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Full text of "O'Hare International Airport ... annual report"

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Chicago O'hare International Airport 



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TRAN 
HE 

9797. 7C4 
C5325 
1987 



ANNUAL 



REPORT 



19 8 7 



The Honorable Eugene Sawyer 
Acting Mayor 
City of Chicago 



Dear Mayor Sawyer: 




We offer this annual report for the fiscal year ending December 31, 
1987 filled with a profound sense of accomplishment. 1987 was a year 
shaped by the achievement of major milestones at Chicago O'Hare 
International Airport. 

O'Hare continued to lead the world in airport activity outstripping 
its nearest competitor both in total passengers served and in number 
of aircraft operations, daily earning the right to call itself "one of the 
wonders of the modern world." 

The largest public works program in the City's history, the 
$2 billion O'Hare Development Program reached 75 percent completion 
in 1987, highlighted by the opening of Terminal 1 and the ground-breaking 
for a state-of-the-art ground transportation system— the Automated 
Guideway Transit System. A new, world-class International Terminal 
moved closer to realization at O'Hare with the formation of the Chicago 
International Carriers Association. 

More than 186,000 persons enjoyed a better quality of life as 
a result of O'Hare's $9 billion annual contribution to the region's economy. 

O'Hare's economic impact is influenced directly by Chicagoans, - 
those who comprise our management team, those who comprise the 
racially and ethnically diverse workforce, those who pursue expanded 
business opportunities created at O'Hare. We are particularly proud of 
our efforts to increase business opportunities for female and minority- 
owned businesses in the City. 

As O'Hare enters its second quarter-century of service to the 
world, we remain committed to the on-going rebuilding and planning 
processes that will ensure its place as the Aviation Gateway to the 21st 
Century, and beyond. 



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1987— A Milestone Year 




1987 marked a milestone for Chicago O'Hare International Airport. In 
the twenty-fifth year since its official dedication, the world's busiest 
airport made significant progress toward achieving the growth needed to 
maintain its position as the hub of the nation's air transportation system. 

In August, the doors of the United Air Lines "Terminal for 
Tomorrow" were opened for full-scale operations. Representing an 
architectural departure from O'Hare's previous configurations, the twin 
concourses of the United terminal now stand as the centerpiece of the 
most ambitious and complex airport reconstruction program ever 
undertaken: The $2 billion O'Hare Development Program (ODP). 

Scheduled for total completion in 1992, the ODP will provide 
expanded and renovated facilities to accommodate the needs of O'Hare 
International Airport's passengers and carriers into the 21st century. 

Such an ambitious expansion/renovation project is notable for 
two reasons: first, its vast scope— the ODP is comprised of 122 individual 
projects; secondly, despite its massive size, construction on this 
ambitious undertaking has caused no significant disruptions in passenger 
or aircraft movement. 

The success of such a massive engineering and planning 
achievement has demanded the expertise and dedication of hundreds 
of skilled professionals. To oversee the Program, the Chicago 
Departments of Aviation and Public Works created a team of experts— 
the O'Hare Development Program Management Office (PMO). This team 
has been given the task of working with architects, aviation consultants, 
engineers, construction workers, legal and financial advisors, and other 
city agencies to meet the many challenges of this vast undertaking. 



v#»- 




Increased Service 
And Economic Impact 



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987 saw Chicago O'Hare International Airport maintain its 
long-standing status as capital of the commercial aviation 
world. Almost 58 million passengers used O'Hare during the 
year, including over four million international passengers. The total 
number of passengers increased 4.6 per cent over the figures for 1986. 

The airport's one general and six commercial runways handled 
almost 793,000 aircraft operations during the year. Fifty-six air lines, 
domestic and foreign, provided service to 162 airports throughout the 
world. The amount of air cargo handled at O'Hare increased ten percent 
in 1987, to over 970,000 tons. 

As busy as O'Hare's passenger and freight operations were 
in 1987, its importance to the local economy was equally impressive. 
Airport activity contributed approximately nine billion dollars to the 
region last year, creating direct or indirect employment for an estimated 
186,000 people. Thanks primarily to the O'Hare Development Program, 
O'Hare's economic impact is expected to grow to $13 billion annually 
by 1995. 

This economic success is all the more remarkable considering 
that O'Hare is a self-sufficient entity operating without the payment of 
local tax dollars. Although the City of Chicago owns the airport and its 
buildings, the funds necessary for its operation are generated from 
landing and cargo fees, concessions, and terminal space rentals. 



PASSENGERS 



85 86 87 



handle* 

aircai Tently 

under con will 

enable can 
expand opt 



7 passenger traffic 
continues while American 
Airlines expands and 
refurbishes Terminal 3 and 
concourses H and K, pro 
viding substantial tenant 
improvements. 










ODP: Moving Towards 
The 2 ist Century 















__ 






OPERATIONS 



85 86 87 












0| 'Hare Airport currently serves 25 million more passengers 
I than it was originally designed to serve in 1959. In 1975, 
City planners began the task of responding to the congestion 
and associated problems caused by a marked increase in passenger 
volume. Thus, after years of analysis and planning by the airlines, city, 
state and federal agencies, and citizens, the O'Hare Development 
Program was born. The program was designed to upgrade and expand 
the airport's terminals and ground access system to match the capacity 
of its runways, and to accommodate its expected growth. 

Under terms of the 1983 O'Hare Use Agreement, the airport 
will remain self-supporting. The agreement's most important principle 
is that all of the costs of the ODP, including debt service on land obliga- 
tions, are paid for by user fees from the airlines, concessionaires, and 
other airport tenants. 

