The city of Chicago has released a request for qualifications (RFQ) for an up to 40-year concession of Midway airport.
Chicago hopes to maximise the value of the airport through both an upfront payment and an annual revenue share while improving the facility's competitive position and passengers' experience, though the concession. A final deal would require the approval of airlines, the city council and the US Federal Aviation Administration (FAA).
Proceeds of the deal would be used to defease about $1.4 billion in outstanding debt issued since 1996 to rebuild the passenger terminal at the airport.
Any proposals for the airport would have to include stable and competitive rates for airlines that use the airport, according to the RFQ. The private operator would be expected to maximise revenue from other sources.
"Our responsibility is to the taxpayers of Chicago and the first step is to gain a complete understanding of the revenue and market opportunities available to us," says Lois Scott, chief financial officer of the city, in a statement. "We must evaluate fully if this could be a win for Chicagoans and ensure that certain conditions and criteria are met."
The RFQ outlines a deal that is a dramatic departure from a failed 99-year lease in 2008. Under this previous plan, Citi Infrastructure Investors, John Hancock and Vancouver Airport Authority-owned Midway Investment and Development Corporation was to make a $2.5 billion upfront payment to Chicago for the concession but the deal collapsed due to capital market issues following the credit crunch.
The proposed concession is similar to the 40-year concession for the San Juan Luis Munoz Marin airport in Puerto Rico. Grupo Aeroportuario del Sureste (ASUR) and Highstar Capital-owned Aerostar Airport Holdings will make a $615 million upfront payment to the Puerto Rico Ports Authority, $585 million in revenue sharing over the term of the contract and invest $195 million in upgrading the facilities during the first three years of the lease.
The FAA is expected to issue a decision on the San Juan airport deal in February.
Chicago must also avoid a repeat of its metered parking deal. Morgan Stanley Infrastructure Partners won the 75-year concession for $1.16 billion 2008, however a later analysis found that the private consortium would generate profits of more than double the payment over the life of the lease, which resulted in significant public outcry.
Passenger traffic at Midway is expected to increase by more than 2% to 9.6 million during 2012, according to the city. Traffic was up 7.1% to 9.4 million in 2011.
Southwest is the airport's largest airline, with an 88% share of enplaned passengers - 92% if you include its subsidiary AirTran Airways - in 2011, according to the city. It uses 29 of the airports 43 gates.
The Dallas-based low-cost carrier's support of a deal is critical. Under the FAA's airport privatisation pilot programme, airlines' carrying at least 65% of enplaned passengers and having at least 65% of landed weight must approve the deal - neither can be achieved at Midway without Southwest.
Credit Suisse is financial adviser to Chicago on the concession and Mayer Brown is legal counsel.
Responses to the RFQ are due 22 February with final bids slated to be due during the third quarter.