Halifax International Airport Authority 2016 Business Plan

STRENGTH THROUGH STRATEGY:

Inspiring Growth

TABLE OF CONTENTS A

EXECUTIVE SUMMARY ........................................................................................... 1 PLANNING PROCESS .................................................................................................. 1 2016 BUSINESS PLAN................................................................................................. 2

B

STRATEGIC OVERVIEW ........................................................................................... 3 MISSION, VISION AND VALUES ................................................................................. 3 BUSINESS STRATEGIES .............................................................................................. 4

C

2016 PLAN ..................................................................................................................... 5 ECONOMIC OUTLOOK ............................................................................................... 5 Global Economy................................................................................................... 5 National View ...................................................................................................... 5 Regional View ...................................................................................................... 6 Aviation Industry ................................................................................................. 7 Halifax Stanfield International Airport ............................................................... 9 2016 GOALS ............................................................................................................. 12 FINANCIAL PLAN ...................................................................................................... 14 Revenue ............................................................................................................. 14 Expenses ............................................................................................................ 15 Capital Program ................................................................................................. 15 FINANCIAL SCHEDULES............................................................................................ 18 Proforma Balance Sheet ................................................................................... 18 Proforma Statement of Operations .................................................................. 19 Proforma Statement of Cash Flows .................................................................. 20

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2016 BUSINESS PLAN Prepared in December, 2015

A

EXECUTIVE SUMMARY

PLANNING PROCESS Halifax International Airport Authority (HIAA) has a four-tiered planning process to guide airport operations and development in the long, medium and short term.

The 20-year Master Plan serves as a framework to guide the long-term development of the facility to meet the needs of the community, our stakeholders and the industry.

The 10-year Capital and Financial Plan determines HIAA’s infrastructure and funding requirements over the plan timeline.

The Strategic Plan covers a five-year period and includes our Mission, Vision, Values and Goals. It also includes an assessment of the general economic conditions expected to prevail, as well as an evaluation of the current and future state of the aviation industry.

The annual Business Plan draws its direction from the Strategic Plan and creates specific, measurable, actionable, results-oriented, and time-linked goals to support our long-term strategies.

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2016 BUSINESS PLAN Prepared in December, 2015

2016 BUSINESS PLAN The 2016 Business Plan for Halifax International Airport Authority (HIAA) has been developed in accordance with the 2013-2017 Strategic Plan, and sets forth the business strategies and goals for the upcoming fiscal year from both a qualitative and quantitative perspective.

of the commercial core strategy, building on the momentum from 2015 with the development of the first commercial lot as HIAA partnered with Irving Oil for a fuel station, onsite convenience store and restaurant. Changes within the management structure of HIAA will also provide more focus on initiatives to increase service offerings and enhance revenue.

The theme for the 2016 Business Plan is “Strength through Strategy – Inspiring Growth.” In 2015, HIAA experienced passenger and capacity growth as passenger services expanded. Robust passenger growth and revenue expansion is projected in the 2016 Business Plan as HIAA continues its focus on both aeronautical and nonaeronautical revenue opportunities.

Capital investment in 2016 will focus on expansion of concessions space in the domestic/ international departures lounge and developments in the air terminal building to improve passenger experience. There will also be investment to improve power generation efficiencies at the airport. The total estimated capital investment for 2016 is $54.1 million.

The anticipated inconsistency in global economic growth and the volatility in currency and equity markets remain a concern; however, there are other industry and local factors that will raise the demand for air service expansion. Of particular relevance to HIAA is the prospect of increased capital investment and expanded economic activity in the Atlantic region, driven by a concentration of mega projects. These projects will create air transportation opportunities in both domestic and international markets while the anticipated ratification of the Comprehensive Economic Trade Agreement (CETA) will facilitate additional international cargo opportunities.

HIAA’s financial plan for 2016 focuses on revenue growth, improved operational efficiencies and cost restraint. Operating revenues are expected to grow by 6.9% compared to the 2015 forecast, and the targeted operating margin is expected to remain stable at 8%. Overall the Excess Revenue Over Expenses (EROE) is projected at $1.4 million.

From an aeronautical perspective, HIAA will work with carriers to identify new routes that offer sustainable growth in strategic markets. HIAA will continue to focus on it’s hub strategy and capitalize on opportunities to enhance regional hub activity and expand international markets. To take advantage of emerging market opportunities, HIAA will also work with partners to expand cargo services.

