Building Resilience
Fort McMurray Airport Authority 2018 Annual Report Who We Are
The Fort McMurray Airport Authority (FMAA) is an independent non-share capital corporation that owns and operates the Fort McMurray International Airport (YMM).
FMAA operates like a local business, facilitating critical transportation services, creating local jobs, procuring local goods and services and offering commercial land leasing opportunities.
All surplus revenue generated from commercial activities are reinvested back into airport operations and infrastructure to ensure compliance with safety, security and environmental regulations.
Vision We are Canada’s Premier Regional Airport.
Mission We are responsible stewards of our airport, achieving superior performance in the conduct of safe, secure, effective and efficient operations. Our airport businesses contribute significantly to the economy of the region, Alberta and Canada.
Corporate Values • Excellence in safety, security and environmental performance • Commercially focused, fiscally responsible and sustainable • Exemplary customer service • Progressive leadership • Extraordinary teamwork
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Table of Contents
Message from the Board Chair and President & CEO 4 Business 7 Passengers 11 Operations 15 Community 19 Board Governance & Accountability 23 Management Discussion & Analysis 26 Financial Statements 36
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Welcome to the Fort McMurray Airport Authority (FMAA) Annual Report, which covers our performance on business and operational parameters as well as interface with the community.
The report begins with a joint message from the FMAA Board Chair, Mike Chwelos and President & CEO, RJ Steenstra as they share significant events for the airport during the year.
4 | FORT MCMURRAY AIRPORT AUTHORITY ANNUAL REPORT 2018 5 | FORT MCMURRAY AIRPORT AUTHORITY ANNUAL REPORT 2018 INTRODUCTION
Message from Michael Chwelos and RJ Steenstra CHAIR, BOARD OF DIRECTORS AND PRESIDENT & CEO
2018 was a year of transformation at the Fort McMurray Airport We Are Flexible Authority (FMAA). We continued to move our organization forward We learned from the 2016 wildfires, that people and organizations and harnessed new opportunities as we stayed on course, adjusting to must be flexible in order to adapt to the changing world around changing economic conditions. them. Since 2016, the Airport Authority has become more agile not only when faced with immediate dangers such as the wildfires, but Our overarching theme of “building resilience” anchored our business also in our ability to anticipate and adjust to growing risks, threats outlook for the year. For the Airport Authority, resilience has come to and new opportunities. mean very specific things. Our journey through the economic downturn has allowed us to fine tune our business and redefine for ourselves The Airport Authority, like many local businesses, continued to what it means to be a resilient organization. feel the impacts of a lower oil price environment. With supply far exceeding pipeline capacity, the region continued to face pipeline
4 | FORT MCMURRAY AIRPORT AUTHORITY ANNUAL REPORT 2018 INTRODUCTION
transportation bottlenecks, hindering oil sands capital investment Arrivals, where they grew vegetables and flowers used for our opportunities and the demand for local air travel. planters around the facility. The YMM gardens were a big hit, fostering civic pride in our airport. Last year we made significant changes to prepare our organization to endure and even thrive in an environment with fluctuating passenger We Are a Good Neighbour volumes. We found operational efficiencies and right-sized our Strong relationships with our stakeholders are fundamental to our organization to offset declining passenger demand. success. In 2018, we gathered stakeholder input from our airlines, tenants, passengers, municipality, local business community, We began 2018 with the goal of becoming a top performing airport for suppliers and the social profit sector. customer experience. We are pleased to say we accomplished what we set-out to achieve, becoming the best regional airport in Canada for During this process we encouraged a cycle of learning, while we customer experience. gathered valuable input and suggestions to help us continuously improve our business and our operations. For example, after Our efforts were recognized by Airports Council International - World receiving feedback about temperature levels in Departures, we with a 2018 Airport Service Quality Award. We received top honour for installed new window screens to help keep the terminal cool in Canada and we were joined by one other airport in the United States as the warmer season. This improvement to our terminal increased North America’s best regional airports for customer experience.。。 comfort levels for both passengers and our concession partners and created heating and cooling efficiencies. We Have Many Strengths FMAA’s resilience lies in our ability to leverage our strengths in times of We also met with stakeholders to share information on the uncertainty. In 2018, we saw further declines in commercial and charter Passenger Demand Study we conducted towards the end of aircraft activity, which included one of our airline partners suspending 2017. We found that approximately 164,500 passengers annually their direct Toronto flight due to declining local demand, exacerbated opt-out of using YMM, and instead elect to drive to airports in by continued slowdown in oil sands capital investment. Edmonton or even Calgary to catch their flights.
Despite these set-backs, FMAA successfully maintained all other flight Listening and engaging with our stakeholders allowed us to dive destinations from the previous year and we continued to work diligently deeper into understanding the barriers that might be hindering with our airline partners on securing services that meet local needs. residents from flying local. Armed with greater insight, we are committed to working with our airlines to develop fit for purpose We continued to expand our non-aeronautical business portfolio to flight options and work with our community stakeholders to optimize our 685 hectares of land, of which 77 hectares is designated build customer loyalty, understand potential customer needs and for commercial development. In 2018, we completed a Land Use influence transportation choices. Marketability Study to guide future business development. The study reinforced for us that land development opportunities on airport land We Are Ready exist in the interim and long-term. Closing the year, we can look back with certainty that our organization and our people have demonstrated great resilience. We Are Operationally Excellent We have adapted and persisted, taking the right steps needed Last year we not only met, but exceeded service levels in the face to pivot towards increasing our sustainability. Looking ahead of continuous external market pressures. Our focus on operational we will enhance our triple bottom line of economic, social and excellence allowed us to optimize our facility to deliver superior environmental performance. passenger satisfaction. In 2018, we harnessed new technologies to deliver excellence. We upgraded our public Wi-Fi infrastructure with leading technology wireless network equipment. Our internet service is now four times faster than before, making us one of the only airports in North America to offer superior public Wi-Fi connectivity.
And we didn’t stop there. We also moved our landscaping and beautification program in-house, deploying the talents of our staff. We moved away from contracting out this service and found tremendous Michael Chwelos RJ Steenstra cost efficiencies, not to mention that we saw a boost in team morale. Chair, Board of Directors President & CEO Our team constructed a community garden located in our courtyard at Fort McMurray Airport Authority Fort McMurray Airport Authority
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Business
6 | FORT MCMURRAY AIRPORT AUTHORITY ANNUAL REPORT 2018 BUSINESS Business WE ARE FLEXIBLE
FMAA operates like a local business. We facilitate critical transportation services, create local jobs, procure local goods and services and offer commercial land leasing opportunities.
Our business model gives us the flexibility to diversify our revenue streams, which enhances our financial sustainability. We do this by balancing aeronautical sources of revenue such as airline, terminal rent and usage fees, with non-aeronautical sources of revenue such, as advertising, retail and car rental concessions and real estate and land leasing.
Revenue Diversification Commercial Land
Only a few airports in Canada own the land where they operate and YMM is one of them. We have a unique opportunity to facilitate business ventures on our 77 hectares, by offering the largest supply of readily available commercial and industrial land in the region outside of individual oil and gas sites.
Our objective is to work hand-in-hand with our business partners to facilitate the development process from start to finish.
Potential commercial land uses include:
Car rental facilities Distribution centres Food and beverage Gas station/car wash Hotels/apartments Light manufacturing Office space Outdoor storage Public utilities Rental sales Transportation services and facilities Warehouses
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Leverage Leasing Revenue Airport Campus - North Side
We work with a variety of businesses based at YMM and take great pride in supporting them with a great location and cost-effective options for leasing. Our airport family includes aviation and non-aviation businesses operating inside our terminal and on airport lands.
