Chicago Midway Airport Privatization Takes Wing

Published June 1, 2008

Chicago’s Midway International Airport, which handles 19 million passengers a year, could become the first major commercial airport in the United States to go private.

Six firms have submitted qualifications to Chicago city officials to lease the airport and run it privately. The city expects to select one of the firms by year’s end or early next year.

One of the firms to submit qualifications–Macquarie Capital Group Ltd., based in Australia–is party to the $1.8 billion lease of the Chicago Skyway, a nearly eight-mile stretch of toll road in Chicago that links with the Indiana Toll Road. That lease was executed four years ago. The Indiana Toll Road was leased to the same private investors for $3.8 billion two years ago.

Chicago also has embarked on a plan to lease the city’s parking meters to a private firm.

$3 Billion Estimate

The airport deal is by far the bigger move. Some industry experts expect Chicago to receive about $3 billion for a long-term airport lease, though Robert Poole, an expert in the privatization of government transportation services, said he believes that estimate may be too high.

Annual revenues of the airport, including parking, concessions, and passenger facility charges, top $130 million. A private operator would have an incentive to attract more flyers by offering a greater selection of retail concessions, wider range of parking services, and other passenger-friendly improvements, said Lisa Schrader, Chicago’s deputy chief financial officer.

Airlines using the airport also can expect to see lower airport charges and more predictability and control over the charges, Schrader said.

Debt Wiped Out

Poole, a member of the Government Accountability Office’s National Aviation Studies Advisory Panel, agrees with Schrader’s predictions.

Chicago plans to use the lease proceeds to pay off the airport’s $1.2 billion in outstanding bonds, which would free up $50 million a year in debt service “that can go right to the bottom line, without any increases in revenues or cuts in costs,” Poole noted.

Poole also said he is “surprised at how much control the agreement gives the airlines–some significant assurances regarding charges plus airline veto power over capital projects that would increase what they have to pay for.”

Four of the six airlines that use Midway and account for 95 percent of the traffic there have signed on to the city’s attempt to take the airport private.

The biggest of those air carriers, Southwest Airlines, “likes the possibility of savings in leases and charges to operate there,” said company spokesperson Brandy King. “Charges can fluctuate up and down, mostly up. With privatization you can lock in some costs to predict your financial position moving forward.”

Steve Stanek ([email protected]) is a research fellow at The Heartland Institute and managing editor of Budget & Tax News.