In summary, the outlook for HSIA in 2016 reflects stable growth with improvements in both passenger numbers and capacity. Passenger growth is budgeted to be 4.8% with aircraft seat capacity budgeted to increase by 5.5% in 2016.

With non-aeronautical activities, revenue growth will be achieved through the further advancement

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STRATEGIC OVERVIEW

MISSION, VISION AND VALUES Mission

Values

A world-class airport creating prosperity for our region by connecting Atlantic Canada to the world through flight

At Halifax International Airport Authority, we are a team with a common vision and mission. The foundation of our vision and mission is built upon our core values. We are committed to these values to guide us in our decisions, actions, and behaviours, to support the success of the organization, each other, and our stakeholders.

Vision Great people creating the best airport community in the world

Integrity We are transparent and behave with integrity. We accept responsibility for our actions and take the initiative to improve our airport every day. Respect We value differences and diversity in individuals. We treat each other and our environment with respect. Inclusion We promote a trusting, open and inclusive environment. We approach each interaction with professionalism and pride and make our airport a welcome place for employees, stakeholders and visitors. Teamwork We celebrate our accomplishments and work together by listening and communicating effectively, building on each other’s strengths and helping each other to grow professionally. Corporate Citizenship We value the communities in which we do business and where we live. We are committed to contributing by providing leadership in economic development and social responsibility.

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BUSINESS STRATEGIES As part of HIAA’s Strategic Plan, a number of key business strategies have been developed to achieve the vision and help guide the organization. The business strategies are aligned with key strategic planning documents such as the Master Plan and the 10-year Capital and Financial Plan.

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2016 PLAN

ECONOMIC OUTLOOK Global Economy1

markets for HSIA in terms of the source of growth and demand.

The global economy continues to grow moderately but at a lower rate than the previous year. In advanced economies, the growth rate is expected to pick up slightly while in emerging markets and developing economies it is expected to continue at slow growth rates. The large emerging markets and oil exporting countries can expect weaker growth due to declining commodity prices and reduced capital flows.

Increased global financial market volatility and geopolitical risks are still a concern, however global economic activity is expected to maintain market growth, led by North America.

National View The growth of Canada’s national economy has a direct impact on growth and demand for air passenger and cargo services at HSIA. On a national level, growth is expected to pick up in

According to forecasts from the International Monetary Fund (IMF), the world economy is expected to grow approximately 3.1% in 2015, the weakest year since 2009, and 3.6% in 2016. Emerging and developing economies are expected to continue to lead the recovery with growth of 4.0% in 2015 and 4.5% by 2016, compared to growth of 2.0% and 2.2% respectively for the advanced economies. This has implications for the air passenger and cargo

On a national level, growth is expected to pick up in 2016 as Canadian businesses that depend on exports will benefit from the U.S. recovery and strong U.S. dollar, which in turn will stimulate investment.

Figure 1 - Economic Outlook Forecast - Annual Growth in Real GDP

1

International Monetary Fund World Economic Outlook, October 2015

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2016 BUSINESS PLAN Prepared in December, 2015

2016 as Canadian businesses that depend on exports will benefit from the U.S. recovery and strong U.S. dollar, which in turn will stimulate investment. After posting growth of 2.4% in 2014, the IMF expects Canadian GDP growth to fall to 1.0% in 2015, led by lower capital expenditures in the energy industry forecasted to reflect a drop of $29 billion2 and to recover to 1.7% in 2016.

positive impact of $1.7 billion per year to the Canadian economy. HIAA is working with Korean Air Cargo on exploring the opportunities created by Canada’s first trade agreement in the AsiaPacific region, known as the Trans-Pacific Partnership (TPP). The TPP has significant long term potential, eliminating or reducing tariffs between twelve nations representing 800 million people and accounting for 40% of global GDP. In addition to increased trade opportunities the agreement will allow for easier labour mobility for highly skilled and business workers. Another benefit to domestic growth is the recently signed reciprocal currency deal between Canada and China that will allow direct business between the Canadian dollar and Chinese yuan.

