US embassy cable - 05OTTAWA1403

UNCLAS OTTAWA 001403 
 
SIPDIS 
 
STATE FOR WHA/CAN - ALAN HOLST, EB/TRA - JOHN BYERLY 
 
STATE PASS USTR FOR SAGE CHANDLER 
 
TRANSPORTATION FOR OST/IA (EDDIE CARAZO, MARY STREET, SUSAN 
MCDERMOTT) 
 
COMMERCE FOR 4320/ITA/MAC/WH/ONIA (BASTIAN, WORD) 
 
FAA FOR LEEANN HART 
 
TSA FOR SUSAN WILLIAMS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAIR, EINV, CA, Transportation 
SUBJECT: Canada announces airport rent reductions with 5-year 
phase in 
 
1. On May 9 Canada's Minister of Transport, Jean Lapierre, 
announced a new rent policy for federally owned airports. 
The new policy is expected to result in close to C$8 billion 
in rent relief for Canada's airport authorities over the 
life of the airport leases, which are typically for 60 
years.  For airports currently paying rent, there will be a 
transition period leading to full implementation of the new 
rent formula in January 2010.  Approximately C$350 million 
of the estimated C$8 billion in rent reductions will be 
realized during this 5-year transition period. 
 
2. The Canadian airport model is unique.  The government 
retains ownership of the airport lands, although it 
transferred control of airport management, operation, 
development and financing to community-based, non-share, not- 
for-profit, self-financing corporate entities starting in 
1992.  Airports were transferred by way of a long-term lease 
rather than by placing them on the open market for bids. 
The lease arrangements are not uniform and were negotiated 
in an ad hoc fashion.  The money collected from the rent 
payments is not reinvested in the airports, or even the 
transportation sector; rather, it goes into the government's 
general revenue fund to be used in any fashion the 
government wishes.  At the end of the 60-year lease, all 
assets revert back to the government unencumbered. 
 
 
3. Currently nine airport authorities pay rent.  These are 
Calgary, Edmonton, Halifax, Montreal, Ottawa, Toronto, 
Vancouver, Victoria, and Winnipeg. (The other 16, smaller, 
airports in the so-called National Airport System have not 
yet started to pay rent or were transferred outright by the 
government without lease arrangements.)  Toronto, as 
Canada's largest and busiest airport, will see the largest 
long-term reduction in rent; the airport will save C$5 
billion, rents will be reduced from C$8 billion to C$3 
billion over the remainder of the lease period (now about 50 
years).  Under the current system Toronto airport pays C$140 
million a year, 18% of its operating budget, in rent to the 
federal government.  Under the new airport rent formula 
airports will pay no rent on the first C$5 million of gross 
revenues, this becomes 1 percent rent on the next C$5 
million, 5 percent on the next C$15 million, 8 percent on 
the next C$75 million, 10 percent on the next C$150 million 
and 12 percent on any amount over C$250 million in gross 
revenues. 
 
4. The government's decision to reduce the overall amount of 
airport rents collected over the remainder of the 60-year 
leases from C$13 billion to C$5 billion has met either muted 
gratitude or downright disenchantment from industry. 
 
5. The Canadian Airports Council noted that although the new 
rent policy does not provide the immediate and substantial 
rent relief that the Council had been requesting, they 
applaud the long-term savings.  Airlines were less pleased. 
Air Canada complained that the reductions offered by the 
government do not allow Air Canada to reduce air fares, 
while the Air Transport Association of Canada complained 
"it's smoke and mirrors, there is a lot of crowing today 
about what is essentially a de-escalation in the growth rate 
of rents."  Conservative M.P. Dave Batters noted at a 
Transport Committee hearing on May 9 that at least one 
international airline (El Al Israel) suggested to him that 
they may soon make a decision to not fly to Toronto because 
of high costs at the airport.  According to Batters, it 
costs El