City formally seeks bids for Midway lease

7/29/2019 City formally seeks bids for Midway lease

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Chicago MidwayInternational Airport

Request for Qualifications

January 2013


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Table of Contents

I. Overview of RFQ 3II. Investment highlights 7III. Midway description 9IV. Legislative framework 22V. Minimum bidder qualification requirements 24VI. RFQ submission requirements and procedure 25VII. Appendix 30


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I. Overview of RFQ

Introduction

The City of Chicago (the City) invites interested parties to respond to this Request for Qualifications (RFQregarding a Long-term Management Agreement and Land Lease (the Agreement) for Chicago MidwaInternational Airport (Midway, the Airport, Midway Airport or MDW). The information provided will be useto assist the City in determining qualified bidders to participate in a procurement process for the Agreement whicis intended to be not more than 40 years. Under such Agreement, a bidder will be required to finance, operatmaintain and improve Midway Airport.

The execution of the Agreement would be the first transaction of its kind for a major commercial service airport the United States (US). The proposed transaction would be implemented under the Airport Privatization PilProgram (the Pilot Program) authorized by federal law and administered by the Federal Aviation Administratio(FAA). Currently, the only other commercial service airport application process under the Pilot Program relate

to Luis Munoz Marin International Airport in San Juan, Puerto Rico. The FAA is currently reviewing the finapplication for that transaction.

The City has engaged Credit Suisse Securities (USA) LLC (Credit Suisse or the Advisor) as its lead financiaadvisor to assist in evaluating the execution of the Agreement for Midway Airport. The City and its Advisor will seeto structure a transaction that meets the Citys primary objectives of:

Protecting the public interest

Establish a Travelers Bill of Rights to protect the publics interest and maintain the highest standard of safetysecurity and customer service

Improve the competitive position, service quality, growth prospects and efficiency of the Airport for the beneof Chicago residents, airlines and other users

Ensure that future airport development is safe, functional, efficient and delivered when necessary

Minimize the Citys exposure to residual risks and liabilities

Maximize value for the City and its taxpayers, consistent with other stated objectives, through both upfront anannual payments

Execute a new Use Agreement that will increase the efficiency of the Airport's operations and improve iresponsiveness to users

Conducting a fair and transparent transaction process

Protect the interests of current and future airline users

Ensure fair and equitable treatment of current City airport employees

Ensure a smooth and timely transition from public to private management


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Indicative timeline

Item Preliminary Timing

RFQ Released January 18, 2013RFQ Responses Due February 22, 2013

Issue Information Memorandum and Draft Documents Q1 2013

Final Bid Documents and Binding Bids Due Q3 2013

Note: The City reserves the right to change the indicative timeline at any time

Once binding bids are submitted, a report of the Midway Advisory Panel will be issued. City Council will have review period of no less than four weeks prior to final action by Council. Once Council has approved thtransaction, a final application will be submitted to the FAA. It is expected that there will be a 60 day publcomment and a 60 day review period, followed by financial closing of the transaction.

Function of this RFQ

This RFQ allows prospective Bidders to formally express their interest in bidding on the Agreement for MidwayThe City seeks to use responses to this RFQ to identify the best qualified bidders.

Those interested in bidding on the Agreement should respond to this RFQ no later than 4:00 pm CT on Februa22nd, 2013. The City will determine, in its discretion, whether to accept any responses that are not received by thdate and time set forth in this paragraph. Based on the RFQ submissions, the City will determine those interesteparties that are qualified to bid on the Agreement. The City reserves the right to qualify, at its absolute discretion,limited number of bidders to arrive at a shortlist that allows for an orderly procurement.

For the purposes of this RFQ, the following definitions will apply:

Team or Bidder means an individual, a company, or a consortium of individuals and/or companies formeto undertake the transaction

Team Member means a member of a Team

The City is interested in receiving responses from complete Teams or Bidders that fulfill the requirements outlinein sections V and VI of this RFQ.

However, individual firms, including those that would provide debt and/or equity financing to a Team or Bidder, masubmit a letter of interest. The City will publish a list of parties that have expressed such interest. A letter interest should be no more than two pages and identify the interested party, financing capable of providing anrationale for interest.

Restricted partiesRestricted Parties (as identified below), their respective directors, officers, partners, employees and person or legentities related to them are not eligible to participate as Team Members, or advise any Team, directly or indirectly

or participate in any way as an employee, advisor, or consultant or otherwise in connection with any Team. EacTeam will ensure that each Team Member does not use, consult, include or seek advice from any Restricted Party.

The following Restricted Parties have been identified:

Avia Solutions Limited

Cabrera Capital Markets, LLC

Cotillas and Associates

Credit Suisse Securities (USA) LLC


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Deloitte & Touche LLP

Mayer Brown LLP

M.R. Beal & Company Pugh, Jones & Johnson, P.C.

Ricondo & Associates, Inc.

Sanchez Daniels & Hoffman LLP

Overview of procurement process

The City, along with its advisors, will review RFQ responses and determine Qualified Bidders.

Qualified Bidders will be provided with a Confidentiality Agreement. Upon successful execution, Qualified Biddewill receive a Confidential Information Memorandum (CIM), draft transaction documents, and a process letteThe City will provide Qualified Bidders with information and may request information from bidders in its so

discretion. Such information requests may include details about qualifications, partners, valuation, and financinThe City reserves the right to structure the process in the interests of preserving process integrity, best value fotaxpayers and assuring a high quality airport operation.

Qualified Bidders will have the opportunity to conduct due diligence of Midway through: (i) access to an on-lindata room; (ii) Midway tours and additional inspections by Bidder representatives; (iii) management presentations(iv) review and discussion of the Citys proposed Agreement, Use Agreement with the airlines and OperatinStandards. Qualified Bidders may also have the opportunity and be expected to meet with the FAA, TSA, airlineserving Midway, and other Airport stakeholders. Following this due-diligence process, final, binding bids will bsubmitted in accordance with procedures to be provided to the Qualified Bidders. Final bid submissions muinclude committed financing.

Qualified Bidders will be required to comply with the Citys Economic Disclosure Statement and Affidavit (EDSand certain other requirements before submitting final bids. A copy of the Citys EDS is posted on the website f

the Citys Department of Procurement Services at www.cityofchicago.org. (Please click Chicago GovernmenProcurement Services -> City Services: Find/Get -> Economic Disclosure Statement (EDS)).

If one or more final, binding submissions received at the conclusion of the procurement process meet the Cityobjectives, the City expects to submit the winning bid to the Chicago City Council for approval. Assuming Councapproval, and, subject to review and final approval by the FAA, the City will enter into the Agreement with thwinning bidder (the Private Operator). The Private Operator will be required to assume the new Use Agreemewith the Airlines upon the effective date of the Agreement.

The City reserves the right to modify or terminate this procurement process at any time if the City determines sucaction to be in its best interests. The receipt of proposals or other documents at any stage of either the RFQ or thbidding process will in no way obligate the City to enter into any contract of any kind with any party.

Oversight of the procurement processThe City is committed to full transparency that will ensure that all aspects of the process for implementation of thproposed lease of Midway Airport, the terms of the Agreement, and the qualifications of the proposed PrivaOperator are consistent with the interests of the City, its residents and its taxpayers.

The City has established the Midway Advisory Panel that includes representatives from the City Council and labobusiness and civic leaders. The Panel has been asked to select an independent advisor to review all aspects of thproposed transaction and to deliver a written report to the City Council and the public prior to Councconsideration of any proposed lease of the Airport.


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The City will also provide additional opportunities for the general public to learn about and provide input ancomment regarding the proposed transaction, including through access to a dedicated website containininformation about the proposed transaction and the status of the solicitation and bidding process described above

In addition, the City will consult with, and provide information to, airport users about the proposed transactiothroughout the solicitation and bidding process described above.

The City expects that these various transparency and outreach efforts will complement the public comment anreview process required by the FAA under the Pilot Program regulations.

The Agreement will be between the City of Chicago and the Private Operator, under which the Private Operatowill be required to finance, operate, maintain and improve Midway Airport. The Private Operator will have the rigto collect revenues associated with the operation of Midway (including aeronautical, concession, customer facilicharges (CFC), passenger facility charges (PFC) and federal grants, subject to restrictions imposed by thFAA) during the term of the Agreement. The Private Operator will assume a new Use Agreement with the airlineoperating at Midway Airport which will govern the relationship between such airlines and the Private Operator. Thwill include standards related to the operation and maintenance of the Airport with which the Private Operator w

be required to comply. The Agreement will require the Private Operator to comply with the Citys minority-owneand female-owned business (MBE and WBE) requirements, as well as applicable federal disadvantagebusiness enterprise (DBE) participation requirements, in its contracting activities during the term of thAgreement. Upon entering into the Agreement, the City will use a portion of the proceeds to defease or redeeMidways existing indebtedness.

