NEW ISSUE – BOOK–ENTRY ONLY RATINGS: SEE “RATINGS” HEREIN

In the opinion of Mayer Brown LLP, Chicago, Illinois, and Sanchez Daniels & Hoffman LLP, Chicago, Illinois, Co-Bond Counsel, under existing law, and assuming compliance by the City with certain covenants, (i) interest on the 2014A Bonds (A) is excluded from the gross income of the owners thereof for federal income tax purposes and (B) is an item of tax preference for purposes of individual and corporate minimum taxable income for purposes of individual and corporate alternative minimum tax, and (ii) interest on the 2014B Bonds (A) is excluded from the gross income of the owners thereof for federal income tax purposes and (B) is not a specific item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, but is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Interest on the Bonds is not exempt from present State of Illinois income taxes. See “TAX MATTERS” herein for a more complete discussion and APPENDIX E for the form of opinions to be delivered by Co-Bond Counsel.

$771,810,000CITY OF CHICAGO

Chicago Midway AirportSecond Lien Revenue and Revenue Refunding Bonds

$484,200,000Series 2014A (AMT)

$287,610,000Series 2014B (Non-AMT)

Dated: Date of Delivery Due: January 1, as shown on inside cover pages

The City of Chicago, Chicago Midway Airport Second Lien Revenue and Revenue Refunding Bonds, Series 2014A (AMT) (the “2014A Bonds”) and the City of Chicago, Chicago Midway Airport Second Lien Revenue and Revenue Refunding Bonds, Series 2014B (Non-AMT) (the “2014B Bonds” and together with the 2014A Bonds, the “Bonds”), are fully registered bonds issued in the name of Cede & Co., as registered owner and nominee of The Depository Trust Company, New York, New York (“DTC”). DTC is securities depository for the Bonds. Purchases of the Bonds will be made in book-entry form and purchasers will not receive certificates representing their interests in the Bonds purchased. Principal of, and interest on, the Bonds are payable by The Bank of New York Mellon Trust Company, N.A., Chicago, Illinois, as trustee (the “Second Lien Trustee”), to DTC, which in turn will remit such principal and interest payments to its participants for subsequent disbursement to the beneficial owners of the Bonds. As long as Cede & Co. is the registered owner as nominee of DTC, payments on the Bonds will be made to such registered owner, and disbursal of such payments to beneficial owners will be the responsibility of DTC and its participants. See “THE BONDS – Book-Entry Only System.”

The proceeds of the Bonds are being used to (i) pay the costs of certain Airport Projects as described herein; (ii) refund prior to maturity the Refunded Bonds (as defined in “APPLICATION OF BOND PROCEEDS – Refunding Plan”); (iii) repay at maturity certain Commercial Paper Notes; (iv) capitalize a portion of the interest on the Bonds; (v) fund a deposit to the Common Debt Service Reserve Sub-Fund; and (vi) pay costs and expenses incidental thereto and to the issuance of the Bonds.

The Bonds are limited obligations of the City of Chicago (the “City”) payable solely from, and secured by, a pledge of Second Lien Revenues (as defined herein) derived from the operation of the Chicago Midway International Airport (“Midway”) and certain other moneys. The Bonds are payable from the Second Lien Revenues on a parity basis with City of Chicago, Chicago Midway Airport Outstanding Second Lien Bonds described herein and any other Second Lien Obligations (as herein defined) that may be outstanding from time to time under the Second Lien Indenture, all as more fully described herein. The Bonds and the obligations to pay principal of, and interest thereon, are not general obligations of the City and do not constitute an indebtedness or loan of credit of the City, the State of Illinois (the “State”) or any political subdivision thereof within the meaning of any constitutional or statutory limitation of the State. Neither the faith and credit nor the taxing power of the City, the State or any political subdivision thereof is pledged to the payment of the principal of, or interest on, the Bonds. No property of the City, including property at Midway, is pledged as security for the Bonds.

Interest on the Bonds is payable on January 1 and July 1 of each year, commencing January 1, 2015. The Bonds are subject to optional and mandatory redemption prior to maturity as set forth herein. See “THE BONDS–Redemption Provisions.”

For maturities, principal amounts, interest rates, prices, yields and CUSIP numbers, see the inside cover pages.

The Bonds are offered when, as and if issued, and subject to the delivery of approving legal opinions by Mayer Brown LLP and Sanchez Daniels & Hoffman LLP, Co-Bond Counsel, and to certain other conditions. Certain legal matters will be passed on for the City by (i) its Corporation Counsel, (ii) in connection with the preparation of this Official Statement by Miller, Canfield, Paddock and Stone, P.L.C., Chicago, Illinois, and Charity & Associates, P.C., Chicago, Illinois, Co-Disclosure Counsel to the City, and (iii) in connection with certain pension matters described in this Official Statement by Chapman & Cutler LLP, Chicago, Illinois, Special Disclosure Counsel. Certain legal matters will be passed upon for the Underwriters by Katten Muchin Rosenman LLP, Chicago, Illinois. It is expected that the Bonds will be available for delivery through the facilities of DTC on or about June 11, 2014.

BarclaysCitigroup Morgan Stanley

Academy Securities Backstrom, McCarley, Berry & Co.

BNY Mellon Capital Markets

Estrada Hinojosa & Company, Inc.

Lebenthal & Co., LLC Ramirez & Co., Inc. Raymond James Siebert Brandford Shank & Co., L.L.C.

May 29, 2014

MATURITIES, AMOUNTS, INTEREST RATES, PRICES, YIELDS AND CUSIP NUMBERS

$771,810,000 CITY OF CHICAGO

CHICAGO MIDWAY AIRPORT SECOND LIEN REVENUE AND REVENUE REFUNDING BONDS

$484,200,000

CHICAGO MIDWAY AIRPORT SECOND LIEN REVENUE AND REVENUE REFUNDING BONDS, SERIES 2014A (AMT)

MATURITY (JANUARY 1)

PRINCIPAL AMOUNT

INTEREST RATE

PRICE

YIELD

CUSIP1

2021 $15,530,000 5.00% 115.159% 2.48% 167562 NJ22022 16,310,000 5.00 115.327 2.74 167562 NK92023 17,120,000 5.00 115.235 2.97 167562 NL72024 17,975,000 5.00 114.894 3.18 167562 NM52025 22,970,000 5.00 113.307 c 3.36 167562 NN32026 24,120,000 5.00 112.005 c 3.51 167562 NP82027 25,330,000 5.00 110.806 c 3.65 167562 NQ62028 26,595,000 5.00 109.622 c 3.79 167562 NR42029 28,045,000 5.00 108.702 c 3.90 167562 NS22030 41,095,000 5.00 108.039 c 3.98 167562 NT02031 35,445,000 5.00 107.463 c 4.05 167562 NU72032 29,115,000 5.00 107.053 c 4.10 167562 NV52033 30,575,000 5.00 106.484 c 4.17 167562 NW32034 32,105,000 5.00 106.240 c 4.20 167562 NX1

$121,870,000 5.00% Term Bonds due January 1, 2041 Price: 104.796% c Yield: 4.38% CUSIP: 167562 NY9

c Priced to the January 1, 2024 optional redemption date.

____________________ 1 Copyright 2014, American Bankers Association. CUSIP data herein are provided by Standard & Poor’s, CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. The CUSIP numbers listed above are being provided solely for the convenience of bondholders only at the time of issuance of the Bonds and neither the City nor the underwriters makes any representation with respect to such numbers or undertakes any responsibility for their accuracy now or at any time in the future. The CUSIP number for a specific maturity is subject to being changed after the issuance of the Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part of such maturity or as a result of the procurement of secondary market portfolio insurance or other similar credit enhancement by investors that is applicable to all or a portion of certain maturities of the Bonds.

$287,610,000

CHICAGO MIDWAY AIRPORT SECOND LIEN REVENUE AND REVENUE REFUNDING BONDS, SERIES 2014B (NON-AMT)

MATURITY (JANUARY 1)

PRINCIPAL AMOUNT

INTEREST RATE

PRICE

YIELD

CUSIP1

2019 $4,930,000 5.00% 115.594% 1.45% 167562 NZ62020 5,120,000 5.00 116.787 1.81 167562 PA92021 2,765,000 5.00 117.338 2.15 167562 PB72022 6,065,000 5.00 117.791 2.41 167562 PC52023 13,325,000 5.00 117.714 2.67 167562 PD32024 13,895,000 5.00 117.872 2.85 167562 PE12025 16,435,000 5.00 116.236 c 3.03 167562 PF82026 17,195,000 5.00 114.539 c 3.22 167562 PG62027 17,830,000 5.00 113.482 c 3.34 167562 PH42028 19,005,000 5.00 112.437 c 3.46 167562 PJ02029 19,750,000 5.00 111.661 c 3.55 167562 PK72030 6,175,000 5.00 110.976 c 3.63 167562 PL52031 8,910,000 5.00 110.381 c 3.70 167562 PT82031 625,000 4.00 100.000 4.00 167562 PM32032 20,805,000 5.00 109.958 c 3.75 167562 PN12033 21,750,000 5.00 109.370 c 3.82 167562 PP62034 22,750,000 5.00 108.869 c 3.88 167562 PQ42035 60,210,000 5.00 108.370 c 3.94 167562 PR22036 10,070,000 5.00 108.122 c 3.97 167562 PS0

c Priced to the January 1, 2024 optional redemption date. ____________________ 1 Copyright 2014, American Bankers Association. CUSIP data herein are provided by Standard & Poor’s, CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. The CUSIP numbers listed above are being provided solely for the convenience of bondholders only at the time of issuance of the Bonds and neither the City nor the underwriters makes any representation with respect to such numbers or undertakes any responsibility for their accuracy now or at any time in the future. The CUSIP number for a specific maturity is subject to being changed after the issuance of the Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part of such maturity or as a result of the procurement of secondary market portfolio insurance or other similar credit enhancement by investors that is applicable to all or a portion of certain maturities of the Bonds.

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OFFICIAL STATEMENT SUMMARY

The following Summary is subject in all respects to more complete information contained in this Official Statement.

The Issuer ...................................... City of Chicago, Illinois.

Issue and Date ............................... The Bonds will be limited obligations of the City payable from Second Lien Revenues (as defined in APPENDIX A) derived from the operation of Chicago Midway International Airport. The Bonds will be issued in two series: Series 2014A (AMT) and Series 2014B (Non-AMT). The Bonds will be dated as of the date of delivery.

Midway ........................................... Midway is owned and operated by the City. For the 12-month period ended December 31, 2013, Midway ranked 32nd in the United States in terms of aircraft operations and 24th in terms of total passengers, with approximately 10,155,389* enplaned passengers in 2013. In 2013, Southwest Airlines (including its wholly-owned subsidiary, AirTran) accounted for approximately 91.0% of total enplaned passengers† at Midway and 53.35% of total Midway operating revenues.

Purpose of the Bonds ..................... The proceeds of the Bonds are being used to (i) pay the costs of certain Airport Projects at Midway as described herein; (ii) refund prior to maturity the Refunded Bonds (as defined in “APPLICATION OF BOND PROCEEDS – Refunding Plan”); (iii) repay at maturity certain Commercial Paper Notes; (iv) capitalize a portion of the interest on the Bonds; (v) fund a deposit to the Common Debt Service Reserve Sub-Fund; and (vi) pay costs and expenses incidental thereto and to the issuance of the Bonds.

Amounts and Maturities ................ See tables on inside cover page of this Official Statement.

Interest Payment Dates .................. January 1 and July 1 of each year commencing January 1, 2015.

Security for Payment……………….The Bonds are Second Lien Obligations entitled to the benefits and security of the Second Lien Indenture. All Second Lien Obligations are equally and ratably secured under the Second Lien Indenture by a pledge of Second Lien Revenues. This pledge is junior and subordinate to the pledge of Revenues for the payment of First Lien Bonds. Each Series of the Bonds is also secured by a security interest in a separate and segregated Dedicated Sub-Fund for that Series established within the Second Lien Revenue Fund. The moneys and securities held in each Dedicated Sub-Fund are pledged to the payment of the Bonds of that Series subject only to the use and application thereof in accordance with the terms of the Supplemental Indenture authorizing such Series.

Common Debt Service Reserve ...... The Bonds are Common Reserve Bonds secured by the Common Debt Service Reserve Sub-Fund. The City will maintain the Common Debt Service Reserve Sub-Fund in amounts equal to the Reserve Requirement. See “SECURITY FOR THE BONDS – Debt Service Reserve.”

Rate Covenant ................................ The City covenants in the Second Lien Indenture to fix and establish, and to revise from time to time whenever necessary, the rentals, rates and other charges for the use and operation of Midway in order that Revenues in each Fiscal Year, together with Other Available Moneys deposited with the First Lien Trustee or Second Lien Trustee, and any available cash balance held in the First Lien Revenue Fund or Second Lien Revenue Fund, will be at least sufficient to provide for the payment of all Operation and Maintenance Expenses for the Fiscal Year and to provide for the greater of either (i) the amounts needed to make the deposits to Funds and Accounts required under the First Lien Indenture or an amount not less than 125% of the Aggregate First Lien Debt Service for the Bond Year, reduced by any amount held in any Capitalized Interest Account to pay interest on First Lien Bonds, or (ii) the amounts needed

* Excludes general aviation, military, helicopter and miscellaneous passengers included in the City of Chicago’s Chicago Department of Aviation management records. † Includes general aviation, military, helicopter and miscellaneous passengers included in the Chicago Department of Aviation management records.

to make the deposits to Funds and Accounts required under the First Lien Indenture or an amount not less than 110% of the Aggregate First Lien Debt Service and Aggregate Second Lien Debt Service for the Bond Year, reduced by (A) any amount held in any Capitalized Interest Account to pay interest on First Lien Bonds and (B) any amount held in any Capitalized Interest Account to pay interest on Second Lien Obligations. SEE “SECURITY FOR THE BONDS – RATE COVENANT.”

Additional Second Lien Bonds ...... Additional Second Lien Bonds may be issued only upon satisfaction of the conditions set forth in the Second Lien Indenture. SEE “SECURITY FOR THE BONDS – ADDITIONAL OBLIGATIONS.”

Redemption .................................... The Bonds are subject to optional redemption and mandatory redemption as described under “THE BONDS – Redemption Provisions.”

Paying Agent .................................. Principal of, and interest on, the Bonds will be paid by The Bank of New York Mellon Trust Company, N.A., Chicago, Illinois.

Tax Status of Interest ..................... In the opinion of Mayer Brown LLP, Chicago, Illinois, and Sanchez Daniels & Hoffman LLP, Chicago, Illinois, Co-Bond Counsel, under existing law, and assuming compliance by the City with certain covenants, (i) interest on the 2014A Bonds (A) is excluded from the gross income of the owners thereof for federal income tax purposes and (B) is an item of tax preference for purposes of individual and corporate minimum taxable income for purposes of individual and corporate alternative minimum tax, and (ii) interest on the 2014B Bonds (A) is excluded from the gross income of the owners thereof for federal income tax purposes and (B) is not a specific item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, but is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Interest on the Bonds is not exempt from present State of Illinois income taxes. See “TAX MATTERS” herein for a more complete discussion and APPENDIX E for the form of opinions to be delivered by Co-Bond Counsel.

Legal Opinion ................................ Mayer Brown LLP, Chicago, Illinois, and Sanchez Daniels & Hoffman LLP, Chicago, Illinois, will act as Co-Bond Counsel.

Ratings ........................................... Moody’s, S&P and Fitch have assigned their ratings and rating outlooks of “A3” (stable outlook), “A-” (stable outlook) and “A-” (stable outlook), respectively, to the Bonds. For a discussion of such ratings, see the section herein captioned “RATINGS.”

Capital Improvement Program ...... Major projects have been completed under the Midway Airport Improvement Program including the Terminal Development Program, an economy parking garage and the Consolidated Car Rental Facility. With relatively new infrastructure and no significant modifications planned, the Airport focuses its 2014-2020 Capital Improvement Program on on-going repairs, maintenance and minor capital projects.

Privatization Pilot Program .......... In September 2013, the City withdrew its Preliminary Application to the FAA to participate in the Airport Privatization Pilot Program and terminated its evaluation of respondents to the potential privatization process. See “CHICAGO MIDWAY INTERNATIONAL AIRPORT – Airport Privatization Pilot Program.”

Pension Liability Reform .............. City employees that work for Midway participate in one of four defined-benefit retirement plans of the City. The City’s retirement plans have been actuarially determined to be significantly underfunded. Under both current law and certain pending legislation, Midway’s proportionate share of retirement costs is expected to increase beginning in 2016. For additional information, see “MIDWAY FINANCIAL INFORMATION – Pension and Other Post-Employment Benefits Costs” and APPENDIX G–“RETIREMENT FUNDS.”

REGARDING THE USE OF THIS OFFICIAL STATEMENT

The Underwriters have provided the following sentence for inclusion in the Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their respective responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information.

This Official Statement is being used in connection with the sale of the Bonds and may not be reproduced or used, in whole or in part, for any other purpose. Certain information contained in this Official Statement has been obtained by the City from DTC and other sources that are deemed to be reliable; however, no representation or warranty is made as to the accuracy or completeness of such information by the City. The delivery of this Official Statement does not imply that information herein is correct as of any time subsequent to its date.

This Official Statement should be considered in its entirety and no one factor should be considered more or less important than any other by reason of its position in this Official Statement. Where statutes, reports or other documents are referred to herein, reference should be made to such statutes, reports or other documents in their entirety for more complete information regarding the rights and obligations of parties thereto, facts and opinions contained therein and the subject matter thereof. Any statements made in this Official Statement, including the Appendices, involving matters of opinion or estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of such estimates will be realized. This Official Statement contains certain forward-looking statements and information that are based on the beliefs of the City as well as assumptions made by and currently available to the City. Such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or expected.

Neither the City, the City’s independent auditors, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to, or been consulted in connection with, the preparation of the prospective financial information contained herein. The City’s independent auditors assume no responsibility for the content of the prospective financial information set forth in this Official Statement, disclaim any association with such prospective financial information, and have not, nor have any other independent auditors, expressed any opinion or any other form of assurance on such information or its achievability.

No dealer, broker, sales representative or any other person has been authorized by the City to give any information or to make any representation other than those contained in this Official Statement in connection with the offering it describes and, if given or made, such other information or representation must not be relied upon as having been authorized by the City. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy any securities other than those described on the cover page and inside cover pages hereof, nor shall there be any offer to sell, solicitation of an offer to buy or sale of, the Bonds in any jurisdiction in which it is unlawful to make such offer, solicitation or sale. The information and opinions expressed herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall under any circumstances create any implication that there has been no change in the affairs of Midway since the date of this Official Statement. Neither this Official Statement nor any statement that may have been made verbally or in writing is to be construed as a contract with the registered or beneficial owners of the Bonds.

In making an investment decision, investors must rely on their own examination of the terms of this offering, including the merits and the risks involved. These securities have not been recommended by any federal or state securities commission or regulatory authority. Furthermore, no federal or state securities commission or regulatory authority has confirmed the accuracy or determined the adequacy of this document. Any representation to the contrary is a criminal offense.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE BONDS. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING, AND MAY BID FOR, AND PURCHASE, THE BONDS IN THE OPEN MARKET. THE PRICES AND OTHER TERMS RESPECTING THE OFFERING AND SALE OF THE BONDS MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITERS AFTER THE BONDS ARE RELEASED FOR SALE, AND THE BONDS MAY BE OFFERED AND SOLD AT PRICES OTHER THAN THE INITIAL OFFERING PRICES, INCLUDING SALES TO DEALERS WHO MAY SELL THE BONDS INTO INVESTMENT ACCOUNTS.

CITY OF CHICAGO CHICAGO MIDWAY INTERNATIONAL AIRPORT

MAYOR Rahm Emanuel

CITY TREASURER Stephanie D. Neely

CITY CLERK Susana Mendoza

CITY COUNCIL COMMITTEE ON FINANCE Edward M. Burke, Chairman

CHIEF FINANCIAL OFFICER Lois A. Scott

CITY COMPTROLLER Daniel J. Widawsky

BUDGET DIRECTOR Alexandra Holt

CORPORATION COUNSEL Stephen R. Patton, Esq.

CHICAGO DEPARTMENT OF AVIATION Rosemarie S. Andolino, Commissioner

CO-BOND COUNSEL Mayer Brown LLP Chicago, Illinois

Sanchez Daniels & Hoffman LLP

Chicago, Illinois

CO-DISCLOSURE COUNSEL Miller, Canfield, Paddock and Stone, P.L.C.

Chicago, Illinois

Charity & Associates, P.C. Chicago, Illinois

AIRPORT CONSULTANT Ricondo & Associates, Inc.

Chicago, Illinois

FINANCIAL ADVISOR Frasca & Associates, LLC

New York, New York

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TABLE OF CONTENTS

-i-

Introduction .................................................................................................................................... 1 Authorization ..................................................................................................................... 1 Purpose ............................................................................................................................... 1 First Lien Bonds ................................................................................................................. 2 Second Lien Bonds; Security for the Bonds ...................................................................... 2 Obligations Subordinate to the Bonds ............................................................................... 4 Chicago Midway International Airport .............................................................................. 4 Events Affecting the Airline Industry ................................................................................ 5 Other Chicago Region Airports ......................................................................................... 5 Maturity of the Bonds ........................................................................................................ 6 Supplemented Report of the Airport Consultant ............................................................... 6 Forward-Looking Statements ............................................................................................. 6

Plan of Finance .............................................................................................................................. 7 The Bonds ...................................................................................................................................... 7

General ............................................................................................................................... 7 Redemption Provisions ...................................................................................................... 8 Book-Entry Only System ................................................................................................. 11

Security For The Bonds ............................................................................................................... 14 General ............................................................................................................................. 14 Proposed Amendment to the Second Lien Indenture ...................................................... 15 Description of Revenues .................................................................................................. 16 Other Available Moneys .................................................................................................. 17 Flow of Funds from Revenues ......................................................................................... 17 Rate Covenant .................................................................................................................. 22 Debt Service Reserve ....................................................................................................... 23 Covenant Against Other Pledges of Revenues ................................................................ 25 Airport Use Agreements .................................................................................................. 25 Additional Obligations ..................................................................................................... 26 No Acceleration Rights .................................................................................................... 27

Sources and Uses of Funds .......................................................................................................... 28 Application of Bond Proceeds ..................................................................................................... 28

General ............................................................................................................................. 28 Airport Projects ................................................................................................................ 28 Refunding Plan................................................................................................................. 29

-ii-

Verification Report .......................................................................................................... 30 Repayment of Commercial Paper Notes .......................................................................... 30

Chicago Midway International Airport ........................................................................................ 31 General ............................................................................................................................. 31 The Air Trade Area .......................................................................................................... 32 Other Commercial Service Airports Serving the Chicago Region .................................. 33 Existing Facilities at Midway .......................................................................................... 34

Activity at Midway .......................................................................................................... 35 Airlines Providing Service at Midway ............................................................................. 37 Midway Role in Southwest Airlines Network ................................................................. 37 Midway Management ...................................................................................................... 40 Regional Authority ........................................................................................................... 40 Midway Noise Compatibility Program ............................................................................ 40 Budget Procedures ........................................................................................................... 40 Customer Facility Charges and Rental Car Concession License Agreements ................ 41 Airport Privatization Pilot Program ................................................................................. 41

2014-2020 Capital Improvement Program .................................................................................. 41 Estimated Funding Sources for 2014-2020 CIP .......................................................................... 43

Midway Airport Revenue Bonds ..................................................................................... 43 Passenger Facility Charge Revenues ............................................................................... 43 Federal AIP Grants .......................................................................................................... 47 Airport Funds ................................................................................................................... 47 Uncertainties in Funding the 2014-2020 CIP .................................................................. 48

Midway Financial Information .................................................................................................... 49 Historical Operating Results ............................................................................................ 49 Discussion of Financial Operations ................................................................................. 50 Cash Balances .................................................................................................................. 51 Insurance .......................................................................................................................... 51 Pension and Other Post-Employment Benefit Costs ....................................................... 51 Midway Indebtedness ...................................................................................................... 52

Federal Legislation, State Actions and Proposed South Suburban Airport ................................ 57 Federal Legislation ........................................................................................................... 57 State Actions .................................................................................................................... 58 Proposed South Suburban Airport ................................................................................... 58

-iii-

Certain Investment Considerations Relating To The Airlines, The Airline Industry And Midway ............................................................................................................................ 59 Level of Airline Traffic .................................................................................................... 59 Southwest Airlines Concentration at Midway ................................................................. 59 Availability of Various Sources of Funding .................................................................... 59 Aviation Industry ............................................................................................................. 60 Economic Conditions in the Air Trade Area ................................................................... 63 Financial Condition of Airlines Serving Midway ............................................................ 63 Effect of Airline Bankruptcy ........................................................................................... 63 Effect of Airline Industry Consolidation ......................................................................... 64 Airport Use Agreements .................................................................................................. 64 Credit Risk of Financial Institutions Providing Credit Enhancement, Liquidity

Support and Other Financial Products Relating to Airport Obligations .............. 65 Limited Liability; Subordination ..................................................................................... 65 Assumptions in the Supplemented Report of the Airport Consultant .............................. 66 Enforceability of Remedies .............................................................................................. 66

Litigation ...................................................................................................................................... 66 Tax Matters .................................................................................................................................. 67

Interest Not Exempt From State of Illinois Income Taxes .............................................. 67 Certain United States Federal Income Tax Consequences .............................................. 67 Tax-Exempt Bonds .......................................................................................................... 67

Certain Legal Matters .................................................................................................................. 71 Underwriting ................................................................................................................................ 71 Financial Advisor ......................................................................................................................... 73 Independent Auditors ................................................................................................................... 73 Secondary Market Disclosure ...................................................................................................... 73

Annual Financial Information Disclosure ........................................................................ 74 Events Notification; Reportable Events Disclosure ......................................................... 75 Consequences of Failure of the City to Provide Information .......................................... 76 Amendment; Waiver ........................................................................................................ 76 Termination of Undertaking ............................................................................................ 77 EMMA ............................................................................................................................. 77 Additional Information .................................................................................................... 77 Corrective Action Related to Certain Bond Disclosure Requirements ............................ 77

Ratings ......................................................................................................................................... 79 Airport Consultant ....................................................................................................................... 79

-iv-

Miscellaneous .............................................................................................................................. 80 Authorization ............................................................................................................................... 81 APPENDIX A - GLOSSARY OF TERMS APPENDIX B - SUMMARY OF CERTAIN PROVISIONS OF THE SECOND LIEN INDENTURE APPENDIX C - SUMMARY OF CERTAIN PROVISIONS OF THE

AIRPORT USE AGREEMENTS APPENDIX D - AUDITED FINANCIAL STATEMENTS APPENDIX E - FORM OF OPINIONS OF CO-BOND COUNSEL APPENDIX F - 2013 REPORT OF THE AIRPORT CONSULTANT AS SUPPLEMENTED APPENDIX G - RETIREMENT FUNDS

1

OFFICIAL STATEMENT

$771,810,000 CITY OF CHICAGO

Chicago Midway Airport Second Lien Revenue and Revenue Refunding Bonds

$484,200,000 Series 2014A (AMT)

$287,610,000 Series 2014B (Non-AMT)

INTRODUCTION

This Official Statement is furnished by the City of Chicago (the “City”) to provide

information regarding Chicago Midway International Airport (“Midway” or the “Airport”) and the City of Chicago, Chicago Midway Airport Second Lien Revenue and Revenue Refunding Bonds, Series 2014A (AMT) to be issued in the aggregate principal amount of $484,200,000 (the “2014A Bonds”) and the City of Chicago, Chicago Midway Airport Second Lien Revenue and Revenue Refunding Bonds, Series 2014B (Non-AMT) to be issued in the aggregate principal amount of $287,610,000 (the “2014B Bonds”, together with the 2014A Bonds, the “Bonds”). Certain capitalized terms used in this Official Statement, unless otherwise defined, are defined in APPENDIX A−“GLOSSARY OF TERMS.”

Authorization

The Bonds are issued under the authority granted to the City as a home rule unit of local government under the Illinois Constitution of 1970. The Bonds are issued pursuant to the ordinance adopted by the City Council on February 5, 2014 (the “Ordinance”) and pursuant to a Master Indenture of Trust Securing Chicago Midway Airport Second Lien Obligations, dated as of September 1, 1998, as supplemented and amended (the “Master Indenture” or the “Second Lien Indenture”), from the City to The Bank of New York Mellon Trust Company, N.A. (as successor to American National Bank and Trust Company of Chicago), Chicago, Illinois, as trustee (the “Second Lien Trustee”), including as supplemented by the Twentieth Supplemental Indenture, dated as of June 1, 2014 (the “Twentieth Supplemental Indenture”), providing for the issuance of the 2014A Bonds and the Twenty-First Supplemental Indenture, dated as of June 1, 2014 (the “Twenty-First Supplemental Indenture”), providing for the issuance of the 2014B Bonds.

Purpose

The proceeds of the 2014A Bonds are being used to: (i) pay the costs of certain Airport Projects as described herein; (ii) refund prior to maturity the Refunded Bonds (as defined in “APPLICATION OF BOND PROCEEDS – Refunding Plan”); (iii) repay at maturity certain Commercial Paper Notes; (iv) capitalize a portion of the interest on the 2014A Bonds; (v) fund a deposit to the Common Debt Service Reserve Sub-Fund; and (vi) pay costs and expenses incidental thereto and to the issuance of the 2014A Bonds.

2

The proceeds of the 2014B Bonds are being used to: (i) pay the costs of certain Airport Projects as described herein; (ii) refund prior to maturity the Refunded Bonds; (iii) repay at maturity certain Commercial Paper Notes; (iv) capitalize a portion of the interest on the 2014B Bonds; (v) fund a deposit to the Common Debt Service Reserve Sub-Fund; and (vi) pay costs and expenses incidental thereto and to the issuance of the 2014B Bonds.

First Lien Bonds

After the issuance of the Bonds, $34,180,000 aggregate principal amount of Chicago Midway Airport Revenue Bonds, Refunding Series 1998C will be the only remaining series of outstanding First Lien Bonds (the “Outstanding First Lien Bonds”). The Outstanding First Lien Bonds are payable from Net Revenues of Midway on a parity with each other and any additional First Lien Bonds that may be issued hereafter under the Master Indenture of Trust Securing Chicago Midway Airport Revenue Bonds dated as of April 1, 1994, as amended and supplemented (the “First Lien Indenture”) from the City to The Bank of New York Mellon Trust Company, N.A. (as successor to American National Bank and Trust Company of Chicago), Chicago, Illinois, as trustee (the “First Lien Trustee”). The Outstanding First Lien Bonds and any additional first lien bonds that may be issued hereafter under the First Lien Indenture are collectively referred to herein as the “First Lien Bonds.” The City expects to apply $590,586,595 from the net proceeds of the Bonds and other available funds to currently refund $574,860,000 principal amount of First Lien Bonds.

Second Lien Bonds; Security for the Bonds

After the issuance of the Bonds and the Series 2014C Bonds, the City will have $1,489,410,000 aggregate principal amount of Second Lien Bonds (as defined below) outstanding, including the Chicago Midway Airport Second Lien Revenue Bonds, Series 2004A (AMT), Series 2004B (Non-AMT), Series 2004C (AMT) and Series 2004D (Non-AMT) in the aggregate principal amount of $195,460,000 (the “Series 2004 Second Lien Bonds”), the Chicago Midway Airport Second Lien Revenue Bonds, Series 2010C (Taxable) (the “Series 2010C Bonds”) in the aggregate principal amount of $63,470,000, the Chicago Midway Airport Second Lien Revenue Refunding Bonds, Series 2013A (AMT) (the “Series 2013A Bonds”), the Series 2013B (Non-AMT) (the “Series 2013B Bonds”) and the Series 2013C Bonds (Taxable) (the “Series 2013C Bonds”) in the aggregate principal amount of $333,960,000 (the Series, 2013A Bonds, the Series 2013B Bonds, the Series 2013C Bonds, collectively the “Series 2013 Second Lien Bonds”) and the Series 2014A Bonds, the Series 2014B Bonds and the City of Chicago Midway Airport Second Lien Revenue Refunding Bonds, Series 2014C (AMT) (the “Series 2014C Bonds”) in the aggregate principal amount of $896,520,000 (the Series 2014A Bonds, the Series 2014B Bonds and the Series 2014C Bonds, collectively the “Series 2014 Second Lien Bonds”). The Series 2004 Second Lien Bonds, the Series 2010C Second Lien Bonds, the Series 2013 Second Lien Bonds and the Series 2014 Second Lien Bonds are referred to collectively herein as the “Outstanding Second Lien Bonds.” The City expects to apply $83,150,144 from the net proceeds of the Bonds and other available funds to currently refund $78,175,000 principal amount of Second Lien Bonds. On the date of issuance of the Bonds, the City expects to apply $124,470,279 from the net proceeds of the Series 2014C Bonds and other available funds to currently refund $123,900,000 principal amount of Second Lien Bonds. See “PLAN OF FINANCE.”

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The Bonds are payable on a parity basis with the Series 2004 Second Lien Bonds, the Series 2010C Second Lien Bonds, the Series 2013 Second Lien Bonds and any other Second Lien Obligations that may be issued hereafter under the Second Lien Indenture. The Bonds, the Outstanding Second Lien Bonds and any additional second lien bonds that may be issued hereafter under the Second Lien Indenture are collectively referred to herein as the “Second Lien Bonds.”

The Second Lien Bonds are Junior Lien Obligations under the First Lien Indenture and are payable from amounts that may be withdrawn by the First Lien Trustee from the Junior Lien Obligation Debt Service Fund established under the First Lien Indenture (the “Junior Lien Revenues”) and transferred to the Second Lien Trustee for deposit in the Second Lien Revenue Fund under the Second Lien Indenture (the “Second Lien Revenues”). The pledge of Junior Lien Revenues under the First Lien Indenture for the payment of Junior Lien Obligations is expressly junior and subordinate to the pledge of Net Revenues for the payment of First Lien Bonds. See “SECURITY FOR THE BONDS − Description of Revenues” and “− Flow Of Funds.”

The Bonds are limited obligations of the City payable solely from Second Lien Revenues and certain other moneys held by the Second Lien Trustee under the Second Lien Indenture. In order to secure the payment of the principal, premium, if any, and interest on Second Lien Obligations, including the Bonds, outstanding from time to time under the Second Lien Indenture, a pledge is made in the Second Lien Indenture of the Second Lien Revenues. See “SECURITY FOR THE BONDS” and APPENDIX B−“SUMMARY OF CERTAIN PROVISIONS OF THE SECOND LIEN INDENTURE.”

The City has entered into Amended and Restated Airport Use Agreements and Facilities Leases, dated as of January 1, 2013 (the “Airport Use Agreements”), with the following five airlines (each airline that executes an Airport Use Agreement is referred to herein as a “Signatory Airline,” collectively the “Signatory Airlines”): Southwest Airlines Co. (“Southwest”), Delta Air Lines (and its other regional airline partners) (“Delta”), Frontier Airlines (“Frontier”), Porter Airlines (“Porter”) and Volaris Airlines (“Volaris”). The stated termination date of the Airport Use Agreements is December 31, 2027, being subject to the right of the City or a Signatory Airline under certain circumstances to terminate its Airport Use Agreement prior to that date. See “CERTAIN INVESTMENT CONSIDERATIONS RELATING TO THE AIRLINES, THE AIRLINE INDUSTRY AND MIDWAY.”

The nature of the obligation of the Signatory Airlines to make payments to the City under the Airport Use Agreements is described in APPENDIX C−“SUMMARY OF CERTAIN PROVISIONS OF THE AIRPORT USE AGREEMENTS−Airline Fees and Charges.” Certain Outstanding Second Lien Bonds mature after the stated termination date of the Airport Use Agreements. Following the termination of the Airport Use Agreements, there is no assurance that any airline using Midway will be contractually obligated to make payments including, among other things, debt service on the Bonds or any Outstanding Second Lien Bonds. See “SECURITY FOR THE BONDS,” APPENDIX B−“SUMMARY OF CERTAIN PROVISIONS OF THE SECOND LIEN INDENTURE” and APPENDIX C−“SUMMARY OF CERTAIN PROVISIONS OF THE AIRPORT USE AGREEMENTS.”

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Also, in accordance with the Airport Use Agreements, the Signatory Airlines are required to approve the issuance of the Bonds by a Majority-In-Interest (as defined in APPENDIX C−“SUMMARY OF CERTAIN PROVISIONS OF THE AIRPORT USE AGREEMENTS”). The Signatory Airlines have approved the issuance of the Bonds by a Majority-In-Interest.

The Bonds are not general obligations of the City and do not constitute an indebtedness

or a loan of credit of the City within the meaning of any constitutional or statutory limitation, and neither the faith and credit nor the taxing power of the State of Illinois (the “State”), the City or any other political subdivision of the State is pledged to the payment of the principal of or interest on the Bonds. The Bonds are not payable in any manner from revenues raised by taxation. No property of the City (including property located at Midway) is pledged as security for the Bonds.

Obligations Subordinate to the Bonds

In October 2003, the City established a CP Program providing for the issuance, from time to time, of CP Notes in an aggregate principal amount outstanding at any one time of not to exceed $150,000,000. By adoption of an ordinance on May 9, 2012, the City’s increased the aggregate principal amount authorized to be issued and outstanding at one time under the CP Program from $150,000,000 to $250,000,000. The City has obtained credit support in an amount not to exceed $150,000,000. The CP Notes are authorized to be issued for payment, or the reimbursement of the City for the payment, of the cost of all or any portion of capital projects at or related to Midway, cash flow needs at Midway, the refunding of general airport revenue bonds and special facility revenue bonds and the payment of the costs of issuance of CP Notes. The CP Notes are subordinate to all other Airport Obligations, including the Second Lien Bonds, with respect to their claim on Revenues. The City’s outstanding CP Notes in the principal amount of $57,693,000 shall be fully paid at maturity. See “MIDWAY FINANCIAL INFORMATION − Midway Indebtedness − Commercial Paper.”

Chicago Midway International Airport

Midway, which is located ten miles southwest of the City’s central business district, began operations in 1927 and is an integral component of Chicago’s transportation infrastructure. According to preliminary statistics compiled by Airports Council International (“ACI”) in 2013, Midway was the 24th most active airport in the United States, measured in terms of total passengers. Total commercial enplanements at Midway grew at an average compound growth rate of 1.3% from 2003 to 2013 and totaled 10,155,3891 in 2013. In 2013, enplaned passengers at Midway were 5.0% higher than 2012.

Midway is served primarily by airlines that generally provide low-fare, point-to-point origination and destination (“O&D”) passenger service, with Southwest (including its wholly-

1 Excludes general aviation, military, helicopter and miscellaneous passengers included in the City of Chicago’s Chicago Department of Aviation management records.

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owned subsidiary, AirTran2) accounting for approximately 91.0% of commercial enplaned passengers3 at Midway in 2013. In 2013, Southwest enplaned 21.3% of airline passengers in the Chicago metropolitan market (Southwest’s share of total U.S. enplanements through October 2013 was 18.6%4) and represented 53.35% of Midway operating revenues. Its passengers accounted for approximately 91.2% of Passenger Facility Charges (“PFC”) collected at Midway in 2012. See “SECURITY FOR THE BONDS − Airport Use Agreements,” “CHICAGO MIDWAY INTERNATIONAL AIRPORT − Activity at Midway,” “CERTAIN INVESTMENT CONSIDERATIONS RELATING TO THE AIRLINES, THE AIRLINE INDUSTRY AND MIDWAY − Effect of Airline Bankruptcy,” and APPENDIX F–“2013 REPORT OF THE AIRPORT CONSULTANT AS SUPPLEMENTED.”

Events Affecting the Airline Industry

The financial performance of the airline industry generally has correlated with the strength of the national economy. The projected trend of accelerating real GDP growth, at least through 2017 according to the most recent Congressional Budget Office forecasts, suggests the upward trend in air travel should continue5. However, in the event the economy stalls or trends downward, aviation demand would likely be negatively impacted. In addition, other events, as well as fluctuating fuel costs, all have negatively impacted the airline industry in general. For a more complete discussion of recent events impacting Midway and the airlines that use Midway, see “CERTAIN INVESTMENT CONSIDERATIONS RELATING TO THE AIRLINES, THE AIRLINE INDUSTRY AND MIDWAY.”

Other Chicago Region Airports

The City also operates, through its Chicago Department of Aviation (“CDA”), Chicago O’Hare International Airport (“O’Hare”). Based upon preliminary data from ACI for 2013, O’Hare ranked second both worldwide and in the United States for total aircraft operations, and fifth worldwide and second in the United States in terms of total passengers. On April 15, 1995, the City and the City of Gary, Indiana entered into an interstate compact (the “Compact”), which established the Chicago/Gary Regional Airport Authority (the “Chicago-Gary Authority”) to oversee and support Midway, O’Hare, Merrill C. Meigs Field6 (“Meigs Field”) and the Gary/Chicago International Airport, to evaluate jointly the bi-state region’s need for additional airport capacity and to coordinate and plan for the continued development, enhancement and operation of such airports and the development of any new airport serving the bi-state region.

2 The FAA issued Southwest and AirTran Holdings, Inc., the former parent company of AirTran Airways, Inc. (“AirTran”), a single operating certificate in March 2012. Each airline will continue to operate separately until completing integration by the end of 2014. 3 Includes general aviation, military, helicopter and miscellaneous passengers included in the Chicago Department of Aviation Management Records. 4 U.S. Department of Transportation T100 Data (accessed April 2014). 5 Congressional Budget Office, Baseline Economic Forecast – February 2014 Baseline Projections, February 2014. 6 As of March 2003, Meigs Field is no longer operational.

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Gary/Chicago International Airport is owned by the City of Gary, Indiana and operated by the Gary/Chicago International Airport Authority (the “Gary/Chicago Authority”).

Maturity of the Bonds

The Bonds will mature on January 1 of the years and in the amounts shown on the inside cover pages hereof and will be dated as of their date of delivery. See “THE BONDS – General.”

Supplemented Report of the Airport Consultant

The 2013 Report of the Airport Consultant, as supplemented by a letter dated May 19, 2014 (together, the “Supplemented Report of the Airport Consultant”), prepared by Ricondo & Associates, Inc., the City’s airport consultant (the “Airport Consultant”), included as APPENDIX F, evaluates aviation activity at Midway and presents a financial feasibility analysis for Midway. The Supplemented Report of the Airport Consultant is described more fully under the caption “AIRPORT CONSULTANT” herein.

The Supplemented Report of the Airport Consultant should be read in its entirety for a complete understanding of the projections and underlying assumptions. As noted below under “INTRODUCTION – Forward-Looking Statements,” any projection is subject to uncertainties, including the possibility that some of the assumptions used to develop the projections will not be realized and that unanticipated events and circumstances will occur. Accordingly, there are likely to be differences between projections and actual results, which differences could be material. See APPENDIX F–“2013 REPORT OF THE AIRPORT CONSULTANT AS SUPPLEMENTED.” Forward-Looking Statements

All statements other than statements of historical facts included in this Official Statement are forward-looking statements, including, without limitation: (a) statements concerning projections of future passenger activity at Midway and of future financial performance at Midway; (b) statements of the plans and objectives of the City in relation to the Airport’s CIP (as defined herein) (See “CHICAGO MIDWAY INTERNATIONAL AIRPORT” and “2014-2020 CAPITAL IMPROVEMENT PROGRAM”); and (c) assumptions relating to the statements described in clauses (a) and (b) above (collectively, the “Forward-Looking Statements”).

Projections. The projections set forth in this Official Statement were not prepared with a

view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of the City’s management, were prepared on a reasonable basis, reflect the best currently available estimates and judgments, and present, to the best of management’s knowledge and belief, the expected course of action and the expected future financial performance of Midway. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this Official Statement are cautioned not to place undue reliance on the prospective financial information. Neither the City’s independent auditors, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or

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any other form of assurance on such information or its achievability. Such parties assume no responsibility for, and disclaim any association with, the prospective financial information.

The City has included the Supplemented Report of the Airport Consultant, based upon

the Airport Consultant’s expertise in the aviation industry. The Airport Consultant believes that the expectations reflected in the Forward-Looking Statements are reasonable. However, there can be no assurance that the expectations contained in the Forward-Looking Statements, including those set forth in the Supplemented Report of the Airport Consultant, will be achieved. Important factors that could cause actual results to differ materially from the current expectations of the Airport Consultant are discussed in this Official Statement.

Glossary of Terms; Document Summaries. This Official Statement contains summaries

of the terms of and security for the Bonds, together with descriptions of Midway and its operations. A Glossary of Terms is included as APPENDIX A, a summary of certain provisions of the Second Lien Indenture is included as APPENDIX B and a summary of certain provisions of the Airport Use Agreements is included as APPENDIX C. APPENDIX A−“GLOSSARY OF TERMS” contains terms of general applicability, which are used herein, and terms related to the Second Lien Indenture and the Airport Use Agreements as set forth therein. All references herein to agreements and documents are qualified in their entirety by references to the definitive forms of the agreement or document. All references to the Bonds are further qualified by references to the information with respect to them contained in the Second Lien Indenture.

PLAN OF FINANCE

Simultaneously with the issuance of the Bonds for the purposes described under

“INTRODUCTION – Purpose,” the City plans to issue its Second Lien Revenue Refunding Bonds, Series 2014C (AMT) (the “Series 2014C Bonds”) in the approximate principal amount of $124,710,000, for the following purposes: (i) to refund prior to maturity the Chicago Midway Airport Second Lien Revenue Bonds, Series 1998A and Series 1998B and (ii) to pay costs and expenses incidental thereto and to the issuance of the Series 2014C Bonds. There is a separate official statement for the Series 2014C Bonds.

THE BONDS

The following is a summary of certain provisions of the Bonds. Reference is made to the Bonds for the complete text thereof and to the Second Lien Indenture for all of the provisions relating to the Bonds. The discussion herein is qualified by such reference.

General

The Bonds will be dated the date of delivery and mature on January 1 of the year and in the amount shown on the inside front cover pages hereof. The Bonds will bear a fixed rate of interest until their final maturity or earlier redemption payable on January 1 and July 1 in each year, commencing January 1, 2015, at the rates per annum set forth on the front inside cover pages hereof.

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Certain of the Bonds will be subject to redemption as described below under the subcaption “− Redemption Provisions.”

The Bonds will be offered only as fully registered bonds without coupons in denominations of $5,000 and any integral multiple thereof (each, an “Authorized Denomination”). The principal of and premium, if any, on all Bonds shall be payable at the designated corporate trust office of the Second Lien Trustee in Chicago, Illinois upon the presentation and surrender of the Bonds as the same become due and payable. The interest on the Bonds shall be paid by check drawn upon the Second Lien Trustee and mailed to the persons in whose names the Bonds are registered at his or her address as it appears on the registration books maintained by the Bond Registrar at the close of business on the Record Date next preceding each Interest Payment Date or at such other address as is furnished in writing by such owner to the Bond Registrar. Interest on the Bonds shall be paid by wire transfer to any registered owner who at the close of business on such Record Date has given written notice of his or her wire transfer address in the continental United States to the Bond Registrar prior to such Record Date (which notice may provide that it will remain in effect until revoked), provided that each such wire transfer shall only be made with respect to an owner of $1,000,000 or more in aggregate principal amount of the Bonds as of the close of business on such Record Date.

The Bonds will be initially registered through a book-entry only system operated by The Depository Trust Company, New York, New York (“DTC”). Details of payments of the Bonds when in the book-entry form and the book-entry only system are described below under the subcaption “− Book-Entry Only System.” Except as described under the subcaption “− Book-Entry Only System” below, beneficial owners of the Bonds will not receive or have the right to receive physical delivery of Bonds, and will not be or be considered under the Second Lien Indenture to be the Registered Owners thereof. Accordingly, beneficial owners must rely upon (i) the procedures of DTC and, if such beneficial owner is not a DTC Participant, the DTC Participant who will act on behalf of such beneficial owner to receive notices and payments of principal and interest on the Bonds and to exercise voting rights, and (ii) the records of DTC and, if such beneficial owner is not a DTC Participant, such beneficial owner’s DTC Participant, to evidence its beneficial ownership of Bonds. As long as DTC or its nominee is the Registered Owner of Bonds, references herein to Bondholders or Registered Owners of such Bonds shall mean DTC or its nominee and shall not mean the beneficial owners of such Bonds.

Redemption Provisions

The Bonds shall be subject to redemption prior to their Maturity Dates in the amounts, at the times and in the following manner:

Optional Redemption

2014A Bonds. Optional Redemption. The 2014A Bonds maturing on or after January 1, 2025 are subject to redemption, otherwise than from mandatory Sinking Fund Payments, at the option of the City, on or after January 1, 2024, as a whole or in part at any time, and if in part, in such order of maturity as the City shall determine and within any maturity by lot, at the redemption price of 100% of the principal amount of such 2014A Bonds or portions thereof to be redeemed, together with accrued interest to the redemption date.

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2014B Bonds. Optional Redemption. The 2014B Bonds maturing on or after January 1, 2025 are subject to redemption at the option of the City, on or after January 1, 2024, as a whole or in part at any time, and if in part, in such order of maturity as the City shall determine and by lot with respect to 2014B Bonds of the same maturity and interest rate, at the redemption price of 100% of the principal amount of such 2014B Bonds or portions thereof to be redeemed, together with accrued interest to the redemption date.

Mandatory Redemption 2014A Bonds. The 2014A Bonds maturing on January 1, 2041 (the “2014A Term Bonds”)

are subject to mandatory redemption, in part by lot as provided in the Second Lien Indenture from mandatory Sinking Fund Payments, on January 1 in each of the years and in the respective principal amounts set forth below, at a redemption price equal to the principal amount thereof to be redeemed:

YEAR PRINCIPAL AMOUNT

2036 $8,150,000 2037 23,235,000 2038 24,400,000 2039 25,620,000 2040 26,905,000 2041* 13,560,000

*Final maturity

If the City redeems Bonds pursuant to optional redemption or purchases 2014A Term

Bonds subject to mandatory redemption and cancels the same, then an amount equal to the principal amount of 2014A Term Bonds so redeemed or purchased shall be deducted from the mandatory redemption requirements as provided for the 2014A Term Bonds in such order as an Authorized Officer of the City shall determine or, in the absence of such determination in inverse order of such mandatory redemption requirements.

Amounts accumulated in the Series 2014A Dedicated Sub-Fund or other amounts delivered to the Trustee for such purpose may, and if so directed by the City shall, be applied by the Trustee, on or prior to the 45th day before the payment date of a Sinking Fund Payment, to the purchase of the 2014A Term Bonds for which such Sinking Fund Payment is to be made in an amount not exceeding that amount necessary to complete the retirement of the unsatisfied balance of the 2014A Term Bonds payable from such Sinking Fund Payment on such payment date. The purchase price paid by the Trustee (excluding accrued interest but including any brokerage and other charges) for any 2014A Term Bond so purchased shall not exceed the Sinking Fund redemption price of such 2014A Term Bond applicable upon its redemption on such payment date. Any 2014A Term Bonds so purchased shall be canceled and the applicable Sinking Fund redemption price thereof shall be credited against the applicable Sinking Fund Payment due on the next payment date.

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General Provisions Regarding Redemptions

In case a Bond is of a denomination larger than the minimum Authorized Denomination, all or a portion of such Bond (equal to the minimum Authorized Denomination or any integral multiple thereof) may be redeemed but such Bond shall be redeemed only in a principal amount equal to the minimum Authorized Denomination or any integral multiple thereof.

Selection of Bonds to Be Redeemed. In the event DTC is the sole registered owner of the Bonds, redemption of the Bonds will be done in accordance with the procedures of DTC.

The particular maturities of Bonds to be redeemed at the option of the City will be

determined by the City in its sole discretion. If less than all the Bonds shall be called for redemption under any provision of the

respective Supplemental Indenture permitting such partial redemption, the particular Bonds or portions thereof to be redeemed shall be selected in such order of maturity as the City shall determine and within any maturity by lot. In selecting Bonds for redemption, the Second Lien Trustee shall treat each Bond as representing that number of Bonds which is obtained by dividing the principal amount of such Bond by the minimum Authorized Denomination. If it is determined that one or more, but not all, of the integral multiples of the Authorized Denomination of principal amount represented by any Bond is to be called for redemption, then, upon notice of intention to redeem such integral multiple of an Authorized Denomination, the Registered Owner of such Bond shall forthwith surrender such Bond to the Second Lien Trustee for (a) payment to such Registered Owner of the redemption price of the integral multiple of the Authorized Denomination of principal amount called for redemption, and (b) delivery to such Registered Owner of a new Bond or Bonds in the aggregate principal amount of the unredeemed balance of the principal amount of such Bond. New Bonds representing the unredeemed balance of the principal amount of such Bond shall be issued to the Registered Owner thereof without charge therefor.

Notice of Redemption

Notice of the redemption of Bonds or any portion thereof identifying the Bonds or portions thereof to be redeemed, specifying the redemption date, the Redemption Price, the places and dates of payment and that from the redemption date interest will cease to accrue, shall be given by the Second Lien Trustee by mailing a copy of such redemption notice by first class mail not less than 30 nor more than 60 days prior to the date fixed for redemption, to the Registered Owner of each Bond to be redeemed in whole or in part at the address shown on the registration books. Such notice shall specify the redemption date, the redemption price, the place and manner of payment, and that from the redemption date interest will cease to accrue on the Bonds which are the subject of such notice, and shall include such other information as the Second Lien Trustee shall deem appropriate or necessary at the time such notice is given to comply with any applicable law, regulation or industry standard. Failure to mail any such notice to the Registered Owner of any Bond or any defect therein shall not affect the validity of the proceedings for such redemption of Bonds. A notice of optional redemption may be conditional as to the deposit of funds or other matters on the redemption date and failure to deposit funds or meet such other conditions shall not constitute an event of default.

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In addition to the foregoing requirements, each notice of redemption of Bonds shall specify (i) the series name and designation and certificate numbers of the Bonds being redeemed, (ii) the CUSIP numbers of the Bonds being redeemed, (iii) the principal amount of the Bonds being redeemed and the redeemed amount for each certificate (for partial calls), (iv) the redemption date, (v) the Redemption Price, (vi) the Date of Issuance, (vii) the interest rate and Maturity Date of the Bonds being redeemed, (viii) the date of mailing of notices to Registered Owners and information services, and (ix) the name of the employee of the Second Lien Trustee that may be contacted with regard to such notice. A copy of each such notice shall be sent by registered mail, telecopier or overnight delivery service to the Securities Depository with the intention that it be received at least two days prior to the date of mailing of notices to Registered Owners. Failure to give notice in the prescribed manner with respect to any Bond, or any defect in such notice, shall not affect the validity of the proceedings for redemption for any Bond with respect to which notice was properly given. Upon the happening of the above conditions and if sufficient moneys are on deposit with the Second Lien Trustee on the applicable redemption date to redeem the Bonds to be redeemed and to pay interest due thereon and premium, if any, the Bonds thus called shall not, after the applicable redemption date, bear interest, be protected by the Second Lien Indenture or be deemed to be outstanding under the provisions of the Second Lien Indenture.

Book-Entry Only System

General. The following information has been furnished by DTC for use in this Official Statement and neither the City nor the Underwriters takes any responsibility for its accuracy or completeness. The DTC Omnibus Proxy record date, as such term is used under this subcaption, is not, and has no relation to, the “Record Date” as defined in APPENDIX A—“GLOSSARY OF TERMS” and used in this Official Statement.

DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee), or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond will be issued for each maturity of the Bonds in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world’s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities

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Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.

Purchases of the offered Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each offered Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.

To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of the Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Second Lien Trustee and request that copies of the notices be provided directly to them.

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Redemption notices shall be sent to DTC. If less than all of the Bonds of a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in the Bonds to be redeemed.

Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC’s Money Management Institute (“MMI”) Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Redemption proceeds, distributions, and interest payments on the Bonds will be paid to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts, upon DTC’s receipt of funds and corresponding detail information from the City or the Second Lien Trustee, on the payment date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC (nor its nominee), the City or the Second Lien Trustee, as applicable, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City and the Second Lien Trustee; disbursement of such payments to Direct Participants will be the responsibility of DTC; and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

The City may decide to discontinue use of the system of book-entry only transfers through DTC (or a successor securities depository). In that event, certificates for the Bonds will be printed and delivered.

DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the City or the Second Lien Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, certificates for the Bonds are required to be printed and delivered.

For every transfer and exchange of the Bonds, the Second Lien Trustee and DTC and the Participants may charge the Beneficial Owner a sum sufficient to cover any tax, fee or other charge that may be imposed in relation thereto.

The City and the Second Lien Trustee shall have no responsibility or obligation with respect to (i) the accuracy of the records of DTC, Cede & Co. or any Participant with respect to any ownership interest in the Bonds, (ii) the delivery to any Participant or any other person, other than an owner, of any notice with respect to the Bonds, including any notice of redemption, or (iii) the payment to any Participant or any other person, other than an owner, of any amount with respect to principal of or interest on the Bonds.

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Effect on Bonds of Discontinuance of Book-Entry System. The following two paragraphs apply to the Bonds only when they are not in the book-entry system:

The Bonds will be issuable as fully registered bonds in denominations that integral multiples of $5,000. Exchanges and transfers will be made without charge to the Registered Owners, except that the Second Lien Trustee may require the payment by the Registered Owner requesting exchange or transfer of any tax or governmental charge required to be paid with respect thereto.

Principal of and interest on the Bonds will be payable upon presentation and surrender when due at the principal corporate trust office of the Second Lien Trustee. Interest on the Bonds will be payable by check mailed to persons in whose names they are registered at on the close of business on the Record Date next preceding each Interest Payment Date. The Record Date for the Bonds will be June 15 and December 15 prior to each July 1 and January 1, respectively. At the request of any Registered Owner of not less than $1,000,000 principal amount of the Bonds of a Series, all payments to such Registered Owner with respect to such Bonds shall be made by wire transfer to any address in the continental United States on the applicable Payment Date, if such Registered Owner provides the Second Lien Trustee with written notice of such wire transfer address prior to the applicable Record Date (which notice may provide that it will remain in effect with respect to subsequent Interest Payment dates unless and until changed or revoked by subsequent notice).

Notwithstanding the foregoing, so long as records of ownership of the Bonds are maintained through the book-entry only system described below, all payments to the Beneficial Owners of the Bonds will be made in accordance with the procedures described above under “– Book-Entry Only System.”

SECURITY FOR THE BONDS

General

The Bonds and the obligation to pay interest thereon are not general obligations of the City and do not constitute an indebtedness or a loan of credit of the City, the State or any political subdivision thereof within the meaning of any constitutional or statutory limitation of the State. Neither the faith and credit nor the taxing power of the City, the State or any political subdivision thereof is pledged for the payment of the principal of or interest on the Bonds. No property of Midway is pledged as security for the Bonds, except for the Second Lien Revenues and certain other moneys pledged under the Second Lien Indenture.

The Second Lien Bonds, including the Bonds, and any future Second Lien Obligations issued pursuant to the Second Lien Indenture, are secured by, and payable from, Second Lien Revenues pledged and assigned to the payment thereof. See “− Description of Revenues” below.

The Second Lien Indenture authorizes the issuance of Second Lien Obligations without limitation as to amount (except as may be limited by law) for the purpose of financing or refinancing Airport Projects. Under the Second Lien Indenture such Second Lien Obligations

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are secured by, and payable solely from, Junior Lien Revenues authorized to be withdrawn by the First Lien Trustee from the Junior Lien Obligation Debt Service Fund established by the First Lien Indenture and transferred to the Second Lien Trustee for deposit in the Second Lien Revenue Fund under the Second Lien Indenture. See “−Flow of Funds” below. Second Lien Obligations include (i) bonds, notes or evidences of indebtedness issued by the City under the Second Lien Indenture, (ii) obligations incurred by the City to reimburse any issuer of a letter of credit or surety bond securing Second Lien Obligations, as more fully described in the definition of “Section 208 Obligations” in APPENDIX A−“GLOSSARY OF TERMS” and in APPENDIX B−“SUMMARY OF CERTAIN PROVISIONS OF THE SECOND LIEN INDENTURE − Authorization of the Second Lien Bonds and Other Second Lien Obligations,” and (iii) any obligations incurred by the City to any Swap Provider, as more fully described in the definition of “Section 209 Obligations” in APPENDIX A−“GLOSSARY OF TERMS” and in APPENDIX B−“SUMMARY OF CERTAIN PROVISIONS OF THE SECOND LIEN INDENTURE − Authorization of the Second Lien Bonds and Other Second Lien Obligations.”

Such Junior Lien Revenues when paid by the First Lien Trustee to the Second Lien Trustee for deposit into the Second Lien Revenue Fund created under the Second Lien Indenture constitute Second Lien Revenues. Pursuant to the Second Lien Indenture, such Second Lien Revenues are pledged to the payment of the principal of, premium, if any, and interest on all Second Lien Obligations (including the Bonds) without priority of distinction of one series of Second Lien Obligations over any other series of Second Lien Obligations.

In order to provide for the deposit into the Junior Lien Obligation Debt Service Fund of sufficient funds to satisfy the deposit requirements set forth in any resolution, ordinance or indenture securing Second Lien Obligations, the City is required, upon the issuance of each series of Second Lien Obligations and thereafter as may be necessary to reflect changes in such deposit requirements, to file with the First Lien Trustee a certificate setting forth the dates on which Second Lien Revenues are required to be withdrawn from the Junior Lien Obligation Debt Service Fund and deposited with the Second Lien Trustee and the amounts of such withdrawals to the extent determinable. Upon receipt by the Second Lien Trustee, Second Lien Revenues are required to be deposited into the Second Lien Revenue Fund and segregated within the Second Lien Revenue Fund into such sub-funds, accounts and sub-accounts as may have been established for the benefit of outstanding series of Second Lien Obligations. For a general description of the application of Revenues, see “− Flow Of Funds − Payment Of Debt Service On The Bonds And Swap Payments,” below, and APPENDIX B−“SUMMARY OF CERTAIN PROVISIONS OF THE SECOND LIEN INDENTURE – Source of Payment; Pledge of Second Lien Revenues.”

The Second Lien Indenture permits the City, at its option, to transfer to the Second Lien Trustee Other Available Moneys, as described below, to pay the principal of and interest on the Bonds. See “− Other Available Moneys” below.

Proposed Amendment to the Second Lien Indenture

In 2010, the City proposed an amendment (the “2010 Amendment”) to the Second Lien Indenture that, upon a determination by the City to present such amendment to the Second Lien

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Trustee and compliance with the requirements for amending the Second Lien Indenture, would remove from the Second Lien Indenture the series of conditions that would have to be satisfied before any sale, conveyance, mortgage, encumbrance or other disposition, directly or indirectly, of all or substantially all of the Airport or the transfer, directly or indirectly, of control, management or any material aspect of control, management or oversight of the Airport (collectively, a “Sale or Transfer”) could occur. These restrictions are described in APPENDIX B−“SUMMARY OF CERTAIN PROVISIONS OF THE SECOND LIEN INDENTURE − Sale or Transfer of Airport” (the “Sale or Transfer Restrictions”).

The 2010 Amendment will not take effect unless and until (among other things) the City satisfies each of the conditions required by the Second Lien Indenture as described in APPENDIX B−“SUMMARY OF CERTAIN PROVISIONS OF THE SECOND LIEN INDENTURE − Supplemental Indentures”, including obtaining approval from the Owners of a majority in principal amount of the Outstanding Second Lien Bonds, approval from the providers of credit support for certain of the Outstanding Second Lien Bonds and filing a certificate of effectiveness with the Second Lien Trustee. Pursuant to the Supplemental Indentures authorizing each series of the Bonds, the Owners of the Bonds upon issuance of the Bonds shall be deemed to have consented to the 2010 Amendment. Prior to issuance of the Bonds, Owners holding a majority of the Outstanding Second Lien Bonds have consented to the 2010 Amendment. However, the City has not to date elected to implement the 2010 Amendment, requested consent from the providers of credit support for certain of the Outstanding Second Lien Bonds (e.g., bond insurers or letter of credit banks) to the 2010 Amendment, or certified its effectiveness to the Second Lien Trustee.

Description of Revenues

Under the Second Lien Indenture, “Revenues” consist of all amounts received or receivable, directly or indirectly, by the City for the use and operation of, or with respect to Midway, excluding, however: (a) PFC revenue or any similar charges levied by or on behalf of the City (and investment income thereon); (b) any grants, gifts, bequests, contributions or donations; (c) the proceeds from the sale, transfer or other disposition by the City of title to all or any part of Midway; (d) the proceeds of any taxes collected at Midway; (e) the proceeds of any condemnation awards or insurance proceeds, except to the extent such moneys are deemed to be revenues in accordance with generally accepted accounting principles (“GAAP”); (f) the proceeds of any court or arbitration award or settlement in lieu thereof, except to the extent such moneys are deemed to be revenues in accordance with generally accepted accounting principles or constitute reimbursements for previously incurred O&M Expenses; (g) any amounts derived by the City with respect to debt service on Special Facility Revenue Bonds; (h) the proceeds of any bonds or other indebtedness of the City; (i) payments of principal and interest on any loans made by the City for Airport purposes; (j) investment income on moneys held in the Construction Fund, the Special Project Fund, the Emergency Reserve Fund and the Airport Development Fund; and (k) any other amounts that are not deemed to be revenues in accordance with GAAP or that are restricted as to their use. For a complete definition of “Revenues,” see APPENDIX A−“GLOSSARY OF TERMS.”

For a general description of the application of Revenues, and the application of Second Lien Revenues under the Second Lien Indenture, see “−Flow of Funds From Revenues,–Payment

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of Debt Service on the Bonds and Swap Payments,” below, and APPENDIX B−“SUMMARY OF CERTAIN PROVISIONS OF THE SECOND LIEN INDENTURE − Source of Payment; Pledge of Second Lien Revenues.”

Other Available Moneys

“Other Available Moneys” includes, for any Fiscal Year, the amount of money determined by the Chief Financial Officer to be transferred by the City for such Fiscal Year from sources other than Revenues to the First Lien Revenue Fund, the First Lien Debt Service Fund or any debt service fund for Second Lien Obligations. As noted above, PFC revenues do not constitute Revenues as defined in the Second Lien Indenture and are not pledged to, or held by, the Second Lien Trustee for the benefit of the owners of the Bonds. However, the City expects that to the extent that PFC revenues are available to the City in each Fiscal Year, the City will transfer to the Second Lien Trustee for deposit into the respective Dedicated Sub-Funds as Other Available Moneys PFC revenues to pay PFC-eligible debt service on the Bonds and on Outstanding Airport Obligations, although the City is under no obligation to do so.

The Series 2010C Bonds are additionally secured by a pledge of Customer Facility Charge revenues relating to the consolidated rental car facility (“CFC Revenues”). See “− Description of Revenues” and “ESTIMATED FUNDING SOURCES FOR 2014-2020 CIP – Customer Facility Charges” below. The CFC Revenues have been pledged only to the Series 2010C Bonds and constitute Other Available Moneys, but only with respect to the Series 2010C Bonds. See “SECURITY FOR THE BONDS – Description of Revenues” above.

Flow of Funds from Revenues

Revenues and expenses of Midway are accounted for as a separate enterprise fund of the City subject to the provisions of the First Lien Indenture and the Airport Use Agreements. Under the First Lien Indenture, all Revenues are collected by the City and, after monthly deposits by the City into the O&M Fund of an amount equal to one-twelfth of the O&M Expense Projection for the current Fiscal Year, promptly deposited to the credit of the First Lien Revenue Fund in the name of the First Lien Trustee. The First Lien Trustee is accountable only for moneys so deposited.

The First Lien Indenture creates the First Lien Revenue Fund, the First Lien Debt Service Fund, the First Lien Debt Service Reserve Fund and the Junior Lien Obligation Debt Service Fund to be held and administered by the First Lien Trustee. The City further agrees under the First Lien Indenture to establish and maintain as required by the Airport Use Agreements, an O&M Fund, a Special Project Fund, an O&M Reserve Account, a Working Capital Account, a Repair and Replacement Fund, an Emergency Reserve Fund and an Airport Development Fund.

Monthly Deposits. On the tenth day of each month the First Lien Trustee shall make the following deposits and transfers from amounts on deposit in the First Lien Revenue Fund in the manner and order of priority set forth below:

First: into the First Lien Debt Service Fund the amount, if any, needed to increase the amount in the First Lien Debt Service Fund so that it equals the amount of

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money obtained by aggregating the several sums, computed with respect to the Outstanding First Lien Bonds of each Series, of (i) certain accrued and unpaid principal and interest due on First Lien Bonds, and (ii) the amount, if any, specified in a certificate filed with the First Lien Trustee in order to provide funds to pay amounts due and owing to the issuer of any Reserve Fund Asset.

Second: to the City for deposit into the O&M Reserve Account an amount equal to one-twelfth of the O&M Reserve Account Deposit Requirement, which is the amount required in each Fiscal Year to increase the amount on deposit in the O&M Reserve Account to an amount equal to one-sixth of the O&M Expense Projection for such Fiscal Year.

Third: to the City for deposit into the Working Capital Account. As there is no current deposit requirement for the Working Capital Account under the Airline Use Agreements, the City has directed the First Lien Trustee to suspend deposits to the Working Capital Account, which direction may be revoked at any time.

Semi-Annual Deposits. On the Business Day immediately preceding the first and the 182nd day of a Fiscal Year, the First Lien Trustee shall make the following deposits and transfers from amounts on deposit in the First Lien Revenue Fund in the manner and order of priority set forth below:

First: into the First Lien Debt Service Reserve Fund the amount, if any, necessary to increase the amount on deposit therein to an amount equal to the First Lien Debt Service Reserve Fund Requirement for First Lien Bonds under the First Lien Indenture.

Second: into the Junior Lien Obligation Debt Service Fund an amount, if any, equal to the amount required by any resolution or ordinance authorizing the issuance of Junior Lien Obligations to be deposited therein on such date and without priority, one over the other, to any Accounts within the Junior Lien Obligation Debt Service Fund, as specified by a Certificate filed with the First Lien Trustee. Deposits will be made to this Fund for transfer to the Second Lien Trustee to pay debt service on the Bonds or to pay Section 208 Obligations or Section 209 Obligations. See “−Payment of Debt Service on the Bonds and Swap Payments,” below.

Third: to the City for deposit into the Repair and Replacement Fund an amount equal to one-half of the Repair and Replacement Fund Deposit Requirement, which requirement for each Fiscal Year shall be $1.0 million adjusted for each Fiscal Year by multiplying the amount of the Repair and Replacement Fund Deposit Requirement for the prior Fiscal Year by a factor of one plus the percentage increase, if any, in the Producer Price Index during the most recently ended 12-month period for which the Producer Price Index is available. As permitted under the First Lien Indenture, the City has directed the First Lien Trustee to suspend deposits to the Repair and Replacement Fund, which direction may be revoked at any time.

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Fourth: to the City for deposit into the Emergency Reserve Fund an amount equal to one-half of the Emergency Reserve Fund Deposit Requirement, which requirement shall be the amount required to be deposited in the Emergency Reserve Fund so that the amount held therein will equal for each Fiscal Year, the required balance for the prior Fiscal Year (which was established at $250,000 for the Fiscal Year ended December 31, 1994) plus the percentage increase, if any, in the Producer Price Index during the most recently ended 12-month period for which the Producer Price Index is available.

Fifth: to the City for deposit into the Special Project Fund the amount specified by the City in a certificate filed with the First Lien Trustee as the amount to be deposited at such time in such Fund.

Sixth: to the City for deposit into the Airport Development Fund the amount specified by the City in a certificate filed with the First Lien Trustee as the amount to be deposited at such time in such Fund.

If at the time deposits are required to be made as described above, the moneys held in the First Lien Revenue Fund are insufficient to make any required deposit, then the deposit shall be made up on the next applicable deposit date from amounts in the First Lien Revenue Fund after required deposits into all other Funds and Accounts having a higher priority shall have been made in full.

At the end of each Fiscal Year amounts on deposit in the O&M Fund, the First Lien Debt Service Fund, the First Lien Debt Service Reserve Fund and the Junior Lien Obligation Debt Service Fund in excess of the amount required under the First Lien Indenture or under any ordinance or resolution authorizing the issuance of Junior Lien Obligations to be on deposit in such Fund at the end of such Fiscal Year shall be transferred to the First Lien Revenue Fund.

Payment of Debt Service on the Bonds and Swap Payments. The Second Lien Indenture creates the Second Lien Revenue Fund to be held and administered by the Second Lien Trustee. The City is required to file with the First Lien Trustee, upon the issuance of each series of Second Lien Obligations (including the Bonds), an executed counterpart of the Supplemental Indenture creating such series and a certificate stating the dates on which amounts on deposit in the Junior Lien Obligation Debt Service Fund are to be withdrawn therefrom by the First Lien Trustee and paid to the Second Lien Trustee, and the amounts of such withdrawals to the extent determinable, and containing a direction of the City to the First Lien Trustee to withdraw from the Junior Lien Obligation Debt Service Fund and pay to the Second Lien Trustee the amounts, and on the dates, specified in such certificate. The Second Lien Trustee shall deposit such payments in the Second Lien Revenue Fund. The moneys in the Second Lien Revenue Fund shall be disbursed and applied by the Second Lien Trustee as required by the provisions of any Supplemental Indenture creating a series of Second Lien Obligations (including the Twentieth Supplemental Indenture and Twenty-First Supplemental Indenture), or by any instrument creating Section 208 or Section 209 Obligations. The Second Lien Trustee shall segregate within the Second Lien Revenue Fund and credit to such sub-funds, accounts and sub-accounts therein as may have been created for the benefit of such series of Second Lien Obligations and such Section 208 and Section 209 Obligations in such Supplemental Indenture such amounts as may be required to be so credited under the provisions of such Supplemental Indenture or

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instrument creating Section 208 or Section 209 Obligations to pay the principal of and interest on such Second Lien Obligations and satisfy such Section 208 Obligations and Section 209 Obligations.

Moneys on deposit in the respective Dedicated Sub-Funds, and in each account established therein, are to be held in trust by the Second Lien Trustee solely for the benefit of the Registered Owners of the respective series of Bonds. The specific accounts established in the Dedicated Sub-Funds, and the deposit requirements for each such account, are more fully described in APPENDIX B−“SUMMARY OF CERTAIN PROVISIONS OF THE SECOND LIEN INDENTURE−Payment of Debt Service on the Bonds and Related Section 208 and Section 209 Obligations.”

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FLOW OF FUNDS DIAGRAM

+ Amount on deposit at year-end in excess of amount required to be on deposit for such Fiscal Year under the First Lien Indenture or any

ordinance or resolution authorizing the issuance of Junior Lien Obligations at year-end shall be transferred to the First Lien Revenue Fund. ++ As there is no current deposit requirement for the Working Capital Account under the Airline Use Agreements, the City has directed the

First Lien Trustee to suspend deposits to the Working Capital account, which direction may be revoked at any time.

Source: City of Chicago, Department of Aviation.

This chart represents a simplified description of disbursements from the Revenue Fund. For a detailed description of the disbursements from the

Revenue Fund, see “SECURITY FOR THE BONDS–Flow of Funds,” above.

Operations & Maintenance Fund (monthly) +

First Lien Revenue Fund

First Lien Debt Service Fund (monthly) +

Operations & Maintenance Reserve Account (monthly) +

First Lien Debt Service Reserve Fund (semi-annually) +

Junior Lien Obligation Debt Service Fund (semi-annually) +

Repair and Replacement Fund (semi-annually)

Working Capital Account ++

Emergency Reserve Fund (semi-annually)

Special Project Fund (semi-annually)

Airport Development Fund (semi-annually)

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Rate Covenant

The City covenants in the Second Lien Indenture that it will fix and establish, and revise from time to time whenever necessary, such rentals, rates and other charges for the use and operation of Midway and for certain services rendered by the City in the operation thereof in order that in each Fiscal Year, Revenues, together with Other Available Moneys deposited with the First Lien Trustee or the Second Lien Trustee with respect to such Fiscal Year and any cash balance held in the First Lien Revenue Fund or the Second Lien Revenue Fund on the first day of such Fiscal Year not then required to be deposited in any Fund or Account under the First Lien Indenture or the Second Lien Indenture, will be at least sufficient:

(a) to provide for the payment of O&M Expenses for the Fiscal Year, and (b) to provide for the greater of paragraph (i) or (ii) as follows:

(i) the greater of the amounts needed to make the deposits required under the First Lien Indenture during such Fiscal Year into the First Lien Debt Service Fund, the O&M Reserve Account, the Working Capital Account, the First Lien Debt Service Reserve Fund, the Junior Lien Obligation Debt Service Fund, the Repair and Replacement Fund and the Special Project Fund, or an amount not less than 125% of the Aggregate First Lien Debt Service for the Bond Year commencing during such Fiscal Year, reduced by any amount held in any Capitalized Interest Account for disbursement during such Bond Year to pay interest on First Lien Bonds; or

(ii) the greater of the amounts needed to make the deposits required under the First Lien Indenture during such Fiscal Year into the First Lien Debt Service Fund, the O&M Reserve Account, the Working Capital Account, the First Lien Debt Service Reserve Fund, the Junior Lien Obligation Debt Service Fund, the Repair and Replacement Fund and the Special Project Fund, or an amount not less than 110% of the sum of the Aggregate First Lien Debt Service and Aggregate Second Lien Debt Service for the Bond Year commencing during such Fiscal Year, reduced by (A) any amount held in any Capitalized Interest Account for disbursement during such Bond Year to pay interest on any First Lien Bonds, and (B) any amount held in any capitalized interest account established pursuant to a Supplemental Indenture for disbursement during such Bond Year to pay interest on Second Lien Obligations (collectively, the “Rate Covenant”).

Under the Second Lien Indenture, if during any Fiscal Year, Revenues, Other Available Moneys and such cash balance in the First Lien Revenue Fund will not be sufficient to produce an amount calculated to meet the Rate Covenant, the City is obligated to revise its Midway rentals, fees and charges or alter its methods of operation or take other such action in such manner as is necessary to satisfy the Rate Covenant. Within 60 days after the end of each Fiscal Year, the City shall furnish to the Second Lien Trustee a calculation of the coverage required, certified by the Chief Financial Officer. If the City determines that the Rate Covenant was not satisfied for the prior Fiscal Year, then within 60 days after the receipt by the Second Lien Trustee of such certificate, the City shall employ an Independent Airport Consultant to review and analyze the financial status and the administration and operation of the Airport and to submit

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to the City, within 60 days after employment of the Independent Airport Consultant, a written report on the same, including the action which the Independent Airport Consultant recommends should be taken by the City with respect to the revision of its Midway rentals, fees and charges, alteration of its methods of operation or the taking of other action that is projected to result in producing the amount so required in the then-current Fiscal Year or, if less, the maximum amount deemed feasible by the Independent Airport Consultant. Promptly upon its receipt of the recommendations the City shall, after giving due consideration to the recommendations, revise the Midway rentals, fees and charges or alter its methods of operations or take other action which is projected to result in satisfying the Rate Covenant during the then-current Fiscal Year or, if less, the maximum deemed feasible by the Independent Airport Consultant. So long as the City is acting in accordance with the provisions of the Second Lien Indenture relating to the recalculation of rentals, fees and charges, the City’s failure to satisfy the Rate Covenant will not constitute an Event of Default under the Second Lien Indenture. See “− Flow of Funds” above.

Debt Service Reserve

The Bonds are Common Reserve Bonds (as defined below) secured by the Common Debt Service Reserve Sub-Fund.

Common Debt Service Reserve Sub-Fund. The Common Debt Service Reserve Sub-Fund was established and is held and administered by the Trustee in accordance with the terms of the Nineteenth Supplemental Indenture. The Bonds are entitled to the benefit of the Common Debt Service Reserve Sub-Fund (also referred to as the “Common Reserve Bonds”). Other than the Bonds and the Series 2013 Second Lien Bonds, each series of Second Lien Obligations (these bonds collectively referred to herein as the “Non-Common Reserve Bonds”) is secured by a separate debt service reserve account established under its respective supplemental indenture authorizing their issuance. These individual debt service reserve accounts do not secure, and are not available for payment of debt service on, the Common Reserve Bonds, and the Common Debt Service Reserve Sub-Fund does not secure and is not available for payment of the Non-Common Reserve Bonds.

The “Reserve Requirement” for the Common Debt Service Reserve Sub-Fund means the lesser of (i) the maximum amount of Annual Second Lien Debt Service payable on the Common Reserve Bonds in the current or any succeeding Bond Year, (ii) 125% of the average Annual Second Lien Debt Service on the Common Reserve Bonds or (iii) 10% of the original principal amount of the Common Reserve Bonds, provided however, that if upon the issuance of a series of Common Reserve Bonds such amount would require that moneys be paid into the Common Debt Service Reserve Sub-Fund from the proceeds of such Common Reserve Bonds in an amount in excess of the maximum amount permitted under the Code, the Reserve Requirement shall be the sum of (a) the Reserve Requirement immediately preceding the issuance of such Common Reserve Bonds and (b) the maximum amount permitted under the Code to be deposited from the proceeds of such bonds, as certified by the Chief Financial Officer.

Additional Bonds issued by the City in the future pursuant to the Second Lien Indenture may, but need not, be designated as the Common Reserve Bonds and entitled to the benefit of the Common Debt Service Reserve Sub-Fund. The moneys in the Common Debt Service Reserve Sub-Fund are held for the benefit of all Common Reserve Bonds issued or to be issued under the

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Second Lien Indenture. The Series 2014C Bonds being issued simultaneously with the Bonds will not be issued as Common Reserve Bonds.

The Reserve Requirement for the Common Debt Service Reserve Sub-Fund may be satisfied by the deposit with the Trustee of (i) one or more Qualified Reserve Account Credit Instruments, (ii) Qualified Investments, or (iii) a combination thereof.

The City covenants in the applicable supplemental indenture with respect to each series of Bonds, that (i) the City will maintain the Common Debt Service Reserve Sub-Fund in an amount equal to the Reserve Requirement, (ii) moneys held therein will be held and disbursed for the benefit of all Common Reserve Bonds and such moneys are pledged and assigned for that purpose, and (iii) all Common Reserve Bonds are on a parity basis and rank equally, without preference, priority or distinction. If on any valuation date under the Second Lien Indenture the amount on deposit in the Common Debt Service Reserve Sub-Fund is more than the Reserve Requirement, unless otherwise directed by a Certificate of the City to be withdrawn and deposited in trust to pay or provide for the payment of Second Lien Obligations, the amount of such excess shall be transferred to the Second Lien Trustee for deposit into the Second Lien Revenue Fund, provided, however, that immediately after such withdrawal, the amount on deposit in the Common Debt Service Reserve Sub-Fund equals or exceeds the Reserve Requirement.

If at any time the Common Debt Service Reserve Sub-Fund holds both Qualified Reserve Account Credit Instruments and Qualified Investments, the Qualified Investments shall be liquidated and the proceeds applied for the purposes for which Common Debt Service Reserve Sub-Fund moneys may be applied under the Second Lien Indenture prior to any draw being made on the Qualified Reserve Account Credit Instrument. If the Common Debt Service Reserve Sub-Fund holds Qualified Reserve Account Credit Instruments issued by more than one issuer, draws shall be made under such credit instruments on a pro rata basis to the extent of available funds.

Deficiencies in the Common Debt Service Reserve Sub-Fund are required to be satisfied from Second Lien Revenues. Amounts deposited in the Common Debt Service Reserve Sub-Fund shall be applied first to reimburse the provider of any Qualified Reserve Account Credit Instrument and thereby reinstate the Qualified Reserve Account Credit Instrument and next to make deposits into the Common Debt Service Reserve Sub-Fund. The Common Debt Service Reserve Sub-Fund will be applicable only to the Common Reserve Bonds and will not be available to pay debt service on any other Second Lien Obligations. See “Flow of Funds−Payment of Debt Service on the Bonds and Swap Payments,” above and APPENDIX B−“SUMMARY OF CERTAIN PROVISIONS OF THE SECOND LIEN INDENTURE − Payment of Debt Service on the Bonds and Related Section 208 and Section 209 Obligations.”

Upon issuance of the Bonds, the Reserve Requirement for the Common Reserve Bonds will be $91,319,400.95. Upon the issuance of the Bonds, the City intends to deposit $58,964,793.94 of proceeds from the sale of the Bonds and additional amounts currently held under the First Lien Indenture and Second Lien Indenture into the Common Debt Service Reserve Sub-Fund, increasing the amount on deposit to $91,319,400.95. Prior to, and after

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giving effect to the issuance of the Bonds, the City is, and will remain, in compliance with all requirements for the maintenance of the Common Debt Service Reserve Sub-Fund.

Covenant Against Other Pledges of Revenues

The City covenants in the Second Lien Indenture that it will not issue any bonds, notes or other evidence of indebtedness, secured by a pledge of Second Lien Revenues, other than Second Lien Obligations, and shall not create or cause to be created any lien or charge on Revenues, or on any amounts pledged for the benefit of owners of Second Lien Obligations under the Second Lien Indenture (other than the pledge contained in the First Lien Indenture); except that the City has the right to issue (a) First Lien Bonds, (b) bonds, notes and other evidence of indebtedness payable out of, or secured by a pledge of, Revenues to be derived on and after the discharge and satisfaction of all Second Lien Obligations or (c) to issue bonds, notes and other evidence of indebtedness that are payable from or secured by a pledge of amounts which may be withdrawn from the Junior Lien Obligation Debt Service Fund so long as such pledge is expressly junior and subordinate to the pledge of Second Lien Revenues to the payment of Second Lien Obligations.

Airport Use Agreements

A substantial portion of the Revenues to be deposited in accordance with the First Lien Indenture is derived from rentals, fees and charges imposed upon the Signatory Airlines pursuant to the Airport Use Agreements. The Airport Use Agreements provide that the aggregate of all rentals, fees and charges to be paid by the Signatory Airlines, together with Non-Airline Revenues and as required by the Airport Use Agreements, shall be sufficient to pay for the cost of operating, maintaining and improving Midway, including the satisfaction of all of the City’s obligations to make deposits and payments under the Airport Use Agreements and the First Lien Indenture or any other ordinance or indenture authorizing the issuance of notes, bonds or other obligations of Midway. In addition, the Airport Use Agreements specifically provide the City with the right to approve or disapprove any transfer, including, but not limited to, any sublease or assignment, by any Signatory Airline of any of its leasehold rights to Leased Premises at Midway, which include, but are not limited to, gates at Midway. See APPENDIX C−“SUMMARY OF CERTAIN PROVISIONS OF THE AIRPORT USE AGREEMENTS − Assignment, Sublease and Other Transfers.” The termination date of the Airport Use Agreements is December 31, 2027. See APPENDIX C−“SUMMARY OF CERTAIN PROVISIONS OF THE AIRPORT USE AGREEMENTS − Term,” “− Default and Termination,” and “− Change of Lease Term.”

Based upon CDA management records for 2013, the Signatory Airlines represented, in the aggregate, 98.9% of the total enplanements at Midway. Southwest represented 91.0% of the total enplaned passengers7 at Midway in 2013. See “CHICAGO MIDWAY INTERNATIONAL AIRPORT − Airlines Providing Service at Midway,” “CERTAIN INVESTMENT CONSIDERATIONS RELATING TO THE AIRLINES, THE AIRLINE INDUSTRY, AND MIDWAY − Effect of Airline Bankruptcy,” APPENDIX C−“SUMMARY OF CERTAIN 7 Includes general aviation, military, helicopter and miscellaneous passengers included in the CDA management records.

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PROVISIONS OF THE AIRPORT USE AGREEMENTS,” and APPENDIX F–“2013 REPORT OF THE AIRPORT CONSULTANT AS SUPPLEMENTED.”

Certain Outstanding Second Lien Bonds and Outstanding First Lien Bonds mature after the stated termination date of the Airport Use Agreements. It is not possible to predict the terms of any airport use agreement that might replace the Airport Use Agreements or whether any airlines will be contractually obligated to make payments in amounts reflecting, among other things, debt service on the Bonds or any other Second Lien Bonds after the stated termination of the Airport Use Agreements on December 31, 2027. The City has no obligation under the Second Lien Indenture to maintain, extend or renew any Airport Use Agreements. See “CERTAIN INVESTMENT CONSIDERATIONS RELATING TO THE AIRLINES, THE AIRLINE INDUSTRY, AND MIDWAY − Airport Use Agreements.”

Additional Obligations

General. The Second Lien Indenture provides that, in order to provide sufficient funds for the financing or refinancing of Airport Projects, the City may issue one or more additional series of Second Lien Obligations (“Additional Second Lien Obligations”) on a parity basis with outstanding Second Lien Obligations from time to time without limitation as to amount (except as may be limited by law), for the purpose of (i) the payment, or the reimbursement for the payment, of the costs of one or more Airport Projects, (ii) the refunding of any First Lien Bonds, Second Lien Obligations or other obligations issued to finance or refinance one or more Airport Projects, including, but not limited to, any Special Facility Revenue Bonds or any Junior Lien Obligations, or (iii) the funding of any Fund or Account (as defined in the First Lien Indenture) or any Fund or Account as specified in the Second Lien Indenture or the Supplemental Indenture under which any Second Lien Obligations are issued, including in each case payment of the Costs of Issuance of such Second Lien Obligations.

Additional Second Lien Obligations, other than Completion Obligations (defined as any

Second Lien Obligation issued for the purpose of defraying additional costs of an Airport Project or Projects financed by the First Lien Bonds or Second Lien Obligations) or Refunding Obligations, may be issued only upon satisfaction of various requirements, including either:

(i) an Independent Airport Consultant’s certificate stating that, based upon reasonable assumptions set forth therein, Revenues and Other Available Moneys are projected to be not less than that required to satisfy the Rate Covenant (disregarding any First Lien Bonds or Second Lien Obligations that have been paid or discharged or will be paid or discharged immediately after the issuance of the series of Second Lien Obligations proposed to be issued) for each of the next three Fiscal Years following issuance of such Additional Second Lien Obligations or, if later, for each Fiscal Year from the issuance of such Additional Second Lien Obligations through the two Fiscal Years immediately following completion of the Airport Projects financed by such Additional Second Lien Obligations; provided that for purposes of issuing its certificate, the projections of the Independent Airport Consultant shall include as Other Available Moneys, only moneys that have either been (A) paid over to the First Lien Trustee and deposited into the First Lien Revenue Fund or the First Lien Debt Service Fund or paid over

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to the Second Lien Trustee and deposited into a debt service fund for Second Lien Obligations or (B) irrevocably pledged to the payment of debt service on First Lien Bonds or Second Lien Obligations; or

(ii) a Certificate stating that Revenues and Other Available Moneys in the most recent completed Fiscal Year for which audited financial statements have been prepared satisfied the Rate Covenant, assuming for such purpose that Aggregate Second Lien Debt Service for the Bond Year commencing during such Fiscal Year includes the maximum Annual Second Lien Debt Service on the Additional Second Lien Obligations proposed to be issued.

See APPENDIX B−“SUMMARY OF CERTAIN PROVISIONS OF THE SECOND LIEN INDENTURE − Authorization of the Second Lien Bonds and Other Second Lien Obligations.”

Completion Obligations. With respect to any Additional Second Lien Obligations proposed to be issued as Completion Obligations, the City is required to deliver a Certificate to the Second Lien Trustee stating: (i) that the Completion Obligations proposed to be issued are being issued to finance the costs of one or more Airport Projects initially financed in whole or in part by First Lien Bonds or Second Lien Obligations; and (ii) that the additional cost of the Airport Projects being financed by such Completion Obligations does not exceed 15% of the aggregate cost thereof previously financed. Prior to the delivery of any Completion Obligations, the City is required to file with the Second Lien Trustee a certificate of a Consulting Engineer: (a) stating that the Airport Projects have not materially changed from their description in the First Lien Supplemental Indenture or the Supplemental Indenture creating the series of First Lien Bonds or Second Lien Obligations initially issued to finance the cost of such Airport Projects; (b) estimating the revised aggregate cost of the Airport Projects; (c) stating that the revised aggregate cost of such Airport Projects cannot be paid with available moneys; and (d) stating that, in the opinion of the Consulting Engineer, the issuance of Completion Obligations is necessary to provide funds to complete the Airport Projects.

Refunding Bonds. The City may also issue Additional Second Lien Obligations constituting Refunding Obligations without satisfying the requirement for a certificate of an Independent Airport Consultant summarized above under the subcaption “− General.” See APPENDIX B–“SUMMARY OF CERTAIN PROVISIONS OF THE SECOND LIEN INDENTURE − Authorization of the Second Lien Bonds and Other Second Lien Obligations.”

Other Provisions. For a more complete description of additional provisions concerning the security and sources of payment for the Bonds, see APPENDIX B−“SUMMARY OF CERTAIN PROVISIONS OF THE SECOND LIEN INDENTURE.”

No Acceleration Rights

There is no provision for the acceleration of the maturity of the Bonds if any default occurs in the payment of the principal of or interest on the Bonds or in the performance of any other obligation of the City under the Second Lien Indenture.

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SOURCES AND USES OF FUNDS The following table sets forth the estimated sources and uses of funds in connection with the issuance of the Bonds.

SOURCES OF FUNDS 2014A Bonds

2014B Bonds Total

Par Amount of Bonds…………………………………………... $484,200,000.00 $287,610,000.00 $771,810,000.00 Net Original Issue Premium……………………………………. 41,661,373.95 33,856,922.85 75,518,296.80 Other Available Funds................................................................. 56,240,458.21 31,500,866.57 87,741,324.78 Total………………..……........................................................... $582,101,832.16 $352,967,789.42 $935,069,621.58 USES OF FUNDS Deposit to Escrow Funds……………………………………... $497,377,262.37 $176,359,476.39 $673,736,738.76 Deposit to Project Fund………………………………………… 32,764,299.70 91,750,729.18 124,515,028.88 Payment of CP Notes………………..………………………… 9,072,583.00 48,628,494.02 57,701,077.02 Deposit to Common Debt Service Reserve Sub-Fund(1)………. 36,594,207.55 22,370,586.39 58,964,793.94 Deposit to Capitalized Interest Fund…………………………… 3,094,961.20 11,960,162.73 15,055,123.93 Costs of Issuance (including Underwriters’ discount)…………. 3,198,518.34 1,898,340.71 5,096,859.05

Total…..…………………..……………………………………. $582,101,832.16 $352,967,789.42 $935,069,621.58

___________________ (1) See “SECURITY FOR THE BONDS − Debt Service Reserve.”

APPLICATION OF BOND PROCEEDS

General

The proceeds of the 2014A Bonds are being used to: (i) pay the costs of certain Airport Projects as described herein; (ii) refund prior to maturity the Refunded Bonds; (iii) repay at maturity certain Commercial Paper Notes; (iv) capitalize a portion of the interest on the 2014A Bonds; (v) fund a deposit to the Common Debt Service Reserve Sub-Fund; and (vi) pay costs and expenses incidental thereto and to the issuance of the 2014A Bonds.

The proceeds of the 2014B Bonds are being used to: (i) pay the costs of certain Airport Projects as described herein; (ii) refund prior to maturity the Refunded Bonds; (iii) repay at maturity certain Commercial Paper Notes; (iv) capitalize a portion of the interest on the 2014B Bonds; (v) fund a deposit to the Common Debt Service Reserve Sub-Fund; and (vi) pay costs and expenses incidental thereto and to the issuance of the 2014B Bonds.

Airport Projects

Midway has already completed essential capital improvement projects with the completion of the Terminal Development Program (“TDP”) in 2004 which included: (a) the construction of a new passenger terminal with three concourses of approximately 1 million

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square feet with 43 passenger gates that replaced the previous 29-gate facility; (b) the construction of an elevated parking structure adjacent to the terminal; and (c) the construction of roadway and infrastructure improvements including public transportation rail service to the terminal.

The CIP is the Airport’s current capital improvement program. The CIP consists of projects to rehabilitate the airfield, address the Airport’s noise impact and maintain current structure and parking and roadway pavements.

The following are descriptions of the Airport Projects (as defined in APPENDIX A−“GLOSSARY OF TERMS” to be financed with proceeds of the Bonds): (a) terminal projects including improvements to mechanical, electrical, fire protection, lighting, heating, refrigeration, and building control systems; (b) airfield facilities projects improving the efficiency, safety and security of the airfield and including the rehabilitation of runways, runway and taxiway improvements and other related projects; (c) residential sound insulation projects; and (d) parking and roadways projects including the rehabilitation of the pavement of surface lots and the on-going land acquisition of those properties within the Runway Protection Zone.

Refunding Plan

The City expects to apply $590,586,595 from the net proceeds of the Bonds and other available funds to currently refund $574,860,000 principal amount of First Lien Bonds and to apply $83,150,144 from the net proceeds of the Bonds and other available funds to currently refund $78,175,000 principal amount of Second Lien Bonds (the “Refunded Bonds”). The following table entitled “CITY OF CHICAGO MIDWAY AIRPORT OBLIGATIONS TO BE REDEEMED” sets forth the maturity, principal amount and redemption date for each maturity of the Refunded Bonds.

The City expects to issue and deliver the Bonds on June 11, 2014. A portion of the proceeds of the Bonds is expected to be applied to redeem the Refunded Bonds on the redemption date as set forth in the table below entitled “CITY OF CHICAGO AIRPORT OBLIGATIONS TO BE REDEEMED OR REFUNDED.”

The City has not issued any notices of redemption for the Refunded Bonds. As a result, neither the City nor the Underwriters can make any assurance that the Bonds will be issued and delivered or that the Refunded Bonds will be redeemed as expected. Additionally, no assurance can be made that the list of Refunded Bonds to be refunded with the proceeds of the Bonds will not change from those described in the following table.

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CITY OF CHICAGO, CHICAGO MIDWAY AIRPORT OBLIGATIONS TO BE REDEEMED

BONDS

BONDS TO BE REDEEMED OR

DEFEASED* MATURITIES (JANUARY 1)

PRINCIPAL AMOUNT OF REFUNDED

BONDS REDEMPTION

DATE Series 2014A Series 1996B (1st Lien) 2015, 2021 – 2029 $54,295,000 July 11, 2014 Series 1998A (1st Lien) 2015, 2021 – 2035 $216,995,000 July 11, 2014

Series 2001A (1st Lien) 2015, 2021 – 2031 $131,895,000 July 11, 2014

Series 2010D-1 (2nd Lien) 2041 $78,175,000 July 11, 2014

Series 2014B Series 1996A (1st Lien) 2023-2029 $58,420,000 July 11, 2014

Series 1998B (1st Lien) 2015, 2022-2035 $82,475,000 July 11, 2014

Series 2001B (1st Lien) 2022-2029 $30,780,000 July 11, 2014

* Includes lien on which each series was issued. To provide for the redemption and defeasance of the Refunded Bonds, (a) a portion of the

proceeds of the Bonds, and certain funds held under the First Lien Indenture and to be applied to the redemption of First Lien Bonds that are Refunded Bonds, will be deposited into an escrow account to be held by The Bank of New York Mellon Trust Company, N.A., as the escrow agent and First Lien Trustee (the “First Lien Escrow Agent”) and (b) a portion of the proceeds of the Bonds and certain funds held under the Second Lien Indenture and to be applied to the redemption of the Second Lien Obligations that are Refunded Bonds will be deposited into an escrow account to be held by The Bank of New York Mellon Trust Company, N.A., as the escrow agent and the Second Lien Trustee (“Second Lien Escrow Agent”). The respective deposits to the Escrow Accounts will also be sufficient to pay the July 1, 2014 interest on the Refunded Bonds. The principal of, and interest on, the Refunded Bonds will be payable from the respective escrow accounts administered for the benefit of the City and the holders of the outstanding Refunded Bonds.

The interest earned on such escrowed funds will not serve as security for or be available

for payment of principal of or interest on the Bonds. Verification Report

The sufficiency of the funds to be on deposit in the Escrow Accounts to pay the remaining debt service payments on the Refunded Bonds, assuming the Refunded Bonds will be redeemed on July 11, 2014, will be verified by Robert Thomas, CPA, LLC, independent certified public accountants, based upon information supplied by the City in connection with such matters. Repayment of Commercial Paper Notes

The City expects to repay all $57,693,000 of currently outstanding principal amount of the City’s CP Notes, and interest thereon, from the proceeds of the Bonds as shown above.

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CHICAGO MIDWAY INTERNATIONAL AIRPORT

General

Midway was opened in 1927 and is located approximately ten miles southwest of the City’s central business district. Midway occupies approximately 840 acres of land, can be accessed by the Stevenson Expressway (Interstate Route 55) and is directly linked to the City’s central business district by a rapid transit rail system.

Midway was the principal airport serving the Chicago Region (defined below) prior to the completion of O’Hare in 1962. The airlines currently using Midway generally provide low fare, point-to-point, O&D passenger service. According to preliminary statistics compiled by ACI, in 2013, Midway was the 24th most active airport in the United States, measured in terms of total passengers. Total enplanements have grown at Midway from 9,625,900 in 2004 to 10,155,3898 in 2013. Between 2012 and 2013, enplanements grew by approximately 5.00%. Through the first three months of 2014, enplaned passengers at Midway were 0.39% lower than enplaned passenger levels for a similar period in 2013, as a result of significant weather related cancellations. Scheduled seat capacity at Midway increased by 3.1% during the first three months of 2014 compared to 2013. See APPENDIX F–“2013 REPORT OF THE AIRPORT CONSULTANT AS SUPPLEMENTED.” Midway has approximately 287 daily nonstop flights to 74 markets, including international destinations.

Midway has already completed essential capital improvement projects. In 2004, the City completed its Terminal Development Program (“TDP”) which included the construction of a new passenger terminal with three concourses and 43 passenger gates that replaced the previous 29-gate facility. See “− Existing Facilities at Midway” below. Midway has made large and significant capital investments with the development of a new one million square foot terminal and concourses, new apron pavement, construction of a new parking garage adjacent to the terminal, construction of a 6,300 space Economy Elevated Parking Structure (“EPS”) and the construction of a Consolidated Rental Car Facility (“CRCF”), completed in the second quarter of 2013. The City has developed its 2014-2020 CIP (as hereinafter defined), the most recently published to address capital project requirements for Midway for the period 2014 through 2020. In general, the primary focus of the 2014-2020 CIP is for residential sound insulation, rehabilitation of airfield pavement, including the rehabilitation of Runway 13C-31C (one of two primary runways), an expansion of the security checkpoint, lighting and mechanical upgrades for the terminal, the heating and refrigeration plant and the terminal parking structure, and additional projects associated with the airfield and support facilities, parking and roadway projects, terminal area projects and safety and security projects. The 2014-2020 CIP does not include plans for enhancing airfield capacity. It is projected that, after the year 2040, significant future growth at Midway ultimately will be constrained by the capacity of its available airfield facilities unless new navigational or aircraft technology is introduced into the market. For additional information

8 Excludes general aviation, military, helicopter and miscellaneous passengers included in the City of Chicago’s Chicago Department of Aviation management records.

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regarding the 2014-2020 CIP and the funding thereof, see APPENDIX F−“SUPPLEMENTED REPORT OF THE AIRPORT CONSULTANT” herein.

Southwest is the largest single airline at Midway, accounting for 86.5% of commercial enplanements in 2013. When combined with its wholly-owned subsidiary, AirTran, Southwest’s share of enplanements in 2012 increased to 91.0% of all commercial enplanements at Midway. AirTran accounted for 4.5% of commercial enplanements in 2013. See the table entitled “CHICAGO MIDWAY INTERNATIONAL AIRPORT – Enplaned Commercial Passengers by Airline: 2004 to 2013” and “CERTAIN INVESTMENT CONSIDERATIONS RELATING TO THE AIRLINES, THE AIRLINE INDUSTRY AND MIDWAY.” Additional information concerning enplanement growth and airline activity levels at Midway is contained under the caption “CHICAGO MIDWAY INTERNATIONAL AIRPORT” and in the Report of the Airport Consultant, included as APPENDIX F–“2013 REPORT OF THE AIRPORT CONSULTANT AS SUPPLEMENTED” hereto.

The Air Trade Area

The primary air trade area that Midway serves consists of 10 counties in Illinois (Cook, DeKalb, DuPage, Grundy, Kane, Kankakee, Kendall, Lake, McHenry and Will), four counties in Indiana (Jasper, Lake, Newton and Porter) and one county in Wisconsin (Kenosha). These 15 counties comprise the “Chicago Region” and include two Metropolitan Statistical Areas that contain four adjoining major metropolitan areas. This area is depicted by the following map. Additional demographic and economic information concerning the Chicago Region is contained in the Supplemented Report of the Airport Consultant, included as APPENDIX F−“2013 REPORT OF THE AIRPORT CONSULTANT AS SUPPLEMENTED” hereto.

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MAP OF CHICAGO AIR TRADE AREA

Other Commercial Service Airports Serving the Chicago Region

In addition to Midway, the City operates O’Hare through its CDA. The operations of these two airports are separate and distinct and the Bonds are not secured by any revenues generated at O’Hare. O’Hare, located approximately 18 miles northwest of the City’s central business district, is the primary commercial airport within the Chicago Region, with total enplanements of 33,297,585 in 2013, based on CDA management records. Based on preliminary data from ACI, for the 12-month period ended December 2013, O’Hare was the second most active airport in the world, measured in terms of total aircraft operations, and the fifth most active in the world, measured in terms of total passengers. O’Hare’s two largest airlines, American Airlines and United Airlines, have significant hubbing operations and have a high level of connecting activity at O’Hare, serving destinations throughout the world.

Gary/Chicago International Airport, which is owned by the City of Gary, Indiana and operated by the Gary/Chicago Authority, is also located in the Chicago Region. Currently, no commercial passenger service is provided at Gary/Chicago International Airport.

The nearest commercial service airport outside the Chicago Region is General Mitchell International Airport (“Mitchell”), located approximately 85 miles north of Midway. Mitchell serves the commercial air service needs of Milwaukee, southeast Wisconsin, and portions of

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northern Illinois. Total enplaned passengers at Mitchell for 2013 were approximately 3.3 million. On average in 2013, Mitchell had approximately 115 daily nonstop flights to 32 markets.

Existing Facilities at Midway

Midway’s airfield includes five runways with a complementary system of taxiways. Three of the four commercial aircraft runway ends have instrument landing systems that permit aircraft operations in a variety of weather conditions.

In response to increasing passenger demand and a need for new terminal facilities, the City completed the TDP in 2004, an eight-year capital program that included construction of a new 1,000,000 square foot terminal and concourse building. The TDP increased the number of airline gates from 29 to 43, increased the terminal concession space from 18,200 square feet to 50,000 square feet, provided additional ticket counter space and baggage claim areas, and included the addition of a Federal Inspection Services (“FIS”) facility for the processing of international passengers. Of the 43 airline gates, 31 are currently used pursuant to preferential lease agreements and 12 are currently used as Midway-controlled common use gates. Of the 31 airline gates used pursuant to preferential lease agreements, 29 are currently used by Southwest and two are currently used by Delta. Of the common use gates, 10 are currently used for domestic service by Delta, Southwest, Public Charters, Frontier and Sun Country, and two9 are currently used for international service by Southwest, Porter and Volaris. A third international gate opened on May 10, 2014.

Vehicular access to and from Midway was improved by the construction of an elevated roadway entrance off of Cicero Avenue – a component of the TDP. Also included in the TDP were other roadway improvements, such as the relocation of Cicero Avenue and the construction of a two-level roadway in front of the new terminal building. Re-circulation roadways allow vehicles to move between the two levels and also serve the parking garage. Access to Midway by car is provided by the Stevenson Expressway (Interstate Route 55), local streets and Midway’s new access roadway. In addition to this roadway system, the Chicago Transit Authority (“CTA”) operates a rapid transit rail line and surface transit providing a direct connection between Midway and the City’s central business district. The transit station is connected directly with the Midway terminal complex and is conveniently located east of the terminal. Passengers access the transit station via an elevated pedestrian walkway.

Public automobile parking at Midway is provided in a terminal parking garage and on-airport economy parking garage and surface parking lots. The terminal parking garage, located adjacent to the terminal building, provides one level of hourly parking, with approximately 360 spaces and five levels of daily parking, with approximately 2,110 spaces. With the opening of the Economy Parking Garage in December 2005, the economy parking lots provide approximately 8,842 public parking stalls with free shuttle bus service to transfer passengers to and from the terminal. In June 2006, Midway opened a “cell phone” lot, which enables drivers to park in a nearby lot and wait until the passenger they are picking up has arrived. In addition,

9 Gates A1, A2 and A3 are currently connected to the FIS.

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Midway maintains two employee parking lots with a combined total of 1,069 parking spaces. In April 2013, Midway opened its new Consolidated Rental Car Facility. This new 1,900 space garage is located within the Economy Parking Garage at 55th and Laramie. All rental car operations are operated from this new facility which is connected to the terminal complex via a dedicated roadway and shuttle bus operation.

General aviation facilities, including hangars, ramps and an aircraft tie down apron, occupy approximately 47 acres primarily in the west and south sides of the airfield. Principal general aviation tenants include two fixed-base operators, several corporate flight departments, flight schools and avionics repair shops. Military presence at Midway consists of the Illinois Air National Guard facility located off airport property in the southwest corner of the airfield. An Airport Maintenance Complex and FAA Air Traffic Control Tower opened in 1997 on the south side of the airfield. Support facilities at Midway include fuel farms, Airport and airline maintenance facilities and an Aircraft Rescue and Fire Fighting station.

Activity at Midway

The FAA classifies Midway as a “large hub” airport. The following table shows enplaned passenger activity levels at Midway during the period from 2004 through 2013.

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CHICAGO MIDWAY INTERNATIONAL AIRPORT O&D AND CONNECTION ENPLANEMENTS1

2004-2013

Calendar Year O&D1 Share Connecting Share Total

2004 6,634,138 68.9% 2,991,762 31.1% 9,625,9002005 6,431,517 73.9% 2,274,286 26.1% 8,705,8032006 6,708,494 72.9% 2,490,038 27.1% 9,198,5322007 6,532,362 69.4% 2,881,819 30.6% 9,414,1812008 5,910,045 70.7% 2,448,192 29.3% 8,358,2372009 5,647,591 65.9% 2,924,256 34.1% 8,571,8472010 5,485,191 61.9% 3,370,834 38.1% 8,856,0252011 5,693,938 60.2% 3,764,872 39.8% 9,458,8102012 6,271,722 64.1% 3,507,887 35.9% 9,779,6092013 6,468,518 63.0% 3,798,968 37.0% 10,267,481

Average Annual Growth Rate

2004 – 2007 -0.5% -1.2% -0.7% 2007 − 2009 -7.0% 0.7% -4.6% 2004 – 2009 -3.2% -0.5% -2.3% 2009 − 2013 3.5% 6.8% 4.6% 2004 − 2013 -0.3% 2.7% 0.7% ______________________________________________________________ Note: Includes general aviation, military, helicopter and miscellaneous passengers included in the Chicago

Department of Aviation Management Records. 1 O&D enplanements include international enplanements. The O&D percent share is calculated for the four quarters

ending with the third quarter of 2013, and 2013 O&D and connecting enplanements are based upon that share. Source: City of Chicago Department of Aviation

The large O&D passenger market which exists in the Chicago Region (O&D passengers consist of those travelers whose residence and/or place of employment is in the Chicago Region and whose air trips originate at Midway and those travelers who visit the Chicago Region for business or personal reasons) has proven to be attractive to new airlines. From the third quarter of 2012 to the third quarter of 2013, total passenger activity at Midway was composed of approximately 63.0% enplaned O&D passengers and approximately 37.0% connecting enplaned passengers.

Currently there are 30 Fortune 500 companies located in the air trade area. More than 670 companies expanded to the air trade area in 2013 and contributed more than 38,000 jobs. In 2013 46.96 million people visited Chicago, an increase of 4.4% from the year prior and surpassing the previous record of 45.14 million visitors set in 2007.

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Airlines Providing Service at Midway

As of April 2014, five U.S. airlines – Southwest (and its wholly-owned subsidiary, AirTran), Delta, Frontier, PublicCharters (which offers scheduled charter service) and Sun Country – and two foreign flag carriers – Porter and Volaris – provided scheduled service at Midway. Other than PublicCharters, which offers scheduled charter service, four of the U.S. flag carriers are classified by the U.S. Department of Transportation as a Group III airline, which are U.S. airlines with the largest total annual revenues having operating revenues of more than $1 billion per year. The Airport currently offers service from one-fourth (3 of 12) of the U.S. Group III scheduled passenger air carriers Southwest, Delta and Frontier. Sun Country is classified as a Group II airline having operating revenues over $100 million to $1 billion per year. International service commenced at Midway in the first quarter of 2002, upon the completion of the FIS Facility. See “CERTAIN INVESTMENT CONSIDERATIONS RELATING TO THE AIRLINES, THE AIRLINE INDUSTRY AND MIDWAY.”

Midway Role in Southwest Airlines Network

Midway is the most active airport in Southwest’s network measured by enplaned

passengers and the number of flight departures. The growth in Southwest passengers and departures at Midway has exceeded that of its overall network. Since 2002, Southwest’s departures and passengers at Midway have grown by annual averages of 5.2% and 8.8%, respectively, compared to 1.8% and 4.1% for the overall Southwest network. In addition, Southwest serves more cities from Midway than from any other airport. This is attributable in part to Chicago’s large O&D base and geographic location, producing efficient transfer operations at Midway. From 2002 through the four quarters ending September 30, 2013, Southwest O&D and connecting traffic at Midway have increased by 92% and 337% respectively.

In 2013, Southwest enplaned 21.5% of airline passengers in the Chicago metropolitan

market (Southwest’s share of total U.S. enplanements through October 2013 was 18.6%) and represented 53.35% of Midway operating revenues. This distribution is similar to other large population centers with more than one commercial airport, most of these regions also having one airport that is largely served by Southwest.

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2013 ENPLANEMENT DATA FOR SELECTED REGIONS1

Southwest passengers accounted for approximately 91.2% of PFCs collected at Midway in 2012. See “CERTAIN INVESTMENT CONSIDERATIONS RELATING TO THE AIRLINES, THE AIRLINE INDUSTRY AND MIDWAY − Southwest Airlines.”

Midway accounted for 6.8% of all passengers within Southwest’s network. Southwest

has increased seating capacity by reconfiguring its existing 737 fleet and deploying the 737-800 aircraft, which has 28% more seating than the standard 737 configuration. As of May 2014 Midway had the highest average daily seat capacity (34,704) as well as the most daily flights onboard 737-800 aircraft (39) within the Southwest network. Southwest has also added new routes and international service from Midway as well as redeployed AirTran service to connect new cities with flights to and from Midway.

The following table identifies the historical market shares of the airlines listed based on

enplaned passengers by airline at Midway.

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CHICAGO MIDWAY INTERNATIONAL AIRPORT

Enplaned Commercial Passengers by Airline

2004 - 2013

2013

Enplanements % of Total Enplanements % of

Total Enplanements % of Total Enplanements % of

Total Enplanements % of Total Enplanements % of

Total Enplanements % of Total Enplanements % of

Total Enplanements % of Total Enplanements % of

Total

Southwest Airlines 3,967,477 41.2 5,542,890 63.7 6,666,986 72.5 7,147,154 75.9 6,941,870 83.1 7,188,750 83.9 7,561,053 85.4 8,196,402 86.7 8,515,527 85.6 8,885,118 86.5

AirTran 229,040 2.4 338,057 3.9 681,936 7.4 645,363 6.9 512,429 6.1 487,087 5.7 465,237 5.3 413,717 4.4 387,114 3.9 462,680 4.5

Delta (1) 201,821 2.1 91,744 1.1 103,744 1.1 225,263 2.4 245,170 2.9 329,108 3.8 310,245 3.5 248,231 2.6 274,697 2.8 243,642 2.4

Frontier 134,593 1.4 154,120 1.8 189,216 2.1 206,675 2.2 207,674 2.5 164,749 1.9 151,440 1.7 158,405 1.7 144,496 1.5 161,456 1.6

Porter 2,528 0.0 29,858 0.3 47,359 0.5 65,946 0.7 72,075 0.7 72,423 0.7

Sun Country 24,899 0.2

Volaris 1,843 0.0 50,390 0.5 96,385 1.0 108,896 1.1

American 165,478 1.7 121,417 1.4 88,656 1.0 164 0.0

American Trans Air (2) 3,668,159 38.1 1,714,873 19.7 783,224 8.5 686,065 7.3 54,650 0.7

Continental Airlines (3) 162,823 1.7 116,891 1.3 137,516 1.5 85,978 0.9 10,973 0.1

Northwest Airlines 349,161 3.6 290,080 3.3 285,310 3.1 280,911 3.0 237,969 2.8 267,433 3.1 14,726 0.0

United 106,951 1.2 74,520 0.8

U.S. Airways (4) 14,116 0.1

Chicago Express 570,580 5.9 41,410 0.5

All other airlines 162,652 1.7 187,370 2.2 187,424 2.0 136,608 1.5 145,024 1.7 104,862 1.2 304,122 3.4 325,719 3.4 457,775 4.6 308,367 3.0

Total 9,625,900 100 8,705,803 100 9,198,532 100 9,414,181 100 8,358,287 100 8,571,847 100 8,856,025 100 9,458,810 100 9,948,069 100 10,267,481 100

2011 20122004 2005 2006 2010200920082007

(1) Delta includes commuter affiliate Comair for the years 1999-2004. Delta commenced scheduled service to Atlanta from Midway in September 2001. (2) American Trans Air ceased operation at Midway on April 3, 2008. (3) Continental includes commuter affiliate Continental Express for the years 1999-2004. (4) U.S. Airways ceased operations at Midway in March 2005 Note: Includes general aviation, military, helicopter and miscellaneous passengers included in the Chicago Department of Aviation management records.

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Midway Management

Midway is operated by the City through the CDA, which oversees planning, operations, safety and security, and finance and administration at Midway and O’Hare. CDA is headed by Rosemarie S. Andolino, Commissioner of Aviation, who has overall responsibility for the management, planning and operation of the City’s airports. The City’s Appropriation Ordinance for 2014 provides for a CDA staff of 150 budgeted employees for Midway. Midway’s staff is complemented by 50 seasonal employees for the winter season.

Regional Authority

In April 1995, the City and the City of Gary, Indiana, entered into the Compact, which established the Chicago-Gary Authority to oversee and support Midway, O’Hare, Meigs Field and the Gary/Chicago International Airport, to jointly evaluate the bi-state region’s need for additional airport capacity and to coordinate and plan for the continued development, enhancement and operation of such airports and the development of any new airport serving the bi-state region. Subject to the power of the Chicago-Gary Authority to approve certain capital expenditures and other actions, the City continues to manage, own and operate Midway and O’Hare. Meigs Field was closed by the City in March 2003. The City has all necessary approvals from the Chicago-Gary Authority.

Midway Noise Compatibility Program

In 1996, the Midway Noise Compatibility Commission (the “Midway Noise Commission”) was formed through the execution of an intergovernmental agreement by the City, Cook County and certain municipalities that are located in the area surrounding Midway. The purpose of the Midway Noise Commission is to (i) determine certain noise compatibility projects to be implemented in a defined area surrounding Midway, and (ii) advise the City concerning other Midway noise-related issues. To date, the City has spent approximately $325 million on residential and school noise compatibility projects implemented in cooperation with the airlines and the Midway Noise Commission.

Budget Procedures

Midway is governed in its financial transactions by the City’s annual appropriation ordinance and applicable bond ordinances and follows the City’s budget process. The City is required to pass an annual appropriation ordinance prior to the beginning of each fiscal year. CDA submits its proposed budget for the following fiscal year, including the proposed budget for Midway, to the City’s Budget Director for inclusion in the proposed City budget. The Budget Director includes a proposed budget for CDA in the City’s budget proposal for approval by the Mayor who submits the City budget to the City Council for approval. The Mayor submitted the proposed City budget for fiscal year 2014, including the budget for Midway for fiscal year 2014, to the City Council on October 23, 2013 which was approved on November 26, 2013, as required by law.

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Customer Facility Charges and Rental Car Concession License Agreements

Customer Facility Charges. In April 2013, the City opened a new consolidated rental car facility (the “Consolidated Rental Car Facility”) to serve Midway. On September 1, 2005, the rental car companies operating at Midway began collecting a CFC of $3.75 per contract day from customers who rented cars at Midway. Construction was financed through a combination of CFC revenues collected from rental car customers at Midway and the proceeds of certain outstanding Second Lien Obligations. CFC revenues are not included in Revenues pledged to secure the Bonds.

Rental Car Concession License Agreements. Each of the on-airport rental car companies operating at the Consolidated Rental Car Facility has entered into a Rental Car Concession License Agreement (a “Concession Agreement”), with a term of 30 years. The Concession Agreements establish a concession fee (“Rental Car Concession Fee”) for each rental car company operating at the Consolidated Rental Car Facility, consisting of a minimum annual guarantee and a percentage of gross revenues above such minimum annual guarantee, payable to the City and included in Revenues pledged to secure the Bonds. In addition, rental car companies which do not operate at the Consolidated Rental Car Facility (“Off-Airport Rental Car Companies”) but which desire to pick up rental car customers at Midway must enter into an Off-Airport Rental Car Concession License Agreement pursuant to which such Off-Airport Rental Car Companies agree to pay a Rental Car Concession Fee to the City and to collect and deliver CFCs to the City. Such Rental Car Concession Fees are included in Revenues pledged to secure the Bonds. Off-Airport Rental Car Companies must only pick up customers at the Consolidated Rental Car Facility and not at the terminal.

Airport Privatization Pilot Program

In September 2013, the City terminated its efforts to procure a lease of Midway with a private operator under the federal Airport Privatization Pilot Program (the “Pilot Program”) when one of the final two respondents withdrew from the bidding process. When this process commenced in early 2013, the City established high standards that would ensure that taxpayers and airport stakeholders received a fair and equitable deal. Throughout the process, the City remained committed to proceeding only if a transaction could meet these standards. In addition, the City made clear from the beginning of its 2013 efforts that any potential lease would not be supported unless very specific conditions were met. Since these conditions were not satisfied, the City withdrew its Preliminary Application to the FAA to participate in the Pilot Program.

