"Montréal airports at a crossroads"

Notes for a speech by
Mr. James Cherry
President and Chief Executive Officer
Aéroports de Montréal

Canadian Club of Montréal Luncheon
Monday, 31 May 2004

Good afternoon,

Thank you for your warm welcome. I am truly honoured to be here today and thank the Canadian Club for inviting me to speak to you.

The timing is excellent because our airports in Montréal are at a crossroad in their development.

In a few days, we will be releasing our results for the third quarter and first nine months of the year. I can tell you now that these results will reflect a substantial increase - roughly 17% - in our passenger traffic since January 2004.

If this trend continues, by the end of this year we will have regained all ground lost as a result of 9/11, SARS and the war in Iraq. In fact, we will have resumed our growth path one year earlier than expected. This is a very promising omen for the future!

We are also delighted by the turn of events at Air Canada, our national airline and largest customer. We wish it the best of success with its relaunch.

And one week from today, on November 1, charter flights still operating out of Montréal-Mirabel will be transferred to Montréal-Trudeau. As the only passenger airport in Greater Montréal, Montréal-Trudeau will now be able to fulfil its role as a passenger hub.

As we've said before, Montréal-Mirabel will now be dedicated to all-cargo planes and general aviation. It will also be used for test flights for aircraft manufactured or repaired on the site, such as by Bombardier Aerospace.

Then, on November 18, our expansion and modernization project at Montréal-Trudeau will mark an important milestone with the opening of the new international arrivals complex and new customs hall. Passengers arriving from abroad will finally receive a welcome worthy of Greater Montréal!

When the new international jetty opens in June 2005, the main components of our major project will be in place. For a relatively modest cost, Montréalers will have an efficient airport - one in which they can take a good deal of pride.

I'd like to note that the Montréal-Trudeau construction site is currently one of the biggest in Québec. To date, we have completed more than $525 million worth of work without any government subsidies and within budget and schedule. While such a feat is not unheard of, I humbly suggest it is worth mentioning.

So the CEO standing before you today is very proud and happy about these accomplishments. I truly believe that Aéroports de Montréal is at the threshold of a new era. Our turnaround has required considerable effort, determination, and sacrifice as well.

But I am not here to speak about the past. I'm here to speak about the future - about our upcoming projects and the issues and challenges we still face. In doing so, I will be saying a word - or two! - about the responsibility governments have in those areas that affect the community as a whole.

But first, I'd like to show you a short animated video explaining what we are doing at Montréal-Trudeau. Here is a virtual visit to the "new" Montréal-Trudeau, circa 2005.


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Vidéo


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I hope you enjoyed your virtual visit.

I'd like to reiterate that the transformation of Montréal-Trudeau is absolutely critical if we and our partners are to provide the levels of service that Montréalers deserve. I am confident that there is nobody in this room who will criticize us for moving too quickly in this regard!

The work underway at Montréal-Trudeau will resolve the lack of space and capacity, as well as modernize ageing facilities, that we inherited from Transport Canada. For example, the new international arrivals complex will create 10 additional customs counters and double the capacity of our baggage carrousels. It will also provide natural light, higher ceilings, a more attractive interior layout, and so on. In short, nothing like the basement space that we have currently!

But customer service is much more than just a question of facilities. It is present at every stage of a passenger's journey, and encompasses a host of things like employee courtesy, easy-to-understand signs, a broad range of retail services, etc. When considering all of these aspects, we rate rather well. In fact, surveys conducted among 2,000 respondents every quarter give us an average satisfaction score of 95%.

Customer service covers not only Aéroports de Montréal but also our concessions, the air carriers and government services at the airport. To ensure even more rigor in the future, we plan to incorporate quality standards in our contract agreements with various service providers at the airport. We also hope to develop a common customer service vision with all our partners.

I've now come to main part of my talk today, namely, our future projects.

In the coming years, our efforts will above all focus on:

And, the completion of work at the Montréal-Trudeau passenger terminal.

Let me briefly cover each of these points, starting with improving the way passengers are processed.

Like the major European and North American airports, we want to leverage new technologies to facilitate and speed up passenger flow in the airport, while reducing the costs for the airline companies.

