9 AIR TRANSPORTATION

INFRASTRUCTURE

Canada’s air transportation infrastructure includes aerodromes and a civil Air Navigation System (ANS). The federal government has been reducing its role in the management, operation and ownership of airports since 1994, when the National Airports Policy was introduced. Over the same period, 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 at 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 floatplanes, heliports for helicopters, and land airports for fixed- and rotarywing aircraft.

Most 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 Authorities

Most airport authorities operate the federally owned National Airports System (NAS) airports under long-term leases. The exceptions are 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.

Financial Performance of Airport Authorities

The majority of airport authorities experienced solid growth in their operating results in 2005. The improved results related to increased revenues from passenger and/or cargo growth. Several smaller airport authorities saw their operating results erode slightly, as flat or modest growth in passenger numbers was not enough to offset cost increases. Airport authorities reported continued escalation in costs, primarily in the areas of goods and services and interest charges. Interest charges grew by 22 per cent in 2005, as airport authorities’ capital programs continued to mature.

Capital spending at NAS airports totalled $1.2 billion in 2005, with Toronto, Montreal and Vancouver accounting for 81 per cent of the expenditures. Toronto and Montreal are nearing the end of their current redevelopment projects, but Vancouver and Winnipeg have embarked on long-term projects costing $1.4 billion and $572 million, respectively. The six smallest airport authorities spent an average of $1.4 million on capital in 2005, much of it directed at maintaining current infrastructure or replacing mobile equipment. Long-term debt for the NAS airport authorities totalled $9.5 billion at December 31, 2005. The airport authorities continue to use the capital markets as the primary source of funds to implement their capital plans.

Ground lease rent receipts to the Crown increased from $248.6 million in 2004 to $277.9 million in 2005, as airport passenger volumes improved and the rent deferral program ended. Rent figures in the financial statements vary considerably from cash, due to accrual accounting requirements related to the deferrals, and to prior year rent adjustments paid to authorities. It should be noted that the Government’s new rent formula came into effect January 1, 2006.

The financial results for individual airport authorities for the year ending December 31, 2005, are shown in Table A9-1.

Airport Improvement Fees

Airport authorities collect airport improvement fees (AIFs) to help finance their capital expenditures. In 2005, AIF revenues increased by $87.7 million to $504 million and represent approximately 24 per cent of total NAS airport revenues. The majority of airport authorities charge an AIF of $15 per enplaned passenger. The Greater Toronto Airports Authority also charges an AIF for connecting passengers. These fees are generally collected through the airlines’ ticket systems, with only Greater Moncton Airport Authority collecting its fee directly at the airport.

Addendum Table A9-4 displays the current AIFs for NAS airports.

Capital Assistance to and Investment in Airports

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 2006, airports across Canada received more than $27 million to fund 41 new projects. Table A9-2 in the Addendum shows the allocation of funds by province since the program began in April 1995. Table A9-3 in the Addendum lists ACAP projects approved in 2006.

An example of an ACAP-funded project was the expanded apron at the Fort McMurray Airport, to which Canada’s new government contributed $2,005,130. The project involved the expansion of the apron, the construction of an asphalt shoulder, associated drainage and electrical work, and the replacement of airfield signage. It was an example of Canada’s new government directing infrastructure resources to where it was most needed, and the improvements contribute to the safety and reliability of an airport in one of Canada’s most important economic regions.

Apart from ACAP-funded projects, work commenced on three airstrips at Hopedale, Black Tickle and Postville, Labrador, in order to bring them to appropriate safety standards. These airstrips provide a vital year-round transportation service for those coastal communities, and the work was fully funded at a cost of $1.2 million under the federal Labrador Coast Airstrips Restoration Program. The airstrips are owned and operated by the Province of Newfoundland and Labrador.

Canada’s new government also funded the building of a new hangar at the Greater Moncton International Airport in order to properly facilitate essential operational and maintenance support for its fleet of aircraft that deliver vital safety oversight, policing and aerial surveillance programs. The new hangar has the added benefit of providing the airport and the community it serves with additional infrastructure to support the development of an aerospace industry and help retain a highly skilled workforce.

Air Navigation System (ANS)

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 2006

Infrastructure

Industry Structure

Price, Productivity and Financial Performance

Freight Transportation

Passenger Transportation