George S. May Business Blog

Chicago Midway Airport deal falls through

The $2.52 billion, 99-year, deal for the Chicago Midway Airport has gone sour. According to Gene Saffold, CFO of the Midway Investment and Development Company, the group bid successfully, but were unable to lock in financing.

“The global economic recession continues to have substantial impact on the availability of financing, which has created serious challenges for many businesses and financial institutions, including those involved in this transaction,” Saffold said.

The Midway Investment and Development Company is comprised of Citigroup (C.N) unit Citi Infrastructure Investors, YVR Airport Services Ltd and John Hancock Life Insurance Company.

For Chicago residents this has to be quite surprising. Chicago has been successfully stringing together numerous leases beginning in 2005 with a $1.83 billion deal that involved the Skyway toll bridge. Since, the city has continued to lease other assets, including parking garages and parking meters in exchange for upfront payments that have allowed Chicago to pay off the leased assets’ outstanding debt and provide a financial cushion for the city budget.

The city will retain $126 million in earnest money from the failed Midway deal, Saffold said, adding that $80 million of the funds will be set aside to help balance the city’s budget this year and next. Another approximately $6 million will cover the city’s transactions costs.

In addition to the money, Chicago retains the right to lease the airport in another competitive offering when financial market conditions improve, according to Saffold.

Midway was the only hub airport to be selected by the Federal Aviation Administration for a pilot program allowing five U.S. airports to be leased to private operators. Chicago planned to use the $2.52 billion upfront payment to retire $1.3 billion of Midway airport debt, while 90 percent of the remaining proceeds were earmarked for infrastructure improvements and city pension funds.

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