All processes are being targeted, especially passenger and baggage check-in. We have already set up self-service kiosks in the domestic area and are planning to install them in the transborder and international sectors as well. These kiosks allow passengers to skip lining up at traditional check-in counters.

For now, passengers with baggage have to go to a special counter to have it tagged. But we are currently developing a completely automated process, including the issuance of baggage tags from self-service kiosks. We are among the first airports in the world to be working with such technology.

In the new customs hall, we will also have three automated counters for travellers registered in the CANPASS program. These counters which will be equipped with eye scanners to speed up entry formalities.

In terms of searches, the Canadian Air Transport Security Authority is also looking at biometrics to provide a "fast-track" service for frequent travellers. This technology will be tested shortly at Montréal-Trudeau among employees who work in restricted zones.

Secondly, we also intend to continue to develop and enrich our airline network in Montréal, which is already very impressive in view of our population base. As I speak, Montréalers can choose from among some 112 destinations served non-stop, including 57 international.

With the pick-up in traffic and the opening of new facilities at Montréal-Trudeau, we hope to interest airline companies in offering new non-stop destinations for which there is sufficient local demand that is not yet being met. Air Canada has already indicated its intention to expand its Montréal network.

Among the new potential international destinations we're looking at are Geneva, Santiago, Rome, Tel Aviv and Tokyo, as well as a few other popular destinations in the U.S. south and west.

The third point I mentioned was increasing industrial development at Montréal-Mirabel.

Our first priority at Montréal-Mirabel is to find a new vocation for the passenger facilities that will become available after November 1st. We are delighted by the response that we received to our request for proposals last April. Not only did we receive numerous proposals, but four of them have been retained for the second phase of the evaluation process. These all propose the integrated redevelopment of the entire airport terminal complex. We should be in a position to make a final selection in about six months, or next spring.

Even after its specialization, Montréal-Mirabel will be operating at a loss. You heard me right. We believe, however, that with the growth in cargo and industrial activities, we will be able to achieve break-even by the end of this decade. And with appropriate government programs, things could move forward even more quickly. Let's examine this more closely.

Until very recently, we had an excellent program of government support for industrial development at Mirabel through the Montréal International Trade Zone. In the space of just a few years, this program saw the establishment of a dozen companies in the zone and the creation of more than 4,000 jobs. But this program has been dismantled.

While we respect the Québec government's decision, we want nevertheless to see aggressive action at both the federal and provincial government levels to support the development of the aerospace sector. As you know, this industry is very important to us, for the Mirabel region, and for Greater Montréal as a whole. Montréal is the second largest aerospace centre in the world and the Mirabel region represents 15% of this industry.

A firm commitment on the part of the federal and provincial governments is urgently needed since the global aerospace industry is on the threshold of a new growth and investment cycle. There are major projects in the air. If we don't want to miss the boat, or rather the airplane, governments must act quickly and I believe this is their intention.

Naturally, if Bombardier's new C-Series aircraft project sees the light of day in Montréal-Mirabel, the impact will be extremely beneficial.

The federal government could also contribute to the development of Montréal-Mirabel by introducing the free zone concept in its legislation. When Prime Minister Paul Martin was Finance Minister, he made a good step in this direction with his program of customs drawbacks. But we need to go further if we want to let the entry points such as Halifax, Vancouver and Montréal compete on a level playing field with other North American cities to attract projects for value added logistics centres.

The fourth point regards the improvement of ground access to Montréal-Trudeau. This includes improving the Dorval interchange near the Montréal-Trudeau airport, as well as establishing city and inter-city rail links.

We have handed out a leaflet explaining the problem and planned solutions, both for the roads project and the rail.

Briefly, in its current form, the road project consists mainly of establishing direct links between the airport and Highway 20 East and West, between the airport and Highway 520 East, and between Highway 20 West and Highway 520 East.

As for the rail project, the top priority is to relocate the VIA Rail station in Dorval to a new site situated in the immediate vicinity of the airport terminal. This will allow certain trains from eastern Ontario to stop at Montréal-Trudeau, facilitating rail-air connections. It will also be possible to establish a rapid shuttle between the airport and downtown that will make the trip in less than 15 minutes, in good weather or in bad.

