Former GTAA Planner Takes Look at Island Airport Terminal Sale
Tom Driedger: Combination of Expansion and Proposed Terminal Sale Will Increase Island Airport Passenger Fees The song “500 Miles” was a popular folk song in the 1960s recorded by the group Peter, Paul and Mary. It is a story about a traveller, despondent and broke, who is far from home but ashamed to return because of his condition. In the refrain he sings: 500 miles, 500 miles, 500 miles, 500 miles Lord I'm five hundred miles from my home. Not wanting to meet the same fate, Robert Deluce, the CEO at Porter Airlines announced he was putting the terminal at the island airport up for sale. The deal is reported to be valued at $500 million enabling Mr Deluce to earn a profit of $450 million. Two questions come to mind. Is the airport terminal that cost $50m to build in 2010 now worth $500 million? And, if it is, what are the implications to travellers? In 2012 the Bank of Nova sold its main offices in the financial district for $1.27 billion. This is a prime piece of real estate with 2 million square feet of office space and a major bank as the anchor tenant. In another recent transaction Hudson’ Bay sold the Simpson Tower and adjoining retail complex and Bay and Queen for $650m. It is hard to believe that an airport terminal, with a life that may be limited to the remaining 19 years of the Tri-Partite Agreement and anchored by a fledgling business in the aviation industry could be worth any more than a rounding error in the bank’s transaction let alone almost 40% of it and over 75% of the Hudson’s Bay property. Something doesn’t add up. Is the $500m price tag real or just posturing? But suppose the price is realized. The cost of all improvements of Porter’s proposal by all parties is a conservative $975m: $82 for the tunnel, $92 for the runway, $500m for the terminal and at least $300m for groundside improvements. These costs have to be recovered directly from passengers or indirectly from passengers through landing and other user fees to airlines. If one believes the numbers in the Draft Master Plan, the upper limit is about 3.8m passengers annually. This level would require a contribution of at least $43 from each departing passenger to recover the investment over the remaining 19 years of the agreement. The current AIF is $20 leaving shortfall of $23. Although this is only about six cups of coffee it is a significant amount in an industry that only a few months ago called the provincial government’s decision to increase the tax on aviation fuel from 2.7 cents/litre to 4.0 cents/litre “unbelievably punitive”. Another metric used to assess the cost of operating at an airport is the long term debt or long term liability per passenger. For YTZ this is the combined long term liability for all organizations that fund the facilities airlines need to operate. The $500m liability for the terminal will the responsibility of the new owner, the tunnel ($82m) shows up as a long term liability on TPA’s balance sheet (“Tunnel Concession”). The owner of the debt for the runway extension ($92m) or groundside improvements ($300+m) has yet to be determined but could be the TPA if it again uses a concession form of financing. Regardless of the owner they will be part of the total overall debt picture for the airport that must be recovered. The table below shows the debt/passenger for some airports similar in size to Billy Bishop Toronto City Centre Airport (YTZ) and Toronto Pearson in 2013. * tunnel - $82m; terminal - $50m With the expansion the debt/passenger and hence the cost of operating at YTZ will increase from $35 to $257 moving it from the lowest cost airport in its size to the highest and at the same time probably become the most expensive airport in Canada. The debt/passenger could be reduced if the $500m sale price is not realized. A lower sale price would lower the cost of doing business but on the flip side it would also reduce the cash available to Porter for expansion. A second possibility is for the city to assume the cost of the groundside improvements, an approach the Toronto Port Authority has previously mentioned. This is not a valid argument. Why should residents be burdened with remedying a groundside system imbalance created by activity on the airside and terminal systems? The TPA has the responsibility to ensure that all three systems remain in balance and to operate the airport within the limits of the most constrained system. A third option is to increase the number of passengers through larger aircraft or by increasing Porter’s load factor from the 60% range to the 90% range achieved by Air Canada and WestJet. This “damn the torpedoes approach” would provide the greatest revenue stream to Porter and the TPA and the greatest harm to a balanced approach to airport and waterfront development. The increase to both the AIF and debt/passenger would increase considerably if the passenger levels were capped at 2.4 million (the Phase 1 limit in the city’s report) rather than the 3.8 million in the TPA’s Master Plan for the airport It is important to remember the objective is not to find ways of creating the biggest airport and shoehorning it into a confined space to the detriment of other functions. Rather it is to define the role, size and type of airport most compatible with the best overall plan for the city and then live within those bounds. It is up to the incoming council to look at the big picture, reject the proposal and prevent Mr. Deluce from singing the refrain of another Peter, Paul and Mary hit “I’m leaving on a jet plane” _________________________ Background and Disclaimer:
Tom Driedger worked in the airport industry for over 40 years. Beginning with Transport Canada in Ottawa he held positions in Vancouver and Edmonton before moving to Toronto and later transferring to Greater Toronto Airports Authority in 1996. He retired in 2013 as Senior Manager, Strategic Planning. NoJetsTO met with Mr Driedger. In his view Porter’s project has its four distinct elements, each with it own set of problems (runway expansion, long haul flights, larger capacity aircraft and jet powered planes) making it inappropriate for the type of airport he envisions. In his words “the objective is not to find ways of creating the biggest airport and shoehorning it into a confined space. Rather it is to define the size and type of airport most compatible with the best overall plan for the city & local area and then live within those bounds.” Given the considerable common ground between our views and those of Mr Driedger, we are posting some of his background notes. These views are his and his alone. They do not represent the views of NoJetsTO, Transport Canada, and/or the GTAA .