2016 Financial Review

This Financial Review reports on the results and financial position of the Ottawa Macdonald-Cartier International Airport Authority (the “Authority”) for its year ended December 31, 2016. This review should be read in conjunction with the audited financial statements and related notes of the Authority. This review contains forward-looking statements, including statements regarding the business and anticipated financial performance of the Authority. These statements are subject to a number of risks and uncertainties that will cause actual results to differ from those contemplated in the forward-looking statements.


Earnings before depreciation for the year ended December 31, 2016 were $22.8 million compared to $27.8 million for the year ended December 31, 2015. Five million dollars in incremental interest expense associated with the $300 million Amortizing Revenue Bonds which bear interest at a rate of 3.933% completed on June 9, 2015 was the most significant factor impacting earnings before depreciation for the year.

The Authority recorded depreciation of $28.1 million in 2016 compared to $25.9 million in 2015, reflecting depreciation of the terminal building, airfield facilities, and other assets over their estimated economic lives. After subtracting depreciation, the Authority generated a net loss of $5.3 million in 2016 compared to net earnings of $1.9 million in 2015.

The Authority’s net operating results for the three years ended December 31, 2016 are summarized as follows:

(in millions of Canadian dollars) 2016 2015 2014
Revenue 121.9 118.2 112.3
Expense 99.1 90.4 83.1
Earnings before depreciation 22.8 27.8 29.2
Depreciation 28.1 25.9 22.5
Net earnings (loss) (5.3) 1.9 6.7
Total assets 698.9 711.6 461.9
Gross – long-term debt 631.2 634.4 337.5


Operating Activities

During 2016, the Ottawa Macdonald-Cartier International Airport (the “Airport”) saw positive passenger volumes with increases of 1.9% over 2015 and 2.7% over 2014. While the Canadian economy experienced mixed growth in the first half of 2016, the second half growth trends were more encouraging. Economic indicators present positive trends for 2017 in GDP and employment growth. Federal government policy and infrastructure initiatives combined with fiscal and monetary measures designed to improve economic conditions should contribute to incremental passenger growth in 2017 and beyond. Nevertheless, the impact of the unpredictability in energy prices, variability in the Canadian dollar, and mixed economic and political trends in global markets will be monitored over the course of the year.

The following table summarizes passenger volumes for the last three fiscal years:

% change – 2016 versus
2016 2015 2014 2015 2014
Domestic 3,679,232 3,488,629 3,434,209 5.5% 7.1%
Transborder 673,434 735,755 741,285 (8.5%) (9.1%)
International 390,425 431,976 440,954 (9.6%) (11.4%)
Total 4,743,091 4,656,360 4,616,448 1.9% 2.7%

Domestic passenger volumes were 5.5% higher on a year-over-year basis with increases in flows noted to Toronto, Montreal and Halifax. The reduction in frequencies to transborder destinations has resulted in more flow through to domestic hubs, predominantly Toronto Pearson. Year-over-year increases with the three major Canadian air carriers resulted primarily from higher load factors on domestic routes, more frequencies and, in some cases, use of larger aircraft.

Transborder volumes were 8.5% lower than 2015. U.S. air carrier capacity continued to experience a decrease across most of Canada to their primary hubs, including Chicago, Dulles, Newark, Detroit, Philadelphia, and Charlotte (discontinued in June 2015 when US Airways merged with American). A reduction in U.S. leisure service to Fort Lauderdale was offset by increases in capacity and flows to Orlando where frequencies were doubled during the summer months of 2016. Nonetheless, the overall reduction of nonstop transborder frequencies contributed to domestic increases as many transborder-bound passengers were rerouted via Toronto and Montreal.

International volumes declined 9.6% from 2015. The decline was due primarily to reduced Sunwing frequencies to Cancún, St. Maarten, and Varadero in the 2016 winter season as compared to 2015. Furthermore, the delay in the start of Air Canada’s Frankfurt seasonal service to late May 2016 as compared to a March start in 2015 also contributed to the decline in volumes. Air Canada’s daily year-round London (LHR) flight remains strong.