The Program calls for construction and expansion of domestic 
and international terminals, widening of roadways and increasing 
parking faculties, airfield improvements, new cargo facilities, a new 
airport services area, a computer-controlled "people mover" system, 
and numerous related projects. An abiding concern throughout this 
technological overhaul has been the maintenance of a safe environment 
for air travelers and aircraft. 

Construction started in 1982, with the new Delta Airlines 
concourse. Since then, many other systems have been put in place. 
By its completion in 1992, the Program will have produced a veritable 
showcase for state-of-the-art airport design and technology. 



A dazzling subterranean 
"moving sidewalk" connects 
the United Air Lines twin 
concourses, transporting 
passengers with speed and 
efficiency. 








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ODP: Major 
Achievements In 1987 







The upper and lower 
roadways in the central core 
were widened to provide 
additional curb space and 
through lanes, lessening 
traffic congestion in front 
of the terminals. 









Progress on the O'Hare Development Program was significant in 1987. 
New construction totalling $298,000,000 brought the Program to 
seventy-five percent of total completion by the end of the year. 

Terminal Construction 

O'Hare's terminal area, or "core", consists of four terminals: 
Terminal 1 (the newly opened United Airlines terminal) and Terminals 2 
and 3, both used by other domestic airlines. International passengers cur- 
rently use Terminal 4, located on the ground level of the parking structure. 

A new terminal will be built on a site east of the central core 
to provide improved service for international passengers. An important 
step toward the realization of this project was the formation of the 
Chicago International Carriers Association in September, 1987. The 
association will negotiate use lease agreements and technical require- 
ments for the proposed international terminal. 

The grand opening of the United Air Lines "Terminal for 
Tomorrow" took place in August. This $500 million complex consists of 
two parallel concourses each the length of three city blocks connected by 
an 815 -foot moving sidewalk. Each concourse features a barrel-vaulted 
glass ceiling encased in a lattice framework of steel. A 1000 foot-long 
ticketing pavilion contains fifty-six flow-through ticket counters to speed 
passenger check-in. 

The facility was designed for passenger convenience and 
efficient aircraft movement: Expanded ground spacing of aircraft allows 
two planes simultaneously to taxi in opposite directions— reducing delays. 
Gate areas for passengers are larger. Computerized laser scanners speed 
baggage handling. Moving sidewalks carry passengers underground 
between the two concourses in 2.5 minutes. 

The "Terminal for Tomorrow" combines functional aesthetics 
with innovative technology to provide a more pleasant travel experience 
for the flying public. 

Access Systems 

The United, American and Delta Air Lines terminal projects 
anchor the expansion which will eventually increase O'Hare's total 
domestic terminal area by more than 50 percent. In order to improve 
access to this central core terminal area, three additional lanes of traffic 
were added on the upper roadway and one lane was added on the lower 
roadway leading to the terminals. This, in turn, permitted construction 
of additional curb frontage for the terminals. Execution of this massive 




Model showing rail cars 
and station for the Auto- 
mated Guideway Transit 
System. This "people mover" 
will speed passengers from 
remote parking lots to the 
terminals. 



roadway project while the airport continued to operate presented 
another challenge which was successfully met in 1987. The completion 
of the project in November— under budget and three months ahead of 
schedule— brought about greatly improved traffic movement. 

Another important plan developed to reduce curbfront con- 
gestion was a sophisticated "call-down" system for prearranged ground 
transportation. When implemented, this system will use computers to 
match a passenger with his livery before the vehicle enters the 
terminal core. 

To further enhance traffic flow, the number of exit booths in 
the main parking structure was increased from 15 to 27 through recon- 
figuration. The addition of 1,150 parking spaces increased overall 
capacity to 14,773 vehicles. 

Automated Guideway Transit System (AGT) 

A significant improvement included in the ODP is the Automated 
Guideway Transit System, a dual-track system which will link remote 
parking lots and automobile rental lots to the three main terminals and 
the International Terminal. Ground was broken for construction of the 
$146.9 million system in September. This high-speed, computer-controlled 
"people mover" is designed to enhance passenger movement between 
terminals, and to reduce congestion by promoting use of remote parking 
facilities. Again, construction of the AGT system will take place with 
minimal disruption of airport operations and traffic movement. 



CARGO (in metric tons) 



84 85 86 87 






Airfield Improvements 

Along with domestic terminal expansion, the existing inner- 
outer taxiway system (used to move aircraft from the terminals to the 
runways) was relocated outward in 1987. This two-year improvement 
allows more flexible, efficient, and safer movement of aircraft on the 
ground. The massive project was completed with minimum impact on 
airfield operations. 

During the year construction started on a second taxiway 
bridge over the main access road. This was one of a number of airfield 
improvements proposed in the ODP to reduce both aircraft congestion 
and noise while improving operating efficiency. 

New Air Mail Facility 

In September, a new U.S. Postal Service Air Mail facility was 
officially opened. The facility processes some 950,000 pounds of mail 
daily, providing 24-hour-a-day counter service. 








Planes traverse the second 
taxiway bridge built over 
the Kennedy Expressway. 
Reconstruction continues on 
the original bridge, located 
near the site of the proposed 
Automated Guideway Tran- 
sit System structure. 



Concessions 









Security 



10 



Cargo Complex 

Construction continued on the 240-acre cargo complex, located 
in the southwest quadrant of the airport, near the air mail facility. When 
completed, the new buildings will contain one-third more space than the 
present cargo facilities, enabling carriers and freight forwarders to 
expand their cargo operations. An existing tunnel located beneath the 
runways connects the cargo complex to the airport's central core. 

She enormous task of expansion and renovation at O'Hare 
brings with it an equally monumental increase in operating 
expenses to be borne by the tenant airlines. Every dollar 
realized from concession revenues helps to reduce this financial burden. 
The retail concessions at Chicago-area airports are considered some of 
the most valuable in the country; most concessionaires regularly generate 
sales per square foot equal to several times those achieved at other 
quality retail locations. 

