Management’s Discussion and Analysis 

For the year ended March 31, 2026

Management’s Discussion and Analysis (MD&A) outlines CATSA’s financial results and operational changes for the year ended March 31, 2026. This MD&A should be read in conjunction with CATSA’s audited annual financial statements and accompanying notes for the year ended March 31, 2026, which have been prepared in accordance with International Financial Reporting Standards (IFRS). The information in this report is expressed in thousands of Canadian dollars and is current to June 17, 2026, 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.

Operating Environment

CATSA is funded by parliamentary appropriations and accountable to the Government of Canada through the Minister of Transport. The Government of Canada collects the Air Travellers Security Charge and funds CATSA through appropriations from the federal Consolidated Revenue Fund.

Prior to Budget 2023, CATSA relied on annual supplemental funding from the Government of Canada to carry out its core mandated activities. Budget 2023 included supplemental funding over three years to continue to protect the public by securing critical elements of the air transportation system. In addition, it allowed CATSA to plan for the longer term and to conduct focused engagement with industry, the community and government partners, as well as plan investment and deployment of new technology.

For 2026/27, CATSA has secured total funding of $1,302 million. This reflects a $30.5 million reduction from the comprehensive expenditure review (CER), with additional funding of $3.4 million to support FIFA 2026. Pursuant to the CER, CATSA’s funding will be reduced by $31.8 million in 2027/28, and by $48.9 million annually beginning in 2028/29.

CATSA continues to seek long-term sustainable funding to deliver its mandate.

Screening Services

Statistics from CATSA’s Boarding Pass Security System, and other data sources, indicate that in 2025/26, CATSA screened 70.3 million passengers, representing an increase of 2.2% compared to 2024/25. CATSA works closely with its screening contractors, Transport Canada and external partners to support the aviation industry.

In 2025/26, CATSA signed an agreement with the Montreal Metropolitan Airport (MET) to support its commercial operations, which will begin in 2026/27. As MET is not a designated airport under the CATSA Aerodrome Designation Regulations, screening services will be provided as part of the cost recovery framework established in the CATSA Act.

Internal Controls

Management is responsible for establishing and maintaining a system of internal controls over financial reporting. An integral part of this responsibility is CATSA’s internal controls certification program, which involves a periodic assessment of the design and operating effectiveness of key internal controls over financial reporting. The program is based on the Committee of Sponsoring Organizations of the Treadway Commission framework, and Treasury Board of Canada Secretariat’s (TBS) Certification and Internal Control Regime for Crown Corporations.

The assessment provides management with regular feedback regarding the effectiveness of the internal control environment. Following the assessment, management develops action plans for all opportunities for improvement.

Analysis of Financial Results

Statement of Comprehensive Income (Loss)

The following section provides information on key variances within the Statement of Comprehensive Income (Loss) for 2025/26 compared to 2024/25.

Key Financial Highlights - Statement of Comprehensive Income (Loss)

¹ The 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 11 of the audited annual financial statements for the year ended March 31, 2026. 

² The percentage change for the year over year variance is not meaningful. 

Screening Services and Other Related Costs

Screening services and other related costs consist of payments to screening contractors, uniforms and other screening-related costs, and trace and consumables.

Payments to screening contractors (as disclosed in note 11 of CATSA’s audited annual financial statements) represent the most significant expenditure for CATSA at 82.8% of total expenses (excluding depreciation and amortization) in 2025/26. These expenses consist of payments to screening contractors to deliver security screening services provided by certified screening personnel and non-screening personnel, including training and recurrent learning requirements. Key variables impacting these costs include the number of screening hours purchased and billing rates.

The number of screening hours purchased is mainly driven by passenger volumes and traffic patterns. New directives to CATSA, or new or modified security regulations arising from evolving threats and security incidents or alignment with other jurisdictions, can also drive screening hours.

Billing rates are based on all-inclusive rates paid to screening contractors as set forth under the terms of CATSA’s Airport Screening Services Agreements. These agreements also include a performance program that remunerates screening contractors for contractual compliance and achievement of specified performance targets.

Screening services and other related costs increased by $61.0M (7.2%) in 2025/26. The increase is mainly attributable to annual billing rate increases totaling $45.0M, and changes to the non-passenger screening program totaling $11.7M. The increase from the prior year also includes additional spending of $6.8M for bilingual facilitators, who support the client experience and ensure that screening procedures uphold the dignity of all travellers, including those with accessibility needs.

Program Support and Corporate Services

Program support and corporate services represent the costs to support the delivery of CATSA’s mandated activities and its corporate infrastructure. These costs consist mainly of employee salaries and benefits, office and computer costs, lease related costs at corporate headquarters and in the regions that are not capitalized under IFRS 16, and professional services.