City of Chicago

The City was incorporated in 1837, is Americas third largest city by population and is the center of a largeChicago metropolitan area (Metropolitan Area) with a population of over nine million. According to WorBusiness Chicago, the Metropolitan Area is home to over 400 major corporate headquarters, including 29 Fortun500 company headquarters (only the New York metropolitan area has a larger number of Fortune 500 compan

headquarters). Since its earliest days, Chicago has capitalized upon its geographic location to foster thdevelopment of transportation and other network-based infrastructure, from ports and railroads, to communicatiowires, interstate highways, and air travel. As a home rule unit of local government under the Illinois Constitution 1970, the City may exercise any power and perform any function pertaining to its government and affairs. ThCity has a mayor-council form of government. The Mayor is the Chief Executive Officer of the City and is elected a four-year term. Rahm Emanuel was elected as Chicagos Mayor in April 2011. The City Council is the legislativbody and consists of 50 members; each elected to represent one of the Citys 50 wards.


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II. Investment highlights

Midway Airport represents an excellent investment opportunity for the private sector. Though a well-run airpotoday, Midway does not currently provide any direct financial benefit to the taxpayers of Chicago and the Cibelieves it can achieve significant financial and operational benefits throughout the term of the Agreement for thbenefit of current and future Chicago taxpayers.

At the same time, the Agreement provides the private sector with a significant opportunity. Highlights of thAgreement include:

Marquee infrastructure asset / Landmark transaction

Highly successful business model with record recent performance

Partnership with leading US airlines and Southwests largest operation

Long-term, high-quality investment opportunity

New airline rate agreement

Significant performance upside

Marquee infrastructure asset / Landmark transaction

The proposed transaction would be the first of its kind involving a large hub airport in the US. Only one larghub airport can be included in the FAA Pilot Program that allows for the lease of up to 10 public-use airportin the US, and that slot has previously been awarded to Midway.

Midway represents the ideal first-mover opportunity for global infrastructure investors in the US airport spaceGiven its location in the center of the US, Midway is an integral part of the national aviation system.

Midway is located 10 miles from downtown Chicago and is strategically positioned as the premier point-to-poinairport in the US, providing service to business and leisure travelers throughout the region.

Highly successful business model with record recent performance

2012 was the busiest year in Midway's 85 year history with passenger enplanements expected at 9.6 million.

Midway has been consistently among the top 30 airports in the nation based on passengers and is one of thfastest growing airports in the US with passengers growing 7.1% in 2011.

Midway was the 4th fastest growing large hub US airport from 1999 2011. From 1999 to 2011, Midway haexperienced a 3.2% compounded annual growth rate, compared to 0.5% nationwide.

The Airport was also winner of the 2011 US Airport Growth Award from Airline Route News & Analysi(ann.aero) as the fastest growing airport in the large airport category (airport with over 10 million annuapassengers).

O&M expenses remained level between 2007 and 2011 as the result of controllable contractual and personneexpenses.

Midway is the nations 26th busiest airport. As of December 2012, the Airport served over 60 airport

including six locations in Mexico, as well as Toronto, Canada, with over 500 non-stop arrivals and departures.

Partnership with leading US airlines and Southwests largest operation

Southwest Airlines currently leases 29 of Midways 43 gates and has significantly expanded its operations anmarket share at the Airport over the last decade. Southwest expects significant growth at Midway over the ne3 5 years as the result of its acquisition and integration of AirTran Airways and the end of certain Wrigh


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Amendment regulatory restrictions that prohibit nonstop service from Midway to Dallas Love Field (1). Moinformation about traffic forecasts will be made available later in the process.

Additionally, Midway is served by AirTran Airways (which is a wholly-owned affiliate of Southwest), Delta ALines (and its regional affiliates), Frontier Airlines, Porter Airlines, Volaris Airlines, and various public chartflight airlines.

Long-term, high-quality investment opportunity

Midway is an important US dollar-denominated infrastructure asset at a time when the market for US assets scarce.

The City has decided to undertake a transaction that provides full operational and financial control anresponsibility for future development to the Private Operator, subject to the terms and conditions of thAgreement. All ongoing relationships with the City relating to Midway will be clear and contractually baseThe Agreement is intended to be not more than 40 years, allowing the selected Private Operator to carry oulong-term investment and planning for Midway.

Chicago is Americas third-largest city in terms of population and is the center of a larger Metropolitan Area wia population of approximately 9.6 million residents. The Metropolitan Area is home to over 400 major corporaheadquarters, including 29 Fortune 500 company headquarters.

New airline rate agreement

The Private Operator will assume a new Use Agreement with airlines serving Midway that will become effectivupon closing of the proposed transaction. This Use Agreement will provide for a new framework of rate-settinthat is simple, long-term, inflation linked and caps airline tariffs only. It is designed to provide the airlines wistability and competitive rates, while allowing the Private Operator to obtain the benefits of its ability to maximiznon-airline revenues from increased passenger volume.

Significant performance upside

There is significant potential to increase commercial revenue both in terms of variety of activities and increase

sales per passenger. Additionally, the City has created the opportunity for additional commercial concessiospace. Current commercial contracts for offerings within the terminal provide for operational flexibility.

A Federal Inspection Services ("FIS") facility offers significant opportunity for carriers to expand internationallyIn recent years the US bilateral air services agreements with Mexico and countries in the Caribbean have beesignificantly liberalized creating potential opportunities for new air services between Midway and thesdestinations. For example, in 2012, Southwest's wholly-owned subsidiary AirTran Airways began servicbetween Midway and Cancun, Mexico and added a second flight in December 2012. Mexico-based Volaris hasteadily increased its portfolio of destinations served from Midway since commencing service to GuadalajarMexico in December 2010. Porter Airlines provides service to Toronto City Airport. Travel between Midwaand points in Canada, Mexico and the Caribbean represent international service growth opportunities.

Since 1997, the City has invested nearly $1 billion in structure improvements at Midway, limiting the need fosignificant near-term projects. Along with the completion of the new, state-of-the art terminal in 2004, runway

are resurfaced on a continual basis. In 2005, the Airport opened a 6,300 space economy parking garage. 2007, the Airport's inline baggage screening system was completed. Other than a new rental car facilitscheduled to open in Spring 2013, and to be financed with a customer surcharge known as a CFC, thAirport's near-term capital improvement program ("CIP") includes: cyclical airfield rehabilitation, soundproofinhomes surrounding the Airport and improving existing security, including a new passenger security checkpoinbut no major expansion projects.

(1) The Wright Amendment was passed by Congress to regulate non-stop service to and from Dallas Love Field.Applicable restrictions will be fully phased out by the end of 2014.


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III. Midway description

Overview

Midway International Airport is presently positioned commercially as the nation's premier point-to-point airporoffering leisure and business travel to 62 markets. Midway is consistently among the top 30 airports in the natiobased on passengers. Midway's 5 runways handled almost 19 million passengers in 2011. Midway is one of thfastest growing airports in the US with passenger enplanements growing 7.1% in 2011. The strength of Midwaycore local passenger market is extremely resilient to changes in the aviation industry and economy as Chicago haone of the most diverse local and regional economies in the nation. In fact, 2012 was the busiest year in thMidways 85 year history with an expected record 9.6 million passenger enplanements.

The new airport terminal opened at Midway Airport in 2004. The Midway Terminal Development Program broug43 gates, spacious facilities, a bright and airy Concessions Triangle with unique restaurants and shops, greatexpanded parking and improved roadways to Midway Airport.

Midway Airport is conveniently located 10miles southwest of downtown Chicago.The Chicago Transit Authority's rapidtransit rail service to Midway makes thecommute to the airport fast, easy andinexpensive, and reinforces Midway'spresence as Chicago's close-in andconvenient airport.

Midway makes a significant contributionto Chicagos $532 billion economy (2010dollars). A 2001 study estimated Midwaygenerates close to $7 billion (2000

dollars) in economic activity each year and90,000 jobs.


