Review of the Governance Structure and Issues at Muskoka Airport Prepared for The District Municipality of Muskoka 10 November 2016
Contents 1 Introduction... 1 2 Background Information on Muskoka Airport... 2 2.1 Airport Overview... 2 2.2 Current Governance Model... 3 3 Governance Issues... 5 4 Review of Different Governance Models... 6 4.1 What is Airport Governance?... 6 4.2 Types of Governance Models... 6 4.3 Select Examples of Airport Governance Models... 9 5 Governance Issues Moving Forward... 12 Appendix A: A Brief History of Muskoka Airport... 13 Appendix B: Governance Models at Other Ontario Airports... 14 i
1 Introduction The purpose of this report is to provide some background on the issues around governance of Muskoka Airport. The District of Muskoka has retained InterVISTAS Consulting to engage the community in a dialogue regarding the future governance structure of the airport. Additionally, as part of this engagement, InterVISTAS will provide recommendations on the best governance model for Muskoka Airport to achieve its goals and objectives going forward. In order to provide relevant context for the community dialogue, this report provides a brief background on Muskoka Airport and some of the issues that have arisen. These issues primarily involve District financial support for the airport s operations and investments, and decision making processes. The report provides a discussion of what is meant by airport governance and describes alternative governance options that might be considered. 1
2 Background Information on Muskoka Airport 2.1 Airport Overview Muskoka Airport (IATA code: YQA) is located in the District of Muskoka at the north end of the Town of Gravenhurst. It is a key piece of infrastructure for the District and plays a critical economic and social role in the region. The airport provides vital connectivity for the District for businesses, tourism, medical services, agricultural services, and forest monitoring / firefighting. Several employers are located at the site. The airport opened in 1936. During World War II it served as an air force training base, not only for the Royal Canadian Air Force but also for the Royal Norwegian Air Force, earning the Little Norway nickname for the airport, memorialized today in the Little Norway Memorial. Appendix A is an excerpt on the history of the airport from T.M. McGrath s History of Canadian Airports. The airport was sold by Transport Canada to the District of Muskoka in 1996 which has operated and invested in the facility since then. This was part of nationwide policy under which Transport Canada divested itself of virtually all of the national/regional/local/arctic airports that it had been operating in the Post World War II era. Muskoka Airport serves as a general aviation airport, supporting private and charter flights into and out of the region. It has a 6,000 foot paved main runway and a 2,199 foot grass strip runway for light aircraft. The paved runway can accommodate aircraft as large as the Boeing 737 and Airbus A320. The airport operates 24 hours per day, seven days per week. Nav Canada has classified the airport as an Airport of Entry and Canada Border Services Agency (CBSA) officers are available on-site to facilitate the arrival of international flights. In terms of the current passenger profile, during the summer of 2013 Muskoka undertook a visitor survey of arriving aircraft passengers that used the airport to access the Muskoka region and adjoining areas. Of the 594 people interviewed: 66% were passengers, 34% were flight crew. Nearly half (48%) were destined for the Muskoka Lakes area. 71% originated from the United States, 28% originated from Canada and 1% from overseas. 39% were cottage owners, 28% were tourists, and 26% were visiting friends and relatives (VFR). 51% arrived on an air carrier such as an air taxi, in contrast to those arriving in private (44%) or corporate (4%) aircraft. The airport saw 13,165 aircraft movements in 2015, roughly 36 per day. 1 1 Statistics Canada, Table 401-0021: Monthly aircraft movements, by class of operation and type of operation, airports without air traffic control towers. 2
2.2 Current Governance Model Muskoka Airport is owned and operated by the District of Muskoka, which assumed operation of the airport in 1996 during Transport Canada s divestiture program. Prior to 1994, the vast majority of Canadian airports, including the regional ones, were owned and operated by the Government of Canada. Divestiture of the regional airports was supported by the 1994 National Airports Policy (NAP). The NAP was part of a broader wave of federal government devolutions of infrastructure and operations that included the creation of Nav Canada, the commercialization of ports and the St. Lawrence Seaway, and the privatization of Air Canada and CN Rail. The NAP divided airports into categories. The National Airports System (NAS) airports comprised the 26 large airports that handled 94% of passengers in Canada. Other airports were classified as: Regional/Local airports (Muskoka Airport is classified