| nomarandlee |
Sep 7, 2010 5:44 PM |
Quote:
http://www.chicagotribune.com/news/l...,2785845.story
Chicago hopes to borrow another $1 billion for O'Hare expansion
The fresh money would buy time to keep the project going so the city will be able to persuade the airport's two largest tenants to help with funding and avoid costly litigation
By Jon Hilkevitch and Julie Johnsson, Tribune reporters
8:10 p.m. CDT, September 6, 2010
Like a poker player who has gone all in on a bet that's too big to lose, the Daley administration is expected to explain to aldermen on Tuesday why it needs to quickly issue $1 billion in new bonds to prevent the expansion of O'Hare International Airport from folding.
With less than half of the mega-project completed, the city is running out of money and needs the bond deal to continue work. In the high-stakes game of Chicago-style airport expansion, the fresh money would basically buy time to keep the project going with the hope that the city will be able to persuade the airport's two largest tenants, American and United airlines, to sign on.
Ultimately, the city will need to raise at least $3.3 billion to finish the job — and that's without new terminals, a People Mover extension and other infrastructure that Chicago officials once deemed integral to building the first runways at O'Hare in almost 40 years.
The move for more money comes while the city continues to be stymied in its effort to get American and United to help pay for a western terminal that would be primarily used by other airlines. The carriers also have refused to sign off on the last three runways of the project, which are expected to produce the biggest increases in O'Hare's flight capacity.
Still, the city's talks with United in recent months have yielded a potential compromise that would postpone development of the new terminal until demand for flights reached a predetermined level, say people close to the discussions. The two sides, however, have not agreed on the amount of traffic that would trigger work on the $2.2 billion terminal.
"The western terminal is demand-driven," said Chicago Aviation Commissioner Rosemarie Andolino. "When we need it, we will have the ability to build it."
But Andolino is running out of time to broker a deal with the airlines. On Tuesday, the City Council's Finance Committee is scheduled to review an ordinance paving the way for the $1 billion in new bonds, which would pay for preliminary runway work, including moving a portion of Irving Park Road. The measure is expected to be approved by the full City Council on Wednesday, Andolino said, calling it "routine business."
Andolino is gambling the airlines will fall in line once work on the runways begins, observers said. Yet by pushing ahead without the airlines' support, she risks a courtroom showdown that could mire the O'Hare overhaul, a plan announced nine years ago by Mayor Richard Daley, in further delays, sources said.
"I guess they are using the saying, 'If you build it, they will come,'" Ald. Joe Moore, 49th, said. "Keeping O'Hare as an economic engine is vital to the city, but that's a huge amount of money to appropriate. ... We the taxpayers may end up having to foot the bill if the airlines don't want the extra capacity."
Daley has long said local taxpayers won't be liable for helping pay for the expansion project. But there is concern that if the city fails to sign on the airlines, ultimately the city and taxpayers will be responsible for paying for the rest of the work.
United and American have hired the law firm DLA Piper to represent their interests in the proposed funding, design and construction of the remaining O'Hare project. The airlines contend that a 2005 contract bars the city from funding construction with bonds paid by airline landing fees and terminal rents, without first gaining the consent of carriers accounting for a majority of O'Hare operations.
In an Oct. 14, 2009, letter to Andolino obtained by the Tribune, DLA Piper warned that United and American "will protect their contractually bargained-for rights."
Andolino responded: "If we go down that path … it is a litigation issue."
The city will have to tap the bond market at least twice to pay for the remaining work. The bonds at the center of the legal wrangle would likely be raised a year or so from now and would total about $2.3 billion. What's unclear is whether the initial $1 billion debt would also be disputed by the carriers because it would be principally repaid with fees tacked on to passenger tickets and a $410 million Federal Aviation Administration grant.
"There are two questions," said Aaron Gellman, a professor at Northwestern University's Transportation Center. "Are the airport commissioner and city willing to run roughshod over the carriers and perhaps trigger a lawsuit under (the argument that the city failed to get the required approval of carriers who account for a majority of the airport's operations), or are they willing to make concessions to enough carriers to get (such) approval?"
Both sides have much to lose if the current deadlock turns into a prolonged legal battle.
Airlines at Los Angeles International Airport successfully sued aviation authorities to block airport terminal overhaul plans that would have imposed significantly higher finance costs on carriers, said Steve Lott, spokesman for the International Air Transport Association, an airline trade group.
It is in the airlines' interest to cut a deal now to take advantage of low interest rates, Gellman said. But other analysts said the project risks making O'Hare even more expensive to airlines and passengers — and less attractive to the management of American and United.
United is slated to gain a new CEO, Continental Airlines chief Jeff Smisek, with no ties to Chicago when the airlines' merger is legally completed Oct. 1. O'Hare will be eclipsed by Houston's George Bush Intercontinental Airport as the new airline's largest hub, and observers are watching to see whether United will shift flights and resources away from its O'Hare base.
The city and airlines largely kept their differences on O'Hare's expansion to themselves until 2008. That summer, six of the major airlines serving O'Hare sent letters to city aviation officials warning that the expansion plan is flawed. They also suggested suspending the final phase of the project because of a decline in air travel and the airline industry's cloudy future.
The airlines' resentment boiled over again in February, when the city raised landing fees by 38 percent and rents by 15 percent to 17 percent to prepay bonds that weren't due until 2030. United and American called the move "fiscally irresponsible" and broke off talks in protest.
American has refused to sit down with city officials since the dispute, sources said. A spokeswoman for the airline declined to comment for this story. United, however, has resumed negotiations with Andolino's team in recent months aimed at ending the deadlock over the western terminal. United spokesman Michael Trevino confirmed the negotiations but declined to elaborate on what is being discussed.
Sources said recent talks have focused on a contractual clause that would enable the city to push ahead with airfield improvements without committing to financing the new terminal, which would almost double the cost of this phase of the project.
The city is conducting a study on the costs of the western terminal, which initial estimates pegged at about $2 billion. But new number-crunching shows the final price could be much higher. The soaring expense might provide the city with a face-saving reason to shelve the western terminal in exchange for the airlines' support of the overall airport renovation project, sources said.
"I think all sides still want to make the deal come together," said Lester Crown, a leading member of the Civic Committee of The Commercial Club of Chicago. "There is no demand at the present time for the western terminal gates. I think the terminal is completely on the back burner."
While the city has faced escalating costs because of project delays and ongoing litigation with opponents of new runways, another big hang-up has been timing. Flights at O'Hare are down about 100,000 annually from a 2004 peak, and the lingering recession has stymied efforts to bring aboard financial support from the airline industry, which has long insisted the project be scaled back, or from private investors.
Demand for additional runways and passenger terminals will likely materialize, but it will take years, according to FAA projections. The agency has supported O'Hare expansion with $747 million in taxpayer money — the largest financial commitment ever made to a single airport project.
Andolino is undeterred.
"When I started out here in 2003, I was given the direction by the mayor and the business community that they wanted these runways,'' she said. "I prefer to work in an environment with my airline partners, and I am confident that will still happen. (But) we are moving forward with the program, period."
Always the optimist, Andolino insisted that the entire O'Hare project can still be completed by 2014, as the mayor directed when Chicago was competing to host the 2016 Summer Olympics.
"It is still the goal, but with the challenges we face, I reserve the right to (reconsider) that decision as appropriate,'' she said.
Tribune reporters Hal Dardick and John Byrne contributed to this report.
jhilkevitch@tribune.com
jjohnsson@tribune.com
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