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History of Midway

1927 Dedicated as Chicagos 1967 North Terminal redeveloped 1999 Midway Airport ParkingMunicipal Airport Garage opened and Midway served13 million passengers

1929 Recognized as the busiest 1978 Deregulation of the airline 2004 Completion of MidwayAirport in the world industry opened market to smaller Terminal Development Program

airlines and discount fares

1949 Renamed in honor of the 1985 Southwest Airlines began 2005 Midway served 18 millionBattle of Midway during World service from Midway passengersWar II

1961 Relinquished the Worlds 1993 The Chicago Transit 2006 Preliminary Application filedBusiest Airport title to OHare Authority began rapid transit under FAA Pilot Program

Orange Line rail service to Midway

1964 United returned with 1996 Mayor Richard Daley 2012 Midway has its busiestservice to New York announced the historic Midway year serving 19.2 million passengersAirport Terminal Development (projected); City files Revised PreliminaryProgram, which was launched the Application with FAA Pilot Programfollowing year

Physical description

Area

The Midway Airport complex covers a little more than one square mile, approximately 840 acres, and is colloquialknown as the world's busiest square mile in aviation with 255,227 flight operations in 2011.

Location

Midway Airport is 10 miles southwest of downtown Chicago, with excellent transportation access. The ChicagTransit Authority's station at Midway connects directly to the downtown business district (with a trip time oapproximately 30 minutes), commonly called the Loop, as well as neighborhoods throughout the City and thmetropolitan area. The Airport is also accessible from all points in the City and Chicago metropolitan area via aextensive network of expressways and major arterial streets. Midway Airport is located in the heart of a vibraresidential, industrial and retail community.


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Runways

The Airport has five runways with a configuration of three parallel runways intersected by two parallel runways

Runways 13C / 31C and 4R / 22L are the two longest runways at 6,522 feet and 6,445 feet, respectively, anserve as the Airport's primary air carrier runways. Runways 13L / 31R and 4L / 22R are shorter and are primarused by small commuter and general aviation aircraft. Runway 13R / 31L, the shortest runway, is used for smageneral aviation aircraft only. Runway ends 4R, 13C and 31C have Instrument Landing capability.


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Terminal Building

Midway's terminal opened in June 2004, increasing total gates from 29 to 43. Terminal square footage increasefrom 260,000 square feet to 1,000,000 square feet. The Airport is equipped with a Federal Inspection Servicefacility to service international flights. The terminal features 2,800 feet of curb front.


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Concessions

Midway's Concession Triangle offers a varied selection of familiar national brands and local cuisine. Travelers hav

a range of selections, including Chicago brands such as Potbelly Sandwich Works, Lalos Mexican RestauranGold Coast Dogs, Harry Caray's Steakhouse, Manny's Deli and Pegasus (a Greek tavern), among others. addition, the Airport has completed construction of the Concourse A Infill project which includes 5,850 square feeof new concession areas for future opportunities. In total, Midway has 49,954 square feet of retail and food anbeverage space in its terminals.

Parking

Currently, Midway has 3 airport parking lots providing over 12,000 spaces. The 2,500-space main garage connected to the Midway Terminal Building for convenient access to ticket counters and baggage claim. A new6,300-space economy parking garage opened in 2005. The economy lots have another 2,542 surface spaceMidway also operates a cell phone lot, which enables drivers to park in a nearby lot and wait until the passengethey are picking up has arrived.

Consolidated Rental Car Facility

In summer 2011, construction began on the Consolidated Rental Car Facility. This project has four componentsthe largest of which is the new parking garage for rental car operations. The new rental car facility includes 1,900 space garage, customer service center and car processing area and is scheduled to open in early sprin2013. Once the consolidated rental car facility is open, the rental car agencies will vacate their areas within thterminal building baggage claim level and the 2nd level of the terminal parking garage providing opportunities fonon-airline revenue growth in concessions and parking areas.


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Other local airports:

O'Hare International Airport, located

approximately 18 miles northwest of the City'scentral business district, is the largestcommercial airport within the Chicago region,with approximately 33.2 million enplanementsin 2011. In 2011, O'Hare was the secondbusiest airport in the world, measured in termsof total operations, and the fourth busiestairport in terms of total passengers. O'Hare'stwo largest airlines, American Airlines andUnited Airlines, have significant hubbingoperations and have a high level of connectingactivity at O'Hare serving destinationsthroughout the world. O'Hare is expected tocontinue to serve as the primary commercialairport within the Chicago region.

Gary/Chicago International Airport is locatedon the south end of Lake Michigan about 25miles from downtown Chicago. Nearbyhighway connections include I-90, I-80, I-94, I-65 and the Chicago Skyway. Gary/Chicago isan important reliever airport for the Chicagoarea, supplementing Chicago's major airports,O'Hare and Midway. The airport presently hascommercial service by Allegiant Air to Orlando,Florida via Orlando Sanford International

Airport.

The nearest commercial service airport outside the Metropolitan Area is General Mitchell International Airpo(Mitchell) located approximately 85 miles north of Midway. Mitchell serves the commercial air service needs Milwaukee, southeast Wisconsin, and portions of northern Illinois. On a representative weekday in Decemb2012, Mitchell offered air carrier service to/from 31 airports with 256 flights.

Chicago Rockford International Airport (Rockford) is located approximately 75 miles northwest of Midway. On representative weekday in December 2012, Rockford offered air carrier service to/from 2 airports with 4 flights.

Plans to build a south suburban airport in the Chicago Region are underway by the Illinois Department oTransportation. A Master Plan and Environmental Impact Statement for an airport located near Peotone, Illinois (Will County approximately 35 miles south of the Citys central business district) are in process. The City does nexpect that a future south suburban airport would compete with Midway.


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Historical performance

Traffic / enplanements

The FAA classifies Midway as a large hub airport, defined as including more than 1% of all domestienplanements. From 2005-2011, the number of enplanements grew from 8.6 million to 9.4 million. AlthougMidway has been affected by restructurings in the airline industry and the recent global economic downturn, thlarge passenger market that exists in the Chicago region has proven to be attractive to airlines such as SouthwesIn 2011, Midway experienced 7.1% growth in passenger enplanement activity as compared with the US industaverage of 2.3% during 2011.

Midway enplanements (2002 2012E)

(enplanements in millions)

8.28.9

9.58.6

9.1 9.38.2 8.5

8.79.4 9.6

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E

Midway has demonstrated a resilient traffic profile, particularly when compared against national statistics:

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E

Midway enplanement growth(1)

10.1% 9.4% 6.7% (9.7%) 5.7% 2.2% (11.4%) 2.9% 3.1% 7.1% 2.9%

Nationwide enplanement growth(2)

(8.1%) 2.2% 6.9% 6.5% (0.2%) 3.2% (1.4%) (7.3%) 0.7% 2.3% NA

(1) Represents Midway enplanement growth for the twelve months ending December 31st. Excludes general aviation, military, helicopter and miscellaneouspassengers

(2) Represents US domestic enplanement growth for the twelve months ending September 30th

ATAdecreases

service

ATAceases

operations

Southwestdestinations andenplanements at

Midway grow

Volaris initiates service;AirTran and Southwest

announce merger


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Financial performance

Overview

Midway Airport is owned by the City and operated by the Chicago Department of Aviation (CDA). The Airport accounted for as a self-reporting enterprise fund of the City. The City maintains the books, records and accounof the Airport in accordance with generally accepted accounting principles and as required by the provisions of thAirport Use Agreements, bond ordinances and indentures.

Historically, Midway has operated on a residual rate-making methodology for the calculation of airline rates ancharges. Under this methodology, total operating and maintenance expenses and debt service (includincoverage) are calculated for each cost-revenue center and offset by non-aeronautical revenues. Midways bonindentures require that Airport financial statements be audited by independent certified public accountants. Thmost recent Midway audited financial statements, together with an unqualified opinion of Midways auditors, arattached to this RFQ. The audited financials for the fiscal year ended December 31, 2012 are expected to bready during June of 2013.

