We will create an exceptional airport experience at Newfoundland & Labrador’s premier gateway.
St. John’s International Airport Authority is a private, non-for-profit corporation that exists to provide a safe and efficient transportation facility at Newfoundland and Labrador’s premier transportation gateway.
We generate our own revenue, raise our own capital, pay municipal taxes, and pay rent to the Federal Government on an annual basis to operate the airport on behalf of the community we serve. We are committed to offering an outstanding airport experience for our passengers and enhancing the economic and social well-being of our community.
Back Row (L-R): Jim Heale, Holly Hicks, Darren Martin, Gail Carroll, Mike Donavan, Jerry Byrne, Roger Butt
Front Row (L-R): Neil Pittman, Art Cheeseman, Tom Williams
The Airport Authority’s Strategic Business Plan was updated in 2015.
This Plan defines the Authority’s ideal future and includes objectives and strategic initiatives that will serve as our guiding framework that will lead to our vision of providing an exceptional airport experience at our province’s premier gateway. This report provides an update on progress associated with these seven strategic objectives:
Objective: Deliver new, improved, and expanded air terminal building and related airport facilities to meet 2020 demand.
The increased demand in our region for air travel has created the need to expand our facilities. Our current Terminal Building is designed to handle 900,000 passengers and is currently operating well beyond design capacity, with more than 1.5 million annual passengers in 2015 using our facilities. By 2020, we are forecasting this traffic to grow to approximately 2 million passengers annually. As part of our $245 million expansion plans, the facilities at the Airport will be improved and expanded to accommodate the growth and demand of our travellers.
2015 was the busiest year of construction in our organization’s history as we spent close to $50 million on a number of major capital projects.
2015 was the busiest year of construction in our organization’s history as we spent close to $50 million on a number of major capital projects. The most notable project was the three-year, $37.3 million Airfield Accessibility and Safety Initiative that was completed in January 2016. Category III Instrument Landing Systems (CAT III ILS) are now operational on both ends of the primary runway (R11/29) and are being maintained by NAV Canada.
This project was completed on budget, ahead of schedule, without any reported work safety incidents or incidents related to the safety of aircraft operations, and with less impact on flight operations than was anticipated. This is a testament to the extensive planning, communication and cooperation of all parties involved.
While the primary runway was closed to complete the infrastructure improvements associated with this project, it was also rehabilitated at an additional cost of $15.7 million. This runway was scheduled for rehabilitation in 2017 as part of its regular maintenance schedule. In order to avoid any further downtime on this runway, it was decided to complete both projects at the same time. As a result, no extensive of work is required on the runway for at least 15 years.
The benefits of having CAT III ILS are tremendous:
This project was a long-term investment in our province’s premier transportation gateway, supported by all levels of government and cost-shared between the Airport Authority, the Government of Newfoundland and Labrador, and the Government of Canada through the Gateways and Border Crossing Fund in support of the Atlantic Gateway and Trade Corridor Strategy.
By the end of 2015, construction on the first phase (east end) was approximately 25 per cent complete.
The largest capital project in our history, the Airport Terminal Building expansion, commenced in 2014 and really started to take shape last year. The project is occurring in two phases and involves an expansion to both the east and west ends of the existing Terminal Building. By the end of 2015, construction on the first phase (east end) was approximately 25 per cent complete. This first phase will add 145,000 square feet to the existing 175,000 square foot Terminal Building. When the first phase is completed in 2018, the second phase (west end) extension will commence and add just over 72,000 square feet. When the entire project is complete in 2021, the Terminal Building will be more than double its existing size and will be able to accommodate an annual traffic volume of 2 million passengers.
When the first phase opens in 2018, travellers will enjoy additional food and beverage and retail outlets; an expanded and more comfortable waiting area in the Departures Lounge; additional and larger washroom facilities; and a larger pre-board screening area. The airlines operating in the building will have additional and expanded facilities, including a larger baggage processing area and more aircraft gates with additional passenger loading bridges that will allow more aircraft to operate at the same time.
Accommodating the building expansion on both ends of the existing terminal building means both a reshuffling and displacement of existing parking facilities. While more work is to be done in 2016, the new rental car lot was expanded and moved to its new location. The new lot features 264 parking spaces, which are clearly identified for each rental agency, and has a baggage cart corral for the convenience of travellers. While temporarily further away from the terminal building than the previous rental car parking spaces, it will be located in close proximity to the expanded arrivals area of the Terminal Building, once the west expansion is complete. In the meantime, we are investing in the installation of covered walkways through the long-term parking lot and to the rental car lot that will provide passengers with protection from unfavourable weather. Additional baggage cart corrals are also planned for the short-term and long-term parking lots.
