(Unaudited)
For the Three and Nine Months Ended December 31, 2024
(In thousands of Canadian dollars)
Management’s Narrative Discussion outlines the significant activities and initiatives, risks and financial results of the Canadian Air Transport Security Authority (CATSA) for the three and nine months ended December 31, 2024. This Narrative Discussion should be read in conjunction with CATSA’s unaudited condensed interim financial statements for the three and nine months ended December 31, 2024, which have been prepared in accordance with Section 131.1 of the Financial Administration Act (FAA) and International Accounting Standard 34 Interim Financial Reporting (IAS 34). This Narrative Discussion should also be read in conjunction with CATSA’s 2024 Annual Report, the Quarterly Financial Report for the three months ended June 30, 2024, and the Quarterly Financial Report for the three and six months ended September 30, 2024. The information in this report is expressed in thousands of Canadian dollars and is current to February 25, 2025, unless otherwise stated.
Forward-looking statements
Readers are cautioned that this report includes certain forward-looking information and statements. These forward-looking statements contain information that is generally stated to be anticipated, expected or projected by CATSA. They involve known and unknown risks, uncertainties and other factors which may cause the actual results and performance of the organization to be materially different from any future results and performance expressed or implied by such forward-looking information.
Materiality
In assessing what information is to be provided in this report, management applies the materiality principle as guidance for disclosure. Management considers information material if it is probable that its omission or misstatement, judged in the surrounding circumstances, would influence the economic decisions of CATSA’s partners.
Corporate Overview
Established on April 1, 2002, CATSA is an agent Crown corporation and is accountable to Parliament through the Minister of Transport. CATSA’s mission is to protect the travelling public by providing the highest level of aviation security screening.
CATSA delivers the mandate of security screening at 89 designated airports across the country through a third-party screening contractor model. Playing a pivotal role in Canada’s aviation system, CATSA is responsible for the delivery of the following four mandated activities:
- Pre-board Screening (PBS): The screening of all passengers, their carry-on baggage and their belongings prior to their entry to the secure area of an air terminal building.
- Hold Baggage Screening (HBS): The screening of all passengers’ checked (“hold”) baggage for prohibited items such as explosives, prior to being loaded onto an aircraft.
- Non-passenger Screening (NPS): The screening of non-passengers such as flight personnel, ground crew and service providers, and their belongings (including vehicles and their contents) entering restricted areas at the highest-risk airports.
- Restricted Area Identity Card (RAIC): The management of the system that uses iris and fingerprint biometric identifiers to allow authorized non-passengers access to the restricted areas of airports. The final authority that determines access to the restricted areas of an airport is the airport authority.
In addition to its mandated activities, CATSA has an agreement with Transport Canada (TC) to screen cargo at small airports where capacity exists. This program was designed to screen limited amounts of cargo during off-peak periods and involves using existing resources, technology and procedures.
CATSA has previously provided screening services on a cost recovery basis to certain airports. There are currently no such arrangements in place.
Operating Environment
Budget 2023 included incremental funding of $1,746 million (net) over three years to continue to protect the public by securing critical elements of the air transportation system. This funding supports implementing changes to the non-passenger screening program, supports the delivery of target wait time service level in 2024/25 and 2025/26, and allows CATSA to plan for the longer-term. With this three-year incremental funding coming to an end after 2025/26, CATSA will again seek sustainable long-term funding to deliver its essential security mandate and strategic objectives.
Budget 2023 also announced initiatives aimed at reducing government spending. CATSA has identified reductions in professional services and travel budgets, as well as overall operating expenses. CATSA is implementing these reductions, while recognizing the nature of the organization’s air travel security screening service mandate.
Statistics from CATSA’s Boarding Pass Security System, and other data sources, indicate that screened traffic across Canada increased from approximately 15.9 million passengers for the three months ended December 31, 2023, to 16.8 million passengers for the three months ended December 31, 2024. CATSA works closely with its screening contractors, TC and external partners to support the aviation industry.
