Yesterday, Transport Canada gave Porter Airlines final approval for its plan to launch commercial air service at the Toronto island airport. But the same federal ministry was far more generous two years ago, when it gave Porter founder Robert Deluce $20-million in order to start up his new airline.
The size of the payout to Mr. Deluce, revealed in a confidential document obtained by The Globe and Mail, clears up a central mystery of the murky events that followed Toronto City Council's decision in December, 2003, to rescind its approval of a proposed bridge to the airport. In particular, it explains how a bridge originally estimated to cost slightly more than $20-million to build ended up costing taxpayers $35-million to stop.
A confidential memorandum justifying the extraordinary settlement, marked "protect in full," details multiple payouts to three private companies and the Toronto Port Authority (TPA) following cancellation of the bridge. Using generous estimates of sunk costs, lost profits and alleged legal liabilities, it justifies the largesse primarily as a means to prop up the money-losing TPA until such time as it begins to receive revenue from Mr. Deluce's new airline.
While Ottawa publicly agreed to cancel the bridge in accordance with municipal demands, the memo shows that it worked behind the scenes to supply the TPA and Mr. Deluce with the means to finance airport expansion at the same time. The former federal government justified the $35-million payout as a settlement of legal claims, but the memo, dated Nov. 11, 2004, makes clear that the purpose of the settlement was to return the TPA to financial health -- with a well-funded new airline as a paying customer.
"This will again cause the TPA to be self-sufficient, which it would have been with the [bridge]" says the memorandum, a briefing note from lawyers for Transport Canada.
The settlement stipulates that Mr. Deluce spend $9-million of the $20-million payout "to acquire or build infrastructure" at the airport -- an unusual arrangement that appears to have been constructed to sidestep the Canada Marine Act, which prohibits government from subsidizing federal port authorities.
The remaining $11-million paid to Mr. Deluce "relates to sunk costs" he incurred prior to the cancellation of the bridge, according to the memo, although it contains no accounting of them. Instead, it alludes to a threat made by Mr. Deluce to sue Ottawa and the TPA, "if necessary," noting only that the TPA has "assessed" his potential claim. As a result of that assessment, the agency was ultimately able to claim for itself $9-million of the alleged damages to Mr. Deluce.
The settlement also includes a payout of $5-million to Aecon Construction, which the TPA contracted to build the bridge in August, 2005. But the memo makes clear that Aecon had no legal claim against taxpayers because the contract it signed was conditional on the TPA's ability to obtain a number of outstanding federal approvals for the project. The final federal approval mentioned as a condition in the contract did not arrive until January, 2004 -- more than a month after council voted to cancel the bridge.
The TPA had already paid Aecon $1.8-million by 2004, according to the memo, and the settlement stipulated a further $5.15-million payment to the construction company. No reasons are given to explain the extra payment.
Equally murky are the reasons why airport tenant Stolport Corp. received $1.5-million from the federal government. The memo reports that Stolport had agreed to demolish a derelict terminal to abet the bridge development. But when the bridge fell through, the company received a subsidy to rebuild the terminal. Stolport claimed to have suffered astronomical damages of $96-million as a result of the bridge cancellation, according to the memo.
In the end, it was the TPA that received the lion's share of the largesse, including $7.8-million for "sunk costs" and "delay" as well as the $9-million share of the payout to Mr. Deluce. The memo reveals that the agency expected Mr. Deluce to pay landing fees sufficient to cover the airport's annual operating losses as well as 25 per cent of the TPA's administrative costs. It justifies the payouts on the grounds that operating the airport without a bridge will be riskier and less profitable.
News of the secret subsidies comes on the eve of the completion of a review of the TPA by Montreal lawyer Roger Tassé on behalf of Prime Minister Stephen Harper's government -- setting the stage for the island airport once again to dominate a municipal election campaign.
Due to an editing error, the confidential document obtained by The Globe and Mail that outlined federal payouts after the cancellation of a bridge to the island airport was incorrectly described in a Sept. 27 story as a briefing note from lawyers for Transport Canada.