In 1987, the Department of Aviation continued an ambitious 
program, begun in 1983, of recovering space suitable for retail conces- 
sions. While the O'Hare Development Program dictated much of the 
increase in commercial space, augmenting the expansion was a policy 
of making more efficient use of space used for administrative purposes 
and recovering all areas suited for retail services. By 1987 a total of 
144,198 square feet was available for retail rental in Terminals 1, 2, 
and 3 (excluding the Rotunda restaurant building.) 

The Department of Aviation formulated a merchandising plan 
to encompass all three domestic terminals. The plan aimed to provide 
a mix of innovative concessions developed around Chicago "themes". 
For instance, the new United Air Lines Terminal features a dynamic food 
mall offering a variety of foods reflecting the ethnic diversity of the city. 

A collateral benefit of retail concession expansion is the increase 
in opportunities for minority and local businesses; in 1983 there was 
only one minority-owned and one women-owned business at the airport. 
In 1987, the number rose to 10 MBE/WBE businesses and 6 MBE joint 
ventures. Additionally, local residents were hired through the City's "First 
Source" program to staff new concessions and local small businesses 
were encouraged to supply them. 

Responding to concerns generated by the series of hostile actions taken 
by various extremists in the Middle East during 1985, the Department 
of Aviation began to design an aggressive and innovative, state-of-the-art 




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security program for O'Hare Airport. 

The Department worked closely with the Federal Aviation 
Administration, air carriers, other law enforcement agencies, and 
foreign consulates to devise methods to improve security, jointly and 
individually Short-range and long-range objectives were identified, including: 

• designing and implementing a new computerized identification system 
which employs anti-counterfeit safeguards. 

• re-writing the master security plan for O'Hare International Airport. 

• enhancing security of the airport operations area, and establishing 
more stringent procedures for gaining access to the airfield. 

• upgrading training of security personnel and canine teams; in partic- 
ular, establishing a new program at the Chicago Police Academy to train 
professional Aviation Security Officers. 

As O'Hare moves toward the 21st century, plans include 
the establishment of a modern Command/Control Center and a Crisis 
Management Center; centralization of all audio-video closed circuit 
television systems; and computerized dispatch monitoring of all 
emergency services, which include operations, security, police, 
and fire services. 



Opportunities For 
Minorities And Women 










12 



qual opportunity and affirmative action continued to set the 
standard for the Department of Aviation's personnel practices 
in 1987. The Department placed women in non-traditional 
positions in O'Hare 's workforce— such as operating engineer, motor truck 
driver, and laborer. The Department also started apprenticeship and 
training programs for skilled labor and trade positions. 

The O'Hare Development Program provided substantial 
contract opportunities for Minority and Women Business Enterprises 
(MBE's and WBE's) in 1987. Of the $23,787,617 in contracts awarded 
by the City for the O'Hare Development Project, 37.44 percent of the 
dollar value ($8,920,103) went to MBE's and WBE's. 

The Department of Aviation contracts directly with 11 MBE/ 
WBE firms. In addition, the Department participates indirectly with 
44 MBE/WBE vendors by way of prime contractors through 
subcontractors. 

The Department has developed a new centralized database 
of contract information. This will greatly improve its ability to 
allow maximum feasible participation by qualified and city-certified 
MBE and WBE firms. 




An operations supervisor 
and a stationary engineer 
V are two of the many female 
employees of the Department 
of Aviation who contributed 
to the airport's success 
in 1987. 




A painter j apprentice touches 
up equipment in the recently 
expanded Heating and 
Refrigeration Plant. The 
generators in this facility, 
the largest one of its kind in 
the world, produce 600 mil- 
lion B.T.U. s per hour to 
furnish essential services 
for the entire airport. 



13 






Being A Good Neighbor 













'Hare International Airport is completely landlocked by the 
City of Chicago and suburban cities and villages— a physical 
characteristic which distinguishes it from many other major 
airports. Consequently, noise and air pollution as well as economic 
impact are major concerns for airport planners. 

The O'Hare Advisory Committee was formed in 1982 to 
address these concerns. The committee meets regularly to formulate 
mutually acceptable strategies to reduce aircraft noise. 

In addition, the Department of Aviation has created a Noise 
Abatement Office to receive and investigate citizen complaints about 
aircraft noise. The office supervises a mobile noise monitoring program 
set up to measure aircraft noise levels 24 hours a day, 5 days per week. 
The mobile system has proven effective in maximizing the total number 
of locations which are measured, as opposed to a permanent system. 
The O'Hare noise monitoring system has measured noise at over 233 
locations, including 112 in 1987. 

The Department of Aviation launched a Pilot Awareness 
Program to help sensitize pilots to noise issues at O'Hare. The program 
employs noise abatement signage to promote pilot awareness. It also 
distributes summaries regarding specific preferred procedures for 
departures, arrivals and runway use. 

Noise levels at O'Hare are projected to decrease by 1995, as 
airlines increase the number of quieter, stage III aircraft in their fleets. 
Moreover, significant airfield improvements coupled with heightened 
pilot sensitivity will help to reduce aircraft noise over communities 
surrounding the airport. 



Rebuilding A Better 
Airport 









14 



The common goal of the activities at O'Hare International Airport during 
the year was to make the airport more efficient and pleasant for its 
users. By improving service and safety, by increasing capacity and 
flexibility for the landside facilities, and by reducing noise and 
congestion, this goal was successfully achieved in 1987. 





