ONWARD and UPWARD HALIFAX INTERNATIONAL AIRPORT AUTHORITY 2005 ANNUAL REPORT

ONWARD and

UPWARD HALIFAX INTERNATIONAL AIRPORT AUTHORITY 2005 ANNUAL REPORT CONTENTS

Left and Cover: Architectural renderings Message From the Chair 4 of Arrivals area upon completion of U.S. pre-clearance facility. Message From the President & CEO 6

Improving Facilities and Services 9

Leveraging Technology 10

Enhancing Customer Service 13

Increasing Air Service 15

Strengthening Community Partnerships 19

Sustaining Financial Stability 20

Financial Statements 22

2005 Board of Directors 29

Corporate Governance 32

Five-Year Forecast 34 ONWARD and UPWARD

HALIFAX INTERNATIONAL AIRPORT AUTHORITY 2005 ANNUAL REPORT  ‘Onward and Upward’ is a Message phrase most often heard when From the Chair transitioning from the completion of one phase to the next. In the case of Halifax International In keeping with tradition, this annual report will look Vice President Operations, Peter Clarke. From February to Airport Authority, the organization back over the past 12 months and recount the year’s many August, Peter held both positions, demonstrating leadership has moved onward from activities. We believe this year’s theme ‘onward and upward’ during that time, and assisting Eleanor as she immersed expansion, technology and is fitting – it not only acknowledges where we’ve come herself in her new role. runway upgrades completed in from, but also aptly describes our desire to continue striving 2005 and upward in anticipation In 2005 there were changes to the Board of Directors. for excellence. of U.S. pre-clearance, in-transit In June, we welcomed new member Cheryl Newcombe. facility, and common use During 2005 we laid the foundation for significant terminal Cheryl is Comptroller of Lighthouse Lumber Wholesalers technology in 2006. expansion, as well as new leadership, welcoming Eleanor Limited, and replaces Bernie Miller as the Board nominee Humphries as President & CEO in August. from the Halifax Regional Municipality. Construction has brought its own challenges but the results are Prior to joining Halifax International Airport Authority The year marked the end of Bernie’s term as Chair of the worth it. Necessary infrastructure (HIAA), Eleanor was the President & CEO of Credit Union Board, a position he held for 10 years. The entire Board and runway safety improvements, Atlantic (CUA). She holds her Bachelor of Science and her extends their sincerest gratitude to Bernie for his tireless new common use technology, Masters in Business Administration degrees, both from dedication to the Authority over his distinguished and and the south-end commuter Dalhousie University. She has also obtained the Executive prolific tenure as Chair. As well, a special thanks to Bernie expansion have served to further Management designation from McGill University and her for stepping in, once again, on an operational level as solidify us as a world-class, FICB (Honours). She has been honoured on three occasions interim Chief Executive Officer from February to August. passenger-focused airport. These as one of the Top 50 CEOs in Atlantic and received a Bernie remains on the Board as a nominee of the Board itself, are just a few of the milestones Distinguished Alumni Award from Armbrae Academy in 2004. the position vacated by Jim Cowan when he was appointed that will help the Airport continue to the Senate in March. Congratulations to Jim on this We would also like to recognize the tremendous efforts of upward momentum in 2006. well-deserved accomplishment, and our kindest thanks our interim President & Chief Operating Officer, and current HALIFAX INTERNATIONAL AIRPORT AUTHORITY 2005 ANNUAL REPORT 

for his exemplary service to the Board since its inception States announced amendments to the 1995 Open Skies in 1995. We truly appreciate his decision to continue his Agreement. These amendments, to take effect in association with us as Secretary to the Board. September 2006, will provide greater access and pricing flexibility for carriers in both countries. This is an exciting We also thank and acknowledge retiring Board members development for our industry and one that will result in Stephen Wallace, another one of our original members, and increased traffic at airports nation wide. Carole Cushing, who joined the Board in 2004, for their respective service and contributions to HIAA. In early 2006, the election of a new federal government has led to the appointment of a new Minister of Transport, Throughout 2005 and early in 2006, a number of issues Infrastructure and Communities, the Honourable Lawrence arose that the Board will watch closely over the coming Cannon. We have also seen several changes on the year, and will no doubt have an impact on our industry provincial front with the Honourable Rodney MacDonald in the future. In May, the federal government announced becoming Premier and the appointment of new cabinet a new rent policy for federally-owned airports effective ministers. We will continue to work with officials at all levels January 1, 2006. While we have always promoted, and of government to keep them well informed, garner their will continue to promote, the elimination of airport rent, support, and together, achieve our vision for our Airport the new policy gives us a reasonable long-term solution and our community. and methodology that can be applied across the country. This reduction in airport rent is a compromise solution, but I am pleased to have been a part of the Airport community Frank Matheson one that will mean a reduction in rent for HIAA. during the past year, and look forward to my new role as Chair, as we journey onward and upward together. In November, the governments of Canada and the United Message HALIFAX INTERNATIONAL AIRPORT AUTHORITY 2005 ANNUAL REPORT 

From the President & CEO

My arrival in August 2005 coincided with major renovations the traveling public and our airline partners with improved both within the air terminal building and to airport runways. and more efficient facilities. And while my first six months have been memorable, I can But in 2005 we also faced challenges. already see that these changes made in 2005 have set the stage for an exciting future. In July, at a critical phase in our runway reconstruction project, when the Airport’s instrument landing system was The theme of this year’s annual report ‘onward and unavailable to pilots, we experienced weather conditions upward‘ is particularly fitting as we look back on 2005 – a that caused major inconvenience for visitors. year that was defined by changes inside and outside the air terminal building in preparation for the arrival of U.S. During the first two weekends of July, the Airport was pre-clearance in Halifax. engulfed by dense fog for upwards of 14 hours. Flights were delayed. Passengers were impacted. Travel plans were affected. U.S. pre-clearance is one of the most significant announcements for the Airport, and is slated to open in We learned a lot in 2005 about our responsibilities to the 2006. The addition of U.S. pre-clearance provides an traveling public, and these lessons have been taken to heart opportunity to increase routes to and from the United as we prepare for the 2006 phase of runway rehabilitation and States. The ability for more direct and efficient travel will complete the air terminal building renovations. benefit both tourism and business, and will positively impact economic growth in both and the What sets our Airport apart is the commitment of the Atlantic region. whole Airport community to address challenges, as much Eleanor Humphries as we celebrate achievements. I would like to thank our To facilitate the opening of U.S. pre-clearance we have management team and all our employees and volunteers expanded the north-end of the terminal and constructed who worked hard during the summer of 2005, and who a new wing to the south-end of the building. We have put customers first throughout the year. added more departure gates and implemented new technology and tools throughout the Airport to provide Everything we do at the Airport is geared toward ensuring HALIFAX INTERNATIONAL AIRPORT AUTHORITY 2005 ANNUAL REPORT 

