"Canadian airport rent relief back on radar screen"

Friday, December 10, 2004

Airport rent relief back on radar screen
Federal Transport Minister pushing to freeze, then reduce levies paid to
Ottawa
By SIMON TUCK
Canada - The Toronto Globe and Mail
 
 
OTTAWA -- Transport Minister Jean Lapierre says he has a plan to freeze and
then cut the rent that Canada's airports pay the federal government, a move
that would mark a big win for the airports and a key step toward improving
the financial health of the airline industry.

Mr. Lapierre told The Globe and Mail that he wants airport rents frozen for
2005 as an interim step, and then permanently lowered, and that he is about
to seek cabinet committee support for his plan. The Minister said last month
that he intended to propose lower airport rents before the end of the year,
but had not previously revealed any specifics.

Mr. Lapierre also said any reduction would need the support of Finance
Minister Ralph Goodale. "It's up to Ralph," he said during a brief
interview.

Pat Breton, a spokesman for Mr. Goodale, said the Finance Minister supports
the idea of lowering airport rent, although it's too early to commit to any
particular proposal. "It's something we'd like to act on," he said. "We've
just got to make sure it's an affordable, workable plan"

Airport rents have been negotiated by airport authorities across the
country, since the federal government transferred control of the facilities
to the not-for-profit operations more than a decade ago.

The rents, a key component of the Canadian aviation industry's escalating
costs, have been a political football for the past few years. Mr. Lapierre's
most recent predecessors -- Tony Valeri and David Collenette -- had also
expressed interest in lowering airport rents, but never received support
from the ministers of finance at the time.

The issue is considered important for airlines and passengers, not just the
airports who must pick up the hefty bill.

According to the airline industry, airport rents are scheduled to rise on
Jan. 1 by about $34-million, or 11.9 per cent, to about $320-million for
next year. Rents had also been scheduled to rise in each of the next few
years, despite the industry's struggles since the Sept. 11 terrorist
attacks.

Airports have vowed to pass on any savings from reduced rent to the
struggling airline industry through cuts to landing fees and the other
charges. 

The airline industry, meanwhile, says those savings from lower airport rents
-- at least $34-million in total in the first year alone if Ottawa freezes
the rent -- would trickle down to air travellers through lower ticket
prices.

"This is our No. 1 issue for government," said Warren Everson, spokesman for
the Air Transport Association of Canada.

Tim James, an analyst at Octagon Capital Corp., said lower airport rents
would be a "small positive" for the airlines' financial picture.

The problem with lowering airport rents, from the government's point of
view, however, is twofold: The money raised helps pay the bills at the
Department of Transport, and the government is facing many requests for its
available money. 

Mr. Goodale said last month that the government's surplus is expected to be
$8.9-billion during this fiscal year, but is forecast to fall to
$4.5-billion in 2005-06. 

The airport authorities that run the facilities -- and the airlines that pay
the authorities' fees -- have argued that the rent paid to Ottawa is
excessive and varies almost inexplicably from one airport to another.

Toronto's Pearson International Airport, for example, is scheduled to pay
about half, or $142-million, of the rent paid this year by all of Canada's
airports. Vancouver International Airport is to pay about $75-million, while
Montreal's Pierre Elliott Trudeau International Airport is to chip in about
$20-million. 

Ottawa views airport rents as royalties to help cover the cost of building
the airports in the first place.

But critics, such as Conservative MP Rob Nicholson, argue that Canadian
taxpayers had already funded the initial building of airports before they
were turned over to airport authorities.

Douglas Reid, a business strategy professor at Queen's University in
Kingston, Ont., said the government charges the airports lofty rents because
it can get away with it, not because any service is being provided. "It's a
tax grab."

The question of airport rents is not the only airline industry issue that
may be ripe for change. Mr. Lapierre has asked the Commons transport
committee to conduct a major review of Canada's air policies, while
suggesting it's time to open up competition and reduce regulation.


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