Asset recycling

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  • YVR, BC’s airline connection to Canada and the world and an employer fornearly 24,000 workers, is up for sale to private investors.

    Craig Richmond, the airport authority’s chief executive officer, recently warned Vancouver City Council that such a sale would trigger higher fares for travellers, cost-cutting on vital security measures, reduced investment and lower wages for airport employees.

    His warning triggered a unanimous vote of council Oct. 18 to urge Ottawa to reject the concept, first proposed in a review of Canada’s transportation network completed in 2015 by an appointee of the Harper Conservative government.

    But the Trudeau Liberals have embraced this plan as a solution to the pressing need for new infrastructure investment to stimulate the Canadian economy by improving productivity.

    Thanks for the welcome and this invitation to speak to you. Thanks as well for visiting Vancouver and acknowledging, as I do, that we’re meeting on the unceded territory of the Musqueam, Tseilwatuth and Sqaumish First Nations. Today I’m here to talk to you about “asset recycling.”It sounds cool, doesn’t it? A bit green? In fact, it’s a very direct threat to Canadians in some very critical ways:

    • It threatens public safety for the millions of Canadians who use our airports every year;
    • It could drive up the cost of flying to the travelling public while reducing basic standards in our national air system;
    • It will undermine the wages and working conditions of thousands ofworkers, including Unifor members – and hasten automation.

    How many in this room have taken an airplane in the last few days? Howmany in this room drive a bus or truck? Work in airport security? Work near the port? Are involved in railway work?

    If you answer yes to any of these questions, “asset recycling” could directly affect you.

    What is asset recycling? Asset recycling is the sale of existing infrastructure assets to private investors.

    What assets are we talking about? You name it: airports, ports, highways, municipal infrastructure, even the passport service. But the main focus right now is airports. What investors are we talking about? These investors could be global equity funds. They could be massive pension funds, like the Ontario Teachers’ Fund or even our BC Public Service Pension plan.

    But the bottom line is they are very large, they want low risk and guaranteed high returns – much higher than the non-profit corporations now running Canada’s airport authorities. Why airports? Because everybody needs to fly. Because every traveller has to pay a fee — $20 a trip in Vancouver. And because airport expansion is a costly business the government would like to turn over to someone else.

    Why are we talking about asset recycling now?

    David Dodge, the former governor of the Bank of Canada, spelled it out in an editorial in the Globe and Mail in May. Canada’s infrastructure needs are huge. He wrote “aging demographics, lackluster private investment, weak innovation and limited access to high growth markets” are hurting our economy.

    To spark growth in our economy we need growth in productivity –“measured as gross domestic product per worker”To force that productivity gain, Dodge wants to harness public infrastructure investment to private sector needs.

    What kind of infrastructure are we talking about? Definitely runways and control towers, but that’s just the beginning.

    Dodge wants these new investments to include electric and autonomous vehicles, “smart corridors,” artificial intelligence, global supply chains – and where these assets are in the public sector now, they should be sold or leased to the private sector once built to “align incentives up front as well as condition public expectations.”

    Wait a minute – I know you’re wondering. What’s a smart corridor. A “smart corridor,” now under development in Ontario and Quebec, uses technology to synchronize and integrate all transportations and logistics using GPS, computer technology and automation – think of a container moving from dock to train to autonomous truck to loading dock entirely under digital, online control without a truck driver, dock worker or warehouse employee anywhere in sight. This can be a reality – entirely under private ownership – within a few years.

    Where did the idea come from? This concept is moving at light speed through the global economy. It was implemented in Australia in the last five years. It bubbled to the surface in Canada in a comprehensive review of Canada’s Transportation System commissioned by the Stephen Harper government.

    This review was led by David Emerson, a British Columbia native, former YVR CEO, former Paul Martin Liberal who cross the floor to the Conservatives and served in Harper’s cabinet. Emerson’s report was released in 2015 and largely ignored during the election.

    It covers the whole federal transportation system: rail, air, ports. It proposes massive new investments – many long overdue. Who can argue argue against a massive investment in passenger rail? No one believes airport investment can stand still. But Emerson wants to trigger this investment by putting the private sectorin the drivers’ seat.

    Not only would private equity funds lease or own the assets, the investment bankers would control an investment bank – arms length from government –and make the investment decisions. In other words, private bankers — not Parliament — would decide the shape of Canada’s transportation system. And Emerson proposed this revolution be complete within three years.

    When is it coming?

    I first heard about Emerson’s report in September. I saw a modest amount of media coverage in the business pages that month.

    In October, YVR CEO Craig Richmond made his annual report to Vancouver City Council, which appoints a member to the YVR board. His assessment of “asset recycling” of YVR was so negative that council unanimously adopted a motion I moved directing the mayor to write to the Marc Garneau, minister of Transportation, rejecting Emerson’s proposals.

    But just days later, accountants from a Swiss firm hired by Ottawa were booking flights to Vancouver to assess YVR for asset recycling.

    The same week, finance minister Bill Morneau confirmed his interest in an infrastructure bank and earlier this month, the Trudeau government promised to forge ahead.

    And Morneau’s financial statement just a few days ago confirmed what many now suspected: asset recycling, driven by a private-sector controlled infrastructure bank beyond public oversight, will be a reality. Our ports and airports are for sale.

    What does this mean for Canada’s airports?

    Think about it. We are considering the sale of our airports to private owners. What is YVR today?

    • It’s one of the safest, cleanest airports in the world
    • It supports at least 23,600 direct jobs
    • It’s a critical part of national and regional infrastructure
    • It contributes $1.9 billion in direct GDP a year
    • It sells its business expertise in world markets, managing many other airports globally
    • It earned a surplus in 2015 of $131 million
    • It paid a land lease to Ottawa of $49 million

    YVR estimates, based on recent international airport sales, that private investors would pay between $2.5 billion and $6.2 billion for YVR – the price would realistically be closer to $3 billion. This is not a gift. They expect to recover that investment at a profit. These extra costs would have to come out of airport operations. YVR CEO Craig Richmond – not a left winger – says this: The privatization of Canadian airports would result in sizable annual costs that would need to be recovered through:

    • Incremental aeronautical or AIF revenue (that’s airline fees and airport taxes on travellers)
    • Operating cost reductions in salaries and wages or materials (that’s you people – you have to take a cut)
    • Reduction in capital expenditures (deteriorating safety and security for the travelling public)
    • Or all three.

    You now better than I what this well mean for the travelling public.Brothers and sisters, we have a big problem. This is bad so many ways – bad for travellers, bad for workers, bad for our economy, bad for democratic oversight of our nations most critical assets. I think we all agree Canada needs a massive investment in infrastructure. I think we expect our pension funds help build that infrastructure, putting savings to work now to create security for seniors later in life.

    But those investments need to create wealth for Canadians, not international bond holders. These assets are our economy’s crown jewels.

    The Trudeau plan feels like we’re putting those jewels into a pawn shop. We need to get organized but we do have allies, some of them unexpected.

    They include civic governments, airlines facing extra costs, travellers put at risk and even our pension fund trustees, who need to work with us to find ways to mobilize our pension resources for better solutions.

    I know Unifor will be a leader in the coming debate and I look forward to working with you in the months ahead.

    by: Geoff Meggs

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