Chicago Midway Airport Privatisation: Anatomy of a US airport lease

Sequestration bears down on airport investment

Almost every government department, from aviation to the parks service, is threatened as fallout in the political squabble, with cuts amounting to about 5% of overall budgets. Even allowing for some rhetoric, the FAA could reportedly – as soon as Apr-2013 – begin sequester cuts amounting to USD600 million – resulting in the closing of over 100 air traffic control towers. Further cost cuts that affect the Airport Improvement Program cannot be ruled out.

The sequestration procedures come just as a new study by Airports Council International-North America (ACI-NA) estimates the need for airport capital investment at USD14.3 billion per year, totalling USD71.3 billion between now and 2017. Of the total, 54% is for new facilities to meet projected growth in passengers and freight and another 43% for maintenance and rehabilitation of existing infrastructure. (The USD71.3 billion is actually 11% less than the total estimated in the previous Airport Capital Development Needs Study in 2011, due to slower economic growth and airline consolidation such as United-Continental and American-US Airways.)

Midway is the only airport allocated to the ‘hub’ airport category in the 10 (previously six) privatisation slots permitted under the 1996 pilot Airport Privatization Program, an initiative of the Clinton administration when it was becoming evident that, with only one entirely new airport recently completed (Denver) and with no others on the horizon, funding the replacement of critical infrastructure was going to become increasingly harder. The Clinton administration was supported, some might say ‘led’, by various governors and mayors whose attention had been drawn to the first wave of privatisations in Europe (IPO transactions in most cases) and notably by the then-Governor of New York, George Pataki, who appointed an Advisory Commission on Privatization.

Subsequently some members of Congress asked the General Accounting Office (GAO) to make a study of the global privatisation experience and whether it could be applied in the US, supported by lobbying from companies interested in the US market such as Lockheed Air Terminal and BAA USA. All of this led to the drafting of what became the pilot programme legislation.

US Airport Privatization Program has been overwhelmed by inertia

The programme has not been the success that was envisaged, owing to a combination of factors including the existing methods of finance (AIP grants; (occasionally tax-free) revenue bonds; and airline ownership of terminals, all of which is regarded positively at all levels of government and within the industry itself), allied to political opposition at all levels, particularly to foreign investment and the perceived US obsessiveness over "loss of control of a strategic asset".

It is often difficult to disentangle airports from their financial and legal ties to municipalities that date back (like some of the airports themselves) many decades. In fact, it would not be far off the mark to suggest that many public officials who sit on airport boards around the country are quite fond of their position and are not excited about the prospect of giving it up.

Hence there has only been one privatisation since 1996, a number of other proposals having fallen by the wayside. That was New York State’s Stewart International Airport at Newburgh some 60 miles north of New York City. A US subsidiary of the UK’s National Express, a bus and rail operating company, took on a 99-year lease in 1999 but voluntarily surrendered it to the Port Authority of New York and New Jersey in 2007 having realised the job of expanding the airport was too big for it.

That could have had the effect of undermining prospects for further lease privatisations, but the first Midway transaction was already under way courtesy of a Mayor, Richard Daley, who was keen to see it go ahead in the wake of a successful deal on some local toll roads. So keen in fact that he doubled up the airport deal with one on the city’s garbage collection and disposal system, a statement perhaps that aviation was most definitely no longer the sexy business it once had been.

This previous attempt to privatise Midway through a lease concession (the only permitted formula for commercial airports with scheduled air service, though general aviation airports may be sold outright) was in 2008/9. It collapsed in 2009 after the financial markets froze and the winning consortium, known as the Midway Investment and Development Company or ‘MIDCo’ (Citi Infrastructure Fund, Vancouver Airport Services (now known as Vantage Airport Group) and John Hancock Life Insurance Company) was unable to conclude adequate financing for the USD2.52 billion 99-year lease contract.