Airport Screening Services Contracts
Effective April 1, 2024, CATSA began new airport screening services contracts with its Screening Contractors. The term of the new contracts is from April 1, 2024 to March 31, 2029, and they are renewable for two additional five-year periods at CATSA’s discretion. CATSA’s Screening Contractors are responsible for delivering screening services at designated airports across Canada under these contracts.
Risks and Uncertainties
CATSA maintains effective corporate risk management to ensure that risks are identified, assessed and managed appropriately. A full assessment of CATSA’s corporate risks, potential impacts and risk mitigations is disclosed in CATSA’s 2024 Annual Report.
During the three months ended December 31, 2024, CATSA’s risk relating to its dependence on outsourced screening services, equipment maintenance or major suppliers was identified as trending lower due to the completion of the transitions to the new airport screening services contracts and CATSA’s main equipment maintenance service provider.
There have been no other significant changes to the corporate risk profile.
Analysis of Financial Results
Condensed Interim Statement of Comprehensive Income (Loss)
The following section provides information on key variances within the Condensed Interim Statement of Comprehensive Income (Loss) for the three and nine months ended December 31, 2024, and December 31, 2023.
Key Financial Highlights - Condensed Interim Statement of Comprehensive Income (Loss)
| (Thousands of Canadian dollars) | Three months ended December 31 | Nine months ended December 31 | ||||||
|---|---|---|---|---|---|---|---|---|
| (Unaudited) | 2024 | 2023 | $ Change | % Change | 2024 | 2023 | $ Change | % Change |
| Expenses1 | ||||||||
| Screening services and other related costs | $ 213,546 | $ 196,089 | $ 17,457 | 8.9% | $ 623,828 | $ 583,235 | $ 40,593 | 7.0% |
| Equipment operating and maintenance | 12,103 | 12,097 | 6 | 0.0% | 38,761 | 36,243 | 2,518 | 6.9% |
| Program support and corporate services | 28,023 | 25,718 | 2,305 | 9.0% | 80,067 | 72,889 | 7,178 | 9.8% |
| Depreciation and amortization | 13,094 | 11,266 | 1,828 | 16.2% | 37,259 | 33,730 | 3,529 | 10.5% |
| Total expenses | 266,766 | 245,170 | 21,596 | 8.8% | 779,915 | 726,097 | 53,818 | 7.4% |
| Other expenses (income) | (756) | 840 | (1,596) | (190.0%) | (501) | 992 | (1,493) | (150.5%) |
| Financial performance before revenue and government funding | 266,010 | 246,010 | 20,000 | 8.1% | 779,414 | 727,089 | 52,325 | 7.2% |
| Revenue | 721 | 772 | (51) | (6.6%) | 2,607 | 2,269 | 338 | 14.9% |
| Government funding | ||||||||
| Parliamentary appropriations for operating expenses | 250,639 | 232,364 | 18,275 | 7.9% | 733,369 | 686,087 | 47,282 | 6.9% |
| Amortization of deferred government funding related to capital expenditures | 12,746 | 10,663 | 2,083 | 19.5% | 35,515 | 31,610 | 3,905 | 12.4% |
| Parliamentary appropriations for lease payments | 804 | 401 | 403 | 100.5% | 2,382 | 1,462 | 920 | 62.9% |
| Total government funding | 264,189 | 243,428 | 20,761 | 8.5% | 771,266 | 719,159 | 52,107 | 7.2% |
| Financial performance | $ (1,100) | $ (1,810) | $ 710 | 39.2% | $ (5,541) | $ (5,661) | $ 120 | 2.1% |
| Other comprehensive income (loss) | 5,799 | (20,021) | 25,820 | 129.0% | 9,710 | (10,678) | 20,388 | 190.9% |
| Total comprehensive income (loss) | $ 4,699 | $ (21,831) | $ 26,530 | 121.5% | $ 4,169 | $ (16,339) | $ 20,508 | 125.5% |
1 The Condensed Interim Statement of Comprehensive Income (Loss) presents operating expenses by program activity, whereas operating expenses above are presented by major expense type, as disclosed in note 12 of the unaudited condensed interim financial statements for the three and nine months ended December 31, 2024.