Program support and corporate services costs increased by $3.4M (3.1%) in 2025/26. The increase is mainly due to higher employee-related costs due, in part, to costs related to workforce reductions under the CER.

Depreciation and Amortization

Depreciation of property and equipment, as well as amortization of intangible assets, is recognized on a straight-line basis over the estimated useful lives of the assets. Depreciation of right-of-use assets is recognized on a straight-line basis over the related lease term.

Depreciation and amortization increased by $7.2M (14.2%) in 2025/26. The increase is primarily attributable to new equipment deployments and the change in estimated useful lives of some of CATSA’s screening equipment. The increase is partially offset by equipment becoming fully depreciated or retired.

Other Expenses (Income)

Other expenses (income) consist of net gain or loss on fair value of derivative financial instruments, finance costs, write-off of property and equipment and intangible assets, gain or loss on disposal of property and equipment, and foreign exchange gain or loss.

Other expenses (income) increased by $1.8M in 2025/26. The change from an income position in 2024/25 to an expense position in 2025/26 is primarily due to net losses on the fair value of derivative financial instruments partially offset by a net foreign exchange gain.

Revenue

Revenue consists mainly of finance income earned on cash balances and other screening services revenue. Revenue decreased by $1.3M (35.8%) in 2025/26. The decrease is attributable to lower finance income earned on cash balances.

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

Operating expenses are funded on a near-cash accrual basis. Certain expenses, including employee benefits, inventories and prepaid expenses, are funded when a cash outflow is required, as opposed to when the expense is recognized under IFRS.

Parliamentary appropriations for operating expenses increased by $63.7M (6.4%) in 2025/26. The increase is primarily attributable to increased spending on screening services and other related costs, as discussed above.

Amortization of Deferred Government Funding Related to Capital Expenditures

Capital expenditures are funded when assets are purchased. The appropriations are recorded as deferred government funding related to capital expenditures and are amortized on the same basis and over the same period as the related assets.

Amortization of deferred government funding related to capital expenditures increased by $6.6M (13.8%) in 2025/26. The increase is 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

Other comprehensive income consists of the net actuarial gains and losses associated with CATSA’s defined benefit plans.

In 2025/26, the net gain of $38.1M is primarily attributable to an actuarial gain of $25.6M arising from changes in financial assumptions and an actuarial gain of $14.3M resulting from a higher actual rate of return on plan assets than the rate used in CATSA’s assumptions. This is offset by a loss of $1.9M arising from experience adjustments.

In 2024/25, the net gain of $6.5M was primarily attributable to an actuarial gain of $12.9M resulting from a higher actual rate of return on plan assets than the rate used in CATSA’s assumptions and a net gain of $3.5M arising from experience adjustments. This was offset by a net loss of $10.3M related to changes in demographic assumptions.

For further details, please refer to the Employee Benefits section.

Liquidity and Capital Resources

Liquidity

CATSA’s financial management framework relies on parliamentary appropriations to finance operating and capital requirements, and to settle financial obligations as they become due. In determining the amount of cash reserves to carry for operating requirements, the organization considers its short-term funding requirements in accordance with relevant Treasury Board of Canada Secretariat (TBS) directives.

The following table represents CATSA’s liquidity:

Liquidity

• Cash decreased by $84.1M primarily due to the timing of funds received from the Government of Canada;
• Trade and other receivables increased by $75.6M primarily due to a higher balance of parliamentary appropriations receivable, partially offset by decreases in other screening services receivable and recoverable taxes receivables.
• Trade and other payables decreased by $6.7M as a result of the timing of disbursements associated with obligations outstanding with suppliers.

Capital Resources

CATSA’s capital plan is comprised of Explosives Detection System (EDS) and non-EDS expenditures and a portion of lease payments.

EDS capital expenditures consist of the acquisition of screening equipment and the associated installation and integration costs for Pre-board Screening (PBS), Hold Baggage Screening (HBS) and Non-passenger Screening (NPS). Non-EDS capital expenditures consist of the acquisition of equipment and systems to support screening operations, the Restricted Area Identity Card (RAIC) program, leasehold improvements, network infrastructure and corporate management systems. Lease payments relate to leases capitalized under IFRS 16.

Property and equipment, intangible assets and right-of-use assets (refer to the Statement of Financial Position) represent 59.0% of total assets as at March 31, 2026. The section below provides a breakdown of the capital expenditures for EDS, non-EDS and lease payments.

Capital Expenditures

An overview of the key capital projects undertaken over the fiscal year is as follows: 

EDS 

• Deployment of Computed Tomography (CT) X-rays at PBS at Class 1 airports and select Class 2 airports; 
• Life cycle management of HBS CT X-rays at select Class 1 airports; 
• Life cycle management of HBS Oversize X-rays at Class 1 airports; and 
• HBS capacity expansion at Montréal-Trudeau International Airport. 