that airline passengers – our guests – have the best Halifax International Airport was rated as the best airport experience possible while they are in our terminal. in the Americas of any size for overall satisfaction, the best domestic airport in the world, and placed first worldwide We also know that when visitors to our province arrive with under five million passengers. at the Airport, it is often the first impression they have of Nova Scotia. We take this responsibility very seriously. One of the milestones of 2005 was the celebration of the renamed Robert L. Stanfield Terminal Building in honour And to make this happen, every day we look at new of one of Nova Scotia’s most distinguished native sons, ways to leverage the best available technology. Every day the Right Honourable Robert L. Stanfield, who passed we explore new ways to partner with other businesses, away on December 16, 2003. An official ceremony unveiling our community, stakeholders and retailers. Every day the new name was held in the Airport’s Observation we look for new ways to improve customer service for Flight Deck on September 9, 2005. While Stanfield never passengers. The Airport community is working together to sought honours or such recognition during his lifetime, the build a transportation facility that goes beyond service to Robert L. Stanfield Terminal Building at Halifax International travelers, by offering amenities and services that appeal Airport serves as a fitting tribute to his integrity and to the surrounding community and make the Airport a principles that made our province and country stronger. destination itself for all to visit and enjoy. Very significant strides were taken in 2005 to prepare for the next stage I’m proud to have joined the Halifax International Airport of our evolution. community.

We have been recognized with three top place finishes My vision for the Airport’s future is one without limits. The in the AETRA airport customer satisfaction survey for opening of U.S. pre-clearance, new construction, including the second year in a row. Against such world renowned a new hotel and parking facilities, and the completion of airports as (Heathrow), Sydney (Australia), Beijing, runway upgrades, are just the beginning. The year 2005 Denver and , as well as other Canadian airports set the stage for our journey onward and upward. including , Edmonton, and , Our staff has risen to the challenges that a larger facility presents.

Charles Clow PROJECT COORDINATOR Improving HALIFAX INTERNATIONAL AIRPORT AUTHORITY 2005 ANNUAL REPORT 

Facilities and Services

Bigger, better and safer – that was the focus of HIAA’s Working with the Canadian Air Transport Security Authority, Airport Improvement Program during 2005. this equipment enables new screening procedures for checked baggage to ensure passenger security. Throughout the year, the terminal building expansion program was in full swing. To the south, the terminal was “With all of this development comes increased responsibility transformed into a dedicated commuter facility, housing for operation and maintenance,” says Peter Clarke, Vice three new jet bridges, 12 new gates, a rotunda feature with President Operations. “Our staff has risen to the challenges terrazzo floor, larger waiting areas, improved ground that a larger facility presents because they know that access to aircraft, and more room for new retail shops and growth means success for our business.” passenger services. To the north, work progressed on the U.S. Also in 2005, HIAA began the first phase of its multi- pre-clearance and in-transit facilities, scheduled to open year airfield rehabilitation program. This work is vital to in October 2006. maintaining the integrity and operation of Airport runways A new Park’N Fly™ service opened in February with an that are reaching the end of their lifecycle, to ensure safety additional 1,000 parking spaces, offering passengers more and meet regulatory standards. In July, at a critical phase in choice and a 24-hour shuttle to the terminal. the project when the Airport’s instrument landing system was unavailable to pilots, severe and unanticipated dense In September, HIAA, along with airports across the country, fog caused major flight delays and cancellations. Going installed new state-of-the-art baggage processing forward, HIAA is committed to keeping the traveling public technology, resulting in increased efficiencies in baggage informed about potential impacts of construction activity. processing for the airlines and ground service providers, Charles Clow along with increased overall baggage handling capacity. PROJECT COORDINATOR Leveraging HALIFAX INTERNATIONAL AIRPORT AUTHORITY 2005 ANNUAL REPORT 10 Technology

As our facilities expand, so does our horizon. Throughout the equipment at the Airport had been proprietary to the the planning and construction phases of our Airport airlines themselves – everything from check-in systems Improvement Program, priority was given to utilizing to loading bridges were operated by the airlines. Other technology to modernize facilities, improve processes, and advancements include new security systems, information maximize efficiencies. technology fibre optics, and a public address system, with more enhancements to come. “This year we installed systems that made a real difference in the way we operate – improvements that will have a “Now the Airport has shifted to technically advanced direct impact on the experience of our airline partners, systems run by us. In 2005 we initiated programs to take our tenants, and our guests,” says Michael Healy, Vice over ticket counters, gates, loading bridges, and now we President Infrastructure & Technology. operate and maintain them on behalf of all the airlines,” says Healy. “The result – better service for our passengers Much of this work was focused on bringing in a system and more flexible operations for our airline partners.” of Common Use Terminal Equipment. In the past, most of

Malcolm Phippen MAINTENANCE This year we installed systems that made a real difference in the way we operate.

Malcolm Phippen MAINTENANCE It’s our people that really make the difference at this Airport.

