Skyway deal appears lucrative for private investors, Chicago

Transportation experts clamored when a foreign consortium spent $1.8 billion last year to lease the Chicago Skyway, claiming the group had bid too much for the 8-mile shortcut to the Loop.

But now, one national transportation expert believes the price once thought to be exorbitant seems to have been close to the mark.

State and municipal governments across the country began to see the possibilities for their own toll roads in January 2004 when Chicago appeared to be a big winner in the Skyway lease -- securing the nearly $2 billion.

Those dollar signs now flash in the eyes of Indiana Gov. Mitch Daniels and others who support privatizing the Indiana Toll Road. Those supporters hope that a bid of $2 billion or more could help pay to build and repair roads throughout the state.

But given the way the Skyway deal has taken shape, the winning bidder -- and not just Indiana -- could stand to be a big winner.

Robert Poole, founder of national public policy group Reason Foundation and an expert on transportation and privatization, said the transportation community was concerned last year when the Cintra-Macquarie consortium won the Skyway bid with $1.8 billion.

"Everyone in transportation said those guys paid way too much," Poole said.

"But as people looked into the details, particularly the 99-year lease which allows them to depreciate ... that can mean $300 million to $400 million in depreciation benefits."

Poole also noted that a recent refinancing of the Skyway by the consortium netted $1.4 billion. That's a strong indication the foreign investors paid the right price.

"Now Macquarie and CINTRA don't have so much of their own money in the deal," Poole said.

"It's like putting a huge down payment on your house to secure the deal quickly so you can get in. Then you go and refinance it, so you can pull some money out."

The subsidiary the consortium created to run the 8-mile gateway to Chicago, Skyway Concession Co. LLC, does not give out figures on traffic flows or financial results, according to Avis LaVelle, a company spokeswoman.

The Bond Buyer newsletter, a publication of Thomson Financial, put Skyway profits under city ownership at $20 million to $25 million per year in an article just after the winning bid was announced. And that was before tolls were increased.

Officials with the consortium remain convinced it was a good investment, LaVelle said.

"They bid, they bid to win, and they are happy with what they got," LaVelle said.

Skyway Concession Chief Executive Officer Fernando Redondo told a gathering of transportation officials one month ago at the Gary/Chicago International Airport that the Skyway currently carries only one-third the traffic it is capable of.

Skyway Concessions wants to install open-road tolling, meaning I-Pass users could drive through toll areas without stopping, Redondo said. That would double toll-lane capacity to 1,200 vehicles per hour.

And Skyway Concessions wouldn't mind a bit if its parent companies also owned the lease rights to the Indiana Toll Road, giving it control of a stretch of U.S. interstate running from Chicago to the Ohio border.

The CEO emphasized his company is in it for the long haul and plans to transform the once-troubled Skyway into a best-in-class highway.

Poole said Skyway Concession has followed through on its promises so far, acting quickly to add more convenient electronic tolling, allowing I-Pass holders to use the far right lanes of the toll booths. Those lanes are still gated, but can handle more traffic than manual-pay lanes.

Still, not all commuters and truckers are completely sold on the privatized Skyway.

John Hamberg, an independent operator of a refrigerated semitrailer, hauls goods every other week from Florida to Chicago and north of Chicago, passing over the Skyway. He said he has noticed the Skyway becoming more expensive for multiple-axle vehicles like his truck.

"The Skyway is awful expensive now. It's $8.40 (for a five-axle vehicle) just to go across to Chicago," Hamberg said earlier this month, as he carried a hot coffee to his truck from the Skyway McDonald's restaurant.

He spends about $36 to $40 round trip from Florida to Chicago on tolls, he said. A round trip on the Skyway alone can come to almost half that.

Richard Davis, 64, who lives near the Skyway tolling area and visits the McDonald's every morning for coffee, also scoffed at the privatization of the Skyway and other toll roads.

But he said most commuters didn't seem to be paying any attention to the 50-cent toll increase for cars that occurred after Skyway Concessions took over, bringing the total toll to $2.50 each way.

"People don't care about money," he said. "They would rather pay a few dollars more rather than wait in traffic."

Wisconsin couple Linda and Michael Moore regularly use the Skyway to travel between Milwaukee and Michigan, where their daughter attends college. Both said they were fans of the changes they have seen on the Skyway since it was privatized.

"It's been a big improvement," Michael Moore said. "The condition of the roadway, the lane width, it's just a lot better."

And even with the higher tolls, the Skyway offers lighter traffic than other potential routes, Michael Moore said.

"A lot of people still don't know how much better it is now, so they still avoid it," he said. "It's cleaner. The potholes are gone."