Policy statement on investment at National Airports System airports operated by airport authorities

Canada is the second largest country in the world, but we have a small population, and our communities are spread out. As a result, the air sector plays a critical role in ensuring that people, businesses, and communities stay connected. Canadians rely on air travel to access critical services, visit loved ones, and support supply chains, trade, and tourism.

In 2023, 150.7 million passengers moved through Canada’s airports. Our larger airports are key hubs for travellers both within Canada and around the world. Air transportation makes up about 30% of the value of Canada’s non-United States cargo traffic, showing its importance for international trade. Most of this cargo travels in passenger aircraft, demonstrating the important link between these two parts of air transport.

Canada’s airport operators have built world-class infrastructure, connecting people, services, and goods to the global community, and helping to propel economic growth and increase domestic prosperity. In Canada’s user-pay system, most airports are funded through fees paid by the users of airport services, including air carriers. This model has proven to be resilient and cost effective for Canadians, but more investment will be needed in the next decade to help Canada’s air transportation system grow.

Canada’s airports are operated through several different models. Most of the National Airports System (NAS) airports, including the country’s largest airports, are operated on federal land through long-term ground leases, by private, not-for-profit, non-share-capital corporations called airport authorities. Working within the existing ownership structures, over the past 3 decades, Canada’s airports have grown with the help of private sector investments, mostly in the form of long-term debt from Canadian sources. Investment decisions made at airports impact connectivity, prosperity, sustainability, and national security for decades. This can, in turn, further support government goals, such as affordability and economic growth in local communities.

As Canada’s population continues to grow, demand for air travel will continue to rise. As a result, Canada’s airports represent a major opportunity for private investors, especially the Canadian market. Far-reaching benefits result from stable long-term investments in this key part of Canada’s trade and transportation system. A strong system of sustainable transportation infrastructure is also an important aspect of national security policy. By investing in Canada’s air transportation sector, Canadian investors can support the national interest, facilitate economic growth, and help ensure that Canada’s infrastructure is well-positioned to respond to future challenges.

By attracting new private partners, such as Canadian pension funds, Canadian airports can speed up their growth plans and improve the passenger experience. Investments from Canadian private investors in airport facilities, like terminal buildings, can support construction and renovation of these spaces, allowing airports to better meet growing demand.

To encourage more private investment, the Government of Canada is issuing this policy statement to clarify the investment tools available to airports operated by NAS airport authorities. Investments should support the financial self-sufficiency and sustainability of airport authorities and their operations. They should also support long term infrastructure development that benefits Canadians.

Wide-ranging opportunities for the private sector

The NAS airport authorities’ corporate and governance structure ensures that the government’s ownership of airport lands is respected, while providing the flexibility needed to enable additional private investment. As has been repeatedly demonstrated, investment at NAS airports provides benefits to airport authorities, investors, and passengers, supporting both the Canadian transportation system and the Canadian economy. This is a key area where Canadian investors can support the growth and development of their local communities, contribute to Canada’s economic prosperity and further the national interest.

Numerous opportunities exist for infusing private sector investment into National Airport System airports. Investors can:

• work with NAS airport authorities to enter into subleases that will develop airport lands
• provide subcontracted services for certain aspects of airport operations, and
• work with airport authority subsidiaries to take advantage of private investment opportunities.

Investment from institutional investors like Canadian pension funds could diversify NAS airport authorities’ funding sources and enhance their financial flexibility, which could help reduce risk and make the Canadian air transportation system more resilient.

The Government intends to explore negotiating extensions to airport authority ground leases that would provide more certainty to investors, facilitate more development, and incentivize investment on airport lands.

As part of that process, the Government will also look at making other changes to the ground leases to make it easier for third parties to invest in and develop projects on NAS airport lands. Such amendments could make it easier for NAS airport authorities to enter into joint ventures, or arrangements like limited partnerships, where the risks and rewards of land and infrastructure development projects can be shared between NAS airport authorities and investors.

Cooperation models  

1. Co-development through subleases with private investors

Private investors can enter into commercial subleases with NAS airport authorities that will enable them to invest in and develop airport lands. Subleases enable investors to develop their businesses and reap economic benefits, while also enabling NAS airport authorities to enhance and improve their airports.

