Chicago city officials said on Monday that the proposed $2.5 billion deal for the privatisation of the Midway airport, the city's second largest, collapsed because the winning consortium could not source the billions required for the project due to credit crunch following the global financial turmoil.
The Midway deal, a 99-year lease deal to manage the airport with a $2.5 billion paid upfront to the city, could have turned out to be a 'landmark' with the distinction of the first major airport in the US to go private.
The MIDCO consortium which consists of Citigroup Inc's Citi Infrastructure Investors, Manulife Financial Corp's John Hancock Life Insurance Co, and Vancouver Airport Services could not stick to the two week extension granted to the 6 April deadline by Chicago authorities.
Chicago Midway airport, a major domestic hub, is the second busiest in the state of Illinois after Chicago O'Hare international airport and handled around 17 million passengers and a quarter million aircraft in 2008. Bureau of Transportation Statistics reported a 12 per cent drop in traffic, year-on-year, in January.
Chicago's chief financial officer, Gene Saffold, said, "I'm disappointed it did not go through," "But it's not that all hope is gone."
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.
He was hopeful the deal may be resurrected in the future conceding that it could happen only after the capital markets fully recover.
Though the deal is scrapped, Chicago will still get the $126 million deposited by consortium as earnest money.
Chicago's mayor Richard Daley, the key person who pushed the deal, expected to fill up the draining coffers by more than $1 billion in net proceeds, for funding city's infrastructure projects and pension schemes.
Saffold conceded that some infrastructure projects may have to be scaled back with the city's estimated budget deficit of $220 million in 2009.
Earlier, the city had raised $1.8 billion through the privatisation of the Chicago skyway toll bridge system including parking meters and garages, leasing it to the Skyway Concession Co. effective from January 2005.
The fold up of the Midway deal signals the nervousness among investors even in top-tier infrastructure assets like airports where the profit margins are up to 20 per cent.
London's Gatwick airport is also intended to be privatised at a cost of $3.6 billion, for which the deadline for bids has already been extended to April 27, as potential buyers struggle to source funds. The Citigroup-Manulife-Vancouver group too is in the fray for Gatwick.
Analysts say that infrastructure development flourished worldwide during the past few years with debt funding up to 75 per cent of the project cost, which has now dropped to 25-35 per cent due to the financial crisis.