International Trade Committee on Feb. 23rd, 2015

[James Cherry]

We compare ourselves regularly to the other large airports in the country, and we're about middle of the pack. We're substantially cheaper than Toronto, a little higher than Calgary and Vancouver. It depends on the type of aircraft as well. It tends to vary. Fees are a function of two things. One is the size of the aircraft. Landing fees are usually a function of the gross takeoff weight, and the terminal fees are a function of the nature of the traffic. For example, it's more expensive to process an international passenger than it is a domestic passenger because of customs and other requirements.

The Canadian landing fees and terminal fees would be generally more expensive than comparable fees in other jurisdictions, for example competing airports in the United States.

[Jerry Staples]

Halifax is just below average in fees.

[Parm Gill, Conservative, Brampton—Springdale, ON]

Eight years after the adoption of the blue sky policy, has this policy met or exceeded your expectations or the expectations of the authority?

[James Cherry]

I think it's a great step in the right direction. I would like to see some more development more quickly in some markets. I mentioned two or three in my remarks. I think there are a few countries where there could be considerable additional origin-destination traffic, not just pass-through traffic, that would be very attractive in Montreal's case. I mentioned both Turkey and Panama. I know we have looked at other cities, in South America, for example, and other jurisdictions that we think could be opened in the next little while. I think if there's anything we see as a very positive development, we'd like to see it accelerated a little, but in general it's positive.

[Jerry Staples]

I think we have 44 or 45 agreements in Canada now. We certainly haven't been as aggressive as some other countries, the U.S. in particular, and the blue sky is a hybrid of what the rest of the world calls open skies.

Where Halifax is positioned geographically, we have aircraft overflying, getting into the jet stream and going to Europe on a regular basis off the eastern seaboard, and they have capacity. Back-hauling two or two and a half hours west just to overfly Atlantic Canada, going to Europe, is a huge irritant in our market. More liberalization that would allow us to take advantage of some of those flights from a passenger, and also importantly from a cargo, perspective would be important to us.

[The Vice-Chair, Liberal, Chrystia Freeland]

I'm sorry, Mr. Staples, we have to leave it there. We've almost hit eight minutes.

Thank you very much, Mr. Gill.

May I again ask the indulgence of my fellow members of the committee to ask a couple of questions on behalf of the Liberal Party?

[Some hon. members]

Agreed.

[The Vice-Chair, Liberal, Chrystia Freeland]

I want to start with you in particular, Mr. Cherry.

You used some strong language in your statement—it's okay, you're surrounded by MPs; we like strong language—talking about airports and the airport industry being a cash cow because of the tax regime.

I would love to get you to expand on that, and also to give us a sense of how it would need to change for you to feel that Canadian airports are competitive, particularly with U.S. airports, which are an option for so many Canadian travellers.

[James Cherry]

In order to illustrate that point, allow me to tell you what “Montreal International Airport U.S.A.”, as they call themselves in Plattsburgh, New York, has as a cost base. They have received a strategic air command base for nothing, so they have a 12,000-foot runway and a tarmac to hold B-52s, for nothing. The State of New York built them a terminal. They don't pay any rent. They don't pay any interest because they don't have to; their capital was given to them. They don't pay any property taxes.

If we—Montreal airport or Halifax airport or other airports in Canada—could operate our businesses on 20% of the costs we are paying, we'd probably be able to reduce our fees to passengers and airlines quite considerably.

There is a big difference between the two regimes. It's a basic philosophical difference.

In Canada, the Canadian government has decided that passenger aviation is user-pay and it's not something that should be charged to the taxpayers.

In the United States, particularly in some of the secondary markets but even in some of the large markets, aviation is seen as a major economic enabler, as a developer, and as an absolute tool in the development of their economies. As a result, it is subsidized. It's as simple as that. If you look at the differences between the two regimes, there are very few, if any, airports that I'm aware of that pay any rent to anybody. In fact, with most of them the money goes the other way. The money is coming from governments to those airports. Their capital programs, even for the largest airports in the United States, are highly subsidized. What it comes down to is a difference in philosophy.

We're not asking—I'm certainly not asking—to go back to a philosophy where we're asking the Canadian government to hand out money to us. What I'd like to see is that it becomes more neutral and that we are not paying over and over again, every year, for assets that were given to us—in our case, 22 years ago—that we've more than overpaid. In fact, if anybody has been to Montreal in the last couple of years, we've redeveloped the entire airport at our own cost, with our own money, but we are still paying a high level of rent on an airport that was basically transferred to us 21 years ago. We paid for that asset long ago.

That's the fundamental thing. I'd like to see us at least get to a neutral position where we're not cashflow negative on those points.

[The Vice-Chair, Liberal, Chrystia Freeland]

Would that neutral position for you be just not having to pay rent anymore?

[James Cherry]

If I didn't pay rent anymore, the corollary question people normally ask me is, where would that money go?

It would go to three or four different places, depending on how we wanted to play it, and this is something we would look at. We would be able to directly reduce the airport improvement fees we charge to passengers. That would be one possibility.

The second possibility is that it would translate its way into reduced landing fees to the airlines, or we could use it to reduce the debt that we've all incurred in order to improve our facilities. Indirectly, the passengers and the airlines would benefit from that as well, because it would reduce our capital requirements and the interest we're paying.

