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VICTORIA AIRPORT AUTHORITY

2000 ANNUAL REPORT

VICTORIA AIRPORT AUTHORITY THE 2000 BOARD OF DIRECTORS

Keith Jackman Chair

Alan Peterson Vice-Chair & Chair By-Law Committee

Greg Hellyer Board Secretary

Andy Little Chair

Airport Consultative Committee

Peter Lewis Chair

Audit & Finance Committee

Andrew MacGillivray Chair, Planning &

Development Committee Chair, Air Terminal Building

Expansion Committee

John Nicas Chair

Legal Committee

Stuart Soward

Susan Brice Des Easthom

Linda Petch

Robert McLaren

Graham Ross Bob Skene

TABLE OF CONTENTS Pages MESSAGE FROM THE CHAIR 1 MESSAGE FROM THE PRESIDENT/CEO 2 1. AIRPORT AUTHORITY REPORT

1.1 History of Annual Passenger Traffic 3 1.2 Business Plan Cash Flow Forecast – 2001 to 2005 3 1.3 The Board of Directors & Committee Participation 4 1.4 Board Governance Guidelines 5-6

2. 2000 RESULTS

2.1 Airline Service 7 2.2 Airport Safety 7-8 2.3 Customer Services Initiatives 8 2.4 Red Coat Volunteers 9 2.5 Terminal Building Project 9 2.6 Capital Initiatives 10 2.7 Environmental Protection 11 2.8 Master Plan 11

3. RELATIONSHIPS WITH KEY STAKEHOLDERS

3.1 Airlines 12 3.2 Municipalities 12 3.3 First Nations 12 3.4 Transport Canada 13

4. DIRECTORS AND MANAGEMENT COMPENSATION 14

5. FINANCIAL STATEMENTS

!"Management Responsibility for Financial Statements 15 !"Auditor's Report 16 !"Balance Sheet 17 !"Statement of Earnings & Equity in Assets 18 !"Statement of Cash Flows 19 !"Notes to Financial Statements 20-23

VICTORIA AIRPORT AUTHORITY 2000 ANNUAL REPORT

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MESSAGE FROM THE CHAIR

The commencement of the year 2001 brought about a significant change in the makeup of the Board of Directors with five of the original Board members completing their terms. Peter Lewis, a Federal Appointee, was Chair of the Audit and Finance Committee, Greg Hellyer, a Town of Sidney Appointee, was Board Secretary, Stuart Soward, the City of Victoria Appointee, was Chair of the Operations Committee, Andy Little, a Board Appointee,. was Board Vice-Chair and Chair of the Airport Consultative Committee. Andy passed away in October 2000. He is greatly missed. 2000 also marked my last year on the Board. From my perspective, I enjoyed the two terms I served as a nominee of the District of North Saanich. I thank the

current and past councils of North Saanich for the opportunity to be part of a great organization. In my role of Chair and other roles bestowed on me, I acknowledge the assistance I received from the Authority’s Management Team, as well as maintenance, fire department and administration employees. I would also like to thank the Airport’s many tenants, the officials of the Town of Sidney, members of the Board of Directors and a great many other people who made my experience so rewarding. By working together, one can look back at our achievements, such as the Accord that was entered into with the District of North Saanich and the Town of Sidney, the start of the construction of a new exciting Terminal Building, the improvements to the parking lots and runways, as well as the completion of the Airport Master Plan, to mention a few. There will be interesting challenges for the current and future Boards to address as the Authority moves through the years ahead. There is no doubt that the Airport plays an important role in the economic growth and prosperity of the Region. In my view, I see a bright future for the Airport and the community.

Thank you for the opportunity.

P. K. (Keith) Jackman

Board of Directors of 2000


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MESSAGE FROM THE PRESIDENT/CEO The High Technology and Tourism sectors are the foundation of Victoria’s economic future. Both these key industries need good air transportation. Our success in developing improved air service is founded on partnerships. Air Canada and Air Canada Regional are vitally important partners to the Victoria Airport Authority. They have successfully completed the most significant and difficult merger in Canadian aviation history. The merger was not undertaken without controversy or problems. I believe the ultimate conclusion for the industry as a whole is a strengthened and viable air transportation system that will offer real choice and value to travelers. The VAA is working with Tourism Victoria and Air Canada Regional in support of improved air access to our City. Air Canada’s non-stop flight to Toronto has been a great success, and we continue to encourage our partner, Air Canada, to establish new non-stop routes from Victoria. In 2000 we welcomed Pacific Coastal Airlines to Victoria, with their service to Vancouver International’s South Terminal and convenient connection to other International carriers. WestJet introduced service to Prince George and beyond to Calgary. Horizon Airlines increased frequency to their Seattle Hub, and Canada 3000 offered non-stop service to more sunspot destinations then ever before. Last year the VAA worked with the Town of Sidney and the District of North Saanich to conclude Agreements on Land Use and Development. These agreements, together with input from a broad range of stakeholders, were incorporated into our Master Plan which was approved by the VAA Board in December. New partnerships have also been established with airport tenants: Scott Plastics, Osler Systems and Eagle Hangars. VAA together with the Federal Government have taken initiatives to improve relationships with the Tseycum First Nation. Last year, our stakeholder partnerships resulted in continued environmental improvement. The Federal Government played a key role investing $650,000 to clean up the contaminated Fuel Depot, the War-Time Rifle Range, and sponsored major improvements to Ten Ten Creek. The Victoria Airport Authority and indeed the entire Airport is fortunate to have the strong leadership and commitment from a very capable Board of Directors dedicated to our Airport and our Community. Co-operation and respect are fundamental to the Labour Management Partnership at VAA, which is also key to our success. I take this opportunity to thank the staff of VAA for their dedication and professionalism. Richard Paquette