Canada is an export-oriented economy with total export values in 2014 of $524 billion, an increase of 11% over 2013. Although trade with emerging economies such as China has increased in recent years, the United States remains Canada’s largest trading partner, accounting for 65.7% of trade (76.8% of exports and 54.3% of imports) by value.3 As such, developments in that country will have a direct impact on the Canadian economy. Canada is also susceptible to world commodity prices and changes in the demand for natural resources will have a noticeable impact on the Canadian economy. The continued decline in the value of the Canadian dollar will also impact growth prospects for various segments of the national economy. A weak dollar is welcome news for the manufacturing and export sectors, along with the hospitality and tourism sectors. In addition, oil prices, which are expected to remain depressed, should have a positive impact on operational costs for airlines. Fuel costs are forecast to account for 28% of operating costs in 2015 vs. 32% in 2014.4

Regional View Over the next several years, economic growth in Halifax and Nova Scotia is expected to be driven by mega projects totalling over $129 billion including the $30 billion federal shipbuilding contract, the Maritime Link transmission line, and offshore exploration by British Petroleum and Shell. The national shipbuilding contract alone is expected to generate 11,500 total jobs and $500 to $600 million in wages for Nova Scotia, along with a 2.4% rise in provincial GDP.6 Halifax’s real GDP grew to $18.9 billion in 2014, however due to a significant drop in natural gas output, 2015 GDP growth is expected to slow to

Domestic growth opportunities will be strengthened in the future as a result of the recently signed Canada and European Union Comprehensive Economic and Trade Agreement (CETA) which has the potential to boost Canada’s income by $12 billion annually and bilateral trade by 20%.5 As well, the Canada-Korea Free Trade Agreement, which was signed in September 2014, is forecast to increase Canadian exports to South Korea by 32% with a

In 2016, Nova Scotia is poised to have the strongest GDP growth in the Atlantic region. Growth in Nova Scotia will be supported by higher (20%) investment spending and a full year of shipbuilding in 2016.

2

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International Monetary Fund, World Economic Outlook October 2015 3 Industry Canada, Trade Data Online Database 4 IATA, Fact Sheet: Fuel, June 2015

HALIFAX INTERNATIONAL AIRPORT AUTHORITY

Summary of CETA Benefits, Prime Minister of Canada October 2013 6 Shipsstarthere.ca

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Figure 2 – Atlantic Canada Economic Outlook Forecast – Annual Growth in Real GDP7

0.5%. In 2016, economic growth is expected to recover to 1.5%.

on major projects, and reduced housing construction. 2016 is expected to have a slight increase in GDP of 0.8% primarily due to a slight recovery in oil production and improved mining output. Overall momentum remains weak in New Brunswick; however there are signs of improvement in the near term with expected increases in capital spending and exports with several multi-billion dollar projects underway in energy, forestry, and transportation. The trend of steady but moderate growth in Prince Edward Island’s economy is expected to continue with modest growth in bioscience and aerospace and increased spending in the Northumberland Straight Power Cable Project.9

CETA, once ratified, is expected to have a strong impact in Atlantic Canada as almost 96% of European Union tariff lines for fish and seafood products will be duty-free once in effect. This agreement will create favourable conditions for increased sales as these world-class products become more competitive. For example, CETA will eliminate export tariffs on cooked and peeled shrimp (20%), live lobster (8%), frozen lobster (6% to 16%) and frozen scallops (8%). This will have a positive impact on cargo exports from the region.7 In 2016, Nova Scotia is poised to have the strongest GDP growth in the Atlantic region as shown in Figure 2. Growth in Nova Scotia will be supported by higher (20%) investment spending and a full year of shipbuilding in 2016. Regional economic growth is expected to drive the demand for air services (e.g. business travel from this activity, increase in leisure travel as economic growth increases disposable income). Newfoundland & Labrador will see negative growth rates in 2015 due to falling oil production, weak iron ore prices, lower spending

Aviation Industry The global aviation industry, valued at $727 billion, is resilient. In spite of bankruptcies, economic recessions, health crisis such as Ebola Virus Disease (EVD) and SARS, natural disasters and “polar vortexes”, global air transport continues to grow8. Passenger air traffic has grown in nine of the last ten years and is expected to increase to 3.6 billion in 20169. ICAO10 expects global traffic to reach 5 billion over the next 20 years (3.5% per annum). This is 9

7

Summary of CETA Benefits, Prime Minister of Canada – October 2013 8 InterVistas Consulting Inc. – State of the Airline Industry, September 2014

HALIFAX INTERNATIONAL AIRPORT AUTHORITY

Boyd Group International, Ten Year Global Fleet Demand and Forecast, August 2015 10 International Civil Aviation Organization (ICAO)

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due to the importance of air travel for global trade and commerce, along with the increasing demand for tourism worldwide. The long-term outlook for the aviation industry anticipates continued growth. The airline industry has benefited from the doubling of unique routes and halving of operating costs in the past 20 years. The industry overall is experiencing record profits, generating $29.3 billion in 2015 with an operating margin of 6.9%.11 Global fleet demand is expected to increase by 21.3% within the next 10 years, with North America and Europe trending in line at 23%.