By sector, a quarterly view of 2016 passenger volumes compared to comparable quarters in 2015 is as follows:

Domestic Transborder International
Q1 Higher by 6.0% Lower by 9.9% Lower by 7.5%
Q2 Higher by 3.4% Lower by 10.4% Lower by 24.1%
Q3 Higher by 5.8% Lower by 6.4% Lower by 3.6%
Q4 Higher by 6.8% Lower by 6.4% Lower by 4.1%
Total Higher by 5.5% Lower by 8.5% Lower by 9.6%

By quarter, total passenger volumes were as follows:

2016 2015 % change
Q1 1,191,350 1,182,767 0.7%
Q2 1,157,771 1,167,124 (0.8%)
Q3 1,218,575 1,176,548 3.6%
Q4 1,175,395 1,129,921 4.0%
Total 4,743,091 4,656,360 1.9%

The size of an aircraft (based on maximum takeoff weight) and the number of “landed” seats on an aircraft (regardless of whether those seats are occupied by passengers) are the most significant drivers of landing and terminal fees. In 2016, the number of landed seats increased by 0.8% compared to 2015. Domestic landed seats increased 3.3% on a year-over-year basis while transborder and international declined 8.1% and 7.4%, respectively. These movements in landed seats mirror the changes in the passenger volumes as explained above.


Total revenues increased by 3.1% to $121.9 million in 2016 compared to $118.3 million in 2015.

Revenues by category (in thousands of Canadian dollars) Change
2016 2015 $ %
Airport improvement fees 46,920 45,434 1,486 3.3%
Terminal fees and loading bridge charges 26,432 25,248 1,184 4.7%
Landing fees 12,861 12,448 413 3.3%
Concessions 12,419 10,923 1,496 13.7%
Car parking 14,344 13,746 598 4.4%
Land and space rentals 6,349 6,237 112 1.8%
Other revenue 2,587 4,216 (1,629) (3.9)%
121,912 118,252 3,660 3.1%

Airport Improvement Fee (AIF) revenues of $46.9 million in 2016 increased by 3.3% from $45.4 million in 2015. The increase is attributed to a 1.9% increase in passenger volume in 2016 as compared to 2015, combined with a higher average number of departing passengers originating their flight in Ottawa in 2016 at 94.0% as compared to 93.0% in 2015. Under an agreement with the air carriers, the AIF is a fee imposed by the Authority and is paid by the air carriers to the Authority on an estimated basis, net of air carrier administration fees of 6.0%, on the first of the month following the month of enplanement of passengers. Final settlement based on actual passenger enplanements occurs at the end of the month following the month of enplanement.

At $39.3 million in 2016, total aeronautical revenues, which include terminal fees, loading bridge charges, and landing fees charged to air carriers, were 4.2% higher than revenues of $37.7 million in 2015. The year-over-year increase is the result of a 4.0% increase in landing and general terminal fee rates effective February 1, 2016, combined with the favorable increase of 0.8% in landed seats and offset slightly by the impact of volume changes in the domestic versus international and transborder mix of flights serving the Airport. Terminal fee rates for transborder and international flights are higher than rates for domestic flights. With air carrier seat volume growth trending lower than inflationary growth and with increases in downloaded and regulatory expenses that are beyond the Authority’s ability to control growing at a rate that is notably beyond inflation, the Authority has increased its aeronautical rates and charges excluding police and security charges by 3.5% effective February 1, 2017. Police and security charges will increase 11.1% ($0.25 per landed seat). Despite these increases, the Authority’s average aeronautical fee rates remain among the lowest in Canada.

Concession revenues of $12.4 million increased 13.7% as compared to 2015. The $1.5 million increase was attributable to the impact of the taxi brokerage services contract renegotiated in Q3 2015, the addition of a private transportation company service to the ground transportation offering, favourable adjustments to minimum annual guarantees provided under concession agreements, and the impact of increased passenger volumes on all concession areas.

Car parking revenues increased to $14.3 million from $13.7 million in 2015, an increase of $0.6 million or 4.4%. Strong online sales, increases in short term/low value transactions, and increased stay durations contributed to the favorable variance. Furthermore, continued refinements to the parking rate structure and the availability of parking options contributed to the optimization in pricing models and revenues based on passengers’ profiles and their specific needs. Domestic passengers tend to park for shorter periods of time for drop-offs/pickups and business purpose day-trips while leisure, transborder, and international passengers tend to park at the Airport for longer periods of time.

Land and space rental revenues of $6.3 million increased 1.8% as compared to 2015. Increases are attributable to favourable lease renewal activities with existing tenants and inflationary adjustments embedded within land leases.

Other revenue of $2.6 million decreased by $1.6 million as compared to 2015. The higher 2015 result included the June 2015 gain on the bond forward transaction related to the Series E offering. Prior to the closing of the Series E financing, a bond forward transaction was entered into to protect from volatility in interest rates and it resulted in a $1.6 million gain being recorded.


