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Chicago mayor may still seek airport deal after talks called off

Chicago Mayor Rahm Emanuel addresses a crowd of teachers and politicans during an event to bring physical activity back to schools, hosted b
Chicago Mayor Rahm Emanuel addresses a crowd of teachers and politicans during an event to bring physical activity back to schools, hosted b

By Karen Pierog

CHICAGO (Reuters) - A day after calling an abrupt halt to a bidding process for privatization of Midway Airport, Chicago Mayor Rahm Emanuel on Friday sent signals that he still would like to pursue a deal in the future.

Emanuel late Thursday halted the city's efforts to privatize operations of Chicago's second-largest airport after one bidding consortium pulled out, leaving the city with only one prospective bidder.

A spokeswoman for the mayor, Sarah Hamilton, held out the possibility of future negotiations. "If it were to be considered in the future, it would have to be done with the mayor's same approach that ensures the long-term interests of taxpayers and residents are protected."

At an unrelated event on Friday, Emanuel said he called off discussions because he was not willing to pursue a deal that would not meet his minimum expectations.

"At the end of the day, those thinking of investing in Midway just did not clear the bar I set for the city, which I believe is a high bar," the mayor said.

"If you're coming to the City of Chicago, you have to meet our high expectations," Emanuel added.

Emanuel, who unveiled his plan for leasing the city's second airport behind O'Hare International Airport in December 2012, had called for a lease of 40 years or less with a revenue-sharing provision. He sought to allow the city to retain ownership of Midway and receive some money that would be earmarked for capital projects. He hoped to use initial proceeds from a deal to pay off the airport's outstanding bonds.

Hamilton said the mayor was not considering leases of other assets at this time.

Infrastructure leases in Chicago are a politically sensitive issue, even as the city deals with large budget deficits and is scrambling to identify new revenue sources. Under Emanuel's predecessor, Richard M. Daley, Chicago leased the Chicago Skyway expressway connecting the city's south side to Indiana and its parking meters--a 75-year deal roundly criticized for causing parking rates to spike while not optimizing returns to the city.

The two infrastructure investment consortia that entered into talks with the city about a possible lease of Chicago's second-largest airport included one combining Macquarie Group Ltd and Ferrovial SA and the other combining Industry Funds Management and Manchester Airport Group Plc.

A source close to the IFM/Manchester consortium confirmed on Thursday the group had dropped out of bidding, citing valuation issues for the decision.

Southwest Airlines, Midway's biggest carrier, said it supports the mayor's decision.

"They are doing what they believe is in the best interests of the city, the airport, and the traveling public," the airline said in a statement.

Midway had been selected by the Federal Aviation Administration for a pilot program allowing hub airports to be leased to private operators. There was no immediate response from the FAA as to Midway's future in the program.

The death of a Midway deal is a major setback for the privatization movement, according to Joseph Schwieterman, a transportation expert at DePaul University in Chicago.

"I think the city is still jittery about privatizations going wrong and erred on the side of caution, maybe too much caution," he said, adding the city may have let an opportunity slip away.

An attempt during Daley's administration to lease Midway to private investors fizzled in 2009 as the economic downturn dried up financing for the proposed $2.52 billion, 99-year deal. The failure of that deal also cast a pall on privatizations of government assets, which up until that time mostly involved toll roads.

Hamilton, the mayor's spokesman, said that Emanuel pledged not to use any proceeds from the deal for operating expenses, although some of the money could possibly be used for pensions under Illinois law.

Chicago's large and growing pension liabilities led Moody's Investors Service last month to slash the city's credit rating three notches to A3, which is just above the BBB level. The city's pension payments are expected to top $1 billion starting in fiscal 2015 from $479.5 million in fiscal 2014, which begins January 1.

Schwieterman said the city has few candidates left to privatize after leasing assets including parking garages and meters and its Skyway toll bridge.

The city's parking meter lease has continued to cause headaches for Chicago's mayor. The deal was slammed by the city's inspector general and some city council members for being undervalued. Emanuel in April announced a settlement with Chicago Parking Meters LLC in order to avoid paying $49 million the company claimed it had lost due to out-of-service meters.

(Additional reporting by Tom Polansek, Scott Alwyn and Greg Roumeliotis; Editing by Bob Burgdorfer)

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