| Via Chicago |
Aug 16, 2023 1:54 PM |
https://www.chicagobusiness.com/airl...ehind-schedule
Quote:
With all his legendary gusto, then-Mayor Rahm Emanuel in February 2018 announced a massive project critical to Chicago’s economic engine: An $8.5 billion expansion and modernization of O’Hare International Airport’s outmoded terminals, a step he declared would put the city at the heart of international air travel growth and come online by 2026.
Five and a half years of COVID, raging inflation and City Hall turmoil later, it hasn’t exactly worked out that way.
The big airport job has virtually vanished from the news. O’Hare traffic has been relatively slow to recover from COVID. There's been jostling between the city and its airline partners over spiraling costs, and construction on the first of three promised new terminals is not even scheduled to begin until the last half of 2024.
The latest projected date for completion on the project: 2032 — six years late.
The terminal revamp clearly has experienced a delayed, bumpy takeoff. Though not unusual in ambitious aviation projects — O’Hare’s tranche of new runways was delivered several years late — the question now is whether the Johnson administration and particularly Aviation Commissioner Jamie Rhee finally can get the program off the ground, even as modernization efforts at competing airports in New York and Los Angeles pick up momentum.
The project is only a little more than 30% designed. Discussions with the airlines, who fill foot the bill through landing fees and rent, are intensifying. Airlines and the city need to come to agreement on exactly what will get built, at what cost and when.
In an interview and tour of the airfield, Rhee shrugs off industry griping that the city has wasted years of time and points to crucial preliminary work that’s now well underway, if mostly unseen by the public.
For instance, two miles of pipe that runs from 108 inches to 144 inches wide to drain away stormwater and prevent the new terminals from being flooded. Or building a mile-long underground road allowing service vehicles to access gates without passing in front of taxiing jets. Or a recently opened 10-gate expansion of Terminal 5, the first at O’Hare in 30 years, which went smoothly and has breathed new life into that facility.
“I’ve had good meetings with airlines, and I’ve had bad meetings with airlines,” she says. “They have never wavered in their commitment to us, and we have never wavered on our commitment to them.”
But behind the scenes, cost pressures are building, industry sources say, raising questions about whether the centerpiece of the expansion — a dramatic, soaring new global terminal designed by Chicago starchitect Jeanne Gang — can be delivered for the budget the city has set or if the building will lose much of its luster.
“We’ve cut out the fat, and we’re now down to making decisions,” Rhee says. “I’ve heard (the airlines) loud and clear. They have said, ‘You’re not getting any more money than what we gave you in 2018” under the deal struck by the Emanuel administration.
Under that plan, the city will build two remote satellites off of the existing Concourse C in Terminal 1. Once they are completed, the half-century-old Terminal 2 will be demolished and replaced by Gang’s new global terminal, allowing O’Hare’s two big tenants, United and American airlines and their partners, to locate international operations close to their domestic flights, rather than having everyone fly into the existing Terminal 5. Overall, the amount of gate space would rise about 40%.
Originally pegged at a cost of $8.5 billion, construction was supposed to begin within a few years and the entire new operation was supposed to be done by 2026. The latest cost estimate is $12.1 billion, though officials say the latter figure includes some extra work — and they also note the $8.5 billion was in 2018 dollars.
Even so, the timetable and price tag likely were optimistic. The plan then “was largely conceptual,” says one O’Hare veteran who asks not to be named. “Now, we’re in the sausage-making.” And it’s messy.
Rhee immediately extended the timetable by two years, to 2028, when she came in as commissioner in late 2018. Then COVID hit, along with the highest inflation in decades, driving up the cost of construction. And the timetable slipped to 2030 and now 2032.
Another complication: The Federal Aviation Administration took years longer to sign off on the project than city officials had expected, with final approval not arriving until last November.
Possibly a bigger factor, however, was the disappearance of the sense of urgency to build.
One sign: A year ago at this time, when the city issued a $1.8 billion bond issue for O’Hare work, then-city Chief Financial Officer Jennie Huang Bennett said she expected to float another bond issue of about the same size right now. But the city’s new CFO, Jill Jaworski, says there will be no further borrowing until at least early 2024. Expenditures have been slower than expected, she told Crain’s.
Why the slowdown? In part, the hard-driving Emanuel was replaced by Lori Lightfoot, who had other priorities. Another culprit: O’Hare’s business has not recovered as quickly as many other airports post-COVID.
According to a recent study by Moody’s Investors Service, in the 12 months through March 2023, O’Hare ranked in the bottom 10% of airfields, with enplanements — the number of people getting on and off a plane — just 83% of their pre-pandemic level. That’s well below Dallas-Fort Worth at 101%, New York-LaGuardia at 99%, Atlanta Hartsfield at 87%, and even Chicago Midway at 101% — though West Coast airports, such as Los Angeles and San Francisco, that were heavily dependent on flights to Asia also are still way off their previous peak.
Emanuel failed to respond to request for comment.
Fitch Ratings Analyst Jeffrey Lack, who estimates airport costs are 10% or less of overall airline operating costs. “Relative to labor and fuel, it’s not going to impact their bottom line as much as those other costs,” he says.
Southwest Airlines CEO Robert Jordan shrugged off current projections that the terminal project will drive up costs per enplanement at O’Hare by one-third to about $40 per passengers. “The rate is not unmanageable, so it doesn’t bother me in the least,” he said at a Crain’s breakfast event Tuesday. “We’re supportive. Continued expansion at O’Hare is what provides us the ability to grow.”
Of course, Southwest, which runs most of its Chicago flights out of Midway, is a much smaller player at O’Hare than American and United. And the CEOs of both carriers have publicly embraced the terminal plan.
Still, the airlines are pushing hard behind the scenes to control costs. The most obvious target is the global terminal, which Emanuel wanted to be an architectural statement to the world. Gang’s initial concept for a terminal turned heads with the feel of journeying through a rainforest. Already there are rumors that cost considerations will result in something less eye-popping than Gang's original vision. Rhee won’t say much about that, commenting only that some big decisions are yet to be made and that Gang’s final design is “going to make Chicago proud.”
Going cheap would come at a cost.
“The airport is often the first impression someone gets when they come to a city. If the airport is dilapidated, it tells you people aren’t willing to invest in their infrastructure,” says P.J. Huizinga, managing principal of Huizinga Capital Management in Oak Brook. “You have one opportunity to do this every 50 or 75 years. They need to do it right, to spend the money wisely, not cheaply,” he says, pointing to the $8 billion makeover of New York’s LaGuardia International Airport. “The first thing I felt about LaGuardia was, ‘Wow!’ ”
Chicago may or may not get to “wow” later. At the moment, it just needs to get going — and, according to some airline executives, get on Johnson’s priority list. One troubling sign: The massive project, one of the biggest civic construction jobs in Chicago history, rated all of two sentences in Johnson’s 223-page transition report.
Rhee, a savvy bureaucrat who knows who signs her paycheck, says Johnson already is aboard. “Mayor Johnson has been an incredible force,” she says. “He recognizes the importance of O’Hare.”
Chicago’s future as an aviation hub may depend on that, because its peers aren’t waiting. New York’s John F. Kennedy International, Atlanta’s Hartsfield-Jackson International, Los Angeles International and Dallas-Fort Worth International all are in the midst of multibillion-dollar terminal projects. The JFK project alone is pegged at $13.7 billion.
Rhee says her expansion will be done on time and on budget by 2032. “We continue to work with our airline partners to move this project forward and secure the future of O’Hare.”
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