There are therefore very concrete projects on the table. There's a consensus on the urgency of completing these projects, of which we are the promoters. We have already committed to contribute $10 million for the roads project and foresee putting $45 million into the rail project. What's important now is that our government partners also make a financial commitment - something we've been demanding for many years.

I now come to my fifth and final point, namely the completion of the Montréal-Trudeau modernization. Once phase II of the expansion program is completed, there will still be several improvement projects to do. Since traffic will continue to increase, further expansions will also be needed beginning in 2007 to meet demand after 2010.

In total, our investments underway or planned total $900 million for the 2004-2009 period, including investments considered to be maintenance.

Financing this work already clearly poses a problem. After 2006, our operations will not generate enough liquidity to support both our $800 million in debt and maintain this needed pace of investment. This will be the case even if our revenues increase more rapidly than our controllable costs.

How is this possible? Quite simply because the rent we pay to Transport Canada and the taxes we pay to the City of Montréal will increase exponentially in the coming years. If nothing changes, we forecast paying, in 2009, more than $50 million in rent and $36 million in municipal taxes from estimated revenues of $300 million.

That means that about 30% of our gross revenues will go to governments. Will we have become a cash cow? I remind you that we are a not-for-profit organization at the service of the community!

It should also be noted in passing that the direct and indirect taxes paid by the aviation sector are very significant. Yet, Ottawa reinvests very little of this money back into the industry. It even imposed a special tax to defray the costs of air transport safety - this is unique in the world!

Aéroports de Montréal and our colleagues at the Canadian Airports Council have been discussing the question of rent with the appropriate federal authorities for four years. From a common agreement, we have proposed a new formula that is both fair and sustainable over the long term. This proposal guarantees the government a reasonable return on its initial investment in Canadian airports.

With the change in ministers and the government, the file has not really moved forward. We hope that, with the new Minister of Transport, the Hon. Jean Lapierre, we can reach an agreement by the end of the year. Because this file is now urgent!

As for municipal taxes, we are being taxed based on the land value of Montréal-Trudeau, a value that has increased significantly in recent years following the enormous investments that we have made. This simply makes no sense.

I will merely point out today that our colleagues in Ontario resolved the problem a few years ago by changing the municipal tax law. Their tax bills now increase according to passenger traffic, which is much more logical.

Based on passenger traffic, Montréal-Trudeau already pays the highest municipal taxes of any airport in Canada. We pay four times more per passenger than Calgary and two times more than Toronto and Ottawa. How can we be expected to compete under these conditions?


In conclusion, let me briefly review our accomplishments over the past three or four years.

First, Aéroports de Montréal has changed considerably: we have renewed our management team and our management approach, and we have revamped our corporate governance practices from top to bottom.

We have adopted a clear strategic direction and have modified our structure as a result. Among others, we have adopted and implemented a strategy for specializing the airports to correct an unsustainable situation inherited from the past.

We have made customer service our top priority. We have invested heavily, but rationally as well, to make Montréal-Trudeau an efficient transportation hub for passengers.

The three levels of government are the major beneficiaries of all these efforts since airports are strategic collective infrastructures.

The federal government now owns airport facilities that have been completely rebuilt, at our expense, in addition to collecting a rent that will continue to increase. The City of Montréal is seeing its tax income increase exponentially without any increase in services. And the Québec government is also benefiting from the economic and tax spin-offs of our investments.

What we are saying today is that it's about time the governments also do their part, namely by improving ground access to Montréal-Trudeau and by stimulating industrial development at Montréal-Mirabel.

It is high time too that we resolve the questions of rent and municipal taxes. These issues have dragged on for too long.

Now that things are starting to go well for us at Montréal-Trudeau, we should be able to pass on some of the benefits to our airlines and passengers… especially given the challenges still faced by civil aviation.

Ladies and Gentlemen, we are working hard for the benefit of the Montréal community - for you - and it is on your behalf that we are making these requests. And, really, I think the community as a whole must ask itself whether governments are doing their fair share for air transportation in Montréal!

Thank you for listening.

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