CHICAGO — Chicago pulled the plug on privatization plans for Midway International Airport after one of only two remaining bidders dropped out, raising concerns that the lack of competition might erode the deal’s value.

“The mayor has decided not to move forward with a lease option at Midway Airport. We set a high bar that required a new level of taxpayer protection, such as a shorter lease term and increased revenue sharing,” Sarah Hamilton, spokeswoman for Mayor Rahm Emanuel, said Thursday. “The companies did not meet that bar and could not make an offer that would meet what taxpayers deserve.”

The city had planned to use proceeds from an initial upfront payment to retire Midway’s $1.4 billion of debt, and use the ongoing revenue stream from the deal to fund infrastructure work.

Emanuel last December announced the city would “explore” the privatization of Midway under a federal pilot program. Former Mayor Richard Daley had struck a $2.5 billion, 99-year deal in 2008 with Midway Investment and Development Co., but the company couldn’t raise the financing after the credit markets tightened following the 2008 financial crisis. The deal was cancelled in 2009.

The bidding field had recently been narrowed down to just two groups. Chicago made public its decision Thursday. It followed a published report that the Great Lakes Airport Alliance — a partnership between Macquarie Group Ltd. and Ferrovial SA — was preparing a $2 billion bid.

The reports said the other group that had been pursuing the deal, a partnership between Investors Industry Funds Management and Manchester Airports Group Plc, had recently dropped out of the running.

“The main point is this: the city has a bottom line and they did not meet it,” Hamilton said.

Credit Suisse Group has been serving as the city’s advisor on the lease process. A tentative timeline had called for formal bids to be submitted this quarter.

Daley and then Emanuel, who took office in 2011, preserved the city’s ability to pursue a lease by holding on to the single slot reserved for a hub airport under the Federal Aviation Administration’s privatization pilot program.

The mayor moved cautiously. He faced a skeptical City Council still stung over criticism for rushing to approve Chicago’s troubled parking meter lease in 2009. A weary public was angry over skyrocketing parking rates after Daley also tapped nearly all of the funds to balance his last few budgets, leaving nothing behind to show for the deal.

Emanuel attached far more stringent terms to the new lease. While designed to make the new deal more palatable to the council and public, they also cut into its value for potential investors.

The new deal was to be limited to 40 years and structured as a management and land lease with ongoing revenue-sharing benefits for the city. Any agreement would have included labor protections and followed a revenue-share model that provides an ongoing source of funds that would grow over time, along with an upfront payment. The use of proceeds on city operations would have been barred.

The operators also were to have taken responsibility for funding police and fire services at Midway. In the previous deal, the city continued to fund those operations.

Aside from the city’s terms, the deal’s value faced other limitations in terms of generating new revenues. The airport is landlocked and borders neighborhoods that expressed concerns over an attempt to increase nighttime flights.

Market participants last year had anticipated that the city would again explore a Midway lease given the government’s fiscal crunch, growing international investor interest in such deals, and the strong interest shown last year in Puerto Rico’s lease of San Juan’s Luis Munoz Marin International Airport.

Aerostar Airport Holdings LLC will make significant investments to the San Juan airport over a 40-year period under the deal. The company will pay a total of $2.6 billion.

In March, Chicago narrowed the field of potential bidders on a Midway lease down to six from the 16 responses it received during its request for qualifications process launched in January.

In addition to the final pair, the list of six included AMP Capital Investors Ltd., Corporaci-n América Group, Global Infrastructure Partners, and  Incheon International Airport and Hastings Funds Management.

City officials had repeatedly stressed that the review process would be more open and lengthy than on city asset-lease deals under Daley and any deal would benefit the public and travelers.

Emanuel’s administration, too, considered the parking meter lease a headache as aides wrestled with the private operators over terms that require the city to compensate the operators for meters taken out of service.

Chicago earlier this year struck an agreement with the private operators on revisions that eased the city’s future payment burden.

The decision offers Emanuel both an upside and downside. The decision spares the mayor from having to defend the deal and its value to a skeptical public and City Council, an argument made all the more difficult due to the lack of competition with only one bid expected. But it strips the city of a fiscal boon that would have been directed to fund infrastructure.

The mayor’s other big effort at using private dollars to fund infrastructure work — the Chicago Infrastructure Trust — has been off to a slow start in striking a deal to finance energy upgrades to city and school facilities.

The FAA’s Privatization Pilot Program allows for up to 10 airports to be privatized. The 1996 program allows airports to enter into long-term operating leases or pursue the sale of a facility to a private firm. The program exempts the airports from laws that require airport revenues to be spent on airports.

Southwest Airlines, which accounts for the majority of flights at Midway, and other operators there supported the privatization process as it would stem their rising costs to operate at the airport. Any deal would have required the approval of a majority of airlines and the FAA. The FAA did not have an immediate comment on city’s decision.

Chicago last year struck a new use agreement with Midway airlines that calls for more than $1 billion in capital and maintenance spending over its 15-year term. The facility saw a record 9.67 million passengers pass through its gates last year, up 3.35 % from 2011.

The airport, located on the city’s south side, generated $157.4 million of operating revenue and $36.9 million of passenger facility charges in 2011.

Moody’s Investors Service earlier this year affirmed Midway’s single-A level rating and stable outlook, saying it expected no negative credit affects from the privatization.

U.S. Sen. Dick Durbin, D-Ill., earlier this year urged Chicago officials to show caution in their pursuit of a lease, noting that the federal investment of $378 million in Midway International Airport since 1982 could ultimately require some form of repayment.

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