Kelly Martin Customer Relations Manager Enhancing HALIFAX INTERNATIONAL AIRPORT AUTHORITY 2005 ANNUAL REPORT 13 Customer Service

In Nova Scotia, the one thing you can count on is the information about and directions to facilities, services and weather. Snowstorms, hurricanes, fog, rain. We have it retail stores. They also provide extra assistance to people all. In all kinds of weather, for all kinds of reasons, airline with special needs. These volunteers are the first and last passengers spend unanticipated time in airports. “It’s our impression for many visitors to Nova Scotia. job to make that wait as comfortable as possible,” says The Airport’s commitment to customer service is what sets Kelly Martin, Customer Relations Manager. us apart. And it’s a major reason why the Airport has been “You’d be surprised how much we’ve learned about recognized internationally for its quality service with three keeping airline passengers happy. Something as simple top place AETRA customer service rankings for the second as a bottle of water or a deck of cards can make the year running. Halifax International Airport was rated as wait a little more bearable,” says Martin. That is why the the best airport in the Americas of any size for overall Airport Authority stocks necessities such as blankets, baby satisfaction, the best domestic airport in the world, and food and other supplies, and makes movies available to placed first worldwide with under five million passengers. help entertain delayed passengers. This annual survey was conducted by the International Air Transport Association and co-sponsored by Airports “And most importantly, we have a team of volunteers who Council International. seem to know exactly what to say, or when to offer help,” says Martin. “In times when there are delays and it seems “We work closely with our volunteers, Visitor Information like passengers are most in need of a friendly face, they’re Centre, airlines, and retail partners to uphold a high there, doing what they can to make the wait easier.” standard of customer service. We’re the first airport in North America to achieve Superhost status – a worldwide Launched in 2000, HIAA’s Volunteer Host Program proved recognition of customer service. We’ve had colleagues to be an invaluable asset again in 2005, with almost from around the world visit our Airport to learn what we’re 100 volunteers logging more than 15,520 hours serving doing right. Other airports might have more resources passengers and visitors. The tartan-vested volunteers and more facilities, but it’s our people that really make are on hand daily to meet and greet visitors, providing the difference at this Airport,” says Martin. Richard Garson AIR SERVICE SPECIALIST Richard Garson AIR SERVICE SPECIALIST Increasing HALIFAX INTERNATIONAL AIRPORT AUTHORITY 2005 ANNUAL REPORT 15 Air Service

HIAA is committed to improving service to both carriers and Zoom added a seasonal service to Halifax on a trial passengers alike. For the sixth consecutive year since basis in 2005, and announced a year round weekly service management of the Airport was transferred from the federal between London (Gatwick) and Halifax. government to the community, landing and terminal fees were Provincial Airlines, Condor, Northwest Airlines, Thomas Cook, not increased. HIAA is sensitive to the financial pressure American Eagle, Canadian Affair, and Continental Airlines all on the entire industry to meet changing market demands, increased service through Halifax. and will continue to maintain the decreased domestic landing and terminal fees introduced in January 2005. On March 11, 2005, ’s bankruptcy meant the loss of 19 flights a week to Toronto. While this is a well served Improved and expanded air service and new partnerships route from Halifax, losing a carrier is always disappointing marked our air service development efforts in 2005. for the Airport and the community. and Air Canada improved service to both By the end of the year, the total number of passengers Boston and Goose Bay by upgrading turbo prop service processed through the Airport remained level with 2004 to regional jets. CanJet added frequencies to Toronto, at 3.2 million. While air cargo activity was down 17 per St. John’s and Deer Lake. CanJet and WestJet introduced cent over 2004, due to the loss of MK Airlines and Polar daily service to winter vacation destinations. Also in 2005, Air Cargo focusing on China routes, positive developments WestJet added daily direct service to and increased included the return of Icelandair Cargo and Air Canada’s frequency to Toronto and St. John’s. dedicated freighter in October. In 2005 we became partners with Finnair, as they began HIAA entered into a partnership with the Nova Scotia technical service stops between Finland and winter sun Department of Tourism, Culture and Heritage in 2005, destinations. Increasing HALIFAX INTERNATIONAL AIRPORT AUTHORITY 2005 ANNUAL REPORT 16 Air Service continued to raise awareness and develop additional air service to New retail outlets, a car rental service centre currently European destinations. under construction, land development projects, and other new amenities are all part of the plan to improve services. As well, HIAA’s business development team organized its second Air Access Forum, bringing together some 150 “We feel a responsibility to our community, and to the participants representing airlines, airports and business region, to be ambassadors and to provide the services this partners, to meet and discuss growth opportunities. area needs as it grows. With U.S. pre-clearance on the horizon, and the recent developments on the Canada-U.S. “What’s most important for us is that we understand the Open Skies Agreement, the stage is set for positive growth needs of the carriers, and match that with the needs of at Halifax International Airport. When the region grows, our community stakeholders. This forum and the many we grow,” says Staples. others we attend around the world, provide us with an opportunity to consult and determine the right services to bring to Halifax,” says Jerry Staples, Vice President Marketing & Business Development. Airlines and Direct Destinations in 2005 HALIFAX INTERNATIONAL AIRPORT AUTHORITY 2005 ANNUAL REPORT 17

SCHEDULED PASSENGER SERVICES CHARTER PASSENGER SERVICES SCHEDULED PASSENGER 16 Domestic 6 Transborder (USA) 15 International Destinations AIR CARRIERS Destinations Destinations Cuba 7 Domestic Air Carriers Calgary, AB Boston, Massachusetts Camaguey Air Canada , PE Detroit, Michigan Cayo Coco Mexico Air Canada Jazz Deer Lake, NL Newark, New Jersey Holguin Cancun Fredericton, NB New York (JFK), New York Varadero CanJet Airlines Gander, NL Orlando, United Jetsgo (discontinued in March 2005) Dominican Kingdom Goose Bay, NL St. Petersburg, Florida Republic Provincial Airlines Hamilton, ON Belfast La Romana WestJet Airlines Moncton, NB 3 International Puerto Plata London (Gatwick) , QC Destinations Punta Cana 6 Transborder (USA) Air Carriers Ottawa, ON Hamilton, American Eagle , QC Germany London (Heathrow), Air Canada Jazz Saint John, NB Frankfurt CanJet Airlines St. John’s, NL Munich St. Pierre et Miquelon Delta Airlines Stephenville, NL Continental Express Sydney, NS Northwest Airlines Toronto, ON CARGO CARRIERS 7 Cargo Carriers 1 International Carrier Air Canada CHARTER AIR CARRIERS Air St. Pierre 5 Charter Air Carriers Icelandair Flightcraft Condor Flugdienst Morningstar Express Skyservice Thomas Cook (UK) Airlines Provincial Airlines HIAA values its role in the community, and its employees are actively involved as well.

