Four years ago Chicago Mayor Richard Daley set off something of an earthquake by leasing the Chicago Skyway for $1.8 billion. The question for today is: Will his lease of Midway Airport for $2.5 billion set off a similar earthquake?
In the toll roads area, the Skyway deal was a wake-up call to the global capital markets that there was frozen capital value trapped in often-poorly-run government toll roads. Over the previous decades, Canada, France, Italy, Portugal, and Spain had all privatized state-owned toll roads, but somehow the idea had been considered unthinkable in the land of tax-exempt municipal revenue bonds. The Skyway deal showed that with a sufficiently long lease term (99 years), private capital could compete with tax-advantaged public-sector debt–and the floodgates opened. A year later Indiana leased its much larger toll road for $3.8 billion, and the private sector rescued failing start-up toll roads in Virginia and Colorado. And this year we've seen a record $12.8 billion bid for the Pennsylvania Turnpike (though politics may still torpedo that deal).
Are we now going to see a wave of U.S. airport privatization deals? Maybe.
On the upside is known interest from at least two other local governments–Austin and Milwaukee. And there are three available slots left in the federal Airport Privatization Pilot Program for medium-sized airports like those two. The fact that the Midway deal could still be done, given the turmoil in the financial markets right now, is another positive sign. And even though airlines are currently cutting back services to try to get back into the black, that's a short-term phenomenon that should have little impact on the long-term value of airports as infrastructure investments.
The main downside is that once the three remaining slots in the Pilot Program are filled, nobody else can privatize their airport–unless and until Congress expands that legislation. And that has to be seen as a huge question mark. As of today, Congress is a full year late in reauthorizing the Federal Aviation Administration, and with it the long-running airport grants program. If they give aviation such a low priority, it's hard to imagine them rushing to expand an obscure piece of aviation legislation, especially to expand the scope of the dreaded P-word.
Still, city and county budgets are likely to be in worse shape next year than they are now. If America's mayors and legislators call for expanded airport privatization, even a Democratic Congress might actually take them seriously.