Calgary airport, Ottawa at odds over lease costs

TRANSPORTATION REPORTER

Calgary International Airport is pushing to break its long-term lease with the federal government, aiming to gain its independence and shake off what it views as excessive annual rent that drives up the cost of flying.

The air-travel industry is closely watching Calgary's talks with Ottawa, which maintains long-term leases with major airports across Canada. Critics say the agreements are unfairly costly and erode competitiveness, and Calgary would like to pay the government a lump sum to end its deal.

"What I would like to do is buy out the lease," said Garth Atkinson, CEO of the Calgary Airport Authority. Mr. Atkinson said there could be an arrangement for the airport to buy the property and "get out of these crazy operating leases. The government would get some reasonable cheque - the present value of a future rent stream."

The Calgary airport's push to sever its lease highlights the growing friction between some of the country's major air terminals and the federal government. Airport and airline executives are frustrated by a regime of government fees and taxes that have contributed to higher airfares. Those escalating ticket prices have pushed many Canadian consumers to American airports, which don't pay rent and offer cheaper flights.

The federal government transferred responsibility for operating the Calgary airport to a local group in 1992, the first in a series of moves that shifted management of 26 major Canadian airports from Transport Canada to community-based authorities and other entities over an 11-year period. While civil servants at Transport Canada no longer oversee day-to-day operations and terminal expansions, Calgary and most other large airports are locked into leases that run 60 years, with options to extend another 20 years.

Ottawa is failing to recognize that in extracting rental payments from large airports, it is weakening the aviation industry's competitive position against U.S. airports, said Tom Ruth, vice-chairman of the Canadian Airports Council and president of the Halifax International Airport Authority.

"We're saddled with this rent formula. It goes on and on into the future, but it has already outlived its usefulness," Mr. Ruth said.

The Calgary airport carried a book value of $118-million back in 1992, but it has paid $332-million in "ground rent" to the federal government from 1992 to the end of 2009.

The rental payments stand in stark contrast to the U.S. government, which views airports as sparkplugs for regional development and tourism, believing that the broader benefits of economic stimulus are worth the price of subsidies for U.S. air terminals.

Mr. Atkinson will be asking new Transport Minister Chuck Strahl to review the rent file - a request that will be closely watched by Canada's other major airports, which are also worried about Canadian passenger traffic "leaking" to U.S. terminals. Toronto's Pearson International Airport, which has the highest rent bills, forecasts that it will pay $128.2-million to Ottawa this year and $135.1-million next year.

Pearson has paid $1.7-billion in rent to the federal government since 1996, when Transport Canada transferred management of Canada's largest airport to the Greater Toronto Airports Authority, which runs Pearson. Others that have written hefty rent cheques over the years include airports in Vancouver, Montreal, Ottawa, Edmonton, Winnipeg and Halifax.

This year, the Calgary airport's rent payments are forecast to reach $22.1-million, or a jump of nearly 40 per cent from an adjusted figure of $15.9-million last year. The rent is projected to steadily rise, hitting $33-million in 2014, despite revisions to lease contracts made by Ottawa in 2005 that lessened the burden.

"Our lease is still fundamentally flawed and unfair," Mr. Atkinson said. "It's an amazing drain in time and resources to live under this complex lease document. There's no purpose to keeping the huge bureaucracy to inspect airports and administer rent."

Transport Canada spokesman Patrick Charette said government officials regularly monitor the performance of Calgary and other airports, including their balance sheets.

Ottawa revised the rent formula under then transport minister Jean Lapierre in 2005. "The rent formula was designed to adjust to changing market circumstances, such as the 2009 economic downturn. When revenues decrease, airport rents decrease," Mr. Charette said, adding that Transport Canada has "no immediate plan to revisit the rent formula."

While 14 large airports paid a total of $257.3-million in rent last year, smaller airports owned by Transport Canada or municipalities or not-for-profit societies are eligible for government subsidies through the Airports Capital Assistance Program.

David Collenette, who served as transport minister from 1997 to 2003, said he doesn't support the Calgary airport's push to buy out its lease, but he does think some financial relief is crucial. "The rent for big airports should be reduced," Mr. Collenette said. "The major airports have financed all these improvements and they're still paying rent. I don't believe that's appropriate."