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The management structure of airport operations in Canada and the United States Baldwin, Blair Christopher 1979

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THE MANAGEMENT STRUCTURE OF AIRPORT OPERATIONS IN CANADA AND THE UNITED STATES  by BLAIR CHRISTOPHER BALDWIN B.A. Honours, Queens U n i v e r s i t y , 1977  A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION  in THE FACULTY OF GRADUATE STUDIES' Graduate School of Business Administration  We accept t h i s thesis as conforming to the required standard  THE UNIVERSITY OF BRITISH COLUMBIA June, 1979  ©  B l a i r Christopher Baldwin 1979  DE-6  In presenting t h i s thesis in p a r t i a l f u l f i l m e n t of the requirements f o r an advanced degree at the U n i v e r s i t y of B r i t i s h Columbia, I agree that the Library s h a l l make i t f r e e l y a v a i l a b l e for,reference and study. I further agree that permission for extensive copying of t h i s thesis f o r s c h o l a r l y purposes may be granted by the Head of my Department or by his representatives.  It i s understood that copying or p u b l i c a t i o n  of t h i s thesis f o r f i n a n c i a l gain s h a l l not be allowed without my written permission.  Department n f The U n i v e r s i t y of B r i t i s h Columbia 2075 Wesbrook Place Vancouver, Canada V6T 1W5  B P 75-51 1 E  Thesis Supervisor - Dr. Karl M. Ruppenthal. ABSTRACT This thesis examines the standards of a i r p o r t management i n Canada and the United States with the s p e c i f i c goals of i d e n t i f y i n g the d e f i c i encies that e x i s t in the standards f o r Canadian/management and evaluating proposals aimed at e l i m i n a t i n g the d e f i c i e n c i e s and improving the management system. The examination of the Canadian management s t r u c t u r e d i s c l o s e s a c e n t r a l i z e d system whereby the headquarters branch of the federal" M i n i s t r y of Transport c o n t r o l s a i r p o r t operations from Ottawa and l o c a l a i r p o r t administrations respond to p o l i c y d i r e c t i v e s from Ottawa.  Although t h i s  has t r a d i t i o n a l l y been a well-respected system,' complaints voiced by a i r port users and l o c a l administrations i n d i c a t e that problems do e x i s t with the present standards. lack of responsiveness  A heightened f i n a n c i a l d e f i c i t at a i r p o r t s and a to users needs on the part of a i r p o r t management  h i g h l i g h t the complaints from users.  Local management at a i r p o r t s i s ex-  pressing i t s f r u s t r a t i o n over the lack of control and independence i t possesses, b e l i e v i n g i t cannot e f f e c t i v e l y carry out the r e s p o n s i b i l i t i e s attached to the job of managing operations. An a n a l y s i s of the behaviour of the federal headquarters branch i n Ottawa reveals that the emphasis upon the commercial v i a b i l i t y of a i r p o r t s i s ; n o t as high a p r i o r i t y as the maintenance of a national system of a i r ports.  The bureaucracy in Ottawa has no i n c e n t i v e to minimize the costs  of the management system.  S p i r a l l i n g costs are passed onto a i r p o r t users  in order to maintain the expensive system.  By a s s i m i l a t i n g the objectives of a l l a i r p o r t i n t e r e s t groups with the strategy of the federal government, a broader set of standards f o r management i s formed including greater independence f o r l o c a l a i r p o r t adm i n i s t r a t i o n , an emphasis upon the d e c e n t r a l i z a t i o n of management, and a better balance between the maintenance of a national system of management and b e t t e r f i n a n c i a l s t a b i l i t y f o r a i r p o r t s . Choices ranging from changes in p o l i c y to changes in the organization of management are evaluated against these c r i t e r i a .  The most promising s o l u -  t i o n c a l l s f o r the conversion of a s e l e c t number of Canadian a i r p o r t s to i n dependent a i r p o r t commissions, s i m i l a r to those that e x i s t at major a i r p o r t s in the United States.  On t h i s b a s i s , the standards••'for a i r port;management  in the United States are i d e n t i f i e d and contrasted against the Canadian standards.  The nature of American management and i t s problems are i n v e s t i -  gated in order to determine what d e f i c i e n c i e s e x i s t and how they d i f f e r from those that e x i s t at present in Canada.  I t i s concluded that the d e f i c i e n c i e s  i n the American system are less numerous.  A high degree of independence  e x i s t s in the l o c a l a i r p o r t commissions, with l i t t l e bureaucratic influence from the federal government.  The f i n a n c i a l f o o t i n g of American a i r p o r t s i s  more stable than t h e i r Canadian counterparts.  Problems do e x i s t with the  commission concept of management but none of them are serious enough to detract from the merit of the proposal.  The standards of American a i r p o r t  management are superior to those e x i s t i n g i n Canada, and improvements can be made to the Canadian a i r p o r t management system by f o l l o w i n g , in p a r t , the examples set by the standards of management i n the United States.  TABLE OF CONTENTS Chapter  Page Introduction  .  One  The Canadian A i r p o r t System and i t s Problems  Two  Canadian A i r p o r t Management Philosophy  Three Four  1  1 4 27  ' Criteria  32  A l t e r n a t i v e Management Schemes and Their Evaluation  '.  36  Five  The United States A i r p o r t System.  58  Six  The Concept of the A u t h o r i t y  76  Seven  The Management Structure of the United States A i r p o r t A u t h o r i t i e s "and Associated ProbTems'.rr.'; The Comparison of Canada's Management System to  84  Eight  The United States Management System  97  Conclusions  122  Footnotes  15.7  Selected Bibliography Appendix  ' 161 l l 3  LIST OF TABLES Table  Page  Table 1  - Organizational Structure - The Canadian A i r Transportation Adminstration 1978  Table 2  - Geographic Boundaries 1978 - CATA Regions  10  Table 3  - Typical Organization Structure - Regional A i r p o r t s Branch of the Canadian A i r Transportation Administration 1972 ..  11  9  Table 4  - Passengers Handled 1974 - Top 25 A i r p o r t s  Table 5  - Trends of Revenues, Expenses Versus Passengers Enplaned - Top 23 A i r p o r t s , 1973/74 . . . . . . . .  16  Table 6  - Operating Surplus ( D e f i c i t ) f o r Seven Canadian A i r p o r t s 1975 - 1977  17  Table 7  - 1975 Enplaned Passengers at Selected Canadian A i r p o r t s Versus Additional Revenue Required per Enplaned Passenger to Achieve 100% Cost Recovery ......  18  - Proposed Landing and Terminal Fee Increases at Canadian A i r p o r t s to Achieve F u l l Recovery of User Costs  43  - Status of A i r p o r t and Airway Trust Fund, United States September 30, 1976  66  Table 8  Table 9  ,....  Table 10 - The United States A i r p o r t Development and Aid Program Funding Levels f o r A i r p o r t s 1976 - 1980 Table 11 - The United States A i r p o r t Development and Program Grant Levels f o r 1970 - 1980  15  69 Aid  69  Table 12 - The United States Federal Government Share of A.D.A.P. Grants f o r American A i r p o r t s 1976-1980 . . .  70  Table 13 - Post-1980 U. S. A i r p o r t L e g i s l a t i o n - A c t i v i t i e s to be Considered f o r Exclusion from the General System User Cost Recovery Base  73  Table 14 - Management Roles at American A i r p o r t s . . . . . . . . . . . . .  82  LIST OF TABLES CONT'D  Tab.1 e  Page  Table 15 - The Relationship Between F a c i l i t i e s , B e n e f i c i a r i e s , Revenues, Expenses f o r American A i r p o r t s . , . , . . . . . .  84  Table 16 - Duties of an A i r p o r t Manager  86  Table 17 - I t i n e r a n t A i r c r a f t Movements at Selected Canadian and American A i r p o r t s 1974 - 1976  100  Table 18 - Annual Passenger Enplanements at Selected Canadian and American A i r p o r t s ( i n c l u s i v e or Domestic, International and Transborder t r a f f i c ) 1974-1975 ..  102  Table 19.- Budgeted Man-Years f o r Selected Canadian A i r p o r t s 1976 .  103',  Table 20 - Budgeted Man-Years f o r N a s h v i l l e A i r p o r t 1977  103  Table 21 - Operating Surplus ( D e f i c i t ) 1971/75 - 1976/77 f o r Selected Canadian A i r p o r t s Table 22(a) - Annual Operating Expenditures ($) at Selected Canadian and American A i r p o r t s 1974 - 1977 . . . . . . . .  105 Ill  Table 22(b) - Annual Dollar Expenditure/Passenger Enplanement at Selected Canadian and American A i r p o r t s 1974 - 1975  Ill  Table 23 - Gross; Annual Revenues ($) at Selected Canadian and American A i r p o r t s 1974 - 1977  112  Table 24 - Annual Revenue Contribution per Passenger Enplaned ($) at Selected Canadian and American A i r p o r t s . . . .  112  Table 25(a) - Analysis of A i r p o r t Revenues at Selected Canadian'!and American A i r p o r t s $ per enplaned Passengers 1976/77  114  Table 25(b) - Analysis of A i r p o r t Costs $ per enplaned Passengers;ir976/77/...  114  Table 26 - Nashville Metropolitan A i r p o r t Operating and Maintenance Budget J u l y 1, 1978 - June 30, 1979 ...  117  Table 27(a) - United States 1978 Landing Fee Rates . . . . . . . . . . .  117A  LIST OF TABLES CONT'D Table  Page  Table 27(b) - Canada International A i r p o r t System Landing'-;Reestul;976,' ....  1:17A  Table 28 - Average Annual %. Increase in Classes of Landing Fees From 1976 to Achieve F u l l Cost^Recovery by Selected Target Years 1980 - 1987 f o r a l l Canadian A i r p o r t s ;  119  Table 29 - Canadian Landing Fee Level i n 1978 i f Fees Were Increased According to % Increases Outlined i n Table 28  119  Graph 1  Graph 2  Graph 3  - Trends of Revenues, Expenses Versus Passengers Enplaned f o r the Top 23 A i r p o r t s 1973/74 In Canada ..'  106  - Relationships of 1966 A i r p o r t Operating Revenue and Expense to Annual A i r C a r r i e r Passenger Enplanement Level  108  - Trends of the Mean of Operating Revenue and Expense f o r A i r p o r t s of Given Annual A i r C a r r i e r Passenger Enplanement Levels  109  Diagram 1- An Example of X - E f f i c i e n c y i n a Bureau ..  30  1  INTRODUCTION An examination of the management structure at a i r p o r t s i n Canada and the United States provides an i n t e r e s t i n g contrast i n s t y l e s .  In Canada,  the headquarters branch of the federal M i n i s t r y of Transport i n Ottawa d i r e c t s the management of the national a i r p o r t system and controls the authority required to operate  an a i r p o r t .  Local a i r p o r t administration .  i s responsible f o r the management of a i r p o r t operations according to p o l i c y d i r e c t i v e s from Ottawa. decentralized basis.  In the United States, a i r p o r t s are managed on a  The Federal A v i a t i o n Administration in Washington,  D . C , has control only over s a f e t y , zoning and c e r t a i n other standards at a i r p o r t s . airports.  I t i s also responsible f o r the a l l o c a t i o n of federal a i d to  Local management has t o t a l independence i n c o n t r o l l i n g opera-  tions at the a i r p o r t from f i n a n c i a l management to the management of personnel.  The d e s c r i p t i o n of these two d i f f e r e n t management systems, both  well respected in a v i a t i o n c i r c l e s , i s an i n d i c a t i o n that no ideal set of standards e x i s t s to determine the performance of a i r p o r t management. Both countries appear to use t h e i r own measures. Despite the degree of respect accorded to the Canadian system, there are a number of problems which plague a i r p o r t management and r a i s e the important issue of whether or not Canadian a i r p o r t s are well managed. F i r s t , the federal government which operates the majority of a i r p o r t s , i s facing a growing f i n a n c i a l d e f i c i t f o r i t s a i r p o r t operations.  The  widening gap between costs and revenues has p r i m a r i l y been caused by s p i r a l l i n g costs which are imposing a heavier burden upon the shoulders of general taxpayers.  A d d i t i o n a l l y , complaints are being voiced by  2  a i r p o r t users, i n c l u d i n g a i r c a r r i e r s , a i r p o r t tenants and a i r t r a v e l l e r s . Rising operating costs at a i r p o r t s threaten the p r o f i t a b i l i t y of the a i r l i n e s and a i r p o r t tenants, and a i r t r a v e l l e r s must therefore pay the consequence of higher f a r e s .  A general consensus amongst these groups  also indicates that the a i r p o r t management system i s not so responsive to the needs of users as they would l i k e .  Furthermore, l o c a l managers at a i r -  p o r t s , responsible f o r a l l operations, are expressing concern over the lack of independence and a u t h o r i t y which they believe comprise an e s s e n t i a l part of good a i r p o r t management. Although both countries are known to use d i f f e r e n t standards f o r management, the presence of these issues leads one to inquire as to the exact nature of the standards of a i r p o r t management.  Without a proper d e f i n i t i o n  of the standards, i t i s d i f f i c u l t to pinpoint the d e f i c i e n c i e s that may e x i s t and address the task of proposing improvements to the management of airports. I t i s the intent of t h i s paper to address these issues with the primary goal of making improvements to the Canadian, system of a i r p o r t management. F i r s t , to a i d the formulation of standards f o r Canada, the r o l e of the government i s examined to discover i t s present objectives with regard to the national system of a i r p o r t s .  This forms a basic groundwork from which  the standards and complaints of a l l a i r p o r t users are incorporated to i d e n t i f y the d e f i c i e n c i e s in the present set of standards. improvements  ;  are  Proposals f o r  'put f o r t h and evaluated f o r t h e i r respective m e r i t .  The United States a i r p o r t management system, because of i t s strong reputat i o n , closeness of proximity and a v a i l a b i l i t y of information provides a good v e h i c l e f o r the evaluation of the proposal c a l l i n g f o r improvements which give more independence and authority to l o c a l a i r p o r t a d m i n i s t r a t i o n s .  3  A comparison based on a common set of c r i t e r i a i s made between a s e l e c t number of Canadian and American a i r p o r t s , to provide an i n d i c a t i o n of the consequences that may r e s u l t i f the proposed improvements to the standards of management were implemented i n Canada. The subject of a i r p o r t management i n Canada has yet to be investigated in d e t a i l .  I t i s hoped that t h i s paper w i l l contribute to a b e t t e r under-  standing of the complexiissues involved and that i t also may encourage the federal government to make a concerted e f f o r t to improve our own a i r p o r t management system.  4  Chapter One THE CANADIAN AIRPORT SYSTEM AND ITS PROBLEMS A.  THE STRUCTURE OF MANAGEMENT The Canadian a i r p o r t system, run by the federal M i n i s t r y of Transport,  i s operated in accordance with the objective/; that as part of the national transportation system, i t be' responsive to the needs and i n t e r e s t s of the public and p r i v a t e sectors in the economy.  This statement i s i n d i c a t i v e  of the complex nature of the a i r p o r t industry.  Numerous groups are i n -  volved in the operation of an a i r p o r t , e i t h e r as administrators or  users--  the a i r l i n e s , federal government, l o c a l communities, p o l i c e , general a v i a t i o n , concession operators, and others.  With such a diverse array of i n -  t e r e s t s i t i s not s u r p r i s i n g that each group i n the a i r p o r t industry f } ^tries tives.  to a t t a i n a number of goals which c o n f l i c t with other groups' objecFor example, an a i r l i n e may desire to minimize the costs of landing  at an a i r p o r t , while the federal government may be concerned with i n c r e a s ing operational revenues from landing fees.  On one s i d e , there i s  pressure  to reduce operating d e f i c i t s which are running at over $100 m i l l i o n per year f o r national and i n t e r n a t i o n a l a i r p o r t s alone.  On the other, there i s  industry pressure ( a i r l i n e , general a v i a t i o n and the p u b l i c ) f o r r e s t r a i n t . In p a r t i c u l a r the a i r c a r r i e r s ' major complaints about the increased landing fees are:  1) they are i n d i r e c t l y paying f o r the roughly $60 m i l l i o n  annual operating d e f i c i t at M i r a b e l ; 2) the higher charges must be passed on to the public v i a higher f a r e s , and.the^ a i r l i n e s claim t h i s could d e t r i mentally a f f e c t a i r t r a v e l in Canada.  C  5  I d e a l l y , the a i r p o r t system, through i t s a d m i n i s t r a t i v e s t r u c t u r e , should function to coordinate communication and enable a r a t i o n a l p r i o r i zation of goals deemed important by a l l i n t e r e s t e d p a r t i e s .  While t h i s  theme i s embodied i n the aims of the national t r a n s p o r t a t i o n p o l i c y i t i s noted that the industry i s monopolized by the federal government, one of the major groups in the industry.  Transport Canada i s the branch of  the federal government that operates 233 a i r p o r t s across Canada.  Where  a i r p o r t s are p u b l i c l y owned, the question a r i s e s as to the extent of cont r o l that the government possesses over the a i r p o r t system and what l e g i s l a t i o n governs t h e i r operation.  The i n t r o d u c t i o n of B i l l C-20, which has  yet to receive any debate i n parliament, proposed a new p o l i c y entrenching the monopolistic control of the federal government over the a i r t r a n s p o r t a t i o n mode, i n c l u d i n g a i r p o r t s .  However, there i s no o f f i c i a l  Canadian  A i r p o r t Act such as e x i s t s i n the United States with the 1940 l e g i s l a t i o n of the A i r p o r t and Airway Development Act and the A i r p o r t and Airway Revenue A c t .  There are several pieces of federal l e g i s l a t i o n which apply  to a i r p o r t s i n Canada. (i) (ii) (iii)  The major ones are:  The Aeronautics Act and Amendments, 1977 The Financial Administration A c t , Amended, 1977 The National Transportation A c t .  The f i r s t law encompasses federal p o l i c y regarding the planning and operat i o n of a i r p o r t s , the provision of a i r navigational f a c i l i t i e s , a i r t r a f f i c s e r v i c e s , safety standards, and s e c u r i t y arrangements.  The M i n i s t e r of  Transport i s empowered to supervise and promote the development of a l l matters connected with aeronautics i n c l u d i n g the construction and maintenance,iof . a l l government a i r p o r t s .  Within the Financial Administration A c t ,  the Treasury Board has j u r i s d i c t i o n over matters of f i n a n c i a l management  6 including:  estimates of expenditures, f i n a n c i a l commitments, accounts,  charges f o r the provision of s e r v i c e s , r e n t a l s , revenues, annual and longer term expenditure plans.  This control extends to the national a i r p o r t s y s -  tern under the d i r e c t i o n of C.A.T.A.  2  The National Transportation Act i s  the tool through which the M i n i s t r y of Transport and the Treasury Board carry out t h e i r mandates.  A more d e t a i l e d summary of these laws i s found  i n E x h i b i t #T in the appendix. The monopolistic control extended over the a i r p o r t system by the federal government has l o g i c a l l y d i c t a t e d that an emphasis be placed upon t h e i r own p r i o r i t i e s .  This enhances the c o n f l i c t between the federal  M i n i s t r y of Transport and other interested p a r t i e s whose p r i o r i t i e s do not necessarily p a r a l l e l those of the government, but cannot be considered unf a i r because the government pays f o r the majority of the costs incurred i n running the system and therefore has a r i g h t to control i t s operation. Having i d e n t i f i e d the major management group as the federal government, i t i s worthwhile to examine the organization and objectives of the arm w i t h i n the federal M i n i s t r y of Transport that manages the a i r p o r t s . The administration of the a i r p o r t system i s handled by the Canadian A i r Transportation Administration.  I t i s responsible, on behalf of the  M i n i s t e r of Transport, f o r the provision of standards, l i c e n c i n g a c t i o n s , procedures and regulations f o r the convenient, safe and e f f i c i e n t conduct of aeronautics i n Canada,-.and f o r the p r o v i s i o n , operation and maintenance of many a i r p o r t s , navigational a i d s , airway systems and other r e l a t e d f a c i l i t i e s and services i n support of aeronautics.  In broad context, these  are generally described as regulatory and operating r e s p o n s i b i l i t i e s .  The  framework w i t h i n which CATA c a r r i e s out i t s r e s p o n s i b i l i t i e s i s defined i n i t s objectives to which the CATA management philosophy and organizational  7  c o n s t i t u t i o n are t i e d .  Its primary o b j e c t i v e i s the development and  operation of a safe and e f f i c i e n t national c i v i l a i r transportation system that contributes to the achievement of government o b j e c t i v e s , and to operate s p e c i f i c elements of t h i s system.  Underlying t h i s , i t i s C.A.T.A.'s  i n t e n t i o n to reach the f o l l o w i n g set of sub-goals: (i)  To f o s t e r an environment which supports the e f f i c i e n t development, provision and operation of a l l elements of the national c i v i l a i r transportation system.  (ii)  To support the achievement of the objectives of the federal government that r e l a t e to n a t i o n a l , regional and urban s o c i a l and economic development, and to i n d u s t r i a l , environmental, energy and other p o l i c i e s .  (iii)  To e f f i c i e n t l y develop, the e f f i c i e n t operation f a c i l i t i e s and services national transportation the federal government's  provide, operate, or ensure o f , the s p e c i f i c c i v i l a i r that are e s s e n t i a l to the system and that are w i t h i n jurisdiction.  (iv)  To ensure that an adequate l e v e l of safety i s provided f o r the national c i v i l a i r transportation system.  (v)  To obtain maximum p r o d u c t i v i t y from the resources a l l o c a t e d to the A i r Transportation Program.  (vi)  To recover the costs of departmental f a c i l i t i e s and services that are provided i n support of c i v i l a i r transportation requirements.  (vii)  To ensure that users of the national c i v i l a i r t r a n s portation system are treated equitably.  (viii)  To ensure that Canadians have reasonable a c c e s s i b i l i t y to the national c i v i l a i r transportation system.  (ix)  To ensure that the federal government's p o l i c i e s , r e g u l a t i o n s , d i r e c t i v e s and guidelines f o r personnel a d m i n i s t r a t i o n , f i n a n c i a l a d m i n i s t r a t i o n , o f f i c i a l languages, equal o p p o r t u n i t i e s , human r i g h t s and other areas of s i g n i f i c a n c e , are adhered to throughout the A i r Transportation a d m i n i s t r a t i o n .  8 C.A.T.A. i s organized i n t o three branches:  a headquarters branch,  s i x regions, and l o c a l administration at a i r p o r t s . o v e r a l l organizational s t r u c t u r e .  Table 1 o u t l i n e s the  I t employs over 13,000 public servants,  The major r e s p o n s i b i l i t i e s of the-headquarters include: 1)  the provision of p o l i c y development, planning, f i n a n c i a l and personnel a d m i n i s t r a t i o n ;  2)  provision and maintenance of a i r navigational s e r v i c e s ;  3)  the development and enforcement of aeronautics l e g i s l a t i o n , standards, procedures and other regulatory s e r v i c e s ;  4)  the c o n s t r u c t i o n , operation and maintenance of c i v i l a i r p o r t s owned or c o n t r o l l e d by the M i n i s t r y , excluding those designated as s e l f supporting a i r p o r t s ;  5)  the c o n s t r u c t i o n , operation and maintenance of s e l f - s u p p o r t i n g c i v i l a i r p o r t s owned or c o n t r o l l e d by the M i n i s t r y which include Gander, St. J o h n ' s , Charlottetown, Sydney, H a l i f a x , Saint John, F r e d e r i c t o n , Moncton, Quebec, Montreal, Ottawa, Toronto, London, Windsor, Thunder Bay, Winnipeg, Regina, Saskatoon, Calgary, Edmonton, Vancouver and Victoria. The second l e v e l of management comprises s i x regions:  Western, C e n t r a l , Ontario, Quebec, and A t l a n t i c regions. boundaries of these regions are o u t l i n e d in Table 2. structure of a regional branch i s o u t l i n e d i n Table 3.  Pacific, The geographic  The organizational The r o l e of the  regional administrator i s construed as: (ij  d i r e c t i n g the administration of designated a i r p o r t s w i t h i n the region;  (ii)  developing plans to ensure that services and f a c i l i t i e s a t designated a i r p o r t s meet future a i r p o r t demands;  TABLE 1 Organization Structure - The Canadian A i r Transportation Administration 1978  Manncjcrg fleport t o tlpqlun Mniingcr of C P r o p e r t i e s BratK.1i: - Vancouver - Ottawa - Calgary - Hal Ifnx - Fibnlon - Rainier - Winnipeg  Source:  Airports  Managers R e p o r t t o Manager o f A i r p o r t o p e r a t l i t i ! 0virloH.rl.twti Victoria F r a l c r i c t f «i rirglrw Saint . M n Snskntoon M »»rt/n H n t n l c r Day Sylicy Lct«k.n St. J r l n ' n Wlntteor Or_1>oc  The Federal M i n i s t r y of Transport, Ottawa IX)  ro  3> £*'Jr \ K  ( Y  GEOGRAPHIC  BOUNDARIES  1978  S; 7 ' ^ T > / //"' •  CATA  1  REGIONS  httS  (  -  T A B L E 2  ^ ^ o u r c e : The Federall V r M i n i s t r y of Transport Ottawa.  11  !  TABLE 3 Typical Organization Structure - Regional A i r p o r t s Branch of the Canadian A i r Transportation Administration 1972 REGIONAL ADMINISTRATOR  REGION MANAGER AIRPORTS G PROPERTIES nitANai  GENERAL MANAGER PTUNCirAL AIRPORT  SUI'ERIMTENDANT AIRPORT SERVICES  SUPER W1TMDANT MARKETING 5 PROPERTIES  INDUSTRIAL SAFETY  SUPER 1 Wl EHDANT AIRPORT FACILITIES  MECHANICAL MAINTENANCE  MARKETING  4~  AIKPURT EMERCENCY SERVICES  ELECTRICAL MAINTENANCE  PROPERTIES  AIRPORT POLICING C -_SECU1ITY__  CIVIL ENGINEERING MAINTENANCE  SUPERIWIENDANT PLANNING C PROGRAI+—1 ADMINISTRATION  MANAGER AIIUXJIT OIHIATIUNS  1  |GENEI<AL MANAGHl PRINCIPAL AlRraiT  RUDCCT ADMINISTRATION  P1ANNING STAFF FINANCIAL ASSISTANCE STAFF  PROJECTS STAFF A l I rcjiorC srpnrately  AIRPORT TERMINAL SERVICES  TRANSPORT CANADA AIRPORT  niANSPoirr CANAIW AIRPORT  inANsPurr CANADA  Aiin-un  Source:  -mm  CANADA AIRPORT  itiANiiiViir CANADA  AiRixjrr  Tful "TiWMsrrnTi CANADA AIRPORT  •TRANdtfiTl CANAIW AIRPORT  The Federal M i n i s t r y of Transport, Ottawa  -ATU PRINCIPAL AIRPORT  PRINCIPAL AIRPORT  SUBSIDY AIRHJUTS Airports whtdi qiml I f y I c i r Operating Silisldlre  12  r (iii)  e s t a b l i s h i n g , administering and c o n t r o l l i n g f i n a n c i a l r e sources a l l o t e d to designated a i r p o r t s f o r operations and maintenance;  (iv)  d i r e c t i n g the u t i l i z a t i o n and development of personnel resources;  (v)  developing sources of revenue and e f f e c t i v e management of airport properties;  (vi)  providing a public r e l a t i o n s program with a i r l i n e s and other users of a i r p o r t f a c i l i t i e s i n order to promote communications in a i r p o r t operations.  The r e s p o n s i b i l i t i e s of the region are d i s t r i b u t e d throughout the branch headquarters and to the various/airports i n the region. The t h i r d l e v e l of management i s the local administration at the a i r ports.  The organizational structure and operations at a i r p o r t s are usually  r e l a t e d to the amount of t r a f f i c at each a i r p o r t .  This paper examines the  management at the p r i n c i p a l a i r p o r t s which include a l l a i r p o r t s that q u a l i fy as i n t e r n a t i o n a l or national a i r p o r t s .  These comprise twenty-three a i r -  p o r t s , the l i s t of which i s contained in E x h i b i t 2 i n the Appendices, along with t h e i r 1977 t r a f f i c volumes and operating expenditures.  The  managers of p r i n c i p a l a i r p o r t s possess a s t a f f that handles the functional areas of:  technical s e r v i c e s , operations s e r v i c e s , and administrative  services.  The function of technical services includes the provision and  maintenance of a i r f i e l d and grounds, buildings and u t i l i t i e s , vehicles and equipment, the management of technical services c o n t r a c t s , minor construct i o n p r o j e c t s , and the control of a i r p o r t p o l l u t i o n problems. of operations services includes the management of: 1)  terminal and public s e r v i c e s ;  The function  13 2)  a i r p o r t p o l i c i n g and s e c u r i t y ;  3)  emergency s e r v i c e s ;  4)  public information s e r v i c e s ;  5)  operation services c o n t r a c t s ;  6)  a i r p o r t users and tenants; and  7)  noise abatement.  The function of a d m i n i s t r a t i v e services involves the provision of: 1)  financial services;  2)  contracts;  3)  stores s e r v i c e s ;  4)  purchasing s e r v i c e s ;  5)  central registry;  6)  personnel s e r v i c e s ; and  7)  marketing and p r o p e r t i e s .  From t h e i r defined r o l e s , a degree of overlap amongst r e s p o n s i b i l i t i e s i s evident w i t h i n the t h r e e - t i e r e d management s t r u c t u r e .  Accompanying these  r e s p o n s i b i l i t i e s , C.A.T.A. headquarters posesses the l i o n s share of a u t h o r i t y with corresponding l e s s e r amounts a l l o t e d to the regions and l o c a l a i r p o r t management. I t follows from the d e s c r i p t i o n of the system, that the a d m i n i s t r a t i v e structure i s most f l e x i b l e to changes i n the environment that p r i m a r i l y a f f e c t the government's concerfttto achieve i t s own goals.  Since the government i s  responsible f o r covering the majority of the costs of running the p r i n c i p a l a i r p o r t s , i t j u s t i f i a b l y should have the loudest voice in governing the system.  I t can be expected that other groups, mainly the a i r l i n e s , w i l l  voice c r i t i c i s m of the system as beingaunresponsive to t h e i r needs, considering the c o n f l i c t i n g nature of the goals of the two p a r t i e s .  Not only does  14 -C.A.T.A. support the system, but i t points out that there i s a need f o r some government support, given the unique geography and low population densi:ty:of our country. Canada i s a large country, with a r e q u i s i t e need f o r a large number of a i r p o r t s . Combining t h i s with a widely dispursed small population, i t may be reasonably assumed that priv.ate market forces could not support the whole a i r p o r t system based on the c r i t e r i o n of p r o f i t a b i l i t y . C e r t a i n l y , some of the p r i n c i p a l a i r p o r t s may be able to f i n a n c i a l l y support themselves, but Canada has only eight a i r p o r t s with greater than one m i l l i o n enplaned passengers.  For the purposes of comparison with the United States, our 25th l a r g e s t  a i r p o r t enplanes roughly 200,000 passengers w h i l e , i n the United States, the 2 25th l a r g e s t a i r p o r t , San Juan, enplanes roughly four m i l l i o n passengers. Canada's busiest a i r p o r t , Toronto, ranks between Boston (9th ranked) and Miami (10th ranked) in terms of passenger enplanements.  Table 4 provides a i r p o r t  a c t i v i t y rankings forCCanada, the United States and Europe i n 1974. Given these unique p r o p e r t i e s , Canadians must expect to pay ( e i t h e r as taxpayers or as a i r t r a v e l l e r s ) f o r maintaining such a system.  Given the present level of reve;-.  nues, and the manner i n which they are a l l o c a t e d to a i r p o r t s , there i s not s u f f i c i e n t t r a f f i c volume to generate an operating surplus, and the a b i l i t y of an a i r p o r t to earn revenue, while dependent on the management s t r u c t u r e , 3 i s c l o s e l y c o r r e l a t e d with the t r a f f i c handled at the a i r p o r t .  The f i x e d costs  of an a i r p o r t are l a r g e , given the investments i n runways, taxiways, ramps, and terminal"facilities.  At smaller volume a i r p o r t s , where revenues are substan-  t i a l l y l e s s , the gap between costs and revenueswidens, and i t becomes d i f f i c u l t to r e a l i z e f u l l cost recovery f o r these a i r p o r t s , even with an increase in user charges.  Table 5 presents a graphical breakeven a n a l y s i s of Canadian 4  a i r p o r t s f o r operating costs versus operating revenues i n 1973/74.  Only three  a i r p o r t s , Dorval, Malton and Vancouver, registered operating surpluses.  Also  TABLE A P a s s e n g e r s h a n d l e d 1974 - t h o u s a n d s Top 25 a i r p o r t s Canada 1 Malton Dorval Vancouver Calgary Winnipeg Ottawa Edition t o n Halifax Edmonton(Ind) Quebec Reg i n a Saskatoon Victoria St. John's N f l d . Thunder Bay S t . J o h n N.B. Windsor Sydney Moncton Freder i c t o n P r i n c e George London Sept l i e s Gander F o r t S t . John 1. 2. 3.  U.S.A. 2 9838 7516 4321 2383 2051 1697 1344 1335 645 588 542 476 424 388 . 369 315 313 294 285 281 279 254 253 224 223  New Y o r k C h i c a g o O'Hare Atlanta Los A n g e l e s D a l l a s / F o r t Worth San F r a n c i s c o Washington(Nat) Denver Boston . Miami Honolulu Detroit Pittsburg St. Louis Philadelphia Minneapolis Seattle Cleveland Houston. Las Vegas Tampa New O r l e a n s Kansas C i t y Phoenix San J u a n  Europe 3 34219 32812 25253 18 015 13761 12235 10918 10699 9922 9650 8502 7666 7222 7074 6998 6533 5708 5584 5638 5409 4745 4347 4266 4017 3982  London Paris Frankfurt Copenhagen Madrid Amsterdam Palma Zurich Milan Dusseldorf Stockholm Berlin Athens Munich Barcelona Brussels Hamburg Geneva Oslo Istanbul Malaga Helsinki Lisbon Stuttgart Dublin  25387 16898 11453 7593 7493 7221 6413 5846 4933 4793 4314 4267 4164 4066 4012 3752 3401 3147 2826 2734 26 70 2524 2513 2126 2075  A i r p o r t A c t i v i t y S t a t i s t i c s , S t a t i s t i c s C a n a d a 1974 A i r p o r t A c t i v i t y S t a t i s t i c s , U.S. D e p t . o f T r a n s p o r t a t i o n FAA, 1974 E m p l a n e m e n t s x 2 ITA B u l l e t i n 30-E 1 9 7 5 , p . 7 2 7 .  TABLE 5 Trends of Revenues, Expenses Versus Passengers Top 23 A i r p o r t s , 1973/74 ( M i l l i o n s of D o l l a r s , Passengers)  Enplaned  24 23 22 21 20 19 18 17 16 15 14 13 Vancouver  12 11 10 9 8 7 6 5 4 3 2 1  A l l other ai rports  2 1 2  3  4  5  6  7  8  Scheduled Passengers A r r i v i n g & Enplaned - M i l l i o n s  Notes: The top 25 a i r p o r t s run from Mai ton with 8,682,000 pax to Fort St. John with 180,000. Edmonton I n d u s t r i a l i s omitted f o r lack of d a t a , not being an MOT A i r p o r t . Gander has abnormally high revenue f o r i t s throughput and i t also i s omitted. Revenue Trend: Y = -$826,960 + 2.736186 x no. of pax R = 0.9718: standard e r r o r $1,054 m i l l . Expense Trend: Y = $357,210 + 2.29066 x no. of pax R = 0.9870: standard e r r o r $594000. Expenses are maintenance + operating + debt s e r v i c e a t 6%, 40 years. Source: J . Smith, Considerations i n Local A d m i n i s t r a t i o n of A i r p o r t s i n Canada, Annals of A i r and Space Law, V o l . I l l ( M c G i l l : 1978) 2  2  included are the regression formulas f o r revenue and expenses the p o s i t i v e c o r r e l a t i o n between volume and revenue.  demonstrating  The large p o s i t i v e  i n t e r c e p t i n the expense f u n c t i o n i n d i c a t e s the sunk costs in an a i r p o r t . Table 6 below presents updated f i g u r e s f o r 1975-76 and 1976-77 f o r seven major a i r p o r t s .  I t i s i n t e r e s t i n g to note the operating d e f i c i t f o r Mirabel  exceeds the t o t a l of a l l operating surpluses  in Canada. (Note that by the  d e f i n i t i o n of operating expenses, depreciation i s  TABLE 6  included.)  