While the federal government has pitched its upcoming Canada Investment Summit as a means to attract foreign investment, it has garnered more headlines over speculation that the prime minister will open up existing public infrastructure—like airports—for private investment.
The idea, called “asset recycling,” allows governments to effectively lease public infrastructure to private investors in exchange for an up-front payment. This allows governments to raise money without having to raise taxes or accumulate debt (at least in the near-term). The funds raised through asset recycling are then used to purchase new infrastructure, which could then also be recycled, creating a virtuous circle of private investment funding public infrastructure ad infinitum.
This convenient narrative of self-financing public infrastructure often leaves out what happens to the public asset in question over the life of the lease. While governments will recoil from any suggestion that asset recycling constitutes privatization because the asset ultimately remains in public hands, private interests gain its operation and control for what are often 50 to 99 year-long concessions.
We’ve seen this movie before: it is effectively a public-private partnership (P3) contract to operate and maintain something without even having to design or build it. As the P3 experience has shown, privately controlled public assets rarely operate in the public interest. And why would they? The private investor has every incentive to minimize their costs and maximize their returns for the life of these multi-decade contracts.
So while asset-recycling may unlock billions in private investment for the federal government, the rest of us will be given no choice but to rely on purportedly public infrastructure that operates in the interest of investors. To get a sense of what that could entail, let’s take a look at how an important public asset like an airport might operate if leased to private investors based on other countries’ experience.
Most of Canada’s major airports are operated on federal land through long-term ground leases, by private, not-for-profit, non-share-capital corporations called airport authorities. Canada follows a user-pay model, with airlines and passengers paying fees for the services they use. The airport authorities generate revenue through landing and terminal fees they charge to air carriers, as well as rents to retail business tenants in airport facilities and through airport improvement fees to passengers. Due to their non-profit status, the airport authorities reinvest all profits into infrastructure and long-term improvements. These airport authorities are self-sustaining and provide the federal government an annual rent of up to 12 per cent of gross airport revenues, which amounted to $525 million this year alone.
When we talk about privatizing Canadian airports, this is what we’re talking about: selling (or long-term-leasing) these not-for-profit airport authorities to private, profit-seeking investors.
What could go wrong?
Beyond the argument that selling or leasing our airports will quickly raise much-needed cash, the federal government has not really addressed why we should be handing control over our nation’s airports to private investors.
The Minister of Transport has vaguely stated that the “the ultimate goal here is to improve passenger experience and to keep air travel affordable for Canadians.” Unfortunately, as the experience of other countries attests, selling your airport to private investors in no way guarantees either of these outcomes—and may, in fact, do the opposite.
Private investors will look to recoup their investment, and then some. Major airport investment firms like Australia’s Macquarie bank have promised returns of over 13 per cent. Those profits have to come from the three major sources of revenue we outlined earlier—airlines, retail tenants or passengers. And if we are being realistic, any cost increases to the first two will most likely be passed along to the passenger.
Certainly, many privatized airports have subsequently increased their passenger fees. Australia’s Competition and Consumer Commission estimated that airlines and passengers “paid up to $1.6 billion too much for airport access over the past decade due to a textbook example of how not to privatise monopoly assets.”
Privatization will also create a powerful political lobby that can, and will, use its influence on regulators. Such was the case with the private consortium in charge of Brussels airport that successfully pushed through an increased user tariff over the protests of state regulators who deemed the new tariff would result in the consortium making an unjustified profit of €40 million.
In addition to higher fees, privatization can also impact passenger experience. An early criticism of the privatization of the British Airport Authority was that the new private owners were diverting investment from non-revenue generating areas like passenger processing and maintenance of terminal conditions towards commercial development of retail spaces and duty-free stores. And when these companies attempt to cut costs through staffing reductions or rely on more precarious labour pools, those choices can result in longer wait times, delays and service interruptions. All of which can conspire to make an already gruelling traveller experience—the notorious “Heathrow Hassle”—all the worse.
Lastly, there is the question of governance. Deregulation almost inevitably accompanies privatization, as private investors want maximum autonomy to pursue profits. This can result in increased tension between investors and the public over issues like increased route frequency, night flights, noise restrictions, health and safety regulations and security protocols. We can fully expect private investors to fight vehemently against any constraint that imposes a greater cost on their operations, regardless of whether it might be in the broader public interest.
There is not a single real problem in Canada’s airports that privatization solves. If anything, it will only exacerbate the complaints that Canadian travellers already voice. If it wants to make air travel more affordable, the government could simply reduce its current share of airport revenues in exchange for reduced passenger fees. If we want to improve the traveller experience, we could do the same in exchange for increased capital spending on airport improvements.
Under the current system, democratic institutions have control over how we want our airports to operate and the ability to change them if we want them to operate differently. But a privatized airport is no longer ours—and we shouldn’t be surprised if they no longer operate in our interest.
About the author
Simon Enoch
Simon Enoch is the senior researcher for Saskatchewan issues and policies. He holds a BA in Political Science, a Masters in Labour Studies and a PhD in Communication & Culture. Active in both the labour movement and media reform efforts, Simon has published in a variety of academic journals and other news media. He lives in Regina, Saskatchewan.