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1. VICTORIA AIRPORT AUTHORITY ORGANIZATION

1.1 History of Annual Passenger Traffic

1.2 Business Plan Cash Flow Forecast – 2001 to 2005

Thousands of

dollars 2001 2002 2003 2004 2005

Revenue $ 10,433.70 $ 11,070.00 $ 11,708.80 $ 12,396.60 $ 13,138.40

Expenses $ 6,274.00 $ 7,030.00 $ 7,240.90 $ 7,508.80 $ 7,734.10

Capital $ 14,715.50 $ 10,139.00 $ 4,607.00 $ 2,786.80 $ 8,343.60

History of Annual Passenger Traffic

0

250000

500000

750000

1000000

1250000

1500000

1977

1987

1989

1991

1993

1995

1997

1999

2001 Foreca


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1.3 2000 Board of Directors and Committee Participation

NOMINATOR NOMINEE COMMITTEE

District of North Saanich

Keith Jackman Board Chair Chair of the Steering Committee Member of the Audit & Finance Committee Member of the Airport Consultative Committee

Government of Canada

Alan Peterson Board Vice-Chair Chair of the By-Law Committee Member of the Steering Committee Member of the Legal Committee Member of the Airport Consultative Committee Member of the Planning & Development Committee Member of the Air Terminal Building Expansion Committee

Town of Sidney Greg Hellyer Board Secretary Member of the Steering Committee Member of the Audit & Finance Committee Member of the Airport Consultative Committee

Board Nominee Andy Little Chair of the Airport Consultative Committee Member of the Steering Committee Member of the Audit & Finance Committee

Government of Canada

Peter Lewis Chair of the Audit & Finance Committee Member of the Air Terminal Building Expansion Committee Member of the Steering Committee Member of the Airport Consultative Committee

Board Nominee Andrew MacGillivray Chair of the Planning & Development Committee Chair of the Air Terminal Building Expansion Committee Member of the Steering Committee Member of the Airport Consultative Committee

District of Saanich John A. Nicas Chair of the Legal Committee Member At Large of the Steering Committee Member of the Planning & Development Committee Member of the Air Terminal Building Expansion Committee Member of the Airport Consultative Committee Member of the By-Law Committee

City of Victoria Stuart Soward Member of the Audit & Finance Committee Member of the Air Terminal Building Expansion Committee

Capital Regional District

Susan Brice Member of the Planning & Development Committee

Town of Sidney Des Easthom Member of the Audit & Finance Committee District of Central Saanich

Robert McLaren Member of the Planning & Development Committee Member of the Air Terminal Building Expansion Committee

Board Nominee Linda Petch Member of the Planning & Development Committee Member At Large of the Airport Consultative Committee Member of the Legal Committee Member of the By-Law Committee

District of North Saanich

Graham Ross Member of the Planning & Development Committee Member of the Air Terminal Building Expansion Committee

Victoria Chamber of Commerce

Bob Skene Member of the Audit & Finance Committee Member of the Air Terminal Building Expansion Committee


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1.4 Board Governance Guidelines

The Board of Directors of the Victoria Airport Authority have established the following Corporate Governance Guidelines:

Corporate Governance

Guidelines Comments

1. The Board should explicitly assume responsibility for stewardship of the corporation including:

The Board oversees the management of the Authority’s business to ensure its purposes are realized.

a. A strategic planning process;

The Board has approved the Airport’s Master Plan.

b. Identification of principal risks;

The Authority has a number of systems in place to identify, manage and mitigate various risks.

c. Succession planning including appointing, training and monitoring senior management;

The Board appoints the President & CEO and maintains a succession plan. The Board monitors the CEO’s performance through a formal annual review.

d. Communications policy; and,

The Authority has a well-developed communications program.

e. Integrity of internal control and management information systems.

The Authority has a comprehensive management information and reporting system in place which includes monthly reporting to the Board on key financial and operational results.

2. A majority of Directors should be independent of management and free from any conflict of interest.

The Board is composed exclusively of non-management Directors. VAA has established a Directors and Officers Code of Conduct which requires the disclosure of any potential conflict of interest.

3. The Board should appoint a Committee responsible for the appointment and assessment of Directors.

The Authority has a Nominating Committee which meets with nominating entities to ensure that necessary disciplines are represented. The Board conducts annual self-evaluations.

4. The Board should provide orientation and education programs for new Directors.

Each new Director receives a comprehensive orientation on an on-going basis. The Board meets with industry leaders regularly.