5  Operating Surplus ( D e f i c i t ) f o r Seven Canadian A i r p o r t s 1975-1977 (Thousands of Canadian D o l l a r s )  75/76 76/77  Toronto  Dorval  15288 22389  9669 1983  Source:  Vancouver 1845 5722  Calgary 3263 4468  Winnipeg  Mirabel  Ottawa  (880) 2  (18382) (49821)  (2040) (781)  House of Commons Debate, December 9, 1977.  Given the existence of and need f o r governmental support, there are several developments in the industry that r a i s e the question of whether or not the manner of government management i s as responsive to the needs of a l l a i r p o r t users as i t should be.  A long-range plan of C.A.T.A. i s to  achieve 100 percent recovery of l e g i t i m a t e costs v i a a system of cross subs i d i z a t i o n and higher user charges.  Table 7 i s an excerpt from C.A.T.A.'s  1975 cost recovery study i n d i c a t i n g the a d d i t i o n a l revenue per passenger required a t each a i r p o r t to achieve 100 percent cost recovery operating c o s t s , debt  s e r v i c e and terminal control c o s t s ) .  a i r p o r t , a t the time, covered 100 percent of i t s c o s t s .  (including Only Mai ton  A i r p o r t s such as  Dorval required only an extra $.31/pass., while Mirabel required $226.54/ passenger ( t h i s f i g u r e includes depreciation and i n t e r e s t charges). C.A.T.A a l s o set up, i n .1969, an A i r p o r t s Revolving Fund to finance the operation and development of Malton, Dorval, Vancouver, Mirabel and the  18  TABLE 7 1975 Enplaned Passengers at Selected Canadian A i r p o r t s Versus A d d i t i o n a l Revenue Required per Enplaned Passenger To Achieve 100% Cost Recovery  Airport  Additional Cost Revenue Per .. ./.Passengers ii l . Required J:. ..Passenger (000's) ($) ($)  Revenue Per Passenger ($)  (0. 09)  3. 97  4.06  3,365.9  0. 31  4. 95  4.64  Montreal (UL & MX)  3,411.9  3. 40  --  —  Vancouver  2,350  1. 96  5. 31  3.35  . 1,190  2. 52  5. 75  3.23  Winnipeg  998  2. 44  6. 17  3.73  Ottawa  757  6. 10  11. 22  5.42  Edmonton  720  2. 72  6. 63  3.91  Halifax  6.18  3. 54  6. 54  3.00  Quebec  270  13. 60  19. 02  5.42  Regina  249  8. 59  13. 36  4.77  Victoria  224  10. 74  14. 87  4.13  Saskatoon  214  10. 83  15. 52  4.69  St. John's  195  16. 17  21. 33  5,16  Windsor  168  8. 35  14. 74  6.39  Thunder Bay  167  14. 81  19. 38  4.57  London  122  13. 92  19: 45  5.53  Sept-Iles  114  21. 68  26. 48  4.80  Monctbn  111  29. 36  34. 99  5.63  Prince George  105  21. 08  25. 90  4.82  1.105  16. 45  21. 63  5.18  103  22. 81  27. 62  4.81  Toronto  5,308  Dorval (UL)  Calgary  Saint John Sydney Charlottetown  86.0  16. 45  20. 20  3.66  Fredericton  85.2  17. 98  23. 25  5.27  Sault Ste. Marie  84.0  27. 09  31. 12  4.03  Kami oops  78.9  8. 92  13. 14  4.22  Gander  77.5  29. 30  45. 59  16.29  Fort St. John  74.4  22. 87  27. 64  4.77  Wabush  63.0  18. 17  22. 57  4.40  Table 7 - continued  Airport  Passengers (OOO's)  Prince Rupert  61.3  Additional Revenue Required ($) 24.68  Cost . .Perl Passenger ($-)-28.18  Revenue Per Passenger ($) 3.50  Mont Jol i  56.9  21.49  25.09  3.60  Timmins  55.1  12.46  17.38  4.92  Baie Corneau  50.5  14.56  18.20  3.64  Yellowknife  49.1  20.58  23.82  3.24  Fort McMurray  48.6  6.52  10.65  4.13  Whitehorse  47.3  25.48  28.18  2.70  Mirabel (MX)  46.6  226.54  286.42  59.88  Penticton  44.1  18.46  23.93  Val d'Or  39.9  20.56  23.83  3.27  Lethbridge  37.8  10.95  14.95  4.00  Grande P r a i r i e  37.2  28.64  33.62  4.98  North Bay  36.7  57.11  61.59  4.48  Terrace  34.1  33.23  37.85  4.62  Port Hardy  33.7  64.79  70.24  5.45  Goose Bay  32.3  468.34  651.84  183.50  Inuvik  23.2  41.67  46.56  4.89  Sandspit  19.7  37.30  42.90  5.60  House Harbour  18.6  8.31  11.68  3.37  The Pas  16.6  30.67  37.41  6.74  Fort Nelson  16.4  71.50  78.50  7.00  Churchill  1.5.5  109.43  124.62  15.19  Hay River  13.2  33.94  36.67  3.73  Watson Lake  11.7  38.00  42.02  4.02  Frobisher Bay  11.6  77.02  83.98  6.96  Williams Lake  11.0  39.22  45.91  6.69  Shefferville  9.2  51.60  58.33  6.67  Smithers  9.2  37.33  43.44  6.11  Yarmouth  8.1  93.02  101.00  7.98  Fort Smith  8.0  40.98  45.05  4.07  Kapuskasing  7.0  39.29  45.05  4.00  Quesnel  6.2  45.37  51.50  6.13  .  5.47  Table 7 - continued  Passengers (000's);  Additional Revenue Required ($)  Resolute  6.1  257.58  Cost Per Passenger ($) 397.22  Norman Wells  5.4  85.45  96.04  10.59  Red Lake  4.6  40.90  45.20  4.30  Fort Simpson  4.3 .  65.13  68.48  3.35  Fort Chimo  4.2  263.00  278.00  15.00  Cambridge Bay  3.2  109.31  115.65  ' 6.34  Earl ton  2.9  76.9  82.67  5.88  Kenora  2.4  122.12  142.00  19.88  Baker Lake  1.2  238.45  314.02  5.57  Tuktoyaktuk  1.2  46.94  50.34  3.80  Hall Beach  1.1  66.55  68.59  2.04  Coral Harbour  0.5  664.89  868.96  204.07  Fort Resolution  0.4  176.29  188.83  12.54  Wrigley  0.3  485.72  500.07  14.32  :  Ai rport  Notes:  Revenue Per Passenger ($) 139.64  Costs included a l l c o s t s , i n c l u d i n g terminal (area c o n t r o l ) costs Volume of passengers includes scheduled Classes 1, 2 and 8 ( A i r Canada and CP. A i r , the regionals and l o c a l or t h i r d - l e v e l a i r c a r r i e r s ) and charter t r a f f i c , enplaned and deplaned passengers divided by two.  Source:  The Federal M i n i s t r y of Transportation, "Proposals on Cost A l l o c a t i o n , A i r p o r t C l a s s i f i c a t i o n and Fee Increases." Canadian A i r Transportation A d m i n i s t r a t i o n , 1975.  land costs f o r the Pickering s i t e .  The fund has not been s e l f - s u s t a i n i n g  and has b u i l t up a debt with the government of over $600 m i l l i o n . The methods o u t l i n e d f o r reducing operating d e f i c i t s should be caref u l l y examined f o r t h e i r impact upon the operating costs of a i r l i n e s and the passenger p u b l i c .  Both p a r t i e s w i l l endure a heavier f i n a n c i a l  burden to support the government's p o l i c i e s , and economic arguments have been made against the use of c r o s s - s u b s i d i z a t i o n .  The question of i n -  t e r e s t i s whether or not these p o l i c i e s are the most e f f e c t i v e ones f o r reducing the cost-revenue gap at a i r p o r t s or i f there i s some other option which lends i t s e l f to the accomplishment of C.A.T.A's objectives while reducing the f i n a n c i a l burden placed on a i r p o r t users?  Perhaps there i s  no other v i a b l e a l t e r n a t i v e , and perhaps there i s a b e t t e r s o l u t i o n . the minimum, t h i s issue merits f u r t h e r i n v e s t i g a t i o n , which i s of t h i s paper.  an  At  intent  Second, there are a growing number of complaints from  managers of the l a r g e r a i r p o r t s concerning f e d e r a l l y imposed c o n s t r a i n t s placed upon t h e i r a b i l i t y to manage t h e i r operations.  These c o n s t r a i n t s  take the form of a management structure whereby f i n a n c i a l , personnel and other management r e s p o n s i b i l i t i e s are c o n t r o l l e d by C.A.T.A. headquarters and regional s t a f f .  '.Local administration claims that i t s operational  control of a i r p o r t s i s i n s u f f i c i e n t to support the r e s p o n s i b i l i t y of the job.  The basis f o r these complaints may be modelled using a set of  m u l t i p l e c r i t e r i a to evaluate the performance of the a i r p o r t system.  At  one extreme, managers of l a r g e r a i r p o r t s desire to manage t h e i r operations in the s t y l e of a commercial enterprise and consequently f e e l they should have more a u t h o r i t y .  The s i t u a t i o n i s complicated by the large number  and varying nature of a i r p o r t s .  While the l a r g e r ones do possess the  potential to operate ..more autonomously, the majority do not possess  s u f f i c i e n t t r a f f i c to generate revenue to cover investment and operating costs.  Managers of smaller a i r p o r t s tend to be more complacent, r e a l i z i n g  that t h e i r a i r p o r t would not function without the a i d provided by C.A.T.A. headquarters.  At the other end of the spectrum, C.A.T.A. headquarters uses  the c r i t e r i o n of achieving n a t i o n a l , r e g i o n a l , s o c i a l and economic object i v e s as measurement of the system's performance.  Naturally this c r i t e r i o n  may be achieved without any consideration being given to the r e s p o n s i b i l i t i e s and a u t h o r i t y of l o c a l a i r p o r t management. Given the issues surrounding the administration of the national a i r port system, C.A.T.A. i s placed in the s i n g u l a r l y d i f f i c u l t p o s i t i o n of t r y i n g to maintain the system to enable the continuation of adequate a i r transportation services f o r a l l of Canada while attempting to i d e n t i f y changes in the management structure which would:  ( 1 ) allow the system to  be more responsive to the needs of a l l p a r t i e s i n v o l v e d , and ( 2 ) r e c o n c i l e the m u l t i p l e c r i t e r i a problem e x i s t i n g between C.A.T.A.'s p o l i c y makers a t headquarters, C.A.T.A's l o c a l a i r p o r t management, and a i r c a r r i e r s .  B.  THE STRUCTURE OF COMPLAINTS  .  A b e t t e r understanding of the dilemma that l o c a l management faces can be gained through an examination of the divergence between the a u t h o r i t y and r e s p o n s i b i l i t y possessed by the l o c a l administration that runs the a i r ports.  The common complaint a r i s e s from the marginal a u t h o r i t y that accom-  modates the r e s p o n s i b i l i t y of the j o b .  The a i r p o r t manager possesses  a u t h o r i t y only to carry out the decisions and p o l i c i e s l a i d down by the higher l e v e l of management at headquarters and has l i t t l e a u t h o r i t y to make any decisions on his own.  As a r e s u l t , most managers f e e l that they  23,  have t h e i r hands t i e d which prevents e f f e c t i v e control over operations and supports an imbalance between authority and r e s p o n s i b i l i t y .  This  tarnishes the image of the a i r p o r t manager both i n the eyes of h i s subordinates and the users.  For example, numerous complaints have been lodged  by a i r c a r r i e r s concerning the long lag in response time in dealing with l o c a l a i r p o r t management.  Often, i t i s more convenient to go over the  heads of a i r p o r t managers to e i t h e r the region or headquarters.  For  example, at one a i r p o r t , an a i r l i n e devised a plan in the spring of 1978 to i n s t a l l outside check-in counters.  When the project was broached with  the a i r p o r t manager, he agreed to the p r o j e c t ' s worthiness, but was not able to give f i n a l approval because he did not have the a u t h o r i t y to do so.  He had to f o l l o w proper procedures by r e l a y i n g the request to the  region which would then forward i t to C.A.T.A. headquarters.  The length  of time required to obtain approval i n t e r f e r e d with the a i r l i n e ' s shortrange plans and t h i s forced the c a r r i e r to bypass l o c a l management in the attempt to obtain permission more q u i c k l y .  While t h i s a i r p o r t i s one of  the country's l a r g e r a i r p o r t s , the l o c a l a i r p o r t manager i s given no more special consideration regarding s t r a t e g i c input f o r operational decisions f o r his a i r p o r t than any of the other a i r p o r t s in the region, a l l of which are smaller a i r p o r t s with less than half the t r a f f i c processed by this airport. The administration at c e r t a i n a i r p o r t s a l s o alludes to a f a u l t in the present system of management in claiming that i t devotes too much time to being penny-wise and pound f o o l i s h .  At a time when the government  i s short of money, l o c a l management should be concentrating t h e i r e f f o r t s on the provision of essential s e r v i c e s .  For example, at one a i r p o r t ,  aesthetic projects improving the landscaping have been approved, while  more functional repairs to the runway took longer to be approved, i n d i c a t ing a d i f f e r e n c e in p r i o r i t i e s which l o c a l management f e e l s i t would l i k e to change i f i t were provided with more input i n t o the p r o j e c t planning process.  The opinion has been expressed at another a i r p o r t that a d d i t i o n a l  revenue could be generated i f the administration had the a u t h o r i t y to undertake p r i o r i t y projects (such as car-park improvements), but since a l l projects are delegated by C.A.T.A. headquarters through the region, t h i s would seem d i f f i c u l t .  In f a c t , a l l a i r p o r t managers, save the one at  Malton a i r p o r t , only possess a u t h o r i t y to purchase goods and services up to $100 without receiving regional approval. Amongst l o c a l f i n a n c i a l managers, i t has been claimed that they are not able to carry t h e i r accounting function to the end.  An examination  of the methods used to handle revenues, operating and c a p i t a l expenditures reveals a fragmented  system where some accounts are handled l o c a l l y (park-  ing charges), some r e g i o n a l l y (car rental company l e a s e s ) ; and some handled through headquarters (the A i r Transportation Ticket Tax and the A i r p o r t Revolving Fund).  Headquarters i s responsible f o r the c o n s o l i d a -  t i o n of the accounts i n t o a i r p o r t f i n a n c i a l statements.  Local a i r p o r t  managers f e e l i s o l a t e d in t h i s process as they have no d i r e c t control over the generation of the f i n a n c i a l statements. The p r a c t i c e of imputing i n t e r e s t and charging depreciation to a i r ports whose d e f i c i t s are financed with loans or a p p r o p r i a t i o n s , although a legal procedure, has been subject to c r i t i c i s m from a i r c a r r i e r s .  They  claim that the r e s u l t i n g higher d e f i c i t i s being paid by c a r r i e r s through higher user charges.  A s i m i l a r claim i s made about the p r a c t i c e of charg-  ing overhead from headquarters to the cost of i n d i v i d u a l a i r p o r t s .  The  airlines ih:.this:.:case cannot be a s s e r t i n g that these charges should be 5  abolished; r a t h e r , i t i s a question of the d i s t r i b u t i o n of these charges. Someone must pay the d e p r e c i a t i o n , overhead and i n t e r e s t charges, and i t w i l l be e i t h e r the a i r t r a v e l l i n g p u b l i c , or the n o n - f l y i n g taxpayer, or some combination of both, which p a r a l l e l s the present s i t u a t i o n .  The  a i r l i n e s are arguing in favour of a heavier weighting f o r the n o n - f l y i n g taxpayer, while C.A.T.A., i n attempts to give support to the user-pay philosophy, i s passing more of these charges on to those that use the f a c i l i t i e s — n a m e l y the a i r l i n e s and the p u b l i c . sustain the p o s i t i o n s of both sides.  Arguments can be made to  The user-pay concept i s supported by  economists as an e f f i c i e n t approach.whereby a b e t t e r a l l o c a t i o n of c a p i t a l resources i s achieved.  But the a i r l i n e s a l s o have a r i g h t to claim that  other sectors of the economy such as education and health are supported through payments by the general taxpaying p u b l i c , and that the a i r p o r t system should be part of t h i s system s u b s i d i z a t i o n as w e l l .  I t i s not the  i n t e n t here to resolve t h i s i s s u e , but merely to i n d i c a t e the c o n f l i c t i n g nature of the views between C.A.T.A. and the a i r l i n e s and how they have led to c r i t i c i s m s of the f i n a n c i a l management of the system, by both these p a r t i e s and l o c a l a i r p o r t a d m i n i s t r a t i o n . In the f i e l d of p e r s o n n e l t h e s t a f f i n g , p r o c e s s i s viewed as cumbersome.  S t a f f i n g action must go through three or four branches f o r approval  and; in p a r t , t h i s delay i s a function of employees being in the public :  service.  Opinions have also been voiced that the present rate of s t a f f  turnover, considered to be high, could be reduced i f l e v e l s of c l a s s i f i c a t i o n pay were higher.  The l o c a l administration also does not hold e f f e c -  t i v e control over s e c u r i t y arrangements and the opinion has been expressed a t a couple of a i r p o r t s that the cost of the R.C.M.P. i s higher than necessary, and the value of t h e i r presence i s questionable.  I t was b r i e f l y noted that a i r c a r r i e r s have problems in dealing with l o c a l a i r p o r t management because of short lead times f o r planning.  Diffi-  c u l t i e s are also encountered because of the economic character of a i r l i n e s . They operate as a c l a s s of commercial enterprise which o f f e r s a range of services that w i l l enable the company to return a p r o f i t .  To t h i s end,  they respond to market,.forces in order that company strategy properly r e f l e c t s a p o l i c y i d e n t i f y i n g the needs of the market and opportunities existing therein.  Tying t h i s hypothesis i n t o the r o l e that the a i r p o r t  p l a y s , a i r l i n e s require f a c i l i t i e s that meet; the needs of t h e i r c l i e n t s , and to the extent p o s s i b l e , these f a c i l i t i e s should be supplied at market prices.  The construction of an a i r p o r t such as Mirabel does not r e f l e c t ,  from the viewpoint of a i r l i n e s , an i d e n t i f i c a t i o n of the market's needs, nor does i t supply f a c i l i t i e s at prices that are considered f a i r by a i r lines.  They are bothered by.=having to c r o s s - s u b s i d i z e t h i s a i r p o r t through  increased user charges throughout the national system.  The a i r l i n e s pass  these increases on to the passengers in the form of higher fares and they are concerned as to the e f f e c t s t h i s w i l l have on passenger t r a v e l .  Al-  though market growth has continued to increase, i t may be queried as to how much t h i s growth rate has been c u r t a i l e d by increases in landing fees and other user charges in the past.  E. Culley has researched t h i s  issue  and concluded that the e x i s t i n g l e v e l of charges f o r a i r p o r t f a c i l i t i e s , including landing f e e s , i s such that they form only a small part of a i r l i n e s costs (<5%)  and that the market f o r a i r c r a f t landings f o r unit  t o l l services i s p r i c e i n e l a s t i c . ' '  While t h i s research was conducted in  1972, i t i n d i c a t e s that the a i r l i n e s ' concern f o r a negative impact in the short run has been over-estimated.  Considering that Culley also  demonstrated that a percentage increase in landing fees would be passed  pn to t r a v e l l e r s v i a a smaller percentage increase i n f a r e s , i t seems that from an external observer's viewpoint, there i s not much cause to worry. However, the a i r l i n e s ' case i s not t o t a l l y without support. i n v e s t i g a t i o n ; d f C u l l e y ' s r e p o r t , i t i s revealed that:  Upon f u r t h e r  1) the e x i s t i n g  structure of landing fees bears much more heavily on short-haul  services  which are much less p r o f i t a b l e runs than long-hauls; 2) the e x i s t i n g s t r u c ture i s such that the charges bear more heavily on l a r g e r a i r c r a f t which encourages the use of smaller a i r c r a f t .  Since smaller a i r c r a f t w i l l  entail  higher frequency s e r v i c e s , congestion costs r i s e , not to mention the negative impact of the less p r o f i t a b l e operations.  I t has also been proven  that while the demand f o r a i r c r a f t landings i s p r i c e i n e l a s t i c , the a i r t r a v e l market i s fare e l a s t i c i n the long-run, and a r i s e i n fares r e s u l t ing from higher user charges (assuming the r i s e in fees i s passed on to the consumer) w i l l r e s u l t i n ' a loss i n revenues, assuming no new passenger growth.  Considering that i n the l a t e 1970's, the market growth rate has  s t a b i l i z e d , and assuming that the a i r l i n e s ' costs are r i s i n g f a s t e r , the a i r l i n e s only want to raise fares when necessary.  I t becomes more under-  standable why, then, they argue against the r i s e i n landing fees.  It  is  also worth noting two other factors that,provide a b e t t e r i n s i g h t into the stance taken by the a i r l i n e s .  F i r s t , the landing fee s t r u c t u r e i n  Canada i s amongst the highest i n the world.  Second, C u l l e y ' s study i s  seven years o l d , and with t o t a l costs e s c a l a t i n g q u i c k l y , even the 5% of t o t a l costs a t t r i b u t e d to landing fees (assuming i t has remained at  5%  since 1972) i s important. To conclude, the arguments of both sides are not without j u s t i f i c a t i o n and provide f u r t h e r evidence of the nature of the c o n f l i c t i n g issues surrounding the management of the present a i r p o r t system.  28)  Chapter Two CANADIAN AIRPORT MANAGEMENT PHILOSOPHY The behaviour of the Canadian A i r Transportation Administration t o ward a i r p o r t management i s based upon a b e l i e f that Canadians possess a set of c o l l e c t i v e p r i o r i t i e s forming the p u b l i c i n t e r e s t i n the national a i r p o r t system.  As C.A.T.A. i s encumbered to act i n the public i n t e r e s t , i t s t r a d i -  tional-philosophy emphasizes the development of an a i r p o r t system a v a i l a b l e f o r use by those c i t i z e n s that have a requirement f o r i t .  Any area that  demonstrates a reasonable need through p o t e n t i a l t r a f f i c , regional development, or some other c r i t e r i o n i s e n t i t l e d to an a i r p o r t , regardless of i t s profitability.  The emphasis upon reasonable need rather than a system which  pays f o r i t s e l f i s not i l l o g i c a l behaviour by C.A.T.A.  I d e a l l y , i t s man-  date i s to operate a national a i r p o r t system whereby the benefits of the a i r p o r t management and operations system exceed the costs incurred i t i t s operation.  However, the issue of measuring costs and benefits i s complex,  and use of t h i s decision tool as an i n d i c a t i o n of the p o s i t i v e performance of the system i s clouded with a number of uncertainties regarding what should be measured, the d i f f i c u l t y in measuring c e r t a i n items i n d o l l a r terms, the choice of discount r a t e s , and the consideration of relevant constraints.  In what may be assumed to be a circumvention of these d i f f i -  c u l t i e s , C.A.T.A.'s basic strategy has been a maximization of the s o c i a l benefits of the a i r p o r t management s t r u c t u r e , without giving serious cons i d e r a t i o n to the s o c i a l and private costs incurred. f o l l o w i n g benefits are c i t e d :  For example, the  the stimulus provided to regional economic  development, employment, and a safer transportation system.  While C.A.T.A.  may attempt to measure these s o c i a l b e n e f i t s to e s t a b l i s h a national awareness that the system does measure up to the public i n t e r e s t , i t does not estimate the s o c i a l costs of the system, nor does i t have an incentive to be e f f i c i e n t with i t s p r i v a t e c o s t s ; a l b e i t i t does measure the l a t t e r which includes relevant operating costs (general and a d m i n i s t r a t i v e , dep r e c i a t i o n , i n t e r e s t s and provisions f o r c a p i t a l expenditures).  Since i t  i s a monopoly s u p p l i e r of a i r p o r t management s e r v i c e s , costs generated external to the operations((for example, congestion costs) are not cons i deredi  .  :  As the bureau;is an arm of the government i t has a  claim on c a p i t a l , labour and land resources in the public domain, and may use these according to i t s own established o b j e c t i v e s .  While i t .  t r i e s to be aware of the s o c i a l b e n e f i t s of i t s p o l i c y , any bureau endeavours to make expenditures which w i l l exhaust i t s . approved budget, so  Q as to increase the p r o b a b i l i t y of i t s receiving a l a r g e r budget.  A larger  budget not only permits the bureau to spend more to create f u r t h e r b e n e f i t s along the l i n e s of the public i n t e r e s t , but the l a r g e r budget increases the power of the bureau's central empire.  Using t h i s c r i t e r i o n as a mea-  sure of the bureau's output, i t does not f o l l o w that i t w i l l act as a p r o f i t maximizer.  If t h i s i s t r u e , there i s no economic i n c e n t i v e f o r 9  the bureau to minimize i t s costs.  This r e s u l t s in a loss of X - e f f i c i e n c y  as a i r p o r t management does not seek cost-improving methods which would have d i r e c t e d i t toward the optimal marginal cost l e v e l f o r operations. .Diagram 1 below o u t l i n e s t h i s case.,-  The optimal marginal cost represents  the cost path of a p r o f i t - o r i e n t e d f i r m w h i c h , when given the opportunity, ;  w i l l adopt new p o l i c i e s (these may be be technological or otherwise) to e f f e c t reductions in t h e i r operating costs.  The cost schedules MC  i  and  2  Diagram 1 An Example of X-.Efficiency.- in a Bureau  _ Source:  C. D. Foster, The Public Corporation: A l l o c a t i v e E f f i c i e n c y and X - E f f i c i e n c y . From P o l i c y to A d m i n i s t r a t i o n . (J.A.G. G r i f f i t h , - 1943)  Mc" r e f l e c t cost curves of bureaus such as C.A.T.A. which do not have the incentive to determine t h e i r optimum cost f u c t i o n and, as a r e s u l t , endure higher operating costs. While economic e f f i c i e n c y in the operation of a i r p o r t s demands that users be charged the incremental cost that they impose upon the system, and the M i n i s t r y of Transport has been advocating a user-pay philosophy, this, c r i t e r i o n of economic e f f i c i e n c y has not been used as a benchmark by C.A.T.A.  This i s because, as de N e u f v i l l e explains i n his book  A i r p o r t Planning the amount an a i r p o r t might receive by applying t h i s p r i n 11 c i p l e may have l i t t l e r e l a t i o n to the costs i n c u r r e d ;  and_CTA.T.A. has  an incentive to determine i t s costs only to enlarge i t s budget and r e a l i z e greater s o c i a l b e n e f i t s .  Suppose t h a t , f o r example, increased a i r t r a n s -  portation t r a v e l v i a b e t t e r a i r p o r t management b e n e f i t s the users, and  society in general, because of the savings in time r e s u l t i n g i n higher frequency of t r a f f i c .  The maximization of t o t a l b e n e f i t s to a l l concerned  requires that users be charged) f o r t h e i r d i r e c t costs on the a i r p o r t , less the value of time, saved.  By f o l l o w i n g the c r i t e r i o n of economic 12  e f f i c i e n c y , the a i r p o r t would then f i n d i t s e l f s u b s i d i z i n g the users. N a t u r a l l y , t h i s goes against the grain of the management philosophy as outlined above. It is  raw""  more understandable why t h i s behaviour of C.A.T.A. con-  f l i c t s with the a i r l i n e s and the t r a v e l l i n g public who are r e s p e c t i v e l y p r o f i t motivated, and cost conscious.  The continual growth of expenditures  by C.A.T.A. increases the cost of the a i r p o r t management system.  The i n -  creased burden i s passed on, d i r e c t l y and i n d i r e c t l y , to the shoulders of these two p a r t i e s .  A i r l i n e s are charged higher landing fees which they  eventually pass on to the passengers through higher f a r e s , and the passengers encounter higher t i c k e t taxes.  I t begins to make a b i t more sense  when these p a r t i e s argue that the present course set by C.A.T.A., i f continued unabated, w i l l impinge upon both a i r l i n e operations and a i r t r a n s portation t r a v e l . In l i g h t of the emphasis upon a bureau's a b i l i t y to maximize i t s budget, and given that a shortage of money i n the Canadian government has l e d to a smaller flow of funds, C.A.T.A.'s behaviour may also be i n t e r p r e t e d as a response to a r e s t r i c t i o n in funds flow from the Treasury Board.  It  i s attempting to seek out new means of funding through increasing a i r l i n e user charges (landing f e e s , f u e l ) , concession rental f e e s , and passenger t i c k e t taxes.  The choice of these forced revenue increases over another  p o l i c y i s easier f o r C.A.T.A. to implement because of i t s dominance as a major pressure group, and the general assumption made by the public that  C.A.T.A. i s a c t i n g i n i t s best i n t e r e s t s to provide b e t t e r service when i t raises taxes related to a i r t r a v e l . F i n a l l y , i t i s noted that C.A.T.A. i s responsible to the M i n i s t e r of Transport, who, as d i r e c t o r of Canadian transportation p o l i c y must be cognizant of the p o l i t i c a l i m p l i c a t i o n s of the a i r p o r t management s t r u c t u r e . Those groups which are d i s s a t i s f i e d with C.A.T.A.'s performance and possess some lobbying power, can harm the image of the M i n i s t e r and subsequently that of his government.  Within the present system, operational  subsidies  (the loans and appropriations mentioned e a r l i e r are included) are l a r g e , and the a i r transportation i n d u s t r y , while complaining about the heavier burden of landing fees and other charges, believes the support i t receives in terms o f , f o r example, the national a i r t r a f f i c control system, i s sacred.  I f the r i g h t f u l dues were to be charged by C.A.T.A. v i a a change  in the r e s p o n s i b i l i t i e s of a i r p o r t management, the concerned p a r t i e s can generate powerful and damaging opposition to any p o l i c y changes.  The j u s t i -  f i c a t i o n of any type of subsidy l i e s i n the value that society places on an increase i n a i r t r a f f i c and judging from the present system, i t becomes apparent that C.A.T.A. believes the value to be high.  While a i r l i n e s  may voice complaints, they represent j u s t as large a pressure group as general a v i a t i o n which has supported, to a large extent, the present system of a i r p o r t management.  The user fees that general a v i a t i o n pays are  minimal, and l o c a l management does not hold e f f e c t i v e control over t h i s group.  The p u b l i c , l a r g e l y on the basis of a lack of information and  apathy, has not expressed a strong opinion about the d e c i s i v e i s s u e s , which gives good cause f o r C.A.T.A. to maintain the status quo.  33/  Chapter Three .  CRITERIA  If t h i s analysis i s going to be of help to C.A.T.A., i t i s  necessary  to present the objectives of the study i n as precise a fashion as p o s s i b l e . At t h i s stage of development, i t i s s u f f i c i e n t to maintain that the primary objective i s an improvement i n the operational management of Canada's ports.  air-  The i n d i v i d u a l objectives of groups i n the industry have been ex-  posed as broad and c o n f l i c t i n g , ranging from an increase in prestige and power f o r C.A.T.A.'s headquarters to regional development f o r p o l i t i c i a n s and the p u b l i c , to a l a r g e r degree of independence f o r l o c a l a i r p o r t management.  C e r t a i n l y , part of the o v e r a l l goal of the paper i s to r e -  concile this c o n f l i c t . veral methods.  This could be approached through any one of se-  A system of r e l a t i v e values amongst the objectives could  be e s t a b l i s h e d , or a l l objectives save the most important one, could be converted i n t o constraints by agreeing to a threshold l e v e l of attainment f o r the other o b j e c t i v e s .  I t i s argued that the method of a s c r i b i n g weights  to goals be avoided as i t incurs a subjective assessment on the part of the author who may be unduly biased, e i t h e r consciously or unconsciously. The second method i s d i f f i c u l t to ascribe t o , since i t involves a negotiat i o n of issues between the various what i s the primary g o a l ,  groups.  As w e l l , an agreement as to  and how the threshold l e v e l of attainment  i s defined.,tmay not be reached.  Underlying t h i s approach i s the issue of  whose objectives are the most important.  The decision-maker, C.A.T.A.,  i s not the only one whose objectives should be considered, given the nature of complaints surrounding the present a i r p o r t management system.  Other  p a r t i e s , such as the a i r l i n e s and the p u b l i c , have established goals which cannot be imposed in an o b j e c t i v e a n a l y s i s .  What makes the task more d i f f i  c u l t i s the concern over whose objectives are more important, which completes the v i c i o u s c i r c l e b e c a u s e l i t has already been stated that i t i s unwise to resolve t h i s by attaching subjective weights to various pants'  partici-  objectives.  The recognition of such diverse goals raises serious problems, and perhaps no more can be done than to describe some of the a l t e r n a t i v e s a v a i l a b l e , given the nature of the problem and the reasons f o r i t s existence. In a l l p r o b a b i l i t y , the appropriate objectives w i l l not be revealed u n t i l the analysis i s complete. any analysis  This creates a second dilemma, because a key to  i s to make a choice from a l t e r n a t i v e s that help to solve the  problem, according to the d e f i n i t i o n of the r i g h t o b j e c t i v e s .  However, i f  the objectives are not firmed up, how can the choice be made?  One method  i s to expand upon the general o b j e c t i v e of improving the a i r p o r t management system through the establishment of concrete c r i t e r i a .  With the  i d e n t i f i c a t i o n of s p e c i f i c c r i t e r i a to be used, the public o b j e c t i v e s , a l though broad in nature, can be somewhat s o l i d i f i e d in the sense that they i n d i c a t e the extent to which a l t e r n a t i v e courses of action contribute to the o b j e c t i v e s . I d e a l l y , the c r i t e r i a chosen to r e f l e c t the objectives should lead to the choice^of an a l t e r n a t i v e course of management that i s o p t i m a l i n t  the paVeto sense, whereby no f u r t h e r improvements ' can a detrimental impact on^one of the p a r t i e s involved.  be made without Given the nature of  the problem, as defined e a r l i e r , i t i s d i f f i c u l t to f i n d an optimal s o l u t i o n , and the next best a l t e r n a t i v e i s a s a t i s f i c i n g approach, whereby lower bounds f o r goals are s e t , and a s o l u t i o n i s sought which i s  'good  enough  1  to exceed those bounds.  Since t h i s i s a complicated public p o l i c y  i s s u e , the various consequences associated with each a l t e r n a t i v e can be examined across the whole set of c r i t e r i a , and the question of what i s 'good enough  1  can be l e f t to a consensus of opinion on the parts of the  i n t e r e s t s involved.  Again, the suspicion of doubt hovers over t h i s approach  because i t i s not c l e a r that a consensus of opinion can be reached.  How-  ever, at l e a s t t h i s approach avoids the need to consider how objectives are ranked, and how the c o n f l i c t between them can be resolved. When the term ' s e t of c r i t e r i a '  i s mentioned, t h i s implies that there  i s no s i n g l e c r i t e r i o n which w i l l be u n i v e r s a l l y acceptable.  This makes  sense, considering the nature of the objectives of the i n t e r e s t s involved. As de N e u f v i l l e points out, the choice of an a l t e r n a t i v e represents at l e a s t an i m p l i c i t compromise between diverse objectives and views.  The  extent to which t h i s balance is s a t i s f a c t o r y to anyone depends on t h e i r s o c i a l values, t h e i r sense of the public i n t e r e s t , as well as on the f a c t s 13 of the case.  Since t h i s balance i s d i f f i c u l t to p r e d i c t , the scorecard  approach outlined above becomes an acceptable method of handling the c r i t e r i a problem, p a r t i c u l a r l y i n l i g h t of the f a c t that no s i n g l e measure dominates the f i e l d .  