Financial Statements 



The Honorable Eugene Sawyer, Acting Mayor, 
and Members of the City Council 
City of Chicago, Illinois 




e have examined the balance sheets of Chicago O'Hare 
International Airport as of December 31, 1987 and 1986, 
and the related statements of income, changes in retained 
earnings and contributed capital, and changes in financial position for 
the years then ended. Our examinations were made in accordance with 
generally accepted auditing standards and, accordingly, included such 
tests of the accounting records and such other auditing procedures as 
we considered necessary in the circumstances. 

In our opinion, the financial statements referred to above 
present fairly the financial position of Chicago O'Hare International Airport 
as of December 31, 1987 and 1986, and the results of its operations 
and the changes in its financial position for the years then ended, in 
conformity with generally accepted accounting principles applied on 
a consistent basis. 

Touche Ross & Co. 
Chicago, Illinois 
June 30, 1988 



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Chicago O'Hare International Airport 

Balance Sheets 
assets 



CURRENT ASSETS: 
Cash and investments 
Accounts receivable, less allowance for doubtful accounts of $3,300,000 in 1987 

and $2,800,000 in 1986 
Due from other City of Chicago funds 
Prepaid expenses and deposits 
Interest receivable 

TOTAL CURRENT ASSETS 

RESTRICTED ASSETS: 
Cash and investments 
Interest receivable 
Accounts receivable 
Due from other City of Chicago Funds 

OTHER ASSETS: 
Deferred financing fees, net of amortization 

PROPERTY AND FACILITIES: 
Land 
Buildings and other facilities 

Less allowance for depreciation 

Construction in progress 



See notes to financial statements. 



December 31 


1987 


1986 


$ 34,226,252 


$ 40,726,694 


22,098,863 


16,326,994 


497,109 


578,328 


1,463,658 


1,762,907 


106,401 


35,903 


58,392,283 


59,430,826 


400,963,774 


631,576,180 


1,348,300 


2,549,661 


296,534 


2,439,841 




152,000 


402,608,608 


636,717,682 


4,539,837 


4,708,244 


55,294,641 


55,294,641 


640,803,858 


492,012,746 


696,098,499 


547,307,387 


239,249,836 


225,515,059 


456,848,663 


321,792,328 


585,889,590 


495,245,850 


1,042,738,253 


817,038,178 


$1,508,278,981 


$1,517,894,930 



LIABILITIES AND FUND EQUITY 



December 31 



1987 



1986 



CURRENT LIABILITIES: 
Current portion of revenue bonds payable 
Accounts payable 
Due to other City of Chicago funds 
Deferred revenue 

TOTAL CURRENT LIABILITIES 

LIABILITIES PAYABLE FROM RESTRICTED ASSETS: 
Accounts payable 
Interest payable 

Due to other City of Chicago funds 
Due to airlines 



5,475,000 
25,572,604 

8,594,691 
15,044,334 
54,686,629 



65,602,403 

47,377,116 

5,701,825 

12,512,294 

131,193,638 



2,600,000 
17,861,720 
24,025,782 

5,987,706 
50,475,208 



94,564,108 

47,377,010 

5,789,906 

147,731,024 



LONG-TERM LIABILITIES: 
Revenue bonds payable 
Less bond discount 



1,079,535,000 

28,499,490 

1,051,035,510 

1,236,915,777 



1,085,010,000 

29,703,996 

1,055,306,004 

1,253,512,236 



COMMITMENTS AND CONTINGENCIES 
FUND EQUITY: 
Contributed capital 
Retained earnings: 
Reserved 
Unreserved 



136,138,678 

101,418,578 

33,805,948 

135,224,526 

271,363,204 

$1,508,278,981 



152,611,531 

41,096,724 

70,674,439 

111,771,163 

264,382,694 

$1,517,894,930 



16 



Chicago O'Hare International Airport 

Statements of Income 



Year ended 
December 31 



OPERATING REVENUES: 
Landing fees and terminal area use charges 
Rent, concessions and other 

OPERATING EXPENSES: 
Salaries and wages 
Provision for depreciation 

Repairs and maintenance, including expenditures from deferred maintenance account 
Other operating expenses 

INCOME FROM OPERATIONS 
NON-OPERATING REVENUES (EXPENSES): 

Interest earned on investments 

Interest incurred on revenue bonds 

NET INCOME 

See notes to financial statements. 



1987 



114,668,292 

76,563,137 

191,231,429 



61,262,984 
13,734,777 
21,489,503 
50,111,546 
146,598,810 
44,632,619 



8,830,217 
( 33,970,032) 
( 25,139,815) 
$ 19,492,804 



1986 



92,641,998 

67,077,684 

159,719,682 

57,323,955 
13,554,154 
16,428,953 
47,104,679 
134,411,741 
25,307,941 



5,819,324 
( 6,650,284) 

( 830,960) 

$ 24,476,981 



Chicago O'Hare International Airport 

Statements of Changes in Retained Earnings and Contributed Capital 

Years Ended December 31, 1987 and 1986 



BALANCE, at December 31, 1985 

NET INCOME 

CAPITAL CONTRIBUTIONS 

ALLOCATION OF PROVISION FOR DEPRECIATION 

TRANSFER OF CONTRIBUTED CAPITAL 

BOND ORDINANCE TRANSFERS 

BALANCE, at December 31, 1986 

NET INCOME 

SETTLEMENT WITH AIRLINES 

ALLOCATION OF PROVISION FOR DEPRECATION 

BOND ORDINANCE TRANSFERS 

BALANCE, at December 31, 1987 

See notes to financial statements. 