is expected to continue into 2016 if the U.S. carriers continue to benefit from post-merger synergies. Air Canada profitability gains continue through the growth of its lower cost carrier Rouge, significant international route expansion, and fleet modernization. WestJet has followed suit with the successful launch of Encore in Western Canada, expansion to the eastern part of the country and additional international routes. However, North American passenger traffic lags behind the rest of the world with a projected growth of 3.8% in 2015.14 Another trend developing in the aviation industry is the growing popularity of airline incentives. Many airlines now require risksharing incentives from airports and communities in order to commit to a new air service. If used properly, incentives can bridge the gap between the airport’s confidence in its market and the airline’s perceived risk. Incentives will increasingly become an important part of the business case for new air services.15

A key trend that has evolved over the past several decades is the growth of international air traffic relative to domestic air traffic. In 1990, international air passengers made up 24% of all global air passenger traffic and this is forecast to grow to 40% in 2016.12 This trend is driven by globalization and the increasing accessibility of international travel as a result of economic growth and new aircraft technology. Demand for international air travel is expected to continue to outpace the growth of domestic travel, affecting market opportunities and air service routes. HIAA’s long term strategy is focused on international passenger and cargo air traffic growth to Europe, United States, and Asia.

Fuel continues to be a significant cost for the airlines and, despite recent decreases, is projected to account for approximately 25-30% of total airline operating costs.16 As costs fluctuate along with economic drivers, airlines may adjust seat capacity, which in turn impacts the airport business. The decline in jet fuel prices has had an immediate and positive impact on the financial performance of airlines, and is expected to continue as prices remain low.17 An increase in air services and seat capacity supports the airport business by generating revenue opportunities (e.g. landing fees) while a decline in seat capacity has the opposite effect. In 2015, passenger volumes and seat capacity have returned to moderate growth in the third quarter and are expected to continue into 2016.

The financial performance of airlines varies considerably by region, country and individual air carrier. The key success factor in the North American aviation market is controlled and sustainable growth. With a 7.5% expected profit margin in 2015, North America has been outperforming all other regions accounting for over half of the global profit at $15.7 billion as airlines focus on profitability through capacity rationalization, consolidation of mature markets and the development of ancillary services. Together with lower fuel costs, breakeven margins now average 56.4% in 2015.13 This trend 11

15

IATA, Economic Performance of the Airline Industry, June 2015 12 International Air Transport Association (IATA) 13 IATA, Economic Performance of the Airline Industry, June 2015 14 International Civil Aviation Organization (ICAO)

HALIFAX INTERNATIONAL AIRPORT AUTHORITY

InterVistas Consulting Inc. – September 2013 InterVistas, HSIA Air Traffic Forecasts 2014-2034, July 2015 17 InterVistas, HSIA Air Traffic Forecasts 2014-2034, July 2015 16

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The aviation industry is also experiencing new and changing types of aircraft and related market opportunities. The new aircraft can offer lower costs, smaller capacities and longer ranges that could be beneficial to smaller markets with the potential to create more non-stop routes. However, the shift from smaller, less efficient, turboprops and regional jets (less than 50 seats) to larger regional aircraft will result in a fundamental change over the next 5 to 10 years for regional airports, including HSIA, as airlines consolidate routes and take on more point-topoint flying in order to maximize the use of the larger aircraft.

Caribbean. This network enables passengers within Atlantic Canada to access over 500 onestop destinations around the world. In 2014, air passenger traffic at HSIA reached a record setting 3.7 million enplaned/deplaned (E/D) passengers. After being adversely affected by extreme winter weather conditions and the loss of service capacity in the Transborder market, passenger traffic at HSIA rebounded with strong seat capacity gains in the third quarter. As a result, passenger traffic in 2015 is forecast to increase over 2014. Approximately 81% of passenger traffic at HSIA is domestic, followed by 10% transborder and 9% international.

Overall, improvement in the financial performance of the global aviation industry will facilitate increased air services development, but regional and air carrier differences must be taken into account when assessing potential opportunities.