Joyce and John Patriquin VOLUNTEER HOSTS Strengthening HALIFAX INTERNATIONAL AIRPORT AUTHORITY 2005 ANNUAL REPORT 19

Community Partnerships

HIAA values its role in the community, and its employees Council completed two major studies – a Strategic Plan are actively involved as well. and an Economic Impact Study – setting the stage for further advocacy and activities that will help position In 2005, HIAA employees raised over $12,000 for such Halifax as an international gateway to the world. organizations as the United Way; Nova Scotia amateur sport, entering a team in the annual dragon boat race; Again in 2005, Halifax International Airport hosted the Breast Cancer Research, participating in a casual day Nova Scotia International Air Show (NSIAS). Through ongoing promotion; and the Parker Street Food and Furniture consultation between the NSIAS Organizing Committee, Bank, by donating school supplies and food. Through HIAA, and all airlines, this community event was successfully its Community Outreach Program, HIAA supported over held with minimal disruption to commercial activity. 200 organizations with close to $137,000 in corporate To better understand the community we serve, all HIAA donations, as well as promotional items and public display employees underwent diversity training in 2005. As well, space in the terminal building. our Employment Equity/Diversity Action Team completed Through the Humanities Fund, members of the Union of an employment systems analysis, which will form the basis Canadian Transportation Employees Local 80829 contribute of an employment equity plan. $.01 for each hour worked and HIAA doubles that As a responsible member of the corporate community, HIAA contribution. In 2005 the Humanities Fund donated $6,750 follows best practices for the environment, with ongoing to seven organizations chosen from employee suggestions. attention to water treatment, and workplace health and In June, HIAA signed on as one of the first members safety, with a focus on reducing workplace injuries. Airport of Nova Scotia’s Come to Life campaign charter, pledging security is always a priority, and in 2005, HIAA developed to promote Nova Scotia and its attributes wherever they iWatch, a unique airport community-wide security action do business. HIAA is also an active member of the program. The iWatch program was developed to build and Joyce and John Patriquin Halifax Gateway Council, a not-for-profit organization sustain an active security culture within the Airport community, VOLUNTEER HOSTS established to promote growth in the transportation by increasing employee awareness, understanding and sector and related industries in the region. In 2005, the reporting of suspicious activity. Sustaining HALIFAX INTERNATIONAL AIRPORT AUTHORITY 2005 ANNUAL REPORT 20 Financial Stability

Halifax International Airport is a significant economic government under the new rent policy. This was offset by force for the region. In November, HIAA released the several factors negatively impacting revenue, including results of an economic impacts study conducted by SGE shifts in air service by major carriers, the bankruptcy of Acres Limited. The report concluded that the Airport and Jetsgo, and the reduction of international cargo flights. its aviation community generated $1.135 billion in gross Airport Improvement Fee revenue in 2005 was $11.7 output in 2004, and achieved consistent growth over the million, up slightly from $11.4 million in 2004. past 15 years. Operating expenses increased in 2005 to $32.4 million “As the Airport operator, HIAA plays a major role in the compared to $30.0 million in 2004. These increased Airport’s impact on our economy,” says Joyce Carter, Vice expenses are mainly related to the operation of Park’N Fly™, President Finance. “We initiate construction, capital increases in amortization due to a larger asset base, improvements, and bring in new business, but it is the property taxes under the transition year of our development contribution of the entire Airport community that makes grant agreement with Halifax Regional Municipality Halifax International Airport such an economic driver.” (to stabilize after 2005), contract salary increases, and For HIAA’s part, 2005 was a year marked by construction, inflationary increases in the cost of goods and services. technology improvements and better airline service. In the Looking ahead, 2006 will be a year of building our long term, it has set the stage for the services that we will future and managing our growth. We will complete the provide to both air carriers and passengers. air terminal building expansion, including the opening Financial Overview of U.S. pre-clearance. As well, we will commence the Operating revenue for 2005 was $34.4 million compared planning and design for a parkade, develop and implement to $33.2 million in 2004. A number of factors contributed a comprehensive revenue diversification strategy, develop to this increase in revenue. Positive impacts included the and introduce an integrated risk management strategy, opening of a Park’N Fly™ lot in February, representing an and complete a succession planning framework. An Twila Grosse additional $617,000 in revenue, and a gain of $1.2 million ambitious financial plan is in place for 2006, and does SUPERVISOR MANAGEMENT ACCOUNTING due to the elimination of the final not include any change in general terminal and aircraft chattels repayment, as announced in May by the federal landing fees. It’s the contribution of the entire Airport community that makes Halifax International Airport such an economic driver.

Twila Grosse SUPERVISOR MANAGEMENT ACCOUNTING HALIFAX INTERNATIONAL AIRPORT AUTHORITY 2005 ANNUAL REPORT 22

Financial Statements

Auditor’s Report Balance Sheet In thousands of dollars To the Directors of Halifax International Airport Authority Year ended December 31 2005 2004 We have audited the balance sheet of Halifax International Airport Authority $ $ as at December 31, 2005 and the statements of operations and changes in ASSETS net assets and cash flows for the year then ended. These financial statements Current Cash 6,065 8,779 are the responsibility of the Authority’s management. Our responsibility is to Accounts receivable 5,380 2,944 express an opinion on these financial statements based on our audit. Inventories 320 329 Prepaid expenses 570 500 We conducted our audit in accordance with Canadian generally accepted auditing 12,335 12,552 standards. Those standards require that we plan and perform an audit to obtain Capital assets [note 3] 117,935 63,328 reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting 130,270 75,880 the amounts and disclosures in the financial statements. An audit also includes LIABILITIES AND NET ASSETS assessing the accounting principles used and significant estimates made by Current management, as well as evaluating the overall financial statement presentation. Accounts payable and accrued liabilities 24,227 7,937 Deferred revenue [note 9] 736 226 In our opinion, these financial statements present fairly, in all material respects, Current portion of long-term debt [note 4] 26,081 1,303 51,044 9,466 the financial position of the Authority as at December 31, 2005 and the results of its operations and its cash flows for the year then ended in accordance with Long-term debt [note 4] 724 1,885 Canadian generally accepted accounting principles. As required by the Canada Accrued benefit liability[note 7] 46 -- Security deposits 1,887 1,603 Corporations Act, we report that, in our opinion, these principles have been 53,701 12,954 applied on a basis consistent with that of the preceding year. Net assets Equity in capital assets [note 5] 76,569 62,926

130,270 75,880 Halifax, Canada Commitments [note 6] February 10, 2006 Chartered Accountants See accompanying notes

