Chicago Proposes Major Hike In Airline Rents And Landing
Fees
It seemed like a long-sought deal to fund new runways at
Chicago's O'Hare International Airport (KORD) was about to be
inked, until United and American Airlines balked at a proposal for
major hikes in the rents and landing fees airlines pay.
The city of Chicago proposed to ask the airlines for millions of
additional dollars to help repay bonds issued to build the new
runways. The Chicago Tribune reports that the bonds carry a 4
percent interest rate, and won't come due for 20 years.
In a scathing letter to Chicago Aviation Commissioner Rosemarie
Andolino, United and American said they would not return to the
negotiations until the city reconsiders its position on the fees.
"We think that it's fiscally irresponsible to prepay debt that
already has a coupon of 4 percent, especially when that debt is not
due until 2030," said Michael Trevino, a spokesman for United
Airlines. "Obviously, the airline industry continues to have its
financial challenges."
The Chicago Tribune reports that the overall airport expansion
will cost $15 billion. One of the sticking points is a new $3
billion western terminal that the airport wants but the airlines
don't. The two sides had agreed about the terminal in late
December, but the city said last week that the terminal had to be
part of the discussions. The city also announced that rents would
be raised 15-17 percent, and that landing fees would jump a
whopping 38 percent. About $63 million of the money raised by fee
hikes would be used to prepay bonds issued 5 years ago.
The airlines thought they had made an agreement with the Daley
administration to keep costs down until the project was completed.
In 2003, the airlines contended they could not afford to pay for
the runway construction up front, so the city borrowed heavily for
the project. Airlines were supposed to pay the money back after the
project was complete, the runways were operational, and airline
industry was again profitable. "We are uncertain what has triggered
this change in direction, but find it quite troubling and
inconsistent with our past dealings," wrote United and American
officials. "If [city aviation] is going to intentionally and
unnecessarily increase the airlines' costs, we cannot consider any
projects that will only exacerbate the situation."
Now, some critics say without the support of the airlines or
private investors, the construction will stop midstream when the
project runs out of money.
First Deputy Aviation Commissioner Michael Boland told the
Tribune that the airlines should have known that the city would ask
them to share more of the cost burden. "It is unfortunate that the
2010 O'Hare debt-service increases have occurred during difficult
economic times. However, they were anticipated as part of the
(O'Hare modernization) funding agreement reached with the airlines
in 2003," he said.