Revenues

The primary sources of Midway operating revenues are landing fees, terminal area use charges, rents anconcession and parking revenues. These revenues, along with federal grants, PFC revenue, and CFC revenufund Midway operating and capital expenses, fund deposits and net debt service requirements. In 2011, Midwagenerated $157.4 million of operating revenue (excluding PFC and CFC revenues), plus $36.9 million of PFCrevenue, $6.2 million of CFC revenue, and $0.8 million of other non-operation revenues broken down as follows:

2011 total revenue 2011 operating revenue

Operatingrevenue78%

PFC

18%

CFC3%

Other


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Expenses

Midways primary operating expenses include salaries and wages, repairs and maintenance, professional anengineering costs and other operating expenses typical for an airport of Midways size. From 2007 to 201operating expenses at Midway have decreased by approximately 1%. A breakdown of Midways 2011 operatinexpenses, excluding depreciation and amortization is below:

2011 operating expenses (excluding

depreciation and amortization)

Salaries and

wages40%

Repairs andmaintenance

37%

Professional

andengineeringservices

14%

Energy6%

Other2%

Materials andsupplies

1%

Operating expenses (excluding depreciation andamortization): $110 million


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Earnings before interest, taxes, depreciation and amortization (EBITDA)

Midways historical EBITDA performance is summarized in the table below:

($ in millons)

2007-2011

FYE 12/31 2007 2008 2009 2010 2011 CAGR

Enplanements(1) 9.3 8.2 8.5 8.7 9.4 0.2%

% growth 2.2% (11.4%) 2.9% 3.1% 7.1%

Revenue:

Landing fees $20 $29 $22 $35 $39 18.4%

Rental revenues:

Terminal area use charges 17 26 31 43 41 24.0%

Other rentals and fueling system fees 18 16 20 21 25 8.9%

Concession revenues

Auto parking 30 32 28 28 29 (0.5%)

Auto rentals 8 8 9 8 9 1.0%

Restaurant 8 8 7 8 9 2.2%

News and gifts 4 4 3 3 4 (2.2%)

Other 2 2 2 2 3 2.8%

Subtotal operating revenues 107 125 122 149 157 10.1%

Passenger facility charge revenue 38 32 34 35 37 (0.6%)

Customer facility charge revenue 8 7 6 6 6 (4.9%)

Other non-operating revenue 1 1 7 1 1

Total revenue $153 $165 $169 $191 $201 7.0%

% growth 11.1% 7.5% 2.7% 12.6% 5.5%

Operating expenses:

Salaries and wages $40 $37 $40 $42 $44 2.2%

Repairs and maintenance 37 37 38 32 41 2.5%

Energy 7 7 8 7 6 (3.8%)

Materials and supplies 2 2 1 2 1 (5.1%)

Professional and engineering services 15 20 7 16 16 1.4%

Other operating expenses 10 6 6 10 2 (31.3%)

Total operating expenses $111 $110 $100 $108 $110 (0.3%)

% of revenue 72.6% 66.5% 58.9% 56.8% 54.7%

EBITDA $42 $55 $70 $82 $91 21.4%% margin 27.4% 33.5% 41.1% 43.2% 45.3%

% growth 3.5% 31.4% 26.2% 18.2% 10.7%

Depreciation and amortization $42 $46 $48 $53 $51 4.7%% of revenue 27.7% 27.9% 28.2% 27.7% 25.4%

Source: Midway financial statements(1) Excludes general aviation, military, helicopter and miscellaneous passengers


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FAA Airport Improvement Program (AIP) grants

The Airport and Airway Improvement Act of 1982 created the AIP grant program, which is administered by th

FAA. AIP grants include entitlement grants, which are allocated among airports by the FAA in accordance withformula based on enplanements, and discretionary grants, which are allocated by the FAA in accordance with itguidelines. Midway receives approximately $3 million annually of entitlement funding, net of the forfeiture of certaentitlement funds required as a result of imposing a $4.50 PFC. Under current federal law, entitlement grants airports such as Midway that impose a PFC of $4.50 are reduced for each fiscal year by 75% of projecterevenues from the PFC in such fiscal year, but not to exceed 75% of the entitlement grant to which the airpowould otherwise be entitled.

Passenger Facility Charges (PFC)

The United States Congress enacted legislation (the Aviation Safety and Capacity Expansion Act of 1990authorizing a public agency, such as the City, that controls a commercial service airport to charge each payinpassenger enplaning at the airport (subject to limited exceptions) a PFC of $1.00, $2.00 or $3.00. The Wendell HFord Aviation Investment and Reform Act for the 21st Century (AIR 21) subsequently authorized eligible publiagencies such as the City to impose PFCs of $4.00 or $4.50.

The purpose of the PFC is to provide additional capital funding for airport projects. The proceeds from PFCs caonly be used to finance eligible airport-related projects that preserve or enhance safety, capacity or security of thnational air transportation system; reduce noise or mitigate noise impacts resulting from an airport; or furnisopportunities for enhanced competition between or among air carriers. Before imposing and using PFCs, a publagency must receive FAA approval.

AIR 21 authorized eligible public agencies such as the City to impose PFCs to finance PFC eligible projectincluding the payment of debt service on indebtedness incurred to finance such projects, which cannot be pafrom funds reasonably expected to be available through the AIP. Funding of surface transportation or terminprojects at this level is conditioned on a finding that the public agency has made adequate provision for financinthe airside needs of the airport, including runways, taxiways, aprons and aircraft gates. In addition, at medium an

large hub airports such as Midway, projects eligible for the $4.00 or $4.50 level of PFC funding are required make significant contributions to improving air safety and security, increasing competition among air carriersreducing current or anticipated congestion or reducing the impact of aviation on people living near the airport.

Effective January 1, 2007, the City began imposing PFCs at Midway at $4.50. Under the Pilot Program, thPrivate Operator will be considered a public agency for purposes of the PFC Program, with comparable ability timpose and use PFCs. Currently, PFCs are committed to pay approximately $775 million principal amount of dethat was incurred by the City to finance eligible capital projects. A Private Operator wishing to seek PFC authorito pay debt service on debt instruments used to replace existing PFC-backed municipal bonds may be permitted tsubstitute an equivalent principal amount of its own debt and use PFC revenues to pay principal and reasonabdebt service on such debt under FAA's PFC amendment procedures. This type of amendment would requiairline consultation as well as FAA coordination, review and approval to meet statutory requirements.

Customer Facility Charges (CFC)

The City of Chicago adopted a CFC ordinance on July 27, 2005 and first implemented a CFC at the Airport iSeptember 2005 at the rate of $3.75 per transaction day. Currently, the CFC rate remains at $3.75 ptransaction day, which is one of the lowest rates in the US, and led to total CFC collections of approximately $4million through December 2012. Under Illinois law, funds from CFCs may not exceed the reasonable costs financing, designing, constructing, operating and maintaining the consolidated rental car facility and common ustransportation equipment facilities and cannot be used for any other purposes. Based on the current Ciordinance, the Commissioner of CDA has the authority to adjust the CFC rate from time to time with 30 daywritten notice to the on-airport rental car companies.


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Airline operations at MidwayAs of December 2012, scheduled passenger air service at Midway was provided by six commercial airline

(together with regional affiliates and code share partners). Collectively, these airlines offer service to/from mothan 60 markets with nearly 510 daily flights. The following tables identify the market shares of the airlines baseon enplaned passengers and landed weight:

Carrier shares by enplaned passengers (2011) Carrier shares by landed weight (2011)

Southwest88%

Delta 5%

AirTran 4%

Frontier2%Porter


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Midway network

In 2011 and 2012, Southwest added seven new non-stop markets: Newark, NJ; Charleston, SCGreenville/Spartanburg, SC; Akron/Canton, OH; Atlanta, GA; Oklahoma City, OK; and Des Moines, IA; AirTraadded nonstop service to Branson, MO and Cancun, Mexico. International service commenced at Midway in thfirst quarter of 2002, upon completion of the FIS facility. Currently, international service at Midway is modesHowever, in 2012, AirTran started operating two daily nonstop flights between Midway and Cancun, Mexico. addition, Volaris began service to five destinations in Mexico (the most recent city added was Leon in Octobe2012) and Porter began service to Toronto City Airport. Additionally, AirTran plans to add service to Tampa, Fand Fort Lauderdale, FL in 2013.

Note: Map includes airports with seasonal, scheduled charter, and less than daily service


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IV. Legislative framework

Federal approvals

The proposed transaction must be approved by the FAA under the Pilot Program. The Pilot Program waauthorized by Title 49 USC 47134 (enacted pursuant to Section 149 of the FAA Authorization of 1996 anamended by Section 155 of the Vision 100 Century of Aviation Reauthorization Act of 2003) and implementeregulatory guidance and application procedures adopted by the FAA Airport Privatization Pilot Program: ApplicatioProcedures (62 Federal Register 48693) September 16, 1997.

Under the 2012 Reauthorization Act, the FAA increased the number of airports that can participate in the PiloProgram from five to 10 public use airports in the United States. Only one of these airports may be a large huairport, such as Midway (defined as an airport which has one percent or more of total US passenger boardings).

To date, one airport, the Stewart International Airport in Newburgh, New York has been closed under the Pilo

Program. However, in October 2007, the Port Authority of New York and New Jersey purchased the operatinlease rights to Stewart, effectively ending that arrangement. In August 2012, a final application was submitteunder the Pilot Program for the Lus Muoz Marn International Airport in San Juan, Puerto Rico and the FAA icurrently reviewing the final application for that transaction.

The Citys Preliminary Application under the Pilot Program for Midway was previously accepted for review by thFAA and as a result, the large hub slot under the Pilot Program was reserved for Midway. The City has recentrevised and updated this Preliminary Application.