With the highest air passenger per capita ranking in the country, HSIA punches well above its weight; however, the finite catchment area with limited population growth prospects presents longer term challenges for air travel demand. To meet this challenge, the opportunity to strengthen and build upon HSIA’s position as the regional hub for Atlantic Canada needs to be seized. Part of this opportunity is the introduction of narrow body aircraft, i.e. B737, on trans-Atlantic flights. Due to HSIA’s prime location, these smaller jet aircraft, which have a suitable capacity for our market, can reach Ireland and the United Kingdom directly. HIAA saw this in 2015 with WestJet’s service to Glasgow. Within the next five years, the newer versions of these aircraft, i.e. the B737 MAX, will have even greater range capabilities providing direct access to continental Europe, including Amsterdam, Paris and Frankfurt.

Halifax Stanfield International Airport PASSENGERS HSIA is served by 18 scheduled and charter passenger air carriers that provide direct service to a network of 48 destinations, including 21 in Canada, 9 in the United States and 18 in

A robust 4.8% increase in passenger traffic is anticipated for 2016 due to enhanced schedule offerings on domestic, transborder and international markets.

Figures 3 and 4 shows passenger traffic (actual and forecast) from 2010 to 2016 at HSIA.

international markets, including Europe and the

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Figure 3 - Passenger Traffic by Sector

Figure 4 - Overview HSIA Passenger Traffic

“F” denotes forecast passenger traffic as of October 2015

“F” denotes forecast passenger traffic as of October, 2015

ECONOMIC DEVELOPMENT POTENTIAL

CARGO

HSIA’s dominant position in the regional airport market makes it a key catalyst for achievement of some of the specific goals of the One Nova Scotia Report. The report established goals for increasing the value of exports from $14 billion to $20 billion, doubling gross annual tourism revenues from $2 billion to $4 billion and increasing annual immigration to 7,000 new residents. Maximizing the connectivity, scale, efficiency and flexibility of operations at HSIA will be required if these goals are to be realized. In 2014 HIAA’s annual economic impact was measured at $1.3 billion making airport operations a critical infrastructure element that can be leveraged to help meet these goals and drive future economic growth for the province.

Air cargo at HSIA includes both mail and commercial shipments carried in the belly-holds of passenger aircraft and on freighters. Cargo

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Figure 5 – Air Cargo Traffic at HSIA as of October, 2015

service providers that operated at the airport during 2015 include Air Canada, Air St. Pierre, Air Transat, Cargojet, Condor Flugdienst, Icelandair, Korean Airlines, Purolator, FedEx, UPS, Skylink Express and WestJet.

with Nova Scotia lobster exports experiencing over 400% increase in the past five years and the recent investment deals between Canada and China that will clear the way for exports of Canadian blueberries to China. All of these export opportunities from HSIA will require enhanced air cargo service.

Cargo traffic at HSIA reached 32,004 metric tonnes in 2014 and is forecast to grow in 2015. Major air exports via HSIA include seafood, electronics, machinery, and industrial equipment. The runway extension to 10,500 feet, completed late in 2012, has facilitated further growth of air cargo business at HSIA by allowing service from larger freighters.

Conclusion Technological advancements in aircraft design are expected to improve both range and efficiency in equipment which closely matches the profile of the regional market. This industry trend has the potential to open up new domestic and international point-to-point services.

Once CETA is ratified, HIAA anticipates a positive impact on the lobster and live seafood export business in the EU, which is already Nova Scotia’s largest export destination.18 In addition, the Canada-Korea Free Trade Agreement has eliminated tariffs on almost all of Nova Scotia’s key exports, including lobster and blueberries, and provides access to new opportunities in South Korea, the 4th largest economy in Asia.19 The Chinese market also remains a focal point,

In summary, the outlook for HSIA in 2016 reflects stable growth with improvements in both passenger numbers and capacity. Developments in the domestic economy indicate a transition to a steadier growth phase of the economic cycle with lower anticipated volatility compared to recent years.

18

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http://www.international.gc.ca/trade-agreementsaccords-commerciaux/assets/pdfs/cetaaecg/Provincial_NS_Eng.pdf

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http://www.international.gc.ca/trade-agreementsaccords-commerciaux/agr-acc/koreacoree/index.aspx?lang=eng

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2016 BUSINESS PLAN Prepared in December, 2015

2016 GOALS The following goals were established in the 2013-2017 Strategic Plan and flow from the key business strategies.

Safety, Security & Environmental Excellence Exercise high levels of safe work practices throughout HIAA and foster work safety in the HSIA community. Continue to enhance the highest level of airport security. Enhance standards of environmental stewardship and increase awareness in the HSIA community.

Professional Excellence Implement revised recruitment and retention strategies. Build organizational capability and capacity. Improve current succession and workforce planning processes. Sustain positive labour relations. Improve delivery of Human Resource services.

