9 AIR TRANSPORTATION

INFRASTRUCTURE

Canada's air transportation infrastructure is composed of airports and the Air Navigation System (ANS). Transport Canada's role with respect to airports has shifted from owner and operator to landlord and regulator, and while it continues to be responsible for the regulation and safety of the ANS, it has transferred ownership to NAV Canada. These changes were designed to promote safety, efficiency, affordability, service integration, innovation and commercialization.

Airports

Canada's approximately 1,700 aerodromes are divided into three categories: water bases for floatplanes, heliports for helicopters, and land airports for fixed-wing aircraft. Aerodromes refer to facilities registered with Transport Canada as aircraft landing and take-off sites.

Most of Canada's commercial air activity takes place at certified land airports, sites that because of their level of activity or location are required to meet Transport Canada's airport certification standards.

At the close of 2002, the Canada Flight Supplement and the Canada Water Aerodrome Supplement listed 1,722 certified or regulated sites. Table 9-1 shows the number of airports for fixed-wing aircraft in Canada.

Source: Canada Flight Supplement, January 23, 2003; Water Aerodrome Supplement, March 23, 2002

A total of 263 land airports offered scheduled passenger service, while the other 847 were available for other public and private uses.

Since the introduction of the National Airports Policy in 1994, the federal government has been reducing its role in the management, operation and ownership of airports. The transfer process has been largely completed, and the current state of transfer is posted monthly on Transport Canada's Web site at www.tc.gc.ca/programs/airports/status/menu.htm.

Airport Authority Revenues and Expenses

Airport authorities operate the majority of federally owned NAS airports under long-term leases; the exceptions are the three territorial NAS airports, which are owned and operated by territorial governments, and Kelowna Airport, which is operated by the City of Kelowna. The airport authorities are incorporated as not-for-profit, non-share capital corporations with independent Boards of Directors. Their financial statements for the year ending in 2001 are shown in Addendum Table A9-1. Prince George Airport is the only NAS airport that has not been transferred to an airport authority. It is scheduled for transfer on March 31, 2003.

Airports Capital Assistance Program

Since April 1995, Transport Canada has funded the Airports Capital Assistance Program (ACAP) to help eligible non-NAS airports finance capital projects related to safety, asset protection and operating cost reduction. To be eligible, the airports must receive a minimum of 1,000 passengers annually, meet airport certification requirements, and not be owned by the federal government. In 2002, the program approved 52 projects at 40 airports for an estimated total funding of $40.8 million. Addendum Table A9-2 shows, by province, the allocation of ACAP funds since the inception of the program, while Addendum Table A9-3 lists ACAP projects approved in 2002.

Airport Improvement Fees

A number of airport authorities have introduced Airport Improvement Fees (AIFs) in recent years. On average, AIFs now represent approximately 20 per cent of total airport revenues, and this percentage continues to grow. Most AIFs currently vary from $10 to $15 per passenger. The majority of AIFs are collected through the airlines' ticket systems, but some are collected directly by the airport. For a list of the current AIFs for the 26 NAS airports, see Table A9-4 in the Addendum.

Air Navigation System

NAV Canada is the not-for-profit, private corporation that owns and operates Canada's civil Air Navigation System. It purchased the system from the federal government on November 1, 1996, for $1.5 billion. The system is made up of seven Area Control Centres, one terminal control unit, 43 control towers, 77 flight service stations and 67 maintenance centres, as well as more than 1,400 ground-based navigational aids. NAV CANADA provides air traffic control services, flight information, weather briefings, airport advisories and electronic aids to navigation. Since 1996, NAV CANADA has committed close to $1 billion in new systems and technology.

Financial Performance

NAV CANADA has the right to set and collect ANS customer service charges from aircraft owners and operators. Most ANS customer service charges are applicable to commercial air carriers. As a result, the financial instability of individual air carriers may have short-term effects on NAV CANADA's cash flows.

In accordance with the Civil Air Navigation Services Commercialization Act, NAV Canada operates on a break-even basis. For fiscal year 2001/02, revenues matched expenses at $971 million (compared with $916 million in 2000/01), but this was only made possible through the full utilization of the company's rate stabilization account, which is now in a $19 million deficit position.

The terrorist attacks of September 11, 2001, and the slowdown in the global economy have had and continue to have a significant negative effect on the aviation industry worldwide. Since then, many air carriers have significantly reduced capacity as a result of lower passenger volumes. Despite a gradual increase in air traffic during the latter half of fiscal 2001/02, the overall reduction has had and continues to have a significant negative effect on NAV CANADA 's revenues. The revenue shortfall from the level anticipated prior to September 11, 2001, over the four fiscal years ending August 31, 2002 to 2005, is anticipated to be approximately $360 million, assuming that there will be no significant macroeconomic forces affecting air traffic. Actual shortfalls in revenue will require adjustments to future customer service charges, increased revenue from other sources and/or expense reductions to meet the charging principles under the Air Navigation System Act.

While NAV CANADA has been affected by the current industry downturn, it developed a balanced plan to make up for an anticipated $145 million shortfall in the fiscal year ending August 31, 2002. The plan involves a combination of the following: expense reductions; new revenue through a 6 per cent service charge increase that came into effect on January 1, 2002; and revenue from its rate stabilization fund. An additional 3 per cent increase in the service charge will come into effect on January 1, 2003. Table 9-2 summarizes NAV CANADA 's financial status in 2000/01 and 2001/02.

Source: NAV CANADA annual reports

Major Events in 2002

Infrastructure

Industry Structure

Freight Transportation

Passenger Transportation