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ANNUAL REPORT 2005
SAINT JOHNAÉROPORT DE
AIRPORTwww.saint johnairport.com
Annual Report 2005
1
Introductory StatementSaint John Airport Inc. is a local, not-for-profit companyoperated by a management team and governed byvariously nominated, and subsequently elected, membersof a Board of Directors.
The Saint John Airport is a key element to the economicand social development of Greater Saint John andsouthwestern New Brunswick.
On June 1, 1999 Saint John Airport became a localairport authority operated by Saint John Airport Inc, anot-for-profit company under a 60-year lease withTransport Canada.
The Saint John Airport serves communities in GreaterSaint John and south-western New Brunswick; an areaextending from St Martins to Sussex and down to StStephen, a catchment area of approximately 500,000.
Twelve directors are nominated by communitystakeholder groups from the region to oversee theoperation of Saint John Airport.
All surplus funds generated by the Airport will bereinvested in facilities to better serve the traveling public.
Saint John Airport Inc. will operate with the higheststandards of ethics and integrity.
The primary, strategic goal for the airport’s board,management and staff is to ensure there are appropriatetravel opportunities and choices for business and leisuretraveler alike. This means convenient and cost-effectiveroutes, originating in Saint John, eliminating the need forjourney to another airport.
Stakeholder Value: there are many “value elements”important to and expected by our many stakeholders.SJA Inc. will be a prominent part of the social andeconomic fabric of Greater Saint John and south-westernNew Brunswick.
Regulatory Responsibilities & Obligations: allregulatory responsibilities and obligations will be clearlyunderstood and followed.
Service: the main differentiating competitive strengthwill focus on and deliver first class service to our variouscustomer groups.
Safety: safety is a keynote to the psyche and operatingstandards of the business.
Security: no deviation from security standards, in fact orimplied, will be acceptable. Standards directed by federallegislation will be considered ‘a minimum’ in developinglocal standards.
Environmental: the many aspects of environmentalprotection for our many constituents will be met orexceeded.
Image: the already high esteem in which this airportbusiness is held will be further enhanced establishing thebusiness, and people employed by it, as models of theindustry.
SJA Inc. will be acknowledged as a major contributor tothe economic development of the region and as a leaderin business standards in the community
Relationships: service and professionalism will be thedefining factor in all relationships, partnerships andalliances
Cornerstone Values & Principles
Mission StatementTo operate a safe, efficient and competitive first-classairport that meets the air transportation needs of ourcommunities, the travelling public, and our aviationclients.
Our VisionSaint John Airport will operate safely, efficiently and ina financially self-sufficient manner. The facilities willalways be up-to-date and matched to the needs of ourcommunities. Saint John Airport will be an activeparticipant in the social and economic fabric ofsouthwestern New Brunswick. Our primary focus is tosupport the business and recreational travel objectivesof residents and visitors to our region.
Message from David Barry Q.C., Chairman of the Board of Directors
Saint John Airport Inc.
2
I am once again pleased toreport to you on behalf of thedirectors of Saint John AirportInc. with respect to our fiscaland operating year 2005.
Our management team andthe staff of the airportcontinue to operate our airportefficiently and with theapproval of our users - ourtravelers, the airlines and other
users. We are very satisfied with their accomplishmentsin the circumstances.
Our unionized employees continue to provide us withvery professional services in carrying out theirresponsibilities, and are continuing to provide ourcommunity with a safe and secure airport.
2005 ended with a small operating deficit - a slightimprovement to the original budget. We requiresubstantial operating surpluses over the next severalyears to maintain a sustainable airport.
The Board will continue to manage the affairs of theairport prudently. We have not yet had to borrow andare currently debt free.
As I advised in my 2004 report the key fiscal issues wewere facing were the debt repayment to the federalgovernment which was to commence in 2007, and rentpayments we were to be obligated to pay starting in2016. Discussions with Transport Canada with respect tothese issues have been positive and we are please toconfirm that our debt obligations to Transport Canadaincurred at the time of the transition arrangement havebeen forgiven. As well, we expect that our airport willnot have any future rent obligations to Transport Canadain view of policies adopted by the Federal Government in2005. We want to express our thanks publicly to theGovernment of Canada for these policy changes. Theywill contribute substantially to our future financialviability.
We are reviewing opportunities for land developmentaround our airport and have enlisted the assistance ofthe City of Saint John, Enterprise Saint John and theBoard of Trade as we move forward with this initiative.
We have a very dedicated and hardworking board ofdirectors. We continue to guide the airport throughsomewhat volatile times. Air Canada and other legacyairlines continue to struggle financially. The discountairlines are facing some of the same issues as the legacyairlines - largely related to over capacity in the airlineindustry as a sector. Although Air Canada is no longerunder the financial protection of the courts, it is by nomeans completely free of its financial troubles - but itcontinues to improve. Changes will continue to occur inthe airline industry, and the uncertainty surrounding theeventual structure of the industry, and the regulatoryenvironment under which our airport operates, willcontinue to be on our agenda for the near term. Wecontinue to be confident of a successful outcome.