Subject to the terms of their ground leases, the NAS airport authorities may seek Ministerial consent to, in whole or in part, sublease terminal facilities and operations to pension funds or other investors. Investments in airport terminals can support the development of improved passenger facilities that will improve the passenger journey and enable airports to better meet growing demand for air travel.

NAS airport authorities can use subleases to collaborate with private investors, even though formal partnerships or joint ventures are not permitted. Subleases, which can involve aeronautical activities such as cargo facilities or non-aeronautical activities such as energy generation, can be used to drive real estate development on airport lands and in the community, which benefits the airport and others.

Exploring extensions to airport authority ground leases could enable longer term subleases and allow commercial subtenants to benefit from their capital investments for a longer time. For example, an aerospace maintenance firm that wants to build a new facility on airport lands could benefit from a longer-term sublease that allows it to operate for longer than it would have otherwise, and to amortize its initial construction costs over a longer time period.

2. Subcontracting airport services

NAS airport authorities can contract private entities to provide airport services, like facilities operations and maintenance.

Subcontracts allow NAS airport authorities to take advantage of outside expertise to improve their operational efficiency, while still maintaining control over the airport’s operations as a whole. Sharing responsibility and knowledge benefits both investors and airport authorities. Many Canadian investors have successfully used this approach to enable NAS airport authorities to streamline their operations and improve productivity.

Boards of directors cannot subcontract their decision-making responsibility, however, and board members must still fulfill their fiduciary duty to the airport authority.

3. Enabling private investment through subsidiaries

Through subsidiaries, private investors, including Canadian pension funds, commercial banks, and other institutional investors, can work with NAS airport authorities in new and innovative ways.

NAS airport authorities can create subsidiaries, including for-profit share-capital subsidiaries, as long as the terms of the ground lease are respected. Private investors can buy or be issued shares by airport authority subsidiaries, though the airport authority must maintain a controlling interest.

Subsidiaries are not subject to the same limits under the ground lease as the airport authority. As such, they can enter into partnerships or joint ventures with private partners like pension funds. The flexibility of joint ventures can benefit airport authorities and their investors, because they make sure that each project can be structured so that risks and rewards are shared as the participants see fit. They can enable customizable financing arrangements, where one party provides upfront capital for a project, and the other party uses their expertise to take the lead on its operations.

By working with subsidiaries, private investors can build or operate new facilities at NAS airports, which may be for aeronautical or non-aeronautical purposes. Private investors and airport authority subsidiaries can also undertake joint investment projects that will support the development of new airport facilities, like terminal buildings. By carefully using subsidiaries, airport authorities can work with new partners on new projects and advance their goals without risk to airport operations.

Investors can make equity investments in NAS airport authority subsidiaries that provide non-aviation services and infrastructure, like hotels or shopping centres. These facilities can provide a return to investors, improve the traveler experience, and generate revenue to support airport operations.

When entering in these arrangements, directors and officers of NAS airport authorities must continue to comply with their fiduciary obligations under the Public Accountability Principles for Canadian Airport Authorities.

In particular, they must make sure that the airport authority’s actions regarding the subsidiary remain focused on the benefit to the airport authority, its users, and the local community. No director or officer of the airport authority should hold shares in a subsidiary in their own name or to their own benefit.

Flexibility is subject to existing responsibilities

Airports in the National Airport System will still need to respect their responsibilities under their ground leases and legislation. When working with private partners, airport operators are expected to make sure that:

• key board functions stay with the airport authorities so that airport members can use their expertise, represent their community, and fulfill their fiduciary duty
• the airport authority remains responsible for providing airport services
• all facilities and assets on airport lands leased by airport authorities become and remain the property of the federal government, free and clear of any encumbrances, following the termination or expiry of the ground lease
• private business activity at airports cannot restrict air carrier competition and should allow for appropriate access to airport facilities and services
• accessibility requirements are met
• slots are allocated according to standard industry practice
• operations continue to comply with all applicable federal and provincial laws
• operations continue to enable Canada to meet its international obligations under agreements in respect of aeronautics; and
• business activity continues to be consistent with national security policy, recognizing that Canada’s major airports are strategic assets that are important links for Canadian trade and transportation that must continue to operate free of inappropriate foreign interference