Screening Services and Other Related Costs
Screening services and other related costs increased by $17,457 (8.9%) and by $40,593 (7.0%) for the three and nine months ended December 31, 2024, respectively, compared to the same periods in 2023. The increases are mainly attributable to increased passenger volumes, and higher staffing to improve passenger wait times, which resulted in the purchase of additional screening hours totaling $11,035 and $30,307, respectively. The higher staffing has positioned CATSA to achieve its 2024/25 objective of improved passenger wait times, improved passenger facilitation, and changes to the non-passenger screening program. The increases are also attributable to billing rate increases of $5,278 and $11,062, respectively, under CATSA’s new airport screening services contracts.
Equipment Operating and Maintenance
Equipment operating and maintenance increased by $2,518 (6.9%) for the nine months ended December 31, 2024, compared to the same period in 2023. The increase is mainly attributable to costs associated with CATSA’s transition to a new maintenance service provider and other equipment related spending.
Program Support and Corporate Services
Program support and corporate services increased by $2,305 (9.0%) and by $7,178 (9.8%) for the three and nine months ended December 31, 2024, respectively, compared to the same periods in 2023. The increases are primarily attributable to higher employee-related costs, which includes an increase in the organization’s workforce.
Depreciation and Amortization
Depreciation and amortization increased by $1,828 (16.2%) and by $3,529 (10.5%) for the three and nine months ended December 31, 2024, respectively, compared to the same periods in 2023. The increases are primarily attributable to new equipment deployments and the change in estimated useful lives of some of CATSA’s screening equipment. The increases are partially offset by equipment becoming fully depreciated or being retired.
Other Expenses (Income)
Other expenses (income) decreased by $1,596 (190.0%) and by $1,493 (150.5%) for the three and nine months ended December 31, 2024, respectively, compared to the same periods in 2023. The change is primarily due to net gains on the fair value of derivative financial instruments partially offset by net foreign exchange losses.
Government Funding
The Government of Canada collects the Air Travellers Security Charge and funds CATSA through appropriations from the federal Consolidated Revenue Fund for operating expenses and capital expenditures. Payments for CATSA’s leases that are capitalized under IFRS 16 are funded through capital appropriations.
Parliamentary appropriations for operating expenses
Parliamentary appropriations for operating expenses increased by $18,275 (7.9%) and by $47,282 (6.9%) for the three and nine months ended December 31, 2024, respectively, compared to the same periods in 2023. The increases are primarily attributable to increased spending for screening services and other related costs, as discussed above.
Amortization of deferred government funding related to capital expenditures
Amortization of deferred government funding related to capital expenditures increased by $2,083 (19.5%) and by $3,905 (12.4%) for the three and nine months ended December 31, 2024, respectively, compared to the same periods in 2023. The increases are primarily attributable to higher depreciation and amortization expenses, as discussed above.
Parliamentary appropriations for lease payments
CATSA’s lease payments are typically made in the same month the appropriations are received, therefore there is no deferred funding associated with these appropriations.
Other Comprehensive Income (Loss)
Other comprehensive income (loss) is comprised of quarterly non-cash remeasurements resulting from changes in actuarial assumptions and the return on pension plan assets.