In closing, I want to thank the board once again for theirco-operation and efforts during the past year, and Icongratulate our employees - both management andunionized - on their very successful efforts in providing uswith a quality airport to serve our community.
Please feel free to contact any member of our board toexpress any concerns or ideas you may have to help usimprove our airport. It is your airport - and we urge youto continue to use it.
Yours truly,
David G. BarryChairman of the Board
Our Key Goals• To develop and maintain effective air-service
connections that meet the needs of ourcommunities and the travelling public and ouraviation customers.
• To provide facilities and services that exceed theexpectations of the travelling public and ouraviation customers.
• To meet or exceed all aerodrome operationstandards and guidelines as set by Transport Canadato ensure the safest possible airport.
• To maintain an effective, productive and motivatedstaff.
• To operate a fiscally responsible and financially self-sustaining airport.
Message from John Buchanan, President & CEO
Annual Report 2005
3
2005 was a year focused on air service development andmanaging the business enterpriseto its absolute revenue realities.
Financially, YSJ is in an excellent,and viable, position! Wecontinue operations with nooperating debt and we finishedthe year in a positive cash-flowposition. We were able to fundthe purchase of two new light-duty vehicles for the airside
operations and a complete modernization of our terminalHVAC system from cash flow. We anticipate being able toadd a modest amount to our long-term reserve capitalreplacement fund, started in 2004, in the 2nd Quarter of2006.
Commentary on 2005 Financial Results: operationally,the business enterprise continued to be managed to theabsolute realities of our revenue generation. Spendingwas on a ‘mission-critical’ only basis. The outcome of thisoperating standard was a modest year-end operatingdeficit; the majority of which can be cited to increased fuelcosts and a number of other minor, unanticipatedoperating costs.
Rent & Chattel Mortgage Relief: I continued asPresident of the Atlantic Canada Airports Association andAtlantic Canada Regional Director on the Canada AirportsCouncil. The primary focus of both advocacyorganizations was to eliminate/reduce the rents charged toCanadian airports and to eliminate the obligation forairports to repay chattel mortgages for capital assetsassigned to local, community airport authorities when theytransferred from Federal Government management.
The Federal Minister of Transport, of the day, The Hon.Jean Lapierre was instrumental in eliminating rents to allairports under $5 million revenue and reducing rentssignificantly to the majority of the balance of airportbusiness enterprises. Likewise, all chattel mortgages wereforgiven.
This was a major success for airports’ advocacy andlobbying initiatives and has a significant long-termfinancial benefit to the cost of air travel in Canada.
Lease and Concession Renewals: leases for our 4 CarRental Concessions were tendered; with Avis, Budget,Hertz and National successfully returning to their servicepositions. Likewise the Restaurant Concession wastendered and we have a new operator in our restaurant;Caterplan a division of CNIB.
Capital Projects: capital expenditures were limited to thecompletion of a major upgrade to airfield lighting, amodernization of the water treatment plant, renovationsto the field electrical distribution centre and the installationof a new communications network. With the exception ofthe vehicle replacement and upgrade to the terminal
HVAC system, previously mentioned, all other plannedcapital requirements for 2005 were “put-on-hold” as partof the business’s cost containment and cash managementprogram.
As well, Nav Canada installed a new, state-of-the-artInstrument Landing System for the 23-end of our primaryrunway, 05/23.
Upgrade to Short-term Parking Facility: our short-termparking facility was upgraded to a “Pay ‘n Display” system;which replaced the 20-year+, antiquated meter system.This upgrade was made in conjunction with the City ofSaint John’s transition from its own meter system to “Pay‘n Display”; giving us a cost advantage for the acquisitionof our new system.
The purchase and installation of ‘all-weather shelters’ andupgraded lighting for the “Pay ‘n Display” system will becompleted in the 1st quarter of 2006.
As a side-note: we will be upgrading the long-term parkingto an automated pay-system; due for commissioning May 1,2006.
Passenger Performance: the year-on-year passengerdecline of 1.2%, while overall disappointing, needs to berationalized by the loss of JetsGo summer service whichaccounted for approximately 2,300 passengers in 2004.The loss of summer seat capacity certainly had a negativeimpact on our ability to grow passenger statistics. Toprovide a real comparison, without JetsGo numbers, ourpassenger count increased very modestly by about .5%.
Labour: our new 4-year collective agreement with ourunionized employees continues to be very positive givingus the stability and confidence to move forward on anumber of different, strategic areas of businessdevelopment as outlined in our Business Plan.
Following the resignation of our Manager of Finance andAdministration, we conducted an executive search andwere very fortunate indeed to be able to attract a numberof very well-qualified candidates. James Trask CMA wasappointed to the position in early September and comes tous with excellent experience with major New Brunswick-based transportation organizations.
Board of Directors: a number of Directors were re-nominated and subsequently re-elected to our Board;David Barry QC, Charles “Charlie” Nelson, Pat Riley, HaroldTennant, Jim Russell and Rod Cox were all re-elected; withDavid Barry, again, being elected as Chair.