Expenses before depreciation increased $8.7 million to $99.1 million in 2016 from $90.4 million in 2015 as described below. Depreciation reflects the allocation of cost over the useful life of the assets and investments in property, plant and equipment. In 2016, depreciation of $28.1 million was $2.2 million higher than 2015. The increase is due to incremental Baggage Handling System depreciation of $0.8 million for equipment that was put in use in the fourth quarter of 2015 and first quarter of 2016, $0.5 million for incremental investments in new boarding bridges, $0.2 million for new major airfield equipment and $0.7 million related to apron refurbishment, information technology, and other initiatives.

Expenses by category (in thousands of Canadian dollars) Change
2016 2015 $ %
Interest 29,029 24,105 4,924 20.4%
Ground rent 8,994 8,737 257 2.9%
Materials, supplies and services 33,404 31,106 2,298 7.4%
Salaries and benefits 22,690 21,500 1,190 5.5%
Payments in lieu of municipal taxes 5,017 4,974 43 0.9%
99,134 90,422 8,712 9.6%

Interest expense reflected in the statement of operations results from borrowing to invest in the Authority’s capital programs. Interest expense has increased $4.9 million and is attributable to the net interest expense on the Series E Bonds issued on June 9, 2015. Interest expense incurred on the Series E Bonds is offset partially by the interest income earned on the $200.0 million that has been set aside in the segregated fund maintained by the Trustee and that will be used to retire the Authority’s Series D Bonds maturing in May 2017.

Rent payable to the Government of Canada increased by 2.9% to $9.0 million in 2016 due to higher revenues in 2016. The Authority operates the Airport under the terms of a ground lease (as amended, the “Lease”) with the Government of Canada that sets out the formula for calculating annual rent. The amount reflected as rent expense is estimated based on that formula. The formula calculates rent as a royalty based on a percentage of gross annual revenues on a progressive scale. Rent is calculated as a percentage of gross annual revenues as defined in the Lease, with no rent payable on the Authority’s first $5.0 million in annual revenue and an increasing rent percentage payable as revenue increases, on a cumulative basis. Rent is levied at a maximum 12.0% rate on annual revenues in excess of $250.0 million as follows:

Gross Revenues Rent Payable Cumulative Maximum Rent
On the first $5.0 million of revenues 0.0% $0
On the next $5.0 million 1.0% $50 thousand
On the next $15.0 million 5.0% $800 thousand
On the next $75.0 million 8.0% $6,800 thousand
On the next $150.0 million 10.0% $21,800 thousand
On revenues over $250.0 million 12.0%

Based on the Authority’s projections, estimated rent payments under the Lease for the next five years are as follows:

2017 9.8 million
2018 10.1 million
2019 10.6 million
2020 11.0 million
2021 11.3 million

The cost of materials, supplies, and services increased to $33.4 million in 2016 as compared to $31.1 million in 2015, an increase of 7.4%. The $2.2 million increase over 2015 is due to volume and contracted rate increases for terminal services including policing and security, maintenance contract costs, baggage handling services, building repairs, utilities, and other outsourced and professional services. Also, the first and fourth quarters of 2016 experienced a mixture of weather conditions that required a higher level of airfield maintenance including, labor, fuel, winter maintenance chemicals, and materials than in 2015. Furthermore, continued increases in hydro rates as compared to 2015 unfavourably impacted expenses on a year over year basis.

The cost of salaries and benefits increased $1.2 million to $22.7 million in 2016, an increase of 5.5%. Half of the increase ($0.6 million) was related to a favourable reduction in 2015 pension expense due to revaluation of key actuarial assumptions and the remaining increase of $0.6 million is attributable primarily to annual contracted increases (2.0% to 4.0%) in salaries and benefits.

Payments in lieu of municipal taxes have increased by 0.9% and reflect the impact of the provincial legislation which dictates the calculation of this payment. Under this legislation, payments in lieu of municipal taxes are based on a fixed legislated rate for the Authority, multiplied by the previous year’s passenger numbers, but to a maximum increase of 5.0% over the previous year’s amount. The $5.0 million paid for 2016 reflects this prescribed calculation. The number of passengers travelling through the Airport in 2016 increased from 2015 by 1.9%. Payments in lieu of taxes will increase in 2017 by 1.9% from the 2016 amount based on this legislation reflecting the increase in passenger volumes that occurred in 2016.

