RSG

Revealing the ‘Science’ behind Legal Innovation: The Privatization of Midway Airport – a case study
by James Chambers

School children in science classes across the world are often taught that photosynthesis in plants requires sun, water and carbon dioxide. In a similar way the roots of an innovative legal deal flourish when there is a coalition of innovative client, innovative law firm, and innovative lawyer. However, unlike photosynthesis, deals do not always come off when these three factors are present.

Take as an example the proposed privatization of Midway airport in Chicago, which came third in the M&A section of the inaugural FT Innovative Lawyers Report USA. The deal was set to grant a 99 year lease to a consortium comprised of the operators of Vancouver airport, Citi Infrastructure Partners and John Hancock Life Insurance Co.

Midway is the only hub in the Federal Aviation Administration’s (FAA) pilot privatization programme and it has the potential to become the precedent for future airport privatizations.

Surprisingly, in the US, control of most of the major airports remains in the hands of local authorities. In general, this has shielded US airports from any attempts by the Federal government to ram through privatization on a similar level to Margaret Thatcher’s mass sale of state-owned infrastructure assets in the UK.

Therefore, to push forward with privatizing Midway the deal demanded innovation.

The innovative client on this deal was the City of Chicago. During his tenure as mayor, Richard M. Daley has displayed a Thatcherite addiction to privatization. He has sold off everything from the City’s parking garages to the Chicago Skyway, an incongruously named eight mile toll road delivering traffic to and from the City’s famous downtown loop.

A big obstacle in the way of airport privatization in the US is the requirement to obtain consent from 65% of the airlines. This was where Mayer Brown played a “key” role.

At the time of the deal, Southwest operated 76% of the flights in and out of Midway airport. Getting them to sign off on the deal was crucial to its success. “But for the creativity of Mayer Brown,” says Paul Volpe, ex-Chief of Staff to Mayor Daley, “the deal wouldn’t have happened.” The firm was ranked 4th in the US FT Innovative Lawyers report last year.

The innovative individual on the deal was John Schmidt, an infrastructure partner at Mayer Brown. A career of firsts contributed to him being singled out for special mention in the FT’s list of ten innovative US lawyers.

To give an example of Mr. Schmidt’s value, Mr. Volpe, Chief of Staff at the time, says he insisted on taking him to a ‘principals only’ meeting with the airline because Schmidt was “absolutely critical – as an advisor as well as a lawyer”. It took two years to get Southwest on board. When the consent was finally obtained, Mr. Volpe talks about receiving calls from other US cities asking him how Chicago did it.

For Mr. Schmidt, tenacity is equally important as imagination when it comes to innovation. As something new rarely happens overnight in the law, determination is an essential quality for a legal innovator. But Schmidt also speaks as a man who has experience of an even slower-moving environment – local and federal government.

Before rejoining Mayer Brown in 1998, from a stint at Skadden Arps, Mr. Schmidt held a number of government positions at city, national and international level. They included: Mayor Daley’s Chief of Staff during his first few months of office; Associate Attorney General for three of the Clinton years – overseeing the implementation of initiatives that led to a drop in crime rates; and Ambassador and Chief US Negotiator for the Uruguay round of GATT trade talks.

This synthesis between law and government is important to understanding Mr. Schmidt’s take on the role of the lawyer. For him, the financial crisis is a lesson to busy practitioners not to forget to keep an eye out on the macro-activities of government. His advice to young lawyers is to avoid too narrow a focus on the corporate world. Ultimately, he says, it will be an awareness of the wider issues that will give lawyers the ability to shape and effect the future of their clients.

Despite the presence of an innovative client, lawyer and law firm on the Midway deal, the privatization has yet to go through. Similar to other deals negotiated during the crisis, it stalled due to a lack of funding.

Nevertheless, Mayer Brown secured a $126m break fee for the City of Chicago and whilst the airport privatization is currently on hold, waiting for a new mayor to be appointed, Mayer Brown are busy working on a similar airport privatization in San Juan, Puerto Rico.