The Finance and Audit Committee continued monthlyoperational review meetings with management. As aresult, the number of full Board meetings has beenreduced to 4 per year. The committee also formulated aninvestment policy addressing the newly reserved long-termcapital replacement fund.
The Governance Committee met late in the year to reviewDirector Terms and to evaluate if additional Board member
Message from John Buchanan, President & CEO
Saint John Airport Inc.
4
nominees should be added to the list of stakeholdersrepresenting various elements of our community. Aformal report and recommendations will be presented tothe Board early in 2006.
Transition from Passenger Facility Charge [PFC] toPassenger Facility Fee [PFF]: a customer service survey,conducted in 2004, identified the collection of our PFCprior to entering passenger pre-board security screeningas a bottle-neck and significant frustration to ourpassengers.
As a result we are transitioning from collecting our ownPFC to having a new Passenger Facility Fee included inthe price of the ticket. This required extensivenegotiations with the airlines’ national association,ATAC; as well as detailed financial reviews locally. Thechange in customer service standards has resulted in amuch higher level of passenger satisfaction.
Business Planning and Corporate StrategicDevelopment: while the continued and aggressiveefforts to improve air access were identified as a primaryobjective, the development of land-holdings on theairport’s leased property was accepted as a mission forthe Board and management in 2005. A community-based land development committee was formed in the1st Quarter of the year.
New Business Development: aggressive efforts toattract new air service to the region continued withrepresentations being made to Low Cost Carrier - Can Jet. Unfortunately JetsGo went into bankruptcyduring the course of the year, taking our summer leisuretravel service out-of-the-market.
A number of representations have been made to UScarriers for a transborder service into the northeasternUS. Negotiations are ongoing.
The six main strategic air service objectives remain asparamount to the economic and social development ofthe region:
• Transborder service to the NE United States
• Increased capacity to existing routes to Halifax, Montrealand Toronto
• Access to low cost carrier fare service
• Direct service to Ottawa
• Charter service to seasonal, sun destinations
• Enhanced capacity to access Saint John to tourism, convention, conference and meetings delegates
All business initiatives focus on these issues.
A community “Land Development” committee wasformed and consultant engaged to explore theopportunities available to development the lands andproperty managed by the airport authority.
Decisions, on land development, will be finalized in early2006.
Meet & Greet Volunteers: “Charlie’s Angels”continued to provide excellent volunteer hospitalityservice to inbound and outbound passengers during theyear. “Charlie”, airport authority director Charlie Nelson,has led the “Angels” since they started service to thecommunity. He has decided to ‘retire’ from thisresponsibility and “Angel” Sharon Daigle will lead thegroup in 2006.
A heartfelt “THANKS” to Charlie for all his hard workand effort!
Annual Lease Monitoring Visit: our annual leasemonitoring review was conducted by Transport Canadaofficials and, again, operationally all commitments weresatisfactorily being met.
Safety and Security: these are cornerstone principlesfor the authority. Periodic performance reviews indicateregulations are routinely met or exceeded.
CATSA, the Canadian Air Transportation SecurityAuthority, conducted passenger and baggage screeningaudits in the fall with our local staff being reported asmeeting all obligations; infact our local crew wasidentified as the highest standard in Atlantic Canada.
A new Restricted Area Identification Card program wasimplemented during the 3rd and 4th quarters. Thissystem controls the access to the secure, restricted areasof the airport operation and is the leading-edge in bio-metric secure access control globally.
We see the operating standards, as previouslysummarized, continuing until such time a more diverserevenue stream can be achieved. The YSJ Team ismeeting or exceeding all regulatory and legislatedobligations.
The airport business enterprise is a proud component ofthe economic and social development of Saint John andsouthern New Brunswick and will continue to manageto local realities and community needs.
Thank you very much for your support,
John S. BuchananPresident & CEO
2005 has been an active year for local 60615.
Annual Report 2005
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In March AFF Wes Lomax retired. A retirement party washeld in the Airport firehall, where a delicious buffetsupper was the menu. Both the local and our Nationalexecutive made presentations to Wes for his dedicationand hard work as a union activist during the past fewyears. Another great retirement party Airport style!
In April Rob Richard was rehired as an AFF, hascompleted the AFF certification program and is now onfull strength.
Education has been a focal point this year for our local.With new executive members we encourage membersto take training so as to have the knowledge to betterrepresent its members. Health & Safety, Grievancehandling procedures, and a Local Officers AdvancedTraining course are a few courses that have been takenin 2005.
This also has been a busy year for conventions. In June,Chris Pope, (Local Sec/Tres.) attended the AtlanticNational PSAC Convention in Dartmouth NS. I ampleased to announce that Sister Jeanie Baldwin waselected R.E.V.P Atlantic.
I attended an Airports Conference that was held inOttawa. This is a very informative conference as we geta chance to address problem areas that are common toall Airports across Canada and discuss solutions that willbetter enable us to deal with these issues that face ourindustry and the effects they have on our unionmembers on a daily basis.