For the following three years there was a protracted period of inertia while the city tried to decide what to do next. Paralysing indecision was not helped by the fact that Mayor Daley had stood down at the end of a lengthy two-spell career as Mayor and had been replaced by another mover and shaker at the top table in Washington, Rahm Emanuel, but one who was elected on a ticket that more or less said, “privatisation of prized city assets over my dead body”.

The FAA put pressure on newly elected Mayor Emanuel to complete the Midway transaction

But Mayor Emanuel began to soften that position in the face of ever increasing requests from the FAA, which was keen to reallocate the ‘major hub’ category to another airport (assuming there was one, New Orleans had briefly shown interest but then quickly stood down as “the time is not right”).

Towards the end of 2012 it was clear the FAA was laying down the law and that if the Mayor did not commit to a second privatisation attempt then Chicago was going to lose its place forever. That would possibly have meant losing the right to privatise O’Hare Airport at some future date by the same method, an opportunity that any Mayor would want to hold onto when his city is riddled with debt, as Chicago is.

But, there was a further fly in the ointment. Along the way, between 2009 and 2012, a lease transaction procedure had been put into place on the Luis Munoz Marin Airport in Puerto Rico, a ‘Commonwealth State’ of the USA. This transaction had proved difficult in several ways. There were numerous objections from politicians and pressure groups along the way and even when the transaction was completed and Aerostar Holdings (Mexico’s ASUR and US investment fund manager Highstar Capital) assigned as operators under a 40-year lease, there was an eight month delay while the Governor-elect of Puerto Rico examined clauses to ensure that the privatisation of the country's main gateway would not have negative consequences for the country, saying jobs must be "guaranteed", rates not be increased and the development of regional airports must not be jeopardised.

The jobs issue was the real challenge to both sides and the Governor (as he is now) appears to have won that battle, the FAA affirming that "any collective bargaining agreement that covers airport employees and is in effect on the date of the sale or lease of the airport will not be abrogated by the lease of the airport to a private operator." (This, despite the fact that the airport is host to a powerful array of airlines capable of stimulating a vastly larger number of jobs in the wider economy of the San Juan region.)

San Juan Luis Munoz Marin distribution of seat capacity by airline: 04-Mar-2013 to 10-Mar-2013

Source: CAPA – Centre for Aviation & Innovata

Meanwhile, the airlines and Aerostar signed a 15 year User Agreement that reduces airline fees and stabilises rates and charges. The airline fee increases cannot exceed the annual rate of inflation for the remaining term of the User Agreement.

The lease deal seemed to divide politicians, roughly according to their colours, but with overall approval. US Senator Mark Kirk described the airport's privatisation as an "excellent" opportunity to demonstrate the potential of public-private partnerships in aviation in the United States. US House of Representatives delegate Pedro Pierluisi said the Puerto Rico Port Authority (PRPA) is burdened with "significant" debt and is therefore incapable of generating the necessary funds for airport improvements, while US House of Representatives Transportation and Infrastructure Committee chairman Congressman John Mica noted the privatisation will provide funding for much-needed capital improvements.

Aerostar Airport Holdings obtained its part 139 operating certificate from the FAA on 27-Feb-2013 and made its initial USD615 million payment to the PRPA. Aerostar will immediately begin to operate the airport, and will make an additional USD240 million investment during the first three years of its 40-year lease "to complete needed maintenance projects, improve passenger flow, upgrade roadways and technological infrastructure, reduce security wait times and improve and enhance airport retail offerings."

The partner Grupo Aeroportuario del Sureste (ASUR) claimed Aerostar will invest USD1.4 billion over the 40-year lease while the Puerto Rico government estimates it will receive "more than" USD2.6 billion in revenue and other benefits over the airport's lease. Aerostar called the FAA's decision “a historic milestone in unleashing entrepreneurs and engendering innovation at America's airports," while ASUR chairman Fernando Chico Pardo stated: "We look forward to transforming SJU [the airport’s IATA code] into a best-in-class facility that fully meets the needs of both domestic and international travellers to further enhance its position as the busiest airport in the Caribbean. Safety, security and efficiency are our top priorities, and we will bring a 'customer first' orientation to all that we do."

