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Details of private development deal for Gary airport unveiled

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Updated: January 11, 2014 6:15AM

GARY — The first details of the plans unveiled Monday for a public-private partnership to redevelop the Gary/Chicago International Airport included a $100 million investment proposal over the next 40 years.

Along with the multi-million-dollar infusion from private investors, there’s a requirement that 30 percent of newly-created jobs or business go to local residents or firms.

Aviation Facilities Company was chosen in October by a committee that evaluated private proposals to run the airport. That ad-hoc committee, named the P3 (for “public-private partnership”), along with airport officials, have since then been negotiating a final agreement for the company to take over management of the facility.

At Monday’s meeting, P3 committee chairwoman Carrie Hightman and attorney Rich Hill outlined the tentative terms of the two agreements that have been worked with Aviation Facilities Co. Inc./AvPORTS, whose partnership team includes Guggenheim Partners, a global financial services firm, and Loop Capital, a Chicago-based investment bank.

One agreement outlines what the Aviation Facilities and its partners are promising to do to develop the airport. The other agreement outlines the management fees — about $120,000 a year, not including performance bonuses — that the city will pay to the partnership to run the airport.

The committee hopes to have final agreements ready for the Airport Authority to approve before the end of the year, said Hightman, who is also executive vice president and chief legal officer of NiSource Inc.

Among the major points of the agreement are a $25 million investment by AFCO/AvPORTS within the first 36 months of the 40-year agreement, with $2.5 million to be spent within the first six months, Hill said. AFCO/AvPORTS will invest $300,000 toward workforce development within the first three years.

The airport developer is expected not only to manage the struggling airport but also to spark economic growth around it. The city will retain ownership of the airport, which is constructing a 1,900-foot $166 million runway extension that’s been hampered by setbacks.

The agreement is unique in a domain marked by unique agreements, said City Consultant Bo Kemp. When the committee did its research, it found no boilerplate agreement for any airport that has a public-private partnership.

And an upfront payment to the city by AFCO/AvPORTS was never part of the plan.

“We structured the deal with the $25 million investment so they would have an incentive to get to work right away,” Kemp said. “The big payday of this deal is likely to happen in (Mayor Karen Freeman-Wilson’s) second or third term, provided she stays on, so kudos to her for being part of something that will show positively in the future.”

The two entities also made sure to safeguard themselves from dysfunctional business relationships. The 40-year agreement, for example, will be reduced to only 10 years if AFCO/AvPORTS doesn’t make the $25 million in investments in the first 36 months, Hill said. The city and Airport Authority can terminate the contract outright if they don’t reach $25 million by the agreement’s fifth year.

As for the management agreement, the Authority will have a one-time right to terminate that deal after 10 years at its own discretion or after five years if the developer fails to meet the investment goals, Hill said.

If the Authority chooses to terminate at any other time, the city would pay $500,000 plus an amount equal to three times the average of the last three years’ performance incentive.

In 2009, AFCO/AvPORTS’ manages eight Federal Aviation Administration-certified airports and one major passenger terminal in the U.S., including Newark Liberty International Airport in New Jersey.

It built off-site parking at the Indianapolis International Airport and at Chicago Midway Airport. At Midway, AFCO also developed the Midway Park Ride & Fly service in 2003.

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