Objective: Provide an exceptional passenger experience at our airport.
Passenger satisfaction is a priority for us at St. John’s International. As the gateway to Newfoundland and Labrador, we understand the experience at our Airport helps shape the perception of our city and our province. We are committed to ensuring this perception is positive for all passengers travelling through our Airport.
We achieved an
83 per cent
overall passenger satisfaction rating last year.
Despite the flight disruptions experienced by passengers last summer when our runway was closed for construction, we achieved an 83 per cent overall passenger satisfaction rating last year, as measured by the Airport Service Quality Index (ASQ benchmarking survey). This survey is conducted year-round in our Terminal Building and enables us to measure passengers’ satisfaction with all aspects of our Airport. While areas for improvement were identified, we recognize that many of these cannot be realized until our facilities have expanded. In the meantime, we are consistently looking for ways, big and small, to enhance the passenger experience.
has been enhanced throughout the Terminal Building.
Over the last year we’ve incorporated new services and made enhancements to existing services and passenger facilities. For example, our complimentary Wi-Fi has been enhanced throughout the Terminal Building; two new Information Centres were added to the first floor (across from the Visitor Information Centre and the check-in counters); new charging tables, lounge seating, and additional seats were installed in the waiting areas. We also installed new Flight Information Displays with new LED screens, and improved the baggage belt information screens in the Arrivals Area.
Our Passenger Advisory Panel is instrumental in helping us identify improvements for our passengers. This panel consists of frequent travellers who use our Airport, and offer valuable feedback on their airport experiences and suggestions for improvement. Their contributions will continue to play an important role in shaping the passenger experience at our Airport.
Objective: Pursue revenue diversification and aggressive air service development.
Attracting new and expanded airline services to our Airport is a core function of our business. Over the last seven years, our Airport has been in the top three for growth in airline seat capacity among the medium to large sized airports in Canada. The availability of airline seats at our airport grew by 35 per cent over the last seven years and will grow another five per cent in 2016.
The availability of airline seats at our airport grew by 35 per cent over the last seven years and will grow another five per cent in 2016.
In 2015 a new, seasonal, daily European service was announced by WestJet to London Gatwick. This addition means that in 2016 our Airport will be the only of its size in North America to offer three daily European services during the summer months – WestJet to Dublin and London Gatwick, and Air Canada to London Heathrow.
Three of our most popular destinations in the US are all located in Florida, with Orlando being the number one overall US destination. In 2016, the total number of available airline seats direct to Orlando will increase by 400 per cent. This is a result of a new airline, National Airlines, who came on board offering direct year-round service to Orlando Sanford. The airline has since partnered with Provincial Airlines to offer special discount fares to Orlando Sanford from many airports in the province, through St. John’s. WestJet has also increased capacity to Orlando International Airport with two flights per week during the winter season, and will also be extending its direct service year-round.
United Airlines has been operating at our Airport for approximately 12 years, offering direct flights to Newark, New Jersey. While the airline abandoned many Canadian markets over the last few years and reduced services at others, we were disappointed when they announced they were leaving St. John’s. Key factors influencing the decision included the declining value of the Canadian dollar which provided an unfavourable currency exchange rate with the US dollar, as well as lower demand for oil-related travel between Houston and St. John’s, via Newark. We are currently exploring all options to fill this important route with another airline.
While we expend significant effort to develop the air services to and from our Airport, we are also focused on diversifying our revenue in order to reduce our dependence on aeronautical fees. We are pleased that revenue generated from non-aeronautical sources in 2015 represented 55 per cent of total revenue (excluding AIF) generated by the Airport Authority.
Non-aeronautical sources in 2015 represented 55 per cent of total revenue (excluding AIF) generated by the Airport Authority.
In 2015 we strengthened our advertising sales program with the installation of two digital billboards installed on World Parkway, the only access road into St. John’s International Airport. With an unobstructed view, high resolution, and millions of impressions, the digital billboards offer a unique opportunity to be the first or last message travellers see. The expanded terminal building will offer new advertising real estate space for companies looking to target our passenger profile.
There is also potential to increase passenger satisfaction and generate additional revenue when the food and beverage and retail program is expanded and improved in the larger Terminal Building.
The Airport Authority has approximately 300 acres of land that is available for commercial development through long-term land lease agreements. As the Airport grows and continues to develop, so does the interest in leasing the land that is only three kilometres from a major highway, and 10 minutes from the downtown core.
Over the last year there were a number of developments under construction on our land, including the Holiday Inn Express & Suites. This is the first hotel to be located on our Airport property, and will provide a convenient stay for travellers with a late arrival or early departure. Additional land developments, both aviation and non-aviation related, are in various stages of negotiations and construction. In 2016, an Expression of Interest will also be issued to construct a gas station along the Airport’s access road that will provide a new service at our Airport while contributing to our non-aeronautical revenue.
