Canada's Large Pension Funds Want Stakes in Our Airports

Andrew Willis of The Globe and Mail reports Canadian airports can anchor a global infrastructure champion:

If you are reading this while killing time waiting for a flight in one of Canada’s major airports, you are sitting in what should be the country’s next global corporate champion.

The federal government’s long-overdue decision to sell concessions in four major domestic hubs – Vancouver, Calgary, Toronto and Montreal – promises to be a win for passengers and taxpayers. After years of analysis paralysis, Prime Minister Mark Carney has an opportunity to improve the passenger experience while raising billions of dollars.

The ultimate goal in this exercise, clearly visible to a Prime Minister who started his career as a Goldman Sachs banker advising governments on privatizations, should be creating a private-sector operator of Canadian airports that does business around the world.

At least one domestic pension fund, Montreal-based PSP Investments, is already well down this runway.

In June, months before Mr. Carney announced plans to sell airport concessions at last Tuesday’s Canada Investment Summit, Montreal-based consultant Fethi Chebil published a sector study that started with a metaphysical question for the government.

“What is an airport for? An asset to sell, or a tool to build a national operator?” Dr. Chebil said in his June report.

For governments, Dr. Chebil concluded that launching a business beats selling a few terminals. To support his argument, Dr. Chebil pointed to the success that Canada’s largest pension funds have enjoyed internationally as owners of airport operators, and the virtues of this model for frequent flyers.

The poster child for airport operators globally is PSP, which pays for the retirements of soldiers, Mounties and civil servants. The $321-billion fund manager has built a global business that should serve as a road map for Canadian airport ownership.

In 2013, PSP acquired a collection of European airports from a German infrastructure fund for €1.1-billion. The wholly owned subsidiary, branded as AviAlliance, now operates seven facilities in Scotland, Germany, England and Puerto Rico.

AviAlliance is the largest holding in a PSP infrastructure portfolio that handily beat performance benchmarks over the past decade.

AviAlliance airports also charge travellers less for food, beverages and fees than Canadian airports, according to Dr. Chebil’s research. Domestic airports operate as non-profit, debt-funded Crown corporations, a cumbersome, only-in-Canada ownership approach devised in 1992. Dr. Chebil said in his report: “The 1992 structure is not delivering lower costs to users.”

Private airport owners would create more opportunities for travellers to drop stupid amounts of money on cucumber-lined Hendrick’s martinis or Rolex watches. That’s discretionary consumer spending. Want to curtail the cost of a trip? Avoid airport restaurants and retailers.

The experience in Europe and Australia, where governments sold airport concessions, is to keep costs down by regulating fees on monopoly services such as baggage handling or aeronautical services including navigation. Governments use the same approach to ensure pipeline operators and electrical utilities don’t gouge consumers.

In 2016, former federal finance minister Bill Morneau launched an economic review that said selling airports was among the best options for a government that needed to find money for infrastructure projects. A decade later, Mr. Carney is following through.

For insight into how the Prime Minister thinks about finance, recall Mr. Carney’s pointed criticism of the billions in “dead money” on corporate balance sheets back in 2012, when he was governor of the Bank of Canada.

In a Q&A after a speech to the Canadian Auto Workers union, the then-central banker took CEOs and boards to task for being excessively cautious by sitting on cash, rather than investing in growth or returning money to shareholders.

There is a straight line from what Governor Carney said about dead money years ago to what Prime Minister Carney announced on airports last week.

Last Tuesday, in his opening speech at the investment summit, Mr. Carney said by selling airport concessions, while retaining ownership of the assets, “we will unlock their true value, by bringing in new capital and expertise into their operations and growth.”

“We will reinvest the tens of billions of dollars of capital we raise into the infrastructure that Canada needs,” the Prime Minister said.

Airports represent dead money on the federal government’s balance sheet. Selling concessions to operate Vancouver, Calgary, Toronto and Montreal’s terminals can make flying more pleasant, without boosting the cost of travel.

And placing the country’s four major airports in the proven hands of a fund manager such as PSP could create a global champion in a critical infrastructure sector. 

I wanted to kick this week off by discussing Canadian airports again.

Andrew Willis, citing Dr. Fethi Chebil, goes over many important points as to why we want to privatize airports.

In short, private airport owners would create more opportunities for travellers to enjoy the airport experience by enhancing the operations through a myriad of ways.

One thing I want to correct Andrew Willis on: airports aren't dead money for the federal government; they are a cash cow, which explains the reticence to privatize them.

But enough is enough. Canadian travellers deserve a better experience and better airport operators who understand these assets and know how to manage them properly.

If our pension funds -- not just PSP but OTPP and others including international funds -- can add value to our airports, and make money in the process, I am more than fine with that. 

The sooner we get on with it, the better. Let the unions complain; it's high time we join the rest of the world and make our airports world-class (they are far from it).  

Anyway, let's get on with it already and carve out these airports to the biggest and best funds domestically and internationally. 

Below, Jo Taylor, CEO of the Ontario Teachers' Pension Plan, joins BNN Bloomberg's Lindsay Biscaia live from the Canada Investment Summit. Listen carefully to what he says when asked about enhancing value at our airports (around minute 3:40). 

Also, a corporate video on AviAlliance, PSP's airport platform, one of the most successful in the world.