The federal Liberals have a credibility problem when it comes to their promise to renew Canada's infrastructure: Much talk, no action.
Finance Minister Bill Morneau has a chance to fix that perception and put as much as $16-billion into government coffers in the budget he is scheduled to table on Wednesday, if he moves forward aggressively with the sale of the country's eight largest airports. The runway is clear. The government is sitting on a privatization plan filed last year by investment bank Credit Suisse. Pension plans and other deep-pocketed investors are lining up to buy these assets.
Smoke signals from Ottawa say the government is dithering when it comes to airports. Civil servants in the Finance department are said to be keen on privatization, while the Transport department that oversees the facilities wants more time to look at options. As the Liberals' second year in power flies by, what exactly is the government waiting for when it comes to infrastructure?
While many industrial countries put airports into private hands years ago, there's an only-in-Canada ownership structure in place at the country's largest airports that sees them operate as non-profit, debt-financed agencies. The government owns the land and leases it to airport authorities; governments, including municipalities, typically play a prominent role in appointing members of the board.
Ottawa could unlock between $7.2-billion and $16.6-billion by selling equity in the eight biggest airports, according to a recent report from the C.D. Howe Institute, money that could be used "to finance other socially important infrastructure." The C.D. Howe report also noted that Britain and Australia successfully sold airports, while also regulating them to ensure that passengers don't get gouged. Canada could do the same.
The first step in a privatization plan, one that would seem to provide an easy win for the Liberals, would be the sale of Toronto Pearson International Airport, the crown jewel in the government's collection. The facility is operated by the Greater Toronto Airports Authority (GTAA). Where executives at some airports, most notably Vancouver, Calgary and Ottawa, have come out against privatization, GTAA officials have been neutral in their public statements on their future ownership.
However, GTAA chief executive Howard Eng has been outspoken on the benefits of further investment in Toronto Pearson, such as additional rail and road connections to terminals that host more than 40 million passengers annually. Mr. Eng's vision is to create a transport hub that's on par with world leaders such as London Heathrow, Dubai and Singapore – in other words, an airport that contributes to the entire country's economic growth.
The C.D. Howe Institute estimates Toronto Pearson alone would fetch $2-billion to $6-billion if sold to institutional investors. The range is wide because there is still some uncertainty about how the airports' existing debts would be resolved.
However, if recent experience is any indication, offers will come in at the top end of that range. The air terminal at Billy Bishop Toronto City Airport, which ranks among the 10 busiest terminals in the country despite being restricted to flying propeller-driven aircraft, sold for more than $700-million to a consortium that included AGF Management Ltd. and Maple Leaf Sports and Entertainment Ltd. chairman Larry Tanenbaum, a price that was well above expectations.
Pearson sees about 17 times as many passengers as Billy Bishop.
Early in his mandate, Prime Minister Justin Trudeau reached out to the country's biggest pension plans, asking for commitments to future infrastructure investments. To the frustration of executives at the funds, the Liberals have yet to follow up with big-dollar opportunities to actually put capital to work.
The result has been predictable: With no opportunities to invest in Canadian airports, the country's biggest pension funds built an expertise in the sector by investing outside the country. A consortium that included Alberta Invesment Management Corp., OMERS and the Ontario Teachers' Pension Plan took control of the London City Airport last February, the latest in a string of Canadian institutional investments that includes airports across Europe and Australia.
Teachers has been particularly active; in addition to London City, it owns equity in airports in Bristol and Birmingham in Britain and also in Brussels and Copenhagen. Construction companies are also getting into the act: Aecon Group signed a $274-million (U.S.) deal last week to renovate and operate Bermuda's airport.
The Liberals came out of the 2015 election with ambitious plans for investing in the country's aging infrastructure. To date, the government has failed to deliver on that promise, despite running large fiscal deficits. Selling airports would be a straightforward way to provide the money to kick-start an infrastructure agenda.
CANADA'S EIGHT LARGEST AIRPORTS
Annual passengers: 44.3 million
EBITDA (2015): $789-million
Potential value: $2-billion to $6-billion
Annual passengers: 22.3 million
EBITDA (2015): $300-million
Potential value: $3.2-billion to $4.5-billion
Annual passengers: 16.6 million
EBITDA (2015): $292-million
Potential value: $1.3-billion to $2.9-billion
Annual passengers: 15.7 million
EBITDA (2015): $259-million
Potential value: $150-million to $1.2-billion
Annual passengers: 7.5 million
EBITDA (2015): $121-million
Potential value: $400-million to $1-billion
Annual passengers: 3.9 million
EBITDA (2015): $61-million
Potential value: $100-million to $400-million
Annual passengers: 4.7 million
EBITDA (2015): $61-million
Potential value: $0 to $400-million
Annual passengers: 4.0 million
EBITDA (2015): $44-million
Potential value: $0 to $350-million
Sources: C.D. Howe Institute, company reports