Objective: Create a culture of employee engagement within the organization.
The Airport Authority determined that creating a culture of employee engagement where all members of an organization are motivated to contribute to the organization’s success is necessary to achieve an experience for passengers that would be described as exceptional.
In order to determine the existing level of engagement from employees at the Airport Authority and to establish a benchmark, an Employee Engagement Survey was conducted in December 2015. Ninety-two per cent (92%) of all employees participated in the survey, an exceptionally high employee participation rate especially for the first survey. Results from the survey enable the Airport Authority to understand the level of engagement; identify areas of success; and opportunities for improvement. Based on these results, a plan will be developed to improve employee engagement within the organization.
Objective: Enhance partnerships and collaboration with community while strengthening brand.
The Airport plays an important role in enhancing the economic and social well-being of our community. We intend to enhance the existing partnerships with our community partners and stakeholders and create new collaborations within our community, especially when those partnerships result in the increased health and wealth of our community. In doing so, we also strengthen our corporate brand.
For example, in 2015 we held an Entertainment Series during the holiday season as well as the summer months. Both series featured local musicians as well as school choirs. The goal was not only to create partnerships within the community, but to also provide entertainment for travellers throughout our Airport. We also intend to continue our partnership with Business and Arts Newfoundland and Labrador (NL). The piano that was donated by Business and Arts NL to stimulate impromptu performances when travelling through the Airport proved to be a huge success, and both parties agree there are opportunities for further collaboration.
We received the highest ratings among 47 large and mostly private sector organizations that operate in our province.
Late last year a Reputation Study was conducted to understand the general public’s attitudes and perceptions of the Airport Authority. The study was done by the Corporate Research Associates (CRA) and concluded that the Airport Authority was most recognized for providing a safe and secure environment; being ethical; and generating employment in the province. Our reputation exceeds its goal of reaching the top 25 percentile of relevant organizations. In fact, we received the highest ratings among 47 large and mostly private sector organizations that operate in our province. While the survey concluded very favourable ratings, we will continue to invest in our community relationships and identify areas for improvement.
Objective: Improve organizational effectiveness with improvements to processes and systems.
St. John’s International Airport Authority is seeking to improve processes and systems in order to deliver more efficient and effective services at our Airport. A new Time and Attendance Payroll System is being implemented in 2016 in order to modernize timesheet entry and the payroll administration process. With the significant construction program at the Airport, a new Capital Time Entry System will allow employees to track the time spent on various capital projects in order to accurately track the labour costs of those projects. In addition, a new Document Management System will be implemented in 2016 to relate to the creation, modification, final versioning and accessibility of electronic documents, as well as the handling of existing and future paper documents, through a coordinated and controlled system. With all of these systems in place, organizational effectiveness will be improved.
Safety is our number one priority.
Safety is our number one priority at our airport, and we try to lead by example. An Employee Safety Survey was conducted for employees of the St. John’s International Airport Authority that was designed to measure our safety culture from both an Occupational Health & Safety, and Safety Management System (aviation safety) perspective. Results from the survey allow the Airport Authority to identify areas of success; areas where advancements in safety culture have been made; and all areas where further improvement is required.
Objective: Ensure financial sustainability.
As a not-for-profit and private organization, we are responsible for generating our own revenue and raising our own capital funds to support our infrastructure improvements and expansion. Any excess revenue is reinvested back into our facilities.
Since we issued our first private bond offering in 2007 we have maintained an A1 credit rating.
The growth in demand for air travel at our Airport has necessitated an extensive investment into our facilities to ensure we continue to meet the needs of travellers at our Airport. In 2014, a 10-Year, $245 million Airport Improvement and Expansion Plan and a corresponding 10-year Financial Plan was announced. The Financial Plan outlined the required borrowings in the form of private placement bond and credit facilities necessary to fund the investments, while ensuring long-term financial stability of the organization.
Since we issued our first private bond offering in 2007 we have maintained an A1 credit rating. This favourable credit rating has been reaffirmed each year by Moody’s Investors Service, and our goal is to continue this credit rating throughout the entire five-year planning process.
Maintaining a strong financial position that ensures financial sustainability in the long term is our goal.
The Airport Authority made significant progress in 2015 on its Airport Improvement and Expansion Plan that was announced in 2014.
Capital Expenditures were spent on Phase 1 of the Airport Terminal Building expansion; increased Electrical and communications capacity to the Airport Terminal Building; expanded vehicle parking lots; extension of a taxiway and the expansion of the west end of the Airport Terminal Building Apron. The Airfield Accessibility and Safety Initiative was completed in 2015, along with the rehabilitation of the primary runway and adjacent taxiway.