On behalf of the Board: Director Director HALIFAX INTERNATIONAL AIRPORT AUTHORITY 2005 ANNUAL REPORT 23

Statement of Operations and Changes in Net Assets Statement of Cash Flows In thousands of dollars In thousands of dollars

Year ended December 31 Year ended December 31 2005 2004 2005 2004 $ $ $ $

REVENUES OPERATING ACTIVITIES Landing fees 8,595 9,227 Excess of revenues over expenses 13,643 14,645 Terminal and passenger security fees 8,291 8,759 Items not involving cash: Concessions 7,789 7,580 Amortization 3,361 2,795 Parking 5,368 4,390 Net change in non-cash working capital Rentals 2,018 2,093 balances related to operations 3,949 231 Other [note 4] 2,299 1,167 Cash provided by operating activities 20,953 17,671 34,360 33,216 Airport improvement fees [note 5] 11,707 11,437 INVESTING ACTIVITIES 46,067 44,653 Expenditures on capital assets (48,581) (12,438) Cash used in investing activities (48,581) (12,438) OPERATING EXPENSES Salaries, wages and benefits 11,042 10,683 FINANCING ACTIVITIES Materials, services and supplies 9,061 8,001 Proceeds of long-term debt 26,000 427 General and administrative 3,412 3,428 Repayments of long-term debt (1,086) (3,265) Ground lease rent 4,361 4,240 Cash provided by (used in) financing activities 24,914 (2,838) Amortization 3,361 2,795 Property taxes 1,187 861 (Decrease) increase in cash (2,714) 2,395 32,424 30,008 Cash, beginning of year 8,779 6,384

Excess of revenues over expenses 13,643 14,645 Cash, end of year 6,065 8,779 Net assets, beginning of year 62,926 48,281

Net assets, end of year [note 5] 76,569 62,926

See accompanying notes See accompanying notes HALIFAX INTERNATIONAL AIRPORT AUTHORITY 2005 ANNUAL REPORT 24

Notes To Financial Statements December 31, 2005

1. General Capital assets Capital assets are recorded at cost including interest on funds borrowed for capital purposes, The Halifax International Airport Authority (the “Authority”) was incorporated on November net of contributions and government assistance and are amortized over their estimated useful 23, 1995 as a corporation without share capital under Part II of the Canada Corporations Act. lives on a straight-line basis as follows: On February 1, 2000, the Authority signed a 60-year ground lease with Transport Canada and assumed responsibility for the management, operation and development of the Halifax Assets Rate International Airport. Excess revenues over expenses are retained and reinvested in airport Computer hardware and software 20% - 33% operations and development. Leasehold improvements 2.5% - 10% Machinery, equipment, furniture and fixtures 5% - 20% The Authority is a dynamic and multi-faceted aviation enterprise that provides air access to the Vehicles 5% - 17% world, facilitates personal and business connections and promotes regional economic growth. Construction in progress is recorded at cost and is transferred to leasehold improvements The Authority is governed by a Board of Directors whose members are nominated by the Halifax when the projects are complete and the assets are placed into service. Regional Municipality, the Province of Nova Scotia and the Federal Government, as well as the Revenue recognition Halifax Chamber of Commerce. The nominated members can also appoint additional members Landing fees, terminal fees, parking revenues and passenger security fees are recognized as who represent the interests of the community. the airport facilities are utilized. Concession revenues are recognized on the accrual basis and The Authority is exempt from federal and provincial income tax, federal large corporation tax, calculated using agreed percentages of reported concessionaire sales, with specified minimum and Nova Scotia capital tax. guarantees where applicable. Rental revenues are recognized over the lives of respective leases, licenses and permits. Airport improvement fees (“AIF”) are recognized when originating departing passengers board their aircraft as reported by the airlines. 2. Significant Accounting Policies Deferred revenue consists primarily of concession revenue for minimum guarantees and license The Authority’s financial statements have been prepared in accordance with Canadian generally fees received in advance of services being rendered. accepted accounting principles. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of certain assets and Employee benefit plans liabilities at the date of the financial statements and the reported amounts of certain revenues The Authority sponsors a pension plan on behalf of its employees which has defined benefit and expenses during the year. Actual results could differ from those estimates. and defined contribution components. In valuing pension obligations for its defined benefit component, the Authority uses the accrued benefit actuarial method prorated on services and Inventories best estimate assumptions. Pension plan assets are valued at current market values. The excess Inventories consist of materials, parts and supplies and are stated at the lower of cost determined of the accumulated net actuarial gain or loss over 10% of the greater of the accrued benefit on an average cost basis and estimated replacement cost. obligation and the fair value of the plan assets is amortized over the average remaining service life of employees. Defined contribution component amounts are expensed as incurred. Ground lease The ground lease with Transport Canada is accounted for as an operating lease. HALIFAX INTERNATIONAL AIRPORT AUTHORITY 2005 ANNUAL REPORT 25

3. Capital Assets 4. Long-term Debt

2005 2005 2004 $ In thousands of dollars $ $ Accumulated Net Book

In thousands of dollars Cost Depreciation Value Halifax Regional Municipality deed transfer tax loan, $ $ $ unsecured, non-interest bearing, repayable in monthly installments of $5,633. -- 6 Computer hardware and software 2,472 1,587 885 Leasehold improvements 72,100 5,542 66,558 Canadian Imperial Bank of Commerce Construction Machinery, equipment, furniture installment loan, bearing interest at prime rate less 65 and fixtures 4,025 1,514 2,511 basis points. 26,000 -- Vehicles 7,609 3,165 4,444 Construction in progress 43,537 -- 43,537 Transport Canada deferred rent, non-interest bearing, repayable in monthly installments of $6,700 commencing 129,743 11,808 117,935 in 2006. (See note (d) below) 805 3,182 26,805 3,188 Current portion of long-term debt (See note (b) below) 26,081 1,303 2004 $ 724 1,885

Accumulated Net Book (a) Credit Facilities Cost Depreciation Value In thousands of dollars The Authority has authorized credit facilities with the Canadian Imperial Bank of Commerce $ $ $ for $78 million, which, in the event of default, will be secured by an Agreement containing a fixed mortgage by way of sublease of the Authority’s interest in the lease with Transport Computer hardware and software 1,935 1,273 662 Canada, and a security interest in all of the other assets of the Authority. This security is not Leasehold improvements 49,080 3,528 45,552 registered, recorded or filed in any public registry until an event of default has occurred. The Machinery, equipment, furniture credit facilities consist of an operating line of credit to a maximum of $3.0 million bearing and fixtures 3,363 1,110 2,253 interest at prime rate less 70 basis points. A demand installment loan to finance construction Vehicles 6,180 2,547 3,633 costs is available to a maximum of $75.0 million and bears interest at prime rate less 65 Construction in progress 11,228 -- 11,228 basis points.

