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Health-care workers prepare to test passengers before they arrive at Toronto's Pearson Airport after mandatory COVID-19 testing took effect for international arrivals in Mississauga, Ont., Feb. 15, 2021.CARLOS OSORIO/Reuters

Back when the Trudeau government sought to make infrastructure the leitmotif of its first-term economic strategy, it considered privatizing Canada’s then-booming airports to free up capital to invest in public transit and green-energy projects.

At the time, no one seemed more bullish on the idea than Michael Sabia. Then the head of Caisse de dépôt et placement du Québec, Mr. Sabia had seen the pension fund manager’s stake in London’s Heathrow Airport generate juicy returns over the years and he longed to see similar opportunities arise at home. As a member of then-finance minister Bill Morneau’s advisory council on economic growth, in 2016, he enthusiastically backed its recommendations for a partial or full privatization of Canada’s airports. Most observers assumed the Caisse would pounce at the chance to own a piece of them.

The Liberals ultimately decided against privatization in the face of stiff opposition from the people who then ran Canada’s airport authorities and polls showing Canadians cool to the prospect of selling off what were perceived as prized public assets. As a result, the government turned its nose up at billions of dollars in proceeds that could have gone toward other infrastructure priorities or debt reduction. Privatization would also have enabled airports to tap equity markets to fund growth instead of constantly dinging passengers with higher fees and piling on debt that had reached a cumulative $15-billion when the pandemic struck.

Now, those same airports are begging Ottawa for a bailout after a year of cratering revenues brought on by the COVID-19 pandemic and increasingly punitive travel restrictions imposed by the federal government. Instead of generating cash from their sale, Ottawa could instead be on the hook for billions if struggling airports default on their debt as they run out of cash.

As it happens, Mr. Sabia, appointed deputy finance minister in December, is once again at the centre of the debate about what to do about the airports.

As an architect of Ottawa’s postpandemic fiscal strategy, Mr. Sabia must address more than the short-term cash woes of Canada’s airports. While Ottawa has provided rent relief to the authorities that operate Canada’s airports under long-term leases with the federal government, it is a drop in the bucket compared with the amount they need to survive the next few years. Some experts predict that air travel might not return to prepandemic levels until 2025, suggesting some airports may need to undertake a financial restructuring to remain viable.

Canada’s airports were already at a competitive disadvantage to their U.S. counterparts prior to the pandemic. Having undertaken expensive – or extravagant, say their critics – investments in new terminal buildings in recent years, many came to rely on debt and ever-increasing per-passenger “airport improvement fees” to cover growing operating and debt-service costs.

Those days are over. In the postpandemic era, Canada’s airports will need to adopt a more consumer-friendly business model if they hope to lure back travellers. The current model, akin to operating Canada’s airports as public utilities, has proved ill-suited to changing market conditions and competitive pressures. Its days were numbered even before the pandemic.

The Greater Toronto Airports Authority and the Vancouver Airport Authority were able to tap debt markets in 2020 to shore up their liquidity. But airports in Montreal, Calgary and Ottawa, however, appear to be on far shakier ground and may need to take more drastic action.

Aéroports de Montréal, or ADM, which runs Montreal’s Trudeau and Mirabel airports, last month raised its airport improvement fee to $35 from $30 and adjusted landing charges for cargo flights. But the move was not enough to avoid having its debt downgraded to single-A from single-A (high) by DBRS Morningstar. “In absence of stronger assistance from the federal government, the financial stress faced by ADM is likely to continue,” DBRS added.

Moody’s Investors Service last week estimated that Canadian airports would need to see traffic return to between 40 per cent and 75 per cent of 2019 levels to stop hemorrhaging cash. They are a long way from that, however, with traffic hovering at about 15 per cent of prepandemic levels. Additional restrictions imposed last month by Ottawa on international travellers are expected to reduce airport revenues by $1-billion this year on top of the $5.5-billion shortfall previously projected for 2020 and 2021 by the Canadian Airports Council.

“While additional rounds of cost-cutting and rate increases are possible, there is a limit to how deeply costs can be cut when airports have an obligation to remain open and rate increases will only make air travel more expensive,” Moody’s noted. “Some airports will likely need to issue additional bonds or increase credit facilities to support their liquidity. The elevated debt levels will deteriorate credit metrics and delay the overall recovery to pre-COVID-19 financial performance.”

By failing to privatize Canada’s airports when it could have, the Trudeau government missed out on an opportunity to reap billions of dollars for taxpayers and enable airports to tap new sources of capital that would have helped them withstand periods such as this one. No one understands that better than Mr. Sabia.

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