Dec. 09--A tentative agreement valued at up to $100 million will be announced Monday for private investors to develop and manage the long underused Gary/Chicago International Airport and incubate businesses in the surrounding area, the Tribune has learned.
The privatization venture marks a new effort to bolster Gary/Chicago's claim as the Chicago area's third airport, behind O'Hare International and Midway airports, while creating jobs and boosting the economy in northwest Indiana.
Gary/Chicago currently offers no scheduled airline service.
The new deal calls for a consortium of investors, led by Aviation Facilities Co. Inc./AvPORTS, of Dulles, Va., to spend the $100 million on and off the airport, starting with at least $25 million in the first three years, according to officials representing Gary Mayor Karen Freeman-Wilson.
Airport ownership and sponsorship will remain with the airport authority board, officials said. The two main components of the deal, an airport management agreement and a master development agreement covering nearby real estate, are each five-year deals with automatic renewals over 40 years.
The Gary/Chicago tentative agreement comes three months after Chicago Mayor Rahm Emanuel terminated negotiations for the privatization of Midway Airport, citing a lack of competition after one of two groups vying for the deal dropped out, officials said.
The terms provide "incentive pay" to the investment team of about 20 percent of rental and other profits each year for development of about 3,000 acres on and near the airport property, while limiting the Gary/Chicago airport authority's financial risk to about $120,000 a year in fees, plus operating cost of the airport, officials said. The airport will also pay for a $60,000 study aimed at increasing air passenger service.
As part of the overall package, the private development-management team will provide about $300,000 over three years to promote new jobs. The agreement sets a minimum 20 percent participation for minority- and- women-owned businesses, officials said. The master agreement establishes a target of at least a 30 percent local participation in contracts and sub-contracts.
"We want to make sure we have job creation and economic development in the region," said Carrie Hightman, chairwoman of the airport's public-private partnership committee. "It's not just about getting more planes in and out of the airport. We think this is a long-term strategic partnership that brings the community along with it, and maximizes economic, social and environmental benefits."
Gary/Chicago International is about a half-hour drive from Chicago via the Chicago Skyway and is connected to Chicago's transportation network through rail and trucking freight operations as well as being close to Lake Michigan ports.
Despite those assets, the airport -- which includes a main runway long enough to serve many types of single-aisle airliners, a passenger terminal and a $166 million runway extension project underway -- has failed to sustain commercial operations. The runway project will extend the main 7,000-foot runway by 1,900 feet, enabling use by just about any Boeing or Airbus plane, officials said. A completion date hasn't been set.
Terms of the tentative public-private partnership will be presented to the Gary/Chicago airport authority board Monday, officials said. The timeline calls for approval of the deal and execution of a contract in early 2014.
The goal is to sprout individual projects within the first three years, officials said.
City of Gary and airport officials said they have no preconceived ideas for the public-private partnership beyond the desire to promote corporate jet, charter jet, cargo and commercial airline operations at Gary/Chicago. The private consortium is being counted on to provide leadership, creativity and innovation, said Bo Kemp, an adviser to Freeman-Wilson on the project.
"There has been strong disbelief -- that a deal of this nature could never be done in Gary and that world-class operators would never be interested in working in Gary," Kemp said. "We have just crushed such thinking with this deal. Hopefully there will be many others who will come behind this deal to work with us, because business can be done in Gary."
Aviation Facilities Co.'s team includes Guggenheim Partners, a financial services firm; Loop Capital, an investment bank; and Michael Mullen, former chief executive officer of Centerpoint Properties.
Over the years, a number of low-cost airlines have come and gone at Gary/Chicago, ranging from Hooters Air and an airline that resurrected the Pan Am Airways name. Both went out of business.
The most recent carrier serving Gary/Chicago, Allegiant Air, in August terminated its twice-weekly service between Gary and Orlando Sanford International Airport in Florida. Executives at the Las Vegas-based Allegiant cited weak passenger demand.
Boeing Corp. houses its executive jet fleet at Gary/Chicago. Boeing employs about 70 people at the airport. A new fixed-base operator, which will provide aviation services to pilots and fleets, is scheduled to break ground at the airport this week, officials said.
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