Puerto Rico’s governor admits the government was driven by necessity to privatise the airport

At the death, Governor Padilla admitted the PRPA had to privatise the airport because "right now, the Port Authority has zero dollars to invest in this airport". Governor Padilla observed, "If this deal wouldn't have gone through, it is important for you to know that there would be no money to pay our salary.” There’s nothing to beat upfront honesty from a politician and even allowing for the dire economic straits Puerto Rico is in it does beg the obvious question, “how many other US cities and regions does that apply to?” and especially as the City of Detroit (Michigan) is poised to file for Chapter 9 bankruptcy, which would see it join other cities such as Stockton and San Bernardino in California, which both went down that path in 2012.  

It seems that, in retrospect, just about everyone is happy to see this hard fought deal completed at last. Without doubt it set the tone for the second Chicago transaction and the very act of keeping a watching brief on what was happening in Puerto Rico might go some way to explaining why Mayor Emanuel waited until two weeks before the FAA’s ‘final deadline’ before formally resubmitting Midway’s second lease proposal and an RfQ (Request for Quotations). That RfQ turned out to be equally demanding.

The 2013 Midway process sees a greatly changed investor list, still with US investors few and far between

Before considering its contents it is enlightening to look at who Midway's 2008/9 bidders were and to compare them to those that have registered their interest in 2013 and got past the first hurdle.

Few of the previous bidders have emerged again, in some cases because they no longer exist or because they look as if they are leaving the business. As far as can be ascertained, this is the breakdown, comparing 2009 bidders to those that made the first cut in 2013:

Potential contenders (and others) in the Midway Airport privatisation; 2009 vs 2013

2008/9 bidding entity	Consortium/leader	Bidding in 2013?	History since 2009
Citi Infrastructure Fund	MIDCo Consortium	No	Indebted as a result of the financial crisis, scarcely heard of in this sector
Vancouver Airport Services		No	No recent acquisitions. Scaling down in UK.
John Hancock Insurance		Yes	Disappeared from sector after 2009 transaction failed but reappeared for this 2013 transaction
Abertis Infraestructuras	Abertis	No (May have lodged reply to RfQ, had investigated Midway again)	Looking for buyer(s) for its 29 airports
Babcock & Brown		No	Liquidated in 2009
GE Commercial Aviation Services		No	Hardly any presence in airport sector, helped fund a private airport terminal in Austin, Texas, since mothballed
Carlyle Infrastructure Partners	Airports America Group	No	Limited presence in the sector, occasional attempts to buy into smaller airports, e.g. Ontario, California and Edinburgh, also into TAV.
Macquarie Capital Group Limited	Chicago Crossroads Consortium	No	Background holding company
Macquarie Airports		No	Retrenched to Australia and became ‘Sydney Airport’.
Macquarie Infrastructure Partners I and II funds		Yes	Still involved in the sector
Hochtief AirPort	Chicago First Consortium	No	Looking for buyer(s) for its six invested airports
Hochtief Airport Capital		No	Linked fund to Hochtief Airport
Global Infrastructure Partners Fund I		Yes	Very active still, won London Gatwick in 2009, subsequently Edinburgh, already operated London City. Frequently engaged in expansion activities.
Morgan Stanley Infrastructure Partners	Morgan Stanley	No	Moderate exposure, negotiated with Manchester Airports Group over joint Stansted Airport bid.
Aeroports de Paris Management		No	Less exposure than in the past but now 38% shareholder in TAV.
HMSHost Corporation		No	Disappeared from view

Source:  CAPA – Centre for Aviation research

The following table is of the 2013 bidders that passed successfully the RfQ stage, being identified as entities having the operational and financial capabilities sought in the RfQ.

