Over the summer, with a public-private partnership (PPP; P3) for Chicago Midway International Airport in the offing since January, tiny Gary/Chicago International Airport, a short car ride from Midway, released a Request for Proposals (RFP) of its own. Like its big-shouldered ‘Windy City’ counterpart, Gary/Chicago (10,500 passengers last year) is now looking for a private operator.
The two airports are a contrast in fortunes. A truly global hub, Midway in 2012 totaled 19 million passengers. Gary/Chicago in August lost its remaining holdout, low-cost carrier Allegiant. Midway has pedigree: its abortive 2009 P3 would have topped $2.5 billion. Gary/Chicago has an unfortunate aura: crime-infested Gary, Indiana, is sometimes described as the former ‘murder capital’ of the world.
Regardless, Midway and Gary/Chicago both speak to a coming pipeline of deals in the US. A laggard to Europe in airport privatisation, the US is finally starting to catch up.
“The question to ask about airport privatisation isn’t, ‘Why is it happening now in the US?’” says John Schmidt, a partner with law firm Mayer Brown. “The question is, ‘Why didn’t it happen in the US long ago?’”
For Zane Gresham, the answer is twofold: political will and airline involvement.
“Fundamentally, a US airport is locally owned, not a national asset,” explains Gresham, partner with law firm Morrison & Foerster, “so there is much more of a proprietary interest by local politicians, who might feel paternal toward it, or derive satisfaction from owning it”.
And airlines themselves have reason for caution. Between 2000 and 2005, the business of commercial air travel lost $30 billion Stateside. Later, the Global Financial Crisis (GFC) decimated passenger numbers.
Macroeconomics notwithstanding, the major stumbling block for airport P3s in the US is obvious: unlike America, European airlines aren’t owners of their respective terminals.
“The role of airlines in the management and financing of airports is a historical fact here, not elsewhere, not in Europe,” observes Gresham, who represented the airline industry in the privatisation of Luis Munoz Marin Intentional Airport (LMM) in Puerto Rico.
The Federal Aviation Administration (FAA) introduced its ‘Privatization Pilot Program’ in 1997. Aside from a small New York airfield a decade ago which, as Schmidt puts it, “didn’t go well and was undone,” LMM — leased to Highstar Capital and Grupo Aeroportuario del Sureste, or ASUR — is the only privatisation in a US territory.
“We can now point to a success,” says Gresham, noting the LMM deal reached financial close in 2013 “despite a challenging legal, political, and technical environment” and adding that the “improvement to LMM has been immediate”.
In 2012, the limit for airport P3s allowed under the Pilot Program increased from five to 10. According to James Cowan, managing director of Macquarie Infrastructure and Real Assets (MIRA) in Canada, the US could easily privatise 10 airports a year – for the next 50 years.
Yes, we can
“Way over half of air travel in Europe is now through privatised airports,” emphasises Schmidt. “All airports in Australia and Mexico are privatised. For a while, I think there was a general sense of, ‘Oh well, we just can’t do that here’”.
It wasn’t until the 2008 would-be PPP of Midway Airport that airlines demonstrated a willingness to cede total control. That deal fell through because of the GFC, but even when a P3 can win similar airline support — as in the case of LMM — political will is near-immovable.
“The biggest negative is [political] complexity,” Schmidt states. “That will always be there.”
Pundits take heart from Chicago, where Mayor Rahm Emanuel and an administration friendly to the private sector have revived the Midway P3.
“The environment now is positive for at least considering airport privatisation,” Gresham concludes.