Chicago's Midway Airport Draws Investor Interest

CHICAGO — Chicago received 16 responses to its first market outreach to identify prospective bidders in a possible deal to privatize Midway International Airport, according to the city's chief financial officer, Lois Scott.

The city's request for qualifications with general deal terms was launched last month after the Federal Aviation Administration signed off. It closed on Friday at 4 P.M. Central Time.

"The response generated from the RFQ process is encouraging and provides the city with a sense of the strong level of interest in a potential lease," Scott said. "We must evaluate fully if this could be a win for Chicagoans and ensure that certain conditions and criteria are met, including a strong benefit to taxpayers and a Travelers' Bill of Rights."

The city and its advisor Credit Suisse Group will review the responses to identify a qualified list of potential bidders should it decide to proceed with privatization process.

The city reported that seven respondents displayed a combination of both financial and operational capacity. They included: ACO Investment Group — investor and operator with global airport experience; AMP Capital Investors Limited — active manager and investor in airports including Melbourne Airport and Newcastle Airport UK, among others; Corporación América Group — Argentina-based airport operator with 49 airports in seven countries; and Global Infrastructure Partners — controlling investor and active manager of London City Airport, London Gatwick Airport and Edinburgh Airport.

The list also includes Great Lakes Airport Alliance — a partnership of Macquarie Infrastructure and Real Assets and Ferrovial whose airport operations include London's Heathrow, Brussels Airport and Copenhagen Airport, among others; Incheon International Airport and Hastings Funds Management — sole owner and operator of Korea's Incheon International Airport and global investor with 16 airport related investments; and Industry Funds Management and Manchester Airport Group — a global investor with interests in 13 airports.

An additional nine firms submitted letters of interest including Alberta Investment Management Corporation; Allstate Investments; Barclays Capital; GS Global Infrastructure Partners; John Hancock Life Insurance Company; Ontario Teachers' Pension Plan Board; Santander Teachers Insurance; Annuity Association of America; and Ullico Infrastructure Fund.

A tentative timeline calls for formal bids to be submitted in the third quarter.

A special review panel appointed by Mayor Rahm Emanuel will review the process and bids and issue a report at least four weeks before any vote by the City Council on a deal. The FAA also must approve the lease terms and the airlines that operate at Midway.

The city continues to stress that the review process will be more open and lengthy than prior city asset lease deals under former Mayor Richard Daley's administration and is stressing that any terms would benefit taxpayers and travelers.

Public and political appetite for asset leases soured in Chicago after Daley's $1.15 billion parking meter debacle which resulted in initial operational troubles and skyrocketing parking rates. There's little cash left from that deal after Daley used most of the funds to balance his last few budgets.

The city also stresses that terms will differ significantly from an earlier $2.5 billion Midway deal Daley reached with private investors in 2008 that fell apart in 2009 due to tightened credit markets.

The FAA's Privatization Pilot Program allows for up to 10 airports to be privatized. The city submitted its application in late December ahead of an end-of-year deadline to preserve the single hub slot in the FAA program.

Southwest Airlines, which accounts for the majority of flights at Midway, and other operators there support the privatization process. The city and airlines recently struck a new 15-year use agreement.

The city would limit the lease to no more than 40 years and require a revenue sharing provision. An upfront payment would go to retire Midway's $1.4 billion of debt with an ongoing revenue stream from the deal funding infrastructure work.

Market participants had anticipated that the city would revisit the lease given its infrastructure needs, fiscal crunch, and growing international investor interest in such deals as evidenced by the strong interest in Puerto Rico's lease of San Juan's Luis Munoz Marin International Airport.

In the RFQ, the city bills its secondary airport as a "marquee infrastructure asset" which would mark a landmark transaction given its hub position, the airport's successful operations, and record operations in 2012 of 9.67 million passengers.

"Since 1997, the city has invested nearly $1 billion in structure improvements at Midway, limiting the need for significant near-term projects," the RFQ reads. Those projects have included a new terminal that opened in 2004, upgrades to the airport's five runways, new parking garages, and a new rental car facility scheduled to open this spring. The airport, located on the city's south side, is the 26th busiest in the nation.

The airport operates 43 gates and has three parking lots providing over 12,000 spaces. Midway generated $157.4 million of operating revenue plus $36.9 million of passenger facility charges in 2011.

Moody's Investors Service recently affirmed Midway's single-A level ratings and said it should not see a significant credit impact from the city's effort to privatize the airfield.

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