71,786 8,458 63,328 (b) Current Portion of Long-Term Debt The terms of the construction installment loan only require repayment as agreed by the Bank and the Authority. The loan amount is shown as current, as repayment terms have not been agreed upon and although not expected, the loan could be demanded. This amount will form part of a long-term financing arrangement which the Authority is currently in the process of negotiating. HALIFAX INTERNATIONAL AIRPORT AUTHORITY 2005 ANNUAL REPORT 26

Notes To Financial Statements December 31, 2005 continued

4. Long-term Debt (continued) Net assets of the Authority as at December 31 are as follows: (c) Capitalized Interest In thousands of dollars 2005 2004 Interest on long-term debt of $260,596 (2004 - $24,060) was capitalized as part of $ $ construction in progress during the year. Net assets provided by airport improvement fees 50,366 38,659 (d) Forgiveness of Debt Net assets provided by other operations 26,203 24,267 During 2005, Transport Canada agreed to forgive $1.2 million (2004 - $nil) of debt. This amount is included in other revenue. Net assets, end of year 76,569 62,926

5. Airport Improvement Fees 6. Commitments On January 1, 2001, the Authority implemented an AIF of $10 per local boarded passenger to Transfer agreement fund the cost of a major capital program. These fees are collected by the air carriers for a fee On May 9, 2005, the Government of Canada announced the adoption of a new rent policy of 6% under an agreement between the Authority, the Air Transport Association of Canada, that will result in reduced rent for Canadian airport authorities, including Halifax International and the air carriers serving Halifax International Airport. Under the agreement, AIF revenues Airport Authority. This reduced rent will be phased in over four years beginning in 2006, with may only be used to pay for the capital and related financing costs as jointly agreed with air the new formula achieving its full impact in 2010. The new formula is based on percentage carriers operating at the airport. of gross revenues on a progressive scale. The Authority finalized the amendment to its ground A summary of the AIF collected and capital and related financing expenditures are as follows: lease with Transport Canada in December 2005.

In thousands of dollars 2005 2004 Rent payable under the old ground lease with Transport Canada included base rent calculated $ $ on a formula reflecting annual passenger volumes, annual revenues, and predetermined base operating costs. Base rent was calculated on a capped passenger volume formula subject AIF revenue (net): to adjustments for inflation. The estimated lease obligations over the next five years are AIF revenue 12,459 12,299 approximately as follows: AIF collection costs (752) (862) 2006 $4,271 11,707 11,437 2007 4,093 2008 3,825 Expenditures 50,398 14,859 2009 3,290 2010 3,500 Excess of expenditures over AIF revenue 38,691 3,422 Excess of expenditures over AIF revenue, beginning of year 21,034 17,612 Construction in progress At December 31, 2005, the Authority had outstanding contractual construction commitments Excess of expenditures over AIF revenue, end of year 59,725 21,034 amounting to approximately $11.0 million (2004 - $3.0 million).

From January 1, 2001 to December 31, 2005, the cumulative capital expenditures totaled $110,091,000 (2004 - $59,693,000) and exceeded the cumulative amount of AIF revenue by $59,725,000 (2004 - $21,034,000). HALIFAX INTERNATIONAL AIRPORT AUTHORITY 2005 ANNUAL REPORT 27

7. Pension The significant actuarial assumptions adopted in measuring the Authority’s accrued pension benefits are as follows: The Authority sponsors a pension plan (the “Plan”) on behalf of its employees, which has 2005 2004 defined benefit and defined contribution components. The defined benefit component is for % % former Transport Canada continuing full-time employees who were employed by the Authority on February 1, 2000 and previously participated under the Public Service Superannuation Act Discount rate 5.25 6.25 (“PSSA”) Plan. However, these employees had the option to elect to become members of the Expected long-term rate of return on plan assets 6.75 7.00 defined contribution component in lieu of the defined benefit component. All other employees Rate of compensation increase 4.00 4.00 will become members of the defined contribution component. An actuarial valuation has been prepared as of January 1, 2003, for purposes of funding the Plan. Other information related to the Authority’s defined benefit component is as follows: The existing Government of Canada pension assets and accrued benefits obligation for certain 2005 2004 In thousands of dollars employees have been transferred to the Authority. The pension transfer agreement between $ $ Transport Canada and the Authority was finalized during 2004 and the total pension liability has been transferred, fully funded to the Authority. As at December 31, 2005, $11,691,000 Employer contribution 573 579 (2004 - $6,258,000) in assets had been transferred to the Authority for pensionable service Employees’ contribution 205 204 prior to the effective date of February 1, 2000. Benefits paid 93 81

The following table provides information concerning the accrued benefit obligation, plan assets, Pension expense for 2005 amounted to $136,000 (2004 - $90,000) for the defined funded status and prepaid (accrued) pension costs of the plan as at December 31, 2005: contribution component and $618,000 (2004 - $579,000) for the defined benefit component.

In thousands of dollars 2005 2004 $ $ Plan Assets 2005 2004 Plan assets 18,785 11,135 % % Accrued benefit obligation (20,147) (10,992) Equity securities 57 63 Funded status – plan (deficit) surplus (1,362) 143 Fixed income securities 31 33 Unamortized net actuarial (loss) gain (1,316) 143 Real estate securities 8 4 Other 4 -- Accrued benefit liability (46) -- 100 100 HALIFAX INTERNATIONAL AIRPORT AUTHORITY 2005 ANNUAL REPORT 28

Notes To Financial Statements December 31, 2005 continued

8. Financial Instruments 9. One-Time Marketing Grant

Fair value In 2005, the Authority received a one-time marketing grant from the Government of Nova The Company’s primary financial instruments consist of cash, accounts receivables and accounts Scotia in the amount of $600,000. The grant can be used to undertake specific marketing payable and accrued liabilities. The difference between the carrying values and the fair market activities to increase the air connections and routes between the United Kingdom, Germany, values of the primary financial instruments are not material due to their short term maturities. the and Nova Scotia, that use Halifax International Airport. The grant is being At December 31, 2005, the fair value of long-term debt was $641,000 (2004 - $2,900,458) amortized to income as expenses are incurred. As at December 31, 2005, $102,000 has been relative to the carrying value of $724,000 (2004 - $3,188,581). credited to income, with the remaining $498,000 credited to deferred revenue.

