O'Hare plan may raise tax on tickets
Increase would help finance $3.2 billion airport expansion

By Jon Hilkevitch
Tribune Transportation Writer
September 24, 2000

To make the soaring cost of a proposed expansion project at O'Hare International Airport more palatable to airlines, Chicago will increase the ticket tax paid by airline passengers by as much as 50 percent, city and aviation industry officials said Saturday.

The agreement to raise the passenger facility charge from the current $3 on a round-trip ticket at O'Hare and Midway airports could take effect as early as April 1 and would generate millions of dollars in additional annual revenue, officials said.

The decision does not remove all the financing obstacles that block the city from reaching a final deal with the airlines on paying for the planned $3.2 billion in O'Hare improvements contained in the city's World Gateway plan.

It also does not resolve how many new aircraft boarding gates will be built and whether the gates, which are dominated by United Airlines and American Airlines under long-term leases, will be reallocated to provide greater access to smaller carriers at O'Hare and promote more competitive airfares.

But the pledge by Mayor Richard Daley's administration during ongoing negotiations with the carriers to raise the $3 tax, which generates more than $100 million a year for improvements at Chicago's airports, and apply a large portion of the fee to the World Gateway terminal-expansion project, was enough to prompt American Airlines officials to initial a memorandum of understanding late last week.

A spokesman for United Airlines said Saturday that the O'Hare-based carrier is "optimistic we will reach agreement in short order."

City officials said they were still a long way from closing a final deal on the World Gateway renovation, which includes two new passenger terminals and up to 40 more aircraft gates but postpones the politically tough decision on adding runway capacity.

The airlines insist that construction of at least one new runway is necessary for congestion-plagued O'Hare, which registered 6,492 flight delays in August, to operate efficiently and prepare for the projected growth in demand.

"It's not a done deal," Daley said Saturday of a final agreement on World Gateway. "There's an understanding to remodel and update the technology, but like anything else, you have to work all the details out."

Department of Aviation spokeswoman Monique Bond said the city now has "an agreement in principle" with United and American, but she noted the airlines have supported the World Gateway concept since it was introduced last year.

"We are getting closer to finalizing an agreement, but there are still some pretty big 'I's' to be dotted and 'T's' to be crossed," Bond said.

Major problems remain, said an official of American Airlines, speaking on the condition of anonymity. While acknowledging the recent progress in talks, he cited remaining disagreements over the financing of World Gateway, which would involve not only the passenger facility charge, but airport landing fees and other direct payments the airlines make to the city.

Details were not available on the funding mixes being negotiated, but sources said the final deal could be patterned after an agreement reached earlier this year with the airlines on refinancing O'Hare's international terminal. The World Gateway pact is expected to rely on the city guaranteeing construction bonds that will be paid off by airline user fees, direct payments and the increased passenger facility charge proceeds.

Aside from the higher ticket tax, Chicago-area residents would not be taxed for the airport expansion, officials said. Congress this year authorized airports to raise their passenger facility charges to a maximum of $4.50 as of April 1.

When the terminal-expansion project was first announced last year by then-Aviation Commissioner Mary Rose Loney, World Gateway was estimated to cost $1 billion and impose no increases in airline contributions. But the blueprint devised for the city by consulting firm Landrum & Brown, and forwarded to the Federal Aviation Administration for approval, increased the cost to $3.2 billion.

At that point, the previously agreed-upon freeze on airline contributions was taken off the negotiating table, according to officials close to the talks. That is when United and American balked at the price.

City Aviation Commissioner Thomas Walker has said the final cost could continue to rise as the project, which would take at least eight years to complete, moves into the engineering stage. Walker, who did not respond to requests for an interview Saturday, also has said the city could phase in some of the improvements to control costs.

Besides the new terminals, elements of World Gateway include moving maintenance facilities and the airport's heating and cooling plant, adding parking and expanding O'Hare's People Mover light-rail network, opening Customs Service inspection facilities in the two new terminals to expedite international travel, and constructing a new general aviation terminal.

It does not include an additional access road that the state and city say is needed to relieve traffic congestion.

Meanwhile, city aviation officials said United and American are softening their opposition to Daley's insistence that the airlines share some of their aircraft gates with other carriers. Some gates typically go unused during parts of each day, and American and United until recently have balked at allowing other carriers to use their gates. The city's mandate on gate-sharing is designed to promote more competitive airfares while maintaining parity between United and American, which control about 85 percent of the flights at O'Hare.

Bond, the Aviation Department spokeswoman, said details remain to be worked out on the gate-sharing agreements. The two major carriers would receive first rights to some of the new gates and parcel them out to other carriers when they are available.

"We will remain flexible on the number of gates and how they might be used, but there will be parity," Bond said.

The city will hold a public hearing on the World Gateway plan Oct. 5 in Des Plaines.

Bond said negotiations also were continuing with United to sell the airline more land on the military side of O'Hare that would become the carrier's world headquarters.

Tribune staff writers Raoul V. Mowatt and John Schmeltzer contributed to this report.