as a regional/local airport) These were sold at a nominal fee to provincial or local governments, airport commissions/societies or private interests and have access to a national Airports Capital Assistance Program (ACAP) if the airport has year round scheduled commercial air service; Small airports These were sold to local interests and cut off from federal funding of any kind; Remote airports which continue to receive federal support, but cost efficiencies were required; and Arctic airports which were transferred to territorial governments under an already existing program. Governance structures differ among and within the airport classes. For the NAS airports, most were created as not-for-profit no-share companies under the Canada Corporations Act. For the regional/local airports, a variety of models were used. Some airports were acquired by local government (city, county or district) and operate as departments within those cities (e.g. Muskoka). Others were created as societies (e.g. Fort St. John), authorities (e.g. Fort McMurray), or as an airport development corporation (e.g. Sault Ste. Marie). For small airports, there are cases of private sector ownership/operation. A few airports operate via a lease of city/district owned facilities to a private sector company. In the case of Muskoka Airport, it is operated as a municipal function of the District. The Planning and Economic Development Committee oversees airport operations via the Chief Administrative Officer and the Commissioner of Planning and Economic Development, who are responsible for airport operations and reporting to the Committee/District. In the past, there was an Airport Advisory Committee whose Chair also reported to the Planning and Economic Development Committee, and represented the District and airport stakeholders (committee was not re-appointed after the last municipal election in 2014). The airport is funded through a combination of fees to users, land rents/fees, and District tax revenues. Fees include jet fuel sales and ramp usage fees. There is some income, in the form of a maintenance charge, from land that is leased or owned by airport tenants and other customers. Some land was sold, generating cash that could be used for airport investments, though land sales have been restricted for the time being in favour of land leases. Specifically, Council decided (by resolution in 2014) that the lease of lands is preferred to sales, unless significant benefits to the airport or the community are demonstrated. 3
A portion of the tax revenue collected from each municipality in the District is put towards the airport for operational and capital costs. The 2006 Strategic Business Plan describes the key roles the airport plays in contributing to the local region s economy: The premise under which Muskoka assumed the Airport remains valid today the Airport contributes significantly to the Muskoka economy and also provides valuable transportation infrastructure. The benefits of the Airport are felt throughout Muskoka in terms of usage and/or spin off effects. The Economic Impact Report prepared in 2005 indicated that the Muskoka Airport contributes over $31 million to the economy annually with a direct impact of approximately $5.4 million per year. The cost to Muskoka to operate the Airport in 2005 was $335,000. 2 It should be noted that in 2009 an update to the economic impact study was performed. The findings from this update were that the direct economic impact had increased to $7.2 million (a 25% increase over the 2005 estimate after adjusting for inflation). 2 Strategic Business Plan for the Muskoka Airport January 2006. 4
3 Governance Issues In preliminary discussions, it was identified that there is no one single major governance issue, but rather several issues that some view as hindering the airport s progress. These include: Taxation and Airport Funding: Some municipalities in the District of Muskoka are located further away from Muskoka Airport, and feel that they should not have to contribute as much from their taxes to the operation of the airport. Furthermore, there is the issue of large capital expenditures that are needed from time to time and how these should be funded. Decision Making Delays: Airports that are independent of local government are viewed as being able to more quickly make decisions, as typically they have only one layer of approval process (the board of directors). With government run airports, there can be multiple layers for approval processes, such as an airport advisory board, the reporting department in the municipality/district, the Chief Administrative Officer and/or Mayor, and ultimately the Council itself. These layers can result in delays in time critical decisions and may be preventing development from going forward at the needed pace. The airport, being owned and operated by the District, must follow District protocol when development ideas are put forward. What a Governance Model Looks Like: Within the District Council, there are many definitions of what a governance model should look like. Some