Midway Airport Privatization Deal Collapses
CHICAGO (AP) -- A $2.5 billion first-of-its-kind deal to privatize a major U.S. airport has collapsed amid the global credit crunch, city officials said Monday in an announcement that could dissuade other cities from pursuing similar plans.
The 99-year lease agreement for Midway Airport fell apart because private investors could not raise the necessary money, said Gene Saffold, Chicago's chief financial officer.
Midway, a major domestic hub, would have been the first airport to go private under a Federal Aviation Administration pilot program.
"I'm disappointed it did not go through," Saffold said Monday. "But it's not that all hope is gone."
Saffold said he believed a plan to lease Midway to private investors could be resurrected in the future, but conceded it likely would have to wait until capital markets fully recover. He insisted other cities should not be dissuaded by the difficulties in sealing the Midway deal, calling the current plan's collapse "a little speed bump."
But some analysts said the failure of the Midway deal - widely followed by industry watchers nationwide - dealt a huge blow to privatization advocates.
"Midway appeared to be almost ideal for Wall Street," said Joseph Schwieterman, a transportation and economics professor at Chicago's DePaul University. Pluses for investors, Schwieterman said, included that Mayor Richard Daley, staunchly supported the deal and that Midway has tended to weather economic downturns better than most airports, including the current one.
FAA spokeswoman Diane Spitaliere declined to say whether the agency was disappointed, noting only that the FAA never made a final decision about approving the Midway lease because the financing never was in place.
The agency has received no other formal applications to take part in the FAA pilot program, though officials in New Orleans recently sent a proposal to the agency about turning the Louis Armstrong International Airport over to private management, Spitaliere said.
"There is interest expressed in this program. ... We stand ready to review these applications and make determinations on them as they come in," she said.
Chicago applied two years ago to be part of the program to privatize up to five U.S. airports.
Schwieterman, who said he was among those who thought the Midway lease made sense, said it was unlikely Chicago could find investors who would match the $2.5 billion offer that had been on the table.
"That amount was eye-popping," he said. "Any future deals may not be as attractive to the city."
The city's top finance official endeavored to put a positive spin on the announcement, telling a news conference the city still will keep $126 million in "earnest" money already paid by investors as part of the deal.
"Even though our efforts on Midway will not move forward at this time, the city still comes out ahead," Saffold said.
Saffold downplayed the impact on the city's long-term finances, though without providing details, he conceded some infrastructure projects may have to be scaled back.
City officials said last month they were willing to give investors more time. Officials agreed to a two-week extension on an April 6 closing date to give investors from New York, Boston and Canada six more months to secure financing.
Some Chicago aldermen had long expressed concern about passengers having to pay more to park and shop at Midway if it fell under private control. But those worries seemed to trump the promise of new money for thinning city coffers. Last year, aldermen voted 49-0 to sign off on the lease agreement.
Had the deal gone through, the investor group would have paid the $2.5 billion in upfront rent. The city expected to clear more than $1 billion in net proceeds with most of that money going toward infrastructure improvements and pension funds.
Chicago has leased assets before as a way to raise money, including parking meters and garages and a nearly $2 billion deal to lease the Chicago Skyway to a private operator.
More and more government entities have looked to their public assets as cash cows, but consumers can wind up paying more after those roads and other assets are turned over to private entities.