On 1 October 2008, two stories hit our newsroom that, in retrospect, seemed prophetic.
“Citi-led consortium lands $2.5bn Midway Airport deal”, proclaimed one headline, “Abertis-led group drops $12.8bn Pennsylvania Turnpike bid”, read the other.
The former was to be the largest airport deal in US history, the latter reported on the collapse of what would have been the largest toll road deal. Both have now crumbled, albeit for vastly different reasons.
The turnpike deal – in which Citi was also a financial backer – fell apart because of political reasons. The Pennsylvania legislature refused to vote on the offer and essentially let it die a slow, public death.
Midway, by contrast, died for financial reasons. On Monday, Chicago – which approved the deal only nine days after it was awarded – terminated the 99-year lease agreement because MidCo, Citi’s concessionaire, could not secure the financing needed to meet the upfront lease payment of $2.52 billion.
Big disappointment? Certainly. But it’s far from the end of the world.
The deal’s death didn’t kill Chicago’s plans to lease the airport. The city hasn’t withdrawn its application to the Federal Aviation Administration’s Pilot Privatisation Programme and plans to “competitively offer the Midway transaction again, down the road when financial market conditions improve,” Gene Saffold, the city’s chief financial officer, said in a statement.
When it does, it will have the benefit of experience to guide the process – as will other airports. Midway proved that it is possible to get airlines, regulators, city officials, unions and a variety of other stakeholders to back a large, complex airport lease proposal. That spells good things for the five spots in the pilot privatisation programme.
The bigger question, of course, is what the deal’s collapse means for the US’ infantile public-private partnership industry. Insiders interviewed by InfrastructureInvestor said the deal’s collapse is more a reflection of the difficult financial markets rather than the development of the PPP market.
“This is a speed bump in the history of PPPs. It is a highway bound for success – look at all the other indicators: Alabama passing a PPP law, Schwarzenegger pulling off a PPP law in California, the I-595 in Florida,” said Frank Rapoport, senior partner in the infrastructure practice group at Washington DC-based McKenna, Long and Aldridge.
Meanwhile, Citi and its partners – Vancouver Airport Services and John Hancock Life Insurance – live to fight another day – and pretty soon, actually: their final bids for London’s Gatwick Airport are due 27 April.