Features Operations
Contrails-March/April 05

Ten years ago, Lawrence Solomon, now executive director of the Urban
Renaissance Institute and I co-authored a report, Benefitting Consumers
Through Airport Privatization. It was a counter proposal to the
commercialization of major airports first started in 1993 by Brian
Mulroney’s government, and the creation of so many unaccountable
airport authorities.

At
the time I was also a correspondent for Jane’s Airport Review and was
on the North American speaking circuit promoting the ideal of airport
privatization. Whether it is an FBO or passenger terminal, I have
always found the ground product to be the most intriguing part of the
air transport package.

Airport privatization has never been far
from my mind, and returned recently after reading Peter Shawn Taylor’s
essay in Canadian Business on what is wrong with our airports. Taylor
is not the first journalist to go down this path. The National Post’s
Terrance Corcoran once picked up the cause. The Globe and Mail also
wrote a compelling piece on selling our airports in the summer of 2003.
But the voices have been too few and far between to gain traction.
Meanwhile the airlines, which have a legitimate concern over spiraling
cost increases and the arrogance of monopoly service providers, have
done a terrible job helping to fight the corner.

No matter how
the government and airport authorities try to spin it,
commercialization is not privatization. Commercialization is
‘privatization lite’ – all the abuses of an unregulated monopoly and no
real transparency.

It has been difficult to argue against
commercialization because it was a vast improvement over what existed
before. But there are problems that run deeper than Ottawa’s outrageous
land leases (which airport authorities signed on for as the price of
admission). Airport authorities wanted a blank cheque to raise fees.
Hearing the ka-ching of the cash register, Ottawa handed it to them.
Airport authorities might begrudge Ottawa the rent, but for them it
beats the alternative: cost control including imposed price regulation.

The
absence of such regulation has been one of the fundamental flaws of
commercialization. When a monopoly has no brake on what it can charge,
it also has no discipline on how it spends. That is why Toronto |
Pearson is one of the world’s most expensive and least efficient
airports. And why the Greater Toronto Airports Authority is prepared to
sink billions into a second Toronto airport without digesting the cost
of Pearson’s recent $4.4 billion makeover.

Clearly the time has
come to clip the umbilical cord and privatize airports individually or
as a group in a public share offering similar to what the UK government
did with London Heathrow and Gatwick, and others, 18 years ago. Of
course, there would have to be a regulated framework to prevent an
airport company from abusing its monopoly power. This would include
price regulation and airline representation on the board. And, even
with privatization there would be added costs. Although the rent burden
would disappear, as legitimate corporations, airports would be taxed.
And as price controlled monopolies, the cost of borrowing would rise
dramatically as credit ratings tumbled because airports could no longer
cover lavish spending and unmanageable debt through exorbitant price
increases. But that is a market correction long overdue.

In
addition to delivering the federal government an up front cash
injection of approximately $2 billion, privatization would create an
airport system that is more accountable to its tenants, customers and
shareholders. Something that does not exist right now.

The
Mulroney government’s 1993 airport policy floated the idea of
privatization after five years. The Vancouver International Airport
Authority already competes with private companies such as the UK’s BAA
plc for international airport development and operating contracts and
is considering taking that side of the business public.

Meanwhile,
Canadian airport authorities are reluctant to pursue the private sector
option on their home turf. Why? Perhaps privatization would illustrate
how poorly managed many of Canada’s airports really are.