2014-2020 CAPITAL IMPROVEMENT PROGRAM

The City is undertaking the 2014-2020 Capital Improvement Program (“2014-2020 CIP”) for Midway. The 2014-2020 CIP is estimated to cost $274.9 million and is anticipated to be funded from the following sources: proceeds of Airport obligations, including the Bonds, federal funds and other Midway funds. The 2014-2020 CIP is designed to provide airfield improvements, to enhance airport safety and security, to provide parking and roadway improvements and to implement noise mitigation measures at Midway. The 2014-2020 CIP does not include airfield capacity enhancement plans. Significant future growth at Midway will ultimately be constrained by the capacity of its available airfield facilities. In addition to those

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projects included in the 2014-2020 CIP, the City is in the process of reviewing other projects that were evaluated during its procurement of a potential lease of the Airport. These projects include additional parking facilities and the possible expansion of the concession area which would be accomplished in conjunction with the widening of the security checkpoint already included in the 2014-2020 CIP as described below. These projects are in the preliminary planning stages and their estimated cost and non-airline revenue impacts have not been included in the 2014-2020 CIP or Midway revenue projections. For a more complete discussion of the 2014-2020 CIP and the projects included therein, see APPENDIX F–“2013 REPORT OF THE AIRPORT CONSULTANT AS SUPPLEMENTED.”

The 2014-2020 CIP includes the following projects:

Airfield, Support Facilities and Noise Mitigation. Approximately $145.8 million for airfield, support facility and noise mitigation are included in the CIP. Airfield improvements include rehabilitations of the airfield’s major runways and taxiways, service roads, lighting and cabling and electrical systems. Noise mitigation projects include the sound insulation of approximately 2,700 homes located within the 65 Day-Night Average Sound Level (DNL) contour in the FAA-approved future noise contour.

Terminal and Security Improvements. Approximately $72.7 million for terminal enhancements and safety and security improvements. These include construction of a Passenger Security Checkpoint Expansion Project, an additional pedestrian walkway over Cicero Avenue and partial development of a meet and greet area which will add 32,591 square feet to the terminal. The remainder will be used for infrastructure improvements and upgrades to the mechanical, electrical, fire protection, lighting, building control and heating and refrigeration systems.

Parking and Roadway. Approximately $20.9 million in planned parking and roadway improvements, which include the completion of a consolidated rental car facility and landside parking lot improvements for public and employee parking. The remainder will be used for terminal parking structure improvements to include automated revenue control equipment and lighting system upgrades.

Land Acquisition. Approximately $8.4 million for the acquisition of parcels within the Runway Protection Zones for remediation, demolition and airport compatible development.

Implementation. Approximately $27.1 million is included in the 2014-2020 CIP for implementation costs.

The City has received all regulatory approvals to proceed with the 2014-2020 CIP.

The estimated sources and uses of funds for all of the anticipated costs of the 2014-2020 CIP are set forth in the following table.

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ESTIMATED FUNDING SOURCES FOR 2014-2020 CIP CHICAGO MIDWAY INTERNATIONAL AIRPORT CAPITAL IMPROVEMENT PROGRAM 2014-2020

SOURCES AND USES

SOURCES: AIP Grants $3,479,000 Previously Issued Bonds 35,171,000 The Bonds 154,557,000 Future Bonds1 81,700,000 TOTAL $274,907,000

USES: Terminal Area Projects2 $68,443,000 Land Acquisition 8,397,000 Airfield and Support Facilities 63,713,000 Noise Mitigation Projects 82,118,000 Parking and Roadway Projects 20,904,000 Safety and Security 4,228,000 Implementation 27,104,000 TOTAL $274,907,000 _________________________________ 1 The City intends to reduce Future Bonds by cash on hand and lower than estimated project costs. 2 Terminal area projects are a reclassification of projects which were previously included in airfield and terminal projects. Source: City of Chicago Department of Aviation

The City anticipates that the 2014-2020 CIP will be funded from the federal Airport

Improvement Program (“AIP”), proceeds of Second Lien Bonds (including the Bonds), PFC revenues, CFC Revenues, Midway funds and certain investment earnings. The estimated sources and uses of funds for the 2014-2020 CIP are set forth in the preceding table.

Midway Airport Revenue Bonds

The City expects that additional First Lien Bonds or Second Lien Bonds will be issued to fund approximately $81.7 million of project costs necessary to complete the 2014-2020 CIP. The amount of indebtedness required for the 2014-2020 CIP could increase for a variety of reasons, including costs of additional security improvements and reductions in PFC revenues and Grant Reimbursements, as discussed below under the caption “− Uncertainties in Funding the 2014-2020 CIP.”

Passenger Facility Charge Revenues

PFC Program at Midway. The United States Congress enacted legislation (the “PFC Act”) in 1990 authorizing a public agency, such as the City, which controls a commercial service airport to charge each paying passenger enplaning at the airport (subject to limited exceptions) a PFC of $1.00, $2.00 or $3.00. The purpose of the PFC is to provide additional capital funding for the expansion of the national airport system. The proceeds from PFCs are to be used to finance eligible airport-related projects that preserve or enhance safety, capacity or security of

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the national air transportation system; reduce noise from an airport that is part of such system; or furnish opportunities for enhanced competition between or among air carriers. Before imposing and using PFCs, a public agency must apply to the FAA for approval. PFCs are collected on behalf of airports by air carriers and their agents (the “Collecting Carriers”) and remitted to the City on a monthly basis. On September 1, 1993, pursuant to FAA approval, the City began to impose PFCs at Midway at the rate of $3.00 per eligible enplaned passenger.

The Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (“AIR 21”), among other things, authorized eligible public agencies such as the City to impose PFCs of $4.00 or $4.50 to finance PFC eligible projects, including the payment of debt service on indebtedness incurred to finance such projects, that cannot be paid for from funds reasonably expected to be available through the AIP. Funding of surface transportation or terminal projects at the $4.00 or $4.50 level is conditioned on a finding that the public agency has made adequate provision for financing the airside needs of the airport, including runways, taxiways, aprons and aircraft gates. In addition, at medium and large hub airports, such as Midway, projects eligible for the $4.00 or $4.50 level of PFC funding are required to make significant contributions to improving air safety and security, increasing competition among air carriers, reducing current or anticipated congestion or reducing the impact of aviation on people living near the airport. On January 1, 2007, pursuant to authorization contained in AIR 21 and amended PFC Approvals received from the FAA, the City began imposing PFCs at Midway at the rate of $4.50 per eligible enplaned passenger. Regardless of the number of PFC applications which have been approved by the FAA, eligible public agencies, such as the City, only can collect a maximum of $4.50 from each eligible enplaning passenger.

On March 23, 2005, the FAA issued a Final Rule amending the PFC regulations. The rule added new public notice and public comment period requirements for airport operators submitting PFC applications and certain amendments, revised PFC amendment rules, added new PFC-related definitions regarding the air carrier notification and consultation process, and instituted a new pilot program streamlining PFC authorizations for non-hub airport operators.

On February 14, 2012, President Obama signed the “FAA Reauthorization and Reform Act of 2012” into law. The law reauthorizes the FAA operations and programs for federal fiscal years 2012 through 2015. The law provides for $13.4 billion in AIP funding for the four-year period, or $3.35 billion annually. The law maintains the maximum rate of the PFC at $4.50.

Funds apportioned under the AIP to large and medium hub airports imposing a PFC are reduced for each fiscal year in which a PFC is imposed (i) for airports imposing a PFC of $3.00 or less, by 50% of the projected revenues from the PFC in such fiscal year and (ii) for airports (such as Midway) imposing a PFC of more than $3.00, by 75% of the projected revenues from the PFC in such fiscal year. Such reduction will not exceed more than 50% or 75%, respectively, of the AIP apportionment to which such airport would otherwise be entitled.

AIR 21 provides that in the case of large or medium hub airports at which one or two air carriers control more than 50% of passenger boardings (such as Midway), no public agency may impose a PFC with respect to such airport unless the public agency has submitted a written competition plan to the FAA. The City is in compliance with this requirement of AIR 21.

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The City is required to consult with the carriers representing a significant business interest at Midway and hold a public comment period prior to submitting a PFC application to the FAA for its review. The FAA has 120 days from the date it receives a PFC application to issue a Final Agency Decision on the application. This decision may approve, partially approve, or disapprove each of the projects contained in the application. The earliest charge effective date can be no earlier than the first day of a month which is at least 60 days from the time the Collecting Carriers are notified of the FAA decision on the application. The PFC Regulations require a public agency to initiate implementation of an approved project within two years of approval of use of the PFC.

Approved PFC applications can be amended to implement changes in the PFC funding, PFC level or scope of a previously approved project. If the proposed change to the project includes an increase in PFC funding of greater than 25%, an increase in PFC level (e.g. $3.00 to $4.50) or is deemed by the FAA to represent a material change in project scope, the City must consult with the carriers representing a significant business interest at the Midway and hold a public comment period prior to submitting the amendment to FAA for its review. The public agency must notify the Collecting Carriers and the FAA in writing of these changes. Amendments seeking increases in PFC funding up to 25%, decreases in PFC funding, or PFC level reductions do not require carrier consultation and public comment processes to be held prior to submission to the FAA (though carriers are required to be notified). FAA must review the amendment and issue a decision within 30 days. Any new PFC collection authority will be effective on the first day of a month which is at least 30 days from the time the Collecting Carriers are notified of the FAA decision on the amendment.

The City currently has authority to impose and use approximately $2.24 billion of PFCs at Midway, of which the City had expended approximately $518.3 million through the end of 2013. The City expects from time to time to file additional applications and/or amend existing applications to increase its authority to impose and use PFCs at Midway.

The FAA may terminate the City’s authority to impose PFCs, subject to informal and formal procedural safeguards, if the FAA determines that (i) the City is in violation of certain provisions of the federal Airport Noise and Capacity Act of 1990 relating to airport noise and access restrictions, (ii) PFC collections and investment income thereon are not being used for PFC-approved projects in accordance with the PFC approvals applicable to the City’s PFC program (the “PFC Approvals”), or with the PFC Act and the PFC regulations adopted by the FAA (the “PFC Regulations”), (iii) implementation of a PFC-approved project does not commence within the time period specified in the PFC Act and PFC Regulations, or (iv) the City is otherwise in violation of the PFC Act, the PFC Regulations or the PFC Approvals. The City has not received notice of any such determination by the FAA. The informal resolution and formal termination processes of the FAA lasting at least 180 days will be required before the FAA can terminate the City’s authority to impose PFCs.

The City expects that certain projects will be funded from proceeds of First Lien Bonds and Second Lien Bonds, the debt service on which will be paid with PFC revenues (“PFC-eligible debt service”). In addition, under the PFC Regulations, a portion of the debt service on the Bonds may also qualify as PFC-eligible debt service to the extent proceeds of the Bonds are used to refund outstanding Airport Obligations the proceeds of which were used to fund eligible

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airport-related projects. The City has agreed in the Airport Use Agreements to use PFC revenues to pay PFC-eligible debt service on First Lien Bonds and Second Lien Bonds the proceeds of which are used by the City to pay for capital projects approved by the FAA for the collection and use of a PFC at Midway. The airline rates and charges calculations contained in the Report of the Airport Consultant reflect the assumed use of PFC revenues to pay a certain portion of PFC-eligible debt service on the First Lien Bonds, Outstanding Second Lien Bonds and the Bonds.

Uncertainties Related to PFC Revenues. A number of factors may affect the amount of PFC revenues available to the City. The amount of PFC revenues collected by the City in future years will vary based upon the actual number of passenger enplanements at Midway and no assurance can be given that the levels of enplanements set forth in the Supplemented Report of the Airport Consultant will be realized, particularly in light of the current uncertainties in the airline industry. In addition, additional FAA approvals will be required to permit the City to achieve the levels of projected PFC revenues currently assumed in the Supplemental Report of the Airport Consultant to be used to pay PFC-eligible debt service on First Lien Bonds and Outstanding Second Lien Bonds. Furthermore, under the PFC Act, the FAA may terminate the City’s authority to impose a PFC under the circumstances described above under “PFC Program at Midway.” See “CERTAIN INVESTMENT CONSIDERATIONS RELATING TO THE AIRLINES, THE AIRLINE INDUSTRY AND MIDWAY − Effect of Airline Bankruptcy.”

PFC revenues do not constitute Revenues as defined in the Second Lien Indenture and are not pledged to or held by the Second Lien Trustee for the benefit of the owners of the Bonds unless and until they are specifically transferred to the Second Lien Trustee for deposit into the respective Dedicated Sub-Funds as Other Available Moneys. The City expects, however, that to the extent that PFC revenues are available to the City, the City will use PFC revenues to pay PFC-eligible debt service on various series of First Lien Bonds and Second Lien Bonds, including the Bonds. See “SECURITY FOR THE BONDS − Other Available Moneys.”

Treatment of PFCs in Airline Bankruptcies. The PFC Act provides that PFCs collected by the Collecting Carriers constitute a trust fund held for the beneficial interest of the eligible public agency (i.e., the City) imposing the PFCs, except for any handling fee or retention of interest collected on unremitted proceeds. In addition, federal regulations require airlines to account for PFC collections separately and to disclose the existence and amount of funds regarded as trust funds for financial statements. However, the Collecting Carriers are permitted to commingle PFC collections with other revenues and are also entitled to retain interest earned on PFC collections until such PFC collections are remitted.

In the event of a bankruptcy, the PFC Act, as amended in December 2003 by the Vision 100—Century of Aviation Reauthorization Act (“Vision 100”), provides certain statutory protections to eligible public agencies imposing PFCs, including the City, with respect to PFC collections. It is unclear, however, whether the City would be able to recover the full amount of PFC trust funds collected or accrued with respect to a Collecting Carrier in the event of a liquidation or cessation of business. Vision 100 requires an airline that files for bankruptcy protection, or that has an involuntary bankruptcy proceeding commenced against it, to segregate passenger facility revenue in a separate account for the benefit of the eligible public agencies entitled to such revenue. Prior to the amendments made by Vision 100 allowing PFCs collected

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by airlines to constitute a trust fund, at least one bankruptcy court indicated that PFC revenues held by an airline in bankruptcy would not be treated as a trust fund and would instead be subject to the general claims of the unsecured creditors of such airline. In connection with another bankruptcy proceeding prior to Vision 100, a different bankruptcy court entered a stipulated order establishing a PFC trust fund for the benefit of various airports to which the bankrupt airline was not current on PFC payments. While Vision 100 should provide some protection for eligible public agencies in connection with PFC revenues collected by an airline in bankruptcy, no assurances can be given as to the approach bankruptcy courts will follow in the future. See “CERTAIN INVESTMENT CONSIDERATIONS RELATING TO THE AIRLINES, THE AIRLINE INDUSTRY AND MIDWAY − Effects of Airline Bankruptcy.”

The City also cannot predict whether a Collecting Carrier operating at Midway that files for bankruptcy would have properly accounted for PFCs owed to the City or whether the bankruptcy estate would have sufficient moneys to pay the City in full for PFCs owed by such Collecting Carrier. Based on Vision 100, it is expected, although no assurance is given, that the City would be treated as a secured creditor with respect to PFCs held by a Collecting Carrier which becomes involved in a bankruptcy proceeding. See “CERTAIN INVESTMENT CONSIDERATIONS RELATING TO THE AIRLINES, THE AIRLINE INDUSTRY AND MIDWAY − Effects of Airline Bankruptcy.”

Federal AIP Grants

The Airport and Airway Improvement Act of 1982 created the AIP grant program, which is administered by the FAA. The AIP grants include entitlement grants, which are allocated among airports by the FAA in accordance with a formula based on enplanements, and discretionary grants, which are allocated by the FAA in accordance with its guidelines. The City’s commitment to allocate grant funds to debt service ended in 2009. The City expects to continue to apply PFCs in rates and charges for PFC-eligible debt service. Based on the Airport Consultant’s enplanement forecasts, Midway is estimated to receive an average of $3.0 million per year of entitlement funding (net of the reduction of certain entitlement funds required as a result of imposing a $4.50 PFC). Midway has PFC collection authority through 2054. However, such forecast and estimate with respect to entitlement funding are based upon a number of assumptions which, although considered reasonable by the City, are inherently subject to certain uncertainties and contingencies. As entitlement grant amounts will vary based upon enplanements at Midway, no assurance can be given that the levels of enplanements set forth in the Supplemented Report of the Airport Consultant will be realized, particularly in light of the current uncertainties in the airline industry. Actual entitlement funding levels may vary significantly and such differences may be material.

Airport Funds

The City intends to use certain funds available in various Midway funds to finance certain future costs of the 2014-2020 CIP.

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Uncertainties in Funding the 2014-2020 CIP

All of the amounts presented above are preliminary and based on numerous assumptions which are subject to change. Changes in various assumptions could cause an increase in the amount of the proceeds of additional Airport Obligations which are projected to be required to complete the funding of any of the elements of the 2014-2020 CIP described above. The estimated costs of, and the projected schedule for, the projects included in the 2014-2020 CIP depend on various sources of funding, and are subject to a number of uncertainties including: estimating errors, design and engineering errors, changes to the scope of these projects, delays in contract awards, material and/or labor shortages, litigation, unforeseen site conditions, adverse weather conditions, contractor defaults, labor disputes, unanticipated levels of inflation, and environmental issues, including environmental approvals that the City has not obtained at this time. There can be no assurance that the cost of construction of the projects included in the 2014-2020 CIP will not exceed the currently projected amounts or that the completion will not be delayed beyond the currently projected completion dates. Any schedule delays or cost increases could result in the need to issue additional Airport Obligations and may result in increased costs per enplaned passenger to the airlines serving Midway.

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MIDWAY FINANCIAL INFORMATION

Historical Operating Results

The following is a summary of Midway’s operating revenues and O&M expenses for the five-year period ended December 31, 2008 through 2012. See APPENDIX D–“AUDITED FINANCIAL STATEMENTS.”

CHICAGO MIDWAY INTERNATIONAL AIRPORT HISTORICAL OPERATING RESULTS

2008 - 2012 (IN THOUSANDS)

2008 2009 2010 2011 2012

Operating Revenues: Landing Fees $28,901 $21,939 $35,299 $38,583 $32,143 Rental Revenues

Terminal Area Use Charges 26,084 30,701 42,895 40,862 38,769 Other Rentals and Fueling System Fees

15,683

20,367 21,488 24,978 32,202

Subtotal Rental Revenues $41,767 $51,068 $64,383 $65,840 $70,971 Concessions

Auto Parking $31,561 $27,902 $27,849 $29,112 30,830 Auto Rentals 8,355 8,505 8,182 8,776 9,021 Restaurant 8,099 7,396 8,151 8,875 9,686 News and Gifts 3,816 3,437 3,488 3,551 3,486 Other 2,486 2,054 1,704 2,634 1,696

Subtotal Concessions $54,317 $49,294 $49,374 $52,948 $54,719 Total Operating Revenues $124,985 $122,301 $149,056 $157,371 $157,833 Operation & Maintenance Expenses:

Salaries and Wages(1) $36,931 $39,521 $42,105 $43,554 $44,463 Repair and Maintenance 37,399 37,967 31,942 40,732 37,990 Professional and Engineering

Services 19,775 6,727 15,832 15,650 15,011 Energy 7,228 8,245 6,724 6,415 7,258 Materials and Supplies 2,377 1,252 1,522 1,418 1,318 Other Operating Expenses 5,942 5,929 10,211 2,320 8,257 Total O&M Expenses Before

Depreciation and Amortization $109,652 $99,641 $108,336 $110,089 $114,297 Net Operating Income Before

Depreciation and Amortization(2) $15,333 $22,660 $40,720 $47,282 $43,536 ____________________________________________________________________________________________________________________________

(1) Salaries and Wages includes charges for pension, health care and other employee benefits. (2) Amount for 2012 may be reconciled to operating loss of $11,583 reported in the 2012 Statement of Revenue, Expenses and Changes in Net Assets of the Audited Financial Statements by deducting Depreciation and Amortization of $55,119. Amount for prior years may be reconciled through similar calculations.

Sources: Chicago Midway Airport Audited Financial Statements and City Comptroller’s Office.

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Discussion of Financial Operations

The “Historical Operating Results” table on the prior page summarizes Midway’s audited financial results for the years 2008 through 2012. Operating revenues are comprised of landing fees, terminal area use charges, other rentals and concessions. O&M expenses are comprised of salaries and wages, repairs and maintenance, professional and engineering services, energy, materials and supplies, and other operating expenses which include insurance premiums, equipment rentals, vehicles and various miscellaneous costs.

The City charges the Signatory Airlines based on a projection of, and recognizes revenues from, the Signatory Airlines only to the extent required to fund the net airline requirement (equal to O&M expenses, net debt service requirements and fund deposit requirements less non-airline revenues and airport development fund (“ADF”) transfer). Landing fees and terminal area use charges/rental decreased by approximately $6.4 million and $2.1 million, respectively, in 2012 compared to 2011, as a result of an increase in other rentals and fueling system fees of $7.2 million and non-airline revenues of approximately $1.8 million, offsetting an increase in O&M of $4.2 million.

The increase in non-airline revenues of $1.8 million from 2011 to 2012 was primarily due to increases in parking revenue of $1.7 million due to increased utilization of parking facilities, restaurant revenue of $.8 million and rent received from rental car companies of $245,000 offset by a decrease in other concessions of $.9 million.

The increase in total O&M expenses before depreciation and amortization of approximately $4.2 million from 2011 to 2012 was primarily due to an increase in other operating expenses of approximately $5.9 million due to increases in the provision for doubtful accounts of $4.3 million, purchase of machinery and equipment of $2.1 million and insurance expense recognition of $1.8 million offset by a decrease in worker’s compensation of $1.0 million. Repairs and maintenance decreased by approximately $2.7 million primarily from adjustments to a capital lease.

The 2013 Financial Statements will be completed by June 30, 2014. The below 2013 information is based upon unaudited 2013 financial information and is subject to change.

The Airport contractually operates under a residual agreement, whereby fees are established for airline parties based on budgeted operating & maintenance expenses, certain debt service, and to a much lesser extent, fund deposits less concession revenue. A settlement is completed after the year end to adjust budget amounts to actual. The entry reflecting this settlement has not yet been completed.

Landing and terminal fees increased in 2013 over 2012, however, the increase does not yet reflect the end of year adjustment discussed above. Concession revenue increased in 2013 over 2012 by approximately $4.5 million. This increase is attributed, in part, to increases in both parking and rental car fees. Operating expenses are expected to increase in 2013 over 2012, but remain within the Rates & Charges budget of $120.0 million.

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Cash Balances

As of December 31, 2012, Midway’s unrestricted cash and investments balance was $47.8 million and its restricted cash and investments balance was $320.5 million, compared to December 31, 2011 balances of $62.1 million and $392.3 million, respectively. The $14.2 million decrease in unrestricted cash and investments was due primarily to payments of balances owed to the Signatory Airlines in the amount of $23.0 million from prior years’ billings over amounts earned (deferred revenues) for 2007 through 2010, offset by 2011 and 2012 collected deferred revenues estimated to be $8.4 million as of December 31, 2012. The $71.8 million decrease in restricted cash and investments was mainly due to a decrease of $72.0 million in construction funds, a decrease in the capitalized interest accounts of $4.5 million, offset by an increase in the PFC fund of $2.6 million.

Insurance

The City’s property and liability insurance premiums are approximately $9.4 million per year. The City maintains property and liability insurance coverage for both O’Hare and Midway and allocates the cost of the premiums between the two airports. The property coverage was renewed on December 31, 2013 with a limit of $3.5 billion and includes $3.5 billion in terrorism coverage, and the liability coverage was renewed May 15, 2013 with a limit of $750 million and includes $750 million in war and terrorism liability coverage.

Pension and Other Post-Employment Benefit Costs

Midway employees, and City police and fire employees that work at Midway, participate in one of four single-employer defined-benefit pension plans for City employees: the Municipal Employees’ Annuity and Benefit Fund of Chicago (“MEABF”), the Laborers’ and Retirement Board Employees’ Annuity and Benefit Fund of Chicago (“LABF”), the Policemen’s Annuity and Benefit Fund of Chicago (“PABF”) and the Firemen’s Annuity and Benefit Fund of Chicago (“FABF”). The City’s annual contributions to these plans are funded by a separate property tax levy and a portion of the City’s share of the State’s personal property replacement tax. However, Midway reimburses the City’s general fund for the estimated pension cost applicable to the covered payroll of employees, including City police and fire employees that work at Midway, and those reimbursements are recorded as operating expenses.

For 2014, Midway budgeted $3,675,000 to reimburse the City for contributions on behalf of employees enrolled in the City’s four pension funds. See APPENDIX D–“AUDITED FINANCIAL STATEMENTS − Notes to Basic Financial Statements − 7. Pension Plans.” As a result of certain changes to pension funding requirements scheduled to take effect under current State law for PABF and FABF and under pending legislation known as Senate Bill 1922 for MEABF and LABF (Senate Bill 1922 was passed by the Illinois General Assembly but is still subject to the Governor’s approval), Midway’s pension costs, based upon employees allocable to the Airport, are expected to increase to approximately $10 million in 2016. Thereafter, Midway’s pension costs are expected to increase slightly each year (less than 20% per year) until 2021 when the MEABF and LABF plans will be on actuarial funding (in accordance with Senate Bill 1922’s actuarial funding requirements, if enacted into law). Beginning in 2021, the City’s contribution for all four pension funds (and Midway’s share thereof) will be based upon actuarial

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funding requirements. For additional information on pension benefits under current law for PABF and FABF and the reforms pending for MEABF and LABF under SB 1922, see APPENDIX G–“RETIREMENT FUNDS.”

Midway treats the pension costs paid by Midway as O&M Expenses for purposes of determining Net Revenues available for payments due on bonds. The City and its retirement funds share the cost of post-employment healthcare benefits available to City employees participating in the retirement funds through a single-employer, defined-benefit healthcare plan (the “Health Plan”), which is administered by the City. As described in APPENDIX G–“RETIREMENT FUNDS − Other Post-Employment Benefits,” the costs of the Health Plan were previously shared pursuant to a settlement agreement entered into between the City and its retirement funds regarding the responsibility for payment of these healthcare benefits. The settlement agreement expired on June 30, 2013, and the City intends to phase-out health benefits for most participants by 2017. For further information on the status of the Health Plan after June 30, 2013, including certain litigation relating to the Health Plan and the settlement agreement, see APPENDIX G–“RETIREMENT FUNDS - Other Post-Employment Benefits.”

The Projections contained in the Report of the Airport Consultant do not take into consideration any changes to O&M Expenses that are expected to result from increases in the City’s pension costs as a result of the obligations described in APPENDIX G–“RETIREMENT FUNDS.” For additional information on the City’s retirement funds and the Health Plan, see APPENDIX G–“RETIREMENT FUNDS.”

Midway Indebtedness

General. The City has financed capital improvements at Midway through the issuance of the First Lien Bonds and Second Lien Bonds, and from federal grants, PFC revenues, airline contributions and other Midway funds. Upon issuance of the Bonds and the Series 2014C Bonds, the City’s indebtedness at Midway consists of $34,180,000 aggregate principal amount of First Lien Bonds and $1,489,410,000 aggregate principal amount of Second Lien Bonds. The claim of the First Lien Bonds to Net Revenues of Midway is senior to the Second Lien Bonds.

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Variable Rate Debt. The City’s outstanding indebtedness at Midway includes certain series of variable rate debt obligations. These obligations are supported by letters of credit provided by banks for the payment of debt service or tender prices for the bonds. The following table sets forth information on the bond letter of credit facilities for the City’s outstanding variable rate debt obligations for Midway.

RATINGS THRESHOLDS*

BOND SERIES

PRINCIPAL AMOUNT OUTSTANDING

LOC EXPIRATION DATE

BOND MATURITY DATE BANK FITCH MOODY'S S&P

1998A** $64,125,000 11/25/2014 1/1/2029 JPMorgan Chase Bank, N.A. BBB- Baa3 BBB- 1998B** $59,775,000 11/25/2014 1/1/2029 JPMorgan Chase Bank, N.A. BBB- Baa3 BBB- 2004C-1 $58,225,000 11/25/2016 1/1/2035 Bank of Montreal BBB- Baa3 BBB- 2004C-2 $68,550,000 11/25/2016 1/1/2035 Wells Fargo BBB- Baa3 BBB- 2004D $13,900,000 11/25/2016 1/1/2035 Bank of Montreal BBB- Baa3 BBB- 2014C $124,710,000 11/25/2017 1/1/2044 JPMorgan Chase Bank, N.A. BBB- Baa3 BBB-

*A Midway second lien debt rating below the level set forth in the "Ratings Thresholds" column would constitute an event of default under the agreements with the related banks. ** 1998A and 1998B Bonds will be redeemed on June 16, 2014. As of the date of issuance of the Bonds, provision will have been made for the payment of the all of the outstanding principal of the 1998A and 1998B Bonds and for the repayment of all unpaid drawings under the direct pay letters of credit related to the 1998A and 1998B Bonds.

Swap Agreements. The City entered into the interest rate swaps set forth below as a

means of limiting, reducing or managing the City’s interest cost with respect to certain bonds issued for Midway, limiting the interest rate risk inherent in variable rate debt. However, the interest rate swaps may expose the City to certain market and credit risks. The City may terminate the interest rate swaps at any time at market value, or upon the occurrence of certain events.

In 2004, the City entered into separate Qualified Swap Agreements related to the Series 2004C and Series 2004D variable rate bonds with two Swap Providers, JPMorgan Chase Bank National Association and Goldman Sachs. In April 2011, the JPMorgan Chase Bank National Association swap agreement was novated to Wells Fargo and the City now pays 4.247% on a notional amount of $56,270,000 of the outstanding Series 2004C and Series 2004D Bonds. The Goldman Sachs swap agreement requires the City to pay 4.174% on a notional amount of $84,405,000 of the outstanding Series 2004C and Series 2004D Bonds. The following chart provides information on these swap agreements as of March 31, 2014.

SERIES

CURRENT NOTIONAL AMOUNT COUNTERPARTY TYPE

CITY RECEIVES

CITY PAYS

EFFECTIVE DATE

TERMINATION DATE

TOTAL MARK-TO-MARKET

2004C&D

$84,405,000 Goldman Sachs

Floating-to-Fixed

SIFMA + .05% 4.174% 12/9/2004 1/1/2035

($12,809,456)

2004C&D

$56,270,000 Wells Fargo Floating-to-Fixed

SIFMA + .05% 4.247% 4/20/2011 1/1/2035

($9,312,171)

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The Qualified Swap Agreements entered into in 2004 were amended in connection with the conversion and reoffering of the Series 2004C and Series 2004D Bonds to remove and cancel bond insurance policies on the City’s payment obligations thereunder. The terms of these are more fully described in Note 4 to the Audited Financial Statements of Midway included as APPENDIX D–“AUDITED FINANCIAL STATEMENTS” under the subheading “LONG-TERM DEBT –Hedging Derivatives.”

In connection with Qualified Swap Agreements entered into in 2004 and 2011 described

above, the City has entered into a credit support annex to secure potential termination payments on such Qualified Swap Agreements. In certain circumstances relating to market conditions and the financial creditworthiness of the Swap Provider, the credit support annex requires the Swap Provider to post collateral. Presently, only the Swap Providers are required to post collateral under the respective credit support annexes. The Airport and counterparties do have additional termination events (“ATE”). Each party is required to maintain a credit rating at or above Baa1/BBB+. In the event a party’s credit rating falls below this level, the other party is authorized to terminate the credit support annex. For this and other reasons, the City regularly monitors Swap Provider creditworthiness. If the interest rate swaps are terminated, the related bonds would continue to bear interest at a variable rate (unless converted by the City to a fixed rate), and the City could be liable for a termination payment if the swaps have a negative market value. As of March 31, 2014, the estimated aggregate mark-to-market valuation for the two interest rate swaps listed above is negative $22,121,627. This estimate is based on the information provided by each counterparty and has not been independently verified by the City.

Commercial Paper. In October 2003, the City established the CP Program providing for

the issuance, from time to time, of CP Notes in an initial aggregate principal amount outstanding at any one time of not to exceed $150 million. The CP Notes are authorized to be issued for payment, or the reimbursement of the City for the payment, of the cost of all or any portion of capital projects at or related to Midway, cash flow needs at Midway, the refunding of general airport revenue bonds and special facility revenue bonds and the payment of the costs of issuance of CP Notes. By ordinance adopted on May 9, 2012, the City increased the aggregate principal amount of CP Notes which may be outstanding at any one time under the CP Program to $250 million. However, the City has only obtained credit support for CP Notes under the CP Program in an amount not to exceed $150 million as set forth in the following chart.

COMMERCIAL PAPER LETTER OF CREDIT FACILITIES

RATINGS THRESHOLDS*

CP NOTE SERIES

LOC EXPIRATION

DATE BORROWING AUTHORITY BANK FITCH MOODY'S S&P

2003A-D 7/12/2014

$85,000,000 JPMorgan Chase Bank, N.A. BBB- Baa3 BBB-

2003E-G 2/14/2015

$65,000,000 PNC BBB- Baa3 BBB- *A Midway second lien debt rating below the level set forth in the "Ratings Thresholds" column would constitute an event of default under the agreements with the related banks.

The CP Notes are subordinate to all other Airport Obligations, including the Second Lien

Bonds, with respect to their claim on Revenues. The principal amount of CP Notes currently outstanding is $57,693,000, all of which is expected to be paid with the proceeds of the Bonds.

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Debt Service Schedule. The table below sets forth aggregate annual debt service for the

Outstanding First Lien Bonds and the Outstanding Second Lien Bonds, based on the stated maturity of the Outstanding First Lien Bonds and the Outstanding Second Lien Bonds, as well as the Bonds.

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DEBT SERVICE SCHEDULE OF OUTSTANDING FIRST LIEN BONDS AND SECOND LIEN BONDS(1)

YEAR ENDING

JANUARY 1

TOTAL DEBT SERVICE ON

OUTSTANDING FIRST LIEN

BONDS(2)

TOTAL DEBT SERVICE ON

OUTSTANDING SECOND LIEN

BONDS(3)(4)

TOTAL DEBT SERVICE

SERIES 2014A BONDS

TOTAL DEBT SERVICE

SERIES 2014B BONDS

TOTAL DEBT SERVICE

SERIES 2014C BONDS(4)(5)

TOTAL DEBT SERVICE

SECOND LIEN BONDS

TOTAL AGGREGATE

DEBT SERVICE

2015 $25,146,280 $44,268,011 $13,450,000 $7,985,694 $1,683,585 $67,387,290 $92,533,570 2016 4,534,150 48,715,950 24,210,000 14,374,250 3,030,453 90,330,653 94,864,803 2017 4,535,150 50,088,192 24,210,000 14,374,250 3,030,453 91,702,895 96,238,045 2018 4,532,625 52,966,668 24,210,000 14,374,250 3,030,453 94,581,371 99,113,996 2019 4,536,300 54,210,553 24,210,000 19,304,250 3,030,453 100,755,256 105,291,556 2020 4,535,350 57,700,393 24,210,000 19,247,750 3,030,453 104,188,596 108,723,946 2021 4,534,500 48,316,894 39,740,000 16,636,750 3,030,453 107,724,097 112,258,597 2022 4,533,200 48,790,526 39,743,500 19,798,500 3,030,453 111,362,979 115,896,179 2023 4,540,900 45,582,029 39,738,000 26,755,250 3,030,453 115,105,732 119,646,632 2024 4,536,500 45,147,767 39,737,000 26,659,000 3,030,453 114,574,220 119,110,720 2025 43,219,391 43,833,250 28,504,250 3,030,453 118,587,344 118,587,344 2026 42,137,489 43,834,750 28,442,500 3,030,453 117,445,192 117,445,192 2027 41,234,912 43,838,750 28,217,750 3,030,453 116,321,865 116,321,865 2028 39,845,367 43,837,250 28,501,250 3,030,453 115,214,320 115,214,320 2029 38,841,143 43,957,500 28,296,000 3,030,453 114,125,096 114,125,096 2030 40,685,986 55,605,250 13,733,500 3,030,453 113,055,189 113,055,189 2031 44,287,812 47,900,500 16,784,750 3,030,453 112,003,515 112,003,515 2032 40,553,736 39,798,250 27,584,250 3,030,453 110,966,689 110,966,689 2033 39,623,117 39,802,500 27,489,000 3,030,453 109,945,070 109,945,070 2034 38,710,494 39,803,750 27,401,500 3,030,453 108,946,197 108,946,197 2035 35,115,765 6,093,500 63,724,000 3,030,453 107,963,718 107,963,718 2036 5,347,805 14,243,500 10,573,500 3,030,453 33,195,258 33,195,258 2037 5,349,774 28,921,000 3,030,453 37,301,227 37,301,227 2038 5,348,466 28,924,250 3,030,453 37,303,169 37,303,169 2039 5,347,803 28,924,250 3,030,453 37,302,506 37,302,506 2040 5,346,354 28,928,250 3,030,453 37,305,057 37,305,057 2041 5,347,683 14,238,000 17,785,453 37,371,136 37,371,136 2042 37,686,907 37,686,907 37,686,907 2043 38,451,042 38,451,042 38,451,042 2044 39,240,933 39,240,933 39,240,933

TOTALS: $65,964,955 $972,130,079 $885,943,000 $508,762,194 210,609,245 $2,577,444,518 $2,643,409,473

(1) Totals may not add due to rounding. (2) Represents net First Lien Debt Service excluding refunded bonds debt service. (3) Represents net Second Lien Debt Service excluding refunded bonds debt service. For the Series 2004C&D Bonds, the Goldman Sachs swap assumes a 4.174% interest

rate and the Wells Fargo swap assumes a 4.247% interest rate. (4) Debt service on variable rate bonds does not include support costs or miscellaneous expenses, such as letter of credit and remarketing agent fees. (5) Assumes a 2.43% interest rate.

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FEDERAL LEGISLATION, STATE ACTIONS AND PROPOSED SOUTH SUBURBAN AIRPORT

Federal Legislation

On February 14, 2012, President Obama signed the “FAA Reauthorization and Reform Act of 2012” into law. The law reauthorizes the FAA operations and programs for federal fiscal years 2012 through 2015. The law provides for $13.4 billion in AIP funding for the four-year period, or $3.35 billion annually, and establishes the maximum rate of the PFC at $4.50.

In fiscal year 2013, the FAA spent approximately $2.9 billion on AIP funding. The administration’s fiscal year 2014 budget requested approval for $2.9 billion in AIP funding, which was $450 million less than authorized in the FAA Reauthorization and Reform Act of 2012 (“FAA Reauthorization Act”). However, the omnibus appropriations bill for fiscal year 2014 enacted in January 2014 approved $3.35 billion in AIP funding, which aligns with the maximum amount authorized under the FAA Reauthorization Act. In addition, the 2014 fiscal year budget proposes a PFC increase to $8.00 in exchange for eliminating entitlement grants for large hub airports, including Midway.

It is uncertain, at this time how airports will be affected by the latest AIP and PFC funding proposals. See “CERTAIN INVESTMENT CONSIDERATIONS RELATING TO THE AIRLINES, THE AIRLINE INDUSTRY AND MIDWAY.”

Federal funding received by Midway, and aviation operations in general, could be adversely affected by implementation of the sequestration provisions of the Budget Control Act, which was signed into law by the President on August 2, 2011. As a result of the failure of the Joint Select Committee on Deficit Reduction to reach an agreement on the deficit reduction actions as required by the Budget Control Act, sequestration - a unique budgetary feature of the Budget Control Act - has been triggered. On January 2, 2013, President Obama signed into law H.R. 8, the American Taxpayer Relief Act of 2012, which delayed the initiation of the sequestration process from January 2, 2013 to March 1, 2013. Due to the initiation of the budget sequestration, the FAA reduced its 2013 fiscal year budget by approximately $637 million. The majority of that reduction was absorbed by the FAA’s operations budget.

Future sequestration could adversely affect FAA operations and the availability of certain

federal grant funds typically received annually by Midway. Specific to the aviation industry are budget reductions for the FAA and the Department of Homeland Security (“DHS”). On April 22, 2013, FAA implemented furloughs of its employees, including air traffic controllers, which immediately resulted in reports of flight delays and flight cancellations nationwide. Additionally, DHS has eliminated overtime for its Customs and Border Patrol Agency (“CBP”) and implemented a hiring freeze for TSA. However, on May 1, 2013, the Reducing Flight Delays Act of 2013 was enacted, which ended air traffic control furloughs by allowing the FAA to transfer funds into its operating budget. The bill does not, however, eliminate future sequestration cuts. The full impact of sequestration on the aviation industry and Midway, generally, resulting from potential layoffs or further furloughs of federal employees responsible for federal airport security screening, air traffic control and CBP, is unknown at this time.

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State Actions

The State, certain State agencies and certain State legislators have taken certain actions that may affect Midway and the City’s ability to collect Revenues.

Noise Legislation. Legislation with respect to reducing aircraft noise has been proposed from time to time in the Illinois General Assembly. There is no assurance that legislation with respect to aircraft noise will not be proposed or enacted in the future, or that if enacted it would not have a material adverse effect on operations, enplanements and Revenues at Midway.

State Airport Control Legislation. In recent years, legislation has been introduced in the Illinois General Assembly that was intended to reduce the City’s control over O’Hare and Midway and promote the development of a third regional airport at a location in Chicago’s far southern suburbs, near Peotone, Illinois. The City vigorously opposed this legislation and the Illinois General Assembly has not enacted any of these proposals. It is possible that similar legislation could be considered in the future by the Illinois General Assembly. No prediction is made as to whether, or in what form, any such legislation may be adopted or what effect any such legislation, if enacted, would have on the financial condition or operations of Midway. See “— Proposed South Suburban Airport” below.

State Approval of Federal Grants. Under the Illinois Aeronautics Act, the City is generally required to obtain the approval of the Illinois Department of Transportation (“IDOT”) for all AIP grant applications that the City submits to the FAA.

Future Legislation. Midway is subject to various laws, rules and regulations adopted by local, State and federal governments and their agencies. The City is unable to predict the adoption or amendment of any such laws, rules or regulations, or their effect on the operations or financial condition of Midway.

Proposed South Suburban Airport

Plans to build a third airport in the Chicago Region have been under discussion for many years. The most likely site for such an airport is the proposed South Suburban Airport site located near Peotone, Illinois in Will County, approximately 35 miles south of the City’s central business district. In 2001, the FAA published notice of a public comment period for a Tier I Draft Environmental Impact Statement (“EIS”) for Site Approval and Land Acquisition by the State at the Peotone site, to preserve the site as a potential option for a commercial service airport for the Chicago area. The draft EIS was approved by the FAA in July 2002 in a Record of Decision by the FAA which found that the Peotone site was technically and environmentally feasible for a new airport to serve the region.

On July 25, 2013, Illinois Senate Bill 20 was signed into law which makes IDOT

responsible for the South Suburban Airport and allows IDOT to enter into public-private agreements for its development, financing, construction, management or operation. Approximately 2,688 acres of the 4,200 acre area required for the inaugural site have been purchased by the State.

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It is not possible at this time to determine the viability of a new major commercial airport at the Peotone site or to predict whether or when any new regional airport would be constructed; nor is it currently possible to predict what effect, if any, such an airport would have on operations or enplanements at Midway. Neither the State nor the FAA currently forecasts that a proposed South Suburban Airport will achieve the status of a third major commercial service airport in the foreseeable future.

CERTAIN INVESTMENT CONSIDERATIONS RELATING TO THE AIRLINES,

THE AIRLINE INDUSTRY AND MIDWAY

The purchase of the Bonds involves certain investment risks and considerations. Prospective purchasers should read this Official Statement in its entirety. The factors set forth below, among others, may affect the security for the Bonds.

Level of Airline Traffic

The City’s ability to collect Revenues and PFC revenues is dependent primarily on the level of aviation activity and enplaned passenger traffic at Midway. Key factors affecting airline traffic at Midway include, among others, economic and political conditions, aviation security concerns, the financial health of the airline industry and of individual airlines, airline service and routes, airline competition and airfares, airline consolidation and alliances, availability and price of aviation and other fuel, capacity of the national air traffic control system and various other local, regional, national and international economic, political and other factors. Many of these factors, most of which are outside of the City’s control, are discussed in detail in APPENDIX F–“2013 REPORT OF THE AIRPORT CONSULTANT AS SUPPLEMENTED.” If aviation activity at Midway does not meet forecast levels, a corresponding reduction is likely to occur both in forecast Revenues (absent an increase in Midway rentals, rates, fees and charges) and in forecast PFC Revenues.

Southwest Airlines Concentration at Midway

Southwest is the largest single airline at Midway with 86.5% of commercial enplanements in 2013. Southwest (and its wholly-owned subsidiary, AirTran) accounted for 91.0% of commercial enplanements at Midway in 2012. In 2011, Southwest acquired AirTran, which accounted for 4.5% of Midway enplanements in 2013. The integration of Southwest and AirTran is expected to be completed by year-end 2014. Southwest accounted for 53.35% of total Midway operating revenues in 2013. See APPENDIX F–“2013 REPORT OF THE AIRPORT CONSULTANT AS SUPPLEMENTED.” More information on Southwest, including annual and quarterly financial statements, can be found at the following website: http://southwest.investorroom.com.

Availability of Various Sources of Funding

The plan of financing for the 2014-2020 CIP assumes that Revenues will be available in certain amounts and at certain times for the payment of certain capital project costs on a “pay as you go” basis and the payment of debt service of Airport Obligations. See APPENDIX F– “2013 REPORT OF THE AIRPORT CONSULTANT AS SUPPLEMENTED.” No assurance

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can be given that these sources of funding will actually be available in the amounts or on the schedule assumed.

The City’s ability to prescribe, fix, maintain and collect certain rates, fees and other charges may be limited by various contractual obligations to third parties. See “SECURITY FOR THE BONDS − Airport Use Agreements” and APPENDIX C–”SUMMARY OF CERTAIN PROVISIONS OF THE AIRPORT USE AGREEMENTS.”

The assumptions with respect to entitlement and discretionary federal funding are based on a number of estimates and assumptions which, although considered reasonable by the City, are inherently subject to various uncertainties and contingencies. Actual entitlement and/or discretionary federal funding levels and timing will vary, and such differences may be material.

The plan of financing for the 2014-2020 CIP and the Supplemented Report of the Airport Consultant assume that PFC revenues will be available for the payment of First Lien Bonds, Second Lien Obligations and CP Notes. See APPENDIX F–“2013 REPORT OF THE AIRPORT CONSULTANT AS SUPPLEMENTED.” No assurance can be given that these sources of funding will actually be available in the amounts or on the schedule assumed. The amount of PFC revenues collected by the City in future years will vary. No assurance can be given that the authority to impose PFCs will continue or that levels of the enplanements set forth in the Supplemented Report of the Airport Consultant will be realized. The amount of CFC Revenues collected by the City in future years will vary from the projections provided in the Supplemented Report of the Airport Consultant.

To the extent that any portion of the funding assumed in the plan of financing for the 2014-2020 CIP is not available as anticipated, the City may be required to issue additional Airport Obligations to pay the costs of the 2014-2020 CIP and increase airline rates and charges to pay debt service on the Bonds and any additional Airport Obligations, to fund the required coverage thereon. As noted above, the City’s ability to raise such rates and charges may be limited by various contractual obligations.

Aviation Industry

Overall. The City’s ability to collect Revenues and PFC revenue is affected by the dynamics of the airline industry, which also impact the ability of the airlines that are parties to the Airport Use Agreements (the “Airline Parties”), individually and collectively, to meet their respective obligations under the Airport Use Agreements and other arrangements.

Historically, the financial performance of the airline industry generally has correlated with the strength of the national economy. Certain factors that may materially affect Midway and the airlines include, but are not limited to, growth of population and the economic health of the region and the nation, airline service and route networks, national and international economic and political conditions, changes in demand for air travel, service and cost competition, mergers, the availability and cost of aviation fuel and other necessary supplies, levels of air fares, fixed costs and capital requirements, the cost and availability of financing, the capacity of the national air traffic control system, national and international disasters and hostilities, the cost and availability of employees, labor relations within the airline industry, regulation by the federal

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government, environmental risks and regulations, noise abatement concerns and regulation, bankruptcy and insolvency laws, acts of war or terrorism and other risks. As a result of these and other factors, many airlines have operated at a loss in the past and many have filed for bankruptcy, ceased operations and/or merged with other airlines.

According to U.S. Bureau of Transportation Statistics (“BTS”) data, air travel demand began to rebound in late 2009 as the nation emerged from the most recent economic recession. BTS reported that U.S. airlines and foreign airlines serving the U.S. carried 826.0 million systemwide (domestic and international) scheduled service passengers in 2013, 1.3% more than in 2012 and the highest total since 2007. The projected trend of accelerating real GDP growth, at least through 2017 according to the most recent Congressional Budget Office forecast, suggests the upward trend in nationwide air travel should continue. However, should the economy stall, or again trend downward, aviation demand nationwide would likely be negatively impacted.

Currently, fluctuating fuel prices continue to impact the ability of carriers to be profitable. If jet fuel prices approach or surpass their mid-2008 peak (July 2008 average price was $3.82 per gallon), aviation demand nationwide may be negatively impacted due to potential route reductions or higher ticket prices the airlines might impose in efforts to remain profitable. According to the U.S. DOT’s Bureau of Transportation Statistics, the average price of jet fuel in February 2014 was $3.03 per gallon, a 7.1% decrease over the February 2013 average price. North American airlines’ profits are projected to be $8.6 billion in 2014 compared to profits of $5.8 billion and $2.3 billion in 2013 and 2012, respectively. Fluctuation of industry profitability is partially due to fluctuating oil prices offset by adjustments in capacity

Airline Scheduled Seat Capacity. The airlines continue to restrain growth in seat capacity, while improving profitability, by keeping in place reductions they implemented beginning in 2008 in response to record fuel prices. The largest quarterly decline occurred in the first quarter of 2009, as domestic seat capacity fell by 10.3% versus the first quarter of 2008. Domestic capacity reached a post-recessionary low in the first quarter of 2013. However, for the four quarters ending March 31, 2014 domestic capacity increased by 0.8% compared to the previous four quarters.

Airline Mergers and Acquisitions. In recent years, airlines have experienced increased costs and industry competition, both domestically and internationally. As a result, airlines have merged and acquired competitors in an attempt to combine operations in order to increase cost synergies and become more competitive. In 2009, Delta fully completed its merger with Northwest Airlines. That same year, Republic Airways Holdings, a regional airline, bought Frontier Airlines and Midwest Airlines, but earlier in 2014 sold Frontier Airlines to Indigo Partners LLC, a private equity firm). In 2010, United Airlines and Continental Airlines merged, creating, at that time, the world’s largest airline in terms of operating revenue and revenue passenger miles. This combination was surpassed (in terms of generating revenue and revenue passenger miles) by the December 2013 merger of American Airlines and US Airways Group, Inc. Neither United nor American operates at Midway.

On May 2, 2011, Southwest announced the closing of its acquisition of AirTran Holdings, Inc., the former parent company of AirTran Airways, Inc. (“AirTran”). The

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acquisition extended Southwest’s route network and added new markets, such as Atlanta (the largest domestic market Southwest did not previously serve) and Reagan National Airport (Washington, D.C.). It also provided Southwest with access to international leisure markets in the Caribbean and Mexico. Southwest plans to integrate AirTran into the Southwest brand by transitioning the AirTran fleet to Southwest’s livery and consolidating corporate functions into its Dallas headquarters. The FAA granted the airline a single operating certificate on March 1, 2012, allowing Southwest to work toward full integration of AirTran, expected to be completed by the end of 2014.

Airline Termination of Operations. On July 26, 2012, Delta announced that regional carrier Comair will terminate all operations at the end of September 2012. In 2011, Comair had 50,489 enplanements at Midway, representing 0.55% of total Midway enplanements. Since 2012, Delta has operated service previously flown by Comair via its other regional airline partners. While an airline’s termination of its Midway operations is possible, the City is not aware of any airline planning to do so.

Airport Security. With enactment of the Aviation and Transportation Security Act (“ATSA”) in November 2001, the Transportation Security Administration (“TSA”) was created and established different and improved security processes and procedures. The ATSA mandates certain individual, cargo and baggage screening requirements, security awareness programs for airport personnel and deployment of explosive detection devices. The act also permits the deployment of air marshals on all flights and requires air marshals on all “high-risk” flights. The federal government controls aviation industry security requirements, which can significantly impact the economics of the industry. Security requirements due to unexpected events could increase costs directly and indirectly to the industry and could have an adverse effect on passenger demand.

Sequestration Transparency Act of 2012. Federal funding received by Midway, and

aviation operations in general, could be adversely affected by implementation of the sequestration provisions of the Budget Control Act, which was signed into law by President Obama on August 2, 2011. As a result of the failure of the Joint Select Committee on Deficit Reduction to reach an agreement on the deficit reduction actions as required by the Budget Control Act, sequestration - a unique budgetary feature of the Budget Control Act - has been triggered. On January 2, 2013, President Obama signed into law H.R. 8, the American Taxpayer Relief Act of 2012, which delayed the initiation of the sequestration process from January 2, 2013 to March 1, 2013. On March 26, 2013, the President signed the Consolidated and Further Continuing Appropriations Act of 2013, providing funds for operation of the federal government through September 30, 2013, and off-setting some of the sequestration-mandated reductions for fiscal year 2013. The spending reductions for fiscal year 2013 are approximately $85.4 billion, with similar cuts for fiscal years 2014 through 2021.

Sequestration could adversely affect FAA operations and the availability of certain

federal grant funds typically received annually by Midway. Specific to the aviation industry are budget reductions for the FAA and DHS. On April 22, 2013, FAA implemented furloughs of its employees, including air traffic controllers, which immediately resulted in reports of flight delays and flight cancellations nationwide. Additionally, DHS has eliminated overtime for its

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CBP and implemented a hiring freeze for TSA. However, on May 1, 2013, the Reducing Flight Delays Act of 2013 was enacted, which ended the air traffic control furloughs by allowing the FAA to transfer funds into its operating budget. The bill does not, however, end the sequestration cuts.

Federal agencies are not expected to face any budget cuts from sequestration this year.

The Office of Management and Budget informed Congress in a February 2014 report that the enacted fiscal 2014 discretionary appropriations are within the spending limits under the Budget Control Act. However, there is no guarantee that those spending limits will not be breached in future years. The full future impact of sequestration on the aviation industry and Midway, generally, resulting from potential layoffs or furloughs of federal employees responsible for federal airport security screening, air traffic control and CBP, is unknown at this time.

Threat of Terrorism. As has been the case since the events of September 11, 2001, the recurrence of terrorism incidents against either domestic or world aviation remains a risk to achieving forecast aviation activity at Midway. Any terrorist incident aimed at aviation would have an immediate and significant adverse impact on the demand for aviation services.

Economic Conditions in the Air Trade Area

For a detailed discussion of the current and projected economic conditions in Midway’s air trade area, see APPENDIX F–“2013 REPORT OF THE AIRPORT CONSULTANT AS SUPPLEMENTED − Chapter 1.”

Financial Condition of Airlines Serving Midway

Many of the airlines serving Midway have been impacted by the events described above. Most major domestic airlines have suffered recent financial losses.

Additional Airline Information. Certain of the Airline Parties file reports and other information (collectively, the “SEC Reports”) with the SEC. Certain information, including financial information, as of particular dates concerning each of the Airline Parties (or their respective parent corporations) is included in the SEC Reports. The SEC Reports can be read and copied at the SEC’s Public Reference Rooms, which can be located by calling the SEC at 1-800-SEC-0330. In addition, electronically filed SEC Reports can be obtained from the SEC’s website at http://www.sec.gov. Each Airline Party and certain other airlines are required to file periodic reports of financial and operating statistics with the United States Department of Transportation. Such reports can be inspected at the Office of Airline Information, Bureau of Transportation Statistics, Department of Transportation, Room 4201, 400 Seventh Street S.W., Washington, DC 20590, and copies of such reports can be obtained from the Department of Transportation at prescribed rates. Non-U.S. airlines also provide certain information concerning their operations and financial affairs, which may be obtained from the respective airlines.

Effect of Airline Bankruptcy

The cessation of operations by an Airline Party with significant operations at Midway, such as Southwest, will have a material adverse effect on operations, Revenues (with the

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resultant effect on repayment of the Bonds), PFC Revenues and the cost to the other airlines of operating at Midway.

Currently, 31 domestic gates and related facilities at Midway are preferentially leased by the City to the Signatory Airlines pursuant to the Airport Use Agreements, and 12 gates are controlled by the City. Southwest leases 29 gates and operates from 4 of the City-controlled gates. In the event of bankruptcy proceedings involving a Signatory Airline, the debtor or its bankruptcy trustee must determine within a time period determined by the court whether to assume or reject the applicable Airport Use Agreement. In the event of assumption, the debtor would be required to cure any prior defaults and to provide adequate assurance of future performance. Each Signatory Airline paid a security deposit to the City upon entering into the Airport Use Agreement to apply to a Signatory Airline’s past due rentals, charges and fees due to the City. In the event of a Signatory Airline default, the City has the power to terminate the Airport Use Agreement and exclude such Signatory Airline from its leased premises and assigned aircraft parking positions. See APPENDIX C−“SUMMARY OF CERTAIN PROVISIONS OF AIRPORT USE AGREEMENTS − Security Deposits” and “− Default and Termination.”

Rejection of an Airport Use Agreement by any Signatory Airline that is a debtor in a bankruptcy proceeding would result in the termination of that Airport Use Agreement. Such rejection of an Airport Use Agreement would give rise to an unsecured claim of the City against the debtor’s estate for damages, the amount of which is limited by the Bankruptcy Code. However, after application of certain reserve funds, the amounts unpaid by the Signatory Airline as a result of its rejection of its Airport Use Agreement in bankruptcy would be included in the calculation of the fees and charges of the remaining Signatory Airlines under their Airport Use Agreements. See APPENDIX C−“SUMMARY OF CERTAIN PROVISIONS OF AIRPORT USE AGREEMENTS − General Commitment to Pay Airline Fees and Charges.”

It is not possible to predict the level of utilization of the gates leased under a debtor-in-possession’s Airport Use Agreement following a bankruptcy filing. Decreased utilization of such gates could have a material adverse effect on operations at Midway, Revenues and on the cost to the airlines operating at Midway.

Effect of Airline Industry Consolidation

The airline industry is in the process of fundamental change and it is possible that one or more of the Airline Parties could consolidate. Depending on which Airline Parties, if any, merge, the result may be a decrease in gate utilization by an Airline Party, which decrease could be significant. It is not possible to predict the effect on gate usage as a result of potential airline consolidation at this time.

Airport Use Agreements

Pursuant to the Airport Use Agreements, the Signatory Airlines agree to pay rentals, fees and charges for Midway in an amount that, in the aggregate, are sufficient to allow the City to satisfy its covenants to Bondholders. The Airport Use Agreements are scheduled to terminate on December 31, 2027 but are subject to early termination by a Signatory Airline under certain

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limited circumstances. The Airport Use Agreement termination events are set forth in APPENDIX C−“SUMMARY OF CERTAIN PROVISIONS OF THE AIRPORT USE AGREEMENTS − Term” and “− Default and Termination.”

Credit Risk of Financial Institutions Providing Credit Enhancement, Liquidity Support and Other Financial Products Relating to Airport Obligations

The City entered into a number of liquidity, credit enhancement and other transactions involving a variety of financial institutions relating to its Airport Obligations, including bond insurance policies and debt service reserve fund surety bonds issued by monoline bond insurance companies. Additionally, in connection with various variable rate bond issues for Midway, the City entered into credit and liquidity agreements and interest rate swap agreements with and/or guaranteed by various financial institutions, including commercial and investment banks.

Each of Moody’s, Standard & Poor’s and Fitch (collectively, the “Rating Agencies”) has downgraded the claims-paying ability and financial strength ratings of most of the nation’s monoline bond insurance companies and many other financial institutions. The Rating Agencies could announce changes in rating outlook, or a review for downgrade or further downgrades of bond insurers, credit or liquidity providers or interest rate swap counterparties. Such adverse ratings developments with respect to bond insurers, credit or liquidity providers or interest rate counterparties on bond issues for Midway could have a material adverse effect on the Airport Obligations, including, without limitation, resulting in substantial increases in the debt service-related costs for the Airport Obligations and have negative effects on the City’s debt portfolio with respect to Midway. In addition to an increase in the interest rates on variable rate bonds secured by the subject credit enhancers, such downgrades, especially downgrades to below investment grade, could lead to termination events or other negative effects under related agreements including, but not limited to, swap agreements, letters of credit and/or reserve fund surety policies. Payments required under these agreements in the event of any termination could be substantial and could have a negative impact on Revenues and/or the liquidity position of the Airport. A default by any of the financial institutions under its bond insurance, debt service reserve fund, liquidity or interest rate swap obligations could have a material adverse impact on Midway finances.

Limited Liability; Subordination

THE BONDS ARE LIMITED OBLIGATIONS OF THE CITY AND DO NOT CONSTITUTE AN INDEBTEDNESS OR A LOAN OF CREDIT OF THE CITY WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY LIMITATION, AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF ILLINOIS, THE CITY OR ANY OTHER POLITICAL SUBDIVISION OF THE STATE OF ILLINOIS IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE BONDS. THE BONDS ARE NOT PAYABLE IN ANY MANNER FROM REVENUES RAISED BY TAXATION. NO PROPERTY OF THE CITY, INCLUDING PROPERTY LOCATED AT MIDWAY, IS PLEDGED AS SECURITY FOR THE BONDS.

The pledge of Net Revenues for the Bonds is junior and subordinate to the pledge of Net Revenues for the payment of First Lien Bonds. The Bonds are secured on a parity basis with the Outstanding Second Lien Bonds and all other Second Lien Obligations. Subject to certain

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conditions set forth in the Second Lien Indenture, the City may in the future issue or incur Additional Second Lien Obligations that will be secured on a parity basis with the Bonds and the Outstanding Second Lien Bonds and all other Second Lien Obligations. See “SECURITY FOR THE BONDS – Additional Obligations.”

Assumptions in the Supplemented Report of the Airport Consultant

The Supplemented Report of the Airport Consultant included as APPENDIX F–”2013 REPORT OF THE AIRPORT CONSULTANT AS SUPPLEMENTED” to this Official Statement contains numerous assumptions as to the utilization of Midway and other matters and reviews certain projections. Projections and assumptions are inherently subject to significant uncertainties. Inevitably, some assumptions will not be realized and unanticipated events and circumstances will occur. Actual results are likely to differ, perhaps materially, from those projected. Accordingly, the projections contained in APPENDIX F–”2013 REPORT OF THE AIRPORT CONSULTANT AS SUPPLEMENTED” (collectively, the “Projections”) are not necessarily indicative of future performance, and neither the Airport Consultant nor the City assumes any responsibility for the accuracy of such Projections. See “AIRPORT CONSULTANT” and APPENDIX F–“2013 REPORT OF THE AIRPORT CONSULTANT AS SUPPLEMENTED.”

The Projections are based, in part, on historic data from sources considered by the Airport Consultant to be reliable, but the accuracy of this data has not been independently verified. The Projections are based on assumptions made by the Airport Consultant concerning future events and circumstances which the Airport Consultant believes are significant to the Projections but which cannot be assured. Therefore, the actual results achieved may vary from the Projections, and such variations could be material.

Enforceability of Remedies

The rights of the owners of the Bonds and the enforceability of the City’s obligation to make payments on the Bonds may be subject to bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights under existing law or under laws enacted in the future and may also be subject to the exercise of judicial discretion under certain circumstances. The opinions of Co-Bond Counsel and the City’s Corporation Counsel delivered at the time of the initial issuance of the Bonds as to the enforceability of the City’s obligations were qualified as to bankruptcy and similar events and as to the application of equitable principles and the exercise of judicial discretion in appropriate cases and to common law and statutes affecting the enforceability of contractual obligations generally, and to principles of public policy concerning, affecting or limiting the enforcement of rights or remedies against governmental entities such as the City.

LITIGATION

There is no litigation pending or threatened against the City relating to the City’s operation of Midway, the issuance, sale, or delivery of the Bonds or the validity or enforceability thereof other than various legal proceedings (pending or threatened) which may have arisen or may arise out of the ordinary course of business of Midway. The City expects that the final

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resolution of such legal proceedings arising in the ordinary course of business will not have a material adverse effect on the financial position or the results of operation of Midway.

There are, from time to time, lawsuits that arise out of the various construction contracts entered into in connection with construction projects at Midway. The City, however, does not believe that any sums that may be recovered would have a material adverse impact on the financial condition of Midway or the collection of Revenues by the City.

TAX MATTERS

Interest Not Exempt From State of Illinois Income Taxes

Interest on the Bonds is not exempt from present State of Illinois income taxes. Ownership of the Bonds may result in other state and local tax consequences to certain taxpayers. Co-Bond Counsel express no opinion regarding any such collateral consequences arising with respect to the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding the application of any such state and local taxes.

Certain United States Federal Income Tax Consequences

The following is a summary of the principal United States federal income tax consequences of ownership of the Bonds. It deals only with the Bonds held as capital assets by initial purchasers, and not with special classes of holders, such as dealers in securities or currencies, banks, tax-exempt organizations, life insurance companies, persons that hold the Bonds that are a hedge or that are hedged against currency risks or that are part of a straddle or conversion transaction, persons that are not citizens or residents of the United States or persons whose functional currency is not the U.S. dollar. The summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, existing and proposed regulations thereunder, published rulings and court decisions, all as currently in effect and all subject to change at any time, perhaps with retroactive effect.

The Code contains a number of provisions relating to the taxation of securities such as the Bonds (including but not limited to the tax treatment of and accounting for interest, premium, original issue discount and market discount thereon, gain from the sale, exchange or other disposition thereof and withholding and backup withholding tax on income therefrom) that may affect the taxation of certain owners, depending on their particular tax situations. Prospective purchasers of the Bonds should consult their own tax advisors concerning the consequences, in their particular circumstances, under the Code and the laws of any other taxing jurisdiction, of ownership of the Bonds.

Tax-Exempt Bonds

In the opinion of Mayer Brown LLP and Sanchez Daniels & Hoffman LLP, Co-Bond Counsel, under existing law and assuming compliance with certain covenants made by the City to satisfy pertinent requirements of the Code, (i) interest on the 2014A Bonds (A) is excluded from the gross income of the owners thereof for federal income tax purposes and (B) is an item of tax preference for purposes of individual and corporate minimum taxable income for purposes

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of individual and corporate alternative minimum tax and (ii) interest on the 2014B Bonds (A) is excluded from the gross income of the owners thereof for federal income tax purposes under Section 103 of the Code and (B) is not a specific item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, but is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Failure to comply with certain of such City covenants could cause interest on the Bonds to be included in gross income for federal income tax purposes retroactively to the date of issuance of the Bonds.

In rendering the foregoing opinions, Co-Bond Counsel will rely on, and will assume the accuracy of, certain representations and certifications and compliance with certain covenants of the City and the Trustee contained in various documents included in the transcript of proceedings, which are intended to evidence and assure that the Bonds are and will remain obligations the interest on which is excluded from gross income for federal income tax purposes. Co-Bond Counsel will not independently verify the accuracy of such certifications and representations and will not monitor compliance with such covenants.

The Code prescribes a number of qualifications and conditions for the interest on state and local government obligations to be and remain excluded from gross income for federal income tax purposes. Some of these require continued compliance after the issuance of the Bonds in order for the interest to be and continue to be so excluded from the date of issuance. Noncompliance with such requirements could cause the interest on the Bonds to be included in gross income for federal income tax purposes, in some cases, effective from the date such Bonds are initially issued. The City has covenanted in the Twentieth Supplemental Indenture and the Twenty-First Supplemental Indenture, respectively, to not take any action or knowingly permit any action on its part to be taken which would cause the interest on the Bonds to be included in the gross income of the owners of the Bonds for federal income tax purposes.

Under the Code, interest on the Bonds earned by certain foreign corporations doing business in the United States could be subject to the branch profits tax imposed by Section 884 of the Code, and interest on the Bonds could be subject to the tax imposed by Section 1375 of the Code on excess net passive income of certain S corporations. Under the Code, the receipt of interest excluded from gross income for federal income tax purposes can have certain collateral federal income tax consequences, adversely affecting items of income, deductions or credits for certain taxpayers, including financial institutions, property and casualty insurance companies, recipients of Social Security and Railroad Retirement benefits, individuals otherwise eligible for the earned income credit and taxpayers who are deemed to incur or continue indebtedness to acquire or carry tax-exempt obligations. Co-Bond Counsel expresses no opinion regarding any such collateral consequences arising with respect to the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors on the application of such collateral consequences.

Further, from time to time, legislative proposals are pending in Congress which, if enacted, would alter or amend one or more of the federal tax consequences referred to above in certain respects or would adversely affect the market value of the Bonds. It cannot be predicted whether or in what form any such proposal may be enacted, and there can be no assurance that such proposal would not apply to obligations (such as the Bonds) issued prior to enactment of

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such proposal. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal tax legislation.

Co-Bond Counsel’s opinions are based on existing law, which is subject to change. Such opinions are further based on factual representations made to Bond Counsel as of the date thereof. Bond Counsel assumes no duty to update or supplement its opinions to reflect any facts or circumstances that may thereafter come to Bond Counsel’s attention or to reflect any changes in law that may thereafter occur or become effective. The opinions of Bond Counsel express the professional judgment of Bond Counsel regarding the legal issues expressly addressed therein. By rendering its legal opinion, Bond Counsel does not become an insurer or guarantor of the result indicated by that expression of professional judgment, of the transaction on which the opinion is rendered or of the future performance of the parties to the transaction nor does the rendering of the opinion guarantee the outcome of any legal dispute that may arise out of the transaction. Original Issue Discount

An amount equal to the excess of the stated redemption price at maturity of any Bonds (the “Discount Bonds”) over the issue price (the “Offering Price”) of such Discount Bonds, will be treated as “original issue discount.” A bond’s stated redemption price at maturity is the aggregate of all payments required to be made on the bond except “qualified stated interest.” Qualified stated interest is generally interest that is unconditionally payable in cash or property, other than debt instruments of the issuing entity, at fixed intervals of one year or less during the entire term of the instrument at an interest rate or rates that satisfy requirements under the Treasury Regulations. The issue price will be the first price at which a substantial amount of the bonds are sold, excluding sales to bond houses, brokers or similar persons acting as underwriters, placement agents or wholesalers. With respect to a taxpayer who purchases a Discount Bond in the initial public offering at the Offering Price and who holds such Discount Bond to maturity, the full amount of original issue discount will constitute interest which is not includible in the gross income of the owner of such Discount Bond for Federal income tax purposes to the same extent as current interest and will not be treated as taxable capital gain upon payment of such Discount Bond upon maturity.

The original issue discount on each of the Discount Bonds is treated as accruing daily over the term of such Discount Bond on the basis of a constant yield computed at the end of each six month period (or shorter period from the date of original issue). The amount of original issue discount accruing during such period will be added to the owner’s tax basis for the Discount Bonds. Such adjusted tax basis will be used to determine taxable gain or loss upon disposition of the Discount Bonds (including sale, redemption or payment at maturity). An owner of a Discount Bond who disposes of it prior to maturity should consult such owner’s tax advisor as to the amount of original issue discount accrued over the period held and the amount of taxable gain or loss upon the sale or other disposition of such Discount Bond prior to maturity.

Owners who purchase Discount Bonds in the initial public offering but at a price different from the Offering Price or who do not purchase Discount Bonds in the initial public offering should consult their tax advisors with respect to the tax consequences of the ownership of such Discount Bonds.

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Owners of Discount Bonds should consult their own tax advisors with respect to the state and local tax consequences of owning the Discount Bonds. It is possible that under the applicable provisions governing the determination of state or local income taxes, accrued original issue discount on the Discount Bonds may be deemed to be received in the year of accrual even though there will not be a corresponding cash payment until a later year.

Market Discount

If a Bond is purchased at any time for a price that is less than the Bond’s Offering Price plus accrued original issue discount, if any, the purchaser may be treated as having purchased the Bond with market discount subject to the market discount rules of the Code (unless a statutory de minimis rule applies). Accrued market discount is treated as taxable ordinary income and is recognized when a Bond is disposed of (to the extent such accrued discount does not exceed gain realized) or, at the purchaser’s election, as it accrues. The applicability of the market discount rules may adversely affect the liquidity or secondary market price of such Bond. Purchasers should consult their own tax advisors regarding the potential implications of the market discount rules with respect to the Bonds.

Bond Premium

An amount equal to the excess of the purchase price of a Bond over the stated redemption price payable at maturity of such Bond constitutes amortizable bond premium that may not be deducted for Federal income tax purposes. For purposes of determining gain or loss on the sale or other disposition of such Bond, the tax basis of each Bond is decreased by the amount of the bond premium that has been amortized. Bond premium is amortized by offsetting the interest on the Bond allocable to an accrual period with the bond premium allocable to the accrual period. The bond premium allocable to an accrual period is the excess of the interest on the Bond allocable to the accrual period over the product of the owner’s adjusted acquisition price at the beginning of the accrual period and the owner’s yield (determined on the basis of a constant yield over the term of the Bond). If the bond premium allocable to an accrual period exceeds the interest on the Bond allocable to the accrual period, the excess is a nondeductible loss for Federal income tax purposes that reduces the owner’s basis in such Bond.

Sale and Retirement of the Bonds

Holders of the Bonds will recognize gain or loss on the sale, redemption, retirement or other disposition of such Bonds. The gain or loss is measured by the difference between the amount realized on the disposition of the Bond and the holder’s adjusted tax basis in the Bond. Such gain or loss will be capital gain or loss, except to the extent of accrued market discount not previously included in income, and will be long term capital gain or loss if at the time of disposition such Bond has been held for more than one year.

Backup Withholding and Information Reporting

Information reporting will apply to payments of the proceeds of the sale or other disposition of the Bond with respect to certain non-corporate holders, and backup withholding may apply unless the recipient of such payment supplies a taxpayer identification number, certified under penalties of perjury, as well as certain other information or otherwise establishes an exemption

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from backup withholding. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against that holder’s U.S. federal income tax liability provided the required information is furnished to the IRS.

CERTAIN LEGAL MATTERS

Legal matters incident to the authorization, issuance and sale by the City of the Bonds are subject to the approving legal opinions of Mayer Brown LLP, Chicago, Illinois, and Sanchez Daniels & Hoffman LLP, Chicago, Illinois, Co-Bond Counsel. The proposed form of opinions of Co-Bond Counsel is included as APPENDIX E. Co-Bond Counsel have not been retained or consulted on disclosure matters and have not undertaken to review or verify the accuracy, completeness or sufficiency of this Official Statement or other offering material relating to the Bonds and assume no responsibility for the statements or information contained in or incorporated by reference in this Official Statement, except that in their capacity as Co-Bond Counsel, at the request of the City, they have reviewed the information in this Official Statement involving the description of the Bonds and the Second Lien Indenture, the security for the Bonds and the description of the federal tax exemption of interest on the Bonds. This review did not include any obligation to establish or confirm factual matters set forth herein. The proposed form of the opinions of Co-Bond Counsel is included as APPENDIX E.

Certain legal matters will be passed on for the City by its Corporation Counsel, by Miller, Canfield, Paddock and Stone, P.L.C., Chicago, Illinois, and Charity & Associates, P.C., Chicago, Illinois, co-disclosure counsel to the City, and by Chapman & Cutler LLP, Chicago, Illinois, special disclosure counsel to the City for pension matters, and for the Underwriters by their counsel, Katten Muchin Rosenman LLP, Chicago, Illinois.

UNDERWRITING

The Bonds are being purchased by the group of underwriters identified on the cover page of this Official Statement (the “Underwriters”), on behalf of which Barclays Capital Inc. is acting as representative, subject to certain conditions set forth in a Bond Purchase Agreement with the City (the “Bond Purchase Agreement”). The Bond Purchase Agreement provides that the obligation of the Underwriters to accept delivery of the Bonds is subject to various conditions set forth therein, but the Underwriters will be obligated to purchase all of the Bonds if any of such Bonds are purchased. Pursuant to the Bond Purchase Agreement, the Underwriters expect to purchase the Bonds at a price of $843,214,436.91 (which reflects the par amount of the Bonds, plus an original issue premium of $75,518,296.80, less an underwriters’ discount of $4,113,859.89). The Underwriters reserve the right to join with dealers and other underwriters in offering the Bonds to the public.

The Bonds may be offered and sold at prices other than the initial offering prices,

including sales to dealers who may sell such Bonds into investment accounts. The Underwriters and their respective affiliates are full service financial institutions

engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage services. Certain of the Underwriters and their respective affiliates have, from

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time to time, performed, and may in the future perform, various financial advisory and investment banking services for the City, for which they received or will receive customary fees and expenses.

In the ordinary course of their various business activities, the Underwriters and their

respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities, which may include credit default swaps) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of the City.

The Underwriters and their respective affiliates may also communicate independent

investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.

Citigroup Global Markets Inc., an underwriter of the Bonds, has entered into a retail

distribution agreement with each of TMC Bonds L.L.C. (“TMC”) and UBS Financial Services Inc. (“UBSFS”). Under these distribution agreements, Citigroup Global Markets Inc. may distribute municipal securities to retail investors through the financial advisor network of UBSFS and the electronic primary offering platform of TMC. As part of this arrangement, Citigroup Global Markets Inc. may compensate TMC (and TMC may compensate its electronic platform member firms) and UBSFS for their selling efforts with respect to the Bonds.

Morgan Stanley, parent company of Morgan Stanley & Co. LLC., an underwriter of the

Bonds, has entered into a retail distribution arrangement with its affiliate Morgan Stanley Smith Barney LLC. As part of the distribution arrangement, Morgan Stanley & Co. LLC may distribute municipal securities to retail investors through the financial advisor network of Morgan Stanley Smith Barney LLC. As part of this arrangement, Morgan Stanley & Co. LLC may compensate Morgan Stanley Smith Barney LLC for its selling efforts with respect to the Bonds.

Academy Securities Inc., has entered into distribution agreements (each a “Distribution

Agreement” and collectively, the “Distribution Agreements”) with the following retail securities dealers: E*Trade Financial; IFS Financial Services; COR Capital Corporation (formerly Legent Clearing LLC); Wedbush Securities; Sutter Securities; Puplava Securities; TD Ameritrade (Distribution Agreement is on a deal-by-deal basis); Higgins Capital Management; R. Seelaus & Company, Inc.; UBS Securities (Distribution Agreement is on a deal-by-deal basis); Ladenburg Thalmann & Co.; Newbridge Securities Corporation; Maxim Group LLC; Ridgeway & Conger; World Equity Group; National Alliance Securities; JHS Capital Advisors; World First Financial; and Carolina Capital Markets. Pursuant to these Distribution Agreements (if applicable for this transaction), Academy Securities, Inc. may share a portion of its underwriting compensation with these retail securities dealers.

BNY Mellon Capital Markets, LLC, one of the underwriters of the Bonds, and Pershing

LLC, both direct or indirect subsidiaries of The Bank of New York Mellon Corporation, entered

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into a distribution agreement (the “BNYM Distribution Agreement:”) that enables Pershing LLC to distribute certain new issue municipal securities underwritten by or allocated to BNY Mellon Capital Markets, LLC, including the Bonds. Under the BNYM Distribution Agreement, BNY Mellon Capital Markets, LLC will share with Pershing LLC a portion of the fee or commission paid to BNY Mellon Capital Markets, LLC.

FINANCIAL ADVISOR

The City has engaged Frasca & Associates, LLC, New York, New York, as its Financial Advisor (the “Financial Advisor”) in connection with the authorization, issuance and sale of the Bonds. Under the terms of its engagement, the Financial Advisor will deliver a letter to the City regarding the fairness of the purchase price paid by the Underwriters to the City for the Bonds. Under the terms of its engagement, the Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification of or to assume responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement.

INDEPENDENT AUDITORS

The financial statements of the City of Chicago, Illinois – Chicago Midway International Airport as of and for the years ended December 31, 2012 and 2011, included as APPENDIX D to this Official Statement, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein.

Deloitte & Touche LLP has not compiled, examined, or performed any procedures with respect to the prospective financial information contained in this Official Statement, nor has Deloitte & Touche LLP expressed any opinion or any other form of assurance on such information or its achievability, and Deloitte & Touche LLP assumes no responsibility for, and disclaims association with, the prospective financial information included in this Official Statement.

SECONDARY MARKET DISCLOSURE

The City will enter into a Continuing Disclosure Undertaking (the “Undertaking”) for the benefit of the beneficial owners of the Bonds to send certain information annually and to provide notice of certain events to the Municipal Securities Rulemaking Board (the “MSRB”) pursuant to the requirements of Section (b)(5) of Rule 15c2-12 (the “Rule”) adopted by the SEC under the Securities Exchange Act, as amended (the “Exchange Act”). The MSRB has designated its electronic Municipal Market Access System, known as EMMA, as the system to be used for continuing disclosures to investors. The information to be provided on an annual basis, the events which will be noticed on an occurrence basis and a summary of other terms of the Undertaking, including termination, amendment and remedies, are set forth below.

A failure by the City to comply with the Undertaking will not constitute a default under the Second Lien Indenture and beneficial owners of the Bonds are limited to the remedies described in the Undertaking. See “− Consequences of Failure of the City to Provide Information” under this caption. A failure by the City to comply with the Undertaking must be reported in accordance with the Rule and must be considered by any broker, dealer or municipal

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securities dealer before recommending the purchase or sale of the Bonds in the secondary market. Consequently, such a failure may adversely affect the transferability and liquidity of the Bonds and their market price.

The following is a brief summary of certain provisions of the Undertaking of the City and does not purport to be complete. The statements made under this caption are subject to the detailed provisions of the Undertaking, copies of which are available from the City upon request.

Annual Financial Information Disclosure

The City covenants that it will disseminate its Annual Financial Information and its Audited Financial Statements to the MSRB. The City is required to deliver such information so that the MSRB receives the information by the dates specified in the Undertaking.

Southwest is at present the only Obligated Person (as defined below) other than the City. Southwest is required to file SEC Reports with the SEC under the Exchange Act as more fully described under the caption “CERTAIN INVESTMENT CONSIDERATIONS RELATING TO THE AIRLINES, THE AIRLINE INDUSTRY AND MIDWAY − Financial Condition of Airlines Serving Midway.” The City has no responsibility for the accuracy or completeness of any SEC Report filed by Southwest or by any future Obligated Person. Unless no longer required by the Rule, the City agrees to use its reasonable efforts to cause each Obligated Person other than the City (to the extent that such Obligated Person is not otherwise required to file SEC Reports under the Exchange Act), to file annual information substantially equivalent to that contained in the SEC Reports with the MSRB.

“Annual Financial Information” means (a) with respect to the City, financial and statistical data generally consistent with that contained in this Official Statement under the captions “CHICAGO MIDWAY INTERNATIONAL AIRPORT − Activity at Midway,” “MIDWAY FINANCIAL INFORMATION − Historical Operating Results,” “− Midway Indebtedness” and “− Debt Service Schedule” and (b) with respect to each Obligated Person other than the City, if such Obligated Person does not file SEC Reports, information substantially equivalent to that contained in the SEC Reports. If any of the City’s Annual Financial Information that is published by a third party is no longer publicly available, the City shall include a statement to that effect as part of its Annual Financial Information for the year in which such lack of availability arises.

“Audited Financial Statements” means the audited financial statements of Midway prepared in accordance with generally accepted accounting principles applicable to governmental units as in effect from time to time.

“Obligated Person” means the City and each airline or other entity at any time using Midway (i) that is obligated under an Airport Use Agreement, lease or other agreement having a term of more than one year to pay a portion of the debt service on the Airport Obligations and (ii) has paid amounts equal to at least 20% of the Revenues of Midway for each of the prior two fiscal years of Midway.

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Annual Financial Information exclusive of Audited Financial Statements will be provided to the MSRB not more than 210 days after the last day of the City’s fiscal year, which currently is December 31. If Audited Financial Statements are not available when the Annual Financial Information is filed, unaudited financial statements shall be included and Audited Financial Statements will be filed when available.

Events Notification; Reportable Events Disclosure

The City covenants that it will disseminate the disclosure of the occurrence of an Event (as defined below) to the MSRB in a timely manner, not in excess of ten business days after the occurrence of the Event. The “Events,” certain of which may not be applicable to the Bonds, are:

1. principal and interest payment delinquencies;

2. non-payment related defaults, if material;

3. unscheduled draws on debt service reserves reflecting financial difficulties;

4. unscheduled draws on credit enhancements reflecting financial difficulties;

5. substitution of credit or liquidity providers, or their failure to perform;

6. adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the securities, or other material events affecting the tax status of the securities;

7. modifications to rights of security holders, if material;

8. bond calls, if material, and tender offers;

9. defeasance;

10. release, substitution or sale of property securing repayment of the securities, if material;

11. rating changes;

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12. bankruptcy, insolvency, receivership, or similar proceedings of an Obligated Person;*

13. the consummation of a merger, consolidation, or acquisition involving an Obligated Person or the sale of all or substantially all of the assets of an Obligated Person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and

14. appointment of a successor or additional trustee, or the change of the name of a trustee, if material.

Consequences of Failure of the City to Provide Information

The City shall give notice in a timely manner not in excess of ten business days to the MSRB of any failure to provide disclosure of Annual Financial Information and Audited Financial Statements when the same are due under the Undertaking.

In the event of a failure of the City to comply with any provision of the Undertaking, the beneficial owner of any Bond may seek mandamus or specific performance by court order to cause the City to comply with its obligations under the Undertaking. The Undertaking provides that any court action must be initiated in the Circuit Court of Cook County, Illinois. A default under the Undertaking shall not be deemed a default under the Second Lien Indenture, and the sole remedy under the Undertaking in the event of any failure of the City to comply with the Undertaking shall be an action to compel performance.

Amendment; Waiver Notwithstanding any other provision of the Undertaking, the City may amend the

Undertaking, and any provision of the Undertaking may be waived, if: (a) (i) the amendment or the waiver is made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of the City or type of business conducted; (ii) the Undertaking, as amended, or the provision, as waived, would have complied with the requirements of the Rule at the time of the primary offering, after

* Note that, for purposes of the event identified in item 12, the event is considered to occur when any of the following occur: The appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person.

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taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (iii) the amendment or waiver does not materially impair the interests of the beneficial owners of the Bonds, as determined by parties unaffiliated with the City (such as the Trustee or co-bond counsel), or by approving vote of the beneficial owners of the Bonds pursuant to the terms of the Indenture at the time of the amendment; or (b) the amendment or waiver is otherwise permitted by the Rule.

Termination of Undertaking The Undertaking shall be terminated if the City shall no longer have any legal liability for

any obligation on or relating to repayment of the Bonds under the Indenture.

EMMA All documents submitted to the MSRB through EMMA pursuant to the Undertaking shall

be in electronic format and accompanied by identifying information as prescribed by the MSRB, in accordance with the Rule. All documents submitted to the MSRB through EMMA will be word-searchable PDFs, configured to permit documents to be saved, viewed, printed and electronically retransmitted.

Additional Information Nothing in the Undertaking shall be deemed to prevent the City from disseminating any

other information, using the means of dissemination set forth in the Undertaking or any other means of communication, or including any other information in any Annual Financial Information or Audited Financial Statements or notice of occurrence of an Event, in addition to that which is required by the Undertaking. If the City chooses to include any other information in any Annual Financial Information or Audited Financial Statements or notice of occurrence of an Event in addition to that which is specifically required by the Undertaking, the City shall have no obligation under the Undertaking to update such other information or include it in any future Annual Financial Information or Audited Financial Statements or notice of occurrence of an Event.

Corrective Action Related to Certain Bond Disclosure Requirements

The City has taken corrective actions with respect to its undertakings to file Annual Financial Information and notices of Events for certain previously issued bonds including, but not limited to, bonds payable from revenues derived at Midway. These corrective actions are explained below.

The Rating Agencies took certain rating actions with respect to the ratings of Ambac Assurance Corporation (“Ambac”), Financial Security Assurance Inc. (“FSA”) and Assured Guaranty Corp. (“Assured” collectively with Ambac and FSA, the “Bond Insurers”). The Bond Insurers provided municipal bond insurance policies relating to the Series 2001 First Lien Bonds

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and the Series 2004 Second Lien Bonds. Event notices with respect to such rating changes were not filed as required by the Rule. The City made such required filings on May 22, 2014. In addition, the City generally directs its bond trustees to file notices of redemptions of bonds with EMMA in compliance with the Rule. An event notice with respect to the advance refunding of the Series 2010B Second Lien Bonds in December of 2013 was not filed with EMMA in compliance with the Rule. The City made a filing with EMMA on May 22, 2014 to correct this deficiency.

Ambac provided a municipal bond insurance policy relating to the City’s Motor Fuel Tax

Revenue Bonds, Series 2003A and Assured provided municipal bond insurance policies relating to the City’s Motor Fuel Tax Revenue Bonds, Series 2008. Event notices with respect to the rating changes taken by the Rating Agencies with respect to these insurers were not filed as required by the Rule. The City is in the process of making a filing with EMMA correct this deficiency.

Each continuing disclosure agreement for the City’s various series of Collateralized Single Family Mortgage Revenue Bonds (collectively, “Single Family Bonds”) requires that the annual report for each year that the bonds of such series are outstanding be filed by June 1 of the following year. For several series of Single Family Bonds, the annual report for 2008 was filed by the trustee, as dissemination agent, on June 5, 2009. For the City’s Collateralized Single Family Mortgage Revenue Bonds, Series 2002D, the annual report for 2012 was filed by the trustee, as dissemination agent, on September 19, 2013.

With respect to the City’s Collateralized Single Family Mortgage Revenue Bonds, Series 2006A (the “Series 2006A Bonds”), Standard & Poor’s Ratings Services, a Division of The McGraw-Hill Companies (“S&P”), lowered its rating on the Series 2006A Bonds from “AA+” to “AA” and placed the Series 2006A Bonds on “Credit Watch with negative implications” effective December 16, 2011. The City did not cause the trustee as dissemination agent to file a notice of a reportable event with EMMA at that time. Subsequently, S&P upgraded the rating on the Series 2006A Bonds from “AA” to “AA+” effective March 12, 2012. On March 18, 2012, S&P removed the “Credit Watch with negative implications” characterization from the Series 2006A Bonds. The City caused the trustee, as dissemination agent, for the Series 2006A Bonds to file a notice of a reportable event with EMMA on March 26, 2012 disclosing the downgrade and subsequent upgrade of the Series 2006A Bonds by S&P.

With respect to the City’s Chicago O’Hare International Airport General Airport Third Lien Revenue Bonds for which the City has a continuing disclosure obligation, American Airlines is an “obligated person” with respect to such bonds. On November 29, 2011, AMR Corporation (the parent company of American Airlines and American Eagle) and certain of its United States–based subsidiaries (including American Airlines and American Eagle) filed voluntary petitions for Chapter 11 reorganization in the United States Bankruptcy Court for the Southern District of New York. The City filed a notice with EMMA with respect to this event on March 30, 2012 (which filing was not within the ten business-day deadline imposed by the City’s continuing disclosure undertaking pursuant to Section (b)(5) of the Rule).

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With respect to the City’s Outstanding Motor Fuel Tax Revenue Bonds, the City’s pledge of Additional City Revenues to the payment of such bonds (in addition to the pledge of Motor Fuel Tax Revenues) became effective as of March 19, 2013. The City filed a notice with EMMA describing the pledge of this additional source of revenue on May 16, 2013.

With respect to the City’s outstanding O’Hare International Airport Customer Facility

Charge Senior Lien Revenue Bonds, Series 2013, Simply Wheelz, LLC d/b/a Advantage Rent A Car (“Advantage”) is an “obligated person” with respect to such bonds. Advantage filed a voluntary bankruptcy petition in the Southern District of Mississippi on November 5, 2013. The City filed a notice with EMMA with respect to this event on December 5, 2013 (which filing was not within the ten business-day deadline imposed by the City’s continuing disclosure undertaking pursuant to Section (b)(5) of the Rule).

RATINGS

Moody’s Investors Service (“Moody’s”), S&P and Fitch Ratings (“Fitch”), have assigned their long-term ratings of “A3” (stable outlook), “A-” (stable outlook) and “A-” (stable outlook), respectively, to the Bonds.

Such ratings reflect views of such organizations and are not a recommendation to buy, sell or hold the Bonds. Any desired explanation of the significance of such ratings should be obtained from the ratings agency furnishing the same, at the following addresses: Moody’s Investor Services, 7 World Trade Center, 250 Greenwich Street, New York, New York 10007; Standard and Poor’s, 55 Water Street, New York, New York 10041; or Fitch, One State Street Plaza, New York, New York 10004.

A rating reflects only the views of the rating agency assigning such rating and an explanation of the significance of such rating may be obtained from such rating agency. The City has furnished to the rating agencies certain information and materials relating to the Bonds and Midway, including certain information and materials that have not been included in this Official Statement. Generally, rating agencies base their ratings on such information and materials and investigations, studies and assumptions by the respective rating agency. There is no assurance that any rating of Bonds will continue for any given period of time, or that any rating of Bonds will not be revised downward or withdrawn entirely by either such rating agency if, in its judgment, circumstances so warrant. Any such downward revision or withdrawal of any such rating may have an adverse effect on the market price of the Bonds.

AIRPORT CONSULTANT

The Supplemented Report of the Airport Consultant prepared by the Airport Consultant, included as APPENDIX F, evaluates aviation activity at Midway and presents a financial feasibility analysis for Midway. The Projections are based, in part, on historic data from sources considered by the Airport Consultant to be reliable, but the accuracy of these data has not been independently verified. The Projections (as defined under “CERTAIN INVESTMENT CONSIDERATIONS RELATING TO THE AIRLINES, THE AIRLINE INDUSTRY AND MIDWAY—Assumptions in the Supplemented Report of the Airport Consultant”) are based on

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assumptions made by the Airport Consultant concerning future events and circumstances which the Airport Consultant believes are significant to the Projections. The achievement of the results described in the Projections may be affected by fluctuating economic conditions and depends upon the occurrence of other future events which cannot be assured. Therefore, the actual results achieved may vary from the forecasts, and such variations could be material.

MISCELLANEOUS

The summaries or descriptions in this Official Statement of provisions in the Second Lien Indenture and the Airport Use Agreements and all references to other materials not purporting to be quoted in full are only brief outlines of certain provisions and do not constitute complete statements of such documents or provisions. Reference is made to the complete documents relating to such matter for further information, copies of which will be furnished by the City upon written request delivered to the office of the City’s Chief Financial Officer, 121 N. LaSalle Street, 7th Floor, Chicago, Illinois 60602.

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AUTHORIZATION

The City has authorized the distribution of this Official Statement.

This Official Statement has been duly executed and delivered by the Chief Financial Officer on behalf of the City.

CITY OF CHICAGO

By: Lois A. Scott Chief Financial Officer

[THIS PAGE INTENTIONALLY LEFT BLANK]

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APPENDIX A GLOSSARY OF TERMS

The following are definitions of certain terms used in the Second Lien Indenture and this

Official Statement. This glossary is provided for the convenience of the reader and does not purport to be comprehensive or definitive. All references herein to terms defined in the Second Lien Indenture are qualified in their entirety by the definitions set forth in the Second Lien Indenture. Copies of the Second Lien Indenture are available for review prior to the delivery of the Bonds at the office of the City’s Chief Financial Officer and thereafter at the office of the Second Lien Trustee.

“Aggregate First Lien Debt Service” means, as of any particular date of computation and with respect to a particular Bond Year or other specified 12-month period, an amount of money equal to the aggregate of the amounts of Annual First Lien Debt Service with respect to such Bond Year or other specified 12-month period and to the First Lien Bonds of all series.

“Aggregate Second Lien Debt Service” means, as of any particular date of computation and with respect to a particular Bond Year or other specified 12-month period, an amount of money equal to the aggregate amounts required by the provisions of all Supplemental Indentures creating series of Second Lien Obligations and all instruments creating Section 208 Obligations and Section 209 Obligations to be deposited from Second Lien Revenues in all sub-funds, accounts and sub-accounts created under such Supplemental Indentures in such Bond Year or other specified 12-month period.

“Airport” or “Midway” means Chicago Midway International Airport.

“Airport Obligations” means any bonds, notes, or other evidences of indebtedness of the City, which bonds, notes, or other evidences of indebtedness are payable from Revenues.

“Airport Project” means any capital improvement at or related to the Airport, or the acquisition of land beyond the then-current boundaries of the Airport for use as part of the Airport, or any cost or expense paid or incurred in connection with or related to the Airport whether or not of a capital nature and whether or not related to facilities at the Airport, including, but not limited to, amounts needed to satisfy any judgment and the cost of any noise mitigation programs.

“Annual First Lien Debt Service” means, as of any particular date of computation and with respect to a particular Bond Year or other specified 12-month period and to First Lien Bonds of a particular series, an amount of money equal to the sum of (a) all interest payable during such Bond Year or other specified 12-month period on all First Lien Bonds of said series Outstanding (as defined in the First Lien Indenture) on said date of computation and (b) all Principal Installments payable during such Bond Year or other specified 12-month period with respect to all First Lien Bonds of said series Outstanding (as defined in the First Lien Indenture) on said date of computation, all calculated on the assumption that First Lien Bonds will after said date of computation cease to be Outstanding (as defined in the First Lien Indenture) by reason, but only by reason, of the payment when due and application in accordance with the First Lien

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Indenture and the Supplemental Indenture creating such series of First Lien Bonds of Principal Installments payable at or after said date of computation.

“Annual Second Lien Debt Service” means, as of any particular date of computation and with respect to a particular Bond Year or other specified 12-month period and to Second Lien Obligations of a particular series or consisting of a particular Section 208 Obligation or Section 209 Obligation, an amount of money equal to the sum of (a) all interest payable during such Bond Year or other specified 12-month period on all Second Lien Obligations of said series, Section 208 Obligation or Section 209 Obligation Outstanding on said date of computation, and (b) all Principal Installments payable during such Bond Year or other specified 12-month period with respect to all Second Lien Obligations of said series, Section 208 Obligation or Section 209 Obligation Outstanding on said date of computation, all calculated on the assumption that Second Lien Obligations, Section 208 Obligations and Section 209 Obligations will, after said date of computation, cease to be outstanding by reason, but only by reason, of the payment when due and application in accordance with the Master Indenture and the Supplemental Indenture creating such series or the instrument creating such Section 208 Obligation or Section 209 Obligation of Principal Installments payable at or after said date of computation.

“Authorized Denomination” means $5,000 or any integral multiple thereof.

“Authorized Officer” means (a) the Mayor, the Chief Financial Officer, the Commissioner, the City Comptroller or any other official of the City so designated by a Certificate signed by the Mayor and filed with the Trustee for so long as such designation shall be in effect and (b) the City Clerk with respect to the certification of any ordinance or resolution of the City Council or any other document filed in his or her office.

“Bond Counsel” means a firm of attorneys having experience in the field of law relating to municipal, state and public agency financing, selected by the City and satisfactory to the Second Lien Trustee.

“Bond Register” means the registration books of the City kept by the Second Lien Trustee (in its capacity as Bond Registrar) to evidence the registration and transfer of Second Lien Bonds.

“Bond Registrar” means the Second Lien Trustee.

“Bond Year” means a 12-month period commencing on January 2 of each calendar year and ending on January 1 of the next succeeding calendar year.

“Bondholder,” “holder,” “owner of the Bonds,” or “registered owner” means the Registered Owner of any Bond.

“Bonds” for purposes of the appendices means the Series 2014A Bonds and the Series 2014B Bonds.

“Business Day” shall mean a day except Saturday, Sunday or any day on which banks located in the States of New York or Illinois are required or authorized to close or on which the New York Stock Exchange is closed.

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“CFC Statute” means Section 6-305 of the Illinois Vehicle Code, 625 ILCS 5/6-305(j).

“City” means the City of Chicago, a municipal corporation and home rule unit of local government, organized and existing under the Constitution and laws of the State.

“Code” means the Internal Revenue Code of 1986, as from time to time supplemented and amended. References to the Code and to sections of the Code shall include relevant final, temporary or proposed Regulations as in effect from time to time and, with reference to any series of Second Lien Obligations, as applicable to obligations issued on the Date of Issuance of such series.

“Common Debt Service Reserve Sub-Fund” means the Common Debt Service Reserve Sub-Fund created by the Nineteenth Supplemental Indenture for the benefit of the Common Reserve Bonds.

“Common Reserve Bonds” means the Bonds, the Series 2013 Second Lien Bonds and any other bonds issued under the Indenture designated by the City to be entitled to the benefit of the Common Debt Service Reserve Sub-Fund.

“Completion Obligation” means any Second Lien Obligation issued for the purpose of

defraying additional costs of an Airport Project or Projects financed by the First Lien Bonds or Second Lien Obligations.

“Consulting Engineer” means a registered or licensed engineer or engineers, or firm or

firms of engineers, with expertise in the field of designing, preparing plans and specifications for, supervising the construction, improvement and expansion of, and supervising the maintenance of, airports and aviation facilities, entitled to practice and practicing as such under the laws of the State, who, in the case of any individual, shall not be an officer or employee of the City.

“Costs of Issuance” means any item of expense payable or reimbursable, directly or indirectly, by the City and related to the authorization, offering, sale, issuance and delivery of Second Lien Obligations, including but not limited to travel and other expenses of any officer or employee of the City in connection with the authorization, offering, sale, issuance and delivery of such Second Lien Obligations, printing costs, costs of preparation and reproduction of documents, filing and recording fees, initial fees and charges of the Trustee, legal fees and disbursements, fees and disbursements of the Independent Airport Consultant, Independent Accountant and the Consulting Engineer, fees and disbursements of other consultants and professionals, costs of credit ratings, fees and charges for preparation, execution, transportation and safekeeping of Second Lien Obligations, application fees and premiums on municipal bond insurance and credit facility charges and costs.

“Costs of Issuance Account” means the account of that name established in the Series 2014A Dedicated Sub-Fund and the account of that name established in the Series 2014B Dedicated Sub-Fund, as described under “APPENDIX B–SUMMARY OF CERTAIN PROVISIONS OF THE SECOND LIEN INDENTURE–Payment of Debt Service on the Bonds and Related Section 208 and Section 209 Obligations.”

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“Customer Facility Charges” means the customer facility charges authorized by an ordinance adopted by the City Council of the City on July 27, 2005, and any and all amendments or supplements thereto and the CFC Statute to be charged with respect to the Airport. Customer Facility Charges are not Revenues within the meaning of the Indenture or the First Lien Indenture. Customer Facility Charges are Other Available Moneys within the meaning of the Indenture and the First Lien Indenture, but only with respect to the Series 2010C Bonds.

“Date of Issuance” means the date of original issuance and delivery of the Bonds.

“Defaulted Interest” means interest on any Bond which is payable but not duly paid on the date due.

“Defeasance Obligation” means direct non-callable obligations of the United States of America and securities fully and unconditionally guaranteed as to the timely payment of principal and interest by the United States of America, to which direct obligation or guarantee the full faith and credit of the United States of America has been pledged, Refcorp interest strips, CATS, TIGRS, STRPS or non-callable defeased municipal bonds rated AAA by any Rating Agency.

“DTC” means The Depositary Trust Company.

“Federal Obligation” means any direct obligation of, or any obligation the full and timely payment of principal of and interest on which is guaranteed by, the United States of America.

“First Lien Bonds” means (a) any of the bonds of the City authenticated and delivered under and pursuant to Article II of the First Lien Indenture and (b) any Airport Obligations described in the Master Indenture.

“First Lien Debt Service Fund” means the Debt Service Fund created by the First Lien Indenture.

“First Lien Debt Service Reserve Fund” means the Debt Service Reserve Fund created by the First Lien Indenture.

“First Lien Indenture” means the Master Indenture of Trust Securing Chicago Midway Airport Revenue Bonds dated as of April 1, 1994, from the City to the First Lien Trustee, as heretofore amended or supplemented and as further amended or supplemented by one or more Supplemental First Lien Indentures.

“First Lien Revenue Fund” means the Revenue Fund created by the First Lien Indenture.

“Fiscal Year” means January 1 through December 31 of any year, or such other fiscal year as the City may adopt for the Airport.

“Fitch” means Fitch Ratings, a corporation organized and existing under the laws of the State of Delaware, its successors and assigns and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions or a securities rating agency, “Fitch” shall be

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deemed to refer to any other nationally recognized securities agency designated by the City by notice to the Trustee.

“Funds” means the special funds created and established pursuant to the Second Lien Indenture.

“Indenture,” “Master Indenture,” or “Second Lien Indenture” means the Master Indenture of Trust Securing Chicago Midway Airport Second Lien Obligations, dated as of September 1, 1998, from the City to the Trustee, as amended, pursuant to which Chicago Midway Airport Second Lien Bonds are authorized to be issued, and any amendments and supplements thereto. References to Articles and Sections of the Indenture shall be deemed to refer to Articles and Sections of the Indenture as amended.

“Independent Accountant” means a certified public accountant selected by the City and licensed to practice in the State, and who (a) in the case of an individual, shall not be an officer or employee of the City, (b) shall be satisfactory to the Trustee, and (c) may be the accountant that regularly audits the books of the City or the Airport.

“Independent Airport Consultant” means a consultant, other than a Consulting Engineer, selected by the City, with expertise in the administration, financing, planning, maintenance and operations of airports and facilities thereof, and who, in the case of an individual, shall not be an officer or employee of the City.

“Interest Payment Date” means, with respect to the Series 2014A Bonds and the Series 2014B Bonds, January 1 and July 1 of each year, commencing January 1, 2015.

“Junior Lien Obligation Debt Service Fund” means the Junior Lien Obligation Debt Service Fund created by the First Lien Indenture.

“Junior Lien Obligations” means any bonds, notes or evidences of indebtedness, including the Second Lien Obligations, other than First Lien Bonds and Special Facility Revenue Bonds, issued by the City as permitted by the First Lien Indenture.

“Junior Lien Revenues” means all sums, amounts, funds or moneys which may be withdrawn for the Junior Lien Obligation Debt Service Fund for the payment of Junior Lien Obligations pursuant to provisions of the First Lien Indenture.

“MATCO” means the Midway Airlines’ Terminal Consortium, formed to construct the Fuel System at the Airport and to operate and maintain certain airline equipment and the Fuel System at the Airport, pursuant to the MATCO Agreement.

“MATCO Agreement” means the agreement between the City and MATCO effective as of January 1, 2013, as amended and as such agreement may be hereinafter amended in accordance with its term.

“Maturity Date” mean with respect to the Series 2014A Bonds and the Series 2014B

Bonds, each as of the dates as shown on the inside cover pages of this Official Statement.

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“Moody’s” means Moody’s Investors Service, Inc., a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “Moody’s” shall be deemed to refer to any other nationally recognized securities rating agency designated by the City by notice to the Trustee.

“Nineteenth Supplemental Indenture” means the Nineteenth Supplemental Indenture, dated as of June 1, 2014 from the City to the Trustee supplementing the Second Lien Indenture and pursuant to which the Common Debt Service Reserve Sub-Fund is created and held.

“Opinion of Bond Counsel” means a written opinion of Bond Counsel in form and substance acceptable to the City, the Bank and the Trustee.

“Ordinance” means the ordinance duly adopted by the City Council of the City on February 5, 2014, which authorizes the issuance and sale of the Bonds and the execution and delivery of the Nineteenth Supplemental Indenture, the Twentieth Supplemental Indenture and the Twenty-First Supplemental Indenture.

“Other Available Moneys” means, for any Fiscal Year, the amount of money determined by the Chief Financial Officer to be transferred by the City for such Fiscal Year from sources other than Revenues to the First Lien Revenue Fund, the First Lien Debt Service Fund or any debt service fund for Second Lien Obligations.

“Outstanding” when used with reference to Second Lien Obligations means, as of any date, all Second Lien Obligations theretofore or thereupon being issued under the Second Lien Indenture or Section 208 Obligations except: (a) Second Lien Obligations cancelled by the Second Lien Trustee or the owner of a Section 208 Obligation or Section 209 Obligation, as the case may be, at or prior to such date or theretofore delivered to the Second Lien Trustee or the City, as the case may be, for cancellation; (b) Second Lien Obligations (or portions of Second Lien Obligations) for the payment or redemption of which there shall be held in trust and set aside for such payment or redemption (whether at, prior to or after the maturity or redemption date) moneys or Defeasance Obligations, the principal of an interest on which when due or payable will provide moneys, together with the moneys, if any, deposited with the Second Lien Trustee at the same time, in an amount sufficient to pay the principal or Redemption Price thereof, as the case may be, with interest to the date or maturity or redemption date, and, if such Second Lien Obligations are to be redeemed, for which notice of such redemption shall have been given as provided in the related Supplemental Indenture or provisions satisfactory to the Second Lien Trustee shall have been made for the giving of such notice; (c) Second Lien Obligations for the transfer or exchange or, in lieu of or in substitution for which other Second Lien Obligations shall have been authenticated and delivered pursuant to the Second Lien Indenture; and (d) Second Lien Obligations deemed to have been paid as described under “APPENDIX B–SUMMARY OF CERTAIN PROVISIONS OF THE SECOND LIEN INDENTURE—Defeasance.”

“Participant” when used with respect to any Securities Depository, means any participant of such Securities Depository.

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“Passenger Facility Charge” or “PFC” means the passenger facility charge as authorized under Section 1113(e) of the Federal Aviation Act of 1958, as amended by Section 9110 of the Omnibus Budget Reconciliation Act of 1990, and as approved by the FAA from time to time with respect to the Airport.

“Paying Agent” means The Bank of New York Mellon Trust Company, N.A., or its successor.

“Principal and Interest Account” means the account of that name established in the Series 2014A Dedicated Sub-Fund, or the account of that name established in the Series 2014B Dedicated Sub-Fund, each as described in “APPENDIX B–SUMMARY OF CERTAIN PROVISIONS OF THE SECOND LIEN INDENTURE–Payment of Debt Service on the Bonds and Related Section 208 and Section 209 Obligations.”

“Principal and Interest Account Requirement” means for each series of Bonds an amount equal to (i) the interest due on such series of Bonds on the next succeeding Interest Payment Date plus (ii) one-half of the total Principal Installments due on such series of Bonds on the next succeeding January 1.

“Principal Installments” means as of any particular date and with respect to Second Lien Bonds of a particular series or consisting of a particular Section 208 Obligation, an amount of money equal to the aggregate of (a) the principal amount of Outstanding Second Lien Obligations of said series of Section 208 Obligation which mature on a single future date, reduced by the aggregate principal amount of such Outstanding Second Lien Obligations which would at or before said future date be retired by reason of the payment when due and the application in accordance with the Second Lien Indenture and the Supplemental Indenture creating such series or the instrument creating such Section 208 Obligation of sinking fund payments payable at or before said future date for the retirement of such Outstanding Second Lien Obligations, plus (b) the amount of any sinking fund payments payable on said future date for the retirement of such Outstanding Second Lien Obligations, and said future date shall, for all purposes of the Second Lien Indenture, be deemed to be the date when such Principal Installment is payable and the date of such Principal Installment.

“Program Fee Account” means the accounts of that name established in the Series 2014A Dedicated Sub-Fund or the account of that name established in the Series 2014B Dedicated Sub-Fund as described in “APPENDIX B–SUMMARY OF CERTAIN PROVISIONS OF THE SECOND LIEN INDENTURE–Payment of Debt Service on the Bonds and Related Section 208 and Section 209 Obligations.”

“Program Fees” means:

(a) the fees, expenses and other charges payable to each fiduciary, including the Trustee, the Trustee’s Agent and any Paying Agent, pursuant to the provisions of the Indenture; provided that if at any time there shall be any series of Second Lien Obligations Outstanding under the Indenture other than the Bonds, then “Program Fees,” for purposes of the Twentieth Supplemental Indenture, the Twenty-First Supplemental Indenture and the Twenty-First Supplemental Indenture shall mean only such portion of such fees, expenses and other charges as

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shall be payable with respect to, or properly allocable to, the duties performed by each such fiduciary with respect to such Bonds;

(b) the fees, expenses and other charges payable under the Nineteenth Supplemental Indenture, the Twentieth Supplemental Indenture and the Twenty-First Supplemental Indenture; and

(c) any other fees, expenses and other charges of a similar nature payable by the City to any person under the applicable Supplemental Indenture or otherwise with respect to the Bonds.

“Qualified Reserve Account Instrument” means a letter of credit, surety bond or non-cancelable insurance policy issued by a domestic or foreign bank, insurance company or other financial institution whose debt obligations are rated “Aa” or better by Moody’s or “AA” or better by S&P as of the date of issuance thereof.

“Qualified Swap Agreement” means an agreement between the City and a Swap Provider under which the City agrees to pay the Swap Provider an amount calculated at an agreed-upon rate or index based upon a notional amount and the Swap Provider agrees to pay the City for a specified period of time, an amount calculated at an agreed-upon rate or index based upon such notional amount, where (a) each Rating Agency (if such Rating Agency also rates the unsecured obligations of the Swap Provider or its guarantor) has assigned to the unsecured obligations of the Swap Provider or of the Person who guarantees the obligation of the Swap Provider to make its payments to the City, as of the date the swap agreement is entered into, a rating that is equal to or higher than the rating then assigned to the Second Lien Obligations by such Rating Agency (without regard to municipal bond insurance or any other credit facility), and (b) the City has notified each Rating Agency (whether or not such Rating Agency also rates the unsecured obligations of the Swap Provider or its guarantor) in writing, at least 15 days prior to executing and delivering the swap agreement, of its intention to enter into the swap agreement and has received from such Rating Agency a written indication that the entering into of the swap agreement by the City will not in and of itself cause a reduction or withdrawal by such Rating Agency of its unenhanced rating on the Second Lien Obligations.

“Rating Agency” means any rating agency that has an outstanding credit rating assigned to any Second Lien Obligations at the request of the City.

“Record Date” means June 15 and December 15 of each year.

“Redemption Price” means with respect to any series of Second Lien Obligations, the principal amount thereof plus the applicable premium, if any, payable upon redemption thereof pursuant to the provisions of such Second Lien Obligations or the Supplemental Indenture creating such series of Second Lien Obligations, or such other redemption price as may be specified in such Second Lien Obligations or Supplemental Indenture.

“Refunding Obligations” means all Second Lien Obligations, whether issued in one or more series, authenticated and delivered on original issuance for the purpose of the refunding of First Lien Bonds or Second Lien Obligations of any series.

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“Registered Owner” or “Owner” means the person or persons in whose name or names a Bond shall be registered in the Bond Register.

“Reserve Requirement” for the Common Debt Service Reserve Sub-Fund means the lesser of (i) the maximum amount of Annual Second Lien Debt Service payable on the Common Reserve Bonds in the current or any succeeding Bond Year, (ii) 125% of the average Annual Second Lien Debt Service on the Common Reserve Bonds or (iii) 10% of the original principal amount of the Common Reserve Bonds, provided however, that if upon the issuance of a series of Common Reserve Bonds such amount would require that moneys be paid into the Common Debt Service Reserve Sub-Fund from the proceeds of such Common Reserve Bonds in an amount in excess of the maximum amount permitted under the Code, the Reserve Requirement shall be the sum of (a) the Reserve Requirement immediately preceding the issuance of such Common Reserve Bonds and (b) the maximum amount permitted under the Code to be deposited from the proceeds of such bonds, as certified by the Chief Financial Officer.

“Revenues” means, for any Fiscal Year, except to the extent hereinafter excluded, all

revenues, payments, proceeds, fees, charges, rent and all other income of any nature, including investment income on moneys held under the First Lien Indenture or on other funds of the Airport, derived directly or indirectly by or for the City for such Fiscal Year for the use of, and for the services and facilities furnished by, or from the operation or ownership of, or with respect to the Airport, and any proceeds of business interruption insurance and any other insurance proceeds which are deemed to be revenues in accordance with generally accepted accounting principles; provided, however, the following shall not be included in Revenues: (a) the proceeds of any Passenger Facility Charge or similar charge levied by or on behalf of the City (and investment income thereon); (b) any grants, gifts, bequests, contributions or donations, including any such funds provided by any person or entity, including an airline, doing business at the Airport; (c) the proceeds from the sale, transfer or other disposition of title by the City to all or any part of the Airport; (d) the proceeds of any taxes collected at the Airport; (e) the proceeds of any condemnation award or insurance received by the City except condemnation awards and insurance proceeds which are deemed to be revenues in accordance with generally accepted accounting principles; (f) the proceeds of any court or arbitration award or settlement in lieu thereof received by the City except (i) awards or settlements which are deemed to be revenues in accordance with generally accepted accounting principles, or (ii) awards or settlements which constitute reimbursements for costs previously incurred as Operation and Maintenance Expenses (as defined in the Second Lien Indenture); (g) amounts derived by the City with respect to debt service on Special Facility Revenue Bonds; (h) the proceeds of any bonds or other indebtedness of the City; (i) payments to the City of the principal of and interest, if any, on any loan made by the City for Airport purposes; (j) investment income on moneys held in the Construction Fund, the Special Project Fund, the Emergency Reserve Fund and the Airport Development Fund (each as defined in the Indenture); and (k) any other amounts which are not deemed to be revenues in accordance with generally accepted accounting principles or which are restricted as to their use.

“S&P” means Standard & Poor’s Rating Services, a division of The McGraw-Hill

Companies, Inc., its successors and assigns, and, if S&P shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “S&P” shall be deemed to refer to

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any other nationally recognized securities rating agency designated by the City by notice to the Trustee.

“Second Lien Obligations” means (a) any of the bonds, notes or evidences of indebtedness issued by the City under and pursuant to the Master Indenture, (b) any Section 208 Obligations, and (c) any Section 209 Obligations.

“Second Lien Revenues” means all Junior Lien Revenues paid to the Second Lien Trustee pursuant to the First Lien Indenture.

“Second Lien Revenue Fund” means the Revenue Fund created by the Second Lien Indenture.

“Second Lien Trustee” or “Trustee” means The Bank of New York Mellon Trust Company, N.A. (as successor to American National Bank and Trust Company of Chicago), as trustee under the Second Lien Indenture, or its successor as such trustee hereafter appointed in the manner provided in the Second Lien Indenture.

“Section 208 Obligations” means any obligations incurred by the City to reimburse the issuer or issuers of one or more letters of credit, lines of credit, standby bond purchase agreements, financial guaranty insurance policies or surety bonds (including Qualified Reserve Account Instruments) securing one or more series of Second Lien Obligations, including any fees or other amounts payable to the issuer of any such letter of credit, line of credit, standby purchase agreement, financial guaranty insurance policy or surety bond, whether such obligations are set forth in one or more reimbursement agreements entered into between the City and the issuer of any such letter of credit, line of credit, standby purchase agreement, financial guaranty insurance policy or surety bond, or in one or more notes or other evidences of indebtedness executed and delivered by the City pursuant thereto, or any combination thereof.

“Section 209 Obligations” means any obligations incurred by the City to any one or more swap providers, including any fees or amounts payable by the City under each related Qualified Swap Agreement.

“Securities Depository” means DTC and its successors and assigns or any other securities depository registered as a clearing agency with the Securities and Exchange Commission pursuant to Section 17A of the Securities Exchange Act of 1934, as amended, and appointed as the securities depository for the Bonds.

“Series 2014A Bonds” means the Chicago Midway Airport Second Lien Revenue and Revenue Refunding Bonds, Series 2014A (AMT) authorized to be issued pursuant to the Twentieth Supplemental Indenture.

“Series 2014A Dedicated Sub-Fund” means the Chicago Midway Airport Series 2014A Second Lien Bonds Dedicated Sub-Fund established in the Second Lien Revenue Fund as described in the Twentieth Supplemental Indenture.

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“Series 2014B Bonds” means the Chicago Midway Airport Second Lien Revenue and Revenue Refunding Bonds, Series 2014B (Non-AMT) authorized to be issued pursuant to the Twenty-First Supplemental Indenture.

“Series 2014B Dedicated Sub-Fund” means the Chicago Midway Airport Series 2014B Second Lien Bonds Dedicated Sub-Fund established in the Second Lien Revenue Fund as described in the Twenty-First Supplemental Indenture.

“Series 2014C Bonds” means the Chicago Midway Airport Second Lien Revenue Refunding Bonds, Series 2014C authorized to be issued pursuant to the Twenty-Second Supplemental Indenture.

“Special Facility Revenue Bonds” means bonds, notes or other evidences of indebtedness of the City, which bonds, notes or other evidences of indebtedness are not payable from Revenues or any other moneys or securities held under the First Lien Indenture or the Master Indenture, and for which the City has no taxing obligation.

“State” means the State of Illinois.

“Supplemental Indenture” means an indenture supplemental to or amendatory of the Indenture, executed and delivered by the City and the Second Lien Trustee in accordance with the provisions of the Master Indenture.

“Swap Provider” means any person with which the City enters into a Qualified Swap Agreement.

“Tax Agreement” means the Tax Compliance Exemption Certificate and Agreement of the City, dated the date of issuance of the Bonds.

“Trust Estate” means the property conveyed to the Trustee pursuant to the Granting Clauses of the Twentieth Supplemental Indenture and the Twenty-First Supplemental Indenture.

“Trustee’s Agent” means any agent designated as Trustee’s Agent by the Trustee and at the time serving in that capacity; provided that, in the event that a Trustee’s Agent has not been designated or is no longer serving in such capacity, all references to the “Trustee’s Agent” shall refer to the Trustee. Any agent so designated by the Trustee shall execute a written agreement with the Trustee assuming all obligations of the Trustee under the applicable Supplemental Indenture with respect to those duties of the Trustee such agent agrees to perform on behalf of the Trustee.

