at: but it was shut down/more modeling

Zane Gresham represented the major airlines serving San Juan, Puerto Rico - American, Delta, Jet Blue, Southwest, United-Continental, US Airways, UPS and FedEx - in negotiating the transaction with the Government of Puerto Rico and Aerostar, and securing FAA approval. The closing initiates a 40-year lease to Aerostar to finance, operate, maintain and improve Luis Munoz Marin International Airport as well as 15-year Use Agreements with the airlines. This is the first major US airport to use a privatization model following the 1996 law establishing the FAA's Pilot Privatization Program. A similar move was attempted for Chicago's Midway airport in 2009, but was dashed in the wake of the U.S. financial crisis. A renewed effort is underway at Midway. "This is a pioneering effort, one that will encourage other governments to revisit this method to finance and develop important infrastructure. Under the right conditions, it is an excellent model to fund infrastructure improvements," said Mr. Gresham.

The US also scores less well for Industry Risks than its peers. While an increasing number of states are in the process of enacting PPP laws and carrying out projects under a PPP framework, the model is not widely established. We believe regulatory uncertainty and long lead times will remain a key concern for project sponsors. Additionally, progress for PPP projects can be slow as regulations are being refined alongside the tendering process. A fundamental disconnect between the political and professional opinion on PPPs still also exists, and we believe that a change of attitude is still needed if private funds are to fill the ever-growing gulf between the need for infrastructure and funding capabilities. The abandoning of the Midway Airport privatisation is a prime example of how the PPP market in the US is yet to find its feet, which prevents the construction industry from benefitting from an influx of private investment.

Mere hours after the our 2013 US roundtable had concluded, procurement for a public-private partnership (PPP; P3) to operate Chicago Midway International Airport was halted. For the asset class, the aborted deal - a purported 40-year lease valued near $2 billion - was a remarkable upset: Midway Airport was a distinctly attractive asset and a potential 'game-changer' for airfield P3s as well as privatisation as a whole in the US. For the four men who participated in our roundtable, however, the cancelled Midway tender was not only a bitter pill to swallow - another unwelcome reminder of the soul-crushing vagaries that come with the territory when investing private capital in public infrastructure in the US - but also, in a word, awkward. For what amounted to a good hour-and-a-half, John Dionisio, Rob Keough, Luis Sanchez Salmeron and Rick West, had by and large waxed positive on the US and its second coming as a hypothetically bottomless PPP market, citing Midway (not to mention Chicago) as proof of a newly acquired Stateside awareness about privatisation while referring to Midway as "a great example", "extremely transparent", and "a positive sign".

Collins believes that, to gain insights into the US PPPs of the future, one should look no further than the city in which we are currently located. In July, Greenhill & Co Click for Enhanced Coverage Linking Searcheswas appointed financial adviser to New York City on potential PPPs in parking, real estate and water/wastewater treatment. In an earlier interview, he said that the city wanted to "focus on new ideas and new structures" and that transaction structures would result "that can be replicated across the US". He believes that it is possible to achieve efficiencies while also working alongside organised labour in a process that "is not an outright privatisation". As a prior example of such a process, he points to Chicago's Midway Airport, where an attempted $2.5 billion privatisation launched in 2008 fell apart in April 2009 due to a lack of debt financing in the wake of the Crisis. "Midway was a terrific case study in generating union consensus because it had the strong support of organised labour and it's crucial to get that buy in upfront," says Collins. "Sadly, the deal did not reach financial close as it would have stimulated massive job growth in Chicago given the intended use of proceeds for city infrastructure investment." Lipschultz makes the point that, given the fiscal crises plaguing the developed world, a solution to funding infrastructure that goes beyond conventional methods simply has to be found. "Historically, the choice was privatise or borrow more money," he says.

-- Airport employees and concessionaires--The effect of airport privatization on labor and concessionaires is also airport specific. While existing labor contracts cannot be abrogated or modified by an airport privatization under the APPP, the public sector airport owner may add other labor or concessionaire protections.[Footnote 80] For example, the private sector operator selected under the first privatization attempt of Midway was required to adhere to Chicago`s disadvantaged business and prevailing wage requirements, and for the second privatization attempt, City of Chicago officials stated that while the APPP did not require it, every city employee at Midway would have a position with similar employment terms and conditions at either the new operator`s company or the city. In addition, while all of the Puerto Rico Ports Authority employees at Luis Marin Munoz were interviewed for jobs with Aerostar, according to Aerostar representatives, Aerostar was not required by either the APPP or the terms of the agreement with PRPA to re-hire those employees. Many PRPA employees at the airport chose to stay with the PRPA. For example, out of the 400 employees from the managerial staff, only about 15 accepted jobs with Aerostar. Union officials we spoke with who represent the managerial staff affected stated that so few accepted Aerostar`s offer because they did not know what their jobs were going to be and therefore chose either to remain with PRPA or to retire. Existing concessionaires may also be affected by privatization. We spoke with two concessionaires at Luis Munoz Marin who believe that the new airport operator is infringing their long-standing concession agreements, and they are currently trying to resolve their disputes with PRPA and Aerostar.