The fair values of long-term debt were estimated based on the present value of contractual future payments of principal and interest, discounted at the current market rates of interest 10. Comparative Figures available to the Authority for similar debt instruments. The comparative financial information has been reclassified to conform to the presentation

adopted for 2005. Credit risk The Authority is subject to credit risk through its accounts receivable. A significant portion of the Authority’s revenues, and resulting receivable balances, are derived from airlines. The Authority performs ongoing credit valuations of receivable balances and maintains reserves for potential credit losses. 2005 Board of Directors HALIFAX INTERNATIONAL AIRPORT AUTHORITY 2005 ANNUAL REPORT 29

Chair: Vice Chair: Secretary: Director: Director: Director: Director: Bernard F. Miller Frank Matheson James S. Cowan Norbert Comeau Carole Cushing Paul Gurr Peter McDonough

Director: Director: Director: Director: Director: Director: Director: Cheryl Newcombe Roy Rideout Robert J. Scott Fred Smithers Ken Streatch Stephen L. Wallace J. Robert Winters

Executive Management

President & CEO: Eleanor Humphries Vice President Finance: Joyce Carter Vice President Operations: Peter Clarke

Vice President Infrastructure & Technology: Michael Healy Vice President Marketing & Business Development: Jerry Staples

Director Human Resources: Lydia Bowie Director Communications & Public Affairs: Gina Connell Corporate Counsel: John MacLean HALIFAX INTERNATIONAL AIRPORT AUTHORITY 2005 ANNUAL REPORT 30

Board of Directors

continued

Bernard F. Miller – Chair Norbert Comeau – Director Bernie has been Chair of the Airport Authority Board for the past 10 years. He was the Norbert had a lengthy career as a school administrator with the Provincial Acadian Authority’s chief negotiator during the transfer negotiations with Transport Canada School Board. He has served as a member of the Nova Scotia Human Rights Commission which brought the airport under local control, and also served as the Airport’s CEO and chaired the organizing committee for FANE (Acadian Federation of Nova Scotia). for much of the first year after transfer. He assumed the CEO role again in 2005 from He has always been active as an entrepreneur and provided leadership to numerous February until August. He retired as Chair at the end of 2005 and will continue to organizations in the community of Clare. serve on the Board as past Chair in 2006. Bernie previously enjoyed a 35-year Carole Cushing – Director career with Air Canada, where he held a number of senior executive positions. He Carole is the former Senior Vice President and Managing Director and Atlantic Division retired from the airline in 1991 as Vice President, In-Flight Service for Air Canada’s Manager for BMO Nesbitt Burns Inc., where she was responsible for the Private Client worldwide operations. Division in the four Atlantic Provinces, and provided leadership to ten branch managers Frank Matheson – Vice Chair throughout the region. Carole has served as Chair of the Board of Governors of Mount Frank is President and CEO of Homburg Canada Inc., an international real estate Saint Vincent University, Trustee of the IWK Grace Health Centre Foundation, and Chair company with holdings in residential, commercial, industrial, and retail properties. of the IWK’s Investment Committee. Frank is a past Chair of the Halifax School Board and the Halifax Forum Commission, Paul Gurr – Director and has served on many community and industry-related boards and commissions. Paul is the former President for Labatt Breweries Atlantic, and serves on a number of Frank became Chair of the HIAA Board on January 1, 2006. professional and community boards, including the Halifax Chamber of Commerce, the James S. Cowan, QC – Secretary to the Board advisory board of the Frank H. Sobey Faculty of Commerce at Saint Mary’s University, Jim is a member of the Senate of Canada and partner of the law firm Stewart McKelvey. and the Canadian Centre for Ethics in Public Affairs. He also participates on the Board He is the Chair of the Board of Governors of Dalhousie University and past Chair of the of Governors for Junior Achievement, and the Executive Forum of Nova Scotia. Paul is Atlantic Provinces Transportation Commission. Upon his appointment to the Senate currently a full-time business graduate student at Saint Mary’s University. in March of 2005, Jim resigned from the HIAA Board, but continues as Secretary, a position he has held since 1995. HALIFAX INTERNATIONAL AIRPORT AUTHORITY 2005 ANNUAL REPORT 31

Peter McDonough, QC – Director Fred Smithers – Director Peter is a senior partner at McInnes Cooper, and has been in practice for over 30 years Fred is the President and CEO of the Secunda Group of Companies, and the Honorary in the areas of property development and real property (commercial and residential). British Consul for the Maritime Provinces. He is a Director of ProGear, a golf club He has served on the Board of Governors of Dalhousie University, Nova Scotia College manufacturing company, and President and Owner of Granite Springs Golf and Country of Art and Design, Special Olympics, and the YMCA. He was the Co-Chair of the Halifax Club. He sits on the Board of Directors of Barrington Wind Energy, the IWK Hospital Industrial Commission and is the founding President of the Dalhousie Black and for Children, and the World Wildlife Fund of Canada, and is on the Board of Governors Gold Club. for Saint Mary’s University.

