United, American Ticked at the City Over O'Hare Expansion

By Kevin Robinson in News on Feb 10, 2010 3:40PM

United and American Airlines are pushing back at Chicago's Department of Aviation over a proposed 38% increase in landing fees this year. The airlines and the city are in dispute over when to start paying down the debt issued to finance the project. The Tribune breaks it down:

From the airlines' perspective, the centerpiece of financing the project was a concept called "pavement before payment."

Conceived in 2003, the idea went as follows: Since the financially struggling carriers could not provide significant upfront money for runway construction, the city borrowed heavily to raise funds. Then, the airlines were supposed to pay back their share years later, through increased landing fees and other charges, when a wealth of flights were operating on the new runways and the industry was again profitable.

According to the airlines, the city wants to hike landing fees at O'Hare from $4.91 per 1,000 pounds of aircraft weight to $6.77. That hike will result in millions of dollars of revenue, and an opportunity to pay off the bonds that were issued to finance the airport expansion 20 years before they are due. Those bonds carry a four percent variable interest rate. "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."

First deputy commissioner Michael Boland told the Tribune that, "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."