“Twentieth Supplemental Indenture” means the Twentieth Supplemental Indenture Securing Chicago Midway Airport Second Lien Revenue and Revenue Refunding Bonds, Series 2014A, dated as of June 1, 2014, from the City to the Trustee, pursuant to which the Series 2014A Bonds are to be issued.

“Twenty-First Supplemental Indenture” means the Twenty-First Supplemental Indenture Securing Chicago Midway Airport Second Lien Revenue and Revenue Refunding Bonds, Series

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2014B, dated as of June 1, 2014, from the City to the Trustee, pursuant to which the Series 2014B Bonds are to be issued.

“Twenty-Second Supplemental Indenture” means the Twenty-Second Supplemental Indenture Securing Chicago Midway Airport Second Lien Revenue Refunding Bonds, Series 2014C, dated as of June 1, 2014, from the City to the Trustee, pursuant to which the Series 2014C Bonds are to be issued.

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APPENDIX B SUMMARY OF CERTAIN PROVISIONS OF

THE SECOND LIEN INDENTURE

The following is a composite summary of certain provisions of the Master Indenture, the Nineteenth Supplemental Indenture, the Twentieth Supplemental Indenture and the Twenty-First Supplemental Indenture (collectively, the “Second Lien Indenture”), to which reference is made for a complete statement of the provisions and contents of each of such documents. Unless specifically otherwise noted, the following summary applies equally, but separately, to the Series 2014A Bonds and the Series 2014B Bonds, which are collectively referred to as the “Bonds.” Certain words and terms used in this Official Statement and in the Second Lien Indenture are defined in APPENDIX A–“GLOSSARY OF TERMS.”

Authorization of the Second Lien Bonds and Other Second Lien Obligations

The Master Indenture authorizes the issuance, from time to time, of Second Lien Obligations payable from Second Lien Revenues for the purpose of (a) the payment, or the reimbursement for the payment of, the costs of one or more Airport Projects, (b) the refunding of any First Lien Bonds, Second Lien Obligations or other obligations issued to finance or refinance one or more Airport Projects, including, but not limited to, the refunding of any Special Facility Revenue Bonds and any Junior Lien Obligations, or (c) the funding of any Fund or Account under the First Lien Indenture, or any Fund or Account under the Master Indenture or the Supplemental Indenture under which such Second Lien Obligations are issued; including, in each case, payment of Costs of Issuance. Second Lien Obligations may be issued under a Supplemental Indenture entered into in accordance with the terms of the Master Indenture, provided that, at the time of issuance of such Second Lien Obligations, certain conditions precedent are satisfied, including the receipt by the Second Lien Trustee of certain certificates and opinions of counsel relating to the validity of such Second Lien Obligations and the Supplemental Indenture under which they are issued, including:

(a) a copy of an ordinance adopted by the City Council, certified by the City Clerk, authorizing the execution and delivery of the Supplemental Indenture under which the Second Lien Obligations are issued;

(b) except in the case of Completion Obligations and Refunding Obligations, either (i) a certificate of an Independent Airport Consultant stating that, based upon reasonable assumptions set forth therein, Revenues and Other Available Moneys are projected to be not less than that required to satisfy the rate covenant set forth in the Master Indenture (disregarding any First Lien Bonds or Second Lien Obligations that have been paid or discharged or will be paid or discharged immediately after the issuance of the series proposed to be issued) for each of the next three Fiscal Years following the issuance of such Second Lien Obligations or, if later, for each Fiscal Year from the issuance of such series through the two Fiscal Years immediately following completion of the Airport Projects financed by such Second Lien Obligations; or (ii) a certificate of an authorized officer of the City stating that Revenues and Other Available Moneys in the most recent completed Fiscal Year for which audited financial statements have been prepared satisfied the rate covenant set forth in the Master Indenture assuming for such purpose that Aggregate Second Lien Debt Service for the Bond Year commencing during such Fiscal

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Year includes the maximum Annual Second Lien Debt Service on the Second Lien Obligations proposed to be issued; provided, however, that for purpose of the certificate described in clause (i) above, Other Available Moneys shall be projected only to the extent such Other Available Moneys have been (x) paid over to the First Lien Trustee and deposited into the First Lien Revenue Fund or the First Lien Debt Service Fund or paid over to the Second Lien Trustee and deposited into a debt service fund for Second Lien Obligations, or (y) irrevocably pledged to the payment of debt service on First Lien Bonds or Second Lien Obligations;

(c) in the case of Completion Obligations, a certificate stating (i) that the series of Second Lien Obligations proposed to be issued are being issued to finance the costs of one or more Airport Projects initially financed, in whole or in part, by First Lien Bonds or Second Lien Obligations, and (ii) that the additional cost of the Airport Projects being financed by such series does not exceed 15% of the aggregate cost thereof previously financed. Prior to the delivery of any Completion Obligations, the City shall file with the Second Lien Trustee a certificate of a Consulting Engineer (i) stating that the Airport Projects have not materially changed from their description in the Supplemental Indenture creating the series of First Lien Bonds or series of Second Lien Obligations initially issued to finance the cost of such Airport Projects, (ii) estimating the revised aggregate cost of the Airport Projects, (iii) stating that the revised aggregate cost of such Airport Projects cannot be paid with available moneys, and (iv) stating that, in the opinion of the Consulting Engineer, the issuance of Completion Obligations is necessary to provide funds to complete the Airport Projects;

(d) in the case of Refunding Obligations, (i) irrevocable instructions to the Trustee to give due notice of redemption of all the Second Lien Obligations to be refunded and the redemption date or dates, if any, upon which such Second Lien Obligations are to be redeemed; (ii) if the redemption is scheduled to occur subsequent to the next succeeding 45 days, irrevocable instructions to the Trustee to publish as provided in the applicable Supplemental Indenture notice of redemption of such Second Lien Obligations on a specified date prior to their redemption date; and (iii) a certificate of an Independent Accountant stating the amount of either (x) moneys (which may include all or a portion of such series) in an amount sufficient to pay the Second Lien Obligations to be refunded at the applicable Redemption Price of the Second Lien Obligations to be refunded, together with accrued interest on such Second Lien Obligations to the redemption date or dates, or (y) Defeasance Obligations the principal of, and interest on, which when due (without reinvestment thereof), together with moneys (which may include all or a portion of the proceeds of the Second Lien Obligations to be issued), if any, which must be contemporaneously deposited with the Trustee, to be sufficient to pay when due the applicable Redemption Price of the Second Lien Obligations to be refunded, together with accrued interest on such Second Lien Obligations to the redemption date or dates or the date or dates of maturity thereof; and

(e) any further documents and moneys as are required by the provisions of the Master Indenture or any Supplemental Indenture.

The Bonds are Second Lien Obligations authorized and issued pursuant to the Master Indenture.

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The City reserves the right under the Second Lien Indenture to provide one or more irrevocable letters of credit, lines of credit, standby purchase agreements, financial guaranty insurance policies, or surety bonds (including Qualified Reserve Account Instruments), or a combination thereof, to secure the payment of the principal of, premium, if any, and interest on one or more series of Second Lien Obligations, or in the event owners of such Second Lien Obligations have the right to require purchase thereof, to secure the payment of the purchase price of such Second Lien Obligations upon the demand of the owners thereof. Any obligation of the City to reimburse the issuer of such letter of credit, line of credit, standby purchase agreement, financial guaranty insurance policy, or surety bond constitutes a Second Lien Obligation under the Second Lien Indenture to the same extent as the series of Second Lien Obligations secured by such letter of credit, line of credit, standby purchase agreement, financial guaranty insurance policy, or surety bond and any and all amounts payable by the City to reimburse the issuer of any such letter of credit, line of credit, standby purchase agreement, financial guaranty, insurance policy or surety bond, together with the interest thereon, shall for purposes of the Second Lien Indenture constitute the payment of principal of, premium, if any, and interest on Second Lien Obligations.

(a) If the City shall enter into a Qualified Swap Agreement with a Swap Provider requiring the City to pay a fixed interest rate on a notional amount, or requiring the City to pay a variable interest rate on a notional amount, and if the City has made a determination that such Qualified Swap Agreement was entered into for the purpose of providing substitute interest payments for Second Lien Obligations of a particular maturity or maturities in a principal amount equal to the notional amount of the Qualified Swap Agreement and so long as the swap provider under such Qualified Swap Agreement is not in default under such Qualified Swap Agreement:

(i) for purposes of any calculation of Annual Second Lien Debt Service, the interest rate on the Second Lien Obligations of such maturity or maturities shall be determined as if such Second Lien Obligations bore interest at the fixed interest rate or the variable interest rate, as the case may be, payable by the City under such Qualified Swap Agreement;

(ii) any net payments required to be made by the City to the Swap Provider pursuant to such Qualified Swap Agreement from Second Lien Revenues shall be made on a parity with payments due on other Second Lien Obligations solely from amounts on deposit to the credit of the Second Lien Revenue Fund; and

(iii) any net payments received by the City from the Swap Provider pursuant to such Qualified Swap Agreement shall be applied as directed by the City.

(b) If the City shall enter into a swap agreement that does not satisfy the requirements for qualification as a Qualified Swap Agreement, then:

(i) the interest rate adjustment or assumptions referred to above shall not be made;

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(ii) any net payments required to be made by the City to the Swap Provider pursuant to such swap agreement from Second Lien Revenues shall be made only from amounts available after the payment of all other Second Lien Obligations; and

(iii) any net payments received by the City from the Swap Provider pursuant to such swap agreement may be treated as Second Lien Revenues at the option of the City and applied as directed by the City.

Source of Payment; Pledge of Second Lien Revenues

The provisions of the Master Indenture and any Supplemental Indenture (including, but not limited to, the Nineteenth Supplemental Indenture, the Twentieth Supplemental Indenture and the Twenty-First Supplemental Indenture) constitute a contract among the City, the Second Lien Trustee and the owners of the Second Lien Obligations. The Second Lien Obligations are limited obligations of the City payable solely from Second Lien Revenues and certain other moneys and securities held by the Second Lien Trustee under the Master Indenture, including, in the case of the Series 2014A Bonds, moneys deposited into the Series 2014A Dedicated Sub-Fund created pursuant to the Twentieth Supplemental Indenture and in the case of the Series 2014B Bonds, moneys deposited in the Series 2014B Dedicated Sub-Fund created pursuant to the Twenty-First Supplemental Indenture. The Second Lien Obligations and the interest thereon do not constitute an indebtedness or a loan of credit of the City within the meaning of any constitutional or statutory limitation, and neither the faith and credit nor the taxing power of the City, the State or any political subdivision thereof is pledged to the payment of the principal of or interest on the Second Lien Obligations. The Second Lien Obligations are secured by a pledge of the Second Lien Revenues and moneys and securities held by the Second Lien Trustee under the Second Lien Indenture.

The Common Debt Service Reserve Sub-Fund was established and is held and administered by the Trustee in accordance with the terms of the Nineteenth Supplemental Indenture. The Bonds are entitled to the benefit of the Common Debt Service Reserve Sub-Fund (also referred to as the “Common Reserve Bonds”). For more information on the Common Debt Service Reserve Sub-Fund, see “–Payment of Debt Service on the Bonds and Related Section 208 and Section 209 Obligations” below.

The Second Lien Indenture permits the City to issue additional First Lien Bonds in unlimited amounts (except as may be limited by law) pursuant to the First Lien Indenture, Airport Obligations consisting of reimbursement obligations to issuers of bond insurance, letters of credit, lines of credit, standby purchase agreements, financial guaranty insurance policies and surety bonds (including Qualified Reserve Account Instruments) relating to such First Lien Bonds and Airport Obligations having substantially the same first priority of lien on Revenues as is granted by the First Lien Indenture in favor of the First Lien Bonds, whether or not any First Lien Bonds are then outstanding under the First Lien Indenture. Any application of Revenues to such additional First Lien Obligations may not impair the lien on Revenues granted by the Second Lien Indenture in favor of Second Lien Obligations.

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Covenant Against Pledge of Revenues

The City has covenanted in the Second Lien Indenture that it will not, other than in connection with the issuance of First Lien Bonds and Second Lien Obligations, issue any debt secured by a pledge of Second Lien Revenues or create or cause to be created any lien or charge on Revenues, or on any other amounts pledged for the benefit of owners of the Second Lien Obligations under the Second Lien Indenture; except that the City has the right to issue debt payable or secured from Revenues to be derived after the discharge and satisfaction of all Second Lien Obligations and to issue debt payable from or secured by a pledge of amounts to be withdrawn from the Junior Lien Obligation Debt Service Fund held under the First Lien Indenture as long as such pledge is expressly junior and subordinate to the pledge described above.

Payment of Debt Service on the Bonds and Related Section 208 and Section 209 Obligations

The Master Indenture creates the Second Lien Revenue Fund to be held and administered by the Second Lien Trustee. The City is required to file with the First Lien Trustee, contemporaneously with the issuance of each series of Second Lien Obligations (including each series of the Bonds), an executed counterpart of the Supplemental Indenture creating such Series, duly certified by the Trustee and an Authorized Officer, an executed counterpart of any Qualified Swap Agreement or any instrument creating Section 208 or Section 209 Obligations with respect to such Series, duly certified by an Authorized Officer, and a certificate stating the dates on which amounts on deposit in the Junior Lien Obligation Debt Service Fund are to be withdrawn therefrom by the First Lien Trustee and paid to the Second Lien Trustee for deposit in the Second Lien Revenue Fund, and the amounts of such withdrawals, and containing a direction of the City to the First Lien Trustee to withdraw from the Junior Lien Obligation Debt Service Fund and pay to the Second Lien Trustee the amounts, and on the dates, specified in such certificate. Upon receipt of such payments, the Second Lien Trustee shall deposit the same in the Second Lien Revenue Fund. The moneys in the Second Lien Revenue Fund shall be disbursed and credited by the Second Lien Trustee in the amounts as required under the provisions of each Supplemental Indenture to pay the principal of and interest on the related series of Second Lien Obligations.

Series 2014A Bonds

The Twentieth Supplemental Indenture creates and establishes the Series 2014A Dedicated Sub-Fund with the Second Lien Trustee as a separate and segregated sub-fund within the Second Lien Revenue Fund. Moneys on deposit in the Series 2014A Dedicated Sub-Fund, and in each account established therein, shall be held in trust by the Second Lien Trustee for the sole and exclusive benefit of the Registered Owners of the Series 2014A Bonds.

The Twentieth Supplemental Indenture creates within the Series 2014A Dedicated Sub-Fund the following separate accounts: (a) the Project Account designated the “Chicago Midway Airport Series 2014A Project Account” (the “Series 2014A Project Account”); (b) the Capitalized Interest Account designed the “Chicago Midway Airport Series 2014A Capitalized Interest Account” (the “Series 2014A Capitalized Interest Account”); (c) the Series 2014A Costs

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of Issuance Account designed the “Chicago Midway Airport Series 2014A Cost of Issuance Account” (the “Series 2014A Cost of Issuance Account”); (d) the Series 2014A Program Fee Account designated the “Chicago Midway Airport Series 2014A Program Fee Account” (the “Series 2014A Program Fee Account”); and (e) the Principal and Interest Account designated the “Chicago Midway Airport Series 2014A Principal and Interest Account” (the “Series 2014A Principal and Interest Account”).

On January 1 and July 1 of each year, commencing July 1, 2014 (each such date referred to herein as the “Deposit Date”), there shall be deposited into the Series 2014A Dedicated Sub-Fund from amounts on deposit in the Second Lien Revenue Fund an amount equal to the aggregate of the following amounts, which amounts shall have been calculated by the Trustee on the next preceding December 5 or June 5 (or, in the case of July 1, 2014 Deposit Date, as of the Date of Issuance), in the case of each January 1 or July 1, respectively (such aggregate amount with respect to any Deposit Date being referred to herein as the “Series 2014A Deposit Requirement”):

(a) for deposit into the Series 2014A Principal and Interest Account, the amount to be required as of the close of business on the applicable January 1 or July 1 next succeeding such date of calculation to restore the Series 2014A Principal and Interest Account to an amount equal to the Principal and Interest Account Requirement for the Series 2014A Bonds, treating for purpose of such calculation any amount scheduled to be transferred from the Series 2014A Capitalized Interest Account on the applicable Deposit Date pursuant to section 5.05(b) of the Twentieth Supplemental Indenture as an amount credited to the Series 2014A Principal and Interest Account; and

(b) for deposit into the Series 2014A Program Fee Account, the amount estimated by

the City to be required as of the close of business on the related Deposit Date to pay all Program Fees payable from amounts in the Series 2014A Program Fee Account during the semi-annual period commencing on such related Deposit Date.

Upon calculation by the Trustee of each Series 2014A Deposit Requirement, the Trustee

shall notify the City of the Series 2014A Deposit Requirement and the Deposit Date to which it relates, and shall provide the City with such supporting documentation and calculations as the City may reasonably request.

In addition to the Series 2014A Deposit Requirement, there shall be deposited into the

Series 2014A Dedicated Sub-Fund any other moneys received by the Trustee under and pursuant to the Indenture or the Twentieth Supplemental Indenture, when accompanied by directions from the person depositing such moneys that such moneys are to be paid into the Series 2014A Dedicated Sub-Fund and to one or more accounts therein.

Moneys in the Series 2014A Principal and Interest Account shall be used solely for the

payment of the principal of, premium (if any) and interest on the Series 2014A Bonds, for the redemption of the Series 2014A Bonds prior to maturity and for the payment of Section 208 Obligations and Section 209 Obligations, but only to the extent that the Section 208 Obligations and 209 Obligations relate to the 2014A Bonds.

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Funds for such payment shall be derived from the following source or sources, but only in the following order of priority:

(i) for payment of interest on the Series 2014A Bonds on each Interest Payment Date with respect to the Series 2014A Bonds, from moneys transferred from the Series 2014A Capitalized Interest Account in the particular amount for each Interest Payment Date set forth in the Twentieth Supplemental Indenture and held in the Series 2014A Principal and Interest Account;

(ii) for payment of interest on or principal of the Series 2014A Bonds on each Interest Payment Date, from moneys transferred from the Series 2014A Project Account and held in the Series 2014A Principal and Interest Account; and

(iii) for payment of principal of, premium, if any, and interest due on each Interest Payment Date with respect to the Series 2014A Bonds and not otherwise provided for, and with respect to Section 208 Obligations and Section 209 Obligations, but only to the extent that the Section 208 Obligations and the Section 209 Obligations relate to the Series 2014A Bonds, from moneys held in the Series 2014A Principal and Interest Account, ratably, without preference or priority of any kind. Moneys in the Series 2014A Capitalized Interest Account shall be transferred to the

Series 2014A Principal and Interest Account to pay interest on the Series 2014A Bonds in accordance with the following schedule and amounts:

Interest Payment Date Amount to Transfer

January 1, 2015 $1,026,336.06

July 1, 2015 $855,185.63

January 1, 2016 $576,160.76

July 1, 2016 $406,194.44

January1, 2017 $231,084.31

Upon making the transfer in respect of the January 1, 2017 Interest Payment Date, any amounts remaining on deposit in the 2014A Capitalized Interest Account shall be transferred by the Trustee to the 2014A Principal and Interest Account.

The Nineteenth Supplemental Indenture provides, and the City hereby covenants with the holders of the Series 2014A Bonds, that the Common Debt Service Reserve Sub-Fund will be created and maintained in the Nineteenth Supplemental Indenture and that the amounts held in the Common Debt Service Reserve Sub-Fund (except for any amount therein representing investment income required to be paid into the Common Debt Reserve Sub-Fund pursuant to the Nineteenth Supplemental Indenture) will be used solely for the payment of, premium (if any) and

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interest due on each Payment Date with respect to the Series 2014A Bonds and all other Common Reserve Bonds and not otherwise provided for, ratably, without preference or priority of any kind. Series 2014B Bonds

The Twenty-First Supplemental Indenture creates and establishes the Series 2014B Dedicated Sub-Fund with the Second Lien Trustee as a separate and segregated sub-fund within the Second Lien Revenue Fund. Moneys on deposit in the Series 2014B Dedicated Sub-Fund, and in each Account established therein shall be held in trust by the Second Lien Trustee for the sole and exclusive benefit of the Registered Owners of the Series 2014B Bonds.

The Twenty-First Supplemental Indenture creates within the Series 2014B Dedicated Sub-Fund the following separate accounts: (a) the Project Account designated the “Chicago Midway Airport Series 2014B Project Account” (the “Series 2014B Project Account”); (b) the Capitalized Interest Account designed the “Chicago Midway Airport Series 2014B Capitalized Interest Account” (the “Series 2014B Capitalized Interest Account”); (c) the Series 2014B Costs of Issuance Account designed the “Chicago Midway Airport Series 2014B Cost of Issuance Account” (the “Series 2014B Cost of Issuance Account”); (d) the Series 2014B Program Fee Account designated the “Chicago Midway Airport Series 2014B Program Fee Account” (the “Series 2014B Program Fee Account”); and (e) the Principal and Interest Account designated the “Chicago Midway Airport Series 2014B Principal and Interest Account” (the “Series 2014B Principal and Interest Account”).

On January 1 and July 1 of each year, commencing July 1, 2014 (each such date referred to herein as the “Deposit Date”), there shall be deposited into the Series 2014B Dedicated Sub-Fund from amounts on deposit in the Second Lien Revenue Fund an amount equal to the aggregate of the following amounts, which amounts shall have been calculated by the Trustee on the next preceding December 5 or June 5 (or, in the case of July 1, 2014 Deposit Date, as of the Date of Issuance), in the case of each January 1 or July 1, respectively (such aggregate amount with respect to any Deposit Date being referred to herein as the “Series 2014B Deposit Requirement”):

(a) for deposit into the Series 2014B Principal and Interest Account, the amount to be required as of the close of business on the applicable January 1 or July 1 next succeeding such date of calculation to restore the Series 2014B Principal and Interest Account to an amount equal to the Principal and Interest Account Requirement for the Series 2014B Bonds, treating for purpose of such calculation any amount scheduled to be transferred from the Series 2014B Capitalized Interest Account on the applicable Deposit Date pursuant to section 5.05(b) of the Twenty-First Supplemental Indenture as an amount credited to the Series 2014B Principal and Interest Account; and

(b) for deposit into the Series 2014B Program Fee Account, the amount estimated by

the City to be required as of the close of business on the related Deposit Date to pay all Program Fees payable from amounts in the Series 2014B Program Fee Account during the semi-annual period commencing on such related Deposit Date.

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Upon calculation by the Trustee of each Series 2014B Deposit Requirement under this section, the Trustee shall notify the City of the Series 2014B Deposit Requirement and the Deposit Date to which it relates, and shall provide the City with such supporting documentation and calculations as the City may reasonably request.

In addition to the Series 2014B Deposit Requirement, there shall be deposited into the

Series 2014B Dedicated Sub-Fund any other moneys received by the Trustee under and pursuant to the Indenture or the Twenty-First Supplemental Indenture, when accompanied by directions from the person depositing such moneys that such moneys are to be paid into the Series 2014B Dedicated Sub-Fund and to one or more accounts therein.

Moneys in the Series 2014B Principal and Interest Account shall be used solely for the

payment of the principal of, premium (if any) and interest on the Series 2014B Bonds, for the redemption of the Series 2014B Bonds prior to maturity and for the payment of Section 208 Obligations and Section 209 Obligations, but only to the extent that the Section 208 Obligations and Section 209 Obligations relate to the 2014B Bonds.

Funds for such payment shall be derived from the following source or sources, but only in the following order of priority:

(i) for payment of interest on the Series 2014B Bonds on each Interest Payment Date with respect to the Series 2014B Bonds, from moneys transferred from the Series 2014B Capitalized Interest Account in the particular amount for each Interest Payment Date set forth in the Twenty-First Supplemental Indenture and held in the Principal and Interest Account;

(ii) for payment of interest on or principal of the Series 2014B Bonds on each Interest Payment Date, from moneys transferred from the Series 2014B Project Account and held in the Series 2014B Principal and Interest Account; and

(iii) for payment of principal of, premium, if any, and interest due on each Interest Payment Date with respect to the Series 2014B Bonds and not otherwise provided for, and with respect to Section 208 Obligations and Section 209 Obligations, but only to the extent that the Section 208 Obligations and the Section 209 Obligations relate to the Series 2014B Bonds, from moneys held in the Series 2014B Principal and Interest Account, ratably, without preference or priority of any kind. Moneys in the 2014B Capitalized Interest Account shall be transferred to the 2014B

Principal and Interest Account to pay interest on the Series 2014B Bonds in accordance with the following schedule and amounts:

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Interest Payment Date Amount to Transfer

January 1, 2015 $3,434,819.22

July 1, 2015 $2,424,383.14

January 1, 2016 $2,256,435.24

July 1, 2016 $1,937,736.55

January 1, 2017 $1,906,788.58

Upon making the transfer in respect of the January 1, 2017 Interest Payment Date, any amounts remaining on deposit in the 2014B Capitalized Interest Account shall be transferred by the Trustee to the 2014B Principal and Interest Account.

The Nineteenth Supplemental Indenture provides, and the City hereby covenants with the holders of the Series 2014B Bonds, that the Common Debt Service Reserve Sub-Fund will be created and maintained in the Nineteenth Supplemental Indenture and that the amounts held in the Common Debt Service Reserve Sub-Fund (except for any amount therein representing investment income required to be paid into the Common Debt Reserve Sub-Fund pursuant to the Nineteenth Supplemental Indenture) will be used solely for the payment of, premium (if any) and interest due on each Payment Date with respect to the Series 2014B Bonds and all other Common Reserve Bonds and not otherwise provided for, ratably, without preference or priority of any kind. Investment of Moneys

Moneys held in the funds, accounts and sub-accounts established hereunder of each Supplemental Indenture shall be invested and reinvested in accordance with the provisions governing investments contained in the Indenture. All such investments shall be held by or under the control of the Trustee and shall be deemed at all times a part of the fund, account or sub-account for which they were made.

The interest earned on any investment of moneys held hereunder of each Supplemental Indenture, any profit realized from such investment and any loss resulting from such investment shall be credited or charged to the fund, account or sub-account for which such investment was made, subject to the following with respect to the Common Debt Service Reserve Sub-Fund. If on any valuation date as provided under the Indenture, the amount on deposit in the Common Debt Service Reserve Sub-Fund is more than the Reserve Requirement, unless otherwise directed by the City pursuant to the Indenture, the amount of such excess shall be transferred by the Trustee to the Second Lien Revenue Fund in accordance with the procedure set forth in the Indenture, provided, however, that immediately after such withdrawal, the amount on deposit in the Common Debt Service Reserve Sub-Fund equals or exceeds the Reserve Requirement.

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Other Covenants Relating to the Airport

The City has covenanted under the Second Lien Indenture to, among other things, maintain insurance, to furnish (within 210 days after the close of each Fiscal Year) the Second Lien Trustee a copy of the annual audit report for the Airport, and to not take, or allow any other person to take, any action which would cause suspension or revocation of the Airport’s Federal Aviation Administration operating certificate.

Supplemental Indentures

A Supplemental Indenture may be authorized at any time by ordinance of the City Council of the City, which, upon the filing with the Trustee of a copy of such ordinance certified by the City Clerk and the execution and delivery of such Supplemental Indenture, shall be fully effective in accordance with its terms for the following purposes: to prevent or limit the issuance of Second Lien Obligations or other evidences of indebtedness; to add covenants and agreements to be observed by the City which are not contrary to, or inconsistent with, the Second Lien Indenture as theretofore in effect; to add to the limitations and restrictions in the Indenture other limitations and restrictions to be observed by the City which are not contrary or inconsistent with the Indenture as theretofore in effect; to surrender any right, power or privilege conferred upon the City if not contrary to, or inconsistent with, the Second Lien Indenture; to authorize a series of Second Lien Obligations if not contrary to, or inconsistent with, the Second Lien Indenture as theretofore in effect or to amend, modify or rescind any such authorization, specification or determination at any time prior to the first issuance of such Second Lien Obligations; to confirm, as further assurance, the pledge of properties, Revenues or other collateral made under the Second Lien Indenture; and to otherwise modify any of the provisions of the Second Lien Indenture but only if such modification shall be effective only after all Second Lien Obligations outstanding at the date of the execution and delivery of such Supplemental Indenture shall cease to be Outstanding.

A Supplemental Indenture may be authorized at any time by ordinance of the City Council and shall be fully effective upon the consent of the Second Lien Trustee for the following purposes: to cure any ambiguity, supply any omission, or cure or correct any defect or inconsistent provision in the Second Lien Indenture; to clarify matters or questions if not contrary to or inconsistent with the Second Lien Indenture as theretofore in effect; or to provide additional duties of the Second Lien Trustee under the Second Lien Indenture.

Any other modification or amendment of the Second Lien Indenture may be made by a Supplemental Indenture authorized at any time by ordinance of the City Council, with the written consent given as provided in the Second Lien Indenture:

(a) of the owners of a majority in principal amount of the Second Lien Obligations Outstanding at the time such consent is given;

(b) in case less than all of the several series of then Outstanding Second Lien Obligations are affected by the modification or amendment, of the owners of a majority in principal amount of the then Outstanding Second Lien Obligations of each series so affected;

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(c) in case any Section 208 Obligations or Section 209 Obligations are affected by the modification or amendment, of the owners of the Section 208 Obligations or Section 209 Obligations so affected; and

(d) in case any Swap Provider is affected by the modification or amendment, of the Swap Provider so affected.

If a modification or amendment will, by its terms, not take effect so long as any Second Lien Obligations of any specified like series and maturity or any specified like series or any specified Section 208 Obligations or Section 209 Obligations remain Outstanding, the consent of the owners of such Second Lien Obligations shall not be required and such Second Lien Obligations shall not be deemed to be Outstanding for the purpose of any calculation of Outstanding Second Lien Obligations for purposes of approving such modification or amendment.

No such modification or amendment shall permit a change in the terms of redemption or maturity of the principal of any Outstanding Second Lien Obligation or of any installment of interest thereon or a reduction in the principal amount or the Redemption Price thereof or in the rate of interest thereon, or in the terms of purchase or the purchase price thereof, without the consent of the owner of such Second Lien Obligation, or shall reduce the percentages or otherwise affect the classes of Second Lien Obligations, the consent of the owners of which is required to effect any such modification or amendment, or shall change or modify any of the rights or obligations of the Second Lien Trustee without its written assent thereto.

The City may at any time authorize a Supplemental Indenture making a modification or amendment permitted by the provisions of the Indenture described above, to take effect when and as provided in this paragraph. A copy of such Supplemental Indenture (or brief summary thereof or reference thereto in form approved by the Trustee), together with a request to the owners of the Second Lien Obligations for their consent thereto in form satisfactory to the Trustee, shall be mailed by the City to the owners of the Second Lien Obligations (but failure to mail such copy and request shall not affect the validity of the Supplemental Indenture when consented to as in this paragraph provided). Such Supplemental Indenture shall not be effective unless and until, and shall take effect in accordance with its terms when (a) there shall have been filed with the Trustee (1) the written consents of owners of the percentages of Outstanding Second Lien Obligations described above and (2) a Counsel’s Opinion stating that such Supplemental Indenture has been duly and lawfully executed and delivered by the City and the Trustee in accordance with the provisions of the Indenture, is authorized or permitted thereby and is valid and binding upon the City and enforceable in accordance with its terms upon its becoming effective, and (b) a notice shall have been mailed as provided in the Indenture. Consents of owners of Second Lien Obligations are binding upon subsequent owners unless such consent is revoked in writing as provided in the Indenture prior to the effectiveness of the applicable Supplemental Indenture.

Amendment of a Supplemental Indenture

The Nineteenth Supplemental Indenture, the Twentieth Supplemental Indenture or the Twenty-First Supplemental Indenture may be supplemented and amended in the manner described above under “–Supplemental Indentures.”

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Default and Remedies

Each of the following events constitutes an Event of Default under the Second Lien Indenture:

(a) payment of the principal or Redemption Price, if any, of any Second Lien Obligation shall not be made when and as the same shall become due, whether at maturity or upon call for redemption or otherwise;

(b) payment of any installment of interest on any Second Lien Obligation shall not be made when the same shall become due;

(c) the City shall fail or refuse to comply with the provisions of the Second Lien Indenture, or shall default in the performance or observance of any of the covenants, agreements or conditions on its part contained therein or in the Second Lien Obligations, which materially affects the rights of the owners of the Second Lien Obligations, and such failure, refusal or default shall continue for a period of 45 days after written notice thereof by the Second Lien Trustee or the owners of not less than 25% in principal amount of the Outstanding Second Lien Obligations; provided, however, that in the case of any such default which can be cured by due diligence but which cannot be cured within the 45-day period, the time to cure shall be extended for such period as may be necessary to remedy the default with all due diligence; or

(d) an event of default shall occur and be continuing under the provisions of any Supplemental Indenture to the Master Indenture.

Upon the happening and continuance of any Event of Default specified in paragraph (a) or (b) above, the Second Lien Trustee shall proceed, or upon the happening and continuance of any Event of Default specified in paragraph (c) or (d) above, the Second Lien Trustee may proceed, and upon the written request of the owners of not less than 25 percent in principal amount of the Outstanding Second Lien Obligations, shall proceed, in its own name to protect and enforce its rights and the rights of the owners of the Second Lien Obligations by such of the following remedies or any additional remedies specified in one or more Supplemental Indentures with respect to a particular series as the Second Lien Trustee, being advised by counsel, shall deem most effectual to protect and enforce such rights:

(a) by mandamus or other suit, action or proceeding at law or in equity, to enforce all rights of the owners of the Second Lien Obligations, including the right to require the City to receive and collect the Revenues adequate to carry out the covenants and agreements as to such Revenues and their pledge under the Second Lien Indenture and to require the City to carry out any other covenant or agreement with the owners of the Second Lien Obligations and to perform its duties under the Second Lien Indenture;

(b) by bringing suit upon the Second Lien Obligations;

(c) by action or suit in equity, require the City to account as if it were the trustee of an express trust for the owners of the Second Lien Obligations; or

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(d) by action or suit in equity, enjoin any acts or things which may be unlawful or in violation of the rights of the owners of the Second Lien Obligations.

Except as otherwise described herein, the owners of the majority in principal amount of the Second Lien Obligations then outstanding shall have the right to direct the method of conducting all remedial proceedings to be taken by the Second Lien Trustee, except that such direction shall not be otherwise than in accordance with law or the provisions of the Second Lien Indenture, and the Second Lien Trustee shall have the right to decline to follow any such direction which in the opinion of the Second Lien Trustee would be unjustly prejudicial to owners of the Second Lien Obligations not parties to such direction.

No owner of any Second Lien Obligation shall have any right to institute any suit, action, mandamus or other proceeding in equity or at law under the Second Lien Indenture, or for the protection or enforcement of any right of remedy under the Second Lien Indenture or any right under law unless such owner shall have given to the Second Lien Trustee, written notice of the Event of Default or breach of duty on account of which such suit, action or proceeding is to be taken, and unless the owners of not less than 25% in principal amount of the Second Lien Obligations then Outstanding shall have made written request of the Second Lien Trustee after the right to exercise such powers or right of action, as the case may be, shall have occurred, and shall have afforded the Second Lien Trustee a reasonable opportunity either to proceed to exercise the powers granted in the Second Lien Indenture or granted under law or to institute such action, suit or proceeding in its name and unless, also, there shall have been offered to the Second Lien Trustee reasonable security and indemnity against the costs, expenses and liabilities to be incurred therein or thereby, and the Second Lien Trustee shall have refused or neglected to comply with such request within a reasonable time; and such notification, request and offer of indemnity are in the Second Lien Indenture declared in every such case (except with respect to the enforcement of credit enhancement devices securing the Second Lien Obligations at the option of the Second Lien Trustee) to be conditions precedent to the execution of the powers under the Second Lien Indenture or for any other remedy under the Second Lien Indenture or under law.

Defeasance

(a) If the City shall pay or cause to be paid to the owners of all Second Lien Obligations, the principal and interest and Redemption Price, if any, to become due thereon, at the times and in the manner stipulated therein, in the Indenture, the Twentieth Supplemental Indenture and the Twenty-First Supplemental Indenture creating the Bonds, then the pledge for the Bonds and all other rights granted thereby shall be discharged and satisfied, in such event the Trustee shall, upon the request of the City expressed in a Certificate, execute and deliver to the City all such instruments as may be desirable to evidence such discharge and satisfaction, and the Trustee shall pay over or deliver to the City all Accounts, Funds and other moneys or securities held by them pursuant to the Indenture, the Twentieth Supplemental Indenture and the Twenty-First Supplemental Indenture which are not required for the payment or redemption of the Second Lien Obligations not theretofore surrendered for such payment or redemption.

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(b) Any Second Lien Obligations or principal installments appertaining thereto, whether at or prior to maturity or the redemption date of such Second Lien Obligations, shall be deemed to have been paid within the meaning and with the effect expressed in (a) above if:

(i) in case any of such Second Lien Obligations are to be redeemed prior to their maturity, there shall have been taken all action necessary to call such Second Lien Obligations for redemption and notice of such redemption shall have been duly given or provision satisfactory to the Second Lien Trustee shall have been made for the giving of such notice;

(ii) there shall have been deposited with the Second Lien Trustee either moneys in an amount which shall be sufficient or Defeasance Obligations, the principal of and the interest on which when due (without reinvestment thereof) will provide moneys which, together with the moneys, if any, on deposit with the Second Lien Trustee at the same time, shall be sufficient, to pay when due the principal and interest or Redemption Price, if any, to become due on said Second Lien Obligations on and prior to the redemption date or maturity date thereof, as the case may be; and

(iii) in the event said Second Lien Obligations are not by their terms subject to redemption within the next succeeding 45 days, the City shall have given the Second Lien Trustee, in form satisfactory to it, irrevocable instructions to mail, as soon as practicable, a notice to the owners of such Second Lien Obligations that the deposit required by clause (b) above has been made with the Second Lien Trustee and that said Second Lien Obligations are deemed to have been paid as described in this paragraph and stating such maturity or redemption date upon which moneys are to be available for the payment of the principal or Redemption Price, if any, of, and accrued interest on, said Second Lien Obligations.

(c) No defeasance of a Second Lien Obligation that is to be paid more than 90 days after the date of the deposit referred to in clause (ii) of paragraph (b) above shall be effective until the Trustee shall have received a verification report signed by an Independent Accountant that the Defeasance Obligations and moneys to be deposited for such purpose are sufficient to pay the principal and Redemption Price of, and interest on, all Second Lien Obligations with respect to which provision for payment is to be made as described above by virtue of the deposit of such Defeasance Obligations and moneys.

(d) In the event that the principal of and interest on all Insured Obligations shall be paid by Bond Insurers pursuant to the terms of the Bond Insurance Policies, the pledge of revenues, securities and funds and all other covenants, agreements and other obligations of the City to the owners of the Insured Obligations shall continue to exist and each Bond Insurer shall be fully subrogated to the rights of such owners.

(e) Defeasance Obligations and moneys held as described above may be withdrawn by the City provided that there is substituted in place of such Defeasance Obligations and moneys other Defeasance Obligations and moneys sufficient for the purposes described above and, provided further that, prior to such substitution there is filed with the Trustee (i) a verification report signed by an Independent Accountant that the Defeasance Obligations and moneys, as substituted, are sufficient to pay the principal and Redemption Price of, and interest on, all Second Lien Obligations with respect to which provision for payment was made by

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deposit of such substituted Defeasance Obligations as described in this paragraph, and (ii) an opinion of Bond Counsel to the effect that such substitution has been duly authorized in accordance with the Indenture and will not affect adversely the tax-exempt status of any Second Lien Obligations previously authenticated and delivered under the Indenture.

Sale or Transfer of Airport

The City has proposed an amendment to the Second Lien Indenture to remove the provisions summarized below. The amendment will not take effect unless and until (among other things) the City satisfies each of the conditions required by the Second Lien Indenture as described below, including obtaining approval from the Owners of a majority in principal amount of the Outstanding Second Lien Bonds, approval from the providers of credit support for certain of the Outstanding Second Lien Bonds and filing a certificate of effectiveness with the Second Lien Trustee. Owners holding a majority of the Outstanding Second Lien Bonds have consented to the amendment. However, the City has not to date elected to implement the amendment, requested consent from the providers of credit support for certain of the Outstanding Second Lien Bonds (e.g., bond insurers or letter of credit banks) to the amendment, or certified its effectiveness to the Second Lien Trustee. See “SECURITY FOR THE BONDS–Proposed Amendment to Second Lien Indenture” and “CERTAIN INVESTMENT CONSIDERATIONS RELATING TO THE AIRLINES, THE AIRLINE INDUSTRY AND MIDWAY—Potential Privatization of Midway.”

The Master Indenture provides that the sale, conveyance, mortgage, encumbrance or

other disposition, directly or indirectly, of all or substantially all of the Airport or the transfer, directly or indirectly, of control, management or oversight, or any material aspect of control, management or oversight, of the Airport, whether of its properties, interests, operations, expenditures, revenues (including, without limit, Revenues, Junior Lien Revenues or the proceeds of any Passenger Facility Charge or similar charge) or otherwise (any of the foregoing being referred to as a “transfer”) shall not occur unless and until all of the following conditions shall have been met:

(a) such transfer shall have been approved in writing by the Mayor of the City and by the City Council at a meeting duly called for such purpose;

(b) evidence shall have been obtained in writing confirming that such transfer shall not adversely affect any rating on the Bonds issued by any Rating Agency;

(c) a certificate shall have been received from an Independent Airport Consultant, certifying that, in each calendar year during the five-year period commencing after the calendar year in which such transfer occurs, Revenues together with any cash balance held in the First Lien Revenue Fund on the first day of such calendar year not then required to be deposited in any Fund or Account (or sub-account thereof) other than the First Lien Revenue Fund, and investment earnings for each such calendar year on moneys held in the funds and accounts held pursuant to the Second Lien Indenture to the extent that such earnings are not required hereby to be transferred to any Construction Fund, shall equal an amount not less than the amount required to satisfy the rate covenant set forth in the Master Indenture; provided that for purposes of the

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certificate “150%” shall be substituted for “125%” and “110%” in such rate covenant (See “SECURITY FOR THE BONDS—Rate Covenant”);

(d) written consent to such transfer shall have been received from the Owners of all First Lien Bonds and Second Lien Obligations then outstanding;

(e) written consent to such transfer shall have been received from the Second Lien Trustee;

(f) written consent to such transfer shall have been received from each Bond Insurer and each provider of any letter of credit or surety bond supporting Second Lien Obligations;

(g) written consent to such transfer shall have been received from the Chicago/Gary Regional Airport Authority pursuant to Section 10-20 of the Compact Between the City and the City of Gary dated April 15, 1995 Relating to the Establishment of the Chicago/Gary Regional Airport Authority; and

(h) there shall be deposited with the Second Lien Trustee for the benefit of the Owners of all then outstanding First Lien Bonds and Second Lien Obligations a letter of credit, surety bond or Investment Securities (as defined in the Master Indenture) in the full amount of the then Outstanding First Lien Bonds and Second Lien Obligations, such letter of credit or surety bond to have a credit rating of not less than “Aa” or “AA” or their equivalents by Moody’s and S&P, or their successors; provided that no revenues (including, without limit, Revenues, Junior Lien Revenues or the proceeds of any Passenger Facility Charge or similar charge) shall be pledged, or in any way used, to secure any such letter of credit or surety bond.

For purposes of the default provisions of the Master Indenture, the performance of the foregoing covenant is expressly deemed to be material to the registered owners of the Bonds.

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APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF

THE AIRPORT USE AGREEMENTS

The following is a summary of certain provisions of the Amended and Restated Airport Use Agreements and Facilities Leases dated as of January 1, 2013 (collectively, the “Airport Use Agreements”), between the City and each of the Signatory Airlines, to which reference is made for a complete statement of their provisions and contents. Certain words and terms used in this summary are defined in the Airport Use Agreements and have the same meanings in this summary, except as defined otherwise in this Official Statement. The Airport Use Agreements signed by the Signatory Airlines are substantially identical to each other except for provisions relating to the Leased Premises and assigned aircraft parking positions for each Signatory Airline. The Airport Use Agreements amend, supersede and terminate the Airport Use Agreements and Facilities Leases previously in effect between the City and such airlines (the “1998 Use Agreements”). The stated termination date of the Airport Use Agreements is December 31, 2027, subject to the right of the City or a Signatory Airline under certain circumstances to terminate its Airport Use Agreement prior to that date.

Term

Subject to certain earlier termination provisions, the Airport Use Agreements will terminate on December 31, 2027. Included in the earlier termination provisions is the right of a Signatory Airline to terminate its Airport Use Agreement on December 31, 2022, if a new commercial passenger service airport is operating in the Chicago Region which has a direct impact on the operations at the Airport. A “direct impact on the operations of the Airport” is defined to mean either the closure of the Airport or material limitations on operations at the Airport. In addition, if a new commercial passenger service airport which the City owns or controls, in whole or in substantial part, and having a level of annual operations at least equal to the Airport, is opened and operating within 50 miles of the Airport, a Signatory Airline has the right to terminate its Airport Use Agreement prior to the scheduled expiration date. See also “—Default and Termination,” “—Assignment, Sublease and Other Transfers,” and “—Change of Lease Term,” below.

Cost Centers

The Airport Use Agreements group the Airport into functional areas (the “Cost Centers”). These are the Airfield Area, the Terminal Area, the Terminal Ramp Area, the Parking and Roadway Area, the Support Facilities Area, the Equipment Cost Center, the Fueling Cost Center, the FIS Cost Center and the Indirect Cost Center. The purpose of the Cost Centers is to allow for the calculation of Airline Fees and Charges in a manner that allocates such fees and charges among the Signatory Airlines based on their usage of the Airport.

Accordingly, each of the Cost Centers has allocated to it Non-Airline Revenues, Operation and Maintenance Expenses, Debt Service and Fund Deposit Requirements. Indirect (overhead) expenses are costs not directly attributable to specific Cost Centers and will be initially accumulated in the Indirect Cost Center. The costs of the Indirect Cost Center and the net revenues or net deficit of each of the Parking and Roadway Area and the Support Facilities Area will be allocated to other Cost Centers.

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Leased Premises; Gate Management Provisions

Premises within the Terminal Area are either leased to the Signatory Airlines or retained by the City as City-Controlled Facilities. The City has the right, under certain circumstances, to impose shared use or temporary use arrangements on all or any designated portion of a Signatory Airline’s Leased Premises to accommodate new or expanding carriers. The City, at its discretion, may also use any City-Controlled Facilities to accommodate the space requirements of Signatory Airlines or Non-Signatory Airlines. The Airport Use Agreements refer to whichever of the premises a Signatory Airline is leasing at any given time as the Signatory Airline’s “Leased Premises.”

Certain daily average utilization standards apply to the Signatory Airlines’ Gates during the term of the Airport Use Agreement which, if not met by a Signatory Airline, give the City the right to terminate the Airport Use Agreement with respect to, and delete from, the Signatory Airline’s Leased Premises the number of Gates as may be necessary to cause the Signatory Airline to meet the daily average utilization standard for its Gates.

Airline Fees and Charges

Terminal Rentals for Leased Premises (other than Joint Use Premises) are charged to each of the Signatory Airlines on a square footage basis. A Signatory Airline’s Terminal Rentals for each Fiscal Year equal the product of the square footage of such Signatory Airline’s Leased Premises and the Terminal Rental Rate for such Fiscal Year. The Terminal Rental Rate for each Fiscal Year is determined by dividing the Terminal Area requirement for such Fiscal Year by the total number of square feet of Leased Premises of all Signatory Airlines. The Terminal Area requirement for a Fiscal Year will equal the sum of O&M Expenses, Debt Service, Fund Deposit Requirements, Terminal Rentals unpaid when due by any Signatory Airline, the Equipment Cost Center requirement and net deficits of the Indirect Cost Center and the Parking and Roadway Area, in each case allocated to the Terminal Area for such Fiscal Year, minus the sum of Non-Airline Revenues and net surpluses of the Parking and Roadway Area, in each case allocated to the Terminal Area for such Fiscal Year. Terminal Rentals for Joint Use Premises are charged on a formulaic basis, where 10% of the Joint Use Premises requirement (determined by multiplying the number of square feet of Joint Use Premises by the Terminal Rental Rate) is divided equally between the Signatory Airlines and 90% of the Joint Use Premises requirement is divided between the Signatory Airlines on the basis of landed weight.

Terminal Ramp Fees are charged to each of the Signatory Airlines on the basis of square footage of Aircraft Parking Area assigned to a Signatory Airline. A Signatory Airline’s Terminal Ramp Fee for each Fiscal Year is equal to the product of such Signatory Airline’s square footage of Aircraft Parking Area and the Terminal Ramp Rate for such Fiscal Year. The Terminal Ramp Rate for each Fiscal Year is calculated by dividing the Terminal Ramp Area requirement for such Fiscal Year by the total square footage of Aircraft Parking Area assigned to all Signatory Airlines. The Terminal Ramp Area requirement for a Fiscal Year will equal the sum of O&M Expenses, Debt Service, Fund Deposit Requirements, Terminal Ramp Fees unpaid when due by a Signatory Airline and net deficits of the Indirect Cost Center and the Parking and Roadway Area, in each case allocated to the Terminal Ramp Area for such Fiscal Year, minus

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the sum of Non-Airline Revenues and net surpluses of the Parking and Roadway Area, in each case allocated to the Terminal Ramp Area for such Fiscal Year.

Landing Fees are charged to the Signatory Airlines on the basis of landed weight of aircraft. The Landing Fee for each Fiscal Year for each Revenue Landing is equal to the product of the number of thousands of pounds of the Maximum Approved Gross Landing Weight of the Signatory Airline’s aircraft involved in the Revenue Landing and the Landing Fee Rate for such Fiscal Year. The Landing Fee Rate for each Fiscal Year is determined by dividing the Airfield Area Requirement by the total Maximum Approved Gross Landing Weight in thousand-pound units of all aircraft of all Signatory Airlines landed in Revenue Landings during such Fiscal Year. The Airfield Area requirement for a Fiscal Year will equal the sum of O&M Expenses, Debt Service, Fund Deposit Requirements, Landing Fees unpaid when due by any Signatory Airline, the Fueling Cost Center requirement and net deficits of the Indirect Cost Center, the Parking and Roadway Area and the Support Facilities Area, in each case allocated to the Airfield Area for such Fiscal Year, minus the sum of Non-Airline Revenues and net surpluses of the Parking and Roadway Area and the Support Facilities Area, in each case allocated to the Airfield Area for such Fiscal Year.

Equipment Fees are charged to the Signatory Airlines on the basis of landed weight of aircraft. A Signatory Airline’s Equipment Fee for each Fiscal Year is equal to the product of the number of thousands of pounds of the Maximum Approved Gross Landing Weight of each aircraft of the Airline involved in Revenue Landings during such Fiscal Year and the Equipment Fee Rate for such Fiscal Year. The Equipment Fee Rate for each Fiscal Year is determined by dividing the Equipment Cost Center requirement by the total Maximum Approved Gross Landing Weight in thousand-pound units of all aircraft of all Signatory Airlines landed in Revenue Landings during such Fiscal Year. The Equipment Cost Center requirement for a Fiscal Year will equal the sum of O&M Expenses, Debt Service and Fund Deposit Requirements, in each case allocated to the Equipment Cost Center, minus Non-Airline Revenues of the Equipment Cost Center.

Fueling Fees are charged to the Signatory Airlines on the basis of total gallon usage of fuel. A Signatory Airline’s Fueling Fees for each Fiscal Year equal the product of the number of gallons of fuel distributed from the Fuel System to such Signatory Airline during such Fiscal Year and the Fueling Fee Rate for such Fiscal Year. The Fueling Fee Rate for each Fiscal Year is determined by dividing the Fueling Cost Center requirement by the total number of gallons of fuel distributed to all Signatory Airlines from the Fuel System. The Fueling Cost Center requirement for a Fiscal Year will equal the sum of O&M Expenses, Debt Service and Fund Deposit Requirements, in each case allocated to the Fueling Cost Center, minus Non-Airline Revenues of the Fueling Cost Center.

Federal Inspection Service (“FIS”) Fees are charged to each of the Signatory Airlines based on the number of deplaned passengers processed through the FIS Facility. The FIS Fees for each Fiscal Year are an aggregate amount equal to the number of the Signatory Airline’s deplaned passengers processed through the FIS Facility during such Fiscal Year multiplied by the FIS Fee Rate for such Fiscal Year. The FIS Fee Rate for each Fiscal Year is determined by dividing the FIS Cost Center requirement for such Fiscal Year by the total number of deplaned passengers of all Signatory Airlines processed through the FIS Facility during such Fiscal Year.

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The FIS Cost Center requirement for each Fiscal Year will equal the sum of O&M Expenses, Debt Service, FIS Facility Debt Service, Fund Deposit Requirements, FIS Fees unpaid when due by any Signatory Airline and the net deficit of the Indirect Cost Center, in each case allocated to the FIS Cost Center for such Fiscal Year minus the sum of Non-Airline Revenues allocated to the FIS Cost Center.

The foregoing notwithstanding, the Airport Use Agreements require the City, during the term of the MATCO Agreement, to charge the Signatory Airlines and Non-Signatory Airlines equipment fees and fueling fees calculated as set forth in the MATCO Agreement, which fees shall in any case be calculated in a manner sufficient to pay the Equipment Cost Center requirement and the Fueling Cost Center requirement for each Fiscal Year.

Deposits to the Airport Development Fund

If Non-Airline Revenues for any Fiscal Year exceed 105% of the average of Non-Airline Revenues for the three Fiscal Years immediately preceding such Fiscal Year, then an amount equal to such excess (being equal to (i) Non-Airline Revenues for such Fiscal Year minus (ii) the product of (A) 1.05 multiplied by (B) the average of Non-Airline Revenues for the three Fiscal Years immediately preceding such Fiscal Year), if any, but not to exceed $1,000,000 Adjusted for Inflation, shall be deposited in the Airport Development Fund; provided that such deposit may not be made until the City has provided to each Signatory Airline the Statement of Airline’s Actual Annual Airline Fees and Charges for such Fiscal Year.

If actual O&M Expenses for any Fiscal Year are less than 95% of the amount of Budgeted O&M Expenses for such Fiscal Year, then an amount equal to such difference (being equal to (i) the product of (A) 0.95 multiplied by (B) the amount of Budgeted O&M Expenses for such Fiscal Year, minus (ii) actual O&M Expenses for such Fiscal Year), if any, but not to exceed $1,000,000 Adjusted for Inflation, shall be deposited in the Airport Development Fund; provided that such deposit may not be made until the City has provided to each Signatory Airline the Statement of Airline’s Actual Annual Airline Fees and Charges for such Fiscal Year. “Budgeted O&M Expenses” for a Fiscal Year means the amount of O&M Expenses for the Airport for that Fiscal Year estimated by the City’s Department of Aviation and used to prepare each Airline's Statement of Airline’s Estimated Annual Airline Fees and Charges.

Notwithstanding the foregoing, the amounts to be deposited in the Airport Development Fund in accordance with the Airport Use Agreement and all other Airport Use Agreements shall not exceed $1,500,000 Adjusted for Inflation in aggregate for any Fiscal Year.

During the fifth and tenth years of this Agreement, the City, in consultation with the Signatory Airlines, shall determine whether additional increases to each of the foregoing dollar limits would be in the interests of the Airport. If so, the City may increase the dollar limits as of January 1, 2018 and January 1, 2023, respectively, to amounts reasonably determined by the City to be in the interests of the Airport (which amounts will be Adjusted for Inflation) so long as a Majority-in-Interest does not disapprove of such increase within thirty (30) days after the City has provided notice thereof.

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Non-Signatory Fees and Charges

The City has agreed in the Airport Use Agreements to charge Non-Signatory Airlines Landing Fees, Terminal Rentals and Terminal Ramp Fees calculated to include at least a 25% surcharge above Signatory Airline rates. For purposes of establishing landing fees for Non-Signatory Airlines, the City has agreed to allocate a portion of the Airfield Area requirement to the Non-Signatory Airlines on the basis of the relative use of the Airfield Area by the Signatory Airlines and Non-Signatory Airlines, based on the respective landed weight of the Signatory Airlines and the Non-Signatory Airlines. If landing fees actually received from Non-Signatory Airlines in any Fiscal Year are more or less than the Airfield Area requirement allocated to the Non-Signatory Airlines, the respective excess or deficit will not be included in the determination of the amount of Revenues for that Fiscal Year, and instead will be taken into account in setting landing fees for Non-Signatory Airlines for the following Fiscal Year.

Security Deposits

The Airport Use Agreements require each of the Signatory Airlines to remit to the City a security deposit equal to the sum of such airline’s (i) estimated Landing Fees for three months (as determined on the basis of the Signatory Airline’s published schedule), (ii) estimated Terminal Rentals for three months, (iii) estimated Terminal Ramp Fee for three months, (iv) estimated Passenger Facility Charges for three months, (v) estimated Fueling Fees for three months, and (vi) estimated Equipment Fees for three months. Such deposit may be in the form of an irrevocable letter of credit, cash or other form of security acceptable to the City. At any time that a Signatory Airline’s Airline Fees and Charges are more than 30 days past due or a Signatory Airline has failed to transmit to the City its Passenger Facility Charges or has failed to keep its Leased Premises free and clear of liens, the City, upon notice to such airline, is entitled to apply the security deposit to the payment of such unpaid amounts or to the costs of removal of such liens. In any such event, the Signatory Airline whose security deposit was so applied will be required to remit a replacement security deposit to the City.

The three-month security deposit for Landing Fees, Terminal Rentals, Terminal Ramp Fee and Fueling Fees will be reduced to two months for any Signatory Airline that has been operating at the Airport for at least one year and has been timely in all payments for the previous 12 months. The three-month security deposit for Landing Fees, Terminal Rentals, Terminal Ramp Fees and Fueling Fees will be reinstated for each such Signatory Airline that is thereafter delinquent in any payment to the City under its Airport Use Agreement or any payment to the City of Passenger Facility Charges. The security deposit related to a Signatory Airline’s Passenger Facility Charges will be eliminated for any Signatory Airline that has been operating at the Airport for at least two years, that has been timely in all payments for the previous 24 months and that provides evidence to the City that the Passenger Facility Charges collected by the Signatory Airline at the Airport have been placed in a trust account for the benefit of the City. The three-month Passenger Facility Charge security deposit will be reinstated for each such Signatory Airline that is thereafter delinquent in any payment to the City under its Airport Use Agreement or any payment to the City of Passenger Facility Charges.

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General Commitment to Pay Airline Fees and Charges

The Airport Use Agreements provide that the aggregate of Airline Fees and Charges payable by all Signatory Airlines, together with Non-Airline Revenues and amounts paid from the Airport Development Fund as described above under the caption “-Airport Development Fund” for each Fiscal Year shall be sufficient to pay for the cost of operating, maintaining and improving the Airport, and to satisfy all of the City’s obligations to make all deposits and payments under the Airport Use Agreements and any Bond Ordinance (including the First Lien Indenture and the Second Lien Indenture).

Billing of Airline Fees and Charges

Not later than 60 days prior to the beginning of each Fiscal Year, the City shall furnish each of the Signatory Airlines with a preliminary calculation of the Terminal Rental Rate, the Terminal Ramp Rate, the Landing Fee Rate, the Equipment Fee Rate, the FIS Fee Rate and the Fueling Rate and such Signatory Airline’s Terminal Rentals and Terminal Ramp Fee for such Fiscal Year, and not later than the last day of the prior Fiscal Year, the City shall furnish the Signatory Airlines with a revised estimated calculation of such amounts for such Fiscal Year. Such preliminary calculations will be based on the City’s estimates for such Fiscal Year of O&M Expenses, Non-Airline Revenues and estimates of Landing Weight, the number of passengers at the Airport, the number of deplaned passengers processed through the FIS Facility, and the number of gallons of fuel to be distributed from the Fuel System for such Fiscal Year provided by the Signatory Airlines. By the 15th day of each month the Signatory Airlines must file with the City a statement setting forth, among other things, their aircraft landed weight, number of Revenue Landings and number of passengers at the Airport. Not later than the 1st day of each month, each Signatory Airline is obligated to pay, without invoice, all of its estimated Terminal Rentals and Terminal Ramp Fees for such month. Not later than the 15th day of each month, each Signatory Airline is obligated to pay its Landing Fees, Equipment Fees and Fueling Fees due for the preceding month, based on its actual number of aircraft arrivals and gallons of fuel distributed from the Fuel System during such month.

During any Fiscal Year, Airline Fees and Charges may be adjusted by the City for the remaining months of such Fiscal Year if there is a 5% or more discrepancy between actual revenues and expenses and projected revenues and expenses; provided, however, that such adjustments of Airline Fees and Charges may not occur more frequently than two times per year. Within 270 days after the close of each Fiscal Year, a final calculation of Airline Fees and Charges is prepared for such Fiscal Year based upon actual revenues and expenses. Each Signatory Airline is entitled to a credit for amounts paid in excess of those established in such final calculation, and is obligated to pay any deficiency.

No Abatement or Suspension of Payment

The Airport Use Agreements provide that the Signatory Airlines shall not abate, suspend, postpone, set-off or discontinue any payments of Airline Fees and Charges which they are obligated to pay thereunder. The payment by the Signatory Airlines to the City and the City’s acceptance of any such amount shall not preclude either the Signatory Airlines or the City from making any claim against the other party in connection therewith.

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Grant of Rights; Obligations of City and Signatory Airlines

Each Signatory Airline is granted the right to conduct an Air Transportation Business at the Airport, and to perform those operations and functions as are incidental or reasonably necessary thereto. The City has agreed not to enter into any lease, contract or other agreement with any other airline providing service at the Airport which contains any rates or charges more favorable to such airline than the rates and charges payable by the Signatory Airlines unless the City also makes those more favorable terms available to the Signatory Airlines.

Each of the Signatory Airlines and the City has certain specified obligations with respect to the maintenance and operation of the Airport. The Signatory Airlines and the City also have certain specified insurance obligations with respect to the Airport.

Approval of Capital Projects; Issuance of Bonds; Use of Passenger Facility Charges

The Airport Use Agreements contain as exhibits thereto lists of those capital projects approved by the Signatory Airlines. Such exhibits also indicate the budget for such capital projects. The Airport Use Agreements also contain as exhibits procedures for designing and constructing such capital projects.

These procedures outline the involvement of the Signatory Airlines and their representatives in the development of contract documents, the contract bid and award process, the construction process and project completion. Among other things, the Signatory Airlines have the right to approve the awarding of any contract if the award amount is greater than 5% over the budget for the project.

The City also agreed in the Airport Use Agreements, commencing on January 1, 1997, to use all Passenger Facility Charge revenue collected at the Airport to pay Debt Service on Bonds, the proceeds of which are used by the City to pay for capital projects approved by the FAA for the collection and use of a Passenger Facility Charge at the Airport, provided that the City may use Passenger Facility Charge revenue on a pay-as-you-go basis subject to a Majority-in-Interest approval by the Signatory Airlines.

After giving notice to the Signatory Airlines in accordance with the Airport Use Agreements, the City may issue Bonds and include the Debt Service thereon in the calculation of Airline Fees and Charges without further consent or approval of the Signatory Airlines if such Bonds are issued for one or more of the following purposes: (1) to fund all costs related to the projects described in the Airport Use Agreements; (2) to fund capital projects at the Airport (A) necessary to comply with any federal, state or local agency or any federal or state grant agreement or airport certification requirement, (B) for emergency or Airfield safety purposes, (C) which an Independent Airport Consultant has projected will not result in a net increase in Airline Fees and Charges on an average basis over a five-year period, (D) necessary to remedy any environmental concern or comply with Environmental Laws, or (E) having a cumulative net cost to the City in any five-Fiscal Year period of less than $2,500,000; (3) to fund any capital project approved by a Majority-in-Interest; (4) to fund insurance or condemnation award deficiencies; (5) to fund the costs of judgments or settlements, or compliance with judicial orders, against the City by reason of its ownership, operation, maintenance, development, improvement or use of

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the Airport; (6) to fund the cost of tenant improvements in accordance with the Airport Use Agreements; (7) to fund capitalized interest on, and Fund Deposit Requirements with respect to, Bonds issued for any of the foregoing purposes; and (8) to fund costs of issuance of Bonds issued for any of the foregoing purposes.

An ordinance was introduced at a City Council meeting on November 13, 2013 that would authorize an amendment to the Airport Use Agreements to clarify and confirm that the provisions of the Airport Use Agreements with respect to the imposition or use of Passenger Facility Charges to fund Capital Projects is consistent with applicable FAA laws and regulations. The ordinance was considered by the Committee on Aviation at a meeting on November 22, 2013 and recommended for passage by the City Council. The ordinance was passed on November 26, 2013.

Additional Capital Projects

The City may issue Bonds to fund the cost of capital projects approved by a Majority-in Interest. A capital project is deemed approved if a Majority-in-Interest does not disapprove the capital project in writing to the City within 30 days of submission of a proposal with respect to such project to the Signatory Airlines.

The City may issue obligations (other than “Bonds” (as defined in the Airport Use Agreements)) and use the proceeds thereof to fund the cost of additional capital projects at the Airport or any other airports operated by the City without the consent of the Signatory Airlines or a Majority-in-Interest so long as the debt service thereon is not included in the calculation of Airline Fees and Charges. In addition, the City may fund the costs of additional capital projects at the Airport or any other airports owned, operated or controlled by the City from other sources available for such purpose, including: (1) amounts in the Repair and Replacement Fund and Emergency Reserve Fund (subject to limitations contained in the Airport Use Agreements); (2) amounts in the Airport Development Fund, or any other fund created pursuant to a Bond Ordinance; (3) government grants-in-aid; (4) proceeds of any gift, bequest, contribution or donation to the Airport, including any funds provided by an airline doing business at the Airport; (5) proceeds of any insurance or condemnation award subject to any restrictions on the use of such proceeds set forth in the Airport Use Agreements; and (6) proceeds of any Passenger Facility Charge, subject to the restrictions on the use of Passenger Facility Charge revenue noted above.

“Majority-in-Interest” means, during any Fiscal Year, any one or more Signatory Airlines which, in the aggregate (i) paid fifty-one percent (51%) or more of the Airline Fees and Charges charged to all Signatory Airlines for the prior Fiscal Year; and (ii) represent at least fifty-one percent (51%) in number of the Signatory Airlines. Solely for the purpose of determining a Majority-in-Interest, (A) no airline shall be deemed to be a Signatory Airline so long as an Event of Default with respect to such airline has occurred and is continuing or if such airline is no longer operating at the Airport (except if such airline’s cessation of operations results from a temporary suspension by the FAA), and (B) only Signatory Airlines having Airport Use Agreements with terms expiring on December 31, 2027, shall be deemed to be Signatory Airlines.

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Default and Termination

The following occurrences, among others, are defined as Events of Default under the Airport Use Agreements: (1) the insolvency, bankruptcy, receivership or dissolution of a Signatory Airline; (2) the failure of a Signatory Airline to punctually pay any Airline Fees and Charges; (3) the failure by a Signatory Airline to cure its default in the performance of any promise, covenant or other provision of the Airport Use Agreements upon 30 days’ notice of such default or if impossible to cure within such time, the failure to institute corrective action within such time and diligently pursue such action until the default is remedied; or (4) the discontinuation by a Signatory Airline of its Air Transportation Business at the Airport. Whenever an Event of Default has occurred and is continuing, the City may terminate such Signatory Airline’s Airport Use Agreement or may exclude such Signatory Airline from possession of its Leased Premises without termination and use its best efforts to lease such Leased Premises to another airline, and, in either case, may take such other action at law or in equity as appears necessary or desirable.

A Signatory Airline may terminate its Airport Use Agreement at any time upon the expiration of 60 days’ advance written notice to the City and the occurrence of any one of the following events: (1) any action of the FAA or other agency refusing to permit such Signatory Airline to operate into, from or through the Airport for a period of at least 60 days; (2) such Signatory Airline is prevented from conducting its Air Transportation Business at the Airport for a period of 180 consecutive days for any reason other than its own fault; or (3) in the event (i) “slot controls,” “noise mitigation” restrictions, FAA regulations or other similar governmental regulations are imposed upon such Signatory Airline or the Airport, substantially impairing such Signatory Airline’s ability to operate at the Airport or (ii) a new commercial passenger service airport (not including the Gary/Chicago International Airport) which the City owns or controls, in whole or in substantial part, and having a level of operations at least equal to the Airport, is opened and operating within 50 miles of the Airport. A Signatory Airline may terminate its Airport Use Agreement and its obligations thereunder as to all or any portion of Leased Premises upon the occurrence of an event described in subparagraphs (1), (2) or (3)(ii) above, but, upon the occurrence of an event pursuant to subparagraph (3)(i) above, may terminate only such portion of its obligations under its Airport Use Agreement as are directly and substantially affected by such Signatory Airline’s impaired ability to operate at the Airport. At any time that Bonds are not outstanding, a Signatory Airline may also terminate its Airport Use Agreement and its obligations thereunder as to all or any portion of Leased Premises upon the failure of the City to cure its default in the performance of any material promise, covenant or other provision in the Airport Use Agreement upon 30 days’ notice of such default or if impossible to cure within such time, the failure to institute corrective action within such time and diligently pursue such action until the default is remedied.

A Signatory Airline may terminate its Airport Use Agreement effective December 31, 2022 in the event that a new commercial passenger service airport is opened and operating and such airport has a direct impact on the operations of the Airport. A direct impact on the operations of the Airport means either (i) the closure of the Airport; or (ii) material limitations on operations at the Airport. The Airline may exercise this termination right by giving the City 60 days’ advance written notice by registered or certified mail.

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A Signatory Airline may also terminate its Airport Use Agreement if the City violates the following City covenants included in the Airport Use Agreements. The City has covenanted to (i) make all reasonable efforts to ensure that the Airport’s flight operations, passenger handling, cargo handling and other capacities germane to the operation of commercial air service at the Airport are not constrained, restricted, limited or reduced by action by the City and remain available to meet the demand for transportation to the region, (ii) not advocate or support any such constraints, restrictions, limitations or reductions on the Airport’s flight operations, passenger handling, cargo handling or other capacities germane to the operation of the Airport by any other federal, state or local governments (other than by the Midway Noise Commission), (iii) not participate as an advocate in the planning or development, or participate in the funding, financing or operations of any commercial service passenger airport not either currently owned or operated by the City or under the authority and jurisdiction of the Chicago-Gary Compact, within a 50-mile radius of the Airport, and (iv) not voluntarily transfer its ownership, oversight or control of the Airport to any governmental entity other than to an entity controlled solely by the City. See also “– Term,” above.

If an involuntary transfer of ownership, oversight or control of the Airport other than to an entity controlled solely by the City occurs, the Airport Use Agreements require such successor-in-interest to the City to purchase, upon petition by a Signatory Airline, such Signatory Airline’s ownership or leasehold interest in all permanent improvements then located at the Airport, at a cost equal to the then-present replacement value. The Airport Use Agreements provide an appraisal process if the successor-in-interest and the Signatory Airline cannot agree as to the replacement value of the interest. If the Signatory Airline petitions for such purchase, it shall have the right to terminate any or all of its lease agreements for space or facilities at the Airport, and the right of specific performance to compel the successor-in-interest to comply with the purchase provision.

Assignment, Sublease and Other Transfers

Each Signatory Airline covenants in its Airport Use Agreement that it will not assign, sublet, transfer, convey, sell, mortgage, pledge or encumber (any of the foregoing events being referred to as a “Transfer”) its Leased Premises or assigned aircraft parking positions or any part thereof, or any rights of the Signatory Airline under its Airport Use Agreement or any interest of the Signatory Airline in its Airport Use Agreement and that it will not allow the use of its Leased Premises or assigned aircraft parking positions under its Airport Use Agreement by any other person, except as otherwise provided in its Airport Use Agreement, without in each instance having first obtained the prior written consent of the City as described below. In determining whether or not to consent to a Transfer, the City will take into account, among other factors, the balanced utilization of the Airport facilities and operational considerations relating to the proposed transferee. The consent of the City Council of the City on behalf of the City shall be required for any Transfer of (i) all of a Signatory Airline’s Leased Premises, (ii) all rights of a Signatory Airline under its Airport Use Agreement, or (iii) all of a Signatory Airline’s interest in its Airport Use Agreement. The consent of the Commissioner of Aviation on behalf of the City shall be required for any other Transfer. As a condition to the City’s consent to a proposed sublease of Leased Premises, the proposed sublessee shall be required to execute a license agreement between the sublessee and the City in a form acceptable to the City.

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Notwithstanding any Transfer with or without City consent, the Signatory Airline shall remain fully liable for the payment of all of its Airline Fees and Charges and fully responsible for the performance of all of its other obligations under its Airport Use Agreement.

If any Transfer shall occur, whether or not prohibited by any provision of the Airport Use Agreement, the City may collect Airline Fees and Charges from any assignee, sublessee or other transferee of a Signatory Airline and in such event shall apply the net amount collected to the Airline Fees and Charges payable by the Signatory Airline under its Airport Use Agreement without such action by the City releasing the Signatory Airline from its Airport Use Agreement or any of its obligations under its Airport Use Agreement.

Any sublease or assignment shall require the sublessee or the assignee to be bound by all of the terms and provisions of the Airport Use Agreement and other applicable requirements external to the Airport Use Agreement imposed by the City on Signatory Airlines.

Change of Lease Term

Notwithstanding the provision of the Airport Use Agreement described above under the caption “Term,” each Airport Use Agreement provides that automatically and immediately upon the occurrence of an Event of Default described below, the term of the Airport Use Agreement of the defaulting Signatory Airline shall convert to month-to-month, commencing on the date of the automatic conversion and shall terminate upon 30 days’ written notice from the City to the Signatory Airline, or from the Signatory Airline to the City. The following are such Events of Default:

(i) The Signatory Airline shall become insolvent (as such term is defined under Section 101 of the Bankruptcy Code); or shall fail to pay its debts generally as they mature; or shall take the benefit of any present or future federal or state insolvency statute; or shall make a general assignment for the benefit of its creditors;

(ii) Any lien shall be filed against the Signatory Airline’s Leased Premises or any portion thereof resulting from any act or omission of the Signatory Airline, and shall not be discharged within 30 days, unless the Signatory Airline shall within such 30 days furnish the City such security as the Commissioner of Aviation in his or her discretion determines to be adequate to protect the interests of the City;

(iii) The Signatory Airline shall discontinue its Air Transportation Business (as defined in the Airport Use Agreement) at the Airport for a period of 30 consecutive days or for a period of 60 nonconsecutive days whenever occurring in the aggregate in any Fiscal Year or, after exhausting or abandoning any further appeals, the Signatory Airline shall be prevented for a period of 30 consecutive days by action of any governmental agency other than the City from conducting its Air Transportation Business at the Airport;

(iv) The Signatory Airline shall cease using or abandon substantially all of its Leased Premises for a period of 30 days;

C-12

(v) The Signatory Airline shall make any purported Transfer without the consent of the City, as described above under the caption “Assignment, Sublease and Other Transfer”;

(vi) The Signatory Airline shall fail to maintain its corporate existence or to remain duly qualified to do business in the State or the Signatory Airline shall dissolve or otherwise dispose of all or substantially all of its assets or shall consolidate with or merge into another corporation; provided, however, that it shall not be an Event of Default if the Signatory Airline consolidates with or merges into a wholly-owned subsidiary of the Signatory Airline;

(vii) The Signatory Airline shall default in the payment, when due, of any amounts now or hereafter owing by the Signatory Airline under any special facility agreement executed in accordance with the provisions of the Airport Use Agreement relating to special facility financings;

(viii) The Signatory Airline shall fail to meet any of the security deposit requirements set forth in the Airport Use Agreement; or

(ix) The Signatory Airline shall fail to transmit to the City PFCs on a timely basis in accordance with the PFC Regulations or shall fail to comply with the provisions of the Airport Use Agreement relating to PFCs.

The Airport Use Agreement provides that any conversion of the term of an Airport Use Agreement as described above shall not discharge any of the Signatory Airline’s obligations under its Airport Use Agreement nor affect any of the City’s other remedies set forth in such Airport Use Agreement.

APPENDIX D AUDITED FINANCIAL STATEMENTS

[THIS PAGE INTENTIONALLY LEFT BLANK]

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City�of�Chicago,�Illinois�Chicago�Midway�International�Airport�Basic�Financial�Statements�as�of�and�for�the��Years�Ended�December�31,�2012�and�2011,�Required�Supplementary�Information,��Additional�Information,�Statistical�Information,�and�Independent�Auditors’�Report�

�

���

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CITY�OF�CHICAGO,�ILLINOIS�CHICAGO�MIDWAY�INTERNATIONAL�AIRPORT�

TABLE�OF�CONTENTS�

Page�

INDEPENDENT�AUDITORS’�REPORT� 1–2�

MANAGEMENT’S�DISCUSSION�AND�ANALYSIS��(REQUIRED�SUPPLEMENTARY�INFORMATION)�� 3–10�

BASIC�FINANCIAL�STATEMENTS�AS�OF�AND�FOR�THE��YEARS�ENDED�DECEMBER�31,�2012�AND�2011:��Statements�of�Net�Position� 11��Statements�of�Revenues,�Expenses�and�Changes�in�Net�Position� 12��Statements�of�Cash�Flows� 13–14��Notes�to�Basic�Financial�Statements� 15–38�

ADDITIONAL�SUPPLEMENTARY�INFORMATION�—�� ��Debt�Service�Coverage�Calculations:��� Chicago�Midway�Airport�Revenue�Bonds� 39–40��� Chicago�Midway�Airport�Second�Lien�Revenue�Bonds� 41–42�

STATISTICAL�INFORMATION:� ��Historical�Operating�Results,�Each�of�the�Ten�Years�Ended�December�31,�2003–2012� 43��Debt�Service�Schedule� 44��Midway�Airport�Revenue�Bonds,�Series�1996�Estimated�Bond-Funded�Costs�as�of��� December�31,�2012� 45��Capital�Improvement�Program�2012–2018,�Estimated�Sources�and�Uses�of�Funds�as�of��� December�31,�2012� 46��Terminal�Development�Program,�Estimated�Sources�and�Uses�of�Funds�as�of��� December�31,�2012� 47��Historical�Enplaned�Passengers,�Each�of�the�Ten�Years�Ended�December�31,�2003–2012� 48���

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CITY�OF�CHICAGO,�ILLINOIS�CHICAGO�MIDWAY�INTERNATIONAL�AIRPORT�

TABLE�OF�CONTENTS�

Page�

� Enplaned�Commercial�Passengers�by�Airline,�Each�of�the�Ten�Years�Ended��� December�31,�2003–2012� 49�

� Historical�Enplaned�Passengers�Chicago�Region�Airports,�Each�of�the�Ten��� Years�Ended�December�31,�2003–2012� 50��Historical�Total�Origin�and�Destination�(O&D)�Enplanements�Chicago�Region�Airports,�� Each�of�the�Ten�Years�Ended�December�31,�2003–2012� 51��Aircraft�Operations,�Each�of�the�Ten�Years�Ended�December�31,�2003–2012� 52��Net�Position�by�Component,�Each�of�the�Seven�Years�Ended�December�31,�2006–2012� 53��Change�in�Net�Position,�Each�of�the�Seven�Years�Ended�December�31,�2006–2012� 54��Long�Term�Debt,�Each�of�the�Seven�Years�Ended�December�31,�2006–2012� 55��Full�Time�Equivalent�Chicago�Midway�Airport�Employees�by�Function,�� Each�of�the�Seven�Years�Ended�December�31,�2006–2012� 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�Council�City�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�(the�“City”),�as�of�and�for�the�years�ended�December�31,�2012�and�2011,�and�the�related�notes�to�the�basic�financial�statements,�which�collectively�comprise�Midway’s�basic�financial�statements�as�listed�in�the�table�of�contents.�

Management’s�Responsibility�for�the�Basic�Financial�Statements�

Management�is�responsible�for�the�preparation�and�fair�presentation�of�these�financial�statements�in�accordance�with�accounting�principles�generally�accepted�in�the�United�States�of�America;�this�includes�the�design,�implementation,�and�maintenance�of�internal�control�relevant�to�the�preparation�and�fair�presentation�of�financial�statements�that�are�free�from�material�misstatement,�whether�due�to�fraud�or�error.�

Auditors’�Responsibility�

Our�responsibility�is�to�express�an�opinion�on�these�financial�statements�based�on�our�audits.�We�conducted�our�audits�in�accordance�with�auditing�standards�generally�accepted�in�the�United�States�of�America.�Those�standards�require�that�we�plan�and�perform�the�audit�to�obtain�reasonable�assurance�about�whether�the�financial�statements�are�free�from�material�misstatement.�

An�audit�involves�performing�procedures�to�obtain�audit�evidence�about�the�amounts�and�disclosures�in�the�financial�statements.�The�procedures�selected�depend�on�the�auditor’s�judgment,�including�the�assessment�of�the�risks�of�material�misstatement�of�the�financial�statements,�whether�due�to�fraud�or�error.�In�making�those�risk�assessments,�the�auditor�considers�internal�control�relevant�to�the�entity’s�preparation�and�fair�presentation�of�the�financial�statements�in�order�to�design�audit�procedures�that�are�appropriate�in�the�circumstances,�but�not�for�the�purpose�of�expressing�an�opinion�on�the�effectiveness�of�the�entity’s�internal�control.�Accordingly,�we�express�no�such�opinion.�An�audit�also�includes�evaluating�the�appropriateness�of�accounting�policies�used�and�the�reasonableness�of�significant�accounting�estimates�made�by�management,�as�well�as�evaluating�the�overall�presentation�of�the�financial�statements.�

We�believe�that�the�audit�evidence�we�have�obtained�is�sufficient�and�appropriate�to�provide�a�basis�for�our�audit�opinion.�

Opinion�

In�our�opinion,�the�basic�financial�statements�referred�to�above�present�fairly,�in�all�material�respects,�the�financial�position�of�Chicago�Midway�International�Airport�as�of�December�31,�2012�and�2011,�and�the�changes�in�financial�position,�and,�cash�flows�for�the�years�then�ended�in�accordance�with�accounting�principles�generally�accepted�in�the�United�States�of�America.�

���

-�2�-�

Emphasis�of�Matter�

As�discussed�in�Note�1�to�the�basic�financial�statements,�the�basic�financial�statements�referred�to�above�present�only�Chicago�Midway�International�Airport,�an�enterprise�fund�of�the�City,�and�do�not�purport�to,�and�do�not,�present�the�financial�position�of�the�City�as�of�December�31,�2012�and�2011,�changes�in�its�financial�position,�or�where�applicable,�its�cash�flows,�in�conformity�with�accounting�principles�generally�accepted�in�the�United�States�of�America.�Our�opinion�is�not�modified�with�respect�to�this�matter.�

Other�Matters�

Required�Supplementary�Information�

Accounting�principles�generally�accepted�in�the�United�States�of�America�require�that�management’s�discussion�and�analysis�on�pages�3–10�be�presented�to�supplement�the�basic�financial�statements.�Such�information,�although�not�a�part�of�the�basic�financial�statements,�is�required�by�the�Governmental�Accounting�Standards�Board�who�considers�it�to�be�an�essential�part�of�financial�reporting�for�placing�the�basic�financial�statements�in�an�appropriate�operational,�economic,�or�historical�context.�We�have�applied�certain�limited�procedures�to�the�required�supplementary�information�in�accordance�with�auditing�standards�generally�accepted�in�the�United�States�of�America,�which�consisted�of�inquiries�of�management�about�the�methods�of�preparing�the�information�and�comparing�the�information�for�consistency�with�management’s�responses�to�our�inquiries,�the�basic�financial�statements,�and�other�knowledge�we�obtained�during�our�audit�of�the�basic�financial�statements.�We�do�not�express�an�opinion�or�provide�any�assurance�on�the�information�because�the�limited�procedures�do�not�provide�us�with�sufficient�evidence�to�express�an�opinion�or�provide�any�assurance.�

Other�Information�

Our�audits�were�conducted�for�the�purpose�of�forming�an�opinion�on�the�basic�financial�statements�that�collectively�comprise�the�Midway’s�basic�financial�statements.�The�additional�supplementary�information�is�presented�for�purposes�of�additional�analysis�and�is�not�a�required�part�of�the�basic�financial�statements.�The�additional�supplementary�information�as�listed�in�the�table�of�contents�is�the�responsibility�of�management�and�was�derived�from�and�relates�directly�to�the�underlying�accounting�and�other�records�used�to�prepare�the�basic�financial�statements.�Such�information�has�been�subjected�to�the�auditing�procedures�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�other�records�used�to�prepare�the�basic�financial�statements�or�to�the�basic�financial�statements�themselves,�and�other�additional�procedures�in�accordance�with�auditing�standards�generally�accepted�in�the�United�States�of�America.�In�our�opinion,�the�additional�supplementary�information�is�fairly�stated,�in�all�material�respects,�in�relation�to�the�basic�financial�statements�as�a�whole.�

Our�audits�were�conducted�for�the�purpose�of�forming�an�opinion�on�the�financial�statements�that�collectively�comprise�the�Midway’s�basic�financial�statements.�The�statistical�information�is�presented�for�purposes�of�additional�analysis�and�is�not�a�required�part�of�the�basic�financial�statements.�The�statistical�information�has�not�been�subjected�to�the�auditing�procedures�applied�in�the�audit�of�the�basic�financial�statements,�and�accordingly,�we�do�not�express�an�opinion�or�provide�any�assurance�on�it.�

�June�29,�2013�Chicago,�Illinois�

���

-�3�-�

MANAGEMENT’S�DISCUSSION�AND�ANALYSIS�(UNAUDITED)�($�IN�THOUSANDS)�

This�following�discussion�and�analysis�of�the�Chicago�Midway�International�Airport’s�(Airport)�performance�provides�an�introduction�and�overview�of�the�Airport’s�financial�activities�for�the�years�ended�December�31,�2012�and�2011.�Please�read�this�discussion�in�conjunction�with�the�Airport’s�basic�financial�statements�and�the�notes�to�basic�financial�statements�following�this�section.�

FINANCIAL�HIGHLIGHTS�

2012�

•� Operating�revenues�for�2012�increased�by�$462�compared�to�2011�operating�revenues.�

•� Operating�expenses�before�depreciation�and�amortization�increased�by�$4,208�compared�to�2011,�primarily�due�to�an�increase�in�other�operating�expenses�offset�by�a�decrease�in�repairs�and�maintenance.��

•� The�Airport’s�total�net�position�at�December�31,�2012�was�$159,429.�This�is�a�decrease�of�$15,019�compared�to�total�net�position�at�December�31,�2011.�

•� Capital�asset�additions�for�2012�were�$64,841,�principally�due�to�land�acquisition,�terminal�improvements,�parking�and�roadway�enhancements,�and�runway�improvements.�

2011�

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

•� 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.�

•� The�Airport’s�total�net�position�at�December�31,�2011�was�$174,448.�This�is�an�increase�of�$3,522�compared�to�total�net�position�at�December�31,�2010.�

•� Capital�asset�additions�for�2011�were�$43,346,�principally�due�to�land�acquisition,�terminal�improvements,�parking�and�roadway�and�runway�improvements.�

�

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�

�

�

�

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-�4�-�

OVERVIEW�OF�THE�BASIC�FINANCIAL�STATEMENTS�

This�discussion�and�analysis�is�intended�to�serve�as�an�introduction�to�the�Airport’s�basic�financial�statements.�The�Airport�is�included�in�the�City�of�Chicago’s�(City)�reporting�entity�as�an�enterprise�fund.�The�Airport’s�basic�financial�statements�are�composed�of�the�basic�financial�statements�and�the�notes�to�basic�financial�statements.�In�addition�to�the�basic�financial�statements,�this�report�also�presents�additional�and�statistical�information�after�the�notes�to�basic�financial�statements.�

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

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

The�Statements�of�Cash�Flows�report�how�cash�and�cash�equivalents�are�provided�and�used�by�the�Airport’s�operating,�capital�financing�and�investing�activities.�These�statements�are�prepared�on�a�cash�basis�and�present�the�cash�received�and�disbursed,�the�net�increase�or�decrease�in�cash�and�cash�equivalents�for�the�year�and�the�cash�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�financial�statements.�

In�addition�to�the�basic�financial�statements,�this�report�includes�Additional�Supplementary�and�Statistical�Information.�The�Additional�Supplementary�Information�section�presents�debt�service�coverage�calculations�and�the�Statistical�Information�section�includes�certain�unaudited�information�related�to�the�Airport’s�historical�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�airlines�throughout�each�year�based�on�estimated�rates.�Such�rates�are�designed�to�yield�collections�from�airlines�adequate�to�cover�certain�operating�expenses�and�required�debt�service�and�fund�deposits�as�determined�under�provisions�of�the�Airport�Use�Agreement�and�Facilities�Lease�(Use�Agreement).�Incremental�amounts�due�from�the�airlines�arise�when�amounts�assessed,�based�on�the�estimated�rates�used�during�the�year,�are�less�than�actual�expenses�and�required�deposits�for�the�year.�Such�incremental�amounts�due�from�airlines�are�included�in�amounts�to�be�billed.�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.�Such�incremental�amounts�due�to�airlines�are�included�in�billings�over�amounts�earned.�The�expiration�date�of�the�Airport�Use�Agreement�and�Facilities�Lease�was�December�31,�2012.�City�Council�approved�a�new�Airport�Use�Agreement�and�Facilities�Lease�on�October�3,�2012.�The�effective�date�of�the�new�Airport�Use�Agreement�and�Facilities�Lease�is�January�1,�2013,�expiring�on�December�31,�2027.�

���

-�5�-�

At�December�31,�2012,�the�Airport’s�financial�position�continued�to�be�strong�with�total�assets�and�deferred�outflows�of�$1,735,522�total�liabilities�of�$1,576,093,�and�net�position�of�$159,429.�A�comparative�condensed�summary�of�the�Airport’s�net�position�at�December�31,�2012,�2011,�and�2010�is�as�follows:�

2012 2011 2010

Current�unrestricted�assets 75,964$�������� 78,661$�������� 78,180$��������Restricted�and�other�assets 455,410�������� 519,392�������� 533,364��������Capital�assets�—�net 1,167,354����� 1,152,524����� 1,151,315�����Deferred�outflows 36,794���������� 35,000���������� 14,896����������Derivatives�Instrument ������������������� 6,647������������ �������������������

Total�assets�and�deferred�outflows 1,735,522$��� 1,792,224$��� 1,777,755$���

Current�liabilities 39,392$�������� 41,436$�������� 58,140$��������Liabilities�payable�from�restricted�assets��and�noncurrent�liabilities 1,536,701����� 1,576,340����� 1,548,689�����

Total�liabilities 1,576,093$��� 1,617,776$��� 1,606,829$���

Net�position:��Net�investment�in�capital�assets (82,226)$������� (70,876)$������� (39,755)$���������Restricted 205,083�������� 208,100�������� 190,641����������Unrestricted 36,572���������� 37,224���������� 20,040����������

Total�net�position 159,429$������ 174,448$������ 170,926$������

Net�Position

�

2012�

Current�unrestricted�assets�decreased�by�$2,697�(3.4%)�primarily�due�to�a�decrease�in�cash�and�cash�equivalents.�The�Airport’s�current�ratio�(current�unrestricted�assets/current�unrestricted�liabilities)�at�December�31,�2012�and�2011�was�1.93:1�and�1.90:1,�respectively.�Restricted�and�other�assets�decreased�by�$63,982�(12.3%)�mainly�due�to�an�increase�in�payment�of�construction�costs�and�use�of�capitalized�interest�for�payments�on�debt�service.�Net�capital�assets�increased�by�$14,830�(1.3%)�due�principally�to�increased�construction�in�progress.�

The�decrease�in�current�liabilities�of�$2,044�(4.9%)�is�mainly�related�to�the�decrease�in�billings�over�amounts�earned�and�advances�for�terminal�and�hangar�rent�of�$9,107�and�$1,760,�respectively,�offset�by�an�increase�in�accounts�payable�and�accrued�liabilities�of�$9,295.�The�decrease�in�billings�over�amounts�earned�represents�primarily�the�net�adjustment�for�current�year�activity�and�current�year�distributions�of�billings�over�amounts�earned�related�to�prior�years�to�the�airlines.�Liabilities�payable�from�restricted�assets�and�noncurrent�liabilities�decreased�by�$39,639�(2.5%)�in�2012�mainly�due�to�a�decrease�in�revenue�bonds�payable�from�restricted�funds�of�$54,066,�a�decrease�in�interest�rate�swap�premium�of�$13,854�offset�by�an�increase�in�due�to�other�City�funds�and�notes�payable�of�$12,790�and�$34,639,�respectively.���

2011�

Current�unrestricted�assets�increased�by�$481�(0.6%)�primarily�due�to�an�increase�in�cash�and�cash�equivalents.�The�Airport’s�current�ratio�(current�unrestricted�assets/current�unrestricted�liabilities)�at�December�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�and�

���

-�6�-�

Passenger�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�payable�and�accrued�liabilities�and�a�decrease�in�billings�over�amounts�earned�of�$4,202�and�$13,965�respectively.�The�decrease�in�billings�over�amounts�earned�represents�primarily�the�net�adjustment�for�current�year�activity�and�current�year�distributions�of�billings�over�amounts�earned�related�to�prior�years�to�the�airlines.�Liabilities�payable�from�restricted�assets�and�noncurrent�liabilities�increased�by�$27,651(1.8%)�in�2011�mainly�due�to�an�increase�in�accounts�payable�of�$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�position�may�serve,�over�a�period�of�time,�as�a�useful�indicator�of�the�Airport’s�financial�position.�At�December�31,�2011,�total�net�position�was�$174,448,�an�increase�of�$3,522�(2.1%)�from�2010.�Due�to�the�residual�Airport�Use�Agreement,�this�increase�is�mainly�due�to�timing�differences�between�depreciation�on�property�and�facilities�and�cash�requirements�required�for�debt�service.�

The�primary�sources�of�Airport�operating�revenues�are�landing�fees,�terminal�area�use�charges,�rents�and�concession�revenues�as�defined�within�the�Use�Agreement�and�Facilities�Lease.�These�revenues�fund�Airport�operating�expenses,�fund�deposits�and�net�debt�service�requirements.�A�comparative�condensed�summary�of�the�Airport’s�changes�in�net�position�for�the�years�ended�December�31,�2012,�2011,�and�2010�is�as�follows:�

2012 2011 2010

Operating�revenues:��Landing�fees�and�terminal�area�use����charges 70,912$���� 79,445$��� 78,194$������Rents,�concessions�and�other 86,921������ 77,926����� 70,862������

Total�operating�revenues 157,833���� 157,371��� 149,056����

Operating�expenses:��Salaries�and�wages 44,463������ 43,554����� 42,105��������Repairs�and�maintenance 37,990������ 40,732����� 31,942��������Professional�and�engineering 15,011������ 15,650����� 15,832��������Other�operating�expenses 16,833������ 10,153����� 18,457��������Depreciation�and�amortization 55,119������ 51,067����� 52,767������

Total�operating�expenses 169,416���� 161,156��� 161,103����

Operating�loss (11,583)���� (3,785)������ (12,047)����

Nonoperating�revenues 48,334������ 61,262����� 38,860������Nonoperating�expenses (56,451)���� (57,016)���� (63,362)����Capital�grants 4,681�������� 3,061������� 2,461��������Change�in�net�position (15,019)$�� 3,522$����� (34,088)$��

Changes�in�Net�Position

�2012�

Landing�fees�and�terminal�area�use�charges�for�the�years�2012�and�2011�were�$70,912�and�$79,445,�respectively.�Rents,�concessions�and�other�revenues�were�$86,921�and�$77,926�for�2012�and�2011,�

���

-�7�-�

respectively.�The�increase�in�2012�operating�revenues�of�$462�(0.3%)�from�2011�was�mainly�due�to�increased�other�rentals�and�fueling�fees�of�$7,224�offset�by�decreased�landings�fees�and�terminal�area�use�charges�of�$6,440�and�$2,093,�respectively.�Such�changes�were�due�to�the�residual�Airport�Use�Agreement�and�Facilities�Leases�that�require�airline�revenue�to�be�recognized�to�the�extent�necessary�to�pay�the�Airport’s�operating�and�maintenance�expenses,�net�debt�service�and�fund�deposit�requirements,�reduced�by�non-airline�revenues.�Concession�revenue�increased�$1,771�due�primarily�to�an�increases�in�auto�parking�of�$1,718,�restaurants�of�$811,�and�auto�rental�of�$245�offset�by�a�decrease�in�other�concessions�of�$938.�

Salaries�and�wages�increased�by�$909�(2.1%)�in�2012�compared�to�2011.�Also,�repairs�and�maintenance�expenses�decreased�by�$2,742�(6.7%)�in�2012�compared�to�2011�primarily�from�adjustments�to�a�capital�lease.�Professional�and�engineering�expenses�decreased�$639�(4.1%)�compared�to�2011.�Other�operating�expenses�increased�$6,680�(65.8%)�in�2012�compared�to�2011�due�to�an��increase�in�provision�for�doubtful�accounts.�

The�2012�nonoperating�revenues�of�$48,334�are�comprised�of�Passenger�Facility�Charges�(PFC)�revenue�of�$37,531,�customer�facility�charges�(CFC)�revenue�of�$6,385�interest�income�of�$2,292�and�other�nonoperating�revenues�of�$2,126.�

Nonoperating�expenses�of�$56,451�and�$57,016�for�the�years�2012�and�2011,�respectively,�were�comprised�of�bond�interest�expense.�

Capital�grants�increased�$1,620�in�2012,�mainly�as�a�result�of�when�associated�capital�expenditures�became�eligible�for�grant�reimbursement�from�the�federal�government.�

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�to�increased�landing�fees�and�other�rentals�and�fueling�fees�of�$3,284�and�$3,490,�respectively.�Such�changes�were�due�to�the�residual�Airport�Use�Agreement�and�Facilities�Leases�that�require�airline�revenue�to�be�recognized�to�the�extent�necessary�to�pay�the�Airport’s�operating�and�maintenance�expenses,�net�debt�service�and�fund�deposit�requirements,�reduced�by�non-airline�revenues.�Concessions�increased�$3,574�due�primarily�to�an�increase�in�auto�parking�of�$1,263.�

Salaries�and�wages�increased�by�$1,449�(3.4%)�in�2011�compared�to�2010.�Professional�and�engineering�expenses�increased�by�$8,790�(27.5%)�in�2011�compared�to�2010.�This�increase�was�due�to�a�lower�than�usual�amount�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�to�2010�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�facility�charges�(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�of�bond�interest�expense.�

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

���

-�8�-�

A�comparative�summary�of�the�Airport’s�cash�flows�for�the�years�ended�December�31,�2012,�2011,�and�2010�is�as�follows:�

�����Cash�Flows2012 2011 2010

Cash�provided�by�(used�in)�activities:��Operating 37,315$����� 25,607$����� 42,484$�������Capital�and�related�financing (127,274)��� (61,510)������ 161,297�������Investing 82,621������� (72,239)������ (96,425)������

Net�change�in�cash�and�cash�equivalents (7,338)������� (108,142)���� 107,356�����

Cash�and�cash�equivalents:��Beginning�of�year 141,646����� 249,788����� 142,432�����

��End�of�year 134,308$��� 141,646$��� 249,788$��� �

2012�

As�of�December�31,�2012,�the�Airport’s�available�cash�and�cash�equivalents�of�$134,308�decreased�by�$7,338�compared�to�$141,646�at�December�31,�2011�due�to�operating�activities�of��$37,315�and�investing�activities�of�$82,621�offset�by�capital�and�related�financing�activities�of�$127,274.�Total�cash�and�cash�equivalents�at�December�31,�2012�were�comprised�of�unrestricted�and�restricted�cash�and�cash�equivalents�of�$11,785�and�$122,523,�respectively.�

2011�

As�of�December�31,�2011,�the�Airport’s�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�by�capital�and�related�financing�activities�of�$61,510�and�investing�activities�of�$72,239.�Total�cash�and�cash�equivalents�at�December�31,�2011,�were�comprised�of�unrestricted�and�restricted�cash�and�cash�equivalents�of�$35,366�and�$106,280,�respectively.�

CAPITAL�ASSET�AND�DEBT�ADMINISTRATION�

At�the�end�of�2012�and�2011,�the�Airport�had�$1,167,354�and�$1,152,524�respectively,�invested�in�net�capital�assets.�During�2012,�the�Airport�had�additions�of�$64,841�related�to�capital�activities.�This�included�$3,394�for�land�acquisition�and�the�balance�of�$61,447�for�construction�projects�relating�to�terminal�improvements,�parking�and�roadway�enhancements�and�runway�improvements.�

During�2012,�completed�projects�totaling�$43,773�were�transferred�from�construction�in�progress�to�applicable�buildings�and�other�facilities�capital�account.�These�major�completed�projects�were�related�to�terminal�improvements,�along�with�runway�improvements�and�building�security.�

���

-�9�-�

The�Airport’s�capital�assets�at�December�31,�2012,�2011,�and�2010�are�summarized�as�follows:�

2012 2011 2010

Capital�assets�not�depreciated:�Land 112,840$����� 109,446$����� 107,287$������Construction�in�progress 69,847��������� 52,173�������� 20,229�������

Total�capital�assets�not�depreciated 182,687������ 161,619������ 127,516������

Capital�assets�depreciated:�Buildings�and�other�facilities 1,415,216��� 1,371,443��� 1,362,200��

Less�accumulated�depreciation�for: ������������������Buildings�and�other�facilities (430,549)������ (380,538)���� (338,401)�����

Total�capital�assets�depreciated�—�net 984,667������ 990,905������ 1,023,799��

Total�property�and�facilities�—�net 1,167,354$�� 1,152,524$�� 1,151,315$�

Capital�Assets�at�Year-end

�

The�Airport’s�capital�activities�are�funded�through�Airport�revenue�bonds,�federal�and�state�grants,�Passenger�Facility�Charge�(PFC)�and�Customer�Facility�Charge�(CFC)�revenue.�Additional�information�on�the�Airport’s�capital�assets�is�presented�in�Note�5�of�the�notes�to�the�basic�financial�statements.�

The�Airport�issued�$34,639�of�Commercial�Paper�Notes�during�2012�having�interest�rates�ranging�from�0.19%�to�0.23%�with�maturity�dates�of�January�9,�2013�and�February�12,�2013.�Note�proceeds�may�be�used�to�finance�portions�of�the�costs�of�authorized�airport�projects,�to�repay�the�expenses�of�issuing�the�notes,�or�other�fees�related�to�financing�transactions.�

The�Airport’s�outstanding�debt�at�December�31,�2012,�2011,�and�2010�is�summarized�as�follows�($�in�thousands):�

2012 2011 2010Revenue�bonds�and�notes�payable 1,441,329$��� 1,461,490$���� 1,473,380$����Unamortized:��Bond�(discount)�premium 160��������������� (281)�������������� 8��������������������Deferred�loss�on�refunding (5,998)����������� (6,291)����������� (6,836)�����������

1,435,491����� 1,454,918������ 1,466,552������Current�bonds�payable (23,475)��������� (22,305)��������� (7,885)�����������

Total�long-term�revenue�bonds�and���notes�payable�–�net 1,412,016$��� 1,432,613$���� 1,458,667$����

Outstanding�Debt�at�Year-end

�

Additional�information�on�the�Airport’s�long-term�debt�is�presented�in�Note�4�of�the�notes�to�basic�financial�statements�and�in�the�Statistical�Information�section�of�this�report.�

���

-�10�-�

The�Airport’s�revenue�bonds�at�December�31,�2012�had�credit�ratings�with�each�of�the�three�major�rating�agencies�as�follows:�

Moody’sInvestor Standard FitchServices &�Poor’s Ratings

First�Lien�Chicago�Midway�Revenue�Bonds A2 A ASecond�Lien�Chicago�Midway�Revenue�Bonds A3 A- A- �

At�December�31,�2012�and�2011�the�Airport�believes�it�was�in�compliance�with�the�debt�covenants�as�stated�within�the�Master�Trust�Indentures.�

ECONOMIC�FACTORS�AND�NEXT�YEAR�RATES�AND�CHARGES�

The�airlines�using�Chicago�Midway�International�Airport�generally�provide�low�fare,�point-to-point�origination�and�destination�passenger�service.�During�2012�and�2011,�Southwest�Airlines�accounted�for�87.1%�and�86.7%,�respectively,�of�total�enplanements�at�the�Airport.�

Based�on�the�Airport’s�rates�and�charges�for�2013,�total�budgeted�operating�and�maintenance�expenses�are�projected�at�$120,007�and�total�net�debt�service�and�fund�deposit�requirements�are�projected�at�$54,569.�Additionally,�2013�non-airline�and�non-signatory�revenues�are�budgeted�for�$72,459,�resulting�in�a�net�airline�requirement�of�$102,117�that�will�be�funded�through�landing�fees,�terminal�area�use�charges,�and�fueling�system�charges.�

REQUESTS�FOR�INFORMATION�

This�financial�report�is�designed�to�provide�the�reader�with�a�general�overview�of�the�Airport’s�finances.�Questions�concerning�any�of�the�information�provided�in�this�report�or�requests�for�additional�financial�information�should�be�addressed�to�the�City�of�Chicago�Comptroller’s�Office.�

���

-�11�-�

CITY�OF�CHICAGO,�ILLINOISCHICAGO�MIDWAY�INTERNATIONAL�AIRPORT

STATEMENTS�OF�NET�POSITIONAS�OF�DECEMBER�31,�2012�AND�2011($�in�thousands)

2012 2011 2012 2011ASSETS�AND�DEFERRED�OUTFLOWS LIABILITIES�AND�DEFERRED�INFLOWSCURRENT�ASSETS: CURRENT�LIABILITIES:��Cash�and�cash�equivalents�(Note�2) 11,785$������ 35,366$������ ��Accounts�payable�and�accrued�liabilities 21,738$������ 12,443$��������Investments�(Note�2) 36,079�������� 26,709�������� ��Due�to�other�City�funds 7,044���������� 7,516������������Accounts�receivable�—�net�of�allowance�for�doubtful�accounts ��Advances�for�terminal�and�hangar�rent 774������������� 2,534��������������of�approximately�$929�in�2012�and�$365�in�2011 8,551���������� 12,211�������� ��Billings�over�amounts�earned 9,836���������� 18,943����������Amounts�to�be�billed 3,315���������� �������������������Due�from�other�City�funds 14,437�������� 2,119���������� �����������Total�current�liabilities 39,392�������� 41,436����������Prepaid�expenses 1,732���������� 2,175������������Interest�receivable 65��������������� 81��������������� LIABILITIES�PAYABLE�FROM�RESTRICTED�ASSETS�(Note�3):

��Current�portion�of�revenue�bond�payable�(Note�4) 23,475�������� 22,305�������������������Total�current�assets 75,964�������� 78,661�������� ��Interest�rate�swap�premium�(Note�4) ����������������� 13,854��������

��Accounts�payable 24,160�������� 35,062��������RESTRICTED�ASSETS�(Note�3): ��Due�to�other�City�funds 13,098�������� 308���������������Cash�and�cash�equivalents�(Note�2) 122,523������ 106,280������ ��Interest�payable 27,158�������� 28,162��������

��Investments�(Note�2) 197,960������ 286,015��������Due�from�other�governments ����������������� 2,732���������� �����������Total�liabilities�payable�from�restricted�assets 87,891�������� 99,691��������

��Accounts�receivable�(Note�1) 2,543���������� 5,169������������Interest�receivable 346������������� 463������������� NONCURRENT�LIABILITIES:

��Revenue�bonds�payable�—�net�of�discount�(Note�4) 1,377,377��� 1,432,613��������������Total�restricted�assets 323,372������ 400,659������ ��Capital�lease ����������������� 9,036����������

��Notes�payable�—�commercial�paper 34,639�������� �����������������NONCURRENT�ASSETS: ��Derivative�instrument 36,794�������� 35,000����������Other�assets�—�deferred�noise�mitigation�program����costs�and�financing�fees 132,038������ 118,733������ �����������Total�non�current�liabilities�� 1,448,810��� 1,476,649���

��Property�and�facilities�(Note�5): �����������Total�liabilities 1,576,093��� 1,617,776���

����Land 112,840������ 109,446����������Buildings�and�other�facilities 1,415,216��� 1,371,443��� NET�POSITION�(Note�1):����Construction�in�progress 69,847�������� 52,173�������� ��Net�investment�in�capital�assets�(deficit) (82,226)������� (70,876)�������

�����������Total�property�and�facilities 1,597,903��� 1,533,062��� ��Restricted�net�position:����Debt�service 11,624�������� 19,976��������

����Less�accumulated�depreciation (430,549)����� (380,538)����� ����Capital�projects 807������������� 12,661��������

����Passenger�facility�charges 5,117���������� 5,177���������������������Property�and�facilities�—�net 1,167,354��� 1,152,524��� ����Airport�use�agreement 26,234�������� 23,943��������

����Noise�mitigation�program 124,576������ 110,691����������Derivatives�instrument ����������������� 6,647���������� ����Other�assets 36,725�������� 35,652��������

�����������Total�noncurrent�assets�� 1,299,392��� 1,277,904��� �����������Total�restricted�net�position�� 205,083������ 208,100������

�����������Total�assets 1,698,728��� 1,757,224��� ��Unrestricted�net�position 36,572�������� 37,224��������

DEFERRED�OUTFLOWS 36,794�������� 35,000�������� �����������Total�net�position 159,429������ 174,448������

TOTAL 1,735,522$� 1,792,224$� TOTAL 1,735,522$� 1,792,224$�

See�notes�to�basic�financial�statements. �

���

-�12�-�

CITY�OF�CHICAGO,�ILLINOISCHICAGO�MIDWAY�INTERNATIONAL�AIRPORT����STATEMENTS�OF�REVENUES,�EXPENSES�AND�CHANGES�IN�NET�POSITIONFOR�THE�YEARS�ENDED�DECEMBER�31,�2012�AND�2011($�in�thousands)

2012 2011

OPERATING�REVENUES:��Landing�fees�and�terminal�area�use�charges�(Note�1) 70,912$��� 79,445$�����Rents,�concessions�and�other�(Note�6) 86,921����� 77,926�����

�����������Total�operating�revenues 157,833��� 157,371���

OPERATING�EXPENSES�(Notes�7�and�8):��Salaries�and�wages 44,463����� 43,554�������Repairs�and�maintenance 37,990����� 40,732�������Professional�and�engineering�services 15,011����� 15,650�������Other�operating�expenses 16,833����� 10,153�����

�����������Total�operating�expenses�before�depreciation�and�amortization 114,297��� 110,089���

��Depreciation�and�amortization 55,119����� 51,067�����

�����������Total�operating�expenses 169,416��� 161,156���

OPERATING�LOSS (11,583)���� (3,785)������

NONOPERATING�REVENUES�(EXPENSES):��Passenger�facility�charges�revenues 37,531����� 36,850�������Customer�facility�charges�revenues 6,385������� 6,175���������Interest�(loss)�income 2,292������� 17,460�������Interest�expense�(Note�4) (56,451)���� (57,016)������Other�nonoperating�revenues 2,126������� 777����������

�����������Total�nonoperating�revenues�(expenses) (8,117)������ 4,246�������

GAIN�(LOSS)�BEFORE�CAPITAL�GRANTS (19,700)���� 461����������

CAPITAL�GRANTS�(Note�1) 4,681������� 3,061�������

CHANGE�IN�NET�POSITION (15,019)���� 3,522�������

TOTAL�NET�POSITION�—�Beginning�of�year 174,448��� 170,926���

TOTAL�NET�POSITION�—�End�of�year 159,429$� 174,448$�

See�notes�to�basic�financial�statements. �

���

-�13�-�

CITY�OF�CHICAGO,�ILLINOISCHICAGO�MIDWAY�INTERNATIONAL�AIRPORT����STATEMENTS�OF�CASH�FLOWSFOR�THE�YEARS�ENDED�DECEMBER�31,�2012�AND�2011($�in�thousands)

2012 2011

CASH�FLOWS�FROM�OPERATING�ACTIVITIES:��Landing�fees�and�terminal�area�use�charges 67,142$����� 69,436$�������Rents,�concessions�and�other 80,541������� 68,428���������Payments�to�vendors (65,722)����� (68,185)�������Payments�to�employees (36,136)����� (35,997)�������Transactions�with�other�City�funds�—�net (8,510)������� (8,075)�������

�����������Cash�flows�provided�by�operating�activities 37,315������� 25,607�������

CASH�FLOWS�FROM�CAPITAL�AND�RELATED��FINANCING�ACTIVITIES:��Proceeds�from�issuance�of�notes 34,639���������Payments�to�refund�commercial�paper ���������������� (4,005)���������Cash�paid�to�refund�bonds (31,583)�������Acquisition�and�construction�of�capital�assets (65,684)����� (15,230)�������Grant�receipts 7,413��������� 2,186�����������Principal�paid�on�bonds (22,305)����� (7,885)���������Interest�paid (65,227)����� (60,037)�������Cash�paid�for�noise�mitigation�program (23,591)����� (18,210)�������Principal�payments�on�capital�lease�obligation (1,354)������� (372)������������Termination�of�swap (8,250)���������Passenger�facility�charges�revenues 40,157������� 34,510���������Customer�facility�charges�revenues 6,385��������� 6,113�����������Collateral�deposit�payment 1,420�����������Other 2,126��������� ����������������

�����������Cash�flows�used�in�capital�and�related�������������financing�activities (127,274)��� (61,510)�����

CASH�FLOWS�FROM�INVESTING�ACTIVITIES:��Sale�(purchases)�of�investments�—�net 79,541������� (81,418)�������Investment�interest 3,080��������� 9,179���������

�����������Cash�flows�provided�by�(used�in)�investing�activities 82,621������� (72,239)�����

NET�CHANGE�IN�CASH�AND�CASH�EQUIVALENTS (7,338)������� (108,142)���

CASH�AND�CASH�EQUIVALENTS�—�Beginning�of�year 141,646����� 249,788�����

CASH�AND�CASH�EQUIVALENTS�—�End�of�year 134,308$��� 141,646$���

(Continued) �

���

-�14�-�

CITY�OF�CHICAGO,�ILLINOISCHICAGO�MIDWAY�INTERNATIONAL�AIRPORT

STATEMENTS�OF�CASH�FLOWS�FOR�THE�YEARS�ENDED�DECEMBER�31,�2012�AND�2011($�in�thousands)

2012 2011

RECONCILIATION�OF�CASH�AND�CASH�EQUIVALENTS��REPORTED�ON�THE�STATEMENTS�OF�NET�POSITION:��Unrestricted 11,785$����� 35,366$�������Restricted 122,523����� 106,280�����

TOTAL 134,308$��� 141,646$���

RECONCILIATION�OF�OPERATING�LOSS�TO�CASH��PROVIDED�BY�OPERATING�ACTIVITIES:��Operating�loss (11,583)$��� (3,785)$�������Adjustments�to�reconcile�operating�loss�to����cash�flows�from�operating�activities:����Depreciation�and�amortization 55,119������� 51,067�����������Provision�for�uncollectible�accounts 371������������ (3,886)�����������Changes�in�assets�and�liabilities:������Decrease�(increase)�in�accounts�receivable 3,289��������� (136)����������������Decrease�(increase)�in�due�from�other�City�funds (12,790)����� 76��������������������Decrease�(increase)�in�prepaid�expenses 443������������ (1,876)�������������(Decrease)�in�due�to�other�City�funds 12,790������� (53)������������������Increase�in�amounts�to�be�billed (3,315)�������������(Decrease)�in�billings�over�amounts�earned (9,107)������� (4,218)�������������(Decrease)�increase�in�advances�for�terminal�and�hangar�rent (1,760)������� 320������������������Increase�(Decrease)�in�accounts�payable�and�accrued�liabilities 3,858��������� (11,902)�����

CASH�FLOWS�FROM�OPERATING�ACTIVITIES 37,315$����� 25,607$�����

SUPPLEMENTAL�DISCLOSURE�OF�NONCASH�ITEMS:��Property�additions�in�2012�and�2011�of�$33,248�and��$30,204,�respectively,�are�included�in�accounts�payable.

��The�fair�market�value�adjustments�gain�(loss)�to�investments�for�2012��and�2011�were�$1,141�and�$288,�respectively.