Cheryl Newcombe – Director Ken Streatch – Director Cheryl joined the HIAA Board in June 2005. She is the Comptroller of Lighthouse Ken has over 30 years of senior management experience in both business and Lumber Wholesalers Limited in Dartmouth, a position she has held since 2002. Cheryl government. He is the President and CEO of Sunberry Cranberry Producers Inc., and is also on the Board of Beacon House and is the immediate past Chair of the Halifax Chairman of the Board of Atlantic Canada Cranberries Inc. Ken has held a number of Regional Water Commission. Cheryl is a nominee of Halifax Regional Municipality. portfolios with the government of Nova Scotia, including Minister of Transportation and Communications and Minister of Economic Development. Roy Rideout – Director Roy is past Chairman and CEO of Clarke Inc., a publicly traded company in the Stephen L. Wallace – Director transportation industry. He is also a Director of Oceanex Income Fund, Fortis Inc. and Stephen is President of the Bedford-based consulting firm Terrain Group Inc. He is a NAVCANADA. Prior to 1988, Roy held senior executive positions with both Eastern former Director of the Nova Scotia chapter of the Urban Development Institute and Provincial Airways and International for 15 years. Roy is a chartered past President of the Consulting Engineers of Nova Scotia. accountant. J. Robert Winters, QC – Director Robert J. Scott – Director Robert is counsel to Burchell MacDougall, Barristers & Solicitors of Truro, Nova Bob is Executive Vice President of Glenora Distillers International Ltd. and is a former Scotia, and Chairman of Napwick Holdings Limited, a private holding company, past Director of the Small Business Development Corporation for the province of Nova Scotia. Chairman of the Board of Regents of Mount Allison University, and a member of the advisory boards of the Bragg Group of Companies and Inland Technologies Inc. HALIFAX INTERNATIONAL AIRPORT AUTHORITY 2005 ANNUAL REPORT 32

Corporate Governance

Halifax International Airport Authority is a dynamic and multi-faceted aviation enterprise Executive Officer; assesses the performance of the Board and the Chief Executive that provides air access to the world, facilitates personal and business connections, Officer; ensures effective communication with the nominators and the community; and and promotes regional economic growth. ensures the effectiveness of the Airport Authority’s internal controls and systems in preserving and enhancing the Airport Authority’s assets and pursuing its mission. The The Airport Authority is governed by a Board consisting of a maximum of 14 Directors Board meets as often as is required to carry out its responsibilities and maintains three nominated by the following entities: standing committees that make recommendations to the Board with respect to matters Federal Government 2 within their jurisdiction: the Governance Committee, chaired by Robert Winters; the Provincial Government 1 Audit Committee, chaired by Roy Rideout; and, the Capital Projects Committee, chaired Halifax Regional Municipality 4 by Peter McDonough. The Airport Authority has adopted conflict of interest guidelines Halifax Chamber of Commerce 3 to govern the conduct of, and the disclosure and avoidance of conflicts of interest for, all HIAA Board of Directors 4 officers and directors. These disclosures are updated as required.

Generally, a director may serve no more than a total of nine years from the date of During 2005, the Governance Committee of the Board reported that there were no transfer, February 1, 2000. Collectively, directors are expected to possess knowledge breaches of the conflict of interest guidelines by any officer or director of the Airport relating to the aviation industry, air transportation, business, finance, administration, law, Authority. government, engineering, labour organizations, and the interests of consumers. Compensation of the senior officers and directors of the Airport Authority is reviewed The Board oversees the conduct and operation of the Airport Authority; reviews and annually. Amounts paid to the Airport Authority’s officers and directors during approves corporate strategies, plans and financial objectives; appoints the Chief 2005 follow. HALIFAX INTERNATIONAL AIRPORT AUTHORITY 2005 ANNUAL REPORT 33

Executive Compensation Board of Directors Total Compensation The salary range for the President & CEO and for each of the Vice Presidents of the Chair: B. F. Miller * $71,800 Airport Authority during 2005 was $98,800 to $250,000. Vice Chair: F. Matheson $31,500 In addition to base salaries, annual bonus payments totaling $170,000 were paid during Secretary: J. S. Cowan $37,479 the year. Bonus payments are contingent on individual and corporate achievements.

Directors: Contracts in excess of $92,600 N. Comeau $20,000 Halifax International Airport Authority, in accordance with its ground lease with Transport C. Cushing $19,200 Canada, is required to report all contracts in excess of $92,600 ($75,000 in 1994 dollars adjusted for Consumer Price Index) which were entered into during the year P. Gurr $11,305 and that were not awarded on the basis of a public competitive tendering process. The P. McDonough $22,400 following contracts were in excess of $92,600 and were awarded without public tender: C. Newcombe $3,728 • Terminal Systems International, Inc. for a gate management system in the amount R. Rideout $22,200 of $119,250. R. J. Scott $19,200 • Miller Waste Systems for international waste management services for five years F. Smithers $12,800 with $118,220 paid in year one.

K. Streatch $19,200 For the above two contracts, systems or services are of a proprietary nature with one S. L. Wallace $22,531 qualified supplier.

J. R. Winters $17,600 • Royal Canadian Mounted Police for policing services for five years for $3,579,527.

*During the period February 1, 2005 to July 31, 2005, Mr. Miller, as Chair of the Board, For the above contract, the supplier previously and satisfactorily performed service assumed the additional responsibilities of the CEO of the Airport Authority. which represented a cost saving. HALIFAX INTERNATIONAL AIRPORT AUTHORITY 2005 ANNUAL REPORT 34 Five-Year Forecast

The following table outlines the passenger traffic and aircraft movements forecasted over the next five years. These are the key drivers to our financial success, which will enable us to provide the best airport facilities and services to the public and our customers as we move onward and upward.

A C T U A L F I V E - Y E A R F O R E C A S T Year 2003 2004 2005 2006 2007 2008 2009 2010 Passenger Volume 2,973,187 3,242,389 3,229,111 3,347,330 3,510,633 3,677,451 3,788,473 3,899,079 Per cent Change 4.2 % 9.1 % -0.4 % 3.8 % 4.9 % 4.8 % 3.0 % 2.9 % Total Aircraft Movements 88,228 89,845 86,393 89,935 93,533 96,151 98,363 100,625 Per cent Change 3.8 % 1.8 % -3.8 % 4.1 % 4.0 % 2.8 % 2.3 % 2.3 %

Planned Capital $ 8,598 $ 15,268 $ 57,881 $ 72,793 $ 57,511 $ 15,715 $ 18,483 $ 21,013 Expenditures ($ 000’s) Rent Payable to Transport $ 3,191 $ 4,240 $ 4,361 $ 4,271 $ 4,093 $ 3,825 $ 3,290 $ 3,500 Canada ($ 000’s)

1 Bell Boulevard, Tel: 902.873.4422 Enfield, Nova Scotia Fax: 902.873.4750 B2T 1K2 www.halifaxairport.com