Cleared for Takeoff
This fall, as credit markets crumbled and fell, YVR Airport Services announced its biggest acquisition yet. The private company, born out of Vancouver International Airport, manages 18 airports around the world and will now take over Chicago’s Midway Airport as well. The $2.5-billion lease from the City of Chicago – the first ever privatization of a major U.S. airport – was bankrolled in part by partners Citi Infrastructure Investors (which bought half of YVR Airport Services last spring) and John Hancock Life Insurance Co., companies that have been hit hard by the current credit turmoil. But as YVR Airport Services president and CEO George Casey explains, the Midway deal shows people are still hungry to invest in infrastructure.
We’ve learned in our 13 years to be very opportunistic. We’ve tracked Midway as a potential target since mid-2006. Getting the right consortium together is the key in the competitive tendering process. For us the timing was exceptional. We closed our transaction with Citi Infrastructure Investors in May and the formal bidding process for Midway was starting at around that time. We are in the business of acquiring airports; it’s extremely capital intensive, and when you go from hundreds of millions to billions, it’s always helpful to have access to capital. Obviously, it helps with Citi being a 50 per cent owner.
So it has been a busy couple of months. With these bidding processes, it’s full out for almost the entire time; we were working right up to the final hours to prepare that bid. First you have to pass this technical hurdle and the city develops a short list of potential bidders, then it was about price, and we seem to meet the city’s expectations in both of those regards.
Airlines are also involved in the process. Their fees to the airport will be lower than they were previously and they’ll be set for six years, after which they increase with inflation. I’ll say it’s a good deal for the airlines, but we believe there will be growth over the long term that will generate other revenues for us. Our structure is modelled after Vancouver’s very customer-focused approach. So airlines pay their fair share and then we look to non-air revenues from a whole host of other sources.
Despite the current credit crisis, there’s no impact in our ability to close this transaction. But yes, have we seen markets like this before? No, I haven’t in my 20-some years. But is it insurmountable? No. A lot of it has to do with experience, credibility and your ability to identify the risk and structure around it.
We see this as a landmark transaction because the potential for airports to be privatized in the U.S. is there. Will there be a flood of them in the near term? No. But we think there will be over time.
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