At a tense time for the airport sector, Chicago finds itself a defendant in a lawsuit as the rivalry between O'Hare International Airport's two hub airlines, American and United, spills into court.
The legal battle coincides with a shift to a negative sector outlook for U.S. airports from Moody's Ratings earlier this month.
A little over two weeks ago, American Airlines sued the city of Chicago over gate access at O'Hare, accusing the city of violating the terms of the airline use and lease agreement negotiated in 2018, and United Airlines of seeking to marginalize American at O'Hare. American seeks a jury trial.
"United openly aspires to be the sole hub carrier at O'Hare," American argues in the lawsuit, filed May 2 in the U.S. District Court for the Northern District of Illinois, Eastern Division. "United's long-term plan for O'Hare envisions no place for American."
American claims United asked Chicago to reallocate the gate space assigned to each airline. The plan for gate redetermination would give United more gate space and American less.
And American argues that a compromise agreement reached earlier included a provision for a "gate space ramp-up period," during which Chicago could not reallocate gate space for at least one year.
"To secure American's agreement to the AULA, defendants agreed that, among other things, the gate space ramp-up period would not begin until three new gates in Terminal 3 — which were to be built adjacent to American's existing gates and isolated from all other airlines — were operational," the lawsuit argues, noting that the last of those Terminal 3 gates became operational on March 14.
In a motion to intervene filed May 5, United called American's lawsuit a "desperate attack against American's chief rival" that was "dressed up as a contract claim."
American on May 1 announced a
United took advantage of a feature of the airline lease agreement that rebalances gate allocations based on the number of flights airlines operate in a preceding year, according to airline industry blog
The proposed gate reallocation is "based on the city's calculations of the airlines' 2024 flight data," United noted. Under the gate redetermination process provided for in the airlines' contract with the city, "United is entitled to additional gates," the airline said.
"American Airlines has a long history of serving Chicago at O'Hare International Airport, and we're proud of the critical role we play in connecting Chicagoans to our global network and bringing millions of tourists from across the world to the region," an American spokesperson said in a statement.
The spokesperson pointed to the February
"American has been neglecting Chicago for years, and this meritless attempt to stop the city's process from moving forward is merely a last-ditch effort to compensate for American's well-documented lack of investment in their customers, O'Hare airport and the Chicago community," United President Brett Hart said in a May 5 letter to employees shared with The Bond Buyer.
Hart noted that United is headquartered in Chicago and said its "decision to make a big investment in Chicago has paid off," with its business at O'Hare "solidly profitable."
United was responsible for 48% of enplanements at O'Hare in 2023.
"It is a complex process to assign gates to the airlines given how many are present at O'Hare," said Seth Lehman, senior director of global infrastructure and project finance at Fitch Ratings, which rates O'Hare's senior lien general airport revenue bonds A-plus with a stable outlook and its passenger facility charge revenue bonds A with a stable outlook.
"Both United and American are the two leading carriers, so we expect there will be a settlement in some form as both airlines want to use O'Hare as a primary hub," he said.
Moody's in its airport sector downgrade predicted a decline in enplanements amid slowing GDP growth, lower consumer confidence and lower demand in the domestic leisure travel market as the impact of tariffs and trade tensions hits air travel.
Moody's in December affirmed the A2 rating on O'Hare's general airport revenue bonds and outstanding passenger facility charge bonds. The outlook is stable.
It noted then that "the city has taken positive credit steps" to adjust its Terminal Area Plan to provide the most value to the airlines and suggested O'Hare is mitigating construction risks on various projects.
But the rating agency's
The report also notes that many airports are currently midway through capital projects that can't be interrupted or canceled. Many of them will likely take on additional debt to deal with increased costs, the rating agency said.
In a
It said the impact of macroeconomic factors will vary considerably across the industry, and local economic conditions and governance structures will help determine financial resilience.
"While macro level economic data is important to consider, it rarely, if ever, directly correlates to increases or decreases in demand at a given airport," said Douglas Kilcommons, managing director in KBRA's public finance ratings group.
KBRA rated O'Hare's Series 2024 bonds A-plus with a stable outlook in October, which Kilcommons said reflects KBRA's view of the program and its sources of funding at time of issuance.
"At O'Hare, we take comfort in the experience of leadership and their track record of executing prior capital investments on-time and on-budget," he said.
Regarding O'Hare's credit specifically, Kilcommons said that while the airport's relatively high airline cost per enplanement is expected to rise, "we do not expect any airlines to downsize or abandon operations at O'Hare simply because of CPE," with the possible exception of ultra-low cost and low cost carriers "which maintain only a token presence at O'Hare."
Fitch's Lehman said O'Hare's leverage is slightly elevated temporarily amid the current construction cycle, but is consistent with international gateway peer airports undertaking ambitious capital improvement plans, and is not a concern.
Lehman and Jeffrey Lack, Fitch's senior director of global infrastructure and project finance, both noted that the current slowdown in leisure air travel is primarily in domestic travel. International travel is performing more strongly.
"Business travel is likely to pull back a bit too, though not to the extent of domestic leisure," Lehman said. "This impact would not be unique to O'Hare. It will impact all US airports. If anything, the international component and business may help ORD buoy the slowdown as compared with a strictly domestic and predominantly leisure focused airport, especially those with high proportions of ultra-low cost carriers."
O'Hare has a strong record with challenging capital programs over the past 15 years, he noted, and separately, the airport has successfully added terminal gates over the past five years.
"We expect funding sources will rely heavily on future debt issuances, but the airport will have airline preapproval for the projects and this process considers the funding sources and ultimately the costs passed down to the airlines," he said.
S&P Global Ratings rates O'Hare's senior lien general airport revenue bonds and passenger facility charge revenue bonds A-plus. It rates the airport's customer facility charge revenue bonds BBB-plus. The outlook is stable.