U.C.T.E 13th Triennial Convention was held in St. John’sNfld. in September. Elections were held for the NationalExecutive. By Acclamation Brother Mike Wing waselected our National President for another term. Sister
Christine Collings was elected as our new National Vice-President. She is the first woman to hold this position.For the Atlantic region again by acclamation BrotherWayne Fagan was elected RVP. Brother Wayne Elliot,former National Vice-President has officially retired. Awell known and respected man who was a friend to all,will be greatly missed.
Once again we continue to be affiliated with theSJ&DLC. This is such an outstanding organization. Localsfrom St. Stephen to Sussex and in between are involvedwith many charities, community events and are involvedwith the United Way Campaign. They also provide localswith various training seminars, and provide support toother locals in times of need.
Students were once again hired for the summer monthsand did another fabulous job of maintaining allGroundside areas. The winter seasonal crews have allbeen brought back for another season.
In 2005 we were not successful in bringing to Saint JohnAirport any low cost air carriers, or flights to sundestinations, we remain confident that 2006 will be thatyear.
Local 60615 and Saint John Airport Inc. are workingtogether to maintain good labor relations, and lookforward to another successful year.
In Solidarity
Carolyn Moore - President Local 60615
Auditor’s Report
Saint John Airport Inc.
6
To the Board of Directors of Saint John Airport Inc.
We have audited the statement of financial position of Saint John Airport Inc. asat December 31, 2005 and the statements of changes in net assets, operationsand cash flows for the year then ended. These financial statements are theresponsibility of the corporation’s management. Our responsibility is to express anopinion on these financial statements based on our audit.
We conducted our audit in accordance with Canadian generally accepted auditingstandards. Those standards require that we plan and perform an audit to obtainreasonable assurance whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material respects, thefinancial position of the corporation as at December 31, 2005 and the results ofits operations and its cash flows for the year then ended in accordance withCanadian generally accepted accounting principles.
TEED SAUNDERS DOYLE & CO.CHARTERED ACCOUNTANTS
Saint John, NB
January 27, 2006
Annual Report 2005
7
Statement of Financial Position
AS AT DECEMBER 31, 2005
ASSETS 2005 2004(Restated Note12)
CurrentCash (Note 3) $ 217,127 $ 67,406Accounts receivable (Notes 3 and 10) 274,361 158,649Parts inventory (Note 2) 99,035 93,282Prepaid expenses 83,963 90,563
674,486 409,900
Restricted Cash Held in Trust(Notes 2, 3 and 5) 1,287,895 1,901,725
Restricted Investments For CapitalAsset Replacement (Notes 2, and 3) 255,351 250,000
Capital (Notes 2, 4 and 7) 9,913,786 9,950,095
$ 12,131,518 $ 12,511,720
LIABILITIES
CurrentAccounts payable and accrued liabilities (Note 3) $ 431,718 $ 388,114
Employee Future Benefits (Notes 2 and 8) 98,169 122,793
Deferred Grant for Airport Capital Improvements(Notes 2 and 6) 6,388,445 6,752,931
Long-Term – 1,591,639
NET ASSETS
Net AssetsUnrestricted $ 4,957,835 $ 3,406,243Internally restricted - Replacement Reserve Fund (Note 2) 255,351 250,000
5,213,186 3,656,243
$ 12,131,518 $ 12,511,720
COMMITMENTS AND CONTINGENCIES (Note 9)
APPROVED ON BEHALF OF THE BOARD:
_______________________________________ _______________________________________Director Director
Statement of Changes in Net Assets
Saint John Airport Inc.
FOR THE YEAR ENDED DECEMBER 31, 2005
Replacement Unrestricted Total 2005 Total 2004Reserve Fund (Restated Note 12)
Balance at Beginning of Year
As previously reported $ 250,000 $ 3,447,036 $ 3,697,036 $ 3,695,770Prior period adjustment (Note 12) - (40,793) (40,793) (31,415)
As restated 250,000 3,406,243 3,656,243 3,664,355
Excess (deficiency) ofRevenue Over Expenditure 5,351 1,551,592 1,556,943 (8,112)
Balance at End of Year $ 255,351 $ 4,957,835 $ 5,213,186 $ 3,656,243
FOR THE YEAR ENDED DECEMBER 31, 2005
2005 2004(Restated Note12)
Revenues (Note 2)
Aircraft landing fees $ 1,219,945 $ 1,282,449Passenger facility fee 1,142,724 1,132,340Concessions 409,342 362,926Vehicle parking 333,799 287,603Land and office rentals 189,341 216,290Gain on disposal of capital assets - 18,347Interest income 3,628 5,320Other 65,685 63,143Amortization of deferred grants (Note 6) 398,876 291,309
3,763,340 3,659,727Expenditure
Salaries, wages and benefits 1,488,366 1,455,613Materials, supplies and services 827,901 821,406General and administrative 706,533 727,230Amortization of capital assets 780,587 663,590
3,803,387 3,667,839Deficiency of Revenue Over Expenditurefrom Operations (40,047) (8,112)
Other Income (Note 7) 1,591,639 -
Excess (Deficiency) of Revenue Over Expenditure $ 1,551,592 $ (8,112)
Statement of Operations
Statement of Cash Flows
Annual Report 2005
9
FOR THE YEAR ENDED DECEMBER 31, 2005
2005 2004CASH PROVIDED BY (USED IN) (Restated Note12)
Operating ActivitiesExcess (deficiency) of revenue over expenditure $ 1,551,592 $ (8,112)Items not involving cash
Amortization of capital assets 780,587 663,590Amortization of deferred grant (398,876) (291,309)Gain on disposal of capital assets - (18,347)Decrease in accrued benefit liability (24,624) (19,622)Forgiveness of longterm debt (1,591,639) -
317,040 326,200
Changes in non-cash working capital balancesAccounts receivable (115,712) (19,878)Parts inventory (5,753) (14,161)Prepaid expenses 6,600 8,812Accounts payable and accrued liabilities 43,605 8,494
245,780 309,467
Investing ActivitiesPurchase of capital assets (744,279) (1,708,972)Proceeds on disposal of capital assets - 18,348Restricted funds utilized for the purchase of capital assets 648,220 1,654,417Investments restricted for capital asset replacement - (250,000)
(96,059) (286,207)
Increase in Cash 149,721 23,260
Cash at Beginning of Year 67,406 44,146
Cash at End of Year $ 217,127 $ 67,406
Supplementary Cash Flow InformationInterest received $ 43,369 $ 67,004
Notes to Financial Statements
Saint John Airport Inc.