Retained 


earnings 




Contributed 


Total 


Unreserved 




Reserved 


capital 


$ 238,519,202 


$ 57,509,213 


$ 


27,171,277 


$ 


153,838,712 


24,476,981 


24,476,981 










1,386,511 










1,386,511 




3,714,836 






( 


3,714,836) 




( 1,101,144) 








1,101,144 




( 13,925,447) 
70,674,439 




13,925,477 
41,096,724 






264,382,694 




152,611,531 


19,492,804 


19,492,804 










( 12,512,294) 


3,960,559 






( 

( 


12,512,294) 
3,960,559) 




( 60,321,854) 
$ 33,805,948 


$ 


60,321,854 
101,418,578 






$ 271,363,204 


$ 


136,138,678 



17 



Chicago O'Hare International Airport 

Statements of Changes in Financial Position 



SOURCES OF WORKING CAPITAL: 
From operations: 
Net income 

Add items not affecting working capital: 
Provision for depreciation and amortization 
Total working capital provided by operations 
Decrease in net restricted assets 

USES OF WORKING CAPITAL: 
Acquisition of property and facilities 
Reduction of revenue bonds 
Decrease (increase) in contributed capital 
Other 

INCREASE (DECREASE) IN WORKING CAPITAL 
CHANGES IN COMPONENTS OF WORKING CAPITAL: 
Increase (decrease) in current assets: 

Cash and investments 

Accounts receivable, net 

Due from other City of Chicago funds 

Prepaid expenses and deposits 

Interest receivable 

Increase (decrease) in current liabilities: 
Current portion of revenue bonds payable 
Accounts payable 
Due to other City of Chicago funds 
Deferred revenue 

INCREASE (DECREASE) IN WORKING CAPITAL 
See notes to financial statements. 





Year ended 






December 31 






1987 


1986 


$ 


19,492,804 $ 


24,476,981 




15,107,690 


14,939,011 




34,600,494 


39,415,992 




217,571,688 


266,736,005 




252,172,182 


306,151,997 




239,434,852 


299,554,127 




5,475,000 


2,600,000 




12,512,294 ( 


1,386,511) 
1,531,280 




257,422,146 


302,298,896 


($ 


5,249,964) $ 


3,853,101 


{$ 


6,500,442) $ 


14,775,641 




5,771,869 


2,086,402 


( 


81,219) 


578,328 


( 


299,249) 


1,097,227 




70,498 ( 


66,114) 


( 


1,038,543) 


18,471,484 




2,875,000 


565,000 




7,710,884 


967,403 


( 


15,431,091) 


9.826,056 




9,056,628 


3,259,924 




4,211,421 


14,618,383 


($ 


5,249,964) $ 


3,853,101 



Chicago O'Hare International Airport 

Notes to Financial Statements 

Years Ended December 31, 1987 and 1986 



Note 1— Summary of Significant Accounting Policies 

Basis of Accounting: 

Chicago O'Hare International Airport (the Airport) is accounted for as an 
enterprise fund of the City of Chicago (the City). The financial statements are 
presented on the accrual basis of accounting in conformity with generally accepted 
accounting principles. 

Property and Facilities 

Property and facilities are stated at cost. Expenditures for the acquisition, 
construction or equipping of a capital project, together with related design, 
architectural and engineering fees, are capitalized. Expenditures for vehicles 
and other movable equipment are expensed as incurred. Amounts received 
by the Airport from federal and state agencies, airlines, and other City funds 
for the acquisition of property and facilities are accounted for as capital 
contributions. 

The provision for depreciation on facilities is provided on the straight-line 
method, and begins in the year following the year of acquisition or completion. 
Estimated useful lives are as follows: 

Water and drainage and sewer system 20-50 years 

Runways, aprons, tunnels, taxiways, and paved roads 30 years 

Refrigeration and heating systems 30 years 

Buildings and hangars 25 years 

Electrical system 15-20 years 

Other 10-30 years 

Revenue Recognition: 

Landing fees and terminal area use, and fueling system charges are assessed 
to the various airlines throughout each fiscal year based on estimated rates. 
Such rates are designed to yield collections from airlines adequate to cover 
certain expenses and required reserve fund deposits as determined under 
provisions of the 1983 and 1959 Airport Use Agreements and terminal facility 
leases. Incremental amounts recoverable from airlines arise when amounts 
assessed, based on the estimated rates used during the year, fail to cover defined 
actual expenses and required deposits for such year. Such incremental amounts 
recoverable from airlines are included in accounts receivable. Deferred rev- 
enues arise whenever fees and charges assessed to the airlines using the estimated 
rates exceed defined actual expenses and required deposits for the year. 

Compensated Absences: 

Airport employees are granted vacation and sick leave in accordance with 



prescribed City policies. Liability for accrued vacation is recorded as a current 
liability. In the event of termination, an employee is paid for accumulated vacation 
time. Accumulated unpaid sick leave is not paid upon termination and, there- 
fore, is not accrued. 

Financial Statement Reclassifications: 

Certain 1986 amounts have been reclassified to conform to the 1987 presentation. 

Note 2— Restricted and Unrestricted Cash, and Investments: 

Cash: 

The Municipal Code of Chicago specifies that no money shall be deposited in 
any bank or savings and loan association until it has been designated by the 
City Council as a depository. The Municipal Code permits only regularly organized 
state or national banks insured by the Federal Deposit Insurance Corpora- 
tion, and federal and state savings and loan associations insured by the Fed- 
eral Savings and Loan Insurance Corporation located within the City to be 
designated as depositories. Collateral with an aggregate market value equal 
to 1 10 percent of amounts deposited with each institution is required. Securities 
of the City of Chicago or the U.S. Government are the only securities that 
may be pledged as such collateral. 

Cash deposited with the City Treasurer is commingled by the Treasurer with 
cash from other City funds; accordingly, it is not practical to disclose the 
carrying value and related bank balance of such cash and certificates of deposit 
for the Airport. Of the City Treasurer's total bank balances at December 31, 
1987 and 1986, 29 percent and 44 percent, respectively, were insured by federal 
depository insurance or covered by collateral held in the City's name by 
third-party financial institutions, and 71 percent and 56 percent, respectively, 
were covered by collateral held in the City's name by the Federal Reserve 
Bank of Chicago as agent for the depository. Accordingly, these cash balances 
are classified in Risk Category 1 as required by Statement No. 3, "Deposits 
with Financial Institutions, Investments (including Repurchase Agreements) 
and Reverse Repurchase Agreements," issued by the Government Accounting 
Standards Board (GASB). 

Investments: 

The City Comptroller and City Treasurer are authorized by the Municipal 
Code of Chicago to invest, on behalf of Chicago O'Hare International Airport 
in: interest-bearing general obligations of the United States, State of Illinois 



18 



and City of Chicago; United States treasury bills and other non-interest-bearing 
general obligations of the U.S. purchased in the open market below face 
value, and tax anticipation warrants issued by the City of Chicago. All obligations 
so purchased are required by City Ordinance to be fully redeemable on a 
date prior to the time when the City funds so invested will be required for 
expenditure by the City. 

In addition, repurchase agreeements are purchased from various banks and 
brokerage firms authorized to do business in the State. Securities pledged as 
collateral to secure these agreements are required to have a market value 
equal to the cost of the repurchase agreement plus accrued interest. Only 
U.S. Government, U.S. Government agency and City of Chicago obligations 
are eligible as collateral for repurchase agreements. 

The carrying value of investments (at cost) for the Airport was $418,293,000 
and $631,576,000 at December 31, 1987 and 1986, respectively. The carrying 
value at December 31, 1987 consisted of $368,917,000 of repurchase agreements 
and $49,376,000 of U.S. Government obligations. At December 31, 1986, the 
carrying value was comprised of $535,041,000 of repurchase agreements, 
$89,484,000 of U.S. Treasury obligations and $7,051,000 of other government 
obligations. The market value of investments approximated the carrying 
value at December 31, 1987 and 1986. All securities, including securities 
underlying repurchase agreement, are held by the City or third-party financial 
institutions in the City's name (Risk Category 1 under GASB Statement No. 3). 

Note 3— Restricted Assets: 

The General Airport Revenue Bond Ordinance (Ordinance), adopted March 
31, 1983, authorizes the issuance of first lien revenue bonds to finance or 
reimburse the costs of capital improvements and expansion of the Airport. 
Net operating revenues are pledged for first lien bond principal and interest 
payments. 

The Ordinance also authorizes the issuance of second lien notes, bonds and 
other obligations that are secured by amounts deposited in the junior lien 
debt service account created under the Ordinance. 

There are certain limitations and restrictions contained in the Ordinance 
which, among other things, require the creation and maintenance of separate 
accounts to be held by an outside trustee into which required deposits are 
made by the Airport on a periodic basis to fund construction, debt retirement, 
operations and maintenance, and contingencies. 

Restricted cash and investment balances were as follows: 

December 31 



Account title 

Construction 

Capitalized interest 

Debt service reserve 

Debt service interest 

Debt service 

Operation and maintenance reserve 

Maintenance reserve 

Emergency reserve 

Other 



1987 



1986 



$159,233,734 

17,123,639 

114,040,475 

61,538,079 

4,270,000 

28,067,832 

2,414,893 

6,556,337 

7,718,785 



$366,445,026 

74,031,827 

114,187,698 

37,412,728 

3,815,400 

25,358,024 

2,102,675 

5,482,955 

2,739,847 



$400,963,774 $631,576,180 



Construction and capitalized interest accounts are restricted for authorized 
capital improvements and related interest costs during construction. 

The debt service and capitalized interest accounts are restricted for the payment 
of bond principal and interest. 

The operation and maintenance reserve account is restricted to pay operating 
and maintenance expenses, as incurred, and to repay loans from the maintenance 
reserve account as the funds become available. 

The maintenance reserve account is restricted for qualified maintenance 
expenditures. 

The emergency reserve account is restricted to make payments for use charges, 
landing fees, etc. that are deemed uncollectible and also for any judgments 
or settlements against the Airport. 

Subsequent to the Tax Reform Act of 1986 (Act), a rebate account has been 
established for the Airport. Under the Act, certain requirements must be met 
subsequent to the issuance and delivery of the bonds for interest thereon to 
be and remain exempt from federal income taxation. The Ordinance requires 
the City to enter into an arbitrage agreement under which the City will com- 
ply with certain requirements of the Act with the purpose of maintaining the 
tax-exempt status of the bonds. The Rebate Account has been established to 
account for any liability resulting from potential noncompliance with the Act. 

An amount equal to the sum of the annual provisions for depreciation and 
amortization of property and facilities and other assets acquired with City of 
Chicago money, and interest on the City of Chicago money invested in fixed 
and other assets of the Airport is required to be deposited into the emer- 
gency reserve account. 

Note 4— Property and Facilities: 

Property and facilities are acquired with proceeds of revenue bonds and the 
following sources: 

a. Capital contributions from other funds of the City. 

b. Grant proceeds from state and federal governmental agencies. 

c. Public utility, concessionaire and airline capital contributions. 

Note 5— Revenue Bonds: 

On March 31, 1983, the City Council of the City of Chicago adopted the General 
Airport Revenue Bond Ordinance (Ordinance) authorizing the issuance and 



sale of Chicago -0 'Hare International Airport General Airport revenue bonds 
for the purpose of financing or reimbursing the cost of improvements and 
expansion of the Airport and to redeem existing outstanding bond obligations 
of the Airport. The Ordinance further permits the issuance of the second lien 
notes, bonds, and other obligations which are payable from, and secured by, 
a pledge of amounts deposited in the junior lien obligation debt service account 
created under the Ordinance. 

