Halifax International Airport Authority

Transcription

1 Halifax International Airport Authority Prepared by March 2, 2010

2 Executive Summary Scope of Review and Approach This report contains the findings of an independent high level management, operation and financial review of Halifax International Airport Authority s (the Authority) Ground Lease for the Halifax Stanfield International Airport (HSIA) with Transport Canada for the period from 2005 to The 2000 Ground Lease contains 56 articles and 15 schedules ( A to O ) plus four amendments. The review was conducted in accordance with Section 9.02 of the lease which requires the independent reviewer to provide statements or opinions describing or dealing with: 1. The extent to which the Authority has been operating a safe and efficient service to the public, and an efficiently run undertaking in accordance with the Authority s business plan. 2. The extent to which financial and management controls, information systems and management practices have been and are maintained, including steps taken to ensure that the assets of the Authority have been safeguarded and controlled; the financial, human and physical resources of the Authority have been managed economically and efficiently; and the operations have been carried out effectively. The Chris Lowe Group undertook the review in January and February 2010 with a focus on actual results from 2005 to 2009 in the context of performance metrics, broadly stated strategies and operational plans. As a baseline, we reviewed the Authority s Ground Lease, strategy and priorities, as well related internally generated documents. The minutes of all Board Meetings for this period were also reviewed and consultations were held with key stakeholders. Financial statements and operation results were compared to budgets; including actual costs versus budgets for major capital projects. Financial and management controls and practices were assessed with respect to the efficiency of operations, and the ability of the Authority s Executive Management Team (EMT) to work with the Board of Directors to monitor results, manage external and internal risk exposure, and proactively respond to the changing regulatory setting and market conditions. Documents generated by Transport Canada and the Authority were relied upon to assess the effectiveness and efficiency of the Authority s operations; including Transport Canada s annual lease monitoring reports and audited annual reports. Source material is listed in Appendix I Documents. The scope of the review did not include verifying data or information prepared by third parties or undertaking other assessments on source materials. 1

3 Overview Over the five-year review period, the Nova Scotia economy expanded by 4.2% while growth at the Airport was significantly higher. While the Airport was directly impacted by the global recession in 2009, it still managed to produce positive growth in total passengers and concession sales over the five-year period of the review. From 2005 to 2008, total enplaned/deplaned passengers increased by 10.8% from 3.23 million to almost 3.58 million with growth experienced in each year. The level declined to over 3.4 million passengers in 2009 which represents a 5.8% increase from Concession sales grew to $79 million in 2009 or 10.5% above the 2005 level. Annual economic impact studies were completed from 2005 to 2008 while the 2009 study was not yet available. These studies reveal that growth at the Airport has significantly exceeded that of the overall economy. Over this time, the Airport s total gross output increased by 10.8% and employment increased by 8.2%. An important metric is the increase in wages in comparison to growth in the provincial GDP (gross domestic product). GDP grew by 4.3% while Airport-related employment increased by 8.2%, and wages and salaries went up by a very robust 18.5% which reflects the increasing role of high paying professional, aerospace and technical jobs. For 2008, the Airport contributed close to $1.3 billion to Nova Scotia s economic output, and provided 12,575 full-time equivalent (FTE) jobs with wages and salaries of $456 million. These employees contributed $55 million to the Province of Nova Scotia in terms of personal and consumption taxes and $20.8 million in retail sales taxes. Stakeholder Consultations A key input to the review was consultations with key stakeholders. Participants stated an overall high level of satisfaction with all aspects of the Authority. The Airport was described as an economic jewel for the Province and the Halifax Region that is a world class facility that treats its finances carefully, and is well run under a community ownership model with a high level of transparency. The consensus opinion is the Authority operated a safe and efficient service to the public in accordance with the multi-year strategic plans and annual business plans. Financial and management controls were described as appropriate while management practices in all aspects of the Ground Lease were identified by most respondents as outstanding and a core strength (when benchmarked against other airports in Canada). The engagement of the Board of Directors and Executive Management Team (EMT) with strategic and operational aspects of the Airport has resulted in the assets (financial, human and capital) being appropriately safeguarded and controlled, and potential crisis events being identified with intervention plans under an enterprise risk management policy. New technologies, and large and often complex capital projects, were 2