10
1. INCORPORATION AND ACTIVITIESSaint John Airport Inc. (the "Corporation") was incorporated on February 19, 1997 under the Companies Act ofNew Brunswick as a non-share capital, not-for-profit corporation.
On June 1, 1999, the Corporation signed an agreement with the Government of Canada to transfer managerial,operational and developmental control of the Saint John Airport to the Corporation. Effective that date, theCorporation signed a ground lease agreement (the "ground lease") with the Government of Canada whichprovides that the Corporation will lease the airport facilities for an initial term of sixty years. A twenty-year renewaloption may be exercised but at the end of the renewal term, unless otherwise extended, the Corporation isobligated to return control of the Saint John Airport to the Government of Canada. Regulation of SafetyStandards for the airport continues to be the responsibility of the Government of Canada, but the Corporation isresponsible for operating the airport safely.
Income arising from the operation of the Saint John Airport is exempt from federal and provincial income taxes.The Corporation is subject to HST and real property tax.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESLease with Government of CanadaThe ground lease is accounted for as an operating lease.
Parts InventoryParts inventory is valued at the lower of cost and replacement cost.
Capital AssetsCapital assets are stated at cost less accumulated amortization. Amortization is being provided for on astraightline basis at the following annual rates:
Leasehold improvementsBuildings 5.0%Runways 6.7%
Vehicles 5.5 to 25.0%Machinery and equipment 6.7 to 30.0%Furniture and fixtures 10.0%
Restricted Investments for Capital Asset Replacement and Replacement Reserve Fund
The Board of Directors has established a Replacement Reserve Fund for the purpose of replacing capital assets.Transfers to and from the fund require approval from the Board of Directors. Interest earned on the fund isrecorded as a direct increase in net assets of the Replacement Reserve Fund.
The Replacement Reserve Fund is comprised of a Guaranteed Investment Certificate and is stated at cost. AtDecember 31, 2005 the market value was $255,351 (2004 $250,000).
Employee Future BenefitsThe Corporation maintains a pension plan for its employees which has both a defined contribution and definedbenefit component. The Corporation accrues its obligations under employee future benefit plans and the relatedcosts, net of plan assets. The cost of the defined contribution component of the plan is recognized based on thecontributions required to be made during the year. The Corporation has adopted the following policies for thedefined benefit plan:
• The cost of pensions earned by employees is actuarially determined using the projected benefit method proratedon service and management’s best estimate of expected plan investment performance, salary escalation andretirement ages of employees..
• For the purpose of calculating the expected return on plan assets, those assets are valued at fair value.
• Past service costs from plan amendments are amortized on a straightline basis over the average remaining serviceperiod of employees active at the date of amendment.
• Current service costs are expensed in the period.
Notes to Financial Statements
Annual Report 2005
11
Restricted Cash Held in Trust and Deferred Grant for Airport Capital ImprovementsIn accordance with the terms of the ground lease the Corporation received a capital based grant of $6.3 millionduring the period ended December 31, 1999 from the Government of Canada. These funds and all interestaccrued thereon, must be spent on airport safety and security capital infrastructure projects. This deferred grantmust be held in trust in interest bearing accounts, separate from the Corporation’s other monies. This deferredgrant will be amortized to income on the same basis as the related capital assets acquired with the funds.
Revenue RecognitionAircraft landing fees, terminal fees, and parking revenues are recognized as the airport facilities are utilized.Concession revenues are recognized on the accrual basis and calculated using agreed percentages of reportedconcessionaire sales, with specified minimum rent guarantees. Rental revenues are recognized over the lives ofrespective leases. Passenger facility fees are recognized upon the enplanement of passengers.
