PRIVATIZATION OF CHICAGO MIDWAY AIRPORT: AN OVERVIEW

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PRIVATIZATION OF CHICAGO MIDWAY AIRPORT AN
OVERVIEW

• David Narefsky
• Mayer, Brown LLP
• March 19, 2008
• Lambda Alpha, Ely Chapter

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MIDWAY TRANSACTION IN CONTEXT

• COMPLETED TRANSACTIONS
• Chicago Skyway 2005
• Indiana Toll Road 2006
• Chicago Underground Garages2006
• __________________________________________________
  ____
• TRANSACTIONS IN PROCESS
• Chicago Street Parking
• Pennsylvania Turnpike
• Congestion Relief Toll Lanes
• Mass Transit, Ports, Lotteries
• __________________________________________________
  ______
• BUT MIDWAY IS ONLY U.S. AIRPORT TRANSACTION

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Chicago Skyway Closed in 2005

• Upfront Rent 1.8BB for 99 Year Lease
• Long-Term Lease, Not Purchase City Retains
  Ownership
• Cintra-Macquarie Retains All Toll Revenue
• Subject to Certain Toll Limits
• City Retains Right to All Other Revenues

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Use of Skyway Proceeds

• Use of Proceeds
• 465 million Skyway debt repayment
• 500 million permanent reserve5 annual growth
  greater than prior Skyway excess revenue
• 390 million City debt repayment
• 375 million annuity for operating budget over
  8 years
• 100 million for human service programs

• Market Response
• In August 2005, rating agencies increase Citys
  bond rating to AA and AA-
• Reserve fund provides cushion against downturns
  in tax collections and emergency expenditures

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Location of Chicago Underground Garages
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Underground Parking Garage Closed in 2006

• Winning Bid Morgan Stanley at 563 MM
  obligation to rebuild garage infrastructure
  65MM for initial rebuild of East Monroe Street
  Garage 550MM over the term of the lease
• 61K/parking space, among the highest amounts per
  space for US parking garage
• Morgan Stanley teamed with LAZ Parking as
  operator

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Parking Garages Use of Proceeds

• Retirement of Debt 278MM
• Park Improvements 122MM
• Chicago Park District Reserve Account 120MM
  (generating annual income of 5MM)
• Rebuild of Daley Bi-Centennial Plaza (in
  conjunction with rebuild of East Monroe Street
  Garage) 35MM
• Again, contract requires operator to rebuild
  garages over term of the lease

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CITY OBJECTIVES FOR MIDWAY TRANSACTION

• Protect the Public Interest
• Maximize sale proceeds
• Fair and Transparent Process

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CITY OBJECTIVES FOR MIDWAY TRANSACTION

• Protect the Public Interest
• Maintain highest levels of public and passenger
  safety and security
• Detailed operating standards and continued City
  oversight
• New framework of airline rates and charges
• Improve the competitive position, service
  quality, growth prospects and efficiency of
  Midway

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CITY OBJECTIVES FOR MIDWAY TRANSACTION

• Maximize sale proceeds
• Ability to use funds for infrastructure and
  public pensions
• Ensure that future Airport development is safe,
  functional, efficient

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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

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MIDWAY 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

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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

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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

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U.S. Airports Limited Privatization to Date

• JFK
• Terminal 4/International Terminaldesign/build/ope
  rate
• 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

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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
• Long-term lease acquired by Port Authority

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FAA Pilot Privatization ProgramKey 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
  City

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STATE LEGISLATIONKEY PROVISIONS

• Public Act 94-750 Adopted in 2006
• 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

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BEST PRACTICES IN LABOR PROTECTION

• 190 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
• .

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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
• Closing in 4Q of 2008

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Contact Information
David Narefsky. Mayer, Brown LLP (312)
701-7303 dnarefsky_at_mayerbrown.com www/mayerbrown.c
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