Summary of Quarterly Results

The Authority’s quarterly results are influenced by passenger activity, aircraft movements, maintenance project decisions, and other factors such as weather conditions and economic conditions, and do not necessarily fluctuate consistently over time based on the season. Due to these external factors, the historic results on a quarterly basis cannot be relied upon as a predictor of future trends.

Selected unaudited quarterly financial information for the eight most recently completed quarters is set out below:

Quarter Ended (in thousands of Canadian dollars) 2015 2016
Mar June Sept Dec Mar June Sept Dec
Revenue 30.1 28.7 29.0 30.4 31.0 29.6 30.2 31.1
Expense 22.0 21.4 22.7 24.3 25.0 24.1 23.2 26.8
Earnings before depreciation 8.1 7.3 6.3 6.1 6.0 5.5 7.0 4.3
Depreciation 5.8 6.0 7.2 6.9 6.6 6.6 7.7 7.2
Net earnings (loss) 2.3 1.3 (0.9) (0.8) (0.6) (1.1) (0.7) (2.9)


In accordance with the Authority’s mandate, all earnings are retained and reinvested in Airport operations and development, including investment in property, plant, and equipment to meet ongoing operating requirements.

During 2016, the Authority invested $31.0 million in its capital expenditure programs, and recorded $6.3 million as receivable from the Canadian Air Transportation Security Authority (CATSA) for CATSA’s share in the cost of the Airport’s new baggage handling system. The Authority spent over $4.0 million in 2016 on the completion of the renovation and expansion of the Airport’s baggage handling system to comply with new CATSA regulations for baggage screening. The Authority commenced this project in 2012 and while many elements were partially completed in 2015, the final stages were completed in 2016. The total cost of this project and associated work, net of costs to be covered by CATSA, is expected to be approximately $37.0 million and is being amortized over the expected useful lives of the various components. In addition, in 2016, the Authority replaced four boarding bridges ($6.3 million), continued the rehabilitation of select sections of the apron and taxiways ($5.3 million), invested in the installation of one screening station for non-passengers and two airside inspection stations for non-passenger screening for vehicles which are needed to comply with new security regulations ($3.9 million), investment in major fleet vehicles and equipment ($1.2 million), and investment in a new anti-pass back door system ($0.8 million) at the exit of the terminal’s domestic holdroom.


In addition to rent payments noted above, the Authority has operating commitments in the ordinary course of business requiring payments which diminish as contracts expire as follows:

(in thousands of Canadian dollars) Payments for Years Ending December 31
Total 2017 2018 2019 2020 2021 Thereafter
Long-term debt (Note 1) 631,157 203,695 4,152 4,643 8,753 13,116 396,798
Operating commitments 21,416 11,981 4,851 4,003 432 149
Capital commitments 12,899 12,899
Total contractual obligations 665,472 228,575 9,003 8,646 9,185 13,265 396,798

Note 1 – Further information on interest rates and maturity dates on long-term debt are provided in Note 8 to the financial statements.


As a non-share capital corporation, the Authority funds its operating requirements, including debt service, through operating revenues and AIF revenues. The Authority manages its operations to ensure that AIF revenues are not used to fund regular operational expenses or operational capital. AIF revenues are used to fund debt service costs and other expenses related to the Authority’s major infrastructure investment programs including Airport expansion projects. The Authority finances major infrastructure expenditures by borrowing in the capital markets and by using bank credit.

The Authority maintains access to an aggregate of $140.0 million in committed credit facilities (“Credit Facilities”) with two Canadian banks. The 364-day Credit Facilities that expired on October 14, 2016 have been extended for another 364-day term expiring on October 13, 2017. The following table summarizes the amounts available under each of these Credit Facilities, along with their related expiry dates and intended purposes:

Type of Facility Maturity Purpose 2016
$ (millions)
$ (millions)
Revolver 364-Day October 13, 2017 General corporate and capital expenditures 40.0 40.0
USD Contingency
($10 million USD)
October 13, 2017 Interest Rate hedging 14.0 14.0
Letter of Credit October 13, 2017 Security for the Debt Service Reserve Fund (see Note 8a) 6.0 6.0
Revolver 5-year May 15, 2020 General corporate and capital expenditures 80.0 80.0
Total 140.0 140.0

The Authority’s cash and cash equivalents decreased by $12.8 million during 2016 to $30.0 million as at December 31, 2016.