2013 bidding entity	Consortium/leader	Description (by City of Chicago)	Involved in 2009 bid?
ACO Investment Group (US)	ACO Investment Group	An investor and operator with global airport experience.	No
AMP Capital Investors Limited (Australia)	AMP Capital Investors Limited	A manager and investor in airports, including Melbourne Airport in Australia and Newcastle Airport, in Britain	No
Corporacion America Group (Argentina)	Corporacion America Group	Airport operator with 49 airports in seven countries.	No
Global Infrastructure Partners (GIP) (UK)	Global Infrastructure Partners	The controlling investor and active manager of London City Airport, London Gatwick Airport and Edinburgh Airport	Yes
Great Lakes Airport Alliance, a partnership of Macquarie Infrastructure and Real Assets and Ferrovial	Great Lakes Airport Alliance (leader unknown)	Its airport operations include London's Heathrow, Brussels Airport and Copenhagen Airport	Yes (Macquarie)
Incheon International Airport (Korea) and Hastings Funds Management	Incheon International Airport	The sole owner and operator of Incheon International Airport in South Korea and an investor with 16 airport-related investments.	No
Industry Funds Management (IFM (Australia) and Manchester Airport Group (UK)	IFM	An investor with interests in 13 airports, including Melbourne Airport and Brisbane Airport, both in Australia, and operator of Manchester Airport and East Midlands Airport, in Britain.	No

Source: Official RfQ document/CAPA – Centre for Aviation research

In addition, a further nine entities failed to make the cut in 2013:

• Alberta Investment Management Corporation institutional investment fund managers, Edmonton, Canada
• Allstate Investments (private equity and alternative investments), Chicago and Boston, USA
• Barclays Capital, UK
• GS (Goldman Sachs) Global Infrastructure Partners, USA (not to be confused with GIP, above)
• John Hancock Life Insurance Company, USA
• Ontario Teachers’ Pension Plan Board, Canada
• (Banco) Santander, Spain
• Teachers Insurance and Annuity Association of America, USA
• Ullico Infrastructure Fund (insurance company), Washington DC, USA

As far as it is known, Alberta IMC, Allstate Investments and the Ullico Infrastructure Fund are new to the sector, as are their more successful peer, the ACO Investment Group, an alternative investments manager. This organisation, based in New York and with an office in Mumbai, India, is the brainchild of founders Hari Achuthan, a former executive at Credit Suisse and Lehman Brothers, and Rono Dutta, described on the corporate website as “a global strategic thinker with outstanding skills in business restructuring and development…Mr Dutta is an accomplished and respected leader with over 25 years of experience in the aviation industry.”

Though perhaps not so well known in the global airport business as Chicago’s hype suggests, Mr Dutta was president of United Airlines from 1999 to 2002, president of Sahara Airlines in India from 2004 to 2008, and has also worked with Air Canada, Hawaiian Airlines and US Airways. They are supported by several academics. This firm makes for an interesting addition to the usual mix of bidders.

Otherwise the shortlist is remarkable for the absence of substantive US investment interest, a consequence of the country's airport sector having been carefully protected from exposure to private funding. Australian and European capabilities are much more in evidence.

Mayor Emanuel specified any second privatisation attempt would have to provide city taxpayers with a better deal than the widely criticised 75-year agreement to privatise parking meter operations, carried out during former Mayor Richard Daley's administration. Proceeds from the earlier deal were used to remedy operating deficits, and meter rates rose sharply.

The latest RfQ allowed city officials to ‘test market’ interest for the potential lease of Midway Airport and the response generated from the process was described as “encouraging...providing the City with a sense of the strong level of interest in a potential lease.” The response was perhaps surprisingly positive taking into account the tougher conditions, which were influenced by the previous bidding process, the generic antipathy to these transactions that was referred to earlier and, quite possibly, the status of the Puerto Rico transaction (it was referred to directly in the second paragraph of the Midway RfQ document).

Midway's tender document majors on a Travellers' Bill of Rights

Those conditions are brought starkly into focus by the determination that ‘protecting the public interest is of overriding concern’ as emphasised by the location of these conditions at the head of the RfQ overview.

