City Hopes To Catch Some Breaks To Pay For Revamp
Gov. Rod Blagojevich
signed a $6.6-billion bill to expand O'Hare last August, but
critics now argue that the total cost is likely to be higher. With
the full $15-billion price tag for Chicago's plan to expand O'Hare
International Airport coming into focus, questions are emerging
about how the city will pay for the costliest public works project
in its history.
City airport planners argue that the plan is flexible, and the
decision to go ahead with any of the new runways or terminals will
depend on step-by-step approval by the airlines and bond markets
over time. "If the passenger traffic is there, the costs are what
(they need) to be," says Ramon Ricondo, the city's main airport
planning consultant. "If not, some of it may not be built. O'Hare
will remain competitive." The city's first phase of improvements,
particularly a new parallel runway on the north side of the
airport, promises to sharply reduce delays at a relatively modest
cost of $2.9 billion. But that could be the extent of what's doable
for the foreseeable future, at least until airline profits rebound
and there's a better fix on future passenger demand.
"I believe it all will happen," says U.S. Rep. William Lipinski,
D-Chicago, a close observer of the city's airport plans. But it
could take awhile. "I think the airlines will not be as robust
economically as the plan in place will need them to be at the
appropriate time. It may take longer" than the city's current
timetable.
Critics argue that the total cost is likely to be higher than the
city's estimate and too expensive in relation to the projected
benefits. "This would be magic if they put in $15 billion and they
doubled capacity," says Jon Ash, managing director of Global
Aviation Associates Ltd., an aviation consulting firm retained by
the Suburban O'Hare Commission, an anti-expansion group. "The real
question is whether you could ever finance this thing." Today, of
course, the answer would be no. O'Hare's largest tenant, United
Airlines, is in bankruptcy and Texas-based arch rival American
Airlines is struggling to stay out.
"Of course we support the master plan, and have worked closely
with the city on it," says a spokesman for UAL Corp., United's Elk
Grove Township-based parent. "As things move along, we'd expect
costs to be reasonable. To get into specifics, it's just too
premature." Other airlines are still waiting to get on board. "We
do not believe that we have been presented with a comprehensive
economic analysis that weighs the cost of the program with the
potential increase in flight activity," says a spokesman for Eagan
(MN)-based Northwest Airlines in a prepared statement.
"Furthermore, we were and continue to be concerned that the
program, in its entirety, will create a cost structure for airlines
serving O'Hare that will be among the most expensive airports in
the world."
Mr. Ricondo, the city's
consultant, concedes that "O'Hare will be average to high cost,"
depending on what happens to anticipated improvement projects at
other major airports. In addition, city airport planners are making
optimistic long-range assumptions about funding sources and the
ability of long-struggling airlines to shoulder more than $1
billion in annual debt service by 2022 to pay for airport
operations and improvements. For instance, the $4.50 passenger
facility charge that the city gets from every ticket is projected
to increase to $6 by 2011, but that will take an act of
Congress.
"A lot of folks, including us, would have problems with that,"
says a spokesman for the Air Transport Assn., the airline
industry's trade association in Washington, D.C.
The fee and bonds backed by proceeds from it are expected to
cover 22 percent of the $6.6 billion needed for new runways and a
western terminal, plus 41 percent of $4.2 billion in routine
capital improvement costs over the next 20 years. Overall, annual
debt service would soar from $132.7 million in 2003 to more than $1
billion a year by 2022. Much of the debt and interest payments are
back loaded to reduce the financial pressure on airlines today. One
assumption is that future refinancing of the airport's existing
$3.2 billion in debt will put off principal payments until
2019.
The city also assumes that a type of borrowing called special
facility debt — usually backed by a single airline —
will be used for a substantial part of the new terminals that will
be built. The market for special facility bonds has been thrown
into doubt by United's attempt to default on that kind of debt in
bankruptcy, an issue that is still being litigated. Other kinds of
third-party financing, such as privately built terminals, could be
used instead. The debate over what's really needed at O'Hare may be
just starting, and it promises to play out for the next decade or
more. It's a debate the region could have had before now if the
city and suburbs hadn't been at odds over whether to expand O'Hare
at all over the last 20 years.
"We'd be more than willing to sit down with the city and come up
with a low-cost, cost-efficient expansion plan for the airport,"
says Joseph Karaganis, general counsel for the Suburban O'Hare
Commission.
When Mayor Richard
Daley forged an airport accord with former Gov. George Ryan in
2001, he went for a much bigger-than-expected expansion plan
involving six new and reconfigured runways and the razing of more
than 500 suburban homes to expand the airport's footprint. Instead
of engaging in the normal political give and take, Gov. Ryan agreed
to the city's comprehensive plan. Critics still argue that the plan
is too big and too expensive. But only the most die-hard critics
would argue that O'Hare doesn't need to expand at all. "O'Hare
needs to be modernized; everyone would agree with that," says David
Hinson, a former Federal Aviation Administration commissioner
working with the Suburban O'Hare Commission on a pro bono basis.
"The demand will be there and the existing configuration can't
handle it."