CHICAGO — Chicago’s proposed new use agreement with Midway International Airport’s airlines calls for more than $1 billion in capital and maintenance spending over its 15-year term as the city continues to weigh whether to privatize operations.

Chicago Mayor Rahm Emanuel submitted the proposed use agreement and facilities lease with Southwest Airlines Co., Delta Air Lines Inc. Porter Airlines Inc. and other operators at Midway to the City Council at its meeting Wednesday. It will be reviewed by the council’s Aviation Committee.

The current agreement expires at the end of the year. The new agreement would run through 2027. It outlines more than $400 million in approved capital projects that can be paid for with borrowing along with another $160 million for the reconstruction of a runway, residential sound insulation for 2,500 homes, and construction of an expanded passenger security checkpoint project.

Another $40 million in maintenance and capital spending would be anticipated annually with possible increases in 2018 and 2023. The agreement allows for airlines to capture operational savings through reduced fees and charges. The city is planning on a small new-money Midway debt issue of $40 million with a refunding piece that could range between $200 million and $1.5 billion as soon as this fall. The deal’s size and structure hinges on the city’s decision due to the Federal Aviation Administration before the end of the year on whether it will resurrect a privatization. The new-money would finance projects slated for the next couple of years.

City Aviation Department spokeswoman Karen Pride said financing plans for Midway’s capital improvement program have not been financed but could include a mix of grants, passenger facility charges, bonding, and other sources.

JPMorgan is the senior manager with Bank of America Merrill Lynch and Cabrera Capital Markets serving as co-senior managers. Acacia Financial Group is the financial adviser. Mayer Brown LLP and Sanchez & Daniels are serving as co-counsel.

The city had struck an agreement in 2008 to lease the airport to a consortium for $2.5 billion but it was cancelled when the private investors could not raise the needed financing amid the ongoing international credit crunch that followed the 2008 financial crisis.

Since then the city has continued to reserve the slot for a hub airport under the FAA’s pilot program. In granting its most recent request this past spring, the FAA wrote that Chicago must include information on a privatization timetable and other updated information in its application by the end of year deadline. If not submitted, “the FAA will consider the city’s application to be officially withdrawn,” the letter reads.

Emanuel has tread cautiously on the issue due to political and public opposition to asset leases after the city’s troubled 2009 parking meter lease. During his campaign last year, he said he wasn’t interested in resurrecting the deal but more recently has said the city is reviewing it. Emanuel wants to spend billions on infrastructure and the city faces mounting pension obligations, including a looming $500 million state mandated payment hike. Under an Illinois state law, proceeds of the lease transaction were mostly restricted to those two areas.

Moody’s Investors Service last year affirmed its A2 first-lien and A3 second-lien ratings assigned to Midway Airport’s $1.5 billion of outstanding bonds. Fitch Ratings last year affirmed its A rating on first-lien bonds and A-minus on the second lien. Standard & Poor’s also assigns an A and A-minus rating to the debt.

The airport serves 8.7 million passengers annually and it experienced 3% growth in both 2009 and 2010 with passenger numbers up 6% for the first half of last year. Midway bounced back after an 11.4% decline in 2008. The airport benefits from the strong presence of Southwest Airlines/Air Tran, which accounts for more than 90% of traffic. The facility’s bonds are secured by net revenues generated at the airport.

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