P~vanan~fion 6 The Cancellation The Nixon Report Reviewing the Decision to Cancel the Pearson Airport Agreements 7ne Special Senate Cornmirtee on the Pearson Airpon Agreements 7 The National Airports Policy Canadian Airport Authorities Greater Toronto Airport Authonly 8 Constitutional Considerations 9 Airports in Other Jurisdictions British Airport Authority plc United States Australia Austria France New Zealand Germany 10 A Critical Assessrnent of Airport Policy in Canada General Taxing Authority of Airpon Authorities Incentive to Overbuilc! Financial Performance of Airport Au thori ties 11 Airport Fees and Slots Aeronautid Charges Peak charges Airport Slots U.S. Slot Controlled Airports Canadian Landing Slots Pearson Airpon Cornmer~iafi~~n~on/Privclti~n'on Recommendation for Ailside Ownership The Recommendation - Elirninating the Market Power of Pearson Objections to an Airside Corporation Airside Development Slot Hoarding Slot Manipularion Public Inferest International Law Conclusions References Introduction Governrnent ownership of airports in Canada has led to large financial deficits and chronic ine fficiencies produced by extensive governent involvement. The time fias corne to privatize Canada's major airports including TorontolPearson International Auport ("Pearson Airport"). Rather than privatization however, the Federal Government plans to "comrnercialize" Airports which entails leasing them to Avport Authonties. Commercialization arnounts to a transfer of Airports from one part of the public sector to another. Ir is plague~by many of the inefficiencies that characterize Govemment operated Airpons. Much of the rest of the industrialized world is headed to full privatization. BAA plc owns most of Great Britaïn's largest airports including London's Heathrow Airpon. Both Austria and Italy have privatized small portions of theû principle air transport hubs. Australia will privatize its major Airports in 19%. Airpon privatization is likely in Gerrnany , South Afiica and New Zealand. In Canada, Pearson Airport's Teminal III which opencd on Febniary Pearson Airporr Commerciali~ion/Pn'vatization 21st, 1991, was fînanced without taxpayers rnoney and has a yearly capacity for 10 million arriving and depaning passengers. Terrninals 1 and Il at Pearson Airpon are in desperate need of redevelopment. Clearly the Federal government is not willing or able to frnance such redevelopment due to budgetary pressures. The Pearson Airport Agreements between the