Air Service Growth Increase passenger and cargo volumes. Increase passenger and cargo destinations.

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2016 BUSINESS PLAN Prepared in December, 2015

2016 GOALS (cont’d) Non-Aeronautical Revenue Growth Develop and implement a commercial development plan to facilitate the growth of non-aeronautical revenue at HSIA. Influence key government stakeholders to provide zoning, regulation and adequate services to support airport operations and growth. Increase other non-aeronautical revenue. Generate revenue growth through the provision of services to external parties.

Culture of Superior Service Improve customer satisfaction levels. Integrate The Stanfield Way into existing HSIA programs. Expand and diversify Tartan Team volunteer host program. Implement processes and adapt facilities to minimize barriers within our facility resulting in a seamless airport experience.

Facilities & Service Improvements Deliver a capital program that optimizes the airport experience, supports growth, and improves efficiency and productivity. Improve the processes and systems used to manage infrastructure data and to support delivery of infrastructure initiatives and ongoing operations. Deliver enterprise business solutions by leveraging airport technology.

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2016 BUSINESS PLAN Prepared in December, 2015

FINANCIAL PLAN The following section provides supporting data on the 2016 Business Plan’s revenue and expense budget. It focuses on the way in which the financial component of the plan relates to the goals, thus allowing HIAA to achieve its stated objectives. The financial plan for HIAA is summarized as follows: 2016 Budget ($ millions) Operations Revenues Expenses Operating Margin Other Revenue and Expenses Airport Improvement Fee (net) Interest Expense (net) Depreciation and Amortization Other Gains (Loss) Defined Benefit Pension Plan Gain (Loss)

61.2 56.3

2015 Forecast ($ millions)

57.2 54.2 4.9

36.1 (14.8) (22.5) (0.5) (1.8)

Excess Revenue Over Expenses Capital Program Investment Total Long-Term Debt as at Dec. 31

(3.5)

3.0 34.6 (14.2) (20.7) (0.2)

(0.5)

1.4

2.5

54.1

25.1

284.4

284.3

Figure 6 – Financial Plan Summary

The following section provides supporting data on the 2016 Business Plan’s revenue and expenses.

Revenue beginning in April, 2016, resulting in an overall planned seat capacity increase of 5.5% over 2015. HIAA has identified business strategies in the 2016 budget to support this growth.

The revenue forecast for 2015 was impacted by severe weather events in the first quarter and significant loss of transborder destinations; however due to a strong rebound for the balance of the year with the introduction of WestJet Encore domestic service, operating revenue is forecast to grow compared to 2014. It is expected that seat capacity for the first half of 2016 will continue the growth trend evidenced in the latter-half of 2015, related to increased service to Glasgow, Scotland and the WestJet Encore domestic service that began in July, 2015. This is further bolstered by air service enhancements in the transborder market

HALIFAX INTERNATIONAL AIRPORT AUTHORITY

Considering the forecast for 2015 and the implementation of the annual plan, the 2016 budget anticipates total revenue of $97.3 million. This value is driven by operating revenue at $61.2 million, an increase of 6.9% over the 2015 forecast combined with the Airport Improvement Fee (AIF) revenue budget of $36.1 million, an increase of 4.3% over the prior year forecast.

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Utilizing published airline schedules, available aviation forecasts, and other related information available as of September, 2015, total HSIA passenger traffic for 2016 is budgeted to increase from the 2015 forecast levels by 4.8%. This includes an increase of 3.5% in total passenger aircraft movements from the 2015 levels and a forecasted increase in aircraft seat capacity of 5.5% in 2016 as airlines increase service and shift to larger size aircraft for certain routes. In 2016, aeronautical revenue is anticipated to increase by 7.5% over the 2015 forecast.

Total interest to be paid in 2016 on HIAA’s Series A and Series C bonds at annual fixed interest rates of 5.503% and 4.888% respectively is $14.9 million. 2016 Total Expenses = $94.1M

Interest 15.8% $14.8M Depr/Amort * 24.4% $23.0M

Non-aeronautical revenue is budgeted to increase by 6.3% in 2016 over the 2015 forecast and consists of parking, car rentals, concessions, office and land rentals and other revenues. The major driver of the budget increase relates to parking revenue and reflects the impact of increased passenger forecasts and rate changes.

*Includes $530k for loss on disposal of generators

Capital Program The estimated 2016 capital program investment is $54.1 million and includes improvements to the airport’s electrical systems, the development of new leasable areas in the Air Terminal Building, extension of the main street in the Commercial Core area, new infrastructure to support security and emergency operations, and the capital replacement of existing groundside, terminal, and airside infrastructure.

