A recommendation by the Canadian Airports Council would turn federal policy on its head.
When Canadians return to the skies after COVID subsides, they will likely be met with higher fees and ultimately higher airfares, slowing an aviation recovery that is already projected to last three years or more, a new analysis shows.
The Canadian Airports Council said Friday that federal aid programmes meant to help weather the pandemic are of limited use to airports, whose revenues have collapsed since mid-March.
In Canada, private authorities lease airports owned by the federal government and rely on passengers and the revenues they generate for their survival.
“Our airport is headed toward a financial crisis,” said James Bogusz President and Chief Executive Officer of the Regina Airport Authority during the authority’s Annual General Meeting Thursday.
Passenger volumes were down 90% across the country in April, the council said, with similar low volumes projected in May. Airports have responded by cutting construction and laying off staff. But most of their costs are fixed, so airports can cut only about 20% of their budgets.
To help businesses, including airport authorities, cope, the federal government has launched:
- Wage subsidies of 75% up to $847 per week. These have helped avoid layoffs, said the council, but dozens, perhaps hundreds, of small regional and municipally-owned airports don’t qualify;
- Large Employer Financing Facility to provide loans of last resort to companies with revenues of $300 million or more. Only four Canadian airports – Toronto, Montreal, Vancouver, and Calgary – make the cut, and they say they can get loans on the private market for better rates;
- Business Credit Availability Program creates loans that eventually have to be repaid;
- Canada Emergency Commercial Rent Assistance that helps landlords whose tenants can’t pay. Airports are landlords to companies employing thousands of people. “While it may still be helpful to some,” said the CAC, “most airports have already reached rent deferral agreements with their major tenants.”
Even before the pandemic, debt service gobbled up on average one out of every five dollars Canadian airports spent, according to figures compiled by Western Aviation News. Airports spent $666 million on debt service, while spending $530 million on salaries in 2018, the last full year for which data are available.
“Further erosion of liquidity will hamper access to lending that is desperately needed to weather this crisis and the additional debt and interest that airports are taking on just to support ongoing operations will have to be repaid,” said the CAC’s analysis. “Given that this crisis will depress traffic for many months to come and airports expect recovery to take three to five years, without additional support many of Canada’s airports will be forced to increase charges to airlines, passengers and other clients.”
So far, only one pandemic aid programme has been targeted specifically at airports in Canada. In March, early in the pandemic, the federal government suspended payments of land lease payments for the rest of the year.
That move alone cost the eight largest airports some $330 million last year. Toronto International said the rental waiver allowed it to eke out a surplus in the first three months of the year, before the full effects of the pandemic were felt.
But ground lease payments are based on airport revenues, meaning their actual impact in 2020 will be significantly less.
To avoid a massive increase in airport fees that would ultimately be passed on to passengers, the CAC has issued four recommendations, including one that would turn federal airport policy on its head.
First, it wants the ground lease payments suspended for at least five years to free up cash.
Next, the council is asking for interest-free loans. “The biggest concern airports have today is covering the cost of operations on little to no revenue,” the council said. It also wants Ottawa to provide loan guarantees to ensure airports continue to have access to affordable loans on the financial markets.
In the 1990s, Ottawa privatized the operation of most of the country’s airports, leasing them to non-profit authorities or selling smaller airfields to local communities. The National Airports Policy also left airports to fund their own operations, while helping some facilities pay for construction projects.
The CAC calls the model “barely sustainable” for rural and remote airports.
“For airports with particularly low traffic volumes, a funding stream to cover essential operating expenses would be tremendously helpful,” the CAC said, a request that would reverse federal airport policy since the 1990s.
Ultimately, the federal government underwrites Canada’s largest airports. It owns the land and guarantees the long-term viability of 21 authority-run facilities in the National Airports System. Authorities, by law, are required to return a “world class” debt-free airport to the federal government at the end of their 60-year leases.
But in the short term, the authorities owe billions and are faced with racking up even more debt just to pay the bills.
A spokesperson for Transport Canada said the ministry is “following the situation in the hard-hit aviation sector very closely.”
“A balanced approach is needed in supporting Canadians and ensuring that they continue to have affordable and efficient air transportation options for years to come,” she wrote, before referring more detailed questions to the Ministry of Finance.
Categories: Canadian airports and cities