Use of EstimatesThe preparation of financial statements in accordance with Canadian generally accepted accounting principlesrequires management to make estimates and assumptions that affect the reported amount of assets and liabilitiesand disclosure of contingent assets and liabilities at the date of the financial statements and the reported amountof revenues and expenses during the reporting period. These estimates are reviewed periodically, and asadjustments become necessary, they are reported in earnings in the period in which they become known.
3. FINANCIAL INSTRUMENTSThe company’s financial instruments consist of cash, accounts receivable, restricted cash held in trust, restrictedinvestments for capital asset replacement and accounts payable and accrued liabilities. Unless otherwise noted, itis management’s opinion that the company is not exposed to significant interest, currency, or credit risks arisingfrom these financial instruments. The fair value of these financial instruments approximate their carrying values,unless otherwise noted.
4. CAPITAL ASSETS 2005 2004
AccumulatedCost Amortization Net Net
Leasehold improvementsBuildings $ 5,464,796 $ 892,378 $ 4,572,418 $ 4,713,056Runways 5,006,789 954,748 4,052,041 3,957,893
Vehicles 1,985,491 871,046 1,114,445 1,208,574Machinery and equipment 385,800 223,325 162,475 55,723Furniture and fixtures 24,713 12,306 12,407 14,849
$ 12,867,589 $2,953,803 $ 9,913,786 $ 9,950,095
5. RESTRICTED CASH HELD IN TRUST2005 2004
Balance at beginning of year $ 1,901,725 $ 3,494,458Interest earned during the year 34,390 61,684Funds transferred for restricted projects (648,220) (1,654,417)Balance at end of year $ 1,287,895 $ 1,901,725
6. DEFERRED GRANT FOR AIRPORT CAPITAL IMPROVEMENTS2005 2004
Balance at beginning of year $ 6,752,931 $ 6,982,556Interest earned during the year 34,390 61,684Amortized during the year (398,876) (291,309)Balance at end of year $ 6,388,445 $ 6,752,931
Notes to Financial Statements
Saint John Airport Inc.
12
7. LONG-TERM DEBTOn June 1, 1999, the Government of Canada sold all the chattels and consumables of the Saint John Airport tothe Corporation for a price of $1,591,639, which included capital assets of $1,325,715 and consumables of$265,924. As a consideration the Corporation issued a noninterest bearing note repayable in equal annualinstalments over a seven year period commencing on June 1, 2007. During the year, the Government of Canadaannounced the elimination of the chattel payment as noted in the amended ground lease agreement. Theforgiveness of the debt has been recorded as other income.
8. EMPLOYEE FUTURE BENEFITS2005 2004
Defined Benefit Pension Plan Accrued Benefit Liability $53,000 $82,000Retirement Allowance Accrued Liability 45,169 40,793
$98,169 $122,793
Defined Benefit PlanOn June 1, 1999, the Corporation joined the Canadian Airport Authorities and Canadian Port Authorities PensionPlan, a multiemployer pension plan. This Plan covers employees of the Corporation who, immediately prior tojoining the Corporation, were employees of the Federal Public Service and were accruing pension benefits underthe Public Service Superannuation Act.
Pension assets consist primarily of Canadian and foreign equity and fixed income funds. The fair value of the planassets is based on management’s best estimate of the longterm rate of return on the pension asset portfolio.Pension benefit obligations are determined based on management’s best estimate of longterm salary escalationrates and are discounted based on management’s best estimate of longterm interest rates. The significant actuarialassumptions used in measuring the Corporation’s accrued benefit obligation and the fair value of the plan assetsare as follows:
2005 2004
Expected long-term rate of return on assets 6.75% 7.00%Rate of compensation escalation 4.00% 4.00%Discount rate 5.25% 6.25%
Variances between such estimates and actual experience, which may be material, are amortized over theemployees’ average remaining service life.
The Corporation bears the risk of experience loss against the above assumptions. The maximum risk of loss isequal to the difference between the fair value of the pension benefit obligation and the amount of the pensionbenefit obligation accrued in the financial statements. Should actual experience differ from the assumptions,future contributions will be adjusted to make up for any variances. Risk is managed by placing the pension planassets in trust and through the pension investment policy, which defines the plan’s allowable investments.
Actuarial reports prepared are based on projections of employees compensation levels to the time of retirementand management’s best estimate of longterm interest rates. The most recent actuarial valuation was performed asat January 1, 2005. The valuation was performed using the Attained Age Normal Actuarial Cost Method todetermine the minimum employer contribution under the Pension Benefits Standards Act and the maximumdeductible contribution according to the Income Tax Act of Canada. Based on the recommendations of the Plan’sactuary, the employer contributions for the year were set at 11.2% (2004 15.9%) of the employees’ earnings plusan additional special contribution of $3,958 per month (2004 $3,958). These contribution requirements willremain in effect until the next actuarial valuation scheduled for January 1, 2006.
