04/10/2013 11:10 EDT | Updated 06/10/2013 05:12 EDT

Porter Jet Purchase: Airline Will Seek To Fly Bombardier CS100 Out Of Toronto Island Airport

TORONTO - Porter Airlines unveiled an ambitious plan to become the third national carrier on Wednesday after signing an agreement to buy a dozen new Bombardier CS100 jets and expand the cities where it flies.

But the company faces several significant hurdles along the way as it seeks to change the rules and extend the runway at the small waterfront airport where it's headquartered in Toronto.

Porter president and chief executive Robert Deluce is he's confident enough that his airline will prevail that he doesn't have a backup plan.

"Our plan is predicated on us being able to get the approvals that we need in order to be able to operate these airplanes," he said after a media event held at Billy Bishop Toronto City Airport.

Jets are not allowed to fly out of the Billy Bishop, which is on an island near the city's lakefront, except under special circumstances.

The current rules are part of a tripartite agreement between the City of Toronto, the federal government and the Toronto Port Authority — making it difficult to get quick action from the necessary authorities.

Porter aims to serve destinations across North America after the first new planes are delivered in 2016.

Deluce said the airline plans to fly the jets to destinations such as Vancouver, Los Angeles and Florida that its current fleet of turboprops can't reach. Porter will also seek permission to extend the main runway at the airport by 168 metres at each end.

He expects to have all the needed approvals within six months — or by the end of the year at the latest — for the expansion that will help the airline to create 1,000 new jobs.

The proposed expansion will increase traffic by an estimated 1.4 million passengers each year until 2020, Deluce said.

Past changes to the island airport have been contentious.

Locals have pushed back on plans to expand the airport before over concerns about the noise as well as the impact on nearby wildlife. Air Canada has also challenged how takeoff and landing slots were awarded at the airport.

Deluce said the airline chose the new Bombardier CSeries aircraft and its current fleet of Bombardier Q400 turboprops because of their quiet operation.

"We knew that operating from a downtown urban airport would require us to be responsible operators and good neighbours. We believe that our track record of nearly seven years has shown that Porter has delivered on the promises we made when we announced plans to operate from this airport," Deluce said.

"We believe the CS100 is the perfect aircraft for the next stage of our growth for many reasons, not the least of which is that it is the quietest commercial jet in production."

Industry analyst Robert Kokonis said there's a big risk that Porter's plans will never happen because of the expected opposition to the expansion from Toronto residents and environmentalists.

"That would be a big win if all the chips fall in the right place or it could end up being a disaster," the president of airline consulting firm AirTrav Inc. said in an interview.

He also said Porter's planes have been flying less full while load factors at rivals WestJet (TSX:WJA) and Air Canada (TSX:AC.B) have been improving.

"In a zero sum game where they're all sort of chasing the same passenger, it does give one pause for concern that Porter might be struggling in some areas."

The Toronto Port Authority said it wouldn't take any position on Porter's business plans.

"The TPA will not consider any change of use to the airport until a determination is first made by the elected representatives on Toronto City Council regarding Porter's proposed changes to the 1983 Tripartite Agreement," it said in a news release.

Air Canada (TSX:AC.B) said that before it takes a position on further investment at the island airport, it wants assurance that slots will become available for other airlines that have been seeking increased access, including Air Canada.

Canada's largest airline currently has only enough landing and takeoff slots to offer service between Montreal and the airport on the Toronto waterfront.

WestJet Airlines did not directly address Porter's plans, but said it remains focused on keeping its own business.

"We expect competition to increase and are preparing accordingly," WestJet spokesman Robert Palmer said in a statement.

Porter's announcement Wednesday came as it confirmed the signing of a conditional deal to buy 12 Bombardier CS100s, with options on 18 more.

The deal also includes purchase rights for six of Bombardier's Q400s. The total purchase could reach US$2.29 billion if all the options and purchase rights are exercised.

Analyst Chris Murray of PI Financial Corp. said Porter's move would allow it to expand its reach, but would prompt a competitive response from its large national rivals. But the limited additional capacity wouldn't change the Canadian airline market much.

"It's still a niche model," Murray said. "I wouldn't expect it to radically upset the balance at least in the near term."

However, he said, if the proposal is approved it may encourage others to fly the CSeries from the Toronto airport.

Porter started flying in October 2006 and now serves 19 destinations in Canada and then United States.

Despite the plans for expansion, Deluce said taking the privately held airline public and raising money through an initial public offering is not a priority right now.

The company had planned on issuing shares on the public markets in the past, but shelved them for various reasons.

"We've not thought about an IPO in more recent times," Deluce said Wednesday.

"Sometime in the future that's always a possibility, but not even something we're contemplating right at this moment in time" he added.

— With files from Ross Marowits in Montreal

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