Originally published Jan. 9, 2012

US Airways Group Inc. is taking the gloves off and going public with its opposition to a planned multibillion-dollar expansion of Philadelphia International Airport, key to which is a new runway along the Delaware River.

The move by US Airways, backed by other airlines, throws the massive airport project into turmoil after a decade of reviews. Philadelphia officials say they will push ahead with or without airline support - even though airlines will pay much of the bill and could cut service here.

Philadelphia's biggest airline says another runway would not noticeably reduce delays for passengers because congestion is caused largely by traffic in the skies.

Nor would a new runway, which would be built partly on fill in the river and which would require moving United Parcel Service's large airfreight facility, attract coveted nonstop international service to Asia, South America, and Africa that the business and hospitality communities want, says the airline that transports nearly 70 percent of air travelers here.

After months of discussions and an apparent impasse with the city, US Airways is taking its message to civic and business leaders in an effort to put the brakes on the overhaul the Federal Aviation Administration approved a year ago.

US Airways and Southwest Airlines Co. wrote the airport in summer 2010, expressing concerns about the costs they would bear and what they called premature construction of a runway that alone would not greatly alleviate delays in takeoffs and landings because the airspace here, shared with New York, is the most congested in the world.

Tensions have surfaced because the city wants airlines to sign a 15-year lease that includes paying for the runway, which the city estimates would cost $1.8 billion and which the airlines say would cost $3 billion.

If they do not come to terms by July, the city "will go in a different direction," said Rina Cutler, the city's deputy mayor for transportation. "We would not do a lease-and-use agreement. Part of it would be an ordinance, which will set rates and not allow them to vote yea or nay.

"We are going to move forward. We are going to do the runway."

An ordinance, if passed by City Council, would replace a lease and would allow the city to dictate rates and charges to airlines. Under an ordinance, airlines would have no financial commitment to the airport beyond 30 days and could, for example, take their flights elsewhere.

Mark Gale, the airport's chief executive officer, said, "Our position is the runway needs to go in, and that's a starting negotiating point for us."

The timing of a new runway is the issue.

US Airways wants to tie airline spending to milestones or benchmarks - such as when takeoffs and landings pick up, the economy improves, and the FAA addresses serious airspace problems.

The city says no.

"They have a set of priorities and constraints and planning issues that are very different from ours," Cutler said. "I don't believe that I should be allowing them, frankly, to blackmail the city and say, 'If we don't get our way, we're not going to play.' "

The city estimates the total tab for the expansion plan and associated projects at $6.4 billion. Airlines say it could cost $10.5 billion over the next 13 years.

At stake are a slice of the Nutter administration's legacy and a massive jobs program - as many as 100,000 jobs over 13 years of construction, the city says. (Airlines dispute that number as a wild extrapolation of temporary, permanent, and indirect jobs.)

For airlines, including Southwest, Delta Air Lines, and UPS, which would foot much of the bill in rates and charges through debt service on airport revenue bonds, there simply is no cost benefit to building another concrete slab.

The city says the runway is vital to reduce chronic delays, especially in inclement weather; accommodate future growth; and attract new carriers and more international service.

"The majority of the delays are in bad weather," Gale said. "As soon as the skies get cloudy, or it starts to rain, operations are cut in half."

The current airfield configuration does not allow simultaneous takeoffs and landings in bad weather on separate runways. (In good weather, FAA requirements for aircraft spacing are less stringent.)

The FAA says airfield improvements would cut delays from a projected average 19.3 minutes per flight in 2025 to 5.2 minutes.

UPS, which owns 212 acres where the runway would go, said it would consider all options if forced to move, including leaving Philadelphia and taking its airfreight hub, 44 nighttime flights, and 3,100 jobs elsewhere.

The company said a proposed new UPS location, on the airport's west side, is not ideal. It is a smaller parcel smack up against a neighborhood in Tinicum Township. Cargo jets, which fly at night, would have longer taxi times to reach runways and would burn more fuel. Landing fees for all carriers would rise.

The expansion lurched forward for 10 years, during which US Airways twice went through bankruptcy reorganization and acquired new management. Cutler said she had a letter in her files from the old US Airways supporting the runway.

That was another era, when small, 37-seat and 50-seat jets were common. Fuel was a lot cheaper, and planes flew 70 percent full.

With oil above $100 a barrel, planes today are more than 80 percent filled, often 100 percent. Airlines have cut capacity, flights, and planes, and are packing more passengers into bigger aircraft, thereby operating fewer fights.

"The model for industry has changed dramatically," said Suzanne Boda, US Airways senior vice president for international service and cargo in Philadelphia. "Most airlines have pulled their flying down, probably to the tune of 8 percent to 10 percent, both internationally and domestically."

US Airways recently asked the FAA to take another look at its cost-benefit analysis. The FAA said last week it saw no need to restudy the plan.

Takeoffs and landings at Philadelphia International declined from a peak of 535,666 a year in 2005 to 460,779 in 2010.

Although passenger numbers are expected to grow about 2 percent a year, airlines say much of that increase will be absorbed on larger planes.