believe governance should focus purely on reducing costs to taxpayers. Others believe it should focus on how and where the airport should grow. Without a clear definition and vision, it becomes difficult for a group to agree to follow any specific model. This issue has more to do with the mission and vision for the airport, but a multilayered governance model may be more likely to lack clarity in mission and vision. Limited Opportunity to Further Develop Airport Lands: Due to the geography and infrastructure surrounding the airport, there is little land available for the airport to expand into. To the west of the field, the land is hard rock and more costly to develop. To the east the land on the airport property is sandy and lacks services. Further to the east, off the airport property, is wetlands. The north side is restricted by the proximity of Highway 11 and to the south the Beaver Creek Correctional Institute. The District is Focused on More than Just Airport Issues: The airport is not the District s only responsibility, and as such, Council members must divide their time between all issues within its purview. While airport issues will be addressed in due order, the District s responsibilities to other issues may have a higher priority and thus delay airport-related decisions. As an example, both a long term airport plan and an economic impact study have been delayed in recent years due to a difference in opinions and priorities on Council. 5
4 Review of Different Governance Models 4.1 What is Airport Governance? The Institute for Governance of Private and Public Organizations (IGOPP) provides the following definition of governance: Governance, [in its] fiduciary form, consists in implementing all the means for an organization to achieve the ends for which it has been created in a manner that is transparent, effective and meets the expectations of its stakeholders. Governance is thus made of accountability rules and operating principles implemented by the board of directors to define the strategic orientations of the organization, ensure supervision by management, assess its economic and social performance and promote the emergence of values of integrity and excellence within the organization. The implementation of such fiduciary governance certainly represents progress in most areas of activity. 3 Thus, the main focus of the airport operator must be to deliver air access with a high standard of safety and security to its stakeholders in order to facilitate economic and social connectivity. Governance is the organizational structure by which key decisions regarding the airport are made and then carried out. An example of an airport-specific governance definition comes from the Canadian Airports Council, an industry association that lobbies the federal government on business issues that affect Canada s airports. It describes airport authorities as: Airport Authorities are mandated to operate as self-sustaining businesses and to facilitate economic development in local communities. Airport authorities are equipped to respond to local economic needs and priorities through more business-like management practices and Boards of Directors appointed from the community. 4 4.2 Types of Governance Models When looking at different types of governance models it is important to consider two key constraints: 1) Financial viability Some models are only possible with airports that are financially selfsufficient (i.e. operating revenues and grants are sufficient to cover both operating expenses and required capital expenditures). 2) Ownership structure Certain models are only suitable for cases where the airport is owned by a single owner. There are other models that can accommodate a partnership between multiple owners. 3 Governance in Short, https://igopp.org/en/igopp/governance-in-short/ 4 Airport Governance, http://www.cacairports.ca/node/95 6
The following diagram summarizes which models are possible based on an airport s financial situation and ownership structure. Figure 4-1: Options for Governance Based on Financial Viability & Ownership Structure The key details for each structure are summarized in the table on the following page. Note, the table was in part based on the information that was provided in the SNC LAVALIN Business Plan and Master Plan report that was previously conducted for Muskoka Airport. 5 5 MAA-3-2013-SNC-LAVALIN-REPORT, Business Plan and Master Plan, Muskoka Airport, Final Report 10 May 2013, p. 145. 7