5. The Board should examine its size and, where appropriate, undertake a program to reduce the number of Directors.

The Authority’s fourteen Directors have been appointed by eight appointing organizations. The Provincial Government has declined the opportunity to appoint a Director. The Board has the authority to appoint up to three Directors. The Board has concluded that a reduction in Board size will be pursued over the longer term providing that the necessary disciplines are represented and it continues to represent the best interests of the Authority and the community at large.


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1.4 Board Governance Guidelines (Continue):

Corporate Governance Guidelines Comments

6. The Board should review compensation of Directors in light of risks and responsibilities.

The Authority’s Steering Committee periodically reviews the remuneration of Directors to ensure they are appropriate.

7. Committees should generally be composed of outside Directors, a majority of whom are unrelated.

Board Committees are composed entirely of outside Directors who are all unrelated.

8. The Board should appoint a Committee responsible for corporate governance.

The Authority’s Steering Committee is responsible for Corporate Governance issues. This issue is regularly discussed by the Board as a whole.

9. The Board should define limits to management’s responsibilities by developing position descriptions for: i) the Board ii) Board Chair iii) the CEO

Role statements have been prepared for the Board, the Board Chair, and CEO. The CEO’s corporate objectives are approved by the Board on an annual basis.

10. The Board should establish structures and procedures to ensure the Board can function independently of management.

The Board has three Standing Committees which meet on a regular basis and are chaired by members of the Board. Each Committee Chair reports directly to the Board. The Board meets in-camera as required.

11. The Board should establish an Audit Committee composed only of outside Directors to communicate directly with external auditors and oversee management reporting and internal control

The Authority’s Audit and Finance Committee responsibilities include:

!" Corporate financial issues which affect the financial integrity of the Authority.

!" Review of financial management policies and issues including annual budgets, banking arrangements, accounting systems and procedures, fees and charges, significant changes to relevant legislation, insurance policies, statutory remittances, pension plan policies and performance and regular financial status reports.

!" Monitoring the external audit program and preparation of the annual financial statements.

!" Monitoring the Authority’s environmental management programs.

All Finance and Audit Committee members are outside Directors.


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Pacific Coastal Airlines Shorts 360

2. 2000 RESULTS

2.1 Airline Service

Airline service improved during 2000. In May, Pacific Coastal Airlines commenced service between Victoria and Vancouver’s south Terminal, with six daily departures using a 33 seat Shorts 360 aircraft. Canadian Airlines made a major commitment to Victoria through the introduction of their daily A320 non-stop service between Victoria and Toronto. This service continues with Air Canada. In the fall and winter, Canada 3000 Airlines added seasonal flights to Las Vegas, Honolulu, and Mexico.

The following is a summary of scheduled flights departing from Victoria International in the summer of 2000.

Carrier Daily

Departures Aircraft Destination airBC 15 Dash 8 Vancouver Airspeed Aviation 2 Cessna 414 Abbotsford Canadian Airlines 1 A320 Toronto Canadian Regional 12 Dash 8 Vancouver Horizon Air 8 Dash 8 Seattle Pacific Coastal 6 Shorts 360 Vancouver WestJet Airlines 1 B737 Calgary 1 B737 Edmonton 1 B737 Kelowna 1 B737 Prince George

2.2 Safety

Maintaining a safe environment for aircraft operations remains VAA’s highest priority. During 2000, the Authority received an excellent rating from Transport Canada’s Aerodrome Certification and Security Audit Inspection Teams.

Last year, our operational staff demonstrated their usual high level of commitment to airport safety in the management of the Airside Electrical Systems Project. This project was scheduled during both the day and night time to ensure our main instrument Runway remained operational. The completion of this complex project highlighted the solid working relationship that our Airside Operations Staff and NAV Canada’s Air Traffic Control staff enjoy here in Victoria.


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Commissionaire, Bob Fowler, assists passengers with their precious cargo

Firefighter at Mock Accident Scene

An integral part of airport safety is the training and testing of staff for emergency circumstances. VAA routinely conducts monthly Table Top Exercises to ensure that VAA, the Airlines and our many tenant employees are prepared for emergencies. At the Table Top a number of operational scenarios are developed and tested, including aircraft crashes, hijackings, bomb threats, earthquakes, and environmental disasters.

During 2000, VAA planned and conducted a Major Aircraft Crash on-Site Exercise. The Exercise included the simulation of an aircraft crash scene with injured passengers, fire hall, ambulance, police, and media response. Major exercises of this magnitude required commitment from a significant number of community support services and agencies. VAA wishes to thank the RCMP, BC Ambulance Services, the Coroners Office, B.C. Transit, DND, North Saanich, and Sidney Volunteer Fire Departments, the Provincial Emergency Measures Organization, NAV Canada, the local media and all the community volunteers for their assistance and co-operation in the conduct of this exercise.

2.3 Customer Service Initiatives

The Authority is always looking to provide a positive travelling experience to all our customers. The long term economy parking lot was expanded by 90 spaces this past summer. We also updated our web site with new features such as an interactive parking map, detailed tenant location maps, up-to-date weather information and web cam facilities.

