Take-off halted

What was expected to usher in a new era of airport operation in the US instead turned into a setback for privatisation as well as a reprise of a failed previous deal when a proposed lease of Chicago Midway International Airport crumbled in late-stage procurement.

Chicago Mayor Rahm Emanuel ended the nine-month-long pursuit to hand over Midway Airport via public-private partnership (PPP; P3) on the basis that bidding would be non-competitive because one of the final two consortia in contention backed out.

The decision marked the second abortive P3 for Midway. A 2009 agreement granting a 99-year lease to a team led by Citi Infrastructure Investors (CII) in return for $2.5 billion collapsed in the wake of the global financial crisis (GFC).

But the uptick in P3 deal flow in America post-Crisis, not to mention the apparent backing the project had in city hall, touted ‘Midway v2.0’ as a winner. Industry reaction to the abrupt anti-climax of the closely watched PPP effort ranged from shock to resignation.

“Unbelievable,” one exasperated US official with a prominent infrastructure company remarked to Infrastructure Investor upon learning the ‘Windy City’ had halted the tender.

NON-POLITICAL

Zane Gresham, a partner with law firm Morrison & Foerster, called the canceled PPP frustrating.

“That Midway was called off is a disappointing development,” says Gresham. “I don’t think anyone saw it coming. I’m quite surprised myself”.

Attorney Gresham, who represented the airline industry in the successful P3 for Luis Munoz Marin International Airport (LMM) in Puerto Rico, maintains airport P3s in the US remain a solid proposition.

“There are not a lot of people who could speak generally about airport PPPs based on Chicago,” Gresham stresses.

For its part, Chicago quickly framed Midway as a procedural breakdown, not a political issue. But any explanation – political or not – is cold comfort for the asset class.

NON-STARTER

“[The first deal for Midway] didn’t close because the financial world collapsed between the bidding date and the intended closing date,” explains Mayer Brown partner John Schmidt.

Emanuel terminated the latter Midway tender when Industry Funds Management (IFM) and partner Manchester Airports Group (MAG) pulled out, leaving Macquarie Group and Ferrovial the lone remaining bid team.

Chicago was purported to have been looking for $2 billion in exchange for a 40-year lease. Emanuel, in defending dropping the project, said bidders did not meet the “bar I set for the city”.

Macquarie declined comment while a US executive from IFM did not respond to Infrastructure Investor. Ostensibly, Emanuel, a friend to the private sector who set up the Chicago Infrastructure Trust (CIT), made good on his pledge of a transparent Midway bid.

But Chicago in 2013 is still coping with the political baggage that comes with being ground zero for privatisation in America. In particular, a contentious 2008 P3 that leased downtown parking for 75 years has lingered with voters.

Consider also that the city council voiced leeriness about the project while inspector general Joe Ferguson worried that Midway was undervalued. Plus, as Gresham pointed out, Midway is “reasonably well-run as is…not in need of major efficiency- or revenue-enhancement”.

Forget competitive bidding and high bars – Midway would have regardless been a tough sell politically, even for Emanuel.

Yet, the reality for the industry is this: Midway, the second-largest airfield in the Chicago metropolitan area, would have gone a way to spurring a pipeline of P3s for airports – long a mainstream infrastructure sector in Europe, but still a non-starter in the US.