January 2014

Airport Public-Private Partnership (P3) Deal Enables Redevelopment, Boosts Revenue

United States - Indiana

In 2014, the Gary/Chicago International Airport (GYY) closed a public-private partnership (P3) deal that would pump $100 million into redeveloping and expanding the airport over the ensuing 40 years. The transaction was designed to boost economic activity in northwest Indiana and transform the airport into a viable third air transit option for the nation’s third-largest city.

The Issue

Growth and development at the Gary Chicago International Airport (GYY) had been stalled for over 30 years. Nevertheless, GYY’s location — 30 minutes from downtown Chicago — along with its highway and Class A rail access, large developable tracts of land contiguous to the airport, and deepwater access to Lake Michigan, made the airport a compelling investment candidate if it could achieve needed operational improvements.

The Team

Senior director Bo Kemp was the senior advisor to Mayor Karen Freeman-Wilson at the time, helping lead the airport and City of Gary’s efforts to identify private partners to better manage the operations of the airport. Our firm served as lead deal counsel for the airport authority on the public-private partnership transaction.

The Strategy

Using a competitive Request for Proposals (RFP) process, the City identified a consortium of third-party private partners (including mid-market airport management leaders) to deliver operational expertise to the airport and real estate development expertise to the airport and the City of Gary. Key strategies included consolidating all managerial responsibility for the airport with the providers to improve airport profitability and creating a 50-year plan for development both on- and off-airport to expand airport use and ancillary community benefits.

The team led negotiations of the unique P3 deal with primary investor AFCO Avports Airport Management LLC and other investors including Guggenheim Securities and Loop Capital. The deal included aggressive investment thresholds requiring AFCO to invest $25 million in capital during the first three years for upgrades or other projects to speed the redevelopment process. The team also worked out a master development agreement with AFCO’s partner organization, Aviation Facilities Co. Inc., which required Aviation Facilities to provide $300,000 over three years to promote jobs in northwest Indiana by attracting potential tenants in aviation, research and development and other areas.

The Impact

The GYY Airport P3 was the first in the nation to combine long-term airport management and economic development of both on- and off-airport. The airport completed a 1,900-foot runway extension in 2013 due to the success of the private manager relationship and the private partner’s reputation with capital markets participants in airport investments and assets. In addition, the P3 helped give the financial markets confidence in the airport’s future operations, enabling it to issue its first successful investment grade bond in support of development — named bond deal of the year by Bond Buyer magazine in 2015. In the P3’s first two years, airport revenue increased by 30%.

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