Figure 4-2: Summary of Governance Models Owner Operator Level of Autonomy / Decision Making Financial Responsibility Fiduciary Duty (of management & board) Single Municipality Single Municipality None Functions as a department of the municipality Decisions approved by Council Municipality is solely responsible for operating expenses and capital expenditure Can also apply for federal grants (e.g. ACAP) n/a District (or Regional) Government District (or Regional) Government None Functions as a department of the district/region Decisions approved by Council District is solely responsible for operating expenses and capital expenditure Funding is based on district level tax collection structure Can also apply for federal grants (e.g. ACAP) n/a Municipal Services Corporation (formerly called Commissions) or Leased by District to Municipal Services Corporation Municipal Services Corporation (formerly called Commissions) Semi-autonomous manager has control on some aspects of the budget Budget approved by owners Municipalities are jointly responsible for operating expenses and capital expenditure Funding allocation is adaptable (e.g., 50%/50%, 60%/40% etc.) Responsibility of airport management is to the municipal owners Can also apply for federal grants (e.g. ACAP) Society Society Full Society is an independent entity Society s board will likely have municipal/regional nominees that may be able to exert indirect control The society, as an independent entity, is responsible for operating expenses and capital expenditure Local stakeholders (e.g. municipalities or district) may provide occasional grants although they are not obligated to do so and are not a certain funding stream Society may be able to sell land to raise funds Can also apply for federal grants (e.g. ACAP) Responsibility of airport management is to the Society s board Responsibility of the board is to the Society 8
Owner Operator Level of Autonomy / Decision Making Financial Responsibility Fiduciary Duty (of management & board) Municipality or District/Region or Federal Government (land provided on longterm lease to Authority) Airport Authority Full Authority is an independent entity Authority s board will likely have municipal/regional nominees that may be able to exert indirect control The Authority, as an independent entity, is responsible for operating expenses and capital expenditure Airports are usually large and are able to raise capital through debt issuance Responsibility of airport management is to the Authority s board Responsibility of the board is to the Authority Private Private Full operates as any private entity does Shareholders and creditors are responsible for all funding Responsibility of airport management is to the corporation s board Responsibility of the board is to the shareholders 4.3 Select Examples of Airport Governance Models A 2014 report by Strategy Corp titled District of Muskoka Operational Review provides some examples of governance models at Ontario airports 6. We paraphrase these examples below, and have added other examples. Note, a list identifying the governance structure at a large number of the Ontario airports is provided as Appendix B. Operation as Regional Municipal Department (i.e., Regional Government Owns and Operates) Example: Owner: Operator: Funding: Region of Waterloo International Airport Region of Waterloo ( the Region ) Region of Waterloo The Airport is operated and subsidized by the Region, which recognizes it as a strategic economic asset. The airport s main sources of revenue are the scheduled service portion of passenger fees and landing fees. All airport staff are regional employees and are part of the Planning, Development and Legislative Services department, reporting to the Planning and Works Committee. The Airport manager is responsible for all decisions surrounding Airport operations, contracts under $50,000, business development and marketing. The airport manager also has authority to sign land leases under 20 years in length and can make recommendations to Council for land use plans within the airport s envelope. The Budget Committee reviews and approves contracts over $50,000. 6 District of Muskoka Operational Review, Strategy Corp, 2014. 9
Single Municipality (i.e., Local Government Owns and Operates) Example: Owner: Operator: Funding: Timmins Victor M. Power Airport City of Timmins City of Timmins Self-funding through airport operations and user fees, with excess money going into a reserve fund. Operation as a Society (i.e., Society Owns and Not-for-Profit Operates) Example: Owner: Operator: Funding: Pitt Meadows Airport Pitt Meadows Airport Society Pitt Meadows Airport Society Self-funding through airport operations, leases and land sales. The society structure was put in place to facilitate a joint partnership between the City of Pitt Meadows and the City of Maple Ridge. The Society owns and operates the airport and, as a not-for-profit organization, reinvests all earnings back into YPK in order to improve the airport for the community. The City of Maple Ridge was supportive of the partnership because of the airport s role as a driver of economic development for the region. The municipalities of Pitt Meadows and Maple Ridge are the Members of the Society, essentially performing the role that shareholders would of a private company in terms of nominating board members and making the critical organizational decisions (such as creation and dissolution of the society). The Members nominate directors to the Society s Board. Municipal property taxes apply as well as local zoning, bylaws, fire services and other municipal regulations. This jurisdictional authority vests with the