"Airlines' troubles ensnare O'Hare"

Wednesday, March 12, 2003

Airlines' troubles ensnare O'Hare
Expansion could be placed on hold
By Kathy Bergen
The Chicago (IL) Tribune


O'Hare International Airport has the distinction of being the only airport
to serve as a hub to the nation's two largest airlines, American and United.

But with United Airlines in Chapter 11 bankruptcy, and American Airlines
rumored to be sliding dangerously close to such a filing, that distinction
is cold comfort.

A bankruptcy reorganization by American, by no means a given, could alter
the landscape at O'Hare International Airport and stall plans for its
expansion, observers said Tuesday.

Specifically, the flight schedule of the world's largest airline could be
reduced, opening the door a crack for a discount carrier like JetBlue
Airways to establish a presence at O'Hare, American's second-largest hub
after Dallas-Ft. Worth.

If capacity is opened up, "it may only be a matter of time before a discount
airline makes an aggressive entry into O'Hare," said Joseph Schwieterman,
director of DePaul University's Chaddick Institute for Metropolitan
Development, which studies transportation.

As well, a Chapter 11 filing would add to the pile of airline industry woes
that threatens to delay the city's $6.6 billion plan to expand O'Hare, a
project it hopes to begin in late 2004.

"Both American and United [Airlines] may well emerge as substantially
smaller airlines, and that could raise new questions about the timing of the
O'Hare expansion," Schwieterman said. "Delays may be inevitable if the
airline sector remains so weak."

The city declined to comment on the possible fallout from a Chapter 11
filing by American.

"It's so premature to even speculate," said Monique Bond, spokeswoman for
the Chicago Department of Aviation.

Talk of a possible Chapter 11 filing intensified this week after it was
reported that Ft. Worth-based AMR Corp., the carrier's parent, was
negotiating for $2 billion in special bankruptcy financing. Some analysts
predict a filing by American by summer, or sooner.

"We're not going to comment on every rumor or bit of speculation about
American Airlines," said company spokeswoman Mary Frances Fagan.

"We have said our losses are not sustainable, and we're working to remove $4
billion in operating costs from our budget. We've come up with $2 billion by
changing the way we do business, and we're working with our employees and
the unions representing our workers to achieve another $1.8 billion in cost
savings."

On Tuesday, the union representing American's flight attendants agreed to
enter negotiations on wage and benefit concessions, a step already taken by
pilots and mechanics.

The terrorist attacks of Sept. 11, 2001, sent an already struggling airline
industry into its worst slump ever. UAL Corp.'s United Airlines, the
second-largest U.S. carrier, and U.S. Airways Group Inc., the
seventh-largest airline, each filed for Chapter 11 bankruptcy last year.

And the prospect of war promises to worsen the industry's situation.

U.S. airlines may cut another 70,000 jobs and lose up to $4 billion a
quarter if there is war with Iraq and the government does not provide more
aid, the Air Transport Association, which represents the major airlines,
said Tuesday.

A number of observers think American will be able to avert a Chapter 11
filing.

"The union attitudes are far healthier ... than at United, and that's a big
point," said Aaron Gellman, a professor at Northwestern University's
Transportation Center.

Another open question is whether American would continue running two
mid-continent hubs--Chicago and St. Louis, which it acquired from TWA, noted
Mary Rose Loney, a former commissioner of aviation for Chicago who now owns
an aviation consulting firm.

Chicago is likely to win out in any consolidation, Loney said, because
"American still has the largest share of international activity at O'Hare,
and to support that it needs big domestic feeds into O'Hare."

American and United say they remain committed to an expansion of O'Hare. And
the city has said there are creative ways to finance construction so the
airlines wouldn't begin to make large payments until new runways were in
service and generating passenger and cargo revenue.

Nonetheless, industry observers think a delayed start is very likely,
particularly if American joins United in Chapter 11. And some say the scope
of the project may have to be scaled back, at least in the short term.

"It may even become wise to consider doing modest expansion at first: one
long runway, western access and a new terminal building," said Gellman.

"Getting any new capacity is just so difficult," said Darryl Jenkins,
director of George Washington University's Aviation Institute. "You have all
this local opposition, and at the same time everybody is in trouble. I hope
they go ahead, but I hope they go ahead cautiously."

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