In the food services area, VAA worked with Select Service Partners to improve the quality and delivery of the food service offerings in the Terminal. In addition to the food service upgrades the restaurant itself was totally renovated. The new and improved look of the restaurant area has become a welcoming place for our passengers and visitors.

The professional services of the Corps of Commissionaires continue to play an integral part in the travel experience at Victoria International. The 21 dedicated men and women of the Airport Detachment can be found directing vehicle traffic, assisting pass-engers, returning baggage carts, monitoring safety and security issues throughout the Airport, including the Terminal, Main Apron and our construction projects.


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2.4 Red Coat Volunteers

Every year we are pleased to recognize the efforts of our Red Coat volunteers, especially during this year, “The Year of the Volunteers”. These 22 men and women volunteer their time once a week assisting the travelling public and visitors to the Airport by answering questions, offering advice, and generally providing assistance wherever they can. Their know-ledge of the Airport and surrounding com-munities is invaluable to a newly arrived visitor. The Authority and all Airport tenants wish to recognize the dedication and commitment of all the volunteers in the Red Coat program.

2.5 Terminal Building Project

The year 2000 was a busy year for the Airport with the commencement of construction of the $21 million Air Terminal Building Expansion Project. This project is led by our project managers Durwest Construction Management, and architects Moore Paterson Ltd. Planning for the Air Terminal Building Expansion Project began in January and included the design of a 13,000 square-meter expansion of the Terminal Apron, a new Baggage Arrivals Area, and an extensive expansion to our Passenger Holdrooms. The engineering firms of Graeme and Murray, EBA Consulting, and Knappet Construction were engaged to plan, design and construct the Terminal Apron Expansion. Work on this Project began in July and was completed in November, on time and on budget. Construction of the new Baggage Arrivals area will provide a significant improve-ment in the baggage delivery systems and arrival space for our passengers and well wishers. Work on this area will be completed in July 2001.

The construction of a 1,000 square meter new Holdroom addition will include seating for 200 passengers and an airside café . A new covered walkway will also be included in this work. Construction of this Holdroom began in November and will be completed in July 2001.

OurDedicated

Volunteers

Terminal Building under Construction


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Pavement Restoration Project

2.6 Capital Initiatives

For the year 2000, the Victoria Airport Authority implemented 10 major capital projects and 26 minor capital projects with a cost totalling approximately $1,150,000. These projects are in addition to the Air Terminal Building Expansion Project. Listed below is a Project summary for 2000:

Projects Expenditures

!" Interlace Runway 09-27 Edge Lighting Circuits $ 287,000

!" New Stormwater Infrastructure in the North East Corner $ 229,000

!" Replace collapsed stormwater pipe and failing sanitary sewer pipe in the East Camp Area $ 67,500

!" Pavement Restoration at various locations including the north end of Apron 3 $ 82,000

!" New Runway Sweeper $ 170,000

!" New Vacuum Street Sweeper $ 105,000

!" Fire Truck Improvements $ 46,500

!" Replace the Rotating Beacon on the Control Tower $ 5,400

!" Airfield Signs for Taxiway Alpha & Bravo $ 16,800

!" Replace the Salt & Sand Spreader $ 7,800

!" Replace the Oil Furnaces in Maintenance Garage $ 20,200

!" Firehall Renovations $ 12,800

!" Replacement of the Accounting Server and related computers networking and software $ 35,400

!" Other minor capital items $ 64,100 TOTAL $1,149,400


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2.7 Environmental Protection

A key element in the operation and development of the Airport is the Authority’s strong commitment to environmental protection. Improvements in noise abatement, reductions in contaminate releases, the clean up of contaminated sites, the surveillance and monitoring of VAA’s projects and tenant developments, habitat protection and restoration initiatives are all at the forefront of the Authority’s Environmental Management Program.

The Authority has an Environmental Management Plan that ensures the Airport’s environmental policies, practices and operations are managed with the utmost attention to environmental protection. VAA has an active community-based Environmental Advisory Committee that meets quarterly to renew and assess the Authority’s environmental performance.

During 2000, Transport Canada Headquarter staff undertook an Environmental Audit of the VAA facilities, operations and environmental programs. The results of this Audit were extremely favourable for the Authority.

Many environmental accomplishments were made during 2000, with the help of the Federal Government. Some of those successes include the construction of an engineered wetland to

improve water quality entering Ten Ten Creek; the clean-up of the Airport’s decommission-ed Fuel Depot; the removal of lead con-taminated soil at the Airport’s wartime rifle range; the removal of asbestos at the Firehall; and, the development of Noise Exposure Cont-ours that reflect a sizable reduction of commercial jet noise levels in the community.

2.8 Master Plan

During 2000, the Authority completed a Master Plan which will guide the development of Victoria International Airport for the next 20 years.

The Master Plan was completed through a consultative process with significant input from all segments of the community and stakeholders at the Airport. The key elements of the Master Plan include a comprehensive assessment of the Airport’s Airfield System, Terminal Building Complex, Ground Transportation Network, Land Use Plan and Environmental Management Program.