See�notes�to�basic�financial�statements. (Concluded) �

���

-�15�-�

CITY�OF�CHICAGO,�ILLINOIS�CHICAGO�MIDWAY�INTERNATIONAL�AIRPORT�

NOTES�TO�BASIC�FINANCIAL�STATEMENTS�AS�OF�AND�FOR�THE�YEARS�ENDED�DECEMBER�31,�2012�AND�2011�

1.� ORGANIZATION�AND�SUMMARY�OF�SIGNIFICANT�ACCOUNTING�POLICIES�

Organization�—�Chicago�Midway�International�Airport�(Airport)�is�operated�by�the�City�of�Chicago�(City)�Department�of�Aviation.�The�Airport�is�included�in�the�City’s�reporting�entity�as�an�enterprise�fund.�The�City�is�a�member�of�the�Chicago-Gary�Regional�Airport�Authority,�which�was�created�in�1995�to�address�the�air�transportation�needs�of�the�Chicago-Northwest�Indiana�Region.�In�2012,�the�Airport�operated�subject�to�the�provisions�of�the�Airport�Use�Agreement�and�Facilities�Lease�(Use�Agreement)�which�is�a�residual�use�agreement�that�expired�on�December�31,�2012.�City�Council�approved�a�new�Airport�Use�Agreement�and�Facilities�Lease�on�October�3,�2012.�The�effective�date�of�the�new�Airport�Use�Agreement�and�Facilities�Lease�is�January�1,�2013,�expiring�December�31,�2027.�

Basis�of�Accounting�and�Measurement�Focus�—�The�accounting�policies�of�the�Airport�are�based�upon�accounting�principles�generally�accepted�in�the�United�States�of�America,�as�prescribed�by�the�Governmental�Accounting�Standards�Board�(GASB).�The�accounting�and�financial�reporting�treatment�applied�to�a�fund�is�determined�by�its�measurement�focus.�The�accounts�of�the�Airport�are�reported�using�the�flow�of�economic�resources�measurement�focus.�

The�Airport�uses�the�accrual�basis�of�accounting,�under�which�revenues�are�recognized�when�earned�and�expenses�are�recognized�when�incurred.�

Annual�Appropriated�Budget�—�The�Airport�has�a�legally�adopted�annual�budget,�which�is�not�required�to�be�reported.�

Management’s�Use�of�Estimates�—�The�preparation�of�financial�statements�in�conformity�with�accounting�principles�generally�accepted�in�the�United�States�of�America�requires�management�to�make�estimates�and�assumptions�that�affect�the�reported�amounts�of�assets�and�liabilities�and�the�disclosure�of�contingent�assets�and�liabilities�at�the�date�of�the�basic�financial�statements,�and�the�reported�amounts�of�revenues�and�expenses�during�the�reporting�period.�Actual�results�could�differ�from�the�estimates.�

Cash,�Cash�Equivalents�and�Investments�—�Cash,�cash�equivalents�and�investments�generally�are�held�with�the�City�Treasurer�as�required�by�the�Municipal�Code�of�Chicago�(Code).�Interest�earned�on�pooled�investments�is�allocated�to�participating�funds�based�upon�their�average�combined�cash�and�investment�balances.�Due�to�contractual�agreements�or�legal�restrictions,�the�cash�and�investments�of�certain�funds�are�segregated�and�earn�and�receive�interest�directly.�

The�Code�permits�deposits�only�to�City�Council-approved�depositories,�which�must�be�regularly�organized�state�or�national�banks�and�federal�and�state�savings�and�loan�associations,�located�within�the�City,�whose�deposits�are�federally�insured.�

���

-�16�-�

Investments�authorized�by�the�Code�include�interest-bearing�general�obligations�of�the�City,�the�State�of�Illinois�(State),�and�the�U.S.�government;�U.S.�Treasury�bills�and�other�non-interest-bearing�general�obligations�of�the�U.S.�government�purchased�in�the�open�market�below�face�value;�domestic�money�market�mutual�funds�regulated�by,�and�in�good�standing�with,�the�Securities�and�Exchange�Commission�and�tax�anticipation�warrants�issued�by�the�City.�The�City�is�prohibited�by�ordinance�from�investing�in�derivatives,�as�defined,�without�City�Council�approval.�

The�Airport�values�its�investments�at�fair�value�or�amortized�cost�as�applicable.�U.S.�government�securities�purchased�at�a�price�other�than�par�with�a�maturity�of�less�than�one�year�are�reported�at�amortized�cost.�The�fair�value�of�U.S.�agency�securities,�corporate�bonds�and�municipal�bonds�are�estimated�using�recently�executed�transactions,�market�price�quotations�(where�observable),�or�bond�spreads.�

Repurchase�agreements�can�be�purchased�only�from�banks�and�certain�other�institutions�authorized�to�do�business�in�the�State.�The�City�Treasurer�requires�that�securities�pledged�to�secure�these�agreements�have�a�market�value�equal�to�the�cost�of�the�repurchase�agreements�plus�accrued�interest.�

Investments�generally�may�not�have�a�maturity�in�excess�of�10�years�from�the�date�of�purchase.�Certain�other�investment�balances�are�held�in�accordance�with�the�specific�provisions�of�applicable�bond�ordinances.�

Cash�equivalents�include�certificates�of�deposit�and�other�investments�with�maturities�of�three�months�or�less�when�purchased.�

Accounts�Receivable�Allowance�—�Management�has�provided�an�allowance�based�on�amounts�recorded�at�year-end,�which�may�be�uncollectible.�

Revenues�and�Expenses�—�Revenues�from�landing�fees,�terminal�area�use�charges,�fueling�system�charges,�parking�revenue�and�concessions�are�reported�as�operating�revenues.�Transactions�that�are�related�to�financing,�investing,�passenger�facility�charges�(PFCs),�and�customer�facility�charges�(CFCs)�are�reported�as�nonoperating�revenues.�Salaries�and�wages,�repair�and�maintenance,�professional�and�engineering�services�and�other�expenses�that�relate�to�Airport�operations�are�reported�as�operating�expenses.�Interest�expense�and�financing�costs�are�reported�as�nonoperating�expenses.�

Transactions�with�the�City�—�The�City’s�general�fund�provides�services�to�the�Airport.�The�amounts�allocated�to�the�Airport�for�these�services�are�treated�as�operating�expenses�and�consist�mainly�of�employee�benefits,�self-insured�risks�and�administrative�expenses.�

Other�Assets�—�Funds�expended�for�the�Noise�Mitigation�Program�are�recorded�as�other�assets�and�amortized�over�a�20-year�useful�life�on�a�straight-line�basis.�The�amounts�reflected�in�restricted�net�position�only�includes�amounts�previously�expended.�

Property�and�Facilities�—�Property�and�facilities�are�recorded�at�cost�or,�for�donated�assets,�at�market�value�at�the�date�of�acquisition.�Expenditures�greater�than�$5,000�for�the�acquisition,�construction�or�equipping�of�capital�projects,�together�with�related�design,�architectural�and�engineering�fees,�are�capitalized.�Expenditures�for�vehicles�and�other�movable�equipment�are�expensed�as�incurred.�

���

-�17�-�

Depreciation�and�amortization�are�provided�using�the�straight-line�method�and�begin�in�the�year�following�the�year�of�acquisition�or�completion.�Estimated�useful�lives�are�as�follows:�

Facilities�and�structures 40�yearsRunways,�aprons,�tunnels,�taxiways,�and�paved�roads 30�yearsOther 10–30�years �

Net�Position�—�Net�Position�comprises�the�net�earnings�from�operating�and�nonoperating�revenues,�expenses�and�capital�grants.�Net�position�is�displayed�in�three�components�—�net�investment�in�capital�assets;�restricted�for�debt�service,�capital�projects,�PFC,�airport�use�agreement�requirements,�noise�mitigation�program�and�other�assets;�and�unrestricted.�Net�investment�in�capital�assets�consists�of�all�capital�assets,�net�of�accumulated�depreciation;�reduced�by�outstanding�debt�net�of�debt�service�reserve�and�unspent�proceeds.�Restricted�net�position�consists�of�net�position�for�which�constraints�are�placed�thereon�by�external�parties�(such�as�lenders�and�grantors)�and�laws,�regulations�and�enabling�legislation.�Unrestricted�net�position�consists�of�all�other�net�position�not�categorized�as�either�of�the�above.�

Employee�Benefits�—�Employee�benefits�are�granted�for�vacation�and�sick�leave,�workers’�compensation�and�health�care.�Unused�vacation�leave�is�accrued�and�may�be�carried�over�for�one�year.�Sick�leave�is�accumulated�at�the�rate�of�one�day�for�each�month�worked,�up�to�a�maximum�of�200�days.�Severance�of�employment�terminates�all�rights�to�receive�compensation�for�any�unused�sick�leave.�Sick�leave�pay�is�not�accrued.�Employee�benefit�claims�outstanding,�including�claims�incurred�but�not�reported,�are�estimated�and�recorded�as�liabilities.�The�Airport�maintains�insurance�from�a�commercial�carrier�for�workers’�compensation�claims.�Settlements�in�each�of�the�past�three�years�have�been�less�than�insurance�coverage�maintained.�

Employees�are�eligible�to�defer�a�portion�of�their�salaries�until�future�years�under�the�City’s�deferred�compensation�plan�created�in�accordance�with�Internal�Revenue�Code�Section�457.�The�deferred�compensation�is�not�available�to�employees�until�termination,�retirement,�death�or�unforeseeable�emergency.�The�plan�is�administered�by�third-party�administrators�who�maintain�the�investment�portfolio.�The�plan’s�assets�have�been�placed�in�trust�accounts�with�the�plan�administrators�for�the�exclusive�benefit�of�participants�and�their�beneficiaries�and�are�not�considered�assets�of�the�City.�

The�City�is�subject�to�the�State�of�Illinois�Unemployment�Compensation�Act�and�has�elected�the�reimbursing�employer�option�for�providing�unemployment�insurance�benefits�for�eligible�former�employees.�Under�this�option,�the�City�reimburses�the�State�for�claims�paid�by�the�State.�

Bond�Issuance�Costs,�Bond�Discounts�and�Refunding�Transactions�—�Bond�issuance�costs�and�bond�discounts�are�deferred�and�amortized�over�the�life�of�the�related�debt,�except�in�the�case�of�refunding�debt�transactions�where�the�amortization�period�is�over�the�term�of�the�refunding�or�refunded�debt,�whichever�is�shorter.�

Capitalized�Interest�—�Interest�expense�and�income�earned�on�construction�bond�proceeds�are�capitalized�during�construction�on�those�capital�projects�paid�from�the�bond�proceeds�and�are�being�amortized�over�the�depreciable�lives�of�the�related�assets�on�a�straight-line�basis.�

Capital�Grants�—�The�Airport�reports�capital�grants�as�capital�contribution�on�the�statements�of�revenues,�expenses�and�changes�in�net�position.�Capital�grants�are�on�a�reimbursement�basis�and�revenues�are�recognized�to�the�extent�of�allowable�expenditures.�

Revenue�Recognition�—�Landing�fees�and�terminal�area�use�charges�and�fueling�system�charges�are�assessed�to�the�various�airlines�throughout�each�year�based�on�estimated�rates.�Such�rates�are�designed�to�

���

-�18�-�

yield�collections�from�airlines�adequate�to�cover�certain�expenses�and�required�debt�service�and�fund�deposits�as�determined�under�provisions�of�the�previously�defined�Use�Agreement.�Incremental�amounts�due�from�the�airlines�arise�when�amounts�assessed,�based�on�the�estimated�rates�used�during�the�year,�are�less�than�actual�expenses�and�required�deposits�for�the�year.�Such�incremental�amounts�due�from�airlines�are�included�in�amounts�to�be�billed.�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.�Such�incremental�amounts�due�to�airlines�are�included�in�billings�over�amounts�earned.�

Passenger�Facility�Charge�(PFC)�Revenue�—�Effective�January�1,�2007,�the�Federal�Aviation�Administration�(FAA)�approved�PFCs�of�$4.50�per�eligible�enplaned�passenger,�less�allowable�airline�administrative�costs�of�$.11�per�eligible�enplaned�passenger.�PFCs�are�available,�subject�to�FAA�regulation�and�approval,�to�finance�specific�eligible�capital�projects.�The�City�reports�PFC�revenue�as�nonoperating.�

Customer�Facility�Charge�(CFC)�Revenue�—�The�Airport�imposed�a�CFC�of�$3.75�per�contract�day�on�each�customer�for�motor�vehicle�rentals�at�the�Airport�for�the�years�ended�December�31,�2012�and�2011.�CFCs�are�available�to�finance�specific�eligible�capital�projects.�The�City�reports�CFC�revenue�as�nonoperating�revenue�and�related�noncapital�expenses�as�nonoperating�expenses�in�conformity�with�industry�practice.�

Adopted�Accounting�Standards�—�In�December�2010,�the�GASB�issued�GASB�Statement�No.�62,�Codification�of�Accounting�and�Financial�Reporting�Guidance�Contained�in�Pre-November�30,�1989�FASB�and�AICPA�Pronouncements.�The�Airport�implemented�GASB�Statement�No.�62�on�January�1,�2012.�This�Statement�incorporates�into�the�GASB’s�authoritative�literature�certain�accounting�and�financial�reporting�guidance�that�is�included�in�the�following�pronouncements�issued�on�or�before�November�30,1989,�which�do�not�conflict�with�or�contradict�GASB�pronouncements:�

•� Financial�Accounting�Standards�Board�Statements�and�Interpretations�

•� Accounting�Principles�Board�Opinions�

•� Accounting�Research�Bulletins�of�the�American�Institute�of�Certified�Public�Accountants’�Committee�on�Accounting�Procedure�

The�Statement�also�supersedes�Statement�No.�20,�Accounting�and�Financial�Reporting�for�Propriety�Funds�and�Other�Governmental�Entities�That�Use�Proprietary�Fund�Accounting.�Those�entities�who�chose�to�apply�post-November�30,�1989�FASB�Statements�and�Interpretations�that�do�not�conflict�with�or�contradict�GASB�pronouncements�can�continue�to�apply�those�pronouncements�as�other�accounting�literature.�There�was�no�impact�on�the�financial�statements�as�a�result�of�the�implementation�of�Statement�No.�62.�

In�June�2011,�GASB�issued�Statement�No.�63,�Financial�Reporting�of�Deferred�Outflows�of�Resources,�Deferred�Inflows�or�Resources,�and�Net�Position.�The�Airport�implemented�GASB�Statement�No.�63�on�January�1,�2012.�Statement�No.�63�standardizes�the�presentation�of�deferred�outflows�of�resources�and�deferred�inflows�of�resources�and�their�effect�on�a�government’s�net�position.�It�alleviates�uncertainty�about�reporting�those�financial�statement�elements�by�providing�guidance�where�none�previously�existed.�The�financial�reporting�impact�resulting�from�the�implementation�of�GASB�Statement�No.�63�is�the�change�in�terminology�from�net�assets�to�net�position.�

���

-�19�-�

In�June�2011,�GASB�issued�Statement�No.�64,�Derivative�Instruments:�Application�of�Hedge�Accounting�Termination�Provisions�—�An�Amendment�to�GASB�Statement�No.�53.�The�Airport�implemented�GASB�Statement�No.�64�on�January�1,�2012.�Statement�No.�64�clarifies�whether�an�effective�hedge�relationship�continues�after�the�replacement�of�a�swap�counterparty�or�a�swap�counterparty’s�credit�support�provider.�This�statement�sets�forth�criteria�that�establish�when�the�effective�hedging�relationship�continues�and�hedge�accounting�should�continue�to�be�applied.�There�was�no�impact�on�the�financial�statements�as�a�result�of�the�implementation�of�Statement�No.�64.�

Upcoming�Accounting�Standards�—�Other�accounting�standards�that�the�Airport�is�currently�reviewing�for�applicability�and�potential�impact�on�the�financial�statements�include:�

GASB�Statement�No.�65,�Items�Previously�Reported�as�Assets�and�Liabilities,�will�be�effective�for�the�City�beginning�with�its�year�ending�December�31,�2013.�The�objective�of�this�statement�is�to�establish�accounting�and�financial�reporting�standards�that�reclassify,�as�deferred�outflows�of�resources�or�deferred�inflows�of�resources,�certain�items�that�were�previously�reported�as�assets�and�liabilities�and�recognizes,�as�outflows�of�resources�or�inflows�of�resources,�certain�items�that�were�previously�reported�as�assets�and�liabilities.�

GASB�Statement�No.�66,�Technical�Corrections�—�2012�—�an�amendment�of�GASB�Statements�No.�10�and�No.�62,�will�be�effective�for�the�City�beginning�with�its�year�ending�December�31,�2013.�The�objective�of�this�statement�is�to�improve�accounting�and�financial�reporting�for�a�governmental�financial�reporting�entity�by�resolving�conflicting�guidance�that�resulted�from�the�issuance�of�two�pronouncements,�Statements�No.�54,�Fund�Balance�Reporting�and�Governmental�Fund�Type�Definitions,�and�No.�62,�Codification�of�Accounting�and�Financial�Reporting�Guidance�Contained�in�Pre-November�30,�1989�FASB�and�AICPA�Pronouncements.�

GASB�Statement�No.�68,�Accounting�and�Financial�Reporting�for�Pensions,�establishes�new�financial�reporting�requirements�for�most�governments�that�provide�their�employees�with�pension�benefits�through�these�types�of�plans.�Statement�No.�68�will�be�effective�for�the�City�beginning�with�its�year�ending�December�31,�2015.�GASB�Statement�No.�68�replaces�the�requirements�of�GASB�Statement�No.�27,�Accounting�for�Pensions�by�State�and�Local�Governmental�Employers�and�GASB�Statement�No.�50,�Pension�Disclosures,�as�they�relate�to�governments�that�provide�pensions�through�pension�plans�administered�as�trusts�or�similar�arrangements�that�meet�certain�criteria.�GASB�Statement�No.�68�requires�governments�providing�defined�benefit�pensions�to�recognize�their�long-term�obligation�for�pension�benefits�as�a�liability�for�the�first�time,�and�to�more�comprehensively�and�comparably�measure�the�annual�costs�of�pension�benefits.�The�Statement�also�enhances�accountability�and�transparency�through�revised�and�new�note�disclosures�and�required�supplementary�information�(RSI).�

GASB�Statement�No.�69,�Government�Combinations�and�Disposals�of�Government�Operations,�establishes�accounting�and�financial�reporting�standards�related�to�government�combinations�and�disposals�of�government�operations.�Statement�No.�69�will�be�effective�for�the�City�beginning�with�its�year�ending�December�31,�2014.�GASB�Statement�No.�69�requires�disclosures�to�be�made�about�government�combinations�and�disposals�of�government�operations�to�enable�financial�statement�users�to�evaluate�the�nature�and�financial�effects�of�those�transactions.�

GASB�Statement�No.�70,�Accounting�and�Financial�Reporting�for�Nonexchange�Financial�Guarantees,�establishes�accounting�and�financial�reporting�standards�for�financial�guarantees�that�are�nonexchange�transactions�(nonexchange�financial�guarantees)�extended�or�received�by�a�state�or�local�government.�Statement�No.�70�will�be�effective�for�the�City�beginning�with�its�year�ending�December�31,�2014.�GASB�Statement�No.�70�requires�a�government�that�has�issued�an�obligation�guaranteed�in�a�nonexchange�transaction�to�report�the�obligation�until�legally�released�as�an�obligor.�This�Statement�also�

���

-�20�-�

requires�a�government�that�is�required�to�repay�a�guarantor�for�making�a�payment�on�a�guaranteed�obligation�or�legally�assuming�the�guaranteed�obligation�to�continue�to�recognize�a�liability�until�legally�released�as�an�obligor.�When�a�government�is�released�as�an�obligor,�the�government�should�recognize�revenue�as�a�result�of�being�relieved�of�the�obligation.�This�Statement�also�provides�additional�guidance�for�intra-entity�nonexchange�financial�guarantees�involving�blended�component�units.�Requires�disclosures�to�be�made�about�government�combinations�and�disposals�of�government�operations�to�enable�financial�statement�users�to�evaluate�the�nature�and�financial�effects�of�those�transactions.�

2.� RESTRICTED�AND�UNRESTRICTED�CASH�AND�CASH�EQUIVALENTS�AND�INVESTMENTS�

Investments�—U.S.�agencies�include�investments�in�government-sponsored�enterprises�such�as�Federal�National�Mortgage�Association,�Federal�Home�Loan�Banks,�and�Federal�Home�Loan�Mortgage�Corp.�The�Airport�as�of�December�31,�2012,�had�the�following�investments�($�in�thousands):�

MoreInvestment�Type Less�Than�1 1–5 6–10 Than�10 Fair�Value

U.S.�treasuries �$����������� �$����������� �$���������� �$������� �$�����������U.S.�agencies 13,600����� 159,517��� 33,382���� ���������� 206,499���Commercial�paper 3,400������� �������������� ������������� ���������� 3,400�������Corporate�bonds 1,893������� �������������� ������������� ���������� 1,893�������Municipal�bonds 200���������� 24,910����� 13,724���� ���������� 38,834�����Certificates�of�deposits�and��other�short-term 114,617��� �������������� ������������� ���������� 114,617���

�����������Subtotal 133,710$� 184,427$� 47,106$�� �$������� 365,243���

Share�of�City’s�pooled�funds 12������������

Total 365,255$�

Investment�Maturities�(in�Years)

�

���

-�21�-�

Investments�—U.S.�agencies�include�investments�in�government-sponsored�enterprises�such�as�Federal�National�Mortgage�Association,�Federal�Home�Loan�Banks,�and�Federal�Home�Loan�Mortgage�Corp.�The�Airport�as�of�December�31,�2011,�had�the�following�investments�($�in�thousands):�

MoreInvestment�Type Less�Than�1 1–5 6–10 Than�10 Fair�Value

U.S.�treasuries �$����������� �$����������� �$������� �$������� �$�����������U.S.�agencies 6,502������� 288,969��� 6,219��� ���������� 301,690���Commercial�paper 22,583����� 22,583�����Corporate�bonds �������������� 1,898������� 1,898�������Municipal�bonds ����������������� 9,123������� ������������ ������������ 9,123�������Certificates�of�deposits�and �������������� ���������� ���������� ����������������other�short-term 140,724��� �������������� ���������� ���������� 140,724���

�����������Subtotal 169,809$� 299,990$� 6,219$� �$������� 476,018���

Share�of�City’s�pooled�funds 15������������

Total 476,033$�

Investment�Maturities�(in�Years)

�

Interest�Rate�Risk�—�As�a�means�of�limiting�its�exposure�to�fair�value�losses�arising�from�rising�interest�rates,�the�City’s�investment�policy�requires�that�investments�generally�may�not�have�a�maturity�date�in�excess�of�10�years�from�the�date�of�purchase.�Certain�other�investments�are�held�in�accordance�with�the�specific�provisions�of�applicable�ordinances.�

Credit�Risk�—�The�Code�limits�investments�in�commercial�paper�to�banks�whose�senior�obligations�are�rated�in�the�top�two�rating�categories�by�at�least�two�national�rating�agencies�and�who�are�required�to�maintain�such�rating�during�the�term�of�such�investment.�The�Code�also�limits�investments�to�domestic�money�market�mutual�funds�regulated�by,�and�in�good�standing�with,�the�Securities�and�Exchange�Commission.�Certificates�of�deposit�are�also�limited�by�the�Code�to�national�banks,�which�provide�collateral�of�at�least�105%�by�marketable�U.S.�government�securities�marked�to�market�at�least�monthly;�or�secured�by�a�corporate�surety�bond�issued�by�an�insurance�company�licensed�to�do�business�in�Illinois�and�having�a�claims-paying�rating�in�the�top�rating�category,�as�rated�by�a�nationally�recognized�statistical�rating�organization�maintaining�such�rating�during�the�term�of�such�investment.�The�Airport’s�exposure�to�credit�risk�at�December�31,�2012�and�2011,�was�as�follows�($�in�thousands):�

Quality�Rating 2012 2011

Aaa/AAA 9,856$����� 6,890$�����Aa/A 222,577��� 305,821���A/A 1,893������� ��������������P1/A1 14,597����� 22,583�����Not�rated 116,320��� 140,724���

Total�funds 365,243$� 476,018$� �

���

-�22�-�

The�Airport�participates�in�the�City’s�pooled�cash�and�investments�account,�which�includes�amounts�from�other�City�funds�and�is�maintained�by�the�City�Treasurer.�Individual�cash�or�investments�are�not�specifically�identifiable�to�any�participant�in�the�pool.�The�City�Treasurer’s�pooled�fund�is�included�in�the�City’s�Comprehensive�Annual�Financial�Statements.�

Custodial�Credit�Risk�—�Cash�and�Certificates�of�Deposit�—�This�is�the�risk�that�in�the�event�of�a�bank�failure,�the�City’s�deposits�may�not�be�returned.�The�City’s�investment�policy�states�that�in�order�to�protect�the�City�deposits,�depository�institutions�are�to�maintain�collateral�pledges�on�City�deposits�during�the�term�of�the�deposit�of�at�least�102%�of�marketable�U.S.�government,�or�approved�securities�or�surety�bonds,�issued�by�top-rated�insurers.�Collateral�is�required�as�security�whenever�deposits�exceed�the�insured�limits�of�the�Federal�Deposit�Insurance�Corporation.�The�bank�balance�of�cash�and�certificates�of�deposit�with�the�City’s�various�municipal�depositories�were�$532.3�million�and�$478.9�million�at�December�31,�2012�and�2011,�respectively.�Of�the�bank�balance,�$532.3�million�and�$478.9�million�or�100%�at�December�31,�2012�and�2011�were�either�insured�or�collateralized.�

The�investments�reported�in�the�basic�financial�statements�at�December�31,�2012�and�2011,�is�summarized�as�follows�($�in�thousands):�

2012 2011

Per�Note�2:��Investments�—�Airport 365,243$� 476,018$���Investments�—�City�Treasurer�Pooled�Fund 12������������ 15������������

365,255$� 476,033$�

Per�basic�financial�statements:��Restricted�investments 197,960$� 286,015$���Unrestricted�investments 36,079����� 26,709�������Investments�included�as�cash�and�cash�equivalents����on�the�statements�of�net�position 131,216��� 163,309���

365,255$� 476,033$� �

3.� RESTRICTED�ASSETS�

There�are�various�limitations�and�restrictions�contained�in�the�Master�Indenture�of�Trust�securing�the�Chicago�Midway�Airport�Revenue�Bonds�(First�Lien�Master�Indenture)�and�the�Master�Indenture�of�Trust�securing�the�Chicago�Midway�Airport�Second�Lien�Obligation�(Second�Lien�Master�Indenture)�and�together�with�the�First�Lien�Master�Indenture�(Master�Indentures),�the�Use�Agreement�and�federal�regulations�contain�various�limitations�and�restrictions,�which,�among�other�things,�require�the�creation�and�maintenance�of�separate�accounts,�certain�of�which�must�be�held�by�a�trustee�and�into�which�required�deposits�are�made�by�the�Airport�on�a�periodic�basis�to�fund�construction,�debt�retirement,�operation�and�maintenance�and�contingencies.�

���

-�23�-�

Restricted�cash,�cash�equivalents�and�investment�balances�in�accordance�with�the�Master�Indenture�requirements�at�December�31,�2012�and�2011,�were�as�follows�($�in�thousands):�

Account 2012 2011

Construction 86,323$��� 158,373$�Capitalized�interest 313���������� 4,817�������Debt�service 62,166����� 63,778�����Debt�service�reserve 102,798��� 102,798���Operation�and�maintenance�reserve 20,919����� 19,651�����Repair�and�replacement 4,849������� 4,303�������Emergency�reserve 389���������� 385����������Customer�facility�charge�(CFC) 26,998����� 27,103�����Other 13,155����� 11,087�����

�����������Subtotal�—�Master�Indentures�and��������������Use�Agreement�accounts 317,910��� 392,295���

Passenger�facility�charges�(PFC) 2,573������� ��������������

Total 320,483$� 392,295$� �

Construction�and�capitalized�interest�accounts,�which�are�funded�with�bond�proceeds,�are�restricted�to�pay�authorized�capital�improvements�and�related�interest�costs�during�construction.�

Required�deposits�are�made�by�the�Airport�from�revenues�collected�after�funding�deposits�to�an�operation�and�maintenance�account�in�the�following�priority�on�a�monthly�basis:�

•� The�debt�service�account,�which�is�restricted�for�the�payment�of�debt�service.�

•� The�operation�and�maintenance�reserve�account,�which�is�restricted�to�make�loans�to�the�operation�and�maintenance�account,�as�needed,�and�are�to�be�repaid�as�the�funds�become�available.�

The�debt�service�reserve�account�requirement�was�funded�upon�issuance�of�the�Series�1996�first�lien�bonds,�the�Series�1998�first�lien�bonds,�the�Series�1998�second�lien�bonds,�the�Series�2004�second�lien�bonds�and�the�Series�2010�second�lien�bonds�with�a�cash�deposit.�The�debt�service�reserve�account�is�restricted�to�the�payment�of�debt�service�in�the�event�that�the�balance�in�the�debt�service�account�is�insufficient.�

The�junior�lien�obligation�debt�service�fund�is�required�to�be�established�to�record�all�transactions�associated�with�junior�lien�obligations�per�the�First�Lien�Master�Indenture.�

The�repair�and�replacement�account�must�be�used�for�paying�the�cost�of�maintenance�expenditures,�such�as�costs�incurred�for�major�repairs,�renewals�and�replacements�at�the�Airport�whether�caused�by�normal�wear�and�tear�or�by�unusual�and�extraordinary�occurrences.�

The�emergency�reserve�account�is�restricted�to�make�payments�for�certain�purposes,�including�terminal�area�use�charges,�landing�fees�and�certain�other�charges�that�are�deemed�uncollectible�and�also�for�any�judgments�or�settlements�against�the�Airport.�

���

-�24�-�

The�City�has�entered�into�arbitrage�agreements�under�which�the�City�has�agreed�to�comply�with�certain�requirements�of�the�Internal�Revenue�Code�of�1986,�as�amended,�in�order�to�maintain�the�exclusion�of�the�interest�on�the�bonds�from�the�gross�income�of�the�recipients�thereof�for�federal�income�tax�purposes.�The�rebate�account�relating�to�each�series�of�the�bonds�has�been�established�to�account�for�any�liability�of�the�City�to�make�arbitrage�rebate�payments�to�the�federal�government�relating�to�such�series�of�bonds.�

The�special�projects�account�is�restricted�to�make�payments�of�certain�airline-approved�capital�expenditures.�

The�CFC�is�for�permitted�costs�and�purposes�related�to�the�consolidated�rental�car�facility.�

The�PFC�account�is�restricted�to�fund�eligible�and�approved�PFC�projects.�

Other�funds�include�the�federal�and�state�grant�funds,�the�security�for�payment�fund�and�the�Airport�development�fund.�

At�December�31,�2012�and�2011,�the�Airport�believes�it�was�in�compliance�with�the�funding�requirements�and�restrictions�as�stated�in�the�Master�Indentures.�

���

-�25�-�

4.� LONG-TERM�DEBT��

Long-term�debt�at�December�31,�2012�and�2011,�consisted�of�the�following�($�in�thousands):�

2012 2011

First�lien�bonds:��$148,820�Series�1996�A�Chicago�Midway�Airport�Revenue�Bonds,�����issued�November�7,�1996,�due�through�2029,�interest�at�4.8%–6.0% 58,420$������ 58,420$��������$105,220�Series�1996�B�Chicago�Midway�Airport�Revenue�Bonds,����issued�November�7,�1996,�due�through�2029,�interest�at�4.9%–6.5% 79,375�������� 82,115����������$397,715�Series�1998�A,�B,�and�C�Chicago�Midway�Airport�Revenue�Bonds,����issued�September�10,�1998,�due�through�2035,�interest�at�4.3%–5.5% 373,400������ 376,925��������$295,855�Series�2001�A�and�B�Chicago�Midway�Airport�Revenue�Bonds,����issued�September�13,�2001,�due�through�2031,�interest�at�5.0%–5.5% 247,365������ 262,745������

�����������Subtotal�—�first�lien�bonds 758,560������ 780,205������

Second�lien�bonds:��$171,000�Series�1998�A�and�B�Chicago�Midway�Airport�Second�Lien�Revenue����Bonds,�issued�September�16,�1998,�due�through�2029,�variable�floating�interest�rate����(0.15%�at�December�31,�2012) 132,525������ 132,525��������$77,565�Series�2004�A�and�B�Chicago�Midway�Airport�Second�Lien�Revenue ����������������� ���������������������Bonds,�issued�December�14,�2004,�due�through�2024,�interest�rate�at�3.20%–5.00% 64,885�������� 69,595����������$152,150�Series�2004�C�and�D�Chicago�Midway�Airport�Second�Lien�Revenue����Bonds,�issued�December�14,�2004,�due�through�2035,�interest�rate�at�4.174%������and�4.247% 148,500������ 152,150��������$22,000�Series�2010�A-1�Chicago�Midway�Airport�Second�Lien�Revenue�Bonds,����issued�May�6,�2010,�due�through�2021,�variable�floating�interest�rate����(0.20%�at�December�31,�2012) 22,000�������� 22,000����������$58,475�Series�2010�A-2�Chicago�Midway�Airport�Second�Lien�Revenue�Bonds,����issued�May�6,�2010,�due�through�2025,�variable�floating�interest�rate����(0.21%�at�December�31,�2012) 54,575�������� 58,475����������$84,000�Series�20010�B�Chicago�Midway�Airport�Second�Lien�Revenue�Bonds,����issued�October�26,�2010,�due�through�2034,�interest�rate�at�5.00%�to�5.34% 84,000�������� 84,000����������$63,470�Series�20010�C�Chicago�Midway�Airport�Second�Lien�Revenue�Bonds,����issued�October�26,�2010,�due�through�2041,�interest�rate�at�3.782%–7.168% 63,470�������� 63,470����������$82,610�Series�20010�D-1�Chicago�Midway�Airport�Second�Lien�Revenue�Bonds,����issued�October�26,�2010,�due�through�2041,�interest�rate�at�3.532%–5.340% 78,175�������� 82,610����������$16,460�Series�20010�D-2�Chicago�Midway�Airport�Second�Lien�Revenue�Bonds,����issued�October�26,�2010,�due�through�2041,�interest�rate�at�3.532%–5.340% ����������������� 16,460��������

�����������Subtotal�—�second�lien�bonds 648,130������ 681,285������

Commercial�paper�notes�—�Series�A,B,C,�and�D� 34,639�������� �����������������

�����������Total�revenue�bonds�and�notes 1,441,329��� 1,461,490���

Unamortized�premium�(discount) 160������������� (281)������������Unamortized�deferred�loss�on�bond�refunding (5,998)��������� (6,291)���������

1,435,491��� 1,454,918���

Current�portion (23,475)������� (22,305)�������

Total�long-term�revenue�bonds�payable 1,412,016$� 1,432,613$� �

���

-�26�-�

Long-term�debt�during�the�years�ended�December�31,�2012�and�2011,�changed�as�follows�($�in�thousands):�

Balance Balance Due�WithinJanuary�1, December�31, One

2012 Additions Reductions 2012 Year

Revenue�bonds 1,461,490$� �$��������� (54,800)$� 1,406,690$� 23,475$�Unamortized�premium�(discount) (281)������������ (211)������� 652���������� 160������������� ������������Deferred�(loss)�gain�on�refunding (6,291)��������� (951)������� 1,244������� (5,998)��������� ������������

�����������Total�revenue�bonds 1,454,918��� (1,162)���� (52,904)��� 1,400,852��� 23,475���

Commercial�paper ����������������� 34,639��� �������������� 34,639�������� ������������

Total�long-term�debt 1,454,918$� 33,477$� (52,904)$� 1,435,491$� 23,475$�

Balance Balance Due�WithinJanuary�1, December�31, One

2011 Additions Reductions 2011 Year

Revenue�bonds 1,469,375$� �$��������� (7,885)$��� 1,461,490$� 22,305$�Unamortized�premium�(discount) 8����������������� (962)������� 673���������� (281)������������ ������������Deferred�(loss)�gain�on�refunding (6,836)��������� ������������ 545���������� (6,291)��������� ������������

�����������Total�revenue�bonds 1,462,547��� (962)������� (6,667)����� 1,454,918��� 22,305���

Commercial�paper 4,005���������� ������������ (4,005)����� ����������������� ������������

Total�long-term�debt 1,466,552$� (962)$����� (10,672)$� 1,454,918$� 22,305$� �

Interest�expense�capitalized�for�2012�and�2011�totaled�$5.05�million�and�$6.83�million,�respectively.�Interest�income�capitalized�for�2012�and�2011�totaled�$.46�million�and�$.74�million,�respectively.�Interest�expense�includes�amortization�of�the�deferred�loss�on�bond�refunding�for�2012�and�2011�of�$1.24�million�and�$.54�million,�and�amortization�of�$.44�million�of�discount,�net�and�$.29�million�of�premium,�net,�respectively.�

Issuance�of�Debt�—�Chicago�Midway�International�Airport�Commercial�Paper�Notes,�Series�A,�B,�C,�and�D�($85�million�maximum�aggregated�authorized)�outstanding�at�December�31,�2012�and�2011,�were�$34.6�million�and�$0�million,�respectively.�Note�proceeds�may�be�used�to�finance�portions�of�the�costs�of�authorized�airport�projects�and�to�repay�the�expenses�of�issuing�the�notes.�An�irrevocable�letter�of�credit�(LOC)�($94.6�million)�provides�for�the�timely�payment�of�principal�and�interest�on�the�notes�until�July�12,�2014.�Amounts�paid�by�drawing�on�the�LOC�shall�be�reimbursed�by�the�Airport�on�said�day�paid;�any�amounts�not�reimbursed�shall�constitute�an�advance�and�will�bear�interest�at�the�greater�of�the�most�recent�prime�rate�plus�1.50%�or�the�federal�funds�rate,�plus�2.0%�and�7.5%�(Base�Rate).�Advances�outstanding�greater�than�90�days�will�bear�interest�at�the�Base�Rate,�plus�1%�beginning�on�the�90-first�day�after�such�advance�is�made.�At�December�31,�2012�and�2011,�there�were�no�outstanding�LOC�advances.�

���

-�27�-�

Debt�Redemption�—�Following�is�a�schedule�of�debt�service�requirements�to�maturity�of�the�first�lien�bonds�($�in�thousands):�

Years�EndingDecember�31 Principal Interest Total

2013 14,710$��� 39,240$��� 53,950$������2014 15,505����� 38,426����� 53,931��������2015 16,330����� 37,553����� 53,883��������2016 17,245����� 36,632����� 53,877��������2017 18,185����� 35,666����� 53,851��������2018–2022 106,900��� 161,962��� 268,862������2023–2027 182,675��� 124,252��� 306,927������2028–2032 243,860��� 67,940����� 311,800������2033–2035 143,150��� 11,157����� 154,307������

Total 758,560$� 552,828$� 1,311,388$� �

Following�is�a�schedule�of�debt�service�requirements�to�maturity�of�the�second�lien�bonds.�For�issues�with�variable�rates,�interest�is�imputed�at�the�percent�rate�effective�at�December�31,�2012�($�in�thousands):�

Years�EndingDecember�31 Principal Interest Total

2013 8,765$����� 14,910$��� 23,675$���2014 9,160������� 15,360����� 24,520�����2015 9,635������� 15,935����� 25,570�����2016 15,180����� 15,666����� 30,846�����2017 16,015����� 15,101����� 31,116�����2018–2022 114,545��� 65,729����� 180,274���2023–2027 131,370��� 50,227����� 181,597���2028–2032 227,390��� 35,168����� 262,558���2033–2037 78,230����� 18,372����� 96,602�����2038–2041 37,840����� 4,881������� 42,721�����

Total 648,130$� 251,349$� 899,479$� �

The�Airport’s�second�lien�variable�rate�bonds�may�bear�interest�from�time�to�time�at�a�flexible�rate,�a�daily�rate,�a�weekly�rate,�an�adjustable�long�rate�or�the�fixed�rate�as�determined�from�time�to�time�by�the�remarketing�agent,�in�consultation�with�the�City.�At�December�31,�2012,�the�Series�1998�A&B�bonds,�the�Series�2010�A-1�and�2010�A-2�bonds�were�in�a�daily�rate�interest�mode�and�the�Series�2004�C&D�bonds�were�in�a�weekly�rate�interest�mode.�An�irrevocable�LOC�($193.2�million)�provides�for�the�timely�payment�of�principal�and�interest�on�the�Series�1998�A&B�and�the�Series�2010A-2�bonds�until�November�25,�2013.�An�irrevocable�LOC�($176.1�million)�provides�for�the�timely�payment�of�principal�and�interest�on�the�Series�2004�C&D�and�the�Series�2010A-1�bonds�until�November�25,�2013.�

In�the�event�the�bonds�are�put�back�to�the�bank�and�not�successfully�remarketed,�or�if�the�LOC�expires�without�an�extension�or�substitution,�the�bank�bonds�will�convert�to�a�term�loan.�There�is�no�principal�due�on�potential�term�loans�within�the�next�fiscal�year.�

���

-�28�-�

Hedging�Derivatives�—�In�April�2011,�the�Airport�novated�its�$60.9�million�notional�amount�swap�associated�with�the�Midway�Airport�Series�2004C&D�variable�rate�bonds�with�J.P.�Morgan�to�Wells�Fargo�Bank,�N.A.�The�fixed�rate�the�Airport�pays�increased�from�4.174%�to�4.247%,�and�the�Airport�signed�a�one-way�credit�support�agreement�(CSA)�that�no�longer�requires�the�Airport�to�post�collateral�if�the�mark-to-market�exceeds�the�threshold,�previously�defined�in�the�J.P.�Morgan�agreement.�A�Goldman�Sachs�swap�covers�the�60%�balance�of�the�bonds,�with�a�current�notional�amount�of�$89.1�million,�which�does�not�have�a�two-way�CSA�and�remains�unchanged.�

Pay-Fixed,�Receive-Variable�Interest�Rate�Swaps:�

Objective�of�the�Swaps�—�In�order�to�protect�against�the�potential�of�rising�interest�rates,�the�Airport�has�entered�into�a�separate�pay-fixed,�receive-variable�interest�rate�swap�at�a�cost�less�than�what�the�Airport�would�have�paid�to�issue�fixed-rate�debt�($�in�thousands).�

Classification Amount Classification Amount Notional

Cash�flow�hedges�—���pay-fixed�interest Deferred�outflow Deferred�outflow��rate�swaps ��of�resources 1,794$� ��of�resources 36,794$� 148,500$�

Fair�Value�atChanges�in�Fair�Value December�31,�2012

�

Pay-Fixed,�Receive-Variable�Interest�Rate�Swaps�—�In�order�to�protect�against�the�potential�of�rising�interest�rates,�the�Airport�entered�into�two�separate�pay-fixed,�receive-variable�interest�rate�swaps�at�a�cost�less�than�what�the�Airport�would�have�paid�to�issue�fixed-rate�debt.�The�swap�counterparties�are�Goldman�Sachs�and�Wells�Fargo,�with�notional�amounts�as�of�December�31,�2012�of�$89.1�million�and�$59.4�million,�respectively.�

Terms,�Fair�Values�and�Credit�Risk�—�The�terms,�including�the�fair�value�and�credit�ratings�of�the�outstanding�swaps�as�of�December�31,�2012,�is�as�follows.�The�notional�amounts�of�the�swaps�match�the�principal�amounts�of�the�associated�debt.�The�Airport’s�swap�agreements�contained�scheduled�reductions�to�outstanding�notional�amounts�that�are�expected�to�approximately�follow�scheduled�or�anticipated�reductions�in�the�associated�“bonds�payable”�category�($�in�thousands).�

Fixed Variable Fair Fair Swap CounterpartyAssociated Notional Effective Rate Rate Value Value Termination CreditBond�Issue Amounts Date Paid Received 2012 2011 Date Rating

Series�2004�C&D�Bond 89,100$��� December�14,�2004 4.174 % SIFMA�+.05% (21,552)$� (20,564)$� January�1,�2035 A3/A-Series�2004�C&D�Bond 59,400����� April�21,�2011 4.247� SIFMA�+.05% (15,242)��� (14,436)��� January�1,�2035 Aa3/AA-

Total 148,500$� (36,794)$� (35,000)$� �

Fair�Value�—�As�per�industry�convention,�the�fair�value�of�the�Airport’s�outstanding�swaps�were�estimated�using�the�zero-coupon�method.�This�method�calculates�the�future�net�settlement�payment�required�by�the�swap,�assuming�that�the�forward�rates�implied�the�yield�curve�correctly�anticipate�future�spot�rates.�These�payments�are�then�discounted�using�the�spot�rates�implied�by�the�current�yield�curve�for�hypothetical�zero-coupon�bonds�due�on�the�date�of�each�future�net�settlement�of�the�swap.�Because�interest�rates�declined�subsequent�to�the�date�of�execution,�the�Airport’s�swaps�had�negative�values.�

���

-�29�-�

Credit�Risk�—�The�Airport�is�exposed�to�credit�risk�(counterparty�risk)�through�the�counterparties�with�which�it�enters�into�agreements.�If�minimum�credit�rating�requirements�are�not�maintained,�the�counterparty�is�required�to�post�collateral�to�a�third�party.�This�protects�the�Airport�by�mitigating�the�credit�risk,�and�therefore�the�ability�to�pay�a�termination�payment,�inherent�in�a�swap.�Collateral�on�all�swaps�is�to�be�in�the�form�of�cash�or�Eligible�Collateral�held�by�a�third-party�custodian.�Upon�credit�events,�the�swaps�also�allow�transfers,�credit�support�and�termination�if�the�counterparty�is�unable�to�meet�the�said�credit�requirements�

Basis�Risk�—�Basis�risk�refers�to�the�mismatch�between�the�variable�rate�payments�received�on�a�swap�contract�and�the�interest�payment�actually�owed�on�the�bonds.�The�two�significant�components�driving�this�risk�are�credit�and�Securities�Industry�and�Financial�Markets�Associations�(“SIFMA”)�ratios.�Credit�may�create�basis�risk�because�the�Airport’s�bonds�may�trade�differently�than�the�swap�index�as�a�result�of�a�credit�change�in�the�Airport.�SIFMA�ratios�(or�spreads)�may�create�basis�risk�if�SIFMA�swaps�of�the�Airport’s�bonds�trade�higher�than�the�SIFMA�received�on�the�swap.�This�can�occur�due�to�many�factors�including,�without�limitations,�changes�in�marginal�tax�rates,�tax-exempt�status�of�bonds�and�supply�and�demand�for�variable�rate�bonds.�The�Airport�is�exposed�to�basis�risk�on�the�swaps�if�the�rate�paid�on�the�bonds�is�higher�than�the�rate�received.�The�Airport�is�liable�for�the�difference.�The�difference�would�need�to�be�available�on�the�debt�service�payment�date�and�would�add�additional�underlying�cost�to�the�transaction.�

Tax�Risk�—�The�swap�exposes�the�Airport�to�tax�risk�or�a�permanent�mismatch�(shortfall)�between�the�floating�rate�received�on�the�swap�and�the�variable�rate�paid�on�the�underlying�variable-rate�bonds�due�to�tax�law�changes�such�that�the�Federal�or�State�tax�exception�of�municipal�debt�is�eliminated�or�its�value�reduced.�There�have�been�no�tax�law�changes�since�the�execution�of�this�swap�agreement.�

Termination�Risk�—�The�risk�that�the�swap�could�be�terminated�as�a�result�of�certain�events,�including�a�ratings�downgrade�for�the�issuer�or�swap�counterparty,�covenant�violation,�bankruptcy,�payment�default�or�other�defined�events�of�default.�Termination�of�a�swap�may�result�in�a�payment�made�by�the�issuer�or�to�the�issuer�depending�upon�the�market�at�the�time�of�termination.�

Swap�Payments�and�Associated�Debt�—�As�of�December�31,�2012,�debt�service�requirements�for�the�Airport’s�outstanding�variable-rate�debt�and�net�swap�payments,�assuming�current�interest�rates�remain�the�same,�for�their�term�are�as�follows�($�in�thousands):�

InterestYears�Ending RateDecember�31 Principal Interest Swaps�—�Net Total

2013 3,825$����� 235$���� 5,860$��� 9,920$�����2014 4,000������� 228������ 5,699����� 9,927�������2015 4,200������� 222������ 5,529����� 9,951�������2016 4,275������� 215������ 5,357����� 9,847�������2017 4,575������� 207������ 5,173����� 9,955�������2018–2022 26,025����� 914������ 22,808��� 49,747�����2023–2027 32,400����� 674������ 16,823��� 49,897�����2028–2032 40,375����� 375������ 9,368����� 50,118�����2033–2035 28,825����� 52�������� 1,297����� 30,174�����

Total 148,500$� 3,122$� 77,914$� 229,536$�

with�SwapsVariable-Rate�Bonds

�

���

-�30�-�

Investment�Derivatives�

Swaptions�—�In�April�2012,�the�City�terminated�the�swaption�transaction�with�J.P.�Morgan�in�relation�to�Chicago�Midway�Airport�Series�Revenue�Bonds�1998�A,�1998�B�and�1998�C�with�an�original�notional�amount�of�$397.7�million�and�a�trade�date�of�October�27,�1999.�The�City�paid�$8.2�million�to�terminate�the�swaption.�The�termination�payment�is�reflected�in�interest�(loss)�income�on�the�Statement�of�Revenues,�Expenses,�and�Changes�in�Net�Position.�Note�that�$8.3�million�of�Chicago�Midway�Airport�Commercial�Paper�Notes�Series�2003�were�issued�to�fund�the�swaption�termination�payment.�

Defeased�Bonds�—�Defeased�bonds�have�been�removed�from�the�balance�sheet�because�the�related�assets�have�been�placed�in�irrevocable�trusts,�together�with�interest�earned�thereon,�will�provide�amount�sufficient�for�payment�of�all�principal�and�interest.�During�2012,�the�Airport�defeased�a�portion�of�the�Chicago�Midway�Airport�Revenue�Bonds,�Series�2001�A�,�Series�2010�A-2�Second�Lien,�Series�2010�D-1�Second�Lien�and�a�full�portion�of�the�2010�D-2�Second�Lien�in�the�amount�of�$7.7�million,�$3.9�million,�$4.4�million�and�$16.5�million,�respectively.�As�of�December�31,�2012,�there�was�$4.4�million�and�$16.5�million�outstanding�in�the�escrow�related�to�the�Chicago�Midway�Airport�Revenue�Bond�Series�2010�D-1�Second�Lien�and�2012�D-2�Second�Lien,�respectively.�

5.� CHANGES�IN�CAPITAL�ASSETS�

During�the�years�ended�December�31,�2012�and�2011,�capital�assets�changed�as�follows�($�in�thousands):�

Balance Disposals BalanceJanuary�1, and December�31,

2012 Additions Transfers 2012

Capital�assets�not�depreciated:��Land 109,446$���� 3,394$����� �$����������� 112,840$������Construction�in�progress�(1) 52,173�������� 61,447����� (43,773)��� 69,847��������

�����������Total�capital�assets�not�depreciated 161,619������ 64,841����� (43,773)��� 182,687������

Capital�assets�depreciated�—�buildings�and�other�facilities 1,371,443��� 43,773����� �������������� 1,415,216���Less�accumulated�depreciation�for�—�buildings�and �������������� ����������������other�facilities (380,538)����� (45,011)��� (5,000)����� (430,549)�����

�����������Total�capital�assets�depreciated�—�net 990,905������ (1,238)����� (5,000)����� 984,667������

Total�property�and�facilities�—�net 1,152,524$� 63,603$��� (48,773)$� 1,167,354$�

(1)�Includes�net�capitalized�interest�of�$6,510 �

���

-�31�-�

Balance Disposals BalanceJanuary�1, and December�31,

2011 Additions Transfers 2011

Capital�assets�not�depreciated:��Land 107,287$���� 2,159$����� �$��������� 109,446$������Construction�in�progress�(1) 20,229�������� 41,187����� (9,243)���� 52,173��������

�����������Total�capital�assets�not�depreciated 127,516������ 43,346����� (9,243)���� 161,619������

Capital�assets�depreciated�—�buildings�and�other�facilities 1,362,200��� 9,243������� ������������ 1,371,443���Less�accumulated�depreciation�for�—�buildings�and �������������� ��������������other�facilities (338,401)����� (42,137)��� ������������ (380,538)�����

�����������Total�capital�assets�depreciated�—�net 1,023,799��� (32,894)��� ������������ 990,905������

Total�property�and�facilities�—�net 1,151,315$� 10,452$��� (9,243)$�� 1,152,524$�

(1)�Includes�net�capitalized�interest�of�$5,860,371 �

6.� LEASING�ARRANGEMENTS�

With�Tenants�—�Most�of�the�Airport’s�land,�buildings�and�terminal�space�are�leased�under�operating�lease�agreements�to�airlines�and�other�tenants.�The�following�is�a�schedule�of�the�minimum�future�rental�income�on�noncancelable�operating�leases�as�of�December�31,�2012�($�in�thousands):�

Years�EndingDecember�31 Amount

2013 30,900$��� *2014 29,803�����2015 27,282�����2016 26,529�����2017 26,529�����2018-2022 132,643���2023-2027 132,643���

Total 406,329$�

*�The�Terminal�Facilities�lease�was�renewed�in�2013. �

Contingent�rentals�that�may�be�received�under�certain�leases,�based�on�the�tenants’�revenues,�are�not�included�in�minimum�future�rental�income.�

Rental�income,�consisting�of�all�rental�and�concession�revenues�except�aircraft�parking�fees�and�certain�departure�fees�(turns)�and�automobile�parking,�amounted�to�$101.0�million�and�$86.5�million�in�2012�and�2011,�respectively.�Contingent�rentals�included�in�the�totals�were�approximately�$40.4�million�and�$40.4�million�for�2012�and�2011,�respectively.�

Capital�Lease�—�The�Airport�entered�into�an�agreement�for�the�financing,�design,�construction,�operation�and�maintenance�of�certain�heating�and�cooling�equipment�under�a�25�year�energy�delivery�agreement�beginning�in�1998�and�previously�accounted�for�the�agreement�as�a�capital�lease.�While�the�agreement�required�monthly�minimum�payments,�the�payments�each�month�were�based�on�“Usage�Fees”�multiplied�by�total�heating�and�cooling�quantities�used�for�that�given�month.�The�agreement�also�

���

-�32�-�

included�a�right�to�terminate�and�purchase�of�the�equipment�by�the�Airport.�Effective�April�30,�2013,�management�of�the�Airport�terminated�the�contract�as�it�determined�that�the�Airport�fulfilled�its�capital�lease�obligation�during�2012�under�the�agreement�by�making�periodic�pre-payments�on�the�obligation�throughout�the�life�of�the�agreement�in�the�form�of�the�“Usage�Fees”�paid.�The�lessor�has�asserted�to�management�that�an�additional�payment�is�required�under�the�agreement.�The�potential�range�of�loss�is�from�$0�to�$8�million.�At�this�time,�no�litigation�has�been�filed�by�either�party�and�management�believes�that�a�loss�is�not�currently�probable.�

7.� PENSION�PLANS�

Eligible�Airport�employees�participate�in�one�of�two�of�the�City’s�single-employer�defined�benefit�pension�plans.�These�plans�are�the�Municipal�Employees’�and�the�Laborers’�and�Retirement�Board�Employees’�Annuity�and�Benefit�Funds.�These�plans�are�administered�by�individual�retirement�boards�represented�by�elected�and�appointed�officials.�Each�plan�issues�publicly�available�financial�statements�for�each�of�the�pension�plans,�which�may�be�obtained�at�the�respective�fund’s�office.�

The�funds�provide�retirement,�death�and�disability�benefits�as�established�by�State�law.�Benefits�generally�vest�after�20�years�of�credited�service.�Employees�who�retire�at�or�after�age�55�with�at�least�10�years�of�credited�service�qualify�to�receive�a�money�purchase�annuity�and�those�with�more�than�20�years�of�credited�service�qualify�to�receive�a�minimum�formula�annuity.�The�annuity�is�computed�by�multiplying�the�final�average�salary�by�a�minimum�of�2.4%�per�year�of�credited�service.�The�final�average�salary�is�the�employee’s�highest�average�annual�salary�for�any�four�consecutive�years�within�the�last�10�years�of�credited�service.�

Participating�employees�contribute�8.5%�of�their�salary�to�these�funds�as�required�by�State�law.�By�law,�the�City’s�contributions�are�based�on�the�amounts�contributed�by�the�employees.�Financing�of�the�City’s�contribution�is�through�a�separate�property�tax�levy�and�the�personal�property�replacement�tax.�The�Airport�reimburses�the�City’s�general�fund�for�the�estimated�pension�cost�applicable�to�the�covered�payroll�of�Airport�employees.�These�reimbursements,�recorded�as�expenses�of�the�Airport,�were�$3.0�million�in�2012�and�$3.2�million�in�2011.�The�annual�pension�costs�are�determined�using�the�entry�age�normal�actuarial�cost�method�and�the�level�dollar�amortization�method.�

The�funding�policy�mandated�by�State�law�requires�City�contributions�at�statutorily,�not�actuarially,�determined�rates.�The�rates�are�expressed�as�multiples�of�employee�contributions.�These�contributions�equal�employee�contributions�made�in�the�calendar�year�two�years�prior�to�the�year�for�which�the�applicable�tax�is�levied,�multiplied�by�the�statutory�rates.�The�statutory�rates�in�effect�for�the�City’s�contributions�made�during�the�years�ended�December�31,�2012�and�2011,�were�1.25�for�the�Municipal�Employees’�and�1.00�for�the�Laborers’�and�Retirement�Board�Employees’�Annuity�and�Benefit�Funds,�respectively.�The�City�has�made�the�required�contributions�under�State�law.�

���

-�33�-�

The�following�table�as�of�December�31,�2012,�assists�users�in�assessing�each�pension�fund’s�progress�in�accumulating�sufficient�assets�to�pay�benefits�when�due.�The�three-year�historical�information�for�each�annuity�and�benefit�fund�which�includes�all�City�employees�within�each�respective�annuity�and�benefit�fund�is�as�follows�(dollars�in�thousands):�

Percent�of Percent�ofAnnual Annual Required Net�Pension

Annual Pension�Cost Required Actual ObligationPension�Cost Contributed Contribution Contribution (Asset)

Municipal�employees:��2010 482,421$� 32.1 %�� 483,948��� 32.0 %�� 1,007,404$���2011 609,491��� 24.1��� 611,756��� 24.0��� 1,469,886�����2012 687,519��� 21.7��� 690,823��� 21.5��� 2,008,546���

Laborers:��2010 47,129$��� 32.6 %�� 46,665����� 32.9 %�� (174,584)$�����2011 57,651����� 22.2��� 57,259����� 22.3��� (129,712)�������2012 77,857����� 15.2��� 77,566����� 15.3��� (63,707)������� �

The�pension�benefits�information�pertaining�expressly�to�Airport�employees�is�not�available�as�the�obligation�is�the�responsibility�of�the�general�government.�Accordingly,�no�amounts�have�been�recorded�in�the�accompanying�basic�financial�statements�for�the�net�pension�asset�or�obligation�of�these�plans.�Amounts�for�the�City�are�recorded�within�the�City’s�government-wide�financial�statements.�

8.� OTHER�POSTEMPLOYMENT�BENEFITS�—�CITY�OBLIGATION�

In�addition�to�providing�pension�benefits,�under�State�law,�the�City�provides�certain�health�benefits�to�employees�who�retire�from�the�City�based�upon�their�participation�in�the�City’s�pension�plans.�Substantially�all�employees�who�qualify�as�Municipal�Employees’�or�Laborers’�pension�plan�participants�older�than�age�55�with�at�least�20�years�of�service�may�become�eligible�for�postemployment�benefits�if�they�eventually�become�annuitants.�Health�benefits�include�basic�benefits�for�annuitants�and�supplemental�benefits�for�Medicare-eligible�annuitants.�Currently,�the�City�does�not�segregate�benefit�payments�to�annuitants�by�fund.�The�cost�of�health�benefits�is�recognized�as�claims�are�reported�and�are�funded�on�a�pay-as-you-go�basis.�The�total�cost�to�the�City�for�providing�health�benefits�to�approximately�24,408�annuitants�and�their�dependents�was�approximately�$97.5�million�and�$99.1�million�in�2012�and�2011,�respectively.�

The�annuitants�who�retired�prior�to�July�1,�2005,�received�a�55%�subsidy�from�the�City�and�the�annuitants�who�retired�on�or�after�July�1,�2005,�received�a�50%,�45%,�40%,�and�0%�subsidy�from�the�City�based�on�the�annuitant’s�length�of�actual�employment�with�the�City�for�the�gross�cost�of�retiree�health�care�under�a�court-approved�settlement�agreement.�During�2012�and�2011,�the�pension�funds�contributed�$65�per�month�for�each�Medicare-eligible�annuitant�and�$95�per�month�for�each�Non-Medicare-eligible�annuitant�to�their�gross�cost,�respectively.�The�annuitants�contributed�a�total�of�$67.8�million�and�$68.3�million�in�2012�and�2011,�respectively,�to�the�gross�cost�of�their�retiree�health�care�pursuant�to�premium�amounts�set�forth�in�the�above-referenced�settlement�agreement.�

The�City’s�net�expense�and�the�annuitants’�contribution�indicated�above�are�preliminary�and�subject�to�the�reconciliation�per�the�court-approved�settlement�agreement.�

���

-�34�-�

Plan�Description�Summary�—�The�City�is�party�to�a�written�legal�settlement�agreement�outlining�the�provisions�of�the�retiree�health�program,�the�Settlement�Health�Care�Plans�(the�“Plans”),�through�June�30,�2013.�The�agreement�does�not�require�or�extend�continuation�of�the�Plans�after�June�30,�2013.�Pursuant�to�the�Plans,�the�City�administers�a�single-employer�defined�benefit�health�care�plan�(the�“Health�Plan”),�for�which�the�City�pays�a�portion�of�the�costs�on�a�pay-as-you-go�method.�Under�the�Plans’�agreement,�the�City�sponsors�health�benefit�plans�for�employees,�former�employees,�and�retired�former�employees.�The�provisions�of�the�program�provide,�in�general,�that�the�City�pay�a�percentage�of�the�cost�(based�upon�an�employee’s�service)�for�hospital�and�medical�coverage�to�eligible�retired�employees�and�their�dependents�for�a�specified�period,�until�June�30,�2013.�

In�addition,�Compiled�Statutes�authorize�the�four�respective�Pension�Funds�(Police,�Fire,�Municipal,�and�Laborers)�to�provide�a�fixed�monthly�dollar�subsidy�to�each�annuitant�who�has�elected�coverage�under�the�Health�Plan�through�June�30,�2013.�After�that�date,�no�supplements�are�authorized.�

The�liabilities�for�the�monthly�dollar�supplements�paid�to�annuitants�enrolled�in�the�retiree�medical�plan�by�their�respective�pension�funds�are�included�in�the�liabilities�and�reports�of�the�respective�four�pension�funds.�

Special�Benefits�under�the�Collective�Bargaining�Agreements�(CBA)�—�Under�the�terms�of�the�latest�collective�bargaining�agreements�for�the�Fraternal�Order�of�Police�and�the�International�Association�of�Fire�Fighters,�certain�employees�who�retire�after�attaining�age�55�with�the�required�years�of�service�are�permitted�to�enroll�themselves�and�their�dependents�in�the�healthcare�benefit�program�offered�to�actively�employed�members.�They�may�keep�this�coverage�until�they�reach�the�age�of�Medicare�eligibility.�These�retirees�do�not�contribute�towards�the�cost�of�coverage,�but�the�Police�pension�fund�contributes�$95�per�month�towards�coverage�for�police�officers�(which�is�assumed�to�continue);�the�Fire�Pension�Fund�does�not�contribute.�Once�CBA�early�retirees�reach�Medicare�eligibility�age,�their�healthcare�benefits�are�provided�under�the�provisions�of�the�Settlement�Plan.�

No�extension�of�the�CBA�has�been�negotiated�as�of�the�end�of�the�governing�contract�period�(June�30,�2012),�and�therefore�this�valuation�assumes�the�expiration�of�the�early�retirement�special�benefits�as�of�December�31,�2012,�but�includes�the�liabilities�for�continuation�of�payments�to�those�members�already�retired�under�the�CBA�as�of�December�31,�2012.�

Funding�Policy�—�The�City’s�retiree�Health�Plan�is�a�single-employer�plan,�which�operates�on�a�pay-as-you-go�funding�basis.�No�assets�are�accumulated�or�dedicated�to�funding�the�retiree�Health�Plan�benefits.�

Annual�OPEB�Cost�and�Net�OPEB�Obligation�—�The�City’s�annual�other�postemployment�benefit�(OPEB)�cost�(expense)�is�calculated�based�on�the�annual�required�contribution�(ARC)�of�the�employer.�The�ARC�represents�a�level�of�funding�that�if�paid�on�an�ongoing�basis,�is�projected�to�cover�the�normal�cost�each�year�and�to�amortize�any�unfunded�actuarial�liabilities�over�a�period�of�two�years�(the�remaining�years�of�coverage�under�the�Settlement�agreement).�

���

-�35�-�

The�following�table�shows�the�components�of�the�City’s�annual�OPEB�costs�for�the�year�for�the�Plans,�the�amount�actually�contributed�to�the�Plans�and�changes�in�the�City’s�net�OPEB�obligation�to�the�retiree�Health�Plan.�The�net�OPEB�obligation�is�the�amount�entered�upon�the�City’s�Statement�of�Position�as�of�year-end�as�the�net�liability�for�the�other�postemployment�benefits�—�the�retiree�Health�Plan.�The�amount�of�the�annual�cost�for�the�retiree�Health�Plan,�which�is�to�be�recorded�in�the�statement�of�changes�in�net�assets�for�2012�is�the�annual�OPEB�cost�(expense)�(in�thousands).�

Annual�OPEB�Cost�and�Contributions�Made 2012 2011

Contribution�rates:��City Pay�As�You�Go Pay�As�You�Go��Plan�members N/A N/A

Annual�required�contribution 252,747$��� 200,062$���Interest�on�net�OPEB�obligation 3,816��������� 4,567���������Adjustment�to�annual�required�contribution (179,586)��� (155,675)���

�����������Annual�OPEB�cost 76,977������� 48,954�������

Contributions�made 115,961����� 99,091�������

�����������Decrease�in�net�OPEB�obligation (38,984)����� (50,137)�����

Net�OPEB�obligation�—�beginning�of�year 254,345����� 304,482�����

Net�OPEB�obligation�—�end�of�year 215,361$��� 254,345$���

Health�Plan

�

The�City’s�annual�OPEB�cost,�the�percentage�of�annual�OPEB�cost�contributed�to�the�Plans,�and�the�net�OPEB�obligation�for�fiscal�years�2012,�2011�and�2010�are�as�follows�(in�thousands):�

Annual Percentage�of NetOPEB Annual�OPEB OPEB

Years�Ended Cost Cost�Contributed Obligation

December�31,�2012 76,977$� 260.5 %�� 215,361$��December�31,�2011 48,954��� 202.4��� 254,345����December�31,�2010 82,874��� 129.6��� 304,483����

Schedule�of�Contributions,OPEB�Costs,�and�Net�Obligations

�

Funded�Status�and�Funding�Progress�—�As�of�December�31,�2011,�the�most�recent�actuarial�valuation�date,�the�actuarial�accrued�liability�for�benefits�was�$471.0�million,�all�of�which�was�unfunded.�The�covered�payroll�(annual�payroll�of�active�employees�covered�by�the�Plans)�was�approximately�$2,518.7�million�and�the�ratio�of�the�unfunded�actuarial�accrued�liability�to�the�covered�payroll�was�7.6%.�

���

-�36�-�

Actuarial�valuations�of�an�ongoing�plan�involve�estimates�of�the�value�of�reported�amounts�and�assumptions�about�the�probability�of�occurrence�of�events�far�into�the�future.�Examples�include�assumptions�about�future�employment,�mortality,�and�the�health�care�cost�trend.�Amounts�determined�regarding�the�funded�status�of�the�Plans�and�the�annual�required�contributions�of�the�employer�are�subject�to�continual�revisions�as�the�results�are�compared�with�past�expectations�and�new�estimates�are�made�about�the�future�(dollars�in�thousands).�

UnfundedActuarial

Actuarial Actuarial Actuarial AccruedValuation Value�of Accrued Liability Funded CoveredDate Assets Liability�(AAL) (UAAL) Ratio Payroll

December�31,�2011 �$����������� 470,952$� 470,952$� �� % 2,518,735$�December�31,�2010 �$����������� 390,611��� 390,611��� �� % 2,475,080��� �

Actuarial�Method�and�Assumptions�—�Projections�of�benefits�for�financial�reporting�purposes�are�based�on�the�substantive�plan�(the�plan�understood�by�the�employer�and�plan�members)�and�included�the�types�of�benefits�provided�at�the�time�of�each�valuation�and�the�historical�pattern�of�sharing�of�benefit�costs�between�the�employer�and�plan�members�to�that�point.�The�actuarial�method�and�assumptions�used�include�techniques�that�are�designed�to�reduce�the�effects�of�short-term�volatility�in�AALs�and�the�actuarial�value�of�assets,�consistent�with�the�long-term�perspective�of�the�calculations.�

For�the�Plans’�benefits�(not�provided�by�the�pension�funds)�in�the�actuarial�valuation�for�the�fiscal�years�ended�December�31,�2012�and�2011,�the�projected�unit�credit�actuarial�cost�method�was�used.�The�actuarial�assumptions�included�an�annual�health�care�cost�trend�rate�of�10.5%�initially,�reduced�by�decrements�to�an�ultimate�rate�of�5.0%.�Both�rates�included�a�3%�inflation�assumption.�The�Plans�have�not�accumulated�assets�and�does�not�hold�assets�in�a�segregated�trust.�However,�the�funds�expected�to�be�used�to�pay�benefits�are�assumed�to�be�invested�for�durations,�which�will�yield�an�annual�return�rate�of�1.5%.�The�UAAL�is�being�amortized�as�a�level-dollar�amount�over�one�to�five�years.�

Item 2012 2011

Actuarial�valuation�date December�31,�2011 December�31,�2010Actuarial�cost�method Projected�unit�credit Projected�unit�creditAmortization�method Level�dollar Level�dollarRemaining�amortization�period 1�to�5�years 2�yearsAsset�valuation�method Market�value Market�valueActuarial�assumptions:��Investment�rate�of�return 1.5% 1.5%��Projected�salary�increases 3.0% 2.5%��Healthcare�inflation�rate 10.5%�initial�to�5%�ultimate 11.5%�initial�to�10.5%�ultimate

Health�PlanSummary�of�Assumptions�and�Methods

�

The�OPEB�benefit�information�pertaining�expressly�to�the�Airport�employees�is�not�available�as�the�obligation�is�the�responsibility�of�the�general�government.�Accordingly,�no�obligation�has�been�recorded�in�the�accompanying�financial�statements.�Amounts�for�the�City�are�recorded�within�the�City’s�government-wide�financial�statements.�

���

-�37�-�

9.� RELATED-PARTY�TRANSACTIONS�

Included�in�operating�expenses�are�reimbursements�to�the�general�fund�of�the�City�for�services�provided�by�other�City�departments,�employee�fringe�benefits�and�self-insured�risks.�Such�reimbursements�were�$16.4�million�in�2012�and�2011..�

10.� COMMITMENTS�AND�CONTINGENCIES�

The�Airport�has�certain�contingent�liabilities�resulting�from�litigation,�claims�and�commitments�incident�to�the�ordinary�course�of�business.�Management�expects�that�the�final�resolution�of�these�contingencies�will�not�have�a�material�adverse�effect�on�the�financial�position�or�results�of�operations�of�the�Airport.�

The�Airport�provides�employee�health�benefits�under�a�self-insurance�program,�administered�by�the�City.�Such�claims�outstanding,�including�claims�incurred�but�not�reported,�are�estimated�and�recorded�as�liabilities�in�the�financial�statements.�

Uninsured�claim�expenditures�and�liabilities�are�reported�when�it�is�probable�that�a�loss�has�occurred�and�the�amount�of�that�loss�can�be�reasonably�estimated.�These�losses�include�an�estimate�of�claims�that�have�been�incurred�but�not�reported.�Changes�in�the�claims�liability�amount�for�the�years�ended�December�31,�2012�and�2011,�are�as�follows�($�in�thousands):�

2012 2011

Beginning�balance�—�January�1 449$������ 433$������Total�claims�incurred 4,367����� 4,160�����Claims�paid (4,358)��� (4,144)���

Claims�liability�—�December�31 458$������ 449$������ �

The�City�purchases�annuity�contracts�from�commercial�insurers�to�satisfy�certain�liabilities.�The�City�renewed�its�property�insurance�for�the�City’s�Airports,�effective�December�31,�2010,�at�a�limit�of�$3.6�billion,�which�the�City’s�insurance�broker�advised�was�the�highest�amount�commercially�available�at�the�time.�Claims�have�not�exceeded�the�purchased�insurance�coverage�in�the�past�10�years.�Property�and�casualty�risks�for�the�Airport�are�transferred�to�commercial�insurers.�

At�December�31,�2012�and�2011,�the�Airport�had�commitments�in�the�amount�of�approximately�$41.9�million�and�$71.1�million,�respectively,�in�connection�with�contracts�entered�into�for�construction�projects.�

11.� SUBSEQUENT�EVENTS�

In�February�2013,�the�City�increased�the�Letter�of�Credit�(LOC)�support�for�the�Chicago�Midway�International�Airport�Commercial�Paper�Program�from�$85.0�million�to�$150.0�million.�The�$65.0�million�LOC�is�provided�by�PNC�Bank.�While�the�City�has�City�Council�authorization�to�issue�up�to�an�aggregate�principal�of�$250.0�million�of�Chicago�Midway�International�Airport�Commercial�Paper�Notes�(Midway�CP�Notes),�the�LOC�support�provides�only�for�the�issuance�of�up�to�$150.0�million�aggregate�principal�amount�of�Midway�CP�Notes.�The�Midway�CP�Notes�are�authorized�to�be�issued�by�the�City�for�the�financing�and�refinancing�of�certain�projects�(which�may�include�payments�on�certain�related�bonds�and�notes)�at�Chicago�Midway�International�Airport.�

���

-�38�-�

In�March�2013,�the�City�entered�into�a�Revolving�Credit�Agreement�with�Bank�of�America,�N.A.,�which�allows�the�City�to�draw�on�the�line�of�credit�in�an�aggregate�amount�not�to�exceed�$200.0�million.�The�City’s�repayment�obligation�under�the�line�of�credit�is�a�general�obligation�of�the�City.�The�line�of�credit�expires�March�1,�2016.�

In�May�2013,�the�City�issued�$23.0�million�aggregate�principal�amount�of�Midway�CP�Notes.�The�proceeds�will�be�used�to�finance�a�portion�of�the�costs�of�authorized�airport�projects.�

The�1996�Reauthorization�Act,�Title�49�United�States�Code�§47134,�authorized�the�Federal�Aviation�Administration�(“FAA”)�to�establish�the�Airport�Privatization�Pilot�Program�(the�“Pilot�Program”)�,�pursuant�to�which�the�FAA�is�authorized�to�permit��public�airport�sponsors�to�sell�or�lease�an�airport.�The�2012�Reauthorization�Act�increased�the�number�of�airports�that�could�participate�in�the�program�from�five�to�ten.�Only�one�of�the�ten�airports�can�be�a�“large�hub”�airport�(having�enplanements�that�equal�or�exceed�one�percent�of�the�enplanements�at�all�U.S.�commercial�airports).�On�September�2006,�the�City�applied�to�the�FAA�under�the�Pilot�Program�with�respect�to�Chicago�Midway�International�Airport�(“Midway”)�with�extensions�requested�periodically�and�most�recently�in�April�2012.�The�City�is�currently�pursuing�bids�for�a�lease�of�Midway�under�the�provisions�of�the�Pilot�Program.�The�City�is�not�under�any�obligation�to�accept�any�bids,�and�it�is�not�possible�at�this�time�to�predict�whether�or�not�the�City�will�enter�into�a�lease�of�Midway�pursuant�to�the�Pilot�Program�or�when�such�a�transaction�might�occur.�

* * * * * * �

���

-�39�-�

CITY�OF�CHICAGO,�ILLINOISCHICAGO�MIDWAY�INTERNATIONAL�AIRPORT����ADDITIONAL�SUPPLEMENTARY�INFORMATIONCHICAGO�MIDWAY�AIRPORT�REVENUE�BONDS�DEBT�SERVICE�COVERAGE�CALCULATIONSYEARS�ENDED�DECEMBER�31,�2012�AND�2011($�in�thousands)

2012 2011

REVENUES:��Total�revenues�—�as�defined 159,305$� 158,849$���Other�available�moneys�(passenger�facility�charges�and�letter�of�intent) 37,531����� 36,849�������Revenue�Fund�balance�on�first�day�of�fiscal�year�(Note�2) 30,866����� 24,685�����

TOTAL�REVENUES 227,702$� 220,383$�

COVERAGE�REQUIREMENT�—�Required�deposits�from�revenues:��Debt�Service�Fund 62,267$��� 54,748$�����Operation�and�maintenance�reserve�account 1,720������� 1,412���������Junior�Lien�Obligation�Debt�Service�Fund 24,602����� 23,468�������Repair�and�Maintenance�Fund 1,025������� 1,025�������

TOTAL�FUND�DEPOSIT�REQUIREMENTS 89,614$��� 80,653$���

AGGREGATE�FIRST�LIEN�DEBT�SERVICE�FOR�THE��BOND�YEAR 62,267$��� 54,749$���

LESS�AMOUNTS�TRANSFERRED�FROM��CAPITALIZED�INTEREST�ACCOUNTS �������������� ��������������

�����������Net�aggregate�debt�service 62,267����� 54,749�����

1.25��������� 1.25���������

NET�DEBT�SERVICE�REQUIRED�COVERAGE 77,834$��� 68,436$���

OPERATION�AND�MAINTENANCE�EXPENSES 114,297$� 110,090$�

COVERAGE�REQUIRED�(Greater�of�total�fund���deposit�requirements�or�125%�of�aggregate�debt�service) 89,614����� 80,653�����

TOTAL�COVERAGE�REQUIRED 203,911$� 190,743$�

TOTAL�REVENUES 227,702$� 220,383$�

COVERAGE�RATIO 1.12��������� 1.16���������

See�notes�to�debt�service�coverage�calculations. �

���

-�40�-�

CITY�OF�CHICAGO,�ILLINOIS�CHICAGO�MIDWAY�INTERNATIONAL�AIRPORT�

ADDITIONAL�SUPPLEMENTARY�INFORMATION�CHICAGO�MIDWAY�AIRPORT�REVENUE�BONDS�NOTES�TO�DEBT�SERVICE�COVERAGE�CALCULATIONS�YEARS�ENDED�DECEMBER�31,�2012�AND�2011�

1.� RATE�COVENANT�

The�Master�Indenture�of�Trust�(Master�Indenture)�securing�the�Chicago�Midway�Airport�Revenue�Bonds�(Bonds)�requires�that�revenues,�together�with�other�available�moneys�deposited�with�the�trustee�and�any�balance�held�in�the�revenue�fund�on�the�first�day�of�the�calendar�year�not�then�required�to�be�deposited�in�any�fund�or�account,�will�be�at�least�sufficient�(i)�to�provide�for�the�payment�of�operation�and�maintenance�expenses�for�the�year,�and�(ii)�to�provide�for�the�greater�of�(a)�the�amounts,�if�any,�needed�to�make�required�deposits�into�the�Debt�Service�Fund,�the�Operating�and�Maintenance�Reserve�Account,�the�Working�Capital�Account,�the�Debt�Service�Reserve�Fund,�the�Junior�Lien�Obligation�Debt�Service�Fund,�the�Repair�and�Replacement�Fund�and�the�Special�Project�Fund,�and�(b)�an�amount�not�less�than�125%�of�the�aggregate�debt�service�for�the�Bond�year�commencing�during�such�fiscal�year.�

2.� REVENUE�FUND�BALANCE�

The�revenue�fund�balance�includes�all�cash,�cash�equivalents�and�investments,�which�were�available�to�the�revenue�fund�to�satisfy�the�coverage�requirement�under�the�terms�of�the�Master�Indenture.�

* * * * * * �

���

-�41�-�

CITY�OF�CHICAGO,�ILLINOISCHICAGO�MIDWAY�INTERNATIONAL�AIRPORT

ADDITIONAL�SUPPLEMENTARY�INFORMATIONCHICAGO�MIDWAY�AIRPORT�SECOND�LIEN�REVENUE�BONDSDEBT�SERVICE�COVERAGE�CALCULATIONSYEARS�ENDED�DECEMBER�31,�2012�AND�2011($�in�thousands)

2012 2011REVENUES:���Total�revenues�—�as�defined 159,305$� 158,849$���Other�available�moneys�(passenger�facility�charges�and�letter�of�intent) 37,531����� 36,849�������Revenue�Fund�balance�on�first�day�of�fiscal�year�(Note�2) 30,866����� 24,685�����

TOTAL�REVENUES�FOR�CALCULATION�OF�COVERAGE 227,702$� 220,383$�

COVERAGE�REQUIREMENT�—�Required�deposits�from�revenues:��First�Lien�Debt�Service�Fund 62,267$��� 54,748$�����Operation�and�maintenance�reserve�account 1,720������� 1,412���������Junior�Lien�Obligation�Debt�Service�Fund 24,602����� 23,468�������Repair�and�Replacement�Fund 1,025������� 1,025�������

TOTAL�FUND�DEPOSIT�REQUIREMENTS 89,614$��� 80,653$���

125%�OF�AGGREGATE�FIRST�LIEN�DEBT�SERVICE�FOR�THE�BOND�YEAR:��Aggregate�First�Lien�Debt�Service 62,267$��� 54,749$�����Less�amounts�transferred�from�First�Lien�Capitalized�Interest�Accounts �������������� ��������������

�����������Net�aggregate�First�Lien�Debt�Service 62,267����� 54,749�����1.25��������� 1.25���������

125%�OF�AGGREGATE�FIRST�LIEN�DEBT�SERVICE 77,834$��� 68,436$���

GREATER�OF�FUND�DEPOSIT�REQUIREMENTS�OR��125%�OF�AGGREGATE�FIRST�LIEN�DEBT�SERVICE 89,614$��� 80,653$���

110%�OF�AGGREGATE�FIRST�AND�SECOND�LIEN�DEBT�SERVICE���FOR�THE�BOND�YEAR:��Aggregate�First�Lien�Debt�Service 62,267$��� 54,749$�����Aggregate�Second�Lien�Debt�Service 31,005����� 36,826�������Less�amounts�transferred�from�First�Lien�Capitalized�Interest�Accounts �������������� ����������������Less�amounts�transferred�from�Junior�Lien�Capitalized�Interest�Accounts (4,144)������ (4,943)������

�����������Net�aggregate�First�and�Second�Lien�Debt�Service 89,128����� 86,632�����1.10��������� 1.10���������

110%�OF�AGGREGATE�FIRST�AND�SECOND�LIEN�DEBT�SERVICE 98,041$��� 95,295$���

GREATER�OF�FUND�DEPOSIT�REQUIREMENTS�OR�110%�OF�AGGREGATE�FIRST�AND��SECOND�LIEN�DEBT�SERVICE 98,041$��� 95,295$���

GREATER�OF�FUND�DEPOSIT�REQUIREMENTS�OR�125%�OF�FIRST�LIEN�DEBT�OR�110%�OF���AGGREGATE�DEBT�SERVICE 98,041$��� 95,295$���

COVERAGE�CALCULATION:��Operation�and�maintenance�expenses 114,297$� 110,090$���110%�of�aggregate�First�and�Second�Lien�Debt�Service 98,041����� 95,295�������Fund�Deposit�Requirements �������������� ��������������

TOTAL�COVERAGE�REQUIRED 212,338$� 205,385$�

TOTAL�REVENUES 227,702$� 220,383$�

REVENUES�IN�EXCESS�OF�COVERAGE�REQUIREMENT 15,364$��� 14,998$���

COVERAGE�RATIO 1.07��������� 1.07���������

See�notes�to�debt�service�coverage�calculations. �

���

-�42�-�

CITY�OF�CHICAGO,�ILLINOIS�CHICAGO�MIDWAY�INTERNATIONAL�AIRPORT�

ADDITIONAL�SUPPLEMENTARY�INFORMATION�CHICAGO�MIDWAY�AIRPORT�SECOND�LIEN�REVENUE�BONDS�NOTES�TO�DEBT�SERVICE�COVERAGE�CALCULATIONS�YEARS�ENDED�DECEMBER�31,�2012�AND�2011�

1.� RATE�COVENANT�

The�Master�Indenture�of�Trust�(Master�Indenture)�securing�the�Chicago�Midway�Airport�Second�Lien�Revenue�Bonds�(Bonds)�requires�that�revenues,�together�with�other�available�moneys�deposited�with�the�first�lien�trustee�or�the�second�lien�trustee�and�any�balance�held�in�the�first�lien�revenue�fund�or�the�second�lien�revenue�fund�on�the�first�day�of�the�year�not�then�required�to�be�deposited�in�any�fund�or�account�under�the�first�lien�indenture�or�the�second�lien�indenture,�will�be�at�least�sufficient�(a)�to�provide�for�the�payment�of�operation�and�maintenance�expenses�for�the�year�and�(b)�to�provide�for:�(i)�the�greater�of�the�amounts�needed�to�make�the�deposits�required�under�the�first�lien�indenture�during�such�calendar�year�into�the�first�lien�debt�service�fund,�the�Operating�and�Maintenance�(O&M)�Reserve�Account,�the�Working�Capital�Account,�the�First�Lien�Debt�Service�Reserve�Fund,�the�Junior�Lien�Obligation�Debt�Service�Fund,�the�Repair�and�Replacement�Fund�and�the�Special�Project�Fund,�or�an�amount�not�less�than�125%�of�the�Aggregate�First�Lien�Debt�Service�for�the�Bond�year�commencing�during�such�year,�reduced�by�any�amount�held�in�any�capitalized�interest�account�for�disbursement�during�such�Bond�year�to�pay�interest�on�first�lien�bonds;�or�(ii)�the�greater�of�the�amounts�needed�to�make�the�deposits�required�under�the�first�lien�indenture�during�such�year�into�the�First�Lien�Debt�Service�Fund,�the�O&M�Reserve�Account,�the�Working�Capital�Account,�the�First�Lien�Debt�Service�Reserve�Fund,�the�Junior�Lien�Obligation�Debt�Service�Fund,�the�Repair�and�Replacement�Fund�and�the�Special�Project�Fund,�or�an�amount�not�less�than�110%�of�the�sum�of�Aggregate�First�Lien�Debt�Service�and�Aggregate�Second�Lien�Debt�Service�for�the�Bond�year�commencing�during�such�year,�reduced�by�(a)�any�amount�held�in�any�capitalized�interest�account�for�disbursement�during�such�Bond�year�to�pay�interest�on�any�first�lien�bonds,�and�(b)�any�amount�held�in�any�capitalized�interest�account�established�pursuant�to�a�supplemental�indenture�for�disbursement�during�such�Bond�year�to�pay�interest�on�second�lien�obligations.�

2.� REVENUE�FUND�BALANCE�

The�revenue�fund�balance�includes�all�cash,�cash�equivalents,�and�investments�which�were�available�to�the�revenue�fund�to�satisfy�the�coverage�requirement�under�the�terms�of�the�Master�Indenture.�

* * * * * * �

���

-�43�-�

CITY�OF�CHICAGO,�ILLINOISCHICAGO�MIDWAY�INTERNATIONAL�AIRPORT

HISTORICAL�OPERATING�RESULTSEACH�OF�THE�TEN�YEARS�ENDED�DECEMBER�31,�2003–2012�(UNAUDITED)($�in�thousands)

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012OPERATING�REVENUES:��Landing�fees 14,524$� 15,585$� 15,668$� 20,834$��� 19,606$��� 28,901$��� 21,939$��� 35,299$��� 38,583$��� 32,143$���

��Rental�revenues:����Terminal�area�use�charges 12,089��� 13,714��� 17,179��� 21,804����� 17,308����� 26,084����� 30,701����� 42,895����� 40,862����� 38,769���������Other�rentals�and�fueling�system�fees 8,688����� 11,055��� 12,942��� 14,520����� 17,784����� 15,683����� 20,367����� 21,488����� 24,978����� 32,202�����

�����������Subtotal�rental�revenues 20,777��� 24,769��� 30,121��� 36,324����� 35,092����� 41,767����� 51,068����� 64,383����� 65,840����� 70,971�����

��Concessions:����Auto�parking 25,348��� 25,939��� 25,675��� 27,433����� 29,740����� 31,561����� 27,902����� 27,849����� 29,112����� 30,830���������Auto�rentals 7,808����� 8,001����� 8,417����� 7,698������� 8,440������� 8,355������� 8,505������� 8,182������� 8,776������� 9,021�����������Restaurant 6,057����� 6,715����� 6,879����� 7,391������� 8,136������� 8,099������� 7,396������� 8,151������� 8,875������� 9,686�����������News�and�gifts 2,968����� 3,272����� 3,852����� 3,905������� 3,876������� 3,816������� 3,437������� 3,488������� 3,551������� 3,486�����������Other 1,490����� 1,328����� 1,616����� 1,985������� 2,363������� 2,486������� 2,054������� 1,704������� 2,634������� 1,696�������

�����������Subtotal�concessions 43,671��� 45,254��� 46,439��� 48,412����� 52,555����� 54,317����� 49,294����� 49,374����� 52,948����� 54,719�����

��Reimbursements ������������ ������������ ������������ �������������� �������������� �������������� �������������� �������������� �������������� ��������������

�����������Total�operating�revenues�(1) 78,972��� 85,608��� 92,228��� 105,570��� 107,253��� 124,985��� 122,301��� 149,056��� 157,371��� 157,833���

OPERATING�AND�MAINTENANCE�EXPENSES:��Salaries�and�wages�(2) 36,582��� 32,316��� 32,259��� 35,316����� 39,998����� 36,931����� 39,521����� 42,105����� 43,554����� 44,463�������Repairs�and�maintenance 26,770��� 28,065��� 31,690��� 32,762����� 36,863����� 37,399����� 37,967����� 31,942����� 40,732����� 37,990�������Energy 3,621����� 4,869����� 6,040����� 5,076������� 7,495������� 7,228������� 8,245������� 6,724������� 6,415������� 7,258���������Materials�and�supplies 616�������� 663�������� 1,170����� 437���������� 1,751������� 2,377������� 1,252������� 1,522������� 1,418������� 1,318���������Professional�and�engineering�services 9,214����� 10,678��� 11,274��� 13,326����� 14,780����� 19,775����� 6,727������� 15,832����� 15,650����� 15,011�������Other�operating�expenses 6,390����� 4,940����� 5,794����� 10,466����� 10,395����� 5,942������� 5,929������� 10,211����� 2,320������� 8,257�������

�����������Total�operating�and�maintenance�expenses��������������before�depreciation�and�amortization�(3) 83,193��� 81,531��� 88,227��� 97,383����� 111,282��� 109,652��� 99,641����� 108,336��� 110,089��� 114,297���

NET�OPERATING�INCOME�BEFORE�DEPRECIATION��AND�AMORTIZATION�(4) (4,221)$�� 4,077$��� 4,001$��� 8,187$����� (4,029)$���� 15,333$��� 22,660$��� 40,720$��� 47,282$��� 43,536$���

DEBT�SERVICE�COVERAGE�RATIO�(5) 1.05������� 1.16������� 1.23������� 1.23��������� 1.12��������� 1.14��������� 1.08��������� 1.10��������� 1.07��������� 1.07���������

(1)�Average�annual�compound�growth�rate�for�2003–2012�for�Total�operating�revenues�is�8.0%.(2)�Salaries�and�wages�includes�charges�for�pension,�health�care�and�other�employee�benefits.(3)�Average�annual�compound�growth�rate�for�2003–2012�for�Total�operating�and�maintenance�expenses�before�depreciation�and�amortization�is�3.6%.(4)�Amount�for�2012�may�be�reconciled�to�operating�loss�of�$11,583�reported�in�the�2012�Statement�of�Revenues,�Expenses�and�Changes�in�Net�Position�by�deducting�������depreciation�and�amortization�of�$55,119.�Amount�for�prior�years�may�be�reconciled�through�similar�calculations.(5)�Represents�debt�service�coverage�ratio�on�first�and�second�lien�bonds.

Source:�Chicago�Midway�Airport�Audited�Financial�Statements�and�City�of�Chicago�Comptroller’s�Office. �

���

-�44�-�

CITY�OF�CHICAGO,�ILLINOISCHICAGO�MIDWAY�INTERNATIONAL�AIRPORT

DEBT�SERVICE�SCHEDULE�(UNAUDITED)($�in�thousands)

The�following�table�sets�forth�aggregate�annual�debt�service�of�principal�and�interest�for�outstanding�Midway�Airport�Revenue�Bonds:Year Debt�Service Debt�Service Debt�Service (First�Lien) Debt�Service Debt�Service Debt�Service (Second�Lien)

Ending Series�1996 Series�1998 Series�2001 Total Series�1998 Series�2004 Series�2010 Total TotalDecember�31 First�Lien�Bonds First�Lien�Bonds First�Lien�Bonds Debt�Service Second�Lien�Bonds Second�Lien�Bonds Second�Lien�Bonds Debt�Service�(1) Debt�Service

2013 10,528$��� 22,702$��� 20,720$��� 53,950$������ 199$�������� 12,092$��� 11,384$��� 23,675$��� 77,625$������2014 10,521����� 22,705����� 20,705����� 53,931�������� 199���������� 12,230����� 12,091����� 24,520����� 78,451��������2015 10,509����� 22,684����� 20,690����� 53,883�������� 199���������� 12,431����� 12,940����� 25,570����� 79,453��������2016 10,504����� 22,694����� 20,679����� 53,877�������� 199���������� 12,494����� 18,153����� 30,846����� 84,723��������2017 10,502����� 22,684����� 20,665����� 53,851�������� 198���������� 12,779����� 18,139����� 31,116����� 84,967��������2018 10,494����� 22,674����� 20,647����� 53,815�������� 198���������� 12,967����� 18,136����� 31,301����� 85,116��������2019 10,488����� 22,670����� 20,629����� 53,787�������� 198���������� 13,170����� 18,123����� 31,491����� 85,278��������2020 10,480����� 22,664����� 20,636����� 53,780�������� 199���������� 13,374����� 18,117����� 31,690����� 85,470��������2021 10,473����� 22,658����� 20,623����� 53,754�������� 199���������� 13,486����� 40,066����� 53,751����� 107,505������2022 10,468����� 22,646����� 20,612����� 53,726�������� 199���������� 13,797����� 18,045����� 32,041����� 85,767��������2023 17,334����� 22,643����� 20,589����� 60,566�������� 199���������� 7,654������� 18,137����� 25,990����� 86,556��������2024 17,313����� 22,632����� 20,576����� 60,521�������� 199���������� 7,917������� 18,021����� 26,137����� 86,658��������2025 17,294����� 24,151����� 20,551����� 61,996�������� 199���������� 6,610������� 72,488����� 79,297����� 141,293������2026 17,274����� 24,137����� 20,533����� 61,944�������� 199���������� 6,899������� 17,879����� 24,977����� 86,921��������2027 17,252����� 24,126����� 20,522����� 61,900�������� 199���������� 7,138������� 17,859����� 25,196����� 87,096��������2028 17,230����� 24,113����� 20,495����� 61,838�������� 198���������� 7,476������� 17,850����� 25,524����� 87,362��������2029 17,206����� 24,107����� 20,475����� 61,788�������� 132,541��� 7,789������� 17,830����� 158,160��� 219,948������2030 51,656����� 20,448����� 72,104�������� 8,151������� 17,816����� 25,967����� 98,071��������2031 51,607����� 12,913����� 64,520�������� 8,487������� 17,797����� 26,284����� 90,804��������2032 51,550����� 51,550�������� 8,848������� 17,775����� 26,623����� 78,173��������2033 51,495����� 51,495�������� 9,208������� 17,759����� 26,967����� 78,462��������2034 51,439����� 51,439�������� 9,618������� 17,735����� 27,353����� 78,792��������2035 51,374����� 51,373�������� 10,051����� 10,759����� 20,810����� 72,183��������2036 �������������� ����������������� �������������� 10,740����� 10,740����� 10,740��������2037 �������������� �������������� �������������� ����������������� �������������� 10,732����� 10,732����� 10,732��������2038 10,708����� 10,708����� 10,708��������2039 �������������� �������������� �������������� ����������������� �������������� 10,692����� 10,692����� 10,692��������2040 �������������� �������������� �������������� ����������������� �������������� 10,670����� 10,670����� 10,670��������2041 10,651����� 10,651����� 10,651��������2042 �������������� �������������� �������������� ����������������� �������������� �������������� �����������������2043 �������������� �������������� �������������� ����������������� �������������� �������������� �������������� �������������� �����������������

225,870$� 701,811$� 383,708$� 1,311,388$� 135,721$� 234,666$� 529,092$� 899,479$� 2,210,867$�

(1)�Assumes�an�interest�rate�effective�at�December�31,�2012,�on�$357,600,000�of�Second�Lien�Bonds�that�are�variable-rate�demand�obligations.Note:�The�annual�debt�service�tables�in�the�Official�Statements�for�the�above�debt�were�presented�with�a�year�ended�January�1.�The�information�above�is�presented�with�a�year�ended�December�31.����������The�change�has�been�made�to�facilitate�reconciliation�to�revenue�bonds�payable�at�December�31,�2012.Source:�City�of�Chicago�Comptroller’s�Office. �

���

-�45�-�

CITY�OF�CHICAGO,�ILLINOISCHICAGO�MIDWAY�INTERNATIONAL�AIRPORT

MIDWAY�AIRPORT�REVENUE�BONDSSERIES�1996�ESTIMATED�BOND-FUNDED�COSTSAS�OF�DECEMBER�31,�2012�(UNAUDITED)($�in�thousands)

EstimatedBond-Funded

Costs�(1)

Airfield 20,808$���Terminal 36,173�����Terminal�ramp 2,374�������Parking�and�roadways 90,551�����Noise 28,984�����Land�acquisition 23,563�����Fuel�storage�facilities 17,392�����

Total 219,845$�

(1)�Includes�estimated�costs�to�be�funded�from�investment�earnings.

Source:�City�of�Chicago�Department�of�Aviation. �

���

-�46�-�

CITY�OF�CHICAGO,�ILLINOISCHICAGO�MIDWAY�INTERNATIONAL�AIRPORT

CAPITAL�IMPROVEMENT�PROGRAM�2012–2018ESTIMATED�SOURCES�AND�USES�OF�FUNDSAS�OF�DECEMBER�31,�2012�(UNAUDITED)($�in�thousands)

ESTIMATED�SOURCES:��AIP�—�Entitlements 479$����������Airport�development�fund ����������������Other�airport�funds 568������������Series�2004�Bonds ����������������Series�2010�Bonds 23,700�������Future�Bonds 354,580���

TOTAL�ESTIMATED�SOURCES 379,327$�

ESTIMATED�USES:��Terminal�area�projects� 68,443$�����Land�acquisition 8,397���������Airfield�projects 82,980�������Parking/roadway�projects 49,492�������Noise�projects 127,118�����Safety�and�security 4,846���������Implementation 38,051�����

TOTAL�ESTIMATED�USES 379,327$�

Source:�City�of�Chicago�Department�of�Aviation. �

���

-�47�-�

CHICAGO�MIDWAY�INTERNATIONAL�AIRPORT

TERMINAL�DEVELOPMENT�PROGRAMESTIMATED�SOURCES�AND�USES�OF�FUNDSAS�OF�DECEMBER�31,�2012�(UNAUDITED)($�in�thousands)

ESTIMATED�SOURCES:��AIP�—�Entitlements 19,600$�����AIP�—�Discretionary 2,700���������Airport�development�fund 6,200���������Federal�Highway�Grant 6,500���������Series�1996�Bonds 156,000�����Series�1998�Bonds 359,000�����Series�2001�Bonds 68,500�������Series�2004�Bonds 40,800�����

TOTAL�ESTIMATED�SOURCES�(1) 659,300$�

ESTIMATED�USES:��Terminal�projects 340,100$���Terminal�ramp�projects 24,900�������Airfield�projects 28,600�������Parking/roadway�projects 149,600�����Development�of�FIS 22,500�������Implementation�costs 93,600�����

TOTAL�ESTIMATED�USES 659,300$�

(1)�The�estimated�sources�and�uses�of�the�Terminal�Development�Program�include�approximately������$631�million�of�funds�expended�through�December�31,�2012.

Source:�City�of�Chicago�Department�of�Aviation. �

���

-�48�-�

CITY�OF�CHICAGO,�ILLINOISCHICAGO�MIDWAY�INTERNATIONAL�AIRPORT

HISTORICAL�ENPLANED�PASSENGERSEACH�OF�THE�TEN�YEARS�ENDED�DECEMBER�31,�2003–2012�(UNAUDITED)

Domestic Domestic Total International Total PercentYears Air�Carrier Commuter Domestic Enplanements Enplanements Change

2003 8,228,230��� 658,478��� 8,886,708��� 113,665��� 9,000,373��� 9.7 %2004 8,815,951��� 656,468��� 9,472,419��� 153,481��� 9,625,900��� 7.0������2005 8,501,430��� 99,991����� 8,601,421��� 104,382��� 8,705,803��� (9.6)�����2006 9,049,740��� 57,734����� 9,107,474��� 91,058����� 9,198,532��� 5.7������2007 9,296,778��� 56,764����� 9,353,542��� 60,639����� 9,414,181��� 2.3������2008 8,310,041��� 31,771����� 8,341,812��� 16,475����� 8,358,287��� (11.2)���2009 8,541,786��� 158���������� 8,541,944��� 29,903����� 8,571,847��� 2.6������2010 8,792,557��� 14,156����� 8,806,713��� 49,312����� 8,856,025��� 3.3������2011 9,288,332��� 50,489����� 9,338,821��� 119,989��� 9,458,810��� 6.8������2012 9,573,226��� 36,968����� 9,610,194��� 169,415��� 9,779,609��� 3.4������

2003–2012 1.7 %������������� (27.4)%�������� 0.9 %������������� 4.5 %���������� 0.9 %�������������

Source:�City�of�Chicago�Department�of�Aviation.Note:�International�traffic�was�added�by�Volaris�Airline�to�Mexico�in�2011.

Average�Annual�Compound�Growth�Rates

�

���

� -�49�-�

CITY�OF�CHICAGO,�ILLINOISCHICAGO�MIDWAY�INTERNATIONAL�AIRPORT

ENPLANED�COMMERCIAL�PASSENGERS�BY�AIRLINEEACH�OF�THE�TEN�YEARS�ENDED�DECEMBER�31,�2003–2012�(UNAUDITED)

%�of %�of %�of %�of %�of %�of %�of %�of %�of %�ofEnplanements Total Enplanements Total Enplanements Total Enplanements Total Enplanements Total Enplanements Total Enplanements Total Enplanements Total Enplanements Total Enplanements Total

Southwest�Airlines 3,651,618��� 40.5 % 3,967,477��� 41.2 % 5,542,890��� 63.6 % 6,666,986��� 72.5 % 7,147,154��� 75.9 % 6,941,870��� 83.1 % 7,188,750��� 83.9 % 7,561,053��� 85.4 % 8,196,402��� 86.7 % 8,515,527��� 87.1%

American�Trans�Air�(4) 3,473,581��� 38.5����� 3,668,159��� 38.1����� 1,714,873��� 19.6����� 783,224������ 8.5������� 686,065������ 7.3������� 54,650�������� 0.7������� ����������������� ���������� ����������������� ���������� ����������������� ���������� �����������������

AirTran� 248,891������ 2.8������� 229,040������ 2.4������� 338,057������ 3.9������� 681,936������ 7.4������� 645,363������ 7.0������� 512,429������ 6.1������� 487,087������ 5.7������� 465,237������ 5.3������� 413,717������ 4.4������� 387,114������ 4.0�������

Northwest�Airlines 357,425������ 4.0������� 349,161������ 3.6������� 290,080������ 3.3������� 285,310������ 3.1������� 280,911������ 3.0������� 237,969������ 2.8������� 267,433������ 3.1������� 14,726�������� 0.2������� ����������������� �����������������

Frontier 101,035������ 1.1������� 134,593������ 1.4������� 154,120������ 1.8������� 189,216������ 2.1������� 206,675������ 2.2������� 207,674������ 2.5������� 164,749������ 1.9������� 151,440������ 1.7������� 158,405������ 1.7������� 144,496������ 1.5�������

Shuttle�America�(Delta�Express)� 144,539������ 1.5������� 223,153������ 2.7������� 181,356������ 2.0������� 90,544�������� 1.0������� 8,874���������� 0.1������� 6,085����������

Atlantic�Southeast 99,373�������� 1.1������� 61,460�������� 0.6������� 882������������� ���������� 3,715���������� 0.1������� 29,314�������� 0.3������� ����������������� 0.1�������

Continental�Airlines�(1) 140,100������ 1.6������� 162,823������ 1.7������� 63,433�������� 0.7������� 84,153�������� 0.9������� 48,478�������� 0.5������� 6,601���������� 0.1������� ����������������� ����������������� ����������������� �����������������

Continental�Express 53,458�������� 0.6������� 53,363�������� 0.6������� 37,500�������� 0.4������� 4,372���������� 0.1������� ����������������� ����������������� ����������������� �����������������

Comair 23,818�������� 0.3������� 17,655�������� 0.2������� 5,123���������� 0.1������� 4,371���������� 0.1������� 19,264�������� 0.1������� 21,135�������� 0.1������� ����������������� 14,156�������� 0.2������� ����������������� 36,968�������� 0.0�������

American� 153,043������ 1.7������� 143,211������ 1.5������� 113,818������ 1.3������� 60,793�������� 0.7������� 164������������� ����������

Delta�(2)���� 163,104������ 1.8������� 184,166������ 1.9������� 86,621�������� 1.0������� ������ ����������������� 144,037������ 1.7������� 176,231������ 2.0������� 239,357������ 2.5������� 231,644������ 2.5�������

United 106,951������ 1.3������� 74,520�������� 0.8�������

American�Eagle/Simmons 22,267�������� 0.2������� 7,599���������� 0.1������� 27,863�������� 0.3�������

U.S.�Airways�(3) 25,293�������� 0.3������� 14,116�������� 0.1������� ������

Chicago�Express 564,951������ 6.3������� 570,580������ 5.9������� 41,410�������� 0.5�������

Mexicana 5,786���������� 0.1������� ���������� ����������

All�other�airlines 91,728�������� 1.0������� 162,652������ 1.7������� 187,370������ 2.2������� 187,424������ 2.0������� 136,608������ 1.5������� 147,552������ 1.8������� 134,720������ 1.6������� 353,324������ 3.9������� 442,055������ 4.6������� 457,775������ 4.8�������

Total 9,000,373��� 100.0 %�� 9,625,900��� 100.0 %�� 8,705,803��� 100.0 %�� 9,198,532��� 100.0 %�� 9,414,181��� 100.0 %�� 8,358,287��� 100.0 %�� 8,571,847��� 100.0 %�� 8,856,025��� 100.0 %�� 9,458,810��� 100.0 %�� 9,779,609��� 100.0 %��

(1)�Continental�includes�commuter�affiliate�Continental�Express�for�the�year�2004.(2)�Delta�includes�commuter�affiliate�Comair�for�the�year�2004.��(3)�U.S.�Airways�ceased�operations�at�Midway�on�March�2005.(4)�American�Trans�Air�ceased�operations�at�Midway�on�April�3,�2008.

2012201120082003 2009 20102006 20072004 2005

�

���

-�50�-�

CITY�OF�CHICAGO,�ILLINOISCHICAGO�MIDWAY�INTERNATIONAL�AIRPORT

HISTORICAL�ENPLANED�PASSENGERSCHICAGO�REGION�AIRPORTSEACH�OF�THE�TEN�YEARS�ENDED�DECEMBER�31,�2003–2012�(UNAUDITED)

Percent PercentTotal of�Total Total of�Total Total

Years Enplanements Chicago Enplanements Chicago Enplanements

2003 9,000,373��� 20.7 % 34,454,921��� 79.3 % 43,455,294���2004 9,625,900��� 20.4����� 37,464,632��� 79.6����� 47,090,532���2005 8,705,803��� 18.7����� 37,970,886��� 81.3����� 46,676,689���2006 9,198,532��� 19.6����� 37,784,336��� 80.4����� 46,982,868���2007 9,414,181��� 19.9����� 37,779,576��� 80.1����� 47,193,757���2008 8,358,287��� 19.4����� 34,744,030��� 80.6����� 43,102,317���2009 8,571,847��� 21.1����� 32,047,097��� 78.9����� 40,618,944���2010 8,856,025��� 21.0����� 33,232,412��� 79.0����� 42,088,437���2011 9,458,810��� 22.2����� 33,207,302��� 77.8����� 42,666,112���2012 9,779,609��� 22.7����� 33,244,515��� 77.3����� 43,024,124���

2003–2012 0.9 % (0.4)% (0.1)%

Source:�City�of�Chicago�Department�of�Aviation.

Average�Annual�Compound�Growth�Rates

Chicago�MidwayInternational�Airport

Chicago�O’HareInternational�Airport

�

���

-�51�-�

CITY�OF�CHICAGO,�ILLINOISCHICAGO�MIDWAY�INTERNATIONAL�AIRPORT

HISTORICAL�TOTAL�ORIGIN�AND�DESTINATION�(O&D)�ENPLANEMENTSCHICAGO�REGION�AIRPORTSEACH�OF�THE�TEN�YEARS�ENDED�DECEMBER�31,�2003–2012�(UNAUDITED)

Total Percent Total Percent TotalO&D of�Total O&D of�Total O&D

Years Enplanements Chicago Enplanements Chicago Enplanements

2003 6,243,039��� 28.9 % 15,331,493��� 71.1 % 21,574,532���2004 6,634,138��� 28.3�� 16,799,401��� 71.7�� 23,433,539���2005 6,431,517��� 26.8�� 17,548,038��� 73.2�� 23,979,555���2006 6,708,494��� 27.1�� 18,058,904��� 72.9�� 24,767,398���2007 6,532,362��� 26.4�� 18,223,460��� 73.6�� 24,755,822���2008 5,910,045��� 25.0�� 17,685,020��� 75.0�� 23,595,065���2009 5,647,591��� 26.4�� 15,708,291��� 73.6�� 21,355,882���2010 5,485,191��� 23.9�� 17,419,794��� 76.1�� 22,904,985���2011 5,693,938��� 26.3�� 15,972,745��� 73.7�� 21,666,683���2012 6,045,841��� 27.0�� 16,318,810��� 73.0�� 22,364,651���

2003–2012 (0.4)% 0.7 % 0.4 %

Source:�City�of�Chicago�Department�of�Aviation.

Average�Annual�Compound�Growth�Rates

International�AirportChicago�Midway

International�AirportChicago�O’Hare

�

���

-�52�-�

CITY�OF�CHICAGO,�ILLINOISCHICAGO�MIDWAY�INTERNATIONAL�AIRPORT

AIRCRAFT�OPERATIONSEACH�OF�THE�TEN�YEARS�ENDED�DECEMBER�31,�2003–2012�(UNAUDITED)

Domestic International Total Domestic GeneralYears Air�Carrier Air�Carrier Air�Carrier Commuter Aviation Military Total

2003 169,282��� 1,630��� 170,912��� 57,824��� 99,289��� ������� 328,025���2004 181,750��� 2,472��� 184,222��� 57,905��� 97,381��� ������� 339,508���2005 184,863��� 1,669��� 186,532��� 7,444����� 95,603��� ������� 289,579���2006 199,229��� 1,433��� 200,662��� 3,066����� 94,820��� ������� 298,548���2007 206,865��� 1,060��� 207,925��� 3,085����� 93,647��� ������� 304,657���2008 186,840��� 557������ 187,397��� 1,351����� 77,593��� ������� 266,341���2009 180,391��� 3,354��� 183,745��� 7������������ 61,057��� ������� 244,809���2010 175,812��� 3,403��� 179,215��� 572�������� 65,746��� ������� 245,533���2011 178,640��� 4,332��� 182,972��� 2,622����� 69,633��� ������� 255,227���2012 188,628��� 5,250��� 193,878��� 1,890����� 54,145��� ������� 249,913���

2003–2012 1.2 % 13.9 % 1.4 % (31.6)% (6.5)% (3.0)%

Source:�City�of�Chicago�Department�of�Aviation.

Aircraft�Operations

Average�Annual�Compound�Growth�Rates

�

���

-�53�-�

CITY�OF�CHICAGO,�ILLINOISCHICAGO�MIDWAY�INTERNATIONAL�AIRPORT

NET�POSITION�BY�COMPONENTEACH�OF�THE�SEVEN�YEARS�ENDED�DECEMBER�31,�2006–2012�(UNAUDITED)($�in�thousands)

2006 2007 2008 2009 2010 2011 2012

NET�POSITION:��Investment�in�capital�assets 48,388$��� 31,251$��� 40,352$��� (1,936)$���� (39,755)$�� (70,876)$�� (82,226)$����Restricted 215,589��� 232,344��� 184,019��� 201,158��� 190,641��� 208,100��� 205,083�����Unrestricted 31,561����� 18,795����� 19,614����� 5,792������� 20,040����� 37,224����� 36,572�����

TOTAL�NET�POSITION 295,538$� 282,390$� 243,985$� 205,014$� 170,926$� 174,448$� 159,429$�

Ten�year�information�will�be�provided�prospectively�starting�with�year�2006. �

���

-�54�-�

CITY�OF�CHICAGO,�ILLINOISCHICAGO�MIDWAY�INTERNATIONAL�AIRPORT

CHANGE�IN�NET�POSITIONEACH�OF�THE�SEVEN�YEARS�ENDED�DECEMBER�31,�2006–2012�(UNAUDITED)($�in�thousands)

2006 2007 2008 2009 2010 2011 2012

OPERATING�REVENUES 105,570$� 652,763$� 124,985$� 122,301$� 149,056$� 157,371$� 157,833$�

OPERATING�EXPENSES 135,276��� 544,890��� 155,596��� 147,308��� 161,103��� 161,156��� 169,416���

OPERATING�(LOSS)�GAIN (29,706)���� 107,873��� (30,611)���� (25,007)���� (12,047)���� (3,785)������ (11,583)����

NONOPERATING�(EXPENSES)��REVENUES (5,325)������ 18,363����� (14,571)���� (13,964)���� (24,502)���� 4,246������� (8,117)������

(LOSS)�GAIN�BEFORE�CAPITAL��GRANTS (35,031)���� 126,236��� (45,182)���� (38,971)���� (36,549)���� 461���������� (19,700)����

CAPITAL�GRANTS 22,217����� 48,253����� 6,777������� �������������� 2,461������� 3,061������� 4,681�������

CHANGE�IN�NET�POSITION (12,814)$�� 174,489$� (38,405)$�� (38,971)$�� (34,088)$�� 3,522$����� (15,019)$��

Ten�year�information�will�be�provided�prospectively�starting�with�year�2006. �

���

-�55�-�

CITY�OF�CHICAGO,�ILLINOISCHICAGO�MIDWAY�INTERNATIONAL�AIRPORT

LONG�TERM�DEBTEACH�OF�THE�SEVEN�YEARS�ENDED�DECEMBER�31,�2006–2012�(UNAUDITED)($�in�thousands)

2006 2007 2008 2009 2010 2011 2012

First�lien�bonds 849,400$���� 835,780$���� 821,275$���� 806,015$���� 783,595$���� 780,205$���� 758,560$����

Second�lien�bonds 422,715������ 422,715������ 422,715������ 399,140������ 685,780������ 681,285������ 648,130������

Commercial�paper�notes 10,269�������� 10,674�������� 10,674�������� 61,360�������� 4,005���������� ����������������� 34,639��������

Total�revenue�bonds�and��notes 1,282,384$� 1,269,169$� 1,254,664$� 1,266,515$� 1,473,380$� 1,461,490$� 1,441,329$�

Enplanements� 9,198,532��� 9,414,181��� 8,358,287��� 8,571,847��� 8,856,025��� 9,458,810��� 9,779,609���

Total�debt�per�Enplanements 139.41�������� 134.81�������� 150.11�������� 147.75�������� 166.37�������� 154.51�������� 147.38��������

Ten�year�information�will�be�provided�prospectively�starting�with�year�2006.�

���

-�56�-�

CITY�OF�CHICAGO,�ILLINOISCHICAGO�MIDWAY�INTERNATIONAL�AIRPORT

FULL�TIME�EQUIVALENT�CHICAGO�MIDWAY�AIRPORT�EMPLOYEES�BY�FUNCTIONEACH�OF�THE�SEVEN�YEARS�ENDED�DECEMBER�31,�2006–2012�(UNAUDITED)

Function 2006 2007 2008 2009 2010 2011 2012

Business�Communication -�������� 7������� 6������� -�������� -�������� -�������� -��������Capital�Development 4������� ������� ������� ������� �������Airfield�Operations 59����� 60����� 59����� 75����� 75����� 75����� 70�����Landside�Operations 6������� ������� ������� ������� ������� ������� �������Security�Management 64����� 60����� 61����� 60����� 60����� 60����� 60�����Facility�Management 37����� 37����� 32����� 28����� 32����� 35����� 33�����Midway�Administration 13����� 12����� 12����� 11����� 10����� 10����� 10�����Safety�Management ������� 3������� 2������� 2������� 2������� 2������� 2�������

Total 183��� 179��� 172��� 176��� 179��� 182��� 175���

Ten�year�information�will�be�provided�prospectively�starting�with�year�2006.

Source:�City�of�Chicago’s�Program�and�Budget�Summary. �

���

-�57�-�

CITY�OF�CHICAGO,�ILLINOISCHICAGO�MIDWAY�INTERNATIONAL�AIRPORT

STATISTICAL�DATA��PRINCIPAL�EMPLOYERS�(NONGOVERNMENT)CURRENT�YEAR�AND�NINE�YEARS�AGO�(SEE�NOTE�AT�THE�END�OF�THIS�PAGE)(Unaudited)

Percentage Percentageof of

Number�of Total�City Number�of Total�CityEmployer Employees Rank Employment Employees Rank Employment

J.�P.�Morgan�Chase��Bank,�N.A.�(2) 8,168����� 1����� 0.76 %��� 10,192��� 1����� 0.95 %���United�Airlines 7,521����� 2����� 0.70���� 7,634����� 2����� 0.71����Accenture�LLP 5,590����� 3����� 0.52���� 3,862����� 6����� 0.36����Northern�Trust�Corporation 5,448����� 4����� 0.51���� 5,084����� 4����� 0.47����Jewel�Food�Stores,�Inc. 4,572����� 5����� 0.43���� ������������ �����Ford�Motor�Company 4,187����� 6����� 0.39����Bank�of�America�NT�&�SA 3,811����� 7����� 0.36����ABM�Janitorial�Services�—���North�Central 3,398����� 8����� 0.32����American�Airlines 3,076����� 9����� 0.29���� 4,403����� 5����� 0.41����Walgreen’s�Co 2,789����� 10��� 0.26���� ������������ �����CVS�Corporation ������������ ����� ��������� ������������ ����� ���������SBC�Ameritech�(3) 5,240����� 3����� 0.49����Target�Corporation 2,904����� 7����� 0.27����Harris�Trust�&�Savings�Bank 2,684����� 8����� 0.25����LaSalle�Bank 2,668����� 9����� 0.25����United�Parcel�Service 2,649����� 10��� 0.25����

(1)�Source:�City�of�Chicago,�Department�of�Revenue,�Employer’s�Expense�Tax�Returns.(2)�J.P.�Morgan�Chase�formerly�known�as�Banc�One.(3)�Ameritech�currently�known�as�SBC/AT&T.

2003�(1)2012�(1)

�

���

-�58�-�

CITY�OF�CHICAGO,�ILLINOISCHICAGO�MIDWAY�INTERNATIONAL�AIRPORT

STATISTICAL�DATA�POPULATION�AND�INCOME�STATISTICSEACH�OF�THE�TEN�YEARS�ENDED�DECEMBER�31,�2003–2012(Unaudited)

Median Number�of Unemployment Per�Capita TotalYear Population�(1) Age�(2) Households(2) Rate�(3) Income�(4) Income�(5)

2003 2,896,016��� 32.6���� 1,067,823��� 8.2 % 35,464��� 102,704,311,424$�2004 2,896,016��� 32.6���� 1,051,018��� 7.2������ 37,169��� 107,642,018,704���2005 2,896,016��� 33.0���� 1,045,282��� 7.0������ 38,439��� 111,319,959,024���2006 2,896,016��� 33.5���� 1,040,000��� 5.2������ 41,887��� 121,305,422,192���2007 2,896,016��� 33.7���� 1,033,328��� 5.7������ 43,714��� 126,596,443,424���2008 2,896,016��� 34.1���� 1,032,746��� 6.4������ 45,329��� 131,270,613,248���2009 2,896,016��� 34.5���� 1,037,069��� 10.0���� 43,727��� 126,634,091,632���2010 2,695,598��� 34.8���� 1,045,666��� 10.1���� 45,957��� 123,881,597,286���2011 2,695,598��� 33.2���� 1,048,222��� 9.3������ 45,977��� 123,935,509,246���2012 2,695,598��� 33.0���� 1,030,746��� 8.9������ N/A�(5) N/A�(5)

Notes:(1)�Source:�U.S.�Census�Bureau.(2)�Source:�World�Business�Chicago�website,�Claritas�date�estimates;�Cook�County’s�website.(3)�Source:�Bureau�of�Labor�Statistics�2012,�Unemployment�rate�for�Chicago-Naperville-Illinois������Metropolitan�Area.(4)�Source:�U.S.�Department�of�Commerce,�Bureau�of�Economic�Analysis,�Per�Capita�Personal�������Income�for�Chicago-Naperville-Illinois�Metropolitan�Area�(in�2010�dollars).(5)�N/A�means�not�available�at�time�of�publication. �

���

-�59�-�

CITY�OF�CHICAGOCHICAGO�MIDWAY�INTERNATIONAL�AIRPORT

STATISTICAL�DATALANDING�FEES�AND�TERMINAL�AREA�USE�CHARGES(Unaudited)

2012

Landing�Fees�and�Terminal�Area�Use�Charges

Signatory�Landing�Fee�(Rate/1000�lbs) 2.97$������Non-Signatory�Landing�Fee�(Rate/1000�lbs) 3.71��������

Signatory�Joint�Use�Fee�(Base�Usage/1000�lbs) 1.41��������Non-Signatory�Joint�Use�Fee�(Base�Usage/1000�lbs) 1.76��������

Signatory�Joint�Use�Fee�(Per�Capita/Annual) 255,767��Non-Signatory�Joint�Use�Fee�(Per�Capita/Annual) 319,708��

Signatory�Terminal�Rental�Rate 120.86����Non-Signatory�Terminal�Rental�Rate 151.07����

Terminal�Ramp�Rate 4.17��������

Signatory�FIS�Fee�per�Deplaned�Passenger 16.00������Non-Signatory�F/S�Fee�per�Deplaned�Passenger 20.00������

Cost�per�Departure�Rate�(1) 151.40����

(1)�The�cost�per�departure�is�for�Gates�A1,�A2,�A3,�A4A,�A4B,�A10,�A12�and�B25

Under�the�residual�Use�Agreement,�these�rates�are�the�estimated�rates�assessed�to���airlines�as�of�12/31/12. �

E-1

APPENDIX E

FORM OF OPINIONS OF CO-BOND COUNSEL

June 11, 2014 Re: City of Chicago

Chicago Midway Airport Second Lien Revenue and Revenue Refunding Bonds, Series 2014A (AMT)

Ladies and Gentlemen: We have acted as bond counsel to the City of Chicago, Illinois (the “City”), in connection with the issuance of $484,200,000 aggregate principal amount Chicago Midway Airport Second Lien Revenue and Revenue Refunding Bonds, Series 2014A (AMT) (the “Bonds”), of the City. We have examined a record of proceedings relating to the issuance of the Bonds. The Bonds are limited obligations of the City issued pursuant to the authority of Article VII, Section 6(a) of the Illinois Constitution of 1970 and by virtue of ordinances adopted by the City Council of the City on February 5, 2014, authorizing the Bonds (the “Bond Ordinance”). Terms used herein that are defined in the Indenture and the Twentieth Supplemental Indenture (each as hereinafter defined) shall have the meanings set forth therein unless otherwise defined herein.

The Bonds are authorized by the City for the purpose of providing funds to (i) pay for the 2014 Airport Projects, (ii) refund prior to maturity certain Prior Airport Obligations, (iii) repay certain commercial paper notes issued pursuant to the CP Indenture, (iv) fund capitalized interest on the Bonds, (v) fund a deposit to the Common Debt Service Reserve Sub-Fund and (vi) pay the costs of issuance of the Bonds.

The Bonds are being issued pursuant to a Master Indenture of Trust Securing Chicago Midway Airport Second Lien Obligations dated as of September 1, 1998, as amended (the “Indenture”), between the City and The Bank of New York Mellon Trust Company, N.A. (as successor trustee to American National Bank and Trust Company of Chicago), as trustee (the “Trustee”), and a Twentieth Supplemental Indenture dated as of June 1, 2014 (the “Twentieth Supplemental Indenture”) relating to the Bonds. The Bonds are Second Lien Obligations of the City permitted to be issued under the Master Indenture of Trust Securing Chicago Midway Airport Revenue Bonds dated as of April 1, 1994, as amended and supplemented (the “First Lien Indenture”), between the City and the Trustee and Second Lien Obligations authorized under the Indenture and are payable solely from and secured by pledges of Second Lien Revenues as, and to the extent, provided in the Indenture and the Twentieth Supplemental Indenture.

Under the terms of the First Lien Indenture, the City has previously issued First Lien Bonds that are presently outstanding and the City may hereafter authorize and issue additional First Lien Bonds. First Lien Bonds are entitled to the benefit and security of the First Lien Indenture, including the pledge of Revenues and other funds maintained for the benefit of the First Lien Bonds by the Trustee. The Bonds and all other Second Lien Obligations are junior in right of

E-2

payment and security to the First Lien Bonds, as and to the extent provided in the First Lien Indenture and the Indenture.

The Bonds are issuable only as fully registered bonds without coupons in Authorized Denominations. The Bonds are dated the date hereof, mature, bear interest from their date as set forth in the Twentieth Supplemental Indenture. The Bonds are subject to optional and mandatory redemption at the times, in the manner and upon the terms specified in the Twentieth Supplemental Indenture

In connection with the issuance of the Bonds we have examined the following:

(a) a certified copy of the Bond Ordinance;

(b) executed or certified counterparts of the Indenture and the Twentieth Supplemental Indenture; and

(c) such other documents and related matters of law as we have deemed necessary in order to render this opinion.

Based upon our examination of the foregoing, we are of the opinion that:

1. The City is a municipal corporation duly existing under the laws of the State of Illinois and is a home rule unit of local government within the meaning of Section 6(a) of Article VII of the 1970 Illinois Constitution. The City has all requisite power and authority under the Constitution and the laws of the State of Illinois, the First Lien Indenture and the Bond Ordinance (i) to enter into the Indenture and the Twentieth Supplemental Indenture with the Trustee and to issue the Bonds thereunder and (ii) to improve, maintain and operate the Airport and to charge and collect rents, fees and other charges for the use and services of the Airport and to perform all of its obligations under the First Lien Indenture, the Indenture and the Twentieth Supplemental Indenture in those respects.