(Shown in thousands of dollars)
|Revenue (Note 1)||$44,488||$45,185||($697)||Lower AIF revenues due to less passenger traffic than expected offset by higher operating revenues.|
|Expenses (Note 2)||$26,109||$26,679||($571)||Lower salaries and benefits expense due to the year-end actuarial pension adjustment.|
|Capital (Note 3)||$47,967||$49,783||($1,817)||Purchase of two generators deferred until 2016.|
Note 1. Revenue includes net AIF and operating revenue.
Note 2. Expenses include interest and exclude the non-cash items of depreciation and amortization.
Note 3. Capital includes the Airfield Accessibility and Safety Project expenditures net of government funding received and receivable.
We have completed a long-term infrastructure plan to address capacity constraints and to accommodate the approximately 2 million annual passengers forecast by the year 2020. Over the next five years the Airport Terminal Building will be expanded in two phases, with the first phase scheduled for completion in 2018, and the second phase completed in 2021. A long-term Financial Plan was also prepared in order to support the investment in infrastructure improvements, and includes future borrowings in the form of a private placement bond and credit facilities.
(Shown in thousands of dollars)
|Revenue (Note 1 & 2)||$46,222||$49,700||$52,537||$54,424||$56,401|
|Expenses (Note 3)||$27,920||$30,103||$31,196||$32,665||$34,247|
|Capital (Note 4)||$40,595||$34,849||$20,122||$22,323||$23,852|
Note 1. Assumes passenger growth will 1.5% each year.
Note 2. Revenue includes net AIF and operating revenue.
Note 3. Expenses include interest and exclude the non-cash items of depreciation and amortization.
Note 4. Capital includes the expansion of the Airport Terminal Building, additional aircraft bridges and the expansion of the hold bag screening system.
To the Board of Directors of St. John’s International Airport Authority
We have audited the accompanying financial statements of the St. John’s International Airport Authority (the Authority), which comprise the balance sheet as at December 31, 2015 and the statements of operations and equity in capital assets and cash flows for the year then ended, and the related notes, which comprise a summary of significant accounting policies and other explanatory information.
Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian accounting standards for private enterprises, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
In our opinion, the financial statements present fairly, in all material respects, the financial position of the St. John’s International Airport Authority as at December 31, 2015 and the results of its operations and its cash flows for the years then ended in accordance with Canadian accounting standards for private enterprises.
Chartered Professional Accountants
April 19, 2016
As at December 31, 2015
(in thousands of dollars)
|Cash and cash equivalents||$26,760||$47,107|
|Accounts receivable (note 3)||5,956||6,311|
|Consumable inventory (note 2)||381||362|
|Total current assets||33,584||54,124|
|Capital assets, net (note 4)||187,066||135,900|
|Debt service reserve fund (note 6)||2,763||2,772|
|Defined benefit asset (notes 2 and 9)||4,335||3,556|
|Intangible assets, net||16||40|
|Accounts payable and accrued liabilities (notes 5 and 13)||$27,153||$20,936|
|Current portion of long-term debt (note 6)||678||644|
|Total current liabilities||27,831||21,580|
|Long-term debt (note 6)||108,424||108,940|
|Deferred contributions for capital projects, net (note 7)||28,041||12,593|
|Equity in capital assets (note 1)||63,468||53,279|
Commitments (note 11)
See accompanying notes
On behalf of the Board:
Art Cheeseman, Chair
Roger Butt, Chair, Finance and Audit Committee
For the year ended December 31, 2015
(in thousands of dollars)
|Airport improvement fees (note 8)||20,222||16,137|
|Salaries and benefits||8,625||8,280|
|Interest and financing costs||5,052||4,018|
|Ground rent (note 11)||2,440||2,060|
|General and administrative||802||654|
|Excess of revenues over expenses||$10,189||$8,062|
|Total equity in capital assets, beginning of year||53,279||45,217|
|Total equity in capital assets, end of year||$63,468||$53,279|
See accompanying notes
For the year ended December 31, 2015
(in thousands of dollars)
|Excess of revenues over expenses||$10,189||$8,062|
|Add (deduct) items not involving cash|
|Amortization - capital assets, net||8,908||8,162|
|Amortization - deferred contributions||(745)||(665)|
|Amortization - intangible assets||27||52|
|Amortization - other||162||141|
|Gain on disposal of capital assets||(31)||-|
|Increase in defined benefit asset||(779)||(775)|
|Changes in non-cash working capital balances related to operations|
|Accounts payable and accrued liabilities||6,217||10,575|
|Cash provided by operating activities||24,141||22,647|
|Proceeds from bond issue||-||60,000|
|Decrease (increase) in debt service reserve fund||9||(1,051)|
|Repayment of revenue bond||(644)||(611)|
|Repayment of demand installment loan||-||(1,516)|
|Repayment of revolving credit facility||-||(2,994)|
|Cash provided by (used in) financing activities||(635)||53,295|
|Additions to capital assets||(60,074)||(31,287)|
|Additions to deferred contributions||16,193||1,884|
|Additions to intangible assets||(3)||(15)|
|Proceeds from sale of capital assets||31||-|
|Cash used in investing activities||(43,853)||(29,418)|
|Net increase (decrease) in cash during the year||(20,347)||46,524|
|Cash and cash equivalents, beginning of year||47,107||583|
|Cash and cash equivalents, end of year||$26,760||$47,107|
See accompanying notes
December 31, 2015
(tabular amounts expressed in thousands of dollars except where otherwise noted)
The St. John’s International Airport Authority (the “SJIAA”) was incorporated on May 6, 1996 as a corporation without share capital under Part II of the Canada Corporations Act. The Airport Transfers (Miscellaneous Matters) Act exempts the corporation from paying income and large corporations tax.