Victoria Airport’s Garry Oak Meadow


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Chief Vern Jacks (centre), with VAA’s Archaeological Site Assessment Team

3. RELATIONSHIPS WITH KEY STAKEHOLDERS

3.1 Airlines

Victoria Airport Authority values its relationship with its airline partners. Their input and support is actively solicited, informally and formally through the Airline Operating Committee, Airline Consultative Committee, Airport Safety and Security Committee and the Airport Consultative Committee. Added to these structured committee meetings, the Authority meets regularly with individual carriers on Air Terminal Building development issues, as well as, regular meetings between senior airline executives and VAA's Board of Directors.

3.2 Municipalities

The Authority places a major emphasis on maintaining positive working relationships with the two municipalities in which the airport resides. To that end, the Authority works closely with the staff and Councils of North Saanich and the Town of Sidney on operational, planning, development and environmental issues that concern the community.

In 2000, the Authority successfully concluded agreements on “Land Use and Development” with both municipalities. The Airport Land Use Plan designates specific land use zones that include Aviation Services, Commercial, Industrial, Business Park, Runway System, Air Terminal Reserve and Environmental Protection.

3.3 First Nations

During 2000, the Authority worked closely with the Tseycum First Nation to promote mutual respect, to improve employment opportunities, and to plan the development of airport lands in a manner that recognizes and respects First Nations concerns. To that end, the Authority undertook five Archaeological Site Assessments on land that was targeted for development. The Archaeological Assessments were undertaken to ensure that potential artifacts and burial sites are protected. No historical ar-chaeological resources were found during these reviews.

In addition to the archaeological assessments, preliminary re-search was undertaken by the Authority for the design of a First Nation’s cultural display to be located in the expanded Terminal Building. Work continues on the display which will focus on the Tseycum cultural and traditional use of the Airport lands.

On the employment front, five Tseycum youth were employed through our Summer Works Program. As well, the Authority assisted the Tseycum Employment Resource Centre setting up interviews with many of the Airport’s employers to identify training needs and potential career opportunities.


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3.4 Transport Canada

Transport Canada is VAA's landlord and the regulator of all aviation activities in Canada. A positive relationship with Transport Canada is very important. VAA manages Victoria International Airport in strict compliance with the terms of our lease with the Federal Government. In addition, VAA complies with all of the various federal regulations pertaining to the safe operation of this Airport.

Victoria Airport Authority is a member of the Canadian Airports Council (CAC) which represents the collective interests of Canada's major airports and the communities in which they are located. Over the last year, VAA has presented its position on a number of issues of concern to the Federal Government either directly or through the CAC. These issues include: Airport Security Classification, the level of rent payable to the Federal Crown in Victoria vs. other comparable Canadian airports, aboriginal land claims, environmental clean-up, and proposed increased regulation of Canadian airports.

Tower Air’s 747 enroute to Honolulu


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4. DIRECTORS AND MANAGEMENT COMPENSATION

The annual remuneration for the Board during 2000 was as follows:

Chair $ 16,500

Vice Chair $ 10,000

Secretary $ 10,000

Standing Committee Chairs $ 10,000

Remaining Directors $ 7,000

Compensation during 2000 for each Director was as follows:

Susan Brice

$ 7,000

Des Easthom

$ 7,000

Greg Hellyer

$ 10,000

Keith Jackman

$ 16,500

Peter Lewis

$ 10,000

Andrew Little

$ 8,333

Andrew MacGillivray

$ 10,000

Robert McLaren

$ 7,000

John Nicas

$ 7,000

Linda Petch

$ 7,000

Alan Peterson

$ 10,000

Graham Ross

$ 7,000

Bob Skene

$ 7,000

Stuart Soward $ 7,000

The remuneration for the position of President/Chief Executive Officer in 1999 was $104,787


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5. FINANCIAL STATEMENTS MANAGEMENT RESPONSIBILITY FOR FINANCIAL STATEMENTS The accompanying financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles. The most significant of these are set out in Note 1 to the statements. The Authority’s accounting procedures and related systems of internal control are designed to provide reasonable assurance that its assets are safeguarded and its financial records are reliable. These financial statements include some amounts based upon management’s best estimates and judgements. Recognizing that the Authority is responsible for both the integrity and objectivity of the financial statements, management is satisfied that these financial statements have been prepared within reasonable limits of materiality. The Board of Directors has appointed an Audit and Finance Committee consisting of seven Board Directors. The committee meets periodically during the year to review with management and the auditors any significant accounting, internal control, and auditing matters. They also review and finalize the annual financial statements of the Authority together with the independent auditor’s report before their submission to the Board of Directors for final approval. The financial information throughout the text of the annual report is consistent with the information presented in the financial statements. On behalf of the Authority:

Richard Paquette President and Chief Executive Officer


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. KPMG LLP Chartered Accountants St. Andrew’s Square II Telephone (250) 480-3500 800 – 730 View Street Telefax (250) 480-3539 Victoria BC V8W 3Y7 www.kpmg.ca

AUDITORS’ REPORT TO THE MEMBERS OF THE

VICTORIA AIRPORT AUTHORITY We have audited the balance sheet of the Victoria Airport Authority as at December 31, 2000 and the statements of earnings and equity in assets and cash flows for the year then ended. These financial statements are the responsibility of the Authority’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these financial statements present fairly, in all material respects, the financial position of the Authority as at December 31, 2000 and the results of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles. In accordance with the Canada Corporations Act, we report that, in our opinion, these principles have been applied on a basis consistent with that of the preceding year.

