Week in Review US airports new bull market?

The ‘Midway Airport’ deal in Chicago could start a revolution in US airport privatisation

If 2012 signalled the resurgence of privatised parking in America, then 2013 could go down as the year airport privatisation was brought back from the dead and restored to its rightful place at the head of the US public-private partnership (PPP; P3) market.

Like parking, privatising an airport is a ‘brownfield’ endeavour, centred on a neglected, under-monetised, but nonetheless pre-existing infrastructure asset. Parking – once it was no longer hampered by inefficient operation on the one hand and chronic underinvestment on the other – showed it can provide a tidy profit.

That realization spurred the private sector on a multimillion dollar pursuit to take over municipal parking in Los Angeles, as well as Pittsburgh – with mixed results.

But as was the case with parking in 2012, the coming bull market for airport privatisation could have its impetus via a single deal bookended by tightly run procurement and an attractive, highly-sought asset.

Last year, the Ohio State University (OSU) concession set a high-water mark for parking, demonstrating how a timely, transparent bidding process could let an entity unload a high-maintenance asset for fair value. Last month, Chicago, vowing a “thorough and open” procurement process, published a mandate for a 40-year concession agreement of its Chicago Midway International Airport. Needless to say, if procurement is successful, Midway could be to US airports what OSU was to parking.

That prospect is especially tantalising because airports are a very different value proposition. While parking is peripherally tied in to transportation, offering relatively inelastic demand as its prominent feature, an airport is a very different beast, not only capable of generating high revenue, but offering countless opportunities for operational and commercial enhancements.

That financial reality is anecdotally reflected in what the industry is willing to shell out for these asset classes. The failed first attempt to private ‘Midway Airport’ landed $2.5 billion, while the OSU parking deal hauled in $483 million. The successful go to privatise Luis Munoz Marin International Airport last year earned Puerto Rico $2.5 billion, while the successful Indianapolis parking meter deal brought in $35 million upfront and a $400 million ‘revenue stream”.

The implication is clear: parking is nice, but the big money is in airport privatisation.

The US has 500 commercial airports. With Midway Airport as the flashpoint, America could undergo a transformation in airport operation, bolstering both municipalities and the industry.