A private airport concession need not be the bogeyman some think it is

Jordan Eizenga is the national infrastructure leader at Deloitte Canada and Tim Murphy is executive vice-president at Aecon.

Good infrastructure delivers services to Canadians efficiently and effectively. The government’s recent changes to allow private concessions in our major airports will help to serve workers, passengers and the community better.

In the 1990s, Ottawa transferred its largest airports to non-profit airport authorities operating under long-term ground leases with Transport Canada. It made sense at the time and let airports borrow from private markets to expand their terminals and runways without needing taxpayer support.

But the last three decades have exposed the model’s limits. While airport authorities are financially independent, they do not have the financial flexibility, pricing discipline or accountability to government that continued infrastructure investment will require. By many metrics, Canadian airports are among the most expensive in the developed world and need significant continuing upgrades to their infrastructure.

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Passenger demand at Toronto Pearson, for example, is expected to grow over the next 10 years, which will require additional infrastructure, baggage systems and other ancillary technology to accommodate.

These issues have been recognized before. The 2016 Canada Transportation Act Review recommended potentially moving the largest airports to private investors under a regulated model. Airport reform is long overdue.

The government’s decision to retain ownership of airport land while allowing long-term concessions with private airport managers can produce several meaningful benefits to workers and passengers.

It introduces an airport manager the government can hold to account. Currently, airport authorities operate public infrastructure, but the government has almost no way to influence how airports set prices, manage relationships with workers or ensure proper service and capital investment levels. When the government transferred the airports almost 30 years ago, it did not build in any mechanism to do so. That was a mistake that the government can rectify now.

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A concession with a private operator replaces that lack of public control with a binding agreement that establishes rules for airport fees, union wage requirements, service and capital upgrade obligations. If a private concessionaire fails to meet these contractual obligations, the government will ordinarily have specific ways to rectify the situation.

Such an arrangement is not less public involvement or protection of workers and consumers. It is a more direct, accountable and enforceable model for regulating the performance of our largest airports in a way that can benefit everyone.

Airports in London, Sydney, Melbourne, Auckland, Brussels and Copenhagen, for example, all operate with private investment using contracts that govern pricing, performance standards and capital upgrade requirements. Not all of these have been perfect, but we can take the best of each of these contract models and apply those lessons appropriately to our largest airports.

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A further benefit of a concession is that it can free up limited government resources. Our current airport model has kept the federal government’s capital tied up in assets in which the private sector would gladly invest. A better approach would be to redeploy public capital from these assets to things the private sector will not fund and that we sorely need, such as affordable housing and transit.

Opponents often look to Ontario’s Highway 407 ETR concession as an example where government sold concession rights to a public infrastructure asset at a value that, with hindsight, proved significantly too low. We have learned a lot in the nearly three decades since that concession about contract design, revenue-sharing requirements and regulation that protect the public interest.

Canadians would be well served by focusing less on who owns the airport and more on how it is managed, contracted and regulated to ensure enforceable obligations and proper oversight of the fees citizens pay. That can happen with a private manager.

By applying the best aspects of models used elsewhere, Canada is well positioned to improve our airports, unlock the immense amount of federal capital tied up in these airport assets and redirect it to much-needed public goods.