2. The Bond Ordinance is in full force and effect and is valid and binding upon the City in accordance with its terms. The Indenture and the Twentieth Supplemental Indenture have been duly authorized, executed and delivered by the City, constitute valid and binding obligations of the City and are legally enforceable in accordance with their respective terms.

3. The Bonds have been duly authorized and issued, are the legal, valid and binding limited obligations of the City, are entitled to the benefits and security of the Indenture and the Twentieth Supplemental Indenture and are enforceable in accordance with their terms.

4. The Bonds are payable solely from the Second Lien Revenues deposited in the dedicated sub-fund maintained by the Trustee under the Twentieth Supplemental Indenture, and certain other amounts, including amounts on deposit in the Common Debt Service Reserve Sub-Fund, as provided in the Indenture and the Twentieth Supplemental Indenture. The Bonds and the interest thereon are limited obligations of the City and do not constitute an indebtedness of the City within the meaning of any state constitutional or statutory limitation or give rise to a charge against its general credit or taxing powers. Neither the faith and credit nor the taxing power of

E-3

the State of Illinois, the City or any political subdivision of the State of Illinois is pledged to the payment of the principal of, premium, if any, or interest on the Bonds.

5. The Indenture and the Twentieth Supplemental Indenture create the valid and binding pledge of Second Lien Revenues, moneys and securities which they purport to create.

6. Under existing law and assuming continuing compliance with certain covenants made by the City to satisfy pertinent requirements of the Internal Revenue Code of 1986, as amended (the “Code”), interest on the Bonds (i) is excluded from the gross income of the owners thereof for federal income tax purposes and (ii) is an item of tax preference for purposes of individual and corporate minimum taxable income for purposes of individual and corporate alternative minimum tax. Failure by the City to comply with such covenants could cause the interest on the Bonds to be included in gross income for federal income tax purposes retroactively to the date of issuance of the Bonds. Ownership of the Bonds may also result in collateral federal income tax consequences to certain taxpayers, and we express no opinion regarding any such collateral tax consequences arising with respect to the Bonds. In rendering this opinion, we have relied upon and assume the correctness of certain representations and certifications of the City with respect to certain material facts solely within the City’s knowledge relating to the property financed or refinanced with the proceeds of the Bonds and the application of the proceeds of the Bonds.

7. Interest on the Bonds is not exempt from present Illinois income taxes.

In rendering the foregoing opinion, we advise you that the enforceability (but not the validity or binding effect) of the Bonds, the Indenture and the Twentieth Supplemental Indenture (i) may be limited by any applicable bankruptcy, insolvency or other laws affecting the rights or remedies of creditors now or hereafter in effect and (ii) is subject to principles of equity in the event that equitable remedies are sought, either in an action at law or in equity.

Respectfully submitted,

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Re: City of Chicago, Chicago Midway Airport Second Lien Revenue and Revenue Refunding Bonds,

Series 2014B (Non-AMT) Ladies and Gentlemen:

We have acted as bond counsel to the City of Chicago, Illinois (the “City”), in connection with the issuance of $287,610,000 aggregate principal amount Chicago Midway Airport Second Lien Revenue and Revenue Refunding Bonds, Series 2014B (Non-AMT) (the “Bonds”), of the City. We have examined a record of proceedings relating to the issuance of the Bonds. The Bonds are limited obligations of the City issued pursuant to the authority of Article VII, Section 6(a) of the Illinois Constitution of 1970 and by virtue of ordinances adopted by the City Council of the City on February 5, 2014, authorizing the Bonds (the “Bond Ordinance”). Terms used herein that are defined in the Indenture and the Twenty-First Supplemental Indenture (each as hereinafter defined) shall have the meanings set forth therein unless otherwise defined herein.

The Bonds are authorized by the City for the purpose of providing funds to (i) pay for the 2014 Airport Projects, (ii) refund prior to maturity certain Prior Airport Obligations, (iii) repay certain commercial paper notes issued pursuant to the CP Indenture, (iv) fund capitalized interest on the Bonds, (v) fund a deposit to the Common Debt Service Reserve Sub-Fund and (vi) pay the costs of issuance of the Bonds.

The Bonds are being issued pursuant to a Master Indenture of Trust Securing Chicago Midway Airport Second Lien Obligations dated as of September 1, 1998, as amended (the “Indenture”), between the City and The Bank of New York Mellon Trust Company, N.A. (as successor trustee to American National Bank and Trust Company of Chicago), as trustee (the “Trustee”), and a Twenty-First Supplemental Indenture dated as of June 1, 2014 (the “Twenty-First Supplemental Indenture”) relating to the Bonds. The Bonds are Second Lien Obligations of the City permitted to be issued under the Master Indenture of Trust Securing Chicago Midway Airport Revenue Bonds dated as of April 1, 1994, as amended and supplemented (the “First Lien Indenture”), between the City and the Trustee and Second Lien Obligations authorized under the Indenture and are payable solely from and secured by pledges of Second Lien Revenues as, and to the extent, provided in the Indenture and the Twenty-First Supplemental Indenture.

Under the terms of the First Lien Indenture, the City has previously issued First Lien Bonds that are presently outstanding and the City may hereafter authorize and issue additional First Lien Bonds. First Lien Bonds are entitled to the benefit and security of the First Lien Indenture, including the pledge of Revenues and other funds maintained for the benefit of the First Lien Bonds by the Trustee. The Bonds and all other Second Lien Obligations are junior in right of payment and security to the First Lien Bonds, as and to the extent provided in the First Lien Indenture and the Indenture.

The Bonds are issuable only as fully registered bonds without coupons in Authorized Denominations. The Bonds are dated the date hereof, mature, bear interest from their date as set forth in the Twenty-First Supplemental Indenture. The Bonds are subject to optional and mandatory redemption at the times, in the manner and upon the terms specified in the Twenty-First Supplemental Indenture

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In connection with the issuance of the Bonds we have examined the following:

(a) a certified copy of the Bond Ordinance;

(b) executed or certified counterparts of the Indenture and the Twenty-First Supplemental Indenture; and

(c) such other documents and related matters of law as we have deemed necessary in order to render this opinion.

Based upon our examination of the foregoing, we are of the opinion that:

1. The City is a municipal corporation duly existing under the laws of the State of Illinois and is a home rule unit of local government within the meaning of Section 6(a) of Article VII of the 1970 Illinois Constitution. The City has all requisite power and authority under the Constitution and the laws of the State of Illinois, the First Lien Indenture and the Bond Ordinance (i) to enter into the Indenture and the Twenty-First Supplemental Indenture with the Trustee and to issue the Bonds thereunder and (ii) to improve, maintain and operate the Airport and to charge and collect rents, fees and other charges for the use and services of the Airport and to perform all of its obligations under the First Lien Indenture, the Indenture and the Twenty-First Supplemental Indenture in those respects.

2. The Bond Ordinance is in full force and effect and is valid and binding upon the City in accordance with its terms. The Indenture and the Twenty-First Supplemental Indenture have been duly authorized, executed and delivered by the City, constitute valid and binding obligations of the City and are legally enforceable in accordance with their respective terms.

3. The Bonds have been duly authorized and issued, are the legal, valid and binding limited obligations of the City, are entitled to the benefits and security of the Indenture and the Twenty-First Supplemental Indenture and are enforceable in accordance with their terms.

4. The Bonds are payable solely from the Second Lien Revenues deposited in the dedicated sub-fund maintained by the Trustee under the Twenty-First Supplemental Indenture, and certain other amounts, including amounts on deposit in the Common Debt Service Reserve Sub-Fund, as provided in the Indenture and the Twenty-First Supplemental Indenture. The Bonds and the interest thereon are limited obligations of the City and do not constitute an indebtedness of the City within the meaning of any state constitutional or statutory limitation or give rise to a charge against its general credit or taxing powers. Neither the faith and credit nor the taxing power of the State of Illinois, the City or any political subdivision of the State of Illinois is pledged to the payment of the principal of, premium, if any, or interest on the Bonds.

5. The Indenture and the Twenty-First Supplemental Indenture create the valid and binding pledge of Second Lien Revenues, moneys and securities which they purport to create.

6. Under existing law and assuming continuing compliance with certain covenants made by the City to satisfy pertinent requirements of the Internal Revenue Code of 1986, as amended (the “Code”), interest on the Bonds (i) is excluded from the gross income of the owners thereof for federal income tax purposes and (ii) will not be treated as a specific item of tax preference for

E-6

purposes of the federal alternative minimum tax imposed on individuals and corporations but is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Failure by the City to comply with such covenants could cause the interest on the Bonds to be included in gross income for federal income tax purposes retroactively to the date of issuance of the Bonds. Ownership of the Bonds may also result in collateral federal income tax consequences to certain taxpayers, and we express no opinion regarding any such collateral tax consequences arising with respect to the Bonds. In rendering this opinion, we have relied upon and assume the correctness of certain representations and certifications of the City with respect to certain material facts solely within the City’s knowledge relating to the property financed or refinanced with the proceeds of the Bonds and the application of the proceeds of the Bonds.

7. Interest on the Bonds is not exempt from present Illinois income taxes.

In rendering the foregoing opinion, we advise you that the enforceability (but not the validity or binding effect) of the Bonds, the Indenture and the Twenty-First Supplemental Indenture (i) may be limited by any applicable bankruptcy, insolvency or other laws affecting the rights or remedies of creditors now or hereafter in effect and (ii) is subject to principles of equity in the event that equitable remedies are sought, either in an action at law or in equity.

Respectfully submitted,

APPENDIX F

2013 REPORT OF THE AIRPORT CONSULTANT AS SUPPLEMENTED

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May 19, 2014

Ms. Rosemarie S. Andolino Commissioner City of Chicago, Department of Aviation 10510 West Zemke Road Chicago, Illinois 60666

RE: City of Chicago Series 2014 Second Lien Revenue and Revenue Refunding Bonds

Dear Ms. Andolino:

This letter sets forth the findings, assumptions, and projections related to the air traffic and financial analyses prepared by Ricondo & Associates, Inc. (R&A) in conjunction with the planned issuance by the City of Chicago (the City), which owns and operates Chicago Midway International Airport (the Airport), of its Series 2014 Second Lien Revenue and Revenue Refunding Bonds (the 2014 Bonds).

Purpose of This Letter of the Airport Consultant In connection with the issuance of the Series 2013 Second Lien Revenue Refunding Bonds (the Series 2013 Bonds), R&A prepared the Report of the Airport Consultant dated November 11, 2013 (the 2013 Report), which was included as Appendix F in the Official Statement for the issuance of the Series 2013 Bonds. The 2013 Report incorporated projections of Debt Service associated with the Series 2013 Bonds and the anticipated issuance of revenue refunding and new money bonds in 2014, during the 2013 through 2022 projection period (the Projection Period). A copy of the 2013 Report is attached to this letter for reference as Exhibit A.

This letter addresses analyses completed by R&A and its subconsultant, Partners for Economic Solutions, since the 2013 Report was prepared. In addition, this letter provides updated information and data regarding the economic base for air transportation at the Airport, air traffic at the Airport, ongoing and future Airport capital projects, debt service, and Airport financial projections. Table 1 summarizes key changes since the date of the 2013 Report.

MS. ROSEMARIE S. ANDOLINO CITY OF CHICAGO, DEPARTMENT OF AVIATION MAY 19, 2014 PAGE 2

Table 1 (1 of 2): Summary of Key Changes Since 2013 Report Was Prepared

CHANGE(S) SINCE 2013 REPORT

ESTIMATED IMPACT OF CHANGE(S) TO OVERALL/KEY FINANCIAL RESULTS

Financial Analysis Variables

Economic Base for Air Transportation Moderate economic recovery is expected to continue nationwide, although at a slightly lower rate than was estimated at the time the 2013 Report was prepared.

No material impact.

Air Traffic Projections Actual 2013 activity was higher than projected, but cancelations due to severe weather significantly impacted first quarter 2014 activity. Projected 2014 enplaned passengers decreased from approximately 10.35 million to approximately 10.27 million. Projected 2015 through 2022 activity is unchanged.

Increase in CPE in 2014 due to lower enplanements. No material impact 2015 through 2022.

Airport Capital Program Reduced from a 2013-2019 program ofapproximately $379 million to a 2014-2020 program of approximately $275 million.

Approximately $124.5 million of new money debt service to fund CIP projects included in the 2014 Bonds, slight decrease from assumption of $128 million in 2013 Report. No material impact.

Debt Service Actual Series 2013 Bonds and estimated Series 2014 Bond Debt Service is included. Restructuring and refunding of existing debt updated from 2013 Report.

Increase in 2014 debt service of approximately $3 million over 2013 Report. Projected debt service varies based on structure.

Operation and Maintenance (O&M) Expenses

Increased to reflect an increase in budgeted 2014 O&M Expenses. Projection methodology unchanged.

Increase in O&M Expenses in 2014 of approximately 7.6 percent over 2013 budget, and 3.2 percent over projected 2014 O&M Expenses from the 2013 Report, contribute to moderately higher O&M Expenses. The increase is offset by other factors (see below) resulting in an overall Airline Requirement similar to the 2013 Report.

Non-Signatory Airline and Non-Airline Revenues

Increased to reflect an increase in budgeted 2014 Non-Airline Revenues over projected. Projection methodology unchanged.

Increase in total Non-Signatory Airline and Non-Airline Revenues in 2014 of approximately 4.1 percent over 2013 budget, and 1.5 percent over projection.

MS. ROSEMARIE S. ANDOLINO CITY OF CHICAGO, DEPARTMENT OF AVIATION MAY 19, 2014 PAGE 3

Table 1 (2 of 2): Summary of Key Changes Since 2013 Report Was Prepared

CHANGE(S) SINCE 2013 REPORT

ESTIMATED IMPACT OF CHANGE(S) TO OVERALL/KEY FINANCIAL RESULTS

Financial Analysis Results

Projected CPE Projected CPE levels revised to reflect refinements noted above.

Budget 2014 CPE is $12.12, compared to $11.04 in 2013 Report, reflecting increase in O&M Expenses and restructuring of debt service. Projected CPE through the projection period in line with 2013 Report, with savings in outer years.

Projected Debt Service Coverage Ratio Projected Debt Service coverage ratio calculations revised to reflect refinements noted above.

No material change in aggregate Debt Service coverage ratios. Coverage under residual agreement continues to meet required 1.10x coverage.

Sensitivity Analysis

Activity reduction sensitivity Assumes a 10 percent activity reduction in 2015 instead of 2014.

CPE increases by $2.95 in 2015, the first year of activity reduction and increase in CPE level is permanent, with CPE under the sensitivity scenario rising to $3.61 over the baseline CPE by the year 2022.

No material change in Midway Airport Revenue Bond (MARB) Debt Service coverage ratio.

SOURCE: Ricondo & Associates, Inc.; May 2014. PREPARED BY: Ricondo & Associates, Inc.; May 2014.

This letter, along with the 2013 Report, is intended for inclusion as Appendix F in the Official Statement for the issuance of the 2014 Bonds. The techniques and methodologies used by R&A in the preparation of this letter and financial analysis are consistent with industry practices for similar studies in connection with airport revenue bond sales. While R&A believes that the approach and assumptions used in this letter and financial analysis are reasonable, some assumptions regarding future trends and events detailed in this letter and the 2013 Report including, but not limited to, the implementation schedule and the projections of passenger activity and financial performance may not materialize. Therefore, actual performance will

MS. ROSEMARIE S. ANDOLINO CITY OF CHICAGO, DEPARTMENT OF AVIATION MAY 19, 2014 PAGE 4

likely differ from the projections put forth in this letter and 2013 Report and the variations may be material.

Updated Information Regarding the Economic Base for Air Transportation Our review of certain socioeconomic information available since the date of the 2013 Report suggests that the findings regarding the Airport’s Air Trade Area (the Chicago-Naperville-Joliet Metropolitan Statistical Area [MSA] and the Kankakee-Bradley MSA) and economic base for air transportation1 remain valid. The economic base of the Air Trade Area remains capable of supporting increases in demand for air transportation at the Airport during the Projection Period. A brief discussion of recent unemployment rates and survey data from the National Association for Business Economics (NABE) is provided below.

In March 2014 (latest data available), the unemployment rate for the Air Trade Area was 8.2 percent (non-seasonally adjusted).2 This rate was higher than the rate for the Midwest, where the unemployment rate was 7.3 percent (non-seasonally adjusted).3 The unemployment rate in the nation was 6.8 percent in March 2014 (non-seasonally adjusted).4 The Air Trade Area’s unemployment rate is lower than it was at the time the 2013 Report was prepared (9.1 percent in August 2013, non-seasonally adjusted), and this 0.9 percentage point improvement exceeds the employment recovery in both the Midwest and the U.S. overall. The unemployment rate in the Midwest has shown a 0.5 percentage point improvement from 7.8 percent (non-seasonally adjusted) in August 2013. The national unemployment rate has improved by 0.5 percentage points from 7.3 percent (non-seasonally adjusted) in August 2013.

The Air Trade Area is well-positioned because of its broad and diverse economic base. It is affected by overall economic conditions in the United States. Economic activity in the U.S. continues to expand at a moderate pace. The NABE forecast projects ongoing economic recovery with annual GDP growth of 2.5 percent in 2014. By comparison, data provided in the 2013 Report showed that NABE (September 2013) forecasted annual GDP growth of 2.8 percent in 2014. This slightly less optimistic outlook reflects concerns about the impact of the Federal Reserve reining in its policy of quantitative easing in 2014 (i.e., reducing the level of its asset purchases). In addition, a potential decline in government spending is

1 The Economic Base for Air Transportation is provided in Chapter 4 of the 2013 Report. 2 Monthly unemployment data published for the Air Trade Area are not seasonally adjusted. 3 The seasonally adjusted unemployment rate in the Midwest was 7.0 percent in February 2014. 4 The seasonally adjusted unemployment rate in the United States was 6.7 percent in February 2014.

MS. ROSEMARIE S. ANDOLINO CITY OF CHICAGO, DEPARTMENT OF AVIATION MAY 19, 2014 PAGE 5

viewed as a source of lower near-term economic growth. However, tighter fiscal policy is also seen as contributing to a smaller deficit. The NABE forecast projects moderate improvements in construction and export activity as well as a subdued inflation rate.

Based on the analysis included in Chapter 4, the Economic Base for Air Transportation section of the 2013 Report, as well as our review of the most recent unemployment data and economic forecast information discussed above, our opinion is unchanged: the Air Trade Area’s economic base remains broad and diversified, and will continue to support long-term growth in demand for air transportation services at the Airport. Our review of the most recent economic data and information suggests that the traffic projections presented in the 2013 Report remain valid.

Updated Information Regarding Air Traffic Recent Airport activity data were reviewed to assess the reasonableness of the activity projections included in the 2013 Report and their continued validity for use in conjunction with the proposed issuance of the 2014 Bonds. The 2013 Report incorporated actual enplaned passenger and aircraft operations statistics through Fiscal Year (ending December 31st) 2012 and projected totals for 2013 through 2022. Air traffic activity projections contained in the 2013 Report were based, in part, on published schedules of service levels and forecasted levels of national and regional economic indicators.

Recent enplaned passenger, operations, and landed weight activity at the Airport is shown in Table 2. As shown, the actual growth in activity in 2013 was greater than the 2013 projected growth from the 2013 Report in each of these three activities. Enplaned passengers in 2013 increased approximately 5.0 percent compared with 2012 levels. Aircraft operations increased approximately 0.9 percent compared with 2012 levels and landed weight increased approximately 3.6 percent. The projected increase in enplaned passengers, operations, and landed weight from 2012 to 2013 in the 2013 Report was approximately 4.4 percent, 0.8 percent and 3.0 percent, respectively.

MS. ROSEMARIE S. ANDOLINO CITY OF CHICAGO, DEPARTMENT OF AVIATION MAY 19, 2014 PAGE 6

Table 2: Recent Air Traffic Activity

ACTUAL

2012 PROJECTION

2013 ACTUAL

2013

DIFFERENCE BETWEEN 2013

PROJECTION AND ACTUAL

Enplaned Passengers 1/ 9,671,619 10,092,877 10,155,389 62,512

Annual Change versus 2012 Actual 4.36% 5.00% 0.62%

Total Operations 249,913 252,013 252,126 113

Annual Change versus 2012 Actual 0.84% 0.89% 0.04%

Landed Weight (weight in 1,000 pound units) 11,620,580 11,968,862 12,041,817 72,955

Annual Change versus 2012 Actual 3.00% 3.62% 0.61%

NOTE:

1/ Excludes general aviation, military, helicopter, and miscellaneous passengers included in the City of Chicago's Chicago Department of Aviation Management Records

SOURCES: City of Chicago Department of Aviation, February 2014; Ricondo & Associates, Inc., February 2014. PREPARED BY: Ricondo & Associates, Inc., April 2014.

Exhibit 1 and Table 3 show historical and projected enplaned passenger activity through the Projection Period. The 2014 enplaned passenger growth has been revised downward from approximately 10.35 million enplaned passengers to approximately 10.27 million enplaned passenger to reflect, in part, significantly disrupted air travel in the first quarter of 2014 which was a result of unusually severe inclement weather at the Airport and throughout the national airport system. From November 2013 through March 2014, the Airport experienced approximately 88.2 inches of snow, the second highest snowfall in the Airport’s history. Regularly occurring snow events, extremely low temperatures and severe weather nation-wide led to significant cancelations at the Airport during the first quarter of 2014. Exhibit 2 reflects monthly cancelled departures at the Airport both in total and as a percentage of scheduled departures between December 2004 and March 2014. Greater detail of this information is shown between January 2013 and March 2014. In the first quarter of 2014, scheduled seat capacity was 3.1 percent higher than the same period in 2013, driven both by higher average per-aircraft seat capacity and a 0.4 percent increase in scheduled departures. However, largely as a result of the inclement weather, actual departures in the first quarter of 2014 fell 5.4 percent relative to the same period in 2013.

Midway’s total enplaned passengers have grown 21.2% from 2009 to 2013. As shown in Table 3, in 2013 a record 10.2 million passengers were enplaned at Midway, representing a 5.0% year-over-year increase and an average annual growth rate of 4.6%. Midway was the third fastest growing large hub airport from

MS. ROSEMARIE S. ANDOLINO CITY OF CHICAGO, DEPARTMENT OF AVIATION MAY 19, 2014 PAGE 7

2009 through 2013. Enplaned passengers figures through March 2014 are comparable to the same period in 2013.

Exhibit 1: Historical and Projected Enplaned Passengers

NOTE:

Excludes general aviation, military, helicopter, and miscellaneous passengers included in the City of Chicago's Chicago Department of Aviation Management Records

SOURCE: City of Chicago, Chicago Department of Aviation Management Records (historical), March 2014; Ricondo & Associates, Inc. (projected), March 2014. PREPARED BY: Ricondo & Associates, Inc.; April 2014.

MS. ROSEMARIE S. ANDOLINO CITY OF CHICAGO, DEPARTMENT OF AVIATION MAY 19, 2014 PAGE 8

Table 3: Enplanement Projections

YEAR AIRPORT TOTAL 1/ ANNUAL GROWTH

Historical 2002 8,156,138 10.1% 2003 8,921,057 9.4% 2004 9,519,472 6.7% 2005 8,595,983 (9.7%) 2006 9,087,611 5.7% 2007 9,288,348 2.2% 2008 8,229,304 (11.4%) 2009 8,468,470 2.9% 2010 8,734,214 3.1% 2011 9,352,766 7.1% 2012 9,671,619 3.4% 2013 10,155,389 5.0%

Projected 2014 10,267,632 1.1% 2015 10,604,855 3.3% 2016 10,854,342 2.4% 2017 11,099,494 2.3% 2018 11,340,311 2.2% 2019 11,576,794 2.1% 2020 11,808,942 2.0% 2021 12,036,755 1.9% 2022 12,260,234 1.9%

Compounded Annual Growth Rate 2002-2013 2.0% 2006-2013 1.6% 2007-2013 1.5% 2008-2013 4.3% 2013-2022 2.1%

NOTE:

1/ Excludes general aviation, military, helicopter, and miscellaneous passengers included in the City of Chicago's Chicago Department of Aviation Management Records

SOURCES: City of Chicago, Chicago Department of Aviation Management Records (historical), April 2014; Ricondo & Associates, Inc. (projected), April 2014. PREPARED BY: Ricondo & Associates, Inc., April 2014.

MS. ROSEMARIE S. ANDOLINO CITY OF CHICAGO, DEPARTMENT OF AVIATION MAY 19, 2014 PAGE 9

Exhibit 2: MDW Cancelled Departures December 2004 to Present

SOURCE: Chicago Department of Aviation Airport Activity Reports; U.S. DOT T-100 Data Accessed April 2014; Innovata Schedule Data Accessed April 2014 PREPARED BY: Ricondo & Associates, Inc., April 2014.

MS. ROSEMARIE S. ANDOLINO CITY OF CHICAGO, DEPARTMENT OF AVIATION MAY 19, 2014 PAGE 10

As shown in Exhibit 2, approximately 14.9 percent of flights were canceled in January 2014, which was nearly double the peak of monthly cancelations since 2004. In February 2014, approximately 7.4 percent of flights were canceled – the fourth highest monthly cancelation percent since 2004. Cancelations ultimately resulted in total enplaned passenger decline of 0.6 percent in the first quarter of 2014.

As shown in Table 4, cancelation rates similar to what the Airport experienced in January and February of 2014 occurred at other airports in the Midwest, Mid Atlantic, and Northeast.

Table 4: January and February 2014 Cancelations at Select Airports

SELECT LARGE-HUB AIRPORTS

JANUARY CANCELATION PERCENTAGE

FEBRUARY CANCELATION PERCENTAGE

Boston Logan (BOS) 6.8% 6.2%

Chicago Midway (MDW) 14.9% 7.4%

Chicago O'Hare (ORD) 17.1% 0.8%

John F. Kennedy (JFK) 7.3% 6.5%

LaGuardia (LGA) 12.8% 13.5%

Newark (EWR) 10.2% 13.3%

Philadelphia (PHL) 3.6% 4.6%

Washington Dulles (IAD) 5.2 6.2%

Washington National (DCA) 7.8% 10.0%

SOURCES: Airport Activity Reports, U.S. DOT T-100 Data Accessed April 2014; Innovata Schedule Data Accessed April 2014. PREPARED BY: Ricondo & Associates, Inc., April 2014.

The downward revision of 2014 activity also accounts for uncertainty over the timing of capacity growth system-wide by Southwest/AirTran in the latter half of 2014, caused by the continued integration of the AirTran brand. As part of that integration, the combined airline plans to convert the remaining 31 AirTran 737-700 aircraft to the Southwest brand by the end of 2014. The schedule for this conversion is more heavily-weighted toward the latter half of the year than originally expected, which may negatively impact Midway’s short-term capacity relative to previous expectations. Specifics of this impact are difficult to capture currently, as Southwest/AirTran published system-wide flight schedules are only available through October of 2014. As published, scheduled seat capacity at Midway has increased 7.5% between 2012 and the 12 month period ending October 2014.

MS. ROSEMARIE S. ANDOLINO CITY OF CHICAGO, DEPARTMENT OF AVIATION MAY 19, 2014 PAGE 11

Potential increases in Airport activity due to the addition of direct Southwest service between the Airport and Washington National Airport (DCA) have not been accounted for in the projected activity. In March 2014, Southwest announced direct service between the Airport and Ronald Regan Washington National Airport. The service was made possible by the divestiture of take-off and landing slots as part of the American Airlines and U.S. Airways merger. Service is scheduled to begin in August 2014 with six daily roundtrip flights. Beginning September 2014, Southwest will increase service on the route with three additional flights for a total of nine daily roundtrip flights.

Potential impacts in Airport activity due to expiration of the Wright Amendment have not been accounted for in the projected activity. In October 2014, through the expiration of the Wright Amendment, flights to and from Dallas Love Field will not be restricted to states bordering Texas. The expiration of the Wright Amendment restrictions will allow Southwest to serve Dallas on a nonstop basis from the Airport, improving the overall network appeal of Southwest Airlines in the Chicago market, and creating improved options for passengers connecting between other cities and Dallas using the Airport as a transfer point. While the potential exists for Dallas Love Field to compete with the Airport for east-west connecting passenger traffic, Southwest’s operations at Dallas Love Field consists of 16 gates, which will limit its operational activity there. Additionally, Dallas Love Field will compete not only with the Airport for connecting traffic, but all other industry hubs serving east-west traffic flows, effectively reducing the Airport’s exposure to connecting passenger losses.

Although the projection of enplaned passengers for 2014 has been modified downward to account, in part, for first quarter cancelations, the long term (2015-2022) projected enplaned passengers remain the same for this letter and financial analysis. The 2015 growth rate is now higher than previously reported, reflecting the same expected volume of enplaned passengers in 2015, growing from a now smaller 2014 base.

Airport Capital Program Updated and Re-evaluated As described in Section 3.1 of the 2013 Report, several major capital projects have been completed since 2004 including the Terminal Development Program, completed in 2004; an elevated economy parking structure, completed in 2005; and the Consolidated Rental Car Facility (CRCF), completed in 2013. Since 1996 approximately $1.5 billion of capital projects have been completed. As a result of having relatively new infrastructure and no significant airfield modifications planned, the Airport is able to direct the CIP towards on-going repair, maintenance, and minor capital improvement projects instead of significant capital undertakings. The current CIP includes a project cost estimate of approximately $274.9 million for calendar years 2014-2020, as compared to $379.3 million from 2013-2019 in the 2013 Report. The

MS. ROSEMARIE S. ANDOLINO CITY OF CHICAGO, DEPARTMENT OF AVIATION MAY 19, 2014 PAGE 12

difference between the CIP in the 2013 Report and the 2014-2020 CIP reflects: the 2013 CIP projects undertaken since the 2013 Report being removed from the CIP, including $20 million for the consolidated rental car facility; a reduction in residential sound insulation program (RSIP) project costs related to completion close-out of prior projects; and other project cost reductions, including a $10 million reduction of the cost for the Runway 13C/31C rehabilitation based on project bids. All other elements remain consistent with the CIP in the 2013 Report. Table 5 presents the 2014-2020 CIP annual costs by category. Additional details regarding the Airport CIP can be found in section 3.1 of the 2013 Report.

Table 5: 2014-2020 Capital Improvement Program (in thousands)

CATEGORY 2014 2015 2016 2017 2018 2019 2020 TOTAL

Terminal Area Projects $3,000 $4,247 $11,542 $25,655 $18,000 $6,000 $0 $68,443

Land Acquisition 1,397 2,000 1,000 1,000 1,000 1,000 1,000 8,397

Airfield Projects 39,728 15,220 8,165 50 250 50 250 63,713

Parking/Roadway Projects 5,839 4,129 5,047 5,888 0 0 0 20,904

Noise Projects 15,213 16,906 10,000 10,000 10,000 10,000 10,000 82,118

Safety and Security 45 3,063 1,120 0 0 0 0 4,228

Implementation 7,357 4,000 4,852 4,717 3,040 1,833 1,303 27,103

Total Estimated Uses $72,578 $49,565 $41,727 $47,310 $32,290 $18,883 $12,553 $274,907

SOURCES: City of Chicago, Chicago Department of Aviation April 2014. PREPARED BY: Ricondo & Associates, Inc., April 2014.

In addition to those projects included in the 2014-2020 CIP, the City is in the process of reviewing other projects that were evaluated during the potential lease of the Airport. These projects include additional parking facilities and the possible expansion of the concession area which would be done in conjunction with the expansion of the security check point already in the CIP. Both the parking facilities and concession expansion are assumed to provide additional revenue. These projects are in the preliminary planning stages. Therefore, the cost and non-airline revenue impacts have not been included in the financial analysis.

Updated Financial Analysis Based on financial data generated after the 2013 Report was finalized as well as the Airport’s 2014 rates schedule which acts as the base for the projections, R&A updated the financial projections for the Airport.

MS. ROSEMARIE S. ANDOLINO CITY OF CHICAGO, DEPARTMENT OF AVIATION MAY 19, 2014 PAGE 13

The City of Chicago’s Fiscal Year ends December 31st. In general, updates for 2014 included adjustments that, when netted against each other, resulted in a similar airline requirement, CPE, and coverage from the 2013 Report. Those adjustments are carried through the Projection Period and described in more detail in the following sections.

Updated Operation and Maintenance Expense Projections

The base from which O&M Expenses were projected in the 2013 Report was the City’s 2013 mid-year rates schedule. That base has been updated to reflect the 2014 first half rates schedule. The projection methodology beyond 2014 is consistent with the 2013 Report. Projections are based on the type of expense and expectations of future inflation rates (assumed to be 3.0 percent annually). The Airport does not anticipate any incremental O&M Expense impacts associated with the CIP projects.

Updated O&M Expenses are shown in Table 6 which compares to Table 6-2 of the 2013 Report. As shown in Table 6, Total O&M Expenses are budgeted to be approximately $129.1 million in 2014, which is an increase of approximately 7.6 percent over 2013 budget, and an approximate 3.2 percent increase over projected 2014 O&M Expenses from the 2013 Report. This increase in budgeted O&M expenses is due primarily due to a one-time expense reduction of $6 million that was realized in 2013 rates, which was spread across various expense categories. Additional factors in the increase over the 2013 budget include security system and airfield operations maintenance cost increases. The areas of the 2014 budgeted expenses with the greatest increase from the 2013 Report include Engineering & Professional Services (approximately $3.0 million greater) and Other Operating Expenses (approximately $4.2 million greater). These areas are offset by decreases in Repairs & Maintenance (approximately $1.0 million less) and Energy Expenses (approximately $1.0 million less). Personnel Expenses are similar to the Personnel Expenses in the 2013 Report (approximately $0.6 million less).

Actual O&M Expense information is not yet available for 2013, however, based on unaudited projections O&M expenses are expected to remain within the 2013 budget. The FY 2013 Financial Statement will be completed prior to June 30, 2014.

The Airport reimburses the City’s general fund for the estimated pension cost applicable to the covered payroll of employees, and those reimbursements are included in O&M Expenses. In the 2014 rates and charges budget, this pension expense is approximately $3.7 million. As a result of certain changes to pension funding requirements scheduled to take effect under current State law for the Policemen’s Annuity and Benefit Fund (PABF) and Firemen’s Annuity and Benefit Fund (FABF) and under certain

MS. ROSEMARIE S. ANDOLINO CITY OF CHICAGO, DEPARTMENT OF AVIATION MAY 19, 2014 PAGE 14

pending legislation known as SB 19225 for the Municipal Employees’ Annuity and Benefit Fund (MEABF) and Laborers' & Retirement Board Employees' Annuity & Benefit Fund (LABF), Midway’s pension costs, based upon employees allocable to the airport, are estimated by the City of Chicago to increase to approximately $10 million in 2016. Thereafter, Midway’s pension costs are expected to increase by approximately $1.5 million until 2021 when the MEABF and LABF plans will be on actuarial funding. Beginning in 2021, the City’s contribution for all four pension funds (and Midway’s share thereof) will be based upon actuarial funding requirements.

The potential impacts of pension expenses are not included in the financial analysis due to the preliminary nature of the information and uncertainty of the funding requirements. However, the following provides a perspective of the potential impacts; an increase in O&M personnel expenses of approximately $6 million in 2016 would result in an increase in the projected CPE of approximately $0.55.

5 SB 1922 passed the Illinois General Assembly but is still subject to the Governor’s approval until June 9, 2014.

MS. ROSEMARIE S. ANDOLINO CITY OF CHICAGO, DEPARTMENT OF AVIATION MAY 19, 2014 PAGE 15

Table 6: Operation and Maintenance Expenses (Dollars in Thousands for Fiscal Years Ending December 31)

BUDGET 1/ PROJECTED

2014 2015 2016 2017 2018 2019 2020 2021 2022

COMPOUND ANNUAL GROWTH RATE

(2014-2022)

Personnel Expenses 2/ $40,159 $41,795 $43,496 $45,266 $47,106 $49,020 $51,010 $53,080 $55,233 4.1%

Repairs & Maintenance 3/ 31,207 32,455 33,753 35,104 36,508 37,968 39,487 41,066 42,709 4.0%

Energy 4/ 6,702 7,104 7,531 7,983 8,462 8,969 9,507 10,078 10,683 6.0%

Materials & Supplies 5/ 2,957 3,045 3,137 3,231 3,328 3,427 3,530 3,636 3,745 3.0%

Engineering & Professional Services 6/ 24,040 25,001 26,001 27,041 28,123 29,248 30,418 31,634 32,900 4.0%

Other Operating Expenses 7/ 24,015 24,870 25,759 26,683 27,645 28,645 29,686 30,769 31,897 3.6%

Total O&M Expenses 8/ $ 129,080 $ 134,271 $ 139,677 $ 145,307 $ 151,170 $ 157,277 $ 163,638 $ 170,264 $ 177,167 4.0%

Percent Annual Increase in O&M 7.6% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.1%

NOTES: 1/ 2014 estimated mid-year airline rates schedule. 2/ Includes all Airport staff plus an allocation of personnel costs from other City departments which support Airport operations such as Purchasing, Finance and Corporation Counsel. 3/ Includes Equipment maintenance contracts, snow removal equipment rentals, painting, glass replacement, office fixtures, furnishings and other repair contracts. 4/ Includes gas, water, electricity and fuel oil required to operate the Airport. 5/ Includes disposal equipment, cleaning supplies, airfield deicing chemicals and other items used in daily Airport operations and maintenance. 6/ Includes fees for specialized engineering, legal and other technical services. 7/ Includes equipment and property rental, insurance, miscellaneous, machinery, and vehicles and equipment. 8/ Totals may not add due to rounding.

SOURCES: City of Chicago Department of Aviation (2014), February 2014; Ricondo & Associates, Inc. (2015-2023), February 2014. PREPARED BY: Ricondo & Associates, Inc., May 2014.

MS. ROSEMARIE S. ANDOLINO CITY OF CHICAGO, DEPARTMENT OF AVIATION MAY 19, 2014 PAGE 16

Updated Non-Signatory Airline and Non-Airline Revenue Projections

NON-SIGNATORY AIRLINE REVENUES

Non-Signatory Airline Revenues include landing fees and terminal rentals paid by airlines that are not parties to the Airport Use Agreements. Non-signatory Remain Overnight (RON) fees, non-signatory FIS fees and fixed base operator revenues are also included. Non-Signatory airlines are assessed a premium of 25% above Signatory Airline rates and charges. These revenues are derived as a function of fees, rentals, and charges of the Airline Parties, based on O&M Expenses, Debt Service, and fund deposits. Non-Signatory Airline Revenues have been updated to reflect the Airport’s 2014 budget as the base for the projection period in this letter.

The updated Non-Signatory Airline and Non-Airline Revenues are presented in Table 7 which compares to Table 6-4 of the 2013 Report. Non-Signatory Airline Revenues are projected to increase from $7.8 million in 2014 to $9.5 million in 2022 at a compounded annual growth rate of 2.7 percent. The updated 2014 Non-Signatory Airline Revenues in this letter are budgeted to be approximately 3.2 percent lower than the projected 2014 Non-Signatory Airline Revenues presented in the 2013 Report.

NON-AIRLINE REVENUES

Non-Airline Revenues include revenues from concessions, including automobile parking and rentals, and reimbursements and other, which consist of interest earnings and City reimbursements from the Metropolitan Pier and Exposition Authority airport departure tax. Similar to the updated O&M Expenses, the base for Non-Airline Revenues has been updated to the 2014 budget.

The 2014 budgeted Non-Airline Revenues are approximately $66.0 million, $1.4 million more than the amount projected to occur in 2014 in the 2013 Report. This includes $62.2 million of concession revenues and $3.8 million in land, storage, and hangar fees.

MS. ROSEMARIE S. ANDOLINO CITY OF CHICAGO, DEPARTMENT OF AVIATION MAY 19, 2014 PAGE 17

Table 7: Non-Signatory Airline Revenue & Non-Airline Revenue (Dollars in Thousands for Fiscal Years Ending December 31)

BUDGET 1/ PROJECTED

2014 2015 2016 2017 2018 2019 2020 2021 2022

COMPOUND ANNUAL GROWTH

RATE (2014-2022)

Non Signatory Airline Revenue 2/ $7,848 $8,068 $8,265 $8,464 $8,665 $8,867 $9,071 $9,278 $9,486 2.7% Non Airline Revenue

Parking (Net of Taxes) $35,135 $36,289 $37,143 $37,982 $38,806 $39,615 $40,409 $41,189 $41,954 2.5% Auto Rental 3/ 9,700 10,140 10,505 10,874 11,246 11,621 11,999 12,380 12,765 3.9% Restaurant 10,249 10,555 11,033 11,431 11,832 12,237 12,645 13,056 13,471 3.9% News and Gifts 2,642 2,720 2,844 2,946 3,050 3,154 3,259 3,365 3,472 3.9% Specialty Retail 1,256 1,294 1,352 1,401 1,450 1,500 1,550 1,600 1,651 3.9% Display Advertising 2,059 2,120 2,217 2,296 2,377 2,458 2,540 2,623 2,706 3.9% Wireless Communications 554 571 596 618 640 662 684 706 728 3.9% Miscellaneous 4/ 600 630 662 695 729 766 804 844 886 5.6%

Concession Revenue $62,195 $64,319 $66,352 $68,243 $70,129 $72,012 $73,890 $75,764 $77,635 3.1% Land, Storage, Hangars $3,825 $3,921 $4,019 $4,119 $4,222 $4,328 $4,436 $4,547 $4,660 2.8%

Total Non Airline Revenue $66,020 $68,240 $70,371 $72,362 $74,351 $76,339 $78,326 $80,311 $82,295 3.1% Other Non Signatory Revenue 5/ $1,543 $1,581 $1,621 $1,661 $1,703 $1,745 $1,789 $1,834 $1,880 2.8% Total Non Signatory Airline & Non-Airline Revenue 6/ $75,411 $77,889 $80,257 $82,487 $84,719 $86,952 $89,186 $91,422 $93,661 3.1%

NOTES: 1/ 2014 estimated mid-year adjusted airline rates schedule. 2/ Includes landing fee revenue from the Non-Signatory Airlines. 3/ Includes percentage of gross receipts of eight rental car companies operating under agreements at the Airport. 4/ Includes rentals and fees from other concessions such as bus service, public pay phones, and other specialty shops. 5/ Includes Interest Earnings 6/ Totals may not add due to rounding.

SOURCES: City of Chicago Department of Aviation, February 2014 (2014); Ricondo & Associates, Inc. May 2014 (2015-2023). PREPARED BY: Ricondo & Associates, Inc., May 2014.

MS. ROSEMARIE S. ANDOLINO CITY OF CHICAGO, DEPARTMENT OF AVIATION MAY 19, 2014 PAGE 18

As shown in Table 7, total Non-Airline Revenues are budgeted to be $66.0 million in 2014 and projected to increase to $82.3 million in 2022, reflecting a compounded annual growth rate of 3.1 percent. A breakout of the specific concessions categories is also provided in Table 7. The areas of the 2014 budgeted Non-Airline Revenues with the greatest increase from the 2013 Report include restaurants (approximately $0.9 million greater), news and gifts (approximately $1.1 million greater), and display advertising (approximately $0.7 million greater). These areas are offset by a decrease in specialty retail of approximately $1.5 million. The changes in news and gift and specialty retail reflect the re-categorizing of certain non-airline revenue. The overall increase is primarily due to growth in restaurant revenue and a new contract for display advertising.

Whereas Non-Signatory Airline Revenues are projected to be approximately 3.2 percent lower than those presented in the 2013 Report for 2014, Total Non-Signatory Airline & Non-Airline Revenues are projected to be approximately 2.1 percent higher.

Updated Debt Service

The proceeds of the 2014 Bonds are expected to be used to (i) pay the costs of certain Airport Projects as described herein; (ii) refund prior to maturity the Refunded Bonds; (ii) repay at maturity certain Commercial Paper Notes; (iii) capitalize a portion of the interest on the Bonds; (iv) fund a deposit to the Common Debt Service Reserve Sub-Fund for the Series 2014A and Series 2014B Bonds; and (v) pay costs and expenses incidental thereto and to the issuance of the Bonds.

In the 2013 Report, the Series 2014 New Money Bonds were anticipated to fund approximately $128 million of CIP projects and approximately $23 million to repay at maturity portions of previously issued commercial paper for a total of approximately $151 million. The 2014 Bonds are anticipated to fund approximately $124.5 million of CIP projects and approximately $57 million to repay at maturity portions of previously issued commercial paper for a total of $181.5 million. The updated financial projections contained in this letter incorporate the debt service schedules associated with the actual sale of the Series 2013 Bonds as well as estimated Series 2014 Bond debt service. The estimated debt service for the 2014 Bonds reflects the anticipated restructuring and refunding of debt, which has changed since the 2013 Report. Table 8 presents the debt service projections assumed in the financial analysis of this letter. Net debt service is anticipated to be approximately $61.3 million in 2014, decrease to $57.5 million in 2015, and then increase in each year to $79.4 million in 2022. The 2013 Report assumed an increasing net debt service structure of $53.5 million in 2014 to $77.7 million in 2022. Projected debt service assumed in the 2013 Report can be found on Table 6-5 of the 2013 Report.

MS. ROSEMARIE S. ANDOLINO CITY OF CHICAGO, DEPARTMENT OF AVIATION MAY 19, 2014 PAGE 19

Updated Net Signatory Airline Requirement

The Net Signatory Airline Requirement indicates the ability of the Airport enterprise to generate sufficient revenues to pay O&M Expenses, net Debt Service, and fund deposit requirements. The Net Signatory Airline Requirement constitutes the total amount that must be paid by the Signatory Airlines under the Airport Use Agreements through Landing Fees, Terminal Area Rentals, Terminal Ramp Use Charges, Equipment fees, and Fueling System Fees during the year.

Table 9 presents the updated projections of the annual net Signatory Airline requirement. The comparable table in the 2013 Report is Table 6-7. The Signatory Airline requirement is projected to increase from $116.6 million in 2014 to approximately $165.3 million in 2022. The budgeted 2014 Net Signatory Airline Requirement incorporates the increased budgeted O&M Expenses, increased budgeted Non-Airline Revenues and net Debt Service resulting from the issuance of the 2014 Bonds. The projected Signatory Airline requirement is approximately 9.8 percent higher than the $106.2 million projected 2014 requirement presented in the 2013 Report. In 2022, the projected net Signatory Airline requirement of approximately $165.3 million is 2.0 percent above the projected 2022 requirement in the 2013 Report.

Also shown in Table 9 is an adjustment to the Net Signatory Airline Requirement for Equipment and Fueling. The net cost of Equipment and Fueling System consists of the portions of O&M Expenses, net Debt Service, and fund requirements allocated to the cost centers. Of this net cost, a portion is shared equally by all Airline Parties, with the remaining costs distributed among the Midway Airlines’ Terminal Consortium (MATCO) member airlines based on each airline’s total landed weight and fuel usage.

MS. ROSEMARIE S. ANDOLINO CITY OF CHICAGO, DEPARTMENT OF AVIATION MAY 19, 2014 PAGE 20

Table 8 (1 of 2): Annual Debt Service Requirements (Dollars in Thousands for Fiscal Years Ending December 31)

BUDGET PROJECTED

2014 2015 2016 2017 2018 2019 2020 2021 2022

First Lien Debt Service (After Transaction)

Series 1996A $1,607 $0 $0 $0 $0 $0 $0 $0 $0

Series 1996B 3,145 0 0 0 0 0 0 0 0

Series 1998A 6,011 4,935 4,935 4,935 4,935 4,935 4,935 4,935 4,935

Series 1998B 2,319 0 0 0 0 0 0 0 0

Series 1998C 4,530 4,534 4,535 4,533 4,536 4,535 4,535 4,533 4,541

Series 2001A 6,765 0 0 0 0 0 0 0 0

Series 2001B 770 0 0 0 0 0 0 0 0

Total First Lien Debt Service $25,146 $9,469 $9,470 $9,467 $9,471 $9,470 $9,469 $9,468 $9,476 Second Lien Debt Service (After Transaction)

Series 1998A $2,207 $0 $0 $0 $0 $0 $0 $0 $0

Series 1998B 2,057 0 0 0 0 0 0 0 0

Series 2004A 1,611 1,612 1,609 1,612 1,610 1,609 1,611 1,614 1,608

Series 2004B 6,531 6,535 6,533 6,534 6,533 6,529 6,532 6,531 0

Series 2004C 11,177 11,032 11,083 11,017 10,967 10,905 10,756 10,774 10,701

Series 2004D 1,236 1,211 1,211 1,210 1,207 1,203 1,172 1,167 1,160

Series 2010A-1 0 0 0 0 0 0 0 0 0

Series 2010A-2 0 0 0 0 0 0 0 0 0

Series 2010B 0 0 0 0 0 0 0 0 0

Series 2010C 4,264 5,349 5,348 5,347 5,347 5,348 5,348 5,347 5,349

MS. ROSEMARIE S. ANDOLINO CITY OF CHICAGO, DEPARTMENT OF AVIATION MAY 19, 2014 PAGE 21

Table 8 (2 of 2): Annual Debt Service Requirements (Dollars in Thousands for Fiscal Years Ending December 31)

BUDGET PROJECTED

2014 2015 2016 2017 2018 2019 2020 2021 2022

Series 2010D $2,087 $0 $0 $0 $0 $0 $0 $0 $0

Series 2013A 6,969 6,499 6,499 6,499 6,499 6,499 6,499 6,499 6,499

Series 2013B 8,134 7,586 7,586 7,586 7,586 17,461 18,242 18,615 21,931

Series 2013C 6,647 11,123 12,381 15,249 16,471 10,075 0 0 0

Series 2014A 10,755 19,814 20,692 21,394 21,394 21,394 35,269 35,275 35,267

Series 2014B 5,161 11,005 11,916 16,085 18,035 17,973 17,019 20,187 27,139

Series 2014C 3,184 5,731 5,731 5,731 5,731 5,731 5,731 5,731 5,731

Total Second Lien Debt Service $72,019 $87,497 $90,590 $98,265 $101,382 $104,728 $108,181 $111,741 $115,385

Total Debt Service After Transaction $97,165 $96,966 $100,060 $107,732 $110,853 $114,198 $117,650 $121,209 $124,860

Total Coverage Requirement $8,311 $2,367 $2,367 $2,367 $2,368 $2,367 $2,367 $2,367 $2,369

Program Fees $5,988 $6,084 $6,175 $6,268 $6,362 $6,457 $6,554 $6,653 $6,752

Less: Investment Earnings ($697) ($704) ($711) ($718) ($725) ($732) ($739) ($747) ($754)

Total Net Debt Service $110,768 $104,714 $107,892 $115,649 $118,857 $122,291 $125,832 $129,482 $133,227

PFC Applied to Debt Service ($45,161) ($41,900) ($42,886) ($43,854) ($44,806) ($45,740) ($46,657) ($47,557) ($48,440)

CFC Pledged to Debt Service 1/ ($4,264) ($5,349) ($5,348) ($5,347) ($5,347) ($5,348) ($5,348) ($5,347) ($5,349)

Total Net Debt Service after Application of PFCs $61,343 $57,464 $59,658 $66,447 $68,704 $71,203 $73,826 $76,577 $79,438

NOTE:

1/ Does not include coverage.

SOURCES: Chicago Department of Aviation; Barclays (new and existing DS), May 2014 PREPARED BY: Ricondo & Associates, Inc., May 2014.

MS. ROSEMARIE S. ANDOLINO CITY OF CHICAGO, DEPARTMENT OF AVIATION MAY 19, 2014 PAGE 22

Table 9: Net Signatory Airline Requirement (Dollars in Thousands for Fiscal Years Ending December 31)

BUDGET 1/ PROJECTED

2014 2015 2016 2017 2018 2019 2020 2021 2022

O & M Expenses $129,080 $134,271 $139,677 $145,307 $151,170 $157,277 $163,638 $170,264 $177,167 Net Debt Service 2/ 61,343 57,464 59,658 66,447 68,704 71,203 73,826 76,577 79,438 Fund Deposit Requirement 1,630 1,925 1,980 2,040 2,102 2,166 2,233 2,301 2,371

Total Expenses, Net Debt Service and Fund Deposits $192,053 $193,660 $201,315 $213,795 $221,977 $230,646 $239,698 $249,142 $258,975

Less: Non-Airline Revenue $62,195 $64,319 $66,352 $68,243 $70,129 $72,012 $73,890 $75,764 $77,635 Non-Signatory Airline Revenue 11,673 11,989 12,284 12,583 12,887 13,195 13,507 13,825 14,147 Other Non-Airline Revenues 1,543 1,581 1,621 1,661 1,703 1,745 1,789 1,834 1,880

Total Non-Airline and Non-Signatory Revenue $75,411 $77,889 $80,257 $82,487 $84,719 $86,952 $89,186 $91,422 $93,661

Net Signatory Airline Requirement $116,642 $115,771 $121,058 $131,307 $137,258 $143,695 $150,511 $157,720 $165,315 Adjustment: Less: Equipment ($11,467) ($11,830) ($12,296) ($12,976) ($13,474) ($13,999) ($14,546) ($15,115) ($15,707) Fueling (6,249) (6,213) (6,451) (7,037) (7,287) (7,555) (7,837) (8,131) (8,437)Net Signatory Airline Requirement after Adjustment $98,926 $97,728 $102,311 $111,295 $116,497 $122,141 $128,128 $134,474 $141,170

NOTES:

1/ 2014 estimated mid-year adjusted airline first-half rates schedule.

2/ Net of capitalized interest. Adjusted for debt service coverage, investment income, program fees, PFC credits, and CFC Credits.

SOURCES: City of Chicago Department of Aviation (2014), February 2014; Ricondo & Associates, Inc. (2015-2023), May 2014. PREPARED BY: Ricondo & Associates, Inc., May 2014.

MS. ROSEMARIE S. ANDOLINO CITY OF CHICAGO, DEPARTMENT OF AVIATION MAY 19, 2014 PAGE 23

Updated Cost per Enplaned Passenger and Debt Service Coverage

COST PER ENPLANED PASSENGER

A general test of reasonableness for Airport user fees is airline cost per enplaned passenger (CPE). The airline CPE is calculated by dividing the Total Airline Requirement by the number of enplaned passengers at the Airport. Table 10, which is comparable to Table 6-10 of the 2013 Report, presents the airline CPE for the updated Projection Period, from 2014 through 2022. The updated airline CPE at the Airport is approximately $12.12 in 2014. The updated CPE for 2014 is $1.16, or 10.5 percent, higher than the 2014 CPE projected in the 2013 Report. This increase is primarily attributable to the structuring of the debt service of the 2014 Bonds and the inclusion of actual debt service of the Series 2013 Bonds, replacing the estimate in the 2013 Report. The restructuring and refunding of debt as part of the issuance of the 2014 Bonds results in a projected decrease in CPE in 2015 to $11.68, then an increase through the projection period to $14.26 in 2022, compared to the projected CPE in the 2013 Report of approximately $14.02. In summary, the airline CPE throughout the Projection Period continues to be considered reasonable compared with those at other large-hub airports.

DEBT SERVICE COVERAGE

Table 11 presents the updated Debt Service coverage ratio projected for all bonds outstanding after the issuance of the 2014 Bonds, from 2014 through 2022. This table is comparable to Table 6-11 of the 2013 Report. As shown, the Debt Service coverage ratio is projected to meet the minimum requirement of 1.10x in each year of the Projection Period. The updated aggregate Debt Service coverage is projected between 1.10x and 1.20x during the Projection Period.

MS. ROSEMARIE S. ANDOLINO CITY OF CHICAGO, DEPARTMENT OF AVIATION MAY 19, 2014 PAGE 24

Table 10: Airline Cost Per Enplanement (Dollars in Thousands for Fiscal Years Ending December 31)

BUDGET PROJECTED

2014 2015 2016 2017 2018 2019 2020 2021 2022

Signatory Airline Requirement $116,642 $115,771 $121,058 $131,307 $137,258 $143,695 $150,511 $157,720 $165,315

Non-Signatory Airline Revenues 7,848 8,068 8,265 8,464 8,665 8,867 9,071 9,278 9,486

Total Airline Revenues $124,490 $123,840 $129,324 $139,772 $145,923 $152,562 $159,583 $166,998 $174,801

Projected Total Enplaned Passengers 1/ 10,268 10,605 10,854 11,099 11,340 11,577 11,809 12,037 12,260

Total Airline Cost per Enplaned Passenger

Current Dollars $12.12 $11.68 $11.91 $12.59 $12.87 $13.18 $13.51 $13.87 $14.26

2014 Dollars 2/ $12.12 $11.34 $11.23 $11.52 $11.43 $11.37 $11.32 $11.28 $11.26

NOTES:

1/ Excludes general aviation, military, helicopter, and miscellaneous passengers included in the City of Chicago's Chicago Department of Aviation Management Records

2/ Inflation rate assumed at 3 percent

SOURCES: City of Chicago Department of Aviation (2014), February 2014; Ricondo & Associates, Inc. (2015-2023), May 2014. PREPARED BY: Ricondo & Associates, Inc., May 2014.

MS. ROSEMARIE S. ANDOLINO CITY OF CHICAGO, DEPARTMENT OF AVIATION MAY 19, 2014 PAGE 25

Table 11: Debt Service Coverage (Dollars in Thousands for Fiscal Years Ending December 31)

BUDGET PROJECTED2014 2015 2016 2017 2018 2019 2020 2021 2022

Signatory Airline Revenues $116,642 $115,771 $121,058 $131,307 $137,258 $143,695 $150,511 $157,720 $165,315 Non-Airline and Non-Signatory Airline Revenue 73,868 76,308 78,636 80,826 83,016 85,206 87,397 89,589 91,781 Interest Income 1,543 1,581 1,621 1,661 1,703 1,745 1,789 1,834 1,880

Total Revenues $192,053 $193,660 $201,315 $213,795 $221,977 $230,646 $239,698 $249,142 $258,975 Less: O&M Expenses $129,080 $134,271 $139,677 $145,307 $151,170 $157,277 $163,638 $170,264 $177,167 O&M Reserve Fund 595 866 901 938 977 1,017 1,060 1,104 1,151 Repair and Replacement Fund 1,025 1,048 1,068 1,091 1,114 1,138 1,162 1,186 1,209 Emergency Reserve Fund 11 11 11 11 11 11 11 11 11

Net Revenue Available for Debt Service $61,343 $57,464 $59,658 $66,447 $68,704 $71,203 $73,826 $76,577 $79,438

Prior Year Debt Service Coverage $8,311 $2,367 $2,367 $2,367 $2,368 $2,367 $2,367 $2,367 $2,369 PFCs Applied to Debt Service $45,161 $41,900 $42,886 $43,854 $44,806 $45,740 $46,657 $47,557 $48,440 CFCs Pledged to Debt Service $5,330 $6,687 $6,685 $6,684 $6,684 $6,685 $6,686 $6,684 $6,687

Total Available for Debt Service $120,145 $108,418 $111,597 $119,353 $122,562 $125,996 $129,538 $133,189 $136,937 First Lien Debt Service 1/ $25,146 $9,469 $9,470 $9,467 $9,471 $9,470 $9,469 $9,468 $9,476 Second Lien Debt Service 1/ 72,019 87,497 90,590 98,265 101,382 104,728 108,181 111,741 115,385

Net Debt Service 1/ $97,165 $96,966 $100,060 $107,732 $110,853 $114,198 $117,650 $121,209 $124,860

First Lien Debt Service Coverage 4.78 11.45 11.78 12.61 12.94 13.30 13.68 14.07 14.45 Aggregate Debt Service Coverage 1.24 1.12 1.12 1.11 1.11 1.10 1.10 1.10 1.10

NOTE: 1/ Net of capitalized interest. Actual and projected debt service.

SOURCES: City of Chicago Department of Aviation, May 2014; Barclays (Debt Service), May 2014; Ricondo & Associates, Inc. (Remaining Projections) May 2014. PREPARED BY: Ricondo & Associates, Inc., May 2014.

MS. ROSEMARIE S. ANDOLINO CITY OF CHICAGO, DEPARTMENT OF AVIATION MAY 19, 2014 PAGE 26

Sensitivity Scenario –10 Percent Activity Reduction In an effort to demonstrate the impacts of a hypothetical activity reduction at the Airport, a sensitivity analysis was created for the 2013 Report to assess the impacts of a hypothetical 10 percent reduction from the enplanement projections in enplanements, operations and landed weight at the Airport.

The sensitivity scenario from the 2013 Report has been updated to reflect the changes in the financial analysis discussed above. The assumptions for the sensitivity analysis remain consistent with the 2013 Report with the exception of shifting the 10 percent reduction of activity by one year. The assumptions are the following:

Air Traffic Assumptions � Beginning in 2015, passenger enplanements, landed weight and operational activity are assumed

to each be reduced by 10 percent from 2014 levels. After 2015, activity is then projected to experience annual growth consistent with those rates included in the activity projections presented previously.

Financial Assumptions � PFC revenue is assumed to decrease in direct proportion to the decrease in enplaned passengers.

� Certain Non-Airline Revenues that are driven by passenger enplanements are assumed to decrease as a result of decrease passenger enplanements. Automobile parking, automobile rental, and terminal concessions revenue is reduced in proportion to the total number of enplaned passengers.

� As a direct response to the loss of 10 percent of its enplaned passengers, it is assumed that the City would take targeted actions to reduce the Airport’s O&M Expenses. However, for the purposes of this sensitivity analysis, O&M Expenses are assumed to be consistent with the projection in the 2013 Report.

� Although the Airport could reduce the size and scope of the CIP, it remains as presented previously in this letter.

Table 12 presents the key results of the updated sensitivity scenario, including the resulting estimated airline CPE and Debt Service coverage ratios. MARB Debt Service coverage ratios are included to illustrate the Airport’s ability to meet coverage due to the residual nature of the Airport Use and Lease Agreement.

MS. ROSEMARIE S. ANDOLINO CITY OF CHICAGO, DEPARTMENT OF AVIATION MAY 19, 2014 PAGE 27

Table 12: Sensitivity Summary (Dollars in Thousands for Fiscal Years Ending December 31)

BUDGET PROJECTED

2014 2015 2016 2017 2018 2019 2020 2021 2022

Enplanements

Baseline Activity Forecast 10,268 10,605 10,854 11,099 11,340 11,577 11,809 12,037 12,260

Sensitivity - 10% Activity Reduction 10,268 9,241 9,458 9,672 9,882 10,088 10,290 10,489 10,683

Impact 0 (1,364) (1,396) (1,428) (1,459) (1,489) (1,519) (1,548) (1,577)

Cost per Enplanement

Baseline CPE $12.12 $11.68 $11.91 $12.59 $12.87 $13.18 $13.51 $13.87 $14.26

Sensitivity - 10% Activity Reduction $12.12 $14.63 $15.14 $15.93 $16.25 $16.61 $17.00 $17.42 $17.86

Impact $0.00 $2.95 $3.23 $3.34 $3.38 $3.43 $3.49 $3.54 $3.61

GARB Debt Service Coverage

Baseline GARB Debt Service Coverage 1.24 1.12 1.12 1.11 1.11 1.10 1.10 1.10 1.10

Sensitivity - 10% Activity Reduction 1.24 1.12 1.12 1.11 1.11 1.10 1.10 1.10 1.10

SOURCES: City of Chicago Department of Aviation (2014), May 2014; Ricondo & Associates, Inc. (2015-2023), May 2014. PREPARED BY: Ricondo & Associates, Inc., May 2014.

MS. ROSEMARIE S. ANDOLINO CITY OF CHICAGO, DEPARTMENT OF AVIATION MAY 19, 2014 PAGE 28

Confirmation of 2013 Report Findings On the basis of the assumptions and analyses described in the 2013 Report and this letter, and our experience preparing financial projections for airport operators, R&A is of the opinion that, for each Fiscal Year of the Projection Period:

1. The aggregate Debt Service coverage ratio will meet the 1.10x minimum requirement in each year pursuant to the Ordinances, and

2. The airline CPE is considered to be reasonable compared with those at other large-hub airports.

Sincerely,

RICONDO & ASSOCIATES, INC.

Ricondo & Associates, Inc. (R&A) prepared this document for the stated purposes as expressly set forth herein and for the sole use of the City of Chicago and its intended recipients. The techniques and methodologies used in preparing this document are consistent with industry practices at the time of preparation.

Appendix F

Report of the Airport Consultant City o f Chicago Chicago Midway Internat iona l A irpor t Second Lien Revenue Refunding Bonds , Ser ies 2013

PREPARED BY :

RICONDO & ASSOCIATES, INC. 20 North Clark Street , Suite 1500

Chicago, Illinois 60602

(312) 606-0611 (phone)

(312) 606-0706 (facsimile)

November 11, 2013

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November 11, 2013

Ms. Rosemarie S. Andolino Commissioner Chicago Department of Aviation 10501 West Zemke Road Chicago, Illinois 60666

RE: Report of the Airport Consultant for the City of Chicago, Midway International Airport Second Lien Revenue Refunding Bonds, Series 2013

Dear Ms. Andolino:

Ricondo & Associates, Inc. (R&A) is pleased to present this Report of the Airport Consultant (the Report) for inclusion as Appendix F in the Official Statement for the City of Chicago, Chicago Midway International Airport Second Lien Revenue Refunding Bonds, Series 2013A (AMT) (Series 2013A Bonds), Chicago Midway International Airport Second Lien Revenue Refunding Bonds, Series 2013B (Non-AMT) (Series 2013B Bonds), and Chicago Midway International Airport Second Lien Revenue Refunding Bonds, Series 2013C (Taxable) (Series 2013C Bonds). The Series 2013A Bonds, the Series 2013B Bonds, and the 2013C Senior Lien Bonds are referred to collectively the “Series 2013 Bonds”. The Series 2013 Bonds will be issued pursuant to the Master Indenture of Trust Securing Chicago Midway Airport Second Lien Obligations, dated as of September 1, 1998 as supplemented and amended (The Second Lien Indenture). The Series 2013 Bonds are payable from the Second Lien Revenues generated from the operation of Midway International Airport (the Airport) to the pledge of Revenues securing the First Lien Midway Airport Revenue Bonds. Proceeds of the Series 2013 Bonds, at the time of the Report, are anticipated to; (i) refund prior to maturity or pay at maturity certain Prior Airport Obligations; (ii) repay at maturity certain Commercial Paper Notes; (iii) fund a debt service reserve account; and (iv) pay costs and expenses incidental thereto and to the issuance of the Series 2013 Bonds. Unless otherwise defined herein, all capitalized terms in this Report are used as defined in the Official Statement or the Second Lien Indenture.

This Report presents the analysis undertaken by R&A to demonstrate the ability of the City of Chicago (the City) to comply with the requirements of the Second Lien Indenture on a pro forma basis for Fiscal Years (FY) 2013 through 2022 (the Projection Period) based on the assumptions regarding the planned issuance of the Series 2013 Bonds, and an anticipated issuance of revenue refunding and new money bonds in 2014, established by the City through consultation with its financial advisor and underwriters. In developing its analysis R&A has reviewed historical trends and formulated projections, based on the assumptions put forth in this Report which have been reviewed and agreed to by the City and its professionals, regarding the ability of the Air Trade Area (defined herein) to generate demand for air

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Ms . Rosemarie Andolino Chicago Department of Aviation November 11, 2013 Page 2

service at the Airport, trends in air service and passenger activity at the Airport, and the financial performance of the Airport. The Report is organized as follows:

• Summary of Findings

• Chapter 1: The Series 2013 Plan of Finance and the Series 2013 Bonds

• Chapter 2: Midway International Airport

• Chapter 3: The Capital Program and Funding Sources

• Chapter 4: Demographic and Economic Analysis

• Chapter 5: Passenger Demand and Air Service Analysis

• Chapter 6: Financial Analysis

On the basis of the analysis put forth in this Report, R&A is of the opinion that the Second Lien Revenues generated by the Airport in each year of the Projection Period should be sufficient to comply with the Rate Covenant established in the Second Lien Indenture. R&A is also of the opinion that the Airport’s airline rates and charges should remain comparable on an airline cost per enplaned passenger (CPE) basis to other large-hub U.S. airports through the Projection Period.

Founded in 1989, R&A is a full-service aviation consulting firm providing airport physical and financial planning services to airport owners and operators, airlines, and federal and state agencies. R&A has prepared Reports of the Independent Airport Consultant in support of over $22 billion of airport related revenue bonds since 1996. Based on the definition of “Municipal Advisor” put forth in the Securities and Exchange Commission’s (SEC) proposed rule implementing Section 975 of Title IX of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which cites firms providing feasibility studies for inclusion in an official statement for a municipal bond transaction, R&A has registered with both the SEC and the Municipal Securities Rulemaking Board as a Municipal Advisor.

The techniques and methodologies used by R&A in the preparation of this Report are consistent with industry practices for similar studies in connection with airport revenue bond sales. While R&A believes that the approach and assumptions used in this Report are reasonable, some assumptions regarding future trends and events detailed in this Report including, but not limited to, the implementation schedule and the projections of passenger activity and financial performance may not materialize. Therefore, actual performance will likely differ from the projections put forth in this Report and the variations may be material. In developing its analysis, R&A has utilized information from various sources including the City, the underwriter, federal and local governmental agencies, and independent private providers of economic and aviation industry data which are identified in the notes accompanying the related tables and exhibits

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Ms . Rosemarie Andolino Chicago Department of Aviation November 11, 2013 Page 3

in this Report. R&A believes these sources to be reliable, but has not audited this data and does not warrant their accuracy. The analysis presented is based on conditions known as of the date of this letter. R&A has no obligation to update this Report on an ongoing basis.

Sincerely,

RICONDO & ASSOCIATES, INC.

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Table of Contents

Summary of Findings ......................................................................................................................................... F-13

The 2013 Plan of Finance and the Series 2013 Bonds ..................................................................... F-14

The Airport ............................................................................................................................................. F-14

The Capital Program and Funding Sources ....................................................................................... F-15

Demographic and Economic Analysis ................................................................................................ F-15

Passenger Demand and Air Service Analysis .................................................................................... F-20

Financial Analysis .................................................................................................................................. F-22

1. The Series 2013 Plan of Finance and the Series 2013 Bonds .......................................................... F-27 1.1 The Purpose of the Series 2013 Bonds ................................................................................. F-27 1.2 Plan of Finance ......................................................................................................................... F-27 1.3 The Series 2013 Bonds ............................................................................................................ F-28

1.3.1 GENERAL AIRPORT REVENUE BOND ORDINANCE AND THE SECOND LIEN INDENTURE ........ F-28

2. Midway International Airport ............................................................................................................. F-33

2.1 Midway International Airport ................................................................................................ F-33

2.2 The Role of the Airport ........................................................................................................... F-34

2.3 The Air Trade Area ................................................................................................................... F-34

2.3.1 COMPETING AIRPORTS WITHIN OR NEAR THE AIR TRADE AREA ....................................................... F-36

2.4 Existing Airport Facilities ........................................................................................................ F-36

2.4.1 AIRFIELD ........................................................................................................................................................................ F-36

2.4.2 TERMINAL AREA ........................................................................................................................................................ F-38

2.4.3 GENERAL AVIATION FACILITIES .......................................................................................................................... F-38

2.4.4 MAINTENANCE/AIRPORT SUPPORT AREAS .................................................................................................. F-38

2.4.5 SURFACE ACCESS/PARKING ................................................................................................................................. F-38

2.4.6 RENTAL CAR FACILITIES .......................................................................................................................................... F-38

2.4.7 AIR CARGO FACILITIES ............................................................................................................................................ F-39

3. The Capital Program and Funding Sources ....................................................................................... F-41

3.1 The 2013 – 2019 Capital Improvement Program ................................................................ F-41

3.2 Funding Sources ....................................................................................................................... F-42

3.2.1 MIDWAY AIRPORT REVENUE BONDS ............................................................................................................... F-43

3.2.2 AIRPORT IMPROVEMENT PROGRAM FUNDS ............................................................................................... F-43

3.2.3 AIRPORT DEVELOPMENT FUND/OTHER FUNDS ......................................................................................... F-43

3.2.4 PASSENGER FACILITY CHARGE REVENUE ....................................................................................................... F-43

3.2.5 CUSTOMER FACILITY CHARGE REVENUE ........................................................................................................ F-43

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Table of Contents (continued)

4. Demographic and Economic Analysis ................................................................................................ F-45

4.1 Demographic Analysis ............................................................................................................ F-45

4.1.1 POPULATION ............................................................................................................................................................... F-45

4.1.2 AGE DISTRIBUTION AND EDUCATION ............................................................................................................. F-48

4.1.3 POPULATION DIVERSITY ........................................................................................................................................ F-51

4.1.4 PER CAPITA PERSONAL INCOME........................................................................................................................ F-51

4.1.5 MEDIAN HOUSEHOLD INCOME ......................................................................................................................... F-54

4.2 Economic Analysis ................................................................................................................... F-54

4.2.1 PER CAPITA GROSS DOMESTIC / REGIONAL PRODUCT .......................................................................... F-54

4.2.2 EMPLOYMENT TRENDS .......................................................................................................................................... F-59

4.2.3 BUSINESS CLIMATE ................................................................................................................................................... F-61

4.2.4 MAJOR INDUSTRY SECTORS ................................................................................................................................ F-62

4.2.5 AIR TRADE AREA TOURISM INDUSTRY ............................................................................................................ F-75

4.3 Economic Outlook ................................................................................................................... F-80

4.3.1 SHORT-TERM ECONOMIC OUTLOOK .............................................................................................................. F-80

4.3.2 LONG-TERM ECONOMIC OUTLOOK ................................................................................................................. F-80

5. Passenger Demand and Air Service Analysis .................................................................................... F-83

5.1 Airlines Serving the Airport ................................................................................................... F-83

5.2 Historical Airport Activity ...................................................................................................... F-86

5.2.1 PASSENGER ACTIVITY .............................................................................................................................................. F-87

5.2.2 AIR SERVICE ................................................................................................................................................................. F-95

5.2.3 AIRCRAFT OPERATIONS ...................................................................................................................................... F-100

5.2.4 LANDED WEIGHT .................................................................................................................................................... F-102

5.2.5 AIR CARGO ................................................................................................................................................................ F-102

5.3 Factors Affecting Aviation Demand and the Airline Industry ........................................ F-102

5.3.1 NATIONAL ECONOMY ......................................................................................................................................... F-105

5.3.2 STATE OF THE AIRLINE INDUSTRY .................................................................................................................. F-105

5.3.3 COST OF AVIATION FUEL .................................................................................................................................... F-106

5.3.4 AIRLINE SEAT CAPACITY REDUCTIONS ......................................................................................................... F-107

5.3.5 AIRPORT SECURITY ................................................................................................................................................ F-108

5.3.6 THREAT OF TERRORISM ...................................................................................................................................... F-109

5.3.7 AIRLINE MERGERS AND ACQUISITIONS....................................................................................................... F-109

5.3.8 OTHER FACTORS AFFECTING THE AIRPORT ............................................................................................... F-109

5.4 Projected Airport Activity .................................................................................................... F-116

5.4.1 ENPLANED PASSENGER PROJECTIONS ........................................................................................................ F-116

5.4.2 AIRCRAFT OPERATIONS PROJECTIONS ........................................................................................................ F-118

5.4.3 LANDED WEIGHT PROJECTIONS ..................................................................................................................... F-121

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Table of Contents (continued)

6. Financial Analysis ................................................................................................................................ F-123

6.1 Financial Structure ................................................................................................................. F-123

6.1.1 AIRPORT USE AGREEMENTS .............................................................................................................................. F-123

6.1.2 AIRPORT FEES AND CHARGES .......................................................................................................................... F-124

6.2 Operation and Maintenance Expenses Projections .......................................................... F-125

6.2.1 PERSONNEL .............................................................................................................................................................. F-126

6.2.2 REPAIRS AND MAINTENANCE .......................................................................................................................... F-128

6.2.3 ENERGY ....................................................................................................................................................................... F-128

6.2.4 MATERIALS AND SUPPLIES ................................................................................................................................ F-128

6.2.5 ENGINEERING AND PROFESSIONAL SERVICES ......................................................................................... F-128

6.2.6 OTHER OPERATING EXPENSES ......................................................................................................................... F-128

6.3 Non-Signatory Airline and Non-Airline Revenues ........................................................... F-128

6.3.1 NON-SIGNATORY AIRLINE REVENUES ......................................................................................................... F-131

6.3.2 NON-AIRLINE REVENUES .................................................................................................................................... F-131

6.4 Debt Service ............................................................................................................................ F-133

6.4.1 EXISTING MARB DEBT SERVICE ........................................................................................................................ F-133

6.4.2 IMPACTS OF THE SERIES 2013 AND SERIES 2014 BONDS ................................................................... F-133

6.5 Fund Deposit Requirements................................................................................................. F-135

6.6 Net Signatory Airline Requirement .................................................................................... F-135

6.7 Calculation of Signatory Airline Fees and Charges .......................................................... F-135

6.7.1 AIRFIELD AREA ......................................................................................................................................................... F-138

6.7.2 TERMINAL AREA ..................................................................................................................................................... F-138

6.7.3 TERMINAL RAMP AREA........................................................................................................................................ F-138

6.7.4 EQUIPMENT AND FUELING SYSTEM .............................................................................................................. F-138

6.8 Airline Revenue ...................................................................................................................... F-140

6.8.1 AIRLINE COST PER ENPLANED PASSENGER ............................................................................................... F-140

6.9 MARB Debt Service Coverage .............................................................................................. F-143

6.10 Sensitivity Analysis ................................................................................................................ F-143

6.10.1 SENSITIVITY SCENARIO: 10 PERCENT ACTIVITY REDUCTION ............................................................. F-143

6.11 Assumptions for Financial Projections ............................................................................... F-146

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List of Tables

Table S-1: Summary of Demographic and Economic Characteristics .............................................................................. F-21

Table S-2: Summary of Enplanement Projections (in millions) ........................................................................................... F-23

Table S-3: Financial Summary .......................................................................................................................................................... F-25

Table 3-1: 2013-2019 Capital Improvement Program Estimated Sources and Uses of Funds (in thousands) F-41

Table 3-2: 2013-2019 Capital Improvement Program Funding Sources (in thousands) .......................................... F-42

Table 4-1: Ten Largest Metropolitan Regions (2012) ............................................................................................................. F-46

Table 4-2: Historical and Projected Population (1990-2022) ............................................................................................... F-47

Table 4-3: Age Distribution (2012) ................................................................................................................................................. F-49

Table 4-4: Educational Attainment (2012) ................................................................................................................................... F-50

Table 4-5: Population by Race and Ethnicity (2012)................................................................................................................ F-52

Table 4-6: Per Capita Personal Income (2002-2012) ............................................................................................................... F-53

Table 4-7: Household Income Distribution (2012-2017) ....................................................................................................... F-55

Table 4-8: Wealthiest Metropolitan Regions (2012) ............................................................................................................... F-56

Table 4-9: Households with Income of $75,000 and Above (2012-2017) ...................................................................... F-57

Table 4-10: Per Capita Gross Domestic / Regional Product (2002-2012) ....................................................................... F-58

Table 4-11: Civilian Labor Force and Unemployment Rate (2002-2013) ........................................................................ F-60

Table 4-12: Major Private Sector Employers (2013) ................................................................................................................ F-63

Table 4-13: Fortune 500 Companies Headquartered in the Air Trade Area (2013) .................................................... F-64

Table 4-14: Major Professional Associations, Foundations, and Charities Headquartered in the Air Trade Area (2013) ....................................................................................................................................................................... F-65

Table 4-15: Employment by Major Industry Division (2002-2012) .................................................................................... F-66

Table 4-16: Air Trade Area College and University Enrollment (2012) ............................................................................ F-68

Table 4-17: Major Research Institutions in the Air Trade Area (2013) ............................................................................. F-70

Table 4-18: Total Trade by Conveyance (2012) ......................................................................................................................... F-71

Table 4-19: Travel and Destination Awards (2010-2013) ...................................................................................................... F-76

Table 4-20: Forecast of Selected Economic Variables (2012-2022) .................................................................................. F-81

Table 5-1: Scheduled Airlines Serving Midway ......................................................................................................................... F-84

Table 5-2: Scheduled Air Carrier Base at Midway .................................................................................................................... F-85

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List of Tables (continued)

Table 5-3: Historical Enplanements at Midway ......................................................................................................................... F-88

Table 5-4: Daily Nonstop Service by Southwest at Midway................................................................................................. F-90

Table 5-5: Historical Originating and Connecting Enplanements at Midway ............................................................... F-93

Table 5-6: Airport Trends of Southwest Airlines (Excludes AirTran Operations).......................................................... F-94

Table 5-7: Historical Enplanements by Airline ........................................................................................................................... F-96

Table 5-8: Primary O&D Passenger Markets for 2012 ........................................................................................................... F-97

Table 5-9: Nonstop Markets for Midway ..................................................................................................................................... F-98

Table 5-10: Historical Aircraft Operations ................................................................................................................................ F-101

Table 5-11: Historical Landed Weight by Airline (Weight in 1,000 Pound Units) ..................................................... F-103

Table 5-12: Historical Enplaned and Deplaned Cargo (Weight in Tons) ...................................................................... F-104

Table 5-13: Historical Enplaned Passengers at Midway and O'Hare ............................................................................. F-111

Table 5-14: Comparison of Chicago Area Airport Domestic Fares and Yields .......................................................... F-114

Table 5-15: Enplanement Projections ........................................................................................................................................ F-117

Table 5-16: Summary of Enplanement Projections (in millions)...................................................................................... F-119

Table 5-17: Aircraft Operations Projections ............................................................................................................................ F-120

Table 5-18: Landed Weight Projections, (Weight in 1,000 pound units) ..................................................................... F-122

Table 6-1: Historical O&M Expenses, 2008-2012 .................................................................................................................. F-126

Table 6-2: Operation and Maintenance Expenses ................................................................................................................ F-127

Table 6-3: Historical Concession Revenues, 2008-2012 ..................................................................................................... F-129

Table 6-4: Non-Signatory Airline Revenue and Non-Airline Revenue .......................................................................... F-130

Table 6-5: Annual Debt Service Requirements ....................................................................................................................... F-134

Table 6-6: Fund Deposit Requirements ..................................................................................................................................... F-136

Table 6-7: Net Signatory Airline Requirement........................................................................................................................ F-137

Table 6-8: Airline Fees, Rentals and Charges .......................................................................................................................... F-139

Table 6-9: Signatory Airline Revenue ......................................................................................................................................... F-141

Table 6-10: Airline Cost Per Enplanement ................................................................................................................................ F-142

Table 6-11: Debt Service Coverage ............................................................................................................................................. F-144

Table 6-12: Sensitivity Summary .................................................................................................................................................. F-145

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List of Exhibits

Exhibit S-1: 2013-2019 Capital Improvement Program Costs and Funding Sources (in millions) ........................ F-16

Exhibit 2-1: Air Trade Area ................................................................................................................................................................. F-35

Exhibit 2-2: Chicago Midway International Airport ................................................................................................................. F-37

Exhibit 5-1: Historical Enplaned Passengers at Midway ........................................................................................................ F-89

Exhibit 5-2: Destinations Served From Chicago Midway International Airport ............................................................ F-99

Exhibit 5-3: Historical Monthly Averages of Jet Fuel and Crude Oil Prices ................................................................. F-107

Exhibit 5-4: Domestic Seat Capacity Since 2005 .................................................................................................................... F-108

Exhibit 5-5: Airports within the Chicago Air Trade Area ..................................................................................................... F-113

Exhibit 5-6: Hourly Operations at Midway, October 17, 2013 .......................................................................................... F-115

Exhibit 6-1: Passenger Airline Cost per Enplaned Passenger (FAA CATS Data – 2012) ........................................... F-140

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Summary of Findings

The City of Chicago (the City) commissioned Ricondo & Associates, Inc., (R&A) to prepare the Report of the Airport Consultant (the Report) to provide an independent analysis of the City’s compliance with the provisions of the Master Indenture of Trust Securing Chicago Midway Airport Second Lien Obligations, dated as of September 1, 1998 as supplemented and amended (The Second Lien Indenture) regarding the conditions precedent (the Additional Bonds Test) for the issuance of the City of Chicago, Chicago Midway International Airport Revenue Refunding Bonds, Series 2013A (Series 2013A Bonds), Chicago Midway International Airport Revenue Refunding Bonds, Series 2013B (Series 2013B Bonds), and Chicago Midway International Airport Revenue Refunding Bonds, Series 2013C (2013C Senior Lien Bonds) (collectively, the Series 2013 Bonds) and its ability to generate Net Revenues sufficient to meet its obligations under the Second Lien Indenture, including but not limited to the Rate Covenant, on a pro forma basis for period from Fiscal Year (FY) 2013 (FY ends December 31) through FY 2022 (the Projection Period). In developing our analysis, R&A reviewed the terms of the Second Lien Indenture and related documents that govern the City’s Midway Airport Revenue Bonds (MARBs); the terms of the Series 2013 Bonds as provided by the City’s financing team; the City’s outstanding MARBs; the capacity of Midway International Airport’s (Midway or the Airport) existing and planned facilities to accommodate current and anticipated demand; the Airport’s Capital Improvement Program (CIP) and proposed funding sources including the potential for additional borrowing beyond the Series 2013 Bonds; and the purpose, cost, schedule and expected benefits of the 2013 Plan of Finance.

To develop the pro forma projections of the Airport’s financial performance, R&A reviewed the agreements that establish the business arrangements between the Airport and its various tenants, including but not limited to the commercial airlines serving the Airport. The Airport generates the majority of its operating revenues from commercial airlines and private aircraft operators through airfield usage fees and various rentals for terminal and other spaces; fees and rents assessed concessionaires providing various goods and services to passengers and other users of airport facilities; fees and rents assessed rental car operators serving the airport; and fees for public parking and commercial vehicle access to airport facilities. These revenues are in large measure driven by passenger demand for air service from the Airport, which is a function of national and local economic conditions, and the ability and willingness of the commercial airlines to supply service at a level commensurate with this demand. Thus, R&A reviewed the historical relationships between economic activity and demand for air service, the airlines’ provision of air service, and the financial performance of the Airport. Based on this historical review, R&A developed assumptions regarding these factors and relationships through the Projection Period which provide the basis for the projections of passenger activity and financial performance presented in this Report. The following sections present a summary of R&A’s assumptions, projections and findings that are detailed in the body of the Report, which should be read in its entirety.

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Unless otherwise defined herein, all capitalized terms in the Report are used as defined in the Official Statement or the Second Lien Indenture.

The 2013 Plan of Finance and the Series 2013 Bonds

For the purposes of this Report it is assumed that the City of Chicago will engage in a restructuring and refunding of portions of the Series 1996A, 1996B, 1998A (First and Second Lien), 1998B (First and Second Lien), 2001A, 2001B, 2010A-1, 2010A-2, 2010B, and 2010D bonds. It is anticipated that in addition to the 2013 Bonds, the City will issue revenue refunding bonds and new money bonds in 2014. The Series 2014 Revenue Refunding Bonds are currently anticipated to refund certain first lien bonds for savings, refund the Series 2010D-1 second lien bonds, and refund portions of previously issued commercial paper. The Series 2014 New Money Bonds are anticipated to fund approximately $128 million of CIP projects and approximately $23 million to refund portions of previously issued commercial paper, for a total of approximately $151 million. For purposes of this Report, the anticipated debt service from the Series 2014 Revenue Refunding Bonds and Series 2014 New Money Bonds issuances are included in the financial analysis.

At the time of the Report, proceeds of the Series 2013 Bonds are anticipated to; (i) refund prior to maturity or pay at maturity certain Prior Airport Obligations; (ii) repay at maturity certain Commercial Paper Notes; (iii) fund a debt service reserve account; and (iv) pay costs and expenses incidental thereto and to the issuance of the Series 2013 Bonds. Unless otherwise defined herein, all capitalized terms in this Report are used as defined in the Official Statement or the Second Lien Indenture.

The Airport

Opened in 1927, Midway is one of two primary commercial airports serving an Air Trade Area comprised of the Chicago-Naperville-Joliet Metropolitan Statistical Area (MSA) and the Kankakee-Bradley MSA, a 15 county region spanning northeastern Illinois, northwestern Indiana and southeastern Wisconsin. Midway is owned and operated by the City through the Chicago Department of Aviation, which also manages the other primary commercial airport in the Air Trade Area, Chicago O’Hare International Airport (O’Hare) as a separate financial enterprise.

Midway is located on the City’s southwest side, approximately 10 miles from Chicago’s central business district. The Airport terminal is accessible from Interstate 55 (the Stevenson Expressway), as well as local arterial routes, via Cicero Avenue. In addition, passengers and airport employees may utilize the Chicago Transit Authority’s (CTA) rapid transit system Orange Line or bus service provided by both the CTA and the Pace Suburban Bus System.

The Airport encompasses an area of approximately 840 acres, with the airfield comprised of five runways, two of which serve air carrier operations with the remainder serving general aviation. Both air carrier runways are equipped with instrument landing systems to allow operations in most weather conditions. The 1,000,000 square foot terminal and connected concourses provide access to a total of 43 aircraft gates, three of which

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are capable of serving inbound international passengers. Public parking facilities at the Airport include an Elevated Parking Structure adjacent to the terminal with approximately 2,110 spaces and 8,842 long-term economy spaces in a surface lot and seven level structure located on the north side of the Airport.

The Capital Program and Funding Sources

The Airport maintains a seven-year CIP. The Airport has the benefit of having relatively new terminal and parking infrastructure and no significant airfield modifications planned. Therefore, the Airport is able to keep the CIP focused on on-going repair, maintenance, and minor capital projects instead of major capital undertakings. The current CIP includes a project cost estimate of approximately $379.3 million for calendar years 2013-2019. Notable projects include airfield rehabilitation, residential sound insulation, land acquisition of parcels in the Runway Protection Zones (RPZs), electrical and mechanical upgrades, and the completion of the consolidated rental car facility. As described above, it is assumed that the Series 2014 New Money Bonds will fund approximately $151 million of CIP projects, including refunded commercial paper.

Funding sources for the 2013-2019 CIP include MARBs, FAA Airport Improvement Program (AIP) grants, and a small amount of Airport Development Fund (ADF). MARBs are the largest funding source totaling approximately $378.3 million. Passenger Facility Charge (PFC) revenues, remitted by the airlines, and Customer Facility Charge (CFC) revenues, remitted by the rent-a-car companies, fund projects in the 2013-2019 indirectly by being applied to MARB debt service. Chapter 6 includes a projection of PFC and CFC revenues applied to MARB debt service.

Exhibit S-1 shows the 2013-2019 CIP broken out by Cost Revenue Center (CRC) and funding source.

Demographic and Economic Analysis

The demand for air transportation is, to a large degree, dependent upon the demographic and economic characteristics of the geographical area served by an airport (i.e., the Air Trade Area). Demographic factors and current conditions in the Air Trade Area’s regional economy that affect demand for air travel include population growth, population diversity, income, gross domestic product, gross regional product, employment, the presence of corporate headquarters, the presence of educational institutions, business attraction and retention, and efforts to support the region’s tourism industry. The following is a summary of data that indicate that the Air Trade Area has an economic base capable of supporting increased demand for air travel during the projection period.

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Exhibit S-1: 2013-2019 Capital Improvement Program Costs and Funding Sources (in millions)

SOURCE: CDA, October 2013. PREPARED BY: Ricondo & Associates, Inc., November 2013.

Population. The Air Trade Area has a substantial population base with approximately 9.7 million residents in 2012. It is ranked as the third largest metropolitan area in the United States.1 Population in the Air Trade Area increased at a compound annual growth rate (CAGR) of 0.4 percent between 2000 and 2012, compared with 0.3 percent in the Midwest and 0.9 percent in the U.S. Between 2012 and 2022, population in the Air

1 Woods & Poole Economics, Inc., 2013 Complete Economic and Demographic Data Source (CEDDS), January 2013. Woods & Poole Economics, Inc., is a data vendor located in Washington, D.C. that specializes in long-term economic and demographic projections for the U.S., 50 states, 3,091 counties and the District of Columbia. Its database contains approximately 900 variables for every county in the United States including population, age, race, ethnicity, income, and employment by industry. Its demographic projections are revised annually to reflect both new computational techniques and new data sources. Woods & Poole’s clients include the U.S. Department of Defense, the National Institute of Health, the U.S. Census Bureau, and numerous counties and municipalities.

$68.44

$8.40

$210.10

$49.49

$4.85 $38.05

Costs by Cost Revenue Center (CRC)

Terminal Projects

Land Acquisition

Airfield and Noise Mitigation Projects

Parking/Roadway Projects

Safety and Security

Implementation

Bonds $378.3

AIP Entitlement

$0.5

ADF/Other $0.6

Funding Sources

Bonds

AIP Entitlement

ADF/Other Funds

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Trade Area is projected2 to increase at a rate of 0.7 percent per year, a rate that is higher than the forecasted CAGR for the Midwest (0.5 percent) but is lower than that forecasted for the U.S. (1.1 percent).

Diverse Population. The Air Trade Area’s population is very diverse: 34.8 percent of the region’s residents are non-white, compared with 28.1 percent for the nation as a whole. Persons of Hispanic origin make up 21.2 percent of the Air Trade Area’s population, compared with 18.4 percent in the U.S.3 This population diversity serves as a source of demand for both domestic and international air travel. According to consumer segmentation data from ESRI4 and data from the Consumer Expenditure Survey from the U.S. Bureau of Labor Statistics, membership in ethnically and racially diverse social groups can be correlated with higher than average household spending on air travel compared to total U.S. households.5

Per Capita Personal Income. Personal income (the sum of wages and salaries, other labor income, proprietors’ income, rental income of persons, dividend income, personal interest income, and transfer payments less personal contributions for government social insurance) indicates the relative affluence of a region’s residents as well as their ability to afford air travel. In 2012, the per capita personal income in the Air Trade Area ($47,068) was 16.7 percent higher than that of the Midwest ($40,322) and 10.6 percent higher than that of the U.S. ($42,569).6 Projections show that per capita personal income in the Air Trade Area will continue to exceed that of the Midwest and the U.S. In 2022,7 the Air Trade Area’s per capita personal income is estimated at $52,739, reflecting a CAGR of 1.1 percent between 2012 and 2022. By way of comparison, per capita personal income in 2022 is estimated at $45,895 in the Midwest (a CAGR of 1.3 percent between 2012 and 2022). In 2022 the U.S. is projected to have per capita personal income of $48,190 (a CAGR of 1.2 percent between 2012 and 2022).

Median Household Income. Median household income in the Air Trade Area in 2012 was 19.1 percent higher than that of the Midwest and 13.4 percent higher than that of the U.S.8 In addition, 38.3 percent (approximately 1.4 million) of the Air Trade Area’s households earned more than $75,000 in 2012, the income category that generates the most expenditures on airline fares according to the Consumer Expenditure Survey data from the U.S. Bureau of Labor Statistics.9 As measured by the number of households with annual income

2 Woods & Poole Economics, Inc., 2013 Complete Economic and Demographic Data Source (CEDDS), January 2013. 3 ESRI, Market Profile of the Chicago-Naperville-Joliet Metropolitan Statistical Area and the Kankakee-Bradley Metropolitan Statistical Area;

ESRI, Market Profile of the United States, April 2013. 4 ESRI, headquartered in Redlands, CA, is a leading demographic data vendor that provides current-year estimates and five-year projections

of more than 2,000 data variables data including population, race, ethnicity, education and income. ESRI’s clients include the United States Army Corps of Engineers, the National Oceanic and Atmosphere Administration (NOAA), the U.S. Department of Homeland Security, and other public agencies at the national, state, and local level.

5 Who’s Buying for Travel, 7th Edition, 2010, New Strategist Publications; Tapestry Segmentation Reference Guide, 2012, ESRI. 6 Woods & Poole Economics, Inc., 2013 Complete Economic and Demographic Data Source (CEDDS), January 2013. 7 All data for per capita personal income are shown in 2012 dollars. 8 ESRI, Demographic and Income Profile of the Chicago-Naperville-Joliet Metropolitan Statistical Area and the Kankakee-Bradley

Metropolitan Statistical Area; ESRI, Demographic and Income Profile of the United States, April 2013. 9 Who’s Buying for Travel, 7th Edition, 2010, New Strategist Publications.

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of $75,000 or more, the Air Trade Area is among the wealthiest markets in the United States. Income projections show continued growth in the number of the Air Trade Area’s households with income greater than $75,000 between 2012 and 2017. This suggests a continuing ability by the Air Trade Area’s households to draw on discretionary income for spending on air travel.

Per Capita Gross Domestic/Regional Product. Per capita gross domestic product (U.S.-level data) and per capita gross regional product (state- and county-level data) are a measure of the market value of all final goods and services produced within a defined geography, divided by the total population. They are indicators of the economic health of a particular area and, consequently, of the area’s potential demand for air travel services. In 2012, the Air Trade Area’s per capita gross regional product was estimated at $55,822.10 It is projected to increase to $63,351 by 2022 11 reflecting a CAGR of 1.3 percent between 2012 and 2022.

Unemployment. The seasonally adjusted annual unemployment rate for the Air Trade Area was higher than that of the U.S. in all years from 2002 through 2012, with the exception of 2006. In August 2013 (latest data available), the non-seasonally adjusted unemployment rate for the Air Trade Area was 9.1 percent.12 This is higher than the rate in both the Midwest and U.S. where the non-seasonally adjusted unemployment rate was 7.8 percent and 7.3 percent, respectively, in August 2013.13

Nonagricultural Employment. Nonagricultural employment in the Air Trade Area grew by a CAGR of 0.3 percent during the 2002-2012 period, compared with -0.2 percent for the Midwest and 0.7 percent for United States. Non-agricultural employment in the Air Trade Area increased from approximately 5.4 million workers in 2002 to more than 5.5 million workers in 2012.14

Fortune 500 Companies. In 2013, 29 companies in the Air Trade Area were listed among the top 500 U.S. companies by Fortune magazine when ranked by annual revenue.15 The Air Trade Area has the second highest number of Fortune 500 headquarters (after New York) for any region in the United States. Major companies that are headquartered in the Air Trade Area include Walgreen Co., Boeing, Kraft Foods, Sears Holdings, Abbott Laboratories, and United Continental Holdings. The Air Trade Area’s 28 Fortune 500 headquarters represent 88 percent of the 32 Fortune 500 headquarters in Illinois, and 29 percent of the 95 Fortune 500 headquarters in the Midwest (defined as the states of Illinois, Indiana, Michigan, Ohio and Wisconsin).

Business Attraction and Retention. Despite the recent recession, employers continue to be attracted to the Air Trade Area and its educated and dynamic labor pool. Data from World Business Chicago (WBC) indicate that in 2012, more than 600 companies either expanded or established new premises in the Air Trade Area,

10 Woods & Poole Economics, Inc., 2013 Complete Economic and Demographic Data Source (CEDDS), January 2013. 11 All data for per capita gross regional product are shown in 2012 dollars. 12 Monthly unemployment data published for the Air Trade Area is not seasonally adjusted. 13 In August 2013 the seasonally adjusted unemployment rate was 8.5% in the Midwest and 7.7% in the U.S. 14 Woods & Poole Economics, Inc., 2013 Complete Economic and Demographic Data Source (CEDDS), January 2013. 15 "2013 Fortune 500," May 20, 2013, Fortune magazine.

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contributing more than 54,000 jobs to the economy. As a result of its attractive business climate, Chicago was ranked among the “Top 10 Global Leaders” in the City of London 2012 Global Financial Centres Index, and as the “#7 Global City” in the 2012 A.T. Kearney Global Cities Index.16 Businesses moving to or expanding in the Air Trade Area in 2012 included ThyssenKrupp, Hillshire Brands, Lagunitas Brewing, Nokia, Salesforce.com, Clayco, and Braintree.

Higher Education and Research Institutions. The Air Trade Area is home to numerous public and private colleges and universities which contribute to its high level of educational attainment. Forty-two educational institutions in the Air Trade Area enroll a total of approximately 297,000 students. These institutions generate air travel demand through academic meetings and conferences, visiting professorships, study-abroad programs, and individual student and faculty travel. The Air Trade Area also benefits from research centers such as Argonne National Laboratory and Fermi National Accelerator Laboratory.

Initiatives to Improve Chicago’s Visibility as a Tourist Destination. In February 2012, Mayor Emanuel announced the City’s goal of attracting 50 million visitors per year by 2020. The City’s tourism organizations have been streamlined by combining the Chicago Convention & Tourism Bureau and the Chicago Office of Tourism and Culture into a new entity, Choose Chicago. Choose Chicago has undertaken a $1.8 million advertising campaign. In addition, the ChooseChicago.com web site is focused on social media, search engine optimization (SEO), and on-line tools for visitor and meeting planning.17 Choose Chicago also operates marketing and public relations offices in Belgium, Brazil, Canada, China, Germany, Japan, Mexico, and the United Kingdom.18 In 2012, approximately 46.37 million people traveled to Chicago. This is an 6.4 percent increase over the visitor level in 2011.19

Economic Outlook. Although the Air Trade Area is well-positioned with a broad and diverse economic base, it still remains subject to overall economic conditions in the U.S. In the wake of the December 2007-June 2009 recession, the U.S. economy is experiencing weaknesses in housing construction, consumer spending and business investment, as well as relatively high unemployment and low GDP growth. The most recently published forecast from the National Association for Business Economics (NABE) indicates consensus for modest GDP growth of 2.0 percent in 2013 and 2.2 percent in 2014. The NABE forecast estimates that the average annual U.S. unemployment rate will be 757 percent in 2013 and 7.0 percent in 2014. In terms of real

16 Chicago’s Business Growth Profile, 2012 New and Expanded Companies, World Business Chicago, March 2013. 17 Choose Chicago News Release, “Mayor Emanuel and Chicago Convention & Tourism Bureau Launch Regional Advertising Campaign in

Five Cities,” January 2012, http://www.choosechicago.com/articles/view/Mayor-Emanuel-and-Chicago-Convention-Tourism-Bureau-Launch-Regional-Advertising-Campaign-in-Five-Cities/188/, accessed April 2013.

18 Choose Chicago News Release, “Chicago’s Visitor Industry Sees Strong Recovery In 2011,” April 2012, http://www.choosechicago.com/articles/view/Chicago-S-Visitor-Industry-Sees-Strong-Recovery-In-2011/230/, accessed July 2012; Choose Chicago News Release, “Choose Chicago is Official,” July 2012, http://www.choosechicago.com/articles/view/ News-Releases/29/, accessed April 2013.

19 Chicago Tourism Profile, 2012 Edition, http://www.choosechicago.com/includes/content/docs/ MEDIA/2012ChicagoVisitationReport.pdf,

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GDP growth, the NABE forecast estimates that the U.S. economy will grow at an annual rate of 1.6 percent in 2013.20

Table S-1 provides an overview of the key economic indicators presented and discussed in Chapter 4.

Passenger Demand and Air Service Analysis

As presented in Chapter 5 of the Report, the Airport has had the benefit of a large and resilient passenger base, served by a core of airlines generally offering low-cost service to a growing number of destinations, both domestic and international. As of October 2013, the Airport had scheduled service provided by six U.S. flag carriers and two foreign flag carriers. The Airport, classified by the FAA as a large hub facility based on its percentage of nationwide enplaned passengers, ranked 26th nationwide in 2012 with approximately 19.5 million enplaned and deplaned passengers. Other key points regarding historical and projected aviation activities at the Airport are discussed below:

• Despite the loss of significant service by large airlines (Midway Airlines and American Trans Air) since 1992, the Airport has experienced significant growth over the duration of that period, marked by fast recovery of enplanements after those service eliminations.

• Since 1992, the Airport has experienced an 8.0 percent compound annual growth, compared to 1.8 percent for the nation. Since 2002, the Airport experienced 1.7 percent growth compared to 1.5 percent nationwide.

• Southwest has emerged as the largest carrier at the Airport accounting for 88.0 percent of passenger enplanements at the Airport in 2012. Southwest has grown its presence at the Airport over time, in terms of both total daily flights and number of markets served, with the Airport now the largest station in the Southwest network.

• In May, 2011, Southwest Airlines acquired low-cost rival AirTran Airways. The FAA issued a single operating certificate to the combined carrier on March 1, 2012, however each airline will continue operating separately for a period of time until Southwest completely integrates AirTran into its operations. Southwest and AirTran combined accounted for 92.0 percent of passenger enplanements at the Airport in 2012

• Largely because of Southwest’s greater presence and growth at the Airport, connecting enplanements have grown as Southwest has derived greater utility of previously empty seats. This has resulted in a higher average load factor at the Airport.

20 NABE Outlook, September 2013, National Association for Business Economics.

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VARIABLE 1/ 2/ 2012 2022 CAGR 2012-2022

ATA Population 9,683,116 10,388,659 0.7%

US Population 312,308,189 347,210,015 1.1%

ATA Total Employment 5,387,583 5,575,372 0.3%

US Total Employment 160,064,049 172,414,856 0.7%

ATA Total Personal Income ($ billion) $455.77 $547.89 1.9%

US Total Personal Income ($ billion) $13,294.55 $16,732.05 2.3%

ATA Per Capita Personal Income $47,068 $52,739 1.1%

US Per Capita Personal Income $42,569 $48,190 1.2%

ATA Gross Regional Product ($ billion) $540.53 $658.14 2.0%

US Gross Domestic Product ($ billion) $14,847.58 $18,870.22 2.4%

ATA Per Capita GRP $55,822 $63,351 1.3%

US Per Capita GDP $47,541 $54,348 1.3% NOTES:

1/ ATA = Air Trade Area

2/ All dollar amounts are in 2012 dollars.

SOURCE: Woods & Poole Economics Inc., 2013 Complete Economic and Demographic Data Source (CEDDS) , January 2013.

PREPARED BY: Partners for Economic Solutions, October 2013.

Table S-1: Summary of Demographic and Economic Characteristics

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• Southwest has undertaken several fleet initiatives that will ultimately increase the carrier’s average number of seats per departure, including adding six seats to the Boeing 737-700 fleet, growth of the 737-700 fleet, an introduction of the 737-800 with 175 seats, and the planned retirement of older and smaller 737-500 and -300 aircraft. In addition, Southwest has reached an agreement to gradually transfer the 117-seat Boeing 717 fleet, acquired with AirTran, to Delta Air Lines.

Based on local and national socioeconomic and demographic factors, the Airport’s historical share of U.S. domestic enplanements, the impacts of the factors described in Section 5.3 herein, and anticipated usage of the Airport by Southwest and other airlines, total enplaned passengers at the Airport are projected to increase from 9.7 million in 2012 to 10.1 million in 2013, and then to 12.3 million in 2022. The increase between 2013 and 2022 represents a compound annual growth rate of 2.2 percent, compared to 2.2 percent projected nationwide by the FAA.

Table S-2 presents a summary of projected enplanements at the Airport through the Projection Period and provides a comparison to the FAA’s most recent projections of enplanements for the United States.

Financial Analysis

Chapter 6 of the Report presents the analysis undertaken by R&A to demonstrate the ability of the City to comply with the requirements of the Ordinances, including those pertaining to the issuance of the Series 2013 Bonds, on a pro forma basis in each year of the Projection Period based on assumptions regarding the planned issuance of the Series 2013 Bonds and the anticipated Series 2014 Bonds.

Projections of airline rates and charges and resultant airline cost per enplanement (CPE) were developed based on the terms of the Airport Use Agreements. The Signatory Airlines entered into new 15-year Airport Use Agreements, effective January 1, 2013. Pursuant to the terms of the Airport Use Agreements, terminal rental rates, equipment, fueling, and airline landing fees are established using a residual airport methodology. As such, the Signatory Airlines guarantee the net cost of operating the entire Airport, including operating expenses and all debt service and coverage requirements.

Based on the analysis in this Report and the financial projections presented in Chapter 6, R&A is of the opinion that Second Lien Revenues generated in each year of the Projection Period will be sufficient to comply with the Rate Covenant established in the Ordinances. R&A is also of the opinion that the Airport’s airline rates and charges will remain reasonable on a CPE basis as compared to other large-hub U.S. airports through the Projection Period.

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AIRPORT ENPLANED

YEAR TOTAL ANNUAL GROWTH PASSENGERS ANNUAL GROWTH

Historical

2002 8,156,138 10.1% 634,650,000

2003 8,921,057 9.4% 647,500,000 2.0%

2004 9,519,472 6.7% 695,250,000 7.4%

2005 8,595,983 (9.7%) 738,150,000 6.2%

2006 9,087,611 5.7% 716,850,000 (2.9%)

2007 9,288,348 2.2% 740,650,000 3.3%

2008 8,229,304 (11.4%) 733,000,000 (1.0%)

2009 8,468,470 2.9% 680,600,000 (7.1%)

2010 8,734,214 3.1% 713,950,000 4.9%

2011 9,352,766 7.1% 732,900,000 2.7%

2012 9,671,619 3.4% 739,600,000 0.9%

Projected

2013 10,092,877 4.4% 741,400,000 0.2%

2014 10,351,033 2.6% 762,650,000 2.9%

2015 10,604,855 2.5% 788,550,000 3.4%

2016 10,854,342 2.4% 811,900,000 3.0%

2017 11,099,494 2.3% 831,000,000 2.4%

2018 11,340,311 2.2% 847,700,000 2.0%

2019 11,576,794 2.1% 865,000,000 2.0%

2020 11,808,942 2.0% 884,100,000 2.2%

2021 12,036,755 1.9% 903,900,000 2.2%

2022 12,260,234 1.9% 924,600,000 2.3%

Compounded

Annual Growth Rate

2002-2012 1.7% 1.5%

2006-2012 1.0% 0.5%

2007-2012 0.8% (0.0%)

2008-2012 4.1% 0.2%

2012-2022 2.4% 2.2%

SOURCES: City of Chicago, Chicago Department of Aviation Management Records (historical), FAA, August 2013.

Ricondo & Associates, Inc. (projected), September 2012.

PREPARED BY: Ricondo & Associates, Inc., October 2013.

Table S-2: Summary of Enplanement Projections (in millions)

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Results of the financial analysis presented in the following sections can be summarized as follows:

• Total Operating and Maintenance (O&M) Expenses are projected to increase from $120.0 million in 2013 to $173.7 million in 2022, representing a compound annual growth rate of 4.2 percent. The projected O&M Expense growth rate is determined by the calculated compound annual growth rate from 2009 through budget 2013, in conjunction with historical growth, after accounting for the impact of a reimbursement of professional fee O&M Expenses related to the study of the privatization of the Airport.

• Non-Signatory Airline Revenues and Non-Airline Revenues are projected to increase from $72.5 million in 2013 to $91.7 million in 2022 at a compound annual growth rate of 2.7 percent. Non-Airline Revenues were projected on the basis of a review of historical trends, projected activity levels, and inflation.

• After the issuance of the Series 2013 Bonds and anticipated issuance of the Series 2014 Bonds, debt service, after the application of PFCs and CFCs, is estimated to be approximately $54.5 million in 2013 and then increase gradually by about 4.0 percent annually through the projections period to $77.7 million in 2022.

• The Net Signatory Airline Requirement constitutes the total amount that must be paid by the Signatory Airlines under the Airport Use Agreements through Landing Fees, Terminal Area Rentals, Terminal Ramp Use Charges, Equipment fees, and Fueling System Fees during the year. The Net Signatory Airline Requirement is projected to increase from $85.9 million in 2013 to $138.5 million in 2022.

• The airline CPE at the Airport is estimated to be $10.94 in current dollars in 2013 and projected to be $14.02 by the end of the projection period in 2022, which equates to approximately $10.75 in 2013 dollars.

• Debt service coverage is projected to exceed applicable requirements over the entire Projection Period, with aggregate debt service coverage exceeding 1.10x in each year pursuant to the Ordinances.

A summary of the financial analysis is presented in Table S-3.

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(Dollars in Thousands for Fiscal Years Ending December 31)

BUDGET

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022COMPOUND ANNUAL

GROWTH RATE

Operating Revenues and O&M Expenses

Signatory Airline Revenues $102,118 $106,184 $110,283 $119,231 $125,308 $131,805 $138,529 $146,542 $154,185 $162,125 5.3%Total Non-Airline and Non-Signatory Revenue $72,459 $74,285 $76,457 $78,630 $80,804 $82,980 $85,157 $87,336 $89,517 $91,701 2.7%

O & M Expenses $120,007 $125,048 $130,298 $135,765 $141,460 $147,392 $153,572 $160,011 $166,718 $173,708 4.2%

Airline Rates and Charges

Signatory Landing Fee 2/ $3.434 $3.482 $3.581 $3.742 $3.832 $3.956 $4.086 $4.239 $4.323 $4.459 2.9%

Signatory Terminal Joint Use Fee 2/ $1.58 $1.60 $1.64 $1.74 $1.79 $1.86 $1.93 $2.02 $2.07 $2.14 3.4%

Signatory Per Capita Fee $396,818 $684,524 $710,864 $778,006 $820,693 $866,737 $914,498 $972,915 $1,028,039 $1,085,419 11.8%

Signatory Terminal Rental Rate 3/ $133.94 $138.63 $143.96 $157.56 $166.20 $175.53 $185.20 $197.03 $208.19 $219.81 5.7%

Terminal Ramp Fee 3/ $4.03 $4.13 $4.28 $4.66 $4.90 $5.15 $5.41 $5.73 $6.03 $6.34 5.2%

Airline Cost Per Enplaned Passenger

Total Airline Revenues $110,417 $114,294 $118,595 $127,745 $134,028 $140,731 $147,665 $155,889 $163,747 $171,903 5.0%

Projected Total Enplaned Passengers 10,093 10,351 10,605 10,854 11,099 11,340 11,577 11,809 12,037 12,260 2.2%

Total Airline Cost per Enplaned Passenger 4/ $10.94 $11.04 $11.18 $11.77 $12.08 $12.41 $12.76 $13.20 $13.60 $14.02 2.8%

First Lien Debt Service Coverage 2.10 3.42 5.27 5.44 5.61 5.78 5.95 6.17 6.36 6.55

Aggregate Debt Service Coverage 1.21 1.15 1.12 1.11 1.11 1.11 1.11 1.10 1.10 1.10

NOTES:

1/ 2013 Mid-Year Final City Approved Budget

2/ Per thousand pounds landed weight

3/ Per square foot

4/ Inflation rate assumed at 3 percent

SOURCES: City of Chicago Department of Aviation, June 2013 (2013); Ricondo & Associates, Inc. (2014-2022), October 2013.

PREPARED BY: Ricondo & Associates, Inc., November 2013.

Table S-3: Financial Summary

PROJECTED

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1. The Series 2013 Plan of Finance and the Series 2013 Bonds

1.1 The Purpose of the Series 2013 Bonds

As of the date of this Report, the following uses of the Series 2013 Bonds are assumed:

The proceeds of the Series 2013A Bonds are being used to: (i) refund prior to maturity or pay at maturity certain Prior First Lien Airport Obligations; (ii) fund a Debt Service Reserve Account; and (iii) pay costs and expenses incidental thereto and to the issuance of the Series 2013A Bonds.

The proceeds of the Series 2013B Bonds are being used to: (i) refund prior to maturity or pay at maturity certain Prior First Lien and Second Lien Airport Obligations; (ii) fund a Debt Service Reserve Account; and (iii) pay costs and expenses incidental thereto and to the issuance of the Series 2013B Bonds.

The proceeds of the Series 2013C Bonds are being used to: (i) refund prior to maturity or pay at maturity certain Prior Second Lien Airport Obligations; (ii) repay at maturity certain Commercial Paper Notes; (iii) fund a Debt Service Reserve Account; and (iv) pay costs and expenses incidental thereto and to the issuance of the Series 2013C Bonds.

1.2 Plan of Finance

For the purposes of this Report it is assumed that the City of Chicago will engage in a restructuring and refunding of portions of the Series 1996A, 1996B, 1998A (First and Second Lien), 1998B (First and Second Lien), 2001A, 2001B, 2010B, and 2010D bonds. It is anticipated that in addition to the Series 2013 Bonds, the City will issue revenue refunding bonds and new money bonds in 2014. The Series 2014 Revenue Refunding Bonds are currently anticipated to refund certain first lien bonds for savings, refund the Series 2010D-1 second lien bonds, and refund portions of previously issued commercial paper. The Series 2014 New Money Bonds are anticipated to fund approximately $128 million of CIP projects and approximately $23 million to refund portions of previously issued commercial paper, for a total of approximately $151 million. For purposes of this Report, the anticipated debt service from the Series 2014 Revenue Refunding Bonds and Series 2014 New Money Bonds issuances are included in the financial analysis.

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1.3 The Series 2013 Bonds

1.3.1 GENERAL AIRPORT REVENUE BOND ORDINANCE AND THE SECOND LIEN INDENTURE

The Series 2013 Bonds are issued pursuant to, under authority of and in full compliance with the Constitution and laws of the State of Illinois (State), particularly Article VII, Section 6(a) of the 1970 Constitution of the State of Illinois and an ordinance of the City Council of the City, and executed under a Master Indenture of Trust Securing Chicago Midway Airport Second Lien Obligations, dated as of September 1, 1998, as amended, from the City to The Bank of New York Mellon Trust Company, N.A. (as successor in trust to American National Bank and Trust Company of Chicago), Chicago, Illinois (Trustee), as supplemented by a Sixteenth Supplemental Indenture Securing Chicago Midway Airport Second Lien Revenue Refunding Bonds, Series 2013A, dated as of December 1, 2013 (the Sixteenth Supplemental Indenture), a Seventeenth Supplemental Indenture Securing Chicago Midway Airport Second Lien Revenue Refunding Bonds, Series 2013B, dated as of December 1, 2013 (the Seventeenth Supplemental Indenture), and an Eighteenth Supplemental Indenture Securing Chicago Midway Airport Second Lien Revenue Refunding Bonds, Series 2013C, dated as of December 1, 2013 (the Eighteenth Supplemental Indenture), from the City to the Trustee (collectively, the “Indenture”), to refund prior to maturity or pay at maturity certain Prior Airport Obligations (as defined in the Indenture), to fund a debt service reserve account, and to pay costs and expenses incidental thereto and to the issuance of the Bonds.

A summary of the Second Lien Indenture is provided as Appendix B of the Official Statement for the Series 2013 Bonds, while key aspects of the Second Lien Indenture related to the repayment of the Series 2013 Bonds are discussed in the following sections.

Security and Sources of Payment

The Second Lien Bonds are Junior Lien Obligations under the First Lien Indenture and are payable solely from amounts authorized to be withdrawn by the First Lien Trustee from the Junior Lien Obligation Debt Service Fund established under the First Lien Indenture (the Junior Lien Revenues) and transferred to the Second Lien Trustee for deposit in the Second Lien Revenue Fund under the Second Lien Indenture (the Second Lien Revenues). The pledge of Junior Lien Revenues under the First Lien Indenture for the payment of Junior Lien Obligations is expressly junior and subordinate to the pledge of Net Revenues for the payment of First Lien Bonds.

Under the Second Lien Indenture, Revenues are defined as all amounts received by the City for the use and operation of the Airport except: PFC revenues; grants or similar contributions; transfer or disposition of title to all or any part of the Airport; the proceeds of any taxes collected at the Airport; the proceeds of any condemnation or insurance proceeds, except to the extent such monies are deemed to be revenues in accordance with generally accepted accounting principles (GAAP); the proceeds of any court or arbitration award or settlement in lieu thereof unless they are deemed revenues under GAAP or are reimbursements for previously incurred O&M Expenses; amounts generated by the City for the payment of Special Facility Revenue Bonds; the proceeds of any bonds or other indebtedness of the City; payment of principal and interest on any loans made by the City for Airport purposes; investment income on moneys held in the Construction Fund, the Special Project Fund, the Emergency Reserve Fund, and the Airport Development Fund;

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and any other amounts that are not deemed to be revenues in accordance to GAAP or that are restricted in their use.

Other Available Moneys

Under the Indenture, Other Available Moneys are defined as, for any Fiscal Year, the amount of money determined by the Chief Financial Officer (of the City) to be transferred by the City for such Fiscal Year from sources other than Revenues to the First Lien Revenue Fund, the First Lien Debt Service Fund, or any debt service fund for Second Lien Obligations. Historically, the City has designated PFC revenues collected at the Airport as Other Available Moneys for the payment of debt service on the Outstanding Bonds and anticipates it will continue to do so for the Series 2013 Bonds. In addition, the City pledged Customer Facility Charge (CFC) Revenues collected at the Airport to the outstanding Series 2010C Bonds, which constitute Other Available Moneys. The CFC Revenues are not pledged to any other any other Second Lien Bonds and do not constitute Revenues under the Second Lien Indenture.

The Rate Covenant

The City covenants that it will set rates and charges at the Airport for each Fiscal Year sufficient to generate Revenue that, along with Other Available Moneys, will provide for the payment of Operation and Maintenance Expenses for such Fiscal Year and provide for the greater of:

A) The greater of the amounts needed to make all required deposits under the First Lien Indenture, including the Junior Lien Obligation Debt Service Fund, the Repair and Replacement Fund, and the Special Project Fund, or an amount not less than 125 percent of the Aggregate First Lien Debt Service less any capitalized interest held to pay interest on First Lien Bonds, for each Fiscal Year, or

B) The greater of the amounts need to make all required deposits under the First Lien Indenture or an amount not less than 110 percent of Aggregate First Lien Debt Service and Second Lien Debt Service, less any capitalized interest held to make interest payments on First Lien Bonds or Second Lien Bonds for each Fiscal Year.

Additional Bonds Test

The City may issue additional Second Lien Obligations provided that it either:

A) Provides a certificate of an Independent Airport Consultant stating that, based on reasonable assumptions, projected Revenues and Other Available Moneys are sufficient to meet the Rate Covenant for the Aggregate Annual Debt Service for all Second Lien Obligations outstanding, including the proposed Bonds but excluding any refunded or defeased Second Lien Obligations, for the longer of either i) the next three Fiscal Years following the issuance of the proposed Bonds, or ii) the two Fiscal Years following completion of projects financed by the proposed Bonds. For the purpose of this test, Other Available Moneys only includes i) moneys that have been paid over to either the First Lien or Second Lien Trustee and deposited in the respective Revenue or Debt Service Fund, or ii) moneys that have been irrevocably pledged to the payment of debt service on First Lien Bonds or Second Lien Obligations; or,

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B) A Certificate stating that Revenues and Other Available Moneys in the most recently completed Fiscal Year for which an audit has been prepared were sufficient to meet the Rate Covenant in the year of maximum Aggregate Second Lien Debt Service including the debt service for the proposed Bonds.