The Pilot Program permits a private operator to become the airport sponsor eligible to assess a Passenger FacilitCharge and receive entitlement and discretionary grants under the AIP. The applicable local matching share ffuture discretionary grants is 30% for airports under the Pilot Program, as opposed to 25% for other major huairports.

In order to qualify for the FAA Pilot Program, the Agreement would have to ensure that the following conditions ar

met:

The Airport will continue to be available for public use on reasonable terms and conditions without unjusdiscrimination;

The operation of the Airport will not be interrupted if a private operator experiences bankruptcy or other financidifficulty;

A private operator will maintain, improve, and modernize Midway facilities through capital investment, and wsubmit a plan for these actions;

Airport fees imposed on air carriers will not increase faster than inflation unless a higher amount is approved bat least 65% of the air carriers using the Airport and the air carriers having at least 65% of aircraft landeweight at Midway;

The percentage of increase in fees imposed on general aviation operators will not exceed the percentag

increase in fees imposed on air carriers; Safety and security will be maintained at the highest possible levels;

Adverse effects of noise from operations at Midway will be mitigated to the same extent as at a public airport;

Adverse effects on the environment from Midway operations will be mitigated to the same extent as at a publiairport; and

Any collective bargaining agreement that covers Midway employees and is in effect on the date of a lease of thAirport will not be abrogated by the lease.


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In addition to these requirements, in order for the City to participate in the Pilot Program, the FAA Administratomust find that the transfer of the Airport to a private operator will not result in unfair and deceptive practices ounfair methods of competition, and that the interests of general aviation users are not adversely affected.

As part of its application to the FAA for approval of the proposed transaction, the City will request that the FAAgrant exemptions from otherwise applicable regulatory requirements, including the prohibition on use of Airporevenues for non-Airport purposes by the City and the Private Operator; and the requirement to repay Federal granfunds.

FAA approval of the exemption from the prohibition on use of Airport revenues for non-Airport purposes by the Citis conditioned upon approval by at least 65 percent of the scheduled air carriers serving Midway and by scheduleand nonscheduled air carriers whose aircraft landing at Midway during the preceding calendar year, had a totalanded weight during the preceding calendar year of at least 65 percent of the total landed weight of all aircralanding at Midway during such year. The City and the airlines serving Midway have reached a preliminaunderstanding on the terms of the new Use Agreement. The City intends to enter into legally bindindocumentation with these airlines prior to the commencement of formal bidding for the Agreement.

Upon the Citys selection of the Private Operator, the City will file a final application with the FAA. Upon receipt the final application, we expect the FAA will publish notice and accept public comment for a period of at least 6days. Approval by the FAA of the final application and the proposed transaction may not occur until the conclusioof this public comment period. As part of its review and in order to approve the final application, the FAA wrequire that the Private Operator satisfy applicable operating, safety and security requirements.

City and state approvals

As a home rule municipality, the City is authorized under the Illinois Constitution to approve the Agreement anthe selection of the Private Operator. It is expected that the City Council will adopt an ordinance authorizing thAgreement, the Use Agreement and the selection of the Private Operator, upon the completion of the biddinprocess described in Section I above. In 2006, the Illinois General Assembly enacted Public Act 94-750, whic

provides for certain requirements that must be satisfied in connection with any Agreement involving Midway. Thesrequirements relate specifically to: labor relations and employee protections; continued compliance with applicabordinances governing contracting with minority-owned and women-owned businesses, prohibiting discriminatioand requiring appropriate affirmative action; and application of the net proceeds by the City. The Agreement will bimplemented in accordance with the requirements of Public Act 94-750. Public Act 94-750 imposes certaconditions on a transaction involving Midway by the City but does not otherwise limit the Citys ability to enter intan Agreement and it does not require approval by either the General Assembly or by any department or agency othe State for the Agreement to become effective.

Interstate airport compact

The City and the City of Gary, Indiana entered into an interstate airport compact (the Compact) in 1995. Thcompact established an Interstate Airport Authority (the Authority) which reviews and approves certain actioninvolving Midway, Chicago OHare International Airport and the Gary/Chicago Airport. Prior to closing, the Ciwill obtain all approvals required pursuant to the Compact to consummate the Agreement.


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V. Minimum bidder qualification requirements

This RFQ is open to prospective Bidders capable of meeting the requirements highlighted in this section andetailed further in Section VI. Upon receipt, all RFQ submissions will be reviewed for completeness in accordancwith the submission requirements highlighted in Section VI of this RFQ. At the end of this completeness reviewthe City, along with its advisors, will assess each Teams qualifications in the areas of (i) operational anmanagement capability and (ii) financial capability. There will be no restriction as to the number of Teams that maqualify to bid on the Agreement. The City may, in its sole discretion, allow changes in the composition of a Teamthe Team is comprised of more than one entity (e.g., joint venture, partnership, etc.).

Operational and management capability

The evaluation of operational and management capabilities will consider whether the RFQ submission adequateresponds to the requirements of the Agreement with respect to the following areas of expertise:

Airport operations, development, maintenance and route development;

Safety and security / management of critical pieces of transport infrastructure;

Passenger customer service; and

Experience of working with government authorities.

The winning bidder must obtain a Part 139 Airport Operating Certificate from the FAA to operate Midway and mussatisfy all applicable regulatory requirements, including those of the Transportation Security Administration (TSACustoms and Border Patrol (CBP) and other regulatory agencies relating to airport safety and security.

Financial capability

The evaluation of financial capabilities will address whether the RFQ submission adequately responds to th

financial capability requirements of the Agreement with respect to the following areas: Financial capacity to fund upfront payment to the City and maintain and improve the Airport throughout the term

of the Agreement;

Ability to raise appropriate financing;

Credit quality to ensure the payment of any obligations, including, but not limited to, obligations under thAgreement; and

Commitment to submit a competitive price.


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VI. RFQ submission requirements and procedure

RFQ submission requirements

Prospective Bidders that anticipate responding to this RFQ shall so indicate as soon as possible by providincontact information via e-mail to both representatives of the Advisor listed below. RFQ submissions should compwith the format provided under Format and Required Information for RFQ Submission below. Additioninformation not specifically related to the Agreement or this RFQ should not be included. All questions or requesfor information regarding this RFQ should be in writing and should be directed to only the representatives of thAdvisor as listed below.

Mr. Philip IleyCredit Suisse

Phone: (44) 20-7888-7681

[email protected]

Mr. James FlahertyCredit Suisse

Phone: (312) 750-2928

[email protected] City may request additional information or clarifications from any, some or all prospective Bidders at any time.

Changes to this RFQ

At any time, in its sole discretion, the City may, by written addenda to this RFQ, modify, amend, cancel, and / oreissue this RFQ. If an addendum is issued prior to the submission date, it will be made available on the followinwebsite:

www.cityofchicago.org/midwaytransaction

If an addendum is issued after Information has been received, it may, at the Citys discretion, be provided only tthose respondents whose submittals may be impacted by such addendum.

No liability for costs

The City and its advisors are not responsible for costs or damages incurred by Bidders, Teams, Team Memberssubcontractors, or other interested parties in connection with the solicitation process, including but not limited tcosts associated with preparing responses, qualifications, and proposals and of participating in any conferencesoral presentations, or negotiations.

Modification and termination rights

The City reserves the right to modify or terminate the RFQ for the Agreement at any stage if the City determinesuch action to be in its best interest. The receipt of proposals or other documents at any stage of either the RF

or the tender process will in no way obligate the City to enter into any contract of any kind with any party.

Authorization for further investigation

By submitting a response to this RFQ, each Bidder specifically authorizes the City and its advisors to make aninquiry or investigation to verify the statements, documents, and information submitted in connection with this RFQand to seek clarification from the Bidders officers, employers, advisors, accountings and clients regarding thsame.


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Confidentiality and disclosure of information

All materials submitted in response to or in connection with this RFQ shall become the property of the City.

Information submitted in response to this RFQ will be exempt from disclosure until the conclusion or termination othe procurement and bidding process referred to herein.

In addition, under the Illinois Freedom of Information Act, as amended (FOIA): (i) Information that contains tradsecrets and commercial or financial information may be exempt if disclosure would result in competitive harm; an(ii) However, in order for such Information to be treated as a trade secret or information that would causcompetitive harm, you must mark any such document as proprietary, privileged and confidential. If you markdocument as proprietary, privileged or confidential, the City will evaluate and determine whether the documemay be withheld from disclosure under FOIA. Any determination made by the City is subject to review by thIllinois Attorney General and judicial review.

