Hamiltons's Cargo Express
Private firm, Tradeport, leads effort to link airport to regional expansion
By By John F. Infanger, Editorial Director
"Today, the city council views the
airport as the region’s number one economic tool for the future of
the community. We’ve gone from nowhere on the radar screen to the
number one most important community asset.
"We’re sort of reminding everybody that the reason Hamilton became an industrial center in the first place, why the steel mills first located here, was because of its geographic location. Today, we’re seeing that come around full circle, that the tremendous advantage this community has is as a transportation and distribution hub, especially in the world of e-commerce.
"Everybody’s fighting to be the next Silicon Valley; we want to be the e-fulfillment center."
Repositioning, recalls Battaglia, focused on redirecting the airport from one with minimal passenger service (U.S. Airways to Pittsburgh, recently terminated) to one that focused on specialty cargo. "The fact that we have no operating restrictions here, we operate 24 hours a day, and given our proximity to Toronto, which does have operating restrictions at night, we have a strategic advantage," he explains. "It’s something that was never fully exploited or understood."
Another strategic advantage, says Battaglia, is that Hamilton has a potential catchment area for cargo and passengers that is larger than that of New York City. "If you draw a circle around Hamilton encompassing a one-day truck drive, you can reach anywhere from Montreal to New York to Chicago," he explains. "We have 132 million consumers within that circle; New York has only 120 million. And, from a transportation point of view, once it’s on the ground we’re in a more convenient location. We’re in the middle of New York and Chicago.
"That’s why the focus is on cargo, in terms of economic development for the community. Cargo will create the economic development. The passenger development will certainly make the airport grow, and from a revenue point of view may outstrip the cargo business."
One other advantage Hamilton has, says Battaglia, is the value of the Canadian dollar versus the U.S. dollar. People moving freight can save money by shipping via Hamilton International and then trucking to the States, he says. "That’s a tremendous savings for many of the companies," he says.
Toward the goal of integrated services, the federal government is currently funding construction of a spur to the airport off the main highway system that connects Hamilton to entries to the U.S. Construction is set for completion in 2003.
A need for Capital, Airport Management
According to Battaglia, the airport was operated by the city of Hamilton through an operating agreement with Transport Canada, which later divested itself of the facility to the city, concurrent with the privatization effort.
Transport Canada is in the final stages of a national plan to divest the federal government of the nation’s airports, which it had owned. The federal government is maintaining ownership of the 26 top tier airports, which it has transferred in most cases to operating airport authorities under local control and long-term leases. Hamilton is a second tier airport. Explains TradePort vice president of finance Paul J. Tice, "We are bigger than probably 20 of the 28 national airports."
The city is now the owner of the John C. Munro Hamilton International Airport, named for a local legislator/federal minister. According to Battaglia, the city had little success during its tenure operating the facility, largely because there was no money for necessary infrastructure development.
"They were losing in the neighborhood of half a million to a million dollars a year, which was being funded by Transport Canada," recalls Battaglia. "There were certainly no funds available for any expansion or capital improvements, so they decided when they accepted the transfer (of ownership) of the airport that they would privatize the operation."
That led to TradePort entering a 45-year lease agreement to act as owner, developer, and manager — all with the target of making a profit.
Tice and Battaglia say that the airport’s annual operating budget went into the black for the first time in 1999. Unlike most airport operators, TradePort does not open its books, not even to the city, says Tice. In lieu of its infrastructure investments, TradePort does not have to pay any rent fees through 2006, at which time a percentage of revenues begins. "The city was willing to be patient," explains Battaglia.
Battaglia, who organized the consortium via Westpark Developments and whose background was in real estate development, spearheads the airport’s privatization and development initiatives. Management of the airport falls to YVR Vancouver Airport Services, one the TradePort partners which got its feet wet with the airport privatization effort in Vancouver. The third partner in TradePort is the Labourers International Union of North America (LIUNA).
One of TradePort’s initial moves after
taking over the airport was to review fees paid by tenants and users.
As with many airports operated under Transport Canada, say Tice and Battaglia,
Hamilton International had a complex fee structure that was in need of
simplification and updating. In particular, explains Battaglia, fees needed
to be increased to be able to afford making the necessary capital investments.
"Transport Canada didn’t have the funding required to make the capital improvements on the airport," he says. "A glaring example is the main runway, which we identified from the beginning as its major deficiency in attracting the international cargo business. It was only 8,000 feet long and could not provide trans-Atlantic capacities for a fully loaded aircraft."
Adds Tice, "So, we undertook to extend the runway (to 10,000 feet) and arranged the financing. We paid for all of it and the lighting upgrade.
"Clearly, in this business, the airlines are not going to come if the infrastructure is not there. In order to pay for that investment, the rates and charges had to go up, but not to the point that the carriers were opposed to it."
Tice calls Transport Canada’s fee structure "disaggregated" and inadequate, requiring TradePort to play catch-up in bringing in enough revenues to maintain what was in place on the airfield, and then to create dollars for expansion.
"The first thing we did was get rid of the Transport Canada fee structure," says Tice, "which is something most Canadian airports have done. It has simplified things greatly."
Tice says that today the aircraft fees, set to be reviewed in 2002, are based on weight and whether a flight is domestic or international. For domestic flights, the fee begins at $15 (Canadian) per metric ton; for international, $20 per metric ton.
"Transport Canada had over a dozen rates depending on the weight of the aircraft," recalls Tice. "It had 15 categories for terminal fees depending on the seats in the aircraft. All of that had to disappear."
Regarding other users, general aviation light aircraft are charged a flat $25 landing fee, while larger corporate aircraft pay the weight-based fee. There is no fuel flowage fee, and fixed base operators and other airport tenants pay ground rent only, according to Battaglia and Tice.
While cargo was clearly identified early on as the ripe opportunity for TradePort, the success of domestic carrier WestJet Airlines has the airport quickly refurbishing and expanding the terminal and parking facilities to meet the increasing demand. This year, WestJet projects it will move 450,000 passengers through the Hamilton terminal. "They’re halfway there and I don’t see any reason why they’re not going to make it," comments managing director Richard Webb. The 55-year old director spent most of his career with Canadian Airlines internationally.
Award Winning Effort
Each year, the Ministries of Municipal Affairs & Housing and of Education & Training recognize innovative approaches to providing and paying for public services and utilities. In 1997, the competitive bidding process used by Hamilton International Airport in its privatization initiative with TradePort International was so honored.