Commentary

Renewed Interest in Midway Airport Lease?

As Crain’s Chicago Business reports, Midway Airport’s strong economic performance of late is rekindling interest in a long-term lease:

Midway Airport is pulling out of the recession faster than O’Hare International Airport, as shifts in the air travel market boost Midway’s fortunes and breathe new life into Mayor Richard M. Daley’s plan to privatize the city’s No. 2 airport.

Passenger traffic at Midway climbed 9% in September on a year-on-year basis, following smaller gains in July and August. O’Hare, meanwhile, saw monthly declines of 7% to 8% during the same period. […]

Midway remains about one-fourth the size of O’Hare, the nation’s second-busiest airport and a hub for United and American. That’s not going to change significantly, but Midway’s quick recovery will make it more attractive to private investors. “There is an active discussion around trying to get ready to do it (again),” says John Schmidt, a partner at Chicago-based Mayer Brown LLP who is advising the city on privatizing Midway.

A $2.5-billion privatization led by New York-based Citigroup Inc. and Vancouver-based YVR Airport Services collapsed in April. But a new deal could happen next year. “A combination of things has to happen for privatization: The airport has to come back, and credit has to be available,” Mr. Schmidt says. “To be able to say ‘Here’s an airport that’s doing well,’ it’s a great strength.”

In a sign the privatization market is reopening, New York-based Global Infrastructure Partners paid $2.5 billion last month for Gatwick Airport, London’s secondary airport. And in September, the Federal Aviation Administration gave preliminary approval to New Orleans to privatize Louis Armstrong International Airport.

Meanwhile, increased traffic at Midway will boost passenger facility charges ââ?¬â? the $4.50 fee the airport collects from travelers ââ?¬â? which are used to pay off bonds that financed an expansion five years ago. More passengers also means more revenue from parking, food and other concessions, a key component of any privatization.

This, plus the recent Gatwick purchase and the approval to move forward with a lease of New Orleans’ Louis Armstrong International Airport, offer some encouraging signs on the U.S. airport privatization front.

For the latest on international airport privatization, check out colleague Robert Poole’s comprehensive review in Reason Foundation’s Annual Privatization Report 2009, as well as Reason’s airports research and commentary here.

Leonard Gilroy is Senior Managing Director of the Pension Integrity Project at Reason Foundation, a nonprofit think tank advancing free minds and free markets. The Pension Integrity Project assists policymakers and other stakeholders in designing, analyzing and implementing public sector pension reforms.