Aviation Business Non-Aviation Business
Alberta Central Airways (AHS Medevac) A.P.E Maintenance Ltd Aurora Helicopters ATCO Electric Ltd. Canadian Airport Fire Services Inc. Borealis Condo Management Canadian Helicopters Ltd. C & B Maintenance Corp. Delta Helicopters Fort McMurray Search & Rescue Society Executive Flight Centre Aviation Forthryte Services Inc. Golosky Aviation Services Inter Pipeline Corridor Inc. Government of Alberta (Alberta Infrastructure) Knelsen Sand & Gravel Government of Alberta (Sustainable Resource Development) Lakeshore Contracting Highland Helicopters Ltd. MIB Moving Lakeshore Helicopters Ltd. NC Transport & Equipment Local HERO Foundation (Phoenix Heliflight) Oil Sands Community Alliance McMurray Aviation Oil Sands Shovel Products Mustang Helicopters PowerMax Electric and Solar NAV Canada Stead’s Courier Phoenix Heliflight True North Automotive R & S Ruelling Ltd. (Alert Airways Group) True North Mechanical Summit Air Valerie Erickson Primerica Financial Services Syncrude Canada Viking Waste Disposal Vortex Helicopters Vortex Oil Sands Contracting
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Fit-For-Purpose Flights Air Service
In 2018, we continued to work diligently to strengthen the We were disappointed to see visitors and local residents lose this flight, relationship between YMM and our airline partners. We remained however our airline partners remained committed to working with us to focused on the same goal of maintaining current flight options that develop new routes that meet local needs. met local air travel demand. Even in a downturn, we know there are opportunities to increase Overall we saw continued pressure on passenger volumes throughout passenger volumes. Every year YMM loses potential passengers who 2018. The decline in commercial traffic was largely attributed to a prefer to drive to and from the region. Our organization continues to look major carrier reassigning a flight to a different hub. for ways to create customer loyalty and encourage people to fly local.
9 | FORT MCMURRAY AIRPORT AUTHORITY ANNUAL REPORT 2018 PASSENGERS
Passengers
10 | FORT MCMURRAY AIRPORT AUTHORITY ANNUAL REPORT 2018 PASSENGERS Passengers WE HAVE MANY STRENGTHS
YMM strives to create a warm, welcoming and friendly atmosphere – just like home. Our greatest strength comes from a deep caring for our customers and their needs. Exemplary customer service is one of our core values and is at the heart of our business strategy.
At YMM, we provide services and experiences that have a lasting impression on passengers and residents who visit the terminal. YMM was designed with the community in mind, making us much more than an airport. We are a community venue that offers unique programs and experiences for the public to enjoy.
The Best People Team YMM
It takes a team to create a memorable airport experience and a customer focused culture to keep the promise of good service. Team YMM is our airport family who is committed to delivering on that promise. We work in conjunction with all businesses at the airport to streamline the passenger journey, increase service levels and create a seamless experience from the beginning to the end of their journey.
The Team YMM airport family includes employees from businesses inside the airport who contribute to providing an exceptional customer experience.
Air Canada and WestJet Airlines AVIS/Budget Rent-A-Car Bill’s General Cleaning Burger King Canadian Air Transport Security Authority (CATSA) Driving Force Earls Enterprise Rent-A-Car/National Famoso Neapolitan Pizzeria Hertz Jugo Juice NAV Canada Nicholby’s Convenience Starbucks Sun Taxi TAWS Security Ltd Tim Hortons
11 | FORT MCMURRAY AIRPORT AUTHORITY ANNUAL REPORT 2018 PASSENGERS
Award-winning Customer Experience Airport Service Quality Award
We benchmark our customer service performance against some 390 airports around the globe, through the Airport Service Quality (ASQ) Program, conducted by Airport’s Council International – World.
Team YMM strives to bring customers back by ensuring their experience at the airport is easy and stress free. In 2018, we were named the top airport in Canada for customer experience, serving under 2 million passengers. We were named along with a U.S. airport, as the top two airports in North America in this category.
In 2018, we conducted over 1,500 live surveys in our terminal to capture our passengers experience while it was taking place. The ASQ Program uses a meticulous method to measure across 37 performance indicators on customer satisfaction.
The ASQ Awards are coveted recognition that YMM exceeded passenger expectations consistently through the year.
Responsive to Customer Needs YMM Bark & Park Service
In 2018, we introduced the YMM Bark & Park service in partnership with K9 Clubhouse. Our customers previously expressed that the lack of pet boarding services created a barrier for them to fly out of YMM.
K9 Clubhouse, located a short distance form the airport, provided the solution our customers were looking for. To support the use of YMM and the Bark & Park service, we included a 50% airport parking discount incentive.
We continuously look for ways to make the travel experience as pleasant as possible. We place a great deal of effort on putting our passengers at ease, whether it be reducing their travel time or providing additional comforts at the airport.
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Operations
14 | FORT MCMURRAY AIRPORT AUTHORITY ANNUAL REPORT 2018 OPERATIONS Operations WE ARE OPERATIONALLY EXCELLENT
Excellence in safety, security and environmental performance are top values for FMAA. Our commitment and policy are designed to help protect the airport facility, our neighbours, employees, contractors, tenants and customers. In 2018, we activated many projects and programs to demonstrate this commitment. Here are a few highlights.
Safety Campaign Canadian Airport Safety Week
On September 17, YMM along with 28 other airports across Canada kicked off Canadian Airports Safety Week. Airport safety is everyone’s responsibility at YMM regardless of job or work location. Our employees and members of Team YMM participated in themed discussions and activities throughout the week including:
• Worker safety • Airside safety • Security • Foreign object debris
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Winter Safety Emergency Preparedness Snow & Ice Control Program Annual Multi-Stakeholder Table-Top Exercise
Proper management of snow and ice at YMM is essential for In 2018, we hosted our annual multi-stakeholder emergency maintaining a safe, secure and on-time operation. Ineffective preparedness table-top exercise, as part of commitment to safety, snow and ice control has the potential to cost our airlines, our security and environment. Every year we meet with agencies, customers and our airport precious time and revenues, especially organizations and individuals to prepare, practice and coordinate in today’s economy. our response in the event of an emergency situation.
Preparations for each winter season begins in late summer. We YMM is a critical community facility, mandated to adequately assess our plans, prepare specialized equipment and review prepare for disruptions such as natural disasters, terrorism, procedures with our employees. pandemics, cyber-attacks and other forms of interference. Air transportation and airports are central in an emergency situation We use mechanical equipment such as plows and booms for and play an important role in a community’s response. removing snow and ice deposits from airport surfaces. This helps us minimize chemical usage and provide adequate friction for FMAA, along with many of our stakeholders follows the universal safe operations. When mechanical equipment isn’t sufficient, we Incident Command System (ICS) designed to manage a significant then deploy environmentally friendly de-icers to prevent bonds incident or emergency. The system brings together diverse groups, and allow removal of snow and ice from pavement. facilities, equipment, personnel, procedures and communications within a common organizational structure. Throughout the winter we monitor the weather closely to respond quickly and effectively to ensure the runway and Table-Top Stakeholder Participants: taxiways remain clear and open. During a major snowstorm, we will use up to a dozen pieces of snow removal equipment. • NAV Canada • Air Canada • WestJet • Regional Municipality of Wood Buffalo (Emergency Services) • Canadian Airport Fire Services • Canadian Air Transport Security Authority (CATSA) • Alberta Health Services • TAWS Security • RCMP
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Safe Skies and Runways Wildlife Program
We are committed to ensuring safe aircraft operations and protecting wildlife in the area. Our Wildlife Management Program encompasses rigorous inspection and control to mitigate the risk of aircraft bird strikes.
The presence of wildlife in the vicinity of airports poses a safety risk for aircraft, passengers and crew. YMM implements wildlife control measures to discourage wildlife from seeking food, water, and shelter on or near airport property.
