Toronto airport privately run

ANAHEIM – Just before I boarded my plane for California, I got the chance to talk to Toby Lennox, VP for Strategy Development and Stakeholder Relations for Greater Toronto Airports Authority (GTAA), the private entity that runs this major North American gateway. I was surprised to learn that GTAA is non-government, privately run and non profit by design.

I got interested in the nature of the beast called GTAA after Bombet Arangote, a former colleague at Benpres Holdings and now a Financial Manager at GTAA, told me about how the private sector is running the airport. What really piqued my interest was the non profit nature of its operations. The composition of the governing board where its members serve out of civic duty is also an idea that is almost unbelievable from where I come from.

I googled more information about GTAA and asked for the chance to interview a senior official to provide more light on its management structure. Mr Lennox, who hosted the welcome ceremonies at the airport for the PAL inaugural flight was kind enough to talk to me a few hours before my departure from Toronto.

It wasn’t always like this, Mr Lennox explained. Before GTAA came to be, the government struggled on a right formula for running airports. They tried for profit private entities but ended up with failures as inadequately capitalized entities with political support delivered less than satisfactory performance.

But the Canadian government seriously wanted to be relieved of the responsibility of providing capex and opex and actually running airports. They came upon the idea of an entity that is privately run by a board of civic spirited citizens who are knowledgeable in the various technical aspects of airport operations.

Actually, Toronto was not even the first to have such an entity run its airport. It was the fifth, after Edmonton, Calgary, Montreal and Vancouver. Essentially, the private entity was incorporated under Part II of the Canada Corporations Act as a corporation without share capital. In the case of GTAA, this happened in 1993 and it was given the mandate to operate and develop a regional network of airports in the Greater Toronto Area.

And so in 1996, GTAA assumed the operation, management and control of Pearson International Airport through a ground lease arrangement with Transport Canada, the Canadian counterpart of our DOTC. The arrangement is in accordance with their National Airports Policy.

The GTAA has the authority to operate the airport on a commercial basis and to set airline rates and charges. The federal government retains regulatory control over the aviation industry, particularly in the areas of security and safety.

The privatization policy also applies to the civil air navigation function which is assigned to NavCanada, a private entity. NavCanada is responsible for air traffic control as well as the acquisition, operation and maintenance of air navigation facilities like radars and instrument landing system.

Lennox said the current system results in a very efficient management and it relieves government of the responsibility for providing tax dollars for capex and opex. It also insulates airport operations from political considerations which by our own experience at NAIA and CAAP, have proven problematic and inefficient.

Transport Canada’s main role is that of a landlord as it continues to own the vast land area used by the airport operations. It collects no less than $300 million in rent instead of spending for running this public facility.

Lennox thinks their system has proven to be ideal compared to other models used elsewhere in the world. As he puts it, we have to face it that it is not possible for governments to build and run airports because the politics is just so complicated.

That’s true. Based on our own experience, it is clear costs tend to spiral with bureaucratic mindsets and level of inefficiency.

According to Businessweek/Bloomberg, GTAA has a rather lean staff of 1,134 Employees even as Lennox claims some 40,000 people work in the airport from among the various service enterprises there. I am almost sure NAIA itself most likely has more people than GTAA to run a much smaller operation. GTAA’s annual revenues are in the vicinity of $1.2 billion.

Lennox said they have a capacity to serve at least 60 million passengers a year and are only hitting 32 million now. This explains why GTAA is very market oriented and is actively selling Toronto Pearson as a gateway to North America with various airlines. Just before the PAL inaugural flight, airlines from Ethiopia and Sri Lanka also started to fly to Toronto.

The way GTAA selected its current President is light years away from the way we choose NAIA’s General Manager. They used a professional international executive search.

Howard Eng assumed the position of President and Chief Executive Officer of the GTAA on March 29, 2012. Mr. Eng has over 25 years of experience in the airport industry involving project development, planning, retail and operation. Our NAIA GM by comparison can only say by way of qualification that he was a retired Air Force General and a close friend of P-Noy.

 Mr. Eng, who welcomed the PAL inaugural flight, was the Executive Director, Airport Operations of the Airport Authority Hong Kong up to March 2012. A GTAA release says he was integral in moving Hong Kong onto the world’s stage as a global hub and one that enjoys consistently high ratings from guests, including a top rating from Skytrax.

  Before joining Hong Kong’s Airport Authority, Mr. Eng was Vice President of Operations, Edmonton International Airport in Canada. Prior to that, he held various positions with Transport Canada.  

In selecting members of its governing board, they look for persons with acknowledged credentials in fields relevant to airport operations. The areas include: corporate finance, Construction management and engineering, air transportation industry management, aerospace industry, travel and tourism industry, among others.

What is unique in the system is GTAA’s non profit nature. That means they recognize that their reason for being is public service. Civic spiritedness has to be the top motivation for someone to serve on the governing board.

I am told that no one has to remind them of conflict of interest situations as they voluntarily refrain from doing business with GTAA. That may be difficult to expect under our current social and political environment. They also serve three year terms and no one serves longer than nine years.

Still skeptical on how they can function as a non profit entity with just a governing board of presumably civic spirited citizens, I asked Lennox how else can they ensure good governance.

Lennox explained that the financial market is another assurance they play by the rules of good governance. GTAA depends a great deal on borrowings from the financial market and their credit rating will suffer at the slightest hint of impropriety.

Pearson will likely reach a maximum capacity of 54 million to 60 million passengers annually between 2027 and 2037, up from 32 million in 2010.

Bloomberg reports that GTAA operations cover an area of approximately 1,882 hectares of land, which includes 5 runways and associated taxiways; and airside, terminal, groundside, and support facilities. The airport has two commercial passenger terminals, which handle domestic, transborder, and international passengers and cargo.

Its groundside and support facilities comprise car parking, car rental, air cargo, general aviation, fixed base operations, hotels, fuel farms, and other facilities.

I am sure we cannot replicate the GTAA model in running our airport given our prevailing political environment. But we can surely try to follow a lot of the good practices they have found effective.

The Canadians tried a straight private sector for profit model in the past and it didn’t work. That’s why they ended up with this somewhat hybrid model that incorporates the best a private operation has to offer with enough safeguards from government.

In our case however, we are or should be desperate enough to try a strictly private sector approach. This is simply because we know the government simply doesn’t have what it takes to run our airports to world quality standards.

This explains why there is so much excitement over the prospect that San Miguel Corporation will establish and run an airport that would be a lot modern, a lot more efficient than we can ever expect government-run NAIA could be.

But until that happens, P-Noy as the appointing power for NAIA officials should make an effort to pick someone like Mr Eng or the Filipino running Changi International Airport in Singapore. We do not lack qualified people. There is no excuse for continuing mediocrity.

Priority parking

Parking is a big issue hereabouts. Saw a sign that read:

Stupidity is not a handicap. Park elsewhere!

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco