US AIRPORT PRIVATIZATION: CHICAGO MIDWAY AIRPORT AND BEYOND

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US AIRPORT PRIVATIZATION CHICAGO MIDWAY AIRPORT
AND BEYOND

• David Narefsky and John Schmidt
• Mayer Brown, LLP
• March 25, 2008
• NYU Wagner Rudin Center for
• Transportation Policy Management

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MIDWAY AIRPORTTRANSACTION IN CONTEXT

• COMPLETED TRANSACTIONS
• Chicago Skyway 2005
• Indiana Toll Road 2006
• Chicago Underground Garages2006
• __________________________________________________
  ____
• TRANSACTIONS IN PROCESS
• Chicago Street Parking
• Pennsylvania Turnpike
• Congestion Relief Toll Lanes
• Mass Transit, Ports, Lotteries
• __________________________________________________
  ______
• BUT MIDWAY IS ONLY U.S. AIRPORT TRANSACTION

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MIDWAY AIRPORTTRANSACTION 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

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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

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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

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U.S. Airports Limited Privatization to Date

• JFK
• Terminal 4/International Terminaldesign/build/ope
  rate
• 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

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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

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FAA Pilot Privatization ProgramKey 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 airportleisure 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

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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

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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

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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

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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

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STATE LEGISLATIONKEY 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

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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
• .

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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 InvestmentCFIUS Considerations
• Closing in 4Q of 2008

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Contact Information
David Narefsky [phone] dnarefsky_at_mayerbrown
.com John Schmidt [phone] jschmidt_at_mayerbr
own.com