Air Freight News

O’Hare revamp turns contentious after going billions over budget

Chicago, already reeling from population declines and the loss of key employers, is struggling to advance an $8.5 billion airport upgrade that’s key to bolstering its status as a crucial air hub.

The city unveiled the expansion plan for O’Hare International Airport in 2018, vowing to transform the aging hub into a global showcase. Six years later, the project is way behind schedule, projected to be billions over budget and still stuck. 

Mayor Brandon Johnson, a progressive with less than a year in office, is embroiled in contentious talks to tame costs with the airport’s main partners, United Airlines Holdings Inc. and American Airlines Group Inc. The city’s options include using cheaper materials and tweaking the design of the project, said people familiar with the matter. 

The delays are threatening to deliver another blow to the third-largest US city as airports serving New York, Dallas-Fort Worth and Los Angeles have charged ahead with upgrades. At stake is the biggest part of O’Hare’s revamp: two satellite concourses and a glittering new Global Terminal designed by star architect Jeanne Gang that will bring domestic and international flights under one roof, facilitating passenger connections. 

“If Chicago doesn’t proceed with the investment, then the concern is they just won’t have the facilities and they’ll just stagnate,” said Seth Lehman, a senior director at Fitch Ratings. “That’s not good for trying to build your economic base.”

While the current terminal, which is also used by Delta Air Lines Inc., has already been upgraded, the Global Terminal and satellite concourses are $2 billion over budget as costs for everything from labor to construction materials have increased in the wake of the pandemic, said the people familiar with the matter, who asked not to be named because the talks are private. 

United and American, which both use O’Hare as a hub and together account for the lion’s share of the traffic, are on the hook for a large chunk of the escalating expenses. 

In a statement, the Chicago city government said it presented an updated “on-budget plan” to the airlines last month with new proposed cost cuts. The savings are achieved “chiefly by removing project scope not required by the 2018” agreement, it said. Details of the changes will be made public in the coming weeks. 

In a letter to the city seen by Bloomberg, however, United and American said the savings of $1.5 billion were based on “unilaterally prepared new cost estimates” by the Chicago Department of Aviation. The carriers said the city’s budget outlines “lack credibility” because they don’t offer details on how the savings are achieved or have received construction bids or pricing for the project. The airlines also say the city’s estimates “leave zero margin for error,” according to the letter.

Gang’s architectural studio declined to comment. Her concept for the Global Terminal calls for wood-clad roof pleats, a dramatic six-pointed glass skylight and a form that evokes the branching Chicago River when seen from the air.

Transportation Hub

Chicago’s role as a transportation crossroads has long propelled the city’s rise. In the 19th century, it offered a water link between the Great Lakes and the Mississippi River and later grew into the largest US rail hub. For most of the late 20th century, O’Hare ranked as the world’s busiest airport. 

Nowadays, however, some parts of O’Hare are “veritable museum pieces,” said Joseph Schwieterman, director of the Chaddick Institute for Metropolitan Development at Chicago’s DePaul University. “The standard for global airports is going up and we’ve fallen behind.” 

Gleaming hubs from Beijing to Dubai have left American airports feeling outdated, but O’Hare is at risk of lagging its US peers as well. Even New York’s LaGuardia Airport, which Joe Biden compared to “a third-world country” when he was vice president, has been transformed by an $8 billion overhaul. 

In Chicago, O’Hare’s 2018 expansion plan called for a 25% increase in capacity. Then came the pandemic, which devastated US airlines. They made it through thanks to billions of dollars in federal aid, but uncertainty swirled around the future of commercial aviation – hardly an ideal environment for an ambitious airport revamp. 

Now, with air travel surpassing pre-pandemic levels, the urgency at O’Hare is increasing. While all parties plan to stick to the capacity increase, the goal for completing the overall airport revamp has slipped to 2032 – six years after the initial target. 

United and American have wrangled with Chicago before. They sued the city in 2011 to block part of a runway overhaul, saying officials had forged ahead without their approval. (The parties ultimately agreed to a scaled-back plan.)

The current O’Hare upgrade is hardly the only big airport project with cost overruns and delays. Last year, the Port Authority of New York and New Jersey increased its funding authorization for renovating John F. Kennedy International Airport by $1 billion because of similar cost pressures. Similar risks loom over any big construction job, whether it’s the ongoing improvements at Los Angeles International or Dallas Fort Worth International’s plans to build a new terminal. 

But in Chicago, talks between the airlines and the city grew so acrimonious last year that some lawmakers and civic leaders worried they’d fall apart. 

United bought land in Denver last year, fueling speculation the company would move its headquarters out of Chicago, although Chief Executive Officer Scott Kirby has ruled that out for now. 

Meanwhile, negotiators in Chicago are looking for savings in the O’Hare project. 

Options under discussion include tweaking parts of Gang’s Global Terminal and the two satellite concourses, which are being designed by Skidmore, Owings & Merrill, said people familiar with the matter. Changes to the order in which the various parts of the project will be built are on the table, while the city is also considering the use of cheaper materials, the people said.

A big concern for the airlines is avoiding any major disruptions to passenger experience, the people said. The carriers also want to make sure that the new concourses and the underground tunnels linking them to existing terminals start operating simultaneously, the people said. Having to ferry passengers around on buses would be an awkward stopgap. 

Congressional Delegation

Amid these tensions, Illinois lawmakers including Senators Dick Durbin and Tammy Duckworth, as well as Representative Chuy Garcia, have sought intervention from Transportation Secretary Pete Buttigieg. 

“The airlines are now trying to deal directly with the city to reach a side agreement,” Durbin said in an interview earlier this year. “We need a third party, in this case the secretary of transportation, to be the arbiter.” 

The Department of Transportation is aware of the request “and remains engaged,” a spokesperson said.   

O’Hare’s renovation is financed by city-issued bonds supported by landing fees, terminal rent and other charges paid by airlines, rather than by taxpayer dollars. 

The funding model implies that any cost overruns could be passed along to travelers, making O’Hare a less appealing connection hub – a key concern given that more than half of United and American passengers flying into Chicago are in transit. 

Already, O’Hare’s cost per enplaned passenger, a key yardstick for airlines, is among the nation’s highest, and more than twice that of other Midwestern airports in Detroit and Minneapolis-St. Paul, according to Fitch. The latter two hubs are significant bases for Delta, and a major increase in O’Hare’s costs would put United and American at a disadvantage and potentially make Chicago a less important hub. 

“If this project continues at its unsustainable rate, ticket prices will increase for passengers and more airlines could simply decide to reroute their flights through airports like Dallas, Charlotte, Denver, and elsewhere,” said Jack Lavin, president of the Chicagoland Chamber of Commerce. “The impact on O’Hare, and subsequently Chicagoland, could be devastating.” 

Bloomberg
Bloomberg

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© Bloomberg
The author’s opinion are not necessarily the opinions of the American Journal of Transportation (AJOT).

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