Phased Expansion Plans for Montreal's Dorval Airport

UNCLAS SECTION 01 OF 03 MONTREAL 001076

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E.O. 12958: N/A
TAGS: EAIR ECON EFIN PREL CA
SUBJECT: Phased Expansion Plans for Montreal's Dorval Airport

REF: A) MONTREAL 0412 (2002)


1. This cable contains input from Embassy Ottawa.


2. SUMMARY: Montreal's Dorval International Airport recently
opened Phase 1 of a planned three-stage, C$700 million
expansion that will include new and improved facilities as well
as integration of the airport into the local and regional
transportation network. The renovation is part of an overall
effort to have Dorval reestablish itself as a major
international hub. Plans for Phase 3, which may not begin
until 2006 or 2007, include new pre-clearance facilities for
Department of Homeland Security inspectors; however, it is
unclear whether these new facilities will address long-standing
DHS pre-clearance security concerns. END SUMMARY


3. Aeroports de Montreal(ADM),a non-profit agency, manages
both Dorval and Mirabel Airports under a 60-year lease signed
in 1992 with Transport Canada, the federal transportation
agency. Mirabel is located approximately 30 miles from
downtown Montreal in a relatively unpopulated area; it was
developed in the 1970s with the intention of replacing Dorval,
which was considered to have low growth potential because it is
surrounded by residential neighborhoods. However, Mirabel's
distance from the city made its viability dependent on train
and highway connections from downtown Montreal that were never
developed. Consequently, Mirabel never gained sufficient
support either from the airlines or the traveling public and
many international carriers abandoned Montreal for Toronto.


4. In 1996, ADM determined that, with expansion, Dorval would
be able to accommodate all passenger traffic for the
foreseeable future. It allowed international carriers to move
back to Dorval in 1997. Some charter carrers continue to
operate at Mirabel but all will have moved to Dorval by 2004.
In an interview with post, CEO James Cherry said ADM is
obligated under its lease to maintain an airport at Mirabel,
and will devote it to cargo transport for now. Cherry said ADM
plans this fall to issue a formal Request for Proposals to
determine a future use for Mirabel's underused terminal
facilities. Mirabel has understandably been dubbed a "White
Elephant" by many, but the 75,000 acre site will remain
available should need for a second major passenger airport
ultimately arise.


5. Rating agency Standard and Poor's recently downgraded ADM
from an A plus to an A, citing difficulties in the airline
industry, and in Dorval's case, the long wait for a new lease
with Transport Canada. According to Cherry, "they [S and P]
were just looking for excuses; they are downgrading all
Canadian airports." Cherry says that over eighty percent of
all travelers who fly through Dorval either start or finish
their trip at Dorval. This high percentage of
origin/destination traffic insulates Dorval from the
instability found at many hub airports; the steady passenger
stream from area residents provides ADM with a consistent
income flow. "Even during slow periods, Montrealers will still
have the need to fly," he explained.

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Three Phases of Expansion
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6. The Dorval renovation and expansion are projected to cost
approximately C$700 million and will occur in three phases.
Phase I, the Trans-border Jetty, which handles flights between
the U.S. and Canada, opened on April 1, 2003. Although several
gates can accommodate planes as large as a Boeing 767, the new
jetty is designed with adjustable bridges to accommodate even
the smallest aircraft, such as regional jets. Cherry said that
Dorval's expansion was designed with current airline
restructuring trends in mind; he predicted that low-cost
airlines may ultimately claim up to 40 percent of the Canadian
domestic air travel market.


7. The Trans-border jetty offers some significant improvements
over the previous 1950s era terminal: more gates, more shopping
and eating areas as well as greatly enhanced security with the
complete segregation of arriving and departing passengers.
Cherry noted that while the new facility is spacious and
modern, it is not the "architectural monument" that some recent
airports have become. Originally the Dorval expansion was set
to cost C$1.3 billion, but the plans were scaled back after
Cherry was hired in 2001.


8. Phase 2 of Dorval's expansion plan is a new International
Jetty, scheduled to open in 2005 and currently about 25 percent
completed. It will include a new arrivals hall, a new Canadian
immigration/customs inspection facility and a baggage claim
area that will handle both international and U.S. arrivals.
The International Jetty will have at least one gate able to
accommodate the new super-jumbo Airbus A380 and will also
feature several "swing" gates allowing a plane to arrive as a
trans-border or international flight and depart either to the
U.S. or another international destination.


