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Canadian Air Cargo Industry Review Robert Andriulaitis VP, Transportation & Logistics

9 September 2012


Outline of Presentation The Canadian Air Cargo Industry •

Not the same as the U.S.

Infrastructure Development at Canadian Airports •

Funding

Recent Facilities Development

Industry Challenges

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Part I : The Canadian Air Cargo Industry

Similar in many ways ‌ but fundamentally different in others 2


Canadian carrier services are limited Few major Canadian players in air cargo •

Canada’s main carriers only offer belly space

Only a few relatively significant freighter operators

Smaller operators serving the north Fleet Size Boeing 727

12

14

3

3

Boeing 737

-

-

6

-

smaller

-

10

15

6

12

24

24

9

Total

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Canadian carrier services are limited

1 leased 757

Canada is thus reliant on foreign metal for main deck lift for international service •

2 leased 767

Cargojet offers main deck space (e.g., wet lease operation with LOT, YHM-EWR-BDA service) but has small fleet

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Air Cargo is much more concentrated Canadian air cargo is focussed primarily on two airports, Toronto and Vancouver, although Hamilton and Winnipeg play important roles for domestic cargo

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Airline competition is limited • Regional Air Carrier policy • Division of the World Policy • Merger policy • Blue Sky policy

Canadian policy is geared around interests of incumbent carriers – not shippers

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Foreign carrier access is limited Since “Blue Sky” Policy announced: • Ireland, Iceland, New Zealand, Barbados, Dominican Republic, Costa Rica, South Korea, El Salvador, Switzerland, Trinidad & Tobago, Jamaica, Brazil, Honduras, Nicaragua, Curaçao, Sint Maarten • Japan, Portugal, Mexico, Philippines, Singapore, Croatia, Serbia, Algeria, Kuwait, Jordan, Turkey, South Africa, Panama, UAE, EU, Cuba, Tunisia, Ethiopia, Egypt, Algeria, China, Columbia

Canadian has not embraced open skies policy Number of Open Skies Agreements 100 50 0 U.S. Canada Source: IVC calculations based on U.S. and Canadian government press releases Realizing the vision together


Costs are Inflated through Fees and Taxes If the border was a bit further north… • Montréal would be $253M ahead • Vancouver $357M ahead • and Toronto $798M ahead

The Canadian government views air transport as a cash cow – not as an economic generator Due to Terminal 3 Purchase – Interest Costs to operate Mirabel

900

800

Higher Canadian Safety Standards EAS and SCASDP Subsidies

700

NAV CANADA Asset Purchase

600

$million

GST paid by leisure passengers Air Transport Security

500

Other US Aviation subsidies (nonAIP) Airline Fuel Tax not reinvested

400

Excess Interest due to deferred spending No AIP Funding (subsidy portion only) No Provision for Tax-Free Bonds

300

200

Must pay GILT/PILT

100

NONE

0

Montréal

Vancouver

Toronto

U.S. airports

Must pay Ground Rent

Source: IVC calculations Realizing the vision together


Summary of Key Features Limited Canadian freighter presence internationally Relatively restrictive foreign carrier access Higher costs Markets close to the US market leakage to U.S. airports

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Part II : Air Cargo Infrastructure Developments at Canadian Airports

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Funding is primarily the airport’s responsibility Canadian airports are self-funding • • •

Airports must fund all capital projects through user charges, retained earnings and debt Small capital assistance program exists for regional/local airports Occasional ad hoc capital programs

No equivalent to U.S. Airport and Airway Trust Fund

No equivalent to FAA funding support •

Any ANS improvements to be covered completely by user fees

No equivalent to General Fund support for security costs •

All security costs covered by user fees Realizing the vision together


Air Cargo Developments in Canada Recent themes •

Pure air cargo plays

Multimodal facilities

Techstop/transhipment initiatives

3rd party common use facilities/Joint Ventures

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Pure Air Cargo Developments YYZ •

Infield cargo $250M development

YHM •

60,000 square foot multi-tenant cargo facility

Over $9M spent by Purolator alone

YYC •

12,000 sq. ft. livestock facility

YHZ •

40,000 sq. ft. facility, incl. 7,000 sq. ft. climate controlled

Extended runway under construction 13

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Multimodal Developments Winnipeg – CenterPort •

new 20,000 acre inland port and ForeignTrade Zone (FTZ)

Investment of $2.3M

Regina – Global Transportation Hub •

Phase 2 will be operational in 2012 with an additional 565,000 sq. ft.

Fastfrate investment of $4M for 10-acre cross dock loading facility

Edmonton – Port Alberta •

50,000 sq. ft. facility at $16M 14

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Tech Stop / Transhipment Developments Prince George •

Runway Expansion

Fuel tanks (150,000 L capacity)

Gander

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Third Party Investment/Joint Venture Globally, AMB Property Corporation is a major owner, operator and developer of industrial real estate, including airport cargo facilities Canadian example is IAT •

YVR, YYC, YEG, YXE, YWG

Recently, Gateway Facilities ULC set up in YHZ Integrated carriers invest in their own facilities

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Part III: Industry Challenges

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Air Cargo Industry Challenges Weaknesses • Economy reliant on commodities and services • High costs • Restrictive policies that limit opportunities • Low priority for cargo by Canadian carriers

Strengths • Strong economy • Growing trade with Asia • Geographic position as gateway to NAFTA from Eurasia • Increasing # of FTAs

Opportunities • Gateway development • FTZs • Multimodal hubs • Value added exports • Airport privatization

Threats • No change in government policy: • Air carrier access • Costs • FTZs • Leakage to U.S. airports • Increased reliance on commodities to drive the economy 18

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Thank You!

Contacts Canada

U.S.

ROB ANDRIULAITIS

DOUG BAĂ‘EZ

Vice President

Vice President

rob.andriulaitis@intervistas.com

doug.banez@intervistas.com www.intervistas.com

Profile for Leah Dupuis

Canadian Air Cargo Industry Review  

Presentation to the ACI Air Cargo Committee by Robert Andriulaitis at the ACI Annual Conference in Calgary, Alberta on 09Sep2012.

Canadian Air Cargo Industry Review  

Presentation to the ACI Air Cargo Committee by Robert Andriulaitis at the ACI Annual Conference in Calgary, Alberta on 09Sep2012.

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