"Chicago has huge stake in UAL"

Thursday, October 31, 2002

City has huge stake in airline
BY FRAN SPIELMAN AND NANCY MOFFETT
The Chicago (IL) Sun-Times


The collapse of United Airlines would change the face of Chicago financially
and culturally. The impact might even extend to the world of professional
sports.

"It would be Andersen times 10," said Chicagoland Chamber of Commerce
President Jerry Roper, referring to the Chicago-based accounting giant tied
to the Enron scandal.

"A healthy United means a healthy Chicago. It's that important."

It's not only the array of O'Hare Airport revenues generated directly by
United--everything from concessions and passenger ticket tax revenues to
gate rentals and landing fees--that the city relies upon so heavily to
finance airport projects.

It's the $100 million-a-year ripple effect on United's many suppliers, the
airline's myriad philanthropic and cultural activities, and the effect that
a retreat could have on Ravinia, the Chicago Symphony Orchestra and the
city's world-class museums.

And don't forget the West Side home of the Bulls and Blackhawks.
Sportscasters sometimes call it the U.C., but the official name is the
United Center thanks to a $20 million naming rights deal.

A United bankruptcy could force stadium partners Bill Wirtz and Jerry
Reinsdorf to find a replacement at a time when many cost-conscious
corporations are steering clear of the "naming rights jinx."

Economic

As O'Hare's flagship carrier, United pays $58.5 million in annual landing
fees, $39.4 million in domestic and terminal rents, and $51.1 million in
"passenger facility charges" (PFCs). That's 44.4 percent of the city's
annual take from a $4.50-per-person ticket tax Roper described as the
''lifeblood of airport projects.''

In addition, United pays $84.3 million in payroll, use, property, income and
fuel taxes. The airline's $16.5 million in jet fuel taxes go directly into
the city's financially strapped corporate fund.

Last year, there were 915,000 takeoffs and landings at O'Hare serving 70
million passengers. Forty percent of those people--28 million--flew United.
Fifty-five percent of United's passengers--15.4 million people--were
connecting passengers who were just passing through Chicago.

If O'Hare was no longer a dual hub--served by both United and
American--connecting passengers could go elsewhere.

''Chicago is the only city that enjoys two major carrier hubs. You can go
around the world and not find that anywhere,'' said Michael Whitaker,
United's vice president of international and regulatory affairs.

If United goes bankrupt, Whitaker said, ''You can anticipate that American
will spend every ounce of its energy to make sure that they expand at O'Hare
and prohibit anyone from coming in and taking over as a second hub carrier.
That means Chicago becomes a one-hub city. . . . That means less competition
on price and points served.''

Passengers originating in cities with single-hub airlines--like Minneapolis
and Charlotte, N.C.--pay ''10 to 30 percent'' higher fares, according to
General Accounting Office studies cited by Jay Franke, the former Chicago
aviation commissioner serving as assistant director of Northwestern
University's Transportation Center.

''Right now, we benefit from relatively low fares and very high quality
service. . . . That's an enormous civic advantage we have.''

Chicago has already survived the demise of one major airline. More than a
decade ago, Midway Airlines went out of business at a time when it held an
80 percent stranglehold over Midway Airport operations--double United's grip
at O'Hare.

''It took years to recover, but eventually, airlines like Southwest came in
to fill the void,'' said a longtime airline industry observer.

A bankruptcy filing does not necessarily seal United's fate. The airline
could emerge from a Chapter 11 filing as a stronger, leaner carrier. But
there are risks involved.

''When you file bankruptcy, you're turning over control of the outcome to
courts and creditor committees,'' Whitaker said.

''If you look at past history--from Pan Am and TWA to Eastern and
Braniff--the vast majority of airlines that file Chapter 11 don't survive.
Look at what happened in St. Louis. . . . TWA was bought by American. Now
St. Louis is at the mercy of decisions about service levels made in Dallas.
And it's not at all a foregone conclusion that you end up with two strong
hub carriers competing in Chicago. Look at Dallas. They used to have
American and Delta. Delta has withdrawn and turned it over to American.''

