Why I am Not a Porter Supporter

When a firm goes to the government for a bailout, it is universally recognized that it must open its books to public scrutiny. But when Porter Airlines goes to the City of Toronto for authorization to fly jets from Billy Bishop Toronto City Airport (BBTCA) and to pay for infrastructure, because Porter is privately held, there is no requirement that it open its books. Public scrutiny of Porter’s finances and operations should be critical to any decision about whether Porter is allowed to expand its operations by providing jet service from Toronto Island. Let me explain why.

Benefit-cost analysis, which is a robust framework for such decisions, attempts to assess the value to society of public sector decisions and investments. The returns to private sector agents, for example Porter and its passengers, are one component of the value to society, and must be measured to complete the analysis.

Porter has not been forthcoming about either the details of its current operations or about the nature and distribution of the return on invested capital. It has disclosed that its current operations are profitable. Equity investors – EdgeStone Capital Partners, OMERS (the Ontario Municipal Employees’ pension plan), GE Capital, and Dancap Private Equity (whose principal is Aubry Dan, a man who chose his parents wisely) – are receiving enough of a return to stay in the game. Management, notably CEO Robert DeLuce, is presumably earning some return to its entrepreneurship. The social costs of these private returns are the noise and air pollution on the island and traffic congestion on access roads.

Porter’s business model involves quick airport access by travelers based downtown, low airport fees (since Porter Aviation Holdings controls the airport), a non-unionized workforce, and the operating economies of flying only one type of aircraft. Porter’s expansion proposal will likely increase the company’s profitability, but it will also increase the level of noise and air pollution and traffic congestion. The City is attempting to determine how much noise pollution would be involved, but that is not yet possible because the plane Bombardier is designing for Porter, the CS 100, has not yet been certified. The other major unknown is the impact of the completion of the Union-Pearson Express next year, which will decrease travel time and expense from downtown to Pearson Airport, hence eroding Porter’s advantage over its competitors who use Pearson.

If it were possible to do a benefit-cost analysis of Porter’s expansion plans, we could determine if the benefits, which will be shared between Porter’s passengers and the company, outweigh the costs, which will be borne both by those who live, work, and play, near Island Airport, and by the general taxpayer. The City of Toronto should demand that, as a precondition to any decision about expanding BBTCA, Porter make available complete data about its travel volumes, costs, and profits. If a comprehensive benefit-cost analysis using this data shows that the benefits do not outweigh the costs – putting a reasonable value on the recreational use of the island and harbour – then the expansion should not go ahead. If the data show that the benefits outweigh the costs, then Porter and its passengers should put up the money to cover the costs, which would include such things as airport access infrastructure and sound proofing affected properties.

An alternative, but not conflicting, approach to the problem is to look at it in terms of urban design. There has been a trend in a number of cities, most notably New York, to designate the waterfront as green space and to enhance its recreational use. Toronto has been following that trend through such initiatives as the revitalization of Ontario Place and the redevelopment of the West Don Lands. Locating an airport in the middle of this evolving green belt is obviously a conflicting use.

From an urban planning perspective, airports are a necessary evil: essential for transportation, but a major source of noise and air pollution and traffic congestion. The residents of the Pickering area realized this four decades ago when they formed People or Planes, the organization that successfully opposed the federal Ministry of Transport’s attempt to expropriate their land for a second Toronto airport. (Personal disclosure: my doctoral dissertation was a benefit-cost analysis that compared expansion of Pearson with the construction of a second airport in Pickering and found that Pearson expansion was clearly preferable.) Over the years, Pearson has proven itself a successful airport, with much greater terminal and runway capacity than ever imagined by the transport bureaucrats of the 1970s. The Union-Pearson Express will enhance its capacity on the ground side, replacing a great deal of automobile traffic.

If the benefit-cost analysis of expanding BBTCA were broadened to include the possibility of closing it down entirely, we might discover that the benefits of complete recreational use of the island as part of an overall greening of the waterfront outweigh the costs to Porter’s management and passengers. Were that the case, then Porter should take its business plan (Rocky Raccoon, “flying refined,” the clinking glasses and leather seats, and the smarmy radio announcer) to Pearson. Maybe it would still be competitive there.

In the absence of comprehensive data and given the uncertainty about the noise profile of the new Bombardier aircraft, as well as the impact of the Union-Pearson Express on reducing BBTCA’s locational advantage for travelers based downtown, I say no to Porter’s proposal to expand its operations.

 

3 comments

  1. One thing which may also be considered is that there are benefits to the city and the residents as well in terms of more jobs, more money brought to the downtown core by travellers (food, supplies, etc. on the way to/from the airport), and more money for the city in terms of taxes and fees.

    Since Pearson Airport is based in Mississauga I assume the expansion of Pearson will help Mississauga a lot more than Toronto? If that is the case, then Toronto has a completely different equation to consider in bringing more traffic to Toronto as opposed to Mississauga.

  2. Thanks for this reasoned view of the Porter AIRLINE expansion proposal. I give it that name consciously, to point out that it is NOT an AIRPORT expansion proposal. That would have (should have) come from the Toronto Port Authority.

    As an airline expansion proposal it lacks consideration of all the effects that would result to the airport and the City. The City has gone some way to addressing this deficiency by requiring the TPA to supply an Airport Master Plan before proceeding, but this requirement still does not address the City’s exposure and the potential disruption of civic priorities, as this blog post notes.

    I would add into the economic consideration that Porter Airlines receives ongoing benefits from the public purse in PILTs that have been waived by the City, in the benefits of airport infrastructure provided under the near-monopolistic conditions of the Porter/TPA CCOA, in the use of ferries and tunnel constructed with their expansion in mind, in land leased to the TPA at a nominal fee, and so on.

    Without examination of the real costs, benefits, and financial position of Porter Airlines, the City takes the risk of confusing Porter Airlines’ popularity and growth for success on the bottom line.

  3. Thank you for this important and insightful article. If BBTCA in its present state were financially viable, why would Robert Deluce refuse to share his numbers to back this up? To allow expansion to proceed and re-industralize Toronto’s waterfront is pure folly, particularly when the financial gains purported by pro-expansionists leave so much unanswered in their substantiation. No public money for private greed.

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