On December 1, 1998, the operations and undertakings of the St. John’s International Airport (the “Airport”), previously administered by Transport Canada, were transferred to the SJIAA. The SJIAA operates the Airport pursuant to the provisions of a long-term lease with the Government of Canada (the “Ground Lease”). As the principal document governing the relationship and allocating responsibilities between the SJIAA and the Government of Canada, the Ground Lease provides a formula for the calculation and payment of Ground Rent, after an initial rent-free period which ended December 31, 2005. The term of the Ground Lease is sixty years, ending 2057, with an option to extend the term for a further twenty years.
The SJIAA has all the powers and obligations of any Canadian private corporation and operates on a fully commercial basis. The SJIAA has the autonomy to set all fees and charges and does not rely on grants, donations or on contributions with restrictions imposed by the contributor.
The corporate structure ensures that the excess of revenues over expenses, or surplus from operations, is retained and reinvested in capital assets for development of the Airport. Equity in capital assets includes the net assets invested in capital assets to date and cumulative surpluses restricted for future airport infrastructure projects and associated financing costs.
The financial statements have been prepared in accordance with Canadian accounting standards for private enterprises (ASPE) as issued by the Canadian Accounting Standards Board.
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities at the date of the financial statements and the reported amounts of certain revenues and expenses during the year. Actual results could differ from those estimates.
The SJIAA considers deposits in banks, certificates of deposits and short-term investments with original maturities of three months or less as cash and cash equivalents.
The Ground Lease is accounted for as an operating lease.
A liability for severance pay is recorded in the accounts for all employees who have a vested right to receive such payment. This includes a provision for severance pay liability for employees who have less than ten years of continual service.
Capital assets are recorded at cost and are amortized on a straight-line basis from their in-service date over the estimated useful lives of the assets at the following annual rates:
|Airport terminal building, other buildings and bridges||15 - 30 years|
|Leasehold improvements and improvements to leased land||15 - 30 years|
|Vehicles, machinery, furniture and fixtures||5 - 20 years|
|Computer hardware and software||3 - 15 years|
|Multi-purpose/central de-icing facility||25 years|
Assets under construction or development are recorded at cost and are transferred to capital assets when the projects are complete and the assets are placed into service.
Intangible assets of the SJIAA include computer software and are recorded at cost and amortized on a straight-line basis over their estimated useful lives. Amortization of $27,054 (2014 - $51,673) is included in operating expenses for the year.
Landing fees, terminal fees, and car parking revenues are recognized as the facilities are utilized. Airport improvement fees (“AIF”), net of airline administration costs, are recognized when originating departing passengers board the respective aircrafts, and are subject to reconciliation with air carriers. Concessions revenue is charged on a monthly basis and is recognized based on a percentage-of-sales or specified minimum levels. Rental revenue is recognized on a straight-line basis over the duration of the respective agreements.
Contributions for capital projects, exclusive of AIF, are accounted for under the deferral method. Contributions externally restricted for the purchase of capital assets are deferred and recognized in income as the related assets are amortized.
In 2005, the SJIAA established a contributory defined contribution pension plan for new employees hired after March 9, 2003, whereby retirement benefits are based on the investment in the marketplace of both the employer and the employee contributions. The employees determine where their funds are invested. The SJIAA’s contributions to this plan for the year ended December 31, 2015 amounted to $218,070 (2014 - $200,458).