Political

Mayor Daley's $1 billion plan for a new Terminal 6 at O'Hare has already
been placed on indefinite hold at the request of United and American.
United's plan to build a new headquarters on O'Hare land once occupied by
the military is almost certainly dead.

If United goes bankrupt, what happens to the mayor's $6 billion plan to
build new runways at O'Hare? Without United's $54.4 million in annual
PFCs--to say nothing of the flagship carrier's political muscle--how can the
mayor expect to finance the project, much less convince Congress to cement
his landmark agreement with Gov. Ryan?

Franke said he thinks United's demise could delay the runway project. But he
said the United crisis is unlikely to derail it.

''If it makes economic sense for United, it should, once the dust settles,
make economic sense for whoever succeeds United.''

But there's a caveat.

''The big catch is assuming that somebody succeeds United as a hub carrier.
If we lose the United hubbing activity, the connecting traffic, then it will
be, at a minimum, more difficult to justify the airport expansion project,''
Franke said.

Whitaker argued that new runways will happen with or without United,
primarily because financially strapped airlines desperately need the savings
from it.

''With respect to runways, they are long overdue for reconfiguration
anyway.''

Cultural

>From showcasing Cleopatra and housing a dinosaur for the Field Museum to
flying scientists, artists, musicians and actors around the world, United
hooks up its cultural friends in Chicago.

It has put the World Music Festival on in-flight channels and served Taste
of Chicago bites on its meal trays.

It has ferried a baby gorilla first-class for Lincoln Park Zoo.

Currently, it sponsors "The Time of Your Life'' at Steppenwolf Theatre.

It funnels hundreds of thousands of dollars in cash--just over $1 million
reported on tax documents last year out of $2.7 million total--to Chicago
nonprofits.

It buys tickets for fund-raising galas, and its largesse extends to lodging
a dinosaur--the 75-foot-long model of a Brachiosaurus skeleton moved to
O'Hare in 2000 to make room at Field for Sue the T. rex.

"That's a big one for us,'' said Anne Haskel, the Field's director of
sponsorships, corporation and foundation giving. She said there's not enough
room to house it at the museum.

The Field doubly values the airline's help because much of its cash giving
is unrestricted. "It helps us open the doors and turn on the lights,''
Haskel said.

For 10 years, United has been an "extraordinary partner'' for Ravinia
Festival, said Welz Kauffman, president and CEO. United backs Ravinia's
women's board gala and jazz series.

Its "very generous'' support (estimated by Whitaker at $570,000 a year,
including in-kind donations) is a prime example of how business in Chicago
believes to an extraordinary extent in culture, Kauffman said.

United has been a long-term partner of Lincoln Park Zoo, spokeswoman Kelly
McGrath said.

With free miles, conservation and science staff attend meetings they
couldn't afford otherwise, and the airline sponsors an important annual
fund-raiser, the Run for the Zoo.

When gorillas were flown to Denver, ''We did not want to trust the baby
inside the crates'' in the cargo with adult gorillas. So the baby flew with
its keeper in first class, and all the passengers got bananas, she said.

It "never asks for recognition'' for its help, she said.

United has been a sponsor of the Chicago Symphony Orchestra for at least 25
years. On the United Foundation's 2001 report to the Internal Revenue
Service, the biggest gift was $250,000 to the Chicago Symphony-Lyric Opera
Facilities fund, with another $125,000 for the CSO listed. Musicians also
fly in and out on United's dime.

The Museum of Science and Industry's Boeing 727 was a United donation in
1994. Help continues with retired and active pilots who give tours at the
museum.

United first supported Chicago's Sister Cities program in 1991, said Joan
Small, the city's first deputy commissioner of Cultural Affairs.

Since then, its support has been strong and steady--mainly tickets for the
60 or more artists who come in and out every year. A federal grant to send
artists and administrators to emerging nations did not come with travel
money, and United paid the fare for five years, Small said.

"We couldn't have done some of the international programs or exchanges
without them.''

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