9 AIR TRANSPORTATION

INFRASTRUCTURE

Aerodromes and a civil Air Navigation System (ANS) are both part of Canada's air transportation infrastructure. Since 1994, when the National Airports Policy was introduced, the federal government has been reducing its role in the management, operation and ownership of airports. In turn, Transport Canada's role has shifted from owner and operator to landlord and regulator of Canadian airports. Transport Canada continues to be responsible for the regulation and safety of the ANS, but facility ownership was transferred to NAV CANADA. These changes promote safety, efficiency, affordability, service integration, innovation and commercialization. The transfer process has been largely completed and updates are posted monthly on the Transport Canada Web site. www.tc.gc.ca/programs/airports/status/menu.htm.

AIRPORTS

There are approximately 1,700 aerodromes in Canada; facilities registered with Transport Canada as aircraft take-off and landing sites. The aerodromes are divided into three categories: water bases for float planes, heliports for helicopters, and land airports for fixed-wing aircraft.

The majority of commercial air activity in Canada takes place at certified land airports. Due to their level of activity or location, these sites are required to meet Transport Canada's airport certification standards.

AIRPORT AUTHORITY REVENUES AND EXPENSES

Airport authorities operate the federally owned National Airports System (NAS) airports under long-term leases, with the exception of the three territorial NAS airports, which are owned and operated by territorial governments, and Kelowna International Airport, which is operated by the City of Kelowna. The airport authorities are incorporated as not-for-profit, non-share capital corporations, with independent and publicly accountable boards of directors.

The financial results from airport authorities for the year ending December 31, 2004, are shown in Table A9-1 in the Addendum.

AIRPORTS CAPITAL ASSISTANCE PROGRAM

In order to help non-NAS airports finance capital projects related to safety, asset protection, and operating cost reduction, Transport Canada provides assistance through the Airports Capital Assistance Program (ACAP). To be eligible for the program, airports must receive a minimum of 1,000 passengers annually, meet airport certification requirements, and not be owned by the federal government. In 2005, the program announced 64 projects for funding at 48 airports at an estimated total of $52.2 million. Table A9-2 in the Addendum shows the allocation of funds by province since the program began in April 1995. ACAP projects approved in 2005 are listed in Table A9-3 in the Addendum.

AIRPORT IMPROVEMENT FEES

The majority of airport authorities collect Airport Improvement Fees (AIFs) to assist in the financing of their capital expenditures. AIF revenues increased by $75 million in 2004 and represented approximately 22 per cent of total NAS airport revenues. The majority of AIF charges range from $10 to $15 per enplaned passenger. The Greater Toronto Airports Authority also charges an AIF for connecting passengers. Most of these fees are collected through the airlines' ticket systems, with only Greater Moncton Airport Authority collecting its fee directly at the airport. A list of the current AIFs for NAS airports is displayed in Table A9-4 in the Addendum.

FINANCIAL PERFORMANCE OF NAS AIRPORTS

Several large airports experienced significant improvements in passenger volume in 2004, while some of the smaller airports saw only modest passenger increases. Overall NAS airport traffic was up more than 10 per cent over 2003. Operating revenue performance for airport authorities was mixed in 2004, despite the passenger volume gains. One third of airports saw their revenues decline, predominantly as a result of the rationalization of service by airlines (smaller aircraft and/or fewer flights). Another third of authorities showed operating revenue gains between 1 per cent and 10 per cent, and the remaining third had increases in excess of 10 per cent. The airports that showed the greatest growth were the larger NAS airports, where demand for air service rebounded following recent difficult years.

Changes in operating costs were generally kept to reasonable levels, with one quarter of authorities actually reducing their expenditures, half increasing their expenses by less than 10 per cent and the remaining quarter recording operating cost increases greater than 10 per cent Interest and amortization expenses at two thirds of the airports increased by greater than 10 per cent, as authorities are now expensing interest charges related to their capital development projects. After accounting for all revenues and expenses, four airports were in a deficit position, 14 had surpluses of between $0 and $5 million and four had surpluses exceeding $10 million.

Total cash rent paid by the airport authorities for the 2004 lease year was $248.2 million. This figure includes the deferral of $36.9 million in rent by eight authorities as part of the short-term financial relief program announced by the Government of Canada in July 2003.

Capital spending slowed somewhat in 2004, as several airport authorities completed or nearly completed large expansion or renovation projects. Nevertheless, total NAS airport spending on capital infrastructure amounted to $1.2 billion. Vancouver and Winnipeg are set to embark on long-term projects costing $1.4 billion and $450 million respectively. Halifax and Victoria have also announced plans for further airport infrastructure development. A substantial amount of capital infrastructure has been financed through debt. The total long-term debt of NAS airports stood at $7.9 billion at December 31, 2004.

AIR NAVIGATION SYSTEM

NAV CANADA provides air traffic control services, flight information, weather briefings, airport advisories and electronic aids to navigation. It is a not-for-profit, private corporation that owns and operates Canada's civil air navigation system. NAV CANADA has the right to set and collect customer service charges from aircraft owners and operators. Most customer service charges are applicable to commercial air carriers. For more information on NAV CANADA, visit www.navcanada.ca.

Major Events in 2005

Infrastructure

Industry Structure

Price, Productivity, Financial Performance

Freight Transportation

Passenger Transportation