The deal to privatize Chicago’s Midway Airport has been canceled. Gene Saffold, Chicago’s chief financial officer, told The Wall Street Journal, “We will consider competitively offering the transaction again when market conditions improve.”
The failure of the Midway deal to get financed is a setback for U.S. airport privatization, but is hardly the end of the world.
A number of analysts were surprised at the size of the consortium’s $2.5 billion bid, considering it excessive given the airport’s limited growth prospects. That high price-tag made the deal harder to finance, at a time when debt markets are still very risk-averse. A deal that would have required, say, 30% equity and 70% debt 12 to 18 months ago may well have required 50 to 60% equity in today’s debt markets and that was very likely more equity than Citi Infrastructure Investors was willing to put into this one deal, especially when it’s considering a bid for the London Gatwick Airport, which has much better growth prospects than Midway.
In terms of the future of US airport privatization, there are positives and negatives from this event. On the negative side, the fact that Midway’s $2.5 billion valuation could not be sustained means other cities contemplating privatization may have to scale back their assessments of how much a lease of their airport could bring in—and that may dampen enthusiasm in some places.
On the other hand, under the federal Airport Privatization Pilot Program, there is only one slot for a “large hub” airport, and Midway had taken that position. Freeing that spot up means that other large cities may now have a shot at privatizing their airports.
For the other areas and airports that have privatization proponents—Austin, Hartford, Kansas City, Milwaukee, New Orleans, etc—there are still three slots in the Pilot Program for small and medium hub airports, so their prospects are unchanged.
The real importance of Midway was that the City of Chicago figured out deal terms that the airlines serving that airport were comfortable with. Hence, those terms remain as a template for others hoping to gain airline support for their own privatization plans.