4 completed during the review period in accordance with schedules and estimates of probable cost. The consultative and endorsement approach used to get the input of key users on capital projects and technology upgrades was described as effective. Additional revenue sources (including non-aeronautical) have been successfully pursued and favourable debt financing was secured. Findings A requirement of the review is to determine if the Authority operated a safe and efficient service to the public, and an efficiently run undertaking in accordance with the business plan. The Authority follows a four-tier business planning process that includes a 20-year Master Plan that provides the longer-term framework, a 10-year Capital and Financial Plan that outlines capital project and financing requirements, a Five-Year Strategic Plan that frames the medium term operating environment and performance targets, and annual Business Plans that contain annual activities in compliance with medium and longer term plans. The and Strategic Plans must comply with the Ground Lease; therefore, they are a proxy of the Authority s ability to address management, operation and financial review compliance requirement under Section Based upon the business planning process used by the Authority and the annual business plans for 2005 to 2009, we have concluded that the Authority is Ground Lease compliant in operating a safe and efficient service to the public, and an efficiently run undertaking. The articles, schedules and amendments to the Ground Lease were reviewed for compliance under nine topics: Tenant Representations and Warranties Payment To Landlord Of Rent and Taxes Information to Be Provided To Landlord Utilities Airport Master Plan Use and Operation Corporate Matters Insurance Inspection and Audit Under the terms, conditions and other requirements of the Ground Lease, we have concluded that the Authority is compliant under Section Over the review period, Transport Canada also completed an annual ground lease monitoring program and concluded the Authority is compliant. 3

5 In summary, we conclude that the Authority over the 2005 to 2009 period operated safe and efficient services to the public. The financial and management controls, information systems and management practices are appropriate for a first class airport as defined by the Ground Lease. With respect to information systems, the Authority made significant investments in technology to improve and enhance the operations and functionality of the Airport. The implementation of IT solutions has helped the Airport to operate more effectively and improve efficiency. Over the five-year review period, steps were taken to ensure that assets of the Authority were safeguarded and controlled; the financial, human and physical resources of the Authority were managed economically and efficiently; and operations were carried out effectively. A priority of the Board and EMT is diversification of revenue to nonaeronautical sources. This business development and diversification strategy is being successfully implemented with a focus on air cargo. Assets of the demised premises (base capital and expansion projects) have been effectively deployed. Where external events, such as extreme weather, caused capital projects to have unforeseen negative impacts upon operations, remedial plans and communication programs were crafted and implemented in a proactive manner. The Authority has internal business processes and systems that are appropriate for a first class airport as defined in the Ground Lease. The Authority has taken a receptive posture to suggestions for improving internal business processes and, according to participants in the consultation program, proactively implemented many suggestions. Internal and external risk management has evolved to a priority of the Board and EMT; including their own enterprise risk management policy. This focus on risk management, including crisis events, is a proactive acknowledgement that the organization must be ready for unforeseen and possibly catastrophic external events over which it has no direct control. The location of the demised premises in an area with pyritic slate has created the need for special environmental stewardship, management and control. The planning, implementation and monitoring of environmentalrelated matters have been undertaken to often stringent Federal and Provincial Government standards. Airport security and public safety is provided by CATSA, the RCMP, U.S. Customs and Border Protection Services, and other government departments and agencies. The Authority has enabled these groups to carry out their mandates to the required standards. 4

6 The selection of new capital projects has a detailed internal process (approval and monitoring) that includes input from user groups then followed by a committee of the Board. This process, and the prioritization of projects in multi-year capital plans, is a core strength (project management and cost control) of the Authority. The securing of long-term financing for new capital projects at very favourable interest rates reflects the skill-sets and professionalism of the Board and EMT to provide financing certainty on a going forward basis. 5