‘Puerto Rico airport deal was déjà vu’

Zane Gresham is an airport privatisation specialist who has been involved in the recent Luis Muñoz Marin International Airport deal as well as the ill-fated Chicago Midway lease. To him, both were successful.

Just because Puerto Rico got it right with Luis Muñoz Marin (LMM) International Airport, doesn’t mean Chicago got it wrong with Midway International Airport.

Zane Gresham had a hand in both. A partner with law firm Morrison Foerster, he represented the airline industry in each transaction. LMM was a success: last month, a consortium led by equity partner Highstar Capital paid $615 million to lease the San Juan air field through 2050.

Midway should have been a success, too. The fact that it didn’t pan out had nothing to do with privatisation, or privatisation in America, and a lot to do with the global financial crisis.

“It came within a gnat’s eyelash of being successful,” laughed Gresham, “stymied only by the meltdown of the global capital market”.

In 2009, the Windy City, the airline industry that Gresham represented, and Citigroup all agreed that, for $2.5 billion, the airport would be leased to a private consortium led by Citi. Then along came the crisis, and Citi, cratered by its subprime mortgage exposure, bailed out.

As a deal, it was a bust. But as a learning experience, it was golden.

“The model for the [concession agreement] process was tested with Midway, and was elaborated and improved in San Juan,” Gresham reflected. “Chicago proved it could be adapted”.

And it was.

As a lawyer, Gresham is specialised in public-private collaboration, particularly regarding aviation. He is based in the San Francisco office of Morrison Foerster, founded in the 1880s (“This is MoFo”), and his long suit in airport privatisation has taken him to Latin America and Australia.

Unlike the UK airport business, which is 100 percent corporate-owned, the US, he pointed out, has no set enabling legislation for privatisation, making a concession like LMM unique.

“The problem is, there is no specific paradigm, and no particular legal reform,” he said. “By comparison, Chile adopted very explicit legislation and regulatory structure for it. In the US, we are still working it out based on existing law without specific legislation”.

But the US can boast a singular regulation in regard to privatisation not seen elsewhere.

“The airline industry can stop a public-private partnership (PPP) on an airport,” Gresham said, “which is not the case in most of the world”.

According to framework established by the Federal Aviation Administration (FAA), a 65 percent vote ‘in landed weight and number’ per airport is needed for a PPP to be approved.  In the would-be Midway lease, “airline buy-in,” including the largest carrier, Southwest, was attained.

“Whenever an airport is considering privatisation, the airline industry is cautious,” Gresham said. “The airline is cautious about risk associated with a private operator looking to recoup its investment, so it will want to negotiate to prevent any undue, long-term fee increase”.

Given its scant track record, the US is not viewed as a preferable market for privatisation.

“The industry is not looking at America as a panacea,” he stressed.

However, Gresham is optimistic about the future of airport privatisation in the US, calling LMM a “promising” development and noting New Orleans could use a PPP to expand its air field.

And he won’t rule out a possible effort to revisit leasing Midway in Chicago.

“Mayor Rahm Emanuel hasn’t embraced it fully,” he said. “But it has been kept alive”.