The two large hub operators at Chicago O’Hare International Airport have gone to the courts to stop the City of Chicago from financing and starting construction on the $3.36-billion second phase of the O’Hare Modernization Program.
United and American airlines asked the Circuit Court of Cook County, Ill., to affirm that the lease arrangement between Chicago and the airlines obligates the city to gain the airlines’ approval prior to financing and construction. Also, the airlines requested that the court enjoin the city from moving ahead on the project.
“Although the city’s position presupposes a ‘blank check’ from the airlines, the parties agreed in their contracts to a ‘check and balance’ that prohibits the city from saddling O’Hare with new capital projects and billions of dollars of debt without airline approval,” the suit reads.
In a letter to departing Mayor Richard Daley, the airlines say they regret having to file the suit but were left with “no choice,” as the city is proceeding with plans to issue general airport revenue bonds. The suit says there is no way to “unring the bell” once financing is obtained.
The bonds have received an assortment of A-type ratings from Fitch Ratings, Moody’s and Standard & Poor’s, although the agencies expressed some concerns at the increase in O’Hare’s debt burden to $7.3 billion and the expected hike of enplanement charges.
Airlines say they secured the $2.5-billion portion of the $3.2-billion first phase cost and that the second phase construction is not needed, for now. They argue that average delays are down 60% from 2004 levels and that operations have fallen 5% from the time that the $3.2-billion modernization program Phase One was started.
According to the letter to Mayor Daley, the airlines want the same type of timetable for Phase Two that existed for Phase One, which consisted of a series of triggers that alerted the city and airlines that it was financially responsible to move ahead on key components of the project. The city says it is within its legal rights to proceed as it has.
In its assessment of four sets of O’Hare revenue bonds, Moody’s noted that the city had not received airline approval and that any debt issued would not be supported by airline rates and charges. “As a result, the airport is considering issuing debt structured so debt service will not begin until after the airline use and lease agreement expires in 2018,” the report said.
Phase One of the O’Hare Modernization Program is not completed largely due to law suits between the city and families whose relatives are buried at St. Johannes Cemetery, a historic site, which occupies the center of Runway 10C-28C. The Illinois Supreme Court issued a stay on runway construction last October. Under Phase One, two runways and the extension of an existing runway were to be completed. The completion of the north runway, 27R/9L, in November 2008, and the extension of another runway, created a three parallel runway configuration that has eased delays.
The suit alleges that the second phase, also known as the completion phase, would depend on bonds secured by the airlines to cover at least 58% of the $3.36-billion cost. Phase Two projects include two new runways, one runway extension, taxiways and other supporting airfield infrastructure. The city has deferred another component of the original plan, a new western access to O’Hare, which would include a new terminal and a connection to other terminals.
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