One of the control measures we use to detract birds from the runway is a bird cannon. The sound emitting device is designed to scare and disperse hazardous wildlife. In 2018, we conducted an internal quality control and quality assurance audit. We identified additional equipment needed to manage wildlife hotspots and changes to our turf maintenance to discourage birds looking for food.
Environment
FMAA is committed to achieving active carbon management at the airport. As such, we commenced the process for obtaining Level 1 certification under the Airport Carbon Accreditation Program in 2018. This is the only institutionally-endorsed, global carbon management program for airports. Level 1 involves mapping the carbon footprint and setting a benchmark against which future reductions are compared.
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Community
18 | FORT MCMURRAY AIRPORT AUTHORITY ANNUAL REPORT 2018 COMMUNITY Community WE HAVE STRONG PARTNERSHIPS
Being a good neighbour and supporting our community is fundamental to who we are and how we operate. We are proud to collaborate with various social profit organizations to create positive societal impacts through volunteerism, community investment, in-kind support and hosting events for residents and families at our airport.
Community Investment
PAWs for People Pet Therapy Program Canadian Mental Health Association
Since 2014, we’ve collaborated with PAWs for People to help alleviate the stressors air travel may cause our passengers. YMM was the fourth airport in Canada to introduce the pet therapy program designed to bring comfort and relaxation to customers.
YMM’s impact reaches beyond the airport into the broader community. Each month, PAWs visits senior’s facilities, the hospital and schools. More than 70 teams participate in the PAWs program, with 45 visits each month, reaching over 2000 people.
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Santa’s Anonymous – Supermarket Spree Father Mercredi High School
Santa’s Anonymous kicked off their festive fundraising season with the inaugural Supermarket Spree event. Teams competed in various supermarket challenges including turkey bowling, a scavenger hunt and Christmas cake decorating. Although the competition was fierce, the FMAA team, also known as “Santa’s Top Guns” placed first taking home the Supermarket Spree championship title.
Each Christmas season, volunteers from across the region raise funds and awareness for Santa’s Anonymous, the social justice program led by staff and students at Father Mercredi High School. In 2018, volunteers collected funds and goods to fill approximately 500 hampers given to families in need over the holiday season.
Air Cadets 868 Squadron - YMM Rotary Northstar Fort McMurray
FMAA is extremely proud to support future aviators through our partnership with 868 YMM Rotary Northstar Fort McMurray Air Cadets. The program provides youth with the opportunity to learn citizenship and leadership skills while making community connections. For FMAA, supporting the Air Cadets helps promote our aviation history and inspires youth to pursue leadership roles in aviation and beyond.
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Signature Events at YMM
YMM Runway Run Wood Buffalo Trail Blazers
In 2018, FMAA in partnership with the Wood Buffalo Trail Blazers hosted the inaugural YMM Runway Run, in support of the Fort McMurray Food Bank. For the first time in our airport’s history, more than 100 runners stepped onto the airport runway to jog 5k.
The Wood Buffalo Trail Blazers led the charge, recruiting runners and organizing fantastic prizes. FMAA was proud to be the venue host, providing volunteers, parking, refreshments and a safety orientation.
Halloween at YMM
On Halloween, YMM was transformed into a frightful family evening of fun, with over 500 young ghouls and goblins and their parents taking part in various activities.
Families from across the region gathered at the airport for trick-or-treating, haunted arcade, creepy crafts, pumpkin carving, a dance party and a costume contest.
YMM was proud to provide a safe, comfortable and fun experience for our community.
21 | FORT MCMURRAY AIRPORT AUTHORITY ANNUAL REPORT 2018 BOARD GOVERNANCE & STEWARDSHIP
Board of Governance & Stewardship
22 | FORT MCMURRAY AIRPORT AUTHORITY ANNUAL REPORT 2018 BOARD GOVERNANCE & STEWARDSHIP Board of Governance & Stewardship
The FMAA is governed by a Board comprised of 10 Directors, mandated to steward the long-term success of the Fort McMurray International Airport (YMM). Board Directors are appointed through 4 nominating entities and the community at large through the FMAA Board of Directors. The nominating entities include: Regional Municipality of Wood Buffalo, the Canadian Association of Petroleum Producers, Fort McMurray Chamber of Commerce and the Union of Public Employees Local 1505.
Using a Board Governance Model, Directors establish policies and procedures to safeguard FMAA’s assets to ensure long-term viability, profitability and future development; while FMAA is responsible for managing and operating the day-to-day operations of YMM, under the Regional Airports Authorities Act. FMAA operates at arm’s length from all Appointers.
Board Structure Nomination Process
Each nominating entity is responsible for complying with the Director Selection Policy for a strategic, disciplined and transparent Board of process for appointing Directors. The FMAA Governance Committee Directors is responsible for ensuring critical Board competencies are identified, assessed and filled.
The Governance Committee achieves this by: Finance Capital Governance • Reviewing the composition of the Board and updating the skills, and Audit Projects experience and background of each incumbent along with their term expiry date.
• Identifying experience and skill gaps against requirements as per FMAA Articles.
• Recruiting qualified prospects to fill Board vacancies based on: - Previous experience as a Board member - Current interests and aspirations - Time commitments or constraints - Confidence about their own potential or suitability - Familiarity with the local community and or with FMAA - Clear understanding of FMAA Conflicts of Interest(s) Policy, disclosure and mitigation. - Level of willingness to accept the duties and obligations of being a Board Director
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Appointers’ Responsibilities
• Appoint their designated number of members to the Authority.
• Act in accordance with the Articles to ensure the Board as a whole is representative of the region.
• Appoint persons with experience and capacity in: - Air transportation - Oil and gas industry - Commerce - Finance - Administration - Marketing - Law - Engineering - Labour Relations - Indigenous Peoples - Local rural and urban residents Board Directors’ Responsibilities Stewardship Code of Conduct
• Facilitate guiding principles of vision, mission, core values, key • Maintain an ethical corporate culture of openness, transparency, success drivers and goals. honesty, trust, integrity, accountability and respect. • Steward the Five Year Strategic Plan. • Apply FMAA’s values at all times when engaging with airport • Apply best practices for regional airports and ensure the FMAA employees, stakeholders, landowners, suppliers, governments, maintains financial viability. regulators, Indigenous communities, customers and the general • Maintain an ethical corporate culture. public. • Participate in the strategic planning process which considers • Maintain confidentiality of all FMAA information and records. business opportunities and risks. • Implement appropriate systems to manage risks. • Monitor internal controls and management information systems. Conflict of Interest • Develop succession plans for management and key Board personnel. • Required to disclose all conflicts of interests upon apportionment to the Board. • Responsible for applying impartiality, neutrality, fairness and Stakeholder Relations integrity. • Complete a Personal Information Form outlining all interests, • Develop strong relationships with stakeholders and the community activities, investments, memberships, appointments, relationships, through effective engagement. engagements, gifts (goods, services, hospitality, entertainment), • Ensure FMAA maintains and finds opportunities to enhance their related persons, which may materially or detrimentally conflict reputation in the region. with the interests of FMAA, or any interest that may reasonably be • Comply with FMAA’s Communication Policy to ensure effective and perceived as giving rise to an appearance of conflict of interest. timely stakeholder response. • Comply with Governance Committee mitigation recommendations, • Create synergies with regional hubs in Western Canada to generate if disclosure reveals potential conflict. local benefits. • Build positive relationships between Airport Authorities, Chambers of Commerce, Tourism and Economic Development entities, and Municipalities as they relate to the FMAA.
