US AIRPORT PRIVATIZATION: CHICAGO MIDWAY AIRPORT AND BEYOND

David Narefsky and John SchmidtMayer Brown, LLPMarch 25, 2008

NYU Wagner Rudin Center for Transportation Policy & Management

MIDWAY AIRPORT:TRANSACTION IN CONTEXTCOMPLETED TRANSACTIONS:• Chicago Skyway – 2005• Indiana Toll Road – 2006• Chicago Underground Garages—2006

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TRANSACTIONS IN PROCESS:• Chicago Street Parking;• Pennsylvania Turnpike;• Congestion Relief Toll Lanes;• Mass Transit, Ports, Lotteries;

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• BUT MIDWAY IS ONLY U.S. AIRPORT TRANSACTION

MIDWAY AIRPORT: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

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

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

U.S. Airports – Limited Privatization to Date

JFK

Terminal 4/International Terminal—design/build/operate

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

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;

99 year lease to National Express Group

Lease recently acquired by Port Authority;

FAA Pilot Privatization Program—Key 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 government owner

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MIDWAY AIRPORT--OVERVIEW

• Premier point-to-point airport—leisure and business travel to over 55 destinations;

• 19.1 million passengers and 304,000 operations in 2007;

• New airport terminal opened in 2004--43 gates, concessions triangle, expanded parking and improved roadways;

• FIS Facility for international flights;

• Located 10 miles southwest of downtown Chicago

• Access via 30 minute, rapid transit rail service;

MIDWAY AIRPORT– INVESTMENT HIGHLIGHTS

• First mover advantage to new asset class

• 100% lease on a very long-term concession

• #1 airport for low-cost carriers

• New approach to rates and charges

• Untapped commercial upside

• State-of-the-art-facility

• Modest capital expenditure plans

• International route potential

• Access to passenger facility charges for Midway

CITY OBJECTIVES FOR MIDWAY TRANSACTION

• Protect the Public Interest

Maintain highest levels of public and passenger safety and security

Protect the public interest within the context of seeking value for the City and the airlines

Detailed operating standards and continued City oversight

New framework of rates and charges

CITY OBJECTIVES FOR MIDWAY TRANSACTION

• Maximize sale proceeds

Ability to use funds for infrastructure and pensions

Ensure that future airport development is safe, functional, efficient

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

STATE LEGISLATION—KEY PROVISIONS

• CITY STATUS OF HOME RULE UNIT;

• 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;

“BEST PRACTICES” IN LABOR PROTECTION190 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

• Foreign Investment—CFIUS Considerations

• Closing in 4Q of 2008

Contact Information

David Narefsky

(312) 701-7303

dnarefsky@mayerbrown.com

John Schmidt

(312) 701-8597

jschmidt@mayerbrown.com