Upset with fee and rent increases tied to outstanding debt, the two biggest airlines at O'Hare Airport are putting the brakes on talks with Chicago to complete a major airport upgrade.
In a February 3 letter to city officials, United Air Lines and American Airlines said they were disappointed in a 15 percent to 17 percent increase in rental rates and a 38 percent increase in landing fees.
The airlines said they were informed by Chicago's Aviation Department that the increases were needed for the "prepayment" of variable-rate debt not due to mature until after 2030.
"This prepayment of debt will raise the debt service included in our 2010 landing fee rate base by USD$63 million, accounting for 73 percent of the 2010 landing fee increase," the airlines wrote in the letter, which surfaced in the local media on Tuesday.
"In the currently incredibly tight credit market, it is unheard of for an airport operator to be prepaying existing debt with a 4 percent variable interest rate," they added.
Michael Boland, Chicago's first deputy aviation commissioner, said in a statement 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 Phase 1 funding agreement reached with the airlines in 2003."
Boland also said the city remains willing to reach an agreement with the airlines on funding the rest of the programme, "while providing short-term rate relief to the airlines during these difficult economic times."
United and American said while talks were nearing completion at the end of 2009, the city, in addition to raising fees and rents, also changed funding plans to complete runways. As a result, they said "we will not continue to discuss funding approval of the completion phase runways even on the terms we had been discussing at the end of the year."
Chicago has been pushing to complete the renovation of O'Hare, the world's second busiest airport, in 2014. Up until the problem with the two carriers, the city had been on a winning roll, approving a deal in November with the suburb of Bensenville, which had long battled the expansion project in court.
On Monday, a DuPage County Court granted Chicago title and possession of a cemetery that stands in the footprint for the USD$15 billion programme to add, relocate and extend runways along with other improvements.