Friday, November 16, 2007

Ground Plans to Sell Midway Airport

Now comes word that the top executives at Dallas-based Southwest Airlines are embracing "the Chicago way": They're going along to get along.
After months of expressing concerns and doubts, Southwest is getting on board Mayor Richard Daley's plan to privatize Midway Airport, where Southwest is the largest tenant. Privatizing--which is a fancy word for selling--the South Side airport is a bad deal for taxpayers and crummy public policy, as I explained in this post written last April, entitled
: Ground Plans to Sell Midway Airport.

In a bygone era, grifters would try to make a fast buck by conning someone into "buying" the Brooklyn Bridge. Times have changed and now that kind of flimflamming is considered municipal finance.
Such is the case in Chicago, where Mayor Richard M. Daley is hot to unload Midway Airport to private investors. It's part of his ongoing effort to spin off hard assets, like he did with the Chicago Skyway, and get a large, one-time, payment pop that's earmarked toward paying down pension obligations or other lingering city costs.
Chicago got $1.8 billion for the Skyway and expects to at least double that haul for Midway.
But before Daley can work his privatization magic he's got to convince the airlines leasing space at the South Side airport that it's a good deal for them . Unless they get on board, no serious negotiations with potential acquirers will get underway. (Under federal law, a large majority of airline tenants must agree to the city's sales plan.)
Here's hoping the airlines stay strong and Midway's ownership stays right where it belongs--in the hands of the taxpayers, whose hard-earned money built and support the facility. You see, there's something sleazy about spinning off public assets to private investors and I get the impression that the Midway-based airlines smell rat and are not going to buy into this scheme.
To understand more about their objections read Crain's Chicago Business Washington Bureau Chief Paul Merrion's excellent article outlining why the air carriers are skeptical about privatizing the airport. He nails it.
City Hall makes the case that it's doing the airlines a favor by selling the airport. Daley's reasoning: A private enterprise will run the place better, be more efficient and will surely pass cost-savings down to the airlines. Over a 20-year span, the air carriers stand to save $82 million, according to Crain's.
Hmmmm, let's get this straight. City Hall concedes its doing an inadequate job. And instead of improving and tightening operations, it's going to unload the place to the highest bidder. And that's good for the tenants and the city?.
Let's put it this way: When's the last time a new owner bought an apartment building and didn't raise the rent?
Whoever buys Midway will start out in the hole by billions. That owner will quickly look to maximize revenue (by raising tenant rates) and cut costs by trimming operations and services. ("Hey, Sam, turn those runway lights off, that cost money!")
If anyone knows this dynamic, it's the airline industry--which has been chopping expenses and trying to raise prices for the past 25 years. The Midway airlines just don't want to be on the receiving end of a bad deal.
What's more, where's the comfort level for the passengers and the community that surrounds Midway? Private owners tend to come and go, while the city remains--outliving mayors and city councils. I think I'd sleep better at night knowing Midway is being run by the city, as it has for the past 50-plus years, than by some private equity group that's just interested in it as a flight of fancy financing.
No, the trick is for the city to run Midway Airport better and more efficiently. As for those other lingering costs, it's up to Mayor Daley to find another way to pay that piper instead of selling precious city-owned assets.

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