Chartered Accountants Victoria, Canada February 8, 2001


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BALANCE SHEET December 31, 2000, with comparative figures for 1999 2000 1999 ASSETS Current assets:

Cash $ - $ 995,729 Accounts receivable 1,319,007 829,428 Inventory 173,605 165,322 Prepaid expenses 173,423 62,089

1,666,035 2,052,568 Capital assets (Note 3) 9,272,469 3,657,379 $10,938,504 $5,709,947 Liabilities and Equity in Assets Current liabilities:

Bank indebtedness (Note 4) $ 915,644 $ - Accounts payable and accrued liabilities 1,921,202 692,592

Deferred revenue 125,342 128,023 2,962,188 820,615 Tenants’ security deposits held 16,200 16,200 Retirement allowance liability (Note 5) 301,890 266,890 Long-term debt (Note 6) - 375,775 Long-term deferred revenue 88,894 116,032 3,369,172 1,595,512 Equity in assets 7,569,332 4,114,435 Commitments (Note 7) Contingent pension liability (Note 8)

$10,938,504 $5,709,947


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Statement of Earnings and Equity in Assets December 31, 2000, with comparative figures for 1999

2000 1999 Revenue Landing fees $ 1,585,768 $ 1,549,618

General terminal charges 1,641,482 1,552,225 Concessions 3,106,726 3,188,492 Rentals 1,114,254 1,031,547 Others 235,987 255,942

7,684,217 7,577,824 Expenses

Salaries and employee benefits 2,338,971 2,233,904 Services supplies and administration 1,947,371 1,946,617 Transport Canada lease (Note 7(a)) 1,032,002 1,015,350 Property taxes 605,178 576,122 Amortization 443,956 391,300 Utilities 251,564 228,729

6,619,042 6,392,022 Earnings from operations 1,065,175 1,185,802 Airport Improvement Fee (Note 9) 2,389,722 479,386 Net earnings 3,454,897 1,665,188 Equity in assets, beginning of year 4,114,435 2,449,247 Equity in assets, end of year $ 7,569,332 $ 4,114,435

See accompanying notes to financial statements.


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Statement of Cash Flows Year ended December 31, 2000, with comparative figures for 1999 2000 1999 Cash provided by (used in): Operations:

Net earnings $ 3,454,897 $ 1,665,188 Amortization, which does not involve cash 443,956 391,300 Changes in non-cash operating working capital:

Accounts receivable (489,579) 1,140,890 Consumable inventory (8,283) (7,334) Prepaid expenses (111,332) 53,865 Accounts payable and accrued liabilities 1,228,609 (761,812) Deferred revenue (29,819) (33,954)

4,488,449 2,448,143 Investing:

Capital expenditures (6,059,047) (696,293) Financing:

Repayment of long-term debt (373,775) (380,139) Increase in retirement allowance liability 35,000 35,000 Decrease in tenants’ security deposits held - (92,600)

(340,775) (437,739) Increase (decrease) in cash position (1,911,373) 1,314,111

Cash position, beginning of year 995,729 (318,383)

Cash position, end of year $ (915,644) $ 995,728 Cash position is defined as cash less bank indebtedness. Supplementary disclosure of cash flow information:

Cash paid during the year for interest $ 70,441 $ - Cash received during the year for interest 70,360 47,205

See accompanying notes to financial statements.


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Notes to Financial Statements Year ended December 31, 2000 1. Nature of operations: The Victoria Airport Authority (the "VAA") is incorporated under Part II of the Canada Corporations

Act as a non-share capital, not-for-profit corporation and all earnings from operations are reinvested in airport development. The VAA has operated the Victoria International Airport since April 1, 1997 under a lease from the Government of Canada (the "Canada Lease"). The Canada Lease has an initial term of sixty years with an option to extend the term for a further twenty years.

2. Significant accounting policies:

(a) Basis of accounting:

The financial statements of the VAA are prepared in accordance with accounting principles generally accepted in Canada.

(b) Consumable inventory:

The inventory of consumable supplies is recorded at the lower of cost, determined on a first-in first-out basis, and estimated net realizable value.

(c) Canada Lease:

The Canada Lease (see note 1) is accounted for as an operating lease.

(d) Capital Assets

Capital assets are recorded at cost less accumulated amortization. Amortization is provided using the straight-line method at the following rates:

Asset Rate

Leaseholds 1.66% - 33% Office furniture and equipment 20% Computer hardware and software 33% Vehicles 5% - 50% Other equipment 10% - 20%

Capital work-in-progress is not amortized until the project is substantially complete.


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Notes to Financial Statements Year ended December 31, 2000 2. Significant accounting policies (continued):

(e) Revenue recognition:

Revenues are recorded when the services are performed, the facilities are utilized or the amounts are earned pursuant to the related agreements. Airport Improvement Fee revenue (Note 9) is recognized when passengers depart the terminal building.