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Board of Directors
Board Committee Board Date Name Nominator Tenure Meeting Committee Meeting Position Appointed Attendance Attendance Board Chair Regional Municipality of Allan Kallal 2010 8 years 5 10 (outgoing) Wood Buffalo
Board Chair Michael (incoming) / Canadian Association of 2017 1 year 5 6 Chwelos Capital Projects Petroleum Products Committee Chair
Regional Municipality of Joanne Day Director 2016 2 years 5 Governance 4 Wood Buffalo
Director / Finance Fort McMurray Chamber Finance & Colin Solbak & Audit Committee 2015 3 years 5 4 of Commerce Audit Chair
Director / Governance Fort McMurray Airport Corie Flett 2015 3 years 3 Governance 3 Committee Chair Authority
Fort McMurray Chamber Capital Mildred Ralph Director 2009 9 years 4 2 of Commerce Projects
Canadian Association of Peter Zebedee Director 2016 2 years 5 Governance 2 Petroleum Producers
Linda Finance & Director CUPE 2016 2 years 5 4 Huebscher Audit
Fort McMurray Airport Finance & Bill McGoey Director 2018 <1 year 5 4 Authority Audit
Sheldon Regional Municipality of Director 2018 <1 year 4 Capital Project 4 Germain Wood Buffalo
Fort McMurray Airport Authority Leadership
RJ Steenstra President & Chief Executive Officer
Denean Robinson Chief Financial Officer, Vice President Corporate Services
Cuyler Green Vice President, Operations
Sylvie Lemieux-Comtois Senior Manager, Human Resources
Margaret Ziolecki Senior Manager, Government & Public Affairs
Sara Viveiros Manager, Health, Safety, & Environment
Danny Byrne Manager, Airport Maintenance
Fazle Quasha Manager, Facilities & Information Technology
25 | FORT MCMURRAY AIRPORT AUTHORITY ANNUAL REPORT 2018 MANAGEMENT DISCUSSION & ANALYSIS Management Discussion & Analysis
Forward-Looking Information
This Management’s Discussion and Analysis (“MD&A”) contains certain forward-looking information. This forward-looking information is based on a variety of assumptions and is subject to risks and uncertainties. This MD&A complements and enhances the audited financial statements of the Fort McMurray Airport Authority (The Authority) for the year ended December 31, 2018, and should be read in conjunction with the Financial Statements of The Authority.
Performance Highlights
The lingering economic downturn impacted the Fort McMurray International Airport’s (YMM) total passenger traffic in 2018. One of the outcomes was the suspension of a direct flight to Toronto by one carrier at YMM. Overall, the year ended with a traffic decline of 73,185 passengers (10%) over the traffic recorded in 2017.
Total Passenger Traffic Trend (In Thousands) TOTAL PASSENGER TRAFFIC TREND ( IN THOUSANDS) 1,400 1,308
1,195 1,200 1,100
1,000 958
764 800 736 745 705 715 713 640 600
400
200
0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
26 | FORT MCMURRAY AIRPORT AUTHORITY ANNUAL REPORT 2018 MANAGEMENT DISCUSSION & ANALYSIS
Finances
Passenger volume drives economic activity at airports. In 2018, The Authority continued to be challenged by a local economy closely tied to the world’s oil markets. Oil sand projects are key economic drivers for the Regional Municipality of Wood Buffalo. The reduction in capital project activity, along with local economic drivers, has significantly impacted passenger traffic at YMM.
Although the trend has been a decline in passengers over the past four years, The Authority remains optimistic that passenger volumes will return to YMM. On a global basis, air traffic continues to grow as flying becomes more accessible. Air transportation creates a worldwide connection to the significant oil reserves of the Athabasca region, providing opportunities for economic and passenger growth through YMM.
Building Resilience requires financial agility. The Authority demonstrated financial resilience in 2018 by delivering an improved bottom line in a year of declining passenger traffic. The Authority achieved an overall reduction in operating expenses of 7%. Fees and tariffs have also been adjusted where possible, and new revenue sources have been secured, with combined impact of limiting the annual decline on revenues to 3%.
The 2014 expansion of the Air Terminal Building was designed to meet the needs of projected population growth in the region and therefore higher demand for air travel. Despite the economic slowdown, The Authority believes the future for the oil sands industry remains strong in the long-term. This significant Air Terminal infrastructure investment is poised for growth as the industry rebounds. By the Numbers:
The Authority earns revenue from two main sources:
Aeronautical revenue: This includes revenue from landing, terminal and Airport Improvement Fees (AIF), which are classified as Terminal, Airfield, General Operations and Airport Improvement Fee, in the statement of operations. Consistent with most airports in Canada, The Authority collects an AIF fee which can only be used to fund capital projects, including debt servicing requirements of prior year approved capital projects. All amounts collected from AIF during 2018 have been allocated to service the long-term debt which was issued in 2011 to finance the new Airport Terminal. Aeronautical revenues, including AIF collected in 2018, totaled $20M.
Non-aeronautical revenue: This includes revenue from concessions, car rentals, car rental facility charges, advertising and parking. Revenue from these sources totaled $10.7M in 2018.
All non-AIF revenue contributes to financial operations of the airport and covers costs including salaries and wages, contracted services, general and administration, operating and board expenses.
Commercial Development
Gas station retail development, office space, business and industrial parks, retail centers, hotels and logistics hubs are all potential commercial projects on airport property that can stimulate non-aeronautical revenue streams. The Authority is actively pursuing opportunities for development on airport lands and is formulating a Master Plan update strategy to deliver results.
The Authority also generates revenue by selling advertising space inside and outside the terminal through our advertising partner. Additionally, room rentals for special events and branded kiosk areas generate operating income, while improving airport ambiance and the passenger experience.
27 | FORT MCMURRAY AIRPORT AUTHORITY ANNUAL REPORT 2018 MANAGEMENT DISCUSSION & ANALYSIS
2018 Aeronautical Revenue 2018 Revenue by Source 2018 Aeronautical Revenue 2018 Revenue by Source
17%
35% 12%
65% 8% 63%
AERONAUTICAL REVENUE NON AERONAUTICAL REVENUE Aeronautical Revenue Airport Improvement Fee Airfield Airport Improvement Fee General operations Airfield Terminal Non Aeronautical Revenue General Operations Terminal
Non Aeronautical Revenue Non Aeronautical Revenue
1% 2%
5% 6% 28% 5% Parking Interest Income
4% Ground Transportation Other
Land Lease Revenue Amort of DC
Concession Government Grants
Advertising 26% 23%
Parking Ground Transportation Land Lease Revenue Concession Advertising Interest Income Other Amort of DC Government Grants 28 | FORT MCMURRAY AIRPORT AUTHORITY ANNUAL REPORT 2018 MANAGEMENT DISCUSSION & ANALYSIS
Aeronautical Revenue (in Thousands) aeronautical revenue (in Thousands)
14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 AirportAirport ImprovementImprovement Fee General Operations AirfieldAirfield revenue TerminalTerminal Revenue R even ue
2018 2017 2018 2017
Non Aeronautical Revenue (in Thousands) non Aeronautical revenue (in Thousands)
3,500
3,000
2,500
2,000
1,500
1,000
500
0 ParkingParking GroundGround Transportation LandLand Leaselease ConcessionsConcessions revenue InterestInterest OthOther er transportation 2018 2017 2018 2017
29 | FORT MCMURRAY AIRPORT AUTHORITY ANNUAL REPORT 2018 MANAGEMENT DISCUSSION & ANALYSIS
Expenses
Airports are a vital piece of the transportation network and are required to operate 365 days a year (7 days a week) to service the traveling public. Throughout the industry, staffing costs and contracted services represent a significant component of operating costs. Cost reduction is challenging for airport operators. Airports are an expensive asset to operate and maintain and must be sustained and improved over time to adapt to changing customer needs. In 2018, The Authority actively reviewed expenditures and succeeded in reducing operating costs by $2.8M (7%) over 2017. Cost efficiencies were achieved in the areas of operating and contracted services and salaries and wages.
