Toronto Airport is worth $3.7 billion in possible sale

Bloomberg

Canada is considering the sale of at least a minority stake in Toronto Pearson International Airport that values the country’s busiest
airport at about C$5 billion ($3.7 billion),
according to people familiar with the matter.
The stake sale, just one of many options laid out in a report to government prepared by Credit Suisse Group AG, would free up billions of dollars for new infrastructure projects, the people said, asking not to be identified because the matter is private.
A federal advisory panel recommended last year the government look at selling its airports, and the C.D. Howe Institute estimates privatization of the country’s eight major airports could rake in between C$7 billion and C$17 billion, with Pearson alone fetching as much as C$6 billion. Selling the airports would cut costs for travelers and create opportunities for more shops and services, the non-partisan research institute said.
“The subject is still being studied and no decision has been taken,” Marc Roy, a spokesman for Transport Minister Marc Garneau, one of the lawmakers overseeing the consideration of privatization. “We won’t comment on any rumors.” The government has so far declined to release the Credit Suisse report.
Selling slightly less than half of Pearson would be the easiest of several scenarios Credit Suisse presented to Prime Minister Justin Trudeau’s government in a report last year, according to the people. That scenario would allow the government to retain control of the airport while raising billions for other projects.
Sam Pollock, the head of Brookfield Asset Management Inc.’s infrastructure group, has said there would be a “feeding frenzy” among institutional investors if airports were put up for sale.

Benefits and Pitfalls
The confidential Credit Suisse report outlined the potential benefits and pitfalls of various scenarios of such a move. Trudeau downplayed airport sale expectations last month when he said he was more “interested in other things.” Sources familiar with the government’s thinking said the privatization of any of the nation’s airports is still being considered.
Credit Suisse’s findings represent “one element of a broad range of information the government will consider” in weighing airport privatization, Dan Lauzon, a spokesman for Finance Minister Bill Morneau, said by email Friday. “The government has taken no decisions at this time.”
“We are very cautious about privatizing airports,” Alexandre de Juniac, chief executive officer at the International Air Transport Association, said in a March interview. “After 25 years of experience around the world, in Europe, in Australia, in South America, we have been fairly disappointed about the economic consequences on airlines, on costs, on quality of service and the associated costs everywhere the airports have been privatized.”
Canada is the world’s only country where the largest airports are operated by non-profit airport authorities, who lease land owned by the government, a structure that constrains the ability to fund expansions and creates a disincentive for certain developments, according to the C.D. Howe report.

‘All-Time High’
Pearson has emerged as the top candidate for sale, the people said. The country’s second-busiest hub, the Vancouver International Airport, is considered to be more complicated and less likely than the sale of a partial or full stake in Pearson, the people said.
“I think it makes a lot of sense to go down this road right now. The market for assets like this is at an all-time high,” C.D. Howe report author Steven Robins said in an interview. It’s essential that government set up its regulatory process correctly and not constrain long-term options — such as an agreement for Pearson that limits development of other airports around Toronto, he said.
Government would see annual airport revenue fall to $110 million in provincial and federal taxes, from C$305 million currently collected in rent, Robins’s report estimated.
One risk is keeping airport authorities onside.
“If they don’t have buy-in from the airport authority board, this is a difficult transaction to do,” he said, adding that factor alone is a potential barrier for a Pearson sale. “Other airport authorities have been more open to the idea.”
Australian Model
Brookfield’s Pollock said on a conference call Thursday it was unclear if either the Canadian or U.S. governments would seriously consider an asset recycling program akin to the one Australia adopted.
“Our stance is that both governments are very serious about bringing meaningful programs to market and so I think there is a strong desire to do it,” Pollock said. “What is unclear at this stage is whether or not there will be political impediments to making it of a scale or of a success like we’ve seen down in Australia.”
Australia has become the poster child for successfully selling off older infrastructure assets to fund new ones. In the Australian model, the federal government contributes 15 percent of the sale price of mature infrastructure assets to the states and municipalities who sell them earmarked for the construction of new roads, hospitals, power plants and other projects.