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The federal government's 2025 budget (the "Budget") signals a potentially significant shift in Canada's approach to airport governance and investment with talk of private investment and privatization of Canadian airports at the fore. At the heart of this initiative is a plan to attract greater private sector involvement in the National Airports System (the "NAS"), which includes the country's largest airports.1
The Budget signals that the government plans to consider several measures aimed specifically at airports, including unlocking more of the economic potential of Canada's airports by:
- considering new ways to attract private sector investment, including by negotiating lease extensions with airport authorities;
- enabling more economic development activities on airport lands;
- examining the existing airport ground lease rent formulas to ensure the long-term sustainability and competitiveness of Canada's airports; and
- considering options for the privatization of airports.2
The government's stated objective is to ensure the long-term sustainability and competitiveness of Canada's airports, and underscores the government's view that investing in Canada's airports will enhance safety and transportation, improve affordability for Canadians, strengthen regional access and connectivity, and drive trade and economic growth.
In this bulletin we review some of the policy foundations and recent government activity that has set the stage for a shift towards more private sector development in the airport sector and discuss both areas of opportunity and potential challenges.
Flight Status – The Current Airport Landscape
Canadians may be surprised to understand that the idea of private sector involvement in airports operations is not a new concept. The 1994 National Airports Policy (the "NAP") laid the groundwork by transferring operational responsibility for major airports to private not-for-profit airport authorities under long-term leases. The NAS currently consists of 26 airports, each meeting the requirement of either serving a provincial capital or handling more than 200,000 passengers annually. Thus, while the federal government retains ownership of most large airports, these non-governmental authorities manage day-to-day operations and development.3
Historically, Canada's airports have operated on a user-pay model, where a majority of the funding for airport services and future infrastructure comes from fees paid by airlines and passengers. While this system has proven resilient, user fees directly affect ticket prices. In fact, 30 cents of each dollar passengers pay to traditional full-service airlines now goes towards such fees. These costs account for an even higher share of passenger ticket prices charged by ultra-low-cost carriers.
Growing demand for air travel and cargo services suggests that additional investment in airports will be necessary and currently, many major Canadian airports are simply not equipped to handle the increased loads. Over the last few years, Canadian airports have seen a steady increase in passenger and cargo traffic and in 2024, Canadian airports moved 156.7 million passengers—a 4% increase from the previous year—with cargo volumes also rising.4 User fees alone will not be adequate to fund the necessary airport improvements to support these trends and recent developments, culminating in the Budget, suggest that private investment and privatization are being considered by the government as potential solutions.
Preparing for Takeoff
Discussions on stimulating private investment in Canadian airports have been active all year and certainly inform the Budget announcements.
First, in March 2025, Transport Canada released a policy statement on airport investment. While the statement does not propose a move to full privatization, it signals an attempt to work within the existing framework to attract more private capital investment from new sources to fund airport growth plans. Among other things, the statement clarifies the existing mechanisms for private investors to collaborate with NAS authorities, including commercial subleases for airport land development and subcontracting for services.
While much of the statement focuses on using existing tools open NAS system assets to private investors, it also lays the groundwork for the stronger statements in the Budget. Ground lease extensions, for example, could provide more certainty for investors to commit capital for new commercial infrastructure at airports. Similarly, making changes to ground lease terms themselves may make it easier for NAS airport authorities to enter into joint ventures or limited partnerships, allowing the risks and rewards of land and infrastructure development to be shared between the NAS airport authorities and investors.
On the heels of Transport Canada's policy statement, the Competition Bureau released a market study in June 2025 analyzing Canada's domestic airline industry, with recommendations to enhance competition. The study underscores the drawbacks of Canada's current user-pay model and looks to private investment as one way of tipping the scales more favourably to consumers. In particular, the study highlights the need to prioritize competition in Canada's aviation policy and proposes analyzing whether the current balance between user fees and government support serves the sector effectively.