I t also provides the venue to counter the  biases of a l l parties and i s an easy format f o r the public to understand. The set of c r i t e r i a that has been developed i s aimed p r i m a r i l y at the effectiveness of each a l t e r n a t i v e and how the a i r p o r t management system i s improved.  Each c r i t e r i o n i n the group has been formed out of the  modeling framework and the problem o u t l i n e . c r i t e r i o n , as a l l are t r e a t e d equally. criteria:  No weight i s a l l o t e d to any  The set consists of the f o l l o w i n g  y"  1.  the amount of a u t h o r i t y that accompanies the r e s p o n s i b i l i t y of l o c a l a i r p o r t management to control a i r p o r t operations;  2.  the degree of power held by the bureaucracy at C.A.T.A. headquarters;  3.  the responsiveness of the a i r p o r t management to the changing needs of p a r t i c i p a n t s or to changing e x t e r n a l i t i e s ;  4.  the balance between the need f o r a national a i r p o r t system and increased commercial v i a b i l i t y of c e r t a i n a i r p o r t s ;  5.  the i n c e n t i v e provided to e f f i c i e n t l y manage a i r p o r t s ;  6.  the amount of input into p r i o r i t y planning and s t r a t e g i c d e c i s i o n making given to l o c a l a i r p o r t management;  7.  the amount of p o l i t i c a l i n f l u e n c e on a i r p o r t operations;  8.  the amount of control that C.A.T.A; possesses over a i r l i n e s ;  9.  The ease of implementation, general c o s t , and p o l i t i c a l f e a s i b i l i t y .  The l e v e l s of cost of each a l t e r n a t i v e are not as important at t h i s junct u r e , because:  (1) the f o l l o w i n g statement of a l t e r n a t i v e s and t h e i r  respective evaluation does not lend i t s e l f e a s i l y to a costing out analys i s and (2) C.A.T.A., being a bureau, i s not overly concerned with m i n i mizing costs. management  They are more interested i n maximizing the benefits of the  system.  36  Chapter Four ALTERNATIVE MANAGEMENT SCHEMES AND THEIR EVALUATION A.  THE ALTERNATIVES The stage i s set f o r i d e n t i f y i n g p a r t i c u l a r courses of a c t i o n , which  remedy the d e f i c i e n c i e s i n the a i r p o r t management s t r u c t u r e .  The genera-  t i o n of a l t e r n a t i v e s i s an i t e r a t i v e procedure, and the a l t e r n a t i v e s presented below have undergone several such reviews.  I t can be s a f e l y  stated that a good a l t e r n a t i v e i s formulated l a r g e l y by what the analyst i s t r y i n g to achieve.  In t h i s case, the options have been created with  an eye to improving the a i r p o r t management system.  The problem statement  and the modellingvframework are h e l p f u l because these analyses i n d i c a t e the f a u l t s in the present system and provide d i r e c t i o n f o r the types of remedies needed to improve the s i t u a t i o n . While i t i s useful f o r the analyst to be as c r e a t i v e as possible and to think of options that are disguised from the parties' involved because of t h e i r normal r o u t i n e s , i t i s d i f f i c u l t but nonetheless important to avoid the biases of those p a r t i e s involved whose i n t e r e s t s may obscure some options.  The a l t e r n a t i v e s below represent an attempt to avoid any paro-  chialism which would otherwise betray the work already performed. The search f o r a l t e r n a t i v e s may be thought of as i n v o l v i n g two tasks: one, the i d e n t i f i c a t i o n of classes of solutions and, two, the generation of solutions w i t h i n a given c l a s s .  As i t applies to the a i r p o r t manage-  ment s t r u c t u r e , the f i r s t task discloses the changes i n the organizational  structure of the a i r p o r t management system.  The second discusses p o l i c y  innovations w i t h i n the e x i s t i n g p o l i c y framework.  I t i s e a s i e r to se-  parate the two classes i n i t i a l l y to enable a b e t t e r comprehension of the c o n t r i b u t i o n of each a l t e r n a t i v e .  This allows f o r the development, in  the f o l l o w i n g chapter, of a matrix of f e a s i b l e combinations between the two classes of s o l u t i o n s . I t should not be expected that the ensuing chapters w i l l r e s u l t in:..an\} optimal s o l u t i o n , according to the defined problems.  While a s o l u t i o n pre-  ferred by a l l major i n t e r e s t s may a l s o be impossible, the suggested s o l u tions should permit a b e t t e r aggregation of knowledge and increased a b i l i t y f o r judgment on the part of the decision-makers, and at the minimum, t h e i r decision w i l l be a more informed one. Changes i n the Organizational Structure 1.  The E x i s t i n g System Streamlined Option 1.1  The l o c a l a i r p o r t manager reports d i r e c t l y to the Regional  Administrator instead of the Regional Manager of Designated A i r p o r t s .  The  l o c a l manager i s completely responsible f o r d a i l y operations and i s given r e s p o n s i b i l i t y f o r helping in the planning f u n c t i o n .  Outside assistance  w i l l be required f o r the planning, design and construction of large p r o j e c t s . Local management continues to be subject to the Financial Administration A c t , the Public Service Employment A c t , and the Supply and Services Act. A l l proposals regarding p r i o r i t y planning would s t i l l be subject to review by the Regional Adminstrator. Option 1.2 headquarters.  The l o c a l a i r p o r t manager reports d i r e c t l y to C.A.T.A. The a i r p o r t no longer becomes a subsidiary of the region  in the same sense as other regional a c t i v i t i e s ( e . g . , radio a i d s , a i r  navigation s e r v i c e s ) .  The a i r p o r t manager i s e n t i r e l y responsible f o r  operations i n c l u d i n g :  finance and a d m i n i s t r a t i o n , maintenance, terminal  services and personnel, and may also maintain small core groups f o r p l a n ning, design and construction (however, outside assistance would s t i l l be available).  Local management i s s t i l l  subject to the l e g i s l a t i o n , .  previously mentioned. 2.  A i r p o r t Commissions 2.1  Limited A i r p o r t Commission  The a i r p o r t manager reports d i r e c t l y  to the head of a national a i r p o r t a u t h o r i t y who in turn reports d i r e c t l y to the A i r Administrator, on behalf of a c e r t a i n group of a i r p o r t s .  The  a i r p o r t manager i s given a u t h o r i t y concomitant with the r e s p o n s i b i l i t i e s of the functional operations, including finance and a d m i n i s t r a t i o n , maintenance, personnel and other areas as defined under the present r o l e f o r local administration.  He i s given a budget and s t a f f associated with the  new a u t h o r i t y to e f f e c t i v e l y carry out operations., Small specialty, groups are established w i t h i n the l o c a l administration at the a i r p o r t f o r the purpose of planning, design, and construction of small p r o j e c t s .  He s t i l l  r e l i e s , as in previous o p t i o n s , on outside help f o r large p r o j e c t s .  This  could come from the region, headquarters, or an outside consultant.  Con-  tacts between headquarters groups and l o c a l management would occur through the head of the national a u t h o r i t y .  The a u t h o r i t y would be responsible  f o r ensuring that l o c a l management complied with standards developed by other parts of C.A.T.A. and would work with both p a r t i e s to render reasonable standards.  Likewise, the authority provides an i n t e r f a c e between  headquarters s t a f f groups and l o c a l management to allow f o r optimal p a r t i c i p a t i o n by a l l p a r t i e s in matters such as national a i r p o r t planning and  a i r p o r t master planning.  The a i r p o r t manager continues to be subject to  the F i n a n c i a l Administration A c t , the P u b l i c Service A c t , and the Supply and Service A c t .  The a u t h o r i t y ' s mandate i s narrowly defined to avoid a  t r a n s f e r of the a i r p o r t manager's a u t h o r i t y to headquarters over a period of time. 2.2  Extensive A i r p o r t Commission  A s e l e c t number of a i r p o r t s are  converted (see E x h i b i t 3) to s e l f - s u f f i c i e n t a i r p o r t a u t h o r i t i e s , possessing a board of d i r e c t o r s who appoint the l o c a l management.  These a i r p o r t s  could be c l a s s i f i e d as Crown Corporations ( f e d e r a l , p r o v i n c i a l , or municipal) or independent commissions run by a p r i v a t e body, butssubject to CTC r e g u l a tion.  The a u t h o r i t y ' s o b j e c t i v e i s not to maximize p r o f i t s but to provide  a l e v e l of a i r p o r t s e r v i c e to a l l users which allows the a i r p o r t to break even o p e r a t i o n a l l y .  The board of d i r e c t o r s and l o c a l management would be  paid through i n t e r n a l l y generated funds, although i n i t i a l l y , some form of government support may be needed.  Financing i s done through equity or  debt issues (most l i k e l y a form of revenue bonds) to the government, or the public.  The l o c a l management has f u l l control over a l l operations while  the board i s responsible f o r f i n a n c i a l planning, approval of major operat i o n a l changes, and the development of s t r a t e g i e s f o r marketing and personnel.  In reporting to the board, the a i r p o r t manager i s  responsible  f o r a l l a i r p o r t . o p e r a t i o n s , as defined i n e a r l i e r o p t i o n s , the submission of annual operating and maintenance and c a p i t a l budgets to the board, and the development of plans i n support of the board's p o l i c i e s .  Local manage-  ment negotiates a l l contracts f o r terminal and other leases.  Landing fees  are set i n such a way that they can be adjusted upwards to cover operating d e f i c i t s or downwards i f an operating surplus occurs.  r "--[  i.  Any surplus required  %Q~r', debt s e r v i c i n g of a s p e c i f i c project may be met through:  (1) i f a  41 bond has been issued, the revenues of the p r o j e c t ; (2) the funds a r i s i n g from an equity i s s u e ; j o r (3) a clause attached to the c l a s s i f i c a t i o n of operating expenses, f o r the purpose of^covering-debt/servicing f,Tdm'-opera'ting revenues. This a l t e r n a t i v e i s e s s e n t i a l l y based on the same p r i n c i p l e s as are American a i r p o r t a u t h o r i t i e s , except that they can receive various forms of c a p i t a l assistance from the U.S. A i r p o r t s Trust Fund. i s the Metropolitan N a s h v i l l e A i r p o r t A u t h o r i t y .  A case in point  It is a f u l l y s e l f - f i n a n c -  ing c o r p o r a t i o n , and the l o c a l management has complete a u t h o r i t y to run i t s own operation.  The A u t h o r i t y ' s goal i s to e f f e c t i v e l y manage and operate  the a i r p o r t using p r a c t i c a l business p r i n c i p l e s to maintain prudent control over operating expenses.  I t operates in such a manner as to produce r e -  venues from concessionaires and tenants to reduce the l i a b i l i t y of a i r l i n e tenants.  Debt service receives a d d i t i o n a l coverage by the s e t t i n g of c e r -  t a i n terminal charges at a rate s u f f i c i e n t to provide 125 percent coverage. Landing fees are adjusted every s i x months to ensure that operating expenses and debt service are f u l l y covered.  Financing i s accomplished through  the issuance of revenue bonds. 3.  Changes in C.A.T.A. P o l i c y 3.1  A i r p o r t s Revolving Fund  Before the new revolving fund i s put-  l i n e d i t i s helpful to provide some background on the old fund.  The o r i -  ginal A i r p o r t s Revolving Fund was established in 1969 f o r the purpose of financing the operation and development of Toronto (Malton) and Montreal (Dorval) a i r p o r t s .  Included in the expenses were a l l operating expenses,  c a p i t a l expenditures, loans and i n t e r e s t charges.  The Treasury Board  authorized the M i n i s t r y of Transport to finance these two a i r p o r t s from  42'  loans.  Underlying the advancement:of monies to these a i r p o r t s was the  requirement that the M i n i s t r y generate adequate revenues through user charges, which would repay the loans and accompanying i n t e r e s t charges. In 1971, the a i r p o r t s a t Mirabel and Vancouver, and the land costs of the P i c k e r i n g a i r p o r t s i t e s were included in the Fund.  Although the  fund was o r i g i n a l l y intended to be s e l f - s u s t a i n i n g , and despite the f a c t t h a t , i n the seven years to 1976, i t generated an operating surplus of $62 m i l l i o n , the fund was not f i n a n c i a l l y s e l f - s u s t a i n i n g .  Loans to the  fund were three times higher than f o r e c a s t , and i n t e r e s t charges were higher.  As of January, 1979, the fund had b u i l t up a debt of $655 m i l l i o n  in loans and i n t e r e s t .  As a r e s u l t of t h i s dilemma, a new fund, e f f e c t i v e  A p r i l 1, 1979, has been e s t a b l i s h e d .  The f o l l o w i n g terms and conditions  pertain to the new fund: (a)  The fund s h a l l apply to a l l a i r p o r t s and terminal control costs f o r 23 a i r p o r t s (see E x h i b i t 2) plus the Pickering Land s i t e . (Terminal Control r e f e r s to A i r Navigational Services.)  (b)  Interest charges on loan balances in the e x i s t i n g A i r p o r t s Revolving Fund s h a l l be reduced to zero and repayment of these loans s h a l l be suspended.  (c)  The sources of funds s h a l l be revenues, sales of c a p i t a l assets and loans, and the funds s h a l l be applied to operation and maintenance of the a i r p o r t s , c a p i t a l proj e c t s and loan repayments. Cash surplus i s to be held in the Consolidated Revenue Fund.  (d)  The terms of repayment f o r loans made to the fund s h a l l be through mortgage type repayments, i . e . , loans s h a l l be repaid over a 20-year period in equal annual payments of combined p r i n c i p a l and i n t e r e s t .  (e)  There s h a l l be f u l l c r o s s - s u b s i d i z a t i o n among a l l 23 a i r ports in the fund.  3.2  Cost Recovery Plan  The o b j e c t i v e of the plan i s f o r 23 a i r p o r t s  to eventually recover 100 percent of a l l legi.timate.:user;Cdsts while eleven  more recover only t h e i r operating and maintenance expenditures.  While the  recovery based upon an annual percentage growth i n revenues i s i n s u f f i c i e n t , according to estimates, to cover growing c o s t s , the government plans to i n crease landing f e e s , the fuel charges, the a i r passenger t i c k e t t a x , and terminal fees. Table 8 below o u t l i n e s the annual increase necessary f o r a l l c l a s s i f i cations of landing fees and terminal fees f o r the years 1981, 1983 and 1985, i f 100 percent cost recovery, as defined above, were to be achieved by these respective years. TABLE 8 Proposed Landing and Terminal Fee Increases at Canadian A i r p o r t s to Achieve F u l l Recovery of User Costs 1981  1983  1985  Required f o r Landing Fees  34  22  20  Weighted % Increase Required f o r Terminal Fees  34  22  20  Weighted % Increase  Source:  The Federal M i n i s t r y of Transportation, "Proposals on Cost A l l o c a t i o n , A i r p o r t C l a s s i f i c a t i o n and Fee Increases," CATA, 1975.  The new approach that C.A.T.A. plans to take i s to increase landing fees by 30 percent annually at i n t e r n a t i o n a l , national and regional a i r p o r t s , i n d i c a t i n g that cost recovery should be completed by approximately 1982.  The government also has the i n t e n t i o n of r a i s i n g the a i r t i c k e t  tax from $8 to e i t h e r $12 or $15.  The United States a i r t i c k e t t a x , set  at an open-ended eight percent of the f a r e , corresponds i n p o t e n t i a l r e venue y i e l d to t h i s proposal.  B.  EVALUATION This evaluative framework examines the a l t e r n a t i v e s w i t h i n the set  of c r i t e r i a previously e s t a b l i s h e d , to discover the intended consequences of each proposal as i t applies to complying with the m u l t i p l e objectives of the study. of the options.  The a n a l y s i s also touches upon the unintended consequences There are no r e l a t i v e weights attached to any of the  c r i t e r i a , nortthe^objeetives.  Although t h i s detracts from a precise  e v a l u a t i o n , and i s not a true decision-making v e h i c l e , t h i s method i s a useful way of presenting the a l t e r n a t i v e s to the f i n a l  decision-maker,—  the federal government, with regard to the most appropriate means f o r improving Canada's a i r p o r t management. 1.  Streamlining the E x i s t i n g system Option 1.1  The proposal to allow the a i r p o r t manager to report  d i r e c t l y to the Regional Manager of Designated A i r p o r t s i s r e l a t i v e l y easy to implement and can be achieved without the costs in q u a l i f i e d manpower and time associated with a major government reorganization.  The a i r p o r t  manager's a u t h o r i t y over functional operations i s one of the important objectives which can be achieved.  Budget requirements depend upon any  extra manpower requirement and the s p l i t of duties between the managers at the a i r p o r t and those at the regional l e v e l .  The new control given  to l o c a l management should provide an incentive to be more responsive to the needs of users; but the lack of input i n t o p r i o r i t y decisions a t the s t r a t e g i c l e v e l i s minimal because management i s , i n e f f e c t , s t i l l ing to the c e n t r a l i z e d bureaucracy.  report-  The bureaucracy, in t u r n , continues  to maintain i t s monopolistic control over the system to ensure that i t s p r i o r i t i e s f o r the national system of a i r p o r t s are upheld.  While giving  more a u t h o r i t y to l o c a l management, the proposal does not lessen the amount of p o l i t i c a l influence on a i r p o r t operations.  The provision of a i d from  the region f o r planning and other assistance ensures that the government's i n t e r e s t in providing a l e v e l of service according to t h e i r expectations w i l l not be t a i n t e d . While t h i s approach eliminates one l e v e l of management between the a i r p o r t manager and the regional a d m i n i s t r a t o r , the l o c a l management  is  s t i l l obliged to comply with the Financial Administration A c t , the Public Service Employment Act and the Supply and Services A c t , which somewhat r e s t r i c t the freedom to run operations.  However, i f t h i s a l t e r n a t i v e scheme  r e s u l t s in an increase in s t a f f at the l o c a l l e v e l , without an accompanying change at the regional l e v e l , the costs of the system w i l l be increased, leading to a lower o v e r a l l l e v e l of p r o d u c t i v i t y . Option 1.2  The a i r p o r t manager reporting d i r e c t l y to the A i r Ad-  m i n i s t r a t o r while maintaining control over d a i l y operations ensures an i n creased amount of a u t h o r i t y f o r local management and eliminates a l l l e v e l s of bureaucracy between l o c a l administration and C.A.T.A. headquarters. Considering that the A i r Administrator already possesses a busy schedule, t h i s indicates a good degree of freedom in operational decisions f o r the a i r p o r t manager.  For problems r e q u i r i n g c o n s u l t a t i o n , the d e c i s i o n time i s  reduced, and assumably, required a c t i o n would be taken much sooner than i s presently experienced. The reorganization at the a i r p o r t regarding manpower would be minimal, and budget requirements would be a f u n c t i o n of the increased need f o r r e sources l o c a l l y , and the s p l i t between duties performed l o c a l l y ( a l l operations) and the region (engineering, planning).  Since the region i s to  continue with the planning f u n c t i o n , t h i s constrains the amount of input into p r i o r i t y planning given to l o c a l management.  I t may be assumed that  as l o c a l management becomes more experienced with the new a u t h o r i t y , i t s c o n t r i b u t i o n to the s t r a t e g i c planning process may increase i n importance. The;.proposal does not a f f e c t the p o l i t i c a l manipulation w i t h i n the a i r p o r t system.  However, to allowing l o c a l management more freedom and  motivation to run i t s own a i r p o r t , i t i s at l e a s t a step toward a b e t t e r balance of a u t h o r i t y and control between l o c a l and the higher l e v e l s of management. Bearing i n mind the number of contentious issues regarding operational decisions concerning which l o c a l management w i l l seek c o n s u l t a t i o n with C.A.T.A. headquarters, t h i s may place too heavy a load on the A i r Adminis t r a t o r and his s t a f f . felt.  If t h i s does m a t e r i a l i z e , two impacts could be  One, the delays i n decisions w i l l become very burdensome to the  parties involved (the a i r c a r r i e r s , and l o c a l management) and present problems regarding the complaints of the l a t t e r two p a r t i e s w i l l worsen; and, two, the A i r Administrator continues to r e l y on his s t a f f groups as the decision-makers, and the r e s u l t i n g s i t u a t i o n would not be very d i f ferent from the status quo. 2. - A i r p o r t Commissions Option 2.1.  The establishment of a national a u t h o r i t y c o n t r o l l i n g  a s e l e c t number of a i r p o r t s removes the management bottlenecks of the regional and headquarters groups and provides totail. a u t h o r i t y to l o c a l management f o r running the a i r p o r t .  The a i r p o r t a u t h o r i t y , by working  with a i r p o r t managers, establishes s p e c i f i c r e l a t i o n s h i p s between the two parties that w i l l balance l o c a l operating i n i t i a t i v e against the need  f o r central p o l i c y d i r e c t i o n .  By being given f r e e reign to control opera-  t i o n s , there i s more of an emphasis to allow users ( a i r c a r r i e r s ) to pay f o r what they want, not what the government imposes.  The l o c a l administra-  t i o n becomes more p r e s t i g i o u s , operating apart from the confines of the bureaucracy, and ^  a t t r a c t s J more q u a l i f i e d people to run a i r p o r t s .  As the a i r p o r t authority must report to the A i r A d m i n i s t r a t o r , the l o c a l administration i s not immunized from p o l i t i c a l i n t e r f e r e n c e , but a t l e a s t i t lessens the problem of l o c a l a i r p o r t managers being accountable t o , or d i r e c t l y dependent upon, a number of branch heads a t headquarters or the regional  level.  This d i s t i n c t Tine of a u t h o r i t y provides c l e a r e r guidance as to what can or cannot be done at the a i r p o r t , because the a u t h o r i t y has j u r i s d i c t i o n of i t s own to make d e c i s i o n s , and i t can also q u i c k l y d i r e c t matters r e q u i r i n g c a r e f u l consideration to the A i r Administrator.  The allowance  f o r l o c a l management to have a u t h o r i t y over i t s own operations w i l l  develop  i t s a b i l i t y to s u b s t a n t i a l l y : provide input into p r i o r i t y planning and s t r a t e g i c decision-making. There are several unintended consequences that are associated with t h i s proposal.  F i r s t , i t i s possible that the new a u t h o r i t y w i l l  develop  i n t o a c e n t r a l i z e d bureaucracy accompanied by a p r o l i f e r a t i o n of senior a d m i n i s t r a t i v e positions whose i n t e r e s t s may not coincide with e i t h e r the A i r Administrator or l o c a l a i r p o r t management.  The authority may act as  a large bureau and maximize i t s budget instead of maintaining the balance between the need f o r a national a i r p o r t system and increased commercial v i a b i l i t y f o r those a i r p o r t s under i t s j u r i s d i c t i o n .  Secondly, i t may be  d i f f i c u l t to a t t r a c t a q u a l i f i e d person to d i r e c t the new a u t h o r i t y i f the prestige of the p o s i t i o n i s l o w ^ i f he i s to act as an enforcer of C.A.T.A.  -48  headquarters p o l i c y without any f l e x i b i l i t y f o r c r e a t i v e work and i f the p o s i t i o n i s viewed i n a l i n e r e l a t i o n s h i p with C.A.T.A.'s regional heads. F i n a l l y , i t may be assumed that given the grouping of the f i v e autonomous a i r p o r t s under one umbrella, t h i s may provide a source of revenue to crosssubsidize the rest of the a i r p o r t s i n Canada.  Granted that a national  sys--  tem i s a p r i o r i t y , the a i r . c a r r i e r s and passengers may be no b e t t e r o f f i f they lose the control over t h e i r own l i a b i l i t i e s at the s e l e c t a i r p o r t s as a r e s u l t of higher user charges. Option 2.2.  The proposal c a l l i n g f o r a s e l e c t number of a i r p o r t s to  be converted to s e l f - s u f f i c i e n t a i r p o r t a u t h o r i t i e s , i s most d i f f i c u l t to implement given the broad nature of reorganization.  Each of the selected  a i r p o r t s operates as a separate e n t i t y accountable only to the M i n i s t e r of Transport i n the case of a Crown Corporation o r , i n the case of an i n dependent commission, to the m u n i c i p a l i t y or other governing body. A l l l e v e l s of bureaucracy at C.A.T.A.'s headquarters and regional l e v e l s are e l i m i n a t e d , allowing the l o c a l administration f u l l control over operations, and the freedom i n i t s decision-making to respond to the needs of a l l users--the a i r c a r r i e r s , the l o c a l community, and various l e v e l s of government.  There i s a b u i l t - i n f l e x i b i l i t y f o r the provision of f a c i l i t i e s  and services i n response to the business environment.  A d d i t i o n a l l y , the  t o t a l system's costs of decisions are subject to the s c r u t i n y of the Board of Directors which furthers the cause of improved communication between a l l sides i n recognition of t h e i r shared f i n a n c i a l r e s p o n s i b i l i t i e s . By a l l o c a t i n g l e g i t i m a t e costs as c l o s e l y as possible to users, the a i r p o r t ' s management i s b e t t e r equipped to achieve f u l l cost recovery.  Landing  fees can be set on a s i t e - s i t e basis across the i n d i v i d u a l a u t h o r i t i e s , and the extent of control of the bureaucracy over these a u t h o r i t i e s i s reduced.  49 Because of t h i s , C.A.T.A. loses a main source of revenue which could be used to cross-subsidize the other a i r p o r t operations i n Canada.  If i t ap-  p l i e s i t s cost-recovery p o l i c y to these a i r p o r t s , C.A.T.A. has the option of r a i s i n g user charges to higher l e v e l s at these other a i r p o r t s which are not commissions.  This move has sound economic backing and, given the assump-  t i o n that a i r l i n e s have the choice between s e r v i c i n g an a i r p o r t or not, they are not forced to pay these higher charges i f they do not want to service the a i r p o r t .  In those cases where an a i r c a r r i e r may be required by federal  law to serve the a r e a , some form of government s u b s i d i z a t i o n to cover any operating d e f i c i t .resulting from higher charges to the c a r r i e r can be o f f e r e d . The key issues a r i s i n g from t h i s proposal are the extent to which the costs of maintaining the new arrangement d i f f e r s from the status quo, and the extent to which f l i g h t frequency and service w i l l be r e s t r i c t e d or curt a i l e d at some a i r p o r t s as a r e s u l t of higher user charges.  F i r s t , while  no estimate of the actual costs of the new system are a v a i l a b l e , they cannot be higher than the present system f o r the f o l l o w i n g reason.  The costs of  operating the national a i r p o r t system have not increased as a whole.  The  d i f f e r e n c e i s a r e d i s t r i b u t i o n in the manner i n which these costs are paid. With the status quo, the a i r p o r t system i s f i n a n c i a l l y supported by a comb i n a t i o n of loans and cross s u b s i d i z a t i o n which come out of the federal treasury, and operating surpluses from those a i r p o r t s that do w e l l , respectively.  Under the new proposal, the formerly autonomous a i r p o r t s are turned  i n t o s e l f - s u s t a i n i n g commercial operations whose o b j e c t i v e i s to break even and provide a return enabling d e b t - s e r v i c i n g .  Other a i r p o r t s , which can no  longer r e l y on c r o s s - s u b s i d i z a t i o n from other a i r p o r t s , charge higher fees to users or are subsidized by the government i n the i n t e r e s t of maintaining the national a i r p o r t system.  The point to be made i s that i n the end, i t  i s the Canadian taxpayer who pays f o r the system, and what the new proposal  does i s s h i f t more of the burden of payment onto the shoulders of the a i r t r a v e l l i n g p u b l i c , away from the n o n - f l y i n g p u b l i c . The second issue regards the extent to which a i r c a r r i e r s may stop s e r ving some a i r p o r t s because of the large increase i n user charges required to achieve f u l l cost-recovery.  Judging from the f i g u r e s i n Table 7, d i s c l o s i n g  the a d d i t i o n a l revenue per passenger required to achieve t h i s g o a l , there are a number of a i r p o r t s which, i f they were to increase charges to accommodate these f i g u r e s , i t may be assumed that c a r r i e r s would discontinue service to these a i r p o r t s because of unprofitable operations.  This p a r t i c u l a r s i t u a t i o n  would necessitate some form of government s u b s i d i z a t i o n e i t h e r to the a i r ports or to the a i r c a r r i e r s .  For the majority of a i r p o r t s , i t i s reasonable  to assume that they would be able to bear an increase i n user charges, whether or not they are passed on i n part or i n f u l l to t h e i r passengers.  Culley's  r e p o r t , c i t e d e a r l i e r , demonstrated that a i r l i n e s ' demands f o r landings are p r i c e i n e l a s t i c , and considering t h t landing fees (the vehicle through which most user charges are increased) comprise only a small percentage of operating c o s t s , the a i r l i n e s are capable of absorbing an increase i n the charges.  This  discussion of two key i s s u e s , then, d i s c l o s e s that the proposal does have merit with respect to the r e d i s t r i b u t i o n of costs and the probable impact on a i r t r a v e l . If the a u t h o r i t i e s are operated as Crown Corporations, the margin f o r p o l i t i c a l i n t e r f e r e n c e widens somewhat compared to t o t a l l y independent a u t h o r i t i e s , but they are s t i l l  independent bodies and, moveover, the f a c t  that the a i r p o r t s would be u l t i m a t e l y accountable to the government ensures that a balance i s maintained between the need f o r a national a i r p o r t system and the need f o r b e t t e r responsiveness  to needs of users at the l o c a l  level.  If an independent commission reported only to the m u n i c i p a l i t y there i s a danger that the a i r p o r t may become a tool of the regional government whose  objectives do not match themselves with a federal a i r p o r t system.  There i s .  so a problem that an i n d i v i d u a l a u t h o r i t y may not be capable of performing i t s own t e c h n i c a l s e r v i c e s , such as engineering, that would o r d i n a r i l y be provided through C.A.T.A.'s headquarters or region.  Most l i k e l y , any r e -  quirement f o r technical or other services could be contracted out. A f i n a l comment, from the p o s i t i v e end of the spectrum, i s that an a i r p o r t management system which i s responsive to the needs of a l l users may lessen the tension between C.A.T.A. and the a i r c a r r i e r s so as to permit a c l e a r e r communications-system at other a i r p o r t s across Canada. 3.  Changes i n C.A.T.A. P o l i c y Option 3.1.  The A i r p o r t Revolving Fund covering 23 a i r p o r t s uses  c r o s s - s u b s i d i z a t i o n as a means of achieving a b e t t e r balance between the need f o r a national a i r p o r t system and the need f o r increased commercial v i a b i l i t y at these a i r p o r t s (the 23 a i r p o r t s are l i s t e d i n E x h i b i t 2). Those a i r p o r t s which make an operating surplus can support those which are operating at a d e f i c i t .  I t i s also r e l a t i v e l y easy to implement and,  from a p o l i t i c a l stance, i s quite f e a s i b l e .  A t h r i v i n g fund w i l l eventu-.  a l l y allow a l l 23 a i r p o r t s to cover t h e i r operating costs. Concern has been expressed over the notion of the Revolving Fund becoming a s e l f - s u s t a i n i n g e n t i t y .  The previous fund b u i l t up a debt of  $655 m i l l i o n , and although the new fund i s introduced with an increase i n user charges, i t s t i l l  lacks a defined management control and a c c o u n t a b i l i t y  s t r u c t u r e , and has l i t t l e c r e d i b i l i t y (obviously) with the a i r l i n e industry. The f i n a n c i a l projections of E x h i b i t 4 were prepared to show the e f f e c t s of i n f l a t i o n on cash requirements f o r the fund.  I t \ i s apparent from these  numbers that given the current revenue base, an annual growth of 4 J percent plus 5 percent per year to o f f s e t the i n f l a t e d l e v e l of c o s t s , i s inadequate  to produce a f i n a n c i a l l y sound fund.  An operating d e f i c i t occurs each  y e a r , and loan i n t e r e s t a t the end of the period equals 25 percent of revenues, while loans outstanding at the end of the period are $2.3 b i l - ' i lion.  To overcome t h i s d e f i c i t an extra $25 m i l l i o n must be raised i n i t i -  a l l y (see E x h i b i t 5).  The government plans to r a i s e roughly 85 percent  of t h i s amount through an increase in the A i r Transport T i c k e t Tax, but i t i s not c l e a r that t h i s w i l l be a p o l i t i c a l l y acceptable move, given the p o t e n t i a l backlash from passengers and a i r c a r r i e r s . Economists have a l s o argued that c r o s s - s u b s i d i z a t i o n i s an i n e f f i c i e n t means of a l l o c a t i n g resources.  The t r a n s f e r of a surplus of funds from  one a i r p o r t to another which i s not covering i t s costs does not compare the marginal cost of r e t a i n i n g the funds to t h e i r marginal b e n e f i t . are opportunity costs involved which are being ignored.  There  Furthermore, the  a i r p o r t that receives the funding i s provided with no incentive to change i t s management s t y l e to r e f l e c t a b e t t e r awareness and control of costs. This proposal does not lessen the degree of monopolistic control that C.A.T.A. possesses over the a i r p o r t s ; in f a c t t h i s i s a move toward the s o l i d i f i c a t i o n of the c e n t r a l i z e d management system.  The amount of  a u t h o r i t y held by l o c a l management, i t s input i n t o s t r a t e g i c d e c i s i o n making, and i t s responsiveness  to the business environment, are not changed  with t h i s new p o l i c y . Option 3.2. The cost recovery plan i s an attempt to allow a i r p o r t s to recover t h e i r l e g i t i m a t e user costs which creates more of a balance between the need f o r a national system and the need f o r commercial v i a b i l i t y and provides a d d i t i o n a l b e n e f i t s , described e a r l i e r under Option 2.2, when i t i s combined with the concept of independent a u t h o r i t i e s .  As a s i n g l e  p o l i c y , i t i s an economically sound proposal, d i s t r i b u t i n g the burden of costs to those that use the a i r p o r t ' s f a c i l i t i e s .  However, there i s a  question as to the impact upon l o c a l management that an increase in l a n d ing fees to achieve cost recovery w i l l have.  I t may be that increasing  landing fees to s i x times that of the present l e v e l does not provide an incentive to l o c a l managers to be properly concerned about t h e i r operational costs.  