The Authority issues revenue bonds (collectively, “Bonds”) under a trust indenture dated May 24, 2002 (as amended or supplemented, the “Master Trust Indenture”) setting out the terms of all debt, including bank facilities and revenue bonds. Under the Master Trust Indenture, the Authority is required to maintain with the trustee under the Master Trust Indenture (the “Trustee”), a debt service fund (“Debt Service Reserve Fund”) equal to six months’ debt service in the form of cash, qualified investments or letter of credit. At December 31, 2016, the balance of cash and qualified investments held in the Debt Service Reserve Fund was $11.3 million. Furthermore, in order to satisfy the Debt Service Reserve Fund requirement for the Series E Bonds, $5.9 million of the Authority’s Credit Facility had been designated to an irrevocable standby letter of credit in favor of the Trustee.

The Master Trust Indenture also requires that the Authority maintain an operating fund (“Operating and Maintenance Reserve Fund”) in an amount equal to 25.0% of defined operating and maintenance expenses for the previous year. This fund may be maintained in the form of cash and investments held by the Authority or the undrawn availability of a committed credit facility. As at December 31, 2016, $14.1 million of the Authority’s Credit Facilities had been allocated exclusively to the Operating and Maintenance Reserve Fund.

At December 31, 2016, the Authority was in full compliance with the provisions of its debt facilities, including the Master Trust Indenture provisions related to reserve funds, the flow of funds, and the rate covenant.

During 2016, Standard & Poors and Moody’s reaffirmed the Authority’s credit ratings with stable outlooks in respect of the Authority’s Bonds under the Master Trust Indenture at A+ and Aa3, respectively.

Other Balance Sheet Highlights

The Authority’s accounts receivable increased by $3.1 million during the year due to an increase of $2.9 million in amounts receivable from CATSA that is related to their contribution toward the costs of the new baggage handling system.

The post-employment pension benefit asset increased by $0.1 million in the year to $0.2 million at December 31, 2016. An increase of $2.9 million in pension assets resulting from the Authority’s contribution of $2.1 million in special solvency payments as required by pension legislation together with interest and gains on pension plan assets was offset by an increase in pension liabilities of $2.8 million due to increases in service and interest costs and net actuarial losses arising from changes due to plan experience and economic assumptions and which are recognized in other comprehensive income (loss).

Other post-employment benefit liability increased by $1.0 million in the year to $8.5 million at December 31, 2016 with increases due to $0.8 million in service and interest costs and $0.2 million in actuarial losses arising from changes in economic assumptions which are recognized in other comprehensive income (loss) for 2016.


Aviation Activity

The federal government is considering the divestiture of airports in Canada. The Authority has expressed its concerns about the potential impact on passenger fees and on the airport governance model. The Authority will remain engaged with other airports and stakeholders in this dialogue as it is considered a material event.

The Authority will continue to face certain risks beyond its control which may or may not have a significant impact on its financial condition. Airport revenue is largely a function of passenger volumes. Passenger volumes are driven by air travel demand. The events of the past several years have emphasized the volatile nature of air travel demand and the impact of external factors such as economic conditions, health epidemics, geopolitical trends, government regulation, price of airfares, additional taxes on airline tickets, leakage of passengers to nearby airports, alternative modes of travel, and the financial uncertainty of the airline industry.

The financial uncertainty of the airline industry, although currently relatively stable in Canada, remains an ongoing risk to the Authority. This is mitigated by the fact that approximately 94.0% (93.0% in 2015) of the passenger activity originates or terminates at the Airport, as opposed to connecting through the Airport. Connecting passenger volumes are more vulnerable to fluctuation due to routing and scheduling changes by airlines. In addition, a greater percentage of the traffic through the Airport is business and government travellers, whose travel decisions are less discretionary than those of leisure travellers.

Aviation Liability Insurance

The availability of adequate insurance coverage is subject to the conditions of the overall insurance market and the Authority’s claims and performance record. The Authority participates with an insurance buying group that also includes airport authorities from Vancouver, Edmonton, Calgary, Winnipeg, Montreal, and Halifax. This group has been successful in placing all of its insurance needs including the placement of the aviation war risk liability. This specific risk was previously indemnified by the Government of Canada for losses in excess of US$50.0 million and this indemnification ceased on June 30, 2016. As of the July 1, 2016 insurance renewal, the insurance buying group was successful in securing appropriate war risk liability coverages and limits for all airport authorities in the buying group.