Dec. 21--Mayor Rahm Emanuel's administration will explore the possibility of privatizing Midway Airport but will take a shorter-term, more tightly controlled approach than was employed by former Mayor Richard Daley's team on the city's first go-round.
Chicago's last try, a 99-year lease that would have brought in $2.5 billion, died in 2009 when the financial markets froze up.
The city's latest intentions are expected to be formally announced Friday, ahead of a Dec. 31 deadline for deciding whether to retain a slot for Midway in the Federal Aviation Administration's airport privatization pilot program. The city put off this decision several times previously.
The move, preliminary as it is, is sure to be politically charged, given the anger over the way Daley's 75-year parking meter privatization deal has played out, with proceeds used to plug operating deficits and meter rates rising sharply.
With that historical backdrop, Emanuel is suggesting a more conservative approach. It includes a shorter-term lease of less than 40 years; a "travelers' bill of rights" aimed at ensuring any changes will benefit passengers; and a continuing stream of revenue for the city, giving it a shot to capture some growth.
And unlike the parking meter and Chicago Skyway lease deals, a new Midway transaction would not allow proceeds to be used to plug operating deficits or to pay for operations in any way, Emanuel said in an interview Thursday.
"I will not let the city use it as a crutch to not make the tough decisions on the budget," he said.
But while a shorter lease and greater city control may play well locally, those sorts of terms may not appeal to investors, experts said in interviews this month.
"The shorter the lease term, the lower the bid prices are going to be -- that's just the math," said Steve Steckler, chairman of the Infrastructure Management Group, a Bethesda, Md.-based company that advises infrastructure owners and operators. "I'd be shocked if investors offered more than $2 billion for a 40-year lease," Steckler said.
Emanuel said: "Nobody knows until you talk to people. ... I'm the mayor and I'm not agreeing to ... 99 years. I'm saying it's either 40 years or less." His office has not offered an estimate of what such a deal could bring in, saying it would be premature.
"No final decisions have been made, but we can't make a decision until we evaluate fully if this could be a win for Chicagoans," Emanuel said.
A private operator would take over management of such revenue-producing activities as food, beverage and car rental concessions and parking lots. The FAA would continue to provide air traffic control, while the Transportation Security Administration would continue to provide security operations. The city would retain ownership.
Few details were provided about how privatization would affect travelers and Midway employees. Emanuel said specifics will emerge over time.
By year's end, the city will send the FAA a preliminary application, a timetable and a draft "request for qualification," a document the city will put out early next year to identify qualified bidders for the project. A review of the potential bidders will be conducted in the spring.
Last year, Emanuel expressed hesitation in pursuing a private lease for Midway unless a careful vetting process was in place, saying taxpayers were correct to be wary, given the city's history.
The evaluation process will be deliberate and open to public view, he said Thursday.
He pledged to create a committee of business, labor and civic leaders that will provide updates to the public on a regular basis and that will select an independent adviser to vet the transaction. The committee will deliver a report to the City Council, and there will be a 30-day review period before any vote.
"I set up a different process and a different set of principles that stand in stark contrast to what was discussed or done in the past," Emanuel said.
The FAA pilot program frees cities from regulations that require airport revenue to be used for airport purposes. It allows money to be withdrawn for other uses.
In the case of Midway, proceeds would be used to pay off construction debt, as was the case in the earlier plan. And proceeds also would finance infrastructure projects elsewhere in the city and possibly help pay down unfunded pension liabilities, Emanuel said.
But, he added, he will not consider allocating more resources toward unfunded pension liabilities until the city's pension plans are revamped.
One civic watchdog said it makes sense to explore the options for Midway.
"The decision to continue keeping the FAA application process going makes sense, especially since the city faces so many infrastructure and other financing challenges going forward," said Laurence Msall, president of the Civic Federation.
Southwest Airlines, the dominant carrier at Midway, expressed support for exploring the city's options.
"Like the city, we want to better understand the market opportunity and the impact on our business and passengers," said Gary Kelly, CEO and president.
Potential investors will examine operations to see how they can boost traffic, revenue and profitability, experts say.
"Do they raise parking fees for cars? Do they increase the price of concessions? What is it that gives them an incentive to do the deal?" Aaron Gellman, an airport expert at Northwestern University, said in an interview this month. "This is important in Chicago -- a lot of people will go nuts if they raise prices at Midway any more than they already are."
Asked whether the travelers' bill of rights would include pricing limits, Emanuel said: "We'll (flesh) all that out ... but it will deal with some concessions and it will deal with some of the amenities that come to make sure there's protection."
Any agreement would have to include labor protections, guaranteeing that every employee at Midway would be able to work for the new manager, with comparable pay and benefits, or to transfer to another position in the city, the mayor's office said.
Thomas Villanova, president of the Chicago & Cook County Building & Construction Trades Council, voiced support for exploring the move, saying proceeds could be used on infrastructure projects that would create jobs.
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Copyright 2012 - Chicago Tribune
