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Midway Airport Lease Could Inspire Austin, Milwaukee and New Orleans

Robert Poole
November 11, 2008, 12:32pm

Just a week after the City of Chicago selected the winning bid of $2.5 billion for a 99-year lease of Midway Airport, the City Council voted unanimously to approve the deal. It now goes to the FAA as the city's final application under the Airport Privatization Pilot Program, with approval expected to take 60 days or so. That would permit a financial closing by year-end. Financial people I've talked to expect the portion of the $2.5 billion accounted for by debt (typically two-thirds or more) to be much smaller than usual, given the turmoil in the debt markets. Once that settles down, the winning consortium would very likely refinance. I have previously noted expressions of interest in doing likewise from public officials in Austin and Milwaukee. That interest still exists, though neither one has a political consensus in favor of privatization at this point. A third possible contender, New Orleans Louis Armstrong International, surfaced in recent weeks. All three airports are classified by the FAA as medium hubs, which is relevant because the Pilot Program allows only one of its five slots to be taken by a large hub, which Midway is. (One slot is reserved for a general aviation airport.) With city, county, and state governments heading into deep fiscal waters, more airports might be put into play in the coming months, competing for the three remaining commercial airport slots. With respect to Austin, insiders I've talked with tell me discussions between public officials and private sector parties have continued this year, after the big flurry of public discussion in the first half of 2007. The only news item I could find via a Google search was that the Austin Airport Advisory Commission has a briefing on airport privatization on May 13, 2008. Other than that, mum's the word on the continuing discussions. The Milwaukee airport privatization idea favored by County Executive Scott Walker has become a political issue. On Oct.9, 2008 a County Board committee voted down Walker's proposal for a $500,000 consultant study on the issue. Committee members asked "What's the rush?" to which Walker replied that there might be more airports seeking slots than there were FAA slots available. And Budget Director Steven Kreklow said the study was needed because of the legal and financial complexities of leasing the airport, and the county's desire not to have to depend only on information provided by prospective bidders. The issue has also been caught up in squabbles over where to get the funding to bail out the county's ailing bus transit system. In the case of New Orleans, the push is coming from the business community, along with Mayor Ray Nagin. The city and the airport are still recovering from 2005's Hurricane Katrina, and the idea that a long-term lease could generate hundreds of millions of dollars to help redevelop key areas of the city is attractive. Prior to privatization coming onto the radar screen, the idea of the state acquiring Louis Armstrong International Airport (and paying handsomely for the privilege) was under consideration, and a Regional Airport Authority has just been created to explore that approach. But in early October the city's Aviation Board began developing a request for qualifications for consultants to estimate the airport's value if leased. Several city council members have spoken out in favor of considering privatization, especially if that would let the city retain ownership, rather than having the airport transferred to a state-designated airport authority. As of now, my guess is that New Orleans will be the first of the three to file a preliminary application with the FAA. Once the state and municipal fiscal crunch really sinks in, I expect there will be others.

Robert Poole is Searle Freedom Trust Transportation Fellow and Director of Transportation Policy


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