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PRIVATIZATION OF CHICAGO MIDWAY AIRPORT: AN OVERVIEW

PRIVATIZATION OF CHICAGO MIDWAY AIRPORT: AN OVERVIEW. David Narefsky Mayer, Brown LLP March 19, 2008 Lambda Alpha, Ely Chapter . MIDWAY TRANSACTION IN CONTEXT. COMPLETED TRANSACTIONS: Chicago Skyway – 2005 Indiana Toll Road – 2006 Chicago Underground Garages—2006

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PRIVATIZATION OF CHICAGO MIDWAY AIRPORT: AN OVERVIEW

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  1. PRIVATIZATION OF CHICAGO MIDWAY AIRPORT: AN OVERVIEW David Narefsky Mayer, Brown LLP March 19, 2008 Lambda Alpha, Ely Chapter

  2. MIDWAY TRANSACTION IN CONTEXT COMPLETED TRANSACTIONS: • Chicago Skyway – 2005 • Indiana Toll Road – 2006 • Chicago Underground Garages—2006 ______________________________________________________ TRANSACTIONS IN PROCESS: • Chicago Street Parking; • Pennsylvania Turnpike; • Congestion Relief Toll Lanes; • Mass Transit, Ports, Lotteries; ________________________________________________________ • BUT MIDWAY IS ONLY U.S. AIRPORT TRANSACTION

  3. Chicago Skyway – Closed in 2005 • Upfront Rent = $1.8BB for 99 Year Lease • Long-Term Lease, Not Purchase: City Retains Ownership • Cintra-Macquarie Retains All Toll Revenue • Subject to Certain Toll Limits • City Retains Right to All Other Revenues

  4. Use of Proceeds $465 million Skyway debt repayment $500 million permanent reserve—5% annual growth greater than prior Skyway excess revenue $390 million City debt repayment $375 million “annuity” for operating budget over 8 years $100 million for human service programs Market Response In August 2005, rating agencies increase City’s bond rating to AA and AA- Reserve fund provides cushion against downturns in tax collections and emergency expenditures Use of Skyway Proceeds

  5. Location of Chicago Underground Garages

  6. Underground Parking Garage – Closed in 2006 • Winning Bid = Morgan Stanley at $563 MM + obligation to rebuild garage infrastructure = $65MM for initial rebuild of East Monroe Street Garage + $550MM over the term of the lease • $61K/parking space, among the highest amounts per space for US parking garage • Morgan Stanley teamed with LAZ Parking as operator

  7. Parking Garages – Use of Proceeds • Retirement of Debt = $278MM • Park Improvements = $122MM • Chicago Park District “Reserve” Account = $120MM (generating annual income of $5MM) • Rebuild of Daley Bi-Centennial Plaza (in conjunction with rebuild of East Monroe Street Garage) = $35MM • Again, contract requires operator to rebuild garages over term of the lease

  8. CITY OBJECTIVES FOR MIDWAY TRANSACTION • Protect the Public Interest • Maximize sale proceeds • Fair and Transparent Process

  9. CITY OBJECTIVES FOR MIDWAY TRANSACTION • Protect the Public Interest Maintain highest levels of public and passenger safety and security Detailed operating standards and continued City oversight New framework of airline rates and charges Improve the competitive position, service quality, growth prospects and efficiency of Midway

  10. CITY OBJECTIVES FOR MIDWAY TRANSACTION • Maximize sale proceeds Ability to use funds for infrastructure and public pensions Ensure that future Airport development is safe, functional, efficient

  11. 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

  12. MIDWAY 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

  13. 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

  14. Airport Privatization – Global Overview Hochtief: • Dusseldorf • Hamburg • Athens • Budapest Other Privatized Airports: • Vancouver (Vancouver Airport Authority) • Frankfort (Fraport) • Amsterdam (Schipol) • Mexico – IPO for dozen regional airports Macquarie Airports: • Sydney • Rome • Copenhagen • Brussels Aeroport de Paris: • CDG and Orly Airport • Recent public offering of shares

  15. 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

  16. 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; Long-term lease acquired by Port Authority;

  17. 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 City

  18. STATE LEGISLATION—KEY PROVISIONS • Public Act 94-750 – Adopted in 2006; • 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;

  19. “BEST PRACTICES” IN LABOR PROTECTION 190 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 .

  20. 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 • Closing in 4Q of 2008

  21. Contact Information David Narefsky. Mayer, Brown LLP (312) 701-7303 dnarefsky@mayerbrown.com www/mayerbrown.com

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