Salary and wages are the most significant operating expense after interest on debt and amortization, with a total spend of $6.5M in 2018 (2017-$7.2M). This decline of $670K represents a decrease of 10% in the current year and a total reduction of 15% since 2016.
Contracted services which includes security, custodial and groundside services was reduced by $1.3M (23%) in 2018 as a result of renegotiating existing contracts where possible.
Total expenses have been reduced over the past two years, representing a 10% decline.
EXPENSES 2018 Expenses 2018
2%
7%
29% 12% Amortization Contracted Services
Interest Operating 9% Salaries and Wages AIF Handling Administration
18% 23%
Amortization Inter est Sal aries and Wages Administration Contracted Ser vices Opera ting AIF Handling
30 | FORT MCMURRAY AIRPORT AUTHORITY ANNUAL REPORT 2018 MANAGEMENT DISCUSSION & ANALYSIS
Expenses Compared to Prior Year
Expenses (in Thousands) EXPENSES (IN THOUSANDS) 12,000
10,000
8,000
6,000
4,000
2,000
- AmortizationAmortization InterestInterest SalariesSalaries and and WagesWages AdministrationsAdministration ContractedContracted Services OperatinOperating g AIF Handling 2018 2017 2016
2018 2017 2016
31 | FORT MCMURRAY AIRPORT AUTHORITY ANNUAL REPORT 2018 MANAGEMENT DISCUSSION & ANALYSIS
Insurance Recoveries
The Authority is still impacted by the devastation of the 2016 Fort McMurray Horse River Wildfire, as rebuild and remediation continue at the airport. The process of quantifying the financial loss and economic damage has been a lengthy task.
An engineering assessment determined additional remediation expense will be required to restore the buildings and facilities to pre-fire condition. The final cost of this remediation is currently unknown and will be recorded once final results and approvals are received from the insurance provider. This assessment is expected to be completed by June 30, 2019. During the year insurance recoveries of $828,200 (2017 - $1,268,860) and remediation expenses of $143,662 (2017 $nil) have been recognized as an operating expense in the statement of operations. While The Authority has completed substantial portions of the work to restore facilities, it is expected that remediation and mitigation efforts will continue into 2019. Due to the significant uncertainty in measurement, The Authority has not recognized future revenue or costs related to remediation.
3 YEAR INSURANCE3 Year Insurance RECOVERIES Recoveries (In (IN Thousands) THOUSANDS)
3,173 Property and Equipment
Business Interruption
5,867
Capital Investment Property and equipment Business interuption
Capital program expenditures in 2018 totaled $469K (2017 - $2.5M) of which $201K (2017 – $2.2M) was funded by insurance.
Capital Spend Roadways & groundside paving structure $197,606 Furniture, fixtures & equipment $240,515 Computer software $31,350 Total Outlook $469,471
In 2019, The Authority will continue to leverage the resilience highlighted in 2018. The focus will remain on implementing a robust regional strategy, which includes maintaining current services and developing land where opportunities exist. The Authority has begun the process of refreshing the Master Plan and is optimistic about future opportunities. It is projected that 2019 will see further advancement of a commercial strategy along with a continued focus on revenue diversification, as this remains key to maintaining market competitiveness.
Global uncertainties such as the continuing slowdown in oil sands investments suggest that the environment for The Authority may remain volatile over the near-term. For the upcoming fiscal year, The Authority will continue to focus on both aeronautical and non-aeronautical growth opportunities that will increase service to the community and improve the competiveness of YMM. The Authority continues to work closely with airline partners to actively respond to changing market trends and provide benefit to passengers, airlines and the 900 employees working within the airport campus.
32 | FORT MCMURRAY AIRPORT AUTHORITY ANNUAL REPORT 2018 MANAGEMENT DISCUSSION & ANALYSIS
Management Accountability
The accompanying financial statements of the Authority for of internal controls, the audit process and financial reporting with the year ended December 31, 2018 have been prepared by management and external auditors. The Finance and Audit Committee management in accordance with Canadian Generally Accepted reports to the Board of Directors prior to the approval of the audited Accounting Principles. The most significant of these are set out financial statements. in Note 2 to the Financial Statements. The Authority maintains appropriate systems of internal control Management is responsible for the preparation and fair policies and procedures, which provide management with reasonable presentation of the financial statements in accordance with assurance that assets are safeguarded and that financial records Canadian Accounting Standards for Not for Profit Organizations, are reliable and form a proper basis for the preparation of financial and for such internal control as management determines is statements. necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud The Authority’s independent auditors, MNP LLP have been appointed or error. Management is responsible for the preparation and by the Board of Directors to express their professional opinion on the representations contained in theses financial statements and fairness of theses financial statements. other sections of this annual report.
The Board of Directors is responsible for reviewing and approving the financial statements and overseeing management’s performance of its financial reporting responsibilities. A Finance and Audit Committee comprised wholly of directors who are neither officers nor employees of RJ Steenstra Denean Robinson the Authority, review the financial statements, the adequacy President & Chief Executive Officer VP Corporate Services & CFO
33 | FORT MCMURRAY AIRPORT AUTHORITY ANNUAL REPORT 2018 MANAGEMENT DISCUSSION & ANALYSIS
34 | FORT MCMURRAY AIRPORT AUTHORITY ANNUAL REPORT 2018 MANAGEMENT DISCUSSION & ANALYSIS
Authority Financial Statements December 31, 2018
35 | FORT MCMURRAY AIRPORT AUTHORITY ANNUAL REPORT 2018 FINANCIAL STATEMENTS
Financial Statements
Independent Auditor’s Report
To the Board of Directors of Fort McMurray Airport Authority:
Opinion We have audited the financial statements of Fort McMurray Airport Authority (the “Authority”), which comprise the statement of financial position as at December 31, 2018, and the statements of operations, changes in net assets and cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Authority as at December 31, 2018, and the results of its operations and its cash flows for the year then ended in accordance with Canadian accounting standards for not-for-profit organizations.
Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Authority in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Information Other than the Financial Statements and Auditor’s Report Thereon Management is responsible for the other information. The other information comprises the information included in the annual report, but does not include the financial statements and our auditor’s report thereon. The annual report is expected to be made available to us after the date of this auditor’s report.
Our opinion on the financial statements does not cover the other information and we will not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
The annual report is expected to be made available to us after the date of our auditor’s report. If, based on the work we will perform on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact to those charged with governance.
