The Next Step: Rent Relief

Historically, airports in Canada were owned by the federal government. Beginning in 1992, the federal government, through Transport Canada, began to transfer either oversight or direct ownership of the nation’s airports to local entities.

Facette says that the members of the CAC have maintained that a fairer method would be to implement a per passenger formula. “Transport Canada heard the message but came out with a different solution,” he asserts.

Ottawa’s New Policy

The May announcement by Transport Minister Jean C. Lapierre calls for the top 21 airports to pay annual rents, based on a sliding scale [see box]. One of the more significant aspects of the new policy, according to Facette, is relief for all airports from chattel payments — that is, ongoing payments which airports have had to make for equipment and facilities that were in place when the airports were transferred to local entities.

Lapierre, in his announcement, projected that the new policy is expected to result in nearly $8 billion in rent relief for the authorities over the course of the existing lease agreements. The new policy evolved from an extensive study conducted by the Office of the Auditor General in February.

“The new rent formula is based on modern commercial leasing principles and is in line with other rent formulas within the Government of Canada and the private sector,” explains Lapierre.

“For airports currently paying rent, there will be a transition period leading to full implementation of the formula in January 2010. Approximately $350 million of the estimated $8 billion in rent reductions will be realized during this transition period.”

The CAC’s Facette, however, calls the new policy “a mixed bag of nuts.” He maintains that the federal government has pre-determined that it wanted to collect some $5 billion from the nation’s airports through 2047. “The formula gets them to that quantum,” he says. “It does more closely reflect the airport operating environment today and gets on the right path and will make a difference as airports try to compete.”

Facette concedes that the new policy does offer significant relief for the nine airports currently paying rent. The most glaring exception to that rule, he explains, is at Toronto Pearson International, which to date has paid about half of all rents collected.

Comments Facette, “For Toronto, the quantum to be paid will stay the same, about $140 million a year. So, Toronto cannot offer relief to airlines. In 2010, Toronto was scheduled to pay up to two times what it will pay.

“One can argue that Toronto has 35 percent of the passenger traffic, so they should pay the most. But Toronto has paid the better part of $1 billion to date, and you have to ask what they’ve gotten in return. Meanwhile, the airport is investing heavily in a new terminal and other capacity infrastructure.”

According to Facette, since the divestiture program began, local authorities have invested some $8 billion in their airports.

Future Challenges

Canada’s smallest communities may face the greatest challenge in the coming years, explains Facette, as they wrestle with ways to fund airport needs while also trying to maintain and grow passenger airline service, without having to charge extreme rates and charges to the carriers.

“The political speech is that the airports are the lifeblood of these communities,” says Facette, “yet the regulatory burden being placed on them doesn’t seem to stop.” A capital assistance program is available, but Facette says that demand far exceeds the funding levels which Ottawa appropriates each year.

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