(f) Use of estimates:

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from these estimates.

2. Capital assets 2000 1999 Accumulated Net book Net book Cost Amortization Value Value

Leasehold improvements $ 3,631,355 $ 253,994 $ 3,377,361 $ 2,103,496 Office furniture and equipment 56,419 29,394 27,025 30,617 Computer hardware 221,437 166,202 55,235 87,122 Computer software 176,298 154,969 21,329 60,061 Vehicles 1,537,693 570,560 967,133 783,980 Other equipment 371,690 161,005 210,685 233,212 Capital work in progress 4,613,701 - 4,613,701 358,891

$ 10,608,593 $ 1,336,124 $ 9,272,469 $ 3,657,379 4. Bank indebtedness: The VAA has a $2,000,000 operating line of credit incurring interest at the prime lending rate. The

operating line of credit is secured by a demand collateral first mortgage of the VAA's leasehold interest and assignment of rents for an unlimited amount. At December 31, 2000, the operating line of credit was temporarily used to fund capital expenditures for the airport terminal building (ATB) expansion project.

Cash in operating account $ 810,096 Funds borrowed for ATB project (1,725,740)

Net bank indebtedness $ (915,644)


22

Notes to Financial Statements Year ended December 31, 2000

5. Retirement allowance liability:

Under the terms of the transfer agreement with Transport Canada, the VAA assumed the Government of Canada's obligation to pay its former employees compensation upon retirement or termination in accordance with the collective agreements. The VAA received from the Government of Canada an amount equivalent to the actuarially adjusted liability. The VAA has recorded additional liabilities in accordance with the agreements.

6. Long-term debt: Under the terms of the transfer agreement with Transport Canada, the VAA purchased certain capital

assets and inventories from the Government of Canada. This purchase was financed by an interest-free loan of $1,520,554 repayable in installments for the years 1998 and 2001 inclusive. The principal due on January 1, 2001 was repaid in December 2000.

7. Commitments: (a) Transport Canada lease:

The VAA pays lease payments to Transport Canada which are calculated under a formula which includes annual airport revenue, passenger volumes and operating costs. The maximum annual lease payment obligation is $1,015,300 for each of the next five years subject to a Consumer Price Index Adjustment.

(b) Airport Terminal Building Expansion:

The VAA has embarked on an airport terminal building expansion project with a budgeted cost of $20,981,000. As of December 31, 2000, contracts issued totaled $11,158,618. It is anticipated that the remaining contracts amounting to $9,822,382 will be issued in 2001.

(c) Financing of Airport Terminal Building Expansion:

The project will be funded by an Airport Improvement Fee and a loan of up to $20,000,000 provided by the Canadian Imperial Bank of Commerce secured by way of a mortgage of the VAA's leasehold interest and assignment of the Airport Improvement Fee (Note 9).

(d) Hedge Contracts:

The VAA has entered into an interest rate protection agreement that hedges a total of $12 million in borrowing under the terms of the Credit Facility Agreement with the CIBC. An interest rate swap agreement fixes the rate on $5 million of floating rate loans at 6.28% for 8 years commencing January 2, 2001. An interest rate collar sets an interest rate between 5.98% and 6.80%, on $7 million of floating rate loans for 5 years commencing January 2, 2002.


23

Notes to Financial Statements Year ended December 31, 2000 8. Contingent pension liability:

The VAA and its employees contribute to the Municipal Pension Plan in accordance with the Pension (Municipal) Act of British Columbia. The Superannuation Commission of the Province of British Columbia administers the plan, including the payment of pension benefits. The plan currently has more than 100,000 active contributors. Every three years an actuarial valuation is performed to assess the financial position of the plan and the adequacy of plan funding. The latest published valuation was at December 31, 1997 and disclosed a $548 million unfunded actuarial liability (UAL) for funding purposes ($1.31 billion as at the previous valuation). This represented an improved financial position, with a decrease in the UAL as a percentage of covered payroll from approximately 36% to 14%. Plan legislation provides that the unfunded liability will not cause increases in the employment group statutory contribution rates, upon which employer specific rates are based as long as the financial health of the pension plan improves from one valuation to the next. The actuary does not attribute portions of the UAL to individual employers. Contributions to the plan by the VAA are expensed in the year when payments are made.

9. Airport Improvement Fee ("AIF"): On May 31, 1999 the VAA entered into an agreement with the Air Transport Association of Canada

and major air carriers serving the Victoria International Airport (the "AIF Agreement"). The AIF Agreement provides for a consultation process with the air carriers on airport development as well as the collection of an AIF by air carriers. AIF revenues can only be used to pay for airport passenger service facilities development and related financing costs. Effective October 1, 1999, the VAA introduced an AIF in the amount of $5 per local boarded passenger. 2000 1999 AIF revenue $ 2,389,722 $ 479,386 Eligible capital expenses (4,897,913) (148,101) Net surplus (deficit) $ (2,508,191) $ 331,285

10. Income and B.C. Capital taxes: The VAA income generated form airport-related operations is exempt from federal and provincial

income taxes. However, the VAA is required to pay the B.C. Capital Tax. 11. Related party transactions: During the year ended December 31, 2000, the fees paid to the Board of the VAA for their services as directors

amounted to $120,833 (1999 - $119,011).

