Airline analysts and Gov. Rod Blagojevich agree that Chicago’s plan to finance new runways at O’Hare International Airport is a big gamble, but a worthwhile one.
Industry observers say it would be difficult to avoid serious risk when taking on a project the magnitude of O’Hare’s expansion, especially when no one can predict the future of the ailing airline industry.
“Chicago is in a good position because it will do the project in phases and take on debt in a way that meets the needs of the airlines,” said Peter Stettler, an airline analyst at Fitch Ratings.
Mayor Richard Daley on Wednesday will release additional details of the $2.9 billion financing agreement, brokered between the city and most of the major airlines serving O’Hare, when he introduces a measure at the City Council meeting.
The plan, as reported in the Tribune on Monday, relies heavily on the city providing almost all the funding for land acquisition and construction of three runways, while the airlines pay virtually nothing until the eight-runway, $6.6 billion O’Hare modernization is well under way.
The airlines, presumably healthier financially toward the second half of the decade, would begin then to assume a hefty debt-service obligation, though the terms were not disclosed.
The city, meantime, will raise a large share of project’s cost by refinancing some existing airport bonds–a strategy that Elk Grove Village Mayor Craig Johnson, a leading opponent of the O’Hare expansion, compared with a consumer recklessly borrowing money to pay off credit card debt.
The city’s funding pipeline, which includes only a 10 percent contribution from the federal government, would also be in danger of running dry if passenger volumes and flights projected at O’Hare are not achieved, critics and supporters agree. Passenger ticket taxes, airport revenue bonds and aircraft landing fees, which the city plans to increase at O’Hare, represent the key funding sources in the Daley administration’s airport expansion.
The financing terms “seem like a very reasonable agreement considering the realities of what can be funded today,” Blagojevich said.
“When the airlines can expand their service here in Chicago, it’s time for them to start paying their share.”
Aviation experts said there’s no choice but to rely on “creative financing” to make the O’Hare plan work.
“This is not the 1960s, when airport expansion seemed a no-risk proposition,” said Joseph Schwieterman, an economist at DePaul University who monitors the airline industry. “It’s unrealistic to expect a project of this size not to be financially risky.”
Schwieterman commended the city’s negotiators for winning the financial support of more than a dozen major airlines, although he cautioned it hasn’t been disclosed how much interest on bonds the city will defer and what percentage of the financing plan’s cost will be the responsibility of the industry.
United Airlines appears less at risk of liquidation than early in its bankruptcy proceedings, but the airline “is in no shape to make generous long-term agreements with the city,” said Schwieterman, chairman of the Chaddick Institute for Metropolitan Development at DePaul.
United officials declined to comment on the O’Hare financing plan. A spokesman said the airline was not required to notify the federal bankruptcy judge handling its case about the new pact.