2016 Total Revenues = $97.3M

Aeronautical 32.0% $31.1M

AIF 37.1% $36.1M

Groundside

Non Aeronautical 30.9.0% $30.1M

Other 4.9% $4.7M

Concessions 11.7% $11.4M

Operating Expenses 59.8% $56.3M

GOUDEY DRIVE PUMPING STATION REPLACEMENT The existing sanitary pumping station on Goudey Drive is the central point in the airport’s sanitary sewer system. This pumping station is operating near capacity and is past its useful life. A new pumping station with capacity for future development will be built to replace the existing pumping station.

Parking 14.3% $14.0M

Expenses Total expenses for 2016, excluding the defined benefit pension expense, are budgeted to be $94.1 million. The total operating expense budget for 2016 is $56.3 million representing an increase of 3.8% or $2.1 million over the 2015 forecasted operating expense.

HALIFAX INTERNATIONAL AIRPORT AUTHORITY

AIRPORT EMPLOYEE PARKING REDEVELOPMENT The overflow employee parking lot will be relocated to a location closer to the Air Terminal Building, thus providing better access to employees while enabling the development of leasable Commercial Core lots.

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power systems. New backup generators will be installed, redundant feeds from Nova Scotia Power will be implemented, electrical equipment will be upgraded, and redundant distribution feeds will be established.

AIRPORT OPERATIONS FACILITY IMPROVEMENTS Improvements to airport operations facilities will begin construction in 2016.

CORE COMMERCIAL ROADS AND SERVICES

SECURITY INFRASTRUCTURE

To enable further development of leasable parcels in the Commercial Development program, the second phase of the main street in the Core Commercial area is expected to be completed.

To enhance the existing physical security measures, new security measures will be installed along the terminal frontage, additional cameras will be installed, and security systems around critical terminal infrastructure will be upgraded.

Air Terminal Building (ATB)

CENTRAL CHILLER PLANT

TERMINAL INFILL AND CONCESSIONS DEVELOPMENT

The central chiller plant is nearing the end of its serviceable life and is expensive to operate. Construction of a new chiller plant to replace the existing plant will begin.

To enable further development of nonaeronautical revenue, the Domestic/ International hold room will be expanded to create an area of new, leasable space for concessions or office use. The washrooms adjacent to the development will be upgraded with additional fixtures and improved finishes. The air crew entrance adjacent to the washroom will be expanded to allow future capacity for additional Non-Passenger Screening performed by CATSA.

Airside GATE APRON REPLACEMENT As part of routine maintenance and restoration, gate aprons will be updated in 2016 where needed.

JET BRIDGE REPLACEMENT

AIRSIDE MAINTENANCE SPACE

Jet bridges that have reached the end of their serviceable life will be replaced.

Leasable airside space will be developed on the ground floor of the ATB to address airline demand for additional operational and maintenance space.

NON-PASSENGER SCREENING FOR VEHICLES To meet new security regulations regarding screening of vehicles accessing the apron, upgrades will be made to the temporary screening facilities constructed in 2014.

PASSENGER EXPERIENCE IMPROVEMENT PLAN The Passenger Experience Improvement program will continue with upgrades to washrooms in the airside and groundside areas of the terminal. New architectural finishes will be completed in the Domestic Arrivals area and in the Center Core. A number of improvements to lighting and furnishings will be made throughout the ATB.

Information Technology INFORMATION TECHNOLOGY SYSTEMS IMPROVEMENTS The next phase of the IT Enterprise System upgrades include four main areas of focus categorized as: Business Continuity and Disaster Recovery; Physical and Data Security Systems; Airline Common Use & Passenger Processing; and Transformative Technologies. Within these key areas there will be an emphasis of continuing

AIRPORT POWER SYSTEM IMPROVEMENTS Several upgrades will be made to the airport’s electrical power system to improve reliability while improving the performance of the backup HALIFAX INTERNATIONAL AIRPORT AUTHORITY

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to grow and expand self-service technologies and adopting IT best practices for risk management, network security and infrastructure design.

provide more flexibility and improved snow clearing operations in the gate and apron areas.

Equipment Fleet

Infrastructure upgrades will be made to address airport accessibility and constraints on terminal operational and administrative spaces.

