Opening Statement to the Standing Committee on Public Accounts

Airport Transfers: National Airports System
(Chapter 10 - October 2000 Report of the Auditor General)

Mr. Chairman, thank you for this opportunity to appear before this committee to discuss our October 2000 chapter on National Airports System airport transfers. With me today are Mr. Shahid Minto and Mr. Regent Chouinard, respectively the Assistant Auditor General and Director responsible for the audit.

Chapter 10 focusses on Transport Canada's handling of the transfers of Canada's largest and busiest airports between 1992 and 1999, the Department's oversight of the National Airports System as a whole, and its performance as landlord of airport facilities.

Our audit concentrated on the financial and oversight aspects of the transfers, not on security and safety. Transport Canada's mandate to regulate the safety and security of air transportation has not changed with the transfers. The Department must still ensure that the transferred airports operate in a safe and secure manner.

With the transfers of airports to airport authorities, Transport Canada has assumed a new role and gained some new responsibilities. It is responsible for guaranteeing the continued integrity and viability of the National Airports System. In addition, as landlord of the transferred facilities, it is responsible for ensuring that the airport authorities operate within the terms of the lease agreements and their bylaws.

Mr Chairman, in relation to Transport Canada's new responsibilities, we found that eight years into the transfer process, the Department had yet to define its role as the overseer of the National Airports System and guarantor of its integrity and viability. In 1997, it started a mandatory five-year review designed to determine the financial impact of the transfers and recommend an appropriate policy framework. In October 2000, the review exercise, which had cost over two million dollars and was to have been completed in June 1998, had not been finalized.

This is particularly troublesome because there are several emerging public policy issues on which the Department had not developed a position. For example, airport improvement fees have become an increasingly important source of revenues for airport authorities. Our chapter notes that in its five-year review, the Department found that there is little information on how airport authorities use revenues from airport improvement fees. Some airport authorities have yet to conduct any costing studies to assess whether their rates are reasonable and comply with the provisions of the lease and bylaws.

Some airport authorities have created subsidiaries whose activities include airport management and operational services, airport marketing and consulting services, and business ventures such as investments in airports in Eastern Europe, South America, and the South Pacific. We are concerned that the Department knew little about the activities of these subsidiaries and had yet to assess the financial risk to the airport authorities and to the public purse. In addition, the Department has been passive in monitoring of sole-source contracting by airport authorities. The Committee may wish to enquire how Transport Canada has improved its monitoring of airport improvement fees, subsidiaries, and sole-source contracting.

Mr Chairman, we found that Transport Canada's oversight of the financial viability of airports lacked rigour and was reactive in nature. This is even more critical today given the recent drop in the number of passengers and the significant construction projects under way at many of the transferred airports. In addition, we noted that Transport Canada had provided rent credits to subsidize capital works at airports and negotiated other forgiveness of rent. The net effect has been to permanently reduce current and future revenues for the Crown. This information had not been reported to Parliament in a complete and transparent manner. The Committee may wish to obtain from Transport Canada some assurances that it is now handling emerging issues of importance appropriately.

Another issue we would like to deal with concerns the management of the transfers. We concluded that the Department's approach to the analysis of the worth of the business it was transferring was so seriously flawed that the resulting information provided to decision makers was neither reliable nor complete. Transport Canada has not been able to demonstrate how the transfer agreements and subsequent renegotiations were equitable, uniform, consistent and fair, as required by government directions.

While we recognize that many of the players involved in the negotiations have since left the Department and there are few airports left to transfer out, we think that the Committee may want to enquire how the Department will ensure that the analysis in future devolutions is done with due diligence and that information provided to decision makers is complete and reliable.

Mr. Chairman, that concludes our opening statement. We would be pleased to respond to questions from the Committee.