Other comprehensive income of $5,799 for the three months ended December 31, 2024, was primarily attributable to a remeasurement gain of $4,626 on the defined benefit liability arising from a 10 basis point increase in the discount rate between September 30, 2024, and December 31, 2024. It was also attributable to a remeasurement gain of $1,173 resulting from a higher actual rate of return on plan assets than the rate used in CATSA's assumptions. Other comprehensive loss of $20,021 for the three months ended December 31, 2023, was attributable to a remeasurement loss of $40,771 on the defined benefit liability arising from a 100 basis point decrease in the discount rate between September 30, 2023, and December 31, 2023. This was offset by a remeasurement gain of $20,750 resulting from a higher actual rate of return on plan assets than the rate used in CATSA's assumptions.
Other comprehensive income of $9,710 for the nine months ended December 31, 2024, was attributable to a remeasurement gain of $13,815 resulting from a higher actual rate of return on plan assets than the rate used in CATSA's assumptions. This was partially offset by a remeasurement loss of $4,105 on the defined benefit liability arising from a 10 basis point decrease in the discount rate between March 31, 2024, and December 31, 2024. Other comprehensive loss of $10,678 for the nine months ended December 31, 2023, was attributable to a remeasurement loss of $13,472 on the defined benefit liability arising from a 30 basis point decrease in the discount rate between March 31, 2023, and December 31, 2023. This was offset by a remeasurement gain of $2,794 resulting from a higher actual rate of return on plan assets than the rate used in CATSA's assumptions.
For more information, refer to note 8 of the unaudited condensed interim financial statements.
Condensed Interim Statement of Financial Position
The following section provides information on key variances within the Condensed Interim Statement of Financial Position as at December 31, 2024, compared to March 31, 2024.
Key Financial Highlights - Condensed Interim Statement of Financial Position
| (Thousands of Canadian dollars) (Unaudited) |
December 31, 2023 | March 31, 2023 | $ Change | % Change |
|---|---|---|---|---|
| Current assets | $ 306,431 | $ 162,959 | $ 143,472 | 88.0% |
| Non-current assets | 453,100 | 444,033 | 9,067 | 2.0% |
| Total assets | $ 759,531 | $ 606,992 | $ 152,539 | 25.1% |
| Current liabilities | $ 313,342 | $ 165,795 | $ 147,547 | 89.0% |
| Non-current liabilities | 405,119 | 404,296 | 823 | 0.2% |
| Total liabilities | $ 718,461 | $ 570,091 | $ 143,370 | 26.0% |
Assets
Current assets increased by $143,472 (88.0%) primarily due to the following:
- Increase in trade and other receivables of $153,184 due to an increase in parliamentary appropriations receivable, partially offset by a decrease in recoverable sales taxes;
- Decrease in cash of $6,624 mainly due to the timing of disbursements to suppliers for goods and services; and
- Decrease in prepaids of $4,002 due to the impact of amortization, less additions.
Non-current assets increased by $9,067 (2.0%) primarily due to the following:
- Increase in employee benefits of $9,240 primarily relating to CATSA’s registered pension plan.
Liabilities
Current liabilities increased by $147,547 (89.0%) primarily due to the following:
- Increase in trade and other payables of $151,414 due to the timing of disbursements associated with obligations outstanding with suppliers; and
- Decrease in deferred government funding related to operating expenditures of $3,944 mainly attributable to a reduction in prepaids, as discussed above.
Non-current liabilities increased by $823 (0.2%) primarily due to the following:
- Increase in employee benefits liability of $1,227 relating to CATSA’s other defined benefits plan.
Financial Performance Against Corporate Plan
CATSA’s operations are funded by parliamentary appropriations from the Government of Canada, as reflected in CATSA’s Summary of the 2024/25 to 2028/29 Corporate Plan.
Parliamentary Appropriations Used
Appropriations used are reported on a near-cash accrual basis of accounting.
Operating Expenditures
The table below serves to reconcile financial performance reported under International Financial Reporting Standards (IFRS) and operating appropriations used.
