Sept. 08--Cash-strapped Chicago has toyed with the idea of extracting billions of dollars from Midway Airport through a privatization deal since 2006.
When Mayor Rahm Emanuel put the brakes on the city's second move toward a long-term lease Thursday, he may have given up the city's slot in an experimental Federal Aviation Administration program -- opening the door for another city to take a run at the idea, which has yet to be tested at a major American airport.
"The working assumption is the city's slot ends with this," said a source familiar with the most recent bid process.
While Emanuel has not ruled out taking another shot at privatizing the airport, "the mayor has been clear that he will not move forward on Midway at this time," said spokesman Tom Alexander. FAA officials did not respond to a request for an update about Chicago's standing in the program.
Left on the table was a proposal from a single bidder, but one that was not yet a formal bid. It held the potential for a $1.4 billion upfront payment to cover the city's Midway debt, plus city revenue sharing that would have increased the total value of the deal to more than $4 billion over the 39-year life of the pact, according to two sources familiar with the process. That's worth about $2.4 billion in today's dollars and compares favorably with the $2.5 billion upfront, 99-year deal that collapsed in 2009, one of the sources added.
Awarding a long-term lease to a private operator under the FAA pilot program is the only way Chicago can divert revenue produced by airport operations to other purposes around the city.
Details of the negotiations have been kept private, and the final potential bidder declined to comment. But it's clear the initiative had a lot of factors working against it -- from the airport's relatively limited upside for investors to ongoing skepticism about privatization transactions in the aftermath of the city's parking meter deal. The Tribune also raised questions in recent days about connections between city officials and bidding companies.
The momentum began to give out in the final days of August, when one of two finalist groups shocked the city administration by pulling out of a process that began nine months ago.
"At that point, it was no longer a competitive process, so the city has chosen not to continue," said regional planning executive Peter Skosey, chairman of Emanuel's Midway Advisory Panel. "We were charged with ensuring a competitive, fair process, and if one piece of that is broken, you have to pull the plug."
The group that dropped out, which included Industry Funds Management and Manchester Airports Group, "didn't think the values were there to get to a bid the city would find acceptable," said one of the sources with knowledge of the process. Consortium representatives could not be reached for comment Friday.
Emanuel had not set a definite floor for the amount of money he wanted to see a bid bring in, but he "refused to proceed without at least two firms competing for the lease," Alexander said.
Investors face a challenge in finding ways to squeeze out more revenue, observers have said, because Midway already is well run, making it more difficult to find efficiencies and new revenue streams. It also is landlocked, which crimps expansion possibilities. And it is dominated by Southwest Airlines, which means its fortunes are inextricably tied to one business.
City Hall also was keen to differentiate this deal from the hated 75-year parking meter lease and from the city's first Midway privatization deal, which fell through in 2009 when credit markets seized up. It offered a shorter lease and insisted on revenue sharing, consumer protections for travelers and job protections for existing Midway employees.
A pool of six groups deemed qualified by the city self-winnowed down to two by midsummer; the other finalist was a partnership of Macquarie Infrastructure and Real Assets and Ferrovial, operating under the name of Great Lakes Airport Alliance, according to one of the sources close to the process.
When the process had two rather than three finalists, it became more risky. When another dropped out, City Hall was left with a lone bidder, which could have engendered opposition in City Council.
Great Lakes has been represented by lobbyist William Filan, who has a business relationship with the husband of city Aviation Commissioner Rosemarie Andolino. Filan has paid $154,000 since 2007 to Mark Fary, Andolino's husband, to lobby the city on behalf of a handful of Filan's clients, according to city records.
Filan said he has not lobbied the Aviation Department or any other city department on behalf of Macquarie or Ferrovial.
And city officials said the Midway lease process was spearheaded not by Andolino but by Chief Financial Officer Lois Scott.
Scott's consulting firm was itself involved in a prior Chicago privatization deal in which Macquarie took part. In 2004, the Chicago Skyway was leased for 99 years for $1.8 billion to a consortium that includes Macquarie.
Scott Balice Strategies, the consulting firm Scott co-founded and where she served as president before joining the Emanuel administration in 2011, has touted its role in providing financial analysis for bidders on the Skyway plan.
City officials said questions about Scott's role in the Skyway lease played no part in Emanuel's decision to halt the Midway privatization process.
Tribune reporter Hal Dardick contributed.
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