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Report on Business: Money & Markets
GTAA needs to be curbed before it careens down the runway
HARRY KOZA
981 words
23 June 2006
The Globe and Mail
B10
English
All material copyright Bell Globemedia Publishing Inc. or its licensors. All rights reserved.
Someone told me the other day that, back when Ontario Hydro was a bloated out-of-control bureaucracy, fuelling its hapless nuclear expansion with a tsunami of debt — which, by the way, Ontario residents are still paying off — it had something like 200 economists on staff.
Jeez, 200 economists — no wonder it was so screwed up! Maurice Strong's main accomplishment when he took over the Hydro helm (and likely the only feat of his career that ever actually saved taxpayers any money) was to winnow that number down to two (though still likely one too many).
This may be apocryphal, but it seems plausible. Swelling bureaucracies with no checks and balances do tend to get a little crazy.
Speaking of out-of-control bureaucracies, I was reading the master plan for the Greater Toronto Airport Authority's redevelopment of Pearson Airport the other day. It's quite the plan, and the press is already routinely referring to the project as the Taj Mahal. I hear wags on the Street lately describing it as “Ontario Hydro of the skies.â€
Right now, after roughly $7-billion in bonds issued to finance the project, the new terminal has piers D, E, and F open. The next stage will require the demolition of Terminal 2 and finishing of Pier G. Now, I don't know about you, but I've been in a lot of airports that are far worse than Terminal 2.
Why not save a billion dollars of taxpayer money (and believe you me, one way or another Ontario residents will be paying for it) and just build a bridge over to Terminal 2 instead of tearing it down and adding another wing? The ultimate phase of the expansion will see the demolition and replacement of Terminal 3 — you know, that new modern one they only recently bought from the private developers for a fat price. Obviously, I must be totally uninformed on the nuances of modern airport design, because to me, tearing down Terminal 3 seems completely insane.
Anyway, price is no object for the new airport. After all, the GTAA has effective taxing power, and can just increase landing fees and the rents on their business tenants, and slap another departure tax or improvement fee on your ticket. This is why bond investors have been enamoured enough of the whole concept to snaffle up $7-billion worth of airport debt. I've even bought some GTAA bonds myself. This is also why crappy airport food costs an arm and a leg, air travel is so expensive, and one of the reasons why the airline business is so dismally awful.
The International Air Travel Association (IATA) says that the global airline industry will only lose $2.2-billion (U.S.) in 2006. That's good news, as it is much lower than the $6-billion it lost in 2005. Airlines in the United States, IATA figures, will lose $5.4-billion this year, assuming an average oil price of $57 a barrel. Last year, U.S. airlines lost $10.8-billion on oil prices higher than $56 a barrel, and that doesn't include the $16.7-billion fourth-quarter charge for United Airlines' restructuring.
Airlines have responded by tightening their belts: cutting labour costs, reducing amenities to Aeroflot standards, and jacking up fares. Meanwhile, airport authorities all across Canada are issuing debt to refurbish their operations and hiking their landing fees. In 2004, Pearson already had the second-highest landing fees in the world, after Tokyo's Narita airport, and since then they've announced another 17-per-cent increase. Add in the currency effects of the strong loonie, and Pearson is now the world's most expensive airport.
The GTAA, with another 10 years to go before Pearson is completed, is already making noises about building a new airport at Pickering. Yet the prospectuses for all the existing GTAA bonds clearly state that as part of the protection for bondholders, no competing passenger airport will be built for 60 years. Hey, no problem, the Pickering Airport will be for cargo flights, not passengers. No one knows, however, how much new debt will have to be strapped on to build an airport at Pickering. Not to worry, though, because the docile taxpayers of Ontario will, indirectly though it may be, still pick up the tab.
This is taxation without representation. The airport authorities are a law unto themselves. They aren't audited by the Auditor-General (though they should be). They borrow vast amounts of money that is, one way or another, on the taxpayers' back, and yet are unaccountable to the taxpayers' representatives. Absent the GTAA's taxing power, no one in their right mind would lend money to an airport authority — all their airline customers are bankrupt (some have even been through bankruptcy more than once).
Airlines only want two things from the airports they land at: low landing fees and the rapid movement of happy passengers. Neither of these things, however, is in the interest of airport authorities, who need to extract the maximum rent from the real estate they inherited from the federal government in order to service their giant debt loads. That means high rents, high landing fees and hordes of dishevelled passengers cooped up in vast shopping malls.
So the GTAA continues to build its gold-plated facility, apparently on the theory that price is no object as long as it is a “world-class†building. Maybe I'm just being curmudgeonly, but I think they are out of control, and just like Ontario Hydro at its bloated peak, desperately need to be reined in.
Harry Koza is senior Canadian markets analyst at Thomson Financial and a columnist for GlobeinvestorGOLD.com.