The proposal does not bear upon the amount of a u t h o r i t y ,  or the input i n t o s t r a t e g i c decision-making that the l o c a l administration ; possesses. The option i s e a s i l y implemented from C.A.T.A.'s viewpoint and i s p o l i t i c a l l y acceptable as the notion of ' c o s t - r e c o v e r y ' indicates a governmental concern f o r maintaining some form of c o s t - e f f i c i e n c y . The amount of control that C.A.T.A. possesses over the a i r c a r r i e r s i s not changed and, i n f a c t , the l a t t e r group bears the brunt of increase i n charges r e s u l t i n g from t h i s p o l i c y .  The use of landing fees as a  c a t c h - a l l element makes the a i r l i n e s responsible f o r the recovery of a i r port and terminal control costs which i s reasonable assuming that they are the main b e n e f i c i a r i e s of the a i r p o r t s ' s e r v i c e s . that the costs of operation are under c o n t r o l .  This also assumes  If they a r e n ' t , i t i s not  f a i r to hold the a i r l i n e s responsible f o r paying these costs d i r e c t l y . Whether or not the costs are under control i s an unresolved issue at t h i s point in time. Summary of Evaluation The f o l l o w i n g matrix provides a comparison of a l l the options against the nine previously established c r i t e r i a .  Each square of the matrix i s  marked with e i t h e r a more, l e s s , or stable index.  Each proposal i s a l l o -  cated an index which i s interpreted in the range of good - bad choices according to the f o l l o w i n g c h a r t :  Criteria  Index  Interpretation  1.  Amount of a u t h o r i t y g i v e n t o l o c a l management  more less  good bad  2.  Degree of power h e l d by C.A.T.A. h e a d q u a r t e r s and r e g i o n  more less  bad good  3.  Responsiveness of A i r p o r t en? , v i r o n m e n t s t o the needs o f participants  more less  good bad  4.  B a l a n c e between the need f o r a n a t i o n a l system and the need f o r more commercial v i a b i l i t y  more less  good bad  5.  I n c e n t i v e t o manage a i r p o r t s e f f i c i e n t l y and e f f e c t i v e l y on the p a r t of l o c a l a d m i n i s t r a t i o n  more less  good bad  6.  Amount o f i n p u t t o p r i o r i t y p l a n n i n g possessed by l o c a l managers  more less  good bad  7.  Amount of p o l i t i c a l i n f l u e n c e on a i r p o r t management  more less  bad good  8.  Amount o f c o n t r o l C.A.T.A. possesses o v e r a i r l i n e s  more less  bad good  9.  Case o f i m p l e m e n t a t i o n , p o l i t i c a l f e a s i b i l i t y and g e n e r a l c o s t  e a s y , cheap hard, costly  good bad  An o p t i o n which does not a f f e c t any o f the c r i t e r i a i n comparison to the s t a t u s quo i s g i v e n a s t a b l e i n d e x .  The c h a r t i s based on the i n t e n d e d  and unintended consequences of the o p t i o n s , which a c c o u n t s f o r the range of i n d i c e s i n some  squares.  The d i f f i c u l t y i n a s s e s s i n g ion i s absolute. teria.  t h i s type o f a n a l y s i s i s t h a t no one c r i t e r -  As a r e s u l t , each o p t i o n must be examined a c r o s s a l l c r i ^ -  No a t t e m p t has been made to weigh any of the c r i t e r i a , as  this  would i n v o l v e making assumptions which the a u t h o r i s not prepared t o support at present.  I d e a l l y , i t would be s i m p l e t o examine each o p t i o n t o  determine which one maximizes the number of p o s i t i v e i n d i c e s o v e r n e g a t i v e  55  Matrix 1  2.  1.  4.  Amount of authority at.local level  Degree of power held at CATA H.Q.  Responsiveness of a i r p o r t environment to needs of participants  A i r p o r t Manager reports to Regional Administrator  Slightly more  Stable  Stable-less  Stable  A i r p o r t Manager reports d i r e c t l y CATA H.Q.  Slightly more  Stable  Stable  Slightly more  2.1  Limited A i r p o r t Commission  Sl i g h t l y more s l i g h t l y less  S l i g h t l y more s l i g h t l y less  S l i g h t l y more s l i g h t l y less  More  2.2  Extensive Ai r p o r t Commission  A l o t more  Less  More  S l i g h t l y more S l i g h t l y less  Airport Revolving Fund  Stable  Less  Stable less  More  Cost Recovery Plan  Stable  Less  Less  More  Option  Criteria  Balance between need f o r a national a i r p o r t system and increased commercial viability  Changes i n Organization 1.1  1.2  Changes i n P o l i c y 3.1  3.2  56  Option 1.1  Incentive manage efficiently Stableless  8.  6.  5.  9.  Amount of input to p r i o r i t y planning possessed by l o c a l managers  Amount of political .influence on a i r p o r t management  Amount of control CATA possesses over airlines  Ease of implementation and p o l i t i c a l feasibi1 i t y , general cost  Stable  Stable  Stable  easy,  inexpensive inexpensive  1.2  Stable  Stable  Stable  Stable  easy,  2.1  S l i g h t l y more s l i g h t l y less  Slightly more  Stable  More stable  hard, expensive  2.2  More  S l i g h t l y more  S l i g h t l y more s l i g h t l y less  S l i g h t l y more s l i g h t l y less  hard, most expensive  3.1  Stable  Stable  Stable less  Stable less  easy, l e a s t expensive  3.2  Stable  Stable  Stable less  Less  easy, l e a s t inexpensive  i n d i c e s , but t h i s i s made d i f f i c u l t because of the v a r i a t i o n in indices due to the possible unintended consequences.  This may be interpreted as a  form of r i s k associated with the p a r t i c u l a r option. I t has been stated previously that i t i s not the i n t e n t of the study to choose an optimal s o l u t i o n , mainly because an optimal s o l u t i o n i n the pareto sense i s d i f f i c u l t to r e a l i z e .  What the analysis has sought i s a  b e t t e r s o l u t i o n that what a t present e x i s t s i n the way of a i r p o r t management.  Although the f i n a l decision must be l e f t to decision-makers  at  high l e v e l s w i t h i n the c i v i l s e r v i c e , the a n a l y s i s has indicated that the proposal to convert the a i r p o r t s l i s t e d in E x h i b i t 2 to independent a i r port a u t h o r i t i e s i s one of the b e t t e r solutions to the problems posed in t h i s study.  C e r t a i n l y i t i s a major and expensive r e o r g a n i z a t i o n , but  i t s a d a p t a b i l i t y to the c r i t e r i a i s very good.  The amount of a u t h o r i t y  at the l o c a l l e v e l i s raised with an accompanying reduction in the degree of power held by C.A.T.A.  The a i r p o r t environment i s deemed to be more  responsive to the needs of users, and the l o c a l administration i s provided with a b e t t e r incentive to e f f e c t i v e l y run t h e i r a i r p o r t .  The proposal  s t i l l contains c e r t a i n grey areas of uncertainty with respect to the amount of p o l i t i c a l influence and C.A.T.A.'s control over the a i r l i n e s , but the other proposals contain a roughly equivalent amount of uncertainty with respect to other c r i t e r i a . Considering t h i s recommendation, i t becomes worthwhile to examine the management system f o r a i r p o r t s i n the United States, which operates on a p r i n c i p l e s i m i l a r to the one espoused above.  An in-depth look a t the  United States concept of an a u t h o r i t y , t h e i r e x i s t i n g l e g i s l a t i o n , and a comparison of the performance of the two systems provides an i n s i g h t  into the usefulness..of the recommendation to consider f i v e Canadian a i r ports for conversion to a u t h o r i t i e s .  I t may be t h a t , given the nature  of our unique country, the performance of our system under the a u t h o r i t y concept w i l l not improve as expected, but t h i s cannot be assumed without the necessary i t e r a t i o n of such a comparison.  Chapter Five THE UNITED STATES AIRPORT SYSTEM INTRODUCTION In the United S t a t e s , a i r p o r t s are one of the most important and widely used public f a c i l i t i e s . in the U.S.  As of January 1, 1971, there were ,13,380 a i r p o r t s  Of those a i r p o r t s open to the public and owned by the p u b l i c ,  there are roughly 2700 a i r p o r t s which have a t l e a s t one paved and l i g h t e d runway.  The 2700 a i r p o r t s which are p u b l i c l y owned include the majority of  t h e . n a t i o n ' s busiest a i r p o r t s . Public a i r p o r t s are t y p i c a l l y owned by c i t i e s or m u n i c i p a l i t i e s as i n 14 dependent a u t h o r i t i e s . ports.  The focus of t h i s section pertains to these a i r -  The premise that c i t i e s should r e t a i n control and operation of t h e i r  a i r p o r t f a c i l i t i e s i s conditional upon t h e i r operation by a private management team which has f u l l control over operations, a l l expenditures, the budgeting process, h i r i n g of personnel, and operates f r e e from any p o l i t i c a l domination.  This type of management team operates the a u t h o r i t y i n the  public i n t e r e s t , which, i n t u r n , d i r e c t l y shapes the nature of a i r p o r t management.  I t i s the American philosophy that public i n t e r e s t groups  p a r t i c i p a t e in the areas of an a i r p o r t ' s operations that d i r e c t l y impact upon them.  This has the consequences of ensuring that public access to  information and input to any p r o j e c t , or p o l i c y d e c i s i o n s , be a v a i l a b l e to a l l interested p a r t i e s , and creates a system of checks and balances which supposedly ensures a  f a i r e r treatment of a l l concerned and l i m i t s  the power of any one group to dominate any d e c i s i o n .  The concept of the  public i n t e r e s t also influences the c r i t e r i a f o r the evaluation of  projects at the a i r p o r t .  For example, the American emphasis i s on standards  of performance and safety w h i l e , in other c o u n t r i e s , p u b l i c i n t e r e s t may d i c t a t e an emphasis upon the achievement of a s o c i a l optimum.  Public i n -  t e r e s t has also imposed the r u l e of thumb of encouraging competition amongst a i r p o r t s , which gives each management team kn incentive to be as e f f i c i e n t i  and e f f e c t i v e as possible. In a d d i t i o n to f u l f i l l i n g the p u b l i c i n t e r e s t , there are c e r t a i n other advantages to vesting the a u t h o r i t y of a i r p o r t management i n an independent commission.  The idea of independence a t t r a c t s top-notch i n d i v i d u a l s to  manage the f a c i l i t i e s .  Various l o c a l groups may be represented on the com-  mission, c o n t i n u i t y of p o l i c y i s ensured, and an e f f e c t i v e communications system, f l e x i b l e to the surrounding business environment r e s u l t s . The extent to which a i r p o r t a u t h o r i t i e s e x i s t i a c r o s s the United States i s very broad, and while exact numbers are not known, t h e i r existence i s generally only of i n t e r e s t to the l a r g e s t a i r p o r t s , c l a s s i f i e d as a i r carrier airports. ports.  There are four categorizations of publicly-owned a i r -  They are:  1.  A i r Carrier Airports  2.  Commuter Service A i r p o r t s  3.  Reliever A i r p o r t s  4.  General A v i a t i o n A i r p o r t s .  There are two a i r c a r r i e r a i r p o r t s served by over 15,000 d a i l y f l i g h t s . These a i r p o r t s are served by c e r t i f i e d c a r r i e r s and, i n 1977, approximately 232 m i l l i o n passengers were c a r r i e d by the major a i r l i n e s which serve about 620 a i r p o r t s .  These a i r p o r t s are sub-categorized i n t o " l a r g e hubs"  (more than 2.2 m i l l i o n enplaned passengers), "medium hubs" (.5 m i l l i o n 2.2 m i l l i o n enplaned), and "small hubs" (.1 m i l l i o n - .5 m i l l i o n enplaned).  Commuter a i r l i n e s are a i r t a x i operators of small a i r c r a f t which operate more than f i v e round t r i p s per week.  A commuter service a i r p o r t i s r e g u l a r l y  served by a commuter a i r l i n e enplaning more than 2,500 passengers per year. With the near disappearance of passenger r a i l s e r v i c e to small communities, the commuter a i r l i n e as a common c a r r i e r i s more important.  I t i s quite com-  mon f o r the CAB to grant c e r t i f i e d c a r r i e r s permission to suspend s e r v i c e , conditional upon a commuter a i r l i n e providing s u b s t i t u t e service f o r the departing c e r t i f i c a t e d a i r c a r r i e r . A r e l i e v e r a i r p o r t i s a metropolitan area general a v i a t i o n a i r p o r t which serves:ito reduce a i r c a r r i e r congestion by d i v e r t i n g general a v i a t i n a c t i v i t y from major a i r c a r r i e r a i r p o r t s .  Before a r e l i e v e r i s i n -  cluded i n a metropolitan system p l a n , consideration i s f i r s t given to the development of short runways f o r the exclusive use of small a i r c r a f t at the major a i r p o r t .  Some 16 m i l l i o n passengers t r a v e l l e d on i n t r a s t a t e  and commuter a i r l i n e s which serve approximately 781 a i r p o r t s . The general a v i a t i o n a i r p o r t system includes those a i r p o r t s not c l a s s i f i e d under a i r c a r r i e r , commuter service or r e l i e v e r a i r p o r t s .  In  1977 an estimated 200 m i l l i o n passengers used t h i s form of a v i a t i o n .  Be-  fore the e x i s t i n g l e g i s l a t i o n f o r a i r p o r t s i s reviewed, i t i s useful f o r a b e t t e r understanding of the a i r p o r t system to examine the h i s t o r y of federal a i d and l e g i s l a t i o n f o r a i r p o r t s from the beginning of t h i s century. HISTORY OF FEDERAL AID FOR AIRPORTS IN THE UNITED STATES (1911-1969) Federal a i d f o r airports.ihas been i n existence i n various forms since 1911, but i t was not u n t i l a f t e r World War II  that a progam s i m i l a r in  slope to the current A i r p o r t Development Aid Program (ADAP) came i n t o being.  A l i s t i n g of Federal assistance l e g i s l a t i o n p r i o r to World War  includes:  II  1911 - The Post O f f i c e Department has an appropriation approved f o r a i r p o r t development. 1933 - The C i v i l Works Administration provided $15,000,000. 1934 - The C i v i l Works Administration provided $934,000. 1935 - The depression-born Works Program Administration (WPA) provided $324,000,000 in Federal funds to match $111,000,000 l o c a l funding. I t also provided $29,000,000 i n Federal loans f o r a i r p o r t purposes. I t i s i n t e r e s t i n g to note that the A i r Commerce Act of 1926--the f i r s t major l e g i s l a t i o n passed with the s p e c i f i c i n t e n t of f o s t e r i n g and encouraging a v i a t i o n — s p e c i f i c a l l y prohibited Federal a i d f o r a i r p o r t s under the Act.  In 1938, the C i v i l Aeronautics Act included a i r p o r t s along with other  navigational aids as e l i g i b l e t e c h n i c a l improvements but prohibited a c q u i s i t i o n of any ap'rport by purchase or condemnation.  However, the Act•authdrized  a study to determine i f the Federal Government should p a r t i c i p a t e i n the c o n s t r u c t i o n , improvement, development, operation, or maintenance of a national system of a i r p o r t s .  The study r e s u l t s were presented to Congress  in 1939, with recommendations that an adequate system of a i r p o r t s be r e cognized as a matter of national concern and a proper object of Federal expenditure. During World War I I ,  the exigencies of national defense spurred de-  velopment i n a v i a t i o n and construction of many a i r p o r t s .  In 1940, $40  m i l l i o n was appropriated to c o n s t r u c t , improve and r e p a i r up to 250 public a i r p o r t s a f t e r determination was made that they were e s s e n t i a l f o r national defense.  This was the f i r s t appropriation by Congress d i r e c t l y to a  federal c i v i l a v i a t i o n agency s p e c i f i c a l l y f o r a i r p o r t s .  The program was  c a l l e d the Development of Landing Areas f o r National Defense Program (DLAND) and eventually resulted i n appropriations of $383,031,875 f o r 535 a i r p o r t s .  In 1944, an a d d i t i o n a l $9,513,995 was spent under a s i m i l a r  program, the Development of C i v i l Landing Areas Program (DCLA) f o r 29 airports. In 1945, l e g i s l a t i o n was introduced f o r Federal a i d f o r a i r p o r t s , but no action was taken during the Congressional  Session.  Similar l e g i s l a -  t i o n was;introduced by the f o l l o w i n g Congress and on May 13, 1946 the Federal A i r p o r t s Act was signed.  This Act was extended or amended at  various times and i t remained i n e f f e c t to provide federal a i d f o r a i r ports through 1969.  The record of accomplishment under the Federal A i d  f o r A i r p o r t s Program (FAAP) between 1946 and 1969, shows there were 1.2 b i l l i o n federal d o l l a r s matching 1.3 b i l l i o n l o c a l funds, f o r a t o t a l investment of 2.5 b i l l i o n . 2,316 a i r p o r t s .  This money was used f o r 7,964 projects at  There were $377,000,000 f o r land purchases; f o r a i r p o r t  purposes, i n c l u d i n g land f o r approach l i g h t systems—$269,000,000 f o r b u i l d i n g s ; 1.8 b i l l i o n f o r construction of a i r c r a f t operating areas.and o n - a i r p o r t roadways; $35,000,000 f o r runway, taxi-way and apron l i g h t i n g . By the l a t e 1960's, the Federal Aid to A i r p o r t s Program, which appropriated money from the General Treasury Fund, was seen to be inadequate as the demand f o r a i r p o r t development a i d was in excess of a v a i l a b i l i t y of funding.  T h i s , plus the rapid growth in a i r t r a f f i c leading  to excessive delays at major a i r p o r t s by 1968, l e d to concerted e f f o r t s by the Federal Government and Industry that resulted in the enactment of a t w o - t i t l e d piece of l e g i s l a t i o n which has guided the development and financing of the a i r p o r t system through the 1940's.  The A c t , Public Law  91-258, runs from 1940-1980, at which time new l e g i s l a t i o n w i l l be i n t r o duced.  The possible d i r e c t i o n of the new l e g i s l a t i o n i s discussed at  the end of the f o l l o w i n g s e c t i o n .  A REVIEW OF THE EXISTING AIRPORTS ACT T i t l e One of the Act i s the A i r p o r t arid Airway Development A c t , and T i t l e Two i s the A i r p o r t and Airway Revenue Act.  Under t i t l e two, user  charges on passenger f a r e s , f u e l , a i r c r a f t and passengers are l e v i e d to be used to defray costs incurred under t i t l e one, the A i r p o r t and Airway Development law. with T i t l e II, T i t l e II  The major features of t h i s Act are discussed below,  the A i r p o r t and Airway Revenue A c t , being examined f i r s t .  The A i r p o r t and Airway Revenue Act  This Act comprises l e g i s l a t i o n covering the source of f i n a n c i n g and management.df the A i r p o r t and Airway Trust Fund.  Under i t s auspices,  the Secretaryoof the Treasury assumes control of the Trust Fund and i s charged w i t h : 1.  Determination of the amounts to be appropriated from the General Treasury to the Trust Fund.  2.  Holding the Trust Fund, and upon consultation with the Secretary of Transportation, reporting to Congress each year on the f i n a n c i a l condition and the r e s u l t of the Trust Fund during the preceding f i s c a l year and/or i t s expected c o n d i t i o n during the next f i v e f i s c a l years.  3.  Investing such portions of the Trust Fund as are not required to meet current withdrawals.  The sources of the funds to be held in t r u s t accrue from taxes pn: (i) (ii) (iii) (iv) (v) (vi)  gasoline other l i q u i d f u e l s a i r c r a f t t i r e s and tubes passenger t i c k e t tax - domestic and i n t e r n a t i o n a l a i r f r e i g h t tax c i v i l a i r c r a f t tax  D e t a i l s on these taxes may be found i n E x h i b i t 6 in the appendix.  The  contents of the Trust Fund are a v a i l a b l e f o r making expenditures to meet the o b l i g a t i o n s incurred under t i t l e one of the A c t — t h e A i r p o r t and Airway Development Act.  These f a l l under the major headings of:  65(1) (2) (3)  operations grants-in-aid for airports f a c i l i t i e s and equipment  (4)  research and development  As part of h i s duty to control the Fund, the Secretary.of the Treasury must remit c e r t a i n amounts from the Trust Fund to the General Treasury Fund in the case of c e r t a i n usages of fuel which are tax-exempt.  It  is  also his duty to invest those portions of the Trust Fund which are not required to meet current withdrawals in i n t e r e s t - b e a r i n g o b l i g a t i o n s guaranteed by the United States.  These r e s p o n s i b i l i t i e s are d e t a i l e d i n  E x h i b i t s 7 and 8. Table 9 below o u t l i n e s the status of the Trust Fund as of September 30, 1976, at which time a surplus of $2.7 b i l l i o n e x i s t e d .  C l e a r l y , the  excess of r e c e i p t s over expenditures i s f a r greater than o r i g i n a l l y a n t i c i p a t e d , and t h i s surplus i s expected to grow u n t i l the present l e g i s l a t i o n i s changed. Title I  The A i r p o r t and Airway Development Act of 1970  There are three separate components to the Act: 1.  National A i r p o r t s System Plan (N.A.S.P.)  2.  Planning .Grant Program^ P. G. P.)  3.  A i r p o r t s and Airway Development Program (A.A.D.P.)  1.  The National A i r p o r t System Plan i s a continuous planning process,  r e f l e c t i n g changes in trends and technology through an i t e r a t i v e process i n which current a c t i v i t y and current forecasts are used to determine physical development at a i r p o r t s .  The object of the federal involvement  i s to provide reasonable access to a safe and adequate a i r transportation system.  The coordination of the N.A.S.P. i s conducted through eleven r e -  gional o f f i c e s .  In t o t a l , about t h i r t y F.A.A. o f f i c e s contribute to i t s  TABLE 9  Status of A i r p o r t and Airway Trust Fund, United States September 3G, 1976 FISCAL YEAR TO DATE  I.  BALANCE-BEGINNING OF PERIOD  II.  $ 2,550,201,746.83  RECEIPTS: A  Excise Taxes (Transferred frcm General Fund).... 1. 2. 3. 4.  Any l i q u i d fuel other than gasoline Tires used on aircraft Tubes used on aircraft Gasoline: a. Commercial 4 cents tax b. Nan-ccrrmercial 4 cents tax c. Ncjn-ccmrnercial 3 cents tax  5. 6. 7. 8.  Transportation by Air, seats, berths, etc Use of international travel f a c i l i t i e s Transportation of property, cargo Use of c i v i l aircraft Total Tax Receipts  6,915,915.00 210,000.00 20,000.00  '  300,000.00 4,054,712.00 3,043,534.00 225,131,258.67 15,695,366.00 14,373,615.00 7,735,142.38 277,479,543.05  B. Less reimbursement to General Fund-Refund of Taxes and Estimated Tax Credits: 1. 2. 3. 4.  Ccmmercial Aviation Gasoline Non-Conmercial Gasoline C i v i l Aircraft Any Liquid Fuel other than Gasoline Total Reimbursement for Tax Refunds Net Tax Receipt  300,000.00 4,874.74 204,849.25 69,308.14 579,032.13 276,900,510.92  C. Federal Payments  -0-  D. Transfers from the General Fund  -O-  E. Interest on Investrnent  936,863.39 277,837,374.31  III.  EXPENDITURES: A. Federal Aviation Adriinistration 2. Grants-in-aid for airports 3. F a c i l i t i e s and Equipment 4. Research and Development B. Aviation Advisory Ccnrnission - Salaries and Expenses C. Interest on Refund and Taxes Total Expenditures  IV.  BALANCE END OF PERIOD  15,664.10 25,503,476.97 48,363,867.77 18,092,209.32 -025,922.66 92,001,140.82  2,736,037,980.32  formulation.  The preparation i s coordinated w i t h :  (1) (2) (3) (4) (5)  air carriers a i r p o r t management other modes of transport federal departments (communications, defence) C i v i l Aeronautics Board  (6)  Public pressure groups.  An a v i a t i o n advisory commission has been established to i d e n t i f y long range needs of a v i a t i o n i n c l u d i n g N.A.S.P.  Appropriations not exceeding $2 m i l -  l i o n are a v a i l a b l e from the Trust Fund f o r i t s use.  The national consis-  tency of the N.A.S.P. i s assured through guidelines prepared by the coordinated e f f o r t s of F.A.A. headquarters and regions and the use of common entry c r i t e r i a .  The basic c r i t e r i o n f o r entry i n t o the N.A.S.P. i s that an  a i r c a r r i e r a i r p o r t must be served by a n ' a i r l i n e holding a C e r t i f i c a t e of P u b l i c Convenience and Necessity from the C.A.B. the d i f f e r e n t c l a s s i f i c a t i o n s of a i r p o r t s .  Other c r i t e r i a e x i s t f o r  A f t e r entry i n t o the N.A.S.P.  i s determined, development projects are funded under the f o l l o w i n g system of p r i o r i t i e s (on a descending s c a l e ) : (1)  Items needed f o r instrument f l i g h t c a p a b i l i t y at busy airports.  (2)  Items needed f o r fundamental a i r p o r t c o n f i g u r a t i o n .  (3)  A i r p o r t capacity items to reduce delays and r e l i e v e ground congestion.  (4)  Support items such as service roads, taxiways to hangars, a d d i t i o n a l entrance roads, boundary and perimeter fencing.  At present there are 3,137 a i r p o r t s which c u r r e n t l y meet the N.A.S.P. entry c r i t e r i a , two-thirds of which are general a v i a t i o n a i r p o r t s .  In  the revised N.A.S.P. f o r 1978-84, development costs are $10.6 b i l l i o n .  New  a i r p o r t costs are only $1.5 b i l l i o n .  The revised plan attempts to  maximize the use made of e x i s t i n g a i r p o r t s with a l e s s e r emphasis on the construction of major new a i r p o r t s .  High c a p i t a l costs and l o c a l  resist-  ance to large scale a i r p o r t construction mandate that a c r i t i c a l need f o r a d d i t i o n a l capacity be evident before major new a i r p o r t development i s undertaken. 2.  The Planning Grant Program  provides grants to be used i n various  types of a i r p o r t plans so as to promote an e f f e c t i v e l o c a t i o n and development of i n d i v i d u a l a i r p o r t s and the development of  an adequate N.A.S.P.  There i s an authorized P.G.P. funding l e v e l of $15 m i l l i o n per year.  The  amount of funds a v a i l a b l e to sponsors i n any one s t a t e i s l i m i t e d t o ,1:0 percent of the $15 m i l l i o n .  Since 1970, there have been 1,400  f o r a i r p o r t master plans and 150 f o r system.plans;„  System,plans  grants—1,250 identify  a v i a t i o n f a c i l i t i e s required to meet immediate and future a i r transportation needs and the goals of the s t a t e .  Master plans i d e n t i f y the development  at i n d i v i d u a l a i r p o r t s based on f i v e , t e n , and 20-year forecasts of a v i a t i o n activity.  (Note that the NASP i s more than a summation of f i f t y S.A.S.P.'s  because while the l a t t e r are consulted, some of them may not be included due to d i f f e r e n t entry c r i t e r i a . ) (1) (2) (3)  3.  The federal share of P.G.P. grants  is:  75% f o r system plans 75% f o r most master plans up to 93% f o r master plans f o r small a i r p o r t s on public land s i t e s . A i r p o r t Development and Aid Program.  This program was set up to  provide f o r the a l l o c a t i o n of funds according to the proposed physical development of a i r p o r t s in the N.A.S.P.  The funding l e v e l s from 1976-80 f o r  a i r c a r r i e r and general a v i a t i o n a i r p o r t s are o u t l i n e d i n Table 10. the same program, grants are a v a i l a b l e f o r airway navigational  Under  facilities,  69  TABLE 10 The United States A i r p o r t Development and Aid Program Funding Levels f o r A i r p o r t s 1976-1980 ( M i l l i o n s of D o l l a r s ) Year  Air Carrier Airport (Mil.)  General A v i a t i o n Airports (Mil.)  Total  1976  $ 435  $ 65  $ 500  1977  440  70  510  1978  465  75  540  1979  495  80  575  1980  525  85  610  $2.36 b i l l i o n Source:  $2.73  $375 m i l l i o n  B. Baldwin and R.L. Munroe, "The U.S. A i r p o r t System." Federal Task Force on A i r p o r t Management, 1978)  (Ottawa:  TABLE 11 The United States A i r p o r t Development and Aid Program Grant Levels f o r 1970-1980 Purpose of Grant  Amount  A c q u i s i t i o n of A i r Navigational Facilities  1971-75 > $250m. per year 1976  > $312.5m. per year  1977-80 > $250m. per year Research and Development  Services provided under i n t e r n a t i o n a l agreements and maintenance of a i r navigational f a c i l i t i e s  1976  =  $109.35m. per year  1977  =  $85.4m. per year  1978-80  =  $50.0m. per year  1977  < $250m. per year  1978  $275m. per year  1979  < $300m. per year < $325m. per year  1980  Source:  B. Baldwin and R. L. Munroe, "The U.S. A i r p o r t System." (Ottawa: Federal Task Force on A i r p o r t Management, 1978)  70  research and development, and f a c i l i t y maintenance. in Table 11.  These are d e t a i l e d  A l l funding f o r r e l i e v e r a i r p o r t s i s included with general  aviation airports.  The establishment of a commuter service a i r p o r t system  comprising 130 a i r p o r t s i s e l i g i b l e f o r grants from a $15 m i l l i o n annual fund set aside o f f the top of the A.D.A.P. The.federal share of AVD.A.P. grants i s given below in Table 12. •,.  TABLE 12 The United States Federal Government Share of A.D.A.P. Grants f o r American A i r p o r t s 1976-1980 Year  Large and Medium A i r p o r t s  Small A i r p o r t s , General A v i a t i o n , R e l i e v e r , Commuter  1976  75%  90%  1977  75%  90%  1978  75%  90%  1979  75%  80%  1980  75%  80%  Source:  B. Baldwin and R. L. Munroe. "The U.S. A i r p o r t System." (Ottawa: -Federal Task Force on A i r p o r t Management, 1978).  The funds accorded to each type of a i r p o r t development a c t i v i t y are done so through a very complex apportionment system using passenger enplanement formulae, and area/population r a t i o s .  In 1976, amendments a t -  tempted to s i m p l i f y the system by a l l o t i n g two-thirds of a i r c a r r i e r a i r p o r t A.D.A.P. funds as a separate apportionment fund, and then leaving the r e maining one-third as a d i s c r e t i o n a r y fund.  The d e t a i l s of the complex sys-  tem are provided in the appendix in E x h i b i t 9. The r e l a t i o n s h i p between the Trust Fund, N.A.S.P., P.G.P., and A.D.A.P. i s summarized in Diagram #2 below.  The Links Between the Programs Comprisi ng The F i n a n c i a l ; A i ' r Administration of American A i r p o r t s  I  % NASP  Use of -common entry criteria ---  Serves as a guide f o r federal investment Congress  "Airport Master Plans State A i r p o r t System .Plans  A i r p o r t must be i n NASP to be e l i g i b l e f o r ADAP funding  Flow  ADAP  P.G.P.  Projects f o r A i r p o r t Development Flow  Trust Fund  Land  4/ ' Fire/Rescue  'Passenger Terminal  'Equip.  I  Airport ' Access  Lighting Runways ' Taxiways  72 The present l e g i s l a t i o n w i l l terminate i n 1980.  At present, the F.A.A.  i s busy working on new l e g i s l a t i o n which w i l l examine issues surrounding the A i r p o r t and Airway Trust Fund and Cost A l l o c a t i o n s ; Intergovernmental  Respon-  s i b i l i t i e s f o r a i r p o r t planning; a i r p o r t financing and l e g i s l a t i o n d r a f t i n g . The s p e c i f i c questions and i n i t i a l recommendations that have emerged are r e viewed in the f o l l o w i n g pages, and have been taken d i r e c t l y from the F.A.A. Task Force's i n i t i a l Question 1:  report.  Should there be a post-1980 Federal Aid Program f o r a i r p o r t s ?  Recommendation There should continue to be a Federal Aid Program f o r a i r p o r t development. I t best meets the national and broader public needs f o r those a i r p o r t s determined to be part of the "national system." Further, state and l o c a l governments and a i r p o r t sponsors cannot, in many instances, develop the necessary l e v e l of f i n a n c i n g , and some states have no mechanism f o r e f f e c t i v e l y providing needed development and improvement funds to t h e i r a i r p o r t s . Question 2:  Should the A i r p o r t and Airway Trust Fund be retained?  Recommendation Retain the Trust Fund. I t has wide support and has been e f f e c t i v e in providing f i n a n c i a l resources to carry out the national a i r p o r t and airway development program. Question 3 - has three sub-issues which are: A.  What FAA costs are of s u f f i c i e n t national i n t e r e s t and general public b e n e f i t to warrant t h e i r exclusion from the costs a t t r i b u t e d to users of the a i r p o r t and airway system?  B.  What types and l e v e l s of a t t r i b u t a b l e costs chould be recovered from system users?  C.  What means should be used to recover costs?  The respective recommendations to each sub-issue are: Recommendation - Sub-Issue A Exclude a l l costs l i s t e d in Table 13 i n c l u d i n g costs associated with the provision of subsidized a i r transportation service to small communities and the added costs of.imaintaining maximum safety c h a r a c t e r i s t i c s in a j o i n t use system.  TABLE 13 Post-1980 U.S. A i r p o r t L e g i s l a t i o n A c t i v i t i e s to be Considered f o r Exclusion From the General System User Cost Recovery Base  1977 Cost (Millions) Costs of Support, T r a i n i n g , and Research f o r Safety, A v i a t i o n Medicine, and Environment  $  Regulatory Costs  90 153  Costs of Providing Weather Data to NOAA  26  Costs of M i l i t a r y Features of A i r p o r t and Airway System Design--UHF Communications and TACAN '  84  Subtotal-  353  "  Costs Incurred i n the Provision of Subsidized A i r Transportation Service to Small Communities Subtotal,; _ Added Costs of Serving General A v i a t i o n in a J o i n t Use System While Maintaining Maximum Safety Standards Total  1.  \  42 395 275 $ 670  Does not include reimbursed cost items or costs of serving m i l i t a r y a i r c r a f t using j o i n t use features.  Source:  U.S. Dept. of Transportation. "Task Force on Post-1980 A i r port and Airway Development L e g i s l a t i o n - I n i t i a l Options Paper." Spring, 1979.  Recommendation- Sub-Issue B While immediate f u l l cost recovery i s d e s i r a b l e i t probably i s not a t t a i n a b l e in one overt a c t i o n . P o l i c y i n i t i a t i v e s should concent r a t e on f e a s i b l e options which gradually increase the degree of user f i n a n c i n g of a i r p o r t and airway costs. Recommendation - Sub-Issue C Introduce .new i n d i r e c t user taxes on general a v i a t i o n ( c o n s i s t i n g of an ad valorem fuel tax and ad valorem taxes on new a i r c r a f t and avionics equipment s a l e s ) ; r e t a i n other types of i n d i r e c t taxes with p o t e n t i a l rate adjustments as required to achieve equity among the users. This recovery option provides a way of gradually increasing tax recovery through the ad valorem mechanism, and the tax on new purchases, without a need f o r continual i n t e r a c t i o n with Congress. D i r e c t charges would be strongly opposed by the users, p a r t i c u l a r l y general a v i a t i o n . Question 4.  What d i s p o s i t i o n should be made of the A i r p o r t and Airway Trust Fund Surplus?  Recommendation Linking depletionoof the surplus to recovery of an increased portion of FAA O&M costs. Concurrently, taxes w i l l be modified as a p p r o p r i ate to accomplish cost a l l o c a t i o n and cost recovery o b j e c t i v e s . The one-time expenditures should include (a) "extraordinary" projects (see Issue #9), (b) h i g h . p r i o r i t y safety projects (separate paper i s being prepared on t h i s s u b j e c t ) , and (c) the improvement or purchase of r e l i e v e r a i r p o r t s . Question 5.  What should be the s t a t e ' s r o l e i n the administration of Federal a i r p o r t g r a n t - i n - a i d programs?  No recommendations have been made regarding the s t a t e ' s r o l e in the administration of the Federal g r a n t - i n - a i d program. Question 6.  Should provision be made to r e l a t e i n d i v i d u a l a i r p o r t c a p i t a l improvement grants to metropolitan a i r p o r t system planning and coordination?  