Non-EDS 

• Life cycle management of CATSA’s Information Technology (IT) network infrastructure; 
• Investments in cyber security enhancements; 
• Life cycle management of closed-circuit television (CCTV) cameras; and 
• Leasehold improvements at regional office space. 

Included in the capital expenditures for 2025/26 is $3.2 million in property and equipment that CATSA procured to support the delivery of screening services under its cost recovery agreement with Montréal Metropolitan Airport (MET).

Employee Benefits

CATSA maintains two funded pension plans to provide retirement benefits to its employees. The first is a registered pension plan (RPP), which includes two components: a defined benefit component for employees hired before July 1, 2013, and a defined contribution component for employees hired on or after July 1, 2013. The second is a supplementary retirement plan (SRP), which supplements the defined benefit component of the RPP for benefits limited by the Income Tax Act (Canada). CATSA also sponsors an unfunded post-employment benefits plan, the other defined benefits plan (ODBP), which includes life insurance and eligible health and dental benefits. The employee benefits financial position is summarized below:

Employee Benefits

CATSA’s independent actuary determines each plan’s net position as at March 31 of each year. The net position fluctuates annually due to a combination of variables, including the discount rate, inflation rate, number of plan members and their demographics, expected average rate of salary increases, expected average remaining service lifetime of active employees, and returns on plan assets and contributions. Note 8 of the annual audited financial statements provides further details regarding the underlying assumptions used in determining the net position.

As at March 31, 2026, the employee benefits asset represents the net position of CATSA’s RPP and SRP. The employee benefits liability consists of the present value of the defined benefit liability of the ODBP.

The increase in the employee benefits asset is primarily attributable to a remeasurement gain of $23.9M on the defined benefit obligation of the RPP and SRP arising from changes to financial assumptions. The increase is also due to a remeasurement gain of $14.3M resulting from a higher actual rate of return on plan assets than the rate used in CATSA’s assumptions. The increases are partially offset by the non-cash defined benefit costs exceeding the required contributions made by CATSA by $2.4M for RPP and SRP and a remeasurement loss of $1.8M on the defined benefit obligation of the arising experience adjustments for these plans.

The decrease in the employee benefits liability is primarily attributable to a net remeasurement gain of $1.7M on the defined benefit obligation of the ODBP arising from changes to financial assumptions and experience adjustments. This was partially offset by the non-cash defined benefit costs exceeding CATSA’s required contributions by $1.4M for the ODBP.

Financial Performance Against Corporate Plan

CATSA’s operations are funded by parliamentary appropriations from the Government of Canada, which are reflected in CATSA’s Summary of the 2025/26 to 2029/30 Corporate Plan.

Parliamentary Appropriations Used

Appropriations used are reported on a near-cash accrual basis of accounting.

Operating Expenses

The table below serves to reconcile financial performance before government funding reported under IFRS and operating appropriations used:

Reconciliation of Financial Performance to Operating Appropriations Used

¹ Montreal Metropolitan Airport (MET) services are provided on a cost-recovery basis. Operating expenses incurred are not funded by appropriations, creating a reconciling item. 

² Employee benefits expense is accounted for in the 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.

The table below provides a reconciliation between financial performance before government funding reported under IFRS and operating appropriations used in 2025/26, presented by major expense category. The table also provides a comparison between operating appropriations used in 2025/26 and the operating budget as reported in CATSA’s Summary of the 2025/26 to 2029/30 Corporate Plan.

Operating Appropriations Used Compared to Corporate Plan

Operating appropriations used were $30.5M (2.8%) lower than the Corporate Plan budget. 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 2025/26 to 2029/30 Corporate Plan.

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

¹ Equipment purchased for Montreal Metropolitan Airport (MET) is provided on a cost-recovery basis. Capital expenditures incurred are not funded by appropriations, creating a reconciling item.

The table below provides a comparison between capital appropriations used in 2025/26, and the capital budget as reported in CATSA’s Summary of the 2025/26 to 2029/30 Corporate Plan after the adjustments resulting from the capital reprofile in progress:

Capital Appropriations Used Compared to Corporate Plan

¹ CATSA’s Corporate Plan budget includes $4,147 for lease payments in Non-EDS. 

² CATSA’s Corporate Plan budget includes an additional $13.5M, approved by Government, compared to CATSA’s Summary of the 2025/26 to 2029/30 Corporate Plan.

Capital appropriations used were $17.3M (16.5%) lower than the revised Corporate Plan budget due to delays in capital spending associated with various EDS projects, resulting mainly from changes in airport project plans. CATSA will work with Finance Canada to obtain approval for the capital re-profile of $8.8M to future financial periods.