The Canadian government is thinking of releasing the nation’s gateways from its grasp. It has commissioned studies for the full sale of both ports and airports. However, senior executives from those ranks have voiced reservations about such a move.
The government has tasked investment bank Morgan Stanley with a study of the feasibility of fully privatizing Canada’s 18 federally run ports. These include Vancouver – Canada’s largest and the third-largest in North America in terms of tonnage throughput – as well as Halifax, Montreal and Toronto. Collectively, they handle about 310 million tons of cargo in a year, according to the Association of Canadian Port Authorities.
This follows the appointment in September of another investment bank, Credit Suisse, to provide guidance on the potential sale of Canada’s federally run airports.
Both studies are due to be completed in 2017.
Canada’s ports and airports were partially privatized earlier. Altogether, 26 airports were handed over to not-for-profit airport authorities. They derive income from fees and leases and pay rent to Ottawa based on their revenues. The ports have been mandated since 1998 to be “fully commercial and completely self-sufficient.”
According to port and airport operators, both sides have benefited from investments to upgrade their facilities in the wake of these moves and offer a comparatively high standard of service. However, a study commissioned by the previous government, which was released in 2015, has argued that costs of flying in Canada remain comparatively high and could be brought down by privatization. The authors conceded that the current not-for-profit ownership model has been efficiently run but found it outdated.
Rents that airports have to pay have attracted much criticism. As a percentage of airport revenues (between 6% and 12%, varying by airport), they actually penalize airports for their growth, one airport executive noted. In 2015, Canada’s major airports paid C$323 million (US$245.9 million) to Ottawa.
A second argument has been that full privatization would make it easier for ports and airports to attract investment in upgrades and expansion projects.
The fact that under the current regime the airports are on land leased from the government also stymies investment, noted John Gibson, CEO of Prince George Airport in British Columbia. Daniel-Robert Gooch, president of the Canadian Airports Council, remarked that leases can be a problem when airports try to secure long-term tenants.
Gibson reckons that transferring land ownership to his airport might be more beneficial than privatization, but he wonders if this would unleash potentially drawn-out land claims issues.
Other airport authorities have signalled opposition to the privatization scenario. Craig Richmond, CEO of the Vancouver Airport Authority, has argued that the need to generate adequate return on the investment would lead to cutbacks on aspects like maintenance and cleaning. The CEO of the Ottawa airport authority warned that privatization would result in higher fees.
“The cargo component was not much thought of in this,” remarked Gibson.
Opposition has also been voiced by port operators. In a speech to local business leaders Robin Silvester, CEO of the Port of Vancouver, cautioned against port privatization plans, saying it could cripple future investments to increase capacity.
Gibson doubts that privatization would unleash significant funds. Barred from federal infrastructure funding initiatives, Prince George has to finance its expenditure through revenues and an airport improvement fee. The airport has tried to market itself as a stopover for freighters heading from North America to Asia to top up on cargo and fuel up using a local fuel facility. Potential Chinese investors in a cargo facility were deterred by the lease situation, so the airport authority ended up shouldering the construction of a cargo terminal, which was completed in late 2015. This was later than planned, but it required the commitment of an anchor tenant (which has taken up 60% of the facility) to go ahead, Gibson said. “We were not going to build it and hope somebody would come,” he added.
According to Gibson, a couple of Asian carriers are considering a stop in Prince George. “We want to get a couple of charters in in the coming year to validate that everything works,” he said. Privatization would have no discernible impact on this.
By Ian Putzger
Correspondent | Toronto