Recommendation Provide incentives within.ithe grant program designed .to . . f o s t e r enhanced voluntary regional approaches to a i r p o r t system development in major metropolitan areas. A combination of s t a t u tory and a d m i n i s t r a t i v e incentives may be employed. In the bel i e f that improved areawide planning to meet a i r p o r t capacity needs in major metropolitan areas w i l l be i n the i n t e r e s t of the national a i r transportation system, the Task Force f e l t that t h i s option can produce meaningful r e s u l t s while avoiding d i s r u p t i v e and serious controversy. I t also may be a reasonable i n i t i a l step toward an approach which, i f successful , can undergo f u r t h e r evolution as  needed. (If t h i s general approach seems acceptable, f u r t h e r analysis—aTreadyuuriderway—wil 1 be needed to develop proper incentives that w i l l be e f f e c t i v e in encouraging workable v voluntary regional approaches.) Question 7.  Should i n d i v i d u a l a i r p o r t s be allowed to "opt out" of the Federal a i r p o r t development program and—having doner.so—be permitted to levy passenger enplanement charges?  Recommendation Retain the status quo. While there i s i n t e r e s t on the part of some a i r p o r t operators i n having the option of levying head taxes r e s t o r e d , such i n t e r e s t cannot be characterized as "strong" or persuasive in support of change. The l i k e l y negative e f f e c t s on the overa l l e q u i l i b r i u m of the Federal a i r p o r t development program, adminis t r a t i v e complexities associated with the levying and c o l l e c t i n g of taxes, and the weakness of the c o u n t e r v a i l i n g b e n e f i t s would appear to make other a l t e r n a t i v e s u n a t t r a c t i v e . Question 8.  Should a multi-purpose (vs. project s p e c i f i c ) grant approach be incorporated in any future a i r p o r t grant program?  Recommendation Use the multi-purpose grant approach f o r entitlement grants only. Given the e x i s t i n g entitlement basis f o r granting more than half of ADAP funds and the i n i t i a t i v e which t h i s affords r e c i p i e n t s i n s e l e c t i n g p r o j e c t s , t h i s would appear to represent simply a next step in the b e n e f i c i a l streamlining of the present program. The f a c t that user taxes support ADAP in f u l l argues in favor of returning some of the funds to the points where they are generated with a minimum number of " s t r i n g s " attached. Question 9.  How should "extraordinary" a i r p o r t development needs be funded?  Recommendation Creation of a special d i s c r e t i o n a r y account f o r " e x t r a o r d i n a r y " development. To overcome the p o t e n t i a l disadvantages c i t e d above, a s u i t a b l y r e s t r i c t i v e d e f i n i t i o n or c r i t e r i a f o r funding would have to be developed. Each q u a l i f y i n g project would require spec i f i c approval by the Secretary (or possibly the Administrator) before i t could be funded. An i n i t i a l appropriation of about $300 m i l l i o n should be adequate f o r at l e a s t f i v e years; i f not, consideration could be given to supplementing the account with a d d i t i o n a l funds from the Trust Fund whenever the balance drops below some s p e c i f i e d l e v e l . Question 10.  What a v i a t i o n program l e v e l s should be authorized f o r the post-1980 years?  Recommendations - on f o l l o w i n g page.  76  RECOMMENDATIONS SUMMARY OF PROGRAM LEVEL OPTIONS Program Category  Fundi ng Levels  Airports Program  LEVEL I  Facilities & Equipment  10-Year Total (1981-1990) ( M i l l i o n s of Constant 1978 Dollars) $ 6,250  Accomplishment at Funding Level Adequate to meet/ high p r i o r i t y needs. Major hub a i r p o r t s expected to experience a high level of congestion.  LEVEL  II  7,380  Provide higher l e v e l of p r i o r i t y to increasing system capacity at congested hubs and higher level of p r i o r i t y to upgrading a i r p o r t s to FAA standards.  LEVEL  III  8,870  F u l l y fund current NASP needs and f u l l y fund new environment i n centives.  $ 3,050  Stretch out of major r e t r o f i t programs creating r i s k of system d e t e r i o r a t i o n . Establishment of f a c i l i t i e s and services at less than optimum r a t e .  LEVEL I  LEVEL  II  3,592  Rate of implementation of major r e t r o f i t programs to assure nond e t e r i o r a t i o n of s e r v i c e . Establishment of new f a c i l i t i e s and services at l e s s than optimum r a t e .  LEVEL  III  4,136  Major r e t r o f i t programs accomplished i n an optimum or in most cost b e n e f i c i a l manner. F a c i l i t i e s and services meeting c r i t e r i a i n s t a l l e d in a timely fashion.  986  Stretch out most current major system programs but allow complet i o n of programs well under way ( e . g . , TIPS, E-TABS, FSS Automat i o n , e t c . ) . Limited amount of new major systems development i n i t i a t e d . Engineering development necessary f o r systems already i n place accomplished to insure continuing i n t e g r i t y of national a v i a t i o n systems.  Research, LEVEL I Engineering, & Development  $  LEVEL  II  1,165  Carry current major system developments to completion. Allows introduction of development programs to meet enhancement needs of 1980's such as computer replacement.  LEVEL  III  1,416  Provides major a c c e l e r a t i o n of enhancement developments. Rapid t r a n s i t i o n to advanced generation enroute and terminal automation would be supported.  7?  Chapter Six THE CONCEPT OF THE AUTHORITY In the United States there are both combined s e a p o r t - a i r p o r t a u t h o r i t i e s , such as the.New York Port A u t h o r i t y , or the Sea-Tac Port A u t h o r i t y , and i n dividual a i r p o r t a u t h o r i t i e s such as the Metropolitan N a s h v i l l e A i r p o r t Authority.  The majority of the a u t h o r i t i e s are owned and operated as muni-  c i p a l corporations ( f o r example, Los Angeles, and New York), while some states such as Maryland and Alaska run t h e i r own a u t h o r i t i e s . Dulles International i n Washington, D . C ,  One a i r p o r t ,  i s run by the federal government.  The existence of combined port a u t h o r i t i e s and s i n g l e a i r p o r t a u t h o r i t i e s does not complicate the intended presentation of the management structure of an a u t h o r i t y .  The combined port a u t h o r i t y possesses a number of manage-  ment l e v e l s in excess of those f o r a s i n g l e a u t h o r i t y because of the need to administer two functions instead of one.  However, the management s t r u c -  ture f o r the a i r p o r t i n the l a r g e r a u t h o r i t y i s e s s e n t i a l l y no d i f f e r e n t from that of the s i n g l e one. The information f o r the f o l l o w i n g sketch i s drawn from a c o l l e c t i o n of the management charters of the Metropolitan N a s h v i l l e A i r p o r t A u t h o r i t y , the Baltimore/Washington International A i r p o r t , the New York Port A u t h o r i t y , and the Seattle-Tacoma Port A u t h o r i t y . To s t a r t , a general statement on the a i r p o r t authority lends i t s e l f as a good basis f o r d e l i n e a t i n g management roles in more d e t a i l .  The  Authority represents a management s e r v i c e , and does not operate with the goal i n mind of maximizing i t s return on investments through p r o f i t s .  On  the other hand, as the a u t h o r i t y i s generally operated without the benefits of l o c a l tax d o l l a r s , prudent business management p o l i c i e s are required to ensure that a l l d i r e c t and i n d i r e c t expenses are covered by operating r e venues, save the expenditures associated with c a p i t a l improvements.  The  authority practices a c e n t r a l i z e d organizational system, whereby i t possesses operational independence, and i t s s t a f f has an i n t e r n a l c a p a b i l i t y of p r o v i d ing a l l services on the a i r p o r t premises, including actual construction of c a p i t a l improvements (generally smaller improvements, although t h i s depends on the i n d i v i d u a l a i r p o r t ) )  The value of any services received from the  government (excepting l e g i s l a t e d aidfprograms) are paid f o r by the a u t h o r i t y . Being a s i n g l y enclosed public agency, the a u t h o r i t y possesses i t s own authority to set i t s p o l i c i e s in accordance with goals of any authority to provide e f f i c i e n t service and level charges in order that the operations at the a i r p o r t break even. The f o l l o w i n g o u t l i n e comprises a d e s c r i p t i o n of the a u t h o r i t y ' s cent r a l f u n c t i o n , i t s organizational s t r u c t u r e , the legal framework, the i n dividual f u n c t i o n s , and an economic view of a l l a c t i v i t i e s associated with the a i r p o r t ' s operations. The a i r p o r t a u t h o r i t y has the a u t h o r i t y and r e s p o n s i b i l i t y f o r a l l property . and operations at the a i r p o r t .  I t has no taxing a u t h o r i t y , and  no zoning a u t h o r i t y and i t i s p r i m a r i l y dependent on the revenues  generated  from operations, although federal a i d in the form of grants i s a v a i l a b l e through the A i r p o r t Aid and Development Program from the A i r p o r t Trust Fund. The authority does pay taxes on non-aviation a c t i v i t i e s such as leases and contracts. Each a u t h o r i t y has a board of commissioners, usually e l e c t e d , which oversees the operations of the a i r p o r t .  This board i s responsible f o r  79:  h i r i n g the Executive D i r e c t o r of the a i r p o r t .  While the l a t t e r acts as  Chief Administrative O f f i c e r , and he and his s t a f f are f u l l y responsible f o r the operation of the a i r p o r t , the Board's approval i s required in the s p i r i t of the "check and balance" system f o r the f o l l o w i n g types of programs:  the annual operating-maintenance budget; the c a p i t a l improvements  program; the c i v i l service program—wages and s a l a r i e s ; purchases or cont r a c t s i n excessoof $100,000; a l l contracts f o r professional  services;  a i r p o r t master plans and land use;.plans; annual leases i n excess of $50,000; and a l l d i s p o s i t i o n of real property.  The t y p i c a l management hierarchy  under the a i r p o r t i s c h i e f o f f i c e r consists of the f o l l o w i n g d i v i s i o n s : f i n a n c e , a i r s e r v i c e s , personnel, a d m i n i s t r a t i o n , planning and engineering, operations and maintenance, public s e r v i c e s , and legal a f f a i r s .  The o r -  ganizational structures f o r N a s h v i l l e A i r p o r t , and New York—John F. Kennedy—may be found in E x h i b i t #10. As i t works independently, the a u t h o r i t y i s not without contact with other important p r i v a t e and public sector groups.  The a u t h o r i t y works  with the C i v i l Aeronautics Board f o r a i r services advice; with the F.A.A. f o r administration of f i n a n c i a l grants, a i r t r a f f i c c o n t r o l , a i r p o r t c e r t i f i c a t i o n , planning, and s e c u r i t y .  Each i n d i v i d u a l a u t h o r i t y also has a  working r e l a t i o n s h i p with the state in which i t operates through the Department of Transport f o r f u r t h e r f i n a n c i a l assistance and planning.  The  a u t h o r i t i e s that are municipal corporations consult r e g u l a r l y with l o c a l government agencies with regard to zoning, community planning, rules and regulations f o r operation, and land a c q u i s i t i o n .  As w e l l , the l o c a l com-  munities work with the a i r p o r t to promote proper planning, the promotion of s a f e t y , tourism, business and f l y i n g clubs..  N a t u r a l l y , the a u t h o r i t y  a l s o has a close working r e l a t i o n s h i p with i t s a i r l i n e partners, i t s f i x e d base operators and a l l lessees.  The legal framework of the a u t h o r i t y consists of three components: the state l e g i s l a t i o n , the a i r l i n e use agreement, and the bond indenture. The state l e g i s l a t i o n creates the a u t h o r i t y as a legal public corporation which has no taxing power, and i s tax exempt, except f o r c e r t a i n nona v i a t i o n taxes mentioned previously. and i t , in t u r n , can be sued.  The corporation has the r i g h t to sue  The l e g i s l a t i o n declares that the a u t h o r i t y  i s an independent f i n a n c i n g v e h i c l e , which must, outside of the federal or state a i d i t may r e c e i v e , r a i s e M t s c a p i t a l f o r projects through debt or equity f i n a n c i n g in p r i v a t e markets.  The state l e g i s l a t i o n also sets  up the positions of the board and chief administrative o f f i c e r , which have been previously discussed.  The a i r l i n e use agreement covers a broad area  of overlapping operations between the a u t h o r i t y and the a i r c a r r i e r s . Foremost in t h i s agreement are the terms of the a u t h o r i t y ' s f i n a n c i a l opera tions.  These include the d e l i n e a t i o n of items to be included in operating  revenues and expenditures, and any extra expenditures that would be r e covered through user charges.  I t a l s o includes the agreement as to what  charges may be changed to accommodate f o r f l u c t u a t i o n s in the business cycl so as to reduce an excess operating surplus or d e f i c i t .  In the case of  the N a s h v i l l e A i r p o r t A u t h o r i t y , which p a r a l l e l s most other a u t h o r i t i e s , the landing fees are adjusted every s i x months to adequately r e f l e c t the f i n a n c i a l status of the a u t h o r i t y ' s operations. increasing d e f i c i t , landing fees w i l l be r a i s e d .  If the operations show an On the other hand, i f a  surplus occurs, excessive to the terms of the agreement, the a i r l i n e s r e ceive a rebate through lower landing fees.  A l l other charges are set  every three years to r e f l e c t trends in the economics of operations.  The  a i r l i n e s , by agreeing to t h i s clause according the authority to the a i r p o r t to change landing fees^are ensuring the f i n a n c i a l i n t e g r i t y of the . a i r p o r t ;  The agreement by the a i r l i n e s also accords permission to the a i r p o r t adm i n i s t r a t i o n to finance c a p i t a l costs through a c e r t a i n form of f i n a n c i n g , usually by the sale of revenue bonds, which are discussed below.  The operat-  ing budget prepared annually f o r the aitrport by the authority i s reviewed by the a i r l i n e s , and usually there i s an agreement that a i r l i n e s may appeal the budget to the board of commissioners y e a r ' s by a c e r t a i n percentage.  i f the budget exceeds the previous  (In the case of N a s h v i l l e A i r p o r t , the  f i g u r e i s 10 percent over the previous year.)  Capital improvements must  be budgeted f o r by the a u t h o r i t y , and they are subject to the approval by\ a m a j o r i t y - i n - i n t e r e s t of the a i r l i n e s . to approval.  Emergency repairs are not subject  The bond indenture applies to the control and placement of  the a u t h o r i t y ' s finances.  The a u t h o r i t y controls a l l investment programs,  with the condition that a l l surplus funds which a r e n ' t returned to the a i r l i n e s v i a lower landing f e e s , are d i r e c t e d to a c a p i t a l  improvement  fund, and there i s a l s o a d i s c r e t i o n a r y fund set up to which annual deposits are made from revenues, to be a l l o c a t e d at the d i s c r e t i o n of the authority.  The indenture also gives permission to finance c a p i t a l  costs  with debt f i n a n c i n g . The functions of the d i f f e r e n t l e v e l s of organization w i t h i n the authority are e s s e n t i a l l y the same duties as e x i s t f o r Canadian a i r p o r t s , with the important exception that the United States a i r p o r t s possess much more authority and independence with regard to i n d i v i d u a l d u t i e s .  The  management roles of the respective departments in the a u t h o r i t y are outl i n e d in Table 14 below.  TABLE 14 Management Roles at American A i r p o r t s Name of Department  Functions  Administration and Business Management  Purchasing, Stock Management, Inventory C o n t r o l s , Property Management, Leasing, Insurance  Personnel  Personnel Management, Salary and Wage Administration  Finance  F i s c a l Management, r e p o r t i n g , accounting, responsible f o r maintenance of independent balance accounts, budgeting, i n t e r n a l a u d i t s , economic a n a l y s i s  Planning and Engineering  Long-range planning f o r expansion of f a c i l i t i e s , design and engineering of facilities, preparation of plans, performance of engineering support s e r v i c e s , maintenance of a i r p o r t master plans  Operations and Maintenance  Day-to-day operation of a i r p o r t s run by the a u t h o r i t y , maintenance of a l l a i r p o r t f a c i l i t i e s , preparation of a i r p o r t rules and r e g u l a t i o n s , implementation and i n spection of a i r p o r t s e c u r i t y  Safety and Security  Crash, f i r e , rescue and p r o t e c t i v e services  Legal A f f a i r s  Preparation of c o n t r a c t s , leases and r e presentation i n claims and s u i t s .  A i r Service  Coordination and Monitoring of A i r Service Matters  Community A f f a i r s  Preparation and Dissemination of P u b l i c Information  Source:  Interviews with various American a i r p o r t general managers, 1978-1979.  The actual d i v i s i o n of duties varies from one a u t h o r i t y to another.  For  example, maintenance duties are c l a s s i f i e d with engineering d u t i e s , and planning r e s p o n s i b i l i t i e s are combined with operations at the Metropolitan Washington A i r p o r t s . The economics of the a u t h o r i t y ' s operation are e s s e n t i a l l y s i m i l a r to the Canadian system with respect to revenue and expense c l a s s i f i c a t i o n s , the b e n e f i c i a r i e s of respective f a c i l i t i e s at the a u t h o r i t y .  The r e l a t i o n -  ship amongst these components are i l l u s t r a t e d in Table 15. In summary, the organization and management roles of the United States A i r p o r t Authority are s i m i l a r to the Canadian system in c e r t a i n respects. The a u t h o r i t y i s answerable to a higher body--the s t a t e , as our a i r p o r t s are answerable to the federal government.  S i m i l a r revenues are c o l l e c t e d ,  and the c e n t r a l i z e d approach to management w i t h i n each a u t h o r i t y i s s i m i l a r to the approach used f o r our national system. are:  The e s s e n t i a l d i f f e r e n c e s  (1) the independence given to each authority to manage i t s own opera-  tions and f i n a n c e i i t s own projects and c a p i t a l investments; and (2) the philosophy of self-sustenance which i s not yet a p p l i c a b l e to Canada's a i r ports save i n a few exceptions.  I t should also be noted that a u t h o r i t i e s  in the United States are also permitted access to federal and state a i d , according to the provisions i n the A i r p o r t Aid and Development Program. While the form and amount of a i d i s c l e a r l y more defined i n the United S t a t e s , i t i s s i m i l a r in nature to that offered by the Federal Government of Canada. The concept seems to possess c e r t a i n advantages over our present system, but i t i s s i g n i f i c a n t , however, to study the actual management of i n dividual a i r p o r t s to discover what problems e x i s t , and whether or not they are s i m i l a r to the ones experienced at Canadian a i r p o r t s .  '84-  TABLE 15 The Relationship Between F a c i l i t i e s , B e n e f i c i a r i e s , Revenues, Expenses f o r American A i r p o r t s Facility  Beneficiary  Income Type  Landing Area  Airlines Private A i r c r a f t Military Aircraft Other Operators  Landing Fees Permit Charges A i r c r a f t Tax Gasoli ne Tax  Hangar Area  A i r c r a f t Owners P i l o t Training Repair Shops  B u i l d i n g & Land Rentals Receipts from Sales A i r c r a f t Storage  Terminal Area  Tenants:  Space Rentals % of Gross Receipts  Other  Farming Community Development Industrial:, Commercial Businesses  Airlines Concessions A i r Travelers  Land or Building Rentals  Expenses (not r e l a t e d ) Salaries Supplies Materials Services Utilities Fixed Costs  :85  Chapter Seven THE MANAGEMENT STRUCTURE OF THE" UNITED STATES AIRPORT " " AUTHORITIES AND; ASSOCIATED" PROBLEMS ' THE AIRPORT MANAGER'S ROLE Under the concept of the American a i r p o r t a u t h o r i t y , r the key to the success of the operation i s the general manager (referred to previously as chief executive o f f i c e r ) .  Not only must he possess a good business and  administrative a b i l i t y to oversee the operations, he should also be conversant with a v i a t i o n matters, and be a good public r e l a t i o n s o f f i c e r with a l l those who use the a i r p o r t .  I t i s not that the r e s p o n s i b i l i t i e s have changed  over the years—Table 16 below, o u t l i n i n g the s p e c i f i c duties of an a i r p o r t manager, was drawn up i n 1944 by John Frederick in his book, A i r p o r t Management—rather, the importance of being able to effectively!.handle those duties in an environment where more people, more opinions, and more p o t e n t i a l f o r interference with the management of an a i r p o r t , has grown over the past t h i r t y years.  In Canada, the r e s p o n s i b i l i t i e s are e s s e n t i a l l y unchanged, but the a i r -  port manager i s not s t r i c t l y held to a l l of these r e s p o n s i b i l i t i e s because of the c a p a b i l i t i e s of the regional and headquarters s t a f f to manage the a f f a i r s of the a i r p o r t s .  Thus, the burden of duties i s more spread out.  However,  while the a i r p o r t manager of an a u t h o r i t y has heavier duties because more i s expected of him, and he i s subject to c l o s e r scrutiny by the various  interest  groups that e x i s t (the government of the s t a t e , l o c a l business, environm e n t a l i s t s , a i r c a r r i e r s , general a v i a t i o n ) , he does have more administrat i v e a u t h o r i t y , unlike his Canadian counterpart, over everything p e r t a i n ing to the operation and maintenance of the a i r p o r t .  One problem that  TABLE 16 Duties of an A i r p o r t Manager Preliminary preparation of the municipal a i r p o r t department budget in conjunction with the c i t y ' s budget department. 2.  Supervision of expenditures f o r the a i r p o r t in accordance with the munic i p a l a i r p o r t department budget.  3.  Supervision of maintenance of the a i r p o r t , and maintenance of city-owned b u i l d i n g s on the a i r p o r t , i n conjunction with the c i t y ' s p u b l i c works department.  4.  R e s p o n s i b i l i t y f o r the c o l l e c t i o n of f e e s , r e n t s , and other revenues.  5.  R e s p o n s i b i l i t y f o r i n i t i a t i n g purchases f o r the a i r p o r t and f o r cooperat i o n with the c i t y purchasing department in the completion of such purchases.  6.  R e s p o n s i b i l i t y f o r recommendation of proper insurance f o r the c i t y ' s protection from l o s s .  7.  Enforcement of the provisions contained in leases and agreements between the c i t y and tenants of a i r p o r t leased property.  8.  Supervision of the accounting methods to be employed by the c i t y to r e f l e c t properly the f i n a n c i a l a f f a i r s of the a i r p o r t department.  9.  R e s p o n s i b i l i t y f o r developing a l l p r a c t i c a b l e sources of a i r p o r t r e venue which are in l i n e with the general p o l i c i e s of a i r p o r t financing as set f o r t h by the c i t y ' s chief executive and the c i t y c o u n c i l .  10.  Control of a l l ' f l i g h t a c t i v i t y over the a i r p o r t .  11.  Control of a l l general safety procedures on the a i r p o r t .  12.  Dissemination of f l i g h t information to the p u b l i c .  13.  Assumption of r e s p o n s i b i l i t y f o r representing the c i t y in a l l contact with the State Department of Aeronautics and the C i v i l Aeronautics Administrat i o n or other governmental agencies concerned with aeronautical a c t i v i t i e s .  14.  R e s p o n s i b i l i t y f o r the transmission to the c i t y ' s chief executive and to the c i t y council of a l l general aeronautical information which i s of importance i n planning c i t y p o l i c i e s .  15.  R e s p o n s i b i l i t y f o r f o s t e r i n g and promoting a v i a t i o n a c t i v i t y and commerce in the community.  Source:  J . H. F r e d e r i c k , A i r p o r t Management (Chicago:  Aldine Atherton, 1946)  e x i s t s i s whether or not he s t i l l has s u f f i c i e n t a u t h o r i t y to accommodate the r e s p o n s i b i l i t y of the job.  In an interview with the Director of A v i a -  t i o n at S e a t t l e ' s A i r p o r t A u t h o r i t y , i t was f e l t that at present there was a s u f f i c i e n t level of authority to ensure that the a i r p o r t was well managed.  The d i r e c t o r can set up any system of p r i o r i t i e s as long as safety standards are met.  He has f u l l control over the d a i l y operations, and stressed  the importance of the i n t e g r a t i o n between the a i r p o r t manager and the community.  If t h i s l i n k was to break due to a lack of a u t h o r i t y , i t would have  severe consequences on the operation of t h e ; a i r p o r t .  This problem i s not  as important i n Canada, because the r o l e of the a i r p o r t manager has yet to be b u i l t up to t h i s l e v e l of importance. The higher level of a u t h o r i t y places the general manager of an a u t h o r i t y in a more favourable p o s i t i o n compared to his Canadian counterpart, notably with the a i r l i n e s .  His reputation i s superior and his a b i l i t y to work with  a i r l i n e s i s more developed, to the point where the a u t h o r i t y ' s administration and the a i r c a r r i e r s t r e a t each other as business partners.  N a t u r a l l y , there  are problems which w i l l be discussed below, but, on the whole, i t i s a much more harmonious r e l a t i o n s h i p than that which e x i s t s in Canada between those who control the administration of the a i r p o r t s and the a i r c a r r i e r s . The " b u i l t - i n " independence i n the p o s i t i o n of American a i r p o r t manager i s much more s i m i l a r to that possessed by a senior executive i n a p r i v a t e corporation.  The management and methods used are comparable to those of  a modern business enterprise rather than those of the government. The a i r p o r t manager i s not subject to the degree of p o l i t i c a l influence that i s impressed upon the Canadian a i r p o r t managers. COORDINATION WITH OTHER PARTIES The Director of A v i a t i o n at S e a t t l e , and the Director of A v i a t i o n P l a n ning at New York both stated that t h e i r a i r p o r t s were responsive to the l o c a l government, public i n t e r e s t groups, the F.A.A., a i r c a r r i e r s and a l l users of the a i r p o r t .  Each a u t h o r i t y possesses several c o n s u l t a t i v e committees that  the a i r p o r t administration works with in order to c o l l e c t the informations  necessary to. make knowledgeable decisions regarding items such as F.A.A. standards on noise, the National A i r p o r t Systems P l a n , and l o c a l economic development.  In Canada, t h i s form of consultation occurs at the majority  of our a i r p o r t s .  However, t h e i r effectiveness i s l i m i t e d by the lack of  a u t h o r i t y that the l o c a l administration possesses.  The committees, in the  words of one Canadian manager, are not e f f e c t i v e with the exception that those involved can explain t h e i r troubles to the a d m i n i s t r a t i o n , and r e l i e v e tensions.  Because the a i r p o r t manager can only c o l l e c t opinions  expressed and pass them on to his regional a d m i n i s t r a t o r , the responsiveness of management to the i n t e r e s t groups i s somewhat slowed.  In the  United States, the p o t e n t i a l problem i s of a d i f f e r e n t nature.  -It i s one  of ensuring that these committees are properly c o n t r o l l e d and that a working r e l a t i o n s h i p i s maintained.  I t seems that t h i s p o t e n t i a l has not been  allowed to grow as there i s a good degree of coordination because a l l committees work with the same l o c a l administration toward the goal of p r o v i d ing a safe and convenient service to the p u b l i c . As in Canada, a u t h o r i t i e s r e l y on experts f o r c e r t a i n central s e r v i c e s . At S e a t t l e , the Port Authority of S e a t t l e provides forward planning, legal a i d , and lease negotiations f o r the l o c a l a i r p o r t a d m i n i s t r a t i o n . York, legal s e r v i c e s , personnel s e r v i c e s , f i n a n c i a l s e r v i c e s ,  At New  engineering  and technical s e r v i c e s , are provided to the a i r p o r t by the New York Port Authority.  At Baltimore-Washington  I n t e r n a t i o n a l , which i s one of the v :v.'  few state-operated a i r p o r t s , the state works in cooperation with federal agencies ( i . e . , F.A.A. and others) which provide planning and c a p i t a l grant funds, promulgate technical procedural g u i d e l i n e s , review/approve transportation plans/programs/projects  f o r consistency with requirements and  regulate i n t e r s t a t e common c a r r i e r s .  Problems such as bureaucratic delays  89^  crop as they do in Canada, but to a l e s s e r degree because of the b u i l t - i n independence in the l o c a l management's decision-making a b i l i t y . FINANCIAL OPERATIONS The nature of the f i n a n c i a l operations at the a u t h o r i t y i s an independent and p r o f i t a b l e one.  The finance department w i t h i n each a u t h o r i t y  controls a l l f i s c a l management of operations from budgeting through to financing major c a p i t a l expenditures.  I t operates using t r a d i t i o n a l business  p r i n c i p l e s , with the exception that i t s main goal i s not to maximize shareholders' wealth.  Since i t i s the function of an a i r p o r t to provide a s e r -  v i c e , the f i n a n c i a l manager at the a i r p o r t i s concerned with a cost recovery strategy rather than a profit-making strategy.  The revenue and expense  categories are no d i f f e r e n t from those encountered at Canadian a i r p o r t s . The e s s e n t i a l d i f f e r e n c e i s that a l l a i r p o r t user charges are set d i r e c t l y by the a u t h o r i t y .  A l l charges are arranged through a.lease negotiated  l o c a l l y between the respective p a r t i e s .  For example, a i r l i n e s sign a  lease f o r landing f e e s , f o r fuel taxes, and f o r terminal f a c i l i t y charges. The source of complaints about the fees charged emanates from the a i r c a r r i e r s , who t r a d i t i o n a l l y want to be charged as l i t t l e as p o s s i b l e .  The  s i z e of t h i s problem has been diminished by an agreement between the a i r port a u t h o r i t y and the a i r c a r r i e r s , as business partners, to p e r i o d i c a l l y review the lease to ensure that rates are not too high or too low to create an unnecessary operating d e f i c i t or surplus.  At S e a t t l e a i r p o r t , while  other leases are negotiated every three years, landing fees are reviewed every s i x months and raised or lowered accordingly to allow f o r the authori t y to achieve i t s budgeted revenues f o r the pertinent f i s c a l year.  Gener-  a l l y , the a i r l i n e s are s a t i s f i e d with t h i s arrangement according to the  \  a i r p o r t manager at S e a t t l e , and no o f f i c i a l complaints have been lodged by a i r v e a r r i e r s with respect to t h i s arrangement.  However, beyond t h i s arrange  ment, a i r l i n e s have no appeal mechanism regarding landing fees except to take the a u t h o r i t y to court and challenge i t .  This has yet to occur, f o r -  tunately. The c o l l e c t i o n of user charges i s performed according to the f o l l o w i n g method:  routine b u i l d i n g , u t i l i t y and maintenance charges are handled by  the l o c a l finance d i v i s i o n .  Landing f e e s , fuel taxes, a i r c r a f t taxes and  other mentioned as comprising the revenues that make up the Trust Fund, go d i r e c t l y i n t o the Fund.  A l l other charges go d i r e c t l y to the F.A.A. f o r  r e d i s t r i b u t i o n at a l a t e r time. As mentioned above, each authority works by a cost recovery  plan  whereby the o b j e c t i v e i s to recover a l l of i t s operating and maintenance costs each year and to generate s u f f i c i e n t revenue to cover any a l l o c a t e d overhead and to pay o f f the debt service ( p r i n c i p a l and i n t e r e s t ) on any bond issues used to finance major c a p i t a l expenditures.  The agreement a t  most a u t h o r i t i e s i s such that the a i r p o r t breaks even annually.  If the  a i r p o r t runs a d e f i c i t at year end, i t i s recovered by r a i s i n g the landing fees the f o l l o w i n g f i s c a l year.  If the a i r p o r t runs a surplus at year end,  then t h i s w i l l be c r e d i t e d back to the a i r c a r r i e r s , c r e a t i n g a very f l e x i b l e system.  There i s the problem that unexpected variances i n the a i r -  p o r t ' s operations may r e s u l t in the a i r c a r r i e r s paying very steep landing fees i f a large d e f i c i t occurred, and they may be expected to lobby against the increases i f they b e l i e v e them to be u n f a i r .  The a u t h o r i t y would then  be faced^with the dilemma of having to take the c a r r i e r s to c o u r t , or f i n d ing an a l t e r n a t e means of recovering the d e f i c i t .  This would provide a  perfect forum through which the c a r r i e r s could p u b l i c l y demonstrate  i n e f f i c i e n t management.  No such a l t e r n a t i v e e x i s t s f o r Canadian a i r l i n e s .  Thus f a r , the experience has been good.  At S e a t t l e , the peak landing fee  in t h i s decade was $1.60, and i t i s now down to $1.21.  At S e a t t l e , when  determining the landing f e e s , the a i r p o r t c a l c u l a t e s : 1) 2) 3) 4)  the operating expenses f o r the year; the a l l o c a t e d administrative overhead; the debt service payment; the estimated revenues from a l l other sources save landing f e e s ; thecdifference between the sum of items 1) to 3 ) , and item 4 ) ; by d i v i d i n g the d i f f e r e n c e by the estimated landing weights the landing fee i s obtained.  5) 5).  The a u t h o r i t y also possesses the independence to i n i t i a t e projects of a s e l f - s u p p o r t i n g nature whereby the a i r p o r t r e l i e s on the revenues from the a i r p o r t rather than on funds provided through t a x a t i o n .  The p r o j e c t s are  i n i t i a l l y financed by vfche,; issuance of bonds which are underwritten by the airlines.  This stems from the 1950's O'Hare agreement when revenue bonds  were issued to finance Chicago's O'Hare A i r p o r t .  The a i r l i n e s pledged t h a t ,  i f a i r p o r t income f e l l short of the t o t a l needed to pay o f f the p r i n c i p a l and i n t e r e s t on the bonds, they would make up the d i f f e r e n c e by paying a higher landing fee r a t e .  Under t h i s type of arrangement, landing f e e s — t h e  amount b i l l e d to an a i r l i n e each time one of i t s airplanes lands on a runway—are p e r i o d i c a l l y raised or lowered to compensate f o r shortages  or  excesses i n income in the preceding period. The h i s t o r i c O'Hare agreement demonstrated that a i r p o r t s , backed ^: by the a i r l i n e s that use them, could r a i s e the money they need on the f i n a n c i a l market without depending on general tax funds, and a i r p o r t revenue bonds  . became the accepted way of financing c a p i t a l improvements where  funds were not provided through the A i r p o r t Aid and Development Program. The costing philosophy at Houston International A i r p o r t , which opened in  1968, i s . t o set landing fees at a rate which w i l l help repay the c a p i t a l costs and cover the operating expenses.  