Report on Business: Money & Markets
GTAA needs to be curbed before it careens down the runway
HARRY KOZA
981 words
23 June 2006
The Globe and Mail
B10
English
All material copyright Bell Globemedia Publishing Inc. or its licensors. All rights reserved.
Someone told me the other day that, back when Ontario Hydro was a bloated out-of-control bureaucracy, fuelling its hapless nuclear expansion with a tsunami of debt — which, by the way, Ontario residents are still paying off — it had something like 200 economists on staff.
Jeez, 200 economists — no wonder it was so screwed up! Maurice Strong's main accomplishment when he took over the Hydro helm (and likely the only feat of his career that ever actually saved taxpayers any money) was to winnow that number down to two (though still likely one too many).
This may be apocryphal, but it seems plausible. Swelling bureaucracies with no checks and balances do tend to get a little crazy.
Speaking of out-of-control bureaucracies, I was reading the master plan for the Greater Toronto Airport Authority's redevelopment of Pearson Airport the other day. It's quite the plan, and the press is already routinely referring to the project as the Taj Mahal. I hear wags on the Street lately describing it as “Ontario Hydro of the skies.â€
Right now, after roughly $7-billion in bonds issued to finance the project, the new terminal has piers D, E, and F open. The next stage will require the demolition of Terminal 2 and finishing of Pier G. Now, I don't know about you, but I've been in a lot of airports that are far worse than Terminal 2.
Why not save a billion dollars of taxpayer money (and believe you me, one way or another Ontario residents will be paying for it) and just build a bridge over to Terminal 2 instead of tearing it down and adding another wing? The ultimate phase of the expansion will see the demolition and replacement of Terminal 3 — you know, that new modern one they only recently bought from the private developers for a fat price. Obviously, I must be totally uninformed on the nuances of modern airport design, because to me, tearing down Terminal 3 seems completely insane.
Anyway, price is no object for the new airport. After all, the GTAA has effective taxing power, and can just increase landing fees and the rents on their business tenants, and slap another departure tax or improvement fee on your ticket. This is why bond investors have been enamoured enough of the whole concept to snaffle up $7-billion worth of airport debt. I've even bought some GTAA bonds myself. This is also why crappy airport food costs an arm and a leg, air travel is so expensive, and one of the reasons why the airline business is so dismally awful.
The International Air Travel Association (IATA) says that the global airline industry will only lose $2.2-billion (U.S.) in 2006. That's good news, as it is much lower than the $6-billion it lost in 2005. Airlines in the United States, IATA figures, will lose $5.4-billion this year, assuming an average oil price of $57 a barrel. Last year, U.S. airlines lost $10.8-billion on oil prices higher than $56 a barrel, and that doesn't include the $16.7-billion fourth-quarter charge for United Airlines' restructuring.
Airlines have responded by tightening their belts: cutting labour costs, reducing amenities to Aeroflot standards, and jacking up fares. Meanwhile, airport authorities all across Canada are issuing debt to refurbish their operations and hiking their landing fees. In 2004, Pearson already had the second-highest landing fees in the world, after Tokyo's Narita airport, and since then they've announced another 17-per-cent increase. Add in the currency effects of the strong loonie, and Pearson is now the world's most expensive airport.
The GTAA, with another 10 years to go before Pearson is completed, is already making noises about building a new airport at Pickering. Yet the prospectuses for all the existing GTAA bonds clearly state that as part of the protection for bondholders, no competing passenger airport will be built for 60 years. Hey, no problem, the Pickering Airport will be for cargo flights, not passengers. No one knows, however, how much new debt will have to be strapped on to build an airport at Pickering. Not to worry, though, because the docile taxpayers of Ontario will, indirectly though it may be, still pick up the tab.
This is taxation without representation. The airport authorities are a law unto themselves. They aren't audited by the Auditor-General (though they should be). They borrow vast amounts of money that is, one way or another, on the taxpayers' back, and yet are unaccountable to the taxpayers' representatives. Absent the GTAA's taxing power, no one in their right mind would lend money to an airport authority — all their airline customers are bankrupt (some have even been through bankruptcy more than once).
Airlines only want two things from the airports they land at: low landing fees and the rapid movement of happy passengers. Neither of these things, however, is in the interest of airport authorities, who need to extract the maximum rent from the real estate they inherited from the federal government in order to service their giant debt loads. That means high rents, high landing fees and hordes of dishevelled passengers cooped up in vast shopping malls.
So the GTAA continues to build its gold-plated facility, apparently on the theory that price is no object as long as it is a “world-class†building. Maybe I'm just being curmudgeonly, but I think they are out of control, and just like Ontario Hydro at its bloated peak, desperately need to be reined in.
Harry Koza is senior Canadian markets analyst at Thomson Financial and a columnist for GlobeinvestorGOLD.com.
