Let Me Call You Sweetheart – Part 2

By Saturday, January 11, 2014 0 No tags Permalink 0

Part 1 of the sweetheart deal topic mentioned documents that contain information that has gone into building the case that shows how the TPA has lost sight of its role as a public agency, protector of the public interest, and steward of public land by so closely allying itself with the interests of Porter Airlines.

The 2010 Prospectus

CommunityAIR obtained the first detailed outline of Porter’s finances and its financial relationship with the TPA when Porter attempted to raise money from the public through the sale of its shares, in the spring of 2010. To do so, Porter had to issue a prospectus that by law requires full, true and plain disclosure of all material facts.

Porter Aviation Holdings Inc. issued a first prospectus on April 16.  It fell short in detailing several materially significant matters.  The date of issue also allowed the company to precluded it listing its 2010 Q1 financials.  Porter issued a second prospectus on May 21, 2010 to replace the April version.

Even with the revised May 21 prospectus, Porter’s attempt failed, as prospective purchasers weren’t willing to buy – perhaps because, notwithstanding Porter CEO’s frequent statements that Porter was profitable, that disclosure revealed that it had accumulated losses to March 31, 2010 of $44,505,000, of which $5,972,000 had been incurred in the first three months of 2010.

 The Commercial Carrier Operating Agreement

A full copy of an April 9, 2010 agreement between the TPA and Porter was posted by Porter, along with its prospectus, on the www.sedar.com website. It replaced an earlier May 3, 2005 version that is not publicly available.

This agreement grants Porter the right to use the Airport for its flights. Other agreements cover the lease of the land on which Porter has built its terminal, and for Porter’s 275,000 litre fuel tank depot.

The TPA Annual Financial Statements

These are required by the law under which the TPA was created – the Canada Marine Act, and are available on the TPA website.

They are reviewed by an independent firm of chartered accountants, and therefore must meet specified standards of disclosure.

What TPA has Given Away

Our analysis of those documents discloses that the TPA has given away almost total control of its airport assets to Porter, in return for only modest payments in return.

The prime asset the TPA holds is the 215 acres of the Island Airport.

  • Part is directly owned by the TPA, having received it free when the City‑controlled Toronto Harbour Commission’s ownership was converted by the federal government to the federally‑controlled Toronto Port Authority[2].
  • A substantial portion of those 215 acres is owned by the City, but leased rent‑free to the TPA until 2033[3].

Having received ownership of much of the Island Airport land without any payment, and the balance rent‑free from the City, the TPA has chosen to pass the benefit of the assets it obtained for free (save a portion of operating costs) to Porter[4].

This is a massive public subsidy of Porter.  Part 3 will show how the TPA did it.

 

[2] That didn’t stop the newly created Port Authority from suing the City for compensation for certain port lands transferred by the Harbour Commission to another city‑controlled agency prior to the TPA’s creation. Surprisingly, the City capitulated, agreeing in 2003 to pay the TPA $48M over the next ten years.

[3] The lease of the City lands is known as the Tripartite Agreement, and contains a number of provisions intended to constrain the Airport’s impact on the other uses on Toronto’s waterfront – constraints that, for the most part, are ignored by the TPA and unenforced by the City.

[4] It may be that Air Canada has a similar arrangement with the TPA for its 15% share of the use of the Airport. And it maybe that this huge level of government subsidy is common in the airline industry. What makes it so glaring here is the Island Airport’s location – on some of the most valuable land in the City. There’s a reason airports are usually located well outside of urban areas, where land is far cheaper, and there aren’t alternative uses that are far more economically productive.

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