The study considers the restrictions on foreign airlines that limit competition and increase ticket prices for Canadian consumers and elaborates on the use of potential future investments and tools, such as improving critical infrastructure at key northern airports, to foster competition. Notably, it further observes that user fees can weaken the business case for airlines to enter the Canadian the market, especially for low-cost carriers and remote regions. This is supported by an additional study that found ground rent can absorb as much as 12% of an airport's revenue.5
All Runways Lead to Private Investment
Given the recent focus on private investment in Canadian airports by various government agencies, it is safe to assume that both the Transport Canada policy statement and the Competition Bureau report would have informed the Department of Finance ("Finance") in their budget deliberations.
What's more, the fact that the Budget included explicit references to "privatization" is a noteworthy shift in tone. Coupled with this, the Budget announcements that the government intends to examine ground lease rent formulas and extensions, along with other increased private sector investment opportunities, shows that the country may be at an inflection point for private financiers seeking to explore more airport development projects.
Pre-Flight Checklist – Benefits and Considerations of Private Participation
For Canada's airports, both private investment and privatization models have the potential to unlock increased capital investments, including from global markets. Authorizing more private investment could enable airports to finance operations and infrastructure expansion more efficiently, such as through equity financing, pension funds, and infrastructure funds, rather than through more traditional mechanics such as retained earnings or debt. Compared to the current user-pay model, a private investment model would allow capital to be deployed more quickly and on a larger scale. This would allow Canada's airports to pursue expansion and other capital projects without being constrained by the existing cost-recovery model or government funding challenges. Private investment can also introduce stronger performance incentives, since investors typically seek returns tied to operational efficiency, revenue growth, and passenger satisfaction. These factors could make it easier for airports to adopt new technology and systems, expand retail offerings, and improve overall facilities utilization. Additionally, to the extent that private investment helps lower user fees for passengers and airlines, it could encourage new entrants into the space. Such an increase in competition could in turn reduce ticket fees and make air travel more affordable for Canadians.6
A full-privatization model would allow private operators to pursue similar investments to those discussed above, but with more flexibility to make quicker, market-driven decisions on capital planning, technology adoption, and airline development. By changing the underlying economics of airport operation, privatization could also attract new entrants to the space, which could provide stronger competition among airport service providers, potentially reducing service costs and making air travel more affordable for consumers.
The models advocated to date for increased private investment would still see the airport authorities as the ultimate decision makers. This would leave the public sector in control of core policies, pricing frameworks, and strategic planning, and limit the impact of market forces through arrangements like revenue sharing, long-term lease structures, and regulatory oversight.
Nonetheless, the re-emergence of both private investment and full-scale privatization as potential options for Canada's large airports raise important questions about governance, accountability, and affordability. Issues such as user fees, regulatory oversight, and equitable access for smaller communities will require careful consideration. While opening up airports to private capital (and the market forces that come with it) may prove to be more economically efficient, a careful balance would be required to ensure accessibility of air travel for less populated and profitable areas, especially in the northern region, and to ensure that investment is made not only in revenue-generating assets, such as retail or parking, but also to essential (but possibly less profitable) airport infrastructure.
Cleared to Fly?
There has been no further official government discussion of full-scale privatization since the Budget announcement and its passing in Parliament. However, at the Air Transport Association of Canada conference held in Montreal on Nov. 17-20, 2025, Parliamentary Secretary to the Minister of Transport and Internal Trade, Mike Kelloway, reiterated the government's commitment to safe, affordable, and accessible air transportation and private investment certainly has a role to play in this vision.
The coming months will surely bring further clarity to the government's approach. It is clear that the conversation around airport investment is gaining momentum, and the decisions made now could shape the future of Canada's air transportation system for decades to come.
*We are grateful to the team at McMillan Vantage for their expertise and for contributing valuable insights for this bulletin.
Footnotes
3 Cleared for take-off: Elevating airline competition
4 Airport Activity: Air Carrier Traffic at Canadian Airports, 2024
5 Wing Heavy: The Fees That Undermine the Competitiveness of the Airline Sector
The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.
© McMillan LLP 2025