No personal liability

Neither the members of the City government, nor any of them, nor any officer, agent or employee thereof shall bcharged personally with any liability by a respondent or another or held liable to a respondent or another under anterm or provision of this RFQ or any statements made herein or because of the submission or attemptesubmission of information or other response hereto or otherwise.


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Format and required information for RFQ submission

All RFQ submission should follow the format outlined below and should be submitted in English. All submissionshould be no more than 20 single-sided pages (excluding appendices):

1. Cover page (to include identification of all Team Members)

2. Executive summary and strategic rationale (2 pages maximum)

3. Description of bidder

a. Description of Bidder: Provide a description of the Team, including a description of all Team Memberand the anticipated legal relationship (governance and shareholder structure) among the TeaMembers (e.g., partners, shareholders, client-consultants, etc.) as appropriate.

b. Roles of team members and key personnel: Briefly outline the roles of the Team Members and kepersonnel. In doing so, please address expertise in airport operations, development, maintenancroute development, safety and security, customer service, project financing and government relations

c. Controlling interest / ultimate ownership: Identify the individuals or companies who hold a major ocontrolling interest in each Team Member.

4. Capabilities and satisfaction of minimum bidder qualification requirements

a. Operational and management capability: Teams should address the following areas with respect toperational and management capability:

i. Operations and maintenance expertise: Teams must provide evidence demonstrating their abilito operate and maintain a project of this nature and scope. Specifically, the Team should have:

Substantial international hub airport operation and maintenance experience;

Advanced knowledge of terminal, runway and associated facilities, maintenance, repaconstruction and practical application of equipment and materials associated with airpo

operations, as well as a demonstrated understanding in aging behavior of terminal, runwaand associated facilities to assess and determine the necessity for remedial maintenancaction;

Familiarity with FAA regulations and procedures, airport operations, construction anmaintenance standards;

Experience with facilitating airport passenger growth via route development and marketing;

Demonstrated understanding of airport-aging behavior to assess and determine thapplicability of remedial-maintenance action;

Extensive experience in using airport condition and weather information to perform season

maintenance, particularly as it relates to extreme winter weather; and

To the extent an operator has not been engaged at this stage, a prospective Bidder shouldemonstrate a track record of managing infrastructure projects by using its own manageriteams (in-house operations) or track record of successfully sub-contracting its operationobligations in infrastructure projects to appropriate and competent third-parties.

ii. Customer service: Teams must demonstrate their commitment to achieving the highest standardof customer service and satisfaction. Specifically, the Team must highlight their experience anqualifications in the following areas:


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Maintaining productive ongoing relationships with government entities, similar to threlationship that the winning Bidder will have with the City;

Providing excellent customer service to the traveling public; Delivering safe and efficient operating conditions to airlines, particularly those at Midway; and

Maintaining active public relations functions targeted at travelers, taxpayers and airpotenants.

iii. Safety and Security: Teams must demonstrate their ability to address and resolve safety ansecurity issues. Specifically, the Team should have:

Knowledge of airport safety and security management and methodologies, including TSsecurity plan approval process;

Experience in emergency response support; and

Background in relevant traffic engineering standards, specifications, policies, practices an

processes.

b. Financial capability: Teams should address the following areas with respect to financial capability:

i. Financial capacity: Teams must demonstrate their financial capacity to pay the equity portion of thpurchase price and to maintain Midway for the term of the Agreement. To demonstrate sufficiefinancial capacity, Team Members must provide copies of audited financial statements for the pathree years, together with any other relevant financial information. If audited financial statemencannot be provided, Team Members should provide enough financial information to demonstrathat they have the financial resources to successfully execute a project of this nature and scopeFinancial factors which will be assessed include (financial statements can be included aappendices):

Adequacy and availability of liquid equity;

Profitability;

Debt, capitalization and credit worthiness;

Demands from other projects / investments; and

Consortium shareholder agreements.

ii. Ability to Raise Financing: Teams must provide specific evidence demonstrating their proveability to raise financing for a project of this nature and scope. Specific factors that will bassessed include:

Track record of raising debt for similar projects, including but not limited to, the number ansize of past relevant transactions and references to specific experiences on past transactionsand

Level of commitment shown by the project sponsors

5. Indicative sources of funds: Please provide a summary description of how the bidder intends to financthis transaction, including proposed structuring, sources of funds, lending relationships, etc.

6. Contacts and advisors

a. Contact person: Provide a single contact person for all future communication between the City and thAdvisor and the Team. Please identify the contact persons name, title, organization, addrestelephone number, mobile number, fax number, and email address.


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b. Expected advisors: Identify the companies and individuals who are expected to act as legal, financiatechnical or other advisors for the Team.

7. Disclosure of conflicts: List any dealings and / or existing contracts with the City of Chicago, its employeeand elected representatives, as well as any airlines operating at Midway, suppliers of goods or services tMidway and other US airports.

8. Relationship with lenders: Please confirm that your Team does not and will not have an exclusivrelationship with a lender related to this transaction.

9. Comparable projects: To the extent not otherwise part of previous sections, please provide a list comparable projects in which Team Members have participated. Bidders should specify how thescomparable projects relate to the proposed Agreement. This list can be included as an appendix if sdesired.

10.References: Provide a list of Team Member references and contact information. These references shoube able to describe the relevant qualifications and capabilities of Team Members who would take a leadin

role in the operation and maintenance of Midway.

RFQ submission instructions

RFQ submission (including all attachments) should be delivered via electronic mail to the email address below nlater than 4:00 P.M. CT on February 22nd, 2013. The City may determine in its discretion whether to accept anresponses that are not received by the date and time set forth in this paragraph. RFQ submissions may not bsubmitted via facsimile machine and hard copies are not required to be delivered. Deliver RFQ submissions to:

City of ChicagoC/O Mr. James Flaherty

Credit Suisse Securities (USA) [email protected]


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VII. Appendix

Audited historical financial statements


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City of Chicago, IllinoisChicago MidwayInternational AirportBasic Financial Statements as of and for theYears Ended December 31, 2011 and 2010,Required Supplementary Information,

Additional Information, Statistical Information,and Independent Auditors Report


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CITY OF CHICAGO, ILLINOISCHICAGO MIDWAY INTERNATIONAL AIRPORT

TABLE OF CONTENTS

Page

INDEPENDENT AUDITORS REPORT 12

MANAGEMENTS DISCUSSION AND ANALYSIS(REQUIRED SUPPLEMENTARY INFORMATION) 310

BASIC FINANCIAL STATEMENTS AS OF AND FOR THEYEARS ENDED DECEMBER 31, 2011 AND 2010:

Statements of Net Assets 11

Statements of Revenues, Expenses and Changes in Net Assets 12

Statements of Cash Flows 1314

Notes to Basic Financial Statements 1538

ADDITIONAL SUPPLEMENTARY INFORMATION

Debt Service Coverage Calculations:

Chicago Midway Airport Revenue Bonds 3940

Chicago Midway Airport Second Lien Revenue Bonds 4142

STATISTICAL INFORMATION:

Historical Operating Results, Each of the Ten Years Ended December 31, 20022011 43

Debt Service Schedule 44

Midway Airport Revenue Bonds, Series 1996 Estimated Bond-Funded Costs as ofDecember 31, 2011 45

Capital Improvement Program 20122018, Estimated Sources and Uses of Funds as of

December 31, 2011 46

Terminal Development Program, Estimated Sources and Uses of Funds as ofDecember 31, 2011 47

Historical Enplaned Passengers, Each of the Ten Years Ended December 31, 20022011 48


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CITY OF CHICAGO, ILLINOISCHICAGO MIDWAY INTERNATIONAL AIRPORT

TABLE OF CONTENTS

Page

Enplaned Commercial Passengers by Airline, Each of the Ten Years EndedDecember 31, 20022011 49

Historical Enplaned Passengers Chicago Region Airports, Each of the TenYears Ended December 31, 20022011 50

Historical Total Origin and Destination (O&D) Enplanements Chicago Region Airports,Each of the Ten Years Ended December 31, 20022011 51

Aircraft Operations, Each of the Ten Years Ended December 31, 20022011 52

Net Assets by Component, Each of the Six Years Ended December 31, 20062011 53

Change in Net Assets, Each of the Six Years Ended December 31, 20062011 54

Long Term Debt, Each of the Six Years Ended December 31, 20062011 55

Full Time Equivalent Chicago Midway Airport Employees by Function,Each of the Six Years Ended December 31, 20062011 56

Principal Employers (Nongovernment) 57

Population and Income Statistics 58

Landing Fees and Terminal Area Use Charges 59


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INDEPENDENT AUDITORS REPORT

The Honorable Rahm Emanuel, Mayor,and Members of the City CouncilCity of Chicago, Illinois

We have audited the accompanying basic financial statements of Chicago Midway International Airport(Midway), an enterprise fund of the City of Chicago, Illinois (City), as of December 31, 2011 and 2010,and for the years then ended, as listed in the foregoing table of contents. These financial statements arethe responsibility of the Citys management. Our responsibility is to express an opinion on these basicfinancial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States ofAmerica. Those standards require that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. An audit includes consideration ofinternal control over financial reporting as a basis for designing audit procedures that are appropriate inthe circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Citysinternal control over financial reporting for Midway. Accordingly, we express no such opinion. An auditalso includes examining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believe that our audits provide areasonable basis for our opinion.