The very first clause demands a Travellers' Bill of Rights be established and adhered to by the new operator, even before the clauses specifying growth enhancement:

"The City and its Advisor will seek to structure a transaction that meets the City’s primary objectives of:

Protecting the public interest

• Establish a Travellers' Bill of Rights to protect the public’s interest and maintain the highest standard of safety, security and customer service
• Improve the competitive position, service quality, growth prospects and efficiency of the Airport for the benefit of Chicago residents, airlines and other users
• Ensure that future airport development is safe, functional, efficient and delivered when necessary
• Minimise the City’s exposure to residual risks and liabilities
• Maximise value for the City and its taxpayers, consistent with other stated objectives, through both upfront and annual payments
• Execute a new Use Agreement that will increase the efficiency of the Airport's operations and improve its responsiveness to users"

Under a further clause, “Conducting a fair and transparent transaction process”, the city promises to “protect the interests of current and future airline users” and “ensure fair and equitable treatment of current City airport employees.”

These clauses have deep significance. The airport is dominated by Southwest Airlines. There are only six other airlines (accounting between them for only 11% of seats) operating at Midway, which handled over 19 million passengers in 2012 (enplaning and deplaning, the US authorities usually only count in one direction).

This is five less airlines than at a comparable UK airport like London Stansted, which is dominated by Ryanair – which started life as a Southwest clone – and 31 less than at Manchester Airport, which is a Midway bidder. (For the record there are presently 24 airlines operating at San Juan).

Southwest currently has almost 89% of all the seat capacity at Midway. Because it only needs to have 65% of the aircraft landed weight at Midway to have a decisive say in the imposition of fee increases, Southwest has been a major player throughout both these (2009/2013) transactions. It is, simply, the deal maker, and has secured the continuing guarantee that fees will not rise faster than inflation as a minimum.

Midway Airport distribution of seat capacity by airline: 04-Mar-2013 to 10-Mar-2013

Source: CAPA – Centre for Aviation & Innovata

Protection of airport employees is essentially the same issue that was an important part of the delayed Puerto Rico deal. At least the Australian bidders will be familiar with it as the wholesale privatisation of Australia’s airports through trade sales in the late 1990s included very favourable conditions for existing state employees in what is widely regarded as a benchmark transaction. But it could mean that over-manning in Chicago cannot adequately be tackled.

The more serious issue might turn out to be the ’travellers’ bill of rights’ to be drafted by the City, and just what that means. The RfQ document does not elaborate. Ever since the Bill of Rights and the Constitution in the 17th century Americans have tended to take the often motherhood provisions rather more seriously than have Europeans, and Europeans together with Australians make up the bulk of the bidders. Most of them will be stepping into unknown territory with this clause. It could potentially mean heavy fines for airlines and/or even the operator itself if travellers are inconvenienced, though there is nothing to say so in the RfQ, one way or the other.

The vague time span for length of airport lease will reduce the value

Another clause of concern must be the one that specifies that the lease will be (vaguely) “of fewer than 40 years”, evidently locking the city in for a shorter time span. Puerto Rico’s lease is for 40 years but hitherto they have been for 99 years (Stewart International and the 2009 Midway transaction). Throughout the Americas, 30-35 years is a typical lease period but bidders will be wary that it has reduced here so dramatically while at the same time they are instructed that, “any transaction must be structured to provide an ongoing source of funds for capital needs”.

In addition to a shorter time to able to do so, the successful bidder must juggle an upfront payment and a continuing annual payment comprising a share of each year’s airport revenue for the privilege of all the above and of providing “a strong benefit to taxpayers.” That this is a win for Chicagoans is clearly of the greatest significance to the Mayor.

Initial proceeds would be used to pay down debt issued since 1996 to rebuild the airport. There is about USD1.4 billion in outstanding debt. In the longer term, cash flow would be directed to city infrastructure needs. The mayor has pledged proceeds would not be used to pay for city operations (municipal op ex).