The a i r p o r t does not expect to  make a p r o f i t from landing f e e s , but concession income has been set up so a to return a surplus f o r future development.  Seattle-Tacoma International  A i r p o r t , i n the midst of a $150 m i l l i o n expansion p r o j e c t , signed new 29-year leases with i t s a i r l i n e s in 1970.  The charges were c a l c u l a t e d at  135 percent of the t o t a l needed to r e t i r e the revenue bonds.  The 35 per-  cent surplus i s transferred to a reserve and c a p i t a l improvement fund. The d i f f e r e n c e between a general o b l i g a t i o n and a/revenue bond i s that the l a t t e r i s secured by a pledge only of revenue derived from an income-producing municipal e n t e r p r i s e .  There i s no debt l i m i t a t i o n on revenue bonds,  but there i s a higher i n t e r e s t cost and banks are not allowed to deal in these bonds.  The important covenant a p p l i c a b l e to revenue bonds i s the  agreement which must be made to set charges f o r the services of the enterp r i s e which are s u f f i c i e n t to meet a l l o b l i g a t i o n s of the bond.  The f a c t  that the a u t h o r i t i e s guarantee t h e i r bonds places them in the rather i n f l e x i b l e p o s i t i o n of ensuring that t h i s pledge i s not broken; otherwise, there would be severe legal r a m i f i c a t i o n s f o r the a i r p o r t s .  As a r e s u l t ,  there are a number of c r i t e r i a which must be met before an issue can be don sidered a 'good' issue by investors.  These are:  a w e l l - e s t a b l i s h e d record  of performance by the a i r p o r t or the a i r p o r t system; competent engineers; adequate landing f e e s ; an equal l i f e f o r concession agreements and bonds; a proper bond counsel; and an expected coverage by annual net revenues of 1.5 times the annual debt service requirements.  Most of.these c r i t e r i a  can be met, but they do pose a p o t e n t i a l problem in increasing the load of r e s p o n s i b i l i t y on the shoulders of the l o c a l a d m i n i s t r a t i o n . The a u t h o r i t y ' s budgeting i s done l o c a l l y at the a i r p o r t , and reviewed by the a u t h o r i t y ' s board of d i r e c t o r s .  There i s usually a close l i a i s o n  between the a u t h o r i t y ' s finance department and any f i n a n c i a l review committees. FEDERAL AID AND THE AIRPORT AUTHORITY Although there i s provision f o r federal a i d to a i r p o r t s in the twot i t l e d A i r p o r t s A c t , complaints have been voiced regarding the build-up of a surplus of $2.7 b i l l i o n in the Trust Fund.  The fund i s s i t t i n g i n the  hands of the F.A.A. and i t i s becoming more apparent to the a i r p o r t managers that unless a plan i s devised to a l l o c a t e the surplus, some federal government body w i l l f i n d a use f o r i t and take i t o f f t h e i r hands.  The prob-  lem has been recognized by the policy-makers as seen through the recommendations previously presented, with regard to a i r p o r t l e g i s l a t i o n i n the 1980's.  The same opinion applies to the d i s c r e t i o n a r y fund, the balance  of which has been set aside f o r extraordinary needs. i s not used.  At present, the fund  The a i r l i n e s and other i n t e r e s t s are also aware of the  problem, and although no major complaints have been r e g i s t e r e d , due mainly to the e x i s t i n g l e g i s l a t i o n which c a r e f u l l y - d e l i n e a t e s how funds are a l l o cated, some a i r l i n e s are asking the a u t h o r i t y ' s management why they should have to pay higher user charges i f a l a r g e r d e f i c i t occurs when there i s $2.7 b i l l i o n of c o l l e c t e d user charges s i t t i n g unused i n the Trust Fund?  As partners in business with the a u t h o r i t y , they do not desire to  pay fees twice to the a i r p o r t , when the amount c o l l e c t e d through the o r i g i n a l user charges was s u f f i c i e n t .  The f l y i n g p u b l i c has also been a l e r t e d to  the f a c t that i f t h i s surplus in the Trust Fund was put to good use in the a i r p o r t system, the costs of f l y i n g and using the a i r p o r t probably would be cheaper.  These are genuine problems that detract from a b e t t e r system,  and ...must be considered s e r i o u s l y when considering the a u t h o r i t y concept. There are no complaints regarding the speed of federal approval f o r projects  e l i g i b l e f o r federal a i d , and once the project receives approval, the funds a r r i v e very q u i c k l y .  The p r i o r i t y of projects to be handled i s f u l l y  determined by the a i r p o r t manager and f e l l o w d i r e c t o r s of the a u t h o r i t y . N a t u r a l l y , t h e i r decisions are based on promoting safety f i r s t h a n d , a f t e r t h a t , they use t h e i r own set of c r i t e r i a . A v i a t i o n at S e a t t l e  Generally, the D i r e c t o r of  said. t h i s works w e l l , although there are' i n e v i t a b l e }  complaints from lobbying user groups to the extent that they do not always receive the f u l l a t t e n t i o n of the authority when projects are chosen. PERSONNEL The personnel operation i s very large at a l l a u t h o r i t i e s , and y e t the problems encountered are s i m i l a r to those found i n the Canadian system. Most a u t h o r i t i e s have t h e i r own personnel departments, and provide o n - s i t e t r a i n i n g f o r most of t h e i r employees ( u n l i k e Canada), save f i r e departments and p o l i c e which t r a i n t h e i r own personnel.  Quite o f t e n , there are prob-  lems with outdated job d e s c r i p t i o n s , and i t i s an annoyance to update them, although i t i s not a pressing p r i o r i t y .  There i s good f l e x i b i l i t y in the  h i r i n g system that allows f o r the a c q u i s i t i o n of temporary help; however, there are the usual bureaucratic processes encountered when h i r i n g permanent help. Unions seem to pose a problem, e s p e c i a l l y with respect to the dismissal of incompetent h e l p , which i s p r a c t i c a l l y impossible to do.  There are  several c r a f t unions on each a u t h o r i t y who perform t h e i r work s t r i c t l y i n accordance with the union c o n t r a c t .  Because of the c o n t r a c t , i t i s d i f f i -  c u l t to dismiss a man/woman unless there i s ample evidence of incompetence, and there are usually appeals and formal complaints which cost the a u t h o r i t y money, and may hurt i t s image of an e f f e c t i v e management s e r v i c e .  Salaried  personnel can cause s i m i l a r problems, but the management at S e a t t l e have  provided more of an i n c e n t i v e to work by s e t t i n g up a merit fund, whereby recommendations can be made by supervisors or f e l l o w workers to give a merit increase to an i n d i v i d u a l who performs above the c a l l of duty.  A difficult  r e s p o n s i b i l i t y encountered by the management of an a u t h o r i t y , which i s not found i n Canada, i s the degree of coordination required to manage the large number of people employed at the a i r p o r t .  For example, at.New York,  one of the l a r g e s t a i r p o r t s in the w o r l d , there are over 41,000 employees working a t the a i r p o r t .  While only about one thousand of these are under  the d i r e c t a u t h o r i t y of the general manager, i t requires an e f f e c t i v e communications system to manage the varied i n t e r e s t s of d i f f e r e n t groups and t h e i r employees.  To a degree, the large number of employees i s due to the  l a r g e r s i z e of American a i r p o r t s , but i t i s a l s o due to the independence of the operating a u t h o r i t y .  Because the l a t t e r group i s the central f i g u r e  in the a i r p o r t ' s operation, and people tend to l o c a t e near the source of power, i t i s understandable that the number of people employed i s so l a r g e . OTHER AREAS OF MANAGEMENT The a i r c a r r i e r s do not own any f a c i l i t i e s at the a i r p o r t — a l l f a c i l i t i e s are leased on a 5-20 year b a s i s .  The a i r p o r t i s responsible f o r providing  a l l forms of s e r v i c e (maintenance and upkeep) to a l l leased f a c i l i t i e s . This i s e s s e n t i a l l y the same as the s i t u a t i o n in Canada. Unlike our system, where some gates at a i r p o r t s are owned by a i r l i n e s , a l l gates are leased by a i r c a r r i e r s with the exception df a few gates which are l e f t f o r non-signatory c a r r i e r s which are-charged a t a r i f f per. use.  The o r i g i n a l negotiations d i c t a t e which a i r l i n e gets what gate, and  the negotiations can be tough as each a i r c a r r i e r has a c o n f l i c t i n g preference f o r gates.  On the whole, the a t t i t u d e of general managers at the a u t h o r i t i e s of New York, Baltimore-Washington, and S e a t t l e , have expressed the opinion that there i s a c o r d i a l r e l a t i o n s h i p between the a i r p o r t ' s users and l o c a l management.  There i s only one party with which the a u t h o r i t i e s would l i k e  to change t h e i r e x i s t i n g r e l a t i o n s h i p , and that i s general a v i a t i o n . General a v i a t i o n i s a heavy user of an a i r p o r t ' s f a c i l i t i e s , yet i t s c o n t r i butions to the revenues of these a i r p o r t s are r e l a t i v e l y i n s i g n i f i c a n t .  This  s i t u a t i o n stems from the time (roughly ten years ago) when general a v i a t i o n was a rather small a v i a t i o n group, with r e s p e c t i v e l y small f i n a n c i a l bases. As an incentive to t h e i r development, general a v i a t i o n users were charged minimal fees f o r the use of a i r p o r t f a c i l i t i e s .  The growth of general a v i -  a t i o n has l a r g e l y exceeded that of other a v i a t i o n groups, and i t was e s t i mated in 1940 that over one-third of general a v i a t i o n a i r c r a f t were owned and operated by.jbusiness firms whose f i n a n c i a l soundness was manifested by t h e i r a b i l i t y to use corporate a i r c r a f t i n t h e i r businesses.  Ten years  l a t e r , i t l i s reasonable to assume that these numbers have grown and general a v i a t i o n , having become a f i n a n c i a l l y sound s e c t o r , can be expected to pay f o r a greater portion of the costs of t h e i r use of a i r p o r t f a c i l i t i e s . The s i t u a t i o n in the United States p a r a l l e l s that i n Canada.  Airport  managers believe i t i s time to r a i s e the charges to general a v i a t i o n through some combination of fuel t a x , parking t a r i f f , and landing fee. If t h i s i s not l e g i s l a t e d in the U.S. A i r p o r t s A c t , congestion w i l l  worsen  at a i r p o r t s and i t may be that a i r c a r r i e r s w i l l commence a strong lobbying e f f o r t against general a v i a t i o n . Another p o t e n t i a l problem i s the recent deregulation of the a i r i n dustry.  No one can r e a l l y t e l l what e f f e c t t h i s w i l l have on the manage-  ment of an a i r p o r t , but i t i s possible that there may be quite a few new  non-signatory  a i r l i n e s which may create problems with negotiations  for  bases, personnel, gates, investment f o r expansion, how to accommodate the present c a r r i e r s with the expected i n f l u x of new f l i g h t s , and how costs w i l l be shared amongst a l l p a r t i e s .  What t h i s portends f o r Canada i s an  increased burden f o r the headquarters and regional s t a f f of C.A.T.A. i f a s i m i l a r s i t u a t i o n occurs in Canada.  However, i f our system were to be con-  verted to a u t h o r i t i e s , i t is' doubtful that the a u t h o r i t i e s would not be able to cope with the changes.  I t would only r e s u l t in an increased amount of  r e s p o n s i b i l i t y f o r the l o c a l management.  Assuming the management to be  capable, t h i s extra burden would only require extra e f f o r t on the part of the s t a f f .  ..98'-  Chapter Eight THE COMPARISON OF CANADA'S MANAGEMENT SYSTEM TO THE UNITED STATES MANAGEMENT SYSTEM The comparison of the two a i r p o r t systems cannot be done without a set of c r i t e r i a common to both.  I t was noted e a r l i e r i n the paper that most  c r i t e r i a regarding a i r p o r t s , such as manpower, passengers handled, and the capacity of the f a c i l i t y are exogeneously determined-. . While they help in providing an understanding of the types of a i r p o r t s being compared, they do not properly r e f l e c t management performance.  Besides being d i f f i c u l t  to generate acceptable c r i t e r i a , i t i s also quite an endeavour to f i n d appropriate data f o r both countries.  Certain f i n a n c i a l r e s u l t s are not i n  the p u b l i c domain in Canada and the United S t a t e s , which mitigates'/ against a broad set of measures. The f o l l o w i n g set of c r i t e r i a has been formed as a r e s u l t of research performed in meetings and correspondence performed both as a member of the Federal Task Force on A i r p o r t Management under the d i r e c t i o n of Mr. Mel Hagglund, and as a graduate student at the Centre f o r Transportation i n Vancouver.  Studies  F i r s t , i n order to i l l u s t r a t e the comparability of various  a i r p o r t s in Canada and the United S t a t e s , c r i t e r i a including annual a i r c r a f t movements, annual passenger movements, and manning l e v e l s are developed. Second, a d e s c r i p t i o n of broad revenue and expense classes f o l l o w s , and from t h i s are patterned charts of operating revenues versus expenses f o r the l a r g e s t a i r p o r t s in both countries.  T h i r d , the operating and mainten-  ance r e c e i p t s and expenditures f o r c e r t a i n American and Canadian a i r p o r t s are d e t a i l e d .  Fourth, the l e v e l of debt s e r v i c e f o r these a u t h o r i t i e s  i s contrasted with the cost recovery l e v e l s in the Canadian a i r p o r t s .  99  F i f t h , various a i r c a r r i e r charges are compared and a comparison of landing fees i s made.  F i n a l l y , while i t may be redundant to review the non-quanti-  f i a b l e c r i t e r i a developed i n Chapter Three which played the major r o l e in the decision to pursue a more d e t a i l e d examination of the a i r p o r t a u t h o r i t y system, i t s t i l l  i s useful to take t h i s set and re-examine the strength^of  the American system based on the f i n d i n g s i n Chapters Six and Seven. 1.  A i r c r a f t Movements and Passenger Enplanements The idea behind the comparison of annual a i r c r a f t movements and passenger  enplanements i s to enable a b e t t e r understanding of the s i z e and degree of a c t i v i t y at the various a i r p o r t s being considered from both systems.  The  evidence reveals that the American a u t h o r i t i e s are s l i g h t l y more a c t i v e than t h e i r Canadian counterparts on a systems b a s i s , which i s a r e f l e c t i o n upon the higher demand f o r a i r t r a v e l because of the l a r g e r population dens i t y of the United States.  I t may also be a t t r i b u t e d to the c r o s s - s e c t i o n  of a i r p o r t s chosen i n the United States which include three of that n a t i o n ' s busiest a i r p o r t s , John F. Kennedy i n New York, Los Angeles, and Washington; and two medium hubs, Seattle-Tacoma, and N a s h v i l l e .  The f i v e a i r p o r t s  selected f o r Canada are also the top s i x in our nation f o r i t i n e r a n t a i r c r a f t movements.  Table 17 discloses the i t i n e r a n t a i r c r a f t movements over the  period 1974-1976.  As evidenced by t h i s t a b l e , the choice of a i r p o r t s  affords a c l e a r p i c t u r e of where the f i v e Canadian a i r p o r t s stand against a s e l e c t i o n of American a i r p o r t s which, although they possess a wider range of annual movements, also represent f i v e of the n a t i o n ' s busiest a i r p o r t s . Using the data from 197;6 in t h i s t a b l e , the f o l l o w i n g ranking i s obtained i n d i c a t i n g the positions held by the Canadian a i r p o r t s :  100  TABLE 17 I t i n e r a n t A i r c r a f t Movements a t Selected Canadian and American A i r p o r t s 1974-1976 (excluding general a v i a t i o n )  1974  1975  1976  Toronto  226921  228688  235998  Vancouver  180759  198416  211102  Dorval  186097  187860  157,711  Calgary  110266  117750  124159  Winnipeg  112942  114459  115569  Mean (x)  163397  169435  168908  Los Angeles  342536  344945  346540  John F. Kennedy  284193  285425  285281  Washington Nat.  202759  203039  206712  Seattle  105466  108859  114958  51398  59226  57237  147620  200299  202146  Canada  15  United S t a t e s  Nashville Mean (x)  Sources:  1 6  S t a t i s t i c s Canada, A i r c r a f t Movement S t a t i s t i c s - Annual ;'Report (Ottawa: A v i a t i o n S t a t i s t i c s Centre, 1977). P a t r i c i a Watson, FAA A i r T r a f f i c A c t i v i t y (Washington, D.C.: Federal Dept. of T r a n s p o r t a t i o n , 1974-1977).  1.  Los.iAhgeles  2.  John F. Kennedy  3.  Toronto  4.  Vancouver  5.  Washington National  6.  DprvaV ">  7.  Calgary  8.  Winnipeg  9.  Seattle  10. Table 18 shows^  Nashville. the other dimension f o r comparison of a i r p o r t s - - t h a t of  annual passenger enplanements at the a i r p o r t s f o r the years 1974 and 1975. The figures f o r both countries e x h i b i t trends s i m i l a r to a i r c r a f t movements, lending credence to the b e l i e f that the chosen cross-section of a i r p o r t s i n the United States, while s l i g h t l y l a r g e r and busier than the Canadian ones, possess a diverse range of a i r p o r t sizes which provides f o r a more meaningf u l comparison of management systems.  I t should be noted that while i t i s  desirable to obtain a broader cross-section of U.S. a i r p o r t a u t h o r i t i e s , information i s at present l i m i t e d and most U.S. data was c o l l e c t e d as a r e s u l t of personal v i s i t s to a i r p o r t a u t h o r i t i e s . The man-year allotments at each a i r p o r t in Canada can be compared to t h e i r annual passenger enplanements to determine the r a t i o revealing the average number of passengers enplaned per man-year.  Table 19 presents  the man-years and the r e s u l t i n g r a t i o s f o r the f i v e a i r p o r t s . and Calgary a i r p o r t s possess the lowest r a t i o s .  Vancouver  Assuming that the man-years  are a l l o c a t e d according to need by C.A.T.A., t h i s r a t i o does provide a p a r t i a l i n d i c a t o r of the performance of the a i r p o r t s a d m i n i s t r a t i o n .  Some  complaints may be voiced as to the existence of exogenous f a c t o r s which may bias these numbers.  While there may be c e r t a i n cases of p o l i t i c a l i n -  t e r f e r e n c e , f o r example at Dorval a i r p o r t , which saw i t s annual passenger  102  TABLE 18 Annual Passenger Enplanements a t Selected Canadian and American A i r p o r t s ( i n c l u s i v e of Domestic, International and Transborder t r a f f i c ) 1974-1975  1974  1975  Toronto  4,002,769  4,642,824  Dorval  3,394,257  2,773,233  Vancouver  2,085,336  2,260,646  Calgary  1 ,045,167  1 ,106,454  Winnipeg  919,167  963,276  Mean (x)  2,289,365  2,349,287  Los Angeles  8,320,175  8,503,405  Washington National  4,552,280  4,482,565  John F. Kennedy  3,971,200  3,985,435  Seattle  2,548,430  2,713,410  565,020  536,550  3,991,421  4,044,243  Canada  17  United S t a t e s  Nashville Mean (x)  Sources:  1 8  Federal M i n i s t r y of Transport Canada, "Canadian A i r p o r t Database," 1978. P r o f i l e s of Scheduled A i r C a r r i e r Passenger T r a f f i c f o r the Top 200 U.S. A i r p o r t s (Washington, D . C : FAA 1975-76).  , 103 TABLE 19 Budgeted Man-Years.for Selected Canadian A i r p o r t s 1976  Authorized Man-Years  Annual Passenger Enplanements  Man-Years Per Passenger Enplanement  Toronto  481  5,006,319  9.6 x 1 0 "  5  Dorval  284  2,745,153  10.3 x 1 0 "  5  Vancouver  163  2,864,599  5.7 x 1 0 "  5  Calgary  66  1 ,163,483  5.7 x 1 0 "  5  Winnipeg  63  970,930  6.5 x 1 0 "  5  Source:  The Federal M i n i s t r y of Transport, Ottawa.  TABLE 20 Budgeted\Man-Years f o r N a s h v i l l e A i r p o r t 1977  Authorized Man-Years Nashville  138  Annual Passenger Enplanements 1,991,362  Man-Years Per Passenger Enplanement 6.9 x 10  S o u r c e : - M e t r o p o l i t a n N a s h v i l l e A i r p o r t A u t h o r i t y , Annual Report 1977.  -5  enplanements f a l l when i t s i n t e r n a t i o n a l t r a f f i c was t r a n s f e r r e d to M i r a b e l , these have been balanced out usually by reducing man-year a l l o c a t i o n s , or t r a s n f e r r i n g surplus labout to other a i r p o r t s .  Information a v a i l a b l e from  the Metropolitan A i r p o r t Authority i n N a s h v i l l e d e t a i l s the man-year a l l o cations f o r 1977.  In Table 20 a s i m i l a r r a t i o i s c a l c u l a t e d f o r the man-  years per passenger enplanement f o r 1977.  The r a t i o i s s l i g h t l y higher  than that f o r e i t h e r Calgary, Vancouver or Winnipeg, but i s not as high as the other Canadian a i r p o r t s . 2.  System i.RevenuessandLiExpensess The comparison of f i n a n c i a l statements o f f e r s another i n d i c a t i o n of  how the two a i r p o r t systems d i f f e r .  A broad comparison of operating r e -  venues and expenses i n i t i a t e s t h i s d i s c u s s i o n .  (A d e s c r i p t i o n of the com-  ponents of revenues and expenses and how they d i f f e r between the two 19 countries may be found i n E x h i b i t 12 i n the appendix.)  In Graph #1 below  i t i s apparent that f o r the majority of Canadian a i r p o r t s . i n 1973-74, annual expenses exceeded annual revenues, excluding Toronto, Dorval and Vancouver,. which a l l ascribe to passenger enplanement l e v e l s greater than two m i l l i o n . This includes the two other a i r p o r t s , Calgary and Winnipeg.  I t would seem  that in Canada, only those a i r p o r t s with scheduled passenger enplanements greater than two m i l l i o n have the good fortune of experiencing annual revenues i n excess of expenses. service costs are also included.  The gap i s widened,;i,n t h i s diagram as debt Nonetheless, these costs are important  to consider as noted several times previously i n t h i s paper.  The p i c t u r e  changes somewhat when only operating revenues and expenses are considered. Table 21 d e t a i l s the operating surpluses  ( d e f i c i t s ) at the f i v e Canadian  20 airports.  Without the burden of debt s e r v i c e , a l l f i v e were turning  surpluses by the year 1976-77.  105  TABLE 21 Operating Surplus ( D e f i c i t ) 1971/75 - 1976/77 For Selected/Canadian Ai ($000's) (a) Toronto* 1971^72 1972-73 1973/74 1974/75 1975/76 1976/77  (0  (b) Dorval*  Vancouver*  (d) Calgary**  (e) Winnipeg**  3,521 3,591 540 4,675 15,288 22,369  3,953 5,035 5,847 6,706 9,669 1 ,983  (227) 302 635 1,257 1,845 5,722  73 174 42 458 3,263 4,468  (1,455) (1,811) (1,726) (2,882) (880) 2  Notes:  *These a i r p o r t s are in revolving fund, financed with i n t e r e s t bearing loans. Other a i r p o r t s are financed with budgetary appropriations.  (f) Mirabel*  (g) Ottawa**  (18,382) (49,821)  (1,965) (2,178) (2,497) (2,725) (2,040) (787)  *The surplus or [ d e f i c i t ] f o r these a i r p o r t s has been r e - c a l c u l a t e d f o r each year to exclude any return/.on investment or c a p i t a l charge. The d e f i c i t a t Mirabel A i r p o r t i n 1976-77 i s l a r g e l y due to i n t e r e s t on loans of $29 m i l l i o n and depreciation of $16 m i l l i o n . For 1975-76, the period covered i s December 1, 1975 to March 31, Data f o r the period A p r i l 1, 1977 to September 30, 1977 i s not a v a i l a b l e at t h i s time. Source:  House of Commons Debates, December 9, 1977.  i  6 r a p h  1  -  Trends of Revenues, Expenses Versus Passengers Enplaned f o r the Top 23 A i r p o r t s 1973/74 In Ca'nada  to o  cu 10  a> Q .  X  co  0) c CU > CU  DC  Z3 C  c  •1 .  Scheduled Passengers A r r i v i n g and Enplaned - M i l l i o n s Mai t o n , Dorval and Vancouver are excluded from the c h a r t , to make a more convenient scale to i l l u s t r a t e the smaller p o i n t s . Their values remain included i n the trend c a l c u l a t i o n which i s therefore i d e n t i c a l t o those i n Chart 1. Expenses are maintenance + operating + debt s e r v i c e a t 6 percent, 40 years.  Source:  J . Smith, "Considerations in Local Administration of A i r p o r t s , " Annals of A i r and Space Law, V o l . I l l (Montreal: McGill Univ. 1978)  In the United States, the trend between annual costs and revenues d i f f e r s from Canada's.  Whereas the break even point f o r operations at Canadian  a i r p o r t s (operating revenues vs. operating expenses) was in excess of two m i l l i o n passengers i n 1973, i t was roughly 625,000 passengers in 1966 in the United States f o r a l l expenses, including d e p r e c i a t i o n .  Graph #2  21 i l l u s t r a t e s t h i s point.  While there i s a d i f f e r e n c e of seven years between  the two, the d i f f e r e n c e between the mean enplanement l e v e l s i s \\ m i l l i o n , and i t i s reasonable to assume that over seven years from 1966 to 1973 the r e l a t i o n s h i p between the growth of costs and revenues did not s u b s t a n t i a l l y change f o r the whole of the United States a i r c a r r i e r a i r p o r t system.  If  t h i s i s the case when debt s e r v i c i n g i s included in the annual c o s t s , and the major a i r p o r t s are s t i l l  running a surplus, t h e i r performance exceeds  that of the Canadian a i r p o r t s .  When only operating revenues and expenses  are included, the surplus f o r a i r p o r t s with greater than one m i l l i o n enplanements generated a surplus in 1967 of roughly $6 m i l l i o n (see Graph #3 22 below).  The average f o r the f i v e Canadian a i r p o r t s ' surpluses  21 in 1971 was 1.2 m i l l i o n and in 1976 6.9 m i l l i o n .  in Table  Thus, the 1976 average  f o r the most f i n a n c i a l l y s o l i d Canadian a i r p o r t s s l i g h t l y exceeds that of the whole United States a i r c a r r i e r system ten years previous.  This  indi-  cates, amongst other t h i n g s , a l e n g t h i e r period of f i n a n c i a l s e l f - s u f f i c i e n c y f o r the United States.  While t h i s i s not tantamount to absolute s u p e r i o r i t y  in management systems—there are the m i t i g a t i n g f a c t o r s mentioned in Chapter Two that make the management of our a i r p o r t s unique—the r e s u l t s above emenate from a comparison of a i r p o r t s that are roughly equal.  If the United  States a i r p o r t s can generate a surplus even with debt service i n c l u d e d , whereas Canadian a i r p o r t s encounter greater d i f f i c u l t y in reaching t h i s g o a l , i t says something f o r the U.S. a i r p o r t s in the way that they are managed. I t now becomes useful to study i n d i v i d u a l a i r p o r t s in d e t a i l .  Graph 2.  Relationships of 1966 A i r p o r t Operating Revenue and Expense to Annual A i r C a r r i e r Passenger Enplanement Level  10000  5000 4000 Operating Expense plus Depreciation  3000 H 2000  Operating Expense 1000  CO 500 s-  o 400 300 CO  T3  Assumption: That the Midpoint of a given a c t i v i t y c e l l i s the mean f o r that c e l l . C e l l of over 1000 was assumed 3000;  200  CO  100  Operating Revenue 20  •2  5  (under 10)  TO  20  50 (10-49)  100  625  (50-249) (250-999)  Thousands of Passenger Enplanements Source:  1968 Senate A v i a t i o n Subcommittee Report.  foToQo (over 1000)  109 Graph  3.  Trend of the Mean of Operating Revenue and Expense f o r A i r p o r t s of Given Annual A i r C a r r i e r Passenger Enplanement Levels  / . Rev  E  10000;  5000  Exp,  A000 3000  Over 1 m i l l i o n a n n u a l  Operating Margin enplanements (21 a i r p o r t s )  2000-  Kev,  1000-  txp.  V.  u a)  o  500  AOO-j  250,000 t o 1 m i l l i o n  (32 a i r p o r t s )  Rev„ —'  3001  Exp,  03  c B  200  01  3  o .c H  50,000 t o 250,000  (55 a i r p o r t s )  100^  Exp  2  Rev. 50 AO  10,000 t o 50,000  (68 a i r p o r t s )  30 20  Under  10,000  1963  (5A a i r p o r t s )  196A  Operating  1965  Deficit  1966  1967  Year 1.  Rev and Exp r e f e r  t o o p e r a t i n g revenues  and e x p e n s e s ,  .  respectively. • 2 . The s u b s c r i p t s i d e n t i f y w h i c h c a t e g o r y o f a i r p o r t s t h e p a r t i c u l a r curve r e p r e s e n t s , e . g . 1=0-10,000 annual e n planements . Source: 1968 Senate A v i a t i o n Subcommittee's q u e s t i o n n a i r e  no 3.  A i r p o r t Revenues and Expenses Table 22 o u t l i n e s the annual operating and maintenance expenditures  f o r the f i v e Canadian a i r p o r t s and the f o l l o w i n g American a i r p o r t s : Washington N a t i o n a l , and the Metropolitan N a s h v i l l e a i r p o r t .  These f i g u r e s  do not i n d i c a t e much in themselves, but a useful i n s i g h t can be provided when they are compared with the annual passenger enplanements to determine the r a t i o of the expenditure per passenger enplaned. Table 22(b).  These are given in  (Since enplanement date i s given only f o r 1974 and 1975, the  r a t i o w i l l be c a l c u l a t e d only f o r these years.)  Unfortunately, there i s a  lack of data at present f o r the U.S. a i r p o r t s but, given what l i t t l e there i s , the d o l l a r expense per passenger enplanement reveals a wide range of f i g u r e s which cannot e a s i l y be explained.  I t appears that Dorval and  :  Toronto possess higher r a t i o s than t h e i r smaller Canadian counterparts. One could conclude from t h i s that economies of scale have not been r e a l i z e d at these l a r g e r a i r p o r t s , but the reverse seems to be true between Washington and N a s h v i l l e a i r p o r t s in the United States.  I t i s reasonable to assume  that there must be some exogeneous f a c t o r s , which may account f o r t h i s peculiarity.  If there a r e n ' t , then the two l a r g e s t Canadian a i r p o r t s lag well  behind the pack in terms of t h i s performance r a t i o , while the medium-sized a i r p o r t s in Canada seem to hold t h e i r own against the two U.S. a u t h o r i t i e s . This only reveals what would seem to be larger-than-average expenditures, but at l e a s t i t a l e r t s us to be aware of any f u r t h e r r a t i o s which may r e f l e c t the l a r g e r Canadian a i r p o r t s in a poor l i g h t . Table 23 discloses the gross annual revenues at the same a i r p o r t s . Again, the two l a r g e s t Canadian a i r p o r t s , Toronto and Dorval, have r e l a t i v e l y high annual revenues compared to Washington N a t i o n a l , an a i r p o r t  TABLE 22(a) ANNUAL OPERATING EXPENDITURES" ($) AT SELECTED CANADIAN AND AMERICAN AIRPORTS 1974 - 1977  Toronto Dorval Vancouver Calgary Winnipeg Washington National Nashville Sources:  1974  1975  1976  . 1977  24,227,840 20,702,400 3,252,026 1,940,832 2,458,464  23,458,368 18,235,498 5,067,435 2,540,220 2,826,148  29,355,504 20,753,360 9,233,090 2,729,945 4,001,104  ::29; 9057949 20,564,923 13,079,083 3,139,158 4,130,044  8,453,092 1 ,988,765  8,196,692 2,102,596  10,245,865 2,198,400  2,508,200  The Federal Task Force On A i r p o r t Management, Ottawa, 1978. Metropolitan N a s h v i l l e / A i r p o r t A u t h o r i t y , Annual Report, 1977. Washington National A i r p o r t F i n a n c i a l Statements, 1977.  "  TABLE '22(b)  ANNUAL DOLLAR EXPENDITURE/PASSENGER ENPLANEMENT AT SELECTED . " CANADIAN AMD AMERICAN AIRPORTS 1974 - 1975  Toronto Dorval Vancouver Calgary Winnipeg Washington National Nashville Sources:  1974  1975  6.07 6.10 1.56 1.86 2.67 1.85 3.52  5.05 6.58 2.24 2.30 2.93 1.83 3,92  The Federal Task Force On A i r p o r t Management, Ottawa, 1978. Metropolitan N a s h v i l l e A i r p o r t Aughority, Annual Report, 1977. Washington National A i r p o r t F i n a n c i a l Statement, 1977.  112 TABLE 23 GROSS ANNUAL REVENUES ( $ ) AT SELECTED CANADIAN AND AMERICAN AIRPORTS 1974 - 1977. 2 4  Toronto Dorval Vancouver Calgary Winnipeg Washington National Nashville Sources:  1974  1975  1976  1977  21,445,784 21 ,603,305 8,401,495 3,161,000 3„516,242  28,786,504 25,181,159 9,604,561 4,131,633 3,979,654  43,984,507 33,564,219 15,389,437 4,564,068 4,558,821  53,406,418 24,189,095 21,827,845 5,796,736 5,218,957  15,591,460 2,725,487  16,709,887 2,834,466  18,232,080 4,016,504  4,338,000  The Federal Task Force On A i r p o r t Management, Ottawa, 1978. The Metropolitan N a s h v i l l e A i r p o r t A u t h o r i t y , Annual Report, 1977. Washington National A i r p o r t F i n a n c i a l Statement, 1977.  ...  TABLE 24  ANNUAL REVENUE CONTRIBUTION PER PASSENGER ENPLANED ($) AT SELECTED CANADIAN AND AMERICAN AIRPORTS  Toronto Dorval Vancouver Calgary Winnipeg; Washington National Nashville  1974  1975  5.36 6.37 4.03 3.02 3.82 3.42 4.82  6.20 9.08 4.25 3.73 4.13 3.72 5.28  Notes:.::The Revenue Contribution i s c a l c u l a t e d by d i v i d i n g the gross annual revenues of an a i r p o r t by the annual passengers enplaned at that a i r p o r t .  113  which has roughly a s i m i l a r number of passenger enplanements per annum. The revenue c o n t r i b u t i o n per passenger enplaned i s provided i n Table 24 and contains two i n t e r e s t i n g r e s u l t s .  F i r s t , the highest r a t i o s belong  to Dorval and Toronto, which i s not s u r p r i s i n g given t h e i r high l e v e l s of expenditures.  However, Washington, an a i r p o r t of s i m i l a r s i z e and  a c t i v i t y , has a lower r a t i o .  Although i t s operating expense r a t i o i s also  low, the two r a t i o s combined i n d i c a t e that f o r a roughly equal number of passenger enplanements, Washington i s more e f f i c i e n t in i t s a l l o c a t i o n of resources than e i t h e r Toronto or Dorval:  It would be useful to examine  t h i s r e s u l t to e s t a b l i s h whether or not t h i s i s t y p i c a l of a l l large a u t h o r i t i e s by c a l c u l a t i n g r a t i o s ^ a t other U. S. a i r p o r t s . t h i s information i s not a v a i l a b l e at present.  Unfortunately,  Second, the r a t i o s c f o r the  other three Canadian a i r p o r t s appear reasonable when compared with N a s h v i l l e , which p a r a l l e l s the r e s u l t of the r a t i o s c a l c u l a t e d f o r the d o l l a r expend i t u r e per passenger enplanement.  If N a s h v i l l e i s assumed to be represen-  t a t i v e of the medium-sized a i r p o r t a u t h o r i t i e s in the United States, then the chosen Canadian a i r p o r t s perform quite well in terms of these f i n a n c i a l c r i t e r i a , when both r a t i o s are combined and contrasted to those belonging to the American a u t h o r i t y . At the same time that d o l l a r per enplanedj-passenger r a t i o s are of i n t e r e s t , a f u r t h e r a n a l y s i s of operating revenues and expenses can be performed f o r the i n d i v i d u a l components of revenues and expenses at Vancouver, Dorval, Toronto, N a s h v i l l e and Kansas C i t y (which has an annual passenger . enplanement level approximately equal to that of Vancouver). are found in Table 25(a) and (b).  The r e s u l t s  The analysis of the r a t i o s f o r the com-  ponents of a i r p o r t revenues provides evidence that the Canadian a i r p o r t s depend more heavily upon the c o n t r i b u t i o n made by revenues from the landing area r e l a t i v e to the United States a i r p o r t s which make use of landing fees as  114  TABLE 2 5  2 5  (a) ANALYSIS OF AIRPORT REVENUES AT SELECTED CANADIAN AND AMERICAN AIRPORTS $ per enplaned passengers 1976/77  Toronto  Vancouver  Dorval  Kansas City  Nashvilli  Landing Fees and Assessments  1.44  1.17  1.11  Rentals and Concessions  2.12  1.87  1.63  2.24  1.91  Other  .12  .13  .12  .09  .32  TOTAL  3.68  3.17  2.86  3.00  2.81  12,147  5,344  5,680  4,400  1,800  E/D Passengers OOO's  .67".'  .58  (b) ANALYSIS OF; AIRPORT COSTS $ per enplaned passengers 1976/77 S a l a r i e s , Wages A and fringe. . benefits  176  .63  .98  .96  .90  Other Operating Expenses  1.39  1.28  1.51  .69  .54  Overhead  .51  .45  .61  --  --  Depreciation  .70  .89  .57  .98  .60  1.17  1.56  .82  .37*  .59*  Other  .19  .24  .64  TOTAL  4.72  5v05  5.13  Interest  .16 3.00  2.79  * Tax-free revenue bonds Sources:  Transport Canada B r i e f i n g of I.A.T.A., A.T.A. and A.T.A.C. 15 June 1978. Kansas C i t y International A i r p o r t Income S t a t e m e n t J 9 7 7 . , Metropolitan N a s h v i l l e A i r p o r t A u t h o r i t y , Annual Report 1977.  115 as the f i n a l remedy to cover a i r p o r t expenses.  As a r e s u l t , there i s a  r e l a t i v e l y greater tendency f o r American a i r p o r t s to c o l l e c t more rental and concession revenue per enplaned passenger.  I t i s d i f f i c u l t to a t t r i -  bute any s i g n i f i c a n t meaning to the t h i r d component, "other" revenue, as the i n d i v i d u a l revenues that comprise t h i s d i f f e r from a i r p o r t to a i r p o r t . I t i s not meaningful to a t t r i b u t e the differences i n these revenue r a t i o s as a consequence of more or less e f f i c i e n t management.  At f i r s t glance,  the higher r a t i o s in the landing area f o r Canada may be i n t e r p r e t e d as being a-signuof better management, and more a c t i v e business volume at the airport.  But there are two factors that render t h i s worthless.  F i r s t , as  mentioned above, the American a u t h o r i t i e s purposefully shy away from asing landing fees as a primary source of revenues—their emphasis i s upon concession revenue and lease arrangements.  Second, the main point of having  the high r a t i o s at Canadian a i r p o r t s i s to combat the equally huge expense r a t i o s per enplaned passenger.  Although labour cost r a t i o s seem to be about  20 percent below the two American a i r p o r t s in 1976/77, the other expense components are much greater in magnitude. '."These include a l l other operating costs (over 100 percent higher), overhead (non-existent i n the American a i r p o r t s ) , depreciation (approximately equal) and i n t e r e s t (over 140 percent higher).  From t h i s table alone, the Canadian a i r p o r t s are outper-  formed by the American a i r p o r t s , and t h i s i s tangible evidence that the authority concept of management has succeeded in areas of f i n a n c i a l management whereas the Canadian a i r p o r t s are somewhat weaker. A more basic c r i t e r i a f o r comparison i s the cost recovery level attained by the a i r p o r t s .  This i s a measure of the percentage of costs  (operating and maintenance, f r i n g e b e n e f i t s , overhead, grants i n l i e u of taxes, d e p r e c i a t i o n , and i n t e r e s t ) that are recovered by a l l a i r p o r t  116 revenues (landing fees, general terminal fees, concessions, and other r e venue).  For a l l American a i r p o r t a u t h o r i t i e s studied the goal of the  management i s to achieve 100 percent cost recovery, and the majority of the a i r p o r t s have reached i t .  The Director of A v i a t i o n at S e a t t l e notes  that his a i r p o r t maintains f u l l cost recovery at present, using the method previously described to adjust landing fees each s i x months to ensure f u l l recovery.  Table 26 d e t a i l s a s i m i l a r procedure f o r N a s h v i l l e A i r p o r t which  also maintains f u l l cost recovery at present. at Canadian a i r p o r t s i s much d i f f e r e n t .  The level of cost recovery  For the f i s c a l year 1976/77, only  Toronto achieved f u l l recovery at 102.2 percent.  The other four a i r p o r t s  0  "  achieved the f o l l o w i n g degrees pf recovery:  -  Dorval - 93.8 percent, Van27  couver - 63.1 percent, Winnipeg - 60.5 percent, Calgary - 56.2 percent. On t h i s b a s i s , the Canadian a i r p o r t s do not achieve the same degree of e f f i c i e n t f i n a n c i a l management as t h e i r American counterparts. 4.  A i r C a r r i e r Charges I t i s i m p r a c t i c a l to a t t r i b u t e d i f f e r e n c e s in most of the user charges  ( f u e l , concessions, u t i l i t i e s , passenger s e c u r i t y ) to the s t y l e of management because these charges do not vary s i g n i f i c a n t l y between c o u n t r i e s , and any v a r i a t i o n s are caused by l o c a l f a c t o r s outside of management's j u r i s diction. However, one major user charge—landing f e e s — i s worth s c r u t i n i z i n g because these are w i t h i n the control of l o c a l management i n the United States. Table 27(a) and (b) provides information on both a d o l l a r per 1000 l b s . of landed weight and d o l l a r per 747 landing basis f o r a i r p o r t s i n Canada and the United States.  •  117  TABLE 26 NASHVILLE METROPOLITAN AIRPORT OPERATING AND MAINTENANCE BUDGET JULY 1, 1978-JUNE 30, 1979 Comparison of Operations by F i s c a l Year ($) (in dollars)  Operating Receipts Excluding A i r l i n e Landing Fees  1978/79 Estimate 2,246,757  2,341.840  Less: 0 & M Expense Non 0 & M Expense Required A i r l i n e Landing Fee  Source:  1,988,465 _73£i722 478,730  2,102,596 492,626 253,382  3,445,032  2,351,123 1,655,381 561,472  Metropolitan N a s h v i l l e Ai ' P o r t A u t h o r i t y , Annual Report 1977.  3,872,300  2,351,123 1,669,300 465,700  4,076,900  2,586,800 1 ,936,400 846,300  TABLE 27(a) UNITED STATES 1978 LANDING FEE RATES (dollars) $ per 10.00 lbs...of gross landed weight  1  28  $ per 747 landing  Chicago  .696  407  Los Angeles  .200  117  John F. Kennedy  .500  292  Washington National  .310  181  1.30  Seattle  760  Kansas C i t y  .380  222  Dallas  .830  486  Source:  J . Smith, "Discussion of the Assertion "User Charges W i l l Solve Our Transport'Broblemsi'". jCanadian Transportation Research Forum Proceedings, 7 June 1979.  TABLE 27(b) CANADA INTERNATIONAL AIRPORT SYSTEM LANDING FEES 1976 '(.dollars)  Domestic Per 1000 l b s . On B747 a i r c r a f t  Source:  $  .39 302.00  International $  .65 504.00  29  Transoceanic $  <  1 96 s  1,519.00  The Federal M i n i s t r y of Transportation, Cahadian^Air, Trans p o r t a t i o h ' Admin 1 strationV'"l 9787' ~" -  118  The major d i f f e r e n c e between the fee structures of the two countries i s that in Canada a l l a i r p o r t s charge the same fees (set by CATA) with the only d i f f e r e n c e s being between the domestic, i n t e r n a t i o n a l , and t r a n s oceanic t r a f f i c sectors.  In the United S t a t e s , the fees are v a r i a b l e with  each a i r p o r t authority negotiating i t s own set of fees with the a i r l i n e s . The Canadian landing fees f o r domestic t r a f f i c are w i t h i n the range of the American fees as are the i n t e r n a t i o n a l t r a f f i c landing fees. oceanic fees are quite high r e l a t i v e to the American fees.  The t r a n s -  There are various  r a t i o n a l arguments set f o r t h by the C.A.T.A. to account f o r these d i f f e r e n c e s , but i t i s not the i n t e n t of t h i s paper to discuss them here.  What is of  i n t e r e s t are the proposed increases i n the Canadian landing fee structure which would r a i s e the fees to a much higher level than the American fees. The fee increase i s C.A.T.A.'s answer to helping the a i r p o r t s achieve a higher degree of cost-recovery, as reviewed in Chapter:Four.  In 1976, in  30  an unpublished study  forecasted the required uniform landing fee rate i f  100 percent cost recovery were to be achieved by 1977/78.  The rate per  1000 l b s . rose to $2.25 and the rate on a B747 landing was $1 ,744--higher than any American a i r p o r t at the time.  The report also c a l c u l a t e d the  average annual percentage increase i n landing fees in the 1976 rates to equal a breakeven point by c e r t a i n years.  These are provided i n Table  31 28.  For the purposes of comparison of what these fees would have been  i n 1978 i f the increases had been i n s t i t u t e d i n 1976, the actual fees have been c a l c u l a t e d i>nlTable 29..<W Any of the target years selected r e s u l t s i n a fee l e v e l higher than that of the United States.  The important question, .'now that i t has been  proved that the fee s t r u c t u r e i s and w i l l be higher i n Canada than the United S t a t e s , i s whether or not these fees are i n d i c a t i v e of the :.. .  2  119 TABLE 28 AVERAGE ANNUAL %' INCREASE IN CLASSES OF LANDING FEES FROM 1976 TO ACHIEVE FULL COST RECOVERY BY SELECTED TARGET YEARS 1980 - 1987 FOR ALL CANADIAN AIRPORTS  1980/81  1982/83  1984/85  1986/87  Domestic  54  33  29  22  International  36  23  21  16  Transoceanic  3  2  5  4  Source:  The Federal M i n i s t r y of Transportation, Canadian A i r Transportat i o n A d m i n i s t r a t i o n , "Proposals on Cost A l l o c a t i o n , A i r p o r t C l a s s i f i c a t i o n , and Fee Increases", Ottawa, 1975.  TABLE 29 CANADIAN LANDING FEE LEVEL IN 1978 IF FEES WERE INCREASED ACCORDING TO % INCREASES OUTLINED IN TABLE 28  1980/81  1982/83  1984/85  1986/87  .93  .69  .65  .58  International  1.20  .98  .95  .88  Transoceanic  2.08  2.04  2.16  2.12  Domestic  120 management a t each a i r p o r t .  In e s s e n c e , l a n d i n g f e e s a r e a revenue  source  used t o c o v e r expenses, and i n the case o f the two c o u n t r i e s s t u d i e d h e r e , h i g h e r f e e s i n d i c a t e h i g h e r expenses a t an a i r p o r t .  Unfortunately, there  i s no hard and f a s t r u l e f o r d e t e r m i n i n g i f h i g h e r expenses a r e due t o i n t e r n a l management p o l i c i e s o r e x t e r n a l f a c t o r s .  But c e r t a i n l y i n the  U n i t e d S t a t e s a i r p o r t managers possess the freedom o f independence t o c o n trol  t h e i r expenses and t h e i r f e e s .  With the system o f checks and b a l a n c e s  t h a t e x i s t s b e t w e e n management and u s e r s , i t i s d o u b t f u l t h a t unwarranted e x p e n d i t u r e s and any i n e f f i c i e n t o r w a s t e f u l a l l o c a t i o n o f r e s o u r c e s would go u n n o t i c e d .  In Canada, the s i t u a t i o n i s d i f f e r e n t , where the l o c a l  management has l i t t l e c o n t r o l o v e r e x p e n d i t u r e s o r the f e e s t r u c t u r e .  With  C.A.T.A. a c t i n g as a m o n o p o l i s t t h e r e i s no way o f d e t e r m i n i n g , p r i m a f a c i e e v i d e n c e o f i n e f f i c i e n c i e s , o t h e r than t h r o u g h the c o m p l a i n t s o f a i r l i n e s whose b i a s e d statements do not always c a r r y t h a t much w e i g h t w i t h the g o v e r n ment.  ^  .  To summarize, i t i s f a i r t o say t h a t because o f the d i f f e r e n c e s i n the a d m i n i s t r a t i o n o f the two systems i t i s d i f f i c u l t t o c o n c l u d e t h a t d i f f e r ences i n the l a n d i n g f e e s t r u c t u r e a r e d i r e c t l y a t t r i b u t a b l e t o poor management.  The p o l i c i e s o f the Canadian government toward the a i r p o r t system  a r e d i f f e r e n t from the U n i t e d S t a t e s , and they have r e s u l t e d i n l a r g e e x p e n d i t u r e s i n our a i r p o r t system.  To t h e e x t e n t t h a t revenues a r e b e s t  used t o c o v e r c o s t s , then t h e proposed f e e i n c r e a s e s i n Canada a r e v e r y e f f e c t i v e indeed.  About the b e s t statement t h a t can be made r e l a t e s t o the  f e e s t r u c t u r e s a t a i r p o r t s i n Canada and the U n i t e d S t a t e s w i t h a p p r o x i m a t e l y equal enplanement and manpower l e v e l s .  I f an a i r p o r t i n t h e U n i t e d  S t a t e s w i t h a comparable degree o f a c t i v i t y t o one i n Canada has a lower f e e s t r u c t u r e , then t h i s i s p r o b a b l y t h e r e s u l t of l o w e r expenses  (assuming  121  other sources of revenue to be roughly e q u a l ) , and one p l a u s i b l e i n t e r p r e t a t i o n of t h i s i s that the a i r p o r t with lower expense l e v e l s i s more e f f i c i e n t l y managed. 5.  Non-Quantifiable C r i t e r i a Having concluded in Chapter .Four, that an extensive a i r p o r t commission  was the best s o l u t i o n to;the]problems of the Canadian a i r p o r t system, i t i s useful to review the findings of t h i s and the preceding Chapter to v verify this. Without a doubt, the majority of American a i r p o r t s ' management possess an equal amount of a u t h o r i t y to accompany the r e s p o n s i b i l i t y of a i r p o r t operations.  C e r t a i n l y t h i s i s not to say they do not have any problems,  as was noted i n the previous chapter.  However, the extensive system of  checks and balances provides the degree of responsiveness  to a i r p o r t users  that would be expected of a commission, and at l e a s t a framework of c o n s u l t a t i o n e x i s t s f o r a t t a c k i n g any problems that need to be d e a l t w i t h .  I t appears  that the balance between the needs f o r a national a i r p o r t system and i n creased commercial v i a b i l i t y has been struck in the United S t a t e s , although t h i s task has been developed over many years and with a l a r g e r population, while in,,Canada,; the^need f o r a» greater balance i s only now becoming apparent, ;  and our country i s not densely populated.  From the accounts i n the previous  chapter, i t appears that w e l l - q u a l i f i e d men are managing a i r p o r t s which, i n i t s e l f , i s an i n d i c a t i o n that there i s a good i n c e n t i v e to work at that* l e v e l of management.  Again, to r e f e r to the responsive environment set up,  the l o c a l management has the i n c e n t i v e to do a good j o b ; otherwise, many complaints would be voiced through the channels a v a i l a b l e to a i r p o r t users.  122  CONCLUSIONS The o b j e c t i v e of t h i s paper has been a d e t a i l e d i n v e s t i g a t i o n of the management of a i r p o r t operations.  The major issues are the d e f i n i t i o n of  proper management at an a i r p o r t , whether or not Canadian a i r p o r t s are properly managed, and what improvements |an .be^made;to t^e. present system'."''' •: The f i r s t issue i s d i f f i c u l t to r e s o l v e , because of the existence of a very complex management system.  Several important pressure groups, key to  the operation of an a i r p o r t - - t h e federal government, the a i r l i n e s , the a i r t r a v e l l i n g p u b l i c and the l o c a l management a t a i r p o r t s — h a v e been i d e n t i f i e d . Each one has i t s own d e f i n i t i o n of proper management, and the three that stand out are those belonging to the federal government, the a i r l i n e s , and l o c a l a i r p o r t management.  The federal government i s of the opinion that  good management e n t a i l s an emphasis upon the provision of a system that answers d i r e c t l y to the policy-makers w i t h i n the headquarters branch of the Canadian A i r Transportation A d m i n i s t r a t i o n , a d i v i s i o n of the Federal M i n i s t r y of Transport.  I t i s the i n t e n t i o n of the federal government to run  a national system of a i r p o r t s , based on a system of c r o s s ^ s u b s i d i z a t i o n between the a i r p o r t s that operate with surpluses and those that operate with deficits.  The commercial a i r l i n e s operating i n Canada define proper manage-  ment as being responsive to the needs of the primary users of an a i r p o r t ' s f a c i l i t i e s ; they believe a i r p o r t management e x i s t s to serve the needs of a i r l i n e s and not v i c e versa.  The local administrations at major a i r p o r t s  across Canada i n t e r p r e t proper management as possessing complete authority and independence to accompany the heavy r e s p o n s i b i l i t y placed on t h e i r shoulders i n the operation of an a i r p o r t .  Although these views are  123 fsomewhat c o n f l i c t i n g , and hinder the formation of an acceptable d e f i n i t i o n , they shed l i g h t upon the issue/that a l l p a r t i e s believe that the present management system does not match '' some changes.  t h e i r expectations and could do with  Even the r o l e played by the federal government—which has been  examined and found to be that of a monopolist possessing control over the management of a i r p o r t s , being responsive to i t s own goals, and the p u b l i c i n t e r e s t — i s not without i t s f a u l t s and doubts as evidenced by the appointments of a two-year Task Force on A i r p o r t Management to study a l t e r n a t i v e s to the present system. The structure of the present system has been a p t l y described as a totem pole of managers with the power being held at the top by the headquarters of C.A.T.A., the s i x regional administrations being in the middle to ensure p o l i c i e s from the top are in p l a c e , and the l o c a l a i r p o r t management at the bottom, responsible f o r operating the a i r p o r t , but possessing l i t t l e independence to manage the operations ( f i n a n c i a l l y and otherwise). When the complaints of the a i r l i n e s and l o c a l management are investigated to d i s c l o s e the extent of the problems with the system, they reveal several s i g n i f i c a n t aspects.  The a i r l i n e s do not believe that increasing user  charges i s the most e f f e c t i v e way of reducing the cost-revenue gap at most airports.  Local a i r p o r t administration lacks a u t h o r i t y , input i n s e t t i n g  p r i o r i t i e s , and has l i t t l e control over the f i n a n c i a l operations; at the ;  airport.  To be f a i r to the government i n assessing these problems, i t i s  important to comprehend i t s behaviour.  It i s operating the a i r p o r t system  with the aim of maximizing the s o c i a l benefits of i t s p o l i c i e s without possessing any i n c e n t i v e to minimize the p r i v a t e of s o c i a l costs of i t s activities.  I t i s easy to understand how t h i s c o n f l i c t s with p r o f i t - c o n -  scious a i r l i n e s and price-conscious a i r t r a v e l l e r s i f the government, in  i.24  search of greater benefits i n the ' p u b l i c i n t e r e s t ' c o n t i n u a l l y increases expenditures to finance the a i r p o r t system. operations to a l l users.  This raises the cost of a i r p o r t  The government also y i e l d s to considerable p o l i -  t i c a l interference f o r regional and national development reasons which do not always p a r a l l e l the goals of the primary users. The r e s u l t of the analysis created a set of c r i t e r i a that can be used to define proper a i r p o r t management. f o l l o w i n g ideas:  The c r i t e r i a incorporated the  a strong degree of a u t h o r i t y and independence f o r the  l o c a l administration at the a i r p o r t , a responsiveness  by l o c a l management  to the business environment surrounding the a i r p o r t , a balance between the need f o r a national system and increased commercial v i a b i l i t y , a lack of p o l i t i c a l interference i n operations, and an i n c e n t i v e to work hard at providing e f f i c i e n t , e f f e c t i v e and safe a i r p o r t management s e r v i c e s . A f t e r reviewing several proposals ranging from changes i n p o l i c y to organizational changes, the concept of an independent a i r p o r t commission emerges as the most promising s o l u t i o n .  Five a i r p o r t s — T o r o n t o , Dorval,  Vancouver, Calgary and Winnipeg—are chosen to be converted to s e l f s u f f i c i e n t a u t h o r i t i e s possessing an elected board of d i r e c t o r s who appoint l o c a l management.  Not c o i n c i d e n t a l l y , these a i r p o r t s are among the f i v e  l a r g e s t i n Canada and possess the most l i k e l i h o o d of surviving as independent a i r p o r t commissions.  Each a i r p o r t becomes an independent body subject  only to federal government regulation f o r safety and a i r t r a f f i c c o n t r o l . The primary o b j e c t i v e of management i s to cover a l l a i r p o r t s e r v i c e s , i n cluding any debt s e r v i c i n g a r i s i n g from debt f i n a n c i n g .  The APM i s r e s -  ponsible f o r and has a u t h o r i t y over a l l operations ( i n c l u d i n g budgeting andtthe s e t t i n g of landing fees) and can determine p r i o r i t i e s i n consultation  •125 (  w i t h the primary users of the a i r p o r t ' s f a c i l i t i e s (commercial a i r c a r r i e r s , military).  Local a i r p o r t management i s also dedicated to maintaining an  e f f e c t i v e communications and consultation system with a l l p a r t i e s , so as to be more responsive to t h e i r needs.  As evidenced by the d e s c r i p t i o n of the new  management system, i t s a d a p t a b i l i t y to the set of c r i t e r i a i s good.  Although  i t i s not an optional s o l u t i o n whereby a l l p a r t i e s are s a t i s f i e d and no improvements can be made without worsening someone's p o s i t i o n , i t i s an improvement upon the present system.  At these f i v e a i r p o r t s the a u t h o r i t y to control  operations i s put in place, and there i s a b u i l t - i n f l e x i b i l i t y to provide f a c i l i t i e s and management services i n response to the business environment needs.  P o l i t i c a l interference and bureaucracy have been reduced, and by  a l l o c a t i n g l e g i t i m a t e costs c l o s e r to the users, there i s a b e t t e r chance of f u l l cost recovery. The federal government r e t a i n s control over the majority of the system's a i r p o r t s , enabling i t to maintain a national system.  Because the most p r o f i t -  a b l e a a i r p o r t s are converted to independent operations whose main o b j e c t i v e i s to break even, the government i s losing a major source of revenues which at present, i t depends upon for the c r o s s - s u b s i d i z a t i o n of other a i r p o r t operat i o n s . C.A.T.A. has the option of r a i s i n g user charges at the a i r p o r t s i t s t i l l controls to achieve a higher percentage of cost recovery. Culley has demonstrated that a i r l i n e s can bear an increase in landing fees to support t h i s obj e c t i v e , and the increase in landing fees required at a large.-numberrof a i r ports i s not that s u b s t a n t i a l . Some s u b s i d i z a t i o n may be necessary f o r the smallest a i r p o r t s where the increase i n user charges w i l l be too large to support the continuation of commercial a i r s e r v i c e .  O v e r a l l , the new pro-  posal should not increase the costs of operating the new system, as i t i s merely r e d i s t r i b u t i n g more payments from the general treasury to the a i r t r a v e l l i n g public and other users of the a i r p o r t .  This i s a more v a l i d user-  pay philosophy than the government has been supporting.  -"126 To determine whether or not t h i s proposal performs as well i n p r a c t i c e as on paper, an examination of the United States a i r p o r t a u t h o r i t y system reveals that a i r p o r t s are t y p i c a l l y owned by c i t i e s or m u n i c i p a l i t i e s as legal public corporations.  They are run by p r i v a t e management teams which  have t o t a l control over a l l operations.  The a i r p o r t a u t h o r i t y , although i t  has no taxing a u t h o r i t y , i s an independent f i n a n c i n g v e h i c l e which can issue bonds to finance p r o j e c t s .  There i s also d e t a i l e d a i r p o r t l e g i s l a t i o n which  provides extensive federal a i d to a l l types of a i r p o r t s .  Through the A i r -  port and Airway Development A c t , funds are a v a i l a b l e f o r a i r p o r t master plans, and various p r o j e c t s .  The funds are a v a i l a b l e from a Trust Fund  which c o l l e c t s taxes on f u e l , passengers and a i r c r a f t at a i r p o r t s the United States. annually.  across  The aim of thesauthoftcity management i s to break even  Public i n t e r e s t groups and a i r l i n e s are a c t i v e l y encouraged to  p a r t i c i p a t e in p o l i c y decisions that d i r e c t l y a f f e c t t h e i r i n t e r e s t s , and t h e i r involvement provides an e f f e c t i v e system of checks and balances against l o c a l  management.  The a u t h o r i t y concept i s not without i t s problems.  Research performed  on the actual workings of the management structure provides several  insights.  The increased amount of authority allows l o c a l management to be subject to c l o s e r scrutiny by users, and creates pressure on a i r p o r t management to be well-respected and capable. be sought to f i l l can be a problem.  This i n f e r s that highly q u a l i f i e d people must  these positions and the lack of s p e c i a l i s t s in t h i s f i e l d The open consultations have allowed primary users, in  p a r t i c u l a r , a i r l i n e s , to become business partners with the l o c a l administration.  As a r e s u l t , there are complaints emanating from both sides that  the other partner i s vying f o r control of power.  This reinforces the need  f o r strong leadership at the helm of the a d m i n i s t r a t i o n .  Personnel  problems  with unions, j o b - d e s c r i p t i o n s and feather-bedding, s i m i l a r to those i n Canada, e x i s t at the a u t h o r i t i e s studied.  Also s i m i l a r to complaints voiced  at Canadian a i r p o r t s , but to a l e s s e r extent, are the claims made by a i r l i n e s that i t i s u n f a i r to use landing fees as a c a t c h a l l to cover expenses. They are p r i m a r i l y concerned that unexpected variances in the a i r p o r t s '  cost-  revenue gap w i l l be passed on to t h e i r shoulders through landing fee i n creases. The management of the Trust Fund has given r i s e to some concern.  The  fund has b u i l t up a g i g a n t i c surplus of over two b i l l i o n d o l l a r s which has yet to be a l l o c a t e d .  A i r p o r t managers and users would prefer to see the  surplus put to good use, preferably to help lower the costs of operation, which the a i r l i n e s could pass on to the a i r - t r a v e l l e r s in the form of r e duced f a r e s .  A growing problem at the majority of United States a i r p o r t s  i s the small burden of user charges borne by general a v i a t i o n .  With con-  gestion worsening, and commercial a i r c a r r i e r s encountering r i s i n g c o s t s , i t i s f e l t that i f general a v i a t i o n i s to use a commercial a i r c a r r i e r designated a i r p o r t , then they should pay the f u l l cost of using that f a c i l i t y . The U.S. has moved forward and created funds f o r the f u r t h e r development of general a v i a t i o n a i r p o r t s .  The f i n a l concern expressed by l o c a l admini-  s t r a t i o n i s the prospect of a i r l i n e deregulation, and the..ensuing problems with more f l y - b y - n i g h t c a r r i e r s and the p o s s i b i l i t y of increased congestion. The examination, then, of the management s t r u c t u r e at c e r t a i n U.S. a u t h o r i t i e s disclosed a number of problems which we should expect to be associated with any business operation.  On the whole, t h e i r degree of  seriousness i s no worse than that f a c i n g Canadian a i r p o r t s . The comparison of selected American a i r p o r t s to the f i v e Canadian a i r ports using f i n a n c i a l r a t i o s disclosed that between a i r p o r t s with s i m i l a r  activity levels,/  the American a i r p o r t s outperform Canadian a i r p o r t s .  Without the burden of debt s e r v i c e , the f i v e Canadian a i r p o r t s operate with a surplus, i n d i c a t i n g that they do have the p o t e n t i a l to become autonomous entities.  When the debt s e r v i c e i s included, the«Canadian a i r p o r t s , save  Montreal, Toronto,and Vancouver, run large d e f i c i t s . When r a t i o s were c a l c u l a t e d f o r d o l l a r expense per passenger enplaned, the larger a i r p o r t s in the United States r e a l i z e d some form of economies of scale as t h e i r r a t i o s were lower than other smaller U. S. a i r p o r t s . In Canada, the comparable r a t i o s were higher f o r a l l f i v e a i r p o r t s , with the added t w i s t that the two l a r g e s t — D o r v a l and Toronto—possessed largest ratios.  the  An analysis of the components of expenses revealed higher  operating expenditures and higher debt service costs i n Canada.  Higher  costs do not d i c t a t e i n e f f i c i e n t management practices in themselves, f o r the Canadian government purposely i n s t a l l e d a management system which operates to promote a national system i n the p u b l i c i n t e r e s t .  However,  when combined with the c h a r a c t e r i s t i c s of a i r p o r t management being powerless to control c o s t s , and the absence of a comparable system of checks and balances such as e x i s t s in the United S t a t e s , there i s no i n centive or b u i l t - i n deterrence to aim f o r lower costs of running an a i r port.  Bearing t h i s in mind, the r a t i o can be re-examined and i t i s a  reasonable conclusion that the government i s wasting c a p i t a l resources i n the a i r p o r t system i f comparable a i r p o r t s i n the United States can operate with lower costs.  Opponents may defend the higher costs as the p r i c e f o r  maintaining a national system but, from the evidence i n t h i s paper, t h i s would seem a tenuous c l a i m .  The United States has an e f f i c i e n t a i r p o r t  management system, and no claim can be made regarding the absence of a  •national system i n the United States.  The F.A.A. e x i s t s to maintain  national safety standards and other regulatory matter, but they leave the business operations in the hands of the a i r p o r t managers.  As f u r t h e r  support, growing expenditures f o r the operations of our a i r p o r t s add to the burgeoning federal d e f i c i t .  I f i t i s a goal of the newly-elected  government to search f o r serious ways of reducing t h i s d e f i c i t , perhaps a hard look at maintaining a national system of a i r p o r t s i n the public interest is called for. The comparison of d o l l a r revenue c o l l e c t e d per passenger enplanement reveals higher r a t i o s f o r the Canadian a i r p o r t s which follows from the higher l e v e l of costs incurred in t h e i r operation:.;, The major area of d i f f e r e n c e between the two systems i s the present l e v e l of landing fees which exceeds the average fees set i n d i v i d u a l l y by a i r p o r t s i n the United States, even though the Americansuuseilandvfees as a ' c a t c h a l l ' to ensure that breakeven i s reached.  The Americans, in t u r n , depend more heavily  upon revenues generated by r e n t a l s and concessions.  Given that the r e -  venue ratios.:are higher i n Canada i n the attempt to match the high expense r a t i o s has not been s u c c e s s f u l .  Most a i r p o r t s in the United States do  achieve 100 percent l e g i t i m a t e user cost recovery which in Canada only Toronto r e a l i z e d t h i s percentage in 1976-77. The evidence in the paper points to the American a i r p o r t a u t h o r i t y concept as a more properly managed system according to the c r i t e r i a developed to i d e n t i f y t h i s .  The Canadian a i r p o r t management system has  developed serious f a u l t s that deter i t s effectiveness and e f f i c i e n c y . While the recommendation made requires a major organizational change, i t i s the most sensible one developed i n the framework of t h i s paper  and, on the strength of what t h i s author believes to be a purely o b j e c t i v e a n a l y s i s , i t i s hoped that the recommendation w i l l be given serious cons i d e r a t i o n by the decision-makers w i t h i n the government. The author would l i k e to acknowledge the advice and d i r e c t i o n provided by Dr. Karl Ruppenthal, Dr. Aidan Vining and Dr; B i l l Watters in the development and w r i t i n g of t h i s t h e s i s .  Special thanks are extended  to the Director of the Federal Task Force on A i r p o r t Management, Mr. Mel Hagglund, and i t s members whom the author worked with during i t s initial  phase of research.  F i n a l l y , a special note of appreciation i s  given to Mr. Larry P o t v i n , D i r e c t o r General of P o l i c y and Programming in the Canadian A i r Transportation Administration whose advice was instrumental in the choice of t h i s t o p i c .  .131  APPENDIX i  LIST OF EXHIBITS Exhibit  Page  E x h i b i t 1'.-- Abstractions From Federal L e g i s l a t i o n on Canadian A i r p o r t s Exhibit 2  „ 1^33.  - T r a f f i c Volumes and Operating Expenditures (thousands of people d o l l a r s ) at P r i n c i p a l A i r p o r t s i n Canada  140.  Exhibit 3  - A i r p o r t s to be Considered f o r Conversion to Commissions i n Canada ...  vi 41  Exhibit 4  - Canadian A i r Transportation Administration New A i r p o r t s Revolving Fund 23 A i r p o r t s and Terminal Control";5% Revenue Increases Inflated $Millions  .142  Exhibit 5  - Canadian A i r Transportation Administration New A i r p o r t s Revolving Fund 23 A i r p o r t s and Terminal Control 5%^Revenue3lncreases (Assuming I n i t i a l Revenue Base Increased) I n f l a t e d V i . / A Millions 144^.  Exhibit 6  - The United States A i r p o r t and Airway Trust " .' Fund  Exhibit 7  - The Reimbursements to Trust Fund United States  Exhibit 8  - Possible Investments f o r the Surplus of the United States Trust Fund  Exhibit 9  - Apportionment of Grants Under the A i r p o r t and Airway Development Fund  .... '146;,  of the  148 " 149-.  132,  LIST OF EXHIBITS CONT'D  Exhibit  ~  .Page-  E x h i b i t 10 - Nashville A i r p o r t Authority  .152  E x h i b i t 11 - Organization Structure - John F. Kennedy International A i r p o r t 1978  153  E x h i b i t 12 - Description of Operating Revenues and A i r p o r t Expenses  1,54  EXHIBIT 1 ABSTRACTIONS FROM. FEDERAL LEGISLATION ON ...CANADIAN AIRPORTS AERONAUTICS ACT The M i n i s t e r of Transport supervises and promotes the development of a l l matters connected with aeronautics.  The Act empowers the M i n i s t e r to  construct and maintain a l l government a i r p o r t s , i n c l u d i n g a l l necessary p l a n t s , machinery and b u i l d i n g s .  The current p o l i c y i s to develop and  maintain a l l government a i r p o r t s , i n c l u d i n g a l l necessary p l a n t s , machinery and b u i l d i n g s , International and National a i r p o r t s , as well as s a t e l l i t e s i t e s to r e l i e v e congestion at major a i r p o r t s .  I t i s the p o l i c y  of the government to accommodate immigration f a c i l i t i e s , t i c k e g agencies, post o f f i c e , banks, restaurants, f i r e and ambulance service and commercial retailers.  Special contractual requirements with respect to A i r  Canada e x i s t under the recently passed A i r Canada Act (see Volume 3, No. 2 Canada Gazette Part  III).  To ensure proper s u p e r v i s i o n , the government can prepare regulatons f o r the control or operation of aeronautics in Canada.  These regulations  may concern i) (ii)  (iii)  (v)  the l i c e n s i n g of a l l aerodromes and a i r p o r t s ; the height, use, and l o c a t i o n of buildings and structures s i t u a t e d on the lands adjacent to or in the v i c i n i t y of the a i r p o r t ; the designation of lands adjacent to an a i r p o r t as a protect i o n area to prevent the use or development of such lands (to be used as a l a s t resort i f a l l other e f f o r t s have f a i l e d ) ; zoning of land.  The M i n i s t r y of Transport c e n t r a l l y administers the a i r p o r t planning function through master plans and a..national plan.  These plans are drawn  up according to forecasts of a i r transportation demand, ICAO standards f o r f a c i l i t i e s , and any other f a c t o r s which may uniquely pertain to an a i r p o r t . The design of a i r p o r t s i s based on the operational c h a r a c t e r i s t i c s of c r i t i c a l a i r c r a f t with consideration given to route s t r u c t u r e s , a i r p o r t r e ference temperatures and payload demand.  The Canadian A i r Transportation  Administration w i l l o n l y issue an operating c e r t i f i c a t e to an a i r p o r t i f the manoeuvering areas and other f a c i l i t i e s are safe f o r the operation of the c r i t i c a l a i r c r a f t proposed. A i r Navigation f a c i l i t i e s and services are the r e s p o n s i b i l i t y of the Director General of C i v i l Aeronautics w i t h i n the federal government.  