Only first and second lien revenue bonds have been issued under the Ordinance. 
The following summarizes revenue bonds outstanding at December 31, 1987 
and 1986: 



$175,000,000 Series 1983 A 
and B first lien bonds issued 
May 12, 1983, due 1985 to 
2013; interest at 6%-9.625% 



1987 



1986 



$ 172,110,000 $ 173,545,000 



$350,000,000 Series 1984 A 

and B first lien bonds issued 

November 27, 1984, due 1986 

to 2015; interest at 6.596-10.625% 345,095,000 

$50,000,000 Series 1984 A 

second lien bonds issued 

December 27, 1984, due 1986 to 

2015 at variable floating interest 

rates (4.6% at December 31, 1987) 48,900,000 

$50,000,000 Series 1984 B 

second lien bonds issued 

December 27, 1984, due 1986 to 

2015 at variable floating interest 

rates (3.87% at December 31, 1987) 48,905,000 

$470,000,000 Series 1985 A 

first lien bonds issued December 

30, 1985, due 1989 to 2016; 

interest at 6.75%-8.75% 470,000,000 



Less current portion 



1,085,010,000 
5,475,000 



345,095,000 



49,500,000 



49,470,000 



470,000,000 

1,087,610,000 
2,600,000 



$1,079,535,000 $1,085,010,000 



Total interest incurred on revenue bonds, including amounts capitalized, 
amounted to $97,753,757 and $98,307,011 in 1987 and 1986, respectively. 
Capitalized interest expense totalled $39,881,375 in 1987 and $44,121,253 
in 1986, which is net of interest income capitalized of $23,902,350 and 
$47,535,474, respectively. 

Following is a schedule of debt service requirements to maturity of the first 
lien bonds: 



Year 



Principal 



Interest 



Total 



1988 
1989 
1990 
1991 
1992 
1993-2016 


$ 4,270,000 

9,435,000 

10,475,000 

11,265,000 

12,160,000 

939,600,000 

$987,205,000 


$ 92,175,529 
91,855,279 
91,165,241 
90,363,266 
89,472,204 
1,406,678,787 

$1,861,710,306 


$ 96,445,529 
101,290,279 
101,640,241 
101,628,266 
101,632,204 
2,346,278,787 

$2,848,915,306 



Following is a schedule of debt principal payments to maturity of the second 
lien bonds: 



Year 



Total 



1988 
1989 
1990 
1991 
1992 
1993-2016 



$ 1,205,000 
$ 1,350,000 
$ 1,295,000 
$ 1,540,000 
$ 1,595,000 
$90,820,000 

$97,805,000 



Note 6— Leasing Arrangements with Tenants: 

Most of the Airport's land, buildings and terminal space is leased under 
operating lease agreements to airlines and other tenants. The following is a 
schedule of the minimum future rental income on noncancelable operating 
leases as of December 31, 1987: 



Year ending 
December 31 

1988 
1989 
1990 
1991 
1992 
Thereafter 

Total minimum future 
rental income 



Amount 

$ 18,324,000 
$ 18,369,000 
$ 19,427,000 
$ 19,758,000 
$ 19,633,000 
$ 79,938,000 

$175,449,000 



Contingent rentals that may be received under certain leases based on the tenant's 
revenues or fuel consumption are not included in minimum future rental income. 

Rental income, consisting of all rental and concession revenues except ramp ren- 
tals and automobile parking, amounted to $47,859,533 and $38,682,811 
in 1987 and 1986, respectively. Contingent rentals included in the totals were 
approximately $13,207,926 and $14,632,133 for 1987 and 1986, respectively. 



19 



Note 7— Pension Plans: 

Eligible City employees participate in one of four single-employer defined benefit 
pension plans. Substantially all full-time employees of the Airport become 
members of either the Municipal Employees', Officers' and Officials' or the 
Laborers' and Retirement Board Employees' Annuity and Benefit Funds. 
Participating employees contribute 8.5% of their salary to these funds as required 
by Illinois Revised Statutes. By statute, the City's contributions are based on 
the amounts contributed by employees. Financing of the City's contribution 
is through a separate property tax levy and the personal property replacement 
tax. The Airport reimburses the City's General Fund for the estimated pen- 
sion cost applicable to the covered payroll of Airport employees. These 
reimbursements, recorded as covered expenses of the Airport, amounted to 
$6,486,000 in 1987 and $6,170,000 in 1986. 

The funding policy mandated by Illinois Revised Statutes requires City con- 
tributions at statutorily, not actuarially determined rates. The rates are expressed 
as multiples of the employees' contributions. These contributions equal 
employee contributions made in the calendar year two years prior multiplied 
by 1.69% for the Municipal Employees', Officers', and Officials'; and 1.37% 
for the Laborers' and Retirement Board Employees' Annuity and Benefit Funds. 

The actuarially determined contributions are a level percentage of payroll 
determined by the entry age normal actuarial funding method using the 
same actuarial assumptions used to compute the pension benefit obligations. 
The actuarial contribution required for funding purposes includes only interest 
on the unfunded liabilities. The unfunded liabilities are recognized in the general 
purpose financial statements of the City. The City has made the required 
contributions under Illinois Revised Statutes. 

The pension benefit obligations shown below are a standardized measure of 
the present value of credited projected benefits, estimated to be payable in 
the future as a result of employee service to date. The present value of pension 
benefits is adjusted for the effects of projected salary increases and any step- 
rate benefits. The measure is independent of both the actuarial funding method 
used to determine contributions to the annuity and benefit funds and the 
method used to determine the "pension obligations" liability recorded in the 
Long-term Debt Account Group in the City's general purpose financial statement. 