The airport is unlikely to be affected one way or the other by the recent merger of American Airlines and US Airways as neither operates there. Essentially, the 21st century Midway confrontation is between Southwest and itself in the form of subsidiary AirTran.

From here on in the timescale set by the city dictates that final bid documents and binding bids are due in 3Q2013. Once binding bids are submitted, a report of the Midway Advisory Panel will be issued. The city council will have a review period of no less than four weeks prior to final action by council.

Once the council has approved the transaction, a final application will be submitted to the FAA. It is expected that there will be a 60 day public comment and a 60 day review period, followed by financial closing of the transaction. So if binding bids are in by the end of Sep-2013, about Jan-2014 or Feb-2014 should see a final decision.

The City is at pains to point out it reserves the right to change the indicative timeline at any time.

Senator seeks refund of federal grants to Midway Airport

Unlike Elvis, politics has not left the building. Late in Jan-2013 a well known Senator, Dick Durbin, imposed himself on the Midway process by sending a letter to Department of Transportation Secretary Ray LaHood, seeking to condition federal approval of the transaction on the return to the federal government of USD378 million in federal airport grant funds that have been provided to Midway since 1982. In the letter, Durbin asserted the following: “The federal government has borrowed heavily to make investments in Midway and other airports across the country”. Local US-based analysts, including the Reason Foundation’s Bob Poole, insist that claim is wrong.

Mr Poole has said the federal grants were made by the Airport Improvement Program (AIP). AIP’s grant money in fact comes exclusively from the Aviation Trust Fund, whose only sources of funding are aviation user taxes paid by passengers, airlines, and other users of airports and airways. Mr Poole added that “Durbin might have a case if general fund money had been used for AIP, since the federal budget has been in deficit nearly every year since 1982 and has therefore had to borrow trillions of dollars. But not one penny of AIP funds comes from the general fund.”

Moreover, Senator Durbin’s letter implies that the Secretary of Transportation has the power to require repayment of previous federal grants as a condition of FAA approval of the airport’s lease. Wrong again, stated Mr Poole. The pilot Airport Privatization Program is a law, duly enacted by the Congress in 1996. Its purpose is to exempt a limited number of airport privatisation transactions from a number of federal restrictions that would ordinarily apply, such as the repayment of previous federal grants and a prohibition on taking any airport revenue into a city's budget. Senator Durbin presumably knows this, because in 2011 he tried to enact anti-privatisation legislation that would impose several burdens on such transactions, including a requirement to repay previous federal grants—but that legislation went nowhere.

Mr Poole concluded: “Does anyone else find it strange that a Democratic Senator from Illinois is trying to impose a burden on a plan being pursued by the Democratic Mayor of that state’s largest city?" All this may seem a little arcane, perhaps even bizarre, to non-US readers but it does rather underline the point made earlier that politics have come to dominate the airport privatisation process and that there are no certainties. This is the game the bidders, most of which are not North American, are getting sucked into. And, necessarily, such games will reduce the price they are willing to pay.

All bidders have an ace up their sleeve but GIP possibly has the edge

So which consortium will succeed? 

Each has an ace up its sleeve.

- ACO Investment can perhaps be regarded as the outsider at this stage though its personnel are extremely well acquainted with the US airline industry, which has its benefits.

- AMP Capital Investors as a fund has exposure through partial ownership of an operator to the (big) Melbourne and (small) Launceston airports in Australia. Having failed to land Copenhagen Airport when Macquarie Airports sold its stake, it then moved for and acquired the UK’s Newcastle Airport in 2012 but this is another relatively small facility. Its experience may not quite be adequate for the city to appreciate.

- Corporacion America has a sizeable portfolio in Latin America (mainly Argentina) and Europe. It was an unsuccessful bidder for both ANA of Portugal and Puerto Rico’s San Juan Airport but had more joy in Brazil, securing the Brasilia Airport concession within the consortium InfrAmerica. It must be considered a serious contender.