"When the FAA does planning, they forecast for traffic growth consistent with the 'historical norm,' and whatever the growth rate has always been," aviation consultant Robert W. Mann said. "Nowhere is there an assumption about fuel prices.

"If you look at what's gone on in the domestic market the past three or four years, since the fuel run-up in early 2008, as airlines have raised prices, a lot of demand has been destroyed, which is to say that the leisure customer is being priced out of the market," Mann said.

"Airlines see this. They are flying fewer flights, and they simply don't see the need to put more and more concrete on the ground and drive their fixed costs up."

US Airways said a $3 billion runway would almost triple its landing, gate, and terminal fees from $9.98 per boarding passenger to $19.08 in 2018 and $28.52 by 2025. Instead of adding flights, US Airways said it could be forced to reduce service because the competitive cost advantage of Philadelphia would be gone.

"The danger in this plan is it brings Philadelphia up to the cost of a JFK, or a Dulles, without the revenue to go along with it, and that makes it unviable," said Michael Minerva, US Airways vice president of corporate real estate and airline properties.

"The whole US Airways story is that we make less money, but our costs are lower. The way we survive is by having a cost differential."

The airport said airlines' costs would rise only $4 per boarding passenger, to $14 in 2025, with a $1.8 billion runway. Airlines' share would be 53 percent, and the rest would come from FAA grants and passenger facility charges - $4.50 assessed on tickets of all departing passengers.

UPS, the linchpin in the deal, would prefer to stay where it is. "It is very well configured for our operation, allows for future expansion possibilities, and certainly poses fewer noise issues to our airport neighbors," spokeswoman Patti Hobbs said.

UPS is concerned about higher landing fees with the new runway, which it does not need because it flies at night, Hobbs said. UPS is in talks with the city, and if those negotiations don't pan out, "we are a business, and we would evaluate all alternatives for the future location of our hub," she said.

For Southwest, Philadelphia's second-busiest carrier, the financial and business plan for the runway "as presented is pretty dicey," vice president of properties Robert Montgomery said. "No one knows the true cost."

The estimate for Phase 1, the runway, is $1.8 billion, which does not count money airlines already approved for "enabling projects in the spirit of working with them," he said. "Then there is the great unknown - the UPS relocation. In our estimation, that's going to be much more expensive than anybody anticipates.

"We don't deny there are some benefits to the runway. We say the business case doesn't prove it."

Brian Mattingly, Delta's regional director of properties and corporate real estate, said that on a sunny day, many aircraft can sit on the ground in Philadelphia waiting for a space to open in the sky so they can take off. "There are days in Philadelphia where you could put 10 runways, and you wouldn't get any more people in the air any faster because it is controlled airspace and it is congested airspace," he said.

Airlines say decisions about whether to add international flights are independent of airport facilities. Those decisions are based on whether there are enough people to fill planes with fares that make a route profitable.

US Airways also says there is adequate terminal and gate space now, as well as runway length and capacity, at the times that flights to Asia, South America, and Africa depart from and arrive on the East Coast.

In the morning and late evening, when flights come from and go to those parts of the world, there is plenty of airfield and terminal room, US Airways says.

Airlines that now fly nonstop to China, Japan, and Brazil have flights in cities with more Fortune 500 companies than Philadelphia has and larger populations from which to draw.

US Airways stopped flying from Philadelphia to Oslo, Norway; Stockholm, Sweden; Milan, Italy; and Birmingham, England, because there was too little passenger demand.

Airlines have authorized $400 million worth of work toward the expansion, including 10 years of studies, and $100 million for taxiway improvements as well as money to buy land where UPS would move.

US Airways has asked the airport to proceed with those initiatives, including a high-speed turnoff from the primary landing runway, which would permit more landings per hour. "Let's build the taxiways, buy the land, get moving on those things, and then let's see," said Rhett Workman, US Airways managing director of corporate real estate.

Airlines have authorized funding - $7.5 million - to hire a firm to be named any day to serve as project manager to do engineering and design work and assess the costs.

In addition to building a fifth runway, the plan calls for lengthening two other runways, building a new commuter terminal, and adding gates, parking, an automated "people mover," and a ground-transportation hub for rental cars.

In Chicago, United and American Airlines sued the city last year to stop part of a $15 billion modernization of O'Hare International Airport. U.S. Transportation Secretary Ray LaHood brokered a compromise: Part will go forward, and part may not.

The wisdom of pushing through an expensive project that airlines do not support is risky, experts say.

"From our view, you need to have the airlines and the airport working as partners," Fitch Ratings bond analyst Seth Lehman said. "If you go forward with a very large-scale project, make sure that you have carrier support. If they do it opposite the wishes of the airlines, that on our side would be a new type of credit risk to consider."

Fitch recently assigned an "A" rating to $157 million in Philadelphia airport revenue refunding bonds, noting that the airport has a "relatively stable traffic profile," but also that the "airport traffic profile remains vulnerable to the operations of its primary carrier, US Airways."

"The risk is if the airport underperforms on traffic, or if US Airways changes its mind about the service levels it keeps there, the airport takes the risk to that," Lehman said.