These  encompass f a c i l i t i e s necessary f o r the navigation of a i r c r a f t (enroute a i d , terminal aids and landing aids) and operational services (aeronautical i n formation s e r v i c e , a i r t r a f f i c s e r v i c e , inspection and c a l i b r a t i o n s e r v i c e , communication service and a v i a t i o n weather service) which permit an orderly flow of a i r c r a f t w i t h i n the structure of the a i r p o r t .  The government also  provides a i r t r a f f i c services at 57 a i r p o r t s and 15 terminal areas; radar and radio coverage i n a l l high l e v e l airspace and 49,000 n a u t i c a l miles of low l e v e l  airways.  The Canadian A i r Transportation Administration develops and administers p o l i c i e s to enhance a v i a t i o n safety that encompass the basic functions of operating airway f a c i l i t i e s , a i r t r a f f i c control s e r v i c e s , the national a i r terminal system and'the regulation of most a v i a t i o n a c t i v i t i e s ( a i r worthiness c e r t i f i c a t i o n , l i c e n s i n g of a i r p o r t s , a i r t r a f f i c control and their services). The M i n i s t e r of Transport assumes the f o l l o w i n g r e s p o n s i b i l i t i e s i n support of the a i r p o r t s e c u r i t y programme: i)  i n s t a l l a t i o n of physical s e c u r i t y measures;  135 ii) iii)  provision of a s e c u r i t y force s t a f f e d by the RGMP a t major domestic a i r p o r t s ; f a c i l i t i e s to implement s e c u r i t y measures;  i v ) ; communications network and emergency c o o r d i n a t i o n ; v)  provision of funds f o r research and development.  The a i r c a r r i e r s have the f o l l o w i n g r e s p o n s i b i l i t i e s f o r s e c u r i t y : i) ii)  provision of personnel to carry out authorized search of passengers; s e c u r i t y measures f o r i t s own assets.  Under the Aeronautics A c t , there e x i s t s a National C i v i l A v i a t i o n Security Co-ordinator who i s provided with the a u t h o r i t y f o r s e c u r i t y measures including the search of passengers and ensuring that a l l owners and operators of a i r c r a f t comply^with the law. FINANCIAL ADMINISTRATION ACT The Treasury Board has j u r i s d i c t i o n over matters of f i n a n c i a l management i n c l u d i n g :  estimates of expenditures, f i n a n c i a l commitments, charges  f o r the provision of s e r v i c e s , r e n t a l s , revenues, annual and longer term expenditure plans of the various departments of government.  This control  i s l i n k e d to the national a i r p o r t system under the control of the M i n i s t r y of Transport. The Treasury Board c o n t r o l s the Consolidated Revenue Fund (C.R.F.) which i s the aggregate of a l l p u b l i c monies that are on deposit tp; the c r e d i t of the Receiver General.  The l a t t e r keeps accounts d i s c l o s i n g r e -  cords of expenditures made under each cash a p p r o p r i a t i o n , or l o a n , revenues of Canada, and other payments i n and out of the C.R.F.  Money received f o r  a special purpose i s paid i n t o the C.R.F. and held therein u n t i l a drawing i s required.  For example, Transport Canada provides subsidies to a i r p o r t s  that i t does not operate.  They are e l i g i b l e f o r an annual operating  subsidy up to 100 percent of the d e f i c i t and f i n a n c i a l assistance equal to 100 percent of the approved c a p i t a l expenditures ( e . g . , C h u r c h i l l F a l l s and Dryden).  M u n i c i p a l i t i e s which operate a i r p o r t s of l o c a l i n t e r e s t , or wish  to develop a n o a i r p o r t , are e l i g i b l e f o r c a p i t a l f i n a n c i a l assistance toward construction and/or improvements. I t i s a term of every contract providing f o r the payment of any money from the C.R.F. that the payment i s subject to there being an appropriation f o r the p a r t i c u l a r service f o r the f i s c a l year i n which i t occurs.  When  there i s an appropriation by Parliament, the person charged with the/admi.ni.s tration  of a service prepares a d i v s i o n into allotment i n the form de-  t a i l e d in the parliamentary estimates. The Treasury Board may a l s o , in r e l a t i o n to i t s r e s p o n s i b i l i t i e s f o r personnel i) ii) iii) iv) v) vi) vii) viii)  ix)  management: determine the manpower requirements of the p u b l i c s e r v i c e and provide f o r t h e i r a l l o c a t i o n ; determine the requirements f o r the t r a i n i n g and development; provide f o r c l a s s i f i c a t i o n of p o s i t i o n s ; determine and regulate the pay to which persons employed in the p u b l i c service are e n t i t l e d ; e s t a b l i s h standards of d i s c i p l i n e ; e s t a b l i s h standards governing physical working c o n d i t i o n s ; determine and regulate payments made f o r t r a v e l l i n g expenses; make regulations f o r the purpose of ensuring e f f e c t i v e coordination of a d m i n i s t r a t i v e services w i t h i n departments and f o r the establishment of a d m i n i s t r a t i v e standards of performance;  require from any public o f f i c e r any account or document that . the board considers necessary f o r the due performance of .its duties.  Under the F i n a n c i a l Administration A c t , the Auditor General i s e n t i t l e d to f r e e access to the accounts of every department to ensure that the public  ' 137 accounts are r e c o n c i l a b l e ; that a l l public money i s accounted f o r and has been expended f o r the purposes f o r which i t was appropriated.  The Auditor  General can i n q u i r e i n t o the f i n a n c i a l a f f a i r s of any organization that receives f i n a n c i a l a i d from the Canadian government. NATIONAL TRANSPORTATION ACT While t h i s Act impinges on the management of a i r p o r t s i n a rather broad fashion with respect to national goals, the federal p o l i c y regarding a i r c a r r i e r s e r v i c e s , and the c a t a l y t i c r o l e that the CTC may play are worthy of note. In e s t a b l i s h i n g i n t e r n a t i o n a l l y scheduled a i r services the government has predetermined that a l l routes should be economically v i a b l e .  All inter-  n a t i o n a l a i r services are operated on the basis of a b i l a t e r a l agreement. The goals of i n t e r n a t i o n a l scheduled a i r transport are to: i) ii)  meet the needs of the t r a v e l l i n g p u b l i c ; meet the requirements of f r e i g h t f o r scheduled a i r transport;  iii)  encourage economic growth of Canadian c i v i l a v i a t i o n i n the international f i e l d ;  iv)  achieve the maximum advantage f o r Canada in terms of t r a d e , commerce and tourism and improve r e l a t i o n s with other c o u n t r i e s .  These p o l i c i e s favour the increased u t i l i z a t i o n and development of the major a i r p o r t s in Canada and have an i m p a c t — d i r e c t l y on the amount of a i r t r a f f i c and i n d i r e c t l y upon the business that i s generated. a l s o d i c t a t e the degree of importance of a i r p o r t s .  They can  For example, the de-  velopment of Toronto as an i n t e r n a t i o n a l a i r p o r t and the r i s e i n importance of that c i t y as a t r a f f i c generating centre have led to a growing demand f o r access t o Toronto from f o r e i g n c a r r i e r s .  To protect the Montreal gate-  way, the government has taken a l l reasonable steps in b i l a t e r a l negotiations to d i r e c t t r a f f i c i n t o and out of Eastern Canada to and through that  ;  (138 gateway.  As the rapid growth has led to congestion at Mai t o n , a moratorium  was declared in 1976 on f u r t h e r a i r c a r r i e r access to Malton u n t i l a d d i t i o n a l f a c i l i t i e s become a v a i l a b l e . The federal p o l i c y regarding regional a i r services i s to regulate the competitive p o s i t i o n among regional c a r r i e r s ; between regional and the two mainline c a r r i e r s ; and to provide opportunities f o r expansion of a c t i v i t i e s in order to safeguard t h e i r f i n a n c i a l v i a b i l i t y .  Since the regional c a r r i e r s  (which would include A i r Canada and CP A i r - - o u r two national c a r r i e r s ) serve the national and regional a i r p o r t s , t h i s p o l i c y statement i s i n the i n t e r e s t s of these a i r p o r t s and encourages continued a i r t r a f f i c a c t i v i t y and the r e s u l t i n g business that i t generates. On the domestic charter f r o n t , services may only be operated on the route of a scheduled c a r r i e r unless thesscheduled c a r r i e r agrees to the proposed route or the A i r Transport Committee authorizes the s e r v i c e .  Re-  gular c a r r i e r s have introduced Charter Class Fares (465,000 seats in the peak 1978 season) and more recently l i m i t e d Advanced Booking Charters have been introduced to national and regional c a r r i e r s .  If the demand f o r these  charter services develops as forecasters p r e d i c t , then a greater number of passengers w i l l flow through a i r p o r t s . Within the boundary of the National Transportation A c t , the Canadian Transportation Committee i s ordained to perform the functions vested in i t by t h i s A c t , the Railway A c t , and the Aeronautics A c t , with the object of coordinating and harmonizing operations of a l l c a r r i e r s engaged in operation.  Their actions could i n d i r e c t l y impact ( p o s i t i v e l y or negatively)  upon the amount of a c t i v i t y at a given a i r p o r t i n Canada. The duties of the CTC are as f o l l o w s : i)  to i n q u i r e i n t o measures to a s s i s t in a sound economic development of the a v i a t i o n mode;  ^  ii)  iii) iv)  To i n q u i r e i n t o measures to be adopted in order to achieve coordination i n the development and regulation of various modesoof transport; to inquire i n t o f i n a n c i a l measures required f o r d i r e c t assistance to a v i a t i o n ; to advise the government on the o v e r a l l balance of expenditure programs of various government departments f o r the provision of transportation f a c i l i t i e s in the various modes of transport.  , The CTC has also established the A i r Transportation Committee which may exercise all":the powers and duties of the CTC. The CTC acts as a c a t a l y s t with respect to the economic aspects of the management of a i r p o r t s .  Through t h e i r recommendations and measures of  economic development they have a f a i r degree of control as a watchdog over air carriers.  Since the l a t t e r are the prime c l i e n t s of the a i r p o r t the  managers of the l a t t e r should be well aware of the a c t i v i t i e s of the CTC i f they are to maintain a broad understanding of the "powers that be" i n Ottawa.  139  EXHIBIT 2  j.  TRAFFIC VOLUMES A p OPERATING EXPENDITURES (thousands of people d o l l a r s ) , ; ^ IN CANADA  T r a f f i c Vol umes . ,.- ' 1-977'  AIRPORTS  1.  Toronto  2.  Enplaned & , Deplaned : Revenue Passengers (OOO's)  Itinerant Aircraft Movements (OOOi's.)}  D i r e c t A i r p o r t O&M Expenditures 1977/78  Person Years  Operating and Maintenance Expenditures ($000's)  11,544.9  232.7  465  19,865.0  Dorval  5,386.1  157.3  337  12,608.0  3.  Vancouver  5,106.0  232.2  170  8,565.0  4.  Calgary  2,736.8:  134.5  109  4,481.6  5.  Winnipeg  1 ,959.1  108.3  145  4,665.7  6.  Edmonton  1 ,627.7  58.8  130  4,349.8  7.  Ottawa  1,611.1  84.6  122  4,594.3  8.  Mirabel  1,445.3  44.1  373  16,537.0  9.  Halifax  1 ,289.7  49.0  118  3,985.3  10.  Quebec  575.8  85.2  53  1,959.5  11.  Regina  520.9  61.0  34  1,197.2  12.  Victoria  463.8  96.3  30  1,059.6  13.  Saskatoon  447.2  60.5  36  1,240.6  14.  S t . John's  432.4  22.1  '60  1 ,689.5  15.  Thunder Bay  337.3  38.8  32  992.6  16.  Windsor  265.8  32.1  37  1,078.0  17.  London  262.8  61.8  37  1,146.8  18.  Moncton  201.1  36.5  57  1,865.9  19.  Fredericton  194.0  30.0  35  920.4  20.  Sydney  183.4  12.7  44  1 ,089.4  21.  Saint John  169.4  22.2  38  1,066.1  22.  Charlottetown  165.9  18.3  27  751.0  23.  Gander  159.5  27.2  131  3,782.3  Source:  The Federal M i n i s t r y of Transport, Canadian A i r p o r t Database 1978.  EXHIBIT 3  A i r p o r t s to be Considered For Conversion to Commissions ..in Canada  Mai ton Dorval Vancouver Calgary Winnipeg  142  EXHIBIT 4 Canadian A i r Transportation Administration New A i r p o r t s Revolving Fund 23 A i r p o r t s and Terminal Control 5% Revenue Increases - I n f l a t e d $ M i l l i o n s  Total Revenues Total Costs P r o f i t (Loss) Depreciation P r o f i t (Loss)  1979/80  1980/81  1981/82  1982/83  1983/84  5-year Total  234.0  257.7  283.9  312.6  232.3  344.4  249.3  266.4  1432.5  283.4  298.1  8.4  1329.5  17.5  29.2  46.2  64.8  68.4  103.0  76.2  85.4  (63.1)  90.4  (60.0)  385.2  (58.7)  (56.2)  (44.2)  7.9  (282.2)  18.9  34.0  (63.1)  47.7  (67.9)  108.5  (77.6)  (90.2)  64.8  (91.9)  68.4  (390.7)  76.2  85.4  1.7  90.4  .5  385.2  (1.4)  (4.8)  (1.5)  98.8  140.4  221.3  207.1  100.5  344.8  140.9  1012.4  219.9  202.3  343.3  1006.9  100.5  130.8  214.5  191.1  326.2  2.1  971.2  5.4  11.2  17.0  35.7  140.9  219.9  202.3  343.3  1006.9  1.7  Interest P r o f i t (Loss Add Depreciation Cash Flow from Operations Loans Received Total Sources of Funds Capital Expenditures Loan Repayments Surplus Cash Increased Total A p p l i c a t i o n of Funds  100.5  •  (5.5)  143  EXHIBIT 4 - continued  1934/85  1985/86  1986/87  1987/88  1988/89  Total Revenues  379.8  425.6  479.6  523.7  572.1  3813.3  Total Costs  313.8  330.5  348.0  366.4  385.9  3074.1  66.0  95.1  131.6  157.3  186.2  739.2  93.9  98.6  106.9  137.1  140.0  961.7  (27.9)  (3.5)  24.7  20.2  46.2  (222.5)  70.5  92.0  112.7  133.0  148.9  665.6  (98.4)  (95.5)  (88.0)  (112.8)  (102.7)  (888.1)  Add Depreciation  93.9  98.6  106.9  137.1  140.0  961.7  Cash Flow from Operations  (4.5)  3.1  18.9  24.3  37.3  73.6  334.9  333.7  339.7  285.2  288.3  2594.2  330.4  336.8  358.6  309.5  325.6  2667.8  303.7  300.0  311.0  250.2  255.3  2391.4  26.7  .36.8  47.6  59.3  70.3  276.4  330.4  336.8  358.6  309.5  325.6  2667.8  P r o f i t (Loss) Depreciation P r o f i t (Loss) Interest P r o f i t (Loss)  Loans Received Total Sources of Funds Capital Expenditures Loan Repayments Surplus Cash Increased Total A p p l i c a t i o n of Funds  SOURCE:  Transport Canada - F i l e A1024-5  10-Year Total  144  EXHIBIT 5 Canadian A i r Transportation Administration New A i r p o r t s Revolving Fund 23 A i r p o r t s and Terminal Control \ 5% Revenue Increases"(Assuming I n i t i a l Revenue Base Increased) Inflated $Millions M t ! a A  1979/80 Total Revenues Operating Costs P r o f i t (Loss) Depreciation P r o f i t (Loss) Interest P r o f i t (Loss) Add:  Depreciation  Cash Flow from Operations Appropriations Received Loans Received Surplus Cash Increased Capital  Expenditures  Loan Repayments 100.5  1980/81  1981/82  1982/83  1983/84  5-year Total  145  EXHIBIT 5 - continued 1984/85  1985/86  1986/87  1987/88  1988/89  10-Year Total  Total Revenues  433.7  485.9  546.8  597.6  653.0  Operating Costs  4347.7  313.8  330.5  348.0  366.4  385.9  3074.1  119.9  155.4  198.8  231.2  267.1  1273.6  93.9  98.6  106.9  137.1  140.0  961.7  26.0  56.8  91.9  94.1  127.1  311.9  54.1  70.7  85.5  99.4  107.8  497.2  (28.1)  (13.9)  6.4  (5.3)  Depreciation  93.9  98.6  106.9  137.1  140.0  961.7  Cash Flow from Operations  65.8  84.7  113.3  131.8  159.3  776.4  258.2  243.3  233.8  162.6  147.1  1820.7  324.0  328.0  347.1  294.4  306.4  2597.1  303.7  300.0  311.0  250.2  255.3  2391.4  20.3  28.0  36.1  44.2  51.1  205.7  324.0  328.0  347.1  294.4  306.4  2597.1  P r o f i t (Loss) Depreciation P r o f i t (Loss) Interest P r o f i t (Loss) Add:  19.3  (185.3)  Appropriations Received Loans Received  Surplus Cash Increased Capital Expenditures Loan Repayments  SOURCE:  Transport Canada - F i l e A1024-5  ,146 EXHIBIT 6 .THE UNITED'STATJS tlRPORT AND AIRWAY TRUST FUND SOURCES OF FUNDS A.  EXCISE TAXES  1.  ANY LIQUID FUEL OTHER THAN GASOLINE A tax of 7<t per gallon on a l l a v i a t i o n f u e l s purchased by non-commerc i a l a v i a t i o n (general a v i a t i o n ) i n the United States.  2.  TIRES USED ON AIRCRAFT A tax of 5<£ per pound on the t o t a l weight of a i r c r a f t t i r e s sold (exclusive of rims).  3.  TUBES USED ON AIRCRAFT A tax of 9ct per pound on the t o t a l weight of of a i r c r a f t tubes s o l d .  4.  GASOLINE A tax of 4<£ per gallon i s l e v i e d on gasoline used f o r a i r c r a f t i n volved in commercial a v i a t i o n . A tax of 7<£ per g a l l o n i s l e v i e d on gasoline used f o r f u e l i n a i r c r a f t involved i n non-commercial aviation.  5.  TRANSPORTATION BY AIR An 8% tax on a i r l i n e fares a p p l i c a b l e to the transportation of persons by a i r w i t h i n the 50 States.  6.  INTERNATIONAL TRAVEL A tax of $3.00 per passenger departing from any of the 50 States on an i n t e r n a t i o n a l f l i g h t .  7.  TRANSPORTATION OF PROPERTY/CARGO A tax of 5% on a i r f r e i g h t r a t e s , a p p l i c a b l e to a i r f r e i g h t t r a n s portation w i t h i n the 50 States.  8.  USE OF CIVIL AIRCRAFT An a i r c r a f t tax of $25.00 annually a p p l i c a b l e to a l l c i v i l a i r c r a f t ( a i r l i n e and general a v i a t i o n ) plus a tax annually of 3.5<£ per pound f o r a l l turbine engine a i r c r a f t , and a tax annually of 2c£ per pound f o r a l l piston engine a i r c r a f t weighing more than 2,500 pounds, maximum c e r t i f i c a t e d takeoff weight. Source:  The Federal A v i a t i o n A d m i n i s t r a t i o n , A i r p o r t and Airway Revenue Act of 1970.  EXHIBIT 7 THE REIMBURSEMENTS"TO TRUST FUND OF THE UNITED STATES  ^  Secretary of Treasury pays amounts i n t o General Treasury Fund from the Trust Fund. Fuels ( i n c l u d i n g gas) that have been taxed are subject to refunds i n the f o l l o w i n g cases: (i) (ii) (iii)  public land t r a n s p o r t a t i o n ( l o c a l t r a n s i t ) non-highway use of gasoline  (farms)  f u e l s used f o r non-taxable purposes other than f o r the use sold ( i . e . , not as f u e l i n a i r c r a f t or other transportation v e h i c l e s ) .  Refund of c i v i l a i r c r a f t tax where a i r c r a f t i s used i n business of transporting persons or property by a i r i n foreign a i r commerce.  Source:  The Federal A v i a t i o n A d m i n i s t r a t i o n , A i r p o r t and Airway Revenue Act of 1970.  EXHIBIT 8 POSSIBLE INVESTMENTS FOR THE SURPLUS OF THE UNITED.,STATES TRUST FUND A  Portions of the Trust Fund which are not required to meet current withdrawals may be used f o r investment purposes.  Investments are made only in i n t e r e s t bearing o b l i gations guaranteed (inbboth -principal and i n t e r e s t ) by the United States.  Such o b l i g a t i o n s can be acquired: 1)  on o r i g i n a l issue at the issue p r i c e ;  2)  by purchasing outstanding o b l i g a t i o n s at market p r i c e .  Special o b l i g a t i o n s are also a v a i l a b l e e x c l u s i v e l y f o r the Trust Fund's investment purposes, i f Secretary determines purchase of other i n t e r e s t bearing o b l i g a tions of the United States/'is not i n the p u b l i c ' i n t e r e s t .  Source:  The Federal A v i a t i o n A d m i n i s t r a t i o n , A i r p o r t and Airway Revenue Act 1970.  149  EXHIBIT 9  TYPE OF GRANT  APPORTIONMENT OF O R A N T L J a g E R T H Q l R P O R T AND AIRWAY  DFVFT.OPMT7MT  M  J  M  TYPE OF APPORTIONMENT FURTHER, BREAKDOWN OF APPORTjONMENT WHERE A P P L I C A B L E  A i r p o r t s s e r v e d by a i r c a r r i e r s c e r t i f i e d by C.A.B.  ^  3 3 % o f amount  p  97% o f t h i s  t o U.S. S t a t e s  50% o f t h i s i n p r o p o r t i o n which t h e p o p u l a t i o n o f each s t a t e bears t o the t o t a l population of a l l states. 50% t o t h e p r o p o r t i o n w h i c h the a r e a o f each s t a t e b e a r s to t h e t o t a l a r e a o f a l l t h e states  3%  t o o t h e r U.S. d i s t r i c t s  35% t o H a w a i i 30% t o P u e r t o R i c o 15% t o Guam 15% t o V i r g i n  33% to t h e sponsors of t h i s type o f a i r p o r t  ^  33% to d i s c r e t i o n a r y  fund  Islands  distributed i n same r a t i o a s n o . o f p a s s e n g e r s e n p l a n e d a t e a c h a i r p o r t o f t h e s p o n s o r b e a r s t o t h e t o t a l no o f passengers enplaned a t a l l such a i r p o r t s  150  EXHIBIT 9 - continued  TYPE OF GRANT  TYPE OF APPORTIONMENT  A i r p o r t s s e r v i n g segments o f a v i a t i o n other than c e r t i f i e d air carriers.  _  73.5% to major U.S. S t a t e s  FURTHER BREAKDOWN OF APPORTIONMENT WHERE APPLICABLE  50% i n p r o p o r t i o n which the p o p u l a t i o n o f each s t a t e bears to the t o t a l p o p u l a t i o n o f , a l l the S t a t e s . 50% i n p r o p o r t i o n which the a r e a o f each s t a t e bears to the t o t a l area o f a l l t h e s t a t e s .  ^  1.5% to o t h e r U.S. D i s t r i c t s  35% t o Hawaii 35% to Puerto Rico 15-% t o Guam 15% to V i r g i n I s l a n d s  25% t o d i s c r e t i o n a r y fund For d e v e l o p i n g a i r carrier airports.  To each sponsor o f an a i r p o r t (other than commuter s e r v i c e airports)  $6.00/passenger f o r 0-50,000  passengers  $4.00/passenger f o r 50-100,000 passengers $2.00/passenger f o r 100-500,000 passengers $ .50/passenger  For those a i r c a r r i e r a i r p o r t s served by a i r c r a f t h e a v i e r than" 12,500 l b s . t a k e o f f (other than commuter s e r v i c e airports)  for ~  1976  1977-80  f o r 500,000 passengers — 3 >  -  $187,500 <: x  < $12,500,000  -  $150,000 C x <  $10,000,000 per y e a r  151  EXHIBIT 9 -  continued  TYPE OF GRANT  TYPE 0"F APPORTIONMENT  For d e v e l o p i n g a i r c a r r i e r a i r p o r t s (cont'd)  FURTHER BREAKDOWN OF APPORTIONMENT WHERE A P P L I C A B L E  For those a i r c a r r i e r a i r p o r t s s e r v e d by a i r c r a f t l i g h t e r t h a n 12,500 l b s t a k e o f f ( o t h e r t h a n commuter s e r v i c e airports)  S  F o r Commuter s e r v i c e a i r p o r t s , any amount l e f t o v e r a f t e r t h e a b o v e a p p o r t i o n m e n t s s h a l l be disbributed at the d i s c r e t i o n of the s e c r e t a r y .  Any For d e v e l o p i n g g e n e r a l aviation airports.  amount l e f t  75%  after  -4  1976  -  $62,500<1 x  $12,500,000  1977-80  -  $50,000 ^ . x ^  $10,000,000/year  1976  the  l i m i t s a r e $18,750,000.  1977-80  the  l i m i t s a r e $15,000,000.  t h i s apportionment goes back t o a i r c a r r i e r  t o m a j o r U.S. S t a t e s  .50% i n p r o p o r t i o n w h i c h t h e p o p u l a t i o n o f e a c h s t a t e to t h e t o t a l p o p u l a t i o n o f a l l s t a t e s . 50% the  -} )  airports.  i n p r o p o r t i o n which t h e area o f each s t a t e t o t a l area of a l l the states.  l l / l l v ° T ?' ^ "° > Trust Territory of the P a c i f i c Islands a n d t h e V i r g m I s l a n d s t o be d i s t r i b u t e d a t t h e d i s c r e t i o n o f t h e s e c r e t a r y . P  24%  e r t  R  C  to the discretionary  A  m  e  r  l  Fund.  c  a  n  S a  a  bears  bears to  152  EXHIBIT 10  B O A R D O F  NASHVILLE AIRPORT AUTHORITY  C O M M I S S I O N E R S  E X E C U T I V E  AIR SERVICE  LEGAL AFFAIRS  D I R E C T O R  PLANT SAFETY  COMMUNITY AFFAIRS  SENIOR  PERSONNEL  FINANCE  DIRECTOR  I PLANNING  a  S A F E T Y  OPERATIONS  a  a  SECURITY  ENGINEERING  MAINTENANCE  SMYRNA  NASHVILLE  AIRPORT  METROPOLITAN  AIRPORT  (DAVIDSON CO.)  (ROBERTSON CO.)  (RUTHERFORD  Source:  CO.)  SPRINGFIELD  The Metropolitan N a s h v i l l e A i r p o r t A u t h o r i t y 1977.  ADMINISTRATION  ft B U S I N E S S M G T .  153  GENERAL MANAGER  EXHIBIT 11  FINANCIAL PLANNING  AERONAUTICAL SERVICES DIVISION  RAMP SERVICES AND SOUND MONITORING  ADMINISTRATIVE AND PERSONNEL PROGRAMS  PUBLIC SERVICES DIVISION  OPERATIONS SERVICES  PLANT & STRUCTURES DIVISION  CONSTRUCTION  BUSINESS ADMINISTRATION DIVISION  PLANNING  HIGH TENSION CONTROLLER  SUPERVISOR ENGINEERING PROJECTS AIRPORT MAINTENANCE SERVICES  POLICE  BUILDING SERVICES  PASSENGER SERVICES  TRANSPORTATION  ENVIRONMENTAL CONTROL  GENERAL MAINTENANCE  ELECTRICAL  POWER PLANT  ORGANIZATION STRUCTURE - JOHN F. KENNEDY INTERNATIONAL AIRPORT 1978  Source:  The Federal Task Force on A i r p o r t Management, Ottawa, 1978.  SANITATION  fL54\  EXHIBIT 12 DESCRIPTION OF OPERATING REVENUES AND AIRPORT EXPENSES  E s s e n t i a l l y , the same r e c e i p t s and expenditures are a p p l i c a b l e to most a i r p o r t s , with the main d i f f e r e n c e being, the manner in which they are categorized.  In Canada, operating revenues are categorized by:  landing f e e s , general terminal f e e s , concessions  (including f u e l ) , rentals,  the A i r Transportation Tax, and other revenue i n c l u d i n g a i r c r a f t parking, permits, l i c e n s e s , sales of u t i l i t i e s , and service fees.  In the United  States, operating revenues are c l a s s i f i e d s l i g h t l y d i f f e r e n t l y , but i n clude the same items. 1.  They are set out as f o l l o w s :  Landing area  - landing fees - parking ramp fees  2.  Terminal area  -  concessions  - terminal b u i l d i n g f a c i l i t i e s 3. A i r l i n e leased areas  - ground r e n t a l s - cargo terminals - o f f i c e rentals - t i c k e t counters - operations and maintenance areas - hangars  4.  Other leased areas  - f i x e d base operations - ground r e n t a l s - cargo terminals - fuel - agriculture  %  5.  Other  155  - sale of u t i l i t i e s - equipment rentals - sale of insurance  General a i r p o r t expenses in Canada are divided i n t o the followihggareas: (1) operations and maintenance—including the d i r e c t costs of s a l a r i e s and wages and other goods and services normally charged to the operating budget; (2) i n d i r e c t expenses—including employee f r i n g e b e n e f i t s , overhead, and grants in l i e u of taxes; (3) d e p r e c i a t i o n ; (4) i n t e r e s t .  In the United  S t a t e s , operating expenses are c l a s s i f i e d i n t o the same headings as operating revenues, namely: 1.  Landing area  - operating and maintenance  2.  Terminal Area  - operating and maintenance  3.  Hangars and Cargo  - Operating and maintanence.  There i s a separate category a p p l i c a b l e to depreciation and i n t e r e s t payments, which i s b a s i c a l l y the same category that e x i s t s in Canada.  'i ;  FOOTNOTES  156  157  FOOTNOTES  1.  K.. Ruppenthal, Towards a Rational Canadian Transportation System,,speech given to the Conference Board in Canada (Vancouver:.June 2, 1977).  2.  A i r p o r t A c t i v i t y S t a t i s t i c s , S t a t i s t i c s Canada, 1974.  3.  J . Smith, Considerations in Setting A i r p o r t User Charges in Canada, Annals of A i r and Space Law (McGill U n i v e r s i t y : November, 1976) and R. S. Doganis and G. F. Thompson, " E s t a b l i s h i n g A i r p o r t Cost and Revenue Functions," Aeronautical J o u r n a l , J u l y , 1974/  4.  A i r p o r t A c t i v i t y S t a t i s t i c s , U.S. Dept. of Transportation, F.A.A., 1974, Enplanements x 2.  5.  House of Commons Debates, December 9, 1977.  6.  The major a i r p o r t s that are experiencing f i n a n c i a l d i f f i c u l t i e s are Mirabel and Calgary. Mirabel required an i n i t i a l investment of $400 m i l l i o n d o l l a r s , and i t s minimum operating cost at present i s $74 m i l l i o n ( i n c l u d i n g debt s e r v i c e ) . The objectives set f o r Mirabel by C.A.T.A. were: ( i ) to maximize performance at minimum c o s t , ( i i ) to allow a i r l i n e s to provide e f f i c i e n t , convenient and economic service to t h e i r customers with minimal operational problems. Both C.A.T.A. and the a i r c a r r i e r s agree that the f i r s t obj e c t i v e has yet to be met, and a i r c a r r i e r s have voiced reservations about the p r a c t i c a b i l i t y of the second o b j e c t i v e , given t h e i r e x p e r i ence to date. At Calgary, a new terminal has been completed at the cost of $127 m i l l i o n — o n l y $57 m i l l i o n was budgeted. The a i r p o r t i n i t i a l l y cost $30 m i l l i o n , and with the costs of the new terminal included, the gap between revenues and expenses has widened considerably.  7.  E. K. C u l l e y , A i r l i n e Impact of A i r p o r t F a c i l i t y Charges, Canadian Transportation Commission, Research P u b l i c a t i o n s (Ottawa: 1972).  8.  W. A. Niskanen, J r . , Bureaucracy and Representative Government (Chicago: Aldine Atherton, 1971), Part V.  9.  C. D. Foster, "The Public Corporation: A l l o c a t i v e E f f i c i e n c y and X - E f f i c i e n c y , " From P o l i c y to A d m i n i s t r a t i o n , J.A.G. G r i f f i t h , 1973.  10.  Ibid.  11.  12.  Ibid.  1T58;  13.  Ibid.  14.  Ownership of a i r p o r t s by. statejgovernments al so occurs in A l a s k a , Maryland, and Hawaii, while the federal government owns Dulles International A i r p o r t .  15.  A i r c r a f t Movement S t a t i s t i c s , Annual Report, A v i a t i o n S t a t i s t i c s Centre, (Ottawa: S t a t i s t i c s Canada, 1977).  16.  P a t r i c i a Watson, E.A.A. A i r _ T r a f f i c A c t i v i t y (Washington: Dept. of Transportation, 1974-1977).  17.  Federal M i n i s t r y of Transport, Canadian A i r p o r t Database, unpublished, =  Federal  1 9 7 8 >  18.  P r o f i l e s of Scheduled A i r C a r r i e r Passenger T r a f f i c f o r the Top 100 U.S. A i r p o r t s , (Washington: U.S. Dept. of Transportation, F.A.A., 1975-76).  19.  J . Smith, Considerations in Local Administration of A i r p o r t s in Canada, Annals of A i r and Space Law, (Montreal: McGill U n i v e r s i t y , 1978), V o l . III.  20.  House of Commons Debates, December 9, 1977.  21.  S. Bauml, A Study of the F i n a n c i a l Aspects of A i r p o r t Operation, Masters Thesis, F l i g h t Transportation L i b r a r y , M.I.T., 1970.  22.  Ibid.  23.  Figures f o r expenditures at Canadian A i r p o r t s are taken from the Canadian A i r p o r t Database developed within the j u r i s d i c t i o n of the Federal M i n i s t r y of Transport; f i g u r e s f o r expenditures at the U.S. A i r p o r t s are supplied through the Federal Task Force on A i r p o r t Management.  24.  Ibid.  25.  Transport Canada b r i e f i n g of IATA, ATA, and ATAC, June 15, 1978, f o r 1978/79 BAA Annual Report 1976/77. Kansas C i t y International A i r p o r t , Income Statement, 1976/77. Metropolitan N a s h v i l l e A i r p o r t Authority-;. Annual Report 1977.  26.  Metropolitan N a s h v i l l e A i r p o r t Authority Annual Report 1977.  27.  Federal M i n i s t r y of Transport, A i r p o r t S u b - C l a s s i f i c a t i o n Index, 1976, Cost Recovery L e v e l s , revised A p r i l 6, 1978.  28.  J . J . Smith, Discussion of the Assertion "User Charges W i l l Solve Our Transport Problems", Canadian Transportation Research Forum, June 7, 1979.  159. 29.  Obtained from the Federal M i n i s t r y of Transportation, Canadian A i r Transportation Administration D i v i s i o n .  30.  Federal M i n i s t r y of Transportation, Canadian A i r Transportation Adm i n i s t r a t i o n , Proposals on Cost A l l o c a t i o n , A i r p o r t C l a s s i f i c a t i o n and Fee Increases, unpublished paper, 1975.  31.  Ibid.  SELECTED BIBLIOGRAPHY  BIBLIOGRAPHY Bauml, S. "A Study of the F i n a n c i a l Aspects of A i r p o r t Operation." Masters Thesis. F l i g h t Transportation L i b r a r y . M.I.T. 1970. Baldwin, B., and Munroe, R. L. "The United States A i r p o r t System." The Task Force on A i r p o r t Management. Ottawa: August,/ 1978; (typed), Baldwin, B l a i r . Vancouver:  " A i r p o r t Management i n Canada: 5 A p r i l , 1979. (typed)  A Policy  Analysis."  The Canadian Treasury Board. "Revolving Funds and Working Capital Advances" The Treasury Board C i r c u l a r . Ottawa: 8 January, 1970. C u l l e y , E. K. A i r l i n e Impact of A i r p o r t F a c i l i t y Charges. Canadian Transportation Commission - Research P u b l i c a t i o n s . Ottawa: 1972. De N e u f v i l l e , Richard. A i r p o r t Systems Planning: a c r i t i c a l look a t the methods and experience; with prefaces by Norman J . Payne and John . R. Wiley. 1st American e d i t i o n . Cambridge, Mass.: M.I.T. Press, 1976. Descarie, J . , .General Manager, Ottawa International A i r p o r t , Ontario. Interview. May-June, 1978. The Federal Government of Canada.  House of Commons Debates.  Dec. 9, 1977.  The Federal M i n i s t r y of Transportation. "Airport Sub-Classification 1976 - Cost Recovery L e v e l s . " Ottawa: 6 A p r i l , 1978. T,  i.V- . . "Canadian A i r p o r t Database." printout)  Ottawa:  1978.  Index  (computer  Canadian A i r Transportation A d m i n i s t r a t i o n , "Proposals on Cost A l l o c a t i o n , A i r p o r t C l a s s i f i c a t i o n and Fee Increases." Ottawa: 1975. (mimeographed) Foster, C. D. "The P u b l i c Corporation: A l l o c a t i v e E f f i c i e n c y and X - E f f i c i e n c y . " From P o l i c y to A d m i n i s t r a t i o n . J.A.G. G r i f f i t h : 1973. ' Frederick, J . H.  A i r p o r t Management.  Chicago:  R.D. I r w i n , 1949.,  The General Manager of S t . Johns A i r p o r t , Newfoundland. Spring, 1978.  Interview.  The General Manager of Toronto International A i r p o r t , Ontario. Spring, 1978.  Interview.  The General Manager of Vancouver International A i r p o r t , B r i t i s h Columbia. Interview. J u l y , 1978.  :162" The Honourable the Treasury Board. " A i r p o r t s Revolving Fund." A1024-5. Ottawa: Summer, 1978.  File  Joerger, R. K. "The C r i s i s in A i r p o r t Finance," International Congress of Transportation Conference. Washington, D.C: 1 June, 1972. MacLeans Magazine.  —  " A i r p o r t '79:  fgyg-  a $655 M i l l i o n Horror E p i c . "  The Metropolitan N a s h v i l l e A i r p o r t Authority.  2 Feb.,  Annual Report, 1977.  The Metropolitan Washington A i r p o r t s . "Combined Statement of Revenue and Expense." 1 Oct. 1976 - 30 Sept., 1977. (mimeographed) Moore, C , General Manager, Los Angeles A i r p o r t A u t h o r i t y , C a l i f o r n i a . Interview. June, 1979. Myhre, C. A.  " A i r p o r t Charges and Financing P o l i c y . "  (typed)  Niskanen, W. A., J r . Bureaucracy and Representative Government. Aldine Atherton, 1971. The Port of S e a t t l e .  Annual Report.  Seattle:  Chicago:  1977.  Ruppenthal, Karl M. Towards a Rational Canadian Transportation System. Speech given to the Conference Board i n Canada. Wancouver: June 2, 1977. Shay J . D i r e c t o r of A v i a t i o n , Seattle-Tacoma A i r p o r t A u t h o r i t y , Washington. Interview. 28 November, 1978. Smith, J . "Considerations in Local Administration of A i r p o r t s in Canada." Annals of A i r and Space Law. V o l . 3. McGill U n i v e r s i t y : 1978. . "Considerations i n S e t t i n g A i r p o r t User Charges i n Canada." Annals of A i r and Space Law. McGill U n i v e r s i t y : November, 1976. "Discussion of the Assertion 'User Charges W i l l Solve Our Transport Problems'." Canadian Transportation Research Forum. Ottawa: 7 June, 1979. S t a t i s t i c s Canada. A i r c r a f t Movement S t a t i s t i c s - Annual Report. Ottawa: A v i a t i o n S t a t i s t i c s Centre, 1977. .  Airport Activity S t a t i s t i c s .  Transport Canada.  1974.  Operating Revenues and Expenditures.  Ottawa:  1976-1977.  The United States Dept. of Transportation. Developing the National A i r p o r t System. Washington: Federal A v i a t i o n A d m i n i s t r a t i o n , J u l y 1975 Sept. 1976.  163 The United States Department of Transportation, Federal A v i a t i o n Administ r a t i o n . " P r o f i l e s of Scheduled A i r C a r r i e r Passenger T r a f f i c f o r the Top 100 U.S. A i r p o r t s . " Washington: 1975-76. (mimeographed) . "Task Force on Post-1980 A i r p o r t and Airway Development L e g i s l a t i o n - I n i t i a l Options Papers." Washington, D.C: Federal A v i a t i o n A d m i n i s t r a t i o n , 1978. (typed) Voss, Howard V. "Elements of Municipal Debt Financing as Related to Cons t r u c t i o n of A i r p o r t F a c i l i t i e s . " ATA Economic Converence. Arrowhead, C a l i f . : June, 1967. Watson, P. F.A.A. Air- T r a f f i c A c t i v i t y . Transportation, 1973-1977.  Washington:  Federal Dept. of  

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