Privatization deal lands at Gary airport

2013-12-09T15:00:00Z 2013-12-10T16:16:21Z Privatization deal lands at Gary airportKeith Benman keith.benman@nwi.com, (219) 933-3326 nwitimes.com
December 09, 2013 3:00 pm  • 

The Gary/Chicago International Airport Authority on Monday learned the terms of a privatization agreement that boosters hope will bring $100 million in investment to the airport in the next 40 years.

Members of a public-private partnership committee at the authority's regular meeting Monday briefed members on a contract for airport development and another for airport operations, both of which would go to Aviation Facilities Co. Inc., of Dulles, Va.

"We are there," said  Carrie Hightman, public-private partnership committee chairwoman. "We have a great world-class team."

The Airport Authority took the agreements under consideration after hearing Hightman's pitch at the airport administration building. The authority must approve the deal by majority vote for it to be implemented. The Federal Aviation Administration also must approve of the agreements.

Hightman said the committee wants authority members to carefully consider the agreements but is hoping to have their approval by year's end or shortly after.

Under the development deal, AFCO would have to attract at least $25 million in investment during the first three years of the agreement to the airport and nearby city-owned properties. If the company misses that goal, the Airport Authority could cut the 40-year term of the deal in half. The authority could terminate the agreement if the $25 million in investment is not made by the fifth year of the agreement.

AFCO also is required to draw up a master plan during its first year of running the airport that lays out a 10-year action plan "intended to achieve total investment in the property of $100 million over the 40-year term of the Development Agreement," according to a term sheet handed out Monday.

In addition, the agreement calls for 20 percent of profits going to the airport when AFCO leases or develops projects there. The same applies to leases and projects on nearby city-owned land.

The agreements also lay out goals for hiring women-owned, disadvantaged-owned, minority-owned and veteran-owned businesses. Under the agreements, AFCO also commits to spending $300,000 on workforce development projects, such as training people for airport jobs.

Under the agreement to run airport operations, AFCO subsidiary AvPorts Management would use the airport's current revenue sources, including its taxpayer subsidy, to operate the airport. The airport currently has a $3.8 million operating budget. AvPorts would charge the airport a fee of $120,000 per year for operating the airport.

AFCO could reap up to 20 percent of profits if airport operations were to start turning a profit, something that is unlikely in the near future as it operates with a heavy taxpayer subsidy.

The public-private partnership committee did not seek any upfront, or so called "windfall," payment from AFCO, said committee member Bo Kemp. Instead, they wanted every available dollar put into airport development.

"Part of that is a recognition we are not selling the airport," Kemp said. "We are bringing them (AFCO) in as a partner."

It is not part of the plan to allow AFCO to use the Airport Development Zone fund, which contained more than $20 million at the end of last year, as part of its investment, Kemp said. However, he said the airport possibly could use some of that money to co-fund projects in the future along with AFCO.

The Airport Development Zone fund is collected from homeowners and business owners that live within the zone, which is a tax increment financing district. It encompasses a large part of the west end of Gary.

In addition to AFCO and AvPorts, global hedge fund Guggenheim Securities and Chicago-based Loop Capital Partners are part of the winning bid team.

The issue of how to pay consultants for their work on the public-private partnership has not been definitely settled yet, Kemp said.

The previous Airport Authority ran up a consultants tab for the privatization that could approach $1 million. The public-private partnership committee wanted that money paid by the winning bidder. Early on in the process, bidders let it be known they were cool to that idea.

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