- GIP has returned for a second shot at Midway, this time on its own as both investor (with its second infrastructure fund) and operator. It is garnering applause for how it is developing London’s Gatwick Airport and would be keen to show it could have made a difference at London Stansted, for which it did not bid, probably because of competition issues.

- Great Lakes Alliance is an unknown quantity. Macquarie’s Infrastructure Fund is well versed in these activities but Ferrovial is in limbo as it repositions itself away from the UK while at the same time it is unable to get anything going in moribund Spain. Under a new CEO for Ferrovial Aeropuertos (Jorge Gil) the word on the street is that Ferrovial is taking a much more aggressive investment approach right now.

- Incheon Airport put itself about in 2012 with numerous bids including the Edinburgh and Puerto Rico airports, coincidentally as its own privatisation was suspended. It is aggressive but has yet to land a successful project apart from a small one in Russia (and with a minority share).

- IFM with Manchester Airports Group. This is intriguing because of the history of these two entities, which came together to launch an ultimately successful bid for London Stansted Airport, as a result of which IFM took a 35% share in MAG. While the bulk of the financing for that deal emanated from IFM, the two went into it as equal partners.

But in this case it is IFM that is the driving force, with MAG tagging along as no more than a ‘consultant’ if City of Manchester’s Council Leader is to be believed. In the wake of the Stansted deal, which increased MAG’s debt to GBP900 million despite it being the junior finance partner and which prompted S&P to reduce its credit rating, concerns were expressed locally that the management will take its eye off the ball in order to focus on Stansted, where there is much work to be done – and especially if the Davies Commission does not support Stansted for expansion when it reports its initial findings into UK airport capacity at the end of 2013. For that reason the Council Leader would be keen to play down Manchester’s commitment to Midway.

On the other hand, would the City of Chicago have even considered waving IFM/MAG through the RfQ stage if it were not satisfied that MAG would play a significant management role, bringing its expertise in juggling the demands of a wide range of carriers?

Whoever wins, Midway offers a challenging outlook – and a reduced price for the city

Whoever wins, they can anticipate a difficult few years as they struggle to increase revenues to the extent necessary to satisfy Chicago’s voracious financial demands. The difficulties of operating Midway are well known. It has been growing as fast as any other US airport in the last year or so but the much-vaunted ‘five runways’ (see photograph below) are really only two as the others mainly host general aviation (and especially since the lakefront Meigs Field GA Airport was closed in Mar-2003).

It is hemmed in by suburbs and industrial complexes probably as much as any other airport in the world including Sao Paulo Congonhas and Lisbon Portela and not without good reason is  known as “the busiest square mile in the world”.

Midway has experienced several runway incursions during the last two years. Apart from the fact aeronautical revenue avenues will be strictly controlled, the propensity to increase non-aeronautical ones are restricted by its small size. To give an example, Manchester Airport, which is something of a leader in non-aero revenue generation, has 70,000 square feet of retail and F&B space across its terminals compared to 50,000 square feet at Midway, most of which is located around an area known as the Triangle Food Court. Manchester has 26,000 parking spaces (a valuable revenue source) compared to 12,000 at Midway.

Midway Airport – ‘the world’s busiest square mile’

Source: Luiz Felipe Castro

Therein would lie the potential for expansion – except that it is difficult to envisage how it could be arranged within such restricted parameters.

As for exactly what price the City of Chicago might achieve for Midway, the consensus until recently, taking into account its profitability, was that it would be much less than the USD2.5 billion achieved last time out before the collapse of that deal. There are suggestions that it may be perhaps as little as USD1.25 billion. But with valuations increasing with every transaction last year, with Stansted having sold for GBP1.5 billion (USD2.26 billion) and with its strong traffic performance over the last two years (frequently better than that of O’Hare Airport) a range of USD1.5 to USD2 billion should cover most eventualities.