Out of Control

If there was any question whether investors would be interested in a long-term lease of Chicago's Midway Airport, it was answered in the affirmative at the beginning of April. Six high-powered teams submitted their qualifications to the city, which will presumably winnow them down to the best-qualified subset, who will then be invited to submit formal bids. With the basic terms of the lease already decided (in order to win agreement from Midway's airlines), the winner will be the firm offering the highest dollar amount.

The six teams included mostly firms that had been expected to bid-though noticeably absent were industry giants Ferrovial (which may have its hands full refinancing its costly acquisition of BAA) and Fraport (which had been rumored to be seriously interested). The six that did submit qualifications are:

* Abertis/Babcock & Brown/GECAS-Abertis owns TBI which operates Albany and Burbank airports under contract, and has long-term leases for the terminals at Orlando-Sanford.
* Macquarie Capital/Macquarie Airports/Macquarie Infrastructure Partners I and II-Macquarie already has a Chicago presence via its lease of the Chicago Skyway and holds stakes in Sydney, Brussels Charleroi, Bristol (UK), and Copenhagen airports.
* Hochtief AirPort/GS Global Infrastructure Partners I-Hochtief has major stakes in Athens, Budapest, Dusseldorf, Hamburg, and Sydney airports.
* YVR (Vancouver) Airport Services/Citi Infrastructure Investors/John Hancock Life Insurance-YVR operates airports in Chile, Dominican Republic, Jamaica, and Canada.
* Morgan Stanley Infrastructure Partners/Aeroports de Paris/HMS Host-ADP owns the three major Paris airports and operates other airports in Cambodia, China, and Europe.
* AirportsAmerica Group/Carlyle Infrastructure Partners-a somewhat mysterious group about which Carlyle has declined to provide details (except, presumably, to the city of Chicago).

The city has not released a timetable, but it's likely to announce the short-list within a couple of months, along with a formal invitation for the short-listed teams to submit their bids. Lisa Schrader, the city's deputy CFO, told Aviation Daily that they expect to close the lease transaction within 9 to 12 months, after approvals from the FAA, TSA, and the City Council.

There is much speculation as to how much will be offered for the 50-year lease. In Issue No. 32 of my Airport Policy Newsletter, I expressed skepticism that the figure would be in the $3 billion range that has been mentioned in many media reports, given the airport's small land area (one square mile), limited airside capacity, and already fairly well-developed retail operations. But in recent weeks I've had several knowledgeable people suggest to me that there is more potential than meets the eye at Midway. For example, as of now, there are 1,895 weekly airline departures, but as recently as 2004 that number was 2,449-so we know that a 30% increase (at least) is possible. An attorney advising one team suggested that his team had come up with a number of creative options to maximize value at the airport. Another told me that there has been recent interest by developers in acquiring land bordering Midway, in hopes of being able to negotiate joint-development deals with the winning bidder. So while I remain somewhat skeptical, I'd be pleased to be proven wrong.

If Midway does generate significant value for the city, the lease could be as precedent-setting as the city's January 2005 lease of the Chicago Skyway. That transaction focused global attention on the United States as a new market for privatization of toll roads. But for the same thing to be possible in the airport sector would require Congress to amend the Airport Privatization Pilot Program legislation it enacted in 1996 . Although it permits four air carrier airports to be leased, only one can be a large hub, which is how Midway is categorized by the FAA. The FAA's reauthorization proposal, which was largely ignored by Congress last year, had called for liberalizing the pilot program. It would probably take active lobbying by America's mayors to open up additional large-hub privatization opportunities.

Reason Foundation's Airport Policy and Air Traffic Control Research

The AP reports on a near mid-air collision that saw two planes come within 400 feet of each other. As air traffic becomes ever more congested, it’s absurd that we still rely on a 1960s’-design air traffic control system. That system uses very imprecise radar to tell controllers approximately where planes are, and relies on these controllers to keep them far enough apart to avoid colliding. This “by-hand” operation urgently needs replacing by a 21st century air traffic management system that relies on (a) far more precise augmented GPS to keep track of plane locations in real-time, (b) digital communications for faster and more accurate exchange of information, and (c) automation of routine separation functions to get beyond the limitations of how many moving targets the controller can keep track of in his head. Nearly all the technology to do this is in hand, and the NextGen system concept is being finalized by an interagency group that includes NASA, DOD, and the FAA. But unless Congress enacts fundamental reforms in how air traffic control is funded and governed, it will be at least 20 years before we see anything like the NextGen system in place. So expect more near-misses and some crashes as the airways become ever more congested and the obsolete 20th century system becomes ever more overburdened.

Reason Foundation's Air Traffic Control Reform Research

John F. Kennedy International Airport could reduce delays and increase capacity by adding a new runway between two existing runways, according to a new study by the Reason Foundation. Even with the new runway, JFK would still have runway spacing that is greater than the separation between runways at today's San Francisco International Airport and similar to Boston's Logan International.

The report highlights numerous technological improvements expected to be implemented as part of the Federal Aviation Administration's NextGen efforts, which will completely revamp the nation's air traffic control system over the next two decades. Full implementation of some of these new systems would increase runway throughput at JFK by 50 percent and by as much as 45 percent at Newark Liberty International. Reduced spacing on approaches would also permit an additional 10 percent throughput on LaGuardia's runways.

Aero-News.net Article

Full Study (.pdf)

Reason's Airport and Air Traffic Research and Commentary