C) The City may issue additional Second Lien Obligations without meeting the conditions of either A) or B) for the purposes of i) refunding either First Lien Bonds or Second Lien Obligations (Refunding Obligations); or ii) to complete a project originally financed by either First Lien Bonds or Second Lien Obligations provided the additional cost does not exceed 15 percent of the aggregate cost originally financed and the City provides a certificate of a Consulting Engineer stating that the projects have not materially changed from their description in the original indenture for the financing of the project, estimates the revised aggregate cost of the project, that such costs cannot be paid with available moneys, and, in the opinion of the Consulting Engineer, the additional Bonds are necessary to complete the project.

Flow of Funds

Revenues of the Airport are subject to the provisions of the First Lien Indenture and the Airport’s Use and Lease Agreement. Under the First Lien Indenture all Revenues are collected by the City. On a monthly basis the City first deposits an amount equal to one-twelfth of the O&M Projection for the current Fiscal Year in the O&M Fund and deposits the remainder with the First Lien Trustee to be credited to the First Lien Revenue Fund. The First Lien Trustee then makes the following transfers from the First Lien Revenue Fund in order of priority to:

• On a MONTHLY basis, on the tenth day of the month:

- FIRST to the First Lien Debt Service Fund until it equals the amount due and owing on all Outstanding First Lien Bonds.

- SECOND to the O&M Reserve Account and amount equal to one-twelfth the O&M Reserve Account Deposit Requirement. The O&M Reserve Account Deposit Requirement equals the amount necessary to make the amount held on deposit in the O&M Reserve Account equal to one-sixth of the O&M Expense Projection for the current Fiscal Year.

- THIRD to the City for deposit to the Working Capital Account. As the Working Capital Account has not been established under the Use and Lease Agreement, the City has directed the Trustee to suspend making deposits to the Working Capital Account. Such direction by the City may be revoked at any time.

• On a SEMI-ANNUAL basis on the Business Day immediately preceding the first and 182nd day of the Fiscal Year, the First Lien Trustee makes the following transfers from the First Lien Revenue Fund in order of priority to:

- FIRST to First Lien Debt Service Reserve Fund to bring the amount on deposit equal to the Debt Service Reserve Fund requirement, if necessary.

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- SECOND to Junior Lien Obligation Debt Service Fund an amount equal to that due and owing on all Junior Lien Obligations, without priority one over the other, including Bonds, Section 208 Obligations or Section 209 Obligations.

o Such funds transferred to the Second Lien Trustee are to be deposited in the Second Lien Revenue Fund. The Second Lien Trustee is then to disburse from the Second Lien Revenue Fund as required by the Supplemental Indenture for each Second Lien Obligation or instrument creating a Section 208 or Section 209 Obligation to each sub-account for each Second Lien Obligations, Section 208 Obligation or Section 209 Obligation. Monies on deposit in each sub-account are to be held in trust by the Second Lien Trustee solely for the benefit of the Registered Owners of the respective series of Second Lien Obligations.

- THIRD to the City for deposit in the Repair and Replacement Fund equal to one-half the Repair and Replacement Fund Deposit Requirement. The Repair and Replacement Fund Deposit Requirement equals $1.0 million plus an annual adjustment based on the Producer Price Index (PPI) as defined in the First Lien Indenture. The City has directed the First Lien Trustee to suspend deposits to the Repair and Replacement Fund; such directive may be revoked at any time.

- FOURTH to the Emergency Reserve Fund one-half the amount necessary to bring the amount on deposit equal to the Emergency Reserve Fund Deposit Requirement. The Emergency Fund Deposit Requirement was established at $250,000 for the Fiscal Year ended December 31, 1994 and is adjusted annually by the percentage increase, if any, in the PPI for the most recently ended 12-month period the PPI is available.

- FIFTH to the City for deposit into the Special Project Fund the amount specified by the City in a certificate filed with the First Lien Trustee at such time.

- SIXTH to the City for deposit into the ADF the amount specified by the City in a certificate filed with the First Lien Trustee at such time.

• If there are not sufficient funds in the First Lien Revenue Fund at the time to make the deposits above, then the deposits are to be made up on the next applicable deposit date from the First Lien Revenue Fund based on the order of priority.

• Funds on deposit in the O&M Fund, the First Lien Debt Service Fund, the First Lien Debt Service Reserve Fund and the Junior Lien Obligation Debt Service Funds in excess of the requirements of either the First Lien Indenture or an ordinance or resolution authorizing Junior Lien Obligations at the end of each Fiscal year shall be transferred to the First Lien Revenue Fund.

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2. Midway International Airport

2.1 Midway International Airport

The City owns and operates Midway, which is managed by the Chicago Department of Aviation (CDA). In addition to Midway, the City owns and operates O’Hare which is managed by CDA as a separate Enterprise Fund of the City, thus Revenues generated at Midway as defined by the Second Lien Indenture are not available to satisfy the obligations of O’Hare and vice versa. CDA employs approximately 1,400, of which approximately 150 positions are budgeted Midway, with an additional 50 seasonal employees for the winter season. There are approximately 7,000 badged employees at the Airport which include airline, concession, custodial, and contracted personnel.

Midway opened in 1927 as Chicago Municipal Airport and was renamed in 1949 in honor of those who fought in the Battle of Midway during World War II. By 1950, the Airport was home to 15 airlines which served 5 million passengers in 1952, making it the world’s busiest airport at the time. Midway saw the first trans-Atlantic service in the Midwest when Air France came to the Airport 1953, followed by British Overseas Airways Corporation (now British Airways) in 1954. The opening of O’Hare in 1962 led to a gradual diminution of activity at the Airport as the airlines moved their operations to the larger facility, with all major carriers ceasing operations at Midway in 1973. The deregulation of the domestic airline industry in 1978 spurred the revitalization of the Airport, led by the start-up of Midway Airlines in 1979 which was followed by the return of Northwest Airlines in 1980 and the initiation of service by Southwest in 1985. In 2012, the Airport served 19.4 million passengers, making it the nation’s 26th busiest airport.1

The Airport encompasses an area of approximately 840 acres, bordered by 55th Street on the north, 63rd Street on the south, Central Avenue on the west, and Cicero Avenue on the east, approximately 10 miles southwest of downtown Chicago. The Airport’s terminal is accessed from Cicero Avenue, which connects to Interstate 55 (the Stevenson Expressway) approximately two miles north of the Airport. The Airport is also connected to the downtown business district by the Chicago Transit Authority’s (CTA) rapid transit system Orange Line, which

1 Airports Council International – North America, “2012 North American Airport Traffic Summary,” accessed from http://www.aci-na.org/content/airport-traffic-reports, October 17, 2013. Toronto Pearson International Airport ranks ahead of Midway on the ACI-NA list, making Midway the 27th busiest airport within North America.

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opened in 1993, as well as surrounding city and suburban areas via bus service provided by both the CTA and Pace Suburban Bus systems.

During 2013, the City continued its evaluation of the potential privatization transaction at Midway including the issuance of a Request for Qualifications, short listing of respondents, vendor due diligence and structuring of transaction documents. In September 2013, the City terminated its evaluation process when one of the final two respondents withdrew from the bidding process. The City had established high standards in exploring a potential leasing of Midway that would ensure that taxpayers and airport stakeholders received a fair and equitable deal. Throughout the process, the City remained committed to proceeding only if a transaction could meet these standards. In addition, the City made clear from the beginning of its 2013 efforts that any potential lease would not be supported unless very specific conditions were met. Since these conditions were not satisfied, the City has withdrawn its Preliminary Application to the Federal Aviation Administration (FAA) to participate in the Pilot Program.

2.2 The Role of the Airport

Midway is a major commercial airport serving the Chicago MSA. Since its revitalization in the late 1970s, carriers serving the airport have focused on low-cost, point-to-point domestic service targeted at attracting local passengers drawing on the Airport’s convenient location on the City’s southwest side. International service includes Canadian, Mexican and Caribbean destinations. In 2012, the Airport served nearly 9.8 million passenger enplanements, approximately 39% of which were connections. As of October 2013, the airlines serving the Airport provide 279 daily flights to 73 markets.

The Airport’s favorable geographical location in relation to the national air service network, large population base, and proximity to the central business district fostered the Airport becoming one of the largest stations in Southwest’s network. While Southwest emphasizes local passengers in its operations, the volume of flights offered from Midway to meet local demand makes the Airport a key station in the airline’s network due to the connecting opportunities afforded by the high level of service. Southwest serves 63 markets with 250 flights per day. In 2012, Southwest accounted for nearly 90% of the Airport’s passenger enplanements. Detailed information regarding air service trends at the Airport are provided in Chapter 5.

2.3 The Air Trade Area

For the purposes of this Report, the Airport’s Air Trade Area is defined as the Chicago-Naperville-Joliet MSA and the Kankakee-Bradley MSA. According to the federal government’s Office of Management and Budget (OMB), an MSA is a geographical area with a large population nucleus, along with any adjacent communities that have a high degree of economic and social interaction with that nucleus. As presented in Exhibit 2-1, the Air Trade Area is comprised of 15 counties: Cook, DeKalb, DuPage, Grundy, Kane, Kankakee, Kendall, Lake, McHenry, and Will Counties in Illinois; Jasper, Lake, Newton, and Porter Counties in Indiana; and Kenosha County, Wisconsin.

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Proposed South Surburban Airport

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2.3.1 COMPETING AIRPORTS WITHIN OR NEAR THE AIR TRADE AREA

In addition to Midway, residents and visitors of the Chicago metropolitan area have access to the following airports:

• Chicago O’Hare International Airport (ORD) – located on the northwest side of the City, O’Hare is approximately 18 miles from the central business district and 15 miles from Midway.

• General Mitchell International Airport (MKE), Milwaukee, Wisconsin – located approximately 80 miles north of Chicago’s central business district and 85 miles north of Midway.

• Northwest Chicagoland International Airport at Rockford (RFD), Rockford, Illinois – located approximately 85 miles northwest of the central business district and 90 miles northwest of Midway.

• Chicago/Gary International Airport (GYY), Gary, Indiana – located approximately 30 miles southeast of the central business district and 27 miles southeast of Midway

These airports, and their competitive influence on Midway, are discussed further in Chapter 5.

2.4 Existing Airport Facilities

Facilities at the Airport consist of the airfield, terminal area, general aviation facilities, maintenance and airport support areas, surface access and parking, and air cargo facilities. These facilities are described further in the following subsections.

Exhibit 2-2 provides an aerial view of the existing airfield and terminal facilities at the Airport.

2.4.1 AIRFIELD

Midway’s airfield includes five runways with a complementary system of taxiways connecting the runways to the Airport’s terminal, general aviation facilities, hangars, and maintenance buildings. The Airport’s two main air carrier runways, 13C/31C at 6,522 feet long and 4R/22L at 6,446 feet long, are capable of serving aircraft up to an equivalent of a Boeing 757 aircraft. Both runways are equipped with instrument landing systems to allow operations in a variety of weather conditions. The Airport’s remaining runways range in length from 3,859 feet to 5,507 feet and typically serve general aviation aircraft.

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Chicago Midway International AirportNORTH

SOuRCe: Googleearth Pro, 2010.PRePAReD BY: Ricondo & Associates, Inc., August 2012.

Not to scale.

Exhibit 2-2

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2.4.2 TERMINAL AREA

Midway’s terminal facilities were redeveloped through a seven year capital program, referred to as the Terminal Development Program, which was completed in 2004. The program included the construction of a new 1,000,000 square foot passenger terminal with three concourses. The terminal is located immediately east of Cicero Avenue, adjacent to a six story parking structure, while the three concourses lie to the west of Cicero Avenue and are connected to the terminal by a pedestrian bridge over the roadway. The three concourses provide access to 43 aircraft gates, one of which is capable of serving inbound international passengers through a direct, secure corridor to a Federal Inspection Services (Customs and Border Patrol) facility. Concession facilities include 24 food & beverage locations, including a central Chicago-themed food court, and 22 retail locations.

2.4.3 GENERAL AVIATION FACILITIES

General Aviation facilities are located on the west and south sides of the airfield. The general aviation facilities include corporate flight facilities, flight schools, avionics repair shops, and two Fixed Based Operators (FBOs): Atlantic Aviation and Signature Flight Services.

2.4.4 MAINTENANCE/AIRPORT SUPPORT AREAS

The City owns various equipment and maintenance facilities predominantly located on the perimeter of the Airport, primarily along the southern border. The support facilities include fuel farms, airport and airline maintenance facilities including the Airport Maintenance Complex, an Aircraft Rescue and Fire Fighting (ARFF) station, and the FAA Airport Traffic Control Tower.

2.4.5 SURFACE ACCESS/PARKING

Vehicular access to the passenger terminal complex is provided by Interstate 55 (the Stevenson Expressway), local streets, and, ultimately, an elevated roadway entrance off Cicero Avenue between 55th Street and 63rd

Street. Recirculation roadways allow drivers to transition between the two levels of terminal access and the parking garage. A six level Elevated Parking Structure (EPS) is located adjacent to the passenger terminal. The structure opened in 1999 and includes one level of hourly parking including approximately 360 spaces, and five levels of daily parking including approximately 2,110 spaces. Prior to the opening of a new consolidated rental car facility in 2013, the EPS contained 375 rental car ready/return spaces which were transferred to the new facility upon opening and the entire EPS is now for public parking. Economy parking facilities include a surface lot and a seven level economy parking structure located on 55th Street that collectively provide approximately 8,842 public parking spaces. A cell phone lot opened in 2006 allowing people to wait for arriving passengers outside of the terminal roadway system. In addition, the Airport maintains two employee parking lots totaling approximately 1,069 spaces.

2.4.6 RENTAL CAR FACILITIES

In April 2013 a Consolidated Rental Car Facility (CRCF) was opened which includes an elevated parking structure and a Quick-Turn-Around (QTA) facility. The parking structure includes four covered levels and one uncovered rooftop level. The first level includes a customer service center that has replaced the service counters in the passenger terminal and includes a public lobby, rental car company counters, public restrooms, rental car offices, employee restrooms, and elevators to the car storage levels. Approximately 1,322

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ready/return spaces are provided on the four covered levels in addition to approximately 548 vehicle storage spaces on the uncovered roof for a total of approximately 1,870 spaces. The single level QTA is located immediately east of the elevated parking structure. Vehicle preparation facilities at the QTA include 10 at-grade wash bays, office and ancillary facilities for each company, employee restrooms, and bicycle parking. All rental car operations are operated from this new facility which is connected to the terminal complex via a dedicated roadway and shuttle bus operation.

2.4.7 AIR CARGO FACILITIES

The cargo activity at the Airport consists of belly cargo carried by the passenger carriers. Hangars located on the north and south sides of the airfield are leased by Southwest and the other carriers to process cargo.

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3. The Capital Program and Funding Sources

3.1 The 2013 – 2019 Capital Improvement Program

The Airport maintains a multi-year CIP. Several major capital projects have been completed over the past few years including the Terminal Development Program, completed in 2004; an economy parking garage, completed in 2005; and the CRCF completed in 2013. As a result of having relatively new infrastructure and no significant airfield modifications planned, the Airport is able to keep the CIP focused on on-going repair, maintenance, and minor capital projects instead of major capital undertakings. The current CIP includes a project cost estimate of approximately $379.3 million for calendar years 2013-2019. Table 3-1 shows the annual 2013-2019 CIP costs by category, followed by a more detailed description of each.

Table 3-1: 2013-2019 Capital Improvement Program Estimated Sources and Uses of Funds (in thousands)

CATEGORY 2013 2014 2015 2016 2017 2018 2019 TOTAL

Terminal Area Projects $3,000 $4,247 $11,542 $25,655 $18,000 $6,000 $0 $68,443

Land Acquisition 1,397 2,000 1,000 1,000 1,000 1,000 1,000 8,397

Airfield and Noise Mitigation Projects 32,625 59,312 38,562 22.050 19,250 19,150 19,150 210,098

Parking/Roadway Projects 22,236 11,320 6,047 6,888 1,000 1,000 1,000 49,492

Safety and Security 664 3,063 1,120 - - - - 4,846

Implementation 6,051 9,000 7,000 6,000 4,000 3,000 3,000 38,051

Total Estimated Uses $65,973 $88,942 $65,271 $61,593 $43,250 $30,050 $24,250 $379,327

SOURCE: CDA, September 2013. PREPARED BY: Ricondo & Associates, Inc., September 2013.

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• Airfield, Support Facilities, and Noise Mitigation Projects - Approximately $210.1 million of airfield improvements and noise mitigation projects are included in the CIP. Airfield projects include projects such as the rehabilitation of Runway 4L-22R and Runway 13C-31C, and the reconfiguration of Taxiway P. Additional infrastructure improvements will include rehabilitation of taxiways, service roads, lighting and cabling, and electrical systems. Noise mitigation projects included the current phase of residential noise mitigation for eligible residences in the 65 day-night level noise contour, approximately 2,700 homes.

• Terminal and Security Improvements – Approximately $68.4 million of terminal and safety and security improvements which consist primarily of the construction of a Security Checkpoint Expansion Project, an additional pedestrian walkway over Cicero Avenue and a partial development of a south meeters and greeters area that will add approximately 32,591 square feet to the terminal. The remainder will be used for infrastructure improvements and upgrades to mechanical, electrical, fire protection, lighting, heating and refrigeration, and building control systems.

• Parking and Roadway – Approximately $49.5 million of planned parking and roadway improvements are included in the CIP, with the primary component being the completion of the consolidated rental car facility, planned to be operational in the first quarter of 2013. The remaining costs include landside parking lot improvements, revenue control equipment for the terminal garage, landside parking lot improvements for public and employee parking, and lighting system upgrades.

• Land Acquisition - Approximately $8.4 million for the acquisition of parcels within the Runway Protection Zones for remediation, demolition and airport compatible development is included in the CIP.

• Safety and Security – The major project included in the $4.8 million safety and security CIP is an upgrade of the security camera system at the Airport.

• Implementation – Approximately $38.1 million of implementation costs are included in the CIP. These costs include seven years of implementation costs.

3.2 Funding Sources

The funding sources for the CIP are a combination of Airport Improvement Program (AIP) entitlement funds, other Airport funds, Series 2010 MARBs, Series 2014 MARBs, and future MARBs. PFC and CFC revenues are used to pay MARB debt service for PFC eligible and CFC eligible debt respectively. Table 3-2 shows the funding sources for the 2012-2018 CIP costs by category.

Table 3-2: 2013-2019 Capital Improvement Program Funding Sources (in thousands)

CATEGORY 2013 2014 2015 2016 2017 2018 2019 TOTAL

AIP - Entitlements $479 $479

Other Airport funds 568 568

Bonds $64,924 $88,942 $65,271 $61,593 $43,250 $30,050 $24,250 378,280

TOTAL $65,973 $88,942 $65,271 $61,593 $43,250 $30,050 $24,250 $379,327

SOURCE: CDA, October 2013. PREPARED BY: Ricondo & Associates, Inc., October 2013.

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3.2.1 MIDWAY AIRPORT REVENUE BONDS

Funding for the 2013-2019 CIP includes Series 2010 Bonds, Series 2014 Bonds and future bonds. Approximately $23.7 million of Series 2010 Bonds will be used for the CIP projects. Series 2014 Bonds, which are anticipated to be issued in the spring of 2014, will fund approximately $151 million of the CIP projects, which includes approximately $128 million of new projects and approximately $23 million to refund previously issued commercial paper Future bonds will be issued as needed to fund the remaining costs of the 2013-2019 CIP which will consists primarily of noise mitigation projects. The Airport intends to apply for AIP discretionary funds for the noise mitigation projects. If additional AIP funding is received, the amount of future bonds will be reduced.

3.2.2 AIRPORT IMPROVEMENT PROGRAM FUNDS

The Airport has applied for FAA AIP grant funds for certain eligible projects at the Airport. Approximately $479,000 of AIP entitlement funds are anticipated to be used for 2013-2019 CIP program projects. The AIP entitlement funds are associated with taxiway rehabilitation work.

3.2.3 AIRPORT DEVELOPMENT FUND/OTHER FUNDS

ADF revenue, which is collected through airline rates and charges, can be used at the Airport’s discretion to fund various projects. Approximately $568,000 of costs in the 2013-2019 CIP is anticipated to be funded from ADF through a TSA grant for security cameras.

3.2.4 PASSENGER FACILITY CHARGE REVENUE

A Passenger Facility Charge (PFC) of $4.50 is collected for each eligible enplaned passenger at the Airport. PFC revenue is pledged to PFC eligible debt service and does not fund projects directly. The Airport currently has authority to collect up to approximately $2.24 billion of PFC revenue. A projection of PFC revenues applied to MARB debt service is presented in Chapter 6.

3.2.5 CUSTOMER FACILITY CHARGE REVENUE

CFC collections began on September 1, 2005 and continue today at a rate of $3.75 per contract day. CFC revenue is pledged to the Series 2010C Bonds. Although the CRCF, as described in section 2.4.6. of this Report, was funded from MARBs, all bond funded costs and the allocable debt service associated with planning, design, construction and implementation costs, including construction management, program finance and all associated items will be funded through the use of CFCs. A projection of CFC revenues applied to MARB debt service is presented in Chapter 6.

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4. Demographic and Economic Analysis

Origin and destination passenger (O&D) demand for air transportation to and from an airport is, to a large degree, dependent upon the demographic and economic characteristics of an airport’s air trade area. O&D passengers have historically comprised approximately half of the passenger traffic at the Airport. This chapter1 presents data indicating that the Airport’s Air Trade Area has an economic base that attracts both business and tourist visitors.

4.1 Demographic Analysis

Data for population, age distribution, education, population diversity, and income for the Air Trade Area are discussed below and are presented in Tables 4-1 through 4-9, which follow. Parallel data for the Midwest (defined as Illinois, Indiana, Michigan, Ohio, and Wisconsin) and the U.S. are also shown to provide a basis of comparison for trends in the Air Trade Area.

4.1.1 POPULATION

As measured by population, the Air Trade Area, with nearly 9.7 million people in 2012, is the third-largest metropolitan region in the U.S. Only the New York-New Jersey-Bridgeport Combined Statistical Area (CSA), with 22.3 million people, and the Los Angeles-Long Beach-Riverside CSA, with a population of 18.3 million, represent larger markets for air transportation (See Table 4-1).

Population growth is a key factor creating demand for air travel. Data in Table 4-2 show that the Air Trade Area had a population of more than 9.2 million in 2000; by 2012 the population increased to more than 9.6 million. The Air Trade Area added approximately 466,000 to its population between 2000 and 2012 (approximately 38,900 per year). The Air Trade Area’s population between 2000 and 2012 increased at a compound annual growth rate (CAGR) of 0.4 percent—higher than that of the Midwest’s population (0.3 percent), but lower than that of the U.S. (0.8 percent).

1 This chapter has been prepared by Partners for Economic Solutions, a consulting firm based in Washington, D.C. that specializes in

regional economic analysis.

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RANK METROPOLITAN REGION 1/ ESTIMATED POPULATION

1 New York-Newark-Bridgeport CSA 22,297,764

2 Los Angeles-Long Beach-Riverside CSA 18,273,449

3 Air Trade Area 9,683,116

4 Washington-Baltimore-Northern Virginia CSA 8,850,336

5 Boston-Worcester-Manchester CSA 7,642,502

6 San Jose-San Francisco-Oakland CSA 7,616,003

7 Dallas-Fort Worth CSA 7,040,382

8 Philadelphia-Camden-Vineland CSA 6,585,151

9 Houston-Baytown-Huntsville CSA 6,332,187

10 Atlanta-Sandy Springs-Gainesville CSA 5,825,794

NOTE:

1/ CSA = Combined Statistical Area.

SOURCE: Woods & Poole Economics, Inc., 2013 Complete Economic and Demographic Data Source (CEDDS) , January 2013.

PREPARED BY: Partners for Economic Solutions, April 2013.

Table 4-1: Ten Largest Metropolitan Regions (2012)

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PROJECTED

AREA 1990 2000 2012 2022 1990-2000 2000-2012 2012-2022

Chicago-Joliet-Naperville MSA 1/ 8,203,210 9,113,234 9,569,027 10,269,980 1.1% 0.4% 0.7%Kankakee-Bradley MSA 2/ 96,560 103,842 114,089 118,679 0.7% 0.8% 0.4%

Air Trade Area 8,299,770 9,217,076 9,683,116 10,388,659 1.1% 0.4% 0.7%

Midwest 3/ 42,091,157 45,216,019 46,612,875 49,017,530 0.7% 0.3% 0.5%

United States 249,622,814 282,162,411 312,308,189 347,210,015 1.2% 0.8% 1.1%

NOTES:

1/ Chicago-Joliet-Naperville MSA is defined as Cook County (IL), DeKalb County (IL), DuPage County (IL), Grundy County (IL), Kane County (IL), Kendall County (IL), Lake County (IL),

McHenry County (IL), Will County (IL), Jasper County (IN), Lake County (IN), Newton County (IN), Porter County (IN), and Kenosha County (WI).2/ Kankakee-Bradley MSA is defined as Kankakee County (IL).3/ Midwest is defined as Illinois, Indiana, Michigan, Ohio, and Wisconsin.

SOURCE: Woods & Poole Economics, Inc., 2013 Complete Economic and Demographic Data Source (CEDDS), January 2013.

PREPARED BY: Partners for Economic Solutions, April 2013.

Table 4-2: Historical and Projected Population (1990-2022)

HISTORICAL COMPOUND ANNUAL GROWTH RATE

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The Air Trade Area population forecast for the period 2012 to 2020 reflects a CAGR of 0.7 percent per year, a rate that is higher than that forecasted for the Midwest (0.5 percent) but lower than that forecasted for the U.S. (1.1 percent). It is expected that an increase in new residents in the Air Trade Area (approximately 705,000 between 2012 and 2022) will generate additional demand for air service at the Airport during the Projection Period.

4.1.2 AGE DISTRIBUTION AND EDUCATION

Table 4-3 shows that the Air Trade Area’s population is generally younger than the populations of the Midwest and the U.S. The median age in the Air Trade Area is 35.9 years, compared to 38.1 years in the Midwest and 37.8 years in the U.S. overall. The Air Trade Area’s lower median age reflects a higher percentage of residents aged 19 years and below, and a lower percentage of residents aged 55 years and above.

Demand for air travel varies by age group. According to Consumer Expenditure Survey data from the U.S. Bureau of Labor Statistics, in the U.S. persons between the ages of 35 and 54 account for 48 percent of expenditures on airline fares while persons between 25 and 34 years account for 13 percent. Persons 55 years and over account for 37 percent of airline fare expenditures.2 Data in Table 4-3 show that in 2012, Air Trade Area residents aged 35 to 54 made up 28.6 percent of the population, compared with 28.0 percent of the population in both the Midwest and the U.S. This is the age group that generates the most expenditures on airline fares, and it is represented in the Air Trade Area on a level commensurate with the population of both the Midwest and the U.S.

In absolute terms, the Air Trade Area is home to a large number of educated adults. According to data shown in Table 4-4, more than 2.4 million people, or nearly 40 percent of the Air Trade Area’s population over the age of 25, have a post-secondary degree (associate, bachelor’s, graduate or professional). This percentage is higher than that of both the Midwest and the U.S. where, respectively, 33.0 percent and 35.0 percent of the population over the age of 25 have a post-secondary degree.

According to Consumer Expenditure Survey data from the U.S. Bureau of Labor Statistics, persons with a college degree generate a high percentage of expenditures on air travel. Data indicate that 63 percent of airline tickets are purchased by college graduates, while 23 percent of airline tickets are purchased by consumers who have had some college. Fourteen percent of airline tickets are purchased by consumers who never attended college.3

2 Who’s Buying for Travel, 7th Edition, 2010, New Strategist Publications. Data in Who’s Buying for Travel are based on the U.S. Bureau of

Labor Statistics’ Consumer Expenditure Survey, an ongoing nationwide survey of household spending. 3 Who’s Buying for Travel, 7th Edition, 2010, New Strategist Publications.

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AIR TRADE AREA MIDWEST UNITED STATES

Total Population 9,683,116 45,216,019 312,308,189

By Age Group

19 and Under 27.9% 26.9% 26.9%

20 to 24 years 6.6% 6.8% 7.0%

25 to 34 years 14.4% 12.7% 13.3%

35 to 44 years 14.0% 13.0% 13.4%

45 to 54 years 14.6% 15.0% 14.6%

55 to 64 11.1% 12.2% 11.8%

65 and Above 11.4% 13.4% 13.0%

Total 100.0% 100.0% 100.0%

Median Age 35.9 years 38.1 years 37.8 years

PREPARED BY: Partners for Economic Solutions, April 2013.

Table 4-3: Age Distribution (2012)

SOURCES: Woods & Poole Economics, Inc., 2013 Complete Economic and Demographic Data Source (CEDDS) ,

January 2013; ESRI Demographic and Income Profile, April 2013.

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AIR TRADE AREA MIDWEST UNITED STATES

Population 25 years and over 6,342,441 29,978,221 206,435,713

Less than 9th Grade 6.9% 4.5% 6.4%

9th - 12th Grade, No Diploma 7.8% 8.8% 9.1%

High School Graduate 26.0% 32.9% 29.3%

Some College, No Degree 20.0% 20.9% 20.3%

Post-Secondary Degree 39.3% 33.0% 35.0%

Associate Degree 6.7% 7.6% 7.4%

Bachelor's Degree 20.2% 16.1% 17.4%

Master's Degree or Doctorate 12.4% 9.3% 10.1%

Total 100.0% 100.0% 100.0%

SOURCES: Woods & Poole Economics, Inc., 2013 Complete Economic and Demographic Data Source (CEDDS),

January 2013; ESRI ACS Population Profile, April 2013.

PREPARED BY: Partners for Economic Solutions, April 2013.

Table 4-4: Educational Attainment (2012)

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4.1.3 POPULATION DIVERSITY

The Air Trade Area’s diverse population strengthens the competitiveness of the region and also contributes to demand for air travel. A culturally diverse population also engenders business, family, and cultural ties that create demand for air travel services to and from homeland countries. Consumer segmentation data from ESRI and data from the Consumer Expenditure Survey from the U.S. Bureau of Labor Statistics indicate that membership in ethnically and racially diverse social groups can be correlated with higher household spending on air travel compared to average U.S. households.4

As shown in Table 4-5, the racial and ethnic composition of the Air Trade Area differs from that of the Midwest and of the U.S. as a whole. Data in Table 4-5 show that the percentage of white residents in the Air Trade Area in 2012 (65.2 percent) was significantly lower than the percentage in both the Midwest (79.2 percent) and the U.S. (71.9 percent). Asians constituted a larger share (5.8 percent) of the Air Trade Area’s population compared with the Midwest (2.9 percent) and the U.S. (5.1 percent). Black or African-Americans represented 17.1 percent of Air Trade Area residents, compared with 12.1 percent of the Midwest’s population and 12.6 percent of the U.S. population. The percentage of Hispanics in the Air Trade Area is higher than in the Midwest and in the U.S. overall. In 2012, 21.2 percent of Air Trade Area’s population was Hispanic, compared with 8.0 percent in the Midwest and 18.4 percent in the U.S.

4.1.4 PER CAPITA PERSONAL INCOME

Another key indicator of a region’s demand for air travel is per capita personal income. This is the sum of wages and salaries, other labor income, proprietors’ income, rental income, dividend income, personal interest income, and transfer payments, less personal contributions for government social insurance, divided by the region’s population. Per capita personal income indicates the relative affluence of a region’s residents as well as their ability to afford air travel. It can also be an indicator of an area’s attractiveness to business and leisure travelers since regions with higher per capita personal income often have stronger business connections to the rest of the nation as well as a more developed market for tourism.

Table 4-6 presents historical per capita personal income between 2002 and 2012 for the Air Trade Area, the Midwest, and the U.S. As shown, between 2002 and 2012, per capita personal income in the Air Trade Area was higher than that of the Midwest and the U.S. Per capita personal income for the Air Trade Area increased at a CAGR of 0.4 percent between 2002 and 2012, equal to the rate for the Midwest but lower than that of the U.S. (0.8 percent) during the same period.

Projections in Table 4-6 show that per capita personal income in the Air Trade Area is expected to increase at a CAGR of 1.1 percent, from $47,068 in 2012 to $52,739 in 2022. The projected growth rate of per capita personal income for the Air Trade Area is slightly lower than that of the Midwest (1.3 percent) and the U.S. (1.2 percent) between 2012 and 2022.

4 Who’s Buying for Travel, 7th Edition, 2010, New Strategist Publications; Tapestry Segmentation Reference Guide, 2012, ESRI.

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AIR TRADE AREA MIDWEST UNITED STATES

Total Population 9,683,116 46,612,875 312,308,189

Race

White 65.2% 79.2% 71.9%

Black or African-American 17.1% 12.1% 12.6%

American Indian and Alaska Native 0.4% 0.4% 1.0%

Asian or Pacific Islander 5.8% 2.9% 5.1%

Other Race 9.0% 3.2% 6.4%

More than One Race 2.5% 2.2% 3.0%

Total 100.0% 100.0% 100.0%

Persons of Hispanic Origin 1/ 21.2% 8.0% 18.4%

NOTE:

1/ Race data are based on self-identification according to U.S. Census defined race categories. Hispanic Origin

is a description of ethnic origin; it is not a race category. Hispanics are included in all U.S. Census defined

race categories.

SOURCES: Woods & Poole Economics, Inc., 2013 Complete Economic and Demographic Data Source (CEDDS),

January 2013; ESRI Demographic and Income Profile, April 2013.

PREPARED BY: Partners for Economic Solutions, April 2013.

Table 4-5: Population by Race and Ethnicity (2012)

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PER CAPITA PERSONAL INCOME (in 2012 dollars)

YEAR AIR TRADE AREA MIDWEST UNITED STATES

Historical

2002 $45,274 $38,653 $39,313

2003 $45,177 $39,013 $39,529

2004 $46,043 $39,214 $40,452

2005 $46,733 $39,129 $41,075

2006 $48,642 $40,033 $42,550

2007 $49,735 $40,486 $43,386

2008 $49,120 $40,545 $43,547

2009 $45,921 $38,691 $41,289

2010 $46,100 $39,036 $41,653

2011 $46,866 $39,943 $42,477

2012 $47,068 $40,322 $42,569

Projected

2022 $52,739 $45,895 $48,190

Compounded

Annual Growth Rate

2002-2012 0.4% 0.4% 0.8%

2012-2022 1.1% 1.3% 1.2%

SOURCE: Woods & Poole Economics, Inc., 2013 Complete Economic and Demographic Data Source (CEDDS), January 2013.

PREPARED BY: Partners for Economic Solutions, April 2013.

Table 4-6: Per Capita Personal Income (2002-2012)

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4.1.5 MEDIAN HOUSEHOLD INCOME

The Air Trade Area’s estimated 2012 median household income is significantly higher than that of both the Midwest and the U.S. As shown in Table 4-7, the Air Trade Area’s median household income of $56,882 in 2012 was approximately 19 percent higher than that of the Midwest ($47,753) and 13 percent higher than that of the U.S. ($50,157). Forecasts for 2017 show that this trend is expected to continue as the Air Trade Area will reach a median household income level of $68,062, compared to $54,839 in the Midwest and $56,895 in the U.S.5

4.1.5.1 Households with Income of $75,000 and Above

The percentage of higher-income households (defined as those earning $75,000 or more annually) within the Air Trade Area is another key indicator of potential demand for air travel. As measured by the number of households with annual income of $75,000 or more, the Air Trade Area is among the wealthiest markets in the U.S. (see Table 4-8). In 2012, approximately 1.4 million Air Trade Area households had an income of $75,000 or more. According to Consumer Expenditure Survey data from the U.S. Bureau of Labor Statistics, 65 percent of airline ticket expenditures are made by households with annual income of $75,000 or more.6 Data in Table 4-9 show that between 2012 and 2017, the number of households with income greater than $75,000 in the Air Trade Area is projected to increase by approximately 322,000.

4.2 Economic Analysis

4.2.1 PER CAPITA GROSS DOMESTIC / REGIONAL PRODUCT

Per capita gross domestic product (U.S.-level data) and per capita gross regional product (state- and county-level data) are measures of the market value of all final goods and services produced within a defined geography, divided by the total population. These indicators are broad measures of the economic health of a particular area and, consequently, of the area’s potential demand for air travel services.

Table 4-10 presents historical per capita gross regional product data for the Air Trade Area and the Midwest, and per capita gross domestic product data for the U.S. from 2002 to 2012.7 Data in Table 4-10 show that the Air Trade Area’s per capita gross regional product increased from $54,660 in 2002 to $55,822 in 2012. Table 4-10 also indicates that per capita gross regional product for the Air Trade Area increased at a CAGR of 0.2 percent between 2002 and 2012, compared to a -0.2 percent CAGR for the Midwest and 0.4 percent for the U.S. during this same period.

5 Median household income figures in this analysis are shown in current dollars, i.e., 2012 data are shown in 2012 dollars and 2017 data are

shown in 2017 dollars. 6 Who’s Buying for Travel, 7th Edition, 2010, New Strategist Publications. 7 Amounts are shown in 2012 dollars.

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PERCENTAGE OF

HOUSEHOLDS IN INCOME CATEGORIES

INCOME CATEGORY 1/ AIR TRADE AREA MIDWEST UNITED STATES

2012 Household Income

Less than $24,999 21.1% 25.4% 24.7%

$25,000 to $49,999 22.3% 26.3% 25.2%

$50,000 - $74,999 18.3% 19.4% 18.6%

$75,000 - $99,999 12.7% 11.4% 11.3%

$100,000 - $199,999 20.1% 14.6% 16.2%

$200,000 or More 5.5% 2.9% 4.0%

Total 100.0% 100.0% 100.0%

2012 Median Household Income $56,882 $47,753 $50,157

2017 Household Income

Less than $24,999 18.2% 22.0% 21.4%

$25,000 to $49,999 18.2% 22.1% 21.3%

$50,000 - $74,999 17.2% 21.5% 20.0%

$75,000 - $99,999 16.8% 14.5% 14.4%

$100,000 - $199,999 23.6% 16.7% 18.5%

$200,000 or More 5.9% 3.2% 4.4%

Total 100.0% 100.0% 100.0%

2017 Median Household Income $68,062 $54,839 $56,895

NOTE:

1/ Amounts are shown in current dollars, i.e., 2012 data are shown in 2012 dollars and 2017 data are shown

in 2017 dollars.

SOURCE: ESRI Demographic and Income Profile, April 2013.

PREPARED BY: Partners for Economic Solutions, April 2013.

Table 4-7: Household Income Distribution (2012-2017)

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RANK METROPOLITAN REGION 1/ESTIMATED HOUSEHOLDS WITH INCOMES OF $75,000 OR MORE

1 New York-Newark-Bridgeport CSA 3,481,205

2 Los Angeles-Long Beach-Riverside CSA 2,200,003

3 Washington-Baltimore-Northern Virginia CSA 1,669,593

4 San Jose-San Francisco-Oakland CSA 1,360,792

5 Air Trade Area 1,354,297

6 Boston-Worcester-Manchester CSA 1,264,435

7 Philadelphia-Camden-Vineland CSA 883,937

8 Dallas-Fort Worth CSA 855,211

9 Houston-Baytown-Huntsville CSA 748,961

10 Atlanta-Sandy Springs-Gainesville CSA 699,285

NOTE:

1/ CSA = Combined Statistical Area.

SOURCE: ESRI Demographic and Income Profile, April 2013.

PREPARED BY: Partners for Economic Solutions, April 2013.

Table 4-8: Wealthiest Metropolitan Regions (2012)

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AIR TRADE AREA MIDWEST UNITED STATES

Total Households

2012 estimate 3,537,137 18,146,918 118,208,713

2017 forecast 3,617,145 18,444,534 122,665,498

Increase in Households 80,008 297,616 4,456,785

CAGR 2012-2017 1/ 0.4% 0.3% 0.7%

Households with Income of $75,000 and Above 2/

2012 estimate 1,354,297 5,240,405 37,325,749

2017 forecast 1,676,683 6,334,949 45,795,726

Increase in Households with Income of $75,000 and Above 322,386 1,094,544 8,469,977

CAGR 2012-2017 4.4% 3.9% 4.2%

% of Households with Income of $75,000 and Above 2/

2012 estimate 38.3% 28.9% 31.5%

2017 forecast 46.4% 34.4% 37.3%

NOTE:

1/ CAGR = compounded annual growth rate.

2/ In current dollars.

SOURCE: ESRI Demographic and Income Profile, April 2013.

PREPARED BY: Partners for Economic Solutions, April 2013.

Table 4-9: Households with Income of $75,000 and Above (2012-2017)

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YEAR AIR TRADE AREA MIDWEST UNITED STATES

Historical

2002 $54,660 $45,668 $45,902

2003 $55,169 $46,336 $46,696

2004 $56,731 $46,926 $47,971

2005 $57,588 $47,207 $49,161

2006 $59,169 $47,441 $50,234

2007 $59,792 $47,847 $50,808

2008 $57,740 $46,018 $49,637

2009 $56,135 $44,605 $47,934

2010 $55,530 $44,404 $47,441

2011 $55,498 $44,616 $47,547

2012 $55,822 $44,840 $47,541

Projected

2022 $63,351 $51,926 $54,348

Compounded

Annual Growth Rate

2002-2012 0.2% (0.2%) 0.4%

2012-2022 1.3% 1.5% 1.3%

SOURCE: Woods & Poole Economics, Inc., 2013 Complete Economic and Demographic Data Source [CEDDS], January 2013.

PREPARED BY: Partners for Economic Solutions, April 2013.

Table 4-10: Per Capita Gross Domestic / Regional Product (2002-2012)

PER CAPITA GROSS DOMESTIC / REGIONAL PRODUCT (in 2012 dollars)

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Projections in Table 4-10 show that per capita gross regional product for the Air Trade Area is expected to increase from $55,822 in 2012 to $63,351 in 2022. This increase represents a CAGR of 1.3 percent for the Air Trade Area is equal to that of the U.S. and is slightly below the CAGR for the Midwest over the same time period (1.5 percent).

4.2.2 EMPLOYMENT TRENDS

Table 4-11 shows that between 2002 and 2012, the Air Trade Area labor force grew at a CAGR of approximately 0.4 percent—higher than that of the Midwest (-0.09 percent) but lower than the rate in the U.S. (0.7 percent). In absolute terms, the labor force in the Air Trade Area increased by approximately 175,900 workers between 2002 and 2012.

The annual unemployment rate in the Air Trade Area was higher than that of the U.S. in all years from 2002 through 2012, with the exception of 2006. The Air Trade Area’s unemployment rate was higher than that of the Midwest from 2002 through 2005, and in 2011 and 2012. The Air Trade Area’s unemployment rate was below that of the Midwest from 2006 through 2009. In 2010, the unemployment rates in the Air Trade Area and Midwest were equal.

In August 2013, the unemployment rate in the Air Trade Area was 9.1 percent (non-seasonally adjusted);8 this is higher than the non-seasonally adjusted unemployment rate in both the Midwest (7.8 percent) and U.S. (7.3 percent).9

8 Monthly unemployment data published for the Air Trade Area are not seasonally adjusted. 9 In August 2013 the seasonally adjusted unemployment rate was 8.2 percent in the Midwest and 7.3 percent in the U.S.

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AIR TRADE UNITED AIR TRADE UNITEDYEAR AREA MIDWEST STATES YEAR AREA MIDWEST STATES

2002 4,770,714 23,411,000 144,863,000 2002 6.7% 5.9% 5.8%

2003 4,747,014 23,522,000 146,510,000 2003 6.8% 6.3% 6.0%

2004 4,759,325 23,567,000 147,401,000 2004 6.2% 6.1% 5.5%

2005 4,762,763 23,708,000 149,320,000 2005 5.9% 5.8% 5.1%

2006 4,848,817 23,896,000 151,428,000 2006 4.5% 5.4% 4.6%

2007 4,954,128 24,005,000 153,124,000 2007 4.9% 5.5% 4.6%

2008 4,972,291 23,961,000 154,287,000 2008 6.2% 6.6% 5.8%

2009 4,912,238 23,667,000 154,142,000 2009 10.1% 10.6% 9.3%

2010 4,905,517 23,473,000 153,889,000 2010 10.5% 10.5% 9.6%

2011 4,887,332 23,283,000 153,617,000 2011 9.9% 9.2% 8.9%

2012 4,944,742 23,200,000 154,975,000 2012 8.9% 8.2% 8.1%

Aug. 2013 1/ 4,969,822 23,356,700 155,971,000 Aug. 2013 1/ 9.1% 7.8% 7.3%

Compound Annual Growth Rate

2002 - 2012 0.4% -0.09% 0.7%

Seasonally adjusted unemployment data are not available for the Air Trade Area.

PREPARED BY: Partners for Economic Solutions, October 2013.

1/ August 2013 data are not seasonally adjusted. In August 2013 the seasonally adjusted unemployment rate was 8.2% in the Midwest and 7.3% in the U.S.

SOURCES: State of Illinois Department of Employment Security, Labor Market Information; U.S. Dept. of Labor, Bureau of Labor Statistics, October 2013.

Table 4-11: Civilian Labor Force and Unemployment Rate (2002-2013)

CIVILIAN LABOR FORCE UNEMPLOYMENT RATES

NOTE:

2.5%

3.5%

4.5%

5.5%

6.5%

7.5%

8.5%

9.5%

10.5%

11.5%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Aug. 2013

Unemployment Rate

Air Trade Area Midwest United States

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4.2.3 BUSINESS CLIMATE

Despite the recent recession, employers continue to be attracted to the Air Trade Area and its educated labor pool. Data from World Business Chicago (WBC)10 indicate that in 2012, more than 600 companies either expanded or established new premises in the Air Trade Area, contributing more than 54,000 jobs to the economy. As a result of its attractive business climate, Chicago was ranked among the “Top 10 Global Leaders” in the City of London 2012 Global Financial Centres Index, and as the “#7 Global City” in the 2012 A.T. Kearney Global Cities Index.11 Businesses moving to or expanding in the Air Trade Area in 2012 included ThyssenKrupp, Hillshire Brands, Lagunitas Brewing, Nokia, Salesforce.com, Clayco, and Braintree. As of October 2013, year-to-date business development efforts in the Air Trade Area have resulted in the attraction or retention of approximately 300 companies with an estimated 22,500 employees.12 These businesses include GoGo, W.W. Grainger, Coeur Mining, Medline Industries, FieldAware, Ecover, Catamaran Corporation, Power Construction Company, Lextech Global Services, Clayco, Latisys, and Durata Therapeutics.13

Economic development initiatives by Chicago Mayor Rahm Emanuel are focused on efforts to foster innovation and growth in science and technology-based businesses with particular emphasis on clean technology, bioscience and pharmaceuticals, and internet and mobile applications. Mayor Emanuel’s Plan for Economic Growth and Jobs is being implemented by World Business Chicago through its innovation and entrepreneurship council, ChicagoNEXT, which is working to raise Chicago’s technology profile by connecting entrepreneurs with the local corporate community, attracting talent, engaging alumni (university and corporate), and increasing the availability of venture capital.14

In addition, 1871, a technology-focused incubator, was launched at Merchandise Mart in 2012 in a collaborative effort by Chicago’s business community to accelerate the growth and expansion of technology startups. In April 2013, Mayor Emanuel announced the creation of a bioscience commercialization and innovation center in downtown Chicago. The center will bring together Chicago’s top research universities with established corporations as well as startups and venture capital firms to foster biotech entrepreneurship. The Mayor envisions the center playing a key role in expanding employment in bioscience and healthcare by encouraging Chicago-based companies such as Walgreens, Baxter Pharmaceuticals, and Abbott Laboratories to invest in young companies, thereby creating growth opportunities for startups and industry leaders.15

10 Founded in 1999, World Business Chicago leads Chicago’s business retention, attraction and expansion efforts, http://www.

worldbusinesschicago.com/about. 11 Chicago’s Business Growth Profile, 2012 New and Expanded Companies, World Business Chicago, March 2013. 12 “WBC’s Malehorn Reports on First 100 Days, Welcomes New Companies to Chicago,” October 4, 2013,

http://www.worldbusinesschicago.com/news/wbc-president-malehorn-reports-first-100-days, accessed October 2013. 13 Newsroom, World Business Chicago, http://www.worldbusinesschicago.com/newsroom, accessed October 2013. 14 ChicagoNext, http://www.worldbusinesschicago.com/chicagonext, accessed October 2013; “Mayor Emanuel and WBC Launch

ChicagoNEXT to Amplify City’s Tech and Science Business Climate,” October 16, 2012, http://www.worldbusinesschicago.com/ news/mayor-emanuel-launches-chicagonext-to-amplify-tech-and-science-business-climate, accessed October 2013; “WBC Launches ChicagoNEXT Council on Innovation and Technology,” November 1, 2012, http://www.worldbusinesschicago.com/ news/wbc-launches-chicagonext-innovation-council, accessed October 2013.

15 “Chicago Mayor Announces Biotech Hub,” April 24, 2013, http://upstart.bizjournals.com/companies/hatched/2013/04/24/ chicago-mayor-announces-biotech-hub.html, accessed October 2013; “Mayor Emanuel Announces Initial Plans for Bioscience and Pharmaceutical

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As shown in Table 4-12, major private-sector employers in the Air Trade Area represent a wide range of industries. These include aerospace and airline companies (Boeing, United Continental Holdings), consumer products manufacturers (Alberto-Culver), building materials manufacturers (USG Corporation), financial services firms (CME Group), food products manufacturers (Kraft Foods, Ingredion), hospitality companies (Hostmark Hospitality Group, Hyatt), pharmaceutical companies (Abbott Laboratories, Hospira), industrial equipment companies (Sauer-Danfoss), insurance companies (Allstate, Aon), telecommunications companies (Motorola, Tellabs), utilities (Nicor), and national retailers (Crate & Barrel, Ace Hardware). In addition to providing a major source of local employment, these companies depend on air passenger and freight service for the continued health and expansion of their business enterprises. Each year Fortune magazine ranks the top 500 U.S. public companies in terms of annual revenue, and in 2013 the Air Trade Area had the second highest number of Fortune 500 company headquarters in the nation after the New York City metro area.

Table 4-13 shows that the 29 major U.S. corporations that are headquartered in the Air Trade Area include Boeing (ranked 30th), Walgreen (ranked 37nd among the Fortune 500), Abbott Laboratories (ranked 70th), Sears Holdings (ranked 71st), and United Continental Holdings (ranked 79th).. Other Fortune 500 companies headquartered in the Air Trade Area include Mondelez International, Allstate, Baxter International, Hillshire Brands, McDonald’s Corporation, Motorola Solutions, Exelon Corporation, Navistar International, Illinois Tool Works, W.W. Grainger, R.R. Donnelley & Sons, Discover Financial Services, and OfficeMax. In 2013 the Air Trade Area’s 29 Fortune 500 headquarters represented 91 percent of the 32 Fortune 500 headquarters in Illinois, and 31 percent of the 94 Fortune 500 headquarters in the Midwest.16

Professional associations, foundations, and charitable organizations are also major employers in the Air Trade Area. Professional associations such as the American Bar Association, American Dental Association, American Hospital Association, American Medical Association, and Government Finance Officers Association are headquartered in Chicago. Foundations and service organizations based in the Air Trade Area include the McCormick Foundation, the John D. and Catherine T. MacArthur Foundation, Easter Seals Inc., Lions Club International Foundation, Rotary Foundation, and the YMCA of the U.S.A. (See Table 4-14).

4.2.4 MAJOR INDUSTRY SECTORS

An analysis of non-agricultural employment trends by major industry sectors, presented in Table 4-15, indicates the sources of jobs in the Air Trade Area’s economy. In this table, employment trends in the Air Trade Area are compared to data for the Midwest and the U.S. in 2002 and 2012.

Industry Commercialization and Innovation Center,” April 23, 2013, http://www.worldbusinesschicago.com/ news/biotech-innovation-center, accessed October 2013.

16 The Midwest is defined as the states of Illinois, Indiana, Michigan, Ohio and Wisconsin.

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COMPANY LOCATION INDUSTRY COMPANY LOCATION INDUSTRY

A.T. Kearney Inc. Chicago Management Consulting JPMorgan Chase & Co. Chicago Financial ServicesAbbott Laboratories Abbott Park Pharmaceuticals Kemper Corp. Chicago InsuranceAbt Electronics Inc. Glenview Retail Koch Foods Inc. Park Ridge Food ProductsAccenture Chicago Management Consulting KPMG Chicago AccountingAcco Brands Corp. Lincolnshire Office Products Kraft Foods Northfield Food ProductsAccretive Health Chicago Debt Collection Leo Burnett Group Chicago AdvertisingAce Hardware Oak Brook Retail Lettuce Entertain You Enterprises Inc. Chicago RestaurantsAddus HomeCare Palatine Health Care Littelfuse Chicago Electrical EquipmentAlberto-Culver Melrose Park Consumer Products LKQ Corporation Chicago Automotive EquipmentAlden Management Services Chicago Health Care McDonald's Oak Brook RestaurantAllscripts Healthcare Solutions Inc. Chicago Health Care Mead Johnson Nutrition Co. Glenview Food ProductsAllstate Northbrook Insurance Medline Industries Mundelein Medical SuppliesAmcol International Corp. Hoffman Estates Manufacturing Mesirow Financial Chicago Investment ManagementAmerican Airlines Chicago Airline Methode Electronics Inc. Chicago Electronic EquipmentAnixter International Glenview Electrical Equipment Molex Lisle Electrical EquipmentAon Chicago Insurance Morningstar Inc. Chicago Financial ServicesAptarGroup Crystal Lake Plastic Products Motorola Solutions Schaumburg Telecommunications Arthur J. Gallagher Itasca Insurance Nalco Holding Naperville Chemicals

AT&T Chicago Telecommunications Navistar International Lisle Automotive Equipment

Bank of America Chicago Financial Services Nicor Naperville Utility

Baxter International Deerfield Pharmaceuticals NiSource Merrillville, IN Utility

Beam Inc. Deerfield Distilled Spirits Northern Trust Corp. Chicago Financial Services

BMO Harris Bank Chicago Financial Services Nuveen Investments Inc. Chicago Financial Services

Boeing Chicago Aerospace OfficeMax Naperville Retail

BP America Naperville Petroleum Old Republic International Chicago Insurance

Brookdale Senior Living Chicago Health Care Orbitz Worldwide Inc. Chicago Internet Services

Brunswick Lake Forest Marine Products OSI Group LLC Aurora Food Products

Cancer Treatment Centers of America Schaumburg Health Care Packaging Corp. of America Lake Forest Container Products

Capital Fitness Inc. Big Rock Health Club Pactiv Lake Forest Paper and Plastic Products

Career Education Hoffman Estates Education Services Paddock Publications Arlington Heights Newspaper Publishing

CBOE Holdings Inc. Chicago Options Exchange Panduit Corp. Tinley Park Telecommunications Equipment

CDW Corp. Vernon Hills Computer Equipment and Software Portillo's Restaurant Group Oak Brook Restaurant

Cermak Produce Inc. Cicero Retail Potbelly Sandwich Works LLC Chicago Restaurants

CF Industries Holdings Deerfield Agricultural Products R.R. Donnelley & Sons Chicago Printing Services

CME Group Chicago Financial Services S&C Electric Co. Chicago Electronic Equipment

CNA Financial Corp. Chicago Insurance Sauer-Danfoss Inc. Lincolnshire Industrial Machinery

Comcast Schaumburg Telecommunications Sears Holdings Hoffman Estates Retail

Crate & Barrel Northbrook Retail Seaton Cos. Chicago Staffing Services

DeVry Inc. Downers Grove Education Services Skidmore Owings & Merrill LLP(2) Chicago Architecture

Discover Financial Services Riverwoods Financial Services Snap-On Kenosha, WI Consumer and Commercial Tools

Dover Downers Grove Industrial Machinery Solo Cup Co. Highland Park Paper and Plastic Products

Employco USA Inc. Westmont Human Resource Services Standard Parking Corp. Chicago Parking Facilities Management

Equity Lifestyle Properties Inc. Chicago Real Estate Stericycle Lake Forest Medical Supplies

Equity Office Management LLC Chicago Real Estate SymphonyIRI Group Chicago Market Research

Equity Residential Chicago Real Estate Tandem HR Inc. Oak Brook Human Resource Services

Exelon Chicago Utility Telephone & Data Systems Chicago Telecommunications

Fellowes Itasca Office Equipment and Supplies Tellabs Naperville Telecommunications

First Hospitality Group Rosemont Hotel Management Tempel Steel Co. Chicago Manufacturing

Follett Corp. River Grove Education Products Tenneco Lake Forest Automotive Equipment

General Growth Properties Chicago Real Estate Tribune Co. Chicago MediaGrant Thornton LLP Chicago Accounting True Value Co. Chicago Retail

Groupon Inc. Chicago Internet Services Trustmark Lake Forest Insurance

Guaranteed Rate Inc. Chicago Financial Services U.S. Cellular Chicago Telecommunications Health Care Service Corp. Chicago Health Insurer U.S. Food Service Inc. Rosemont Restaurant SuppliesHewitt Associates Lincolnshire Human Resource Services Ulta Salon Cosmetics & Fragrance Inc.(4) Bolingbrook Retail

Hillshire Brands (Sara Lee) Downers Grove Food Products United Continental Holdings Chicago Airline

Hospira Lake Forest Pharmaceuticals United HealthCare of Illinois Chicago Health CareHostmark Hospitality Group Schaumburg Hospitality United Parcel Service Aurora Freight ServiceHub Group Downers Grove Transportation United Stationers Deerfield Office Equipment and Supplies

Huron Consulting Group Inc. Chicago Management Consulting Unitrin Chicago Insurance

Hyatt Hotels Corp. Chicago Hospitality US Foods Oak Brook Food ProductsIdex Corp. Lake Forest Manufacturing USG Corporation Chicago Building MaterialsIllinois Tool Works Glenview Industrial Machinery W.W. Grainger Lake Forest Industrial Machinery

Ingredion Westchester Food Products Walgreen Deerfield Retail

Integrys Energy Group Chicago Utility Wal-Mart Stores, Inc. Chicago RetailInternational Services Inc. Buffalo Grove Management consulting Walsh Group Ltd. Chicago General ContractorJewel-Osco Itasca Retail William Blair & Co. Chicago Financial Services

John B. Sanfilippo & Son, Inc. Elgin Food Products

Jones Lang LaSalle Chicago Real Estate

NOTE:

1/ For profit businesses only.

SOURCES: 2013 Book of Lists , Crain's Chicago Business; "2013 Fortune 500," Fortune , May 20, 2013; Hoovers.com, October 2013.

PREPARED BY: Partners for Economic Solutions, October 2013.

Table 4-12: Major Private Sector Employers (2013) 1/

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FORTUNE 500 2012 REVENUE

COMPANY RANK ($ billions) LOCATION INDUSTRY

1 Boeing 30 $81.7 Chicago Aerospace

2 Walgreen 37 $71.6 Deerfield Retail

3 Abbott Laboratories 70 $39.9 Abbott Park Pharmaceuticals

4 Sears Holdings 71 $39.9 Hoffman Estates Retail

5 United Continental Holdings 79 $37.2 Chicago Airline

6 Mondelēz International 88 $35.0 Deerfield Food Products

7 Allstate 92 $33.3 Northbrook Insurance

8 McDonald's 111 $27.6 Oak Brook Restaurant

9 Exelon 129 $23.5 Chicago Utility

10 Kraft Foods 151 $18.3 Northfield Food Products

11 Illinois Tool Works 155 $18.1 Glenview Industrial Machinery

12 Baxter International 193 $14.2 Deerfield Pharmaceuticals

13 Navistar International 216 $12.9 Lisle Automotive Equipment

14 R.R. Donnelley & Sons 264 $10.2 Chicago Printing Services

15 CDW Corp. 267 $10.1 Vernon Hills Computer Equipment and Software

16 Hillshire Brands 288 $9.3 Chicago Food Products

17 Discover Financial Services 294 $9.0 Riverwoods Financial Services

18 W.W. Grainger 295 $9.0 Lake Forest Industrial Machinery

19 Motorola Solutions 304 $8.7 Schaumburg Telecommunications

20 Dover 308 $8.5 Downers Grove Industrial Machinery

21 Tenneco 349 $7.4 Lake Forest Automotive Equipment

22 OfficeMax 367 $6.9 Naperville Retail

23 Ingredion 386 $6.5 Westchester Food Products

24 Anixter International 405 $6.3 Glenview Electrical Equipment

25 CF Industries Holdings 419 $6.1 Deerfield Agricultural Products

26 Telephone & Data Systems 468 $5.3 Chicago Telecommunications

27 NiSource 480 $5.1 Merrillville, IN Utility

28 United Stationers 484 $5.1 Deerfield Office Equipment and Supplies

29 Old Republic International 496 $5.0 Chicago Insurance

NOTE:

1/ Based on 2012 revenue.

SOURCE: "2013 Fortune 500," Fortune , May 20, 2013.

PREPARED BY: Partners for Economics Solutions, October 2013.

Table 4-13: Fortune 500 Companies Headquartered in the Air Trade Area (2013) 1/

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NAME DESCRIPTION NAME DESCRIPTION

1 Abbott Fund Medical research 38 Elks National Foundation Social services agency2 Academy of General Dentistry Professional association 39 Feeding America Hunger relief3 Academy of Nutrition and Dietetics Professional association 40 Gaylord and Dorothy Donnelly Foundation Private foundation4 Action for Children Child development advocacy 41 Grand Victoria Foundation Education and environment5 Ada S. McKinley Community Services Inc. Services for the disabled 42 Illinois Clean Energy Community Foundation Renewable energy and efficiency6 Allendale Association Youth education services 43 Institute for the International Education of Students International study abroad program7 Allstate Foundation Social programs 44 International Fellowship of Christians and Jews Education, relief in Israel8 Alphawood Foundation Private foundation 45 Irving Harris Foundation Private foundation9 ALSAM Foundation Education and health research 46 ITW Foundation Education, arts, and health10 Alzheimer's Association Alzheimer's care and research 47 Jewish United Fund/Jewish Federation of Metropolitan Chicago Social services agency11 American Academy of Orthopedic Surgeons Professional association 48 John D. and Catherine T. MacArthur Foundation Human rights, public policy12 American Academy of Pediatrics Professional association 49 Joyce Foundation Social services, public policy13 American Academy of Physical Medicine and Rehabilitation Professional association 50 Kids Hope United Child welfare agency14 American Bar Association Professional association 51 Kraft Foods Foundation International food aid15 American College of Psychiatrists Professional association 52 Lawyers Trust Fund of Illinois Civil legal aid16 American Dental Association Professional association 53 Lions Clubs International Foundation Service club organization17 American Health Information Management Association Professional association 54 Lloyd A. Fry Foundation Private foundation18 American Hospital Association Professional association 55 McCormick Foundation Education and journalism19 American Library Association Professional association 56 Motorola Solutions Foundation Education and health20 American Medical Association Professional association 57 National Merit Scholarship Corp. Scholarship program21 American Society for Clinical Pathology Professional association 58 National Safety Council Workplace safety advocacy22 American Society of Radiologic Technologists Professional association 59 Oprah Winfrey Foundation Global human services organization23 Arie and Ida Crown Memorial Private foundation 60 Ounce of Prevention Fund Child development advocacy24 Arthur Foundation Private foundation 61 Polk Bros. Foundation Education and health25 Association of Information Technology Professionals Professional association 62 Pritzker Foundation Private foundation26 Association of Professional Design Firms Professional association 63 Retirement Research Foundation Aging, retirement issues27 Awana Clubs International Christian youth ministry 64 Richard H. Driehaus Foundation Private foundation28 Barnabas Foundation Christian stewardship 65 Ronald McDonald House Charities Services for pediatric patients and families29 Bible League Christian training, education 66 Rotary Foundation of Rotary International International service club30 Business Marketing Association Professional association 67 Safer Foundation Services for ex-offenders31 Chicago Community Trust Social services agency 68 Spencer Foundation Education research32 Chicago Symphony Orchestra Symphony orchestra 69 Structural Engineers Association of Illinois Professional association33 Circle of Service Foundation Private foundation 70 United Way of Metropolitan Chicago Health and human services34 Coleman Foundation Private foundation 71 Walsh Foundation Private foundation35 Dunham Fund Private foundation 72 William G. McGowan Charitable Fund Inc. Private foundation36 Earl and Brenda Shapiro Foundation Private foundation 73 YMCA of the USA YMCA member association37 Easter Seals Inc. Services for the disabled

SOURCES: 2012 Book of Lists , Crain's Chicago Business; Hoovers.com, October 2013.

PREPARED BY: Partners for Economic Solutions, October 2013.

Table 4-14: Major Professional Associations, Foundations, and Charities Headquartered in the Air Trade Area (2013)

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AIR TRADE AREA MIDWEST UNITED STATES

INDUSTRY 1/ 2002 2012 CAGR 2/ 2002 2012 CAGR 2002 2012 CAGR

Services 2,358,596 2,707,639 1.4% 10,395,848 11,483,056 1.0% 67,844,025 78,957,250 1.5%Wholesale/Retail Trade 805,482 772,995 -0.4% 3,961,582 3,663,294 -0.8% 24,294,038 24,496,296 0.1%Fin/Ins/Real Estate 538,522 609,733 1.2% 2,070,397 2,308,836 1.1% 13,551,381 16,903,515 2.2%Government 577,161 573,695 -0.1% 3,161,774 3,045,116 -0.4% 21,424,987 22,087,943 0.3%Manufacturing 566,363 434,401 -2.6% 3,589,678 2,796,344 -2.5% 15,744,374 12,629,024 -2.2%Transportation/Utilities 241,357 245,087 0.2% 973,130 1,004,074 0.3% 5,956,909 6,243,068 0.5%Construction 3/ 300,102 231,822 -2.5% 1,542,365 1,337,029 -1.4% 11,248,335 11,097,760 -0.1% Total 5,387,583 5,575,372 0.3% 25,694,774 25,637,749 -0.02% 160,064,049 172,414,856 0.7%

PROJECTED

2022 Employment

CAGR 2012-2022

NOTES:

1/ Non-agricultural employment only.

2/ CAGR = Compounded Annual Growth Rate.

3/ Includes mining and forestry employment.

SOURCE: Woods & Poole Economics Inc., 2013 Complete Economic and Demographic Data Source (CEDDS) , January 2013.

PREPARED BY: Partners for Economic Solutions, April 2013.

0.9% 1.0% 1.4%

6,095,688 28,343,966 197,831,142

Table 4-15: Employment by Major Industry Division (2002-2012)

AIR TRADE AREA MIDWEST UNITED STATES

6.4%

3.6%

7.3%

12.8%

9.8%

14.2%

45.8%

5.2%

3.9%

10.9%

11.9%

9.0%

14.3%

44.8%

4.2%

4.4%

7.8%

10.3%

10.9%

13.9%

48.6%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0% 55.0%

Construction

Transportation/Utilities

Manufacturing

Government

Fin/Ins/Real Estate

Wholesale/Retail Trade

Services

Percent of 2012 Non-Agricultural Employment by Industry

Air Trade Area Midwest United States

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Non-agricultural employment in the Air Trade Area increased from approximately 5.4 million workers in 2002 to more than 5.5 million workers in 2012. This increase represents a 0.3 percent CAGR during this period. In contrast, employment showed a CAGR of -0.02 percent in the Midwest and 0.7 percent in the U.S. between 2002 and 2012.

Measured by percentages, the Air Trade Area had a relatively higher proportion of employment in services, finance/insurance/real estate, and transportation/utilities compared to the Midwest and U.S. in 2012. (See bar chart in Table 4-15.) Wholesale/retail trade, government, and construction jobs in the Air Trade Area made up a relatively lower percentage of employment in 2012 in comparison to the Midwest and U.S. The percentage of manufacturing jobs was lower in the Air Trade compared to the Midwest and higher compared to the U.S. in 2012.

Data in Table 4-15 indicate that the Air Trade Area has a diversified employment base that is expected to provide the region with a foundation for recovery following periodic downturns in the business cycle. Brief profiles of the Air Trade Area’s major industries in descending order of 2012 employment are provided below.

Services

Jobs in the services sector in the Air Trade Area employed approximately 2.7 million workers in 2012 and accounted for 48.6 percent of total non-agricultural employment.

The services industry is the largest job sector in the Air Trade Area and employs workers in a wide range of subsectors that vary greatly in size. In 2012, approximately 23 percent of the Air Trade Area’s service workers were employed in health care; 18 percent were employed in leisure and hospitality; and 17 percent were employed in professional and technical services. Other service sector categories include: administration and support services (16 percent of service workers); education (7 percent); information technology (4 percent); management of enterprises (3 percent); and other services (12 percent).17

Higher Education and Research Institutions

Higher education is an important source of jobs in the Air Trade Area. The numerous public and private colleges and universities in the Air Trade Area, such as the University of Illinois at Chicago, University of Chicago, Northwestern University, DePaul University, Northern Illinois University, and Loyola University Chicago, contribute to its high level of educational attainment. The 42 colleges and universities shown in Table 4-16 enroll approximately 297,000 students. These institutions generate demand for air service through academic meetings and conferences, visiting professorships, study-abroad programs, and individual student and faculty travel.

17 Woods & Poole Economics Inc., 2013 Complete Economic and Demographic Data Source (CEDDS), January 2013.

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INSTITUTION MAIN CAMPUS LOCATION ENROLLMENT

University of Illinois at Chicago Chicago, IL 28,090Northern Illinois University DeKalb, IL 25,310DePaul University Chicago, IL 24,960Northwestern University Evanston, IL 19,180Loyola University Chicago Chicago, IL 15,060University of Chicago Chicago, IL 12,300Columbia College Chicago Chicago, IL 11,920Northeastern Illinois University Chicago, IL 11,150Purdue University Calumet Hammond, IN 10,130Illinois Institute of Technology Chicago, IL 7,790Governors State University University Park, IL 7,780Roosevelt University Chicago, IL 7,300Robert Morris University Chicago, IL 7,280Chicago State University Chicago, IL 7,130Benedictine University Lisle, IL 6,860National Louis University Chicago, IL 6,600Lewis University Romeoville, IL 5,800Indiana University Northwest Gary, IN 5,560Midwestern University Downers Grove, IL 5,165Concordia University Chicago River Forest, IL 5,130Saint Xavier University Chicago, IL 5,030University of Wisconsin-Parkside Kenosha, WI 4,700Purdue University North Central Westville, IN 4,460Valparaiso University Valparaiso, IN 4,060Aurora University Aurora, IL 4,000Dominican University River Forest, IL 3,900Elmhurst College Elmhurst, IL 3,630Illinois Institute of Art Chicago, IL 3,500University of St. Francis Joliet, IL 3,350North Park University Chicago, IL 3,250School of the Art Institute of Chicago Chicago, IL 3,240North Central College Naperville, IL 3,000Trinity International University Deerfield, IL 3,000Wheaton College Wheaton, IL 3,000Carthage College Kenosha, WI 2,500Kendall College Chicago, IL 2,390Rush University Chicago, IL 2,000Lake Forest College Lake Forest, IL 1,490Trinity Christian College · Palos Heights, IL 1,450Calumet College of St. Joseph Whiting, IN 1,290Judson University Elgin, IL 1,230East-West University Chicago, IL 1,170

Total 297,165

PREPARED BY: Partners for Economic Solutions, April 2013.

Table 4-16: Air Trade Area College and University Enrollment (2012)

SOURCES: Institution web sites, April 2013.

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The Air Trade Area benefits from a research and development infrastructure that includes Argonne National Laboratory and Fermi National Accelerator Laboratory as well as a wide variety of research centers and institutes (see Table 4-17). These organizations have major commitments to research efforts in physics, nuclear energy, bioscience, nanotechnology, environmental systems, information technology, medicine, health, and social sciences. The Air Trade Area’s concentration of research institutions is a key factor in maintaining its position as a leading center of education and research, and helps to foster a highly skilled labor force in the region.

Wholesale and Retail Trade

Wholesale and retail trade in the Air Trade Area employed approximately 773,000 workers in 2012, equating to 13.9 percent of total non-agricultural employment. Approximately 67 percent of these (520,000 workers) were in retail, with the remainder in wholesale.18

Businesses in the Air Trade Area have taken advantage of overseas markets and have expanded their operations internationally. Many of the Air Trade Area’s top companies depend on offshore plants and suppliers for manufacturing and assembly as well as raw materials. This expanding international business activity generates demand for both international air travel and air freight services. In 2012, total trade activity (both imports and exports) between the Chicago Customs District19 and the rest of the world was valued at $154.8 billion (see Table 4-18).

Data in Table 4-18 show that nearly $118 billion in trade (including imports and exports) through the Chicago Customs District was conveyed by air in 2012. This represents 76 percent of all trade through the Chicago Customs District, and more than 64 percent of the Midwest’s value of total trade by air. The Air Trade Area’s high rate of trade by air reflects the prevalence of just-in-time inventory management of high-value goods (especially in the electronics and industrial components sectors), as well as an expanding global network of suppliers and manufacturers.

Finance/Insurance/Real Estate

In 2012, the finance/insurance/real estate sector employed nearly 610,000 workers in the Air Trade Area, accounting for 10.9 percent of total non-agricultural employment.

Major banks headquartered in the Air Trade Area are BMO Harris Bank N.A. ($94.8 billion in assets), Northern Trust ($91.3 billion), Privatebank & Trust ($12.6 billion), and MB Financial Bank ($9.6 billion).20

18 Woods & Poole Economics Inc., 2013 Complete Economic and Demographic Data Source (CEDDS), January 2013. 19 The Chicago Customs District comprises 12 ports in Illinois and six in surrounding Midwestern states. Illinois: Calumet Harbor, Chicago,

Chicago River, Greater Rockford Airport, Lockport, Moline, Pal-Waukee User Fee Airport, Peoria, Nippon Courier Hub, Rock Island, Waukegan Airport, Waukegan Harbor. Indiana: East Chicago, Gary, Michigan City Harbor. Iowa: Des Moines, Davenport. Nebraska: Omaha. Schedule D -- U.S. Customs Districts and Port Codes, http://www.census.gov/foreign-trade/schedules/portcode.txt, accessed April 2013.

20 2013 Book of Lists, Crain’s Chicago Business.

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INSTITUTION LOCATION INSTITUTION LOCATION

National Laboratories: Northwestern University:

Argonne National Laboratory Lemont, IL Buffett Center for International and Comparative Studies Chicago, IL

Fermi National Accelerator Laboratory Batavia, IL Center for Functional Genomics Chicago, IL

Center for Interdisciplinary Exploration and Research in Astrophysics Chicago, IL

DePaul University: Center for Molecular Innovation and Drug Discovery Chicago, IL

Health Law Institute Chicago, IL Institute for Bionanotechnology in Medicine Chicago, IL

Institute for Applied Artificial Intelligence Chicago, IL Institute for Policy Research Chicago, IL

International Aviation Law Institute Chicago, IL Institute for Sustainable Practices Chicago, IL

International Institute for Nanotechnology Chicago, IL

Illinois Institute of Technology: Materials Research Center Chicago, IL

IIT Research Institute Chicago, IL Northwestern Synchrotron Research Center Chicago, IL

Center for Accelerator and Particle Physics Chicago, IL Northwestern Atomic and Nanoscale Characterization Experimental Center Chicago, IL

Center for Diabetes Research and Policy Chicago, IL Searle Rehabilitation Research Center Chicago, IL

Center for Digital Design & Manufacturing Chicago, IL

Center for Electrochemical Science and Engineering Chicago, IL Rush University:

Center for Integrative Neuroscience and Neuroengineering Research Chicago, IL Institute for Healthy Aging Chicago, IL

Center for the Management of Medical Technology Chicago, IL Heart and Vascular Institute Chicago, IL

Center for Synchrotron Radiation Research and Instrumentation Chicago, IL Arthritis and Orthopedics Institute Chicago, IL

Fluid Dynamics Research Center Chicago, IL

High Performance Computing Center Chicago, IL University of Chicago:

International Center for Sensor Science and Engineering Chicago, IL Ben May Institute for Cancer Research Chicago, IL

National Center for Food Safety and Technology Summit-Argo, IL Enrico Fermi Institute Chicago, IL

Particle Technology and Crystallization Center Chicago, IL Howard Hughes Medical Institute Chicago, IL

Pritzker Institute of Biomedical Science and Engineering Chicago, IL Institute for Biophysical Dynamics Chicago, IL

Thermal Processing Technology Center Chicago, IL Institute for Genomics and Systems Biology Chicago, IL

Wanger Institute for Sustainable Energy Research Chicago, IL James Franck Institute Chicago, IL

Milton Friedman Institute for Research in Economics Chicago, IL

Loyola University Chicago: National Opinion Research Center Chicago, IL

Ann Ida Gannon, BVM, Center for Women and Leadership Chicago, IL The Computation Institute Chicago, IL

Center for the Human Rights of Children Chicago, IL

Center for Urban Environmental Research and Policy Chicago, IL University of Illinois at Chicago:

Parmly Hearing Institute Chicago, IL Center for Magnetic Resonance Research Chicago, IL

Center for Structural Biology Chicago, IL

Northern Illinois University: Institute for Health Research and Policy Chicago, IL

Institute for Nanoscience, Engineering, and Technology DeKalb, IL Institute for Tuberculosis Research Chicago, IL

Institute for Neutron Therapy Batavia, IL National Center for Data Mining Chicago, IL

Regional Development Institute DeKalb, IL

PREPARED BY: Partners for Economic Solutions, April 2013.

Table 4-17: Major Research Institutions in the Air Trade Area (2013)

SOURCES: Institution web sites, April 2013.

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VALUE OF VALUE OF PERCENT OF CUSTOMS DISTRICT TOTAL TRADE 1/ TOTAL TRADE BY AIR TOTAL TRADE BY AIR

Chicago $154.8 $117.6 76.0%

Midwest 2/ $468.7 $183.2 39.1%

United States $3,822.2 $927.3 24.3%

NOTES:

1/ Total trade = total imports and exports.

2/ Data for the Midwest is an aggregation of the Chicago, Cleveland, Detroit, and Milwaukee Customs Districts.

SOURCE: U.S. Department of Commerce, Bureau of the Census, Foreign Trade Division, February 2013.

PREPARED BY: Partners for Economic Solutions, April 2013.

Table 4-18: Total Trade by Conveyance (2012)

($ billions)

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The Air Trade Area is also home to major global trading exchanges such as the Chicago Board Options Exchange and the CME Group, which was formed by the merger of the Chicago Mercantile Exchange, the Chicago Board of Trade, and the New York Mercantile Exchange. Serving the risk-management needs of investors and businesses in the U.S. and internationally, the CME Group provides benchmark futures and options products based on interest rates, equity indexes, foreign exchange, energy, agricultural commodities, metals, and alternative investment products such as weather and real estate.21

The Air Trade Area is headquarters for large insurance firms that operate internationally. For example, Allstate Corporation, the nation’s largest publicly held personal lines insurer, and 92nd on the Fortune 500 list in 2013, had revenues of $33.3 billion in 2012 and employs over 70,000 professionals in the U.S.22 The North American headquarters of brokerage and risk management firm Aon Corporation is also located in the Air Trade Area. With 2012 revenue of $11.5 billion, Aon has 65,000 employees in more than 120 countries.23

Government

Data in Table 4-15 show that government employment accounted for approximately 574,000 workers in the Air Trade Area in 2012, representing 10.3 percent of total non-agricultural employment.

The government sector in the Air Trade Area includes federal, State, county, and City employees. 24 Federal employers within the Air Trade Area include the Internal Revenue Service, Social Security Administration, Department of Agriculture, Seventh Circuit Court of Appeals, U.S. Postal Service, and many other entities. In 2012, the federal government employed approximately 61,000 people within the Air Trade Area across a variety of functions and agencies.25 Other major governmental employers in the Air Trade Area include the Chicago Public Schools (40,100 employees), the City (30,200 employees), Cook County (21,100 employees), and the State (15,400 employees).26

Manufacturing

In 2012, the manufacturing sector accounted for approximately 434,000 jobs in the Air Trade Area, or 7.8 percent of total non-agricultural employment. The diversity of the Air Trade Area’s economy extends to the manufacturing sector, where local firms produce automotive and industrial equipment, pharmaceuticals, food products, chemicals, rubber and plastic products, fabricated metals, electronics, and telecommunications equipment.

Transportation/Utilities

Transportation/utilities employment in the Air Trade Area accounted for approximately 245,000 jobs in 2012, representing 4.4 percent of total non-agricultural employment.

21 About Us, Corporate Overview, http://www.cmegroup.com/company/history/, accessed April 2013. 22 The Allstate Corporation at a Glance, http://www.allstate.com/about.aspx, accessed October 2013; “Fortune 500,” Fortune, May 20, 2013. 23 Aon History and Facts, http://www.aon.com/attachments/fact-sheet/Aon-Fact-Sheet-updated-031813.pdf, accessed October 2013. 24 Includes civilian government employees only. 25 Woods & Poole Economics Inc., 2013 Complete Economic and Demographic Data Source (CEDDS), January 2013. 26 2013 Book of Lists, Crain’s Chicago Business.

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Chicago’s location in the Midwest and in the Central Time Zone, along with its extensive non-stop air passenger service, allows business travelers to meet with clients or customers in nearly any U.S. city and then return on the same business day. As a primary transportation hub in North America and the world’s third largest intermodal port after Hong Kong and Singapore, the Chicago region plays an important role in global distribution. The Air Trade Area’s roadways carry significant levels of commercial freight traffic via its network of interstate and State roads that provide extensive links to the nation’s highway system.27 In addition, Chicago is the largest rail hub in the U.S. with an estimated 1,200 daily trains which carry 75 percent of the nation's freight valued at $350 billion.28

Construction

The construction industry employed approximately 232,000 workers in the Air Trade Area in 2012, accounting for 4.2 percent of total non-agricultural employment. Recent development projects include transportation infrastructure, medical, educational, and hotel facilities. Examples of current projects include:

• O’Hare Modernization Program (OMP). Managed by the CDA, the OMP is one of the largest construction projects in the U.S. When the OMP is complete, O’Hare will have eight runways: six east-west parallel runways and two crosswind runways. To date, OMP projects that have been completed include: a new air traffic control tower, Runways 9L/27R and 10C/28C, and a 3,000-foot extension to existing Runway 10L/28R. Runway 10R/28L, a south airport traffic control tower, and a major taxiway element are under construction. Future OMP projects include: Runway 9C/27C, an extension to existing Runway 9R/27L and a western terminal complex. When completed, the multi-billion dollar OMP is designed to significantly increase airfield capacity and reduce weather delays, thus allowing O’Hare to meet future demand from the nation’s aviation system.

• Chicago Region Environmental and Transportation Efficiency Program (CREATE). This program is a first-of-its-kind partnership among the U.S. Department of Transportation (DOT), the State, City of Chicago, Metra (the regional rail system serving Chicago and its surrounding suburbs), Amtrak, and the nation's freight railroads to install critically needed rail infrastructure improvements in the Air Trade Area.29 Plans call for CREATE to invest billions of dollars in capital projects that will increase the efficiency of four rail corridors by reducing train delays and congestion. CREATE projects include new overpasses and underpasses to separate auto and rail traffic, as well as passenger and freight train tracks. Viaduct improvements, grade crossing enhancements, and extensive upgrades to tracks, switches and signal systems are also part of CREATE’s work program.30 Of the 70 total CREATE projects, 17 have been completed, 11 are under construction, seven are in design, 14 are in environmental review, and 21 remain to be initiated pending funding availability.31

27 Illinois State Transportation Plan Special Report: Mobility and Reliability, December 2007, http://www.illinoistransportation

plan.org/pdfs/mobility_reliability.pdf, accessed October 2013. 28 Federal Railroad Administration, “The Chicago Region Environmental and Transportation Project (CREATE),” http://www.fra.

dot.gov/us/content/1486, accessed April 2013. 29 Welcome, http://www.createprogram.org/index.htm, accessed April 2013. 30 About CREATE, http://www.createprogram.org/about.htm, accessed April 2013. 31 CREATE Project Status Summary as of March 2013, http://www.createprogram.org/linked_files/status_map.pdf, accessed April 2013.

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• Illinois Tollway/Move Illinois. The Move Illinois program is a $12 billion capital improvement project to improve mobility in the Air Trade Area. These infrastructure improvements are also designed to relieve congestion, reduce pollution, and link the Air Trade Area to other economies across northern Illinois. The project includes: rebuilding the Jane Addams Memorial Tollway (I-90); constructing a new interchange to connect the Tri-State Tollway (I-294) to I-57; and building the Elgin O’Hare Western Access Project. In addition, Move Illinois is reducing, recycling, and reusing materials in order to minimize the environmental impact of new roadway construction.32

• Highway Improvement Projects. Significant investments in highway improvement projects are currently underway in the Air Trade Area, including: Interstate 55 Improvements ($108 million); IL Route 64 Bridge Replacement ($49 million); IL Route 53 Reconstruction ($46 million); U.S. Route 20 Interchange Reconstruction ($44 million); IL Route 31 Realignment ($33 million); and Willow Road (Cook County) Reconstruction ($27 million).33

• Northwestern Memorial Hospital Outpatient Care Pavilion. This $322 million state-of-the-art medical building is scheduled to open in 2014. It will offer a comprehensive array of diagnostic and therapeutic services. Facilities will include an ambulatory surgery center and a diagnostic testing center with advanced imaging MRI, CAT scan, and ultrasound services. The building will have sustainable design features such as high efficiency fixtures and systems, a green roof, and sustainable building materials to conserve energy. It is designed to achieve Leadership in Energy and Environmental Design (LEED) certification.34

• Northwestern University Music and Communications Building. Located in Evanston, this five-story, 155,000 square-foot facility will include teaching studios, offices, classrooms, practice rooms, and rehearsal space. With a budget of $117 million, it will also have a 400-seat recital hall. Project completion is planned for 2015.35

• Malcolm X College and School of Health Sciences. This $251 million, 11.5-acre state-of-the-art community college is a major investment in Chicago’s West Side and will accommodate 20,000 students. Focused on health science education, the facility will provide general and adult education programs, a virtual hospital, simulation labs, sports science, and occupational programs. A parking garage, 25,000 square-feet of student study and activity space, and a new conference facility with capacity for 1,300 will also be constructed. Project completion is scheduled for late 2015.36

• Hyatt Regency McCormick Place Expansion. The first phase of this $110 million project broke ground early in 2012 and includes the construction of a tower with 446 rooms and 14 suites. Later

32 Move Illinois: The Illinois Tollway Driving the Future, http://www.illinoistollway.com/move-illinois;jsessionid=F5ABCFEDAA

C81E40C070C2F5401EF225, accessed April 2013. 33 Illinois Department of Transportation, Project Information, http://dot.state.il.us/projects.html, accessed April 2013. 34 “Top Project Starts of 2012,” ENR Midwest, April 1, 2013; Outpatient Care Pavilion, http://ocp.nmh.org/, accessed April 2013. 35 “Top Project Starts of 2012,” ENR Midwest, April 1, 2013; Music and Communication Building http://www.northwestern.edu/

fm/projects/current/construction/bienen.html, accessed April 2013. 36 Construction Begins on New Malcolm X College Campus, October 2, 2013, http://www.ccc.edu/news/Pages/Construction-Begins-on-

New-Malcolm-X-College-Campus.aspx, accessed October 2013.

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phases will include the renovation of existing facilities, including meeting spaces, 800 guest rooms, the main lobby, and restaurant.37

4.2.5 AIR TRADE AREA TOURISM INDUSTRY

The tourism industry employs many workers in the Air Trade Area and provides a significant source of demand for air travel. Analyses of the Air Trade Area’s tourism industry, convention business, and visitor attractions are provided below.

In 2012, the leisure, hospitality, and food-service sectors employed an estimated 492,000 workers in the Air Trade Area.38 Approximately 46.37 million people traveled to the Air Trade Area in 2012. This is a 6.4 percent increase over the visitor level in 2011 (43.59 million). The Air Trade Area’s visitors generated $12.8 billion in direct spending and $805.6 million in state and local tax revenue in 2012.39

The list of recent awards shown in Table 4-19 reflects the Air Trade Area’s popularity among visitors and meeting planners. Publications ranging from Travel + Leisure, Conde Nast Traveler, Lonely Planet, Forbes, and Foreign Policy named Chicago a top destination from 2010 through 2013. Chicago has also been cited as a top location for commerce, sporting events, and cultural attractions by Business Traveler magazine, Site Selection magazine, The Sporting News, and American Style magazine. In addition, the Chicago Convention & Tourism Bureau (now Choose Chicago) has been a 22-time winner of the Pinnacle Award from Successful Meetings magazine in recognition of its meeting planning services. 40 In 2012 the Chicago Convention & Tourism Bureau was recognized by Meetings & Conventions magazine with a Gold Service Elite Award that honors convention and visitors bureaus that have excelled in their service to meeting professionals.41

37 “Hyatt Regency McCormick Place Announces Phase Two of Expansion and Renovation,” http://www.mccormickplace.com/ about-us/pr-

pdf-12/11-12-hyatt-expansion-phase-2.pdf, accessed April 2013. 38 Woods & Poole Economics Inc., 2013 Complete Economic and Demographic Data Source (CEDDS), January 2013. 39 Chicago Tourism Profile, 2012 Edition, http://www.choosechicago.com/includes/content/docs/ MEDIA/2012ChicagoVisitationReport.pdf,

accessed October 2013. 40 Pinnacle Awards 2012 CVB Winners, Successful Meetings magazine, http://www.successfulmeetings.com/article.aspx?id=15013, accessed

April 2013. 41 2012 Gold Service Elite, Meetings & Conventions magazine, http://www.meetings-conventions.com/gold-awards-elite-winners.aspx, April

2013.

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RECIPIENT AWARD

City of Chicago 2013 Best North American Business Meetings Destination — Business Traveler Magazine2013 #2 Most Searched For City Online — Yahoo.com2013 Top 10 Most Stunning Skylines in the World — CheapFlights.com2012 #2 Top City in the U.S./Canada — Travel + Leisure Magazine World's Best Awards2012 #3 City in the U.S. — Conde Nast Traveler Magazine Readers' Choice Awards2012 #4 World's Top Nine Destinations — CNN Travel Web Site2012 #9 Top 10 U.S. Travel Destinations — Lonely Planet Magazine2011 #1 Top Metro in the U.S. for Business Expansion — Site Selection Magazine2011 #1 Rank in America's Best Downtowns — Forbes Magazine2011 #2 Top Metro in the U.S. for Corporate Investment — Site Selection Magazine2011 #3 Top City in the U.S./Canada — Travel + Leisure Magazine World's Best Awards2011 #2 Top 25 Big Cities for Art — American Style Magazine2011 #4 Best Sports City in the U.S. — The Sporting News2011 #11 Top 16 Global Cities To Watch — Foreign Policy Magazine2010 #1 City For Recent College Graduates — Gradspot.com2010 #1 Best Sports City in the U.S. — The Sporting News2010 #2 Fun City in U.S. — Portfolio.com Fun Index2010 #2 Top 25 Big Cities for Art — American Style Magazine2010 #3 Best U.S. City for Food & Drink — Portfolio.com Fun Index2010 #3 Top 10 Summer Travel Destinations — Orbitz.com2010 #4 Coolest City in the U.S. — Forbes Magazine2010 #4 Top City in the U.S. — Conde Nast Traveler Magazine Readers' Choice Awards2010 #4 Top City in the U.S./Canada — Travel + Leisure Magazine World's Best Awards2010 #5 Top 10 Food & Wine Destinations in the World — TripAdvisor.com2010 #6 Global Cities Index — Foreign Policy Magazine

O'Hare International Airport 2013 Best Airport Food — Outside Magazine Travel Awards2012 Best Airport in North America — Global Traveler Awards2012 North America's Leading Airport — World Travel Awards

ChooseChicago (formerly 2012 Gold Service Award — Meetings & Conventions MagazineChicago Convention & 2012 Pinnacle Award — Successful Meetings MagazineTourism Bureau) 2011 Gold Service Award — Meetings & Conventions Magazine

2010 Gold Service Award — Meetings & Conventions Magazine

McCormick Place 2011 Certificate of Appreciation — TSEA Windy City ChapterConvention Center 2010 Strategic Partnership — Professional Convention Management Association

2010 Association Meetings Inner Circle Award — MeetingsNet 2010

Millennium Park 2012 #7 World's Most Popular Landmarks — Travel + Leisure Magazine World's Best Awards

SOURCES: ChooseChicago.com; concierge.com; publication web sites, April 2013.PREPARED BY: Partners for Economic Solutions, April 2013.

Table 4-19 (1 of 2): Travel and Destination Awards 2010-2013

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HOTELS, RESTAURANTS, CLUBS, SPAS AWARD

Four Seasons Chicago 2013 Gold List — Conde Nast Traveler Magazine2013 500 Best Hotels in the World — Travel + Leisure Magazine World's Best Awards2013 Five Star Award Winner — Forbes Travel Guide Awards2012 #22 Top 50 Large City Hotels — Travel + Leisure Magazine World's Best Awards2012 Gold List — Conde Nast Traveler Magazine

Hilton Chicago 2012 Gold Key Award — Meetings & Conventions Magazine

Hotel Burnham 2012 Gold List — Conde Nast Traveler Magazine

Hyatt Regency Chicago 2012 Gold Key Award — Meetings & Conventions Magazine2011 Gold Key Award — Meetings & Conventions Magazine2011 Pinnacle Award Hotels & Resorts Winner - Successful Meetings Magazine

JW Marriott Hotel 2012 Pinnacle Award Hotels & Resorts Winner - Successful Meetings Magazine2011 Hot List Hotels — Conde Nast Traveler Magazine

Marriott Downtown Magnificient Mile 2012 Gold Key Award — Meetings & Conventions Magazine

Park Hyatt Chicago 2013 Gold List — Conde Nast Traveler Magazine2013 500 Best Hotels in the World — Travel + Leisure Magazine World's Best Awards2012 Gold Key Award — Meetings & Conventions Magazine2012 #27 Top 50 Large City Hotels — Travel + Leisure Magazine World's Best Awards2012 Gold List — Conde Nast Traveler Magazine2011 Gold List — Conde Nast Traveler Magazine

Q Center 2012 Pinnacle Award Conference Center Winner - Successful Meetings Magazine2011 Pinnacle Award Conference Center Winner - Successful Meetings Magazine

Renaissance Blackstone 2012 Gold List — Conde Nast Traveler Magazine

Sheraton Chicago Hotel & Towers 2012 Pinnacle Award Hotels & Resorts Winner - Successful Meetings Magazine2011 Pinnacle Award Hotels & Resorts Winner - Successful Meetings Magazine2011 Gold Key Award — Meetings & Conventions Magazine

Sofitel Chicago Water Tower 2013 500 Best Hotels in the World — Travel + Leisure Magazine World's Best Awards

Swissotel Chicago 2012 Pinnacle Award Hotels & Resorts Winner - Successful Meetings Magazine2011 Pinnacle Award Hotels & Resorts Winner - Successful Meetings Magazine

The Peninsula Chicago 2013 Gold List — Conde Nast Traveler Magazine2013 Five Star Award Winner — Forbes Travel Guide Awards2013 500 Best Hotels in the World — Travel + Leisure Magazine World's Best Awards2012 #3 Top 50 Large City Hotels — Travel + Leisure Magazine World's Best Awards2012 #43 Top 100 World's Best Hotels — Travel + Leisure Magazine World's Best Awards2012 Gold List — Conde Nast Traveler Magazine2011 #3 Top 200 Mainland Hotels in the U.S. — Conde Nast Traveler Magazine Readers' Choice Awards2011 Gold List — Conde Nast Traveler Magazine

The Public 2012 Hot List Hotels — Conde Nast Traveler Magazine

The Ritz-Carlton Chicago 2013 Gold List — Conde Nast Traveler Magazine2013 500 Best Hotels in the World — Travel + Leisure Magazine World's Best Awards2012 #37 Top 50 Large City Hotels — Travel + Leisure Magazine World's Best Awards2012 Gold List — Conde Nast Traveler Magazine

The Westin Chicago River North 2012 Gold Key Award — Meetings & Conventions Magazine

The Wit 2012 Pinnacle Award Hotels & Resorts Winner - Successful Meetings Magazine2011 Pinnacle Award Hotels & Resorts Winner - Successful Meetings Magazine

Trump International 2013 Five Star Award Winner — Forbes Travel Guide AwardsHotel & Tower 2013 500 Best Hotels in the World — Travel + Leisure Magazine World's Best Awards

2012 #29 Top 50 Large City Hotels — Travel + Leisure Magazine World's Best Awards

Waldorf Astoria Chicago 2013 Gold List — Conde Nast Traveler Magazine2012 #1 Top 50 Large City Hotels — Travel + Leisure Magazine World's Best Awards2012 #22 Top 100 World's Best Hotels — Travel + Leisure Magazine World's Best Awards2012 #1 Top 25 Hotels in the U.S. — TripAdvisor.com2012 Gold List — Conde Nast Traveler Magazine

Alinea 2013 Five Star Award Winner — Forbes Travel Guide Awards2013 Three Star Restaurants — Michelin Guide Chicago2012 Three Star Restaurants — Michelin Guide Chicago2012 America's Top Restaurants — Zagat

Charlie Trotter's 2012 Two Star Restaurants — Michelin Guide ChicagoL20 2013 Five Star Award Winner — Forbes Travel Guide AwardsLao Sze Chuan 2013 Best Chinese Restaurants in the U.S. — Travel + Leisure Magazine World's Best AwardsLes Nomades 2012 America's Top Restaurants — ZagatNext 2012 #3 Top 10 Best New Restaurants in America — GQ MagazineRia 2012 Two Star Restaurants — Michelin Guide ChicagoRuxbin 2012 #9 Top 10 Best New Restaurants in America — GQ MagazineSchwa 2012 America's Top Restaurants — Zagat

Violet Hour 2012 #7 Best Bar in America — Esquire Magazine

NoMI Spa, Park Hyatt Chicago 2012 Hot List Spas — Conde Nast Traveler Magazine

SOURCES: ChooseChicago.com; concierge.com; publication web sites, April 2013.PREPARED BY: Partners for Economic Solutions, April 2013.

Table 4-19 (2 of 2): Travel and Destination Awards 2010-2013

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Convention Business

Chicago ranks third in the U.S. in terms of the number of conventions it hosts. 42 Containing 2.6 million square feet of exhibit space, McCormick Place is the Air Trade Area’s primary meeting and exhibition venue. 43 With four separate buildings all connected by concourses and sky bridges, McCormick Place is designed to be flexible in accommodating a range of events44 and it is able to accommodate two conventions simultaneously. 45

In support of the Air Trade Area’s meetings and conventions, there are 84 hotels with approximately 34,550 rooms and 1.45 million square feet of meeting space located within five miles of McCormick Place. 46 In total, metropolitan Chicago contains an estimated 108,000 hotel rooms. 47 Recent and future openings or expansions of 11 hotel properties with 2,710 rooms in downtown Chicago include: SOHO House Hotel; Thompson Chicago (247 rooms); Langham Chicago Hotel (316 rooms); Fairfield Inn & Suites Chicago Downtown (180 rooms); Hyatt Place Chicago Downtown River North (212 rooms); Aloft Chicago City Center (272 rooms); The Godfrey Hotel Chicago (228 rooms); Virgin Hotel Chicago (250 rooms); Hotel Indigo (145 rooms); Loews Hotels & Resorts (400 rooms); and Hyatt Regency McCormick Place (460-room expansion).48

Support for tourism and conventions is a high priority for the business community, civic organizations, and government officials in the Air Trade Area. As a result, significant and permanent measures adopted by the Metropolitan Pier and Exposition Authority (the operator of McCormick Place and Navy Pier) have lowered exhibitor costs and improved Chicago’s competitive position as a convention location. 49

Since these reforms were implemented, more than $4 billion in renewed, new, or extended shows have been signed for McCormick Place including: Americas Incentive Business Travel & Meetings Exhibition; American Library Association; Book Expo America; Chicago Comic & Entertainment Expo; International Manufacturing Technology Show; and National Restaurant Association. Many of these groups cited the work rule reforms at McCormick Place and Navy Pier as a key factor in their selection decision. 50

Several other efforts have been initiated to improve Chicago’s visibility as a tourist destination. In 2012 Mayor Emanuel announced the City’s goal of attracting 50 million visitors per year by 2020. At the same time, the

42 Trade Shows, Chicago Business Overview, http://www.biztradeshows.com/usa/chicago/business.html, accessed April 2013. 43 About Us, http://mccormickplace.com/about-us/about-us.php, accessed April 2013. 44 Facility Overview, http://mccormickplace.com/facility-overview/facility.php, accessed April 2013. 45 McCormick Place Floor Plans, http://mccormickplace.com/floor-plans/floor-plans.php, accessed April 2013. 46 Chicago Hotels within 5 Miles of McCormick Place, http://www.choosechicago.com/articles/view/Current-Chicago-Hotel-Supply-/73/,

accessed October 2013. 47 Chicago Market Hotel Industry Outlook: 2010–2013, November 2010, HVS Global Hospitality Services. 48 2013-2013 hotel openings and expansions in downtown Chicago, http://www.choosechicago.com/articles/view/Hotels/262/, accessed

October 2013. 49 ChooseChicago.com News Releases June 2012, “Mayor Emanuel Announces Critical Union Agreement at McCormick Place and Navy Pier,”

http://www.choosechicago.com/articles/view/MAYOR-EMANUEL-ANNOUNCES-CRITICAL-UNION-AGREEMENT-AT-McCORMICK-PLACE-AND-NAVY-PIER/246/, accessed April 2013.

50 Choose Chicago 2012 Annual Report, http://www.choosechicago.com/includes/content/docs/media/ChooseChicago_Annual Report_2012.pdf, accessed April 2013.

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Mayor streamlined the City’s tourism organizations by combining the Chicago Convention & Tourism Bureau and the Chicago Office of Tourism and Culture into a new entity, Choose Chicago. In February 2013, Choose Chicago announced a $5 million marketing campaign to promote access to the City through O'Hare and Midway Airports. The mission of the campaign is to increase airport usage while publicizing Chicago as a destination for both domestic and international travelers.51 To serve meeting professionals and other clients in international markets, Choose Chicago operates public relations and tourism offices in Brazil, Canada, China, Germany, Japan, Mexico, the Netherlands, and the United Kingdom. 52

Visitor Attractions

Major visitor attractions in the Air Trade Area include: Navy Pier (8.7 million visitors), Millennium Park (4.5 million visitors), Lincoln Park Zoo (3.0 million visitors), Six Flags Great America (2.7 million visitors), Brookfield Zoo (2.3 million), Shedd Aquarium (2.1 million visitors), Art Institute of Chicago (1.8 million visitors), Museum of Science and Industry (1.5 million visitors), Skydeck Chicago (formerly Sears Tower, 1.4 million visitors), Field Museum of Natural History (1.2 million visitors), Chicago Botanic Garden (905,000), Chicago Cultural Center (897,000 visitors), Adler Planetarium & Astronomy Museum (444,000 visitors), and Chicago Children’s Museum (381,000 visitors). 53

Chicago is internationally renowned for its architectural history, and the preservation of historical structures. Architects such as Louis H. Sullivan, Frank Lloyd Wright, and Ludwig Mies van der Rohe designed buildings that remain major Chicago landmarks. Every year, an estimated 507,000 people attend lectures, exhibits, and architecture tours sponsored by the Chicago Architecture Foundation. 54

Performing arts facilities in the Air Trade Area include the Symphony Center, the Civic Opera House, and the Harris Theater for Performance and Dance. These venues are home to the Chicago Symphony Orchestra, the Civic Light Opera, and the Chicago Jazz Ensemble. Professional theater and comedy venues in the Air Trade Area include the Steppenwolf Theatre, the Goodman Theatre, and The Second City.

Chicago is home to 26 miles of lakefront, 552 parks, 19 miles of lakefront bicycle paths, and an urban forest preserve, among other recreational amenities.55 In terms of spectator sports, several professional teams are based in Chicago, and the City is regularly named among the best destinations for sporting events in the U.S. The Cubs play at historic Wrigley Field, the oldest baseball park in the National League; the White Sox (American League baseball) play at U.S. Cellular Field; the Bears (football) play at Soldier Field along the City’s lakefront; and the Bulls (basketball) and Blackhawks (ice hockey) play at the United Center.

51 ChooseChicago.com, News Releases February 21, 2013, Mayor Emanuel Announces Further Investment in Choose Chicago to Build on

First Year of Success in Promoting Chicago as an International Travel Destination,” http://www.choosechicago.com/ articles/view/MAYOR-EMANUEL-ANNOUNCES-FURTHER-INVESTMENT-IN-CHOOSE-CHICAGO-TO-BUILD-ON-FIRST-YEAR-OF-SUCCESS-IN-PROMOTING-CHICAGO-AS-AN-INTERNATIONAL-TRAVEL-DESTINATION/850/, accessed April 2013.

52 Choose Chicago Departments and Office Locations, http://www.choosechicago.com/articles/view/Departments-Office-Locations/338/, accessed April 2013.

53 2013 Book of Lists, Crain’s Chicago Business. 54 CAF Fact Sheet 2013, http://www.architecture.org/document.doc?id=86, accessed April 2013. 55 Chicago Fun Facts, http://www.choosechicago.com/articles/view/CHICAGO-FUN-FACTS/452/, accessed April 2013.

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4.3 Economic Outlook

4.3.1 SHORT-TERM ECONOMIC OUTLOOK

Economic activity in the U.S. continues to expand at a moderate pace. Recent data indicate signs of improvement in the housing sector, business fixed investment, labor market conditions, and household spending.56

The most recently published forecast by business economists from the NABE indicates consensus for modest real GDP growth of 1.6 percent in 2013 and 2.8 percent in 2014. The NABE forecast estimates that the average annual U.S. unemployment rate will be 7.5 percent in 2013 and 7.0 percent in 2014.57

Recent data from the Manpower Employment Survey Outlook indicate that 16 percent of employers in the Air Trade Area plan to increase hiring in the fourth quarter of 2013. Another 74 percent plan to maintain their current workforce levels, nine percent expect to reduce staff, and one percent are not certain of their hiring plans According to the Manpower survey, job prospects in the Air Trade Area appear positive in nondurable goods manufacturing, transportation and utilities, wholesale and retail trade, information, professional business services, education, health services, and leisure and hospitality.58

4.3.2 LONG-TERM ECONOMIC OUTLOOK

Table 4-20 presents selected 2012 and 2022 economic figures for the Air Trade Area and for the U.S. as projected by Woods & Poole Economics, Inc. In several instances, the growth expectations are similar for the Air Trade Area and the U.S., and in all cases the economic data show positive growth rates. Notably, per capita measures of income and GDP/GRP are higher for the Air Trade Area than for the U.S. on average, indicating a continued relative ability of passengers in the Air Trade Area to utilize air travel as a means of transportation.

56 FRB Press Release: “Federal Reserve Issues FOMC Statement,” September 18, 2013, http://www.federalreserve.gov/newsevents/

press/monetary/20130918a.htm, accessed October 2013. 57 NABE Outlook, September 2013, National Association for Business Economics. 58 Manpower Press Home, September 10, 2013, http://press.manpower.com/tag/chicago-naperville-joliet-il-in-wi-msa/, accessed October

2013.

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VARIABLE 1/ 2/ 2012 2022 CAGR 2012-2022

ATA Population 9,683,116 10,388,659 0.7%

US Population 312,308,189 347,210,015 1.1%

ATA Total Employment 5,387,583 5,575,372 0.3%

US Total Employment 160,064,049 172,414,856 0.7%

ATA Total Personal Income ($ billion) $455.77 $547.89 1.9%

US Total Personal Income ($ billion) $13,294.55 $16,732.05 2.3%

ATA Per Capita Personal Income $47,068 $52,739 1.1%

US Per Capita Personal Income $42,569 $48,190 1.2%

ATA Gross Regional Product ($ billion) $540.53 $658.14 2.0%

US Gross Domestic Product ($ billion) $14,847.58 $18,870.22 2.4%

ATA Per Capita GRP $55,822 $63,351 1.3%

US Per Capita GDP $47,541 $54,348 1.3% NOTES:

1/ ATA = Air Trade Area

2/ All dollar amounts are in 2012 dollars.

SOURCE: Woods & Poole Economics Inc., 2013 Complete Economic and Demographic Data Source (CEDDS) , January 2013.

PREPARED BY: Partners for Economic Solutions, April 2013.

Table 4-20: Forecast of Selected Economic Variables (2012-2022)

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5. Passenger Demand and Air Service Analysis

This chapter describes historical and projected aviation activities at the Airport and discusses key factors affecting trends in these activities.

5.1 Airlines Serving the Airport

As of October 2013, six U.S. airlines – AirTran Airways, Delta Air Lines (and its affiliates), Frontier Airlines, PublicCharters, Southwest Airlines, and Sun Country – and two foreign flag carriers – Porter Airlines and Volaris – provided scheduled service at Midway. Other than PublicCharters, which offers scheduled charter service, four of the U.S. flag carriers is classified by the U.S. DOT as a Group III airline, which are U.S. airlines with the largest total annual revenues. Sun Country is classified as a Group II airline.1 The Airport currently offers service from one-third (four of 12) of the U.S. Group III scheduled passenger air carriers. Table 5-1 lists the airlines serving the Airport as of October 2013. On May 2, 2011, Southwest acquired AirTran and on March 1, 2012, the FAA issued the combined airlines a single operating certificate, allowing the conversion of AirTran aircraft and airport facilities to the Southwest livery. Southwest has said that due to integration complexities, particularly relating to its ticketing system, the two airlines will continue operating separately for a period of time. Southwest plans to fully integrate AirTran into its operations by 2014.2,3 In this Report, any references to Southwest refers to activity operated by Southwest and any data that combines Southwest and AirTran activity is indicated as such.

Table 5-2 presents the scheduled airlines that have served the Airport since at least 1999. Note that prior to its merger with Delta and the FAA granting Delta a single operating certificate on January 1, 2010, Northwest Airlines and its affiliates also provided scheduled service at the Airport. Specific points regarding the scheduled air carrier base at the Airport are discussed below:

1 As defined by the U.S. DOT, Group III airlines have operating revenues of more than $1 billion per year. Group II airlines have operating revenues over $100 million to $1 billion per year.

2 Note: In this section, Southwest Airlines figures exclude AirTran unless otherwise noted. 3 Southwest Airlines Co. 2012 Form 10-K, accessed March 2013.

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Table 5-1: Scheduled Airlines Serving Midway 1/

PASSENGER AIRLINES (8)

AirTran

Delta

Frontier

Porter

PublicCharters

Sun Country

Southwest

Volaris

NOTES: The FAA issued Southwest and AirTran a single operating certificate in March 2012. However, due to integration complexities, the airlines will continue to operate separately until completely integrating operations by the end of 2014.

1/ As of October 2013.

SOURCE: Innovata, September 2013.

PREPARED BY: Ricondo & Associates, Inc., September 2013.

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AIR CARRIER 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1/

AirTran

Delta/Delta Connection 2/

Frontier

Southwest

Porter

Public Charters

Volaris

Sun Country

VivaAerobus

Branson AirExpress

ATA/ATA Connection

Continental/Continental Express

Big Sky

Air Midwest

American/American Eagle

United/United Express

Canjet

US Airways Express

Mexicana

Vanguard

National

America West

Pro Air

NOTES: The FAA issued Southwest and AirTran a single operating certificate in March 2012. However, due to integration complexities, the airlines will continue to operate separately until completely integrating operations by the end of 2014.

1/ As of October 2013.

2/ Also includes activity for Northwest/Northwest Airlink carriers.

SOURCE: Innovata, October 2013.

PREPARED BY: Ricondo & Associates, Inc., October 2013.

Air Carriers No Longer Serving the Airport

Table 5-2: Scheduled Air Carrier Base at Midway

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• Except for PublicCharters which began providing scheduled charter service in 2010, all of the U.S. passenger airlines currently providing services at the Airport have done so in each of the years shown in Table 5-2.

• Porter initiated service at the Airport in November 2008, providing daily nonstop service to Toronto, Canada.

• Volaris initiated service at the Airport in January 2011 with daily service to Guadalajara, Mexico. It has since added other Mexican destinations with less-than-daily service to Leon, Mexico City, Morelia, and Zacatecas.

• Sun Country Airlines began new service from the Airport to Minneapolis/St. Paul International Airport (MSP) in July 2013.

• As discussed later in this chapter, the presence of low-cost carriers has generated significant activity at the Airport. In 1979, Midway Airlines initiated low-fare service at the Airport, where it operated a hub until ceasing operations in 1991. Southwest initiated low-fare service at the Airport in 1985 and is now Midway’s largest operator with 88.0 percent of its total enplaned passengers in 2012. When combined with AirTran, Southwest’s share of enplanements at the Airport in 2012 was 92.0 percent. American Trans Air began low-fare service in 1992 after Midway Airlines ceased operations and began its partnership with Chicago Express as American Trans Air Connection in 2000. American Trans Air Connection terminated service in late 2004 and American Trans Air ceased all service in 2008.

• Between September and December 2010, Branson AirExpress flew between the Airport and Branson, Missouri. AirTran replaced Branson AirExpress in providing seasonal service to Branson in May 2011. As of October 2013, daily service to Branson is provided by Southwest.

• Mexican low-cost carrier VivaAerobus operated limited service to Monterey, Mexico, between October 2011 and April 2012.

• While there have been changes in the composition of airlines serving the Airport since 2003, none had any noteworthy lasting adverse impacts on overall Airport activity. Since 2003, growth in enplaned passengers occurred each year except in 2005 and 2008.

5.2 Historical Airport Activity

The following sections present a review of the Airport’s historical passenger activity, air service, aircraft operations, aircraft landed weight, and cargo activity.

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5.2.1 PASSENGER ACTIVITY The Airport is classified by the FAA as a large hub facility based on its percentage of the nation’s enplaned passengers,4 and ranked 26th nationwide in 2012 with 19.5 million enplaned and deplaned passengers.5 Table 5-3 presents historical enplaned passengers for the Airport and the nation. As shown, the number of enplaned passengers at the Airport increased from 2.1 million in 1992 to 9.7 million in 2012. This increase represents a CAGR of 8.0 percent during this period, compared to 2.4 percent nationwide. The Airport’s share of total U.S. enplaned passengers increased from 0.409 percent in 1992 to 1.334 percent in 2012, reflective of the higher CAGR experienced at the Airport compared to the nation during this period.

Exhibit 5-1 illustrates the long-term growth trends at the Airport between 1992 and 2012, as well as the Airport’s resilience to the financial volatility of the airline industry. As shown, the Airport experienced a 38.5 percent decrease in enplaned passengers in 1992, followed by a 49.8 percent increase in 1993; a 1.0 percent decrease in 1996 and 0.6 percent decrease in 1997, followed by a 15.3 percent increase in 1998; a 9.7 percent decrease in 2005, followed by a 5.7 percent increase in 2006; and an 11.4 percent decrease in 2008, followed by a 2.9 percent increase in 2009. This ability of the Airport to rebound quickly is primarily due to the large origin-destination (O&D) passenger base, its favorable location within the Air Trade Area, its low-fare options, the wide variety of destinations served nonstop, and the desire of airlines to serve this air service market.

During the period from 2002 to 2012, the number of enplaned passengers at the Airport increased from 8.2 million to 9.7 million. This increase represents a CAGR of 1.7 percent, compared to 1.5 percent nationwide. From 2002 to 2012, the Airport’s share of total U.S. enplaned passengers has fluctuated from year to year; however in 2012 the Airport’s share of total U.S. enplaned passengers was 1.3 percent, comparable to 2002. As shown in Table 5-4, Southwest doubled its daily nonstop service at the Airport from 125 flights in 29 markets to 250 flights in 63 markets between 2002 and 2013. Following the transfer of six gates from American Trans Air to Southwest in December 2004, Southwest embarked on a significant service expansion at the Airport. From 2004 to 2006, the airline added 67 daily flights and 17 destinations to its Midway schedule.

Southwest continues to add service from the Airport; to date in 2013, it has initiated service to Branson, Missouri; Charlotte, North Carolina; Jacksonville, Florida; Rochester, New York; Tulsa, Oklahoma; and Wichita, Kansas. AirTran launched service to Memphis, Tennessee; Montego Bay, Jamaica; and Punta Cana, Dominican Republic in 2013. Frontier is scheduled to reinstate four-weekly services to Trenton, New Jersey in November 2013. In March 2014, Southwest is scheduled to initiate once-weekly service to West Palm Beach, Florida.

4 As defined by the FAA, a large hub airport enplanes one percent or more of enplaned passengers nationwide during a calendar year. 5 2012 North American Traffic Summary, Airports Council International – North America.

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AIRPORT AIRPORT U.S. TOTAL U.S. MARKET

YEAR ENPLANEMENTS 1/ GROWTH ENPLANEMENTS 2/ GROWTH SHARE

1992 2,089,005 (38.5%) 510,500,514 14.6% 0.409%

1993 3,129,849 49.8% 519,952,555 1.9% 0.602%

1994 4,467,770 42.7% 561,973,398 8.1% 0.795%

1995 4,679,343 4.7% 581,963,300 3.6% 0.804%

1996 4,631,286 (1.0%) 613,518,432 5.4% 0.755%

1997 4,604,356 (0.6%) 637,639,427 3.9% 0.722%

1998 5,310,909 15.3% 649,002,127 1.8% 0.818%

1999 6,377,686 20.1% 675,525,321 4.1% 0.944%

2000 7,325,397 14.9% 704,847,677 4.3% 1.039%

2001 7,407,025 1.1% 693,148,020 (1.7%) 1.069%

2002 8,156,138 10.1% 627,651,689 (9.4%) 1.299%

2003 8,921,057 9.4% 643,224,649 2.5% 1.387%

2004 9,519,472 6.7% 690,967,755 7.4% 1.378%

2005 8,595,983 (9.7%) 733,406,048 6.1% 1.172%

2006 9,087,611 5.7% 732,886,414 (0.1%) 1.240%

2007 9,288,348 2.2% 756,525,465 3.2% 1.228%

2008 8,229,304 (11.4%) 747,466,798 (1.2%) 1.101%

2009 8,468,470 2.9% 695,488,533 (7.0%) 1.218%

2010 8,734,214 3.1% 702,818,621 1.1% 1.243%

2011 9,352,766 7.1% 721,387,972 2.6% 1.296%

2012 9,671,619 3.4% 725,202,832 3/ 0.5% 1.334%

Year-to-Date

January - September

FY 2012 7,259,921 N/A

FY 2013 7,615,628 N/A

Percentage Change 4.9% N/A

Compounded

Annual Growth Rate

1992 - 2012 8.0% 1.8%

2002 - 2012 1.7% 1.5%

NOTES:

1/ 12 months ending December 31. Excludes general aviation, military, helicopter, and miscellaneous passengers included in the

City of Chicago's Chicago Department of Aviation Management Records.

2/ 12 months ending September 30.

3/ Estimated by the FAA.

SOURCES: City of Chicago, Chicago Department of Aviation Management Records (Airport activity); FAA (U.S. activity), August 2013.

PREPARED BY: Ricondo & Associates, Inc., September 2013.

Table 5-3: Historical Enplanements at Midway

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Exhibit 5-1: Historical Enplaned Passengers at Midway

SOURCES: City of Chicago, Department of Aviation Management Records (Airport activity); FAA (U.S. activity), September 2013. PREPARED BY: Ricondo & Associates, Inc., September 2013.