Information about the defined benefit portion of the Plan as at December 31 is as follows:
2005 2004Fair market value of plan assets $ 1,498,000 $ 1,214,000Accrued benefit obligation 1,705,000 1,356,000Funded status - plan deficit $ (207,000) $ (142,000)Accrued benefit liability (53,000) (82,000)
Net pension expense for the year $ 91,000 $ 83,000Employer contributions 120,000 112,000Employee contributions 33,000 32,000Pension and termination benefits paid 9,000 6,000
Notes to Financial Statements
Annual Report 2005
13
The actuarial present value of accumulated benefits for the 2005 fiscal year is based on an extrapolation providedby the actuaries. The actuaries believe that the financial results would not differ materially from the extrapolationif a formal valuation was performed at year end.
Defined Contribution Pension Plan
The Corporation’s defined contribution pension plan covers new employees who have joined the Corporation sinceJune 1, 1999. Employees covered by this plan are required to contribute 5% of their earnings and the Corporationcontributes equal amounts. All employer contributions vest with the employee after two years of service with theCorporation. During the year the Corporation contributed $14,541 (2004 $12,410) towards this plan.
Retiring Allowance
Following the guidelines set forth by the Saint John Airport Collective Agreement, employees who are contributorsunder the Saint John Airport Pension Plan are entitled to a retirement allowance of one week’s pay per year of servicesince June 1, 1999. This is limited to a maximum of thirty weeks of pay. During the year the Corporation paid $5,508(2004 Nil) in retiring allowances.
9. COMMITMENTS AND CONTINGENCIES
As described in Note 1 to the financial statements, the Corporation signed a ground lease agreement with theGovernment of Canada which provides that the Corporation will lease the airport for an initial term of sixty years.A twenty-year renewal option may be exercised but at the end of the renewal term, unless otherwise extended, theCorporation is obligated to return control of the Saint John Airport to the Government of Canada.
a) Under the terms of the amended ground lease, the occupation of the airport by the Corporation is rent free untilthe year 2016. From the year 2016 onwards, the rent formula will be as follows: no rent charged on the first$5,000,000 of airport revenue; 1% of the portion of airport revenue in excess of $5,000,000 but equal to or lessthan $10,000,000; 5% of the portion of airport revenue in excess of $10,000,000 but equal to or less than$25,000,000; 8% of the portion of airport revenue in excess of $25,000,000 but equal to or less than$100,000,000; 10% of the portion of airport revenue in excess of $100,000,000 but equal to or less than$250,000,000; and 12% of the portion of airport revenue in excess of $250,000,000.
b) An environmental site assessment on the Saint John Airport property was carried out in December 1998 by theGovernment of Canada and the report that was issued is referred to as the Environmental Baseline Study Report.This report was to identify the extent of the hazardous substances that existed as of December 1998 andextended to the June 1, 1999 transfer date. Article 37 of the Ground Lease for the airport will governresponsibility for any remedial work, if necessary.
The responsibility for any liability that may arise in the future relating to the existence of a hazardous substanceoriginating before the transfer on June 1, 1999 to the Corporation rests with the Government of Canada. TheCorporation has responsibility for any environmental liabilities that arise from hazardous substances problemsthat occur subsequent to the transfer date. At December 31, 2005 there are no known environmental liabilities.
c) The Corporation entered into a service agreement with a supplier to provide cleaning services to the Corporation.The contract covers the period July 1, 2003 to June 30, 2006. The estimated total cost of the contract is$342,812 plus HST. The responsibility for any liability that may arise in the future relating to the existence of ahazardous substance originating before the transfer on June 1, 1999 to the Corporation rests with theGovernment of Canada. The Corporation has responsibility for any environmental liabilities that arise fromhazardous substances problems that occur subsequent to the transfer date. At December 31, 2004 there are noknown environmental liabilities.
10. ACCOUNTS RECEIVABLE AND CREDIT RISK MANAGEMENT
The company is exposed to credit risk on the accounts receivable from its customers. The company reviews a newcustomer’s credit history before extending credit and conducts regular reviews of existing customer’s creditperformance. At December 31, 2004, accounts receivable consisted primarily of aviation fees arising from normaloperations.
An amount of $106,000 is owed by Inter Canadian (1991) Ltd. that ceased operations in November 1999. As a
Notes to Financial Statements
Saint John Airport Inc.
14
result of the current uncertainty regarding the future collectability of this debt, the full amount was provided forin the period ended December 31, 1999 as uncollectable. Adjustments arising from the settlement of this matterwill be recorded in the year determined.
11. ECONOMIC DEPENDENCE
The Corporation derives 92.7% ($1,131,050) of its aircraft landing fees from Air Canada and its subsidiaries.
12. PRIOR PERIOD ADJUSTMENT
During the year, it was determined that the Corporation had not recorded the retirement allowance liability in theamount of $40,793 for the year ended December 31, 2004. The impact of this omission was an understatementof the retiring allowance expense of $9,378 and an overstatement of the beginning unrestricted net assets of$31,415 for the year ended December 31, 2004. This error has been corrected and recorded as a prior periodadjustment.
Annual Report 2005
15
Disclosures:Contracts Over $75,000 AwardedWith Public Tender / by invitation:
• Car rental concessions
• Restaurant concession
Contracts Over $75,000 AwardedWithout Public Tender:
• None
Code of Conduct
All directors have completed “DisclosureStatements” and there were noinstances of real or potential “Conflict ofInterest” brought before the Board ofDirectors during 2005.