The pension benefit obligations were determined as part of an actuarial valuation 
at December 31, 1987. The pension benefit obligations and net assets avail- 
able for benefits pertaining expressly to Airport employees were not computed. 

The pension benefit obligations and net assets available for benefits for these 
annuity and benefit funds at December 31, 1987 are as follows (000's): 



Totals 

Total pension benefit obligation $2,714,647 

Net assets available for benefits 

At cost 2,135,161 

At market value 2,123,456 



Municipal 
Employees' 

$2,192,665 

1,588,214 
1,587,256 



Laborers' 
$521,982 

546,947 
536,200 



Additional information is available in separate reports on the individual annuity 
and benefit funds and in the City's general purpose financial statements. 

Note 8— Related Party Transactions: 

Included in operating expense are reimbursements to the General Fund 
of the City for services provided by other City departments, employee fringe 
benefits, and certain payments made on behalf of the Airport. Such reim- 



bursements amounted to $27,081,000 and $27,884,000 in 1987 and 
1986, respectively. 

Note 9— Contingencies: 

Certain airlines have alleged that they were over charged approximately $11 
million by the Airport for certain indirect costs. The amounts in dispute 
relate to indirect costs incurred by the City and charged to the Airport for 
years 1984 through 1987. Additionally, the airlines are seeking approximately 
$3 million in interest on amounts owed by the Airport to the airlines for fees 
and charges paid in excess of amounts chargeable to the airlines during the 
years 1983 through 1985. 

Although no litigation to date has arisen out of these disputes, the City and 
the airlines have proposed an agreement which will resolve these matters. 
The proposal provides that the "excess" indirect costs and interest amounts 
described above be paid by the Airport to the airlines through reductions of 
any future payments, which would otherwise be required by the airlines, 
into the Airport Development Fund ("ADF"). No provision for this proposed 
settlement has been recorded in the accompanying financial statements as 
future ADF charges will become payable by the airlines only if certain 
events, as specified in the 1983 Airport Use Agreement, occur in future years. 

Separately, subsequent to issuance of the 1986 financial statements, it was 
determined that certain capital expenditures (totalling $12,512,294) originally 
made from operating revenues should have been funded by revenue bond proceeds. 
Capital contributions in the amount of these expenditures were recorded in 
previously issued financial statements as such expenditures were considered 
recoverable from airlines. At December 31, 1987, contributed capital was 
reduced by this amount and a corresponding liability to airlines was recognized. 
Reimbursements for these expenditures were paid to the airlines from bond 
proceeds in May, 1988. 

Other capital expenditures made from operating revenues (totalling approx- 
imately $13 million at December 31, 1987) may have required approval of 
certain airlines or may have been required to be funded through other sources. 
In addition to the matters described above, the Airport has certain other contingent 
liabilities resulting from litigation, claims, and commitments also incident to 
the ordinary course of business. It is the opinion of Airport management that 
the final resolution of all such contingencies will not materially affect the 
financial position or results of operations of the Airport. 

Note 10— Debt Service Coverage: 

The 1983 General Airport Revenue Bond Ordinance (Ordinance) defines 
"debt service coverage." The debt coverage ratio for 1987 and 1986, as calculated 
under the provisions of the Ordinance, was 1.32 and 1.35, respectively. 

Note 11— Subsequent Event: 

During February, 1988, the City issued $100 million of Chicago O'Hare Inter- 
national Airport General Airport Revenue Bonds, 1988 Series A, with maturity 
dates ranging from January 1, 1993 to January 1, 2018. Interest on these 
bonds, payable January 1 and July 1, accrues at rates ranging from 6.2 percent 
to 8.2 percent. The proceeds of the issue amounted to $97.6 million. The 
bonds were issued to fund the design and construction of certain capital projects 
for the Chicago O'Hare International Airport as part of the Airport Development 
Plan. These bonds are payable solely from and are secured by net revenues 
derived from the operations of Chicago O'Hare International Airport. 



Chicago O'Hare International Airport 

Calculation Of Debt Service Coverage 

Year Ended December 31, 1987 



NET REVENUES FOR CALCULATION OF COVERAGE: 

Net income before extraordinary items 

Interest capitalized for financial reporting purposes 

Net income before extraordinary items and capitalization of interest 
ADJUSTMENTS: 

Net income of Land Support Area not deposited in the Revenue Fund 

Interest paid on bonds and junior lien obligations 

Revenue Fund balance at December 31, 1986 

Depreciation and amortization of debt discount and deferred financing expenses 

Income earned on Airport Development, Emergency Reserve, and Construction Funds 
NET REVENUES FOR CALCULATION OF COVERAGE 
COVERAGE REQUIREMENT: 

Aggregate Debt Service for the Bond year 

Amounts transferred from capitalized interest accounts 



COVERAGE REQUIREMENT 

NET REVENUES IN EXCESS OF COVERAGE REQUIREMENT 

COVERAGE RATIO: 
Net revenues for calculation of coverage 

Aggregate Debt Service less disbursements from capitalized interest accounts 

COVERAGE RATIO 



$99,148,575 

( 36,656,016) 

62,492,559 

x 1.25 



20 




$19,492,804 
( 39,881,375) 
( 20,388,571) 

( 856,470) 
96,548,575 
10,944,000 
15,107,690 

( 18,603,851) 
82,751,373 



78,115,699 
$ 4,635,674 



$82,751,373 

-^-62,492,559 

1.32 





















• 













City of Chicago 

Eugene Sawyer, Acting Mayor 

Department of Aviation 

Howard J. Stanback, Ph.D., Commissioner 

20 North Clark Street • Suite 3000 

Chicago, Illinois 60602 




Ill 

3 5556 032 



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