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Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with Canadian accounting standards for not for profit organizations, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Authority’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Authority or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Authority’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Authority’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Authority’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Authority to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
Fort McMurray, Alberta April 9, 2019 Chartered Professional Accountants
36 | FORT MCMURRAY AIRPORT AUTHORITY ANNUAL REPORT 2018 37 | FORT MCMURRAY AIRPORT AUTHORITY ANNUAL REPORT 2018 FINANCIAL STATEMENTS
Statement of Financial Position As at December 31, 2018
2018 2017
ASSET Current Cash and cash equivalents 9,357,369 7,421,811 Accounts receivable 1,540,098 2,588,334 Prepaid expenses 439,226 493,246 Insurance claim receivable (Note 18) - 2,257,760 11,336,693 12,761,151
Tangible capital assets (Note 3) 325,427,468 335,554,402 Intangible assets (Note 4) 292,401 531,030 Investments and restricted cash (Note 5) 34,022,789 33,799,214 371,079,351 382,645,797 LIABILITIES Current Accounts payable and accrued liabilities (Note 6) 4,172,735 5,525,722 Deferred revenue 102,427 110,794 Current portion of long-term debt (Note 7) 4,622,044 4,411,413 8,897,206 10,047,929
Long-term debt (Note 7) 175,050,624 179,672,669 Unamortizd capital contributions (Note 9) 27,411,269 27,909,537 211,359,099 217,630,135
Contractual obligation (Note 14) NET ASSETS Unrestricted net assets 156,045,803 161,913,397 Internally restricted net assets (Note 15) 3,674,449 3,102,265 159,720,252 165,015,662 371,079,351 382,645,797
Approved on behalf of the Board
Director Director Michael Chwelos Colin Solbak
The accompanying notes are an integral part of these financial statements
38 | FORT MCMURRAY AIRPORT AUTHORITY ANNUAL REPORT 2018 FINANCIAL STATEMENTS
Statement of Operations For the year ended December 31, 2018
2018 2017
Aeronautical revenue Airport improvement fee (Note 10) 12,694,984 11,900,640 Main terminal 3,229,433 3,536,796 Airfield 2,297,605 2,788,949 General operations 1,660,992 2,027,275 North terminal 120,155 175,324 20,003,169 20,428,984 Non-aeronautical revenue Parking 2,970,207 3,127,129 Land lease (Note 5) 2,817,135 2,610,036 Ground transportation 2,427,859 3,025,796 Concessions 955,498 1,016,712 Interest 687,096 559,401 Amortization deferred capital Contribution (Note 9) 498,271 498,271 Other 252,631 242,438 Grant revenue (Note 11) 112,000 112,000 10,720,697 11,191,783 30,723,866 31,620,767 Expenses Amortization (Note 3), (Note 4) 10,673,440 10,725,636 Interest 8,574,464 8,791,463 Salaries and wages (Note 12) 6,511,776 7,177,630 Contracted services 4,476,214 5,812,518 General and administrative 2,996,152 3,013,216 Operating 2,443,228 2,829,312 Airport improvement fee handling (Note 10) 892,023 836,232 Board expenses 151,347 328,219 36,718,644 39,514,226 Deficiency of revenue over expenses before other items (5,994,778) (7,893,459) Other items Insurance recoveries (Note 18) 828,200 1,268,860 Gain (loss) on disposal of tangible capital assets and intangible assets (128,832) 383 699,368 1,269,243 Deficiency of revenue over expenses (5,295,410) (6,624,216)
The accompanying notes are an integral part of these financial statements
39 | FORT MCMURRAY AIRPORT AUTHORITY ANNUAL REPORT 2018 FINANCIAL STATEMENTS
Statement of Changes in Net Assets For the year ended December 31, 2018
2018 2017
Net assets, beginning of year 165,015,662 171,639,878 Deficiency of revenue over expenses (5,295,410) (6,624,216)
Net assets, end of year 159,720,252 165,015,662
The accompanying notes are an integral part of these financial statements
40 | FORT MCMURRAY AIRPORT AUTHORITY ANNUAL REPORT 2018 FINANCIAL STATEMENTS
Statement of Cash Flows For the year ended December 31, 2018
2018 2017
CASH PROVIDED BY (USED FOR) THE FOLLOWING ACTIVITIES Operating Deficiency of revenue over expenses (5,295,410) (6,624,216) Amortization 10,673,440 10,725,636 Loss (gain) on disposal of tangible capital assets 128,832 (383) Amortization of deferred capital construction (498,268) (498,271) Non-cash insurance recoveries - (550,000) 5,008,594 3,052,766 Changes in working capital accounts Accounts receivable 1,048,236 (191,235) Prepaid expenses 54,020 (22,524) Insurance claim receivable 2,257,760 1,745,374 Accounts payable and accrued liabilities (1,352,987) (551,471) Deferred revenue (8,367) (225,856) 7,007,256 3,807,054 Financing Repayment of long-term debt (4,411,414) (4,210,382) Increase in unamortized capital contributions - 1,393,095 (4,411,414) (2,817,287) Investing Purchase of tangible capital assets (463,286) (2,268,837) Proceeds on disposal of tangible capital assets 32,762 34,541 Purchase of intangible assets (6,185) (276,002) Net change in investments and restricted cash (223,575) 4,011,535 (660,284) 1,501,237 Increase in cash and cash equivalents 1,935,558 2,491,004 Cash and cash equivalents, beginning of year 7,421,811 4,930,807
Cash and cash equivalents, end of year 9,357,369 7,421,811
The accompanying notes are an integral part of these financial statements
41 | FORT MCMURRAY AIRPORT AUTHORITY ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
Notes to the Financial Statements For the year ended December 31, 2018
1. Nature of operations
Fort McMurray Airport Authority (the “Organization”) was incorporated on December 1, 2009 under the Regional Airports Authorities Act (Alberta) (the “Act”) as a non share capital corporation. Under the provisions of the Act, the mandate of the Authority is to manage the Fort McMurray International Airport (the “Airport”) in a safe, secure and efficient manner, and to advance economic and community development by promoting improved airline and transportation service and an expanded aviation industry; for the general benefit of the public in the region.
The Organization has operated the Airport since January 1, 2010 when the Regional Municipality of Wood Buffalo (“RMWB”) transferred the assets and operations of the Fort McMurray Regional Airport Commission (the “Commission”) to the Authority. The tangible capital assets of the Commission were transferred to the Authority and recorded at the carrying amount of the Commission.
In accordance with the provisions of the Act, the Authority operates as a not for profit corporation, and as such earnings from operations are used towards promoting its purposes and reinvestment in airport development. Under section 149 of the Income Tax Act (Canada) the Authority is exempt from payment of income tax.
2. Significant accounting policies
The financial statements have been prepared in accordance with Canadian accounting standards for not for profit organizations (“ASNPO”) and reflect the following significant accounting policies:
Controlled entities The Authority has elected not to consolidate controlled entities as allowed under ASNPO. The investment in controlled entities is recorded at cost in the statement of financial position and prescribed disclosure is presented in the notes to the financial statements. The Authority has incorporated a wholly owned subsidiary, YMM Inc., which is currently dormant and had no activity in the year.
Cash and cash equivalents Cash and cash equivalents include unrestricted cash on deposit with financial institutions and short term investments with maturities of three months or less from the date of acquisition. Cash subject to internal or external restrictions is included in restricted cash.
Tangible capital assets Purchased capital assets are recorded at cost. Contributed capital assets are recorded at fair value at the date of contribution if fair value can be reasonably determined.
Tangible capital assets exclude the cost of facilities constructed on airport lands which are owned by tenants. Tangible capital assets are recorded at cost less accumulated amortization and impairment losses. Interest directly attributable to the acquisition, construction or development of tangible capital assets is capitalized.
Amortization is provided using the straight line method at rates intended to amortize the cost of assets, less the estimated residual value, over their estimated useful lives.
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Rate
Buildings 10-60 years Light vehicle fleet 5 years Computer hardware 3 years Airside lighting structures 15 years Subgrade 40 years Paving 10 years Furniture, fixtures & equipment 5 years Maintenance equipment 10 years Roadways & groundside paving structure 20 years Fire trucks & equipment 5-15 years
Intangible assets Specified intangible assets are recognized and reported apart from goodwill.
An intangible asset recognized separately from goodwill and subject to amortization is recorded at cost. Contributed intangible assets are recorded at fair value at the date of contribution if fair value can be reasonably determined.
Amortization is provided using the straight line method at a rate intended to amortize the cost of intangible assets over their estimated useful life.
Rate
Computer software 5 years
When an intangible asset no longer contributes to the Organization’s ability to provide services, its carrying amount is written down to residual value, if any.
Investments Other investments are portfolio investments recorded at fair value for those with prices quoted in an active market, and cost less impairment for those that are not quoted in an active market. The balances have been classified as long term assets in concurrence with the nature of the investment.