As discussed in Note 1, the basic financial statements referred to above present only Chicago MidwayInternational Airport, an enterprise fund of the City of Chicago and do not purport to, and do not presentthe financial position of the City of Chicago Illinois as of December 31, 2011 and 2010, changes in itsfinancial position, or where applicable, its cash flows, in conformity with accounting principles generallyaccepted in the United States of America.

In our opinion, the basic financial statements, referred to previously, present fairly, in all materialrespects, the financial position of Chicago Midway International Airport as of December 31, 2011 and2010, and the results of its operations and its cash flows for the years then ended, in conformity withaccounting principles generally accepted in the United States of America.

As discussed in Note 1 to the basic financial statements, effective January 1, 2010, the City adoptedGovernment Accounting Standards Board Statement No. 53 (GASB), Accounting and Financial

Reporting for Derivative Instruments.

Accounting principles generally accepted in the United States of America require that the managementsdiscussion and analysis as listed in the foregoing table of contents be presented to supplement the basicfinancial statements. Such information, although not a part of the basic financial statements, is required bythe GASB who considers it to be an essential part of financial reporting for placing the basic financialstatements in an appropriate operational, economic, or historical context. We have applied certain limitedprocedures to the required supplementary information in accordance with auditing standards generally


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accepted in the United States of America, which consisted of inquiries of management about the methodsof preparing the information and comparing the information for consistency with managementsresponses to our inquiries, the basic financial statements, and other knowledge we obtained during ouraudits of the basic financial statements. We do not express an opinion or provide any assurance on theinformation because the limited procedures do not provide us with sufficient evidence to express anopinion or provide any assurance.

Our audits were conducted for the purpose of forming an opinion on the basic financial statements takenas a whole. The additional supplementary information is presented for purposes of additional analysis andis not a required part of the basic financial statements. Such information is the responsibility ofmanagement and was derived from, and relates directly to, the underlying accounting and other recordsused to prepare the basic financial statements. The information has been subjected to the auditingprocedures applied in the audit of the basic financial statements and certain additional procedures,including comparing and reconciling such information directly to the underlying accounting and otherrecords used to prepare the basic financial statements or to the basic financial statements themselves, andother additional procedures in accordance with auditing standards generally accepted in the United Statesof America. In our opinion, the information is fairly stated in all material respects in relation to the basicfinancial statements as a whole.

Our audits were conducted for the purpose of forming an opinion on the basic financial statements takenas a whole. The statistical information as listed in the table of contents is also presented for purposes ofadditional analysis and is not a required part of the basic financial statements. Such information has notbeen subjected to the auditing procedures applied in the audit of the basic financial statements, andaccordingly, we do not express an opinion or provide any assurance on it.

June 29, 2012


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MANAGEMENTS DISCUSSION AND ANALYSIS($ IN THOUSANDS)

This following discussion and analysis of the Chicago Midway International Airports (Airport) performanceprovides an introduction and overview of the Airports financial activities for the years ended December 31,2011 and 2010. Please read this discussion in conjunction with the Airports basic financial statements and

the notes to basic financial statements following this section.

FINANCIAL HIGHLIGHTS

2011

N Operating revenues for 2011 increased by $9,547 compared to prior-year operating revenues.

N Operating expenses before depreciation and amortization increased by $1,753 compared to 2010,primarily due to an increase in repairs and maintenance offset by other operating expenses.

N The Airports total net assets at December 31, 2011 were $174,448. This is an increase of $3,522compared to total net assets at December 31, 2010.

N Capital asset additions for 2011 were $43,346, principally due to land acquisition, terminalimprovements, security enhancements and runway improvements.

2010

N Operating revenues for 2010 increased by $26,755 compared to prior-year operating revenues.

N Operating expenses before depreciation and amortization increased by $8,695 compared to 2009,primarily due to reimbursement in 2009 for professional fees related to the study of the privatization

of the Airport.

N The Airports total net assets at December 31, 2010 were $170,926. This is a decrease of $34,088compared to total net assets at December 31, 2009.

N Capital asset additions for 2010 were $27,963, principally due to land acquisition, terminalimprovements, security enhancements and runway improvements.


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OVERVIEW OF THE BASIC FINANCIAL STATEMENTS

This discussion and analysis is intended to serve as an introduction to the Airports basic financial statements.The Airport is included in the City of Chicagos (City) reporting entity as an Enterprise Fund. The Airports

basic financial statements are composed of the basic financial statements and the notes to basic financialstatements. In addition to the basic financial statements this report also presents additional and statisticalinformation after the notes to basic financial statements.

The Statements of Net Assets present all of the Airports assets and liabilities using the accrual basis ofaccounting, which is similar to the accounting used by private-sector companies. The difference betweenassets, deferred outflows and liabilities is reported as net assets. The increase or decrease in net assets mayserve as an indicator, over time, whether the Airports financial position is improving or deteriorating.However, the consideration of other non-financial factors such as changes within the airline industry may benecessary in the assessment of the overall financial position and health of the Airport.

The Statements of Revenues, Expenses and Changes in Net Assets present all current fiscal year revenues andexpenses, regardless of when cash is received or paid, and the ensuing change in net assets.

The Statements of Cash Flows report how cash and cash equivalents are provided and used by the Airportsoperating, capital financing and investing activities. These statements are prepared on a cash basis and presentthe cash received and disbursed, the net increase or decrease in cash and cash equivalents for the year and thecash and cash equivalents balance at year-end.

The Notes to Basic Financial Statements are an integral part of the basic financial statements; accordingly,such disclosures are essential to a full understanding of the information provided in the basic financialstatements.

In addition to the basic financial statements, this report includes Additional Supplementary and StatisticalInformation. The Additional Supplementary Information section presents debt service coverage calculations

and the Statistical Information section includes certain unaudited information related to the Airportshistorical financial and non-financial operating results and capital activities.

FINANCIAL ANALYSIS

Landing fees and terminal area use charges and fueling system charges are assessed to the various airlinesthroughout each year based on estimated rates. Such rates are designed to yield collections from airlinesadequate to cover certain operating expenses and required debt service and fund deposits as determined underprovisions of the Airport Use Agreement and Facilities Lease (Use Agreement). Incremental amounts duefrom the airlines arise when amounts assessed, based on the estimated rates used during the year, are less thanactual expenses and required deposits for the year. Such incremental amounts due from airlines are includedin accrued revenue. Incremental amounts due to the airlines arise when amounts assessed, based on the

estimated rates used during the year, exceed actual expenses and required deposits for the year. Suchincremental amounts due to airlines are included in deferred revenue. The termination date of the Airport UseAgreement and Facilities Lease is December 31, 2012. It is anticipated that a new Airport Use Agreement andFacilities Lease will be in place by December 31, 2012.


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At December 31, 2011, the Airports financial position continued to be strong with total assets and deferredoutflows of $1,792,224, total liabilities of $1,617,776, and net assets of $174,448. A comparative condensedsummary of the Airports net assets at December 31, 2011, 2010, and 2009 is as follows:

2011 2010 2009

Current unrestricted assets 78,661$ 78,180$ 66,101$Restricted and other assets 519,392 533,364 347,045Capital assets net 1,152,524 1,151,315 1,168,196Deferred outflows 35,000 14,896 12,964Derivatives Instrument 6,647

Total assets and defe rred outflows 1,792,224$ 1,777,755$ 1,594,306$

Current liabilities 41,436$ 58,140$ 60,310$Liabilities payable from restricted assets

and noncurrent liabilities 1,576,340 1,548,689 1,328,982

Total liabilities 1,617,776$ 1,606,829$ 1,389,292$

Net assets:Invested in capital assets,

net of related debt (deficit) (70,876)$ (39,755)$ (1,936)$Restricted 208,100 190,641 201,158Unrestricted 37,224 20,040 5,792

Total net assets 174,448$ 170,926$ 205,014$

Net Assets

2011

Current unrestricted assets increased by $481 (0.6%) primarily due to an increase in cash and cashequivalents. The Airports current ratio (current unrestricted assets/current unrestricted liabilities) atDecember 31, 2011 and 2010 was 1.90:1 and 1.34:1, respectively. Restricted and other assets decreased by$13,972 (2.6%) mainly due to an increase in payment of construction costs and use of capitalized interest andPassenger Facility Charges (PFC) for payments on debt service. Net capital assets increased by $1,209 (0.1%)due principally to increased construction in progress.