The SJIAA has a contributory defined benefit pension plan for its employees whereby retirement benefits are based on length of service and the best six years’ average earnings. The defined benefit pension cost is charged to salaries and benefits expense as employees render services.
The Authority’s policies for accounting for future employee benefits for the defined benefit pension plan are as follows:
The financial instruments, which include cash, accounts receivable, debt service reserve fund, accounts payable and accrued liabilities and long term debt, are recorded at amortized cost. Amortization is recorded on a straight-line basis.
Financial assets are tested for impairment at the end of each reporting period when there are indications that the assets may be impaired.
Derivative financial instruments, including interest rate swaps, may be used from time to time to reduce exposure to fluctuations in interest rates. These financial instruments will be accounted for under the deferral method if the Authority meets the hedging requirements set out in existing accounting pronouncements and the Authority chooses to designate these financial instruments as hedges. Accordingly, the book value will not be adjusted to reflect the current market values. Payments and receipts under interest rate swap agreements will be recognized as adjustments to interest and financing costs where the underlying instrument is an Authority debt issue.
Derivative financial instruments that are not designated by the Authority to be an effective hedging relationship will be carried at fair value with the changes in fair value, including any payments or receipts made or received, being recorded in interest and financing costs.
Realized and unrealized gains or losses associated with derivative financial instruments, which have been terminated, designated from a hedging relationship or cease to be effective prior to maturity, will be deferred and recognized in the period during which the underlying hedged item is realized. In the event a designated hedged item is sold, extinguished or matures prior to the termination of the related derivative financial instrument, any realized or unrealized gain or loss on such derivative financial instrument will be recognized in the statement of operations and equity in capital assets.
Transaction costs are included in the debt balances and are recognized as an adjustment to interest expense over the term of the debt. The SJIAA uses the effective interest rate method to recognize bond interest expense and financing costs where the amount to be recognized varies over the life of the debt based on the principal outstanding.
Inventories are valued at the lower of cost and replacement cost. For 2015, $1,078,227 (2014 – $925,648) of inventories were recognized as an expense.
|Airport improvement fees||1,059||1,445|
|Allowance for doubtful accounts||(176)||(148)|
|Cost||Accumulated amortization||Net book value||Net book value|
|Airport terminal building, other buildings and bridges||$73,125||($32,279)||$40,846||$42,468|
|Leasehold improvements and improvements to leased land||115,174||(17,336)||97,838||40,336|
|Vehicles, machinery, furniture and fixtures||25,256||(12,303)||12,953||12,112|
|Computer hardware and software||5,477||(4,196)||1,281||1,612|
|Multi-purpose/central de-icing facility||14,234||(4,949)||9,285||9,849|
|Assets under construction or development||24,863||-||24,863||29,523|
Assets under construction or development in 2015 were not being amortized and consisted of the Airport Terminal Building Expansion, Non-Passenger Screening of Vehicles facility and a Waterline.
|Salaries and benefits||861||879|
|Deferred revenue and other||237||270|
|Less transaction costs (net of amortization of $169,586; 2014 - $141,560)||(3,511)||(3,673)|
In May 2007, the SJIAA completed its inaugural $55,000,000 Revenue Bond issue. The $55,000,000, 5.252% Series A Revenue Bonds pay interest semi-annually. $27,500,000 of the initial principal amount is repayable in semi-annual installments. The remaining principal is payable on maturity, which is May 11, 2037.
In July 2014, the SJIAA completed a $60,000,000 Revenue Bond issue. The $60,000,000, 3.479% Series C Revenue Bonds are due on July 15, 2024.
The net proceeds from these offerings are used to finance the capital plan and for general corporate purposes. These purposes include repaying existing bank indebtedness and funding of the Debt Service Reserve Fund. The bonds are direct obligations of the Authority ranking pari passu with all other indebtedness issued under the Master Trust Indenture.
Pursuant to the terms of the Master Trust Indenture, the SJIAA is required to establish and maintain with a trustee a Debt Service Reserve Fund with a balance at least equal to 50% of the annual debt service costs. As at December 31, 2015, the Debt Service Reserve Fund included $2,763,281 (2014 - $2,772,000) in interest-bearing deposits held in trust. These trust funds are held for the benefit of bondholders for use in accordance with the terms of the Master Trust Indenture.
For 2015, the SJIAA was required to maintain an Operating and Maintenance Reserve Fund of approximately $4,131,500. The Operating and Maintenance Reserve Fund must be established and funded as required by the Master Trust Indenture, for the benefit of bondholders. The balance in the fund is equal to 25% of the actual or estimated Operating and Maintenance Expenses incurred by the SJIAA over the previous 12-month period. For 2016, approximately $4,335,000 will be required to fund the Operating and Maintenance Reserve Fund. The Operating and Maintenance Reserve Fund may be satisfied by cash, qualified investments, letters of credit and the allocation by the Authority of un-drawn availability under a Committed Credit Facility.