Revenue recognition Revenue generated from airport improvement fees, airfield revenues, fees charged for parking, terminal and ground transportation and other revenues, including general operations, are recognized as the airport facilities are utilized. Concession revenues are charged on a monthly basis and are recognized on a percentage of sales or specified minimum rent basis. Customer Facility Charge revenue is recognized based on the transaction day information contained in the car rental agreements as reported by the operators. Other rentals are recognized over the term of the respective agreements. The Authority follows the deferral method of revenue recognition for externally restricted revenues.
The Authority has retained substantially all of the benefits and risks of ownership of its rental assets; therefore, it accounts for leases as operating leases. Rental revenue from operating leases is recognized as income over the term of the lease as it becomes due.
Unamortized capital contributions Unamortized capital contributions related to tangible capital assets represent the unamortized portion of restricted contributions that were used to purchase certain tangible capital assets. Recognition of these amounts as revenue is deferred to periods when the related tangible capital assets are amortized.
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Measurement uncertainty (use of estimates) The preparation of financial statements in conformity with ASNPO requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the year.
Key components of the financial statements require management to make estimates that include the provision for doubtful accounts in respect of accounts receivables and the useful life and residual value of tangible capital assets and intangible assets. Actual results could differ from these estimates.
Financial instruments All financial instruments are initially recorded at their fair value, excluding certain financial assets and liabilities originated and issued in a related party transaction measured at their carrying or exchange amount in accordance with Section 3840 Related Party Transactions. At initial recognition, the Authority may irrevocably elect to subsequently measure any financial instrument at fair value. The Authority has not made such an election during the year.
The Authority subsequently measures investments in equity instruments quoted in an active market at fair value. All other financial assets and liabilities are subsequently measured at amortized cost. Transaction costs and financing fees directly attributable to financial instruments subsequently measured at fair value are immediately recognized in excess of revenues over expenses for the current period. Transaction costs and financing fees are added to the carrying amount for those financial instruments subsequently measured at cost or amortized cost.
The Authority assesses impairment of all of its financial assets measured at cost or amortized cost when there is an indication of impairment. Any impairment which is not considered temporary is included in current year excess of revenues over expenses.
3. Tangible capital assets
Accumulated 2018 2017 Cost amortization Net book value Net book value
Landing 25,054,908 - 25,054,908 25,037,536 Buildings 263,904,829 27,558,066 236,346,763 241,505,729 Light vehicle fleet 639,956 568,031 71,925 133,146 Computer hardware 1,255,104 1,242,677 12,427 2,046 Airside lighting structures 2,528,447 1,446,487 1,081,960 1,233,155 Apron expansion - subgrade and paving 41,535,313 17,704,427 23,830,886 25,751,894 Furniture, fixtures & equipment 607,835 394,031 213,804 158,856 Parking lots - subgrade and paving 2,595,586 1,111,059 1,484,527 1,606,972 Assets under construction 4,404,412 - 4,404,412 4,385,849 Maintenance equipment 8,007,437 4,102,241 3,905,196 4,583,577 Airside paving structure - subgrade and paving 45,322,885 18,923,943 26,398,942 28,443,010 Roadways & groundside paving structure 2,985,254 659,162 2,326,092 2,306,403 Fire trucks & equipment 1,492,038 1,196,412 295,626 406,229 400,334,004 74,906,536 325,427,468 335,554,402
The Authority has commenced an expansion project under the Building Canada Fund (Note 14). Assets under construction include $4,404,412 (2017 - $4,385,849) which are not subject to amortization as the asset was not available for use at December 31, 2018.
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4. Intangible assets
2018 2017 Net book value Net book value
Computer software 292,401 531,030
During the year, amortization of $113,273 (2017 – $147,141) was recorded relating to intangible assets.
5. Investments and restricted cash
2018 2017
RBC Wealth Management Dominion Securities (2.52% to 2.60%) 20,191,789 30,681,341 ATB GIC (2.90% annual interest, matures December 19, 2019) 10,000,000 - Bank account - quick turn around (QTA) project 3,670,909 2,960,535 Scotiabank GIC (1.75% annual interest, matures July 15, 2019) 160,091 157,338 34,022,789 33,799,214
Investment deposits are for a fixed one year term maturing in December 2019. The deposits are expected to be renewed under similar terms and are therefore classified as long term.
Bank account - quick turn around (QTA) project This cash is received from the car rental agencies (the “agencies”) operating from the Airport. The money is internally restricted to be applied for the purposes of developing a quick turn around facility (“QTA”) at the Airport which will include a car wash and refueling station. As per the rental agreement between the Authority and agencies, the agencies are required to charge customers a customer facility charge, which in turn is remitted to the Authority to finance the QTA project.
6. Accounts payable and accrued liabilities
Included in accounts payable are the following preferred creditor amounts: salary deductions of $nil (2017 - $61,579) and Goods and Services Taxes of $64,536 (2017 - $72,104).
7.Long-term debt
Alberta Capital Finance Authority (“ACFA”) On March 7, 2011, the Authority secured $198,000,000 in long term financing for construction of the new Airport Terminal Building which opened in June 2014, at a fixed rate of 4.719% for thirty years, due March 15, 2041. Interest only payments commenced September 2011 with principal and interest payments commencing in September 2014 in the amount of $13,046,904 annually. The debenture is secured by a first charge on all Authority assets. A Letter of Guarantee for an amount of up to $10,000,000 in support of the debenture issued by the ACFA has been arranged by the RBC, pari passu with ACFA.
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Under the terms of the ACFA facility, when debentures are outstanding, the Authority is required to maintain an Interest Coverage Ratio of not less than 1.25:1, net cash flows greater than zero as of the end of any fiscal quarter on a rolling four fiscal quarter basis and a minimum long term Standard & Poor (“S&P”) issuer credit rating. The Authority’s S&P credit rating was downgraded as a direct result of the Fort McMurray wildfire in 2016 resulting in violation of the required covenant. The ACFA has acknowledged the conditions leading to this downgrade in credit rating and is monitoring management’s plans to meet the financial covenants required under the terms of the credit facility. The interest and cash flow covenants have been met.
2018 2017
ACFA long term debt 179,672,668 184,084,082 Less: Current portion 4,622,044 4,411,413 175,050,624 179,672,669
Principal repayments on long term debt in each of the next five years, assuming long term debt subject to refinancing is renewed are estimated as follows:
2019 4,622,044 2020 4,842,731 2021 5,073,955 2022 5,316,221 2023 5,570,053 Thereafter 154,247,664 179,672,668
8. Operating line of credit
The Authority has a $5,000,000 line of credit, (the “Operating Facility”) bearing interest at the Royal Bank prime lending rate. The operating facility is secured by land and assignment of lease rentals and repayment terms are on demand. As at December 31, 2018, no amounts were drawn (2017 - $nil).
9. Grants and capital contributions
Regional Municipality of Wood Buffalo On May 24, 2011, the Council of the RMWB approved a matching funding grant of $25,000,000 to the Authority. Of that amount, $24,000,000 of the grant was designated to provide support for airport infrastructure development. During 2017, the RMWB clarified and confirmed that the funds were to be applied towards the construction of the new Airport Terminal Building which opened in June 2014.
During the year, the Authority recognized government grant revenue of $417,879 (2017 - $417,879).
The RMWB is an appointer of three directors to the Board of Directors of the Authority.
Canadian Air Transport Security Authority (“CATSA”) In 2014, the CATSA approved funding of $3,215,693 for engineering, coordination and infrastructure construction for the screening project as set out in the Guidance Material for 100% EDS Screening (“EDS Guidelines”) and Screening Project Funding Agreement (“SPFA”). The
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contribution has been classified as unamortized capital contribution on the statement of the financial position, as the project was completed in June 2014. During the year the Authority recognized government grant revenue of $80,392 (2017 - $80,392).
Infrastructure Canada In 2017, Infrastructure Canada provided funding of $1,393,096 for the Building Canada Project. As the project is not yet complete, the full contribution has been classified as unamortized capital contribution on the statement of the financial position and no amortizationas w recognized during the year.
