Airline industry woes threaten O'Hare expansion
Soaring gas prices have claimed plenty of victims -- from SUV sales to cross-country vacations in the family car. They now threaten to claim another: The $15 billion upgrade of one of the world's busiest airports.
The city of Chicago wants to complete its expansion of O'Hare International Airport, which relies heavily on funding from cash-strapped airlines, by 2014 -- two years before it hopes to host the Summer Olympics.
But because high fuel costs have cut so deeply into industry revenue, forcing airlines to raise fares, slash flights and layoff workers, carriers serving Chicago now appear reluctant to put up more money to finish the job.
"At some airlines these days, if you want a glass of water, you have to pay for it -- they're that strapped," Michael Boyd, an industry analyst, said on Friday. "So how willing are airlines to put up the money for O'Hare? They're not willing at all."
Chicago officials say the expansion project is critical, and not just for the city and state economy. New runways and a new terminal envisioned under the project, they say, will greatly reduce delays that can now gum up air traffic nationwide.
Critics have expressed skepticism for years about Chicago's ability to find sufficient funding for the expansion project and to meet the project deadline, now just six years away.
The voices of skepticism are louder than ever.
"They don't have a prayer of getting this done by 2014," said Joseph Karaganis, an attorney for suburbs near O'Hare fighting against expansion. "It's way too costly -- and nobody's going to be foolish enough to pay for it."
Chicago continues to vow not to use city tax money for the project, so airlines remain the only realistic funding source.
Airlines did agree in the early 2000s to pay for the initial phase of the project, but there's still no deal on funding the second, final phase. Chicago puts the price tag of the first phase at around $3 billion and the second at around $5 billion, though analysts widely agree that the final total cost of the project will be $15 billion or more.
Financial hardships caused by oil prices are largely to blame for the unwillingness of airlines to step forward now, Boyd said.
"When these plans for O'Hare were first being put together, oil was nowhere near $50 a barrel, let alone $100," he said. United Airlines projected recently that its 2008 fuel bill would hit $9.5 billion -- more than $3.5 billion higher than last year.
Rosemarie Andolino, the head of the expansion project, concedes that financial gloom in the industry makes it harder to get airlines to foot the bill. But she said she's confident they'll understand how it's in their financial interest.
"Airlines are challenged right now, and we at O'Hare want them to be able to get back on their feet," she said. "But for them to add more profitable routes -- they need more runways here. O'Hare hasn't added a new runway since 1971. We haven't increased our infrastructure as other airports have continued to add runways."
Spokesmen for two airlines that control most of O'Hare's gates, American and United, declined on Friday to comment directly on the funding issues. They would only say the airlines continue to talk to expansion officials.
But, according to Boyd, it's clear the airlines are digging in their heels. He added the onus is on expansion officials to demonstrate that putting up the money will benefit airlines sooner rather than later.
"Chicago doesn't have the most stellar record in doing things in the most cost-effective way," he said. "So, the realities are that airlines are saying, 'We don't necessarily mind paying for improvements, but we don't want to pay for a boondoggle, and we don't want to pay for a lot of political cumshaw.'"
Still, Boyd said he's optimistic that O'Hare -- with some adjustments -- would secure the needed funds.
"Making O'Hare more efficient is an incredibly important move for aviation infrastructure," he said. "It's a challenge for Chicago to finish O'Hare, but they have to press ahead. They have to be successful."