Infrastructure Upgrades

APRON SNOW AND ICE CONTROL EQUIPMENT

Minor/Maintenance Capital Projects

Much of the equipment used to remove snow and ice from the apron areas is nearing the end of its serviceable life and will be replaced due to increased maintenance costs. The increase of aircraft movements on the south apron and short duration gate assignments require efficient, small footprint snow removal equipment designed for apron operations. Advancements in new generation equipment

HALIFAX INTERNATIONAL AIRPORT AUTHORITY

The balance of the capital funding requirements for 2016 is $6.5 million and consists of minor capital projects categorized as new initiatives, minor works, capital acquisitions, mobile equipment replacement, preliminary design for the 2017 capital program, and 2015 continuing projects.

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FINANCIAL SCHEDULES Halifax International Airport Authority PROFORMA BALANCE SHEET as at December 31 ($000’s)

2016

2015

ASSETS Current Assets Cash and Short Term Investments Accounts Receivable Other Total Current Assets

1,417 5,700 1,865 8,982

21,493 5,000 1,856 28,349

Long-Term Assets Debt Service Reserve Fund Capital Assets Accrued Pension Asset Total Long-Term Assets

7,427 403,217 4,667 415,311

7,427 372,097 5,127 384,651

TOTAL ASSETS

424,293

413,000

Current Liabilities Accounts Payable & Accrued Liabilities Current Portion of Long Term-Debt Deferred Revenue

22,420 5,000 542

17,727 539

Total Current Liabilities

27,962

18,266

Long-Term Liabilities Long-Term Debt Security Deposits Total Long-Term Liabilities

283,421 965 284,386

283,396 865 284,261

TOTAL LIABILITIES

312,348

302,527

Equity In Capital Assets

111,945

110,473

TOTAL LIABILITIES and EQUITY

424,293

413,000

LIABILITIES and EQUITY

EQUITY

HALIFAX INTERNATIONAL AIRPORT AUTHORITY

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2016 BUSINESS PLAN Prepared in December, 2015

FINANCIAL SCHEDULES Halifax International Airport Authority PROFORMA STATEMENT OF OPERATIONS for the year ended December 31 ($000’s)

2016

2015

BUDGET

FORECAST

REVENUES Aeronautical Parking Concessions Other Airport Improvement Fee

TOTAL REVENUES

31,106 13,951 11,386 4,743 36,084

28,949 12,956 11,046 4,297 34,596

97,270

91,844

22,132 22,450 20,576 14,820 6,778 5,270 1,518 530

21,217 20,707 19,533 14,221 6,336 5,627 1,493 -

94,074

89,134

3,196

2,710

EXPENSES Salaries, Wages & Benefits Depreciation and Amortization Materials, Supplies & Services Interest Expense, net Ground Lease Rent General and Administrative Realty Taxes Loss on Disposal Of Generators

TOTAL EXPENSES EARNINGS before Defined Benefit pension gain (loss)

(1,804)

Defined Benefit Pension Gain

EXCESS REVENUES OVER EXPENSES NET ASSETS (Jan 1) Amortization of Deferred Financing Charges

NET ASSETS (Dec 31)

HALIFAX INTERNATIONAL AIRPORT AUTHORITY

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(190)

1,392

2,520

110,473

107,873

80

80

111,945

110,473

2016 BUSINESS PLAN Prepared in December, 2015

FINANCIAL SCHEDULES Halifax International Airport Authority PROFORMA STATEMENT OF CASH FLOWS for the year ended December 31 ($000’s)

2016

2015

CASH BALANCE JANUARY 1

21,493

30,839

OPERATING ACTIVITIES Excess Revenues over Expenses excluding Non-Cash Items Adjustment for Changes in Working Capital

24,937 4,087

21,973 (6,134)

Total Operating Activities

29,024

15,839

FINANCING ACTIVITIES Proceeds of Term Credit Facility Transport Canada Rent Deferral

5,000 -

(81)

Total Financing Activities

5,000

(81)

INVESTING ACTIVITIES Expenditures on Capital Assets

(54,100)

(25,104)

Total Investing Activities

(54,100)

(25,104)

(20,076)

(9,346)

1,417

21,493

Decrease in Cash & Cash Equivalents CASH & CASH EQUIVALENTS AS AT DECEMBER 31

HALIFAX INTERNATIONAL AIRPORT AUTHORITY

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2016 BUSINESS PLAN Prepared in December, 2015

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Halifax International Airport Authority 1 Bell Boulevard, Enfield, Nova Scotia, Canada B2T 1K2 Tel: 902.873.4422

Fax: 902.873.4750

www.flyhalifax.com