10. Airport improvement fee The Authority derives revenue from the Airport Improvement Fee (“AIF”), which is collected by air carriers pursuant to an agreement among various airports in Canada, the Air Transport Association of Canada (ATAC) and air carriers serving airports that are signatories to the agreement (the “AIF Agreement”). Pursuant to the AIF Agreement, signatory airlines receive a 7% collection fee. AIF revenue is used to fund the costs of new airport infrastructure, major improvements to existing facilities at the Airport, as well as related financing costs, debt repayment and the collection fee retained by the signatory airlines.
Effective March 1, 2011, the Authority additionally derives revenue from the Airport Improvement Fee – Equivalent (“AIF E”) for chartered aircraft exceeding ten seats.
2018 2017
Earned revenue 12,594,684 11,826,450 Airline / ATAC handling and administration fees (892,023) (836,232) Net AIF revenue earned 11,702,661 10,990,218
11.Government grant
The Authority has a Maintenance Contribution and Support Agreement (the “Support Agreement”) with the Canadian Air Transport Security Authority (“CATSA”) under which CATSA agreed to pay to the Authority a contribution in respect to baggage handling systems, maintenance support and handler support services. The contribution is equal to the lesser of the maximum amount defined in the support agreement, or the amount of allocated costs incurred. The Support Agreement can be extended annually by mutual agreement. Contributions were received during 2018 in the amount of $112,000 (2017 - $112,000).
12. Employee future benefits
Employees of the Authority participate in the Local Authorities Pension Plan (“LAPP”), which is a multi-employer contributory defined benefit pension plan covered by the Public Sector Pension Plans Act of Alberta. The Authority does not have sufficient plan information on the LAPP to follow standards for defined benefit accounting and therefore follows the standards for defined contribution accounting. At December 31, 2017, the LAPP reported an actuarial excess of $1,777 million (2016 - $637 million deficiency). Total service contributions by the Authority to the LAPP for 2018 totaled $443,811 (2017 - $568,328).
13. Financial instruments
The Authority, as part of its operations, carries a number of financial instruments. It is management’s opinion that the Authority is not exposed to significant interest, currency, credit, liquidity or other price risks arising from these financial instruments except as otherwise disclosed.
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Credit risk The Authority is exposed to credit risk as it provides credit to a large number of customers in the normal course of its operations. This risk is minimized through the Authority’s diverse customer base and assessment of potential customers’ financial condition prior to extending credit. As at December 31, 2018, the Authority had four (2017 - four) major customers which represented 87% of the Authority’s accounts receivable (2017 - 72%). Accounts receivable are presented net of an allowance for doubtful accounts of $78,325 (2017 - $82,041) in the statement of financial position.
Interest rate risk Interest rate risk is the risk that the value of a financial instrument might be adversely affected by a change in the interest rates. Changes in market interest rates may have an effect on the cash flows associated with some financial assets and liabilities, known as cash flow risk, and on the fair value of other financial assets or liabilities, known as price risk. In seeking to minimize the risk from interest rate fluctuations, the Authority manages exposure through its normal operating and financing activities.
The Authority is exposed to interest rate risk primarily through its investments and restricted cash, long term debt, and operating line of credit.
Liquidity risk The Authority actively maintains its credit facilities to ensure it has sufficient available funds to meet current and foreseeable financial requirements at a reasonable cost. Management believes that cash flows from operations, along with available credit under existing banking facilities, will be adequate to support the payment of the Authority’s financial liabilities. Further, management also believes that the financing secured from ACFA for the new Airport Terminal project will be adequately serviced by the AIF paid by departing passengers.
14. Contractual obligation
During 2016, the Authority commenced a commenced an runway expansion project. The project is to be funded by the Authority and the Government of Canada. A Building Canada Fund contribution agreement has been signed by the Authority. The contribution agreement requires the Authority to match the Government of Canada on a two to one basis and the Authority has committed to contribute $50 million.
Completion of this project has been deferred and will recommence when economic conditions in the region improve. The Authority has ten years to execute the project and expects to recommence the expansion within that time frame.
15. Internally restricted net assets
As described in Note 2, the Authority collects a Customer Facility Charge from car rental operators. In the current year, the Authority has internally restricted net assets in the amount of $3,674,449 (2017 - $3,102,265) related to this charge for the purpose of constructing a quick turnaround facility (QTA).
16. Economic dependence
Revenue generated from major airlines such as Air Canada/Air Canada Express and WestJet/Encore account for approximately one half of total revenues on a recurring basis. In addition, passengers flying with these airlines generate a significant portion of remaining revenue amounts. The Authority’s ability to continue viable operations is dependent on Air Canada/Air Canada Express and WestJet/Encore continuing to fly to and from the Airport. As of the financial statement date, the Authority believes that their relationship with these airlines will continue into the foreseeable future.
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17. Directors’ and officers’ remuneration
As required by the Regional Airports Authorities Act (Alberta), the Authority outlines the Directors’ and Officers’ remuneration and expenses as follows for 2018:
Total remuneration to the Board of Directors was $122,510 (2017 - $117,017), and expenses reimbursed totaled $13,339 (2017 - $8,895).
Total remuneration to Airport Officers was $674,115 (2017 - $675,119), and expenses reimbursed totaled $29,050 (2017 - $16,213).
18. Significant event
On May 3, 2016, the City of Fort McMurray and other areas within the Regional Municipality of Wood Buffalo were issued a mandatory evacuation order due to a wildfire event.
The Authority’s normal day to day operations and commercial business was suspended during and beyond the mandatory evacuation period. While the Airport has since reopened, passenger levels have still not returned to pre fire levels. The Authority lost five buildings due to the wildfire and all other Authority buildings suffered a variety of damage, due to smoke.
The Authority was insured through FM Global Insurance. FM Global has been and will be used to fund the cost of the remediation and recovery efforts.
As of December 31, 2018, approved costs incurred for remediation and restoration of buildings and equipment is $5,866,905 (2017 - $5,202,776) for property damage and $3,173,385 (2017 - $2,972,510) for losses due to time element business interruption, for an approved claim in process of $9,015,289 (2017 - $8,175,286) net of a $25,000 deductible. FM Global has advanced $9,015,289 (2017 - $6,197,000) of this approved recovery amount and the balance of $nil (2017 - $1,990,089) is recorded as insurance claim receivable at December 31, 2018. The additional funds received during the year of $828,200 have been recognized as insurance recovery in the statement of operations.
An engineering assessment has determined that additional remediation expense will be required to restore the buildings and facilities to pre fire condition. The final cost of this remediation is currently unknown and will be recorded once final results and approvals are received from the insurance provider. This assessment is expected to be completed by June 30, 2019. During the year, remediation expenses of $143,662 (2017 - $nil) have been recognized as operating expense in the statement of operations. While the Authority has completed substantial portions of the work to restore facilities to pre fire condition, it is expected that remediation and mitigation efforts will continue into 2019. Due to the significant uncertainty in measurement, the Authority has not recognized the loss of revenue or costs it expects to incur in the future related to remediation.
The Authority’s long term investment was also impaired due to the loss of the land lessee’s hotel property on the Authority’s lands. The land and building are subject to a 40-year lease agreement expiring in 2047, at which time the building will revert to the Authority. Under the terms of agreement, the tenant is obligated to restore the building to the state it was in before the fire, which in this case will require an extensive reconstruction. The tenant is currently in negotiations with their insurance provider, however the rebuild of the hotel has not yet commenced and there is no certainty around the timing of the rebuild. In addition, no percentage rent is currently being paid to the Authority as the hotel is not operable and there is no certainty as to when the percentage rent revenue will recommence.
19. Comparative figures Certain comparative figures have been reclassified to conform with current year presentation.
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