The answer is yes, I would like to see that happen.

I would also like to see the City of Montreal stop charging me usurious property taxes. We pay six times the amount of property taxes per passenger the City of Calgary pays. In absolute numbers, we pay more than Toronto does, even though Toronto has two and a half times the number of passengers we do.

I don't want to sound like a victim, but yes, I think we are a bit of a cash cow, quite frankly.

[The Vice-Chair, Liberal, Chrystia Freeland]

I saw you nodding your head, Mr. Staples. Do you have a ten-second point you would like to add?

[Jerry Staples]

I'd echo the comments. Again, it's just security fees, subsidizing seaports off the backs of air travellers. In the U.S., grants to airports are used to attract airlines' new service. Bangor gets half a million dollars to get United to fly there.

[The Vice-Chair, Liberal, Chrystia Freeland]

Thank you very much, gentlemen. We're going to have to leave it there, because I have to be extremely strict with myself.

That was just under five minutes, for the benefit of the rest of the committee.

Now we'll have seven minutes of questions from Ms. Grewal, please.

[Nina Grewal, Conservative, Fleetwood—Port Kells, BC]

Thank you, Madam Chair.

Thank you, Mr. Cherry and Mr. Staples, for coming to speak before this committee today.

Could you please tell us what the government can do to further help the air transport industry grow?

[Jerry Staples]

Some of the things that have been mentioned here just in the last comments would help for sure, in getting the costs to where they should be—the rents and security fees and whatnot. Progressing on the air transport agreements and air policy liberalization—or as we call it, open skies or blue skies—in this country is fundamental to giving communities, and not just the airports, because the airports are economic enablers for the communities in the regions, the freedom to grow and attract new business.

[Nina Grewal, Conservative, Fleetwood—Port Kells, BC]

Mr. Cherry, would you like to comment?

[James Cherry]

One thing I'd like to see the Canadian government work on is facilitating and improving or streamlining the visa process.

I mentioned earlier that we've been working for a long time to try to get a direct link to China. Over the years I've met three different Chinese ambassadors to Canada, and in each case I've solicited their support and their help to make that happen. They've all reacted in the same way, by saying: I'd be very pleased to help you, because I think it's a great thing that you're doing, but you have to help us too, because it is increasingly difficult for our people to get easy access to visas to come to your country.

It's much easier for them to go to the United States. They can apply online and get a visa to visit from Australia in 24 hours, but to try to get a visa to come from China and get into Canada is an onerous task. I think we have to modernize the visa processes and find a way to streamline the implementation and the whole issuance of visas, because that seemed to be a major resistance. People all over the world tell me that it's just a pain to transit through this country or come to this country, because we make it difficult for them to do so. I don't know what is at the heart of this, whether it's a security concern or a concern about immigration, but I think it's becoming increasingly embarrassing for us as airports, when we're trying to develop markets in the rest of the world, to be confronted with Canada's being seen to be quite regressive in the way it issues visas.

[Nina Grewal, Conservative, Fleetwood—Port Kells, BC]

Could you tell us what some other government policies are that have helped your airports expand?

[James Cherry]

In our case, I think one of the biggest was the signing of the first blue skies arrangement with the United States in the 1990s. That has had a tremendous impact. Before that point, the only cities in the U.S. that were accessible were cities that had major customs/immigration points in the United States. When they redeployed customs agents, when they put in the pre-clearance arrangements, when they expanded that arrangement in Canada and it went to Halifax—Mr. Staples talked about it a moment ago—it had a huge impact on growth.

There's a good indication that facilitating and finding a way to make it easier for people to travel through places actually has a great benefit, and it expands very quickly. We saw it in Montreal, and the most recent example is Halifax 10 years ago.

[Jerry Staples]

Halifax wouldn't have the Delta LaGuardia flight without U.S. pre-clearance, because LaGuardia doesn't have Homeland Security and CBP services. It's a domestic-only airport.

[James Cherry]

There's a very good example of a Canadian government policy that was particularly well timed and well placed, and it has had a tremendous impact. I think the European free trade arrangement will have the same impact.

[Jerry Staples]

Just on the EU agreements, if you look at the blue sky side of it, there are four phases to it. It needs to be ramped up. Let's get on with it and get it in place and be able to take full advantage of it. It's not something that I think we need to be as cautious as perhaps we're being in bringing it online.

[Nina Grewal, Conservative, Fleetwood—Port Kells, BC]

Mr. Staples, Stanfield International Airport exported record amounts of lobster to China last year. How did Canada's ATA with China allow for this glut?

[Jerry Staples]

For cargo in general, in China and other countries there aren't a lot of restrictions. It's easier than on the passenger side, although you still have to apply and go through the CTA. We're okay in terms of going to China.

The real issue with China for us right now is actually getting the lift. We're trucking goods. At certain points during the year—this is a year-round business with live lobster exports out of Atlantic Canada—over 70% of that lobster is being trucked to Boston, New York, and sometimes as far as Washington, for uplift.

That's business that needs to be repatriated to Canada, to Halifax specifically, creating the jobs and the economic impacts and the tax revenues in this country.