Finance, Audit and Investment Committee:A committee of three directors, as well as the CEO and Manager of Financeand Administration meet on a monthly basis to review the operational andcorporate financial activities, review the Annual Business Plan & FinancialBudget and to make appropriate recommendations to the Board ofDirectors.
Likewise, the annual audit is reviewed with the corporation’s auditors priorto presentation to the Board of Directors for their approval in advance ofthe corporation’s Annual General Meeting.
The Finance & Audit Committee will also, as required, recommend, to theBoard of Directors, options for the appointment of the corporation’sauditors.
Personnel Committee:A committee of three directors will develop, for recommendation to theBoard of Directors, the CEO’s compensation and performance evaluationcriteria.
A committee of three directors and the CEO meet, as required, to review andrecommend, to the Board of Directors, the corporation’s strategy forcollective bargaining.
Governance Committee:At the Board of Directors request, a committee of three directors, the CEO,and the Manager of Regulatory Affairs will review Board policy and will, fromtime-to-time, draft relevant amendments to Board policy for consideration asrequired.
The committee will review the corporation’s Bylaws to ensure compliancewith relevant legislation, regulations and current policies & procedures.
New Board member orientation is the responsibility of the committee.
The CEO’s Community Consultative Forum:The CEO has constituted two ‘forum’ groups of community and businessleaders to provide effective dialogue and dissemination of information toensure ‘transparency and public disclosure’ of the corporation’s business andoperational activities.
The CEO’s forum activities are focused on the two primary objectives of thecurrent Board of Directors: land development and improved air access.
Nominated byEnterprise Saint John
David G. Barry, Q.C.
Partner, Barry Spalding Richard
Nominated bySaint John Airport Inc.
John Buchanan
President & CEOSaint John Airport Inc.
Nominated byCity of Saint John
Charles A. Nelson
Retired Airport Fire Officer
Nominated byTransport Canada
Christiane Vaillancourt
Manager, Government & Regulatory Affairs,Rogers Cable
Nominated byEnterprise Charlotte
David Ames
Partner, MacDonaldAmes & Wilson
Nominated bySaint John & District Labour Council
Pat Riley
Secretary-Treasurer,InternationalLongshoremen’s Association
Nominated bySaint John Board of Trade
Paul Doiron
V.P., Atlantic Region,Logistec Stevedoring Inc.
Nominated byTransport Canada
J. Paul M. Harquail
Partner, Stewart McKelveyStirling Scales
Nominated byEnterprise Fundy
Harold Tennant
Retired Banker
Nominated byNew Brunswick Dept. of Transportation
Rod Cox
Retired
Nominated byRegional Mayors Caucus
James Russell
Business Manager, Rothesay Netherwood
School
Nominated byCity of Saint John
D. Noel Wittrien
RetiredCertified ManagementAccountant
2005 Compensation for the Board of Directors
[honorariums, meeting fees, mileage]
David Ames $1,194David Barry $2,234Rod Cox $ 737Paul Doiron $1,549 Paul Harquail $ 737Charles Nelson $2,152James Russell $1,223Pat Riley $1,086Harold Tennant $2,504Christiane Vaillancourt $ 971Noel Wittrien $2,030
TOTAL $16,417
Honoraria:Chairman: $1,000 per yearDirectors: $400 per yearMeeting fees: $100 per meeting
attendedMileage: $0.37 per kilometre
Compensation of Senior Officers:President & CEO: John Buchanan
Vice President Operations:Wayne McAllister
Manager, Regulatory Affairs/Board Secretary:Angela McLean
Manager, Finance & Administration/Board Treasurer:
James Trask(note: James Trask replaced previous Manager Finance
& Admin - Andrew Farrell in September 2005)
2005 Gross Salaries of Officers:$304,354
AuditorsTeed Saunders Doyle & Co.39 Canterbury StreetPO Box 6668Saint John, NB E2L 4S1
Legal CounselLawson & Creamer133 Prince William StreetPO Box 6787, Station ASaint John, NB E2L 4S2
BankerRBC Royal Bank100 King StreetPO Box 787Saint John, NB E2L 4B3
Corporate Contact Information:
Saint John Airport Inc.4180 Loch Lomond RoadSaint John, NB, CanadaE2N 1L7
Telephone:Main Administration (506) 638-5555Fax (506) 638-5550e-mail: [email protected]: www.saintjohnairport.com
Executive Management:
President & CEO John Buchanan: (506) [email protected]
Vice President OperationsWayne McAllister: (506) [email protected]
Manager, Regulatory AffairsAngela McLean: (506) [email protected]
Manager, Finance & AdministrationJames Trask: (506) [email protected]
Manager, Maintenance and Technical ServicesRandy Herrell: (506) [email protected]
Saint John Airport Inc.
Saint John Airport Board of Directors
SAINT JOHNAÉROPORT DE
AIRPORTwww.saint johnairport.com
4180 Loch Lomond Road, Saint John, NB E2N 1L7Tel: (506) 638-5555 Fax: (506) 638-5550
www.saintjohnairport.com
