Routes and Airports Channel

Midway deal collapse clouds privatization outlook

By Adele C. Schwartz
ATW's Airports Today, May, 2009, p.1

US airport privatization appears to be another casualty of the worldwide recession as investors back away from facilities with falling traffic and revenue. Collapse of the deal to sell a 99-year lease on Chicago Midway for an up-front payment of $2.52 billion leaves US FAA's pilot privatization program without a major airport.

Negotiations between the city and Midway Investment and Development Co. ended in late April after the city refused a request for a second extension of the April 6 closing date. The development company comprised Citigroup Inc., Manulife Financial Corp. and Vancouver (Canada) International Airport's YVR Airport Services Ltd. The Vancouver organization would have operated the airport.

Failure of the deal "had nothing to do with Midway in particular," said a Mayer Brown LLP partner who worked on it. He blamed "the dramatic collapse in both the debt and equity markets" after the Midway agreement was made on Sept. 30, 2008, for thwarting the group's efforts to finance the project.

Last year Midway handled 17 million passengers, down from its peak of nearly 20 million earlier this decade. The old Chicago airport is fully developed, leaving little room to increase concession and other nonaviation revenue, and the lease terms required a six-year freeze on airline charges as well as job security for all city employees there. Before the deal collapsed, a Chicago city spokesperson told ATW's Airports Today that the leasing company would make its profit largely from the efficiencies of private operation.

Midway was the busiest airport in the world in 1959, serving 10 million passengers. Then carriers began moving to the huge new O'Hare International, leaving Midway with no scheduled service at all by 1962. United Airlines returned briefly, but the airport remained essentially unused until 1979, when Midway Airlines began operations. It faltered and eventually shut down, while Southwest Airlines moved in and thrived. Southwest is still by far the largest operator there.

As traffic grew, the old, leaky-roofed terminal became intolerably crowded, but there was no room for an adequate building on the narrow site fronting busy Cicero Ave. So designers created a plan to move travelers across the avenue through a broad, enclosed overhead corridor that connects the airport to an 8,468-space parking garage and a light rail station. The new terminal, completed in 2004, has 951,000 sq. ft. and 43 gates. The mile-square airfield is surrounded by residential and business development and cannot be enlarged.

The city will keep the consortium's $126 million deposit, CFO Gene Safford said, and, "We still retain the right to competitively offer the Midway transaction again, down the road, when financial market conditions improve."

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