VAA SUPPLIERS

Alan G. Clark Durwest Construction Management Philpott Machine Works Acklands – Grainger Earth Tech-Reid Crowther Posscan Systems

Acme Suppliers EECOL Electric P&R Western Star Trucks Action Door Service Emerson Highway Consulting Praxair

Action Pacific Investigative F.A.S. Fuels Pacific Coast Credit Union Agrico Sales FEDEX .The Print & Copy Place

Air Gas Canada G & E Equipment Rentals Plus Computer Solutions Air Liquide Canada GCL Energy Electrical Contractor Profire Emergency Equipment

Albrite Lighting Gateway Landscaping Supplies Radio Works Andec Agencies GMK Transportation Planning Ramsay Machine Works

Aon Reed Stenhouse Genisis Lamp Reboot Consulting Corporation Aqua Water Services Grand & Toys Robert Freundlich & Associates Auto Marine Electric Heritage Office Furnishings Saanich Peninsula Gravel Mart

B & T Line Equipment Testers Hirschfield Williams Consultants Select Service Partners Bastion Heritage Groups Houston Sign Spitfire Grill

BCAA Travel Agency Insurance Corporation of B.C. Shamrock Metal BC Hydro & Power Authority Intertrek Testing Services NA Shanahan’s

Beacon Auto Parts Interstate Batteries Sidney Flooring Blohm, Peterson, Vollan, Galloway Island Asphalt Company Sidney Tire

Brewis Electric Company Island Blue Print Co Siemens Canada Buckerfields Island Internet Skyline Surveys

C-1 Contractors Island Pipeline Inspections Slegg Lumber CAMAAC Systems Island Saw Supreme Building Maintenance

Canadian Waste Services J. Grieve Motors T & C Cabinets Canada Post Corporation Janitor’s Warehouse Telus

Cavedendish Analytical Lab Jordans Carpets Temperature Control Systems CIBC Kleen Island Spill Supplies Thomcat Equipment

CIBC VISA Centre Knappett Construction Times Colonist Coast Powerline L&C Canada Coastal Aviation Tradewind Scientific

Coast Tractor & Equipment Lalani’s Appliance Centre Tran Sign (1999) Columbia Fire and Safety The Lock Doctor UMA Engineering

The Corps of Commissionaires Mary's Bleue Moon Café VP Systems CompuSmart Metro Lexus Toyota - Victoria Van Isle Industries

Cooper Crouse-Hinds Milou Holdings Victoria Mobile Radio Crease Rentals Minister of National Defence Westburne Industries

Crocker Equipment National Car Rental Western Association For Community Living

DHL International Express MVP Crest & Trophy Products Western Canada Fire Protections Dan Foss Couriers Maritime Life Insurance Western Oil Services

Dave Turner Plumbing & Heating Men in White Painting Western Supplies Delcan Corporation Montgomery-Kone Elevator Wholesale Fire & Rescue

Dell Computer Corporation Moore Platerson Architects Wilson & Proctor Dish-Link Communications Old Country Equipment Works World Sidney

Dover Elevators Corporation Omega Agencies

Ken Keck and Anita Kardos at VAA Equipment Rodeo

THE VAA TEAM

Name

Position

Tom Bilodeau Firehall Special Projects Officer John Birchall Manager, Airside Operations Mike Booton Manager,

Project Development and Technical Data Centre

Marc Bourassa Firefighter Dave Bremner Firefighter Paul Connolly Administrative Assistant

Scott Cunningham Electrical Supervisor Trudy Dafoe Finance Assistant

Larry Donaldson Crew Chief Steve Donaldson Firefighter

Bob Guido Equipment Operator Cliff Howlett Mechanic

Dan Jack Firefighter Margi Johnson Revenue Administrator

Sharon Johnston Lease Management Officer Anita Kardos Airport Marketing

& Development Officer

Ken Keck Field Supervisor Stacey Lee Firefighter Lana Martin Maintenance

Administration Assistant

Bruce McRae Duty Officer Len Morris Carpenter Handyman

Bob Nalleweg Electrician Richard Paquette President and CEO

Ralf Peper Data Technician Jeff Peters Senior Mechanic

Danita Radford Manager, Finance and Human Resources

Rick Robertson Crew Chief Stan Sam Equipment Operator

Dave Savage Firefighter Mike Smith Technical Support Officer Scott Snow Crew Chief

Terry Stewart Manager, Planning, Environment and Community Relations

Ian West Manager, Terminal and Commercial Operations

Gary Wilson Firefighter, trainee Lorraine Wilson Human Resources Administrator

Jim Wood Firefighter

CORPORATE OFFICE The Corporate Offices are located at: Victoria International Airport 201- 1640 Electra Boulevard Sidney BC V8L 5V4 250-953-7500 (telephone) 250-953-7509 (fax) Web site – www.victoriaairport.com Auditors: KPMG Victoria Bankers: CIBC Legal Firm: Cox, Taylor Barristers Photographs by: Bill Cann, Corps of Commissionaires

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