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Midway Airlines ceases operations

ATA decreased service

ATA ceases operations

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MARKET 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1/

Baltimore 8 8 8 8 8 8 8 8 8 8 7 7 7 7 7

Birmingham 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

Cleveland 8 8 8 8 8 8 8 8 7 7 6 6 7 7 7

Columbus 6 6 6 6 6 6 6 6 6 6 6 6 7 7 7

Detroit 10 10 10 9 8 7 7 7 7 7 6 6 7 6 6

Hartford 2 2 2 2 2 2 3 3 3 3 3 3 3 3 3

Houston 1 2 2 2 3 3 5 6 6 6 6 6 6 7 7

Indianapolis 5 5 5 5 5 5 4 4 4 4 4 4 4 4

Islip 2 2 2 3 3 3 4 4 4 4 4 4 4

Jackson 2 2 2 2 2 2 2 2 2 2 2 2 2 1 1

Kansas City 16 16 16 15 14 14 11 11 11 11 10 10 9 9 10

Las Vegas 2 2 3 3 6 8 10 11 11 11 9 9 10 10 9

Little Rock 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

Louisville 6 6 6 5 5 5 5 5 5 5 5 5 5 5 5

Manchester 2 2 2 2 2 2 4 4 4 4 4 4 4 4 3

Nashville 8 8 8 8 8 8 8 8 8 8 7 7 8 8 8

Omaha 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6

Orlando 2 2 2 2 2 3 7 7 7 7 7 7 7 7 6

Phoenix 1 2 3 4 4 4 7 8 8 8 7 7 7 7 7

Providence 3 3 3 3 3 3 4 4 4 4 4 4 4 4 3

Raleigh/Durham 3 3 3 3 3 3 4 4 4 4 4 4 4 4 4

St. Louis 15 14 14 12 11 10 10 10 10 10 9 9 9 9 10

Tampa 1 2 3 3 3 3 7 7 7 6 5 5 5 5 4

Albuquerque 1 1 1 1 1 2 2 2 2 2 2 2 2 2

Fort Lauderdale 1 2 2 2 3 5 5 5 4 4 4 4 4 3

Los Angeles 2 3 4 6 7 7 7 6 6 6 7 7

Oakland 2 3 4 6 6 6 5 3 3 4 4 4

San Diego 2 4 4 4 4 4 4 4 4 4 4 4

Seattle 2 2 2 3 3 3 3 3 3 4 4 4

Philadelphia 2 6 7 7 7 7 7 6 6 6

Albany 1 2 2 2 2 2 2 2 2

Austin 1 1 2 2 2 2 2 2 3

Buffalo 1 3 3 4 4 4 4 4 4

Fort Myers 1 2 2 2 2 2 3 3 2

New Orleans 1 1 1 1 1 1 2 2 3

Norfolk 1 1 2 2 2 2 2 2 2

Pittsburgh 3 6 6 6 5 5 6 6 6

Portland, OR 1 2 2 2 2 2 3 3 3

Sacramento 1 1 1 1 1 1 2 1 1

Salt Lake City 1 2 2 2 2 2 2 2 2

San Antonio 1 2 2 2 2 2 2 2 2

San Jose 1 1 1 1 1 1 1 1 1

Tucson 1 1 2 2 2 2 2 2 2

Denver 5 6 7 8 9 9 9 9

Reno 1 1 1 1 1 1 1 1

Washington, D.C. 2 6 6 6 6 6 6 6

San Francisco 1 3 3 3 3 3 3

Boston 5 5 5 5 5

Minneapolis 8 8 7 7 8

New York 5 5 5 5 6

Ontario 1 1 1 1

Santa Ana 1 1 1 1

Charleston, SC 2 2 2

Greenville/Spartanburg 2 2 2

Newark 6 6 6

Akron/Canton 2 2

Atlanta 5 4

Des Moines 2 2

Oklahoma City 1 2

Branson 2

Charlotte 2

Jacksonville 1

Rochester 2

Spokane 1

Tulsa 1

Wichita 2

Total 112 116 120 125 130 136 180 203 211 212 217 220 235 238 250

NOTES: Excludes routes operated entirely by AirTran. AirTran operates additional routes that will transition to Southwest as the airlines continue to integrate operations through 2014.

1/ Daily operations based on June's average weekday schedule. Operations in first year of service based on announced scheduled date.

SOURCE: Innovata, October 2013.

PREPARED BY: Ricondo & Associates, Inc., September 2013.

Table 5-4: Daily Nonstop Service by Southwest at Midway 1/

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• 1999 – 2004: Midway experienced significant growth in passenger traffic between 1999 and 2004, increasing from 6.4 million enplaned passengers in 1999 to 9.5 million in 2004, a record high for the Airport at that time. This increase represents a CAGR of 8.3 percent during this period, compared to 0.6 percent nationwide. American Trans Air and American Trans Air Connection initiated an aggressive expansion of their operations at the Airport in 1999, with their combined share of enplaned passengers increasing from 24.8 percent in 1999 to 43.2 percent in 2004. As depicted in Table 5-4, Southwest expanded its operations at the Airport during this time frame as well, increasing the number of markets served from 23 in 1999 to 30 in 2004. Southwest’s expansion propelled an increase in its number of enplaned passengers at the Airport from 2.9 million in 1999 to 4.0 million in 2004. Notably, Midway was the only airport nationwide that experienced increased passenger activity during the 1999 to 2004 period, which was marked by a nationwide economic slowdown from 2000 to 2002 and the terrorist attacks of September 11, 2001. Midway was also the only large-hub airport in the country to experience passenger growth in 2002 from 2001 levels.

• 2005: The first bankruptcy filing by American Trans Air in October 2004 and the termination of American Trans Air Connection service by Chicago Express in March 2005 resulted in an overall decrease of approximately 1.0 million enplaned passengers at the Airport from 2004 to 2005. As shown in Table 5-4 and discussed earlier, Southwest expanded its service from the Airport by adding 13 markets and 44 daily flights in 2005. This expansion more than made up for the aforementioned dip in activity, increasing the number of enplaned passengers served by Southwest at the Airport from 4.0 million in 2004 to 5.5 million in 2005

• 2006 – 2007: The number of enplaned passengers at the Airport increased by 5.7 percent in 2006 and by 2.2 percent in 2007 – or from 8.6 million in 2005 to 9.3 million in 2007 – a CAGR of 3.9 percent during this period (compared to 1.5 percent nationwide).

• 2008: Record-high fuel prices and poor economic conditions in 2008 led the airlines to dramatically reduce capacity systemwide to better match supply (seats) to demand (passengers). These factors, as well as the elimination of service by American Trans Air in April 2008 following its second bankruptcy, resulted in enplaned passengers at the Airport declining from 9.3 million in 2007 to 8.2 million in 2008, an 11.4 percent decrease.

• 2009: Enplaned passengers at the Airport increased 2.9 percent in 2009 from 2008 levels, making Midway one of only three of the 29 large-hub airports to experience growth in domestic passenger activity in 2009. This growth – from 8.3 million enplaned passengers in 2008 to 8.5 million in 2009 – was still approximately 1.0 million below the record-high levels reached in 2004. Two other airports to record gains in this period were San Francisco International Airport and Baltimore/Washington International Thurgood Marshall Airport, which recorded gains of 3.9 percent and 1.5 percent, respectively.

• 2010: Enplaned passengers increased 3.1 percent at the Airport over 2009 levels. While U.S. domestic seat capacity dropped by 0.8 percent, Southwest’s capacity at the Airport grew, albeit a slight 0.1 percent. Southwest’s enplaned passengers grew by 5.2 percent at the Airport, as it captured a disproportionate share of the domestic enplaned-passenger growth (0.7 percent) in that period. The full-year effect of new market additions (New York LaGuardia and Boston Logan) in late 2009 were primary drivers of 2010 growth. In 2010, Delta reduced its presence at the Airport by approximately

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30 percent, with the most significant capacity reductions occurring in service to New York LaGuardia and Minneapolis/St. Paul. Service to LaGuardia was terminated in 2010.

• 2011: Enplaned passengers at the Airport grew 7.1 percent from 2010 levels. Like 2010, Southwest, the primary carrier at the Airport, increased capacity at the Airport by 6.2 percent while domestic capacity grew by only 0.6 percent. This enabled Southwest to capture a disproportionate share of the domestic enplaned-passenger growth of 2.3 percent; its enplaned-passenger growth at the Airport grew by a much-larger 8.4 percent. Contributing to the Airport’s growth were new market additions by Southwest (Newark, New Jersey; Charleston, South Carolina; and Greenville/Spartanburg, South Carolina). In 2010, Delta’s presence at the Airport fell by another 12 percent, due largely to the year-over-year effects of the capacity reductions it initiated in 2010.

• 2012: Similar to 2011, Southwest’s continued growth into new markets such as Atlanta has been the key driver of growth at the Airport. Southwest’s overall capacity at the Airport increased by 3.1 percent, and enplaned passengers increased by 3.4 percent at the Airport.

• 2013 YTD (Jan-Sept): Enplaned passengers at the Airport increased 4.9 percent YTD compared to the same period in 2012. During this period, enplaned passengers for Southwest have increased 4.1 percent and 30.9 percent for AirTran. Combined (Southwest and AirTran) enplaned passengers increased 5.2 percent. In addition, PublicCharters (21.7 percent), Vision (47.2 percent), Volaris (16.6 percent), and Frontier (4.2 percent) enplaned passengers increased 2013 YTD compared to 2012 YTD. Delta carriers and Porter enplaned passengers decreased 6.0 percent and 0.4 percent, respectively.

Table 5-5 presents originating, connecting, and total enplaned passengers at the Airport from 1999 through 2012. As shown, the Airport’s percentage of originating passengers remained relatively stable between 2002 and 2008, ranging from 69 to 75 percent of total enplaned passengers. The impacts of American Trans Air Connection initiating service at the Airport in 2000 and discontinuing service in late 2004 are evidenced by the significant growth in connecting passengers between 2000 and 2004, followed by the significant decrease in 2005 from 2004 levels. After 2008, the percentage of originating passengers fell to its lowest level of 62.2 percent in 2012, reflecting the growth of connecting activity in Southwest’s operations at the Airport. As illustrated in Table 5-6, the number of originating passengers per departure on Southwest has remained relatively constant while load factors have increased over time, as passengers on connecting itineraries filled in capacity that historically went unused. Note that AirTran operations have been excluded from this table in order to reflect capacity and demand management aboard aircraft fully connected within the Southwest network at Midway (Southwest and AirTran began code sharing between their respective networks in January 2013). During this same period, Southwest’s share of U.S. domestic enplaned passengers grew as legacy carriers reduced domestic capacity and focused their networks on more profitable international operations.

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ORIGINATING EP CONNECTING EP TOTAL TOTAL EP ORIGINATINGORIGINATING ANNUAL CONNECTING ANNUAL ENPLANED ANNUAL ENPLANEMENT

YEAR ENPLANEMENTS GROWTH ENPLANEMENTS GROWTH PASSENGERS 1/ GROWTH PERCENTAGE

1999 5,353,193 - 1,024,493 - 6,377,686 - 83.9%

2000 5,865,172 9.6% 1,460,225 42.5% 7,325,397 14.9% 80.1%

2001 5,503,697 (6.2%) 1,903,328 30.3% 7,407,025 1.1% 74.3%

2002 5,700,605 3.6% 2,455,533 29.0% 8,156,138 10.1% 69.9%

2003 6,243,039 9.5% 2,678,018 9.1% 8,921,057 9.4% 70.0%

2004 6,634,138 6.3% 2,885,334 7.7% 9,519,472 6.7% 69.7%

2005 6,431,517 (3.1%) 2,164,466 (25.0%) 8,595,983 (9.7%) 74.8%

2006 6,708,494 4.3% 2,379,117 9.9% 9,087,611 5.7% 73.8%

2007 6,532,362 (2.6%) 2,755,986 15.8% 9,288,348 2.2% 70.3%

2008 5,665,454 (13.3%) 2,563,850 (7.0%) 8,229,304 (11.4%) 68.8%

2009 5,647,591 (0.3%) 2,820,879 10.0% 8,468,470 2.9% 66.7%

2010 5,603,825 (0.8%) 3,130,389 11.0% 8,734,214 3.1% 64.2%

2011 5,848,082 4.4% 3,504,684 12.0% 9,352,766 7.1% 62.5%

2012 6,018,596 2.9% 3,653,023 4.2% 9,671,619 3.4% 62.2%

Compounded

Annual Growth Rate

1999 - 2012 0.9% 10.3% 3.3%

2002 - 2012 0.5% 4.1% 1.7%

NOTE:

Chicago Department of Aviation Management Records.

SOURCES: US DOT Origin & Destination Survey of Airline Passenger Traffic; City of Chicago, Department of Aviation Management Records, December 2012.

PREPARED BY: Ricondo & Associates, Inc., September 2013.

1/ Excludes general aviation, military, helicopter, and miscellaneous passengers included in the City of Chicago's

Table 5-5: Historical Originating and Connecting Enplanements at Midway

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Enplaned Passengers

O&D Passengers Connecting Passengers

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YEAR O&D CONNECTING TOTAL DEPARTURES SEATSSEAT

FACTOR SEATS O&D CONNECTIONS PAX/DEPT EMPTY SEATS PASSENGERS SEATS

1999 2,392,585 772,751 3,165,336 36,991 4,865,874 65.05% 131.5 65 21 86 46 12.6% 12.6%

2000 2,629,785 955,297 3,585,082 41,243 5,506,583 65.11% 133.5 64 23 87 47 13.2% 13.1%

2001 2,551,585 926,659 3,478,244 41,641 5,588,579 62.24% 134.2 61 22 84 51 14.2% 14.3%

2002 2,478,870 1,008,718 3,487,588 43,404 5,885,043 59.26% 135.6 57 23 80 55 14.1% 14.9%

2003 2,817,075 987,763 3,804,838 44,772 6,084,467 62.53% 135.9 63 22 85 51 13.6% 14.5%

2004 2,928,855 1,205,318 4,134,173 47,690 6,492,138 63.68% 136.1 61 25 87 49 13.7% 14.4%

2005 3,944,640 1,811,660 5,756,300 61,974 8,451,596 68.11% 136.4 64 29 93 43 14.2% 15.0%

2006 4,479,405 2,478,281 6,957,686 71,875 9,799,112 71.00% 136.3 62 34 97 40 15.4% 16.4%

2007 4,739,490 2,719,022 7,458,512 77,738 10,582,063 70.48% 136.1 61 35 96 40 15.9% 17.1%

2008 4,448,685 2,952,251 7,400,936 76,792 10,480,234 70.62% 136.5 58 38 96 40 16.6% 18.2%

2009 4,424,910 3,162,172 7,587,082 73,180 9,961,303 76.17% 136.1 60 43 104 32 17.3% 18.4%

2010 4,462,430 3,483,656 7,946,086 73,256 9,975,007 79.66% 136.2 61 48 108 28 17.7% 18.3%

2011 4,647,540 3,962,868 8,610,408 77,682 10,596,593 81.26% 136.4 60 51 111 26 18.2% 18.7%

2012 4,957,841 3,883,779 8,841,620 78,582 10,943,518 80.79% 139.3 63 49 113 27 21.0% 18.9%

NOTE: Only includes Southwest operations (excludes AirTran operations) in order to demonstrate capacity/demand management specific to Southwest.�

SOURCE: DOT T-100 data.

PREPARED BY: Ricondo & Associates, September 2013.

Table 5-6: Airport Trends of Southwest Airlines (Excludes AirTran Operations)

SOUTHWEST PERFORMANCE DATA AT CHICAGO MIDWAY SOUTHWEST'S

PASSENGERS (OUTBOUND) PER DEPARTURE AMOUNTS DOMESTIC SHARE OF

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Table 5-7 presents enplaned passengers by airline at Midway from 2008 through 2012. As shown, Southwest’s share of enplaned passengers increased from 84.4 percent in 2008 to 88.0 percent in 2012. When combined with AirTran, Southwest’s share of enplanements at the Airport was 92.0 percent in 2012. Delta and Frontier experienced modest decreases to their respective shares of enplaned passengers at the Airport between 2008 and 2012. After 2009, Southwest’s continued growth coupled with capacity reductions by Delta resulted in Southwest’s increased share of enplaned passengers. The introduction of international service by both Porter and Volaris has resulted in a modest but steady increase in shares of enplaned passengers since 2009 and 2011, respectively.

5.2.2 AIR SERVICE An important characteristic of airport activity is the distribution of the airport’s O&D markets, which is a function of air travel demands and available services and facilities. Table 5-8 presents data on the Airport’s top 20 O&D markets, as measured by the number of passengers, for 2012. Given the Airport’s central location in the U.S., the O&D markets are predominately short- to medium-haul markets (600 miles or less and between 601 and 1,800 miles, respectively), with only 2 of the Airport’s top 20 O&D markets being long-haul markets (over 1,800 miles). For the period shown, the Airport’s aggregate O&D markets had an average length of haul (i.e., passenger trip distance) of 905 miles, compared to an average length of haul of 1,122 miles nationwide. Historically, the average length of haul for the Airport has been relatively similar to that for the nation, reflecting the Airport’s central U.S. location and the strong demand for service to southern markets such as Orlando and to western markets such as Las Vegas and Phoenix.

As of October 2013, the airlines operating at the Airport provided nonstop service to 73 markets with a total of 279 daily flights. Each of the Airport’s top 20 O&D markets features nonstop service with a total of 152 daily flights. The top-ranked O&D market, Orlando, has six daily nonstop flights from the Airport. Other markets with significant nonstop service from the Airport include Minneapolis and Atlanta (each with 16 daily nonstop flights), Denver and New York/Newark (each with 12 daily nonstop flights, and Detroit (with 11 daily nonstop flights). Table 5-9 presents the Airport’s nonstop markets as of October 2013, including the markets served, daily flights, and airlines providing nonstop flights. Exhibit 5-2 graphically illustrates the markets served nonstop from the Airport in October 2013.

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AIRLINE ENPLANEMENTS SHARE ENPLANEMENTS SHARE ENPLANEMENTS SHARE ENPLANEMENTS SHARE ENPLANEMENTS SHARE

Southwest 6,941,870 84.4% 7,188,750 84.9% 7,561,053 86.6% 8,196,402 87.6% 8,515,527 88.0%

Delta 1/ 483,139 5.9% 596,699 7.0% 504,772 5.8% 461,287 4.9% 448,044 4.6%

AirTran 512,429 6.2% 487,087 5.8% 465,237 5.3% 413,717 4.4% 387,114 4.0%

Frontier 207,674 2.5% 164,749 1.9% 151,440 1.7% 158,405 1.7% 144,496 1.5%

Volaris - - - - 1,843 0.0% 50,390 0.5% 96,385 1.0%

Porter 2,528 0.0% 29,858 0.4% 47,359 0.5% 65,946 0.7% 72,075 0.7%

ATA 54,650 0.7% - - - - - - - -

Others 2/ 27,014 0.3% 1,327 0.0% 2,510 0.0% 6,619 0.1% 7,978 0.1%

Airport Total 3/ 8,229,304 100.0% 8,468,470 100.0% 8,734,214 100.0% 9,352,766 100.0% 9,671,619 100.0%

Southwest/AirTran Combined 7,454,299 90.6% 7,675,837 90.6% 8,026,290 91.9% 8,610,119 92.1% 8,902,641 92.0%

NOTES: The FAA issued Southwest and AirTran a single operating certificate in March 2012. However, due to integration complexities, the airlines will continue to operate separately until completely integrating operations by the end of 2014.

1/ Includes activity for Delta/Delta Connection and Northwest/Northwest Airlink carriers.

2/ Includes activity for charters and, airlines no longer serving the Airport except ATA

3/ Totals may not add due to individual rounding.

SOURCE: City of Chicago, Chicago Department of Aviation Management Records, January 2013.

PREPARED BY: Ricondo & Associates, Inc., September 2013.

Table 5-7: Historical Enplanements by Airline

20122010 20112008 2009

Southwest/AirTran92.0%

Delta 1/4.6%

Frontier1.5%

Volaris1.0%

Porter0.7%

Others 2/0.1%

2012 Airline Market Share of Enplaned Passengers

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CURRENTNONSTOP TRIP TOTAL O&D AVERAGE YIELD PER

RANK MARKET (AIRPORT CODES) SERVICE 2/ LENGTH 1/ PASSENGERS ONE-WAY FARE COUPON MILE

1 Orlando (MCO) MH 691,521 $121 $0.1223

2 Denver (DEN) MH 582,163 $113 $0.1257

3 New York/Newark (EWR, JFK, LGA) MH 557,554 $125 $0.1734

4 Las Vegas (LAS) MH 529,146 $148 $0.0976

5 Atlanta (ATL) SH 528,304 $119 $0.2016

6 Minneapolis (MSP) SH 414,254 $108 $0.3094

7 Phoenix (PHX) MH 373,778 $163 $0.1128

8 Los Angeles (LAX) LH 360,842 $152 $0.0867

9 Houston (HOU, IAH) MH 336,753 $178 $0.1901

10 Kansas City (MCI) SH 331,560 $125 $0.3087

11 Fort Lauderdale (FLL) MH 330,264 $135 $0.1161

12 Tampa (TPA) MH 327,196 $140 $0.1408

13 Fort Myers (RSW) MH 316,667 $137 $0.1241

14 Baltimore (BWI) MH 306,095 $166 $0.2721

15 Nashville (BNA) SH 281,455 $115 $0.2912

16 St. Louis (STL) SH 247,103 $113 $0.4491

17 Philadelphia (PHL) MH 237,478 $160 $0.2394

18 Boston (BOS) MH 223,378 $126 $0.1464

19 Washington, D.C. (DCA, IAD) SH 213,303 $136 $0.2365

20 San Diego (SAN) LH 211,322 $165 $0.0955

Average

Airport 3/ 905 $140 $0.1543

O'Hare 3/ 1,002 $176 $0.1756

United States 1,122 $176 $0.1569

NOTES:

1/ (SH) Short Haul = 0 to 600 miles

(MH) Medium Haul = 601 to 1,800 miles

(LH) Long Haul = over 1,800 miles

2/ As of October 2013.

3/ Domestic only

SOURCE: O&D Survey of Airline Passenger Traffic, U.S. DOT, September 2013.

PREPARED BY: Ricondo & Associates, Inc., September 2013.

Table 5-8: Primary O&D Passenger Markets for 2012

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DAILY NUMBER DAILY NUMBERNONSTOP OF NONSTOP OF

MARKET FLIGHTS AIRLINES AIRLINE MARKET FLIGHTS AIRLINES AIRLINE

Akron/Canton 2 1 Southwest Minneapolis 16 2 Delta(7), Southwest(7), Sun Country(2)

Albany 2 1 Southwest Montego Bay 1/ 1 1 AirTran

Albuquerque 2 1 Southwest Morelia 1 1 Volaris

Atlanta 16 3 AirTran(7), Delta(6), Southwest(3) Nashville 7 1 Southwest

Austin 3 1 Southwest New Castle 1/ 1 1 Frontier

Baltimore 7 1 Southwest New Orleans 3 1 Southwest

Birmingham 2 1 Southwest New York/Newark 12 1 Southwest

Boston 5 1 Southwest Norfolk 1 1 Southwest

Branson 2 1 Southwest Oakland 3 1 Southwest

Buffalo 4 1 Southwest Oklahoma City 2 1 Southwest

Cancun 1 1 AirTran Omaha 6 1 Southwest

Cincinnati 1 1 PublicCharters Ontario 1 1 Southwest

Charleston, SC 2 1 Southwest Orlando 6 2 AirTran(2), Southwest(4)

Charlotte 2 1 Southwest Philadelphia 6 1 Southwest

Cleveland 5 1 Southwest Phoenix 6 1 Southwest

Columbus 6 1 Southwest Pittsburgh 6 1 Southwest

Denver 12 2 Frontier(4), Southwest(8) Portland, OR 2 1 Southwest

Des Moines 2 1 Southwest Providence 3 1 Southwest

Detroit 11 2 Delta(6), Southwest(5) Punta Cana 1 1 AirTran

Fort Lauderdale 3 2 AirTran(1), Southwest(2) Raleigh/Durham 3 1 Southwest

Fort Myers 3 2 AirTran(1), Southwest(2) Rochester 2 1 Southwest

Greenville/Spartanburg 2 1 Southwest Sacramento 1 1 Southwest

Guadalajara 1 1 Volaris Salt Lake City 2 1 Southwest

Hartford 3 1 Southwest San Antonio 2 1 Southwest

Houston 7 1 Southwest San Diego 4 1 Southwest

Jackson 1 1 Southwest San Francisco 3 1 Southwest

Jacksonville 1 1 Southwest San Jose 1 1 Southwest

Kansas City 10 1 Southwest Seattle 3 1 Southwest

Las Vegas 10 1 Southwest St. Louis 9 1 Southwest

Leon 1/ 1 1 Volaris Tampa 5 1 Southwest

Little Rock 1 1 Southwest Toronto 5 1 Porter

Los Angeles 6 1 Southwest Tucson 1 1 Southwest

Louisville 5 1 Southwest Tulsa 1 1 Southwest

Manchester 3 1 Southwest Washington, D.C. 6 1 Southwest

Manistee 1 1 PublicCharters Wichita 2 1 Southwest

Mexico City 1 1 Volaris Zacatecas 1/ 1 1 Volaris

Memphis 2 1 AirTran

148 135

Total Flights 279

SOURCE: Innovata, October 17, 2013.

PREPARED BY: Ricondo & Associates, Inc., September 2013.

Table 5-9: Nonstop Markets for Midway

1/ Operations are not scheduled for October 17, 2013 and are excluded from the total. During the week of October 13 - 19: Leon operates 2x weekly, Montego Bay operates 3x weekly, New Castle operates 3x weekly, and Zacatecas operates 3x weekly.

NOTES: The FAA issued Southwest and AirTran a single operating certificate in March 2012. However, due to integration complexities, the airlines will continue to operate separately until completely integrating operations by the end of 2014.

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Destinations Served From Chicago Midway International Airport

SourCe: Innovata Schedule Data, 2013.PrePAreD by: ricondo & Associates, Inc., october 2013. Exhibit 5-2

NOtE:

As of october 2013.

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5.2.3 AIRCRAFT OPERATIONS

5.2.3.1 Total Aircraft Operations Table 5-10 presents numbers of aircraft operations (take-offs and landings) at Midway by major user group between 2002 and 2012. As shown, total operations at the Airport decreased from 304,304 in 2002 to 249,913 in 2012, an average annual decrease of 1.9 percent during this period. After a nearly 20 percent reduction in passenger airline operations in 2005 due to the substantial service reduction by American Trans Air, total aircraft activity at the Airport was relatively stable between 2005 and 2007, averaging approximately 300,000 annual operations during this period. The 12.6 percent decrease in total aircraft operations in 2008 from 2007 levels was primarily due to the cessation of service by American Trans Air in April 2008 following its second bankruptcy. Total aircraft operations at the Airport decreased a further 8.1 percent in 2009, from 266,341 in 2008 to 244,810 in 2009. In 2010, aircraft activity grew a modest 0.3 percent in total, assisted by a 9.2 percent rebound in general aviation activity, while passenger airline operations decreased 2.7 percent. In 2012 passenger airline increased 0.9 percent and general aviation operations decreased 10.0 percent, resulting in a 2.1 percent decrease in total operations at the Airport for the year.

5.2.3.2 Passenger Airline Operations Passenger airline activity at the Airport decreased from 211,468 operations in 2002 to 187,217 operations in 2012, an average annual decrease of 1.2 percent. As mentioned earlier, after the substantial service reduction by American Trans Air in 2005, passenger airline activity at the Airport increased between 2005 and 2007 to approximately 211,000 annual operations during this period. The 10.6 percent decrease in passenger airline operations in 2008 from 2007 levels was primarily due to the cessation of service by American Trans Air in April 2008 following its second bankruptcy. Poor economic conditions contributed to the 2.6 percent decrease in passenger aircraft operations at the Airport in 2009 from 2008 levels. While Southwest’s operations in 2010 remained flat compared to 2009, Delta’s total operations fell by approximately 21.4 percent. Southwest’s 6.0 percent increase in operations accounted for the majority of the 3.8 percent growth in passenger airline operations in 2011. In 2012, passenger airline operations increased by 0.9 percent. Southwest’s previously mentioned new markets accounted for the majority of growth in passenger airline operations in 2011 and 2012.

5.2.3.3 General Aviation Operations Between 2002 and 2007, general aviation activity at the Airport was relatively stable, averaging approximately 95,000 annual operations during this period. The Airport experienced a 7.0 percent increase in general aviation operations in 2003, due in part to the closure of Merrill C. Meigs Field Airport in March 2003. Poor economic conditions contributed to the decreases in general aviation activity at the Airport in 2008 and 2009, as the FBOs at the Airport (Atlantic Aviation, Million Air, and Signature) experienced reduced demand for their private jet charter service, historically a major source of general aviation activity at the Airport. With the improvement in economic conditions, general aviation activity at the Airport grew by 9.2 percent in 2010, and 4.5 percent in 2011. General aviation activity at the airport has decreased 10.0 percent in 2012. This is due in part to the closure of Odyssey Aviation (subsequent owners of the Million Air Facility). Atlantic Aviation and Signature Flight Support still operate at the Airport.

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PASSENGER ANNUAL GENERAL ANNUAL ANNUAL ANNUAL

YEAR AIRLINES GROWTH AVIATION 1/ GROWTH ALL CARGO GROWTH TOTAL GROWTH

1999 166,398 - 130,338 - 400 - 297,136 -

2000 190,942 14.8% 106,777 (18.1%) 396 (1.0%) 298,115 0.3%

2001 187,300 (1.9%) 91,046 (14.7%) 388 (2.0%) 278,734 (6.5%)

2002 211,468 12.9% 92,438 1.5% 398 2.6% 304,304 9.2%

2003 228,736 8.2% 98,891 7.0% 398 0.0% 328,025 7.8%

2004 242,127 5.9% 96,975 (1.9%) 406 2.0% 339,508 3.5%

2005 193,976 (19.9%) 95,315 (1.7%) 288 (29.1%) 289,579 (14.7%)

2006 203,728 5.0% 94,820 (0.5%) 0 N/A 298,548 3.1%

2007 211,010 3.6% 93,647 (1.2%) 0 N/A 304,657 2.0%

2008 188,748 (10.6%) 77,593 (17.1%) 0 N/A 266,341 (12.6%)

2009 183,752 (2.6%) 61,058 (21.3%) 0 N/A 244,810 (8.1%)

2010 178,877 (2.7%) 66,656 9.2% 0 N/A 245,533 0.3%

2011 185,594 3.8% 69,633 4.5% 0 N/A 255,227 3.9%

2012 187,217 0.9% 62,696 (10.0%) 0 N/A 249,913 (2.1%)

Compounded

Anuual Growth Rate

1999 - 2012 0.9% (5.5%) N/A (1.3%)

2002 - 2012 (1.2%) (3.8%) N/A (1.9%)

NOTES: N/A = not applicable.

1/ Includes general aviation, military, and miscellaneous operations.

SOURCE: City of Chicago, Chicago Department of Aviation Management Records, January 2013.

PREPARED BY: Ricondo & Associates, Inc., September 2013.

Table 5-10: Historical Aircraft Operations

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5.2.3.4 All-Cargo Carrier Operations Currently, all air cargo is handled as belly-hold cargo by the passenger airlines serving the Airport. Previously, Airborne Express had provided all-cargo service at the Airport with approximately one daily flight utilizing DC-9 aircraft. Airborne Express discontinued this service at the Airport in 2005.

5.2.4 LANDED WEIGHT Table 5-11 presents the shares of landed weight for the passenger airlines serving the Airport from 2008 through 2012. Similar to enplaned passengers, the largest share of total Airport landed weight belongs to Southwest. Southwest’s share of landed weight had remained near the mid-80 percentile in the years depicted ranging from a low of 83.0 percent in 2009 to a high of 85.0 percent in 2012. When combined with AirTran, Southwest’s share of landed weight was 88.9 percent in 2012. Trends in landed weight shares for the other carriers serving the Airport generally followed trends similar to their enplaned passenger market shares.

5.2.5 AIR CARGO The Airport handles a relatively small volume of air cargo annually. Whereas all-cargo activity was provided at the Airport by Airborne Express between 1999 and 2005, air cargo is currently only handled as belly-cargo by the passenger airlines serving the Airport. Table 5-12 presents historical enplaned and deplaned air cargo at the Airport between 1999 and 2012. As shown, total air cargo at the Airport ranged from a low of 14,254 tons in 2008 to a high of 29,035 tons in 2002. A general trend of decreasing air cargo activity occurred at the Airport between 2005 and 2008 due to the absence of Airborne Express. However, total air cargo handled at the Airport increased to 25,010 tons in 2009, a level last experienced prior to 2004, as Southwest increased its enplaned and deplaned freight handled from 14,253 tons in 2008 to 24,986 tons in 2009. In 2010, Southwest’s cargo tonnage grew to 26,005 and stayed flat through 2011. The Airport’s overall freight totals fell by 7.6 percent, however, due largely to Delta’s reduction in cargo tonnage from 1,962 in 2010 to 87 in 2011. In 2012, total cargo volume increased by 7.0 percent to 29,711 tons.

5.3 Factors Affecting Aviation Demand and the Airline Industry

This section discusses qualitative factors that could influence future aviation activity at the Airport. While some data and/or information related to these factors have not specifically been incorporated into the projections of Airport activity discussed in Section 5.4 (e.g., jet fuel prices), these factors were indirectly considered and analyzed in developing the projections.

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AIRLINE LANDED WEIGHT SHARE LANDED WEIGHT SHARE LANDED WEIGHT SHARE LANDED WEIGHT SHARE LANDED WEIGHT SHARE

Southwest 9,534,036 84.6% 9,057,414 83.0% 9,072,352 83.1% 9,672,292 83.9% 9,881,870 85.0%

Delta 1/ 732,891 6.5% 983,738 9.0% 709,482 6.5% 703,457 6.1% 608,634 5.2%

AirTran 602,800 5.4% 557,040 5.1% 519,976 4.8% 485,704 4.2% 454,032 3.9%

Frontier 262,757 2.3% 208,346 1.9% 190,085 1.7% 181,101 1.6% 160,849 1.4%

Volaris - - - - 2,013 0.0% 65,071 0.6% 123,598 1.1%

Porter 7,410 0.1% 103,617 0.9% 104,111 1.0% 104,975 0.9% 104,605 0.9%

Others 2/ 124,533 1.1% 5,313 0.0% 320,677 2.9% 319,289 2.8% 286,992 2.5%

Airport Total 3/ 11,264,427 100.0% 10,915,468 100.0% 10,918,696 100.0% 11,531,890 100.0% 11,620,580 100.0%

Southwest/AirTran Combined 10,136,836 90.0% 9,614,454 88.1% 9,592,328 87.9% 10,157,996 88.1% 10,335,902 88.9%

NOTES: The FAA issued Southwest and AirTran a single operating certificate in March 2012. However, due to integration complexities, the airlines will continue to operate separately until completely integrating operations by the end of 2014.

1/ Includes activity for Delta/Delta Connection and Northwest/Northwest Airlink carriers.

2/ Includes activity for charters and airlines no longer serving the Airport.

3/ Totals may not add due to individual rounding.

SOURCE: City of Chicago, Chicago Department of Aviation Management Records, January 2013.

PREPARED BY: Ricondo & Associates, Inc., September 2013.

2011

Table 5-11: Historical Landed Weight by Airline (Weight in 1,000 Pound Units)

2010 20122008 2009

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TOTAL ANNUAL

YEAR CARGO GROWTH

1999 21,503 -

2000 23,260 8.2%

2001 17,162 (26.2%)

2002 29,035 69.2%

2003 25,847 (11.0%)

2004 29,058 12.4%

2005 19,460 (33.0%)

2006 16,450 (15.5%)

2007 14,727 (10.5%)

2008 14,254 (3.2%)

2009 25,010 75.5%

2010 28,228 12.9%

2011 26,091 (7.6%)

2012 27,911 7.0%

Compounded

Annual Growth Rate

1999 - 2012 2.0%

2002 - 2012 (0.4%)

SOURCE: City of Chicago, Chicago Department of Aviation Management Records, January 2013.

PREPARED BY: Ricondo & Associates, Inc., September 2013.

Table 5-12: Historical Enplaned and Deplaned Cargo (Weight in Tons)

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5.3.1 NATIONAL ECONOMY Historically, trends in demand for air travel have been closely correlated with national economic trends, most notably changes in GDP. Chapter 4 presents an analysis of general economic trends, both national and local, which may influence demand for air service over time. As noted at the conclusion of Chapter 4, national GDP is expected to increase at a 1.3 percent annual growth rate through the Projection Period, which should support generally increasing demand for air service. Actual economic activity is likely to differ from this projection, especially on a year-to-year basis, with demand for air service likely reacting in kind.

5.3.2 STATE OF THE AIRLINE INDUSTRY In the aftermath of September 11, 2001, the U.S. airline industry saw a material adverse shift in the demand for air travel, which exacerbated problems for a U.S. airline industry already weakened by a slowing economy and rising labor and fuel costs. The result was four years of reported industry operating losses between 2001 and 2004, totaling more than $22 billion (excluding extraordinary charges and gains). Following these restructuring years, the airline industry finally gained ground through 2007 with U.S. airlines posting combined operating profits in all three years6. In 2008 and through the first half of 2009, the combination of record-high fuel prices, weakening economic conditions, and a weak dollar resulted in the worst financial environment for U.S. network and low-cost carriers since the September 11 terrorist attacks. In 2008, many of the domestic network competitors announced significant capacity reductions; increases in fuel surcharges, fares and fees; and other measures to address the challenges. These capacity cuts have improved conditions for the airlines, even if the recovery has been uneven across the regions. After a nearly $8 billion net profit for the global airline industry in 2012, the International Air Transport Association (IATA) is predicting a $11.7 billion profit in 2013. Globally, passenger traffic increased 5.3 percent from 2011 to 2012. North American airline profits are projected to be $4.9 billion in 2013, compared to $2.3 billion in 20127. This increase is due in part to North American carriers’ strict control on capacity in addition to consolidation and international joint ventures on major markets are driving efficiency gains.

5.3.2.1 Southwest Airlines

Based on enplaned passengers, Southwest is the largest airline operator at Midway with 88.0 percent of its total enplaned passengers in 2012. When combined with AirTran, Southwest’s share of 2012 enplanements was 92.0 percent. On January 24, 2013, Southwest reported its fourth quarter and full-year 2012 results. 2011 was Southwest’s 40th consecutive year of profitability. Excluding special items for both years, net income for fourth quarter 2012 was $65 million, comparable to fourth quarter 2011. Excluding special items for both years, net income for full year 2012 was $417 million, compared to $330 million for full year 2011. The year-over-year increase of approximately 26 percent was due to an increase in operating revenues and synergies derived from the integration of the AirTran subsidiary to the Southwest network8. On October 24, 2013, Southwest reported its third quarter results. Excluding special items, third quarter 2013 net income was $241 million, compared to $97 million for third quarter 2012.

6 Source: A4A (Airlines for America) 2009 Economic Report. 7 Source: International Air Transport Association (IATA), Financial Forecast, June 2013. 8 Source: Southwest Airlines Co. 2012 Form 10-K, accessed March 2013.

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On May 2, 2011, Southwest announced the closing on its acquisition of AirTran Holdings, Inc., the former parent company of AirTran Airways, Inc. (AirTran). The acquisition extended Southwest’s route network and added new markets, such as Atlanta and Washington, D.C., (Reagan National Airport), and provided access to international leisure markets in the Caribbean and Mexico. Southwest is integrating AirTran into the Southwest brand by transitioning the AirTran fleet to the Southwest livery and consolidating corporate functions into its Dallas headquarters.

In 2011, Midway became Southwest’s busiest airport in terms of passenger traffic. In 2000, the Airport ranked as the eighth-busiest airport in Southwest’s network with approximately 35 percent fewer enplaned passengers than the leader, Las Vegas. By 2011, Midway climbed ahead of Las Vegas with approximately 2.9 percent more enplaned passengers, making it the airline’s busiest airport. Even considering a consolidated Southwest/AirTran, Midway’s differential over Las Vegas grew to 4.3 percent in 2011. In 2012, Midway remains Southwest’s busiest airport in terms of passenger traffic and Las Vegas still ranks second in the network.

Southwest has taken steps to increase its average capacity per departure through a combination of aircraft orders, renovations, and retirements. As of December 31, 2012, Southwest had 694 aircraft (including those of AirTran), consisting of Boeing 717s (88 with 117 seats), 737-500s (20 with 122 seats), 737-300s (128 with 137 seats), 737-700s (424 with between 137 and 143 seats) and 737-800s (34 with 175 seats). In March 2012, the company began retrofitting 737-700s with an additional 6 seats, and in the first half of 2012 began taking delivery of 175-seat 737-800 aircraft. The airline plans a program of continued delivery of the 737-700 (104 firm deliveries through 2018) and the 737-800 (44 firm deliveries through 2014), while retiring its older and lower-capacity 737-300s and 737-500s. 78 Boeing 737-300 aircraft will be retained and retrofitted with six additional seats.

In addition, Southwest struck a deal with Delta to lease or sublease all of AirTran’s Boeing 717 aircraft at a rate of three per month beginning in August 2013. These aircraft are expected to be replaced by a combination of new 737 deliveries and delayed retirements of the 737-300/500 aircraft. In 2011, Southwest announced that it would be the launch customer for the more fuel efficient and new Boeing 737 MAX aircraft. They added to that order the Boeing 737NG aircraft to reduce fuel burn. It is anticipated that the 737 MAX will decrease fuel burn by approximately 10-11 percent over today’s most fuel efficient single-aisle airplane. Southwest have ordered 150 737 MAX aircraft (firm orders through 2024), expecting their first delivery in 2017. Southwest’s fleet plan for these new aircraft retains flexibility for model/seating choice.

5.3.3 COST OF AVIATION FUEL The price of fuel is one of the most significant forces affecting the airline industry today. In 2000, jet fuel accounted for nearly 14 percent of airline industry operating expenses and, historically, fuel expense was the second highest operating expense for the airline industry behind labor. In 2008, jet fuel surpassed labor as an airline’s largest operating expense and, according to the A4A (formerly the Air Transport Association), fuel comprised approximately 30.6 percent of an airline’s total operating costs while labor represented approximately 20.3 percent of the total. As oil prices fell in the first quarter of 2009, fuel expenses retreated and labor once again became the airline industry’s largest operating expense, representing 25.8 percent of total operating expenses while fuel was at 21.3 percent. However, fuel prices have again risen, and as of the first quarter of 2013, fuel was the largest operating expense for the airline industry, representing 28.3 percent of operating expenses.

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In July 2013, the average price of jet fuel was $2.89 per gallon. If jet fuel prices approach or surpass their mid-2008 peak (July’s average price was $3.84), aviation activity nationwide may be negatively impacted due to route reductions the airlines might make or higher ticket prices the airlines might impose in an attempt to remain profitable.

Exhibit 5-3 shows the monthly averages of jet fuel and crude oil prices from January 2007 through July 2013.

Exhibit 5-3: Historical Monthly Averages of Jet Fuel and Crude Oil Prices

SOURCE: Air Transport Association, September 2013. PREPARED BY: Ricondo & Associates, Inc., September 2013.

5.3.4 AIRLINE SEAT CAPACITY REDUCTIONS Exhibit 5-4 presents historical domestic seat capacity since 2005. Despite a decline in fuel prices from the record highs in 2008, the airlines continue to constrain seat capacity, keeping in place reductions implemented beginning in 2008. The largest scheduled quarterly decline occurred in the first quarter of 2009, as domestic seat capacity was decreased by 9.1 percent versus the first quarter of 2008. Demand for domestic air travel, as measured by revenue passengers, decreased at a similar rate of 11.1 percent during this period according to U.S. T-100. Domestic capacity continued to decline through the second quarter of 2010. As demand recovered, capacity increased between the third quarter of 2010 and the fourth quarter of 2011 when airlines, reacting in part to increased fuel prices and a sluggish U.S. economic outlook, reduced their capacity once again. Domestic capacity for the four quarters ending fourth quarter 2012 is at a level equal to the similar period ending third quarter 2010, and since has increased slightly.

$0.00

$0.50

$1.00

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$2.00

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07

Apr-

07

Jul-0

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Jan-

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Apr-

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8

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-08

Jan-

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Apr-

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Jul-0

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Jul-1

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Month - Year

Average Crude Oil PricesAverage Jet Fuel Prices

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Exhibit 5-4: Domestic Seat Capacity Since 2005

SOURCE: Innovata Schedule Data, September 2013. PREPARED BY: Ricondo & Associates, Inc., September 2013.

5.3.5 AIRPORT SECURITY With enactment of the Aviation and Transportation Security Act (ATSA) in November 2001, the Transportation Security Administration (TSA) was created and established improved security processes and procedures. The ATSA mandates certain passenger, cargo, and baggage screening requirements; security awareness programs for airport personnel; and deployment of explosive detection devices. The act also permits the deployment of air marshals on all flights and requires air marshals on all "high-risk" flights. The federal government controls aviation industry security requirements, which can significantly impact the economics of the industry. Security requirements due to unexpected events could increase costs directly and indirectly to the industry and could have an adverse effect on passenger demand through fare increases.

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2014Q2

Annu

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.S. D

omes

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eats

(mill

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Rolling Four Quarters

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5.3.6 THREAT OF TERRORISM As has been the case since September 11, terrorism incidents against either domestic or international aviation during the Projection Period pose a risk to achieving the activity projections contained herein. Any terrorist incident aimed at aviation would likely have an immediate and significant adverse impact on the demand for aviation services.

5.3.7 AIRLINE MERGERS AND ACQUISITIONS In recent years, airlines have experienced increased costs and industry competition both domestically and internationally. As a result, airlines have merged and acquired competitors in an attempt to increase operational synergies and become more competitive and cost-efficient. In 2009, Delta completed its merger with Northwest, initiating a wave of U.S. airline mergers and acquisitions. That same year, Republic Airways Holdings, a regional airline, bought Frontier Airlines of Denver and Midwest Airlines of Milwaukee. In October 2010, United and Continental merged, creating the world’s largest airline in terms of operating revenue and revenue passenger miles. As discussed earlier, in 2011, Southwest Airlines acquired AirTran Holdings, Inc., the former parent company of low-cost competitor AirTran.

AMR Corporation (AMR), the parent company of American Airlines, filed for bankruptcy protection on November 28, 2011. In January 2012, US Airways Group (the parent company of US Airways) publicly expressed interest in merging with AMR. In February 2013, American and US Airways announced plans to merge, which would create the largest airline in terms of operating revenue and revenue passenger miles (surpassing United). In the deal, American, United, and Delta will control three-quarters of the U.S. market.. On August 13, 2013, the U.S. Department of Justice, the States of Arizona, Florida, Tennessee, and Texas, the Commonwealths of Pennsylvania and Virginia and the District of Columbia, filed a civil action in the U.S. District Court for the District of Columbia under federal antitrust law to enjoin the planned merger of US Airways and AMR. A date of November 25, 2013 has been set for the trial. On September 12, 2013, the U.S. Bankruptcy Court confirmed AMR’s plan of reorganization, subject to the resolution of the antitrust litigation.

5.3.8 OTHER FACTORS AFFECTING THE AIRPORT

5.3.8.1 Other Area Airports O’Hare is located 15 miles north of Midway. The City owns both Midway and O’Hare, and each airport is accounted for as a separate Enterprise Fund of the City. As a result, revenues (as defined in the Bond Ordinance) resulting from the operation of Midway are not available to satisfy the obligations of O’Hare, and vice versa. The CDA is responsible for the management, planning, design, operation, and maintenance of the two airports.

CITY OF CHICAGO

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Demand for air service in the Air Trade Area is predominantly served through O’Hare, particularly for international air traffic (which is growing in absolute terms and in its share of total enplaned passengers at O’Hare) and for nonstop/business travel. Midway serves a distinct market segment in the Air Trade Area as a lower-fare alternative to a smaller number of domestic destinations. As discussed earlier, Midway has 279 daily nonstop flights to 73 markets (nine of which are international destinations), whereas O’Hare has an average of 1,227 daily nonstop flights to 191 markets (53 of which are international destinations). Table 5-13 presents enplaned passengers for Midway and O’Hare between 1999 and 2012. As shown, Midway’s share of total enplaned passengers steadily increased from approximately 15 percent in 1999 to approximately 20 percent in 2002. This increasing share was primarily due to the expansion of service at the Airport by Southwest, which added nonstop service to 15 markets during this period (eight new markets in 1999). Between 2002 and 2009, Midway generally maintained its 20 percent share of total enplaned passengers. As also shown, enplaned passengers at Midway increased at a CAGR of 2.6 percent between 2002 and 2007, similar to O’Hare’s 2.8 percent growth. Enplaned passengers at Midway and O’Hare decreased 11.4 percent and 9.9 percent, respectively, in 2008 from 2007 levels due to the impacts of the weakening economy and capacity cutbacks by the airlines during this period. O’Hare’s enplaned passengers continued to decrease 6.0 percent in 2009 from 2008 levels, while Midway’s passenger activity increased 2.9 percent during this same period. Between 2009 and 2012, the Airport experienced three more years of strong growth in enplaned passengers, highlighted by a 7.1 percent increase in 2011, largely the result of reduced domestic capacity by legacy carriers operating at ORD. In 2011, the Airport’s share of Chicago airport enplaned passengers grew to 22 percent. Enplaned passengers grew an additional 3.4 percent in 2012 and the Airport’s share of Chicago airport enplaned passengers increased to 22.5 percent.

Gary/Chicago International Airport (GYY), which is owned by the City of Gary, Indiana, and operated by the Gary/Chicago International Airport Authority, is also located in the Air Trade Area. As of October 2013, no scheduled passenger service is provided from Gary/Chicago International Airport. A request for proposals for the development and management of the Gary/Chicago International Airport and related assets was advertised in July 2013. As of October 25, 2013 the ad hoc committee of the Gary/Chicago International Airport Authority appointed to evaluate the proposals has entered into exclusive negotiations with Aviation Facilities Company Inc./AvPORTS. A final recommendation from the committee is expected in November 2013.

Chicago Rockford International Airport (RFD) is located outside of the Air Trade Area and approximately 75 miles to the northwest of the Airport. RFD is served by Allegiant Air and Frontier Airlines. However, that service only comprises 0.2 percent of the capacity offered from the Air Trade Area airports (ORD, MDW, and GYY) along with MKE and RFD.

The nearest medium- to large-hub commercial service airport outside the Air Trade Area is General Mitchell International Airport (General Mitchell or MKE), located approximately 85 miles north of Midway in Milwaukee, Wisconsin. This airport serves the commercial air service needs of Milwaukee, southeast Wisconsin, and portions of northern Illinois.

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ENPLANED ANNUAL ENPLANED ANNUAL ENPLANED ANNUAL

YEAR PASSENGERS GROWTH SHARE PASSENGERS GROWTH SHARE PASSENGERS GROWTH

1999 6,377,686 - 15.1% 35,947,716 - 84.9% 42,325,402 -

2000 7,325,397 14.9% 17.0% 35,700,949 (0.7%) 83.0% 43,026,346 1.7%

2001 7,407,025 1.1% 18.2% 33,310,229 (6.7%) 81.8% 40,717,254 (5.4%)

2002 8,156,138 10.1% 19.9% 32,918,936 (1.2%) 80.1% 41,075,074 0.9%

2003 8,921,057 9.4% 20.6% 34,433,532 4.6% 79.4% 43,354,589 5.5%

2004 9,519,472 6.7% 20.3% 37,444,548 8.7% 79.7% 46,964,020 8.3%

2005 8,595,983 (9.7%) 18.5% 37,947,987 1.3% 81.5% 46,543,970 (0.9%)

2006 9,087,611 5.7% 19.4% 37,764,444 (0.5%) 80.6% 46,852,055 0.7%

2007 9,288,348 2.2% 19.7% 37,763,062 (0.0%) 80.3% 47,051,410 0.4%

2008 8,229,304 (11.4%) 19.5% 34,011,186 (9.9%) 80.5% 42,240,490 (10.2%)

2009 8,468,470 2.9% 20.9% 32,035,155 (5.8%) 79.1% 40,503,625 (4.1%)

2010 8,734,214 3.1% 20.8% 33,219,772 3.7% 79.2% 41,953,986 3.6%

2011 9,352,766 7.1% 22.0% 33,194,708 (0.1%) 78.0% 42,547,474 1.4%

2012 9,671,619 3.4% 22.5% 33,231,201 0.1% 77.5% 42,902,820 0.8%

Weighted Average

2002 - 2012 20.3% 79.7%

Compounded

Annual Growth Rate

1999 - 2002 8.5% (2.9%) (1.0%)

2002 - 2007 2.6% 2.8% 2.8%

2007 - 2008 (11.4%) (9.9%) (10.2%)

2008 - 2009 2.9% (5.8%) (4.1%)

2009 - 2012 4.5% 1.2% 1.9%

1999 - 2012 3.3% (0.6%) 0.1%

2002 - 2012 1.7% 0.1% 0.4%

NOTE:

1/ Excludes general aviation, military, helicopter, and miscellaneous passengers included in the City of Chicago's statistics.

SOURCE: City of Chicago, Chicago Department of Aviation Management Records, January 2013.

PREPARED BY: Ricondo & Associates, Inc., September 2013.

TOTAL

Table 5-13: Historical Enplaned Passengers at Midway and O'Hare 1/

MIDWAY O'HARE

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Plans to build a third airport in the Chicago Region have been discussed for many years. The most likely site for such an airport is the Illinois DOT’s proposed South Suburban Airport site located near Peotone, Illinois (in Will County approximately 35 miles south of the City’s central business district). In 2001, the FAA published notice of a public comment period for a Tier I Draft Environmental Impact Statement (EIS) for Site Approval and Land Acquisition by the State at the Peotone site, to preserve the site as a potential option for a commercial service airport for the Chicago area. The draft EIS was approved by the FAA in July 2002 in a Record of Decision by the FAA which found that the Peotone site was technically and environmentally feasible for a new airport to serve the region. On July 25, 2013 Illinois Senate Bill 20 was signed into law which gives the Illinois DOT the authority on behalf of the State to enter into a public-private agreement for the development, financing, construction, management or operation of the South Suburban Airport. According to the South Suburban Airport website9, approximately 2,688 acres of the 5,800 acre area required for the inaugural site have been purchased by the State. It is not possible at this time to determine the viability of a new major commercial airport at the Peotone site or to predict whether or when any new regional airport would be constructed; nor is it currently possible to predict what effect, if any, such an airport would have on operations or enplanements at the Airport. However, demand for service from an alternative airport is not robust, as evidenced by the lack of sustained service at Gary/Chicago International. Additionally, airlines have publicly and consistently stated that they have no demand for the proposed airport10.

Exhibit 5-5 shows the airports in the Chicago Air Trade Area as well as Milwaukee’s General Mitchell International Airport (MKE), Chicago Rockford International Airport (RFD), and the proposed South Suburban Airport near Peotone, Illinois.

Table 5-14 provides a comparison of average fares and yields for Midway, O’Hare, and General Mitchell. As shown, average fares and yields for O’Hare and General Mitchell are in concert between 1999 and 2008, with those for Midway being lower. The average fare for General Mitchell dropped below that for O’Hare with the initiation of service by Southwest at General Mitchell in November 2009 (nonstop service to six markets with a total of 12 daily flights and 9.7 percent of total capacity). Southwest’s primary competitors in General Mitchell at the time were AirTran (19 destinations and 26.2 percent of capacity) and Midwest Airlines (30 destinations and 32.2 percent of capacity). Subsequently, Southwest acquired AirTran, as previously discussed, and has grown its combined size in Milwaukee to 48.7 percent of capacity, currently serving 20 markets. Midwest Airlines merged with Frontier, which reduced its capacity at General Mitchell by nearly 91.5 percent since 2009 and currently only comprises 4.0 percent of total capacity. General Mitchell’s capacity has fallen 27.1 percent since November 2009. As a percent of the total capacity in the area (the Air Trade Area plus General Mitchell), General Mitchell peaked at 11.1 percent in late 2010. It has since fallen below 8.0 percent. In contrast, during that same period, Midway’s capacity share grew from 20.7 percent to 22.9 percent.

9 See http://www.southsuburbanairport.com/LandAcquisition/LA-home.htm. 10 “United CEO: Chicago Area Doesn’t Need 3rd Airport”, The Associated Press, 19 April 2012.

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e

e

ee

e

100 mi.

I L L I N O I S

I N D I A N A

W I S C O N S I N

75 mi.

50 mi.

25 mi.RFD

e

PROPOSEDSOUTH

SUBURBANAIRPORT

ORD

MKE

MDW

GYY

EXHIBIT 5-5

Airports within the Chicago Air Trade Area

SOURCE: Environmental Systems Research Institute, 2010 (base map). PREPARED BY: Ricondo & Associates, Inc. , June 2013.

[NORTH 0 20 miles

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CHICAGO CHICAGO GENERAL CHICAGO CHICAGO GENERAL

CALENDAR YEAR MIDWAY O'HARE MITCHELL MIDWAY O'HARE MITCHELL

1999 $99 $178 $161 $0.1264 $0.1857 $0.1614

2000 $102 $187 $165 $0.1274 $0.1900 $0.1622

2001 $98 $166 $163 $0.1180 $0.1661 $0.1562

2002 $95 $146 $148 $0.1072 $0.1438 $0.1445

2003 $97 $146 $130 $0.1045 $0.1442 $0.1286

2004 $94 $139 $132 $0.1011 $0.1363 $0.1288

2005 $96 $137 $139 $0.1024 $0.1365 $0.1353

2006 $102 $148 $151 $0.1114 $0.1463 $0.1466

2007 $103 $148 $150 $0.1134 $0.1468 $0.1451

2008 $124 $164 $154 $0.1339 $0.1615 $0.1473

2009 $113 $147 $122 $0.1225 $0.1444 $0.1173

2010 $128 $164 $122 $0.1397 $0.1603 $0.1202

2011 $140 $177 $136 $0.1499 $0.1712 $0.1335

2012 $140 $176 $154 $0.1544 $0.1758 $0.1515

SOURCE: O&D Survey (DBIB),

PREPARED BY: Ricondo & Associates, Inc., September 2013.

Table 5-14: Comparison of Chicago Area Airport Domestic Fares and Yields

AVERAGE FARE AVERAGE YIELD

$0

$50

$100

$150

$200

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Average Fares

Midway O'Hare General Mitchell

$0.0000

$0.0500

$0.1000

$0.1500

$0.2000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Average Yields

Midway O'Hare General Mitchell

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5.3.8.2 Maximum Traffic Capacity The CDA estimates that Midway’s operational capacity, given current operations and infrastructure, is constrained at approximately 270,000 passenger airline operations, which was assumed equivalent to approximately 14.2 million enplaned passengers. As discussed earlier, there were 9.7 million enplaned passengers and approximately 186,000 passenger airline operations at the Airport in 2012, or roughly 68 percent of estimated operational capacity. Exhibit 5-6 shows hourly passenger airline operations during a representative weekday at the Airport. Peak activity occurs between 20:00 and 20:59. While airline selection of times relies on demand at certain times of day, the airport has ample capacity in the hours surrounding the peak. Based on the FAA’s most current Terminal Area Forecast, enplaned passengers at Midway will reach approximately 14.2 million in 2031. The CDA believes the Airport’s capacity can be enhanced through improvements to its (1) airspace capacity, (2) runway utilization, and (3) terminal and gate capacity.

Exhibit 5-6: Hourly Operations at Midway, October 17, 2013

SOURCE: Innovata schedule data, October 2013. PREPARED BY: Ricondo & Associates, Inc., September 2013.

0

5

10

15

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25

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5.4 Projected Airport Activity

Activity projections for the Airport are based on a number of underlying assumptions that are further based on national aviation trends, national and regional economic conditions, and our professional judgment. The following presents the specific assumptions used in developing activity projections at Midway through 2020.

• Demand for air service in the Chicago area will continue to be served predominantly through ORD, particularly for international air traffic. The Airport will continue in its role as a lower-fare alternative to a smaller number of primarily domestic destinations.

• Southwest will continue to dominate enplaned passenger market share at the Airport. Southwest will continue to use the Airport as its base of operations for serving the air travel demand in the Air Trade Area, and will not transfer any of its activity to ORD during the Projection Period.

• As discussed in Section 5.3.8.1, planning efforts are underway for a third commercial service airport located approximately 35 miles south of the City’s central business district (South Suburban Airport). Although it is difficult to determine South Suburban Airport’s impact on the Chicago Airport System or its opening date, as discussed earlier, it is not expected to attract significant demand away from the Airport during the Projection Period.

• Airline consolidations/mergers or bankruptcies that may occur during the Projection Period will not affect the number of enplaned passengers using the Airport. In fact, potential rationalization resulting from mergers could increase opportunities for the Airport to provide connections in a reduced-capacity marketplace. New airline alliances, should they develop, are assumed to be restricted to code sharing and joint frequent flyer programs, and will not reduce airline competition at the Airport.

• Economic disturbances will occur in the projection period causing year-to-year traffic variations; however, a long-term increase in nationwide traffic is expected to occur.

• For these analyses, and similar to the FAA's nationwide projections, it is assumed that there will not be terrorist incidents against either domestic or world aviation during the Projection Period.

Many of the factors influencing aviation demand cannot necessarily or readily be quantified, and any projection is subject to uncertainties. As a result, the projection process should not be viewed as precise. Actual future numbers of enplaned passengers and aircraft operations at the Airport may differ from the projections presented herein because events and circumstances do not occur as expected, and those differences may be material.

5.4.1 ENPLANED PASSENGER PROJECTIONS Table 5-15 presents historical and projected enplaned passengers at the Airport. Specific assumptions and points regarding enplaned passenger projections for the near term (2013) and longer term (2014 to 2022) are discussed below.

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AIRPORTYEAR TOTAL ANNUAL GROWTH

Historical

2002 8,156,138 10.1%

2003 8,921,057 9.4%

2004 9,519,472 6.7%

2005 8,595,983 (9.7%)

2006 9,087,611 5.7%

2007 9,288,348 2.2%

2008 8,229,304 (11.4%)

2009 8,468,470 2.9%

2010 8,734,214 3.1%

2011 9,352,766 7.1%

2012 9,671,619 3.4%

Projected

2013 10,092,877 4.4%

2014 10,351,033 2.6%

2015 10,604,855 2.5%

2016 10,854,342 2.4%

2017 11,099,494 2.3%

2018 11,340,311 2.2%

2019 11,576,794 2.1%

2020 11,808,942 2.0%

2021 12,036,755 1.9%

2022 12,260,234 1.9%

Compounded Annual Growth Rate

2002-2012 1.7%

2006-2012 1.0%

2007-2012 0.8%

2008-2012 4.1%

2012-2022 2.4%

SOURCES: City of Chicago, Chicago Department of Aviation Management Records (historical), August 2013.

Ricondo & Associates, Inc. (projected), September 2012.

PREPARED BY: Ricondo & Associates, Inc., September 2013.

Table 5-15: Enplanement Projections

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5.4.1.1 Projected Near-Term Enplaned Passengers—2013 Through September 2013, enplaned passengers at Midway were 4.9 percent higher compared to a similar period in 2012. Scheduled seat data by airline and load factors (using actual monthly load factors for 2012 as a base of reference for 2013) were used to derive enplaned passengers for the latter portion of 2013. With the assumption that the number of enplaned passengers will grow generally in line with scheduled capacity, enplaned passengers at the Airport are expected to increase 4.4 percent in 2013 from 2012 levels (i.e., from 9.7 million in 2012 to 10.1 million in 2013).

5.4.1.2 Projected Longer-Term Enplaned Passengers—2014 to 2022 To better understand the long-term growth potential in passenger activity at the Airport, projections of nationwide and local economic activity were examined and presented earlier in Chapter 4 of this report. As presented previously, Chapter 4 examined the local economy and concluded that the economic base of the Airport’s Air Trade Area is diversified, stable, and capable of generating longer-term increases in demand for air transportation at the Airport during the Projection Period. In addition, the geographic location of the Airport, as well as the large population and employment base in the Air Trade Area, should provide continued passenger growth at Midway.

Between 2008 and 2013 (as forecasted), domestic enplaned passengers at Midway grew at a faster rate than the nation on average, due largely to Southwest’s continued growth coupled with the legacy carriers’ domestic capacity reductions and shift in focus to the international market. It is assumed that in 2014 and beyond, the relatively high growth experienced at the Airport will have leveled, and that the Airport’s passenger activity will on average grow in line with forecasted growth in domestic enplaned passengers through 2022. This comparison is presented in Table 5-16.

Beyond 2013, enplaned passengers at the Airport are expected to increase at a CAGR of 2.2 percent through 2022, which is similar to the rate forecasted for the domestic U.S. market overall by the FAA.

5.4.2 AIRCRAFT OPERATIONS PROJECTIONS Table 5-17 presents historical and projected aircraft operations at Midway. As shown, passenger airline operations are projected to increase from 187,217 in 2012 to 221,666 in 2022, a CAGR of 1.7 percent during this period. The projected number of passenger airline operations between 2012 and 2022 was based on historical relationships among enplaned passengers, load factors, and average seating capacities of aircraft serving the Airport. Largely as a result of the fleet enhancements being undertaken by Southwest described earlier, the average number of seats per departure at the Airport is expected to increase from 132.7 in 2012 to 142.2 in 2014, and then to 143.9 in 2022, as Southwest shifts to a fleet of 737-700 with 143 seats per departure and 737-800 aircraft with 175 seats per departure, from a fleet with 122 to 137 seats per departure. The average load factor at the Airport was assumed to decrease initially from 82.2 percent with the allocation of larger aircraft at the Airport in the closer-in period, and then climb steadily to 81.1 percent in 2022. Passenger airline operations average annual growth projected at 1.7 percent between 2012 and 2022.

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YEAR AIRPORT U.S. DOMESTIC

2012 (estimate for U.S.) 9.7 653.7

2013 Projected 10.1 653.2

2022 Projected 12.3 793.6

CAGR 2012-2022 2.4% 2.0%

CAGR 2013-2022 2.2% 2.2%

NOTE: U.S. Domestic data presented is for federal fiscal year (ending September 30)

SOURCES: City of Chicago, Chicago Department of Aviation Management Records (historical), August 2013;

Ricondo & Associates, Inc. (projected), September 2013.

FAA Aerospace Forecast (Domestic Activity), FY 2013-2033

PREPARED BY: Ricondo & Associates, Inc., September 2013.

Table 5-16: Summary of Enplanement Projections (in millions)

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GENERAL ALL-CARGO AIRPORT

YEAR PASSENGER AIRLINES AVIATION 1/ CARRIERS TOTAL

Historical

2002 211,468 92,438 398 304,304

2003 228,736 98,891 398 328,025

2004 242,127 96,975 406 339,508

2005 193,976 95,315 288 289,579

2006 203,728 94,820 0 298,548

2007 211,010 93,647 0 304,657

2008 188,748 77,593 0 266,341

2009 183,752 61,058 0 244,810

2010 178,877 66,656 0 245,533

2011 185,594 69,633 0 255,227

2012 187,217 62,696 0 249,913

Projected

2013 189,421 62,592 0 252,013

2014 190,627 62,852 0 253,479

2015 194,822 63,111 0 257,933

2016 198,847 63,373 0 262,220

2017 202,693 63,638 0 266,331

2018 206,834 63,905 0 270,739

2019 210,445 64,177 0 274,622

2020 214,102 64,452 0 278,554

2021 217,929 64,731 0 282,660

2022 221,666 65,013 0 286,679

Compounded Annual Growth Rate

2002-2012 (1.2%) (3.8%) (100.0%) (1.9%)

2006-2012 (1.4%) (6.7%) NA (2.9%)

2007-2012 (2.4%) (7.7%) NA (3.9%)

2008-2012 (0.2%) (5.2%) NA (1.6%)

2012-2022 1.7% 0.4% NA 1.4%

NOTES: N/A = Not Applicable

1/ Includes general aviation and miscellaneous operations.

SOURCES: City of Chicago, Chicago Department of Aviation Management Records (historical), August 2013.

Ricondo & Associates, Inc. (projected), September 2013.

PREPARED BY: Ricondo & Associates, Inc., September 2013.

Table 5-17: Aircraft Operations Projections

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After a decrease in 2012 from 2011 levels, general aviation operations at the Airport are expected to increase moderately thereafter to 65,013 operations in 2022. The projected increase between 2012 and 2022 represents a CAGR of 0.4 percent during this period, comparable to growth projected nationwide by the FAA.

It is expected that air cargo volume at the Airport will continue to be handled solely as belly-hold cargo by the passenger airlines serving the Airport. As a result, there are no all-cargo operations projected for the Airport between 2012 and 2022.

5.4.3 LANDED WEIGHT PROJECTIONS Table 5-18 presents historical and projected landed weight at the Airport. As shown, passenger airline landed weight is projected to increase from 11,620,580 thousand-pound units in 2012 to 14,215,738 thousand-pound units in 2022, a CAGR of 2.0 percent during this period. This reflects the combined impact of increased number of passenger airline operations and the shifting of service to higher gauge B-737 aircraft by Southwest. There is no all-cargo landed weight projected for the Airport between 2012 and 2022.

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ALL-CARGOYEAR PASSENGER AIRLINES CARRIERS AIRPORT TOTAL

Historical

2002 11,437,111 20,285 11,457,396

2003 12,351,192 20,285 12,371,477

2004 13,075,727 20,682 13,096,410

2005 11,925,083 14,669 11,939,752

2006 12,228,311 0 12,228,311

2007 12,545,451 0 12,545,451

2008 11,264,427 0 11,264,427

2009 10,915,468 0 10,915,468

2010 10,918,696 0 10,918,696

2011 11,531,890 0 11,531,890

2012 11,620,580 0 11,620,580

Projected

2013 11,968,862 0 11,968,862

2014 12,121,720 0 12,121,720

2015 12,399,819 0 12,399,819

2016 12,669,231 0 12,669,231

2017 12,917,644 0 12,917,644

2018 13,181,595 0 13,181,595

2019 13,439,862 0 13,439,862

2020 13,692,465 0 13,692,465

2021 13,956,615 0 13,956,615

2022 14,215,738 0 14,215,738

Compounded Annual Growth Rate

2002-2012 0.2% (100.0%) 0.1%

2006-2012 (0.8%) NA (0.8%)

2007-2012 (1.5%) NA (1.5%)

2008-2012 0.8% NA 0.8%

2012-2022 2.0% NA 2.0%

NOTE: N/A = Not Applicable

SOURCES: City of Chicago, Chicago Department of Aviation Management Records (historical), August 2013;

Ricondo & Associates, Inc. (projected), September 2013.

PREPARED BY: Ricondo & Associates, Inc., September 2013.

Table 5-18: Landed Weight Projections, (Weight in 1,000 pound units)

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6. Financial Analysis

The financial structure of the Airport, the cost and other financial implications of the issuance of the Series 2013 Bonds along with the issuance of future bonds necessary to refund prior to maturity or pay at maturity certain Prior Airport Obligations, fund debt service reserve accounts and to fund certain projects part of the ongoing CIP are discussed in this chapter. Projections of O&M Expenses, non-signatory airline and non-airline revenues, PFC Revenue, Debt Service, net signatory airline requirements, Airport Fees and Charges, airline revenues, Debt Service coverage, and airline cost per enplaned passenger (CPE) are also discussed.

6.1 Financial Structure

The Airport is owned by the City and operated by the CDA and is accounted for as a self-supporting Enterprise Fund of the City, which is separate from, and not co-mingled with, ORD. The City maintains the books, records, and accounts of the Airport in accordance with GAAP and as required by the provisions of the Airport Use Agreements, the Bond Ordinance, and Bond Indentures as supplemented and amended. The City’s fiscal year ends December 31.

Airport accounting practices, including the Airport Use Agreements, the cost center structure used for airline rate-setting, the requirements governing the issuance of airport revenue bonds by the City are discussed in this section.

6.1.1 AIRPORT USE AGREEMENTS The Airport Use Agreements set forth the City’s main financial and operational arrangement with the airline tenants of the Airport. The City has entered into Airport Use Agreements with the five carriers currently operating at the Airport: Delta Air Lines, Frontier Airlines, Porter Airlines, Southwest Airlines, and Volaris (the Signatory Airlines). The Signatory Airlines entered into new 15-year Airport Use Agreements, effective January 1, 2013. The Airport Use Agreement continues the residual rate-setting methodology and daily average gate utilization requirements.

The Airport Use Agreements provide, among other things, contractual support of the Signatory Airlines for Bonds and other obligations issued to fund Airport capital improvements. The Airport Use Agreements are in place to formalize the rights and responsibilities of the Signatory Airlines and the CDA. Under the Airport Use Agreement, the City can finance Airport Capital Projects with Airport Obligations through the receipt of majority-in-interest (MII) approval of the Signatory Airlines. MII approval is reached through an affirmative

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vote from the Signatory Airlines holding a majority of the aggregate Airline Fees and Charges assessed to all Signatory Airlines and a majority in the number of Signatory Airlines with Airport Use Agreements.

Airlines or other users of the Airport who are not signatories to an Airport Use Agreement are assessed Airport fees and charges enacted by City ordinances. In the aggregate, the Signatory Airlines, including their subsidiaries, accounted for approximately 97.5 percent of the total landed weight at the Airport in 2012, of which Southwest Airlines represented 88.9 percent. Airlines that are not signatory to the Airport Use Agreement (Non-Signatory Airlines and Charters) accounted for the remaining 2.5 percent of landed weight.

6.1.2 AIRPORT FEES AND CHARGES Under the Airport Use Agreements, terminal rental rates, equipment, fueling, and airline landing fees are established using a residual airport methodology. In order to equitably allocate the net cost of operating, maintaining, improving, and expanding the Airport among the Signatory Airlines, various physical and functional areas of the Airport are separated for the purposes of accounting for the O&M Expenses, Revenues, required fund deposits, and Debt Service on Airport Obligations into the following Cost Centers:

Five Cost Centers in the Airport’s financial structure affect the residual calculation and adjustment of Airport Fees and Charges, as follows:

• Airfield Area. The Airfield Area includes the aircraft parking areas, runways, taxiways, approach and runway protection zones, infield areas, and other facilities related to aircraft taxiing, landing, and takeoff.

• Terminal Area. The Terminal Area includes the passenger terminal buildings, connecting structures, passenger walkways and tunnels, concourses, hold room areas, passenger loading bridges and control towers maintained by the City.

• Terminal Ramp Area. The Terminal Ramp Area includes the aircraft parking apron and all facilities, equipment and improvements, including aircraft parking areas and aircraft circulation and taxiing areas for access to the aircraft parking areas.

• Equipment. The Equipment Cost Center includes the terminal and airline equipment required for the handling and servicing of passengers, baggage, aircraft, and flight operations at the Airport.

• Fueling System. The Fueling System includes the tank farm and all facilities that are part of the Airport’s hydrant fueling system.

The revenues and expenses of the Parking and Roadway Area and Support Facilities, which are described below, are allocated within the Airfield, Terminal, and Terminal Ramp Cost Centers.

• Parking and Roadway. The Parking and Roadway Area includes all public and employee parking areas and all roads and facilities serving such parking areas, the Terminal Area access road, the terminal and frontage road, the exit road and all other roadways, rights-of-way, ramps, sidewalks and other facilities including the commercial vehicle storage lot, rental car ready-return lot and other parking areas leased to car rental and ground transportation concessions.

• Support Facilities Area. The Support Facilities Area includes aircraft rescue and firefighting facilities, airport maintenance complex/snow removal equipment facilities, fuel storage facilities, airline

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maintenance and other airline support facilities such as FBOs, general aviation facilities and aircraft hangar and cargo facilities and the airport services road system.

As detailed in Section 6.7, total expenses of each Cost Center are offset by Non-Signatory or Non-Airline Revenue. An allocable share of the net deficit remaining in the Terminal Area, Terminal Ramp Area, Airfield Area, Equipment and Fueling System Cost Centers is paid by the Signatory Airlines as part of their Airport Fees and Charges for the use of the Airport. Parking and Roadway Area and Support Facilities Cost Centers are allocated to the requirements for the Terminal, Terminal Ramp, and Airfield. The Airport Use Agreements provide that the aggregate of Airport Fees and Charges paid by the Signatory Airlines must be sufficient to pay for the net cost of operating, maintaining, and developing the Airport including the satisfaction of Debt Service, the Debt Service coverage requirement, reserve deposits, and payment requirements of the Bond Ordinance and the Indentures.

6.2 Operation and Maintenance Expenses Projections

O&M Expenses are the expenses associated with operating and maintaining the Airport. O&M Expenses are classified into the following categories:

• Personnel

• Repairs and maintenance

• Energy

• Materials and supplies

• Engineering and professional services

• Other operating expenses

- Equipment and property rental

- Insurance and miscellaneous

- Machinery

- Vehicles and equipment

These expenses are further allocated to the various cost centers for rate-setting purposes.

O&M expenses decreased from $109.7 million in 2008 to $99.6 million in 2009 primarily due to cost saving initiatives undertaken in 2009 that resulted in a reduction of professional and technical services from approximately $18 million in 2008 to approximately $5 million in 2009. In addition, O&M Expenses in 2009 were further reduced due to a reimbursement of the Midway ADF for professional fees related to the study of the privatization of the Airport. O&M Expenses subsequently increased in each year after 2009, from $108.3 million in 2010 to $114.3 million in 2012. These increases are attributable to increases in repairs and maintenance, as well as the one-time reduction in 2009 O&M Expenses resulting from the Airport privatization reimbursement. Historical O&M Expenses for 2008 through 2012 are presented in Table 6-1:

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Table 6-1: Historical O&M Expenses, 2008-2012 (Dollars in Thousands for Fiscal Years Ending December 31)

2008

2009

2010

2011

2012 CAGR

Total O&M Expenses (thousands) $109,652 $99,641 $108,336 $110,089 $114,297 1.0%

Enplaned Passengers(thousands) 8,358 8,572 8,856 9,459 9,780 4.0%

Total O&M Expenses per Enplaned Passenger $13.12 $11.62 $12.23 $11.64 $11.69 (2.8)%

SOURCE: City of Chicago Comptroller’s Office. PREPARED BY: Ricondo & Associates, Inc. October 2013.

As shown, the Airport’s O&M Expenses per enplaned passenger have fluctuated over the previous five years, ranging from $11.62 per enplanement to $13.12 per enplanement between 2008 and 2012.

The Airport’s final approved mid-year 2013 budget serves as the base year from which O&M Expenses are projected. O&M Expense projections are based on the type of expense and expectations of future inflation rates (assumed to be 3.0 percent annually). The CDA does not currently anticipate any incremental O&M Expenses associated with any future capital projects to be paid by the Airlines. Any incremental O&M Expenses associated with the Consolidated Rental Car Facility are anticipated to be paid by the rental car companies. Projected O&M Expenses are presented in Table 6-2. As shown in Table 6-2, total O&M Expenses are projected to increase from $120.0 million in 2013 to $173.7 million in 2022, representing a CAGR of 4.2 percent.

The projected O&M Expense growth rate is determined by the calculated CAGR from 2009 through budget 2013, in conjunction with historical growth, after accounting for the impact of the 2009 O&M expense reimbursement.

6.2.1 PERSONNEL

Personnel expenses include Airport staff compensation as well as an allocation of personnel costs from other City departments that support Airport operations, such as Purchasing, Finance, and Corporation Counsel. Expenses for salaries, wages and employee benefits, including reimbursements from City and federal departments and increases attributable to future projects, are projected to increase at a CAGR of 4.1 percent through 2022. This is attributable primarily to salary increases, escalating insurance premiums, and other benefits increases, as well as additional expenses attributable to future projects.

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(Dollars in Thousands for Fiscal Years Ending December 31)

BUDGET 2013 1/ 2014 2015 2016 2017 2018 2019 2020 2021 2022

COMPOUND ANNUAL GROWTH RATE (2013-2022)

Personnel Expenses 2/ $38,035 $39,586 $41,199 $42,877 $44,621 $46,436 $48,323 $50,285 $52,326 $54,449 4.1%

Repairs & Maintenance 3/ 30,986 32,225 33,514 34,855 36,249 37,699 39,207 40,775 42,406 44,102 4.0%

Energy 4/ 7,273 7,709 8,172 8,662 9,182 9,733 10,317 10,936 11,592 12,287 6.0%

Materials & Supplies 5/ 2,822 2,906 2,994 3,083 3,176 3,271 3,369 3,470 3,574 3,682 3.0%

Engineering & Professional Services 6/ 21,078 21,921 22,798 23,710 24,659 25,645 26,671 27,738 28,847 30,001 4.0%

Other Operating Expenses 7/ 19,814 20,700 21,621 22,578 23,574 24,609 25,686 26,807 27,973 29,187 4.4%

Total O&M Expenses 8/ $120,007 $125,048 $130,298 $135,765 $141,460 $147,392 $153,572 $160,011 $166,718 $173,708 4.2%

NOTES:

1/ 2013 Mid-Year Budget

3/ Includes Equipment maintenance contracts, snow removal equipment rentals, painting, glass replacement, office fixtures, furnishings and other repair contracts.

4/ Includes gas, water, electricity and fuel oil required to operate the Airport.

5/ Includes disposal equipment, cleaning supplies, airfield deicing chemicals and other items used in daily Airport operations and maintenance.

6/ Includes fees for specialized engineering, legal and other technical services.

7/ Includes equipment and property rental, insurance, miscellaneous, machinery, and vehicles and equipment.

8/ Totals may not add due to rounding.

SOURCES: City of Chicago Department of Aviation, June 2013 (2013); Ricondo & Associates, Inc. (2014-2022).

PREPARED BY: Ricondo & Associates, Inc., November 2013.

Table 6-2: Operation and Maintenance Expenses

PROJECTED

2/ Includes all Airport staff plus an allocation of personnel costs from other City departments which support Airport operations such as Purchasing, Finance and Corporation Counsel.

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6.2.2 REPAIRS AND MAINTENANCE Repairs and maintenance expenses at the Airport include the cost of outside contractors that provide ramp repair, taxiway painting, outside janitorial services for terminals, heating and air conditioning, trash removal, escalator/elevator maintenance and miscellaneous repairs. Repairs and maintenance expenses are projected to increase at a CAGR of 4.0 percent through 2022 primarily reflecting inflation, additional costs associated with maintaining existing facilities, and additional expenses related to future projects.

6.2.3 ENERGY

Energy costs include gas, water, electricity, and fuel oil required to operate the Airport. Energy costs are projected to increase at a CAGR of 6.0 percent through 2022.

6.2.4 MATERIALS AND SUPPLIES Materials and supplies expenses include costs associated with the purchase of deicing fluid, office supplies, cleaning supplies, keys and locks, and other general maintenance supplies for the Airport. Baseline materials and supplies are projected to increase annually at the rate of inflation – assumed to be 3.0 percent compounded annually through 2022.

6.2.5 ENGINEERING AND PROFESSIONAL SERVICES Engineering and professional services expenses include fees for specialized engineering, legal, and other technical services. These expenses are projected to increase at a CAGR of 4.0 percent through 2022, primarily as a result of increases in billing rates. The use of outside professional services was assumed to remain constant through the projection period.

6.2.6 OTHER OPERATING EXPENSES Other operating expenses include equipment and property rental, insurance, and miscellaneous expenses (administrative expenses, telephone, and bad debt expenses), machinery, as well as vehicles and equipment. Equipment and property rental expenses include the rental of heavy equipment and contracting of equipment operators, rental of unarmed security systems, shuttle bus services, and the rental of office equipment. Other operating expenses are projected to increase at a CAGR of 4.4 percent through 2022 primarily reflecting inflation and the need to periodically replace various types of equipment.

6.3 Non-Signatory Airline and Non-Airline Revenues

Non-Signatory Airline Revenues are revenues generated from airlines that are not parties to the Airport Use Agreement. Non-Airline Revenues consist of those revenues generated at the Airport from sources other than Airport Fees and Charges (e.g., auto parking, rental car, restaurant, news and gift).

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A majority of the Airport’s Non-Airline Revenues are generated from concessions. Table 6-3 presents Concession Revenues at the Airport from 2008 through 2012. As shown, Concession Revenues decreased from $54.3 million in 2008 to $49.3 million in 2009 following the economic downturn in the fourth quarter of 2008 and resultant decline in passenger activity, and then increased in each year since 2009 as passenger activity rebounded. Concession Revenues increased from $49.4 million in 2010 to $54.7 million in 2012. Parking revenue, which represents the Airport’s largest Non-Airline Revenue source, was $31.6 million in 2008 then decreased to approximately $27.9 million in 2009. Parking revenues decreased slightly in 2010 to $27.8 million before increasing to $29.1 million in 2011 and $30.8 million in 2012 as the economy recovered and enplanements increased. The decrease in parking revenues is the primary reason for the 0.2 percent CAGR of Concession Revenues from 2008 to 2012; the CAGR for parking revenues was -0.6 percent over the same period.

Table 6-3: Historical Concession Revenues, 2008-2012 (Dollars in Thousands for Fiscal Years Ending December 31)

2008 2009 2010 2011 2012 CAGR

Total Concession Revenues (thousands) 1/ $54,317 $49,294 $49,374 $52,948 $54,719 0.2%

Parking Revenues $31,561 $27,902 $27,849 $29,112 $30,830 (0.6)%

Enplaned Passengers (thousands) 8,358 8,572 8,856 9,459 9,780 4.0%

Concession Revenues per Enplaned Passenger $6..50 $5.75 $5.58 $5.60 $5.59 (3.7)%

NOTE:

1/ Concession Revenues include those derived from the concessionaires in the terminal, such as restaurants and news and gift shops, and the Airport’s landside activities such as automobile parking and automobile rentals

SOURCE: City of Chicago Comptroller’s Office. PREPARED BY: Ricondo & Associates, Inc. October 2013.

Projections of Non-Signatory Airline Revenues and Non-Airline Revenues are presented in Table 6-4. Revenues were projected on the basis of a review of historical trends, projected activity levels, and inflation. As shown, Non-Signatory Airline Revenues and Non-Airline Revenues are projected to increase from $72.5 million in 2013 to $91.7 million in 2022 at a CAGR of 2.7 percent.

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(Dollars in Thousands for Fiscal Years Ending December 31)

BUDGET 2013 1/ 2014 2015 2016 2017 2018 2019 2020 2021 2022

COMPOUND ANNUAL GROWTH RATE (2013-2022)

NON SIGNATORY AIRLINE REVENUE 2/ $8,299 $8,110 $8,311 $8,514 $8,720 $8,927 $9,136 $9,348 $9,562 $9,779 1.8%

NON-AIRLINE REVENUE

Parking (Net of Taxes) $34,145 $35,018 $35,877 $36,721 $37,551 $38,365 $39,165 $39,951 $40,721 $41,477 2.2%

Auto Rental 3/ 9,100 9,447 9,796 10,149 10,505 10,864 11,227 11,592 11,961 12,332 3.4%

Restaurant 9,004 9,384 9,742 10,102 10,466 10,834 11,204 11,578 11,955 12,335 3.6%

News and Gifts 1,447 1,508 1,566 1,624 1,682 1,741 1,801 1,861 1,921 1,983 3.6%

Specialty Retail 2,628 2,739 2,843 2,948 3,055 3,162 3,270 3,379 3,489 3,600 3.6%

Display Advertising 1,300 1,355 1,407 1,459 1,511 1,564 1,618 1,672 1,726 1,781 3.6%

Wireless Communications 554 577 599 622 644 667 689 712 736 759 3.6%

Miscellaneous 4/ 613 644 676 710 746 783 822 863 906 952 5.0%

Concession Revenue $58,792 $60,673 $62,506 $64,335 $66,160 $67,980 $69,796 $71,608 $73,415 $75,219 2.8%

Land, Storage, Hangars $3,825 $3,921 $4,019 $4,119 $4,222 $4,328 $4,436 $4,547 $4,660 $4,777 2.5%

TOTAL NON-AIRLINE REVENUE $62,617 $64,594 $66,525 $68,454 $70,382 $72,308 $74,232 $76,155 $78,076 $79,996 2.8%

OTHER NON-SIGNATORY REVENUE 5/ $1,543 $1,581 $1,621 $1,661 $1,703 $1,745 $1,789 $1,834 $1,880 $1,927 2.5%

TOTAL NON-SIGNATORY AIRLINE & NON-AIRLINE REVENUE 6/ $72,459 $74,285 $76,457 $78,630 $80,804 $82,980 $85,157 $87,336 $89,517 $91,701 2.7%

NOTES:

1/ 2013 Mid-Year Budget

2/ Includes landing fee revenue from the Non-Signatory Airlines.

3/ Includes percentage of gross receipts of eight rental car companies operating under agreements at the Airport.

4/ Includes rentals and fees from other concessions such as bus service, public pay phones, and other specialty shops.

5/ Includes Interest Earnings

6/ Totals may not add due to rounding.

SOURCES: City of Chicago Department of Aviation, June 2013 (2013); Ricondo & Associates, Inc. (2014-2022).

PREPARED BY: Ricondo & Associates, Inc., November 2013.

Table 6-4: Non-Signatory Airline Revenue & Non-Airline Revenue

PROJECTED

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6.3.1 NON-SIGNATORY AIRLINE REVENUES

Non-Signatory Airline Revenues include landing fees and terminal rentals paid by airlines that are not parties to the Airport Use Agreement. Non-signatory Remain Overnight (RON) fees, non-signatory FIS fees, and FBO fees are also included. Non-Signatory airlines are assessed a premium of 25 percent above Signatory Airline rates and charges. Non-Signatory Airline Revenues are projected to increase from $8.3 million in 2013 to $9.8 million in 2022 at a CAGR of 1.8 percent, and can be primarily attributed to increasing O&M Expenses and Debt Service.

6.3.2 NON-AIRLINE REVENUES Non-Airline Revenues include revenues from concessions, including automobile parking and rentals; and reimbursements and other. A description of these categories follows.

6.3.2.1 Concessions Concession Revenues are projected to increase at a compounded annual growth rate of 2.8 percent from 2013 through 2022. The City is continually making efforts to maximize concessions revenues through strategic planning. These efforts include both near and long-term planning at the Airport as well as space and vendor management. Concession Revenues include those derived from the concessionaires in the terminal, such as restaurants and news and gift shops, and the Airport’s landside activities such as automobile parking and automobile rentals. Concession Revenues were projected as follows:

• Automobile Parking. Projected to increase by a combination of increases in number of O&D passengers and the rate of inflation.

• Automobile Rentals. Projected to increase by a combination of increases in number of O&D passengers and half the rate of inflation, as described in section 4.6.

• Restaurant. Projected to increase by a combination of increases in number of domestic enplaned passengers and half the rate of inflation.

• News and Gifts. Projected to increase by a combination of increases in number of domestic enplaned passengers and half the rate of inflation.

• Specialty Retail. Projected to increase by a combination of increases in number of domestic enplaned passengers and half the rate of inflation.

• Other Concessions

- Display Advertising. Projected to increase by a combination of increases in number of domestic enplaned passengers and half the rate of inflation.

- Miscellaneous. Projected to increase by a combination of increases in number of domestic enplaned passengers and half the rate of inflation.

- Phones/Internet/Wi-fi. Projected to increase by a combination of increases in number of domestic enplaned passengers and half the rate of inflation.

Detailed descriptions of revenues generated by automobile parking, automobile rentals, restaurants, news and gifts, and specialty retail outlets, all of which account for approximately 95.8 percent of Concession Revenues in the Airport’s 2013 budget, follow:

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Automobile Parking

As discussed in Chapter 2, a six level EPS is located adjacent to the passenger terminal. The EPS opened in 2005 and includes one level of hourly parking including approximately 360 spaces, and five levels of daily parking including approximately 2,110 spaces. Economy parking facilities include a surface lot and a seven level economy parking structure that collectively provide total approximately 8,842 public parking spaces. In addition, the Airport maintains three employee parking lots totaling approximately 1,069 spaces. Budgeted parking revenues, net of City tax, for 2013 are $34.1 million, or 58.1 percent of Concession Revenues.

Automobile Rental

Eight rental car brands operate “on Airport.” The on-Airport rental car companies operate on concession agreements with the City and pay a fee to the City of 10 percent of gross revenues subject to a minimum annual guarantee based on the prior year’s gross revenues. These rental car companies are the source of all rental car revenues for the Airport; no revenue is derived from “off-Airport” rental car companies. A new consolidated rental car facility opened on April 9, 2013 which allowed for rental car ready/return operations to be transferred from the EPS, as described in section 2.4.5 of this Report. Budgeted automobile rental revenues derived from the concession agreements for 2013 are $9.1 million, or 15.5 percent of Concession Revenues.

Restaurant

Concessionaires operate a total of 24 restaurants/food and beverage outlets at the Airport. The terms of their agreements generally range from five years to 10 years. The City receives a percentage of gross sales from the concessionaires, with minimum annual guarantees that adjust annually based on the previous year’s sales. Budgeted restaurant revenues for 2013 are $9.0 million, or 15.3 percent of Concession Revenues.

News and Gifts

Concessionaires operate six news and gifts outlets at the Airport. The City receives from the concessionaires a percentage of gross sales, with minimum annual guarantees that adjust annually based on the previous year’s sales. The budgeted news and gifts revenues for 2013 are $1.4 million, or 2.5 percent of Concession Revenues.

Specialty Retail

Concessionaires operate 16 specialty retail outlets at the Airport. The City receives from the concessionaires a percentage of gross sales, with minimum annual guarantees that adjust annually based on the previous year’s sales. The budgeted news and gifts revenues for 2013 are $2.6 million, or 4.5 percent of Concession Revenues.

6.3.2.2 Other Revenues Other Revenues include land, storage, and hangars, as well as ATA loan reimbursements, currently being paid by Southwest Airlines, related to the Concourse A Infill project and interest income. Projections of these revenue items are not impacted by increases or decreases in aviation activity; increases are based on inflation.

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6.4 Debt Service

Table 6-5 presents the Airport’s annual debt service requirements after the issuance of the 2013 Bonds and future annual debt service requirements, both of which are further discussed in the following sections. For the purposes of future debt service projections, the City’s underwriter assumes current market interest rates on the Bonds.

6.4.1 EXISTING MARB DEBT SERVICE Existing debt service on previously issued First and Second Lien Bonds, net of coverage requirements and investment earnings, is scheduled to be approximately $103.5 million in 2013. The contribution of PFCs to PFC-Eligible debt service and CFCs to the Series 2010C CFC-backed bonds reduces existing net debt service to $54.5 million in 2013. As shown in Table 6-5, debt service on existing bonds is anticipated to be reduced during the projection period through a combination of restructuring and refunding anticipated through the issuance of the Series 2013 Bonds and future Series 2014 Bonds.

6.4.2 IMPACTS OF THE SERIES 2013 AND SERIES 2014 BONDS For the purposes of this report, the impacts of the Series 2013 Bonds as well as the anticipated 2014 Revenue Refunding Bonds and Series 2014 New Money Bonds are included in Table 6-5. It is assumed that the City will engage in a restructuring/refunding of the Series 1996A, 199B, 1998A (First and Second Lien), 1998B (First and Second Lien), 2001A, 2001B, 2010B, and 2010D bonds and issue new money bonds for CIP costs outlined in Chapter 3. As shown in Table 6-5, the Series 2013A, Series 2013B, and Series 2013C Bonds will be issued in the 2013 transaction, with Series 2014 refunding bonds and new money bonds anticipated to be issued in 2014. Total net debt service is projected to decrease to $98.7 million in 2014 and then steadily increase during the projection period to $131.5 million in 2022. Net debt service after the application of PFCs and CFCs is projected to be $53.5 million in 2014 and then increase throughout the projection period to $77.7 million in 2022.

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(Dollars in Thousands for Fiscal Years Ending December 31)

BUDGET 2013 1/ 2014 2015 2016 2017 2018 2019 2020 2021 2022

First Lien Debt Service (After Transaction)Series 1996A 3,213 0 0 0 0 0 0 0 0 0Series 1996B 7,654 3,405 0 0 0 0 0 0 0 0Series 1998A 12,335 11,173 10,186 10,186 10,186 10,186 10,186 10,186 10,186 10,186Series 1998B 6,017 3,748 3,208 3,208 3,208 3,208 3,208 3,208 3,208 3,208Series 1998C 4,539 4,530 4,534 4,535 4,533 4,536 4,535 4,535 4,533 4,541Series 2001A 16,252 10,069 2,937 2,937 2,937 2,937 2,937 2,937 2,937 2,937Series 2001B 5,309 0 0 0 0 0 0 0 0 0

Total First Lien Debt Service $55,319 $32,925 $20,865 $20,866 $20,863 $20,867 $20,866 $20,865 $20,864 $20,872

Second Lien Debt Service (After Transaction)

Series 1998A $7,748 $0 $0 $0 $0 $0 $0 $0 $0 $0Series 1998B 7,793 0 0 0 0 0 0 0 0 0Series 2004A 1,606 1,611 1,612 1,609 1,612 1,610 1,609 1,611 1,614 1,608Series 2004B 6,531 6,531 6,535 6,533 6,534 6,533 6,529 6,532 6,531 0Series 2004C 9,044 9,130 9,046 9,159 9,158 9,177 9,187 9,114 9,209 9,218Series 2004D 997 1,019 1,001 1,018 1,013 1,018 1,022 999 1,010 1,003Series 2010A-1 946 0 0 0 0 0 0 0 0 0Series 2010A-2 1,717 0 0 0 0 0 0 0 0 0Series 2010B 4,200 0 0 0 0 0 0 0 0 0Series 2010C 4,264 4,264 5,349 5,348 5,347 5,347 5,348 5,348 5,347 5,349Series 2010D 3,308 0 0 0 0 0 0 0 0 0Series 2013A 0 5,403 5,039 5,039 5,039 5,039 5,039 5,039 14,984 25,777Series 2013B 0 11,138 10,388 10,388 10,388 10,388 10,388 10,388 10,388 10,388Series 2013C 0 7,378 14,085 15,996 18,304 17,941 21,420 16,935 0 0Series 2014 Refunding Bonds 0 17,255 20,296 20,297 20,294 20,296 20,296 20,297 35,142 40,329Series 2014 New Money Bonds 0 1,423 4,223 5,652 6,716 10,582 10,582 19,657 15,537 9,918

Total Second Lien Debt Service $48,154 $65,152 $77,574 $81,040 $84,406 $87,931 $91,420 $95,922 $99,763 $103,589

Total Debt Service After Transaction $103,474 $98,078 $98,439 $101,905 $105,269 $108,798 $112,286 $116,787 $120,626 $124,461

Total Coverage Requirement ($9) ($5,609) ($3,015) $0 ($1) $1 ($0) ($0) ($0) $2

Program Fees $6,817 $6,919 $7,023 $7,128 $7,235 $7,343 $7,454 $7,565 $7,679 $7,794

Less: Investment Earnings ($697) ($704) ($711) ($718) ($725) ($732) ($739) ($747) ($754) ($762)

Total Net Debt Service $109,585 $98,684 $101,736 $108,316 $111,778 $115,411 $119,000 $123,605 $127,551 $131,495

PFC Contribution ($43,870) ($40,897) ($41,900) ($42,886) ($43,854) ($44,806) ($45,740) ($46,657) ($47,557) ($48,440)

CFC Contribution ($4,264) ($4,264) ($5,349) ($5,348) ($5,347) ($5,347) ($5,348) ($5,348) ($5,347) ($5,349)

Principal Deferment ($7,000) $0 $0 $0 $0 $0 $0 $0 $0 $0

Total Net Debt Service after Application of PFCs $54,450 $53,523 $54,487 $60,082 $62,577 $65,258 $67,912 $71,599 $74,646 $77,705

NOTE:1/ 2013 Mid-Year Budget

SOURCE: City of Chicago Department of Aviation; JPMorgan Securities Inc., October 2013 .

PREPARED BY: Ricondo & Associates, Inc., November 2013.

Table 6-5: Annual Debt Service Requirements

PROJECTED

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6.5 Fund Deposit Requirements

Airport Fees and Charges paid by the Signatory Airlines include annual required deposits into the O&M Reserve Fund, the Repair and Replacement Fund, and the Emergency Reserve Fund. Table 6-6 presents the forecasted required annual deposits to these funds.

6.6 Net Signatory Airline Requirement

Table 6-7 indicates the ability of the Airport enterprise to generate sufficient revenues to pay O&M Expenses, Net Debt Service, and fund deposit requirements.

The projections of O&M Expenses, Non-Airline Revenues, and Non-Signatory Airline Revenues, including annual coverage requirements, are included in Table 6-8. The Net Signatory Airline Requirement constitutes the total amount that must be paid by the Signatory Airlines under the Airport Use Agreements through Landing Fees, Terminal Area Rentals, Terminal Ramp Use Charges, Equipment fees, and Fueling System Fees during the year.

The Net Signatory Airline Requirement is projected to increase from $102.1 million in 2013 to $162.1 million in 2022.

6.7 Calculation of Signatory Airline Fees and Charges

Under the Airport Use Agreement, the Airfield Area, the Terminal Area, the Terminal Ramp Area, Equipment, and the Fueling System each generate fees, rentals, or charges payable by the airlines that are signatory to such agreements. The Airport Fees and Charges presented in this section for 2013 through 2022 reflect the rate-making methodology in the Airport Use Agreement. The Signatory Airlines entered into new 15-year Airport Use Agreements, effective January 1, 2013.

Applicable Non-Airline Revenues (i.e., rentals, Concession Revenues, and investment income) are allocated to each cost center, as well as the following costs, to calculate applicable rates used to generate such fees, rentals, and charges:

• O&M Expenses. Includes the O&M Expenses (direct and allocated indirect) attributable to each cost center.

• Net Debt Service. Includes the portion of Debt Service, net of capitalized interest, and Debt Service coverage attributable to each cost center. The debt service amounts included in the calculation of airline rates and charges also reflect certain adjustments required to be made to actual Debt Service under the Airport Use Agreements for the purpose of calculating of Airport Fees and Charges. Such adjustments include a credit for Debt Service coverage collected in the prior year, a credit for projected Investment Income on Debt Service Reserve Funds, an allowance for program fees, and a credit for PFCs and CFCs applied to MARB debt service.

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(Dollars in Thousands for Fiscal Years Ending December 31)

BUDGET

2013 1/ 2014 2015 2016 2017 2018 2019 2020 2021 2022

Fund Deposit Requirements:

O&M Reserve Fund ($917) $840 $876 $912 $950 $988 $1,031 $1,072 $1,118 $1,166

Repair and Replacement Fund 1,025 1,047 1,069 1,091 1,115 1,136 1,160 1,185 1,209 1,235

Emergency Reserve Fund 11 11 11 11 11 11 11 11 11 11

Airport Development Fund - - - - - - - - - -

TOTAL FUND DEPOSIT REQUIREMENTS $118 $1,898 $1,956 $2,014 $2,076 $2,135 $2,202 $2,268 $2,338 $2,412

Total Fund Deposits by Cost/Revenue Center:

Airfield Area $162 $489 $503 $517 $532 $547 $563 $579 $596 $613

Terminal Area (81) 579 597 616 636 655 677 697 720 743

Support Facilities (10) 37 38 40 41 42 43 45 46 49

Terminal Ramp 12 41 43 43 45 46 48 50 51 54

Parking and Roadway 28 588 606 624 643 662 682 702 724 746

Equipment (53) 128 133 136 141 144 149 154 158 163

Fueling 24 24 24 26 26 26 27 28 29 30

FIS Facility 36 11 11 11 11 12 12 12 13 13

TOTAL FUND DEPOSIT REQUIREMENTS $118 $1,898 $1,956 $2,014 $2,076 $2,135 $2,202 $2,268 $2,338 $2,412

NOTE:1/ 2013 Mid-Year Budget

SOURCES: City of Chicago Department of Aviation, June 2013 (2013); Ricondo & Associates, Inc. (2014-2022), October 2013.

PREPARED BY: Ricondo & Associates, Inc., November 2013.

Table 6-6: Fund Deposit Requirements

PROJECTED

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(Dollars in Thousands for Fiscal Years Ending December 31)

BUDGET 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

O & M Expenses $120,007 $125,048 $130,298 $135,765 $141,460 $147,392 $153,572 $160,011 $166,718 $173,708

Net Debt Service 1/ 54,450 53,523 54,487 60,082 62,577 65,258 67,912 71,599 74,646 77,705

Fund Deposit Requirement 118 1,898 1,956 2,014 2,076 2,135 2,202 2,268 2,338 2,412

Total Expenses, Net Debt Service and Fund Deposits $174,576 $180,469 $186,740 $197,861 $206,113 $214,785 $223,687 $233,878 $243,702 $253,825

Less:

Non-Airline Revenue $58,792 $60,673 $62,506 $64,335 $66,160 $67,980 $69,796 $71,608 $73,415 $75,219

Non-Signatory Airline Revenue 12,124 12,031 12,330 12,634 12,942 13,255 13,572 13,895 14,222 14,555

Other Non-Airline Revenues 1,543 1,581 1,621 1,661 1,703 1,745 1,789 1,834 1,880 1,927

Total Non-Airline and Non-Signatory Revenue $72,459 $74,285 $76,457 $78,630 $80,804 $82,980 $85,157 $87,336 $89,517 $91,701

Net Signatory Airline Requirement $102,117 $106,184 $110,283 $119,231 $125,308 $131,805 $138,529 $146,542 $154,185 $162,125

Adjustment:

Less:

Equipment ($10,838) ($11,314) ($11,728) ($12,398) ($12,922) ($13,469) ($14,033) ($14,668) ($15,286) ($15,923)

Fueling (5,342) (5,340) (5,475) (5,939) (6,187) (6,450) (6,715) (7,056) (7,356) (7,659)

Net Signatory Airline Requirement after Adjustment $85,938 $89,529 $93,081 $100,893 $106,200 $111,886 $117,781 $124,817 $131,544 $138,542

NOTE:

1/ Net of capitalized interest.  Adjusted for debt service coverage, investment income, program fees, PFC credits, and CFC Credits. 

SOURCES: City of Chicago Department of Aviation, June 2013 (2013); Ricondo & Associates, Inc. (2014-2022), October 2013.

PREPARED BY: Ricondo & Associates, Inc., November 2013.

Table 6-7: Net Signatory Airline Requirement

PROJECTED

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• Fund Deposit Requirements. Includes the allocated portions of the amounts required to be deposited to the funds described earlier.

Table 6-8 presents estimated Signatory Airline fees, rentals, and charges for the projection period. The following sections describe the specific rate calculations in greater detail.

6.7.1 AIRFIELD AREA Generally, landing Fees are calculated by first determining the Net Cost of the Airfield Area, which consists of portions of the following: sum of O&M Expenses, Net Debt Service, fund deposit requirements, and allocated portions of Parking and Roadway and Support Facilities requirements less the sum of projected Non-Airline Revenues. The Net Cost of the Airfield Area is allocated among Signatory and Non-Signatory Airlines on the basis of the approved maximum landed weight of all aircraft. Each Signatory Airline and Non-Signatory Airline pays Landing Fees on the basis of the ratio of its total approved maximum landed weight to the total approved maximum landed weight of all Signatory Airlines and Non-Signatory Airlines. The landed weight of aircraft landed by certain classes on Non-Signatory Airlines may be increased by Non-Signatory Airline premium factors to be determined by the Commissioner of Aviation from time to time. As presented in Table 6-9, the Landing Fee Rate is projected to increase from a budgeted $3.43 per 1,000 pounds of landed weight in 2013 to $4.46 per 1,000 pounds of landed weight in 2022.

6.7.2 TERMINAL AREA

O&M Expenses, Debt Service, fund deposit requirements, and portions of Parking and Roadway and FIS requirements allocated to the Terminal Area are added together and offset by Non-Airline Revenues and Non-Signatory Airline Revenues attributable to the Terminal Area. The Terminal Area net deficit is paid by the Airline Parties in the form of Terminal Area Use Charges, which are calculated on a per square foot of leased space, as defined in the Airport Use Agreement. The projected Terminal Area Use Charge is presented in Table 6-9. This charge is estimated at $133.94 per square foot in 2013, and is projected to increase to $219.81 per square foot in 2022. Terminal Joint Use Fees are estimated to be $1.58 per 1,000 pounds of landed weight in 2013 and projected to increase to $2.14 per 1,000 pounds of landed weight in 2022.

6.7.3 TERMINAL RAMP AREA O&M Expenses, Debt Service, fund deposit requirements, and portions of Parking and Roadway requirements allocated to the Terminal Area are added together and offset by Non-Airline Revenues and Non-Signatory Airline Revenues attributable to the Terminal Ramp Area. The Terminal Ramp Area net deficit is paid by the Signatory Airlines in the form of Terminal Ramp Area Use Charges, which are calculated on a per square foot of leased space, as defined in the Airport Use Agreement. The projected Terminal Ramp Area Use Charge is presented in Table 6-9. This charge is estimated at $4.03 per square foot in 2013, and is projected to increase to $6.34 per square foot in 2022.

6.7.4 EQUIPMENT AND FUELING SYSTEM The net cost of Equipment and the Fueling System consists of the portions of O&M Expenses, net Debt Service, and fund requirements allocated to the cost centers. Of this net cost, a portion is shared equally by all Airline Parties, with the remaining costs distributed among the Midway Airlines’ Terminal Consortium (MATCO) member airlines based on each airline’s total landed weight and fuel usage. MATCO member fees are presented in Table 6-8.

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(Fiscal Years Ending December 31)

BUDGET 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Landing Fee Rate: 1/

Signatory Airline $3.434 $3.482 $3.581 $3.742 $3.832 $3.956 $4.086 $4.239 $4.323 $4.459

Non-Signatory Airline 4.292 4.352 4.476 4.677 4.790 4.945 5.108 5.299 5.404 5.574

Terminal Joint Use Fee Rate:

Base Usage 2/

Signatory Airline $1.58 $1.60 $1.64 $1.74 $1.79 $1.86 $1.93 $2.02 $2.07 $2.14

Non-Signatory Airline $1.98 $1.99 $2.04 $2.18 $2.24 $2.32 $2.41 $2.52 $2.58 $2.68

Per Capita/Annual

Signatory Airline $396,818 $684,524 $710,864 $778,006 $820,693 $866,737 $914,498 $972,915 $1,028,039 $1,085,419

Non-Signatory Airline $496,023 $855,655 $888,580 $972,508 $1,025,866 $1,083,421 $1,143,122 $1,216,144 $1,285,049 $1,356,774

Terminal Area:

Signatory Terminal Rental Rate 3/ $133.94 $138.63 $143.96 $157.56 $166.20 $175.53 $185.20 $197.03 $208.19 $219.81

Non-Signatory Terminal Rental Rate 3/ $167.42 $173.28 $179.95 $196.95 $207.75 $219.41 $231.50 $246.29 $260.24 $274.77

Terminal Ramp Rate 3/ $4.03 $4.13 $4.28 $4.66 $4.90 $5.15 $5.41 $5.73 $6.03 $6.34

MATCO Fees:

Member Equipment Fee (per Capita) $658,995 $687,926 $713,096 $753,847 $785,696 $818,961 $853,245 $891,854 $929,677 $968,240

Member Equipment Fee (per 1000 lbs) $0.71 $0.71 $0.73 $0.75 $0.76 $0.78 $0.80 $0.82 $0.83 $0.85

Non-Member Equipment Fee (per 1000 lbs) $4.48 $4.56 $4.66 $4.80 $4.88 $4.99 $5.12 $5.25 $5.31 $5.43

Member Fuel Fee (per Capita) $132,962 $132,933 $136,278 $147,843 $154,003 $160,556 $167,170 $175,661 $183,115 $190,676

Member Fuel Usage Fee (per Gallon) $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03

Non-Member Fuel Usage Fee (per Gallon) $0.11 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04

NOTES:

1/ Per thousand pounds.

2/ Per thousand pounds.

3/ Per square foot.

SOURCES: City of Chicago Department of Aviation, June 2013 (2013); Ricondo & Associates, Inc. (2013-2018), October 2013.

PREPARED BY: Ricondo & Associates, Inc., November 2013.

Table 6-8: Airline Fees, Rentals and Charges

PROJECTED

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6.8 Airline Revenue

Table 6-9 presents the airline revenue resulting from the previously described Signatory Airline fees, rentals, and charges. Consistent with the Airport Use Agreement, the total signatory airline revenue presented in Table 6-9 equals the net signatory airline requirement presented in Table 6-7.

6.8.1 AIRLINE COST PER ENPLANED PASSENGER A general test of reasonableness for Airport user fees is the airline cost per enplaned passenger (CPE). The airline CPE is calculated by dividing the Total Airline Requirement by the number of enplaned passengers at the Airport. Table 6-10 presents the total airline CPE for the projection period. The airline CPE at the Airport is estimated to be $10.94 in current dollars in 2013 and projected to be $14.02 by the end of the projection period in 2022, which equates to approximately $10.75 in 2013 dollars. In summary, the airline CPE throughout the projection period is considered to be reasonable compared to those at comparable airports.

Exhibit 6-1 shows CPE data at airports comparable to Midway for the most recent full fiscal year available. For purposes of consistency, the CPE amounts shown in Exhibit 6-1 use data provided to the FAA Compliance Activity Tracking System (CATS) database, including Midway. The CPE does not provide an “apples-to-apples” comparison amongst airports since certain costs are paid directly by airlines at some airports. The passenger airline CPE calculation excludes cargo landing fees, general aviation and military landing fees, cargo and hangar rentals and other non-passenger airline revenues.

Exhibit 6-1: Passenger Airline Cost per Enplaned Passenger (FAA CATS Data – 2012)

SOURCE: FAA CATS Data (2012), October 2013. PREPARED BY: Ricondo & Associates, Inc., October 2013.

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

LGA STL ORD DCA PDX BWI MDW HOU MSP SAN TPA PHX SLC DAL

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(Dollars in Thousands for Fiscal Years Ending December 31)

BUDGET 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Signatory Airlines1/ Revenue:

TOTAL LANDING FEE REVENUE $38,748 $40,340 $42,014 $45,073 $47,353 $49,779 $52,297 $55,205 $58,041 $60,992

TOTAL JOINT USE REVENUE 19,841 20,536 21,326 23,340 24,621 26,002 27,435 29,187 30,841 32,563

TOTAL TERMINAL RENTAL AND USE CHARGE REVENUE 21,846 22,611 23,482 25,699 27,109 28,630 30,208 32,138 33,959 35,854

TOTAL TERMINAL RAMP REVENUE 4,644 5,164 5,351 5,791 6,078 6,383 6,698 7,078 7,435 7,805

TOTAL FIS REVENUE 858 879 908 990 1,038 1,091 1,143 1,208 1,268 1,329

TOTAL EQUIPMENT USE REVENUE 10,838 11,314 11,728 12,398 12,922 13,469 14,033 14,668 15,286 15,923

TOTAL FUELING SYSTEM REVENUE 5,342 5,340 5,475 5,939 6,187 6,450 6,715 7,056 7,356 7,659

TOTAL SIGNATORY AIRLINE REVENUE $102,118 $106,184 $110,283 $119,231 $125,308 $131,805 $138,529 $146,542 $154,185 $162,125

Adjustment:

Less:

Equipment Revenue ($10,838) ($11,314) ($11,728) ($12,398) ($12,922) ($13,469) ($14,033) ($14,668) ($15,286) ($15,923)

Fueling Revenue (5,342) (5,340) (5,475) (5,939) (6,187) (6,450) (6,715) (7,056) (7,356) (7,659)

TOTAL SIGNATORY AIRLINE REVENUE AFTER ADJUSTMENT $85,938 $89,529 $93,081 $100,893 $106,200 $111,886 $117,781 $124,817 $131,544 $138,542

NOTE:

1/ Includes airlines that are signatory to the Airport Use Agreements.

SOURCES: City of Chicago Department of Aviation, June 2013 (2013); Ricondo & Associates, Inc. (2013-2018), October 2013.

PREPARED BY: Ricondo & Associates, Inc., November 2013.

Table 6-9: Signatory Airline Revenue

PROJECTED

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(Dollars in Thousands for Fiscal Years Ending December 31)

BUDGET 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Signatory Airline Requirement $102,117 $106,184 $110,283 $119,231 $125,308 $131,804 $138,529 $146,541 $154,185 $162,125

Non-Signatory Airline Revenues 8,299 8,110 8,311 8,514 8,720 8,927 9,136 9,348 9,562 9,779

Total Airline Revenues $110,417 $114,294 $118,595 $127,745 $134,028 $140,731 $147,665 $155,889 $163,747 $171,903

Projected Total Enplaned Passengers 10,093 10,351 10,605 10,854 11,099 11,340 11,577 11,809 12,037 12,260

Total Airline Cost per Enplaned Passenger

Current Dollars $10.94 $11.04 $11.18 $11.77 $12.08 $12.41 $12.76 $13.20 $13.60 $14.02

2013 Dollars 1/ $10.94 $10.72 $10.54 $10.77 $10.73 $10.70 $10.68 $10.73 $10.74 $10.75

NOTE:

1/ Inflation rate assumed at 3 percent

SOURCES: City of Chicago Department of Aviation, June 2013 (2013); Ricondo & Associates, Inc. (2013-2020), October 2013.

PREPARED BY: Ricondo & Associates, Inc., November 2013.

Table 6-10: Airline Cost Per Enplanement

PROJECTED

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6.9 MARB Debt Service Coverage

Table 6-11 presents the Debt Service coverage ratio projected for all MARBs outstanding after the issuance of the 2013 Bonds and the anticipated issuance in 2014, from 2013 through 2022. As shown, the Debt Service coverage ratio is projected to meet the 1.10x minimum requirement in each year of the projection period.

6.10 Sensitivity Analysis

The following section describes an analysis that was conducted to test the sensitivity of the financial projections per a hypothetical reduction in enplanement activity at the Airport. The sensitivity analysis should not be considered a forecast of expected future results, and is presented for illustrative purposes only. As this analysis is only intended for testing the sensitivity of financial projections, it is important to note that in the event of dramatic changes to the Airport’s passenger demand, it is likely the City would take immediate steps to mitigate financial impacts by taking such steps as reducing its O&M Expenses, restructuring debt service, revisiting the airport’s capital program, as well as taking other initiatives. Such initiatives would be expected to lessen financial impacts resulting from lower activity levels and were not included as part of this analysis.

Table 6-12 presents the key results of the sensitivity analysis, described below, including the resulting estimated airline cost per enplanement and debt service coverage calculations. The assumptions for each scenario are further described below.

6.10.1 SENSITIVITY SCENARIO: 10 PERCENT ACTIVITY REDUCTION

As described in Chapter 5, the Airport experienced activity reductions in 2005 and 2008, of 9.7 percent and 11.4 percent, respectively. Following each of these historical decreases in enplanement activity, the Airport experienced recovery growth in the years after the loss of activity. In both cases, the Airport successfully implemented strategies to reduce O&M expenses, ensured facilities were available to accommodate airline growth, and minimized the financial impacts of the temporary reduction in activity. These measures resulted in a quick recovery of the passenger activity at Midway. In an effort to demonstrate the impacts of a hypothetical activity reduction at the Airport, the sensitivity analysis was developed to assess the impacts of a 10 percent reduction from the activity projections in enplanements, operations, and landed weight presented previously in the report. Additional details on the assumption of the sensitivity analysis are presented below.

Air Traffic Assumptions:

• Beginning in 2014, passenger enplanements, landed weight, and operational activity are assumed to each be reduced by 10 percent from 2013 levels. After 2014, activity is then projected to experience annual growth consistent with those rates included in the activity projections presented previously.

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(Dollars in Thousands for Fiscal Years Ending December 31)

BUDGET 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Signatory Airline Revenues $102,117 $106,184 $110,283 $119,231 $125,308 $131,805 $138,529 $146,542 $154,185 $162,125

Non-Airline and Non-Signatory Airline Revenue 70,916 72,704 74,836 76,969 79,102 81,235 83,368 85,503 87,638 89,774

Interest Income 1,543 1,581 1,621 1,661 1,703 1,745 1,789 1,834 1,880 1,927

Total Revenues $174,576 $180,469 $186,740 $197,861 $206,113 $214,785 $223,687 $233,878 $243,702 $253,825

Less:

O&M Expenses $120,007 $125,048 $130,298 $135,765 $141,460 $147,392 $153,572 $160,011 $166,718 $173,708

O&M Reserve Fund (917) 840 876 912 950 988 1,031 1,072 1,118 1,166

Repair and Replacement Fund 1,025 1,047 1,069 1,091 1,115 1,136 1,160 1,185 1,209 1,235

Emergency Reserve Fund 11 11 11 11 11 11 11 11 11 11

Net Revenue Available for Debt Service $54,450 $53,523 $54,487 $60,082 $62,577 $65,258 $67,912 $71,599 $74,646 $77,705

Prior Year Debt Service Coverage $13,849 $13,840 $8,231 $5,216 $5,216 $5,216 $5,217 $5,217 $5,216 $5,216

PFCs Applied to Debt Service $43,870 $40,897 $41,900 $42,886 $43,854 $44,806 $45,740 $46,657 $47,557 $48,440

CFCs Applied to Debt Service $4,264 $4,264 $5,349 $5,348 $5,347 $5,347 $5,348 $5,348 $5,347 $5,349

Total Available for Debt Service $116,434 $112,524 $109,967 $113,532 $116,995 $120,626 $124,218 $128,824 $132,770 $136,715

First Lien Debt Service 1/ $55,319 $32,925 $20,865 $20,866 $20,863 $20,867 $20,866 $20,865 $20,864 $20,872

Second Lien Debt Service 1/ 48,154 65,152 77,574 81,040 84,406 87,931 91,420 95,922 99,763 103,589

Aggregate Debt Service $103,474 $98,078 $98,439 $101,905 $105,269 $108,798 $112,286 $116,787 $120,626 $124,461

Debt Refunding (7,000) 0 0 0 0 0 0 0 0 0

Net Debt Service 1/ $96,474 $98,078 $98,439 $101,905 $105,269 $108,798 $112,286 $116,787 $120,626 $124,461

First Lien Debt Service Coverage 2.10 3.42 5.27 5.44 5.61 5.78 5.95 6.17 6.36 6.55

Aggregate Debt Service Coverage 1.21 1.15 1.12 1.11 1.11 1.11 1.11 1.10 1.10 1.10

NOTE:

SOURCES: City of Chicago Department of Aviation, June 2013; JPMorgan Securities Inc. (Debt Service); Ricondo & Associates, Inc. (Remaining Projections) October 2013.

PREPARED BY: Ricondo & Associates, Inc., November 2013.

Table 6-11: Debt Service Coverage

PROJECTED

1/ Net of capitalized interest. Actual and projected debt service.

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(Dollars in Thousands for Fiscal Years Ending December 31)

BUDGET 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Enplanements

Baseline Activity Forecast 10,093 10,351 10,605 10,854 11,099 11,340 11,577 11,809 12,037 12,260

Sensitivity - 10% Activity Reduction 10,093 9,084 9,306 9,525 9,740 9,952 10,159 10,363 10,563 10,759

IMPACT 0 (1,267) (1,299) (1,329) (1,359) (1,389) (1,418) (1,446) (1,474) (1,501)

Cost per Enplanement

Baseline CPE $10.94 $11.04 $11.18 $11.77 $12.08 $12.41 $12.76 $13.20 $13.60 $14.02

Sensitivity - 10% Activity Reduction $10.94 $13.73 $14.10 $14.78 $15.13 $15.52 $15.91 $16.43 $16.89 $17.37

IMPACT $0.00 $2.69 $2.92 $3.01 $3.05 $3.11 $3.16 $3.22 $3.29 $3.35

GARB Debt Service Coverage

Baseline GARB Debt Service Coverage 1.21 1.15 1.12 1.11 1.11 1.11 1.11 1.10 1.10 1.10

Sensitivity - 10% Activity Reduction 1.21 1.15 1.12 1.11 1.11 1.11 1.11 1.10 1.10 1.10

SOURCES: City of Chicago Department of Aviation, June 2013 (2013); Ricondo & Associates, Inc. (2014-2022) October 2013

PREPARED BY: Ricondo & Associates, Inc., November 2013.