airport s host city, which is the City of Pitt Meadows. Operation as a Municipal Services Corporation (i.e., Local Governments Own and Operate) Example: Owner: Operator: Funding: Lake Simcoe Regional Airport City of Barrie ( Barrie ) and the Township of Oro-Medonte in an 80%/20% sharing of costs. Operated by City of Barrie staff that have been seconded to the airport. The airport is subsidized on an 80 20 basis between the City and the Township. Around 75% of revenue is generated from the Airport s commercial jet activities. Other revenue is generated from general aviation/training and tenants. The airport has an autonomous Board that oversees the Airport s operations, largely independent of the respective municipal councils. Barrie and the Township appoint 5 and 2 members respectively, both council members and other citizens. The Board s authority to operate the Airport extends to all areas of airport operations. The Board manages and approves its own budget; it is authorized to reallocate funds within the total funding envelope. While the Board cannot sell land, it is authorized to execute tenancy agreements and land lease agreements, for up to 99 years. 10
Operation as an Airport Authority (i.e., Federal Government Owns and Not-for-Profit operates) Example: Owner: Operator: Funding: Toronto Lester B. Pearson International Airport Transport Canada Greater Toronto Airports Authority Self-funded Private contractor linked-in to municipal governance (i.e., Local Government owned, Private Sector Operates) Example: Owner: Operator: Funding: Peterborough Municipal Airport City of Peterborough ( Peterborough ) Private contractor with an 8 year term with 2 3 options for contract renewal Private contractor is paid an annual fee by the City of Peterborough to operate the airport, but must fund some expenses on its own to ensure the contractor does not have an incentive to cut expenditure to key areas such as equipment and materials. The airport s main source of revenue is through land leases. Private Operation Example: Owner: Operator: Funding: Buttonville Municipal Airport Cadillac Fairview and Armadale Co Limited (formerly owned by the Sifton family) Toronto Airways Ltd. Formerly subsidized by the Greater Toronto Airports Authority Buttonville is a general aviation airport that caters to business jets and has three on-site flight training schools. It was designated as a satellite airport to Pearson International Airport and until 2009 it received an annual operating subsidy from the GTAA to handle Pearson s business jet overflow traffic. Following the subsidy elimination, the land has been purchased by Cadillac Fairview from the Sifton family. Pending a successful rezoning application, the airport is slated for closure as early as October 2017 with plans to redevelop the land with condos, retail and office space. Private interests may be looking at developing the Pickering airport lands. 11
5 Governance Issues Moving Forward Going forward the governance structure must address some fundamental issues: How will operating and capital expenditures be funded? Should the District continue to own and operate the airport? o Or should governance be with a subset of some communities only? Are there currently too many layers of administrative control to be effective? o Would some level of delegation for decision-making be more appropriate? 12
Appendix A: A Brief History of Muskoka Airport The following passage is from the book sponsored by Transport Canada providing a history of Canada s airports. Note that this history ends prior to its publication in 1992, and thus does not reflect the transfer of the airport from Transport Canada to the District of Muskoka in 1996. 13
Appendix B: Governance Models at Other Ontario Airports Airport Ownership Operation Brantford Municipal Municipal Collingwood Municipal Municipal (Property Management Dept) Municipal Services Board (Collingwood, Wasaga Beach, Clearview) FBO services contracted out Lake Simcoe Municipal Municipal Services Board (Barrie, Oro-Medonte, County of Simcoe) Niagara Region Commission* Commission* Municipal (City of Barrie) employees North Bay Municipal Airport Corporation Parry Sound Municipal Commission Peterborough Municipal Operations contracted out under oversight of City airport administrator (Planning and Development Dept) Stanhope Municipal Municipal (Airport Committee for social events ) Sudbury Municipal Community Development Corporation (City staff assigned to corporation on cost recovery basis) Tillsonburg Municipal Municipal with Airport Advisory Committee Timmins Municipal Municipal (Economic Development and Marketing Dept) (Airport Dept) Waterloo Municipal Municipal (independent FBOs) (Planning, Development and Legislative Services Dept) *Discussions underway about transferring ownership and operations to the Region of Niagara. Source: District of Muskoka PED memo. 14
Prepared by InterVISTAS Consulting Inc. Airport Square Suite 550 1200 West 73 rd Avenue Vancouver, BC Canada V6P 6G5 Telephone: +1-604-717-1800 Facsimile: +1-604-717-1818 www.intervistas.com