9. Phase 3 will include check-in areas for US-bound flights, a
new US Customs/Immigration pre-clearance area, an enlarged
domestic jetty for small aircraft, and a rail station that will
connect to VIA Rail's intercity service, as well as to the
Central Station downtown. Since a train station already exists
one mile from the airport terminal, linking the airport to the
Ottawa-downtown Montreal corridor should be relatively
inexpensive, according to CEO Cherry. He estimated the cost at
approximately C$90 million. Construction work would also
improve highway access to Dorval. Phase 3 is expected to begin
in 2006 or 2007, and should take about two years to complete,
although financing has not yet been arranged and the ADM board
has not given its final approval. CEO Cherry told post "we
[ADM] are considering moving up the start date [of phase 3] by
one year, maybe in 2005."


10. Notwithstanding the fact that the Transborder Jetty was
built and is operational, renovations at Dorval and Mirabel are
currently hindered by what Cherry describes as "perverse
economic consequences" of the lease signed with the federal
government in 1992. Under that lease, while ADM is responsible
for financing all improvements, the federal government receives
up to 80 percent of any income resulting from investments in
new facilities. According to Cherry, ADM went ahead with the
renovations based on personal assurances from the Federal
Minister of Transportation that a new lease formula for most of
Canada's major airports will remove such disincentives and make
it possible to undertake new business partnerships.

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Increasing Passenger Levels
--------------


11. The Dorval expansion is expected to increase the airport's
capacity from its present level of 9 million passengers each
year to 15 million; ADM bases its expansion plans on projected
average annual growth of 3-4 percent. According to Christiane
Beaulieu, ADM Vice President for Public Affairs, Dorval's
current three runways handle 55-60 movements (takeoffs or
landings) per hour, and could handle up to 100 per hour, so
expansion will be limited to terminal facilities. Beaulieu
said ADM's marketing department is working to bring in new
airlines and get others to expand their operations. Lufthansa
and Austrian Airlines recently re-established service at
Dorval, and Canadian discount carriers Westjet and Jetsgo have
been increasing their level of service. Air Canada, despite
its bankruptcy problems, is also planning to expand at Dorval,
in part because of the airport's lower operating costs.
Because Dorval is not a major hub, it experiences much less
peak-period congestion than hub airports like Toronto and
consequently, offers airlines considerable potential for fuel
and labor savings through reduced delays.

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Immigration and Customs
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12. According to Normand Boivin, VP of Dorval operations, ADM
is working with US and Canadian immigration on a new clearance
system that, once the International Jetty is completed, will
allow passengers to disembark from an international flight and
move directly to the U.S. inspection area. This should
increase Dorval's viability as a hub for international flights
terminating in the U.S.


13. A longstanding concern of Department of Homeland Security
personnel at Dorval has been the security of the pre-clearance
inspection area: customs and immigration inspectors currently
are interviewing and pre-clearing passengers who have had
neither their persons nor their luggage screened. After the
9/11 attacks, the security screening stations (x-ray and metal
detectors) were temporarily moved in front of the
immigration/customs area, but have since been moved back. A
long-term solution will require more expensive renovations that
are unlikely before the new facility is built in Phase 3.
ADM's plans to address the security concerns are not clear,
however. Henri-Paul Martel, ADM's Vice President for
Engineering and Construction, showed post preliminary designs
for the new inspection area featuring the same configuration as
the current facility. However, in his interview with post,
ADM's CEO Cherry himself raised the DHS pre-inspection security
concerns, saying that these concerns will factor into the
design of the new inspection facility planned for Phase 3.
According to him, the inspection areas will be located behind,
rather than in front of, security screening stations. However,
Phase 3 construction wouldn't be completed until 2007, if
construction began in 2005.


14. COMMENT: The ill-fated effort to develop Mirabel into
Montreal's airport of the future resulted in a serious decline
in the city's status as an air transportation center. The
current effort to expand Dorval and bring it up to modern
standards -- despite airline industry doldrums -- confirms its
status as Montreal's principal passenger airport for at least
the next 30 years. However, competition might arise from an
unexpected quarter. Not far across the border in Plattsburgh,
New York, a former U.S. military air base is being converted
into a commercial airport that Plattsburgh city leaders plan to
market as a gateway to Montreal in a few years. END COMMENT
ALLEN