Reconciliation of Financial Performance to Operating Appropriations Used
| (Thousands of Canadian dollars) (Unaudited) |
Three months ended December 31 | Nine months ended December 31 | ||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Financial performance before revenue and government funding | $ 266,010 | $ 246,010 | $ 779,414 | $ 727,089 |
| Revenue | (721) | (772) | (2,607) | (2,269) |
| Financial performance before government funding | 265,289 | 245,238 | 776,807 | 724,820 |
| Non-cash items | ||||
| Depreciation and amortization | (13,094) | (11,266) | (37,259) | (33,730) |
| Employee cost accruals 1 | (1,462) | (1,026) | (4,742) | (3,779) |
| Employee benefits expense2 | (684) | 281 | (1,697) | (283) |
| Spare parts expense funded from capital | (360) | - | (360) | - |
| Non-cash finance costs related to leases | (166) | (174) | (510) | (332) |
| Non-cash (loss) gain on foreign exchange recognized in financial performance | (29) | 36 | (47) | 124 |
| Change in fair value of financial instruments at fair value through profit and loss | 1,145 | (663) | 1,177 | (651) |
| Write-off of property and equipment and intangible assets | - | - | - | (17) |
| Loss on disposal of property and equipment | - | (62) | - | (65) |
| Appropriations used for operating expenses | $ 250,639 | $ 232,364 | $ 733,369 | $ 686,087 |
| Other items affecting funding | ||||
| Net change in prepaids and inventories3 | 1,144 | 550 | (3,944) | (2,562) |
| Total operating appropriations used | $ 251,783 | $ 232,914 | $ 729,425 | $ 683,525 |
1 Employee cost accruals are accounting adjustments to record variable pay and accrued vacation used and incurred to December 31, 2024. These costs are only recorded for near-cash accrual purposes at year-end, creating a reconciling item during interim periods.
2 Employee benefits expense is accounted for in the Condensed Interim Statement of Comprehensive Income (Loss) in accordance with IFRS. The reconciling item above represents the difference between cash payments for employee benefits and the accounting expense under IFRS.
3 Prepaids and inventories funded through operating appropriations are expensed as the benefit is derived from the asset by CATSA. They are funded by appropriations when purchased, creating a reconciling item.
Capital Expenditures
The table below serves to reconcile capital expenditures reported under IFRS and capital appropriations used.
Reconciliation of Capital Expenditures to Capital Appropriations Used
| (Thousands of Canadian dollars) (Unaudited) |
Three months ended December 31 | Nine months ended December 31 | ||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Explosives Detection Systems (EDS) | $ 8,222 | $ 7,146 | $ 33,134 | $ 14,907 |
| Non-Explosives Detection Systems (Non-EDS) | 1,656 | 2,575 | 3,453 | 6,692 |
| Lease payments | 804 | 401 | 2,382 | 1,462 |
| Total capital expenditures | $ 10,682 | $ 10,122 | $ 38,969 | $ 23,061 |
| Non-cash adjustment on foreign exchange related to capital expenditures | - | (20) | 17 | (4) |
| Total capital appropriations used | $ 10,682 | $ 10,102 | $ 38,986 | $ 23,057 |
Appropriations Used Compared to Corporate Plan
Parliamentary appropriations used for operating expenditures for the nine months ended December 31, 2024, are lower than planned. This is primarily due to delays in the introduction of Transport Canada’s amendments to security measures relating to CATSA’s non-passenger screening program. The remaining operating expenditures are largely in line with the operating budget in CATSA’s approved Summary of the 2024/25 to 2028/29 Corporate Plan for the nine months ended December 31, 2024.
Parliamentary appropriations used for capital expenditures for the nine months ended December 31, 2024, are lower than planned. This is due to delays in capital spending associated with various EDS and Non-EDS projects, resulting mainly from vendor delays and changes in airport project plans.
CATSA is on track to meet the organization’s operating goals and objectives for the current year as outlined in CATSA’s approved Summary of the 2024/25 to 2028/29 Corporate Plan.