... in what might be viewed as a sign of the economic times for the airline and airport industry. The proposed rate increases are directly related to the massive $15 billion O’Hare Modernization Program (OMP), which still needs two more runways and a western terminal built to reach completion.
Chicago newspapers report that American and United in a February 3 letter -- which the Tribune labels “scorching†– to aviation commissioner Rosemarie Andolino that the carriers will not continue to discuss funding of Phase Two of the O’Hare expansion until the city rethinks its current strategy. According to the Sun Times, “Airlines are being charged an increase of 15-17 percent in rental rates and 38 percent in landing fees. The landing fee increase is being used to fund prepayment of debt not scheduled to mature until after 2030†– the latter being a major point of contention, along with the proposed $3 billion western terminal, which the carriers say they don’t need.
According to Crain’s Chicago Business, “The airlines were expecting an increase in fees to begin paying off bonds sold in 2005 to pay for the $3.1-billion first phase of the O’Hare expansion project, which was completed in late 2008. But the airlines, which are still losing millions of dollars, were outraged to find out that the airport also wanted to prepay some debt ahead of schedule.
“But they argue that the city only needs $5.40 per 1,000 pounds to pay the scheduled debt related to the first phase of the O’Hare expansion. The rest will go to prepay debt, a difference that equates to $63 million annually in extra payments for all of the airlines at O’Hare. The airlines say it is ‘fiscally irresponsible . . . to be prepaying existing debt with a 4 percent variable interest rate.’†Crain’s reports that terminal rents will rise some 28 percent in 2010 at O’Hare.
The Chicago Department of Aviation in a statement maintains that the rate increases were anticipated as part of the OMP Phase 1 funding agreement reached with the airlines in 2003. It also says it prefers not to negotiate with airlines through the media, which at present appears to be what is happening.
Chicago Mayor Richard M. Daley has a history of getting what he wants. Yet, even the powerful mayor may have to accept a new reality: that the economics of the airline industry have changed dramatically. O’Hare isn’t the only airport getting resistance for infrastructure projects – Sacramento International, for one, significantly altered its terminal construction plans because of airline considerations.
Of course, with one stroke of the pen President Obama, a product of Chicago politics and a Democratic ally, could sign an O’Hare stimulus plan and make the discussion moot. The way they’re printing money in D.C. these days, it’s not the craziest of thoughts.
Thanks for reading. jfi