Table 6-12: Sensitivity Summary

PROJECTED

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Financial Assumptions:

• PFC revenue is assumed to decrease in direct proportion to the decrease in enplaned passengers.

• Certain Non-Airline Revenues that are driven by passenger enplanements are assumed to decrease as a result of decrease passenger enplanements. Automobile parking, automobile rental, and terminal concessions revenue is reduced in proportion to the total number of enplaned passengers.

• As a direct response to the loss of 10 percent of its enplaned passengers, it is assumed that the City would take targeted actions to reduce the Airport’s O&M Expenses. However, for the purposes of this sensitivity analysis, O&M Expenses are assumed to be consistent with the feasibility report projection.

• Although the Airport could revisit the CIP, it remains as presented previously in Chapter 3.

6.11 Assumptions for Financial Projections

The techniques and methodologies used in preparing this Report are consistent with industry practices for similar studies in connection with airport revenue bond sales. While R&A believes that the approach and assumptions used are reasonable, some assumptions regarding future trends and events detailed in this report including, but not limited to, implementation schedule and enplanement projections may not materialize. Achievement of the projections presented in this Report, therefore, is dependent upon the occurrence of future events, which cannot be assured, and the variations may be material.

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APPENDIX G RETIREMENT FUNDS

TABLE OF CONTENTS Page

General .................................................................................................................................................... G-1 Source Information ................................................................................................................................. G-3 Background Information Regarding the Retirement Funds .................................................................... G-4

General ....................................................................................................................................... G-4 The Retirement Funds ................................................................................................................ G-4 Overlapping Taxing Bodies ....................................................................................................... G-5 Certain Duties ............................................................................................................................ G-6 Investments ................................................................................................................................ G-7

Determination of Employee Contributions ............................................................................................. G-8 Determination of City's Contributions .................................................................................................... G-8 City Contributions to FABF ........................................................................................................ G-9

City's Required Contributions to PABF and FABF Beginning with the Levy made in 2015.... G-9 City's Required Contributions to LABF and MEABF Pursuant to SB 1922 ........................... G-10

The Actuarial Valuation ........................................................................................................................ G-11 General ..................................................................................................................................... G-11 Actuaries and the Actuarial Process ........................................................................................ G-11 City's Contributions Not Related to GASB Standards ............................................................. G-12 City's Contributions to PABF and FABF under P.A. 96-1495 Will Not Conform to GASB Standards ............................................................................................................. G-12

Actuarial Methods ................................................................................................................................. G-13 Actuarial Value of Assets ........................................................................................................ G-13 Actuarial Accrued Liability ..................................................................................................... G-14

Actuarial Assumptions .......................................................................................................................... G-15 Assumed Investment Rate of Return ....................................................................................... G-15

Funded Status of the Retirement Funds ................................................................................................ G-16 Projection of Funded Status and Insolvency ......................................................................................... G-25 Report and Recommendations of the Commission to Strengthen Chicago's Pension Funds ................ G-31 Diversion of Grant Money to PABF and FABF Under P.A. 96-1495 .................................................. G-33 GASB Statements 67 and 68 ................................................................................................................. G-33 Legislative Changes .............................................................................................................................. G-34

P.A. 96-0889 ............................................................................................................................ G-34 P.A. 96-1495 ............................................................................................................................ G-34 SB 1922 .................................................................................................................................... G-35

Pension Reform ..................................................................................................................................... G-38 OTHER POST-EMPLOYMENT BENEFITS ...................................................................................... G-39 General .................................................................................................................................................. G-39 The Settlement ...................................................................................................................................... G-39 City Financing of the Health Plan ......................................................................................................... G-39 Actuarial Considerations ....................................................................................................................... G-40

City Obligation ........................................................................................................................ G-40 Actuarial Methods and Assumptions ....................................................................................... G-40

Funded Status ........................................................................................................................................ G-40 Retiree Health Benefits Commission .................................................................................................... G-41 Status of Healthcare Benefits After the Settlement Period ................................................................... G-42

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RETIREMENT FUNDS

General

Pursuant to the Illinois Pension Code, as revised from time to time (the “Pension Code”), the City contributes to four retirement funds, which provide benefits upon retirement, death or disability to employees and beneficiaries. Such retirement funds are, in order from largest to smallest membership: (i) the Municipal Employees’ Annuity and Benefit Fund of Chicago (“MEABF”); (ii) the Policemen’s Annuity and Benefit Fund of Chicago (“PABF”); (iii) the Firemen’s Annuity and Benefit Fund of Chicago (“FABF”); and (iv) the Laborers’ and Retirement Board Employees’ Annuity and Benefit Fund of Chicago (“LABF” and, together with MEABF, PABF and FABF, the “Retirement Funds”).

The Retirement Funds are established, administered and financed under the Pension Code, as separate bodies politic and corporate and for the benefit of the employees of the City and their beneficiaries. The City’s contributions to the Retirement Funds, and benefits for annuitants of the Retirement Funds, are governed by the provisions of the Pension Code. See “— Determination of City’s Contributions” below. This Appendix describes, among other things, the current provisions of the Pension Code applicable to the City’s funding of the Retirement Funds. No assurance can be made that the Pension Code will not be amended in the future.

The Retirement Funds have been actuarially determined to be significantly underfunded. The unfunded liabilities have increased in recent years, and actuaries for MEABF and LABF indicate that, under current law, the unfunded liabilities of those Retirement Funds will continue to increase for the foreseeable future and jeopardize the solvency of MEABF and LABF. See “— Funded Status of the Retirement Funds” and “— Projection of Funded Status” below. The General Assembly has passed SB 1922, which is defined and described herein, and which, if enacted into law, would significantly increase the City’s contributions to MEABF and LABF and make other adjustments that will cause the unfunded liabilities of MEABF and LABF to decrease in the future. Although the actuaries for PABF and FABF project that the unfunded liabilities of those Retirement Funds will decrease in the future, such a decrease is expected to result from significantly increased City contributions to those Retirement Funds as a result of the enactment of P.A. 96-1495, which is described and defined herein. The increases in the City’s contributions to PABF and FABF mandated by P.A. 96-1495 are expected to substantially burden the City’s financial condition. Taken together with the increase in City contributions under SB 1922 (if SB 1922 is enacted into law), the burden on the City’s financial condition is expected to be even greater.

In 2010, the Illinois General Assembly enacted legislation to address the pension benefits of members who joined the Retirement Funds on or after January 1, 2011. See “— Legislative Changes” below. While this legislation is expected to reduce the Retirement Funds’ liabilities over time, it is not expected to materially reduce such liabilities in the near future. The impact of this legislation is already reflected in the projections contained in this Appendix.

With respect to the unfunded liabilities associated with members who joined the Retirement Funds before January 1, 2011, the only significant action enacted to date has been the enactment of P.A. 96-1495 which, among other things, significantly increased future contributions to be made by the City to PABF and FABF. See “— Determination of City’s Contributions – City’s Required Contributions to PABF and FABF Beginning with the Levy made in 2015” below. P.A. 96-1495 has been projected to require an increase in the City’s contributions to PABF and FABF by more than $584,000,000, or 200%, starting in 2016 and increasing by approximately three percent each year thereafter. See “TABLE 13 – PROJECTION OF FUTURE FUNDING STATUS – FABF” and “TABLE 14 – PROJECTION OF FUTURE FUNDING STATUS – PABF” below. Given the substantial burden these increased

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contributions would place on the City’s financial condition, the City is exploring options which would reduce the near-term burden of such increased contributions.

As discussed under “— Pension Reform” below, the City believes that reductions in the benefits provided by each of the Retirement Funds are necessary, in combination with any increases in employer and employee contributions, to adequately address the unfunded liabilities of the Retirement Funds. Any reduction in benefits would require action by the Illinois General Assembly to modify the Pension Code. No assurance can be given that any proposal to modify benefits will be enacted. Furthermore, given the Illinois Pension Clause (defined below) of the Illinois Constitution, no assurance can be given that legislation to modify benefits, if enacted, will be upheld upon a legal challenge. See “— Background Information Regarding the Retirement Funds — General” below.

The Retirement Funds’ sources of funding are the City’s contributions, the employees’ contributions and investment income on the Retirement Funds’ assets. The City’s and employees’ contribution levels are determined pursuant to the Pension Code. There is no mechanism in the Pension Code by which the funding can self-adjust, because contributions are not affected by a change in benefits, assets or investments, but only by a change in current payroll, as described in “— Determination of City’s Contributions” below. However, the P.A. 96-1495 Funding Plan (as hereinafter defined) and, if enacted into law, the SB 1922 Funding Plan (as hereinafter defined) calculate the City’s contributions on an actuarial basis, which will cause such contributions to adjust based on benefits, assets and investments.

The financial health of the Retirement Funds and the projected impact of the Retirement Funds’ underfunding on future contributions to be made by the City has impacted the rating agencies’ determination of the City’s creditworthiness. On April 17, 2013, Moody’s Investors Service (“Moody’s”) issued a release (the “Release”) announcing a new approach to analyzing state and local government pensions. The method of evaluating public pension plans established in the Release is intended to be a method of standardizing information among public pension plans and does not impact the City’s required contributions, the value of the Retirement Funds’ assets, or the liabilities owed by the Retirement Funds. The City does not endorse the method of analysis adopted by Moody’s in the Release.

Moody’s new pension analysis will include, among other things, adjusting pension plan Actuarial Accrued Liabilities by using certain common assumptions, such as the discount rate and amortization period. Certain other actuarial assumptions, such as mortality and salary growth rates, were not standardized across governmental plans. To accomplish their review, Moody’s has stated that it will use a discount rate based on Citibank’s Pension Liability Index discount rate as of a pension plan’s valuation date. Such a discount rate will be lower than the discount rate currently used by the Retirement Funds and is closer to the discount rate for a typical pension plan in the private sector. The City estimates that Moody’s new method of analysis would result in the following Funded Ratios, as hereinafter defined, of the Retirement Funds (based on data as of December 31, 2012): 25.2% for MEABF, 38.4% for LABF, 20.3% for PABF, and 15.8% for FABF. See Tables 5 through 8 below for information on the Retirement Funds’ historical Funded Ratios. For information regarding the Retirement Funds’ discount rate, see “— Actuarial Assumptions —Assumed Investment Rate of Return” below. The Release can be obtained from Moody’s; provided, however, that the Release is not incorporated herein by such reference.

On March 4, 2014, Moody’s issued a ratings action report (the “Rating Report”) downgrading the ratings of the City’s general obligation bonds and sales tax revenue bonds from “A3” to “Baa1,” the City’s water and sewer senior lien revenue bonds from “A1” to “A2,” and the City’s water and sewer second lien revenue bonds from “A2” to “A3,” each with a negative outlook. This follows previous downgrades by Moody’s on July 17, 2013 of the City’s general obligation bonds and sales tax revenue bonds from “Aa3” to “A3,” the City’s water and sewer senior lien revenue bonds from “Aa2” to “A1,” and the City’s water and sewer second lien revenue bonds from “Aa3” to “A2.” Moody’s indicated in the

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Rating Report that the March 4, 2014 downgrades reflect “massive and growing unfunded pension liabilities which threaten the City’s fiscal solvency absent major revenue and other budgetary adjustments in the near term and sustained for years to come.” The City makes no prediction as to whether the Moody’s rating action described above will result in additional downgrades, or the impact that the financial condition of the Retirement Funds will have on Moody’s or any other rating agency’s judgment of the City’s creditworthiness or on the City’s future financing costs. The Rating Report can be obtained from Moody’s; provided, however, that the report is not incorporated herein by such reference.

On September 13, 2013, Standard & Poor’s Ratings Group (“S&P”) affirmed the City’s “A+” general obligation bond rating, but changed its outlook on the City’s general obligation debt from “stable” to “negative.” In changing the City’s general obligation bond outlook, S&P cited the City’s pension liabilities. Furthermore, S&P indicated that the increased contributions required by current state law could result in ratings downgrades for the City if the City substantially reduces its reserves to make these increased payments.

On November 8, 2013, Fitch Ratings Inc. (“Fitch”) reduced the City’s general obligation bond and sales tax bond ratings from “AA-” to “A-” and the rating on the City’s commercial paper notes from “A+” to “BBB+.” Fitch assigned a negative outlook to each of these ratings. In announcing these ratings downgrades, Fitch cited, among other things, the City’s pension liability and the “strong legal protection to pension benefits” in Illinois.

In addition, other rating agencies may have established, or may establish in the future, methods for evaluating the financial health of the Retirement Funds and their impact on the City’s creditworthiness that are different from the information provided in this Appendix.

Source Information

The information contained in this Appendix relies in part on information produced by the Retirement Funds, their independent accountants and their independent actuaries (the “Source Information”). Neither the City nor the City’s independent auditors have independently verified the Source Information and make no representations nor express any opinion as to the accuracy of the Source Information.

Furthermore, where the tables in this Appendix present aggregate information regarding the Retirement Funds, such combined information results solely from the arithmetic calculation of numbers presented in the Source Information and may not conform to the requirements for the presentation of such information by the Governmental Accounting Standards Board (“GASB”) or the Pension Code.

Certain of the comprehensive annual financial reports of the Retirement Funds (each, a “CAFR” and together, the “CAFRs”), and certain of the actuarial valuations of the Retirement Funds (each, an “Actuarial Valuation” and together, the “Actuarial Valuations”), may be obtained by contacting the Retirement Funds. Certain of these reports may also be available on the Retirement Funds’ websites (www.meabf.org; www.chipabf.org; www.labfchicago.org; and www.fabf.org); provided, however, that the contents of these reports and of the Retirement Funds’ websites are not incorporated herein by such reference.

The Retirement Funds typically release their actuarial valuations in the April or May following the close of their fiscal year on December 31. MEABF, FABF and LABF have released their 2013 Actuarial Valuations. PABF has provided a draft 2013 Actuarial Valuation, which is the source of PABF fiscal year 2013 information in this Appendix. The final 2013 Actuarial Valuation will not be available until it is approved by the PABF Board, which is expected to occur on or about May 30, 2014. PABF

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does not expect that the final 2013 Actuarial Valuation will differ materially from the draft 2013 Actuarial Valuation.

Background Information Regarding the Retirement Funds

General

Each of the Retirement Funds is a single-employer, defined-benefit public employee retirement system. “Single-employer” refers to the fact that there is a single plan sponsor, in this case, the City. “Defined-benefit” refers to the fact that the Retirement Funds pay a periodic benefit to retired employees and survivors in a fixed amount determined at the time of retirement. The amount of the periodic benefit is generally determined on the basis of service credits and salary. Eligible employees receive the defined benefit on a periodic basis for life, along with certain benefits to spouses and children that survive the death of the employee.

To fund the benefits to be paid by a defined-benefit pension plan, both employees and employers make contributions to the plan. Generally in a defined-benefit pension plan, employees contribute a fixed percentage of their annual salary and employers contribute the additional amounts required (which amounts may be determined pursuant to statute, as in the case of the City), when combined with the investment earnings on plan assets, to pay the benefits under the pension plan. See “Table 1 - Membership,” “— Determination of Employee Contributions” and “— Determination of City’s Contributions” below.

The benefits available under the Retirement Funds accrue throughout the time a member is employed by the City. Although the benefits accrue during employment, certain age and service requirements must be achieved by an employee to generate a retirement or survivor’s periodic defined benefit payment upon retirement or termination from the City. The Retirement Funds also provide certain disability benefits and retiree healthcare benefits to eligible members.

Section 5 of Article XIII of the Illinois Constitution (the “Illinois Pension Clause”) provides as follows:

“Membership in any pension retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”

For a discussion of the Illinois Pension Clause in the context of possible pension reform related to the Retirement Funds, see “— Pension Reform” below.

For purposes of this Appendix, references to “employee” or “member” are references to the employees of the City, the employees of the Retirement Funds participating in the Retirement Funds, and with regard to MEABF, certain employees and annuitants of the Chicago Board of Education who are members of MEABF as described below.

The Retirement Funds

Municipal Employees’ Annuity and Benefit Fund of Chicago. MEABF is established by and administered under Article 8 of the Pension Code. MEABF provides age and service retirement benefits, survivor benefits and disability benefits to all eligible members and survivors. MEABF is administered under the direction of a five-member board of trustees (the “MEABF Board”), whose members are responsible for managing and administering MEABF for the benefit of its members. In addition to City

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employees, MEABF’s membership includes non-instructional employees of the Chicago Board of Education (“CBOE Employees”). With respect to MEABF, the terms “employee” and “member” include the CBOE Employees. The CBOE Employees account for almost half of MEABF’s membership. The Mayor of the City, the City Clerk, the City Treasurer, and members of the City Council may participate in MEABF if such persons file, while in office, written application to the MEABF Board.

Policemen’s Annuity and Benefit Fund of Chicago. PABF is established by and administered under Article 5 of the Pension Code. PABF provides retirement and disability benefits to the police officers of the City, their surviving spouses and their children. PABF is administered by an eight-member board of trustees (the “PABF Board”). Members of the PABF Board are charged with administering the PABF under the Pension Code for the benefit of its members.

Firemen’s Annuity and Benefit Fund of Chicago. FABF is established by and administered under Article 6 of the Pension Code. FABF provides retirement and disability benefits to fire service employees and their survivors. FABF is governed by an eight-member board of trustees (the “FABF Board”). Members of the FABF Board are statutorily mandated to discharge their duties solely in the interest of FABF’s participants and beneficiaries.

Laborers’ and Retirement Board Employees’ Annuity and Benefit Fund of Chicago. LABF is established by and administered under Article 11 of the Pension Code. LABF provides retirement and disability benefits for employees of the City who are employed in a title recognized by the City as labor service and for the survivors of such employees. LABF is governed by an eight-member board of trustees (the “LABF Board” and, together with the MEABF Board, the PABF Board and the FABF Board, the “Retirement Fund Boards”). Members of the LABF Board are statutorily mandated to discharge their duties solely in the interest of LABF’s participants and beneficiaries.

The membership of the Retirement Funds, as of December 31, 2013, was as follows:

TABLE 1 - MEMBERSHIP

Retirement Fund

Active Members

Inactive/ Entitled to Benefits

Retirees and Beneficiaries Totals

MEABF 30,647 14,254 25,042 69,943 PABF 12,161 654 13,159 25,974 FABF 4,685 57 4,640 9,382 LABF 2,844 1,432 3,954 8,230 Total 50,337 16,397 46,795 113,529

___________________ Source: Actuarial Valuations of MEABF, FABF and LABF as of December 31, 2013. Draft Actuarial Valuation of PABF as of December 31,

2013.

Overlapping Taxing Bodies

The City’s tax base overlaps with numerous other units of government, including the Chicago Board of Education, the Chicago Park District (“CPD”), the County of Cook, and the State of Illinois (collectively, all such other units are referred to herein as the “Governmental Units”). Certain of the Governmental Units maintain their own defined benefit pension plans (collectively, all such other plans are referred to herein as the “Other Retirement Funds”), many of which are also significantly

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underfunded. The underfunding of these Other Retirement Funds places a substantial additional potential burden on the City’s taxpayers, who bear the burden of funding a portion of the contributions of the Governmental Units.

On December 5, 2013, Governor Pat Quinn signed Public Act 98-0599 into law (the “State Pension Reform Act”). The State Pension Reform Act provides for certain cost-saving and other reforms to the State’s four largest pension plans, including, but not limited to, changes to the employer contribution formula, cost of living adjustments, retirement ages and employee contributions. Such changes are scheduled to take effect on June 1, 2014. The State Pension Reform Act has been challenged by five separate lawsuits on behalf of various classes of annuitants, current and former workers, and labor organizations, alleging, among other things, that the legislation violates the Illinois Pension Clause. The Illinois Supreme Court consolidated these lawsuits into a single lawsuit and ordered that the consolidated lawsuit proceed in Sangamon County Circuit Court. On May 14, 2014, a plaintiff’s motion for a temporary restraining order was granted. Such motion stays the implementation of the State Pension Reform Act in its entirety until further order of the court or until it is found unconstitutional. The City makes no prediction as to whether the filing of these lawsuits or their outcome will impact the City’s pension reform efforts.

On January 7, 2014, Governor Pat Quinn signed Public Act 98-0622 into law (the “CPD Pension Reform Act”). The CPD Pension Reform Act provides for certain cost-saving and other reforms to CPD’s pension plan, including, but not limited to, changes to the employer contribution formula, cost of living adjustments, retirement ages and employee contributions. Such changes are scheduled to take effect on June 1, 2014. The City is not aware of any lawsuit that has been filed challenging the CPD Pension Reform Act. The City makes no prediction as to whether lawsuits will be filed challenging the CPD Pension Reform Act, or whether the filing of any such lawsuit or its outcome will impact the City’s pension reform efforts, nor does the City make any prediction as to whether the outcome of the lawsuits against the State Pension Reform Act will impact the CPD Pension Reform Act.

For more information on these Other Retirement Funds, please refer to the State’s Commission on Government Forecasting and Accountability (“COGFA”) website at http://cgfa.ilga.gov/home.aspx; provided, however, that the contents of the COGFA website are not incorporated herein by such reference. The City believes the information on COGFA’s website to be reliable; however, the City takes no responsibility for the continued accuracy of the Internet address or for the accuracy or timeliness of information posted on the website.

Certain Duties

Each Retirement Fund Board is a fiduciary of its respective Retirement Fund and is authorized to perform all functions necessary for operation of the Retirement Funds. The Pension Code authorizes each Retirement Fund Board to make certain autonomous decisions, including decisions regarding the investment of funds, the management of assets, the disbursement of benefits, and the hiring of staff, financial advisors and asset managers.

Each Retirement Fund Board is authorized to promulgate rules and procedures regarding their administration of benefits and other matters in accordance with the Illinois Administrative Procedure Act, and their decisions in awarding, limiting, or denying benefits are subject to the Illinois Administrative Procedure Act. Certain aspects of the Retirement Funds, however, including the defined benefits and the employer and employee contribution levels, are established in the Pension Code and may be amended only by an amendment to the Pension Code.

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The Pension Code provides that the expenses incurred in connection with the administration of the Retirement Funds are not construed to be debt imposed upon the City. Such expenses are the obligation of the Retirement Funds exclusively, as separate bodies politic and corporate.

The Illinois Attorney General and annuitants may bring a civil action to obtain relief for violations of a fiduciary duty to the Retirement Funds or any act or practice which violates any provision of the Pension Code.

Investments

Each Retirement Fund Board manages the investments of its respective Retirement Fund. State law regulates the types of investments in which the Retirement Funds’ assets may be invested. Furthermore, the Retirement Fund Boards invest the Retirement Funds’ assets in accordance with the prudent person rule, which requires members of the Retirement Fund Boards, who are fiduciaries of the Retirement Funds, to discharge their duties with the care, prudence and diligence that a prudent person acting in a like capacity and familiar with such matters would use in a similar situation.

In carrying out their investment duty, the Retirement Fund Boards may appoint and review investment managers as fiduciaries to manage the investment assets of the Retirement Funds. Such investment managers are granted discretionary authority to manage the Retirement Funds’ assets. Additional information regarding the Retirement Funds’ investments and investment management may be found on the Retirement Funds’ websites; provided, however, that the contents of such websites are not incorporated into this Appendix by such reference.

Table 2 provides information on the investment returns experienced by each of the Retirement Funds.

TABLE 2 - INVESTMENT RATES OF RETURN, 2003-2013

Fiscal Year MEABF FABF LABF PABF

2003 19.6% 28.3% 17.5% 21.2% 2004 10.3 12.8 11.5 11.0 2005 6.6 9.5 7.8 7.3 2006 12.7 14.0 11.2 12.1 2007 7.3 11.0 8.0 8.8 2008 (28.7) (33.8) (29.2) (27.8) 2009 19.4 23.7 21.5 21.5 2010 13.7 17.7 15.5 12.7 2011 0.1 (2.0) (0.3) 0.8 2012 12.9 16.2 14.6 12.4 2013 14.9 19.5 15.8 13.7

Assumed Rate(1) 7.5 8.0 7.5 7.75 ___________________ Source: The audited financial statements of the FABF as of December 31 of the years 2003-2012. For MEABF, LABF and PABF, the CAFRs

of the respective Retirement Fund for the fiscal years ending December 31, 2003-2012, except that fiscal year 2013 information with respect to MEABF, LABF and FABF is from the Actuarial Valuations for MEABF, LABF and FABF, and fiscal year 2013 information with respect to PABF is from the draft Actuarial Valuation for PABF.

(1) Reflects the assumed rate of return of the Retirement Funds as of December 31, 2013, as discussed in further detail under “Actuarial Assumptions—Assumed Investment Rate of Return” below.

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Determination of Employee Contributions

City employees who are members of the Retirement Funds are required to contribute to their respective Retirement Fund as set forth in the Pension Code.

Members of MEABF contribute 8.5% of their salary to MEABF (consisting of a 6.5% contribution for employee benefits, a 1.5% contribution for spouse benefits, and a 0.5% contribution for an annuity increase benefit).

Members of PABF contribute 9.0% of their salary to PABF (consisting of a 7.0% contribution for employee benefits, a 1.5% contribution for spouse benefits and a 0.5% contribution for an annuity increase benefit).

Members of FABF contribute 9.125% of their salary to FABF (consisting of a 7.125% contribution for employee benefits, a 1.5% contribution for spouse benefits, a 0.375% contribution for an annuity increase benefit and a 0.125% contribution for disability benefits).

Members of LABF contribute 8.5% of their salary to LABF (consisting of a 6.5% contribution for employee benefits, a 1.5% contribution for spouse benefits, and a 0.5% contribution for an annuity increase benefit).

For each Retirement Fund, if an employee leaves without qualifying for an annuity, accumulated employee contributions are refunded.

Determination of City’s Contributions

Under the Pension Code, the City’s contributions to fund the Retirement Funds are determined pursuant to a statutory formula on an annual basis. The Pension Code provides that the City’s contributions to the Retirement Funds are to be made from the proceeds of an annual levy of property taxes for each of the Retirement Funds (collectively, the “Pension Levy”) by the City solely for such purpose (or the City may use other available funds, as discussed below); however, if SB 1922 is enacted into law, the Pension Code will no longer require that the Pension Levy be the default funding mechanism for MEABF and LABF beginning in 2015. Instead, the City may use any legally available funds, which may include funds from the Pension Levy up to the amount of the City’s required contribution. The City Council would need to approve the amount of the Pension Levy, if any, for MEABF and LABF. As such, any Pension Levy amount for MEABF and LABF would only be as a result of City Council action. The Pension Levy is exclusive of and in addition to the amount of property tax which the City levies for other purposes.

The amount of the Pension Levy may not exceed the product of a multiplier established in the Pension Code for each Retirement Fund (each, a “Multiplier”) and the amount contributed by the City’s employees two years prior to the year in which the tax is levied (the “Multiplier Funding”); provided however, that pursuant to P.A. 96-1495, the Pension Levy for PABF and FABF will equal the amount of required actuarial funding beginning with the levy in 2015; provided further, however, if SB 1922 is enacted into law, the Pension Code will no longer require a Pension Levy for MEABF and LABF beginning in 2015. For levy years 2011, 2012 and 2013, the Multiplier for each Retirement Fund was as follows: 1.25 for MEABF; 2.00 for PABF; 2.26 for FABF; and 1.00 for LABF. The City’s contributions are made as governed by the Pension Code and are not based on the Actuarially Required Contribution (as hereinafter defined). See “— The Actuarial Valuation—City’s Contributions Not Related to GASB Standards” below.

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The Pension Code provides that the Retirement Fund Boards must each annually certify to the City Council a determination of the required City contribution to the Retirement Funds. In making its request for the City’s annual contribution, each Retirement Fund, acting through its Retirement Fund Board, annually approves and then submits a resolution to the City Council requesting that the City Council levy for a particular contribution amount. The City has generally paid the amounts so requested. See “City Contributions to FABF” below.

In lieu of levying all or a portion of the annual Pension Levy, the City is permitted under the Pension Code to deposit with the City Treasurer other legally available funds to be used for the same purpose as the Pension Levy (collectively, the “Other Available Funds”). In recent years, the City has utilized these provisions by depositing with the City Treasurer certain amounts paid by the State to the City from the Personal Property Replacement Tax Fund (“PPRT”) of the State pursuant to Section 12 of the Revenue Sharing Act of the State. The City’s distributive share of PPRT is not required to be used for this purpose but it can be used by the City for corporate purposes. Since 2003, the amount of PPRT contributed by the City to the Retirement Funds in the aggregate has averaged approximately $78,387,000 annually. In 2011, 2012 and 2013, the amounts of PPRT contributed to the Retirement Funds in the aggregate were approximately $108,153,000, $101,875,000 and $126,629,000, respectively. For those same years, the City’s total distributive share of PPRT was $144,332,846, $139,461,000 and $159,559,000, respectively. 2013 PPRT information is based on unaudited City data and is subject to change.

For purposes of this Appendix, references to “Pension Levy” may include the Other Available Funds of the City.

The City’s contributions to the Retirement Funds have equaled the Multiplier Funding and certain other amounts required by the Pension Code and have not been in excess of that amount. The City’s contributions in accordance with the Pension Code, which are generally lower than the Actuarially Required Contribution, as described below, have contributed to the significant underfunding of the Retirement Funds. Moreover, the City’s contributions in accordance with the Pension Code have had the effect of deferring the funding of the Retirement Funds’ liabilities, which increases the costs of such liabilities and the associated financial risks, including the risk that each Retirement Fund will not be able to pay its obligations as they become due. Any significant increases in the City’s contributions (such as those set to occur under P.A. 96-1495 and, if enacted, SB 1922) to the Retirement Funds can be expected to place further strain on the City’s finances.

City’s Contributions to FABF

For levy year 2014, the FABF has requested certain amounts which the City has determined are not required by the Pension Code. The amount requested by the FABF Board in excess of the amount the City has determined to be the statutory requirement for 2014 was $18,147,000. The FABF Board has made similar requests for amounts in excess of the amount the City has determined to be the statutory requirement in each of the last several years. In each such year, including the current year, the City has indicated that it will not contribute amounts in excess of the amount the City has determined to be the statutory contribution requirement to FABF.

City’s Required Contributions to PABF and FABF Beginning with the Levy made in 2015

On December 30, 2010, Governor Pat Quinn signed into law Public Act 096-1495 (“P.A. 96-1495”) which, among other things, created a new method of determining the contribution to be made by the City to PABF and FABF. P.A. 96-1495 requires that, beginning in 2015, the Pension Levy each

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year for PABF and FABF will be equal to the amount necessary to achieve a Funded Ratio (as hereafter defined) of 90% in PABF and FABF by the end of fiscal year 2040 (the “P.A. 96-1495 Funding Plan”).

Pursuant to the P.A. 96-1495 Funding Plan, the Pension Levy for PABF and FABF will be calculated as the level percentage of payroll necessary to reach the 90% Funded Ratio target by 2040. In Cook and DuPage Counties (in which the City is located), property taxes (including the Pension Levy) levied in one year become payable during the following year in two installments. As such, the Pension Levy for PABF and FABF made in calendar year 2015 will be payable in calendar year 2016.

The P.A. 96-1495 Funding Plan, if implemented, would significantly increase the City’s required contributions to PABF and FABF beginning in 2016 and would impose a significant financial burden on the City. The City is exploring options to change the P.A. 96-1495 Funding Plan to reduce the near-term burden on the City’s financial condition imposed by dramatically increased contributions to PABF and FABF under P.A. 96-1495, including shifting all or a portion of such burden to future years. Any change to the P.A. 96-1495 Funding Plan which would reduce the contributions required of the City would have the effect of increasing the unfunded liabilities and decreasing the Funded Ratio with respect to PABF and FABF when compared to the projected unfunded liabilities and Funded Ratio as set forth in Tables 13 and 14 below. Furthermore, any such change would require legislative action by the Illinois General Assembly.

Illinois House Bill 3088 (“HB 3088”) contains a proposed amendment that would: (i) delay implementation of the actuarial funding required by the P.A. 96-1495 Funding Plan until tax levy year 2022, and instead require the City to continue contributing to PABF and FABF under the Multiplier Funding system through tax levy year 2021; and (ii) provide that PABF and FABF achieve a 90% Funded Ratio by 2061 rather than 2040 as currently required by P.A. 96-1495 (collectively, the “96-1495 Delay Bill”). If enacted, the 96-1495 Delay Bill would increase the cost of PABF’s and FABF’s respective liabilities, as well as the associated financial risks, including the risk that the PABF and FABF will become insolvent. For more information regarding the possible insolvency of the Retirement Funds, see “Projection of Funded Status and Insolvency” below.

No assurance can be given that a bill modifying the P.A. 96-1495 Funding Plan, including the 96-1495 Delay Bill, will be enacted into law.

P.A. 96-1495 does not affect the manner in which the City contributes to MEABF and LABF.

City’s Required Contributions to LABF and MEABF Pursuant to SB 1922

On April 8, 2014, Senate Bill 1922 (“SB 1922”) passed both houses of the General Assembly. SB 1922 has been sent to the Governor, who has not yet taken action on the bill. The Governor has 60 days to either sign or veto the bill; if he takes no action within that time period, SB 1922 will automatically become law. If SB 1922 becomes law, it would, among other things, modify the manner in which the City’s contributions to LABF and MEABF are calculated. For levy years 2015 through 2019, SB 1922 would retain the Multiplier Funding System as the method of calculating the City’s contributions to LABF and MEABF (unless the amount determined pursuant to the Multiplier Funding System for a levy year is more than the normal cost for such levy year plus the amount, determined on a level percentage of payroll basis, that is sufficient to achieve a Funded Ratio of 90% by the end of fiscal year 2055), but would increase the Multiplier in each levy year to the following: in 2015, 1.60 (LABF) and 1.85 (MEABF); in 2016, 1.90 (LABF) and 2.15 (MEABF); in 2017, 2.20 (LABF) and 2.45 (MEABF); in 2018, 2.50 (LABF) and 2.75 (MEABF); and in 2019, 2.80 (LABF) and 3.05 (MEABF). Beginning with levy year 2020, the City’s contributions for LABF and MEABF would equal the normal cost for such year plus the amount, determined on a level percentage of payroll basis that is sufficient to achieve a

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Funded Ratio of 90% in LABF and MEABF by the end of fiscal year 2054 (the “SB 1922 Funding Plan”).

SB 1922, if enacted into law, would not affect the manner in which the City contributes to PABF and FABF.

The Actuarial Valuation

General

In addition to the process outlined above, the Pension Code requires that the Retirement Funds annually submit to the City Council a report containing a detailed statement of the affairs of such Retirement Fund, its income and expenditures, and assets and liabilities, which consists of the Actuarial Valuation. The Actuarial Valuation measures the financial position and determines the Actuarially Required Contribution (as defined below) of such Retirement Fund for reporting purposes pursuant to GASB Statement No. 25 (“GASB 25”).

A description of the statistics generated by the Retirement Funds’ actuaries in the Actuarial Valuations follows in the next few paragraphs. This information was derived from the Source Information.

GASB, which is part of a private non-profit corporation known as the Financial Accounting Foundation, promulgates standards regarding accounting and financial reporting for governmental entities. These principles have no legal effect and do not impose any legal liability on the City. The references to GASB principles in this Appendix do not suggest and should not be construed to suggest otherwise.

Actuaries and the Actuarial Process

GASB standards require disclosure of an “Actuarially Required Contribution,” which is a financial reporting requirement but not a funding requirement. One of the primary purposes of the Actuarial Valuations is to determine the Actuarially Required Contribution, which is the annual contribution amount that GASB standards would calculate is needed to fully fund the Retirement Funds. GASB pronouncements refer to this concept as the “Annual Required Contribution”; however, this Appendix refers to the concept as the Actuarially Required Contribution to denote the fact that the Actuarially Required Contribution is the amount an actuary would calculate pursuant to GASB standards to be contributed in a given year, to differentiate it from the amount the City will be required to contribute under the Pension Code.

The Actuarially Required Contribution consists of two components: (1) that portion of the present value of pension plan benefits which is allocated to the valuation year by the actuarial cost method (as described in “— Actuarial Methods — Actuarial Accrued Liability” below), termed the “Normal Cost”; and (2) an amortized portion of any UAAL (defined below).

In producing the Actuarial Valuations, the Retirement Funds’ actuaries use demographic data (including employee age, salary and service credits), economic assumptions (including estimated future salary and interest rates), and decrement assumptions (including employee turnover, mortality and retirement rates) to calculate, as of the valuation date, the Normal Cost, the Actuarial Accrued Liability (defined below), the Actuarial Value of Assets (defined below), and the actuarial present values for the Retirement Fund. The Retirement Funds’ actuaries use this data to determine the following fiscal year’s

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Actuarially Required Contribution. The Retirement Funds’ Actuarial Valuations are publicly available and may be obtained from the Retirement Funds. See “— Source Information” above.

The Actuarial Accrued Liability is an estimate of the present value of the benefits each Retirement Fund must pay to current and retired employees as a result of their past employment with the City and participation in such Retirement Fund. The Actuarial Accrued Liability is calculated by use of a variety of demographic and other data (such as employee age, salary and service credits) and various assumptions (such as estimated salary increases, interest rates, employee turnover, retirement date and age, mortality and disability rates). The Actuarial Value of Assets reflects the value of the investments and other assets held by each Retirement Fund. Various methods exist for calculating the Actuarial Value of Assets and the Actuarial Accrued Liability. For a discussion of the methods and assumptions used to calculate the Retirement Funds’ Actuarial Accrued Liability and Actuarial Value of Assets, see “— Actuarial Methods” and “— Actuarial Assumptions” below.

Any shortfall between the Actuarial Value of Assets and the Actuarial Accrued Liability is referred to as the “Unfunded Actuarial Accrued Liability” or “UAAL.” The UAAL represents the present value of benefits attributed to past service that are in excess of plan assets. In addition, the actuary will compute the “Funded Ratio,” which is the Actuarial Value of Assets divided by the Actuarial Accrued Liability, expressed as a percentage. The Funded Ratio and the UAAL provide one way of measuring the financial health of a pension plan.

City’s Contributions Not Related to GASB Standards

The City’s contributions to the Retirement Funds are not based on the contribution standards promulgated by GASB for reporting purposes. Instead, the City’s contributions are based on the formulas and amounts established in the Pension Code. Whereas GASB's contribution standards are actuarially based, the contribution amounts required by the Pension Code, with the exception of the P.A. 96-1495 Funding Plan discussed above, are not actuarially based. If enacted into law, the SB 1922 Funding Plan would also be actuarially based. See “— Determination of City’s Contributions” above.

The difference between the City's actual contributions and the Actuarially Required Contribution (as calculated by the Retirement Funds' actuaries) for fiscal years 2004-2013 is shown in “Table 4 - Information Regarding City’s Contributions - Aggregated” below. The Retirement Funds’ Actuarially Required Contribution is equal to its Normal Cost plus an amortization of the Retirement Funds’ UAAL over a 30-year period. MEABF, LABF and FABF amortize the UAAL on a level dollar basis, whereas PABF amortizes the UAAL on a level percent of payroll basis. SB 1922 would change the method of amortization for LABF and MEABF to a level percent of payroll basis. Both methods of calculating the Actuarially Required Contribution are acceptable under the standards promulgated by GASB.

City’s Contributions under P.A. 96-1495 and SB 1922 Will Not Conform to GASB Financial Reporting Benchmarks

As discussed above, beginning with the property tax levy made in 2015 (and collectible in 2016), the Pension Levy for PABF and FABF is required to be calculated pursuant to P.A. 96-1495. Furthermore, if enacted into law, the SB 1922 Funding Plan will govern calculation of the Pension Levy for LABF and MEABF beginning with the property tax levy made in 2020 (and collectible in 2021). The P.A. 96-1495 Funding Plan and the SB 1922 Funding Plan differ from the manner of calculation GASB requires for financial reporting purposes. The primary difference between GASB’s financial reporting standards and these funding plans is that the goal of such funding plans is to reach a Funded Ratio in the respective Retirement Funds of 90%. GASB’s financial reporting standards require amortization of the entire UAAL towards attainment of a 100% Funded Ratio.

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Actuarial Methods

The Retirement Funds’ actuaries employ a variety of actuarial methods to arrive at the Actuarial Value of Assets and the Actuarial Accrued Liability.

Actuarial Value of Assets

The Retirement Funds calculate their respective Actuarial Value of Assets by smoothing investment gains and losses over a period of five years, a method of valuation referred to as the “Asset Smoothing Method.” Under the Asset Smoothing Method, the Retirement Funds recognize in the current year 20% of the investment gain or loss realized in that year and each of the previous four years. The Asset Smoothing Method is an allowable method of calculation according to GASB.

The Asset Smoothing Method lessens the immediate impact of market fluctuations on the Actuarial Value of Assets, which is used to calculate the UAAL and the Funded Ratio, that may otherwise occur as a result of market volatility. However, asset smoothing delays recognition of gains and losses, thereby providing an Actuarial Value of Assets that does not reflect the true value of pension plan assets at the time of measurement. As a result, presenting the Actuarial Value of Assets as determined under the Asset Smoothing Method might provide a more or less favorable presentation of the current financial position of a pension plan than would a method that recognizes investment gains and losses annually.

Table 3 provides a comparison of the assets of the Retirement Funds (as aggregated) on a fair value basis and after application of the Asset Smoothing Method.

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TABLE 3 - ASSET SMOOTHED VALUE OF ASSETS VS. FAIR VALUE OF NET ASSETS - AGGREGATED(1)

Fiscal Year

Actuarial Value of Assets(2)

Fair Value of Net Assets

Actuarial Value as a Percentage of

Fair Value

2004 $13,108,645 $12,952,096 101.21% 2005 13,086,060 13,245,445 98.80 2006 13,435,692 14,164,347 94.86 2007 14,254,816 14,595,514 97.67 2008 13,797,344 9,844,339 140.16 2009 13,051,349 10,876,846 119.99 2010 12,449,863 11,408,555 109.13 2011 11,521,138 10,536,135 109.35 2012 10,531,447 10,799,603 97.51 2013 10,513,564 11,261,254 93.36

___________________ Source: 2003 through 2010 data is from the Actuarial Valuations of the Retirement Funds as of December 31, 2010, and CAFRs of the

Retirement Funds for the fiscal year ending December 31, 2010. 2011 and 2012 data is sourced from the Actuarial Valuations of the Retirement Funds as of December 31, 2011 and December 31, 2012, respectively. 2013 data is from the Actuarial Valuations of MEABF, FABF and LABF and the draft Actuarial Valuation of PABF.

(1) In thousands of dollars. Data is presented in the aggregate for the Retirement Funds. (2) The Actuarial Value of Assets is calculated through use of the Asset Smoothing Method.

Actuarial Accrued Liability

As the final step in the Actuarial Valuation, the actuary applies a cost method to allocate the total value of benefits to past, present and future periods of employee service. This allocation is accomplished by the development of the Actuarial Accrued Liability and the Normal Cost. Currently, all of the Retirement Funds use the entry age normal actuarial cost method (the “EAN Method”) with costs allocated on the basis of earnings. The EAN Method is a GASB-approved actuarial cost method.

Under the EAN Method, the present value of each member’s projected pension is assumed to be funded by annual installments equal to a level percent of the member’s earnings for each year between entry age and assumed exit age. Each member’s Normal Cost for the current year is equal to the portion of the value so determined, assigned to the current year. Therefore, the Normal Cost for the plan for the year is the sum of the normal costs of all active members.

P.A. 96-1495 requires that, beginning in 2015, PABF and FABF calculate the Actuarial Accrued Liability pursuant to the projected unit credit actuarial cost method (the “PUC Method”). Under the PUC Method, Normal Cost represents the actuarial present value of that portion of a member’s projected benefit that is attributable to service in the current year, based on future compensation projected to retirement. Under this method, the Actuarial Accrued Liability equals the actuarial present value of that portion of a member’s projected benefit that is attributable to service to date, again, on the basis of future compensation projected to retirement.

Under either cost method, the Actuarial Accrued Liability is the portion of the present value of benefits assigned by the cost method to years of service up to the valuation date, i.e., for past service.

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This value changes as the member’s salary changes and years of service increases, and as some members leave and new members are hired. Future Normal Cost is the portion of the present value of benefits assigned to future years of service and is assumed to be funded annually.

As compared to the EAN Method, the PUC Method will produce a more back-loaded growth in liabilities because the PUC Method allocates a higher portion of retirement costs closer to the time of retirement. Therefore, the PUC Method results in a slower accumulation of assets, which in turn requires smaller initial, and larger future, contributions (assuming funding is actuarially based, as is the P.A. 96-1495 Funding Plan). Deferring contributions in this manner increases the cost of the liabilities and the associated financial risks for PABF and FABF.

Actuarial Assumptions

The Actuarial Valuations of the Retirement Funds use a variety of assumptions in order to calculate the Actuarial Accrued Liability and the Actuarial Value of Assets. Although several of the assumptions are the same across all of the Retirement Funds, each Retirement Fund determines, within actuarial standards, the assumptions to be used in its Actuarial Valuation unless a specific assumption is fixed by the Pension Code. No assurance can be given that any of the assumptions underlying the Actuarial Valuations will reflect the actual results experienced by the Retirement Funds. Variances between the assumptions and actual results may cause an increase or decrease in the Actuarial Value of Assets, the Actuarial Accrued Liability, the UAAL, the Funded Ratio or the Actuarially Required Contribution. Additional information on each Retirement Fund’s actuarial assumptions is available in the 2012 Actuarial Valuation with respect to PABF and the 2013 Actuarial Valuations with respect to LABF, FABF and MEABF. See “— Source Information” above.

The actuarial assumptions used by the Retirement Funds are determined by the individual Retirement Fund Boards upon the advice of the actuaries. The Retirement Funds periodically perform experience studies to evaluate the actuarial assumptions in use. The purpose of an experience study is to validate that the actuarial assumptions used in the Actuarial Valuation continue to reasonably estimate the actual experience of the pension plan or, if necessary, to develop recommendations for modifications to the actuarial assumptions to ensure their continuing appropriateness.

Assumed Investment Rate of Return

The Actuarial Valuations assume an investment rate of return on the assets in each Retirement Fund. The average long-term investment rates of return currently assumed by the Retirement Funds are described in Table 2 above. Due to the volatility of the marketplace, however, the actual rate of return earned by the Retirement Funds on their assets in any year may be higher or lower than the assumed rate. See Table 2 for the rates of return earned on the Retirement Funds’ assets for the last eleven fiscal years. Changes in the Retirement Funds’ assets as a result of market performance will lead to an increase or decrease in the UAAL and the Funded Ratio. As a result of the Retirement Funds’ use of the Asset Smoothing Method, however, only a portion of these increases or decreases will be recognized in the current year, with the remaining gain or loss spread over the remaining four years. See “— Actuarial Methods — Actuarial Value of Assets” above.

Beginning with calendar year 2012, the Retirement Fund Boards of MEABF, LABF and PABF reduced the assumed investment rate of return to be used by their respective actuaries in preparing future actuarial valuations. For MEABF and LABF, the assumed investment rate of return has been decreased to 7.50% beginning with calendar year 2012. For PABF, the assumed investment rate of return was decreased to 7.75% for calendar year 2012 and 7.50% beginning with calendar year 2013. FABF

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continues to assume an investment rate of return of 8.0%. For a discussion of the rate to be used by Moody’s in analyzing public pension plans, see “— General” above.

The assumed investment rate of return is used by each Retirement Fund’s actuary as the discount rate to determine the present value of future payments to such Retirement Fund’s members. Such a determination is part of the actuary’s process to develop the Actuarial Accrued Liability. Reducing the assumed investment rate of return will, taken independently of other changes, produce a larger Actuarial Accrued Liability for each Retirement Fund. Furthermore, as discussed above, an increase in the Actuarial Accrued Liability will, taken independently, increase the UAAL, decrease the funded ratio and increase the Actuarially Required Contribution.

These changes to the assumed investment rate of return will not impact contributions by the City to Retirement Funds when such contributions are determined pursuant to the Multiplier Funding system. However, beginning in 2016, the City’s contributions to PABF are expected to increase even further as a result of the change in the assumed investment rate of return, taken independently of other factors, because PABF’s UAAL will increase as described above and the P.A. 96-1495 Funding Plan requires an amortization of the UAAL to reach the 90% funding target by 2040. Furthermore, if SB 1922 is enacted into law, beginning in 2021, the City’s contributions to LABF and MEABF are also expected to increase as a result of the change in the respective assumed investment rates of return, taken independently of other factors, because the respective UAALs of LABF and MEABF will increase as described above and the SB 1922 Funding Plan requires an amortization of the UAAL to reach the 90% funding target by 2054.

Funded Status of the Retirement Funds

In recent years, the City has contributed to the Retirement Funds the full amount of Multiplier Funding and certain other amounts determined by the City to be required by the Pension Code through a combination of property tax revenues (through the Pension Levy) and PPRT funds.∗ However, these amounts have not been sufficient to fully fund the Retirement Funds’ Actuarially Required Contribution. Moreover, expenses related to the Health Plan (as defined below) are paid from the City’s contributions, which has the effect of reducing the Actuarial Value of Assets and decreasing the Funded Ratio.

Furthermore, the income from all sources (including employee contributions, City contributions and investment earnings) to the Retirement Funds has been lower than the cash outlays of the Retirement Funds in recent years. As a result, the Retirement Funds have liquidated investments and used assets of the Retirement Funds to satisfy these cash outlays. The use of investment earnings or assets of the Retirement Funds for these purposes reduces the amount of assets on hand to pay benefits in the future and prevents the Retirement Funds from recognizing the full benefits of compounding investment returns.

Table 4 provides information on the Actuarially Required Contribution, the City’s actual contributions in accordance with the Pension Code and the percentage of the Actuarially Required Contribution made in each year.

* As discussed under “— Determination of City’s Contributions” above, the City and FABF have disagreed over whether certain amounts are required under the Pension Code. In addition, pursuant to the Pension Code, the City did not make any contributions to or levy the Pension Levy for LABF in fiscal years 2001 through 2006 because LABF had funds on hand in excess of its liabilities. The Pension Code provides that the City will cease to make contributions to LABF in such a situation. The City continued to levy the Pension Levy for the other Retirement Funds during those years.

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TABLE 4 - INFORMATION REGARDING CITY’S CONTRIBUTIONS(1) - AGGREGATED

Fiscal Year

Actuarially Required

Contribution Actual Employer Contribution(2)

Percentage of Actuarially Required

Contribution Contributed(3)

2004 545,232 345,398 63.3 2005 698,185 423,515 60.7 2006 785,111 394,899 50.3 2007(4) 865,776 395,483 45.7 2008(4) 886,215 416,130 47.0 2009(4) 990,381 423,929 42.8 2010(4) 1,112,626 425,552 38.2 2011(4) 1,321,823 416,693 31.5 2012(4) 1,470,905 440,120 29.9 2013(4) 1,695,278 442,970 26.1

___________________ Sources: Actuarial Valuations of the Retirement Funds as of December 31, 2010, December 31, 2011 and December 31, 2012, CAFRs of the

Retirement Funds for the fiscal year ending December 31, 2010, and CAFRs of the City for the fiscal year ending December 31, 2011 and December 31, 2012. Fiscal Year 2013 information is from the Actuarial Valuations of MEABF, FABF and LABF as of December 31, 2013, and the draft Actuarial Valuation of PABF as of December 31, 2013.

(1) In thousands of dollars. Data is presented in the aggregate for the Retirement Funds and uses assumptions and methods employed by each of the Retirement Funds. For the data presented as of December 31, 2003 through December 31, 2006, contribution information includes amounts related to other post-employment benefits. Beginning in 2007, as a result of a change in GASB standards, contribution information is presented exclusive of amounts related to other post-employment benefits.

(2) Includes the portion of the PPRT contributed to the Retirement Funds in each year. (3) The estimated multiplier that would have been necessary for each Retirement Fund to make the full Actuarially Required Contribution

in 2013 were as follows: 4.52 for MEABF; 6.45 for FABF; 5.26 for LABF; and 6.92 for PABF. Beginning with the levy made in 2015 (and collectible in 2016), the City’s contributions to PABF and FABF will not be calculated in accordance with the Multiplier Funding system. Similarly, if SB 1922 is enacted, the City’s contributions to LABF and MEABF will not be calculated in accordance with the Multiplier Funding system beginning with the levy made in 2020 (and collectible in 2021). See “— Determination of City’s Contributions” above.

(4) Beginning in 2007, as a result of a change in GASB standards, the information in this Table 4 does not include other post-employment benefits, which the City’s Comprehensive Annual Financial Report presents separately.

The continued decline in the percentage of the Actuarially Required Contribution contributed by the City, as shown in Table 4 above, results, in part, from the fact that the actuarial liability continues to grow and as a result of the delayed recognition of gains and losses resulting from the Retirement Funds’ use of the Asset Smoothing Method for financial reporting purposes. See “— Actuarial Methods—Actuarial Value of Assets” above.

As of the end of fiscal year 2010, the Retirement Funds had an aggregate UAAL of approximately $15.315 billion on a fair value basis and $14.274 billion on an actuarial basis (using the Asset Smoothing Method). The respective Funded Ratios for these UAALs are 42.7% and 46.6%. The UAAL increased between the end of fiscal year 2009 and the end of fiscal year 2010 primarily as a result of (i) insufficient contributions compared to the Actuarially Required Contribution and (ii) investment losses brought on by the severe global economic downturn.

As of the end of fiscal year 2011, the Retirement Funds had an aggregate UAAL of approximately $17.284 billion on a fair value basis and $16.299 billion on an actuarial basis (using the Asset Smoothing Method). The respective Funded Ratios for these UAALs are 37.9% and 41.4%.

As of the end of fiscal year 2012, the Retirement Funds had an aggregate UAAL of approximately $19.084 billion on a fair value basis and $19.352 billion on an actuarial basis (using the Asset Smoothing Method). The respective Funded Ratios for these UAALs are 36.1% and 35.2%.

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As of the end of fiscal year 2013, the Retirement Funds had an aggregate UAAL of approximately $19.362 billion on a fair value basis and $20.110 billion on an actuarial basis (using the Asset Smoothing Method). The respective Funded Ratios for these UAALs are 36.8% and 34.3%.

The following tables summarize the financial condition and the funding trends of the Retirement Funds.

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TABLE 5 - FINANCIAL CONDITION OF THE MEABF FISCAL YEARS 2004-2013

($ IN THOUSANDS)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Beginning Net Assets (Fair Value) $5,922,789 $6,242,741 $6,356,888 $6,841,127 $7,010,007 $4,739,614 $5,166,224 $5,435,593 $5,053,249 $5,182,670

Income

- Member Contributions 155,885 122,542 129,466 132,442 137,749 130,981 133,300 132,596 130,266 131,532 - City Contributions 153,919 155,067 148,332 139,552 146,803 157,698 164,302 156,525 158,381 157,705 - Investment Income(1) 578,730 402,311 778,726 485,926 (1,947,576) 778,562 638,569 31,583 589,198 735,272 - Miscellaneous Income - - - - - - 24 - - -

Total $ 888,534 $ 679,920 $1,056,524 $ 757,921 $(1,663,024) $1,067,241 $ 936,195 $ 320,705 $ 877,845

$1,024,509 Expenditures - Benefits and Refunds 538,910 560,228 565,887 582,046 599,137 632,864 660,081 695,674 741,583 779,003 - Administration(2) 29,672 5,545 6,398 6,995 7,279 7,766 6,745 7,375 6,841 6,499 Total $ 568,582 $ 565,773 $ 572,285 $ 589,041 $ 606,416 $ 640,630 $ 666,826 $ 703,050 $748,425 $ 785,502 Ending Net Assets (Fair Value) $6,242,741 $6,356,888 $6,841,127 $7,010,007 $4,740,567 $5,166,225 $5,435,593 $5,053,249 $5,182,670 $5,421,676

Actuarial Value of Assets(3) $6,343,076 $6,332,379 $6,509,146 $6,890,463 $6,669,502 $6,295,788 $6,003,390 $5,552,291 $5,073,320

$5,114,208 Actuarial Accrued Liabilities(4) 8,808,501 9,250,212 9,476,118 9,968,747 10,383,158 10,830,119 11,828,666 12,292,930 13,475,376 13,828,920 UAAL (Fair Value)(5) 2,565,760 2,893,324 2,634,991 2,958,740 5,642,591 5,663,894 6,393,073 7,239,681 8,292,706 8,407,244 UAAL (Actuarial Value)(3) 2,465,425 2,917,833 2,966,972 3,078,284 3,713,656 4,534,331 5,825,276 6,740,639 8,402,057 8,714,712 Funded Ratio (Fair Value)(5) 70.9% 68.7% 72.2% 70.3% 45.7% 47.7% 46.0% 41.1% 38.5% 39.2% Funded Ratio (Actuarial Value)(3) 72.0% 68.5% 68.7% 69.1% 64.2% 58.1% 50.8% 45.2% 37.6% 37.0%

___________________ Source: 2004 through 2010 data is from the Actuarial Valuation of the MEABF as of December 31, 2010, and the CAFR of the MEABF for the fiscal year ending December 31, 2010. 2011, 2012 and 2013 data

is from the Actuarial Valuations of the MEABF as of December 31, 2011, December 31, 2012, and December 31, 2013, respectively. Table may not add due to rounding. (1) Investment income is shown net of fees and expenses. (2) Beginning in fiscal year 2009, includes expenses related to other post-employment benefits. See “Other Post-Employment Benefits” below. (3) The actuarial value is determined by application of the Asset Smoothing Method as discussed in “— Actuarial Methods — Actuarial Value of Assets” above. (4) Beginning with fiscal year 2006, does not include liability related to other post-employment benefits. See “Other Post-Employment Benefits” below. (5) Calculated using net assets.

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TABLE 6 - FINANCIAL CONDITION OF THE PABF FISCAL YEARS 2004-2013

($ IN THOUSANDS)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Beginning Net Assets (Fair Value) $3,693,283 $3,865,809 $3,954,837 $4,192,076 $4,333,234 $3,000,998 $3,326,051 $3,439,669 $3,175,509 $3,213,432 Income - Member Contributions 78,801 89,110 91,965 93,300 93,207 95,614 108,402 98,222 95,892 93,329 - City Contributions 135,669 177,911 157,689 178,678 181,526 180,511 183,835 183,522 207,228 188,889 - Investment Income(1) 367,908 261,389 447,275 349,914 (1,104,909) 567,315 369,558 33,656 353,176 415,294 - Miscellaneous Income 75 368 1,070 28 160 799 20 104 423 479 Total $ 582,453 $ 528,778 $ 697,999 $ 621,920 $ (830,016) $ 844,239 $ 661,815 $ 315,504 $ 656,719 $ 697,991 Expenditures - Benefits and Refunds 407,301 437,089 458,060 477,685 497,721 514,883 544,272 575,305 613,907 641,926 - Administration(2) 2,626 2,661 2,700 3,077 4,499 4,304 3,925 4,359 4,888 4,298 Total $ 409,927 $ 439,750 $ 460,760 $ 480,762 $ 502,220 $ 519,187 $ 548,197 $ 579,664 $ 618,795 $ 646,204 Ending Net Assets (Fair Value) $3,865,809 $3,954,837 $4,192,076 $4,333,234 $3,000,998 $3,326,050 $3,439,669 $3,175,509 $3,213,433 $3,265,200

Actuarial Value of Assets(3) $3,933,031 $3,914,432 $3,997,991 $4,231,682 $4,093,720 $3,884,978 $3,718,955 $3,444,690 $ 3,148,930 $ 3,053,882 Actuarial Accrued Liabilities(4) 7,034,271 7,722,737 7,939,561 8,220,353 8,482,574 8,736,102 9,210,056 9,522,395 10,051,827 10,282,339 UAAL (Fair Value)(5) 3,168,462 3,767,900 3,747,485 3,887,119 5,481,576 5,410,052 5,770,387 6,346,886 6,839,394 7,017,139 UAAL (Actuarial Value)(3) 3,101,240 3,808,305 3,941,570 3,988,671 4,388,854 4,851,124 5,491,101 6,077,705 6,902,898 7,228,457 Funded Ratio (Fair Value)(5) 55.0% 51.2% 52.8% 52.7% 35.4% 38.1% 37.3% 33.4% 32.0% 31.8% Funded Ratio (Actuarial Value)(3) 55.9% 50.7% 50.4% 51.5% 48.3% 44.5% 40.4% 36.2% 31.3% 29.7% ___________________ Source: 2004 through 2010 data is from the Actuarial Valuation of the PABF as of December 31, 2010, and CAFR of the PABF for the fiscal year ending December 31, 2010. 2011 and 2012 data is from the

Actuarial Valuations of the PABF as of December 31, 2011 and December 31, 2012, respectively. 2013 data is from the draft Actuarial Valuation of the PABF as of December 31, 2013. Table may not add due to rounding.

(1) Investment income is shown net of fees and expenses. (2) Beginning in fiscal year 2008, includes expenses related to other post-employment benefits. See “Other Post-Employment Benefits” below. (3) The actuarial value is determined by application of the Asset Smoothing Method as discussed in “— Actuarial Methods — Actuarial Value of Assets” above. (4) Beginning with fiscal year 2006, does not include liability related to other post-employment benefits. See “Other Post-Employment Benefits” below. (5) Calculated using net assets.

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TABLE 7 - FINANCIAL CONDITION OF THE FABF FISCAL YEARS 2004-2013

($ IN THOUSANDS)

2004 2005 2006 2007 2008 2009 2010 2011 2012

2013

Beginning Net Assets (Fair Value)

$1,109,561

$1,206,177

$1,274,659

$1,391,484

$1,469,455 $ 914,193 $1,051,644 $1,106,078 $993,774 $1,032,423 Income - Member Contributions 37,734 35,697 44,222 41,120 40,480 41,605 41,730 51,918 56,718 42,520 - City Contributions 55,532 90,129 78,971 74,271 83,744 91,857 83,592 85,498 84,144 106,220 - Investment Income(1) 139,497 112,017 174,406 148,806 (484,093) 208,537 150,835 (22,434) 135,203 190,536 - Miscellaneous Income 24,322 456 87 162 107 36 30 17 8 (60) Total $ 257,085 $ 238,299 $ 297,686 $ 264,359 $(359,762) $ 342,035 $ 276,187 $ 114,999 $ 276,073 $339,216 Expenditures - Benefits and Refunds 158,372 167,527 178,214 183,304 192,644 201,146 217,565 223,580 233,840 251,819 - Administration(2) 2,097 2,290 2,647 3,084 2,856 3,439 4,187 3,723 3,584 3,115 Total $ 160,469 $ 169,817 $ 180,861 $ 186,388 $ 195,500 $ 204,585 $ 221,752 $ 227,303 $ 237,424 $254,934 Ending Net Assets (Fair Value) $1,206,177 $1,274,659 $1,391,484 $1,469,455 $ 914,193 $1,051,643 $1,106,079 $993,774 $1,032,423 $1,116,705

Actuarial Value of Assets(3) $1,182,579 $1,203,654 $1,264,497 $1,374,960 $1,335,695 $1,269,231 $1,198,114 $1,101,742 $ 993,284 $991,213 Actuarial Accrued Liabilities(4) 2,793,524 2,882,936 3,088,124 3,215,874 3,311,269 3,428,838 3,655,026 3,851,919 4,020,138 4,128,735 UAAL (Fair Value)(5) 1,587,347 1,608,277 1,696,640 1,746,419 2,397,076 2,377,195 2,548,947 2,858,145 2,987,715 3,012,030 UAAL (Actuarial Value)(3) 1,610,945 1,679,282 1,823,627 1,840,914 1,975,574 2,159,607 2,456,912 2,750,177 3,026,854 3,137,522 Funded Ratio (Fair Value)(5) 43.2% 44.2% 45.1% 45.7% 27.6% 30.7% 30.3% 25.8% 25.7% 27.0% Funded Ratio (Actuarial Value)(3) 42.3% 41.8% 40.9% 42.8% 40.3% 37.0% 32.8% 28.6% 24.7% 24.0% ___________________ Source: 2004 through 2010 data is from the Actuarial Valuation of the FABF as of December 31, 2010, and CAFR of the FABF for the fiscal year ending December 31, 2010. 2011 and 2012 data is from the

Actuarial Valuations of the FABF as of December 31, 2011, December 31, 2012 and December 31, 2013, respectively. Table may not add due to rounding. (1) Investment income is shown net of fees and expenses. (2) Beginning in fiscal year 2001, includes expenses related to other post-employment benefits. See “Other Post-Employment Benefits” below. (3) The actuarial value is determined by application of the Asset Smoothing Method as discussed in “— Actuarial Methods — Actuarial Value of Assets” above. (4) Beginning with fiscal year 2006, does not include liability related to other post-employment benefits. See “Other Post-Employment Benefits” below. (5) Calculated using net assets.

G-22

TABLE 8 - FINANCIAL CONDITION OF THE LABF FISCAL YEARS 2004-2013

($ IN THOUSANDS)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Beginning Net Assets (Fair Value) $1,552,361 $1,637,369 $1,659,061 $1,739,660 $1,782,818 $1,188,580 $1,332,929 $1,427,214 $1,313,604 $1,371,077 Income - Member Contributions 22,591 16,257 18,791 18,413 19,419 17,538 16,320 16,069 16,559 16,393 - City Contributions 197 40 106 15,459 17,580 17,190 17,939 15,359 14,415 14,101 - Investment Income(1) 171,045 117,785 174,536 125,205 (510,463) 237,102 193,187 (4,511) 173,460 207,344 - Miscellaneous Income 5 - - - - - - - - - Total $ 193,838 $ 134,082 $ 193,433 $ 159,077 $(473,464) $ 271,830 $ 227,446 $ 26,917 $204,434 $ 237,838 Expenditures - Benefits and Refunds 105,958 109,405 110,003 112,567 117,147 123,817 129,297 136,533 142,215 147,108 - Administration(2) 2,872 2,985 2,831 3,352 3,626 3,665 3,864 3,994 4,746 4,134 Total $ 108,830 $ 112,390 $ 112,834 $ 115,919 $ 120,773 $ 127,482 $ 133,161 $ 140,527 $ 146,961 $ 151,242 Ending Net Assets (Fair Value) $1,637,369 $1,659,061 $1,739,660 $1,782,818 $1,188,581 $1,332,928 $1,427,214 $1,313,604 $1,371,077 $1,457,673

Actuarial Value of Assets(3) $1,649,959 $1,635,595 $1,664,058 $1,757,711 $1,698,427 $1,601,352 $1,529,404 $1,422,414 $1,315,914

$1,354,261 Actuarial Accrued Liabilities(4) 1,674,615 1,742,300 1,767,682 1,808,295 1,915,324 1,975,749 2,030,025 2,152,854 2,336,189 2,383,499 UAAL (Fair Value)(5) 37,246 83,239 28,022 25,477 726,743 642,821 602,811 839,250 965,112 925,826 UAAL (Actuarial Value)(3) 24,656 106,705 103,624 50,584 216,897 374,397 500,621 730,440 1,020,276 1,029,238 Funded Ratio (Fair Value)(5) 97.8% 95.2% 98.4% 98.6% 62.1% 67.5% 70.3% 61.0% 58.7% 61.2% Funded Ratio (Actuarial Value)(3) 98.5% 93.9% 94.1% 97.2% 88.7% 81.1% 75.3% 66.1% 56.3% 56.8%

___________________ Source: 2004 through 2010 data is from the Actuarial Valuation of the LABF as of December 31, 2010, and CAFR of the LABF for the fiscal year ending December 31, 2010. 2011, 2012 and 2013 data is from

the Actuarial Valuations of the LABF as of December 31, 2011, December 31, 2012, and December 31, 2013, respectively. Table may not add due to rounding. (1) Investment income is shown net of fees and expenses. (2) Beginning in fiscal year 2008, includes expenses related to other post-employment benefits. See “Other Post-Employment Benefits” below. (3) The actuarial value is determined by application of the Asset Smoothing Method as discussed in “— Actuarial Methods — Actuarial Value of Assets” above. (4) Beginning with fiscal year 2006, does not include liability related to other post-employment benefits. See “Other Post-Employment Benefits” below. (5) Calculated using net assets.

G-23

TABLE 9 - FINANCIAL CONDITION OF THE RETIREMENT FUNDS COMBINED FISCAL YEARS 2004-2013

($ IN THOUSANDS)

2004 2005 2006 2007 2008 2009 2010 2011 2012

2013

Beginning Net Assets (Fair Value) $12,277,994 $12,952,096 $13,245,445 $14,164,347 $14,595,514 $ 9,843,385 $10,876,848 $11,408,554 $10,536,136 $10,799,603 Income - Member Contributions 295,011 263,606 284,444 285,275 290,855 285,738 299,752 298,805 299,435 283,774 - City Contributions 345,317 423,147 385,098 407,960 429,653 447,256 449,668 440,904 464,168 466,915 - Investment Income(1) 1,257,180 893,502 1,574,943 1,109,851 (4,047,041) 1,791,516 1,352,149 38,295 1,251,037 1,548,446 - Miscellaneous Income 24,402 824 1,157 190 267 835 74 121 431 419 Total $ 1,921,910 $ 1,581,079 $ 2,245,642 $ 1,803,277 $(3,326,266) $ 2,525,345 $ 2,101,643 $ 778,125 $ 2,015,071 $2,299,554 Expenditures - - - - - - - - - Benefits and Refunds 1,210,541 1,274,249 1,312,164 1,355,602 1,406,649 1,472,710 1,551,215 1,631,093 1,731,545 1,819,856 - Administration(2) 37,267 13,481 14,576 16,508 18,260 19,174 18,721 19,452 20,059 18,046 Total $ 1,247,808 $ 1,287,730 $ 1,326,740 $ 1,372,110 $ 1,424,909 $ 1,491,884 $ 1,569,936 $ 1,650,544 $ 1,751,604 $1,837,902 Ending Net Assets (Fair Value) $12,952,096 $13,245,445 $14,164,347 $14,595,514 $ 9,844,339 $10,876,846 $11,408,555 $10,536,135 $10,799,603 $11,261,254

Actuarial Value of Assets(3) $13,108,645 $13,086,060 $13,435,692 $14,254,816 $13,797,344 $13,051,349 $12,449,863 $11,521,138 $10,531,448 $10,513,564 Actuarial Accrued Liabilities(4) 20,310,911 21,598,185 22,271,485 23,213,269 24,092,325 24,970,808 26,723,773 27,820,098 29,883,532 30,623,493 UAAL (Fair Value)(5) 7,358,815 8,352,740 8,107,138 8,617,755 14,247,986 14,093,962 15,315,218 17,283,963 19,083,929 19,362,239 UAAL (Actuarial Value)(3) 7,202,266 8,512,125 8,835,793 8,958,453 10,294,981 11,919,459 14,273,910 16,298,960 19,352,084 20,109,929 Funded Ratio (Fair Value)(5) 63.77% 61.33% 63.60% 62.88% 40.86% 43.56% 42.69% 37.87% 36.1% 36.8% Funded Ratio (Actuarial Value)(3) 64.54% 60.59% 60.33% 61.41% 57.27% 52.27% 46.59% 41.41% 35.2% 34.3% ___________________

Source: 2004 through 2010 data is from the Actuarial Valuations of the Retirement Funds as of December 31, 2010, and CAFRs of the Retirement Funds for the fiscal year ending December 31, 2010. 2011 and 2012 data is from the Actuarial Valuations of the Retirement Funds as of December 31, 2011 and December 31, 2012, respectively. For fiscal year 2013, data is from the Actuarial Valuations of MEABF, FABF and LABF as of December 31, 2013, and from the draft Actuarial Valuation of PABF as of December 31, 2013. Table may not add due to rounding.

(1) Investment income is shown net of fees and expenses. (2) Includes expenses related to other post-employment benefits beginning in each of the fiscal years as shown in Footnote (2) in Tables 6-9 herein for each respective Retirement Fund.

See “Other Post-Employment Benefits” below. (3) The actuarial value is determined by application of the Asset Smoothing Method as discussed in “— Actuarial Methods — Actuarial Value of Assets” above. (4) Beginning with fiscal year 2006, does not include liability related to other post-employment benefits. See “Other Post-Employment Benefits” below. (5) Calculated using net assets.

G-24

TABLE 10 - SCHEDULE OF FUNDING PROGRESS - COMBINED FOR THE RETIREMENT FUNDS FISCAL YEARS 2004-2013

($ IN THOUSANDS)

Fiscal Year

Actuarial Accrued

Liability(1)

Actuarial Value of Assets(2)

Fair Value of Net Assets

UAAL (Actuarial)(3)

UAAL (Fair

Value)(4)

Funded Ratio

(Actuarial)(3) Funded Ratio (Fair Value)(4) Payroll

UAAL to Payroll

(Actuarial)(3)

UAAL to Payroll (Fair

Value)(4) 2004 $20,310,911 $13,108,645 $12,952,096 $7,202,266 $7,358,815 64.5% 63.8% $2,683,331 268.4% 274.2% 2005 21,598,185 13,086,060 13,245,445 8,512,125 8,352,740 60.6 61.3 2,880,358 295.5 290.0 2006 22,271,485 13,435,692 14,164,347 8,835,793 8,107,138 60.3 63.6 3,069,479 287.9 264.1 2007 23,213,269 14,254,816 14,595,514 8,958,453 8,617,755 61.4 62.9 3,185,388 281.2 270.5 2008 24,092,325 13,797,344 9,844,339 10,294,981 14,247,986 57.3 40.9 3,180,484 323.7 448.0 2009 24,970,808 13,051,349 10,876,846 11,919,459 14,093,962 52.3 43.6 3,172,716 375.7 444.2 2010 26,723,773 12,449,863 11,408,555 14,273,910 15,315,218 46.6 42.7 3,189,739 447.5 480.1 2011 27,233,004 11,521,138 10,536,135 16,298,960 16,696,869 41.4 37.9 3,261,021 499.8 512.0 2012 29,883,532 10,531,448 10,799,603 19,352,084 19,083,929 35.2 36.1 3,223,720 600.0 592.0 2013 30,623,493 10,513,564 11,261,254 20,109,929 19,362,239 34.3 36.8 3,212,558 626.0 602.7

___________________ Source: 2004 through 2010 data is from the Actuarial Valuations of the Retirement Funds as of December 31, 2010, and CAFRs of the Retirement Funds for the fiscal year ending December 31, 2010. 2011 and

2012 data is from the Actuarial Valuations of the Retirement Funds as of December 31, 2011 and December 31, 2012, respectively. Fiscal year 2013 data is from the Actuarial Valuations of MEABF, FABF and LABF as of December 31, 2013, and from the draft Actuarial Valuation of PABF as of December 31, 2013. Table may not add due to rounding.

(1) Beginning with fiscal year 2006, does not include liability related to other post-employment benefits. See “Other Post-Employment Benefits” below. (2) The actuarial value is determined by application of the Asset Smoothing Method as discussed in “— Actuarial Methods — Actuarial Value of Assets” above. (3) For purposes of this column, “Actuarial” refers to the fact that the calculation was made using the Actuarial Value of Assets. (4) For purposes of this column, “Fair Value” refers to the fact that the calculation was made using the fair value of Net Assets.

G-25

A variety of factors impact the Retirement Funds’ UAAL and Funded Ratio. A lower return on investment than that assumed by the Retirement Funds, and insufficient contributions when compared to the Normal Cost plus interest will all cause an increase in the UAAL and a decrease in the Funded Ratio. Conversely, higher returns on investment than assumed, and contributions in excess of Normal Cost plus interest will decrease the UAAL and increase the Funded Ratio. In addition, legislative amendments, changes in actuarial assumptions and certain other factors (including, but not limited to, higher or lower incidences of retirement, disability, in-service mortality, retiree mortality or terminations than assumed) will have an impact on the UAAL and the Funded Ratio.

Projection of Funded Status and Insolvency

The Retirement Funds’ funding level has decreased in recent years due to a combination of factors, including: adverse market conditions and investment returns as a result of the financial downturns experienced in 2001 and in 2008 and beyond; and contributions that are lower than the Actuarially Required Contribution.

The following projections (collectively, the “Projections”) are based upon numerous variables that are subject to change. The Projections are forward-looking statements regarding future events based on the Retirement Funds’ actuarial assumptions and assumptions made regarding such future events, including that there are no changes to the current legislative structure and that all projected contributions to the Retirement Funds are made as required. No assurance can be given that these assumptions will be realized or that actual events will not cause material changes to the data presented in this subsection.

The Projections are based on the 2012 Actuarial Valuations of the Retirement Funds and are provided to indicate expected trends in the funded status of the Retirement Funds under current law. As such, the projections reflect P.A. 96-1495 but do not reflect SB 1922.

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TABLE 11 - PROJECTION OF FUTURE FUNDING STATUS - MEABF(1)

Fiscal Year

Actuarial Accrued Liability

(a)

Market Assets

(b)

Market

Unfunded Accrued Actuarial Liabilities

(UAAL) (a-b)

Market Funded Ratio

(b/a)

Employer Contribution

2014

$14,536,397 $4,891,512 $ 9,644,885 33.65% $156,091 2015 15,048,196 4,678,909 10,369,287 31.09 162,992 2016 15,560,462 4,418,517 11,141,945 28.40 168,394 2017 16,082,630 4,116,817 11,965,813 25.60 174,085 2018 16,601,674 3,757,415 12,844,259 22.63 179,934 2019 17,114,069 3,333,218 13,780,851 19.48 185,880 2020 17,616,057 2,863,458 14,752,599 16.25 191,946 2021 18,104,325 2,260,041 15,844,284 12.48 198,105 2022 18,576,408 1,596,843 16,979,565 8.60 204,365 2023 19,044,224 853,400 18,190,824 4.48 210,645 2024 19,493,710 10,479 19,483,231 0.05 217,119 2025 19,922,976 - 19,922,976 0.00 224,610 2026 20,330,539 - 20,330,539 0.00 231,509 2027 20,714,947 - 20,714,947 0.00 238,478 2028 21,075,196 - 21,075,196 0.00 245,611 2029 21,409,418 - 21,409,418 0.00 252,856 2030 21,715,387 - 21,715,387 0.00 260,223 2031 21,992,990 - 21,992,990 0.00 267,721 2032 22,243,068 - 22,243,068 0.00 275,359 2033 22,467,127 - 22,467,127 0.00 282,999 2034 22,667,597 - 22,667,597 0.00 290,786 2035 22,846,617 - 22,846,617 0.00 298,804 2036 23,006,737 - 23,006,737 0.00 307,058 2037 23,150,602 - 23,150,602 0.00 315,512 2038 23,280,753 - 23,280,753 0.00 324,231 2039 23,400,356 - 23,400,356 0.00 333,228 2040 23,512,563 - 23,512,563 0.00 342,489 2041 23,622,082 - 23,622,082 0.00 352,018 2042 23,734,828 - 23,734,828 0.00 361,889 2043 23,855,936 - 23,855,936 0.00 372,010

___________________ Source: For fiscal years 2014-2025, Gabriel Roeder Smith & Company. Gabriel Roeder Smith & Company is the consulting actuary for the

Retirement Funds. Beginning with fiscal year 2025, the City has adjusted Gabriel Roeder Smith & Company’s projections by using different assumptions. In particular, the City has assumed that it will continue to contribute to MEABF pursuant to the Multiplier Funding System upon the insolvency of MEABF. Projection derived from actuarial data as of December 31, 2012

(1) In thousands of dollars.

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TABLE 12 - PROJECTION OF FUTURE FUNDING STATUS - LABF(1)

Fiscal Year

Actuarial Accrued Liability

(a)

Market Assets

(b)

Market

Unfunded Accrued Actuarial Liabilities

(UAAL) (a-b)

Market Funded Ratio

(b/a)

Employer Contribution

2014 $2,463,253 $1,318,110 $1,145,143 53.51% $14,472 2015 2,519,158 1,280,233 1,238,925 50.82 15,267 2016 2,573,437 1,234,100 1,339,337 47.96 15,582 2017 2,628,859 1,182,049 1,446,810 44.96 15,972 2018 2,682,630 1,120,849 1,561,781 41.78 16,425 2019 2,734,485 1,049,746 1,684,739 38.39 16,932 2020 2,783,726 967,528 1,816,198 34.76 17,480 2021 2,830,103 873,379 1,956,724 30.86 18,057 2022 2,873,247 766,264 2,106,983 26.67 18,660 2023 2,913,025 645,342 2,267,683 22.15 19,280 2024 2,948,881 509,366 2,439,515 17.27 19,935 2025 2,980,541 357,263 2,623,278 11.99 20,620 2026 3,007,674 187,822 2,819,852 6.24 21,313 2027 3,029,960 - 3,029,960 0.00 22,217 2028 3,047,254 - 3,047,254 0.00 22,758 2029 3,059,371 - 3,059,371 0.00 23,540 2030 3,066,267 - 3,066,267 0.00 24,344 2031 3,068,479 - 3,068,479 0.00 25,175 2032 3,066,566 - 3,066,566 0.00 26,030 2033 3,061,130 - 3,061,130 0.00 26,866 2034 3,053,004 - 3,053,004 0.00 27,715 2035 3,042,845 - 3,042,845 0.00 28,587 2036 3,031,278 - 3,031,278 0.00 29,474 2037 3,019,032 - 3,019,032 0.00 30,343 2038 3,006,471 - 3,006,471 0.00 31,151 2039 2,993,998 - 2,993,998 0.00 31,937 2040 2,982,375 - 2,982,375 0.00 32,710 2041 2,972,440 - 2,972,440 0.00 33,476 2042 2,964,758 - 2,964,758 0.00 34,216 2043 2,959,792 - 2,959,792 0.00 34,931

___________________ Source: For fiscal years 2014-2027, Gabriel Roeder Smith & Company. Gabriel Roeder Smith & Company is the consulting actuary for the

Retirement Funds. Beginning with fiscal year 2028, the City has adjusted Gabriel Roeder Smith & Company’s projections by using different assumptions. In particular, the City has assumed that it will continue to contribute to LABF pursuant to the Multiplier Funding System upon the insolvency of LABF. Projection derived from actuarial data as of December 31, 2012

(1) In thousands of dollars.

G-28

TABLE 13 - PROJECTION OF FUTURE FUNDING STATUS - FABF(1)

Fiscal Year

Actuarial Accrued Liability

(a)

Market Assets

(b)

Market

Unfunded Accrued Actuarial Liabilities

(UAAL) (a-b)

Market Funded Ratio

(b/a)

Employer Contribution

2014 $4,308,913 $ 941,185 $3,367,728 21.84% $109,532 2015 4,452,548 891,353 3,561,195 20.02 113,915 2016 4,594,292 972,576 3,621,716 21.17 255,005 2017 4,732,564 1,055,322 3,677,242 22.30 262,352 2018 4,865,986 1,139,769 3,726,217 23.42 270,459 2019 4,993,722 1,226,299 3,767,423 24.56 278,982 2020 5,115,953 1,316,101 3,799,852 25.73 287,895 2021 5,233,558 1,410,714 3,822,844 26.96 296,875 2022 5,346,933 1,512,021 3,834,912 28.28 306,529 2023 5,456,021 1,622,484 3,833,537 29.74 317,645 2024 5,560,197 1,743,090 3,817,107 31.35 329,021 2025 5,659,686 1,875,596 3,784,090 33.14 340,809 2026 5,752,106 2,020,813 3,731,293 35.13 351,914 2027 5,837,310 2,180,795 3,656,515 37.36 362,004 2028 5,917,012 2,356,907 3,560,105 39.83 371,235 2029 5,993,837 2,549,978 3,443,859 42.54 379,748 2030 6,067,128 2,759,815 3,307,313 45.49 387,404 2031 6,135,774 2,985,293 3,150,481 48.65 393,386 2032 6,200,107 3,227,475 2,972,632 52.06 399,100 2033 6,260,250 3,487,783 2,772,467 55.71 404,588 2034 6,318,352 3,768,672 2,549,680 59.65 409,351 2035 6,375,454 4,071,910 2,303,544 63.87 413,540 2036 6,432,317 4,399,407 2,032,910 68.40 417,415 2037 6,491,291 4,755,142 1,736,149 73.25 421,670 2038 6,554,092 5,142,726 1,411,366 78.47 426,181 2039 6,623,040 5,566,252 1,056,788 84.04 430,865 2040 6,697,483 6,027,735 669,748 90.00 435,877 2041 6,777,096 6,099,386 677,710 90.00 27,164

___________________ Source: Gabriel Roeder Smith & Company. Gabriel Roeder Smith & Company is the consulting actuary for the Retirement Funds. Projection

derived from actuarial data as of December 31, 2012. (1) In thousands of dollars.

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TABLE 14 - PROJECTION OF FUTURE FUNDING STATUS - PABF(1)

Fiscal Year

Actuarial Accrued Liability

(a)

Market Assets

(b)

Market

Unfunded Accrued Actuarial Liabilities

(UAAL) (a-b)

Market Funded Ratio

(b/a)

Employer Contribution

2014

$10,679,810 $2,971,019 $7,708,791 27.82% $191,784 2015 11,034,979 2,800,866 8,234,113 25.38 187,071 2016 11,395,936 3,053,949 8,341,987 26.80 630,587 2017 11,761,717 3,323,004 8,438,713 28.25 651,583 2018 12,130,320 3,606,440 8,523,880 29.73 671,892 2019 12,499,767 3,903,754 8,596,013 31.23 692,290 2020 12,867,620 4,215,416 8,652,204 32.76 713,832 2021 13,231,797 4,541,104 8,690,693 34.32 735,563 2022 13,591,726 4,882,757 8,708,969 35.92 758,198 2023 13,946,178 5,242,297 8,703,881 37.59 781,920 2024 14,293,787 5,620,728 8,673,059 39.32 805,966 2025 14,633,563 6,020,954 8,612,609 41.14 831,501 2026 14,964,374 6,445,257 8,519,117 43.07 857,847 2027 15,285,111 6,896,318 8,388,793 45.12 885,110 2028 15,594,800 7,380,260 8,214,540 47.33 914,849 2029 15,888,196 7,898,871 7,989,325 49.72 942,743 2030 16,153,064 8,450,706 7,702,358 52.32 966,719 2031 16,393,712 9,033,687 7,360,025 55.10 986,247 2032 16,614,659 9,648,140 6,966,519 58.07 1,003,249 2033 16,817,565 10,294,939 6,522,626 61.22 1,017,798 2034 17,005,616 10,978,965 6,026,651 64.56 1,031,828 2035 17,182,873 11,707,115 5,475,758 68.13 1,045,281 2036 17,353,593 12,485,517 4,868,076 71.95 1,057,977 2037 17,521,586 13,320,879 4,200,707 76.03 1,070,245 2038 17,690,275 14,219,878 3,470,397 80.38 1,082,388 2039 17,861,422 15,188,465 2,672,957 85.04 1,094,165 2040 18,036,440 16,232,796 1,803,644 90.00 1,106,278 2041 18,216,283 16,394,654 1,821,629 90.00 189,858 2042 18,401,525 16,561,373 1,840,152 90.00 193,339 2043 18,592,418 16,733,176 1,859,242 90.00 197,089

___________________ Source: Gabriel Roeder Smith & Company. Gabriel Roeder Smith & Company is the consulting actuary for the Retirement Funds. Projection

derived from actuarial data as of December 31, 2012. (1) In thousands of dollars.

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TABLE 15 - PROJECTION OF FUTURE FUNDING STATUS - AGGREGATE(1)(2)

Fiscal Year

Actuarial Accrued Liability

(a)

Market Assets

(b)

Market

Unfunded Accrued Actuarial Liabilities

(UAAL) (a-b)

Market Funded Ratio

(b/a)

Employer Contribution

2014

$31,988,373 $10,121,826 $21,866,547 31.64% $ 471,879 2015 33,054,881 9,651,361 23,403,520 29.20 479,245 2016 34,124,127 9,679,142 24,444,985 28.36 1,069,568 2017 35,205,770 9,677,192 25,528,578 27.49 1,103,992 2018 36,280,610 9,624,473 26,656,137 26.53 1,138,710 2019 37,342,043 9,513,017 27,829,026 25.48 1,174,084 2020 38,383,356 9,362,503 29,020,853 24.39 1,211,153 2021 39,399,783 9,085,238 30,314,545 23.06 1,248,600 2022 40,388,314 8,757,885 31,630,429 21.68 1,287,752 2023 41,359,448 8,363,523 32,995,925 20.22 1,329,490 2024 42,296,575 7,883,663 34,412,912 18.64 1,372,041 2025 43,196,766 8,253,813 34,942,953 19.11 1,417,540 2026 44,054,693 8,653,892 35,400,801 19.64 1,462,583 2027 44,867,328 9,077,113 35,790,215 20.23 1,507,809 2028 45,634,262 9,737,167 35,897,095 21.34 1,554,453 2029 46,350,822 10,448,849 35,901,973 22.54 1,598,887 2030 47,001,846 11,210,521 35,791,325 23.85 1,638,690 2031 47,590,955 12,018,980 35,571,975 25.25 1,672,529 2032 48,124,400 12,875,615 35,248,785 26.75 1,703,737 2033 48,606,072 13,782,722 34,823,350 28.36 1,732,251 2034 49,044,569 14,747,637 34,296,932 30.07 1,759,681 2035 49,447,789 15,779,025 33,668,764 31.91 1,786,213 2036 49,823,925 16,884,924 32,939,001 33.89 1,811,924 2037 50,182,511 18,076,021 32,106,490 36.02 1,837,771 2038 50,531,591 19,362,604 31,168,987 38.32 1,863,951 2039 50,878,816 20,754,717 30,124,099 40.79 1,890,195 2040 51,228,861 22,260,531 28,968,330 43.45 1,917,355 2041 51,587,901 22,494,040 29,093,861 43.60 602,517

___________________ Source: The aggregated information presented in this table is derived from the projections presented in Tables 11-14. Please refer to Tables

11-14 for source information. (1) In thousands of dollars. (2) Aggregate data presented in this table includes data for all four Retirement Funds.

The projections in Tables 11 and 12 show that the assets of LABF and MEABF will be depleted by 2025 and 2028, respectively, under current law (i.e. without regard to SB 1922). This means that, under the Pension Code as currently enacted, LABF and MEABF will not have assets on hand to make payments to beneficiaries beginning in 2025 and 2028, respectively. The employer contributions in Tables 11 and 12 reflect the formula for such contributions under current law, namely, Multiplier Funding. See “— Determination of City’s Contributions” herein. These employer contributions, when combined with employee contributions and other sources of revenue, such as investment returns, are projected to be insufficient to provide for full payments to beneficiaries by LABF and MEABF upon insolvency. SB 1922, if enacted into law, would modify the manner in which LABF and MEABF are funded and is projected to decrease the unfunded liabilities of these plans. See “Legislative Changes—SB 1922” for additional information.

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The City cannot predict the impact that the insolvency of MEABF or LABF would have on its contributions to these Retirement Funds. One possibility upon insolvency of MEABF or LABF would be changes in the Pension Code to provide for pay-as-you-go funding. Under pay-as-you-go funding, the employer contribution equals the amount necessary, when added to other income, specifically employee contributions, to fund the current year benefits to be paid by the retirement fund. Gabriel Roeder Smith & Company (“GRS”) projects that, should the City be required to adopt pay-as-you-go funding to ensure that payments to beneficiaries are made to MEABF and LABF beneficiaries following the insolvency of such Retirement Funds, the City’s contributions to such Retirement Funds would increase substantially. With respect to MEABF, GRS projects that pay-as-you-go funding would increase the City’s contribution from approximately $217 million in 2024 to $1.129 billion in 2025, $1.686 billion in 2042 and $1.684 billion in 2060. With respect to LABF, GRS projects that pay-as-you-go funding would increase the City’s contribution from approximately $22.7 million in 2027 to $222 million in 2028, $251 million in 2036 and $229 million in 2060. Such large increases in the City’s contributions, if required, could have a material adverse impact on the City’s financial condition.

Additionally, the City cannot predict if or when changes to the Pension Code or judicial decisions relevant to its contributions will be enacted or decided, respectively, and the impact any such legislation or judicial decisions would have on the manner in which it contributes to the Retirement Funds. Contributing pursuant to Multiplier Funding or pay-as-you-go funding, as discussed in this subsection, represent two possible outcomes, however the City can make no representation that some other method of determining contributions, including payments that are possibly even larger than pay-as-you-go funding, would not be required.

The projections in Tables 13 and 14 show that the assets of both FABF and PABF will, under current law, begin to increase in 2016. This increase assumes the implementation of the P.A. 96-1495 Funding Plan, beginning with levy year 2015. This projection does not consider the impact of the 96-1495 Delay Bill. The City projects that, should the 96-1495 Delay Bill be enacted in its current form, the Funded Ratio of such Retirement Funds would continue to decrease during the period by which P.A. 96-1495 is delayed.

The statements made in this subsection are based on projections, are forward-looking in nature and are developed using assumptions and information currently available. Such statements are subject to certain risks and uncertainties. The projections set forth in this Appendix rely on information produced by the Retirement Funds’ independent actuaries (except where specifically noted otherwise) and were not prepared with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information. This information is not fact and should not be relied upon as being necessarily indicative of future results. Readers of this Appendix are cautioned not to place undue reliance on the prospective financial information. Neither the City, the City's independent auditors, nor any other independent accountants have compiled, examined, or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the prospective financial information.

Report and Recommendations of the Commission to Strengthen Chicago’s Pension Funds

The information contained in this subsection describing the CSCP and the Final Report (each as defined herein) relies on information produced by the CSCP, including the Final Report. The Final Report is available at http://www.chipabf.org/ChicagoPolicePension/PDF/Financials/pension_commi ssion/CSCP_Final_Report_Vol.1_4.30.2010.pdf; however, the content of the Final Report and such website is not incorporated herein by such reference. The City makes no representation nor expresses any opinion as to the accuracy of the Final Report, the statements made or the information therein, some of

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which may be conflicting. Furthermore, information about the Final Report is being provided for historical purposes only.

On January 11, 2008, then Mayor Richard M. Daley announced the formation of the Commission to Strengthen Chicago’s Pension Funds (the “CSCP”), which was composed of a broad cross-section of City officials, union leaders, pension fund executives, and business and civic professionals. The CSCP was charged with examining the Retirement Funds and recommending ways to improve the Funded Ratio of each Retirement Fund. The CSCP met several times in 2008 through 2010, and at the CSCP’s final meeting on March 24, 2010, the CSCP endorsed its final report, with three commissioners dissenting. The CSCP’s final report, which included letters from the dissenting commissioners, was submitted to Mayor Daley on April 30, 2010 (the “Final Report”).

The CSCP’s approval of the Final Report occurred before the enactment of the Pension Reform Act and P.A. 96-1495 and, therefore, does not consider the impact of these acts on the Retirement Funds. See “— Determination of City’s Contributions” and “— Legislative Changes” above for additional information on these acts. As described below, certain of the CSCP’s findings and recommendations as contained in the Final Report are addressed by either act.

The CSCP found that the financial health of the Retirement Funds had deteriorated due to a combination of factors, including the following: increasing liabilities due to enhanced benefits (e.g., non-recurring early retirement programs that were not properly funded); inadequate contributions, which were based upon a fixed percentage of payroll and not actuarial need (i.e., the Multiplier Funding); and adverse market conditions leading to fluctuating returns on investments (in 2000-2002 and 2007-2009) which could not keep pace with growth in liabilities. With regard to the CSCP’s finding of inadequate contributions, P.A. 96-1495 addresses this finding with regard to PABF and FABF. As described in “— Determination of City’s Contributions” and “— Legislative Changes — P.A. 96-1495” above, the City’s Pension Levy applicable to PABF and FABF will be calculated as the level percentage of payroll necessary to reach the 90% Funded Ratio target by 2040 pursuant to the P.A. 96-1495 Funding Plan, which will significantly increase the City’s contributions to PABF and FABF beginning with the levy made in 2015 (and collectible in 2016).

The CSCP found that due to the inadequate contributions, the Retirement Funds have had to use assets to pay current benefits, which in turn put pressure on the asset bases and Funded Ratios of the Retirement Funds.

The CSCP modeled a set of scenarios for the Retirement Funds and found that, based on the actuarial assumptions in use by the Retirement Funds and the condition of the Retirement Funds at the end of 2009, the Retirement Funds would, in the absence of substantial changes to the Retirement Funds’ funding policy and/or benefit structure, deplete all assets in each of the Retirement Funds at different dates but all within twenty years of the date of the Final Report. However, the CSCP’s approval of the Final Report occurred before the enactment of the Pension Reform Act and P.A. 96-1495 and the depletion dates as estimated in the Final Report would not have taken into account the impact of such legislation. See “— Projection of Funded Status” above for the projections based upon the current legislative structure applicable to the Retirement Funds.

The CSCP suggested that the issues related to the Retirement Funds need to be addressed as soon as possible and offered the following specific recommendations: (i) the defined benefit structure used by the Retirement Funds should remain (as opposed to a defined contribution structure); (ii) new employees should continue to become members of the Retirement Funds; (iii) the Retirement Funds should be funded on an actuarial basis; (iv) changes in the Retirement Funds for new members, while recognized by the CSCP as undesirable, will probably be necessary; (v) contributions to the Retirement Funds should be

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increased and revenue sources identified; (vi) employee contributions should not exceed the value of benefits on a career basis; (vii) review any provisions in current law for refunds or for alternative benefit calculations to ensure that the anticipated financial results of a reform program are actually obtained; (viii) in general, no changes in the Retirement Funds should be made unless financially neutral or advantageous to the Retirement Funds, now or in the future; (ix) a variety of other reforms should be considered, including reforming potential abuses, establishing sound reciprocity with other Illinois public pensions, implementing new structures to manage investments of the Retirement Funds, and improving administration of disability claims and benefits; and (x) any reform legislation must comprehensively and simultaneously address all aspects of the pension funding program.

CSCP’s recommendations were made prior to the enactment of the Pension Reform Act and P.A. 96-1495. Certain of the CSCP’s recommendations, including changes in the Retirement Funds for new members, were part of the Pension Reform Act (with regard to MEABF and LABF) and P.A. 96-1495 (with regard to PABF and FABF).

Diversion of Grant Money to Police and Fire Funds Under P.A. 96-1495

P.A. 96-1495 allows the State Comptroller to divert State grant money intended for the City to either of PABF and FABF to satisfy contribution shortfalls by the City (the “Recapture Provision”). If the City fails to contribute to PABF and FABF as required by the Pension Code, the City will be subject to a reallocation of grants of State funds to the City if (i) the City fails to make the required payment for 90 days past the due date, (ii) the subject Retirement Fund gives notice of the failure to the City, and (iii) such Retirement Fund certifies to the State Comptroller that such payment has not been made. Upon the occurrence of these events, the State Comptroller will withhold grants of State funds from the City in an amount not in excess of the delinquent payment amount in the following proportions: (i) in fiscal year 2016, one-third of the City’s State grant money, (ii) in fiscal year 2017, two-thirds of the City’s State grant money, and (iii) in fiscal year 2018 and in each fiscal year thereafter, 100% of the City’s State grant money. Should the Recapture Provision in P.A. 96-1495 be invoked as a result of the City’s failure to contribute all or a portion of its required contribution, a reduction in State grant money may have a significant adverse impact on the City’s finances.

A delay bill such as the P.A. 96-1495 Delay Bill may, if enacted, delay the implementation of the Recapture Provision of P.A. 96-1495. No assurance can be given that a bill such as the P.A. 96-1495 Delay Bill will be enacted. See “— Determination of City’s Contributions— City’s Required Contributions to PABF and FABF Beginning with the Levy made in 2015”

GASB Statements 67 and 68

On June 25, 2012, GASB announced it was adopting new Statements 67 and 68 (collectively, the “Statements”) covering the manner in which pension plans and governments, respectively, account for and report information regarding those pension plans. The Statements take effect in fiscal years 2014 and 2015, respectively. The City expects they will significantly alter the financial statements produced by the City and the Retirement Funds; however, because the City contributes to the Retirement Funds pursuant to the methods established in the Pension Code, the Statements would not impact the contributions made by the City without legislative action.

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Legislative Changes

P.A. 96-0889

On April 14, 2010, Governor Quinn signed Public Act 96-0889 (the “Pension Reform Act”) into law. The Pension Reform Act establishes a “two-tier” benefit system with less generous benefits for employees who become members of MEABF and LABF on or after January 1, 2011 (“Tier II Members”) as compared to those provided to employees prior to such date (“Tier I Members”). The Pension Reform Act does not impact persons who first became members or participants prior to its effective date of January 1, 2011.

Among other changes, the Pension Reform Act: (i) increases the minimum age at which an active employee may retire with unreduced benefits to age 67 from age 60 or younger based on a formula combining the age of the employee and the number of years of service; (ii) increases the minimum age at which an active employee may retire with reduced benefits to age 62 from age 50; (iii) provides that final average salary is based on 96 consecutive months within the last 120 months of employment (instead of 48 months of the last 120 months); (iv) reduces the annual cost of living adjustment to the lower of 3% or 50% of the change in the consumer price index for all urban consumers, whichever is lower, and eliminates compounding for employees hired after January 1, 2011, compared with a cost of living adjustment of 3%, compounded, under prior law; and (v) caps the salary on which a pension may be calculated at $106,800 (subject to certain adjustments for inflation).

The Pension Reform Act does not change City or employee contributions to MEABF or LABF. The Pension Code continues to require that the City contribute to MEABF and LABF pursuant to the respective Multiplier; however, if SB 1922 is enacted into law, the City’s contributions will change. See “SB 1922” below.

The Pension Reform Act as described in this subsection, taken independently of any other legislative or market effects, is expected to reduce benefits afforded new hires and therefore reduce over time the growth in the Actuarial Accrued Liability, the UAAL and the Actuarially Required Contribution. In calculating the Actuarial Accrued Liability, the actuaries make assumptions about future benefit levels. As the value of future benefits decreases over time, and as a greater percentage of the City’s workforce is covered by the Pension Reform Act, the Actuarial Accrued Liability is expected to decrease compared to what it would have been under previous law. Consequently, the UAAL is expected to grow more slowly and the Funded Ratio to improve. As the growth in the UAAL slows, the Actuarially Required Contribution is expected to be reduced as the amount of UAAL to be amortized decreases. However, no assurance can be given that these expectations will be the actual experience going forward.

P.A. 96-1495

P.A. 96-1495 has a significant impact on PABF and FABF. Certain provisions of P.A. 96-1495 are discussed above in “— Determination of City’s Contributions — City’s Required Contributions to PABF and FABF Beginning with the Levy made in 2015.” The P.A. 96-1495 Funding Plan will have the effect of significantly increasing the portion of the Pension Levy applicable to PABF and FABF because, among other things, the Multiplier Funding will no longer serve to cap the Pension Levy (applicable to PABF and FABF) and because the P.A. 96-1495 Funding Plan is designed to require larger contributions by the City. The greater contributions projected to be required under the P.A. 96-1495 Funding Plan are expected to pose a substantial burden for the City’s financial condition beginning in 2016. See “—Projection of Funded Status and Insolvency” above.

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In addition, P.A. 96-1495 makes changes to benefits for police officers and firefighters first participating in PABF and FABF on or after January 1, 2011. Among other changes, P.A. 96-1495: (i) increases the minimum eligibility age for unreduced retirement benefits from 50 (with ten years of service) to 55 (with ten years of service); (ii) provides for retirement at age 50 (with ten years of service) with the annuity reduced by .5% per month; (iii) provides that final average salary is based on 96 consecutive months within the last 120 months of employment (instead of 48 months of the last 120 months); (iv) reduces the cost of living adjustment to the lower of 3% or 50% of the change in the consumer price index for all urban consumers (“CPI-u”), whichever is lower, commencing at age 60; (v) provides that widow benefits are 66 2/3% of the employee’s annuity at the date of death; and (vi) caps the salary on which a pension may be calculated at $106,800 (subject to certain adjustments for inflation).

While the reforms discussed in this section are expected to contribute to a reduction in the Retirement Funds’ respective UAALs over time, such reforms are not expected to materially reduce such UAALs in the near future.

SB 1922

If enacted into law, SB 1922 will make significant changes to LABF and MEABF. Certain provisions relating to the City’s contributions to LABF and MEABF under SB 1922 are discussed above in “— Determination of City’s Contributions — City’s Required Contributions to LABF and MEABF Pursuant to SB 1922.” The SB 1922 Funding Plan will have the effect of significantly increasing the City’s contributions to LABF and MEABF.

In addition, SB 1922 would impact LABF and MEABF as follows:

• The cost of living adjustment (“COLA”) would be skipped in 2017, 2019 and 2025 for retired members that would otherwise be entitled to receive them and who have an annuity greater than $22,000;

• Members who retire after the effective date of SB 1922 are not eligible to receive a COLA adjustment until one full year after they otherwise would have.

• For Tier I Members, the COLA rate would be reduced to the lesser of 3.0% or 50% of the CPI-u, except that retirees with an annual annuity of less than $22,000 will receive at least a 1% COLA in each year, including in the COLA skip years described above;

• For Tier II Members, the minimum eligibility age for unreduced retirement benefits would be reduced to 65 with 10 years of service and, for reduced retirement benefits, to age 60 with 10 years of service;

• Employee contribution rates for both Tier I Members and Tier II Members would be increased to 9.0% in 2015, 9.5% in 2016, 10.0% in 2017, 10.5% in 2018 and 11.0% for 2019 and after until the respective Retirement Fund reaches a 90% Funded Ratio, at which point the employee contribution rate would be reduced to 9.75%; and

• Institutes a Recapture Provision with respect to MEABF and LABF.

SB 1922 further provides that the City’s contribution to LABF and MEABF may be paid with any available funds of the City. Beginning in 2015, the Pension Levy would no longer be the default funding mechanism for MEABF and LABF; however, the City may still enact a Pension Levy for up to

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the full amount of its required pension contribution to MEABF and LABF if the City Council approves such levy amount. See “Determination of City Contributions” above.

The City’s consulting actuary has prepared projections of City contributions and funded status of LABF and MEABF based on the enactment of SB 1922. Such projections are based on the data, assumptions and methods used in the actuarial valuations for LABF and MEABF as of December 1, 2012. Tables 16 and 17 provide such projections as compared to projected results under current Pension Code provisions.

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TABLE 16 - PROJECTED CONTRIBUTIONS: MEABF AND LABF(1)

LABF MEABF

Tax Levy Year

Contributions to LABF

Under Current Law

Contributions to LABF under SB

1922

Increase in Contributions to LABF under SB

1922

Contributions to MEABF

Under Current Law

Contributions to MEABF under SB

1922

Increase in Contributions

to MEABF under SB

1922

2015 $15.9 $15.9 $0.0 $169.8 $169.8 $0.0 2016 16.2 26.0 90.8 175.4 259.6 84.2 2017 16.6 33.5 16.9 181.3 330.2 148.9 2018 17.1 42.1 25.0 187.4 410.6 223.2 2019 17.6 51.9 34.3 193.6 501.1 307.5 2020 18.2 63.0 44.8 199.9 602.7 402.8 2021 18.8 82.4 63.6 206.4 696.9 490.5 2022 19.4 84.7 65.3 212.9 714.6 501.7 2030 234.6 105.0 (129.6) 1,379.3 862.7 (516.6) 2040 247.3 130.4 (116.9) 1,675.1 1,095.5 (579.6) 2050 219.1 155.4 (63.7) 1,603.3 1,425.6 (187.3) 2054 218.1 166.1 (52.0) 11.99 1,574.9 (28.4) ___________________ Source: Gabriel Roeder Smith & Company. Gabriel Roeder Smith & Company is the consulting actuary for the Retirement Funds. Projection

derived from actuarial data as of December 31, 2012. (1) In millions of dollars.

TABLE 17 - PROJECTED FUNDED RATIOS: MEABF AND LABF(1)

LABF MEABF

Fiscal Year

Funded Ratio Under Current Law

Funded Ratio Under SB

1922

Funded Ratio Under

Current Law

Funded Ratio Under SB

1922

2015 50.24% 58.20% 30.82% 35.73% 2016 47.96 56.69 28.40 34.04 2017 44.96 54.82 25.60 32.54 2018 41.78 53.21 22.63 31.51 2019 38.39 51.98 19.48 31.06 2020 34.76 51.08 16.10 31.12 2021 30.86 50.87 12.48 31.64 2022 26.67 50.65 8.60 32.13 2030 0.00 49.37 0.00 36.18 2040 0.00 53.31 0.00 44.97 2050 0.00 75.31 0.00 72.29 2054 0.00 90.00 0.00 90.00

___________________ Source: Gabriel Roeder Smith & Company. Gabriel Roeder Smith & Company is the consulting actuary for the Retirement Funds. Projection

derived from actuarial data as of December 31, 2012. (1) In millions of dollars.

SB 1922 also provides that, beginning on January 1, 2015, the Retirement Board of LABF or MEABF may bring a mandamus action to compel the City to make the contributions required by the

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Pension Code, in addition to other remedies that may be available by law. SB 1922 further provides that the court may order a reasonable payment schedule to enable the City to make payments without imperiling the City’s public health, safety, or welfare.

Under SB 1922, such payments are expressly subordinated to the payment of the principal, interest, premium, if any, and other payments on or related to any bonded debt obligation of the City, either currently outstanding or to be issued, for which the source of repayment or security thereon is derived directly or indirectly from any funds collected or received by the City or collected or received on behalf of the City. Per SB 1922, such payments on bonded obligations include any statutory fund transfers or other prefunding mechanisms or formulas set forth, now or hereafter, in State law, City Ordinance, or bond indentures, into debt service funds or accounts of the City related to such bonded obligations, consistent with the payment schedules associated with such obligations

For projections of the impact of SB 1922 on City contributions and the Retirement Funds’ respective Funded Ratios, see Tables 16 and 17.

Pension Reform

The City continues to believe that significant legislative changes, such as those that would take effect if SB 1922 comes law, are required to properly fund the Retirement Funds and continues to consider the options available to address those unfunded liabilities. Based on its work in developing pension reform proposals and other analysis, the City believes that the Retirement Funds’ unfunded liabilities cannot be adequately and practically addressed through increases in the City’s contributions alone and without a modification to the current level of benefits. If the City attempted to fund such increased contributions through an increase in taxes, the increase would be larger than any increase in recent history, politically difficult to enact, and harmful to the City’s financial condition and, likely, its economy. If the City attempted to fund such increased contributions through expenditure cuts, essential City services, including, but not limited to, public health and safety, would be jeopardized. And the amount that could be derived from the sale of City assets would be inconsequential when compared to the Retirement Funds’ unfunded liabilities. Finally, a combination of revenue increases and expenditure cuts likely would not be practical to address the unfunded liabilities, given their magnitude. This is true both when considering the Retirement Funds on their own, and when viewed collectively with the unfunded liabilities of the Other Retirement Funds, whose sponsoring Governmental Units’ have tax bases that overlap with the City’s tax base. See “—Overlapping Tax Bodies.” Therefore, the City believes that modifications in the benefits provided by each of the Retirement Funds are necessary, in combination with any increases in employer and employee contributions, to adequately address the unfunded liabilities of the Retirement Funds.

No assurance can be given that SB 1922 will become law or that other legislation addressing the needs of the Retirement Funds will be enacted. Additionally, given the Illinois Pension Clause in the Illinois Constitution, any legislation which reduces benefits may be challenged under this constitutional provision, and no assurance can be given that such legislation will be upheld upon a legal challenge.

The City continues to make its statutory contributions to each Retirement Fund.

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OTHER POST-EMPLOYMENT BENEFITS

General

The City and the Retirement Funds share the cost of post-employment healthcare benefits available to City employees participating in the Retirement Funds through a single-employer, defined benefit healthcare plan (the “Health Plan”), which is administered by the City. Prior to June 30, 2013, the costs of the Health Plan were shared pursuant to a settlement agreement (as amended, the “Settlement”) entered into between the City and the Retirement Funds regarding the responsibility for payment of these health benefits as described below under “— The Settlement.”

MEABF and LABF participants older than 55 with at least 20 years of service and PABF and FABF participants older than 50 with at least 10 years of service may become eligible for the Health Plan if they eventually become an annuitant. The Health Plan provides basic health benefits to non-Medicare eligible annuitants and provides supplemental health benefits to Medicare-eligible annuitants.

The City contributes a percentage toward the cost of the Health Plan for each eligible annuitant. Annuitants who retired prior to July 1, 2005 receive a 55% subsidy from the City, whereas annuitants retiring on or after such date receive a subsidy equal to 50%, 45%, 40% or zero percent based on the annuitant’s length of actual employment with the City. The Retirement Funds contribute a fixed dollar amount monthly ($65 for each Medicare-eligible annuitant and $95 for each non-Medicare eligible annuitant) for each of their annuitants. The annuitants are responsible for contributing the difference between the cost of their health benefits and the sum of the subsidies provided by the City and the related Retirement Fund.

The Retirement Funds’ subsidies are paid from the Pension Levy, as provided in the Pension Code. These payments therefore reduce the amounts available in the Retirement Funds to make payments on pension liabilities. See Tables 5-9 in “Retirement Funds—Funded Status of Retirement Funds” above for Retirement Funds’ statement of net assets, which incorporates the expense related to the Health Plan as part of the “Administration” line item. The Pension Levy is described in “Retirement Funds —Determination of City’s Contributions” above.

The Settlement

In 1987, the City sued the Retirement Funds asserting, among other things, that the City was not obligated to provide healthcare benefits to certain retired City employees. Certain retired employees intervened as a class in the litigation, and the Retirement Funds countersued the City. To avoid the risk and expense of protracted litigation, the City and the other parties entered into the Settlement, the terms of which have been renegotiated over time. The City contributed to the Health Plan as a result of the obligation established by the Settlement during the term of the Settlement (the “Settlement Period”). The Settlement expired on June 30, 2013. See “— Status of Healthcare Benefits After the Settlement Period” below.

City Financing of the Health Plan

The Health Plan is funded on a pay-as-you-go basis. Pay-as-you-go funding refers to the fact that assets are not accumulated or dedicated to funding the Health Plan. Instead, the City contributes the amount necessary to fund its share of the current year costs of the Health Plan. The City’s contributions are made from funds derived from the Pension Levy, which is described above in “Retirement Funds —

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Determination of City’s Contributions” as required by the Pension Code. See Table 19 below for a schedule of historical contributions made by the City to the Health Plan.

Actuarial Considerations

City Obligation

The City has an Actuarial Valuation completed for its contributions to the Health Plan annually. The purpose and process behind an Actuarial Valuation is described above in “Retirement Funds — The Actuarial Valuation — Actuaries and the Actuarial Process.” In addition, the Retirement Funds produce an Actuarial Valuation for the liability of such Retirement Fund to its retirees for the benefits provided under the Health Plan.

Although these Actuarial Valuations all refer to the liability owed for the same benefits, the results of the Retirement Funds’ Actuarial Valuations differ significantly from the City’s Actuarial Valuation for two reasons. First, the City’s Actuarial Valuation only reflects the portion of liabilities the City owes under the Settlement. Second, the Actuarial Valuations of the City and the Retirement Funds differ because the actuarial methods and assumptions used for each purpose vary.

This Appendix addresses the funded status of the City’s obligation to make payments for the Health Plan. For additional information on the amounts owed to members of the Retirement Funds for retiree healthcare benefits, see the Actuarial Valuations of the Retirement Funds, which are available as described in “Retirement Funds — Source Information” above, and Note 11(b) to the City’s Basic Audited Financial Statements, which are available on the City’s website at http://www.cityofchicago.org/city/en/depts/fin/supp_info/comprehensive_annualfinancialstatements.html; provided, however, that the contents of the City’s website are not incorporated herein by such reference.

Actuarial Methods and Assumptions

The Actuarial Valuation for the City’s obligation to the Health Plan utilizes various actuarial methods and assumptions similar to those described in “Retirement Funds” above with respect to the Retirement Funds. The City does not use an Actuarial Method to calculate the Actuarial Value of Assets of the Health Plan because no assets are accumulated therein for payment of future benefits. As such, the Actuarial Value of Assets for the Health Plan is always zero.

The City’s Actuarial Valuation employs the PUC Method to allocate the City’s obligations under the Settlement. For more information on the PUC Method, see “Retirement Funds — Actuarial Methods” above.

The City’s 2012 Actuarial Valuation amortizes the Health Plan’s UAAL over a closed 1-year period, in order to reflect the remainder of the Settlement Period. The use of a closed, 1-year period has the effect of increasing the Actuarially Required Contribution as compared to the typical 30-year open amortization period because (i) the period of time over which the UAAL will be amortized is shorter, and (ii) the amortization period is one year as opposed to remaining at 30 years for each period going forward.

Funded Status

The following tables provide information on the financial health of the Health Plan. The Health Plan is funded on a pay-as-you-go basis, which means no assets are accumulated to pay for the liabilities of the Health Plan. As such, the Funded Ratio with respect to the Health Plan is perpetually zero.

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Table 18 summarizes the current financial condition and the funding progress of the Health Plan.

TABLE 18 - SCHEDULE OF FUNDING PROGRESS(1)

Actuarial Valuation

Date (Dec. 31)

Actuarial Value of Assets

Actuarial Accrued Liability

Unfunded Actuarial Accrued Liability

Funded Ratio

Covered Payroll

UAAL as a Percentage of

Payroll 2007 $0 $1,062,864 $1,062,864 0% $2,562,007 41.5% 2008 0 787,395 787,395 0 2,475,107 31.8 2009 0 533,387 533,387 0 2,546,961 20.9 2010 0 390,611 390,611 0 2,475,000 15.8 2011 0 470,952 470,952 0 2,518,735 18.7

___________________ Sources: Comprehensive Annual Financial Report of the City for the fiscal years ending December 31, 2010-2012. (1) In thousands of dollars. (2) The City, as required, adopted GASB Statement No. 45 in fiscal year 2007. The information provided in this table was produced in

2007 or later.

Table 19 shows the amounts actually contributed to the Health Plan by the City.

TABLE 19 - HISTORY OF CITY’S CONTRIBUTIONS(1)

Actual City

Contribution 2008 $98,065 2009 98,000 2010 107,431 2011 99,091 2012 97,531

__________________ Sources: Comprehensive Annual Financial Report of the City for the fiscal years ending 2008-2012. (1) In thousands of dollars. (2) The City, as required, adopted GASB Statement No. 45 in fiscal year 2007.

Retiree Health Benefits Commission

The Settlement provided for the creation of the Retiree Health Benefits Commission (the “RHBC”), which was tasked with, among other things, making recommendations concerning retiree health benefits after June 30, 2013. The RHBC’s members were appointed by the Mayor of the City for terms that do not expire. The Settlement required that the RHBC be composed of experts who will be objective and fair-minded as to the interest of both retirees and taxpayers, and include a representative of the City and a representative of the Retirement Funds.

On January 11, 2013, the RHBC released its “Report to the Mayor’s Office on the State of Retiree Healthcare” (the “RHBC Report”). The RHBC Report can be found on the City’s website at http://www.cityofchicago.org/city/en/depts/fin/provdrs/ben/alerts/2013/jan/retiree_healthcarebenefits commissionreporttothemayor.html; provided, however, that the contents of the RHBC Report and of the City’s website are not incorporated herein by such reference.

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The RHBC Report concluded that maintaining the funding arrangement then in place for the Health Plan was untenable, would prevent the City from continuing to provide the current level of benefits to retirees in the future, and could result in other financial consequences, such as changes to the City’s bond rating and its creditworthiness. The RHBC Report presented several options for the Mayor to consider which would reduce the level of spending with respect to the Health Plan from approximately $108 million annually to between $90 million and $12.5 million annually depending on the option.

Status of Healthcare Benefits After the Settlement Period

On May 15, 2013, the City announced plans to, among other things: (i) provide a lifetime healthcare plan to employees who retired before August 23, 1989 with a contribution from the City of up to 55% of the cost of that plan; and (ii) beginning January 1, 2014, provide employees who retired on or after August 23, 1989 with healthcare benefits but with significant changes to the terms provided by the Health Plan, including increases in premiums and deductibles, reduced benefits and the phase-out of the entire Health Plan for such employees by the beginning of 2017.

On May 30, 2013, the General Assembly passed Senate Bill 1584, which was signed into law by the Governor on June 28, 2013. Senate Bill 1584 extends the Retirement Funds’ subsidies for retiree healthcare costs until such time as the City no longer provides a health care plan for annuitants or December 31, 2016, whichever comes first.

After the June 30, 2013 expiration of the Settlement, on July 5, 2013, certain participants in the Health Plan filed a motion to “re-activate” the 1987 litigation covered by the Settlement. On July 17, 2013, the Circuit Court of Cook County, Illinois denied that motion. On July 23, 2013, certain of the participants filed a new lawsuit (the “Lawsuit”) in the Circuit Court against the City and the Trustees of each of the four Retirement Fund Boards, seeking to bring a class action on behalf of former and current City employees who previously contributed or now contribute to one of the four Retirement Funds. The plaintiffs assert, among other things, that pursuant to the Illinois Pension Clause, each such City employee is entitled to a permanent and unreduced level of healthcare coverage by the City, which vests as of the date they began participating in any of the four Retirement Funds and is subsidized by their respective Retirement Fund. The City subsequently moved the Lawsuit to federal court, and filed a motion to dismiss the Lawsuit with prejudice. The court granted the City’s motion to dismiss, and plaintiffs appealed and motioned for an injunction pending the appeal. The court denied plaintiffs’ motion for an injunction and subsequently determined that the plaintiffs’ appeal should be held in abeyance pending the resolution of Kanerva (defined below). The City intends to vigorously defend the appeal.

On August 16, 2013, the City filed a brief as amicus curiae with the Supreme Court of Illinois in the case of Kanerva v. Weems (“Kanerva”). Although the City is not a party in the Kanerva litigation, the City believes that the outcome of the Kanerva case may impact the law at issue in the Lawsuit, particularly with respect to the question of whether retiree health benefits are protected by the Pension Clause.

The City expects to save approximately $100 million annually beginning in 2017 as a result of the phase-out of the Health Plan.

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