The credit facilities of the SJIAA are secured by a $75,000,000 pledge bond issued pursuant to the Master Trust Indenture. Indebtedness under the credit facilities ranks pari passu with other indebtedness issued under the Master Trust Indenture.
Revolving Credit Facility
In May 2007, the SJIAA entered into a Revolving Credit Facility (“Revolving Facility”). Under this Revolving Facility, the SJIAA is provided with a $15,000,000 facility for general business requirements, capital expenditures and funding for the Operating and Maintenance Reserve Fund, as necessary. In May 2012, the Revolving Credit Facility was amended and increased to $25,000,000. The facility has a term of five years.
As at December 31, 2015, letters of credit for $759,526 (2014 – $759,526) were outstanding against the facility. Indebtedness under the Revolving Facility bears interest at rates that vary with the lender’s prime rate and Banker’s Acceptance rates, as appropriate.
Demand Installment Loan
In July 2010, the SJIAA entered into a Demand Installment Loan (“Demand Loan”). Under this Demand Loan, the SJIAA is provided with a $2,500,000 non-revolving Installment Loan to be used for capital expenditures relating to movable equipment. In July 2015, the Demand Loan was amended and increased to $10,000,000. The term of each advance under this facility is in accordance with the useful life of the respective assets to a maximum of ten years.
Indebtedness under the Demand Loan bears interest at rates that vary with the lender’s prime rate and Banker’s Acceptance rates, as appropriate.
The annual principal payments required over the next five years and thereafter are as follows:
From time to time the SJIAA receives contributions for capital projects from various sources. These funds are accounted for under the deferral method, as outlined in note 2.
|Balance, beginning of the year||$12,593||$11,374|
|Add capital contributions received during the year||16,193||1,884|
|Net deferred contributions for capital projects||$28,041||$12,593|
During the year the SJIAA received capital contributions of $15,811,056 from the Province of Newfoundland and the Government of Canada for the Airport Accessibility Project (note 4).
The SJIAA entered into an AIF agreement dated May 27, 1999 with the Air Transport Association of Canada and major air carriers operating from the Airport. There is a consultative process with air carriers regarding the expansion of airport facilities and the collection of AIF by air carriers from passengers through the carriers’ ticketing process.
On October 1, 1999 the SJIAA implemented an AIF of $10 per departing passenger. On April 3, 2006, this fee increased to $15 per departing passenger, to $20 on April 1, 2011 and to $30 on August 1, 2014. These fees are collected by the air carriers for a fee. AIF revenues earned and the cash collected can only be used to fund Airport infrastructure projects and associated financing costs that relate primarily to the passenger-handling functions of the Airport.
As at December 31, 2015, cumulative expenditures of $237,557,827 (2014 – $177,483,572) exceeded cumulative net AIF revenue collected of $140,014,305 (2014 - $119,792,511) by $97,543,521 (2014 - $57,691,060). A summary of the AIF collected and the related collection costs are as follows:
|AIF revenue (net):||2015||2014|
|AIF collection costs||(1,545)||(1,219)|
|Market value, beginning of year||$18,362||$15,511|
|Market value, end of year||20,136||18,362|
|Accrued benefit obligations, beginning of year||14,806||12,730|
|Current service cost||373||434|
|Accrued benefit obligations, end of year||15,801||14,806|
|Determination of total cost for the period|
|Current service costs||373||434|
|Remeasurement and other items||231||403|
|Cost for the period||396||665|
|Defined benefit asset|
|Defined benefit asset beginning of year||3,556||2,781|
|Cost for the period||(396)||(665)|
|Employer contributions during the period||1,175||1,440|
|Defined benefit asset, end of year||4,335||3,556|
Weighted average actuarial assumptions
|Rate of salary increases||3.25%||3.25%|
The assets of the pension plan are invested and maintain the following asset mix:
|Percentage of plan assets|
The date of the last actuarial valuation of the defined benefit pension plan is December 31, 2014. According to this valuation, the SJIAA’s employer service contribution as a percentage of payroll was 20.5% for 2015 (2014 – 20.8%). A $4,273,700 solvency deficiency in the defined benefits pension plan existed as at December 31, 2014. This resulted in a special annual payment to fund the deficiency in the amount of $825,876 for 2015. This annual special payment of $825,876 is required over the next five years.
Interest rate risk:
The SJIAA’s exposure to interest rate risk relates to its floating rate Credit Facilities described in Note 6 (c), long-term debt. It should be noted that the majority of SJIAA’s debt is fixed-rate debt and therefore changes in interest rates do not significantly impact interest payments but may impact the fair value of this debt.
