The Airport Business
I hate airports. Who doesn’t?
Regardless, these are critical pieces of infrastructure in our world. And, failing some major intervention in the name of the environment, airports are a growing business (most diplomats that attend international environmental meetings fly in on an airplane).
The best businesses in this class: any major city you’ve heard of, followed by the words “International Airport”. (In Canada, we too often name them after Prime Minister’s like Pearson and Trudeau, but that’s another matter.)
Don’t quote me too often as saying this, but it’s true: Paul Martin and the Liberals did something very brilliant while in office. It was the restructuring of the Canada Pension Plan, and more importantly, the introduction of the arms-length Canada Pension Plan Investment Board (CPPIB).
The Liberals saved the Pension system in Canada. There, I said it. I’ll finish this article in a little bit (after I brush my teeth and shower a few times).
OK, I’m back.
The Liberals handling of the air travel business, on the other hand, was awful. While it was in need of reform, the reforms they introduced were too often the wrong ones:
- They added insanely high taxes after 9/11 to pay for security measures that never materialized.
- They meddled too often with Air Canada and its various competitors.
- They created the existing airport business model.
So what does the CPPIB do with all the money saved for our future CPP payments? Well, given the long-term nature of much of that money, they invest a fair amount of it in infrastructure: things like highways, seaports, municipal water systems, power distribution systems, and, what’s this, AIRPORTS.
Right now CPPIB has a bid in for New Zealand’s biggest airport, Auckland.
So airports are a hot commodity right now. Why? In large part because of the growing interest in air travel, particularly discount holiday travel. But there has also been a history of poor planning, mismanagement and frankly, failing to see airports as a business at all that resulted in severe undervaluation of the airport business and its underlying assets.
The rest of the world has woken up to this, and airports around the world are restructuring into prosperous businesses. Here are just a few headlines of the last few years:
- In June, 2006, a Spanish construction company bought the company which operates London’s Heathrow Airport for £10.3 billion.
- Hangzhou Xiaoshan International Airport, China’s eighth-largest airport by passenger volume, is seeking to raise approximately US$800 million from an initial public offering.
- Macquarie Group Limited of Australia, a globally-recognized innovator in investment in infrastructure assets, has bought and sold many airport assets around the world through it’s MAp Macquarie Airports division.
And what of Canada’s airports?
Well, we restructured them, but we are still stuck in the 1980s management mentality (the same sort of mindset that builds airports like Mirabel, in the middle of nowhere).
Oh sure, we have some great airports (like Pearson, and it’s $6.5 billion of long-term debt) that look nice.
Unfortunately, management mentality is more like a bureaucracy than a business. So is, by the way, the ownership structure.
In Canada, there are these little “Authorities” set up to include a whole bunch of “stakeholders”, but the ownership of the airport rests with the Federal Government, who have these ridiculously long “leases” of the land to the local authorities. In short, we have a non-accountable, bureaucratic system that is almost impossible to change. Unwinding this could take decades.
The Federal Government requires some airports to pay lease fees for the airport. While this sounds like a fair business practice, it gives the airport management the perfect scapegoat for their own financial mismanagement (the Federal Government fees are killing us). It’s like blaming the school principal for your misbehaviour. Frankly, I think these fees should go, but it should be part of a wholesale re-restructuring of the airport business in Canada, not an endorsement of local financial mismanagement.
Until the re-restructuring, we have a huge mess. We have the most expensive airport in the world to land a plane (everyone’s favourite vacation destination: Toronto), an airport that charges $15 for the privilege of passing through it’s lovely doors (Vancouver), airports with debts up to their eyeballs (all of them) to build lovely buildings that add very little value (again, Pearson, with it’s stunning glass view on the world, but nowhere to buy a coffee).
Meantime, our own CPPIB is chasing airports around the world for their commercial value.
If it wasn’t so sad, it would be funny.
Network
