US AIRPORT PRIVATIZATION: CHICAGO MIDWAY AIRPORT AND BEYOND David Narefsky and John Schmidt Mayer...
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Transcript of US AIRPORT PRIVATIZATION: CHICAGO MIDWAY AIRPORT AND BEYOND David Narefsky and John Schmidt Mayer...
US AIRPORT PRIVATIZATION: CHICAGO MIDWAY AIRPORT AND BEYOND
David Narefsky and John SchmidtMayer Brown, LLPMarch 25, 2008
NYU Wagner Rudin Center for Transportation Policy & Management
MIDWAY AIRPORT:TRANSACTION IN CONTEXTCOMPLETED TRANSACTIONS:• Chicago Skyway – 2005• Indiana Toll Road – 2006• Chicago Underground Garages—2006
______________________________________________________
TRANSACTIONS IN PROCESS:• Chicago Street Parking;• Pennsylvania Turnpike;• Congestion Relief Toll Lanes;• Mass Transit, Ports, Lotteries;
________________________________________________________
• BUT MIDWAY IS ONLY U.S. AIRPORT TRANSACTION
MIDWAY AIRPORT:TRANSACTION IN CONTEXT
• Midway would be first major U.S. passenger airport to be privatized
• Private operation, management and ownership is common in Canada, Europe, Asia and Australia
• Over 50 airports privatized since 1987 – more than 10% of global market
Airport Privatization – Global Overview
•PRIVATIZATION OF UK AIRPORTS
•BAA--Privatized via IPO
Ownership of Heathrow, Gatwick and Edinburgh
Acquisition by BAA of Budapest Airport -- and recent sale to Hochtief
• Recent acquisition of BAA by Ferrovial
•London City Airport
• Credit Suisse/GE Capital/AIG consortium recently purchase for over 700 million pounds; prior acquisition for approx. 25 million pounds
Airport Privatization – Global Overview
Macquarie Airports: Sydney Rome Copenhagen Brussels
Aeroport de Paris: CDG and Orly
Airport Recent public
offering of shares
Hochtief: Dusseldorf Hamburg Athens Budapest
Other Privatized Airports: Vancouver (Vancouver
Airport Authority) Frankfort (Fraport) Amsterdam (Schipol) Mexico – IPO for dozen
regional airports
U.S. Airports – Limited Privatization to Date
JFK
Terminal 4/International Terminal—design/build/operate
Consortium = Schiphol USA, LCOR, Lehman Brothers
Indianapolis
Long-term contract for privatized operations through BAA
Contract to be terminated
Boston Logan and Pittsburgh
Privatized concessions through BAA
Orlando -- Sanford
Operated by TBI
Federal Authorization: FAA Pilot Privatization Program
Enacted in 1997;
Authorizes privatization of up to five airports
Only One Slot for “large hub” airport (1% of passenger boardings) – Midway reserved this slot in 2006;
If five airports are privatized, one must be general aviation airport;
Stewart Airport (Newburgh, NY)
Only airport successfully privatized under Pilot Program;
99 year lease to National Express Group
Lease recently acquired by Port Authority;
FAA Pilot Privatization Program—Key Provisions
• Exemption from prohibition on use of proceeds for non-airport purposes – allows proceeds to be “taken off airport”
• Requires approval by 65% of eligible carriers -- by number of airlines and by landed weight
• Exemption from obligation to repay federal grants
• Authorizes private operator to use net revenues for non-airport purposes
• Specific requirements for increases in airlines rates and charges.
• Permits private operator to receive and use PFCs and federal grants on essentially same terms as government owner
9
MIDWAY AIRPORT--OVERVIEW
• Premier point-to-point airport—leisure and business travel to over 55 destinations;
• 19.1 million passengers and 304,000 operations in 2007;
• New airport terminal opened in 2004--43 gates, concessions triangle, expanded parking and improved roadways;
• FIS Facility for international flights;
• Located 10 miles southwest of downtown Chicago
• Access via 30 minute, rapid transit rail service;
MIDWAY AIRPORT– INVESTMENT HIGHLIGHTS
• First mover advantage to new asset class
• 100% lease on a very long-term concession
• #1 airport for low-cost carriers
• New approach to rates and charges
• Untapped commercial upside
• State-of-the-art-facility
• Modest capital expenditure plans
• International route potential
• Access to passenger facility charges for Midway
CITY OBJECTIVES FOR MIDWAY TRANSACTION
• Protect the Public Interest
Maintain highest levels of public and passenger safety and security
Protect the public interest within the context of seeking value for the City and the airlines
Detailed operating standards and continued City oversight
New framework of rates and charges
CITY OBJECTIVES FOR MIDWAY TRANSACTION
• Maximize sale proceeds
Ability to use funds for infrastructure and pensions
Ensure that future airport development is safe, functional, efficient
CITY OBJECTIVES FOR MIDWAY TRANSACTION
• Fair and Transparent Process
Protect the reasonable interests of current and future airline users
Ensure fair and equitable treatment of existing Airport employees
Ensure a smooth transition from public to private management in a timely manner
STATE LEGISLATION—KEY PROVISIONS
• CITY STATUS OF HOME RULE UNIT;
• EXEMPTION FROM PROPERTY TAXATION;
• USE OF PROCEEDS – AT LEAST 90% FOR: “INFRASTRUCTURE WITHIN THE CITY”;
FUNDING PUBLIC PENSIONS ;
• “BEST PRACTICES” LABOR PROTECTIONS
• COMPLIANCE WITH MBE/WBE REQUIREMENTS;
• NO EXPANSION OF FOOTPRINT OF MIDWAY AIRPORT;
“BEST PRACTICES” IN LABOR PROTECTION190 City Employees at Midway = 165 Union + 25 Non-Union
Job Security Protections
* City will offer employment under substantially similar terms and conditions in another Department or location
* Lessee must also offer employment under substantially similar terms
Project Labor Agreements for public works projects funded by proceeds
* Applies to construction projects valued at $500,000 or more
Wage and benefits protections for employees of Private Operator
* Employees performing work formerly performed by City employees in bargaining units will receive the economic equivalent of the wage and benefits that would otherwise be received by the City employees
Protections for union organizing efforts
* Lessee will be required to negotiate a labor neutrality and card check procedure agreement
.
NEXT STEPS IN MIDWAY PROCESS
• RFQ Responses and Qualify Bidders
• Amended Use Agreement with Airlines and Lease Agreement with Private Operator
• Receipt of bids in 3Q of 2008
• Review and Approval by City Council and FAA/TSA -- Public Notice and Comment
• Foreign Investment—CFIUS Considerations
• Closing in 4Q of 2008
Contact Information
David Narefsky
(312) 701-7303
John Schmidt
(312) 701-8597