Canadian pension funds transform London City Airport with major upgrades and innovative technology
London City Airport, located about 30 minutes by Tube from Canary Wharf, serves over 3.4 million passengers annually to destinations ranging from the French Alps to Ibiza, according to a special feature by Financial Post.
Unlike most North American airports, London City is majority-owned by Canadian pension plans, including the Ontario Teachers’ Pension Plan, Alberta Investment Management Corp. (AIMCo), and Ontario Municipal Employees Retirement System (OMERS).
These plans, alongside the Kuwait Investment Authority, acquired their stake for approximately two billion pounds in 2016.
According to the special feature, the airport has seen significant investment since the acquisition. Tens of millions of pounds have been spent on new aircraft berths, a parallel taxiway, and a major upgrade of the departure lounge, increasing capacity by 30 percent.
In 2021, London City replaced its aging air traffic control tower with a fully remote digital system, a first for a major international airport.
Additionally, the introduction of new scanning technology has cut passenger line-up times by 50 percent, with the airport claiming in April 2024 that it can move passengers from the entrance to the gate in just 10 minutes.
Despite some opposition from local residents and governments over expansion plans, London City Airport has earned praise, including being named the best airport in the United Kingdom by Conde Nast Traveller readers and the Daily Telegraph in 2022.
Canadian-born PR specialist Kate Miller, now living in London, noticed improvements at the airport, particularly the seamless security system, which allows travellers to keep liquids, laptops, and shoes on during checks.
Canadian pension funds have a history of investing in airports globally, including those in Sydney and Copenhagen. However, the unique not-for-profit ownership model in Canada has so far prevented similar investments domestically.
This may change, as a federal government working group led by former Bank of Canada governor Stephen Poloz is exploring pension fund investment opportunities in sectors like airports.
Airports are attractive investments for pension funds due to their steady revenue streams from fees and surrounding amenities. These investments help pension funds meet long-term obligations by providing inflation-linked returns.
Former Ontario Teachers’ Pension Plan CEO Jim Leech likened airport investments to “souped-up real return bonds,” which match pension liabilities indexed to inflation.
Under private ownership, airports can expand and develop new revenue streams more effectively than under government or not-for-profit management.
The Canada Pension Plan Investment Board (CPPIB) is interested in adding airports to its portfolio, seeing them as scarce, high-value assets. However, airport privatization has faced resistance globally, including concerns about overdevelopment, noise, higher fees, and job cuts.
Studies, however, show that private equity ownership of airports often leads to improved efficiency, higher passenger traffic, and increased profitability without compromising safety or employment levels.
In Canada, airport authorities have faced financial challenges due to the COVID-19 pandemic, which could make privatization more appealing.
The Canadian government, advised by Poloz, is considering various options for airport privatization, which would require legislative changes and consultations with stakeholders.
As the discussion progresses, privatization could become a key issue in the next federal election, particularly as Canada’s productivity lags behind other G7 nations. The outcome will depend on whether the government and Canadians are ready to embrace a shift toward privatized airport operations.