I was as surprised as nearly everyone else by Chicago Mayor Rahm Emanuel's decision early last month to halt the privatization process for Midway Airport. The decision came after one of the two finalists appeared to be pulling out, leaving only the Macquarie/Ferrovial team in the running. With support for privatization from the City Council uncertain, Emanuel decided to pull the plug, rather than negotiating with the only bidder. That may have been the political path of least resistance, but as I told a Bond Buyer reporter, the city might still have been able to negotiate a deal that met its key requirements, since serious negotiations had not yet begun. Clearly, the city's desire for both a large up-front payment and significant ongoing revenue sharing reduced Midway's attractiveness to investors, but you never know how good a deal you can get until you negotiate. In the aftermath of the announcement, there were various hints that Chicago might try again, which would require trying to hang onto its slot. My view, expressed in a blog post at the time, was that five years of sitting on the only "large hub" slot in the federal Airport Privatization Pilot Program was enough. By occupying that slot, Chicago was precluding serious consideration of privatization by any of the other 28 airports defined by FAA as large hubs (based on annual passenger counts). But those doubts were put to rest by the recent disclosure of Mayor Emanuel's September 9th letter to the FAA formally withdrawing its preliminary application to the Pilot Program. So the large-hub slot is, in fact, open. In previous years, under various political leaders or candidates for office, airport privatization has been proposed or debated for a number of these large hubs, including Atlanta, BWI, Boston, Dulles and DCA, JFK and LGA, LAX, Minneapolis/St. Paul, and Philadelphia. I am not aware of any current discussions about privatizing these or other large hubs, but that possibility is now open. Given the enormous unfunded pension liabilities of many U.S. cities, I would not be surprised if one or more of those owning a large hub airport began to calculate how much they might generate to shore up their ailing pension funds via a long-term lease of their airport.

[*601] Given the excitement around the world about the privatization of airports, one may think that the five slots in this pilot program have already been taken; however, to date, only one American airport has participated successfully in the program and achieved privatization, namely Stewart International Airport in Newburgh, New York. 27 Stewart International Airport (Stewart) is currently being leased by National Express Group, an American subsidiary of a UK-based transportation company of the same name. 28 In addition to Stewart's participation in the pilot program, three other airports applied for the program but later withdrew from consideration, and the application of New Orleans' Lakefront Airport is still under review. 29 Why so few airports have opted to privatize is a puzzling question, and one that will be further explored, but airports are certainly not being scared off by failed results. The privatization of Stewart has been nothing short of a success according to FAA reports, meeting the goals of a successful airport privatization. 30 Congress and the proponents of privatization had three goals in enacting the privatization program: first, they hoped that the infusion of private capital would lead to an increase in capacity; second, they hoped that the private firm could lower operating costs through increasing efficiency; and finally, they hoped that privatization would increase customer satisfaction. 31 According to the FAA, the privatization of Stewart resulted in new sources of capital for the airport, as evidenced by the reduced reliance on both federal and state funding. 32 Second, the FAA found [*602] that the private operators of Stewart decreased operating costs and maintained an operating profit even during the post-September 11th decline in air traffic. 33 Further, in surveys done by the New York State Department of Transportation (NYSDOT), it was reported that "the transfer of the airport to private control has enhanced the performance and efficiency of SWF (Stewart's airport code) by eliminating an entire level of approvals for commercial use of the airport." 34 Finally, it was reported to NYSDOT that the private operator improved the airport's relationship with the business community and aided in the environmental cleanup of the area, showing the increased care for customer service. 35

In addition to evidence of past growth, Midway remains an excellent choice for privatization for a number of other reasons. First, Midway Airport is the closest major airport to the enormous population center that is downtown Chicago, and is conveniently accessible by both car and public transportation, as the airport has a stop on Chicago's "L." 43 Midway also has recently redeveloped its terminals, creating newer facilities for concessions, increased parking, and improved roadways. 44 Additionally, Midway produces a steady revenue stream in excess of $ 120 million annually, of which over $ 90 million is operating revenue alone. 45 Finally, and most importantly, Midway has defined itself in the market as an airport catering to the origination and departure (O & D) passenger market, which means that it serves less for connecting traffic and more for people starting and ending their flights in Chicago. 46 Midway has marketed itself as "the premier point-to-point, or O & D airport, in the United States, providing low-cost service to business and leisure travelers throughout the region;" 47 this means that it does not have to compete as directly with O'Hare, as generally the customers will have different preferences regarding price, service, and convenience. [*604] One further benefit of privatizing Midway, as opposed to any other large commercial airport, is that the City of Chicago already has experience privatizing its transportation infrastructure. In January 2005, the City of Chicago closed on a ninety-nine year lease with two foreign infrastructure finance firms, in which the two firms paid over $ 1.8 billion for the lease rights to the Chicago Skyway, a system of toll bridges connecting Chicago and the Indiana Turnpike. 48 Under this agreement, which was the first privatization of an existing toll road in the United States, the private owners are entitled to all of the revenue from the tolls, but they are also responsible for the maintenance and operation costs of the road. 49 Because the City of Chicago has already experienced a major infrastructure asset privatization, the transaction costs of familiarizing the government with the process will be eliminated, and the political support necessary for a smooth transition will already be in place.