People line up before entering security at Pearson International Airport in Toronto on Aug. 5, 2022.Nathan Denette/The Canadian Press
Canada’s biggest pension funds have pushed back hard against calls from business leaders and politicians alike to invest more of their assets in the domestic economy. Yet, there is at least one sector in which they would be thrilled to stash more of future pensioners’ cash without arm-twisting or coercion – the country’s capital-starved airports.
Most of the Maple 8, as Canada’s eight largest pension funds are collectively known, have been investing in foreign airports for years, capitalizing on a global boom in air travel that – after being halted during the COVID-19 pandemic – has resumed with no end in sight. Despite the huge carbon footprint of big jets, more people than ever are choosing to fly.
The International Air Transport Association, the trade group for 320 airlines, last week reported that global demand (measured in revenue passenger kilometres) was up 13.8 per cent in March over the same month in 2023. According to IATA’s projections, some 4.7 billion people are expected to fly in 2024, surpassing the prepandemic record of 4.5 billion in 2019.
Canadian airports have seen passenger traffic rebound sharply since the pandemic and need to invest massively to maintain and expand infrastructure to keep pace with demand. But as non-share capital corporations that operate under long-term leases from the federal government, the country’s main airport authorities cannot sell stock to raise capital. That has left them too dependent on debt financing and dreaded “airport improvement fees” to fund infrastructure upgrades and much-needed digital investments to improve service.
That could soon change. In last month’s federal budget, Finance Minister Chrystia Freeland specifically singled out airports as a possible candidate for pension-fund investment that a new working group led by former Bank of Canada governor Stephen Poloz has been mandated to explore. Transport Canada is expected to issue a policy statement this summer that is to clarify how pension funds could invest in airports “under the current governance model.”
“We’re looking for more flexibility so we can grow faster,” Canadian Airports Council president Monette Pasher said. “We view our [governance] model as having worked very well for Canadians and we want to look at ways we can tweak it.”
Just how far Ottawa is prepared to go to open up airports to outside investors remains to be seen. In 2017, Prime Minister Justin Trudeau’s government explored privatizing Canada’s biggest airport authorities but backed off the plan in the face of opposition from the airports themselves and polls showing little public support for privatization. Critics said Ottawa missed an opportunity to raise billions of dollars and put airports on a more solid long-term financial footing.
Canada’s airports took on $3.2-billion in debt during the pandemic as revenues plummeted. Ottawa stepped up with $570-million to help airports cover their most urgent capital needs during that period. But that was a small fraction of the US$40-billion in pandemic funding that Washington provided to U.S. airports, most of which are government-owned. Major U.S. airports, including New York’s once-dowdy LaGuardia, have completed glamorous upgrades in recent years.
So far, Ottawa appears unwilling to allow pension funds to take equity stakes in airports themselves, since that would require abandoning the current non-profit governance model. However, it is considering allowing pension funds to take ownership stakes in future airport facilities, such as new terminals and parking garages. Such an arrangement would give airports access to pension capital for new construction without having to increase their debt load.
That may not go far enough for Canadian pension funds, however. Based on their experiences abroad, most would prefer outright privatization, enabling them to take ownership stakes in airport authorities themselves. That would give them a bigger say in how the airports are operated, including how they raise and manage revenues.
As it stands, Canada’s airport authorities have an unfettered ability to raise user fees. That has left airlines that operate here paying among the world’s highest landing and gate fees, and passengers dinged with ever-escalating airport improvement fees. Such high fees have hurt Canadian airports’ competitiveness.
Opponents of privatization warn that such fees would rise further if Canada’s airports became profit-driven corporations, as equity owners sought to extract dividends. But evidence from Europe, where many major airports are privately owned, suggests otherwise. Discount airlines have flourished in Europe in large part because of Europe’s lower airport fees.
Meanwhile, here in Canada, our airports have been falling behind.
“Toronto Pearson has been meeting passenger needs by deploying extraordinary resources to many of its aged assets and facilities, which is not a sustainable solution with passenger traffic levels expected to grow,” the Greater Toronto Airports Authority said last month in announcing a multibillion-dollar plan to modernize Canada’s largest airport, which saw 45 million passengers in 2023 and is expecting 65 million by the early 2030s.
Aéroports de Montréal, which operates Trudeau airport, has also unveiled a major plan, set to cost as much as $4-billion, to upgrade infrastructure and reduce congestion at Canada’s third biggest airport, which handled 21 million passengers last year.
“We are engaged in a race. We have four years to be able to welcome four million more people than today,” ADM chief executive officer Yves Beauchamp said last month. “New financial tools will be necessary.”
Given the massive capital requirements facing Canada’s airports, this is not the time for timid or half-baked measures from the federal government. Ottawa needs to think big.