The decrease in current liabilities of $16,704 (28.7%) is mainly related to the decrease in accounts payableand accrued liabilities and a decrease in deferred revenue of $4,202 and $13,965 respectively. The decrease indeferred revenue represents primarily the net adjustment for current year activity and current yeardistributions of deferred revenue related to prior years to the airlines. Liabilities payable from restricted assetsand noncurrent liabilities increased by $27,651 (1.8%) in 2011 mainly due to an increase in accounts payableof $22,019 partially offset by a decrease in revenue bonds payable from restricted funds for $7,629 and notes

payable of $4,005 and an increase in the fair value of derivative instrument of $14,923.

Net assets may serve, over a period of time, as a useful indicator of the Airports financial position. AtDecember 31, 2011, total net assets were $174,448, an increase of $3,522 (2.1%) from 2010. Due to theresidual Airport Use Agreement, this increase is mainly due to timing differences between depreciation onproperty and facilities and cash requirements required for debt service.


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2010

Current unrestricted assets increased by $12,079 (18.3%) primarily due to an increase in cash and cashequivalents. The Airports current ratio (current unrestricted assets/current unrestricted liabilities) atDecember 31, 2010 and 2009 was 1.34:1 and 1.10:1, respectively. Restricted and other assets increased by$186,319 (53.7%) mainly due to an increase in deferred noise mitigation costs. Net capital assets decreased by

$16,881 (1.4%) due principally to depreciation.

The decrease in current unrestricted liabilities of $2,170 (3.6%) is mainly related to the decrease in advancesfor terminal and hangar rent and an increase in deferred revenue of $2,190 and $1,475 respectively. Thedecrease for terminal and hangar rent is due to timing at year-end for receipts related to 2011 and 2010. Theincrease in deferred revenue represents primarily the net adjustment for current year activity. Liabilitiespayable from restricted assets and noncurrent liabilities increased by $219,707 (16.5%) in 2010 mainly due toan increase in revenue bond payable of $273,103 partially offset by a decrease in accounts payable forrestricted funds for $10,086 and notes payable of $57,355 and an increase in the fair value of derivativeinstrument of $4,469.

Net assets may serve, over a period of time, as a useful indicator of the Airports financial position. At

December 31, 2010, total net assets were $170,926, a decrease of $36,732 (17.7%) from 2009. Due to theresidual Airport Use Agreement, this decrease is mainly due to timing differences between depreciation onproperty and facilities and cash requirements required for debt service.

The primary sources of Airport operating revenues are landing fees, terminal area use charges, rents andconcession revenues as defined within the Use Agreement and Facilities Lease. These revenues fund Airportoperating expenses, fund deposits and net debt service requirements. A comparative condensed summary ofthe Airports changes in net assets for the years ended December 31, 2011, 2010, and 2009 is as follows:


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2011 2010 2009

Operating revenues:Landing fees and terminal area uses

charges 79,445$ 78,194$ 52,640$

Rents, concessions and other 77,926 70,862 69,661

Total operating revenues 157,371 149,056 122,301

Operating expenses:Salaries and wages 43,554 42,105 39,521Repairs and maintenance 40,732 31,942 37,967Professional and engineering 15,650 15,832 6,727Other operating expenses 10,153 18,457 15,426Depreciation and amortization 51,067 52,767 47,667

Total operating expenses 161,156 161,103 147,308

Operating loss (3,785) (12,047) (25,007)

Nonoperating revenues 61,262 38,860 45,341Nonoperating expenses (57,016) (63,362) (59,305)Capital grants 3,061 2,461

Change in net assets 3,522$ (34,088)$ (38,971)$

Changes in Net Assets

2011

Landing fees and terminal area use charges for the years 2011 and 2010 were $79,445 and $78,194,respectively. Rents, concessions and other revenues were $77,926 and $70,862 for 2011 and 2010,

respectively. The increase in 2011 operating revenues of $8,315 (5.6%) from 2010 was mainly due toincreased landing fees and other rentals and fueling fees of $3,284 and $3,490, respectively. Such changeswere due to the residual Airport Use Agreement and Facilities Leases that require airline revenue to berecognized to the extent necessary to pay the Airports operating and maintenance expenses, net debt serviceand fund deposit requirements, reduced by non-airline revenues. Concessions increased $3,574 due primarilyto an increase in auto parking of $1,263.

Salaries and wages increased by $1,449 (3.4%) in 2011 compared to 2010. Also, repairs and maintenanceexpenses increased by $8,790 (27.5%) in 2011 compared to 2010. This increase was due to a lower than usualamount in 2010 that resulted from a contract capitalization. Professional and engineering expenses decreased$182 (1.2%) compared to 2010. Other operating expenses decreased $7,891 (77.3%) in 2011 compared to2010 due to a decrease in the provision for doubtful accounts.

The 2011 nonoperating revenues of $61,262 are comprised of PFC revenue of $36,850, customer facilitycharges (CFC) revenue of $6,175, interest income of $17,460 and other nonoperating revenues of $777.

Nonoperating expenses of $57,016 and $63,362 for the years 2011 and 2010, respectively, were comprised ofbond interest expense.

Capital grants increased $600 in 2011, mainly as a result of when associated expenditures became eligible forgrant reimbursement from the federal government.


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2010

Landing fees and terminal area use charges for the years 2010 and 2009 were $78,194 and $52,640,respectively. Rents, concessions and other revenues were $70,862 and $69,661 for 2010 and 2009,respectively. The increase in 2010 operating revenues of $26,755 (21.9%) from 2009 was mainly due toincreased landing fees and terminal area use charges of $13,359 and $12,195, respectively. Such changes

were due to the residual Airport Use Agreement and Facilities Leases that require airline revenue to berecognized to the extent necessary to pay the Airports operating and maintenance expenses, net debt serviceand fund deposit requirements, reduced by non-airline revenues.

Salaries and wages increased by $2,584 (6.5%) in 2010 compared to 2009. Professional and engineeringexpenses increased by $9,105 (135.4%) mainly due to a reimbursement of costs in 2009 from a depositforfeiture of $7,578. Depreciation and amortization expense increased $5,100 (10.7%) as a result of theincreased capital assets due to the activities of the ongoing Capital Improvement Program.

The 2010 nonoperating revenues of $38,860 are comprised of PFC revenue $34,909, CFC revenue of $5,856,interest income of $1,539 offset by a loss of fair market adjustment of $4,221 and other nonoperatingrevenues of $777. During 2010, nonoperating revenues decreased 14.3% due to one time other nonoperatingrevenues recognized in 2009.

Nonoperating expenses of $63,362 and $59,305 for the years 2010 and 2009, respectively, were comprised ofbond interest expense.

Capital grants increased $2,461 in 2010, mainly as a result of when associated expenditures became eligiblefor grant reimbursement from the federal government.

A comparative summary of the Airports cash flows for the years ended December 31, 2011, 2010, and 2009is as follows:

Cash Flows2011 2010 2009

Cash from activities:

Operating 25,607$ 42,484$ 43,665$Capital and related financing (61,510) 161,297 (51,857)Investing (72,239) (96,425) (90,733)

Net change in cash and cash equivalents (108,142) 107,356 (98,925)

Cash and cash equivalents:Beginning of year 249,788 142,432 241,357

End of year 141,646$ 249,788$ 142,432$

2011

As of December 31, 2011, the Airports available cash and cash equivalents of $141,646 decreased by$108,142 compared to $249,788 at December 31, 2010 due to operating activities of $25,607, offset bycapital and related financing activities of $61,510 and investing activities of $72,239. Total cash and cashequivalents at December 31, 2011 were comprised of unrestricted and restricted cash and cash equivalents of$35,366 and $106,280, respectively.


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2010

As of December 31, 2010, the Airports available cash and cash equivalents of $249,788 increased by$107,356 compared to $142,432 at December 31, 2009 due to operating activities of $42,484, capital andrelated financing activities of $161,297, offset by investing activities of $96,425. Total cash and cashequivalents at December 31, 2010, were comprised of unrestricted and restricted cash and cash equivalents of

$21,552 and $228,236, respectively.

CAPITAL ASSET AND DEBT ADMINISTRATION

At t