The SJIAA is subject to credit risk through its financial assets. The SJIAA performs ongoing credit valuations of these balances and maintains valuation allowances for potential credit loss. The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to historical information about the customer.
The SJIAA’s revenues are largely dependent on the domestic air transportation industry. One major carrier providing passenger traffic to the Airport accounted for approximately 52.9% (2014 – 52%) of the total enplaned and deplaned passengers for the Airport during the year.
The Ground Lease requires that the SJIAA operate the Airport as a “first-class facility” and that, as the operator, it exercises sound business practices. The Ground Lease also contains specific conditions for compliance with a series of requirements, including environmental standards, minimum insurance coverage, reporting requirements and various other matters that have a significant effect on the day-to-day operations of the Airport. The SJIAA believes that it has complied with all of the requirements under the Ground Lease. During the year, all contracts entered into in excess of $75,000 (adjusted for the Consumer Price Index from 1994) were awarded on the basis of a competitive tendering process.
In January 2006, the SJIAA began paying Ground Rent to Transport Canada as outlined in its terms of the Ground Lease.
The annual payments are forecasted to be as follows over the next five years:
The Authority may, from time to time, be involved in legal proceedings, claims and litigation that arise in the ordinary course of business which the Authority believes would not reasonably be expected to have a material adverse effect on the financial condition of the Authority.
Government remittances consist of amounts (such as payroll withholding taxes, property tax and sales taxes) required to be paid to government authorities and are recognized when the amounts become due. In respect of government remittances, $2,156,370 (2014 – $1,079,251) is included in accounts payable and accrued liabilities.
During the year, related party transactions for services rendered to SJIAA relating to the operation of the Airport totaled $115,152 (2014 - $355,592). These transactions are in the normal course of operations and are measured at the exchange amount of consideration established and agreed to by the related parties. There was an amount of $24,669 outstanding as of December 31, 2015 (2014 - $25,176), which was paid in 2016.
The salary range for the Authority’s President & CEO and for senior managers reporting to the President & CEO was $117,000 to $263,165 during 2015 (2014 - $111,000 to $255,500).
The St. John’s International Airport Authority is a private, not-for-profit corporation with the mandate to provide the region with a safe and cost-efficient transportation facility that is a catalyst for economic growth. Under the provisions of a long-term Ground Lease with the Government of Canada, the Airport Authority is responsible for the management, maintenance and development of the St. John’s International Airport on behalf of the community it serves.
The community’s interests are represented through a Board of 12 Directors, nominated by various stakeholders in the region. These Directors are appointed or nominated by the following entities:
|City of St. John’s||2|
|St. John’s Board of Trade||1|
|City of Mount Pearl||1|
|Mount Pearl Paradise Chamber of Commerce||1|
|Town of Conception Bay South||1|
|SJIAA Board of Directors||3|
The corporate operations and the activities of the Board of Directors are guided by the National Airports Policy of 1994 – specifically the “Public Accountability Principles for Canadian Airports” and the Authority’s Operating By-Laws. The St. John’s International Airport’s Authority’s Operating By-Laws were amended in 2008 to incorporate the relevant elements of the Not-For-Profit Corporations Act, the proposed Canada Airports Act, as well as the best practices of corporate governance currently employed in Canada. Further amendments to the By-Laws, as required under the new Canada Not-For-Profit Corporations Act, were submitted to Transport Canada in 2014 for approval.
The By-Laws contain Conflict of Interest Guidelines and a prescribed Code of Conduct. In 2014, there were no breaches of the Conflict of Interest Guidelines by any Officer or Director of the Airport Authority.
The role of the Board of Directors is to guide strategic direction for the Airport Authority. Solid business practice, including formal strategic planning, is carried out and reviewed periodically. Directors also serve on the committees of the Board: Development; Finance and Audit; and Governance. The Board is kept informed on the day-to-day operation of the Airport through monthly financial statements and management reports. Compensation for the Directors of the Airport Authority is reviewed annually and the amounts paid to the Airport Authority’s Directors during 2015 are listed below.
|Art Cheeseman (Board Chair)||$39,167.00|
|Neil Pittman (Past Chair)||31,499.00|
|Gary Follett 1||22,250.00|
|Gail Carroll 2||19,333.00|
|Tom Williams (Board Vice Chair)||19,250.00|
|Roger Butt 3||17,750.00|
|John Chapman 4||16,833.33|
1 Chair, Development Committee
2 Chair, Governance Committee
3 Chair, Finance and Audit Committee
4 Completed Term August 31, 2015